advances in business research 2010 volume 1.pdf advances in business research volume 1 number 1 2010 mohamed zainuba, editor review board members rebecca abraham, nova southeastern university lynn adams, utah valley university lorraine anderson, marshall university amelia baldwin, university of arkansas fort smith jim beard, university of arkansas-fort smith isaac bonaparte, morgan state university !"#$%&'()!#!#*%+$,!#($%-.//$0$ aaron buchko, bradley university william donoher, missouri state university larry faulk, university of arkansas fort smith martha fowler, northeast missouri state university steve frankforter, winthrop university yoshi fukasawa, midwestern state university susan gaffney, governors state university david gay, university of arkansas at fayetteville 1).2!3%4567,#*%8.9!%:.';)$!3;$5#%<#69$536;" =$77%45.9$5*%+"#!26(3%>$3$!5()%-.5?.5!;6.# tom hayes, university of arkansas fort smith lewis hershey, fayetteville state university @!55"%a'0)$3*%-$#;5!/% !3)6#0;.#%<#69$536;" joel jolayemi, tennessee state university >6;!%=.#$3*%-./'2b'3%:;!;$%<#69$536;" gundars kaupins, boise state university robert kitahara, troy university kermit kuehn, university of arkansas fort smith anna lampe, rockhurst university maria leach-lopez, auburn university montgomery jennifer leonard, montana state university, billings erika marsillac, old dominion university bobby medlin, university of arkansas fort smith melissa melancon, university of louisiana at monroe yasuo nishiyama, woodbury university lolita paff, penn state university – berks david palmer, university of nebraska at kearney david pan, northeastern state university =$55"%c!563)*%1$d!3%efg%<#69$536;"%h%-.22$5($ susan park, boise state university zhuoming peng, university of arkansas fort smith ahmad rahal, university of arkansas fort smith masha rahnama, texas tech university &$;)%>6()!5i3.#*%:!6#;%=.3$?)j3%-.//$0$%.7%g!6#$ dennis rittle, kansas board of regents -!5/.3%>.i560'$k*%+$/!l!5$%:;!;$%<#69$536;" donna schaeffer, marymount university george schmidt, university of arkansas fort smith -/677%:(.;;*%<#69$536;"%.7%e5m!#3!3%n%o.5;%:26;) raj selladurai, indiana university northwest daniel settlage, university of arkansas fort smith latisha settlage, university of arkansas fort smith jon shapiro, northeastern state university @!55"%:;62?$5;*%-./.5!i.%-.//$0$ -)563;6#$%:;6#3.#*%o$55'2%-.//$0$ -!5./"#%:;'2?)*%p#i6!#!%<#69$536;"%n%c'5i'$%<#69$536;" e"3!5%:'33!#*%&$;)'#$n-..m2!#%<#69$536;" daniel talley, dakota state university margaret tanner, university of arkansas fort smith ruth taylor, texas state university andrew tiger, southeastern oklahoma state university norman white, warner university turner white, rockhurst university tom tworoger, nova southeastern university kenneth wiant, tennessee tech university jim wollscheid, university of arkansas fort smith frank wyrostek, university of st. francis advances in business research is published annually by the college of business, university of arkansas fort smith, fort smith, arkansas 72913. views and opinions expressed in the journal are those of the authors and do not necessarily re�ect the views of sta� of college of business, or university of arkansas fort smith. �e authors assume responsibility for the accuracy of facts published in the articles. manuscripts submitted for possible publication in advances in business research should be electronically submitted to the editor. please comply with the call for manuscripts guidelines. to order advances in business research, please contact dr. mohamed zainuba, editor, advances in business research, college of business, university of arkansas fort smith, 5210 grand avenue, fort smith, arkansas 72913, 479-788-7774, mzainuba@uafs.edu copyright 2010, college of business, university of arkansas fort smith advances in business research 2011 volume 2.pdf advances in business research volume 2 number 1 2011 mohamed zainuba, editor review board members rebecca abraham, nova southeastern university lynn adams, utah valley university g. stoney alder, university of nevada, las vegas lorraine anderson, marshall university mary askim-lovseth, university of north dakota amelia baldwin, university of arkansas fort smith jim beard, university of arkansas-fort smith wayne buchanan, defiance college aaron buchko, bradley university barbara burgess-wilkerson, winthrop university david dearman, university of arkansas at little rock william donoher, missouri state university larry faulk, university of arkansas fort smith martha fowler, northeast missouri state university steve frankforter, winthrop university yoshi fukasawa, midwestern state university susan gaffney, governors state university jeff grover, dynamics research corporation tom hayes, university of arkansas fort smith nathan heller, tarleton state university lewis hershey, fayetteville state university larry hughes, central washington university joel jolayemi, tennessee state university gundars kaupins, boise state university dorothy kirkman, university of houston clear lake robert kitahara, troy university kermit kuehn, university of arkansas fort smith anna lampe, rockhurst university maria leach-lopez, auburn university montgomery jennifer leonard, montana state university, billings erika marsillac, old dominion university bobby medlin, university of arkansas fort smith melissa melancon, university of louisiana at monroe yasuo nishiyama, woodbury university lolita paff, penn state university – berks david palmer, university of nebraska at kearney susan park, boise state university zhuoming peng, university of arkansas fort smith ahmad rahal, university of arkansas fort smith masha rahnama, texas tech university beth richardson, saint joseph’s college of maine dennis rittle, kansas board of regents carlos rodriguez, delaware state university george schmidt, university of arkansas fort smith cliff scott, university of arkansas fort smith daniel settlage, university of arkansas fort smith latisha settlage, university of arkansas fort smith jon shapiro, northeastern state university larry stimpert, colorado college carolyn stumph, indiana university purdue university ronald stunda, valdosta state university aysar sussan, bethune-cookman university daniel talley, dakota state university margaret tanner, university of arkansas fort smith ruth taylor, texas state university andrew tiger, union university turner white, rockhurst university tom tworoger, nova southeastern university kenneth wiant, tennessee tech university steve williams, university of arkansas fort smith jim wollscheid, university of arkansas fort smith frank wyrostek, university of st. francis advances in business research is published annually by the college of business, university of arkansas fort smith, fort smith, arkansas 72913. views and opinions expressed in the journal are those of the authors and do not necessarily reflect the views of staff of college of business, or university of arkansas fort smith. the authors assume responsibility for the accuracy of facts published in the articles. manuscripts submitted for possible publication in advances in business research should be electronically submitted to the editor. please comply with the call for manuscripts guidelines. to order advances in business research, please contact dr. mohamed zainuba, editor, advances in business research, college of business, university of arkansas fort smith, fort hays state university, 5210 grand avenue, fort smith, arkansas 72913, 479-788-7774, mohamed.zainuba@uafs.edu copyright 2011, college of business, university of arkansas fort smith advances in business research 2010 volume 1.pdf 232 advances in business research !"#$%&'()*&+#&,#)!"#-."/*01+#2&.*0#3&&4#5+6(7)/89#-/"#:"#$+)"/*+;#)!"# !*/6#:1%"< david palmer, university of nebraska at kearney !"#$%!&'%()!*!"'%!"%&+$%,-./'%&+$%#(0!#%1((2%!"34'&)5%+6'%1$$"%6%76)&%(8%90$)!#6"%7(74:6)%#4:&4)$;%<+$%!"34'&)5%!&'$:8% #6"%1$%&+(4*+&%(8%6'%+6=!"*%$>!'&$3%!"%&+)$$%3!'&!"#&%?6=$';%@6=$%,%3$'#)!1$'%&+$%!"34'&)5%8)(0%!&'%1$*!""!"*'a%?!&+%6% 8(#4'%("%06''%3!'&)!14&!("%'477()&!"*%+!*+%=(:40$%'6:$'%(8%6"%!"$>7$"'!=$:5%7)!#$3%7)(34#&;%@6=$%b%!'%3$c"$3%15%6% niche approach narrowly focusing on a target audience of committed fans and collectors. a nascent wave 3 driven by &$#+"(:(*!#6:%8()#$'%d$;*;a%!"&$)"$&e%065%64*4)%84)&+$)%#+6"*$'%8()%&+$%!"34'&)5; the american comic book industry the comic book is a well recognized part of american popular culture. the comic book industry has produced !"#$%&'()(&*$"!)+!*&)$(",$& $.!/0*'&-1$2&+'&-1$./(30*45&-1$6,-30*$6,'&-1$&-3$+#0$7450-8$9#0$",'("$:,,;$ & $(+$<* +$&//0&*03$(-$+#0$=>?@ $a& $b0*c$ ('()&*$(-$%,*'$+,$(+ $/*0 0-+$3&c$(-"&*-&+(,-8$d-$0&*)c$0e&'/)0$( $f&',! $ f!--(0 $g=$/!:)( #03$:c$h& +0*-$i,),*$(-$=>?j8$f&',! $f!--(0 $*0/*(-+03$-0a /&/0*$",'("$ +*(/ 1$:!+$(+$a& $-,+$),-k$ before publishers began commissioning original material. with the success of the superman character, introduced (-$d"+(,-$i,'(" $g=$lm!-01$=>?no1$+#0$",'("$:,,;$0 +&:)( #03$(+ 0)%$& $&$-0a +&-3$ +&/)0$%,*$k0-0*&+(,$,%$"#()3*0-$ &-3$&3!)+ $l20-+,-1$=>n>o8$$ the comic book of 2010 would generally be recognizable to a purchaser from 1940, or any other year since. it remains a printed periodical, generally in color and combining prose and pictures derived from the comic strip %,*'&+8$d /0"+ $,%$",-+0-+1$&-3$+#0$p!&)(+c$,%$+#0$&"+!&)$/*(-+(-k$l08k81$*0/*,3!"+(,-1$/&/0*$ +,";o$#&b0$"#&-k031$& $ a0))$& $+#0$/*("01$:!+$+#0$/*,3!"+$( $0 0-+(&))c$+#0$ &'0$& $(+$a& $a#0-$d"+(,-$i,'(" $g=$30:!+03$(-$=>?n8 i&**$lq@=@o$*0/,*+03$+#&+$ &)0 $,%$",'("$:,,; $(-$+#0$r,*+#$d'0*("&-$ls-(+03$.+&+0 $&-3$i&-&3&o$'&*;0+$%,*$ q@@>$a0*0$tun@$'())(,-8$9#0$('/&"+$,%$+#0$",'("$:,,;$(-3! +*c$k,0 $a0))$:0c,-3$+#0$ (v0$,%$(+ $ &)0 8$$i,'("$:,,;$ /*,/0*+(0 $&*0$ )("003$ %,*$&$a(30$ *&-k0$,%$/*,3!"+ $ l08k81$ "),+#(-k1$ %,,31$ +#0'0$/&*; 1$ +,c o1$ &-3$ +#0 0$ )("0(-k$ *0b0-!0 $"&-$:0$ !: +&-+(&)8$9#0$"!**0-+$(-3! +*c$( $3,'(-&+03$:c$+a,$/!:)( #0* 1$5&*b0)$i,'(" $&-3$wi$i,'(" $ lx&:())(0+1$q@=@o8$y))! +*&+(-k$+#0$('/,*+&-"0$,%$)("0(-k$+#0(*$",'("$:,,;$/*,/0*+(0 $+,$,+#0*$'03(&$:,+#$5&*b0)$&-3$ wi$&*0$/&*+ $,%$'&z,*$0-+0*+&(-'0-+$",-k),'0*&+0 8$5&*b0)$( $/&*+$,%$9#0$6&)+$w( -0c$i,'/&-c$&-3$wi$( $/&*+$,%$ time warner. f,*$0e&'/)01$+#0$)(-;&k0$:0+a00-$",'("$:,,; $&-3$<)'$( $a0))$0 +&:)( #03$(-$+#0$#( +,*c$,%$+#0$(-3! +*c8$5,b(0$ 0*(&) $&-3$&-('&+03$ #,*+ $%0&+!*(-k$",'("$:,,;$"#&*&"+0* $:0k&-$(-$+#0$=>j@ $l08k81$d3b0-+!*0 $,%$i&/+&(-$5&*b0)$ [=>j=\1$2&+'&-$ [=>j?\1$ .!/0*'&-$ [&-('&+03$ #,*+ 1$ =>j=4=>j?]$ 0*(&)1$ =>jn\o8$9#( $ *0)&+(,#(/$ "&**(03$ ,b0*$ (-+,$ television with live action series (e.g., batman [1966-1968], adventures of superman [1952-1958], wonder woman [=>^u4=>^>\o$& $a0))$& $&-('&+03$ 0*(0 $l08k81$./(30*45&-$[=>u^4=>^@\1$.!/0*$f*(0-3 $[=>^?4=>nu\1$900-&k0$5!+&-+$ r(-z&$9!*+)0 $[=>n^4=>>u\o8$_0"0-+)c$+#0$('/,*+&-"0$,%$",'("$:,,;$/*,/0*+(0 $+,$+#0$<)'$(-3! +*c$#& $(-"*0& 031$ (-")!3(-k$<)' $:& 03$,-$ !"#$/*,/0*+(0 $& $2&+'&-$lwio1$̀ !);$l5&*b0)o1$./(30*45&-$l5&*b0)o1$&-3$7450-$l5&*b0)o$ lx&:())(0+1$q@=@o8 despite the seeming stability of the product and its impact on the larger culture, over the intervening seventy<b0$c0&* $,*$ ,$+#0$",'("$:,,;$(-3! +*c$#& $0e/0*(0-"03$'&-c$"#&-k0 8$y-$%&"+1$(+$"&-$:0$&*k!03$+#&+$,b0*$+#, 0$ 0b0-+c$<b0$c0&* $ +#0*0$ #&b0$:00-$ +#*00$ ,'0a#&+$ 3( +(-"+$ ",'("$:,,;$ (-3! +*(0 1$ ,*1$',*0$ &//*,/*(&+0)c1$ +#*00$ different waves of the industry. wave 1 describes the industry that grew out of the 1930s. that wave transformed into wave 2 in the 1970s and 1980s, although it continues to this day in much reduced form. today, wave 1 is greatly ,b0* #&3,a03$:c$6&b0$q$&-3$(+ $(-3! +*ca:! (-0 $',30)$+#&+$0'0*k03$+#(*+c$<b0$c0&* $&k,8$6(+#(-$6&b0$q$&$6&b0$ q8=$( $(30-+(<03$a#("#$",':(-0 $0)0'0-+ $,%$6&b0 $=$&-3$q8$6&b0$q8=$",!)3$:0$b(0a03$& $&$*0 !*k0-"0$,%$6&b0$=1$:!+$ k(b0-$(+ $*0)(&-"0$,-$6&b0$q$ 0(:()(+(0 $&-3$",-+0-+$(+$( $',*0$/*,/0*)c$30<-03$& $&-$,!+k*,a+#$,%$6&b0$q8$$ driven by societal and technological changes the industry may again be on the cusp of another transformation, the beginning of a third wave. a nascent wave 3 is discernible but has yet to eclipse wave 2 in the way that wave 2 eventually eclipsed wave 1 as the dominate form of the industry. wave 3 represents a transformation that may not only, as did the prior one, transform the industry’s underlying business model, it may also lead to fundamental "#&-k0 $(-$+#0$",*0$/*,3!"+1$+#0$-,a$%&'()(&*$/*(-+03$/0*(,3("&)$;-,a-$& $+#0$",'("$:,,;8$.,'0$,%$+#0$30<-(-k$ characteristics of these three waves are summarized in table 1. 2010, vol. 1, no. 1, 232-239 palmer 233 advances in business research 1='"#>9#?(..1/8#&,#2!1/10)"/*7)*07#&,#)!"# !/""#:1%"7#&,#)!"#2&.*0#3&&4#5+6(7)/8 $@1.*+*+;#)!"#a"b+*)*&+#&,#5+6(7)/8 y-+!(+(b0)c1$ 30<-(-k$ &-$ (-3! +*c$ &-3$ +#0$ %!-3&'0-+&)$ -&+!*0$ ,%$ (+ $ ;0c$ /*,3!"+$ a,!)3$ &//0&*$ +,$ :0$ &$ %&(*)c$ +*&(k#+%,*a&*3$0e0*"( 08$`,a0b0*1$(-3! +*(0 $&-3$+#0$/*,3!"+ $l&-3$+#0$"#&--0) $,%$3( +*(:!+(,-o$+#&+$30<-0$+#, 0$ industries change over time. sometimes the change is incremental and evolutionary, and sometimes the change is truly radical and revolutionary. these changes and transformations can be so radical and revolutionary that people’s basic conceptualization of the industry and its product is challenged. a vivid illustration of this point is the process that has played out in the case of recorded music. technological advances have fundamentally changed our conceptualization of this industry, and its structure and business models #&b0$!-30*k,-0$/*,%,!-3$"#&-k0 8$9#( $ ( $&-$ (-3! +*c$30<-03$:c$ +0"#-,),k("&)$&3b&-"0 8$h&*)c$*0",*3(-k $a0*0$ made using thomas edison’s phonograph cylinder technology, but that technology gave way to the gramophone disc, <* +$/*,3!"03$,%$ #0))&"1$&-3$+#0-$,%$b(-c)8$9#0$*0",*3$(-3! +*c$/&*+(&))c$k&b0$a&c$+,$n4+*&";$+&/0 1$&-3$+#0-$"& 0++0$ tapes before being almost completely eclipsed by the compact disc. even more changes have been wrought by mp3 technology. today, it would be inappropriate to discuss a record industry per se, but it would certainly be appropriate +,$3( "! $&$'! ("$l,*$*0",*303$'! ("o$(-3! +*c8$9#0$/#c ("&)$/*,3!"+$4$&-3$+#0$&++0-3&-+$(-%*& +*!"+!*0$+,$30)(b0*$+#&+$ product has changed, but the core essence of the industry remains. the forces of technological change have also roiled the broader publishing industry. books, newspapers, and magazines are under increasing pressure from the internet, and the radically different methods of publishing and distributing content that it facilitates. as a form of printed matter, the comic book is experiencing the same forces. in all meaningful aspects the comic book is essentially unchanged as a physical product when examined over its seventy <b0$c0&*$#( +,*c8$`,a0b0*1$&$*030<-(+(,-$,%$+#0$",'("$:,,;$&-3$+#0$",'("$:,,;$(-3! +*c$'&c$:0",'0$-0"0 &*c8$ m! +$& $ +#0$*0",*3$ (-3! +*c$'&c$#&b0$l,*1$&*k!&:)c1$&)*0&3c$#& o$b0*c$ )(++)0$ +,$3,$a(+#$/#,-,k*&/#("$*0",*3 1$ (+$ ( $ possible that the comic book industry may ultimately have very little to do with books per se. the industry may be experiencing a third wave. to better understand the possibility for change in the industry, it may help to look at the industry’s previous phases or waves. a"70/*c)*&+#&,#)!"# !/""#:1%"7#&,#)!"#-."/*01+#2&.*0#3&&4#5+6(7)/8 :1%"#> 9#0$<* +$a&b0$,%$+#0$d'0*("&-$",'("$:,,;$:0k&-$a(+#$+#0$,*(k($,%$+#0$(-3! +*c$&-3$(+ $30<-(-k$&-3$-,a$%&'()(&*$ product, the comic book, in the 1930s. the peak of this wave was in the 1940s and 1950s. the industry continued a(+#$%0a$'&z,*$ +*!"+!*&)$"#&-k0 $(-+,$+#0$=>u@ $:!+$ +*0 0 $a0*0$:0",'(-k$0b(30-+$l08k81$<*' $)0&b(-k$+#0$<0)3o8$ sales were declining, although the decline was partially offset by the short-lived boost the industry received from 2010, vol. 1, no. 1, 232-239 palmer wave 1: mass market (print) wave 1 (1930s-present) product: printed periodical price: inexpensive distribution: mass (returnable) customer: casual wave 2 (& 2.1): niche market (print) wave 2 (1970s-present) product: printed periodical/book price: moderate distribution: specialty stores (“direct” –not-returnable) customer: collector wave 2.1 (1990s-present) product: printed book price: variable (depends on format/length) distribution: returnable customer: casual, collector wave 3: internet (digital) wave 3 (1990s-present) product: digital price: ??? distribution: internet customer: specialty, mass market potential 234 advances in business research +#0$/,/!)&*(+c$,%$+#0$2&+'&-$+0)0b( (,-$ 0*(0 $(-$+#0$=>u@ $l=>uu4=>uno$lm8$h( -0*1$=>nuo8$2c$+#0$=>^@ $+#0 0$30")(-0 $ a0*0$&""0)0*&+(-k$l20-+,-1$=>n>]$b&)'0*1$=>n^o8$y+$"&-$:0$&*k!03$+#&+$:c$+#0$=>>@ $+#( $a&b0$,%$+#0$(-3! +*c$#&3$:00-$ greatly reduced and had become marginalized. throughout this wave, the form of the physical product stabilized, although over the years the number of interior /&k0 $30")(-038$s (-k$d"+(,-$i,'(" $& $&-$0e&'/)01$9&:)0$q$/*,b(30 $ ,'0$(-%,*'&+(,-8$9#0$-!':0*$,%$(-+0*(,*$ pages slowly decreased from 64 to 32. interestingly, the price of a comic book, in constant 2010 dollars, which were further adjusted for page length, remained fairly stable from 1938 until approximately 1971 in the range of $.77 to $.92. as the industry came under increasing pressure in the 1970s, the price doubled to $1.44. by the 1980s the industry was well into its transformation to wave 2 where prices would eventually reach four times their previously stable wave 1 levels. generally, in wave 1 the price of a comic book was relatively low and it was correctly considered an inexpensive and disposable product. the predominant wave 1 pricing scheme made sense given the industry’s k0-0*&)$'& $'&*;0+a &+!*&+(,-$',30)$,%$3( +*(:!+(,-8$y-$+#( $:! (-0 $',30)$#(k#$ &)0 $b,)!'0$a,!)3$",'/0&+0$ for low prices and low margins. 1='"#d9#e/*0"#&,#-0)*&+#2&.*07#&%"/# *."f#2&+7)1+)#a&''1/7#gdh>hi .,!*"0 c$iby$y-d&+(,-$i&)"!)&+,*1$#++/caa3&+&8:) 8k,ba"k(4:(-a"/("&)"8/)]$ $ $ $ $$$$$$$$$$x*&-3$i,'(" $w&+&:& 01$#++/caaaaa8",'(" 8,*ka8 to achieve mass market distribution, comic books were distributed through the newsstand, or id, system. regional distributors distributed the product to retail outlets and the comic books were displayed for sale for a prescribed time period until the next issue was distributed. the unsold copies were returned for credit. if twenty ",/(0 $,%$&$+(+)0$l08k81$6&)+$w( -0ce $i,'(" $&-3$.+,*(0 $g=nn1$5&c$=>fuo$a0*0$3( +*(:!+03$&-3$+0-$a0*0$*0+!*-031$+#0-$ the retailer was charged for the ten that were presumed to have been sold. some titles reportedly sold over one million ",/(0 $/0*$( !01$a#()0$'&-c$*,!+(-0)c$ ,)3$(-$+#0$#!-3*03 $,%$+#,! &-3 $l20,-1$=>n>]$b&)'0*$=>n^o8 in the late 1940s and early 1950s, comic books became increasingly popular among children as well as adults. 9#( $/,/!)&*(+c$:*,!k#+$a(+#$(+$k*0&+0*$ "*!+(-c$,%$+#0$('/&"+$,%$+#0$+#0-$!:(p!(+,! $",'("$:,,;$,-$d'0*("&-$ ,"(0+c1$ and particularly its impact on american youth. educators and parents raised concerns about the violent content and gratuitous nature of some comics. these concerns were given voice by psychiatrist fredric wertham, most sensationally in his 1954 book, seduction of the innocent. 1954 also witnessed an investigation by the united states senate into these '&++0* 1$ /0"(<"&))c$a(+#$#0&*(-k $:0%,*0$+#0$s-(+03$.+&+0 $.0-&+0$.!:",''(++00$,-$m!b0-()0$w0)(-p!0-"c8$b!:)( #0* $ and distributers became concerned about a possible backlash against comic books. to head off possible government (-+0*b0-+(,-$(-+,$+#0$(-3! +*c1$'&-c$;0c$(-3! +*c$/)&c0* $"*0&+03$+#0$i,'(" $5&k&v(-0$d ,"(&+(,-$,%$+#0$d'0*("&$ li5ddo$&-3$"*0&+03$&$",30$ ,$+#&+$+#0$(-3! +*c$",!)3$/,)("0$(+ 0)%$l`&z3!1$q@@n]$rc:0*k1$=>>no8$$ cover price cover cover interior adjusted to cover price date (year) price pages 32 interior pages in 2010 dollars 1938 $.10 64 $.05 $.77 1943 .10 56 .06 .72 1944 .10 48 .07 .83 1951 .10 40 .08 .67 1954 .10 32 .10 .81 1962 .12 32 .12 .87 1969 .15 32 .15 .89 1971 .25 48 .17 .92 1972 .20 32 .20 1.04 1975 .25 32 .25 1.01 1976 .30 32 .30 1.15 1977 .35 32 .35 1.26 1978 .50 44 .36 1.20 1978 .40 32 .40 1.34 1980 .50 32 .50 1.32 1981 .60 32 .60 1.44 1983 .75 32 .75 1.64 1991 1.00 32 1.00 1.60 1992 1.25 32 1.25 1.94 1993 1.50 32 1.50 2.26 1995 1.95 32 1.95 2.79 1998 1.99 32 1.99 2.13 2000 2.25 32 2.25 2.85 2010, vol. 1, no. 1, 232-239 palmer 235 advances in business research 9#0$"*0&+(,-$,%$+#0$i,'(" $i,30$d!+#,*(+c$liido$&-3$+#0$i5dd$#0)/03$+,$"&)'$+#0$%0&* $,%$3( +*(:!+,* $&-3$ *0+&()0* 8$i,'("$:,,; $ +#&+$a0*0$&//*,b03$:c$+#0$iid$&-3$a#("#$",-%,*'03$+,$ +#0$0-!'0*&+03$ +&-3&*3 $",!)3$ prominently display a seal on their cover. from this point forward publishers assumed that their primary audience a& $"#()3*0-8$y-+0*0 +(-k)c1$,-0$/!:)( #0*$-0b0*$z,(-03$+#0$i5dd$&-3$(+ $",'("$:,,; $-0b0*$"&**(03$+#0$iid$ 0&)8$ 9#0$",'/&-c$a& $w0))1$a#("#$#&3$&)a&c $&3b0*+( 03$+#0$#(k#$p!&)(+c$&-3$ +&-3&*3 $,%$(+ $",'("$:,,; ]$",'("$:,,; $ /0"(<"&))c$&('03$&+$&$c,!-k0*$&!3(0-"08$9#*,!k#$)("00 $w0))$/!:)( #03$ !"#$"#&*&"+0* $& $5(";0c$5,! 01$2!k $ bunny, lassie, and the lone ranger. dell was the largest publisher at the time, and was powerful enough that it did not need the seal so as to assure distribution. additionally, at the time dell’s comic books were perceived as wholesome and appropriate for children, something that was not necessarily true for all publishers. gb0*$+#0$c0&* $+#0$i,30$a& $*0b( 03$'&-c$+('0 $l08k81$=>^=o$+,$:0++0*$*0d0"+$",-+0'/,*&*c$',*0 8$d//*,b&)$:c$ +#0$i,30$a& $"*(+("&)$(-$+#0$=>f@ $&-3$=>u@ $+,$& !*0$3( +*(:!+(,-8$gb0*$+('0$+#0$('/*('&+!*$,%$a#,)0 ,'0-0 $+#&+$ i,30$&//*,b&)$ !//)(03$3('(-( #03$(-$('/,*+&-"08$f,*$6&b0 $q$&-3$?$i,30$&//*,b&)$( $,%$)(++)0$",0p!0-"08$9,$ ())! +*&+0$+#0$ ",/0$,%$+#0$i,30$9&:)0$?$)( + $ ,'0$ &'/)0$/*,b( (,$,*(k(-&))c$ 0+$%,*+#$(-$=>fj8 1='"#j9#?1.c'"#e/&%*7*&+7#,/&.#)!"#2&6"#&,#)!"#2&.*07#k1;1l*+"#-77&0*1)*&+#&,#-."/*01f#5+0f#>mno :1%"#d wave 2 emerged as a reaction to the forces impinging upon the industry throughout the 1960s and which came +,$&$#0&3$(-$+#0$=>^@ $l08k81$30")(-(-k$ &)0 o8$9#0$'& $'&*;0+$3( +*(:!+(,-$',30)$a& $:*0&;(-k$3,a-8$.),a)c$+#0$ industry moved to a new business model, one predicated on an entirely different distribution system, with attendant changes in audience, pricing, and content. arguably this transformation from the wave 1 model to the wave 2 model &b03$+#0$(-3! +*c$%*,'$3( &//0&*(-k$&)+,k0+#0*$lx&:())(0+1$q@=@]$b&)'0*1$=>n^o8$$ 6&b0$q$( $b0*c$'!"#$30<-03$:c$(+ $3( +*(:!+(,-$',30)1$a#("#$"&'0$+,$:0$;-,a-$& $3(*0"+$3( +*(:!+(,-8$9#0$3(*0"+$ 3( +*(:!+(,-$ c +0'$&*, 0$(-$+#0$=>^@ $&-3$:c$+#0$=>n@ $a& $+#0$3,'(-&-+$%,*'$,%$3( +*(:!+(,-$lb&)'0*1$=>n^o8$9#0$ new system addressed some structural problems in the industry that, in hindsight, were becoming evident as early as +#0$=>f@ $&-3$=>u@ 8$9#0 0$/*,:)0' $:0"&'0$&"!+0$(-$+#0$=>^@ $l20-+,-1$=>n>]$b&)'0*1$=>n^o8$9#0$',30)$,%$ 0))(-k$ &$),a$/*("03a),a$'&*k(-$/*,3!"+$+,$&$'& $'&*;0+$+#*,!k#$a(30$3( +*(:!+(,-$a& $:0",'(-k$!-+0-&:)08 a number of factors were involved. traditional retail outlets such as small newsstands and “mom and pop” drugstores were closing. also, of the outlets that remained, many were dropping comic books from their product mix code of the comics magazine association of america, inc., 1954 code for editorial matter general standards part a 1. crimes shall never be presented in such a way as to create sympathy for the criminal, to promote distrust of the forces of law and justice, or to inspire others with a desire to imitate criminals. 7. scenes of excessive violence shall be prohibited. scenes of brutal torture, excessive and unnecessary knife and gunplay, physical agony, gory and gruesome crime shall be eliminated. general standards part b 2. all scenes of horror, excessive bloodshed, gory or gruesome crimes, depravity, lust, sadism, masochism shall not be permitted. 3. all lurid, unsavory, gruesome illustrations shall be eliminated. general standards part c all elements or techniques not specifically mentioned herein, but which are contrary to the spirit and intent of the code, and are considered violations of good taste or decency, shall be prohibited. dialogue 1. profanity, obscenity, smut, vulgarity, or words or symbols which have acquired undesirable meanings are forbidden. costume 1. nudity in any form is prohibited, as is indecent or undue exposure. marriage and sex 2. illicit sex relations are neither to be hinted at nor portrayed. violent love scenes as well as sexual abnormalities are unacceptable. code for advertising matter these regulations are applicable to all magazines published by members of the comics magazine association of america, inc. good taste shall be the guiding principle in the acceptance of advertising. 1. liquor and tobacco advertising is not acceptable. source: gabilliet, 2010 2010, vol. 1, no. 1, 232-239 palmer 236 advances in business research because the margins simply were too small. the price of a standard comic book had held steady at ten cents from its introduction in the 1930s until 1962, when it increased to twelve cents, where it remained until 1969. undoubtedly, part of the reason the price had remained at such a low level because, as noted in table 2, was that the product had essentially shrunk in half. the market and consumers were accustomed to viewing comic books as inexpensive. !"#$%&'(&")*%+',-.'-/01-23#'/&-41'3!'#$%'13.#&3)4#3"!'.5.#%+6'75(38-**59'-/01-23#.',$%&%'4.%1'#"'8*-3+'8&%13#' for unsold copies. some distributors would claim credit for unsold copies, but instead of destroying the unsold copies they would sell them to second-hand dealers. publishers lost the revenue from these comic books which had actually been sold, albeit at a discount. furthermore, these comics were in the marketplace competing against legitimate sales and cutting into what would have been legitimate sales at full price, further exacerbating the sales decline. 113#3"!-**59',3#$'#$%':%!%&-*'&3.%' 3!'-/;4%!8%'3!'#$%'<!3#%1'=#-#%.'"#$%&'/"&+.'"/' 3!%>(%!.32%'%!#%&#-3!+%!#' became more readily available such as television which served as a competitor for children’s time as a substitute (&"148#'?%6:69'@-*+%&'abcde6' .'#$%'84.#"+%&')-.%'/"&'8"+38')""f.'.$&-!f9'(4)*3.$%&.')%:-!'#"'&%*5'+"&%'4("!'-'8"&%' "/'/-!.'-!1'8"**%8#"&.6'7$%.%',%&%'!"#'#$%'8-.4-*')45%&.'"/'#$%'0&.#',-2%',$"',%&%'-..4+%1'#"')%'5"4!:%&'8$3*1&%!6'' by the 1960s there had developed an organized fandom among a group of committed and devoted comic book &%-1%&.'-!1'8"**%8#"&.6'7$3.'/-!1"+'1%2%*"(%1'-*"!:'*3!%.'.3+3*-&'#"'#$%'*"!:%&'%.#-)*3.$%1'/-!1"+'/"&'.83%!8%'08#3"!6' 7$%.%'/-!.'(&"148%1'#$%3&'",!'-+-#%4&'(4)*38-#3"!.'?/-!g3!%.e9'-!1'8&%-#%1'-'!%#,"&f'#$-#'.$-&%1'3!/"&+-#3"!'-!1' ."*1'%-8$'"#$%&')-8f'3..4%.'?=8$%**59'abbd9'abbbe6'="+%'8"!#&3)4#"&.'%2%!#4-**5':&-14-#%1'#"'h").',3#$3!'#$%'3!14.#&59' "&')%8-+%' 3!2"*2%1'%!#&%(&%!%4&3-**5',3#$' #$%'8&%-#3"!'"/' #$%'13&%8#'+-&f%#' ?%6:69' 13.#&3)4#"&.' -!1' &%#-3*%&.e6'7$%' importance of this segment to the overall health of the industry continued throughout the 1970s and heightened into the 1980s. many long established publishers whose titles were not highly prized by collectors left the industry (e.g., i$-&*#"!9'j%**9'k"*1'l%5e'?@-*+%&9'abcde6 not only were these customers committed to comic books, they also tended to be older, and to have more disposable income. they were also willing to spend more for comic books and did not necessarily view them as 13.(".-)*%6'm%3!:'"*1%&'#$%5'("..%..%1'#$%',$%&%,3#$-*'#"'.%%f'"4#'8"+38')""f.'?%6:69'#$%5',%&%'"*1'%!"4:$'#"'1&32%e' 3!'#$%'1,3!1*3!:'!4+)%&'"/'"4#*%#.'#$-#'.#3**'.#"8f%1'#$%+6'7$&%%'%//%8#.';",'"4#'"/'#$3.'8$-!:%'3!'#$%'84.#"+%&')-.%' of comic books. n!%9'84.#"+%&.',%&%',3**3!:'#"'.(%!1'+"&%6'7$3.'3.'&%;%8#%1'3!'7-)*%'o'-.'#$%'(&38%'"/'8"+38')""f.'&".%'.#%-13*5' /&"+'#$%'abdp.'"!,-&16'7,"9')%3!:'"*1%&9'#$%'&%.#&38#3"!.'"/'#$%'i"+38'i"1%',%&%'*%..':%&+-!%6'7$%.%',%&%'!"#' 8$3*1&%!',$"'!%%1%1'#"')%'(&"#%8#%1'/&"+'#$%'+-#%&3-*'#$-#'#$%5'&%-16' 8#4-**59'#"'."+%'1%:&%%9'#$%'*-8f'"/'i"1%' -((&"2-*',-.'.%%!'-.'-'.3:!'"/'*%:3#3+-85q'-'.3:!-*'#$-#'#$%'8"+38')""f.',%&%'13//%&%!#'?%6:69'+"&%'+-#4&%e'#$-!'#$".%' targeted to the wave 1 market. three, given that the customers were more willing to travel to where comic books were available, in contrast to comic books being available everywhere, specialty stores catering to a customer base of committed fans and collectors became viable. these specialty stores became the backbone of wave 2. these retail outlets were typically independently-owned, -*#$"4:$'*-&:%'8$-3!')""f.#"&%.'?%6:69'm-&!%.'r's")*%9'm"&1%&.9't-.#3!:.e'131'%2%!#4-**5')%:3!'.#"8f3!:'8"+38')""f' material with wave 2.1. 7$%'f%5'1%0!3!:'-##&3)4#%'"/'#$%'13&%8#'.5.#%+'3.'13.#&3)4#3"!'#"'#$%'8"+38')""f'.(%83-*#5'.#"&%.6'u!'#$%'abdp.'3#',-.' very much a chicken and egg situation. direct distribution was not viable until there were enough stores, and opening -'.#"&%',-.'!"#'23-)*%'4!#3*' #$%&%',-.'-'13.#&3)4#3"!'.5.#%+'"4#.31%'"/' #$%' #&-13#3"!-*'!%,..#-!1' ?36%69' &%#4&!-)*%e' system. what differentiated the direct system from the newsstand system was that the retailers took ownership of the comic books and could not return unsold copies for credit. the direct system shifted the risk of unsold product to the retailer and away from the publisher and distributor. as a result, retailers received a larger discount than under the traditional system. additionally, given the existence of a then thriving market for older comic books, any unsold (&"148#'8"4*1'%2%!#4-**5')%'."*1'3!'#$-#'+-&f%#9'."+%#3+%.'-#'-'.4).#-!#3-*'+-&f4('?k-)3**3%#9'opapq'@-*+%&9'abcde6 another aspect of the direct system is that it allowed publishers to better control print runs, and, thus, costs, since comic books are preordered and the print run can match sales. under the id system print runs may, for example, be #,38%',$-#'#$%'-8#4-*'.-*%.'#4&!'"4#'#"')%'?-**",3!:'/"&'&%#4&!.e9'#$4.'-113!:'#"'8".#.'-!1'$%3:$#%!3!:'/"&%8-.#3!:'-!1' budgeting uncertainty. this aspect of the system changed the cost structure of publishers and allowed many new, .+-**'?-!1'"/#%!'#3+%.'4!1%&v8-(3#-*3g%1e'(4)*3.$%&.'#"'%!#%&'#$%'0%*16'="+%'"/'#$%.%'!%,'8"+(-!3%.'8-+%'/&"+'#$%' ranks of fandom. wave 2 saw the industry move from a mass market model to a specialty focus; one targeted to fans and collectors. wave 2 came to dominate the comic book industry throughout the 1990s and 2000s, as wave 1 shrank in importance, -!1')%8-+%'"!*5'-'.%8"!1-&5'/"84.'/"&'ji'-!1'w-&2%*9'-*#$"4:$'3#'&%+-3!%1'#$%'(&3+-&5'/"84.'"/' &8$3%6' 'ji9' marvel, and archie were the only publishers to survive from wave 1. most of the new publishers spawned by wave 2 never bothered with a wave 1 approach by attempting newsstand distribution. 2010, vol. 1, no. 1, 232-239 palmer 237 advances in business research !"#$%&' in many ways wave 2.1 is an adjunct to wave 2. generally, it is a reaction to the very valid realization that wave 2 in many ways limited the industry’s market. wave 2’s focus on hard core fans may have saved the industry, but it also 8"!1%+!%1'3#'#"'-'2%&5'*3+3#%1'!38$%6'x-2%'o6a'&%;%8#%1'-##%+(#.'#"'&%-8$'"4#'#"'!%,'-413%!8%.',3#$'!%,'/"&+-#.' -!1'8"!#%!#6'="+%#3+%.'#$%.%',%&%'-413%!8%.'#$-#'x-2%'a'"!8%'-((%-*%1'#"'?%6:69':3&*.e')4#'#$-#'$-1')%%!'/"&.-f%!')5' the industry as it remade itself due to the demands of wave 2. also driving wave 2.1 was the success of wave 2 to achieve greater cultural acceptance for comic books. the !%,'84.#"+%&')-.%'?-.',%**'-.'#$%'8&%-#"&.e'"/'x-2%'o',-.'8"++3##%1'#"'8"+38')""f.'-.'-!'-&#'/"&+9'-!1',3.$%1'/"&' comic books to be seen as legitimate. throughout wave 2, these efforts to achieve greater legitimacy bore fruit. the comic book format has increasingly come to be viewed as a legitimate storytelling and entertainment medium, and 3.'+"&%'-88%(#%1'-.'-'/"&+'/"&'.%&3"4.'*3#%&-&5'%>(&%..3"!6'u#'3.'!"'*"!:%&'23%,%1'-.'-'/"&+-#'0#'"!*5'/"&'13.(".-)*%' entertainment. for example, alan moore and dave gibbon’s watchmen won a special category hugo award (other y"&+.e' 3!' abcc6'7$%'t4:".' &%8":!3g%' "4#.#-!13!:',"&f.' 3!' #$%'0%*1'"/' .83%!8%'08#3"!6'@&"2313!:' %2%!' .#&"!:%&' evidence of the acceptance of the comic book form as a means for serious literary expression was the selection of art spiegelman’s maus, a survivor’s tale, for a pulitzer prize special award in 1992. maus is a comic book which told -'.#"&5'"/'#$%'t"*"8-4.#9'4.3!:'-!#$&"("+"&($3g%1'8$-&-8#%&.'?%6:69'z%,.'-.'+38%9'k%&+-!.'-.'8-#.e'?k-)3**3%#9'opape6 w-4.'-*."'3**4.#&-#%.'-!"#$%&'#&%!1['#$%':&",#$'"/'#$%':&-($38'!"2%*6'k&-($38'!"2%*.'-&%'%..%!#3-**5'8"+38')""f.9' but they may be upwards of 500 pages long. since the advent of the direct market the industry has experimented with -'2-&3%#5'"/'/"&+-#9'(-:%'*%!:#$.9'-!1'(&"148#3"!'2-*4%.'?x%3!%&9'opp\e6'x-2%'o6a'&%;%8#.'#$%'13//4.3"!'"/':&-($38' !"2%*.'-!1'8"+38')""f.'3!':%!%&-*'3!#"'8$-3!')""f.#"&%.'?%6:69'm-&!%.'r's")*%9'm"&1%&.e6' !"#$%&'/-8%#'"/'x-2%'o6a' is the increasing popularity of manga and manga style graphic novels. manga is a term describing japanese comic books. these comic books cover a wide range of genres and appeal to a variety of audiences (e.g., women, young 8$3*1&%!e')%5"!1'#$%'8"&%'x-2%'o'-413%!8%'?36%69'+-*%.e'?=8$"1#9'abc]e6'w-!5'"/'#$%.%':&-($38'!"2%*.'-&%'#&-!.*-#%1' from japanese, although many are original and simply done in the style of japanese manga. as wave 2 has gained ascendency in the comic book industry it represents a fundamental shift in the basic )4.3!%..'+"1%*' "/' #$%' 3!14.#&5' /&"+' #$%' "!%' #$-#' (&"(%**%1'x-2%' a6'7$%' 3!14.#&5' 3.' !"' *"!:%&' 1%0!%1' )5'+-..' distribution but by targeted, niche distribution and focus. however, despite much experimentation (e.g., graphic !"2%*.e'#$%'(&"148#'&%+-3!.'%..%!#3-**5'4!8$-!:%16'7$%'(&"148#'"/'#$%'8"+38')""f'3!14.#&5'3.'8"+38')""f.6'u#'.%%+.' almost ludicrous to make such a statement, since, of course, it must, on its face, be true. however, any analysis of the comic book industry should be chastened by remembering developments in the record industry. the record industry ultimately was not about phonograph records but recorded music. it is possible that the comic book industry may be entering a new wave, a third wave, focused not on comic books, as printed material but on graphic narrative or .%^4%!#3-*'-&#'-.'-'.#"&5#%**3!:'#%8$!3^4%'?x6'_3.!%&9'abc`aopp q̀'w8i*"419'abb\e6 !"#$( x-2%'\'&%;%8#.'"!:"3!:'-##%+(#.'-!1'%>(%&3+%!#.'#"'*%2%&-:%'#$%'(",%&'"/'#$%'8"+(4#%&'-!1'#$%'3!#%&!%#'#"'#$%' creation and distribution of comic books. these efforts grew in importance and magnitude from the 1990s to the (&%.%!#'1-5'?w8i*"419'opppq'7$"&!%9'opape6 k&-($38' .#"&5#%**3!:'"&' .%^4%!#3-*' -&#' &%;%8#.' -##%+(#.' #"'1%0!%' 8"+38')""f.' 3!1%(%!1%!#'"/' #$%' 8"!0!%.'"/' the printed page, and to explore the nature of the underlying art form. printed comic books are constrained by the physical dimensions of the printed page. the internet affords a page that is not limited in size and scope and thus is !"#'8"!.#&-3!%1')5'#$%'($5.38-*'&%-*3#3%.'"/'-'#&-13#3"!-*'8"+38')""f'?w8i*"419'opppe6' 113#3"!-**59'3#'-**",.'/"&'#$%' 3!8*4.3"!'"/'."4!1'-!1'+"#3"!',$38$'8"!#%+(*-#%.'-'+%&:%&'"/'#$%'8"+38')""f'-!1'0*+6'' i"+(4#%&.'$-2%')%%!'-'(-&#'"/'#$%'3!14.#&5'/"&'1%8-1%.6''=$-##%&',-.'-'13:3#-**5'(&"148%1'8"+38')""f'/&"+'y3&.#' i"+38.'#$-#'0&.#'-((%-&%1'3!'abc`6'7"1-59'8"+(4#%&.'-&%'4.%1'3!'-**'/-8%#.'"/'#$%'8&%-#3"!'"/'8"+38')""f.6't",%2%&9' #$%&%'-&%'+-!5'8"+38')""f.'#$-#'%>3.#'"!*5'3!'13:3#-*'/"&+'"!'#$%'3!#%&!%#6'i4&&%!#*59'#$%'8&%-#"&.'"/',%)'8"+38.'-&%' exploring the potential of the computer and the internet as alternatives to the traditional printed comic book and the wave 1 and wave 2 distribution models. just as the computer and the internet are remaking the broader publishing 3!14.#&5'?%6:69')""f.9'+-:-g3!%.9'!%,.(-(%&.e9'3#'$-.'#$%'("#%!#3-*'#"'.4).#-!#3-**5'#&-!./"&+'#$%'8"+38')""f'3!14.#&5' ?w8i*"419'opppq'7$"&!%9'opape6'' 7$%'8"+(4#%&'-//"&1.'13//%&%!#',-5.'#"'-((&"-8$'#$%'8&%-#3"!'"/':&-($38'.#"&5#%**3!:'"&'.%^4%!#3-*'-&#'?w8i*"419' opppe6' 7$%' 3!#%&!%#' -//"&1.' !%,' ,-5.' #"' 13.#&3)4#%' #$".%' .#"&3%.6' ' .%-&8$' "/' #$%' 3!#%&!%#' &%2%-*.' #$-#' *3#%&-**5' #$"4.-!1.'"/',%)'8"+38.'%>3.#6'k%!%&-**59' #$3.'-.(%8#'"/' #$%' 3!14.#&5'$-.'5%#' #"'0!1'-',-5' #"'+-f%',%)'8"+38.' 0!-!83-**5'23-)*%6'n/'8"4&.%9'#&-13#3"!-*'8"+38')""f.'8-!')%'13:3#3g%1'-!1'+-1%'-2-3*-)*%'"2%&'#$%'3!#%&!%#9',$38$' 2010, vol. 1, no. 1, 232-239 palmer 238 advances in business research -*."'&-3.%.'#$%'&3.f'"/'(3&-856't",%2%&9',$"**5'!%,'/"&+.'+-5'%2"*2%9'-!1'!%,'13.#&3)4#3"!'?-!1'(-5+%!#e'+"1%*.' +-5')%'/"4!1'#"')%'23-)*%6'i"!8"+3#-!#',3#$'#$%'"!:"3!:'%>(%&3+%!#-#3"!',3#$'!%,'/"&+.'"/'%)""f.9'3#'+-5')%8"+%' appropriate to consider ecomic-books. wave 3 then is the next step in the evolution of the comic book industry. where wave 2 was essentially a different distribution model as opposed to wave 1, wave 3 may entail not only a radically different distribution and business model, but, also, a radical transformation of the comic book itself. in microcosm the comic book industry may be a special case of the profound changes rippling through the entertainment industries, in general, and publishing .(%8308-**56'_>-+3!3!:'#$%'$3.#"&5'"/'#$%'8"+38')""f'3!14.#&5'(&"231%.'3!.3:$#'3!#"'#$%'%2"*4#3"!'"/'3!14.#&3%.9'-.' they transform in response to technological, cultural, political, and societal changes. the potential for the comic book industry to provide further evidence of change, both evolutionary and revolutionary remains high. given this potential continued observation of the industry by business and management scholars seems warranted. )*+*)*,-*. benton, m. 1989. /0#$12341$5226$47$83#941!:$87$4;;<=>9!>#?$04=>29@6'j-**-.9'7b['7-5*"&'@4)*3.$3!:'i"+(-!56 i-&&9' 6'opap6'x$-+c'm-!:c'@",c'fast company9'add['aop6 i@u'u!;-#3"!'i-*84*-#"&6'opap6'a.$b<9#!<$2c$d!529$.>!>4=>41=6'e%#&3%2%1'/&"+'$##([aa1-#-6)*.6:"2a8:3v)3!a8(38-*86'(*6 eisner, j. 1986. /0#$2ce14!;$b!>3!7$5!>52266'i$38-:"['i"!#%+("&-&5'm""f.6 _3.!%&9'x6'abc`aopp`6'-2341=$f$=#g<#7>4!;$!9>6'7-+-&-89'yf['@""&$"4.%'@&%..6 gabilliet, j. 2010. hc$12341=$!7?$3#7:$8$1<;><9!;$04=>29@$2c$83#941!7$12341$5226=. (b. beaty & n. nguyen, 7&-!.6e6''z-8f."!9'w=[''<!32%&.3#5'(&%..'"/'w3..3..3((36'?n&3:3!-*',"&f'(4)*3.$%1'opp`e6 i9!7?$-2341=$j!>!5!=#. 2010. retrieved from www.comics.org. hajdu, d. 2008. /0#$'kl1#7>$m;!n<#:$/0#$n9#!>$12341l5226$=1!9#$!7?$02o$4>$10!7n#?$83#941!6's%,'g"&f['y-&&-&9' straus and giroux. w8i*"419'=6'abbd&$a7?#9=>!7?47n$12341=:$/0#$47"4=45;#$!9>6's"&#$-+(#"!9'w ['74!1&-6 w8i*"419'=6'oppp6')#47"#7>47n$12341=:$p2o$43!n47!>427$!7?$>#1072;2n@$!9#$9#"2;<>4274q47n$!7$!9>$c293. new g"&f['t-&(%&@%&%!!3-*6 nyberg, a. 1998. .#!;$2c$!mm92"!;:$/0#$04=>29@$2c$>0#$-2341=$-2?#6'z-8f."!9'w=['<!32%&.3#5'@&%..'"/'w3..3..3((3'6 palmer, d. 1987. 8$1!=#$=><?@$2c$>0#$83#941!7$12341$5226$47?<=>9@&$a7m<5;4=0#?$3!=>#9r=$>0#=4=. bowling green state university, bowling green, ohio. schelly, w. 1997. +!7?23r=$e7#=>$12341=:$8$>9#!=<9@$2c$>0#$5#=>$294n47!;$=>94m=$c923$>0#$1;!==41$12341=$c!7q47#=$ 'stul'svt6'=%-##*%9'x ['t-+.#%&'@&%..6 schelly, w. 1999. the golden age of comic fandom6'=%-##*%9'x ['t-+.#%&'@&%..6 schodt, f. 1986. manga! manga! the world of japanese comic books6's%,'g"&f[''l"1-!.$-'u!#%&!-#3"!-*6 thorne, a. 2010. #512341=$!7?$;459!94#=6'u!'e6'x%3!%&'?_16e9'k&-($38'!"2%*.'-!1'8"+38.'3!'*3)&-&3%.'-!1'-&8$32%.['' _..-5.'"!'&%-1%&.9'&%.%-&8$9'$3.#"&5'-!1'8-#-*":3!:6'z%//%&."!9'si['w8y-&*-!1'r'i"+(-!56 weiner, s. 2003. +!=>#9$>0!7$!$=m##?47n$5<;;#>:$/0#$94=#$2c$>0#$n9!m041$72"#;6's%,'g"&f['s-!#3%&'m%-*'w3!"4.#8$3!%6 wertham, f. 1954. seduction of the innocent6's%,'g"&f['e3!%$-&#6 2010, vol. 1, no. 1, 232-239 palmer 239 advances in business research j!"4?$w!;3#9 is a professor of management at the university of nebraska at kearney. he received his ph.d. in "&:-!3g-#3"!-*' )%$-23"&a$4+-!' &%."4&8%' +-!-:%+%!#' /&"+' @4&14%' <!32%&.3#56' t3.' &%.%-&8$' 3!#%&%.#.' 3!8*41%' .#-/0!:'-!1'.%*%8#3"!9'h")'8$"38%'-!1',"&f/"&8%'1%2%*"(+%!#9'-!1'"&:-!3g-#3"!-*'(%&8%(#3"!.'-!1'4.%.'"/'#3+%6't%' $-.'(4)*3.$%1'3!'#$%'z"4&!-*'"/'w-!-:%+%!#9'@%&."!!%*'@.58$"*":59'i4&&%!#'j3&%8#3"!.'3!'@.58$"*":38-*'=83%!8%9' journal of managerial psychology, journal of business and psychology and others. 2010, vol. 1, no. 1, 232-239 palmer advances in business research 2011 volume 2.pdf lai, tanner, stevens advances in business research 2011, vol. 2, no. 1, 115-124 115 the importance of mathematics competency in statistical literacy guolin lai, university of louisiana at lafayette john tanner, university of louisiana at lafayette david stevens, university of louisiana at lafayette competence in mathematics and statistics are related, but are not the same thing. to measure the impact of mathematical competence on statistics performance, act math scores together with remedial and required math grades were analyzed together with final grades in a two-course sequence of undergraduate statistics. results indicate that math competence is correlated with success in the first statistics course, but generally not the second. in addition, success in the first statistics course does not imply success in the second. these findings support the claims that mathematics and statistics are two separate disciplines, each deserving of its own pedagogy. it is widely recognized that statistical literacy, statistical reasoning, and statistical thinking are key components of the skills needed by employees in various industries (ben-zvi and garfield, 2004; snee, 1993). to provide the skills, college degree programs in the united states require a course in introductory statistics. however, american college students often regard their statistical learning experience very negatively (hogg, 1991). as a result, many students postpone taking statistics course(s) until the end of their degree programs (onwuegbuzie and wilson, 2003; zeidner, 1991). to understand the causes of such perceptions, various factors have been investigated including mathematical competence, mathematical anxiety and attitudes, statistics anxiety and attitudes, motivation, educational background, self-efficacy, instructional strategies, and technology. for example, according to gal (2002), an adult’s statistically literate behavior is predicated on the joint activation of five interrelated knowledge elements including literacy skills, statistical knowledge, mathematical knowledge, context knowledge, and critical questions, together with a cluster of supporting dispositional elements including beliefs, attitudes, and critical stance. as envisioned by gal (2002), mathematical competence plays an integral role in the achievement of statistical literacy. there has been a general consensus in the literature that students’ statistical performance is positively related to their mathematical competence (adams and holcomb, 1986; feinberg and halprin, 1978; galagedera, 1998; galagedera and woodward, 2000; johnson and kuennen, 2006; lalonde and gardner, 1993; nasser, 1999; wisenbaker et al. 2000). moreover, there are intricate relationships among students’ mathematical competence, mathematics attitude and anxiety, statistics attitude and anxiety, and statistics performance. students tend to experience mathematics anxiety (bessant, 1995; mcleod, 1992; stodolsky, 1985), and mathematics anxiety is negatively related to statistical performance (adams and holcomb, 1986; onwuegbuzie and seaman, 1995; wisenbaker et al., 2000; zeidner, 1991). mathematical competence has a positive effect on attitudes toward statistics (carmona, 2004; lalonde and gardner, 1993; schutz et al., 1999) and on anxiety toward statistics (gal et al., 1997; onwuegbuzie, 2003). statistics anxiety is negatively related to statistics performance (lalonde and gardner, 1993; zeidner, 1991), whereas positive statistics attitude is associated with better statistics performance (lalonde and gardner, 1993; roberts and bilderback, 1980; wise, 1985). silvia et al., (2008) examined these relationships. they found that students with poor math competence showed more sustained negative attitudes toward statistics throughout the semester; whereas students who did not fail the introductory statistics course had improved statistical attitudes. moreover, anxiety toward statistics was found among the students that eventually fail the course. nasser (2004) also found that mathematical competence, mathematical anxiety, attitudes toward mathematics and statistics, and motivation, together accounted for 36% of the variance in statistics performance. it has been reported that mathematics and statistics are two distinct methodological disciplines (gal and garfield, 1997; groth, 2007; moore, 1988, 1992), and statistics education is a new and emerging lai, tanner, stevens advances in business research 2011, vol. 2, no. 1, 115-124 116 discipline (zieffler et al., 2008). given the disciplinary differences between mathematics and statistics outlined by gal and garfield (1997), it seems rational that statistics education should shift its focus from mathematical computation and procedure to an emphasis on statistical literacy, statistical reasoning, and statistical thinking (garfield, 2003; jeffries, 2001; moore, 1997; tempelaar et al., 2007). to address whether statistics education is a new and emerging paradigm calling for vastly different pedagogies from mathematics education, the present study focuses on the relationship between mathematical competence and statistics performance. specifically, this research investigates the relationship between undergraduate business students’ mathematical competence measured by american college testing (“act”) math score, their grades in remedial and required mathematics courses and their performance (as measured by final grade) in required business statistics courses. since the authors work in a department offering the undergraduate degree in management information systems (“mis”), the primary interest was in determining the effects of mathematics preparation on statistics performance for students majoring in mis. therefore, this study investigates the following research questions: 1. does an undergraduate mis student’s act math score have any effect on their final grades in business statistics courses? 2. does an undergraduate mis student’s success in a remedial mathematics course have any effect on their final grades in business statistics courses? 3. does an undergraduate mis student’s success in other required mathematics courses have any effect on their final grades in business statistics courses? literature review lalonde and gardner (1993) examined various factors in relation to statistics performance of psychology students in an introductory statistics course. factors in three classes (aptitude, situational anxiety, and attitudinal-motivational characteristics) were used. mathematical aptitude factors include mathematics background level ranging from low to high, and a 10-question test designed to measure basic mathematical ability. their correlation analysis revealed that mathematical background was positively correlated (r = +.37) with statistics performance. similarly, score on a basic mathematics test was also positively correlated (r = +.29) with statistics performance. galagedera (1998) investigated the influences of a remedial mathematics course on success in an elementary statistics course, where the remedial mathematics course was required by students who failed to satisfy the entry requirements for mathematics. regression analysis suggested that the performance in the remedial mathematics course tended to be positively correlated with the statistic score. musch and broder (1999) conducted a study to determine the relative contribution of test anxiety, study habits, and math skills to the performance of 66 students on a statistics exam. regression analysis revealed that all three variables together explained about 25% of the variance in the final statistics exam score, while math skills explained 17% of the variance and contributed significantly to exam performance. johnson and kuennen (2006) conducted an ordered probit regression to identify factors that contributed to undergraduate students’ success in an introductory business statistics course, as measured by final grade in the course. independent variables included (1) whether the student had taken calculus or business calculus, (2) whether the student had taken compulsory remedial mathematics, (3) score on a basic math skills test, (4) act math score, and (5) act science/reasoning score. they identified that the most important determinants of student statistics performance are gpa, the act science score, the basic math quiz score, gender, and professor. silvia et al., (2008) investigated the factors linked to the difficulties encountered by 442 psychology students in introductory statistics courses, using a between-subject design: those who never failed the final exam and those who failed at least once before passing it. factors investigated included math background, math competence, and attitude and anxiety toward statistics. from t tests, they found that students’ math background and competence had a statistically significant effect on their final statistics performance. moreover, students who enrolled in the course without an adequate level of mathematical lai, tanner, stevens advances in business research 2011, vol. 2, no. 1, 115-124 117 competence showed more negative attitudes and high anxiety toward statistics learning, and such negative attitudes failed to change throughout the semester. tanner et al., (2009) examined the relationship between undergraduate business students’ math skills and their performance in a business statistics course. the basic math/computational skills test with 40 basic questions was administered to a convenience sample of 174 students in statistics classes. results suggested that math skills have some influence on final statistics grade. for example, students who earned a grade of a in statistics classes had significantly higher scores on the math skills than those with grades of c, d, or f. the present study differs from previous studies in the following three aspects. first, unlike most of the studies (e.g., lalonde and gardner, 1993; silvia et al., 2008) which used a convenience sample (e.g. the students taking the statistics course(s) taught by the researchers), the present study uses all students enrolled in mis at the authors’ university at the time the data were collected. second, to investigate the effect of mathematical competence on statistics performance, some researchers measured mathematical competence by administering a basic math/computation skills test (e.g., musch and broder, 1999; tanner et al., 2009). in this study, a student’s mathematical competence is measured by a combination of act math score, grades in remedial math course(s), and grades in required math courses. and lastly, the present study measures performance differences in statistics based on four separate initial mathematics placement paths. for instance, one path is to take remedial math, followed by a basic math, then introductory statistics. a second path is to take basic math immediately followed by introductory statistics. these paths are explained further in the next section. methodology participants the purpose of this paper is to study the relationships, if any, that exist between the performances (in terms of final course grade) in undergraduate mathematics classes, and the performances (also in terms of final course grade) in business statistics courses, for students majoring in mis at a regional state university in the southern united states. the curriculum specifies that, in order to graduate, mis majors need to pass various sets of mathematics courses depending upon their act math scores. in addition, these students must pass two statistics (called “quantitative methods” or “qmet”) courses in sequence. see table 1 and table 2 for further demographic information on these mis majors. table 1 shows the distribution of students by gender and classification, as well as their act math scores. table 1: student demographics by gender, academic classification, and act math score gender % ( n = 159) academic classification % ( n = 159) act math % ( n = 135) female 15.7 freshman 12.5 < 17 3.7 male 84.3 sophomore 17.6 17 or 18 13.3 junior 25 19 or 20 18.5 senior 44.9 21 – 24 38.6 !"# 25.9 totals 100.0 100.0 100.0 table 2: percentages of grades in mathematics and business statistics courses % by math course % by statistics course grade math 092 math 100 math 105 math 201 mathh 250 qmet 251 qmet 252 a 22.7 9.1 14.7 23.4 17.5 24.5 12.3 b 31.8 34.1 51.6 36.9 25.8 43.6 49.2 c 31.8 52.2 31.6 28.9 45.4 25.5 32.3 d 9.1 2.3 0 9 8.2 4.3 4.6 f 4.6 2.3 2.1 1.8 3.1 2.1 1.6 table 2 shows the students’ final grades on mathematics courses, some of which are remedial, and some of which are required of all business majors at the authors’ university. table 2 also shows final grades in the two business statistics courses, both of which are required of all mis majors. students most lai, tanner, stevens advances in business research 2011, vol. 2, no. 1, 115-124 118 frequently earned a grade of b or c for all mathematics and business statistics courses. descriptions of these courses appear below. initial mathematics placement students are placed into a mathematics course based on their act math score as follows. with an act math score less than 17, a student must take remedial mathematics course(s) at a community college, or pass a freshman placement exam. with a score of 17 or 18, a student will be placed in remedial math 092 (elementary and intermediate algebra). with a score of 19 or 20, a student is placed in math 100 (college algebra fundamentals). all the afore-mentioned courses are remedial mathematics by nature. with a score between 21 and 24, a student is placed in math 105 (college algebra). math 100 and math 105 are interchangeable for degree purposes. with a score of 25 or higher, a student receives credit for math 105 and proceeds directly to math 250 (survey of calculus). course prerequisites are shown in figure 1. for example, math 100 or math 105 is the prerequisite for both math 201 (decision mathematics) and math 250 (survey of calculus). only math 201 is required before taking qmet 251 (fundamentals of business statistics). qmet 251 is a prerequisite for qmet 252 (advanced business statistics). other than math 105 which is a five-credithour course, all other courses mentioned above are worth three credit hours. figure 1 depicts the recommended progression, or “path”, for mathematics and statistics courses at the college. figure 1: mathematics and statistics courses progression paths act math 17, 18 math 092 (elementary & intermediate algebra) act math 19, 20 math 100 (college algebra fundamentals) act math 21-24 math 105 (college algebra) math 250 (survey of calculus) math 201 (decision mathematics) qmet 251 (fundamentals of business statistics) qmet 252 (advanced business statistics) act math !25 data collection each author of this research advises mis majors for their course registration. the university allows faculty advisors online access to students’ academic records. the student’s campus identification number, provided by the mis department secretary, was used to obtain grades, gender, academic classification, and act math score. data was collected from all mis majors at the end of the fall 2010 semester, resulting in a total of 159 students. the grades were not identifiable to individual students. data sources for the quantitative analyses included students’ gender, classification (freshmen, sophomore, junior or lai, tanner, stevens advances in business research 2011, vol. 2, no. 1, 115-124 119 senior), act math score, the final grade received for remedial math (math 092), final grades from required math courses (math 100 or 105, math 201, and math 250), and final grades from statistics courses (qmet 251 and qmet 252). if a student failed course(s) multiple times, only the final passing grade was recorded. data analysis a scale ranging from 0 to 4 was used to code the grades achieved in all mathematics and statistics courses (f = 0; d =1; c = 2; b = 3: and a = 4). spss version 17 was used to conduct all statistical analyses. first, correlation analyses were conducted to investigate the relationships between the students’ performance in mathematics courses and their grades in both business statistics courses. second, as described earlier in the subsection of initial mathematics placement, mis majors were placed into different initial math classes based on their act math scores. one-way anova tests were conducted to test for differences in students’ business statistics grades, treating the four different initial math placement paths (see figure 1) as independent variables. if the group difference was significant, the post-hoc multiple comparisons tests using gabriel’s procedure were conducted to compare all different combinations among the four act math paths. third, a paired t-test was conducted to test the difference in mean grades between the two business statistics courses. the alpha level for all analyses was set at !"!#$%# results correlation analyses table 3 shows 12 correlations, only four of which were positive and statistically significant between: a) act math scores and fundamentals of business statistics (qmet 251) grades, r = .231, p = .04. b) college algebra (math 105) grades and qmet 251, r = .263, p = .048. c) math 105 and advanced business statistics (qmet 252), r = .405, p = .012. d) decision mathematics (math 201) and qmet 251, r = .266, p = .015. other than math105, none of the other math-related scores or grades were statistically correlated to performance of qmet 252, the advanced business statistics course. table 3: correlations between mathematics performance and statistics performance correlations between r (coefficient of correlations) p-value** act math & qmet 251 .231 .040** act math & qmet 252 .031 .819 math 092 & qmet 251 .221 .540 math 092 & qmet 252 .423 .498 math 100 & qmet 251 .120 .545 math 100 & qmet 252 .258 .286 math 105 & qmet 251 .263 .048** math 105 & qmet 252 .405 .012** math 201 & qmet 251 .266 .015** math 201 & qmet 252 .028 .833 math 250 & qmet 251 .041 .737 math 250 & qmet 252 .075 .607 &&'()*(+(,-*.!,/0012-.(/*!-.! !"!#$%!321412!/+!5()*(+(,-*,16 anova on qmet grades for different math placement paths analysis of variance (anova) showed that initial mathematics placement and path of progression, as shown in figure 1, had no statistically significant effect on performance in qmet 251, with f (3, 75) = 1.272, p = .290, and effect size r = .22. similarly, initial mathematics placement and path of progression lai, tanner, stevens advances in business research 2011, vol. 2, no. 1, 115-124 120 had no significant statistical effect on performance in qmet 252, with f (3, 52) = .513, p = .0675, and effect size r = .17. paired t test a paired t-test was performed on the mean difference of grades between qmet 251 and qmet 252 (each pair of values consisted of a single student’s grade in each course). the results indicated a statistically significant difference with t = 3.609 and p = .001 in final grades between the two courses. discussion the purposes of the study were to investigate the effects of act math scores, performance in remedial mathematics courses, and required mathematics courses on mis majors’ performance in two business statistics courses. correlation analyses revealed statistically significant correlations only between act math scores and qmet 251, between math 105 and both business statistics courses; and between math 201 and qmet 251. these would seem to indicate that students’ remedial mathematics grades (math 092), fundamental college algebra (math 100), and survey of calculus (math 250) have little or no effect on business statistics grades in either statistics course. these results indicate that math performance is generally a significant indicator of performance in the first statistics course, but not the second one. in addition, success in the first statistics course is significantly different from success in the second course as indicated by the significant t-test result for mean difference in grades. basically, qmet 251 is an introduction to statistics featuring one variable methods and qmet 252 is primarily concerned with multiple variable methods. thus the content of the second statistics course is more statistical than mathematical. in fact, there is very little mathematics required in either of the two statistics courses. a very basic knowledge of algebra is all that is required. calculus is not required in either statistics course, and probabilities for distributions are tabulated in statistical tables. this fact seems to support the previous research which indicates other factors such as anxiety and attitude are very important in both mathematics and statistics performance. students who succeeded in math have overcome the math anxiety, and therefore succeeded in the first statistics course. anova analyses revealed that different mathematics preparation (i.e. whether remedial mathematics was required) had no effect on mis majors’ performance in both business statistics courses, similar to the research findings of gnaldi (2006) and johnson and kuennen (2006). the present findings contradict the general consensus in the literature that students’ statistical performance is positively related to their mathematical competence. instead, these findings corroborate the claim that mathematics and statistics are two distinct methodological disciplines (carmichael et al., 2009; chance and garfield, 2002; groth, 2007; johnson and kuennen, 2006; moore, 1992; zieffler et al., 2008). according to gal and garfield (1997), statistics differs from mathematics in the following perspectives: a) in statistics, data are numbers within a context. the context motivates procedures and is the source of meaning and basis for interpretation of results of such activities. b) context-bounded statistical problems usually do not have a single mathematical solution, but mathematics is characterized by precision and finiteness. c) mathematical concepts and procedures function only as a part of the attempt to solve statistical problems. moreover, the computation or execution of mathematical procedures is being replaced by the use of sophisticated computer software programs. d) a primary goal of statistics education is to enable students to render reasoned descriptions, judgments, inferences, opinions and interpretation of data with the help of mathematical tools when needed. statistics education is a new and emerging discipline (zieffler et al., 2008). given the disciplinary differences between mathematics and statistics outlined by gal and garfield (1997), it seems rational that statistics education should shift its focus from mathematical computation and procedure to an emphasis lai, tanner, stevens advances in business research 2011, vol. 2, no. 1, 115-124 121 on statistical literacy, statistical reasoning, and statistical thinking (garfield, 2003; jeffries, 2001; moore, 1997; tempelaar et al., 2007). in the statistical literacy model that gal (2002) proposed, mathematical knowledge is only one of five cognitive elements. according to gal, statistical literacy involves knowledge elements including literacy skills, statistical knowledge, mathematical knowledge, context knowledge, and critical knowledge, and dispositional elements including beliefs, attitudes and critical stance. furthermore, such disciplinary differences drive the board of directors of the american statistical association to endorse a set of six guidelines for teaching an introductory college statistics course (franklin and garfield, 2006). the guidelines specify that instruction should: a) emphasize statistical literacy and develop statistical thinking. b) use real data. c) stress conceptual understanding rather than mere knowledge of procedures. d) foster active classroom learning. e) use technology for developing conceptual understanding and analyzing data. f) use assessments to improve and evaluate student learning. note that none of these guidelines specify “mathematical” skills or competencies. these guidelines, together with the results of the present study, are in agreement with gal’s (2002) model which describes mathematical knowledge as only one of the seven elements in statistical literacy. future research findings were based solely on a population of mis majors, which were predominantly male. consequently, generalizations of these results may be limited. future studies should include a larger proportion of females. other studies should also focus on majors outside mis. as reviewed by zimmer and fuller (1996), there are numerous factors that affect undergraduate students’ statistics performance: statistics factors (statistics anxiety and statistics attitude), mathematical factors (math anxiety and math attitude), technological factors (computer anxiety, computer attitude, and ability to use calculators), and personal factors (gpa, test anxiety, gender, spatial ability, age, and personality). this study primarily examined the effect of mathematical performance on performance in business statistics courses. more research incorporating the other factors is warranted. as indicated in the literature and confirmed by the present study, mathematics and statistics are two separate disciplines with separate pedagogy. researchers should investigate instructional methods for success in statistics separately from those adopted in mathematics education. conclusion in recent years a paradigm shift has occurred from traditional views of teaching statistics as a mathematical topic (which emphasizes computations, formulas and procedures) to the current view that statistics is a distinct methodological discipline from mathematics. such disciplinary differences call for statistics education to emphasize statistical literacy, statistical reasoning, and statistical thinking. this study finds that undergraduate students’ mathematical preparation and competence had very little effect on their performance in business statistics courses. this study supports the claim that statistics education is different from mathematical education. consequently, instructors of statistics should adhere to the new guidelines of statistical teaching and learning as prescribed by the board of directors of the american statistical association. references adams, n., & holcomb, w. 1986. analysis of the relationship between anxiety about mathematics and performance. psychological reports, 59: 943-948. lai, tanner, stevens advances in business research 2011, vol. 2, no. 1, 115-124 122 ben-zvi, d., & garfield, j. 2004. the challenge of developing statistical literacy, reasoning and thinking. dordrecht, the netherlands: kluwer academic publishers. bessant, k. 1995. factors associated with types of mathematics anxiety in college students. journal of research in mathematics education, 26: 327-345. carmichael, c., callingham, r., watson, j., & hay, i. 2009. factors influencing the development of middle school students' interest in statistical literacy. statistics education research journal, 8: 62-81. carmona, j. 2004. mathematical background and attitudes toward statistics in a sample of undergraduate students. paper presented at the 10th international conference on mathematics education, copenhagen, denmark. chance, b., & garfield, j. 2002. new approaches to gathering data on student learning for research in statistics education. statistics education research journal, 1: 38-44. feinberg, f., & halprin, s. 1978. affective and cognitive correlates of course performance in introductory statistics. journal of experimental 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(pp. 1-14). amsterdam, netherlands: ios press. gal, i., ginsburg, l., & schau, c. 1997. monitoring attitudes and beliefs in statistics education. in i. gal, & j. garfield (eds.), the assessment challenges in statistics education. (pp. 37-51). netherlands: ios press. galagedera, d. 1998. is remedial mathematics a real remedy? evidence from learning statistics at tertiary level. international journal of mathematics education, sciences and technology, 29: 475-480. galagedera, d., & woodward, g. 2000. an investigation of how perceptions of mathematics ability can affect elementary statistics performance. international journal of mathematics education, sciences and technology, 31: 679-689. garfield, j. 2003. assessing statistical reasoning. statistics education research journal, 2: 22-38. gnaldi, m. 2006. the relationship between poor numerical abilities and subsequent difficulty in accumulating statistical knowledge. teaching statistics, 28: 49-53. groth, r. 2007. toward a conceptualization of statistical knowledge for teaching. journal for research in mathematics education, 38: 427-437. hogg, r. 1991. statistical education: improvement are badly deeded. american statistician, 45: 342-343. jeffries, p. 2001. computer versus lecture: a comparison of two methods of teaching oral medication administration in a nursing skills laboratory. journal of nursing education, 40: 323-329. lai, tanner, stevens advances in business research 2011, vol. 2, no. 1, 115-124 123 johnson, m., & kuennen, e. 2006. basic math skills and performance in an introductory statistics course. journal of statistics education, 14: www.amstat.org/publications/jse/v14n12/johnson.html. lalonde, r., & gardner, r. 1993. statistics as a second language? a model for predicting performance in psychology students. canadian journal of behavioral science, 25: 108-125. mcleod, d. 1992. research on affect in mathematics in the jrme: 1970 to present. journal of research in mathematics education, 25: 637-647. moore, d. 1988. should mathematicians teach statistics? college mathematics journal, 19(1), 3-7. moore, d. 992. teaching statistics as a respectable subject. in f. gordon, & s. gordon, (eds.), statistics for the twenty-first century. (pp. 14-25). washington, dc: mathematical association of america. moore, d. 1997. new pedagogy and new content: the case of statistics. international statistical review, 65: 123-137. musch, j., & broder, a. 1999. test anxiety versus academic skills: a comparison of two alternative models for predicting performance in a statistics exam. british journal of educational psychology, 69: 105-116. nasser, f. 1999. prediction of statistics achievement. proceedings of the international statistical institute 52nd conference, (vol. 3, pp. 7-8). helsinki, finland. onwuegbuzie, a. 2003. modeling statistics achievement among graduate students. educational and psychological measurement, 63: 1020-1038. onwuegbuzie, a., & seaman, m. 1995. the effect of time constraints and statistics test anxiety on test performance in a statistics course. journal of experimental education, 62: 115-124. onwuegbuzie, a., & wilson, v. 2003. statistics anxiety: nature, etiology antecedents, effects, and treatments a comprehensive review of the literature. teaching in higher education, 8: 195-209. roberts, d., & bilderback, e. 1980. reliability and validity of a statistics attitude survey. educational and psychological measurement, 40: 235-238. schutz, p., drogosz, l., white, v., & distefano, c. 1999. prior knowledge, attitude and strategy use in an introduction to statistics course. learning and individual differences, 10: 291-308. silvia, g., mateo, c., francesca, c., & caterina, p. 2008. who failed the introductory statistics examination? a study on a sample of psychology students. paper presented at the 11th international congress on mathematics education, monterrey, mexico, available at http://tsg.icme11.org/document/ get/526. snee, r. 1993. what's missing in statistical education. american statistician, 47: 149-153. stodolsky, s. 1985. telling math: origins of math aversion and anxiety. educational psychologist, 20: 125-133. tanner, j., totaro, m., pham, t., & noser, t. 2009. math skills and undergraduates' performance in business statistics: a relationship analysis. international journal of education research, 4: 127-139. tempelaar, d., van der loeff, s., & gijselaers, w. 2007. a structural equation model analyzing the relationship of students' attitudes toward statistics, prior reasoning ability and course performance. statistics education research journal, 62: 78-102). lai, tanner, stevens advances in business research 2011, vol. 2, no. 1, 115-124 124 wise, s. 1985. the development and validation of a scale measuring attitudes towards statistics. educational and psychological measurement, 45: 401-405. wisenbaker, j., scott, j., & nasser, f. 2000. structural equation models relating attitude about and achievement in introductory statistics courses: a comparison of results from u. s. and israel. paper presented at the annual meeting of the international group for the psychology of mathematics education, akito, japan. zeidner, m. 1991. statistics and mathematics anxiety in social science students: some interesting parallels. british journal of educational psychology, 61: 319-328. zieffler, a., garfield, j., alt, s., dupuis, d., holleque, k., & change, b. 2008. what does research suggest about the teaching and learning of introductory statistics at the college level? a review of the literature. journal of statistics education, 16: www.amstat.org/publications/jse/v16n12/zieffler.html. zimmer, j., & fuller, d. 1996. factors affecting undergraduate performance in statistics: a review of literature. paper presented at the mid-south educational research association, tuscaloosa, al. guolin lai is an instructor in the department of business systems, analysis, and technology at university of louisiana at lafayette. his research interests include leveraging the affordances of emerging technologies in the design and development of computer-based performance support mechanisms, and in innovative teaching methods in quantitative methods. he has published in educational technology research and development, journal of research on technology in education, journal of technology and teacher education, international journal of technology in teaching and learning, and others. john tanner is a professor in the department of business systems, analysis, and technology at university of louisiana at lafayette. he has published in omega, journal of management information systems, information and management, journal of computer information systems, journal of informatics education research, and journal of education for business, journal of business and economic perspectives, public personnel management, international journal of innovation and learning, and others. david stevens is an associate professor in the department of business systems, analysis, and technology at university of louisiana at lafayette. his research interests include mathematical optimization, innovative teaching methods for quantitative methods, and in development of business information systems. he has published in decision sciences, journal of computer information systems, quality engineering, mortgage banking, journal of applied radiology, and others. advances in business research 2011 volume 2.pdf heller advances in business research 2011, vol. 2, no. 1, 163-171 163 impact of strategic cross-sector brand alliances on consumer behavior in a recession nathan heller, tarleton state university like many organizations in an economic downturn, such as a recession, nonprofits have experienced a decrease in donations from individuals, corporations, and governmental funding sources. this loss of funding has resulted in a reduction of services offered and in some cases closure. management at nonprofit organizations should study successful examples of cross sector marketing alliances and strategically replicate them with private sector organizations. this is achieved via cause-related marketing, a commercial partnership between a nonprofit organization and a private sector business. seven fictional organizations were created for the current study to avoid preconceived notions. comparisons were completed between private sector and nonprofit sector organizations. additionally, comparisons were made between mixed strategic alliances of organizations with a positive image and those with a negative image which examine the impact of strategic alliances between private and nonprofit organizations. the measurements were a respondent’s willingness to contribute to or purchase from the firms. results indicate that a firm’s image influences the willingness of the respondents to support the organization through donations or purchases in both the individual firm and strategic alliance scenarios. nonprofit organizations experienced a decrease in corporate and individual charitable donations and the loss of government funding resulting in slashed budgets, a reduction of services offered and in some cases closure (hrywna, 2006). stories from across the country indicate that for many of these charitable organizations to survive in the current economy they will need to regenerate themselves fiscally through new avenues of fund raising. management at nonprofit organizations should study successful examples of cross sector marketing alliances and strategically replicate them with private sector organizations. a notable successful alliance exists between intel corporation and the united way. in the 2008 corporate responsibility report at intel reported…despite economic uncertainty, community giving campaign donations in 2008 increased 10.5% over 2007 to a record $11.7 million, including $622,000 from intel retirees. with the intel foundation match, the total contribution amounted to more than $22.5 million. every intel site exceeded its goal. intel placed in the top 10 united way corporate campaigns in the u.s. in 2008 (intel corporation, 2009). the marketing discipline is concerned with influencing consumer behaviors. in the private sector, this means convincing customers to purchase a particular product or service in lieu of other options. it is also concerned with influencing retailers to stock particular merchandise and through internal marketing, ensuring that the frontline staff of service organizations, whether public, nonprofit, or private, delivered exceptional customer service. private sector managers at all levels know that marketing and a customercentered marketing mindset are crucial to their success. additionally, brand alliances have increasingly become an effective strategy to leverage a new or unknown brand (najam and rajesh, 2008). there is an increasing perception that organizations across the three sectors…can benefit by acting cooperatively, particularly through branding and forming alliances” (heller, 2008). research has demonstrated the importance of brands matching on abstract measures for an alliance to have success. managers need to recognize that fit between brands in an alliance should not only be on the functional level of skills and expertise, etc., but also on the abstract level with brands matching on a personality dimension giving stronger overall alliance attitude scores. collaboration is a mutually beneficial way for both brand alliance partners to leverage their brands through the transfer of established brand attitudes to new relationship partners” (dickinson and barker, 2007). the same is true in the nonprofit world and in many parts of the public sector. public and nonprofit managers realize that their missions involve influencing donors to give, encouraging volunteers to come forward, convincing clients to seek help, motivating staff to be client friendly, and so on. therefore, marketing and the marketing mindset are critical for these organizations as well. heller advances in business research 2011, vol. 2, no. 1, 163-171 164 knowing goals and missions can be aligned across sectors has made the adoption of such strategies into the nonprofit sector much easier. “the substantial similarities between both (for-profit and nonprofit) is that they exist…to supply collective goods or create some sort of public benefit” (word and park, 2009). in both sectors, there are similarities in goals to influence their target audience; therefore, there has to be some sense of trust from the general public for success (bryce, 2007). “such cross-sector partnerships have been one of the most exciting and challenging ways that organizations have been implementing” such ideas (seitanidi and crane, 2009). through successful for-profit alliances, nonprofits have seen the value of adopting for-profit business practices and methods. because of these successes, nonprofits are being motivated to adopt for-profit techniques and create competitive jobs to attract experienced employees to execute these techniques (andreasen et al., 2005). the “benefit of for-profit skills/experience…was seen as filling a need for assistance” in using for profit ideas in nonprofit environments (mannell, 2010). market penetration for a nonprofit is the largest benefit, while for-profit agencies can benefit by aligning with a nonprofit that their customers “have an affinity” (bennett et al., 2008). cause related marketing calls on players outside the nonprofit sector to interact with the nonprofit and public sectors (sagawa and segal, 2000). government agencies such as the national cancer institute or the centers for disease control and prevention partner with organizations like the american cancer society or the campaign for tobacco-free kids to achieve mutual objectives. an increasing number of corporations and nonprofits are partnering to achieve organization objectives. cause-related marketing is a $7 billion sector with corporations like nike and coca-cola actively engaged with boys & girls clubs of america in achieving each organization’s objectives, as well as the objectives they have in common through the use of brand alliances and strategic partnerships. thus, managers in each sector need to understand marketing and how marketing is – and ought to be – used in the nonprofit environment. nonprofit managers need to be better at influencing their myriad stakeholders and publics whose behaviors determine the nonprofit’s success. government managers need to know about marketing techniques in the nonprofit world because they are often interested in promoting similar outcomes. finally, corporate marketers need to understand nonprofit marketers and the world in which they operate to create efficacious partnerships (andreasen, 2003). over the last 20 years an important development has occurred in the field of nonprofit marketing; the growth in importance of soliciting corporate involvement in the nonprofit sector. as nonprofits found themselves in greater and greater need of outside support, they turned to private sector partnerships for assistance. cause-related marketing, a commercial partnership between a charity and a business, involves associating a charity’s logo with a corporation’s brand, product, or service. effective cause-related marketing benefits organizations in both sectors. it encourages product sales for the private organization and raises funds for the charity. for example, general mills contributes a determined amount to elementary schools for each “box top” or proof of purchase collected by the schools. corporations have found that these and other public sector activities not only improve their public image but also contribute to their bottom lines (weeden, 1998). organizations survive in part upon their reputations which are embodied in the public perception of them. a business organization that sells a product microsoft, selling computer software for example relies on the public perception of the quality of its product for sales. this perception of product is largely tied to the public perception of the organization. this includes visions of the quality of management, the reliability of its service guarantees, and the perception that the company stands behind its product. more and more, even in the private sector, the public perception of the organization is affected by people’s beliefs about its mission, role in society and particularly the social responsibility it assumes (lasser and mittal, 1995). these same issues are also critical for nonprofit organizations, particularly those that deliver social services or promote positive societal outcomes for shared values such as creating opportunity for the poor, educational issues, and the like. consequently, a nonprofit organization is judged on its ability to achieve its goal (service delivery or contributing to sustaining societal values), but also on the effectiveness of its management, the central value status of its goals, and its tactics for achieving goals. with a constricting economy, both private organizations and nonprofit organizations are heller advances in business research 2011, vol. 2, no. 1, 163-171 165 pressured to maximize the positive public esteem. in the private sector this has led to strategic alliances or partnerships between companies to promote mutual interests in both products and services offered and in the public perception of their legitimacy. among nonprofits, there has been great interest in the past decade in similar alliances and partnerships with other nonprofits and with private organizations to maximize their own interests, including public acceptance of services offered and public support as volunteers and contributors. the purpose of this study is to examine the impact of alliances among private and nonprofit organizations on people’s perceptions of the impact of the pairings on attitudes toward the organizations and intent to support the organizations. a marketing emphasis exists in this research that seeks to understand how an individual’s perceptions of an organization are affected when it partners with another organization to pursue joint goals. conceptually, brand alliances and their use in the private sector and might be used in the nonprofit sector are at the theoretical basis of this study. the goal of this study is to examine consumer/donor responses to a series of diverse, hypothetical brand alliance and to identify risks that organizations take in choosing other organizations with which to partner. as there is limited research available on consumer perceptions of brand alliances in the private sector and almost no research incorporating the effects of alliances or partnering in the nonprofit sector, this research is exploratory in nature. research questions the general aim of this research is to document whether or not different types of alliances or partnerships affect the consumer’s willingness to purchase or contribute to organizations and to investigate demographic differences that may exist. two types of organizations are addressed: private sector businesses and nonprofit sector service organizations. the reputation of the organizations participating in the alliance or partnership as positive or negative is also of concern. these issues can be combined and addressed by answering the following research questions: what is the effect of an organization’s reputation (as positive or negative) on people’s willingness to do business? what is the effect of sector on willingness to do business for organizations with positive reputations? in brand alliances or partnerships, is there a differential penalty for an organization with a positive reputation that partners with an organization with a negative reputation? what is the effect of years of service and number of annual contributions on an individual’s willingness to do business with a nonprofit or private organization? a quasi-experimental design that varies combinations of private sector and nonprofit organizations was used to structure comparisons that are based on individual research participant willingness to purchase a product (private sector) or willingness to contribute to a nonprofit organization (nonprofit sector). research hypotheses h1: it is expected that an individual’s willingness to contribute will increase with each additional annual contribution. h2: it is expected that an individual’s willingness to contribute will increase with each additional year of service with their current organization. significance of the study this research is salient for several reasons. first, brand alliances are increasing in popularity as a means for both nonprofit and private sector organizations to accomplish organizational goals and heller advances in business research 2011, vol. 2, no. 1, 163-171 166 objectives. thus, it is important for organizations to understand the costs and benefits in cross-sector alliance creation. little empirical data exists regarding these issues in either sector. this study addresses the question of whether the types of organizations (private versus nonprofit) and their reputations have an impact on people’s decisions to purchase or contribute. this issue is particularly important to the management of organizations that are preparing to enter alliances or partnerships with other organizations in the current recessed economy. in particular, nonprofit organizations which are increasingly dependent on charitable donations must choose optimal private corporate partners, in order to increase the likelihood of success. finally, given the exploratory nature of the study, the new information obtained can be used to identify new questions for further research. in particular, the research provides an initial assessment of attitudinal and demographic characteristics of people making assessments of private and nonprofit organizations’ reputations. research methodology the dependent variable in this study is individual “willingness to purchase a product or service from a private organization.” since interest focuses upon making comparisons between private sector and nonprofit organizations that do not sell products or services, a parallel dependent variable is individual “willingness to make a contribution to a nonprofit organization.” these “willingness” variables are intended to measure the respondent’s ultimate support of a focal organization. that is, in the marketing discipline, the principal test of product or service perception is whether the product or service is purchased by consumers (peter and olson, 1999). in the case of nonprofit organizations, services and products may be provided by the organization to its clients, but the relationship of interest in this study is between the organization and the public that may provide financial support. individuals will be the focus for this research, and in measuring “willingness to contribute,” we will focus on willingness to contribute monetarily. logistic regression was incorporated as it was the most appropriate given that the dependent variable was dichotomous; respondents indicated that they were either willing on not willing to contribute to or purchase from the fictitious firms. willingness to contribute was measured as a dummy variable; possible response values were 1 and 0. responses were coded “1” if the individual expressed willingness to contribute and “0” if the respondent was not willing to contribute to or purchase from the organizations. the independent variables of interest for the analyses were both continuous. annual contribution rate, measured in number of contributions in the last year, and years of service with the respondent’s current organization. results are reported as probability values with feasible responses falling within the range 0.0 to 1.0. linear regression was ruled out for the analyses as there are no limits on the values predicted by a linear regression. the result of the linear regression yielded a predicted response less than 0 or greater than 1, either of which would be nonsensical as a response probability. if the dependent variable had been continuous rather than dichotomous, that is, if respondents had been asked how much money they would be willing to contribute or how much they would be willing to purchase from the fictitious firms, linear regression, anova or a similar method could have been used. as a result of the global economic downturn in the last five years, nonprofit organizations experienced a decrease in corporate and individual charitable donations. combined with the loss of government funding, the impacts to these firms have been slashed budgets, a reduction of services offered and in some cases closure. management at nonprofit organizations should study successful examples of cross sector marketing alliances and strategically replicate them with private sector organizations. this is achieved via cause-related marketing, a commercial partnership between a nonprofit organization and a private sector business. seven fictional organizations were created for the current study. comparisons were completed between private sector and nonprofit sector organizations as well as comparisons between mixed strategic alliances of organizations with a positive image and those with a negative image which examine the impact of strategic alliances between private and nonprofit organizations, and on respondent willingness to contribute to or purchase from the firms. results indicate that firm image influences the willingness of heller advances in business research 2011, vol. 2, no. 1, 163-171 167 the respondents to support the organization through donations or purchases in both the individual firm and strategic alliance scenarios. other variables to be measured in this study are principally background variables are used as control variables in the analysis. to account for basic comparability of subjects, age, gender and years on the job were measured for each subject. it is possible that a person’s experience with or perception of nonprofit organizations in general might have an impact on how the “willingness” ratings are made. to examine any possible relationship between a person’s history with nonprofit organizations and their rating of such organizations, each subject will also be asked, "how frequently have you contributed time or money or made other types of donation to any nonprofit organization (not a church)?" the research questions in this study require the respondent to make a series of structured comparisons. to accommodate these comparisons, the basic design of the study is quasi-experimental design, involving participant evaluations of a series of six structured pairs of organizations (reichardt and mark, 1998). seven fictional organizations were created for the study, four from the private sector and three from the nonprofit sector. in addition to comparisons between private sector and nonprofit sector organizations, the research questions call for comparisons between organizations with a positive image and those with a negative image. the development of a positive versus negative image for selected organizations is the experimental manipulation. the manipulation was achieved by varying the descriptions offered for the organizations. in this case, two of the nonprofit organizations were given a positive profile, two private organizations were given a positive profile, two private organizations were given a negative profile, and one nonprofit was given a negative profile. the organizations with a positive profile contained positive statements in all four of the reputation elements. the organizations assigned a negative profile had positive descriptions in two areas (product/service reliability and managerial effectiveness) and negative descriptions in two areas (honesty of claims and social responsibility). this study used an availability sample (volunteers) of 120 subjects drawn from employees of a fortune 500 company located in chandler, arizona. a single questionnaire was developed that contained the descriptions, the combinations of organizations and the willingness measure described above. the questionnaire also contained demographic questions and questions regarding the participant’s past involvement and attitude toward nonprofit service organizations. the last questions were used to determine whether or not the respondents’ past practices or attitudes impact the dependent variable independently of the sector and reputation of the organizations. results before analysis was completed the dependent variable response sets were re-coded from a 7 item likert scale assessing varying levels of willingness to purchase or contribute, to a binary response set willing to purchase or contribute or not willing to purchase or contribute. general descriptive statistics, provided in table 1, were run for the independent variables of interest. cross tabulations were then run to determine willingness to donate for each organization and the experimental pairings. these results are presented in table 2. finally, logistic regression analysis was used to understand the effect of the independent variables of interest on willingness to donate and the results are presented in table 3. descriptive statistics revealed that the average age of the respondents in this study was 33 years. on average they have been with their current employer 8 years and as a group contribute (financially) to nonprofit organizations (not churches) about 2 times per year. see table 1 for complete descriptive statistics. table 1: descriptive statistics on independent variables variable observations mean std. deviation min max years of service with organization 110 8.15 5.10 1 25 number of contributions to nonprofit in last year 110 2.20 1.27 0 7 age 110 33 8 20 55 heller advances in business research 2011, vol. 2, no. 1, 163-171 168 the goal of this study was to respond to four research questions as outlined above. the results from the cross tabulations were used to respond to the first 3 questions and logistic regression analyses were conducted to respond to the fourth. the results for these questions are presented below. the purpose of research question 1 was to determine if there was a difference in respondent’s willingness to contribute to or purchase from an organization based on the organizations reputation. convincingly, for both private and public organizations, respondents were much less likely to do business with the organizations that had been assigned negative (-) reputational attributes. for all three organizations that were reported to have negative reputations, the percentage of respondents willing to do business was less than 9%. rather, only 9% of the respondents were willing to do business with an organization with a negative reputation. research question 2 addressed potential differences in willingness to do business that may exist due to the sector in which an organization falls for organizations with positive reputations. four experimental organizations met these criteria 2 public and 2 private. results show that more respondents were willing to do business with the private organizations with positive reputations 93.64 and 94.55%, than were willing to do business with public organizations with positive reputations 89.10 and 87.27%. research question 3 addressed the willingness to do business with organizations in a brand alliance in which one of the organizations has a negative reputation versus alliances in which both organizations have positive reputations. four pairings were compared to answer this research question. pr (+) & pu (+) pu (+) & pu (+) pr (-) & pu (+) pu (+) & pu (-) in all cases, the respondents were less willing to do business with pairs of organizations in which one of the organizations had a negative reputation. several other interesting results fell out of this research questions. first, more respondents 90% -were willing to contribute to allied nonprofit organizations with positive reputations than any other pairing of or individual organization. second, respondents were much less likely to do business with a nonprofit with a positive reputation paired with a private with a negative reputation 36% -than to do business with a nonprofit with a positive reputation paired with a nonprofit with a negative reputation 60%. see table 2 for complete results. table 2: cross tabulation results on willingness to contribute organization or organizational pairing %willing to contribute childhood disease foundation (pu+) 89.10 mom’s friend childcare (pu+) 87.27 neighbor’s helping home meals (pu-) 7.27 nirvana bath fixtures (pr-) 6.36 jerry’s furniture (pr+) 94.55 floppy ears personal computer (pr+) 93.64 international athletic shoes (pr-) 8.18 jerry’s furniture (pr+)/ childhood disease foundation (pu+) 77.27 childhood disease foundation (pu+)/ mom’s friend childcare (pu+) 90.00 nirvana bath fixtures (pr-)/mom’s friend childcare for single mothers (pu+) 36.36 neighbor’s helping home meals (pu-)/childhood disease foundation (pu+) 60.91 notes: willingness to contribute is measured as a dummy variable, which equals 1 if the individual expressed willingness to contribute and 0 if otherwise. finally, logistic regression analysis was used to explore the relation between willingness to do business and the years of service at the current organization. only the overall model for neighbor’s helping home meals (pu-)/childhood disease foundation (pu+) was significant and model coefficients and standard deviations are presented in table 3. the annual contribution rate odds ratio was statistically significant, p = .015, at the alpha = .05 level. results of the logistic regression model are interpreted as heller advances in business research 2011, vol. 2, no. 1, 163-171 169 the odds of a contribution increase by 1.53 for each additional contribution per year. the magnitude of the odds ratio and the direction of the sign are appropriate. table 3: effect of annual contribution rate on willingness to contribute variable (1) (2) annual contribution rate 1.528* (.2692) 1.538* (.2740) years of service with organization 1.033 (.0462) notes: willingness to contribute is measured as a dummy variable, which equals 1 if the individual expressed willingness to contribute and 0 if otherwise. years of service and number of contributions in the last year are measured as continuous variables in years, and number of contributions. odds ratios are presented as are standard deviations (in parentheses). * denotes statistical significance at the .05 level. conclusions, discussion, and marketing implications results for question one indicate that respondents were convincingly less likely to do business with organization with negative reputations. this finding was not surprising and conveys that regardless of sector, respondents were not willing to do business with organizations that did not have positive reputations. the finding was nearly the same across all the organizations and the willingness to contribute percentage for all organizations fell in the 6-8% range. though not surprising, the implication of this finding has economic salience for organizations with negative reputation and will be considered below. results for question two demonstrated that respondents showed a greater willingness to do business with private organizations than with nonprofit organizations, when both had positive reputations. a potential explanation for this finding is self-interest. respondents may be slightly more willing to do business with a private organization as there is an immediate and tangible benefit. whereas with the nonprofit, the benefit is not tangible and depending on the timing of the contribution, any potential fiscal benefit may be delayed. a differential ‘alliance’ penalty for organizations with a positive reputation that allies with an organization with a negative reputation was incorporated into the study. rather, the willingness to do business with this alliance was substantially lower than the willingness to do business with allied organizations with positive reputations. research question 3 yields several salient economic factors. first, for organizations with positive reputations, in either sector need to steer clear of organizations of either sector with negative. however, organizations with negative reputations ought to seek out alliances with organizations with positive reputations. for example, 7.27% of respondents were willing to contribute to neighbor’s helping home meals (nhhm). however, when nhhm allied with childhood disease foundation (cdf) respondents were eight times more likely (60.91%) to contribute. thus, it appears that not only is there a differential penalty for positive organizations that ally with a negative organization, there is also a differential reward for organizations with a negative reputation to ally with an organization with a positive reputation. this finding should be of particular value to organizations struggling with reputation (at least with our sample). the results of the final research question indicated that the odds of a contribution increase by 1.53 for each unit increase in annual contribution rate. the direction is as expected and the magnitude seems to make sense. though it is possible that a co-linearity problem may exist as the dependent variable willingness to contribute and the independent variable annual contribution rate may be highly related. future research direction this study was exploratory in nature, and the questions addressed herein have not been addressed in the literature. as with all exploratory research, part of the purpose of the study was to identify further questions for future research. this study has highlighted needs for further research in several areas. the first area is further understanding of collaborative brand alliances because the experimental design used here was based on measuring the effectiveness and risk of brand alliances focusing upon experimentally assigned variation in two aspects of reputation. cooke and ryan (2000) proposed that forms of brand alliances range along a continuum from reputation-based efforts, which revolve around abstract or heller advances in business research 2011, vol. 2, no. 1, 163-171 170 symbolic characteristics of the brand, to those which are based on product related or functional brand attributes and which involve a physical combination of resources. the opposing ends of this continuum reflect the strategic objectives and nature of these different forms of alliances: reputation endorsement and collaboration on core competencies. this view of brand alliances mirrors the perspective developed in the literature that brand alliances range from publicity based agreements to alliances involving co-operation further along the value chain in co-product development and/or commercialization (cooke and ryan 2000). exploring the same basic research questions addressed here also could be applied to brand alliances that collaborate on core competencies. this information would present a more complete picture of the effects of the full scope of brand alliance types. another expansion area of the research initiated by this study involves inclusion of the government sector. it can be speculated that reputation is a critical issue for public sector organizations. it is also known that public sector organizations enter into brand alliances with both private sector and nonprofit sector organizations. there has been an emphasis for some years now among government organizations to embrace partnerships with private businesses. presently, there is no research on the character or outcomes of these partnerships in terms of reputation factors (variables). it will be important that such research be fully comparative, looking at the relationships among private, nonprofit and public organizations. finally, this study should be replicated with a larger, more heterogeneous sample population. all of the participants in this research were employees of a large private sector corporation. certainly most employees in the united states work for private sector organizations and these subjects form a critical audience for all three sectors. however, this research was unable to address “willingness to do business” with private and nonprofit sector organizations by employees in the public or nonprofit sector. this represents an important potential gap in knowledge. there is logic in the reasoning that organizational reputations in general may be more important to people in nonprofit and public sectors and that this might influence the outcomes of assessments of reputation in organizations and willingness to do business. references andreasen, a. 2003. strategic marketing for nonprofit organizations. new delhi, india: prentice hall of india. andreasen, a., goodstein, r., & wilson, j. 2005. transferring "marketing knowledge" to the nonprofit sector. california management review, 47: 46-67. berkowitz, e. 1994. marketing. chicago: irwin. bennett, r., mousley, w., & ali-choudhury, r. 2008. transfer of marketing knowledge within businessnonprofit collaborations. journal of nonprofit & public sector marketing, 20: 37-70. bryce, h. 2007. the public's trust in nonprofit organizations: the role of relationship marketing and management. california management review, 49: 112-132. cohen, t. 2009. united way cuts it budget, shaves giving. triangle business journal, june 19: 1-2. cooke, s., & ryan, p. 2000. brand alliances: from reputation endorsement to collaboration on core competencies. irish marketing review, 13: 36-42. dickinson, s., & barker, a. 2007. evaluations of branding alliances between non-profit and commercial brand partners: the transfer of affect. international journal of nonprofit & voluntary sector marketing, 12: 75-89. heller, n. 2008. the influence of reputation and sector on perceptions of brand alliances of nonprofit organizations. journal of nonprofit & public sector marketing, 20: 19-36. heller advances in business research 2011, vol. 2, no. 1, 163-171 171 hrwyna, m. 2006. nonprofits hit by federal budget cuts: organizations, disabled, will feel medicaid/ medicare reductions. nonprofit times, january 1: 1-3. intel corporation. 2009. 2008 corporate responsibility report. retrieved from http://www.intel.com/intel/ cr/gcr/overview.htm. kelly, k. march 10, 2008. njha: no hospital safe from state's $143 million cut. us newswire, retrieved from http://www.redorbit.com. kinzie, s. october 1, 2009. scramble for funds at the house of ruth, washington post, retrieved from http://www.washingtonpost.com. kotler, p., & armstrong, g. 1999. principles of marketing. new york: prentice hall. lasser, w., mittal, b. 1995. measuring customer based brand equity. journal of consumer marketing, 12: 11-19. mannell, j. 2010. are the sectors compatible? international development work and lessons for a business nonprofit partnership framework. journal of applied social psychology, 40: 1106-1122. najam, s., rajesh, v. 2008. consumers' evaluations of co-branded products: the licensing effect. journal of product and brand management, 17: 73-81. park, c., & shocker, a. 1996. composite branding alliances: an investigation of extension and feedback effects. journal of marketing research, 33: 453-466. peter, j., & olson, j. 1999. consumer behavior. boston: irwin mcgraw-hill. reichardt, c., & mark, m. 1998. quasi-experimentation. in l. bickman, & d. rog, (eds.), handbook of applied social research methods, thousand oaks, ca: sage publications. sagawa, s., & segal, e. 2000. common interest, common good: creating value through business and social sector partnerships. boston, ma: harvard business school press. seitanidi, m., & crane, a. 2009. implementing csr through partnerships: understanding the selection, design and institutionalisation of nonprofit-business partnerships. journal of business ethics, 85: 413429. visser, e. 1998. multibranding: symptom of an unclear branding policy. design management journal, winter: 60-64. waters, k. 1997. dual and extension branding: using research to guide design decision and branding strategy. design management journal, winter: 26-33. weeden, c. 1998. corporate social investing. san francisco: berett-koehler publishing. word, j., & park, s. 2009. working across the divide: job involvement in the public and nonprofit sectors. review of public personnel administration, 29: 103-133. zeiger, a. july 9, 2008. nj hospitals in dire straits after charity budget cuts. retrieved from http://www. fiercehealthfinance.com. nathan heller is an assistant professor of marketing and management at tarleton state university. he received his ph.d. in public administration from arizona state university. his current research interests include nonprofit marketing, strategic alliances, and ethics. he has published in journal of nonprofit and public sector marketing, journal of applied business and economics, journal of transportation, journal of business & accounting, the international journal of business and social science, and others. advances in business research 2010 volume 1.pdf 168 advances in business research !"#$%&!'()%*(+%,(-.#!/!$012%3'45-6%!#%7('!6(%8!9:%;#$5$('(#6 kenneth jones, northeastern state university !"#$#%&'($)*+#"',-#$%!,$."%,-/%&-,$)*+),-+"+0$-,1*%,$,12.*(1,+%3$!*4$,/-.($,#%"1/%,#$#&00,#%,'$567869$*:$;1,-")/+#$ 4*&.'$<,$4*-="+0$<($%!,$<,0"++"+0$*:$%!,$>?st century. surveys of top executives, though positive in outlook, would .,/'$*+,$%*$2-,'")%$@&#%$*a,-$?59$*:$%!,$2*2&./%"*+$"#$"+a*.a,'$"+$:&..7%"1,$-,1*%,$4*-=$2-/)%"),#$/%$%!,$,+'$*:$%!,$./#%$ ),+%&-($/+'$',)-,/#"+0$<,%4,,+$>66b$/+'$>66cd$ !"#$2/2,-$#&00,#%#$/$%,)!+*.*0")/.$#*.&%"*+$%!/%$*::,-#$/$1,/+#$*:$ -,#*.a"+0$%-&#%$/+'$)*+%-*.$"##&,#$/+'e*-$',%,-1"+"+0$%!,$%-&,$&+',-.("+0$1/+/0,1,+%$'".,11/#$%!/%$1"0!%$"+!"<"%$%!,$ growth of daily remote work. !"#$%&'()*+%,+'-*% #$%.#/%01!-%0!2//#0%&.*%&.#+3%42"*5%67$-#!%$',%-.*%.182$%+20*%.2/%1$3*+9'$*% -,'%9+*2-% waves of change, each one largely obliterating earlier cultures or civilizations and replacing them with ways of life inconceivable to those who came before. the first wave of change the agricultural revolution took thousands of years to play itself out. the second wave the rise of the industrial civilization took a mere three hundred years. today history is even more accelerative, and it is likely that the third wave will sweep across history and complete #-/*!(%#$%2%(*,%3*023*/:%;<=>?@%<?ab% &.#/%,'+c%#/%d2+-%'(%2$%'$9'#$9%+*/*2+0.%#$-*+*/-%'(%-.*%,+#-*+e%2$3%+*)*0-/%2%01+#'/#-f%#$-'%-.*%#+'$f%'(%-.*%7$#-*/% states’ historical business environment that spent nearly three hundred years leaving home-based employment only -'%+*-1+$%-'%#-%,#-.%-.*%23"*$-%'(%'d*$%-*!*0'881$#02-#'$/%2$3%9!'g2!%0'8d*-#-#'$b%%h'8*ig2/*3j+*8'-*%,'+c%#/%'$*% form of the many types of remote work or telecommuting. daniel pink describes the move away from the “jobs” of -.*%k$31/-+#2!%l*"'!1-#'$e%,.*-.*+%(+**!2$0#$9%'+%,'+c#$9%(+'8%/'8*,.*+*%'-.*+%-.2$%-.*%'(m0*e%2/%2%/-2-*%'(%8#$3%2/% 810.%2/%2%0.2$9*%'(%d!20*%;n#$ce%o??<ab%h*%3*/0+#g*/%-.'/*%-.2-%+*82#$%#$%6p'g/:%3'%/'%61$3*+%-*+8/%0!'/*+%#$%/d#+#-% -'%(+**%29*$0f%-.2$%-+23#-#'$2!%*8d!'f8*$-:%;o??<@%<<ab%k$%*//*$0*%.*%#/%2$$'1$0#$9%-.*%3*2-.%'(%&.*%q+92$#r2-#'$% s2$e%2%-*+8%2$3%2%$'$im0-#'$%,'+c%823*%(28'1/%gf%4#!!#28%tb%4.f-*e%t+be%#$%<=uv%;n#$ce%o??<ab <9(="-6"!#%>(92?2%@!>('(#6%6!%7('!6(%8!9: in 1997, 11.6 million employees of u.s. companies worked from home at least part of the time, though some */-#82-*3%-.2-%m91+*%-'%g*%8'+*%-.2$%<w%8#!!#'$%;n#$ce%o??<ab%k$%o??we%-.*%$18g*+%,2/%oxbu%8#!!#'$%'+%2g'1-%<vy%'(% -.*% 8*+#02$%!2g'+%('+0*b%&.*%/*!(i*8d!'f*3%;,.'%'(-*$%2+*%.'8*ig2/*3a%2!/'%9+*,%(+'8%<>%8#!!#'$%-'%2g'1-%oxbw% 8#!!#'$%#$%-.*%/28*%/*"*$if*2+%d*+#'3%;z+#*382$e%o??uab%% $'-.*+%+*0*$-%/1+"*f%gf%-.*%k$-*+$2-#'$2!%&*!*,'+c% //'0#2-#'$%2$3%['1$0#!%$'-*3%-.2-%-.*%$18g*+%'(%+*8'-*% employees who worked at least one day per month from home doubled during the period from 1997 to 2003 (home\2/*3%]8d!'f**/e%o??wab%s'/-%+*0*$-!fe%-.*%̂ #*+#$9*+%l*/*2+0.%_+'1de%k$0b%('1$3%-.2-%8'+*%d*'d!*%,*+*%-*!*,'+c#$9% at least once per month--28.7 million in 2006 to 33.7 million in 2008, but fewer were assigned remotely on a daily g2/#/%i%<wb̀ %8#!!#'$%#$%o??v%-'%<xbu%8#!!#'$%#$%o??>%;&*!*,'+c%&+*$3/%o??=ab%&.#/%+*d'+-%2!/'%0#-*3%2%3*0+*2/*%#$% remote contract labor and an increase in employees working remotely, and 100% of the total workforce working +*8'-*!f%,*+*%2-%!*2/-%2//#9$*3%'((/#-*%'$0*%d*+%8'$-.%;&*!*,'+c%&+*$3/%o??=ab%^#*+#$9*+%;o??=a%2!/'%$'-*3%+*8'-*% *8d!'f8*$-% #/% #$0+*2/#$9!f% -2c#$9% d!20*% 2-% .'8*% ;1d% <oyae% 2-% -.*% 0!#*$-a/% d!20*% '(% g1/#$*//% ;1d% <xyae% '$%82//% -+2$/d'+-2-#'$%8*3#18/%i%*b9b%-+2#$/e%d!2$*/e%2$3%/1g,2f/%;1d%>yae%2$3%2-%-*!*,'+c%0*$-*+/%;1d%xyab%% &'()*+%d+*3#0-*3%-.#/%6*!*0-+'$#0%0'--29*:%#$31/-+f%,'1!3%0'8*%,#-.#$%-.#+-f%f*2+/%'(%.#/%d1g!#02-#'$%31*%-'%-.*% development and perfection of the information technology that has permeated our society during the last thirty years. he sensed the natural return to the “hearth” at home where history tells us the world worker spent 10,000 years of /*+"#0*%"*+/1/%'$!f%x??%f*2+/%2-%-.*%(20-'+f%'+%'(m0*b%h*%.23%#$-*+"#*,*3%0'8d2$#*/%!#c*%4*/-*+$%]!*0-+#0e%h*,!*--i n20c2+3e%2$3%q+-.'%n.2+820*1-#02!%,.#0.%(*!-%-.2-%-.*%-*0.$'!'9f%,'1!3%/''$%g*%2"2#!2g!*%;-.#/%,2/%d+#'+%-'%<=>?a% -.2-%,'1!3%2!!',%xuì uy%'(%-.*#+%0'!!*0-#"*%,'+c%('+0*/%-'%/-2f%.'8*%2$3%g*%d+'310-#"*%;&'()*+e%<=>?ab%k-% #/%$',% ,#-.#$%'$*%f*2+%'(%&'()*+a/%d+*3#0-#'$%,#$3',e%2$3%-.*%7$#-*3%b-2-*/%#/%g2+*!f%-'10.#$9%-.*%!',%*$3%'(%.#/%60'--29*:% */-#82-*/e% +*!2-#$9% -'%32#!fi2//#9$*3% -'% +*8'-*%,'+cb%&.*% -*0.$'!'9fe% '$% -.*%'-.*+%.2$3e% .2/% /1+d2//*3%&'()*+a/% wildest imagination with the popularity of the internet. 2010, vol. 1, no. 1, 168-175 jones 169 advances in business research ab*a;<,c%bd%7;@b,;%8b7e @!6">56"!#2%5#=%f95+g5-:2%6!%7('!6(%8!9: b#$0*%+*8'-*%,'+c%'((*+/%2%/#9$#m02$-%/2"#$9/%-'%-.'/*%-.2-%#8d!*8*$-%/10.%d+'0*//*/e%-.*%#$-*+*/-%#$%,'+c#$9% 2,2f%(+'8%-.*%'(m0*%.2/%+*0*#"*3%810.%2--*$-#'$%#$%-.*%!2/-%-.#+-f%f*2+/%;4*/-(2!!e%<==>ab%&.#/%/*0-#'$%'(%-.*%d2d*+% ,#!!% +*"#*,% /'8*% '(% -.*% +*d'+-*3% d'/#-#"*% 2$3% $*92-#"*% +*/1!-/% 2$-#0#d2-*3% 2$3j'+% *cd*+#*$0*3% gf% +*8'-*% ,'+c% applications. organizational and individual perspectives will be analyzed to include the characteristics of successful remote work assignments and the employee types most likely to succeed. b9$5#"h56"!#5/%@!6">56"!#2 ^*d*$3#$9%'$%-.*%82$29*8*$-%d.#!'/'d.f%2$3%-.*%+*!2-#'$/.#d%-.*%m+8%.2/%,#-.%#-/%*8d!'f**/%i%+*8'-*%'+%$'$i remote there seems to be at least six positive attractions. the positive attractions are explained but not listed in any order of magnitude of impact. first, the utilization of remote or remote work offers the organization lower absenteeism rates among employees. employees are less likely to avoid work if given the opportunity to work remotely or from home ;z#-r*+e%<== @̀%s'/c',#-re%<==u@%h'2$9%*-%2!e%o??>ab%b*0'$3e%-.*%2g#!#-f%-'%2--+20-%2$3j'+%+*-2#$%*8d!'f**/%-.2-%8#9.-% otherwise be unavailable to relocate is a strong motivation to allow work from home (moskowitz, 1995; hoang et 2!e%o??>ab%&.#+3e% -.#/%2g#!#-f% -'% +*-2#$%2$3%20d1#+*%'-.*+,#/*% !'/-%*8d!'f8*$-% #/%0+*3#-*3% -'% #$0+*2/#$9% !'f2!-f% -'% -.*%m+8% ;s'/c',#-re% <==uab% %z'1+-.e% -.*%'+92$#r2-#'$% /.'1!3% *cd*0-% #$0+*2/*3%d+'310-#"#-f% 2$3%d12!#-f%'(%,'+c% ;h'2$9%*-%2!e%o??>ab%&.'19.%4*/-(2!!%;<==>a%'((*+/%8'+*%3#/0+*-*%0+#-*+#2%('+%20-12!%d+'310-#"#-f%92#$/e%h1,/%;#$%2$% *2+!#*+%/-13fa%+*d'+-*3%-.2-%82$29*+/%+2-*3%-.*#+%-*!*,'+c#$9%*8d!'f**/%2/%w`y%8'+*%d+'310-#"*ab%z#"*e%3*0+*2/*3% 'd*+2-#'$2!%*cd*$/*/%#$%-.*%$'+82!%'(m0*%*$"#+'$8*$-%02$%g*%2%d!1/%-'%-.*%m+8%#8d!*8*$-#$9%+*8'-*%,'+c%;4*/-(2!!e% <==>ab%4*/-(2!!% ;<==>a% +*!2-*3% -.*% /2"#$9/% -'% -.*%d'/#-#"*% 0'++*!2-#'$%'(% *8d!'f**j82$29*+% /2!2+f% 2$3%$18g*+%'(% 32f/%,'+c#$9%+*8'-*!fb%%h*%.fd'-.*/#r*/%-.2-%-.*%.#9.*+%-.*%+2-*i'(id2f%-.*%9+*2-*+%-.*%/2"#$9/%-'%-.*%m+8%('+%-.2-% *8d!'f**j82$29*+% -'%/-2f%2-%.'8*%'+%,'+c%+*8'-*!fb% %&.#/% #/%2--+#g1-*3%-'% -.*%'(m0*%/1dd'+-%+*$3*+*3%-'%.#9.*+i d2#3%d*+/'$$*!%;4*/-(2!!e%<==>ab%b#ce%-.*%'+92$#r2-#'$%/.'1!3%/**%2%d'/#-#"*%#$0+*2/*%#$%-.*%2g#!#-f%-'%+*/d'$3%8'+*% d1#0c!f%-'%01/-'8*+/%2$3j'+%1$*cd*0-*3%*"*$-/%;z#-r*+e%<==`ab%&.#/%#//1*%.2/%2!/'%g**$%+*!2-*3%-'%-.*%)*c#g#!#-f%'(% the organization to respond or keep operations going when faced with non-business events and, more currently, /*01+#-f%#//1*/%;^2$#*!/%*-%2!e%o??<ab%&.*%2(-*+82-.%'(%6=j<<:%.2/%('+0*3%82$f%'+92$#r2-#'$/e%#$0!13#$9%-.*%z*3*+2!% government to consider the implementation of telework for maintaining operations during a terrorist event. individual motivations the individual motivations to engage in remote work are also valuable in understanding the effects of this 9+',#$9%('+8%'(%,'+c%#$%m+8/b%&.+**%d'/#-#"*%8'-#"2-#'$/%2+*%$'-*3%.*+*b%%z#+/-e%-.*%+*310-#'$%'(%0'881-#$9%0'/-/% -'% -.*%'(m0*% 0'1!3% +*d+*/*$-% 2% +2-.*+% !2+9*% /2"#$9/% -'% -.*% -*!*,'+c#$9% *8d!'f**% ;[.+#/-*$/*$e% <==o@%s'/c',#-re% <==uab%s'/c',#-r%'((*+/%2%-2g!*%'(%-.*%0'881-*%/2"#$9/%'(%=?i8#$1-*%;'$*i,2fa%0'881-#$9%('+%(1!!i-#8*%+*8'-*% workers could add 15-hours of time to the remote worker’s life or work schedule. this could be prime time hours for reaching customers. one study by american express travel services reports that home-based reservation 29*$-/%.2$3!*%ovy%8'+*%02!!/%d*+%32f%'+%wvy%8'+*%g1/#$*//%d*+%,**c%-.2$%0'$"*$-#'$2!%'(m0*%29*$-/%,#-.%/-+'$9% *cd*+#*$0*% ;s'/c',#-re% <==uab% b*0'$3e% 0!'/*!f% +*!2-*3% -'% -.*% d+*"#'1/% +*2/'$#$9% #/% -.*% #$0+*2/*% #$% )*c#g#!#-f% #$% ,'+c%.'1+/%;s'/c',#-re%<==u@%l*#$/0.e%<==`ab%l*#$/0.%+*d'+-/%'$%2%/1+"*f%-.2-%$'-*3%-.*%8'/-%#8d'+-2$-%8'-#"2-'+% for individuals to choose to engage in remote work was the greater freedom and control in their personal schedule. third, the increased productivity, for several reasons, was cited as making remote work more appealing (moskowitz, <==u@%l*#/0.e%<==`ab%e'+-*!%+*d'+-*3%-.2-%`xy%'(%#-/%-*!*0'881-#$9%*8d!'f**/%+*d'+-*3%!*//%/-+*//%2$3%=?y%+*d'+-*3% 9+*2-*+%p'g%/2-#/(20-#'$ab f95+g5-:2%6!%7('!6(%8!9: while there are positive reports of the organizations and individuals that telework, the negative results or expectations are also noteworthy. most of these items relate to organizational culture and existing practices the concern of losing current processes or methods. 2010, vol. 1, no. 1, 168-175 jones 170 advances in business research b9$5#"h56"!#5/%f95+g5-:2 three organizational impacts of remote work may appear negative to those considering participation. one, having /'8*%'(%-.*%g*/-%*8d!'f**/%1$2"2#!2g!*%#$%-.*%'(m0*%*$"#+'$8*$-%02$%g*%$*92-#"*%#$%-.2-%8'+*%-#8*%82f%g*%#$"'!"*3% #$% +*20.#$9% -.'/*% +*8'-*%,'+c*+/b% z#-r*+% ;<==`a% 2!/'% /199*/-/% -.2-% -.#/% !'//% '(% #$d1-% '+% 2"2#!2g#!#-f% 02$% 0'/-% -.*% '+92$#r2-#'$%/f$*+9#/-#0%02d2g#!#-f%'-.*+,#/*%2"2#!2g!*%-'%2!!%0'$"*$-#'$2!%'(m0*%/-2((b%&,'e%-.*+*%#/%/'8*%0'$0*+$%('+% 32-2%/*01+#-f%,.*$%g2/#$9%*8d!'f**/%'1-%'(%-.*%'(m0*%2$3%2!!',#$9%-.*8%-'%8'"*%#$('+82-#'$%"#2%-*!*0'881$#02-#'$% -*0.$'!'9f%20+'//% -.*% k$-*+$*-% ;_+2fe%h'3/*$%f%_'+3'$e%<==wab%z#+*,2!!% /*01+#-f% ('+% #$-+2$*-/%.2/%g*0'8*%d1#-*% 0'88'$% 2$3% "*+f% *((*0-#"*e% g1-% -.*% /f/-*8/% #$/#3*% -.*% '(m0*% 02$% g*% p1/-% 2/% "1!$*+2g!*% -'% #$/#3*% -.+*2-/b%&.+**e% 82$29#$9% +*8'-*%,'+c*+/%0+*2-*/%233*3%0'/-%2$3% -#8*%0'$/-+2#$-/% -'% -.*%'+92$#r2-#'$% ;[.+#/-*$/*$e%<==o@%z#-r*+e% <== @̀%h'2$9%*-%2!e%o??>@%4*/-(2!!e%<==>ab%4*/-(2!!%;<==>a%/-+'$9!f%*$0'1+29*/%8'+*%+*/*2+0.%#$-'%-.*%+*2!#-f%'(%-.#/% economic cost, and he encourages the promoters of telecommuting to evaluate the real cost to management when d+*/*$-#$9%m$3#$9/b%&.#/%m$2!%$*92-#"*%#8d20-%0+*2-*/%/'8*%3#(m01!-f%#$%*"2!12-#$9%-.*%m$2$0#2!%g*$*m-/%'(%+*8'-*% ,'+c% ;^2$#*!/% *-% 2!e% o??<ab%s'3*!#$9% 2$3% *0'$'8#0% 2$2!f/#/% '(% -+2$/d'+-2-#'$% 2$3%'(m0*%31d!#02-#'$% /2"#$9/% 2+*% 0'$/#3*+*3%gf%'-.*+/%-''%3#(m01!-%-'%3*-*+8#$*%;4*/-(2!!e%<==>ab 3#=">"=?5/%f95+g5-:2 reports on remote work have also expressed negative impacts on individuals in the remote work environment. q$*e%-.*%+*8'-*%,'+c*+%+*d'+-/%(**!#$9%#/'!2-*3%;z#-r*+e%<== @̀%l*#$/0.e%<== @̀%h'2$9%*-%2!e%o??>ab%b'8*%'(%-.*%8'+*% 0!2//#02!%+*/*2+0.%#$%-.#/%2+*2%2!/'%+*!2-*/%-.*%+*310-#'$%'(%#$$*+i'+92$#r2-#'$2!%0'881$#02-#'$%;h'2$9%*-%2!e%o??>ab% &,'e%#$3#"#312!%+*8'-*%*8d!'f**/%+*d'+-%2%-*$3*$0f%-'%'"*+,'+c%,#-.%-.*%'(m0*%2-%62+8a/%!*$9-.:%,.*$*"*+%2$%#3*2% ('+%/'!"#$9%2%d+'g!*8%0'8*/%-'%8#$3%;z#-r*+e%<== @̀%s'/c',#-re%<==uab%%&.+**e%2%"*+f%d'd1!2+%0'$0*+$%('+%-.*%+*8'-*% worker, and a current obstacle to engaging the best employees in the process, is the concern for being bypassed for d+'8'-#'$%,.*$%-.*%+*8'-*%,'+c*+%#/%'1-%'(%-.*%/#9.-%'(%82$29*8*$-%;\2+10.e%o??<ab%&.#/%#/%,.*+*%-.*%$**3%('+%-.*% *8d!'f**a/% -+1/-%'(% -.*%82$29*+e%'+%2% /f/-*8%'(%0'$-+'!%'(%82$29*+id+'"#3*3% (**3g20cj*"2!12-#'$e% /1dd'+-*3%2$3% monitored within the organization’s performance structure becomes relevant. the employee must feel that the work they do in the remote environment, and the recognition for doing that work well, is valuable and contributing to their (1-1+*%/-2-1+*%,#-.#$%-.*%m+8%;s0[!'/c*ff%k9g2+#2e%o??xab a.595-6(9"26"-2%!i%c?--(22i?/%3'4/('(#656"!#2%!i%7('!6(%8!9: this section will prepare the reader to understand what the research has reported as to the managerial and *$"#+'$8*$-2!% 2--+#g1-*/% ('+% /100*//(1!% #8d!*8*$-2-#'$% '(% +*8'-*% ,'+cb% &.*% m+/-% /1g/*0-#'$% ,#!!% 3*m$*% -.*% managerial action or support needed to succeed. the second section will step back to view the overall organizational considerations of implementation of a successful remote work environment taking the work to the worker. in this portion of the literature the introduction to the eight key elements of successful remote work environments will be #$-+'310*3%i%#$d1-e%*"2!12-#'$e%0'881$#02-#'$e%0'$/#/-*$0fe%3*m$*3%+1!*/e%/1dd'+-j/100*//#'$e%(**3g20cj8'-#"2-#'$e% 0'$-+'!%/f/-*8b%&.*/*%*#9.-%*!*8*$-/%2+*%2!/'%c*f%-'%8*2/1+*8*$-%'(%,'+c%;+*8'-*%'+%$'$i+*8'-*a%d*+('+82$0*b managerial attributes five attributes of the management environment appear essential to the success of remote work according to the literature. these items all involve the manner in which the employee is treated or accepted by management within -.*%+*!2-#'$/.#d%'(%-.*%'+92$#r2-#'$e%82$29*+j*8d!'f**e%'+%*8d!'f**j*8d!'f**b%&.*/*%+*!2-#'$/.#d/%2+*%'$!f%-.'/*% areas in which the manager can have an impact. one, the most crucial area noted as determining the successful longitudinal implementation of remote work is the necessity of top-management to buy-in to the concept (adam & [+'//2$e%o??<ab%h#92%2$3%b.#$%;o??xa%+*d'+-*3%#$%$18*+'1/%02/*%/-13#*/%#$%t2d2$%-.2-%-.*%g1fi#$%'(%-'di82$29*8*$-% to the success of remote was one of the key reasons for all successful implementations that were examined. this could be key to consistency in the work environment, which is one of the eight elements. harrington and ruppel ;<==`a%$'-*3%-.2-%-'di82$29*8*$-a/%-+1/-%'(%-.*%+*8'-*%,'+c*+%#/%*//*$-#2!%-'%-.*#+%g1fi#$b%k$%(20-e%-.*%'g/-20!*%-'% 810.%#8d!*8*$-2-#'$%'(%+*8'-*%,'+c%#$%]1+'d*%2$3%[2$232%#/%$'-%-+1/-%#$%9*$*+2!%;,.#0.%,#!!%g*%3#/01//*3%!2-*+a@% but, as a nextra study found, 23% of top-management does not trust their employees to be productive (flexible 4'+c#$9e%o??oab%&,'e%82$29*8*$-%/.'1!3%3*"*!'d%2%+*!2-#'$/.#d%g1#!-%'$%0'$m3*$0*%2$3%-+1/-%,#-.%-.*%,'+c*+%2$3% -.*%+*8'-*%,'+c%*$"#+'$8*$-%;[.+#/-*$/*$e%<==o@%h2++#$9-'$%f%l1dd*!e%<== @̀%b-2d!*/e%o??<gab%&.#/%*!*8*$-%,#!!%g*% discussed more later, but this control system is a key element to remote work success. three, the manager should 2010, vol. 1, no. 1, 168-175 jones 171 advances in business research work with the remote employee to establish clear and distinct goals and objectives, then make sure the worker has 2!!%'(%-.*%+*/'1+0*/%-'%8**-%-.*%9'2!/%*/-2g!#/.*3%;b-2d!*/e%o??<gab%&.*%#$d1-%d+'"#3*3%gf%-.*%,'+c*+%#/%2$%*!*8*$-% that is key to remote work success. four, management must provide consistent feedback based on the evaluation of the remote worker’s success at meeting the goals jointly assigned (gray, hodson, and gordon, 1994; staples, o??<gab%&.*%*"2!12-#'$%d+'0*//%#$%2%+*8'-*%*$"#+'$8*$-%d+'"#3*/%2$'-.*+%*!*8*$-%'(%+*8'-*%,'+c%/100*//b%z#"*e%-.*% manager must consider the remote worker to be as capable and available as non-remote workers (fitzer, 1997; staples, o??<2ab%k$%+*92+3/%-'%-.#/%*(('+-%gf%82$29*8*$-e%2%/-+'$9%0'881$#02-#'$%!#$c%g*-,**$%,'+c*+/%81/-%g*%3*/#9$*3% 2$3%82#$-2#$*3%gf%82$29*8*$-%;b-2d!*/e%o??<gab%&.*%#8d'+-2$0*%'(%+*8'-*%,'+c*+/%g*#$9%#$('+8*3%2$3%#$"'!"*3%#$% '+92$#r2-#'$2!%20-#"#-#*/%#/%2!/'%+*d'+-*3%#$%-.#/%+*92+3%;h'2$9%*-%2!e%o??>ab%&.#/%0'881$#02-#'$%#/%2$'-.*+%*!*8*$-% of remote work measurement. b9$5#"h56"!#5/%j669"g?6(2 k(% -.*%'+92$#r2-#'$% #/% -'% #8d!*8*$-% 2$3% /1/-2#$% 2%"#2g!*% +*8'-*%,'+c%'d-#'$% ('+% #-/% *8d!'f**/e% -.*+*% 2+*%m"*% /100*//%(20-'+/%-.2-%-.*%'+92$#r2-#'$%81/-%g*%d+*d2+*3%-'%$1+-1+*e%d+'"#3*e%2$3%*$.2$0*b%&.*/*%m"*%#-*8/%.2"*%g**$% +*d'+-*3%-'%/*01+*%23*d12-*%,'+c*+/%-'%!21$0.%-.*%+*8'-*%,'+c%d+'9+28%,.#!*%82#$-2#$#$9%+*/d*0-%('+%-.*%d+'9+28% from the non-remote employees. one, goals and objectives for the program and for each employee assigned must g*%*/-2g!#/.*3%g*('+*%#8d!*8*$-2-#'$%;[.+#/-*$/*$e%<==oe%_+2f@%h'3/'$e%2$3%_'+3'$e%<==wab%^*-*+8#$#$9%.',%-.*% remote workers will be assessed by their performance is part of the important initial phase (fitzer, 1997, staples, o??<gab%&.#/%d+'0*//%#/%8'+*%*((*0-#"*%#(%-.*%+*8'-*%2$3%$'$i+*8'-*%,'+c*+/%2+*%2//*//*3%*d12!!f%2$3%+*91!2+!fi/!2-*3% 8**-#$9/%2+*%d!2$$*3%#$%23"2$0*%'(%2!!%,'+c*+/%i%+*8'-*%2$3%$'$i+*8'-*%;b-2d!*/e%o??<2ab% %02!*$32+%2"2#!2g!*%-'% 2!!%8*8g*+/%'(%-.*%'+92$#r2-#'$%#/%/199*/-*3%;[.+#/-*$/*$e%<==oab% %('+82!%0'$-+20-%,#-.%-.*%+1!*/%3*m$*3%g*-,**$% the remote workers and management, on the behalf of the entire organization, is recommended to establish this m+/-%/100*//%(20-'+%;_*+g*+e%<==uab%&,'e%-.*%31+2-#'$%2$3%*8d!'f**%*!#9#g#!#-f%'(%-.*%+*8'-*i,'+c%d+'p*0-%/.'1!3%g*% /.2+*3%'d*$!f%,#-.#$%-.*%m+8%-'%*/-2g!#/.%-.*%21+2%'(%82$29*8*$-%2dd+'"2!%2-%-.*%.#9.*/-%!*"*!%;[.+#/-*$/*$e%<==o@% h#92%f%b.#$e%o??xab%&.#/%(**3g20c%d+'"#3*3%#/%8'-#"2-#'$2!%('+% -.*%/100*//(1!%+*8'-*%,'+c%*$"#+'$8*$-b%&.+**e% 0'8d!*-*% -+2#$#$9% ('+%2!!%8*8g*+/%'(% -.*%m+8%/.'1!3%g*% #8d!*8*$-*3%2$3%*cd!2#$*3%g*('+*% -.*%d+'9+28a/% #$#-#2!% +'!!'1-% ;b-2d!*/e% o??<gab%&.#/% /1dd'+-%8*0.2$#/8% #/% c*f% -'% +*8'-*%,'+c% 2$3% /100*//#'$%'(% -.*%m+8a/% !*23*+/.#de% drawing from all workers remote and non-remote. &.*%d+*"#'1/%-.+**%2--+#g1-*/%2+*%3*/#9$*3%-'%('/-*+%2%d'/#-#"*%"#*,d'#$-%(+'8%2!!%#$%-.*%m+8%2$3%/**c%*$+'!!8*$-% ;d2+-i-#8*%2$3%(1!!i-#8*a%#$%-.*%'$9'#$9%+*8'-*%,'+c%d+'0*//b%&.*%0'881$#02-#'$%g*-,**$%+*8'-*%2$3%$'$i+*8'-*% workers is also enhanced by this provision (see the previous section for further details as to the importance of -.#/% +*!2-#'$/.#dab%z'1+e% /100*//%'(% -.*%'$9'#$9%d+'0*//% +*d1#+*/% -*0.$#02!% /1dd'+-% ('+% -.*% +*8'-*%,'+c*+%2$3% -.*% 3*-*+8#$2-#'$% gf% -.*% '+92$#r2-#'$% -'% d+'"#3*% -.*% d.f/#02!% *$"#+'$8*$-% $**3*3% ;b-2d!*/e% o??<gab% &.#/% /.'1!3% g*% ,*!!%d!2$$*3%g*('+*%#8d!*8*$-2-#'$%g*9#$/%;^''!*fe%o??uab%z#"*e%32-2%/*01+#-f%81/-%g*%*$/1+*3%#(%-.*%d+'9+28%#/%-'% /100**3%;h'2$9%*-%2!e%o??>ab%&.'/*%#8d20-*3%gf%-.#/%+*d1#+*8*$-%2+*%-.'/*%/-2c*.'!3*+/%2!'$9%2!!%'(%-.*%0'$$*0-#'$/% '(%-.*%*$-*+d+#/*%i%#$0!13#$9%01/-'8*+/%2$3%/1dd!#*+/%; 328%f%[+'//2$e%o??<@%^''!*fe%o??uab 8"//%8!9:i!9-(%<(9i!9'5#-(%@5#5$('(#6%c!/?6"!#2%;#-!?95$(%6.(%;#$5$('(#6%!i%7('!6(%8!9:k &'32fe%-*0.$'!'9#02!%/'!1-#'$/%*c#/-%#$%-.*%('+8%'(%/f/-*8/%;2"2#!2g!*%'$!#$*a%gf%m+8/%'((*+#$9%-.*#+%/*+"#0*/%2/% asp’s or application service providers. anyone, anywhere can access these workforce performance management bf/-*8/%;4nsbae%#$%2%d2f%('+%1/*%*$"#+'$8*$-e%,.#0.%,*+*%3*/#9$*3%('+%*8d!'f*+/j*8d!'f**/%g2/*3%2$f,.*+*%'$% the globe. in this environment, companies do not need to take up large amount of space or manage memory-intensive d+'9+28/%#$%'(m0*ig2/*3%/*+"*+/b%&.#/%#/%-.*%d*+(*0-%m-%('+%+*8'-*%,'+c%$**3/b%]8d!'f**/%2$3%82$29*+/%02$%0+*2-*e% manage, and store real-time feedback and control processes by going to the service provider’s website from anywhere '$%-.*%d!2$*-%;_*--#$9%&.*+*e%o??uab 4nsb%02$%d+'"#3*%-.*%*#9.-%*!*8*$-/e%2/%.#9.!#9.-*3%*2+!#*+e%+*d1#+*3%-'%/100*//(1!!f%#8d!*8*$-%+*8'-*%,'+cb%% these eight elements are offered by directed input from the performing employee; providing evaluation readily ('+%,'+c%d*+('+8*3@%2!!',#$9%0'881$#02-#'$%g*-,**$%+*8'-*%*8d!'f**/%2$3%'(m0*ig'1$3%,'+c*+/@%*$0'1+29#$9% 0'$/#/-*$0f%#$%-.*%2"2#!2g#!#-f%'(%d*+('+82$0*%*"2!12-#'$@%d'/-#$9%3*m$*3%+1!*/%('+%-.*%,'+cd!20*%$'-%3*d*$3*$-%'$% where the worker is geographically located; directing support to the remote worker as they remain viable candidates ('+%1d,2+3%8'g#!#-f%,#-.#$%-.*%m+8@%2//*//#$9%,'+c%2$3%*$0'1+29#$9%#8d+'"*8*$-%'+%+*,2+3#$9%('+%2%p'g%,*!!%3'$*% via feedback mechanisms; and culminating in system of controls that can be trusted by manager and employee ;_*--#$9%&.*+*e%o??uab% k(% -.#/% /'!1-#'$%,2/%d+'"#3*3e%'+% #-/%2"2#!2g#!#-f%823*%c$',$e%,'1!3% -.#/%*$.2$0*%,'+c*+% #$-*+*/-%#$%200*d-#$9j/1d*+"#/#$9%+*8'-*%,'+c%2//#9$8*$-/g%% 2010, vol. 1, no. 1, 168-175 jones 172 advances in business research <7b<bc;f%7;c;j7a&%,b%f;d3*;%,&;%<7blm;@ problem statement k$% +*8'-*% ,'+c% *$"#+'$8*$-/e% ,#-.'1-% -*8d'+2!j-20-#!*% 0'$-20-e% 2% !20c% '(% /f/-*82-#0% d*+('+82$0*% 0'$-+'!/% between management and employee represents an obstacle to engagement in remote work solutions and to the potential economic and ecological savings they represent. research question [2$% 2"2#!2g#!#-f% '(%4'+c('+0*% n*+('+82$0*%s2$29*8*$-% bf/-*8/% ;4nsba% d'/#-#"*!f% 2((*0-% -.*% 3*0#/#'$% -'% *$929*%#$%+*8'-*%,'+c%*$"#+'$8*$-/g *?//%&04!6.(2(2 %d2#+*3i/28d!*%6-i-*/-:%/.'1!3%"2!#32-*%,.*-.*+%-.*+*%#/%2%/-2-#/-#02!!f%/#9$#m02$-%3#((*+*$0*%#$%-.*%/1+"*f%+*/1!-/% between the pre-information and post-information sessions of participants. the results of the test will determine the 2$/,*+/%-'%-.*%-,'%82p'+%.fd'-.*/*/%g*!',5 &n55%4'+c('+0*% d*+('+82$0*%82$29*8*$-% /'!1-#'$/% 2+*% $'-% d*+0*#"*3% 2/% d'/#-#"*!f% 2((*0-#$9% -.*%,#!!#$9$*//% -'% engage in remote work. pre-information µ = post-information µ &ng5%4'+c('+0*%d*+('+82$0*%82$29*8*$-%/'!1-#'$/%2+*%d*+0*#"*3%2/%d'/#-#"*!f%2((*0-#$9%-.*%,#!!#$9$*//%-'%*$929*% in remote work. n+*i#$('+82-#'$%h%i%n'/-i#$('+82-#'$%h e*0*//2+f%#$9+*3#*$-/%-'%-.*%d+*i#$('+82-#'$%d1*/-#'$/5 z!',%'(%d1*/-#'$/%/.'1!3%+*!2-*%-.*%-'d#0%-'%-.*%d2+-#0#d2$-a/%01++*$-%#$-*+*/-%-'%,'+c%+*8'-*!f%g2/*3%'$%-.*%"2!#3#-f% of the eight elements of remote work performance success. e*0*//2+f%#$9+*3#*$-/%-'%-.*%d'/-i#$('+82-#'$%d1*/-#'$/5 1. system solution relates to the pre-information statement. 2. the participant is reminded that the technological solution is a part of a systematic approach thoroughly 3#/01//*3%,#-.#$%-.*%k$('+82-#'$j]3102-#'$%]!*8*$-b 3. &.*%c*f% -'%/100*//%'(% -.*%/f/-*8%/'!1-#'$%,#!!% +*d1#+*% -.*%0'$('+8#-fe%200'1$-2g#!#-fe%2$3% #$-*9+#-f%'(% -.*% d2+-#0#d2$-%;,.*-.*+%/1d*+"#/'+%'+%*8d!'f**ab%n*'d!*%#8d!*8*$-%/f/-*8/b 2010, vol. 1, no. 1, 168-175 jones 173 advances in business research research questions before and after j#c*+-%b02!*%*cd!2$2-#'$5%%['$/#3*+/%,#!!#$9$*//%-'%0'$/#3*+%+*8'-*%,'+c%*$"#+'$8*$3#i!9'56"!#o;=?-56"!#%;/('(#6 all survey participants will watch a ten-minute presentation which is completely internet based. the presentation ,#!!% 0'$-2#$% #$('+82-#'$% 2g'1-%4'+c('+0*%n*+('+82$0*%s2$29*8*$-%bf/-*8/% ;4nsba% -.2-%d+'"#3*% +*23fi823*% communication tools to monitor workforce performance, performance evaluations and automated feedback and control solutions. the purpose of this element is to supply a pedagogical process that encourages the participant to /**%-.2-%/'(-,2+*%#/%2!+*23f%2"2#!2g!*%-.2-%02$%*$.2$0*%-.*%+*d1#+*3%(**3g20c%2$3%0'$-+'!%/f/-*8/%#$%,.#0.%-'%1-#!#r*% and maintain the eight key elements to successful remote work performance. the researcher expects the participants -'%g*0'8*%2,2+*%-.2-%-.*%/f/-*8/%/'!1-#'$/%,#!!%+*d1#+*%0'$/#3*+2g!*%233#-#'$2!%*(('+-%-'%0'881$#02-*%'$%-.*%d2+-%'(% -.*%82$29*+j*8d!'f**%/1+"*f*3e%#(%/10.%2%/f/-*8%'(%(**3g20c%2$3%0'$-+'!/%#/%-'%g*%#8d!*8*$-*3%'+%3'*/%$'-%2!+*23f% exist within the culture of the organization in which the participant works. the software will not set up the system '(%,'+c('+0*%d*+('+82$0*%82$29*8*$-%#$%-.*%#$3#"#312!%,'+cd!20*e%2$3%1$!*//%-.*%0'8d2$f%*8d!'f**j/1d*+"#/'+%#/% willing to contribute to such a system, the impact of the wpms will be statistically negligible. 0 1 2 3 4 5 6 7 unwilling to consider remote work indifferent most willing to consider remote work before reflects current remote/non-remote work environment after reflects desirable/non-desirable remote work environment after employing wpms technology input: freedom to choose my schedule and set my goals of productivity within the current work environment has an impact on my willingness to work remotely 0 – 1 – 2 – 3 – 4 – 5 – 6 7 input: ability of management systems to allow my supervisor and me to monitor my goals and track my performance in relation to the goals has an impact on my willingness to work remotely 0 – 1 – 2 – 3 – 4 – 5 – 6 7 evaluation: level of management awareness of my work habits/ethic and the impact on current work environment 0 – 1 – 2 – 3 – 4 – 5 – 6 – 7 evaluation: system capabilities to report work behavior to management and the impact on my willingness to work out of the current environment 0 – 1 – 2 – 3 – 4 – 5 – 6 7 communication (technology): the ability to communicate with fellow workers and supervision has an impact on my willingness to work remotely 0 – 1 – 2 – 3 – 4 – 5 – 6 7 communication (technology): access to remote office files and fellow workers/supervisors via telecommunications technology would have an impact on my willingness to work remotely 0 – 1 – 2 – 3 – 4 – 5 – 6 7 consistency: feedback with management is sure and focused affecting my willingness to work in a distributed environment 0 – 1 – 2 – 3 – 4 – 5 – 6 7 consistency: constant availability of my current performance consistently related with agreed goals and management perceptions would impact my willingness to work in environment 0 – 1 – 2 – 3 – 4 – 5 – 6 7 rules defined: agreed work performance measurement being articulated and implemented would impact my willingness to work remotely 0 – 1 – 2 – 3 – 4 – 5 – 6 7 rules defined: management awareness of what my performance should be with the ability to readily/instantly compare with my daily effort would impact my willingness to work remotely 0 – 1 – 2 – 3 – 4 – 5 – 6 7 support/succession: potential promotion within the company would impact my decision to work outside the office 0 – 1 – 2 – 3 – 4 – 5 – 6 7 support/succession: my supervisor’s instantaneous access to my daily performance when making succession decisions would impact my willingness to work outside the office 0 – 1 – 2 – 3 – 4 – 5 – 6 7 feedback/motivation: regular evaluations of my work based on agreed performance measurements would impact my work location 0 – 1 – 2 – 3 – 4 – 5 – 6 7 feedback/motivation: knowing that management can readily provide feedback as to my efforts anytime/anywhere would affect my willingness to work remotely 0 – 1 – 2 – 3 – 4 – 5 – 6 7 control (system is trusted): control mechanisms to encourage me to maintain agreed performance goals, possibly realigning my efforts would impact my willingness to work remotely 0 – 1 – 2 – 3 – 4 – 5 – 6 7 control (system is trusted): systematic adjustments to my work via comparison to agreed goals and realignment suggestions would affect my willingness to work remotely 0 – 1 – 2 – 3 – 4 – 5 – 6 7 2010, vol. 1, no. 1, 168-175 jones 174 advances in business research bgp(-6">(%!i%7(2(59-. when knowledge of systematic feedback and control measures in the form of wpms is made available to those 0'$/#3*+#$9%+*8'-*%,'+c%*$"#+'$8*$-/e%$'%/-2-#/-#02!!f%/#9$#m02$-%3#((*+*$0*%#$%-.*%#$-*+*/-%-'%*$929*%#$%+*8'-*%,'+c% will be incurred. thus, by providing information about wpms in the context of working from remote locations, interest levels will not change before and after such education occurs. 7;d;7;*a;c 328e%zbe%f%[+'//2$e%_b%o??<b%,(/(+!9:"#$%"#%39(/5#=)%322?(2%5#=%4(924(-6">(2q%3#%,(/(-!''?6"#$%5#=%r"96?5/% bis-(2)%322?(2%5#=%b44!96?#"6"(2%;ddb%o>iw=ab%t'.$/'$e%ebtb%;]3bae%k3*2%_+'1d%n1g!#/.#$95%h*+/.*fe%n b baruch, y. 2001. the status of research on teleworking and an agenda for future research. international journal of management reviews !"#!$$"%$&'( )*+,-./0-/0 ! 1(! $''&(! 23034,04! ,05,-,67/! /897:;//-#! <:=! .:! 8//.! .*/! ./7/>:88?.,04! >*377/04/(! !"#$%!&'() relations today !@?88/+#!$""%$a"( b30,/7! 1( ! c38:0d ! b( ! e! @.30d/0 ! f(! &gg$(!h/7/=:+i,04#! j+38/=:+i-! k:+! :+430,l3.,:037! +/-/3+>*(! journal of management studies !"m#!m( dooley, b. 2005. telecommuting remote access solutions. faulkner information services !b:>,d#ggg$mnnn(! j,.l/+ !2(!$''n(!23034,04!k+:8!3k3+#!f/+k:+830>/!30d!+/=3+d-!,0!3!./7/>:88?.,04!/05,+:08/0.(!compensation and *&'&+(,)-&./&0 !&'#!op%n"( friedman, t. 2005. 12&) 0$3#4) /,) 56(7) 8) 93/&:) 2/,($3%) $:) (2&) (0&'(%;+3,() <&'(=3%(! q/=! r:+i#! j3+3+ ! @.+3?! and giroux. gerber, b. 1995. virtual teams. training !"&#!"o%ag( s/..,04!.*/+/#!12&)9=,/'&,,)9&'&+(,)$:)0$3>:$3<&)"&3:$3!6'<&)!6'6?&!&'(. 2005. white paper from knowledge t0k?-,:0 !t0>(!u@/9./86/+v!3.#!*..9#ww===(-?>>/--k3>.:+-(>:8w,0k:w/0w=*,./939/+-w-?>>/--! gray, m., hodson, n., & gordon, g. 1994. teleworking explained(!)*,>*/-./+ !x04730d#!y,7/;( <3++,04.:0 !@( !e!z?99/7 !)(!$'''(!h/7/>:88?.,04#![!./-.!:k!.+?-. !>:89/.,04!! 537?/! 30d! +/73.,5/! 3d530.34/(! @ )136',6<(/$',)$')a3$:&,,/$'6#)b$!!='/<6(/$' !a&#!223-239. <:304 ![( !q,>i/+-:0 !z( !\/>i830 !f( !e!x04 !](!&ggm(!h/7/>:88?.,04!30d!>:+9:+3./!>?7.?+/#!t897,>3.,:0-!k:+!.*/! mobile enterprise. information knowledge systems management !n#!nn%'n( higa, k., & shin, b. 2003. telework experience in japan. communications of the acm !ao#!&""%&a&( 2>)7:-i/; !b( !e!t463+,3 !2(!&gg"(!b:/-!:?.!:k!-,4*.!8/30!:?.!:k!8,0d^![0!/89,+,>37!,05/-.,43.,:0!:k!.*/!>3+//+! advancement prospects of telecommuters. information resource management journal ![9+,7%]?0/#!$'%"a(! moskowitz, r. 2007. cash for telecommuting(!f?67,-*/d!:0!.*/!y3>*:5,3!=/6!-,./!3.#!!*..9#ww===(=3>*:5,3(>:8w! -8377_6,lw934/w9+,0./+wg aan_'n&_$o'p_$'ao_$'o$ gg(*.87 pink, d. 2001. c3&&)6?&'()'6(/$'7)12&):=(=3&)$:)0$3>/'?):$3)%$=3,&#:(!q/=!r:+i#!y3+0/+!\?-,0/--!\::i-( z/,0->* !q(!$''n(!z/73.,:0-*,9!6/.=//0!./7/>:88?.,04!=:+i/+-!30d!.*/,+!83034/+-#![0!/`97:+3.:+;!-.?d;(!journal of business communications(!"a#!"a"%"o'( z?99/7 !)( !e!<3++,04.:0 !@(!$''n(!the role of trust, communication and corporate culture in telecommuting relationships(![8/+,>3-!):0k/+/0>/!:0!t0k:+83.,:0!@;-./8-(! 2010, vol. 1, no. 1, 168-175 jones 175 advances in business research staples, d. 2001b. making remote workers effective(!t0!./7/>:88?.,04!30d!5,+.?37!:ka>/-#!t--?/-!30d!:99:+.?0,.,/-(! u99(!$o"%$mpg !]:*0-:0 !q]!u/d(v !td/3!s+:?9!f?67,-*,04#!</+-*/; !f[( telework trendlines 2009. 2009. d=3.&%)93/&:)9%)e$3#46(e$3>. data collected by the dieringer research group inc. february. h:kb/+ ![(!$'mg(!the third wave(!q/=!r:+i#!\30.38!\::i-( westfall, r. 1998. 12&)!/<3$&<$'$!/<,)$:)3&!$(&)0$3>f)@')(2&)./3(=6#)0$3>"#6<&(!u99(!&po%&mnv !t463+,3 !2( !h30 ! 2(!u/d-(v!td/3!s+:?9!f?67,-*,04#!</+-*/; !f[( kenneth jones is an instructor of information systems and high-tech marketing at northeastern state university. he is a doctorate of business administration candidate at anderson university, with an emphasis in management, employing an information systems approach. his current research interests include remote work environments, ,893>.!:k! ./7/=:+i!>/0./+-!:0!>:88?0,.;w/>:0:8,>!d/5/7:98/0. ! /.*,>37!?-/!:k!9+:d?>.%-9/>,a>! ,0>/0.,5/!9+/w 9:-.!3--/--8/0.!,0!>:?+-/%-9/>,a>!:6c/>.,5/!30d!4/0/+3.,:037!83+i/+-!,0!*,4*%./>*0:7:4;!3d:9.,:0!+3./-(!</!*3-! 9?67,-*/d!,0!.*/!]:?+037!:k!.*/!@>*:73+-*,9!:k!h/3>*,04!30d!c/3+0,04!k:+!)*+,-.,30-!,0!<,4*/+!xd?>3.,:0 !9+/-/0./d! +/-/3+>*!.:!.*/![)\@f!u[--:>,3.,:0!:k!):77/4,3./!\?-,0/--!@>*::7-!30d!f+:4+38-v!q3.,:037!):0k/+/0>/!,0!)*,>34: ! tc ! 30d! >:%9+:5,d/d! >:?+-/%-9/>,a>! +/-/3+>*! 8:d/7-! k:+! .*/! d1[tzf! udi73*:83! [--:>,3.,:0! k:+! t0-.,.?.,:037! z/-/3+>*!30d!f7300,04v( 2010, vol. 1, no. 1, 168-175 jones advances in business research 2010 volume 1.pdf 210 advances in business research !"#$%&' ()**$+!#,' -%+%./*/+#' %+0' -/%1$"/*/+#' 2)"' 3)%&4(/+#"!5' 6$#5)*/1 78)5!%&'9/:"/1/+#%#!)+'9/1/%"5;'%+0'6#;/"'-/#"!51< ruth lesher taylor, texas state university !"#$%&'($)*+',##-%&(./#")%01""#,# !"#$%""& !"%& '(& )#*+!,-& .'//!$#+#%"& 012"3& #"& ,& .'$+%/4'*,*5& ,$6& (,"+78*'9#$8& #$+%*$%+& 4:%$'/%$'$;& <%=& >;?& +%.:$'-'8#%"& %$,=-%& %,"5& .*%,+#'$@& /,$,8%/%$+@& ,$6& /%,"!*%/%$+& '(& 12"& !"#$8& %a+%*$,-7& '*& 4*'4*#%+,*57:'"+%6& 4-,+('*/";&b'/%&/,*c%+%*"@&:'9%)%*@&/,5&=%&)#'-,+#$8& "%)%*,-&:,--/,*c"&'(& "'!$6&8',-7@& .!"+'/%*7&,$6&'!+.'/%7 .%$+*#.& "+*,+%8#%";& d%*:,4"& +:#"& #"& 6!%& +'& ,& $%,*& )'#6& #$& ,.,6%/#.& =!"#$%""& -#+%*,+!*%& *%8,*6#$8& 127.%$+*#.& 8',-& ,$6&,""%""/%$+&/%+:'6";&<%&,66*%""& +:%"%& #""!%"&,$6&4*')#6%&=,"#.& %a4-,$,+#'$"&'(&12"@& +:%#*&/,$,8%/%$+@& ,$6& 127.%$+*#.&8',-"&,$6&/%+*#."&('*&#$+%*%"+%6&/,*c%+%*"@&'+:%*&=!"#$%""&6#".#4-#$%"@&,.,6%/#."&,$6&4*,.+#+#'$%*"&9:'& '+:%*9#"%&/,5&$'+&=%& (,/#-#,*&9#+:& +:#"&,*%,;&e%+$'8*,4:57=,"%6&"'.#,-&*%4*%"%$+,+#'$&*%"%,*.:&,"&,$&,""%""/%$+& metric is also emphasized. 23454#%6($45'"%71885.(4!%9:0;%%8'$<#4(.,%8'.',#$3-%317('"%.#4=1$<%8'.',#$3%'.)%14>#$3-%#.35$#%,1'"*7#.4$(7% outcomes by supporting their business decisions to build, monitor, and manage these communities as they continuously modify their strategies to exploit emerging opportunities. as contemporary marketers augment traditional marketing plans to incorporate greater utilization of virtual strategies, it is incumbent upon them to transform their traditional '33#338#.4%'$3#.'"%41%(.7"5)#%:0*7#.4$(7%8#4$(73?%+'.!%.#=%:0%8'$<#4#$3%8'!%.14%@#%a'8("('$%=(4>%4>(3%6($45'"* 8#4$(7%$#'"8b%4>(3%c'c#$%'))$#33#3%4>'4%(335#%@!%3c#7(/7'""!%a1753(.,%1.%4>#%>'""1=#)%@#.7>8'$<%c$(.7(c"#3%1a%315.)% 8'$<#4(.,%34$'4#,!d%'"(,.(.,%@14>%@53(.#33%'.)%8'$<#4(.,%34$'4#,!%8#4$(73? >(3%c'c#$e3%a1753%(3%4>$##a1")d%f;%g.4$1)57#%6($45'"%71885.(4(#3-%4>#($%)#6#"1c8#.4-%8'.',#8#.4%'.)%8'$<#4(.,% 41% 4>13#%5.a'8("('$%=(4>% 4>#3#%71.7#c43b%h;%i(37533% 4>#%.##)% 41%'"(,.%:0%8'$<#4(.,%34$'4#,!%,1'"3%=(4>%@53(.#33% 34$'4#,!%,1'"3%'3%4>#%(.(4('"%34#c%41%'7718c"(3>%:0*7#.4$(7%154718#3b%'.)%j;%g.4$1)57#%@14>%k5'.4(4'4(6#*@'3#)%%'.)% k5'"(4'4(6#*@'3#)%:0*7#.4$(7%8#4$(73-%3c#7(/7'""!-%k5'"(4'4(6#%317('"%$#c$#3#.4'4(1.%$#3#'$7>%9lmm;%=>(7>%(3%'cc"(7'@"#% 41%4>#%8#'35$#8#.4%1a%(.6#348#.43%8')#%41%%@5(")-%8'(.4'(.-%'.)%,$1=%6($45'"%71885.(4(#3?%n#=%:0*7#.4$(7%8#4$(73% '$#%.14%1aa#$#)-%$'4>#$-%4>(3%c'c#$e3%a1753%(3%41%(.4$1)57#%:0*$#"'4#)%(335#3%'.)%$#"'4#)%154718#%8#4$(73-%'.)%c$16()#% empirical examples. ()+1#"$5#'=/>+!#!)+1 m>#(.,1")% 9fooj;% '.)% l(.,>% p% 05""(8.'.#% 9hqfq;% )#/.#)% 6($45'"% 71885.(4(#3% 9:0;-% '"31% <.1=.% '3% 317('"% networks, as aggregations or groups, of social, interactive, like-minded folks, that emerge on the internet when enough people interact on a common topic long enough, eventually forming a web of virtual personal relationships (.%7!@#$3c'7#?%%r>("#%4>(3%)#/.(4(1.%$#s#743%81$#%1a%'%01.358#$*41*01.358#$%90h0;-%81)#"-%2$834$1.,%'.)%t',#"% 9foou;% ()#.4(/#)% v53(.#33*41*01.358#$% 9vh0;% 71885.(4(#3% '3% >'6(.,% a15$% @'3(7% 4!c#3% )#c#.)(.,% 5c1.% .##)?%% w#.<(.3%9hqfq;%)(34(.,5(3>%:03%'3%#(4>#$%@#(.,%c5$c13#a5""!%@$'.)#)%9@!%8'$<#4#$3;%1$%5.@$'.)#)%'.)%()#.4(a!%318#% c$1@"#83%'.)%c(4a'""3%=(4>%#'7>% 4!c#?%l7>154#.%'.)%+72"#x'.)#$% 9fooy;-% $#a#$$#)% 41%71885.(4(#3-%6($45'"%1$%71* c$#3#.4-%'3%71""#74(6#%,$15c3%1a%')8($#$3%1a%'%@$'.)-%c$1)574-%1$%75"45$#3%1a%71.358c4(1.?%z1$4#$%9hqq[;%()#.4(/#)% v53(.#33*41*v53(.#33%9vhv;%:0%'cc"(7'4(1.3-%4>'4%'$#%4>#%"#'34%1a%'""%#x'8(.#)%:0%4!c#3%=(4>(.%'7')#8(7%"(4#$'45$#% 92$.1.#%#4%'"-%hqfqb%\1""17<-%hqqh;?%g.%'""%7'3#3%4>#3#%7'4#,1$(#3%'$#%.14%,#1,$'c>(7'""!%@15.)-%@54%34$5745$#)%=(4>% "(<#*8(.)#)%(.)(6()5'"3%=>1%)#6#"1c%1.*"(.#-%317('"*%71.4#.4*-%'.)]1$%c$1a#33(1.'"*@'3#)%$#"'4(1.3>(c3?%i#c#.)(.,% 5c1.% 4!c#% 90h0-%vh0% 1$%vhv;-% '% 71885.(4!% 7'.% @#% a'7("(4'4#)% @!% 4>#% 53#% 1a% #x4#$.'"% c5@"(7% c"'4a1$83% 357>% '3% facebook, twitter, and others, or internal proprietary built-out platforms, around which admirers of a brand, product, 1@^#74-%1$%')617'4#3%1a%'.%()#'-%71""#74(6#"!%35$$15.)%9+5.(_%p%`ea5(..-%hqqf;?%% >#%4#$8%317('"%$#c$#3#.4'4(1.%='3%71(.#)%(.%b$'.7#%@!%+13716(7(%9fouf;%'.)%(3%5.)#$3411)%41%8#'.%4>#%71""#74(1.% 1a%4>#%#"'@1$'4(1.3%91$%8#'.(.,3;%1a%'%317('"%1@^#74-%357>%'3%'%@$'.)-%c$1)574-%3#$6(7#-%@#>'6(.,-%#47?-%@!%'%71885.(4!%1a% members for purposes of communicating and behaving. social representation theory assumes people in communities need a common system to understand and interact with one another regarding some product, brand, etc. that is outside 1a%=>'4%(3%.1$8'""!%71881.%41%4>#8?%`6#$%4(8#-%4>$15,>%4>#3#%317('"%(.4#$'74(1.3-%75"45$'"%971885.(4!;%8#8@#$3% 7$#'4#%5.(k5#-%75"45$'"*%1$%71885.(4!*3c#7(/7%8#'.(.,3%a1$%a1$8#$"!%5.a'8("('$%71.7#c43%9=1$)3-%1@^#743-%3!8@1"3-% @#>'6(.,-%#47?;-% 4>53% 4>#%a1$8#$"!*5.<.1=.%71.7#c43%@#718#%(8@5#)%=(4>%3c#7('"%8#'.(.,%=(4>(.% 4>'4%c'$4(75"'$% 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 211 advances in business research 317('"%,$15c%9+13716(7(-%fouf;?%l17('"%$#c$#3#.4'4(1.3%7'.%@#%53#)%(.%4>#%345)!%1a%71885.(4(#3%41%#"'@1$'4#%71.4#x4* $#"'4#)%8#'.(.,%1.%3#6#$'"% "#6#"3d% (.)(6()5'"%1$%71885.(4!-%1$% 4>#% a1$8#$%3>'c#)%@!% 4>#% "'44#$-%1$%#6#.% 4>#% "'4#$% shaped by the former. additionally, social representation might be elaborated to refer to “consumption meanings (.%71885.(4!%71.4#x43bc%1$-%'%c$#a#$$#)%4#$8%8(,>4%@#%d317('""!*71.34$574#)%c$1)574]@$'.)%8#'.(.,3e%92.1.!8153% m#6(#=#$-%w'.5'$!-%hqqo;?%%%% v!%#x4#.3(1.-%317('"%$#c$#3#.4'4(1.%$#3#'$7>%9lmm;%(3%@'3#)%1.%317('"%$#c$#3#.4'4(1.%4>#1$!%'.)%(3%'%8#4>1)1"1,!% 53#)%41%345)!%=>'4%8#'.(.,%75"45$#%8#8@#$3%971885.(4!%8#8@#$3;%'33(,.%41%7#$4'(.%1@^#743-%c$1)5743%1$%@$'.)3-% =>(7>%6'"5#3%4>#!%'3317('4#%=(4>%4>#8-%'.)%=>(7>%.1$83%4>#!%a1""1=%(.%53(.,%4>#8%9z#._-%hqqub%v'5#$%p%a'3<#""-%fooo;?% the concept of srr is multifaceted. not only is srr a study of the social process of collecting and communicating meanings of concepts and objects as socially-generated and elaborated, it is also empirical, context-oriented research 4>'4%'""1=3%4>#%'.'"!3(3%1a%=>!%317('"%#6#.43%>'cc#.%'.)%317('"*3c#7(/7%8#'.(.,3%718#%'@154?%%l57>%'33#338#.43% >'6#%7$57('"%(8c"(7'4(1.3%9r',.#$-%fooy;%=>#4>#$%345)!(.,%71*c$#3#.4%1$%6($45'"%71885.(4(#3-%'.)%=>#4>#$%345)!(.,% communities for business-related or other discipline-related implications. an example of applying srr to study 1a%71885.(4!% (3%c$16()#)%@!%l7>'5%#4%'"% 9hqqo;?% % >#3#% $#3#'$7>#$3% 345)(#)%.(.#%@$'.)%71885.(4(#3% 41% ()#.4(a!% common value-creating practices across communities where their research revealed the process of collective value 7$#'4(1.%=(4>(.%'.)%'81.,%@$'.)%71885.(4(#3?% >#%6'"5#%1a%'.)%,1'"%(.%'cc"!(.,%lmm%(3%4>$##%a1")%1$%,$#'4#$d%f;%g43% '@("(4!%41%,'(.%'77#33%41%71885.(4!%8#8@#$3e%8(.)*3#4%1a%@$'.)]c$1)574%8#'.(.,3b%h;%g43%4>#1$#4(7'"%'cc"(7'@("(4!%41% 345)!%#(4>#$%6($45'"%1$%71*c$#3#.4%71885.(4!%71.4#x43b%'.)%j;%g43%4>#1$#4(7'"%')'c4'@("(4!%41%4>#%53#%1a%#(4>#$%)($#74%1$% (.)($#74%#"(7(4'4(1.%8#4>1)1"1,(#3-%#?,?-%53#%1a%(.4#$6(#=3-%1@3#$6'4(1.3-%7"'33(7%c$1^#74(6#%4#7>.(k5#3-%1$%r#@*$#"'4#)% 71.4#.4*'.'"!3(3%1a%6($45'"%71885.(7'4(1.3%'.)%(.4#$'74(1.3%92.1.!8153%m#6(#=#$-%hqfq;?%lmm%(3%c1c5"'$%'81.,% european social psychologists and marketers but is less well-known in america; perhaps this is because many years passed before moscovici’s 1961 work in french was translated into english. today, however, srr use by north 28#$(7'.%$#3#'$7>#$3%(3%,$1=(.,%34#')("!%'.)%(3%'cc"(7'@"#%41%4>#%345)!%1a%:03%'.)%14>#$%1.*"(.#%8'$<#4(.,%#aa1$43?% 2%4>#1$!%7"13#"!%"(.<#)%=(4>%llm%(3%71.358#$%75"45$#%4>#1$!%900 ;-%'%$#"'4(6#"!%.#=%/#")%1a%345)!?%v!%)#/.(4(1.-% 00 %(3%'%)(6#$3(4!%1a%$#3#'$7>%'cc$1'7>#3%'))$#33(.,%4>#%71*71.34(454(.,%$#"'4(1.3>(c3%'81.,%71.358#$3-%71.358c4(1.% practices, cultural meaning systems, market structures, and their contextualizing socio-cultural and historical 71.)(4(1.3-%'.)%4>'4%'))$#33#3%4>#%$#"'4(1.3>(c%@#4=##.%71.358#$%'74(1.3-%8'$<#4c"'7#%971*c$#3#.4%'.)%6($45'";%'.)% 75"45$'"%8#'.(.,3%92$.15")%p% >18c31.-%hqqy;?% g.a1$8'""!%)#/.#)-%'3%')'c4#)%a$18%r(<(c#)('% 9hqfq;-%00 %(3% a certain approach to the study of consumers, culture, and consumption that is other than based on psychological '.)%#71.18(7%71.358c4(1.%c>#.18#.'?%m(.)#""%9hqqe;%1aa#$3%'%3>1$4%(.4$1)574(1.%41%@$'.)%$#3#'$7>%=(4>%71.358#$% 75"45$#%4>#1$!%900 ;?% traditionally, ethnographic research is an anthropological research method used to investigate human, social and cultural patterns as well as meanings in communities, organizations and other social settings. researchers c$(8'$("!%53#%'.%#4(7%91543()#$;%'cc$1'7>-%$#8'(.(.,%1@^#74(6#-%$'4>#$%4>'.%'.%#8(7%9(.3()#$;%1.#%4>'4%(3%318#4(8#3% 71.3()#$#)% '% f3"(cc#$!% 3"1c#e% 4>'4% 7'.% 718c$18(3#% '% $#3#'$7>#$e3% 1@^#74(6(4!% 9b#44#$8'.-% fooe;?% g.% #4>.1,$'c>(7% $#3#'$7>-%)'4'% (3%,'4>#$#)% 4>$15,>%/$34%>'.)%1@3#$6'4(1.-%)'("!%c'$4(7(c'4(1.-% '$4(a'74% #x'8(.'4(1.-% '.)]1$%53#%1a% )(37533(1.3-%(.4#$6(#=3-%1$%k5#34(1..'($#3%,(6#.%41%'.)%$#3c1.)#)%@!%8#8@#$3>(c3%=(4>(.%'%75"45$'"%971885.(4!;% 71.4#x4%9l7>#.35"%#4%'"-%fooo;?%v!%#x4#.3(1.-%.#4.1,$'c>!%$#3#'$7>%(3% 4>#%r#@*$#"'4#)%'cc"(7'4(1.%1a%#4>.1,$'c>!% $#3#'$7>%)#3(,.#)%3c#7(/7'""!% 41%345)!%71.358#$3e-%1$,'.(_'4(1.'"%@5!#$3e-%1$%14>#$%8#8@#$3e%@#>'6(1$% (.%1."(.#% 71885.(4(#3%9\1_(.#43-%fooeb%hqqh;?% 2771$)(.,%41%\1_(.#43%9hqqh;-%.#4.1,$'c>!%(3%c$(8'$("!%53#)%a1$%1@3#$6'4(1.%1a% 4#x45'"%)(3715$3#%)#4#$8(.#)% by accessing and analyzing the expression of sentiments and opinions by consumers who have expressed them (.% =$(4(.,% 6('% )(,(4'""!% 7>'44(.,% (.% @"1,3-% a1$583-% 1."(.#% )(37533(1.% '.)% 14>#$% )(,(4'"% 6#.5#3% 9`31a3<!-% hqqg;?% netnography, whether observational, participatory, or autonetnography in nature, and whether practiced from an emic or etic perspective, is a fast growing methodology used to study the effect that online variables have on a1$8'4(1.% 1a% c$1)574]@$'.)% 8#'.(.,3% (.% 718c54#$*8#)('4#)% 71885.(4!% #.6($1.8#.43?% r#@% h?q% 4#7>.1"1,!% (3% )#/.#)% '3% '% 4#7>.1"1,!% (..16'4(1.% #.'@"(.,% #a/7(#.4% 7$#'4(1.% '.)% )(34$(@54(1.% 1a% 53#$*,#.#$'4#)% 71.4#.4% 9ha0;% 9t'."1.%p%t'=<(.3-%hqqe;%4>'4%'""1=3%1$)(.'$!%7(4(_#.3%41%4'<#%1."(.#%1$%6($45'"%317('"%'74(1.3%'.)%(.4#$'74(1.3%41% 71885.(7'4#%=(4>%'.)%(.s5#.7#%'5)(#.7#3?% >53-%r#@%h?q%4#7>.1"1,!%#.'@"#3%$#3#'$7>#$3%41%,'(.%6($45'"%71885.(4!% 8#8@#$%@#>'6(1$%(.3(,>4%9l41<@5$,#$*l'5@#$-%hqfqb%i'5,>#$4!%#4%'"-%hqqe;?%%ix'8c"#3%1a%r#@%h?q%#x4#$.'"%c"'4a1$8% 4#7>.1"1,(#3%(.7"5)#%=#""*<.1=.%71885.(4!%>1343d%b'7#@11<-%j15% 5@#-%+!%lc'7#-%r(<(c#)('-%b"(7<$-%v"1,,#$%'.)% others. virtual communities can be hosted on these external platforms and also can be hosted on external proprietary platforms, internal propriety platforms, and ‘open-source’ platforms. 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 212 advances in business research ?@ab9cad9b'9b @be !"#$%&'()**$+!#!/1f'(g(h'ig('%+0'igi 'cc(.,% 4>#% .##)% a1$% (.)(6()5'"3% 41% '77#33% 1$% 7$#'4#% (.a1$8'4(1.-% $#8'(.% 317('""!*71..#74#)-% '.)]1$% 41% 3>'$#% $#315$7#3-%6($45'"%71885.(4(#3%'$#%,$1=(.,%(.%$#3c1.3#%41%3#6#$'"%71.6#$,(.,%4$#.)3d%$'c()%(.7$#'3#%(.%4>#%53#%1a% )(,(4'"% 4#7>.1"1,(#3b%)#7"(.#%1a% a'8("!*@'3#)%71885.(4!% (.s5#.7(.,% 4>#%.##)% 41%8'<#%c3#5)1*a'8("!%71..#74(1.% elsewhere; seeking of like-minded groups with whom to connect regarding professional, hobby or personal interests, '.)% 4>#% ,$1=(.,% c1=#$% 1a% 4#7>.1"1,!*#.'@"#)% (.)(6()5'"% 71.358#$3% (.%8'$<#4c"'7#% 4$'.3'74(1.3% 9llmg:-% hqfq;?%% :($45'"% 71885.(4!%8#8@#$3%,#.#$'""!%>'6#%1.#%1$%81$#%71881.%,1'"3d% 3>'$#% (.a1$8'4(1.-% (.7$#'3#%c$1)574%1$% @$'.)%53',#%'.)%#.^1!8#.4-%,'(.%c$1^#74%#xc#$4(3#-%'.)]1$%#x4#.)%4>#($%"(a#34!"#%9`6=#$3"114%p%`)#<#$<#.*l7>1)#$-% hqqeb%i'5,>4#$!%#4%'"-%hqqe;?%% in identifying and responding to the above digital-related behavior trends and goals, large companies like dell, 017'%01"'-%gv+-%l4'$@57<3-%hzl-%b1$)%+141$-%w#4v"5#-%v#34%v5!-%z/_#$-%n16'$4(3-%v'!#$%'.)%14>#$3%>'6#%#8@$'7#)% vh0%:03%'3%a5.)'8#.4'"%41%4>#($%71.358#$%8'$<#4(.,%34$'4#,(#3%90'$'3-%hqfq;?% >#3#%(.4#$.'4(1.'"%@53(.#33#3%'$#% 53(.,%:03%41%@#44#$%8'.',#% 4>#($%,"1@'"%71.358#$%@$'.)3%92$.1.#-%01"#4-%0$1k5#4-%a##$43-%p%z1_.('<-%hqfq;%@!% >'$.#33(.,%@14>%)(,(4'"%'.)%@$'.)%c1=#$-%'3%@14>%$#s#74%4#7>.1"1,!*@'3#)%'.)%317('"*@'3#)%c$17#)5$#3%'.)%(.s5#.7#3% 9llmg:-% hqfq;?% l8'""% '.)% 8#)(58*3(_#)% #.4#$c$(3#3% "(<#=(3#% 53#% 317('"% 8#)('*@'3#)-% 71.358#$*7#.4$(7% @$'.)% '.)%c$1)574%6($45'"%71885.(4(#3?%g.)(6()5'"3-% 411-%7$#'4#%:03%'3%4>#!%3##<%41%,'(.%'.)]1$%71.4$(@54#%(.a1$8'4(1.% '.)%3<(""%')6'.7#8#.4%')6(7#%)(,(4'""!%=(4>% "(<#*8(.)#)%14>#$3-% a1$%#x'8c"#-% 4>#%:0%1a%>'.)%=#'6#$3%>134#)%@!% g.4#$=#'6#?718%9hqfq;?% virtual communities are also a growing phenomenon with b2b applications. in one industry example, electrical #.,(.##$3%53(.,%i"#74$1.(7%i#3(,.%25418'4(1.%9ii2;%31a4='$#%41%c#$a1$8%4>#($%^1@3%1a%)#3(,.(.,%7>(c3%'.)%c$(.4#)% 7($75(4%@1'$)3%a1$%4>#%#"#74$1.(73%(.)534$!%(.(4('4#)%'%:0%41%3>'$#%(.3(,>43%=(4>%#'7>%14>#$%1.%3c#7(/7%31a4='$#%53',#?%% the company’s marketers recognized this collaboration as vital to its marketing efforts and transformed that initial 71885.(4!-%a5""!%35cc1$4(.,%(4%=(4>%'%a5""*4(8#-%718c'.!*c'()%71885.(4!%8'.',#$%9&'($)*+',##-%hqqh';?%:($45'"% 71885.(4(#3%7'.%$'.,#%(.%3(_#%a$18%'%6#$!%a#=%>18#%715.4$!%8#8@#$3-%41%85"4(*715.4$!%$#,(1.'"%:03-%41%71"133'"* 3(_#%,"1@'"%6($45'"%71885.(4(#3?%m#,'$)"#33%1a%71885.(4!%4!c#%*%0h0-%vh0%1$%vhv%*%a15$%#"#8#.43%$#8'(.%71881.3% 41%'""%4!c#3d%f;%l>'$#)%c5$c13#b%h;%n#4=1$<#)%(.4#$'74(1.3b%j;%t1343%'3%71.4$(@541$3b%'.)%[;%01.4(.5153%'.)%#61"6(.,% 9m')('.u?718-%hqfq;? !"#$%&'()**$+!#!/1f'("/%#!)+'%+0'-%+%./*/+#' much has been written about virtual communities and how they form (algesheimer et al, 2005; kozinets & sherry, w$?-%hqqj;%'.)%4=1%'cc$1'7>#3%41%:0%1$(,(.'4(1.%$#8'(.%71.3(34#.4d%f;%`$,'.(7%1$%+#8@#$*7$#'4#)-%4>13#%=>13#%:0% 8#8@#$3%fc5""e%(.a1$8'4(1.%a$18%8'.5a'745$#$3%'.)]1$%14>#$%"(<#*8(.)#)%8#8@#$3%=>1%7$#'4#%71885.(4(#3%@'3#)% 5c1.% 4>#($% "(a#34!"#3%1$% (.4#$#343-%'.)%h;%i.,(.##$#)%1$%`$,'.(_'4(1.*1$(,(.'4#)-% 4>13#%)#6#"1c#)%@!%8'$<#4#$3% 41% fc53>e%(.a1$8'4(1.%(.41%4>#%>'.)3%1a%4'$,#4%:0%8#8@#$3%9&'($)*+',##-%hqqh@b%z1$4#$-%hqq[;?%i#3c(4#%4>#%:03%1$(,(.% organic or engineered community members pass through different development cycles and roles as they interact =(4>(.%4>#%71885.(4!?%i#6#"1c8#.4%34',#3%'cc#'$%41%@#%4!c(7'"%'7$133%:0%4!c#%'3%8#8@#$3%816#%a$18%1.#%34',#%41% '.14>#$%@'3#)%1.%)(37$#4(1.'$!%(.4#$'74(1.3%=(4>%14>#$3%9')'c4#)-%+')'.81>'.%p%n#6#<'$-%hqfq;%'3%.14#)%(.% '@"#%f? a%j&/'kf' !"#$%&'()**$+!#,'-/*j/"'=/l/&):*/+#'8#%./1'4'6".%+!5')"'b+.!+//"/0 n14%1."!%)1%(.)(6()5'"%:0%8#8@#$3%,1%4>$15,>%)#6#"1c8#.4'"%34',#3-%'771$)(.,%41%+')'.81>'.%p%n'6#"<'$% 9hqfq;-%318#%:0%8#8@#$3%7'.%3#$6#%(.%')8(.(34$'4(6#%1$%k5'3(*')8(.(34$'4(6#%$1"#3%'3%3>1=.%(.% '@"#%hd%%% stages characteristics/skills of community member newbie has little knowledge of the community workings intermediate has sufficient knowledge of the community system and other online community members and has a willingness to learn more advanced is capable of solving others’ problems; is involved in propagation of community virtue expert community member is one in the community whose word matters to others; has deep community/product/function knowledge 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 213 advances in business research a%j&/'gf'()**$+!#,'-%+%./"'9)&/1'%+0'9/1:)+1!j!&!#,f'6".%+!5 generally speaking, engineered communities created by an organization will have a community manager tasked =(4>%#(,>4%^1@%'74(6(4(#3%9&'($)*+',##-%hqqh';%(4#8(_#)%(.% '@"#%j?%%% a%j&/'mf' !"#$%&'()**$+!#,'-%+%./"'9/1:)+1!j!&!#!/1f'b+.!+//"/0 !"#$%&'()**$+!#!/1f'8#"%#/.,h'3)%&1'n'96@ +'.!%8'$<#4(.,%8'.',#$3%=>1% 53#%:0%8'$<#4(.,% 34$'4#,(#3% 1a4#.% a'("% 41% 3c#7(a!% #xc#74#)% 154718#3% @#a1$#% 1$(,(.'4(.,%'.)%(8c"#8#.4(.,%'%:0-%'3%')617'4#)%@!%28(3'8c'4>%9hqfq;-%!#4%'%3577#33a5"%:0%(3%'""%'@154%8'.',(.,% #xc#74'4(1.3?%23%#x'8c"#3%1a%:0*#xc#74#)%154718#3-%'%8'.',#$%8(,>4%71.3()#$%1.#%1a% 4>#%a1""1=(.,%:0*$#"'4#)% #xc#74'4(1.%37#.'$(13d%f;%`5$%/$8%#xc#743%'%)($#74%81.#4'$!%@#.#/4%1a%k%)1""'$%'815.4%1a%7'3>%1$%c$1/4b%1$%h;%`5$% /$8% (3% #xc#74(.,% (.7$#'3#)% @$'.)% '='$#.#33% )5$(.,% 4>#% c#$(1)% 9@#,(..(.,% )'4#;% 41% 9#.)(.,% )'4#;-% 4>'4%=(""% "'4#$% translate into a monetary outcome. metrics measuring roi of traditional marketing expenses have been effectively '.)%#a/7(#.4"!%#8c"1!#)%a1$%!#'$3?% 1)'!-%>1=#6#$-%'%3>(a4%41%1."(.#%:0*7#.4$(7%8#4$(73%(3%$#k5($#)?%h3(.,%6($45'"% consumerand marketer-centric collectives or communities, today’s marketers seek to accomplish several goals. a $#c$#3#.4'4(6#%3'8c"(.,%1a%'7')#8(7%$#3#'$7>%<#!#)%41%4>(3%(335#%(3%3>1=.%(.% '@"#%[d a%j&/'of' (4(/+#"!5'-%"p/#!+.'%+0'i$1!+/11'3)%&1 l5'.4(a!(.,%4>#%(.6#348#.4%6'"5#%1a%'%:0%'.)%(43%8'$<#4(.,%34$'4#,!%(3%.14%#'3!%'3%(4%$#8'(.3%'%41c(7%1a%1.,1(.,% )#@'4#?%%t1=#6#$-%'3%01..1$%9hqfq;%.14#3-%8'.!%718c'.(#3%71.4(.5#%8'(.4'(.(.,%1$%(.7$#'3(.,%71$c1$'4#%$#315$7#3% 41%35cc1$4%:03%'.)%317('"%8#)('%411"3?%2%a#=%k5'.4(4'4(6#%:0*7#.4$(7%8#4$(73%>'6#%@##.%1aa#$#)%@!%')6#$4(3(.,%1."(.#% 3#$6(7#%c$16()#$3%=(4>%411"3%'.)%c"'4a1$83%41%4$'7<%3c#7(/7%8#4$(73%=>(7>%8#'35$#%a1$%a'741$3%357>%'3%f)=#""%371$#3e% and other virtual-related metrics. dwell scores are determined by combining the length of time a viewer spends '74(6#"!%#.,',#)%=(4>%'.%1."(.#%')6#$4(3#8#.4%4(8#3%4>#%$'4#%'4%=>(7>%4>#%6(#=#$%(3%#.,',#)%90'$'3-%hqfq;?%%i=#""% 371$#%8#4$(73%7'.%$#'31.'@"!%@#%'cc"(#)%41%4>#%8#'35$#8#.4%1a%:0%8#8@#$%#.,',#8#.4?%%2"4>15,>%')6'.7#3%>'6#% @##.%8')#%(.%:0*7#.4$(7%8#4$(73-%'.)%c13(4(6#%$#35"43%1a%@$'.)%71885.(4(#3%'$#%=#""*)1758#.4#)%(.%4>#%"(4#$'45$#% 9l417<@5$,#$*l'5@#$-% hqfq;-% "(44"#% (3% <.1=.% '@154% k5'.4(4'4(6#% '.)% k5'"(4'4(6#% :0*$#"'4#)% (335#3-% 3c#7(/7'""!d% f;%% l(8("'$(4(#3% '.)%)(aa#$#.7#3%@#4=##.%1$,'.(7%1$% #.,(.##$#)%:03%=(4>% $#,'$)% 41% 71.358#$%814(6'4(1.% a1$% ^1(.(.,% role responsibility core organizer organizes the community; initiates talks and group formations expert has tacit knowledge and shares knowledge problem poser brings problems to the platform; poses queries implementer establishes empirical validity of .suggestions made; informs members of limitations and bugs integrator collates several rules/suggestions; builds taxonomy and manual institutionalizer pushes for standardization and regulatory support philosopher someone who pontificates about vs standards; doesn’t necessarily use the technology but has vision of its usefulness and communicates it 1. promote the vc 2. gather editorial content 3. manage contributing content authors 4. produce newsletters to encourage repeat visits 5. test incentives to entice members to contribute their relative insights 6. moderate message boards for adherence to posting guidelines 7. maintain an environment for organic growth 8. set and monitor performance metrics measuring vc effectiveness and efficiency 1. use budget-sensitive vcs to reach target customers and potential customers. (munz & o’guinn, 2001 according to thomson scientific & healthcare, this is one of the most cited papers in the fields). 2. generate increased customer traffic by facilitating a customer-centric virtual community. (stokburger-sauber 2010). 3. increase authenticity of product, brand and/or service through use of a vc. (founier & lee, 2009). 4. enhance sales though a customer request-driven virtual community. (hanlon & hawkins, 2008; wells, 2009; algesceimer & hermann, 2005; founier & lee 2009; veloutsou & moutinho 2009; and ssriv 2010. 5. source for new product innovation ideas by analyzing use of vc strategies. (fuller et al, 2008; hanlon & hawkins 2008). 6. serve as a customer retention strategy. (laird-magee, 2002a, 2002b). 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 214 advances in business research !"#$%&'%( ) *+",%-.+%/0##) #". %01%#"#2"3,% 0%45,%67*.8%9%:;<*)..=%&>>?'$%@'%a!"%).b*"./"%01%0.c)."%d03+e 01e#0* !%-#0.f%45%%#"#2"3,%6g-, %" %-c=%&>>h$%i"%j3*k.%9%l)c)".=%&>>h'$%m'%-.+%0 !"3%),,*",n%% (++) )0.-cck=%1"d%-/-+"#)/%o-o"3,%!-p"%2"".%o*2c),!"+%-20* %," ).f%f0-c,%103%45e/". 3)/%#-3q" ).f%, 3"f)",% -.+% ,"c"/ ).f% -ooc)/-2c"% f0-ce/". 3)/%#" 3)/,n% r30#% -% c) "3*3"% ,*3p"k=% -.+% -//03+).f% 0%s-+)-.tn/0#% 6&>?>'=% ) % -oo"-3,% !% f0-ce/". 3)/% 45% #" 3)/,% !-p"% 2"".% c-3f"ck% )f.03"+% ).% !"% -/-+"#)/% 2*,).",,% c) "3*3",=% -c !0*f!% goal-centric measurement is a hallmark of sound business strategy. metrics for measuring engagement, level of ".f-f"#". =%-.+%".f-f"#". %0* /0#",%3"c"+% 0% !"%*,"%01%45%#-3q" ).f%, 3"f)",%-.+%0p"3-cc%2*,).",,%, 3"fk% 1*cucc#". %#*, %2"%*.+"3, 00+=%-.+%+),,"#)."+%-#0.f%#-3q" ).f%-/-+"#)/)-.,%-.+%45%o3-/ )/).f%#-3q" "3,n !"#$%&'()**$+!#,'-.#"!/01'2%3!%+4'()**$+!#,'-%+%5."06'()+#"!7$#!)+0' s-+)-.tn/0#;,% /0##*.) k% #-.-f"3,% 6&>?>'% -+p0/"% ,o"cc).f% 0* % 45% f0-c,% -.+% !0d% -c)f."+% !"k% -3"% 0% -% /0#o-.k;,%2*,).",,%, 3"fkn%(3 )/*c).f%,o"/)u/%45e/". 3)/%f0-c,%-.+%#" 3)/,%),%3"v*),) "=%-,%-%,*//",,1*c%03%1-)c"+% 45%, 3"fk%/-.%)#o-/ %#-.k%03f-.)8)0.-c%1*./ )0.,n%s-+)-.t%45%#-.-f"3,%-+p0/"%/3").f%w7(sa%f0-c,x%w% y%wo"/)u/$%7%y%7"-,*3-2c"$%(%y%(/ )0.-2c"$%s%y%s"-c), )/$%-.+%a%y%a)#"+n%a!","%#-.-f"3,=%c)q"%0 !"3,=%q.0d% !"3"% -3"%.0%*.)p"3,-cck%-ooc)/-2c"%#" 3)/,%103%"p"3k%45%, 3"fk=% !*,%2"./!#-3q).f=%-.%", )#"%01%d!"3"% !"%p)3 *-c% community is now, is critically important. benchmarking is also employed to create a baseline of those success 1-/ 03,% -ooc)/-2c"% 0% -% #-3q" "3;,% 45% "1103 ,=% -,% 103% "z-#oc"=% d) !% /*, 0#"3% 3" ". )0.% 6l-)3+e7-f""=% &>>&-=2'n% s-+)-.t%p)3 *-c%/0##*.) k%#-.-f"3,%, 3",,% !%#-.-f"3,%.""+% 0%f0%2"k0.+%[*, %/0*. ).f%45%#"#2"3,%-.+%!) ,% 0.% !"%u3#;,%45%,) "=% 0%c00q).f%).%+"o !%%\".f-f"#". ;% 3".+,%-.+%".f-f"#". %-/ )p) )",%0p"3% )#"=%-.+% -q).f% robust looks at community health, community member sentiments, key community member conversation topics, community lead generation, and community customer relationship management issues. these evaluation efforts 3"v*)3"%20 !%v*-. ) )p"% -.+%v*-c) )p"%#" 3)/,n%s-+)-.t%/0##*.) k%#-.-f"3,% 1*3 !"3% -+p0/"% !% !"% ". )3"% o*3o0,"%01%#"-,*3"#". %),% 0%f)p"%45%#-.-f"3,%). "cc)f"./"%-20* %d!%),%d03q).f=%d!%.""+,%uz).f=%-.+%d!%),% not working, goal-centric wise from both day-to-day and strategic perspectives. !"#$%&'()**$+!#,1'8$%+#!#%#!9.'-.#"!/0 w"p"3-c% v*-. ) )p"% 45% #" 3)/,% "z), % 103% 3-/q).f% -.+% #"-,*3).f% 45% , 3"f)",% -.+% !")3% )#o-/ % 0.% 0p"3-cc% #-3q" ).f%-.+%2*,).",,%f0-c,n%50##*.) k%#-.-f"3,%%s-+)-.t%6&>?>'=%103%"z-#oc"=%011"3% !%p)3 *-c%/0##*.) k% metrics can be divided into eight groups, as shown in table 5. appendix a shows the several individual goal-centric metrics that relate to each of the eight a-h groups. :%7&.';1'<!5=#'>")$?0')@'8$%+#!#%#!9.' !"#$%&'()**$+!#,'-.#"!/0 r03%-%1*3 !"3%"zoc-.)0.%01% !","%#" 3)/,=%/0.,*c % !"%s-+)-.%tn/0#%d"2,) "%6&>?>'n%s-+)-.t%p)3 *-c%/0##*.) k% #-.-f"3,%, 3",,% !%"-/!%01% !","%c), "+%#" 3)/,%03%#"-,*3"#". %)+"-,%, )cc% -q"%-%c00q%%45%0* /0#",% !30*f!%-% distinct single lens. they suggest that any metrics used and any resulting outcomes statistics should not be used to +"#0., 3"% !%-%45%03%45%#-3q" ).f%, 3"fk%d-,%-%,*//",,=%03%1-)c*3"=%3!"3% !%"-/!%v*-. ) )p"%03%v*-c) )p"% #" 3)/%-.+%0* /0#"%#"-,*3"+%2"%p)"d"+%-,%-%o-3 %01%-%/0. ).*-ccke"p0cp).f%#"-,*3"#". %"/0e,k, "#%d) !).% !"%u3#n% a!),%#"-,*3"#". %"/0e,k, "#%)+"-cck%d0*c+%). "f3"%#*c )oc"%#"-,*3"#". %o-3 )/)o-. ,%-.+%#*c )oc"%v*-. ) )p"% -.+% v*-c) )p"% #"-,*3"#". % 00c,% -.+% oc103#,% 0% !"co% u3#,% 3-/q% 45e/". 3)/% ,o".+).f% -.+% !"% )#o-/ % !","% "zo".+) *3",%!-p"%0.% !"%u3#;,%0p"3-cc%#-3q" ).fe%-.+%2*,).",,e/". 3)/%f0-c,n for measuring: a. conversation and engagement b. community health c. buzz and competition d. sentiment and trends e. issue resolution time and costs f. lead generation and sales g. website analysis h. content performance 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 215 advances in business research !"#$%&'()**$+!#,-'.$%&!#%#!/0'10#"!23 !"#$%&!'()!)(*+$ ,+-+!,./$0+),(.-$ !,+$1(,+.)'#$ !1!2)!3'+$ )4$56$-)&1#$!"1$.!"$3+$&-+17$8/(-$2!2+,9-$ :4.&-$ (-$ "+)"4;,!2/#<$()-$%&!'()!)(*+$,!)/+,$)/!"$!$%&!")()!)(*+$&-+<$!"1$()-$!22'(.!)(4"$)4$0!,=+)(";>,+'!)+1<$-4.(!'$,+2,+-+")!)(4"$ ,+-+!,./$?@aab>,+'!)+1$&"1+,-)!"1(";$4:$56$0+03+,-9$ )/4&;/)-$!34&)$!"1$0+!"(";-$!--(;"+1$ )4$.+,)!("$43c+.)-<$ 3,!"1-$4,$2,41&.)-7$d"+$4:$()-$3+"+e)-$(-$)/!)$@@a$+"!3'+-$0!,=+)+,-$)4$(1+")(:#$f/(./$*!'&+-$!,+$!--4.(!)+1$f()/$ 56$0+03+,-$!"1$f/!)$"4,0-$!,+$&-+1$f()/("$ )/+$.4")+g)$4:$ )/+(,$.400&"()#$ ?h+"i<$jkklb7$@+*+,!'$ ,+-+!,./+,-$ .4"e,0+1$)/!)$@aa>.+"),(.$-)&1#$f!-$!'-4$*+,#$&-+:&'$("$(1+")(:#(";$.&')&,!'$1(::+,+".+-$f/+"$.4"-(1+,(";$.4")+g)$ and diversity of cultural members (stewart & lacassagne, 2005; wagner & haynes, 1999; herche et al, 1996; plank, jkkmn$o!";+,$p$q+.=0!"<$jkkrb7$s/+)/+,$!$,+-+!,./+,$,+0!("-$!"$4&)-(1+,$43-+,*(";$4"'#$!"1$14+-$"4)$2!,)(.(2!)+$ ("$.400&"()#$t'(:+u<$!"$+)(.$!"1$),!1()(4"!'$!22,4!./<$4,$+";!;+-$("$56$1(-.&--(4"-<$!"$+0(.$!22,4!./<$,+!''#$1+2+"1-$ &24"$)/+$,+-+!,./+,9-$.40:4,)$'+*+'$4:$3+.40(";$!$0+03+,$("$/(-$4,$/+,$4f"$56$-)&1#7$v:$4"+$+02'4#-$!$.400&"()#$ 0!"!;+,<$:4,$+g!02'+<$f/4$(-$,+!1('#$(1+")(e!3'+$3#$56$0+03+,-<$)/+"$!"$+0(.$!22,4!./$-++0-$,+!-4"!3'+7$ srr as an american research methodology has grown slowly but steadily since the 1980s, especially from the emic point of view. it has replaced studies that formerly were based on the observations of cultural participants by 4)/+,-$?+)(.$*(+fb$)4$()-$.&,,+")$-)!)+$4:$3+(";$!(0+1$!)$&"1+,-)!"1(";$)/+$,+-+!,./$.4"-),&.)-$:,40$!$-4.(!''#>$!"1$ .&')&,!''#>-/!,+1$="4f'+1;+$2+,-2+.)(*+$!"1$/4f$)/+#$("w&+".+$("1(*(1&!'$!"1$.4''+.)(*+$2+,.+2)(4"-<$+g2,+--(4"-<$ !"1$!.)(4"-$?x4:-)+1+$+)$!'<$ymmmn$z'(.=<$jkklb7$$ a+-&')-$:,40$2,+*(4&-'#$.4"1&.)+1$56>.+"),(.$-)&1(+-$1+04"-),!)+$)/+$&-+:&'"+--$4:$)/+$@aa$0+)/414'4;#$!"1$ *!'(1!)+$)/!)$56$0!"!;+0+")$!"1$@aa$2,(".(2'+-$!,+$&"(*+,-!''#$!22'(.!3'+7$q!-+1$4"$)/(-$&"(*+,-!'$!22'(.!3('()#<$ z'!0+)$?ymmjb$!,;&+1$)/!)$("$)/+$f4,'1$4:$./!";(";$-4.(!'$!"1$.&')&,!'$.4"1()(4"-<$,+-+!,./+,-$0&-)$!'-4$'+!,"$/4f$4)/+,$ @aa$("*+-)(;!)(4"-$/!*+$3++"$.4"1&.)+1n$56>,+'!)+1$-)&1#$0&-)$./!";+$(:$,+-+!,./+,-$!,+$)4$(")+,2,+)<$&"1+,-)!"1<$ !"1$.402!,+$e"1(";-$("$)/+$.4")+g)$4:$-4.(!'$,+2,+-+")!)(4"-$&-+1$!"1$.400&"(.!)+1$!04";$.400&"()#$0+03+,-7 @aa$ .!"$ 3+$ .4"1&.)+1$ &-(";$ 4"+$ 4:$ -+*+,!'$ :4,0!)-[$ f4,1$ !--4.(!)(4"-<$ -+")+".+$ .402'+)(4"<$ 8/+0!)(.$ \22+,.+2)(4"$8+-)-$ ?-)4,#$ .402'+)(4"b<$ .!,)44"$ 1(!'4;$ 3!''44"-<$ !"1$ ,4'+$ 2'!#(";$ $\11()(4"!''#<$ $ !"1$ )/(,1>2!,)#$ )+./"(%&+-$!,+$;+"+,!''#$:4&"1$)4$+'(0("!)+$)/+$-4.(!'$2,+--&,+$4:$,+-24"1+")-9$;(*(";$!$-)!"1!,1<$],(;/)79$4,$24'()(.!''#> .4,,+.)$,+-24"-+-$?^'42:+,$p$_!*(1-4"<$ymljb<$/4f+*+,$-40+$,+-+!,./+,-$1+3!)+$f/+)/+,$)/+$&-+$4:$-&./$)/(,1>2!,)#$ 2,4c+.)(*+$,+-+!,./$)+./"(%&+-$,+w+.)$*!'&+'+--$-&3c+.)(*()#$4,$("-(;/):&'$,+!'()#$?q411#<$jkkrb7$84$(''&-),!)+$!$56> ,+'!)+1$!22'(.!)(4"$4:$@aa$0+)/414'4;(+-<$!$,+-+!,./+,$0(;/)$2,+-+")$)4$!$56$$0+03+,$!$)+,0<$3,!"1<$$2,41&.)$4,$ 4)/+,$43c+.)$2,402)$!"1$!-=+1$)/+$0+03+,$)4<$$("$)/+$.4")+g)$/(-$4,$/+,$4f"$.&')&,+$4,$.400&"()#$?!"$+0(.$!22,4!./b<$ discuss the prompt’s importance in his or her own various work, home, play, or to society settings. afterwards, the researcher would analyze the gathered data and develop insights into values, meanings, and beliefs community members’ individually and collectively attach to the brand, product, or other object prompt. it appears srr methods translate almost seamlessly to the study of virtual community members with little !1!2)!)(4"$,+%&(,+1<$/4f+*+,<$@aa$/!-$'(0()!)(4"-$("$+()/+,$.4>2,+-+")$4,$*(,)&!'$+"*(,4"0+")7$d"+$-+)$4:$'(0()!)(4"-$ ,+'!)+$ )4$ ),!"-'!)(4"$2,43'+0-$f/+"$&-(";$-4.(+)#>-2+.(e.$f4,1-<$-#034'-<$!"1$4)/+,$2,402)-$ ("$!"4)/+,$.&')&,!'$ settings. to minimize these issues srr researchers have used visual-based prompts such as pictures, projective )+./"(%&+-<$ !--4.(!)(4"-<$4,$4)/+,$"4">*+,3!'$1!)!$;!)/+,(";$ ("-),&0+")-$ :,++$ !--4.(!)(4"-$ !,+$ +-2+.(!''#$2'!;&+1$ f()/$ ),!"-'!)(4"$2,43'+0-$.,4--$.&')&,+-$ ?h+"i<$jkklb7$\')/4&;/$"4$1!)!$;!)/+,(";$ )44'$ (-$2+,:+.)<$ )/+$;+"+,!''#> accepted value of visual-based prompts lies in gaining a respondent’s indirect revelation of his or own underlying 04)(*!)(4"-<$3+'(+:-<$!))()&1+-$!"1`4,$:++'(";-$f/+"$!-=+1$)4$,+-24"1$!-$)4$!"$]4)/+,>2!,)#9-$2,43!3'+$,+-24"-+9$f/+"$ presented with the physical or online prompt. further elaboration of applications of srr-based methodologies is beyond the scope of this study. interested ,+!1+,-$!,+$,+:+,,+1$)4$8-4&=!'!-9-$?jkklb$-)&1#$2&3'(-/+1$("$a&!'()#$!"1$a&!")()#$?_+.+03+,b7$8-4&=!'!-$.,+!)(*+'#$ &-+1$+'(.()!)(4"$!"1$+'!34,!)(4"$4:$:,++$!--4.(!)(4"-$)4$1+)+,0("+$)/+$-+0!")(.$e+'1$!"1$.4;"()(*+$4,;!"(i!)(4"$4:$ given social representations and shared with readers the complete survey script as a model to follow, creating a common ground for discourse. b(''+-2(+$ ?jkkcb$ 24(")+1$4&)$ )/+$ +g(-)+".+$4:$ ]!')+,"!)(*+$ ,+2,+-+")!)(4"9$ ,+-+!,./$ )/!)$ (-$ !$ -&3>.4024"+")$ 4:$ srr and offers an etic perspective. here alternative representation image-based prompts are intended to elicit from 4"+$.&')&,!'$;,4&2$?4,$4"+$*(,)&!'$.400&"()#b$,+-24"1+")-9$ )/4&;/)-<$ (1+!-<$3+'(+:-<$!--4.(!)(4"-<$!"1$-&./$!34&)$ a prompt that they would attribute to being the same or similar to that of how second cultural group (or virtual .400&"()#9-b$0+03+,-$f4&'1$ ,+-24"17$\-$f()/$ )/+$2!,+")$@aa$.4".+2)<$b(''+-2(+$ ?jkkcb$.!&)(4"+1$ )/!)$ -+*+,!'$ semiotic barriers may work to neutralize the affect on behavior regarding alternative representations. although both 2!,+")$,+2,+-+")!)(4"-$!"1$!')+,"!)(*+$,+2,+-+")!)(4"-$!,+$:!.+1$f()/$3!,,(+,-<$34)/$e+'1-$4:$-)&1#$!,+$+g2+,(+".(";$ use growth in the u.s. 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 216 advances in business research 4)2!%&'506"030+#%#!)+'5030%"27-'1%"80#!+9':66&!2%#!)+ social representation research methodologies are used increasingly to study social construction of diverse marketing phenomena as the links between social representations and social practices are well-established (abric, ymmdb7$d"+$4:$()-$(024,)!")$!22'(.!)(4"-$(-$("$0!,=+)$-+;0+")!)(4"$,+-+!,./$!-$()$.!"$3+$&-+1$)4$!"!'#i+$56$;,4&2$ formations based on shared beliefs, emotions, lifestyles, and consumption and relationship market segments can be formed at all geographical levels, domestic to global. widely-used internationally, although rarely thus far in america, @aa$,+-+!,./+,-$!,+$3+;(""(";$)4$0!=+$-(;"(e.!")$.4"),(3&)(4"-$)4$)/+$@aa$'()+,!)&,+$3#$'("=(";$-+;0+")!)(4"$!"1$ other useful and practical marketing application. appendix b offers several empirical examples and serve to document srr-marketing links, and address a near void in marketing literature. srr researchers enthusiastically responded to z'!0+)9-$ymmj$.!''<$1&,(";$)/+$e,-)$.4":+,+".+$:4,$(")+,"!)(4"!'$0!,=+)(";$@@a$,+-+!,./+,-<$:4,$3&('1(";$!$.400&"!'$ repository of srr-related studies and the sharing of the open-source sharing of these among srr researchers. today, many srr-related papers are published as ‘open source’ on a website entitled, papers on social a+2,+-+")!)(4"$a+-+!,./<$!*!('!3'+$:,40$/))2[`̀ fff72-,7c=&7!)`$?h@a<$jkykb7$\22'#(";$@aa$("$0!,=+)(";$,+-+!,./$ in the u.s. is a relatively new phenomenon, however, it is srr methodologies could be applied to study a variety 4:$*(,)&!'$!"1$.4>2,+-+")$.400&"()#$.4"-&02)(4"$2,!.)(.+-[$/+!')/<$+1&.!)(4"<$2/('!")/,42#<$.&')&,!'$+*+")-<$!"1$ 0!"#$4)/+,$,+%&(,+1$!"1$1(-.,+)(4"!,#$.4"-&02)(4"$2,!.)(.+-7$s/!)$3&-("+--$1(-.(2'("+-$3+#4"1$0!,=+)(";$-4.(!'$ ,+2,+-+")!)(4"$)/+4,#>3!-+1$,+-+!,./$.4&'1$3+$!22,42,(!)+'#$!22'(+1e$8/+$+02(,(.!'$+g!02'+-$2,+-+")+1$("$\22+"1(g$ b are good starting places. 4)2!%&'506"030+#%#!)+'5030%"27-';$#$"0 \-$!22'(+1$ )4$*(,)&!'$4,$.4>2,+-+")$.400&"()#<$%&!'()!)(*+>3!-+1$@aa$(-$+g2+,(+".(";$-)+!1('#$&-+>;,4f)/$("$ america, although it has not, for the large part as we know it, become a widely-offered course of study in u.s. !.!1+0(.$.&,,(.&'!7$f&-)$e*+$#+!,-$!;4$s!;"+,$p$x!#+-$?jkkrb<$!"$\&-),(!"$)+!0<$2&3'(-/+1$)/+$e,-)$-(";'+$)+g)$ addressing the theoretical, epistemological and empirical frameworks, major concept issues, and debates of modern -4.(!'$,+2,+-+")!)(4"$,+-+!,./7$8/+(,$f4,=<$+")()'+1<$g*+,#1!#$_(-.4&,-+$!"1$64004"$@+"-+$>$8/+$8/+4,#$4:$@4.(!'$ representations, is a 472-page text published by palgrave macmillian in 2005. (<=(>?4@<=4a'@1b>@(:c@<=4a':=d'5e(<11e=d:c@<=4 conclusions this paper should be of interest to american educators and marketing practitioners as it introduces many to new research tools and topics mostly from europe and may encourage them to become involved in these new technologies, methodologies, and metrics of assessing virtual community strategy outcomes. virtual communities, )/+$,4'+$4:$56$0!"!;+,-<$/4f$0!,=+)(";$,+-+!,./+,-$.!"$&)('(i+$;4!'>.+"),(.$%&!")()!)(*+$!"1$%&!'()!)(*+$0+),(.-$)4$ 0+!-&,+$56$0!,=+)(";$-),!)+;(+-$)4$2,41&.+$;4!'>.+"),(.$4&).40+-$)/!)$!,+$!'(;"+1$f()/$4*+,!''$3&-("+--$;4!'-<$!"1$ 4)/+,$56>,+'!)+1$(--&+-$f+,+$1(-.&--+1$)/,4&;/4&)$)/+$2!2+,7$\11()(4"!''#<$)/(-$2!2+,$("),41&.+1$@aa$!-$!$-4.(!'$ representation theory-based practice and the use of netnography in practice and how these practices allow marketers !..+--$)4$56$0+03+,-9$0("1>-+)$?!"1$)/+$0("1>-+)$4:$.4>2,+-+")$.400&"()#$0+03+,-b$:4,$(1+")(:#(";$.4"-&0+,> centric value-added experiences and satisfaction improvement strategies. through these practices top customer .4".+,"-$.!"$3+$(1+")(e+1$!"1$!11,+--+1$!"1$.&-)40+,$,+'!)(4"-/(2$0!"!;+0+")$(02,4*+17$ implications the growing importance of virtual communities, social representation research, consumer consumption theory, and netnography implies that marketing educators and researchers are pressed to stay current with technological developments and research advancements and proactively integrate information about and training regarding these into marketing and other educational curricula. the study of virtual communities is relatively new, however, these concepts have begun to appear in consumer behavior texts. some take away thoughts and experiential project ideas for incorporating virtual community and social representation knowledge into marketing courses are offered in table 6. students could be asked to conduct ethnographic, netnographic, or both types of research, on brand or product .400&"()#$ ("$ )/+-+$0!,=+)(";$.4&,-+-[$.4"-&0+,$3+/!*(4,<$0!,=+)(";$ ,+-+!,./<$!"1$ (")+,"!)(4"!'$0!,=+)(";7$\-$ f!-$-/4f"<$;,4f(";$!))+")(4"$(-$3+(";$1+*4)+1$)/+$*(,)&!'`$3,!"1$.400&"()#$2/+"40+"4"$(".,+!-(";$)/+$'(=+'(/441$ research will grow in relevance with practitioners and educators alike. 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 217 advances in business research 'c%f&0'g-''b)33!f&0'eh60"!0+#!%&'b")i02#3'@+/)&/!+9'4)2!%&'506"030+#%#!)+'5030%"27'jc%,&)"a'kllmn full implications of virtual communities to marketers, other business administrators, and to academics are not yet known. the boundary-less nature of virtual communities crossing geographic, time, gender, nationality, ethnicity, and education boundaries, richly endows the need for research regarding virtual community, social representation research and related study. recommendations @(".+$4"+$4:$)/+$2,!.)(.!'$!22'(.!)(4"$4:$@aa$(-$("$0+!-&,(";$56>.+"),(.$4&).40+-<$0!,=+)(";$!.!1+0(.(!"$!"1$ 2,!.)()(4"+,-$ ,+-+!,./+,-$ -/4&'1$ ,+!1<$1(-.&--<$ !"1$3+.40+$04,+$ :!0('(!,$f()/$*(,)&!'$.400&"()#$ -),!)+;(+-<$56$ management, community manager responsibilities, social representation research, netnography, and other applicable ,+-+!,./$0+)/414'4;(+-7$^"4f'+1;+$4:$56$.400&"()#$0!"!;+0+")$!"1$56>.+"),(.$0+),(.-<$-2+.(e.!''#$@aa$!"1$ ,+'!)+1$.4".+2)-$!"1$-=(''-<$!,+$,+%&(-()+$("$)41!#9-$;'43!'$f4,=2'!.+7$\-$0!"#$0!,=+)+,-<$1&+$)4$.4-)$.&))(";$0+!-&,+-<$ move from their dependency on outsourcing creative and media services to advertising agencies and specialized *(,)&!'$0+1(!$ -&22'(+,-<$ )/+#$ !,+$ 2,+--+1$ )4$ 3+.40+$04,+$ -+':>-&:e.(+")$f()/$ -=(''-$ (">/4&-+<$ !"1$ -/4&'1$ +g2+.)$ new hires to be skilled in, digital marketing infrastructures and go-to-market virtual functionalities and solutions. investing in digital demand generation and virtual relationship communities ranks among top initiatives being taken )4$0!g(0(i+$)/+$(02!.)$!"1$*!'&+$4:$0!,=+)(";$("$.40(";$#+!,-$?z!,,+''<$jkykb7$v"$4&,$42("(4"<$()$(-$+g2+.)+1$)/!)$ present and future marketers will continually be directed by management, stockholders and stakeholders to do more f()/$'+--<$!"1$3+$.4")("&!''#$!-=+1$)4$c&-)(:#$0!,=+)(";$("*+-)0+")-<$56>.+"),(.$4,$4)/+,f(-+7$84$!..40041!)+$)/+-+$ directives, many marketers should transition without hesitation toward immediate execution of virtual community 0!,=+)(";$-),!)+;(+-$?z!,,+''<$jkykb<$!"1$0!"#$!,+$!-=+1$)4$14$-4$f()/4&)$!22'(.!3'+$),!("(";7$ perhaps it is time for academic business departments to build out proprietary virtual community platforms. ideally, these platforms would enable marketing educator, marketing practitioner, and other like-minded people to /!*+$.4''+.)(*+<$jd>/4&,<$ -+*+"$1!#$1(-.4&,-+<$ (")+,!.)(4"$!"1$ :,++>w4f$4:$ (1+!-$ >$ )/&-$+";!;(";$!"1$.4""+.)(";$ university, business world, and community at large. d!"02#!)+3'o)"';$#$"0'5030%"27' future research investigations could examine a multitude of variables regarding the tracing, visualizing, analyzing, and explaining and permanently capturing of virtual community textual and visual elements and member ,+'!)(4"-/(2-$!"1$)/+$("w&+".+$4:$)/+-+$4"$56$0+03+,-9$3+/!*(4,$2+,:4,0!".+$4,$/("1,!".+$4:$2+,:4,0!".+7$_!)!$ 0("(";$56$)+g)&!'$1!)!$)/,4&;/$34)/$%&!'()!)(*+$!"1$%&!")()!)(*+$,+-+!,./$(-$4:$&)04-)$(024,)!".+<$!-$()$+*+")&!''#$ +"!3'+-$)/+$!3('()#$)4$%&!")(:#$)/+$+.4"40(.$*!'&+$4:$*(,)&!'$.400&"()(+-<$,!";(";$:,40$"+;'(;(3'+$&2$)4$0&')(0(''(4"$ dollar values, and offers the possibility of securitizing the future streams of income of these values to obtain working .!2()!'$ :4,$ )41!#7$ z&)&,+$ ,+-+!,./$ -/4&'1$ 1+3!)+$ )/+$ ),+!)0+")$ 4:$ 56$ -2!.+$ !-$ f/+)/+,$ ()$ (-$ 2+,-4"!'$ 4,$ 2&3'(.7$ d)/+,$,+'!)+1$+)/(.!'$(--&+-$,+;!,1(";$,+-+!,./+,$!..+--<$!.%&(-()(4"<$%&4)!)(4"<$!"1$-)4,!;+$4:$)+g)&!'$!"1`4,$*(-&!'$ (":4,0!)(4"$+g./!";+1$!04";$56$0+03+,-$("$56$-2!.+$-/4&'1$3+$+g!0("+17$\-$56>&-+,$3+"+e)-$(".,+!-+$!"1$!-$ &-+,-$-/!,+$(".,+!-+1$(":4,0!)(4"$3+)f++"$56$0+03+,-<$-2!00+,-$!"1$-.!00+,-$!,+$!)),!.)+1<$)/&-$,+-+!,./$4"$ securing virtual communities is of utmost importance. many research streams surrounding ethics, privacy issues, social responsibility, standards of conduct, member participation in and marketer use of virtual communities are needed. we suggest researchers consider virtual communities as a broad research domain, open to a variety of researcher disciplines by looking more in detail at any of the above mentioned and other virtual community issues. \11()(4"!''#<$ ,+-+!,./+,-$ .4&'1$ '44=$ :&,)/+,$ !)$56>.+"),(.$0+),(.-<$ (".'&1(";$.&-)40+,$ ,+)+")(4"<$ !22,42,(!)+$ :4,$ assessing individual and group performance of virtual community strategies and the ‘so what’ impact on businesses, 56>0+03+,-<$!"1$-4.(+)#$0+03+,-$!)>'!,;+7$\-$)/+$&-+$4:$*(,)&!'$.400&"()(+-$.4")("&+-$()-$,!2(1$+g2!"-(4"<$!"1$ !11()(4"!'$:&".)(4"!'()(+-$f()/("$&-+,$3!-+-$;,4f-<$)/+$1+0!"1$:4,$56>.+"),(.$,+-+!,./$-)&1(+-<$34)/$%&!")()!)(*+$!"1$ %&!'()!)(*+<$f(''$;,4f$2,424,)(4"!)+'#$:4,$'4";()&1("!'$!"1$.402!,!)(*+$-)&1(+-7$$ a. virtual community research projects that give trainees experience in analyzing on-line blogs, chat rooms, and virtual communities with open source memberships. here the trainees could be asked to identify top-rated virtual community member problems or concerns, and learn what productor brand-related information is being exchanged. b. online projects to help trainees realize the importance of and growing necessity of the link between virtual community platforms , marketing, and overall business strategies and customer relationship management. these projects might take the form of interviews with or job-shadowing projects with virtual community managers. c. projects to help trainees realize that virtual communities can serve as a channel of communication. in conducting such study, trainees come to realize that there is a link between devoted product or brand users and firm sales, profit, and image enhancement. 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 218 advances in business research 5e;e5e=(e4 abric, j. 1994. pratiques sociale el representations7$h!,(-[$h,+--+-$h"(*+,-!,(+-$1+$z,!".+7$ \';+-/+(0+,<$a7<$_/4'!=(!<$h<$p$x+,0!""<$x7$jkkr7$8/+$-4.(!'$ ("w&+".+$4:$3,!"1$.400&"()(+-[$g*(1+".+-$ :,40$ european car clubs. journal of marketing<$lm[$ym>id7 \0(-!02!)/7$jkyk7$s/#$14$4"'("+$3,!"1$.400&"()(+-$:!('e$?f&"+$jyb7$a+),(+*+1$:,40$/))2[``fff7!0(-!02!)/7.407$ armstrong, a., & hagel, j. 1996. the real value of on-line communities. p%"/%"q'r$3!+033'50/!0s<$cd[$jjl>ik7 \,"4"+<$o7<$64'4)<$d7<$6,4%&+)<$ 7<$b++,)-<$\7<$p$h4i"(!=<$o7$jkyk7$6402!"#$0!"!;+1$*(,)&!'$.400&"()(+-$("$;'43!'$ brand strategy. t&)f%&'u)$"+%&')o'r$3!+033'5030%"27<$d[$mj>yyj7 \,"4&'1<$ g7<$ p$ 8/402-4"<$ 67$ jkkr7$ 64"-&0+,$ .&')&,+$ )/+4,#$ ?668b[$ 8f+")#$ #+!,-$ 4:$ ,+-+!,./7$ journal of consumer research<$iy[$clc>ccj7 audebrand, l., & iacobus, a. 2004. the social representation of fair trade in a business student population. istr 64":+,+".+$h,4.++1(";-<$?f&'#$yy>yd<$84,4")4<$6!"!1!b7$a+),(+*+1$:,40[$/))2``!)'!->.4":+,+".+-7.40`.`!`0`=`mi7/)07 bauer, m., & gaskell, g. 1999. toward a paradigm for research on social representation. journal of theory of social representation<$j[$jli>ycl7 q411#<$67$jkkr7$h,4c+.)(*+$)+./"(%&+-$("$0!,=+)(";$,+-+!,./[$5!'&+'+--$-&3c+.)(*()#$4,$("-(;/):&'$,+!'()#7$international journal of marketing research<$i[$jim>jrd7 q,+!=f+''<$b7<$p$6!")+,<$_7$ymmi7$e*6!"!2%&'%66")%2703'#)'4)2!%&'506"030+#%#!)+3. oxford science publications, g1()4,-<$v''&-),!)+1$g1()(4"<$6'!,+"14"$h,+--7 6!,!-<$\7$jkyk7$e/%&$%#!+9' #70'0oo02#!/0+033')o'q!9!#%&'%q/0"#!3!+9. retrieved from www.community. microsoft advisor.com. daughtery, t., eastin, m., & bright, l. 2008. exploring consumer motivation for creating user-generated comment. journal of interactive advertising<$c[$yl>jr7 _+$q,&#"<$\7<$p$o('(+"<$b7$jkkc7$\$0&')(-)!;+$041+'$4:$f4,1>4:>04&)/$("w&+".+7$international journal of research in marketing<$jr[$yry>yli7 east, r., hammond, k., & lomax, w. 2008. measuring the impact of positive word-of-mouth on brand purchase probability. international journal of research in marketing<$jr[$jyr>jjm7 e-mint. 2010. association of online community professionals7$\*!('!3'+$:,40[$/))2[``fff7+>0(")74,;7&=`7 farrell, m. 2010. d!9!#%&'*%"80#!+9'q"!/!+9'#"%+3o)"*%#!)+'!+'9&)f%&'*%"80#!+9')"9%+!v%#!)+37$6 d$64&".('7$ a+),(+*+1$:,40$/))2[``fff70!,=+)f(,+7.40`2,+-->,+'+!-+`1(;()!'>0!,=+)(";>1,(*(";>),!"-:4,0!)(4">;'47 fetterman, d. 1998. e#7+)9"%67,7$8/4&-!"1$d!=-<$6\[$@!;+$h&3'(.!)(4"-<$v".7$ z'!0+)<$67$ymmj7$request to all researchers on social representations7$h!2+,-$4:$@4.(!'$a+-+!,./<$j[$yij7$a+),(+*+1$ :,40$/))2``7fff72-,7c=&7!)`7 flick, u. 2006. an introduction to qualitative research7$o4"14"[$@!;+$h&3'(.!)(4"7 founier, s., & lee, l. 2009. getting brand communities right. p%"/%"q'r$3!+033'50/!0s<$cj[$105-111. fuller, j., matzler, k., & hoppe, m. 2008. brand community members as a source of innovation. journal of product innovation management<$jr[$lkc>lym7 gillespie, a. 2008. social representations, alternative social representations and semantic barriers. journal for theory of social behavior<$ic[$ijr>imy7 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 219 advances in business research b41+)<$b7<$ +&,;+#<$q7<$p$o!.!--!;"+<$ 7$jkkm7$q,!"1$-4.(!'$,+2,+-+")!)(4"-[$@),!)+;(.$2+,-2+.)(*+-$:4,$!$e)"+--$ club, international journal of sports management and marketing<$r[$ilm>ici7 hanlon, p., & hawkins, j. 2008. expand your brand community online. :q/0"#!3!+9':90'j1!qs03#'509!)+'eq!#!)+n-' chicago<$jm[$yd>yl7 x+,./+<$f7<$@f+"-4"<$ 7<$p$5+,3+=+<$k7$ymml7$h+,-4"!'$-+''(";$.4"-),&.)-$!"1$0+!-&,+-[$g0(.$*+,-&-$+)(.$!22,4!./+-$ to cross-national research. e$")60%+'u)$"+%&')o'1%"80#!+9<$ik[$ci>mj7 hofstede, f., steenkamp, j., & wedel, m. 1999. international market segmentation based on consumer-product relations, journal of marketing research<$id[$y>yj7 interweave. 2010. @+#0"s0%/0' 2)**$+!#!03' w' 7%+q' s)/0+7$ a+),(+*+1$ :,40[$ /))2[fff7f+!*(";)41!#7.40`&-+,`$ member.asp. jenkins, l. 2010. x's%,3';%20f))8'%q*!+!3#"%#)"3'2%+'%/)!q'2)*6&!2%#0q'3!#$%#!)+3's!#7'o%+'6)3#37$ ?\&;&-)b7$ a+),(+*+1$:,40[$fff7'("1!c+"=("-7.40 klopfer., b., & davidson, h. 1962. c70' ' 5)"327%27' ' #027+!y$0-' ' :+' !+#")q$2#)",' *%+$%&. harcourt, brace and world. kollock, p. 2002. communities cyberspace ten years later. taylor and francis. ^4i("+)-$a7<$p$ @/+,,#<$ f7$ jkki7$8+!./(";$ 4'1$ 3,!"1-$ "+f$ ),(.=-[$a+),4$ 3,!"1$ !"1$ )/+$ ,+*(*!'$ 4:$ 3,!"1$0+!"(";<$ journal of marketing<$lj[$ym>ii7 ^4i("+)-$$a7$jkkj7$8/+$e+'1$3+/("1$)/+$-.,++"[$h-(";$"+)"4;,!2/#$:4,$0!,=+)(";$,+-+!,./$("$4"'("+$.400&"()(+-7$ journal of marketing research7$yj[$jrj>jld7 ^4i("+)-$ a7$ ymmc7$ d"$ "+)4;,!2/#7$ v"()(!'$ ,+w+.)(4"-$ 4"$ .4"-&0+,$ ("*+-)(;!)(4"-$ 4:$ .#3+,.&')&,+7$ v"$ f7$ \'3!$ p$ s7$ x&)./("-4"<$ ?g1-7b7$ advances in consumer research<$ \--4.(!)(4"$ :4,$ 64"-&0+,$ a+-+!,./<$ h,4*4<$ ut. 25, 336-371. laird-magee, t. 2002a. <+&!+0'2)**$+!#!03'f$!&q'2$3#)*0"'&),%&#,'%+q'3$66)"#'2$3#)*0"'"0#0+#!)+'9)%&3. white h!2+,<$64"e1+")(!'$.!-+$-)&1#$?\&;&-)b7$ laird-magee, t. 2002b. z!++!+9'@+#0"+0#'3#"%#09,'%qq"03303'2$3#)*0"'%2y$!3!#!)+'%+q'"0#0+#!)+. white paper. 64"e1+")(!'$.!-+$-)&1#7$?\&;&-)b7$ o!";+,<$a7<$p$q+.=0!"<$@7$jkkr7$@+"-()(*+$,+-+!,./$)42(.-[$k+)"4;,!2/#$,+*(-()+17$.$%&!#%#!/0'1%"80#'5030%"27-' an international journal<$c[$ycm>jki7 levin-rosalis, m., & bar-on, n., & hartaf, h. 2003. the structuring process of social responsibility on violence in abusive men. psychology and culture<$m[$ily>icj7$ madanmohan, t., & navelkar, s. 2010. 5)&03'%+q'8+)s&0q90'*%+%90*0+#'!+')+&!+0'#027+)&)9,'2)**$+!#!03-':+' ethnography study7$$vv q7$$a+),(+*+1$:,40$/))2[fff7.()+-++,g7'-)72-&7+1&7$ moscovici, s. 1961. >%'63,27%+%&,30a'3)+'!*%90'0#'3)+'6$f&!27$h!,(-[$h,+--+-[$h"(*+,-()!(,+-$1+$z,!".+7 muniz, a., & o’guinn, t. 2001. brand community. journal of consumer research<$jj[$dyj>dij7 osofsky, m. 2007. e+7%+20'*%"80#!+9'"030%"27's!#7'+0#+)9"%67,7$a+),(+*!3'+$!)$/))2[``fff70+1(!$.4""+.)(4"7 .40`.4")+")`yjjyy7!-27 ovwersloot, h., & odekerken-schoder, g. 2008. who’s who in brand communities. journal of marketing, dj[$rjy>rcr7 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 220 advances in business research h+"i<$ g7$ jkkl7$ a+-+!,./(";$ )/+$ -4.(4>.&')&,!'$ .4")+g)[$ h&))(";$ -4.(!'$ ,+2,+-+")!)(4"$ (")4$ !.)(4"<$ international marketing review<$ji[$dyc>dij7 h+"i<$g7<$k+(,>h+-)(<$^7<$p$ $^(,./'+,<$g7$jkkd7$v)9-$2,!.)(.!'$3&)$"4$04,+$.4"),4''!3'+[$@4.(!'$ ,+2,+-+")!)(4"$4:$ )/+$ electronic purse in austria. u)$"+%&')o'e2)+)*!23'b3,27)&)9,<$jr[$jjy>jcj7 plank, r. 2005. c70'0*!2'/3['0#!2'q!&0**%'!+'2")33'2$&#$"%&'*%"80#!+9'"030%"27-':'60"3)+%&'2)+3#"$2#'#70)",' perspective7$a+),(+*!3'+$:,40$/))2[``fff7-3!+,7&.!7+1&`,+-+!,./`ymmc` \`mc00!kcm7/)0$24-)+1$r`j`jkkd7 h4,)+,<$g7$jkkd7$\$)424'4;#$4:$*(,)&!'$.400&"()(+-[$\$0&')(>1(-.(2'("!,#$:4&"1!)(4"$:4,$:&)&,+$,+-+!,./7$journal of computer mediated communication7$a+),(+*+1$:,40$/))2[``c.0.7("1(!"!7+1&`*4'yk`(--&+y`24,)+,7/)0'7 psr. 2010. papers on social representation. <60+'%22033'i)$"+%&7$a+),(+*+1$:,40$/))2[``fff72-#./7'-+7!.7&=`2-,`7 radian6. 2010. measuring community impact7$6/7$l7$q&('1(";$!"1$@&-)!("(";$q,!"1$6400&"()(+-$ >$a!1(!"l$g$ q44=7$a+),(+*+1$:,40$/))2[``fff7,!1(!"l7.40`f2>.4")+")`&2'4!1-`jkyk`kj,!1(!"ll+344=lz+3jkyk721:7 rheingold, h. 1993. the virtual community homesteading on the electronic frontier. rheingold. rindell, a. 2008. z7%#'q)'f"%+q3'*0%+'#)'$3\':'37)"#'!+#")q$2#!)+'#)'f"%+q'"030%"27's!#7'2)+3$*0"'2$&#$"0' theory. haaga-helia. schau, h., muniz, a., & arnould, e. 2009. how brand community practices create value. journal of marketing, ji[$iy>ry7$ @./+"-&'<$@7<$@./+"-&'<$f7<$p$o+6402)+<$ 7$ymmm7$e330+#!%&'0#7+)9"%67!2'*0#7)q3-'<f30"/%#!)+3a'!+#0"/!0s3'%+q' questionnaires7$o!"/!0<$ _[$\')! (,!$h,+--7$ @./4&)+"<$f7<$p$ .\'+g!"1+,<$f7$ymmr7$@&3.&')&,+-$4:$.4"-&02)(4"[$\"$+)/"4;,!2/#$4:$)/+$"+f$3(=+,-7$journal of consumer research<$jj[$di>ly7$$ @(";/<$87<$p$6&''(""!"+<$ f7$ jkyk7$@4.(!'$ -+)f4,=-$ !"1$0!,=+)(";[$h4)+")(!'$ !"1$2():!''7$ international journal of e&02#")+!2'1%"80#!+9'%+q'50#%!&!+9<$i[$jkj>jjk7 ssriv. 2010. brand community concept7$@@av5<$?\3-),!.)b7$a+),(+*+1$:,40$/))2[``--,"7.40`!3-),!.)mydddcii7 stewart, i., & lacassange, m. 2005. social representation as a diagnostic tool for identity of cultural and other group differences. psychology and marketing<$jj[$jjy>jic7$ @)4.=3&,;+,>@!&3+,<$k7$jkyk7$q,!"1$.400&"()#[$_,(*+,-$!"1$4&).40+7$psychology and marketing<$jj[$idj>ilc7 taylor, r. 2009. 4)2!%&'"06"030+#%#!)+'"030%"27-'?303a'!*6)"#%+20'%+q'"0&%#!)+37!6'#)'+0#+)9"%67,'%+q'*%"80#!+9' communities7$64":+,+".+$h,4.++1(";-<$ !,=+)(";$g1&.!)4,-9$64":+,+".+<$@+!))'+$?\2,('b7 tsoukalas, i. 2006. methods for studying social representation. quality and quantity<$dk[$ykcm>ykmr7 5+'4&)-4&<$67<$p$ 4&)("/4<$o7$jkkm7$q,!"1$ ,+'!)(4"-/(2$ )/4&;/$3,!"1$ ,+2&)!)(4"$!"1$3,!"1$ ),(3!'(-07$journal of business research<$lj[$iyd$>ijj7 wagner, w. 1995. d032"!6#!)+a' 0h6&%+%#!)+' %+q' *0#7)q' !+' 3)2!%&' "06"030+#%#!)+' "030%"27. papers on social a+2,+-+")!)(4"$a+-+!,./7$yrl>yjl7$a+),(+*+1$:,40$/))2[``fff72-,7c=&7!)`7 wagner, w., & haynes, n. 2005. e/0",q%,'q!32)$"30'%+q'2)**)+'30+30'w'c70'#70)",')o'3)2!%&'"06"030+#%#!)+. h!';,!*+$ !.0(''(!"[$h@7 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 221 advances in business research wells, j. 2009. r$!&q!+9' f"%+q' 2)**$+!#!03a' r$3!+033' <66)"#$+!#!037$ a+),(+*+1$ :,40$ /))2[``fff73&-("+--> 4224,)&"()(+-73(i`jkkm`kr`ym`3&('1(";>3,!"1>.400&"()(+-7 wikipedia. 2009. social representations7$a+),(+*!3'+$:,40$/))2[``+"7f(=(2+1(!74,;`f(=(`@4.(!'l,+2,+-+")!)(4"-7$$ ruth taylor is a professor of marketing at texas state university san marcos. she received her ph.d. in marketing from university of north texas. her current research interests include international marketing, branding, marketing education, and hand woven textile marketing and virtual community analysis. she has published in journal of brand management, journal of marketing education, marketing education review, journal for advancement of marketing, 6402+)()(*+"+--$a+*(+f<$f4&,"!'$4:$64")+024,!,#$q&-("+--$v--&+-<$f4&,"!'$4:$b'43!'$6402+)()(*+"+--<$f4&,"!'$4:$ professional services marketing, and others. c,&0"'>%!"qw1%900$(-$!"$!--(-)!")$2,4:+--4,$4:$0!,=+)(";$!"1$0!"!;+0+")$!)$o("e+'1$64''+;+7$8#'+,$(-$.402'+)(";$ her doctoral studies in business administration at george fox university and holds an m.a. in communication and marketing from the university of portland. she has over 25 years of experience in strategic marketing management ("$ -+))(";-$ ,!";(";$ :,40$z4,)&"+$ rkk$ .402!"(+-$ )4$ *+")&,+$ .!2()!'$ -)!,)>&2-7$ v"$ jkkk<$ -/+$ 3&(')$ )/+$ e,-)$ 4"'("+$ .400&"()(+-$:4,$)/+$g'+.),4"(.$_+-(;"$\&)40!)(4"$?g_\b$("1&-),#7$8#'+,9-$,+-+!,./$(-$:4.&-+1$4"$)/+$0!"!;+0+")$ of international virtual communities, the intersection of organizational culture and brand, and outcomes-based teaching in marketing and management, domestically and internationally. 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 222 advances in business research :660+q!h':-'.$%+#!#%#!/0wr%30q' !"#$%&'()**$+!#,'10#"!23 ?\1!2)+1$:,40[$a!1(!"l$g$q44=$?jkykb<$q&('1(";$p$@&-)!("(";$q,!"1$6400&"()(+-<$t +!-&,(";$6400&"()#$v02!.)<u$6/!2)+,$lb \7$$ +!-&,(";$64"*+,-!)(4"$!"1$g";!;+0+")$ 1. h,4!.)(*+$3'4;$24-)-$4,$.4"*+,-!)(4"$),+!1-$("()(!)+1$3#$)/+$e,07 2. tweet and retweet ratios. 3. length of comment strings per company-initiated posts. 4. n$4:$.400&"()#$0+03+,-$+";!;+1$4"$)42(.$24-)-$2+,$f++=`04")/7 5. o$)4)!'$04")/'#`)#2+$.4"*+,-!)(4"-$p$)/+(,$,!)(4-[$@&224,)n$842(.!'n$b441f(''[$d)/+,6. presence by media type. q7$$ +!-&,(";$6400&"()#$x+!')/ 1. growth rates for different properties. 2. 6400&"()#$0+03+,$-!)(-:!.)(4"`$,+"+f!'-`,+)+")(4"$!"1$!)),()(4"7 3. average community member engagement time. 4. 6400&"()#$0+03+,$.4""+.)(4"-[$!.)&!'$?:,(+"1-b$!"1$(02'(+1$?.4"*+,-!)(4"-b7 5. a!)(4$4:$.402!"#$)4$.400&"()#$24-)-`.4"*+,-!)(4"-7$ 67$$ +!-&,(";$q&ii$!"1$6402+)()(4" 1. number of posts and % positive posts vs. competitive virtual communities. 2. recommendations and referrals versus competitive virtual communities. 3. share of conversation. 4. reviews of product or service d. measuring sentiments and trends 1. @+")(0+")-$)4f!,1$2,41&.)$4,$-+,*(.+$2+,$2,41&.)`-+,*(.+$,+*(+f$!"!'#-+2. h4-()(*+`"+;!)(*+`"+&),!'$,!)(4-$4*+,$*!,(4&-$)(0+$2+,(41-$!"1$!-$.402!,+1$)4$.402+)()(*+$56-7 3. recovery time for sentiment rations after an encountered crisis. 4. g0+,;+")$+*!";+'(-)-$?n$24-()(*+$24-)-b$!"1$1(-),!.)+,-$?n$"+;!)(*+$24-)-b$:,40$!$-(";'+$-4&,.+ g7$$ +!-&,(";$v--&+$a+-4'&)(4"$8(0+$!"1$64-)1. posts and issues addressed in social media channels. 2. a+-4'&)(4"$4:$e,-)$.4")!.)n$!*+,!;+$,+-4'&)(4"$)(0+7 3. v--&+-$("()(!)+1$!"1$,+!./+1$4"'("+$!"1$4:w("+$?'(=+$2/4"+$.4")!.)b$!"1$.402!,!)(*+$.4-)$2+,$(--&+7 4. 64-)$2+,$(--&+$?!-$.402!,+1$)4$4:w("+$0+./!"(-0-$'(=+$2/4"+$.4")!.)b7 5. h++,>,+-4'*+1$(--&+-$?-&224,)b7 6. @&224,)(*+$.400+")-`1+:+"1(";$;+-)&,+-$3#$.400&"()#$0+03+,-7 f. measuring lead generation and sales 1. 6400&"()#$0+03+,-/(2$4*+,'!2$f()/$-!'+-n$a+:+,,!'-$*(!$4"'("+$./!""+'-7 2. % leads originating through online channels; % leads closed though online channels. 3. 64-)$2+,$14''!,$,!(-+17 g. measuring website analysis 1. a+:+,,!'$),!:e.$*4'&0+$:,40$*(,)&!'$.400&"()#$-()+7 2. time on virtual community site for online referrals. 3. 64"*+,-!)(4"-`.'(.=$)/,4&;/$n$:4,$*!,(4&-$,+:+,,!'$./!""+'-7 4. inbound links. x7$$ +!-&,(";$64")+")$h+,:4,0!".+ 1. _4f"'4!1-$:,40$-()+[$h2'4!1-$4:$h-+,>;+"+,!)+1$.4")+")$?hb6b 2. revenue and paid out count. 3. shares (share of tweets; retweets; inbound links; bookmarks; votes, etc. 4. h"(%&+$.4"*+,-!)(4"-$!34&)$.400&"()#$.,+!)+1$.4")+")$p$+g)+,"!'$4,$&-+,>;+"+,!)+1$.4")+")7$ 2010, vol. 1, no. 1, 210-223 taylor & laird-magee 223 advances in business research :660+q!h'r-'e*6!"!2%&'4)2!%&'506"030+#%#!)+':66&!2%#!)+3 1. h+"i<$k+(,>h+-)($ !"1$^(,./'+,9-$ -)&1#$ ?jkkdb$ ("$\&-),(!$.4".+,"(";$.4"-&0+,$3+/!*(4,$ )4f!,1$ )/+$ ]+'+.),4"(.$ 2&,-+9$?)/+$./(2$.!,1b7 2. b41+)$+)$!'$?jkkmb$f4,=$f()/$-4.(!'$,+2,+-+")!)(4"$,+-+!,./$0+)/414'4;(+-$("$)/+$h^$f/+,+$)/+#$-4&;/)$.4"-&0+,$ 42("(4"-$!"1$2,+c&1(.+-$)4f!,1$e)"+--$.'&3-$)4$'+!,"$4:$-!'(+")$+'+0+")-$4:$!$2!,)(.&'!,$-24,)-$3,!"1$!"1$)/+$f!#$ these elements are structured the community members themselves. 3. x4&)('!("+"<$h(,))('!>q!.=0!"$!"1$84&,(''9-$ ?jkklb$ -)&1#$ ("$z("'!"1$ ,+;!,1(";$ )/+$0!,=+)(";$4:$"+f$ :441-$ )4$ consumers based on consumers grouped into their suspicions of new foods, adherence to natural foods, adherence to technology, eating as an enjoyment activity vs. eating as a necessity; and other eating behaviors. research e"1(";-$4:$)/(-$-)&1#$f+,+$&-+1$!"$!))+02)$)4$2,+1(.)$.400&"()#$.4"-&0+,-9$f(''(";"+--$)4$),#`&-+$"+f$:441-7$$ 4. o+*(">a4-!'(-$+)$!'$?jkkib<$-/4f+1$/4f$-4.(!'$,+2,+-+")!)(4"$,+-+!,./$f!-$&-+1$!-$!$)/+,!2+&)(.$2,4.+--$("$.4">$ ditioning a community of habitually violet men to understand and manage their own aggression tendencies. 5. \&1+3,!"1$?jkkdb$1+-.,(3+$/4f$-4.(!'$,+2,+-+")!)(4"$,+-+!,./$f!-$&-+1$)4$-/4f$/4f$]:!(,$),!1+9$f!-$+'!34,!)+1$ among student community member interactions based on free associations. 6. q,+!=f+''$!"1$6!")+,$?ymmib$("$)/+(,$344=<$g02(,(.!'$\22,4!./+-$)4$@4.(!'$a+2,+-+")!)(4"$a+-+!,./<$(''&-),!)+-$ the multi-functionality of social representation research. 7. !"#$4)/+,$2/+"40+"!$!-$-&3c+.)-$4:$-4.(!'$,+2,+-+")!)(4"$,+-+!,./[$ !7$ q,!"1`2,41&.)$3&('1(";$!"1$3,!"1`2,41&.)$0!22(";$>$("1(,+.)'#$4,$1(,+.)'#$+'(.()$:,40$.400&"()#$0+03+,-$ ,+!'()#>$ 3!-+1$*!'&+-<$ 2+,.+(*+1$3+"+e)-$ !))()&1+-<$ !"1$4)/+,$ -&./$ (":4,0!)(4"$ !34&)$ 2!,)(.&'!,$ 3,!"1-$4,$ products to aid brand image building, brand image mapping, and other brand-related endeavors. b. building sales volume – indirectly or directly elicit information about barriers to consumption from community members and to determine important reasons for non-consumption. c. others 2010, vol. 1, no. 1, 210-223 taylor & laird-magee advances in business research 2010 volume 1.pdf 62 advances in business research !"#$%$!#&'#(&)*+$,$!#&-'.$#"&$#&)$/*0,$1*(&2$03,& !""#$%&'()*"&+$,-.-"!/-$,-..*0* irene duhaime, georgia state university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aa@b$c-4;'44-5$d$c'&&+$@aaeb$f!(!51g!($ d$h!"!/!"!g!5+$@aiajk$l5$)!"&'71.!"+$&6*$'5<1*57*$-8$(!5!0*"'!.$/*7'4'-5$(!;'50$6!4$:**5$.!"0*.#$'05-"*/$'5$(-4&$ /'2*"4'97!&'-5$4&1/'*4$>?*44$*&$!.+$@aamjk$n6'.*$'&$3!4$41"*.#$6-)*/$&6!&$&6*4*$"*2'*34$3-1./$4&'(1.!&*$5*3$"*4*!"76$ -5$/'2*"4'97!&'-5+$&6'4$.'&*"!&1"*$4&"*!($6!4$4**5$"*.!&'2*.#$.'&&.*$4&1/#$'5$&6*$.!4&$/*7!/*$!5/$&--$8*3$4&1/'*4$6!2*$ pursued new approaches advocated by these reviews. o#$8-714'50$-5$&6*$'5<1*57*$-8$(!5!0*"4$'5$/'2*"4'9*/$9"(4+$&6*$"*4*!"76$"*)-"&*/$6*"*$!//"*44*4$p1*4&'-54$&6!&$ 6!2*$"*7*'2*/$&--$.'&&.*$!&&*5&'-5k$q-..-3'50$c!(:"'7;$!5/$r!4-5s4$>@aitj$1))*"$*76*.-54$8"!(*3-";+$&6'4$4&1/#$!4;4$ &3-$;*#$p1*4&'-54k$q'"4&+$36!&$!"*$&-)$(!5!0*"4s$:*.'*84$!:-1&$&6*$(!5!0*(*5&$-8$/'2*"4'97!&'-5u$%*7-5/+$&6*$4&1/#$ &6*5$7-54'/*"4$36*&6*"$*=*71&'2*4s$:*.'*84$!:-1&$&6*$(!5!0*(*5&$-8$/'2*"4'97!&'-5$!"*$!44-7'!&*/$3'&6$&6*'"$9"(4s$ 4&"!&*0'7$76-'7*4+$'57.1/'50$/*7'4'-54$!:-1&$/'2*"4'97!&'-5$4&"!&*0#+$!7p1'4'&'-5$!5/$/'2*4&(*5&$!7&'2'&#+$5*3$)"-/17&$ development efforts, and research and development spending. background research in managerial cognition examines how mental models determine what stimuli are noticed and how they !"*$'5&*")"*&*/+$!5/$6-3$(*5&!.$(-/*.4$'5<1*57*$/*7'4'-5$(!;'50$>?1&&-5$d$?1;*"'76+$@aa@b$v'-'!$d$,6'&&')*//'+$ @aa@b$ *2#+$weemb$ -154:1"#$d$v.#55+$wee@jk$x614+$&6*$7-05'&'2*$)*"4)*7&'2*$-5$4&"!&*0#$!"01*4$&6!&$'54'06&$'5&-$ /*7'4'-5$(!;'50$"*p1'"*4$!5$!))"*7'!&'-5$-8$&6*$:*.'*84$!5/$15/*"4&!5/'504$7-5&!'5*/$'5$*=*71&'2*4s$(*5&!.$(-/*.4k x6-106$!$4'05'97!5&$:-/#$-8$(!5!0*"'!.$7-05'&'-5$.'&*"!&1"*$6!4$5-3$!771(1.!&*/+$"*.!&'2*.#$8*3$"*4*!"76*"4$ 6!2*$!)).'*/$&6'4$)*"4)*7&'2*$&-$&6*$4&1/#$-8$/'2*"4'97!&'-5k$r-"*$&6!5$&3-$/*7!/*4$!0-+$y"!6!.!/$!5/$o*&&'4$>@aizj$ !"01*/$&6!&$*=*71&'2*4$3-1./$5**/$&-$.*!"5$6-3$&-$(!5!0*$/'2*"4'97!&'-5$[!4$!$/'4&'57&$)"-7*44$!5/$4;'..\$>@aiz]$tiij+$ and that in doing so, they would develop knowledge structures mental models or, in their words, dominant logics &6!&$7-5&!'5$*=*71&'2*4s$:*.'*84$!5/$15/*"4&!5/'504$!:-1&$&6*$(!5!0*(*5&$-8$/'2*"4'97!&'-5k building on the work of prahalad and bettis, a few studies have explored how management beliefs shape 15/*"4&!5/'504$-8$&6*$7-()*&'&'2*$*52'"-5(*5&$!5/$6-3$&6*'"$9"(4$!"*$)-4'&'-5*/$"*.!&'2*$&-$&6*'"$7-()*&'&-"4$>v!"0$ *&$!.+$wee b̂$r!4-5$d$c!""'4+$weemb$_*'..$d$f-4*+$weezjk$̀ ()'"'7!.$"*4*!"76$:#$%&'()*"&$!5/$?16!'(*$>@aaaj$8-714*/$ -5$-5*$!4)*7&$-8$/-('5!5&$.-0'7$b$6-3$&-)$(!5!0*"4$-8$/'2*"4'9*/$9"(4$15/*"4&!5/$&6*'"$9"(4s$:14'5*44*4$&-$:*$ "*.!&*/k$x6*#$8-15/$&6!&$&6*$(!5!0*"4$-8$/'2*"4'9*/$9"(4$6-./$!&$.*!4&$&6"**$/'4&'57&$2'*34$-8$"*.!&*/5*44+$:!4*/$-5$ )"-/17&$!5/$)"-7*44$4'('.!"'&'*4+$!$"*.'!57*$-5$7-((-5$(!";*&'50$!&&"':1&*4+$!5/$&6*$!)).'7!&'-5$-8$4&"'7&$95!57'!.$ 7-5&"-.4k$r-"*$"*7*5&$4&1/'*4$:#$y'47'&*..-$>weetj$!5/$y*6"44-5$>weezj$6!2*$8-15/$&6!&$!$7-6*"*57*$-"$"*.!&*/5*44$ around a company’s technological competencies is associated with enhanced performance. r!5#$ -&6*"$ 4&1/'*4$ 6!2*$ *=!('5*/$ 6-3$(!5!0*"4s$ :*.'*84$ '5<1*57*$ /*7'4'-5$(!;'50$ '5$ /'2*"4'9*/$ 7-5&*=&4$ >c-"$d$ *:.*:'7'+$weemb$ *!2#+$wee@b$y*6"44-5+$weezb$x!5"'2*"/'$d$h*5;!&"!(!5+$weemjk$`!".#$3-";$:#$?16!'(*$ !5/$%763*5;$>@aimj$7-57.1/*/$&6!&$(!5!0*"4s$7-05'&'2*$:'!4*4$7!5$*=).!'5$&6*$8!'.1"*$-8$(!5#$!7p1'4'&'-54k$r-"*$ "*7*5&$"*4*!"76$:#$ *2#$>weemj$7-57.1/*/$&6!&$7-()!5'*4$!"*$(-"*$.';*.#$&-$*50!0*$'5$0.-:!.$/'2*"4'97!&'-5$'8$&6*'"$ *=*71&'2*4s$('5/4*&4$3*"*$8-714*/$)"'(!"'.#$-5$&6*$*=&*"5!.$*52'"-5(*5&k$c!d!5g'!5$!5/$?"!d'5$>@aiaj$/*47"':*/$ &6*$"*.!&'-546')4$!(-50$(!5!0*"'!.$7-05'&'-5+$/*7'4'-5$(!;'50+$!5/$4177*4481.$/'2*"4'97!&'-5k$h!56!2*":*;*$!5/$ 2010, vol. 1, no. 1, 62-72 stimpert and duhaime 63 advances in business research y**&*"4$>weemj$8-714*/$-5$&6*$5**/$&-$-2*"7-(*$7-05'&'2*$'5*"&'!$36*5$7-()!5'*4$8!7*$/'47-5&'51-14$76!50*k these studies suggest that some progress has been made in understanding the linkage between managerial 7-05'&'-5$!5/$/*7'4'-5$(!;'50$'5$/'2*"4'9*/$9"(4+$:1&$&6*#$!.4-$)-'5&$&-$4-(*$4'05'97!5&$46-"&7-('504k$q'"4&+$"*.!&'2*$ &-$-&6*"$4&"*!(4$-8$1))*"$*76*.-5$!5/$/'2*"4'97!&'-5$"*4*!"76+$&6*$.'&*"!&1"*$*=!('5'50$&6*$'5<1*57*$-8$(!5!0*"4$-5$ /*7'4'-5$(!;'50$'5$/'2*"4'9*/$9"(4$'4$5-&$!4$3*..$/*2*.-)*/+$!5/$4&1/'*4$6!2*$*=!('5*/$&6*$'5<1*57*$-8$*=*71&'2*4$ on only a very limited set of strategic choice variables. finally, much of the research has been conceptual, and too few studies have tested research propositions with empirical data. a decade ago, hoskisson and hitt noted that in 4)'&*$-8$[7-()*..'50$&6*-"*&'7!.$!"01(*5&4\$5-$*()'"'7!.$4&1/'*4$6!/$*=!('5*/$&6*$'5<1*57*$-8$*=*71&'2*4s$:*.'*84$ -5$/'2*"4'97!&'-5$!5/$7-")-"!&*$4&"!&*0#$/*7'4'-5$(!;'50$>@aae]$tiwjk$e2*"$&6*$.!4&$/*7!/*$!5/$!$6!.8+$"*4*!"76*"4$ have made some good progress toward addressing this shortcoming, but many important and interesting research p1*4&'-54$"*(!'5$&-$:*$*=).-"*/k 45*&6'%70*&!8&9:*+7%$/*,;&<*=$*8,&'>!7%&%5*&-'#'"*3*#%&!8&)$/*0,$1+'%$!#&'#(&?!@&45!,*&<*=$*8,&a#b7*#+*& c%0'%*"$+&)*+$,$!#&-'.$#" research aiming to “get inside the heads” of executives assumes that they carry mental models of phenomena &6!&$ !..-3$ &6*($ &-$(!;*$ 4*54*$ -8$ &6*'"$ 4'&1!&'-54$ !5/$ "*4)-5/$ !))"-)"'!&*.#$ >f-654-5b !'"/+$ @ai ĵk$ l&$ '4$3'/*.#$ !7;5-3.*/0*/$&6!&$(*5&!.$(-/*.4$).!#$;*#$"-.*4$'5$*=*71&'2*4s$/*7'4'-5$(!;'50$)"-7*44*4$>n!.46+$@aamjk$q'"4&+$(*5&!.$ models simplify the complexity associated with business environments, and, in the process, they determine which *52'"-5(*5&!.$4&'(1.'$3'..$:*$5-&'7*/$!5/$36'76$3'..$:*$'05-"*/$>o-'4-&$d$,6'./+$@aaab$%&!":17;$d$r'..';*5+$@aiijk$ x6*$(!5!0*(*5&$-8$!$/'2*"4'9*/$9"($'4$!$76!..*50'50$!5/$7-().*=$&!4;$>c!..+$@aiajk$x-$(!5!0*$&6'4$7-().*='&#+$&6*$ *=*71&'2*4$-8$/'2*"4'9*/$7-()!5'*4$(14&$6!2*$!$7-57*)&1!.'d!&'-5$-8$&6*'"$9"(4$b$&6*'"$47-)*+$-:g*7&'2*4+$7-()*&'&'2*$ *52'"-5(*5&+$!5/$(!5!0*(*5&$"*p1'"*(*5&4$b$:1&$'5$&6*$/'2*"4'9*/$9"(+$&6*4*$/*(!5/4$!"*$7-()-15/*/$:-&6$:#$ &6*$51(:*"$!5/$:#$&6*$/'2*"4'&#$-8$'&4$:14'5*44*4$>y-"&*"+$@aiajk$x614+$*=*71&'2*4$-8$/'2*"4'9*/$9"(4$(14&$)"-7*44$ vast amounts of information and they face an almost unlimited array of choices. as a result, their mental models play !$;*#$"-.*$'5$7-().*='&#$"*/17&'-5+$(!;'50$7-()"*6*54':.*$&6*$76!..*50'50$&!4;$-8$(!5!0'50$&6*$/'2*"4'9*/$9"(k r*5&!.$(-/*.4$!.4-$'5<1*57*$6-3$4&'(1.'$!"*$'5&*")"*&*/+$!5/$4100*4&$!))"-)"'!&*$"*4)-54*4$-"$/*7'4'-54$:!4*/$ -5$&6*4*$'5&*")"*&!&'-54k$%-+$.*!"5'50$!:-1&$6-3$&6*$(!5!0*"4$-8$.!"0*$/'2*"4'9*/$9"(4$(!;*$4*54*$-8$&6*'"$4'&1!&'-54$ !5/$&!4;4$'4$!$;*#$&-$15/*"4&!5/'50$&6*$4&"!&*0'*4$-8$&6*'"$9"(4$>v--./+$,!():*..+$d$g.*=!5/*"+$@aatb$y"!6!.!/$d$ o*&&'4+$@aizjk r*5&!.$(-/*.4$!"*$46!)*/$:#$'5/'2'/1!.$*=)*"'*57*4$!5/$:#$15'p1*$'5&*")"*&!&'-54$-8$&6*4*$*=)*"'*57*4k$x614+$ 3*$7-1./$*=)*7&$&6!&$(*5&!.$(-/*.4$!:-1&$&6*$(!5!0*(*5&$-8$/'2*"4'97!&'-5$7-1./$:*$p1'&*$'/'-4#57"!&'7k$l5$8!7&+$ o!"5*#$>@aawj$4100*4&*/$&6!&$*=*71&'2*4$7-1./$0!'5$!/2!5&!0*$:#$(!5!0'50$&6*'"$/'2*"4'9*/$9"(4$'5$5-2*.$3!#4k$$ on the other hand, researchers have cited a variety of institutional factors to suggest that there may be patterns -8$(!5!0*(*5&$:*.'*84$ &6!&$!"*$3'/*.#$6*./$!(-50$*=*71&'2*4$>c188+$@aiwb$%)*5/*"+$@aiajk$c!(:"'7;$>@aiwj$!.4-$ suggested that executives share “a common body of knowledge” that is disseminated through the media and other 2*51*4k$g5/+$9*./$"*4*!"76$:#$v--./$!5/$,!():*..$>@aiaj$)"-2'/*4$41))-"&$8-"$)"-)-4'50$&6*$*='4&*57*$-8$)!&&*"54$ -8$*=*71&'2*$:*.'*84$!:-1&$&6*$(!5!0*(*5&$-8$/'2*"4'97!&'-5$!5/$&6!&$&6*4*$:*.'*84$'5<1*57*$4&"!&*0'7$/*7'4'-54k q-"$*=!().*+$&6*$.'&*"!&1"*$6'06.'06&4$&6*$:*.'*8$&6!&$/'2*"4'97!&'-5$'4$:*4&$(!5!0*/$:#$4**;'50$&-$/*"'2*$4#5*"0'*4$ 8"-($!$)-"&8-.'-$-8$"*.!&*/$:14'5*44*4k$l5$&6*'"$9*./$4&1/#$-8$@z$/'2*"4'9*/$o"'&'46$7-()!5'*4+$v--./$!5/$,!():*..$ >@aiaj$'/*5&'9*/$9"(4$36-4*$*=*71&'2*4$)1"41*/$!$[4&"!&*0'7$).!55'50$(!5!0*(*5&$4&#.*+\$&6!&$*=).-'&4$4#5*"0'*4$:#$ 7.-4*.#$7--"/'5!&'50$7-((-5$"*4-1"7*4$!5/$4;'..4$!7"-44$:14'5*44$15'&4k$x6*$/'2*"4'97!&'-5$.'&*"!&1"*$!.4-$4100*4&4$ -"$ '().'7'&.#$!441(*4$ &6!&$9"(4$(!5!0*/$:#$*=*71&'2*4$36-$41:47"':*$ &-$ &6*$ '()-"&!57*$-8$)"-/17&$!5/$)"-7*44$ "*.!&*/5*44$3'..$(!;*$8*3*"$!7p1'4'&'-54$!5/$/'2*4&(*5&4$!5/$4**;$&-$!76'*2*$4#5*"0'*4$&6"-106$&6*$'5&*0"!&'-5$!5/$ 7.-4*$7--"/'5!&'-5$-8$8157&'-5!.$!5/$-)*"!&'50$/*)!"&(*5&4$>f-5*4$d$c'..+$@aiib$x!5"'2*"/'$d$h*5;!&"!(!5+$weemjk %*7-5/+$"*4*!"76*"4$6!2*$!.4-$*()6!4'd*/$&6*$2!.1*$-8$(!5!0'50$/'2*"4'97!&'-5$8"-($!$8157&'-5!.$)*"4)*7&'2*+$ *4)*7'!..#$'5$9"(4$&6!&$6!2*$.'&&.*$7-((-5!.'&#$!7"-44$:14'5*44*4$-"$)"-/17&$.'5*4+$36'.*$-&6*"4$6!2*$*()6!4'd*/$ the value of applying a common technology or set of technological capabilities across businesses (miller et al, weeab$y*6"44-5+$weezb$y'47'&*..-+$weetjk$%&'..$-&6*"$3"'&*"4$6!2*$*()6!4'd*/$&6*$'()-"&!57*$-8$/*2*.-)'50$!$4*&$-8$ marketing and differentiation skills that can be applied to all businesses, even though these businesses may lack common product characteristics (kazanjian & drazin, 1987; mason & harris, 2005; porter, 1985, 1987; tanriverdi d$h*5;!&"!(!5+$weemjk$%176$!$8157&'-5!.$-"$&*765-.-0'7!.$!))"-!76$&-$&6*$(!5!0*(*5&$-8$/'2*"4'97!&'-5$(!#$:*$ embodied in close relationships and coordination between businesses and their marketing channels and end users >n--/"188+$@aaaj+$-"$&6"-106$&6*$!:'.'&#$&-$!)).#$;5-3.*/0*$!:-1&$714&-(*"4s$5**/4$!5/$:1#'50$:*6!2'-"4$!7"-44$ :14'5*44*4$>q!"g-15+$@aaib$_!##!"+$@aa ĵk `=*71&'2*4$36-$/*2*.-)$!$/'2*"4'97!&'-5$4&"!&*0#$!"-15/$!$7-((-5$8157&'-5!.$4;'..$-"$7!)!:'.'&#$ &6!&$7!5$:*$ 2010, vol. 1, no. 1, 62-72 stimpert and duhaime 64 advances in business research !)).'*/$ &-$ !..$ :14'5*44*4$3'..$(-4&$ .';*.#$ *()6!4'd*$ :"!5/$ *p1'&#+$ 5*3$ )"-/17&$ /*2*.-)(*5&+$ 4!.*4$ 0"-3&6+$ !5/$ (!";*&$46!"*$>c!d!5g'!5$d$?"!d'5+$@aiab$y-"&*"+$@aiajk$x6*$0*5*"'7$4&"!&*0#$-8$/'88*"*5&'!&'-5$!5/$(-4&$)-"&8-.'-$ ).!55'50$8"!(*3-";4$!.4-$*()6!4'd*$(!";*&$46!"*$!5/$4!.*4$0"-3&6+$!5/$4)*7'97!..#$!/2-7!&*$!..-7!&'50$7!46$&-$ new products and growth opportunities. thus, we could expect that a focus on functional skills or technological capabilities will be associated with more product development (lamont & anderson, 1985; vanhaverbeke & peeters, weemj+$!5/$46-1./$!.4-$:*$"*<*7&*/$'5$6'06*"$fd?$4)*5/'50k q'5!..#+$n'..'!(4-5$ >@aamj+$ x**7*$ >@aiwj+$c!..$ >@aiaj+$ !5/$c'..$ >@aatj$ !..$ !"01*$ &6!&$ &6*$ !)).'7!&'-5$ -8$ 4&"'7&$ 95!57'!.$ 7-5&"-.4$ 4176$ !4$ fel$ !5/$ -&6*"$ )*"8-"(!57*$ 7"'&*"'!$ (!#$ :*$ &6*$ -5.#$ *88*7&'2*$ 3!#$ 8-"$ *=*71&'2*4$ &-$ (!5!0*$&6*$7-().*='&#$-8$!$3'/*.#$/'2*"4'9*/$)-"&8-.'-$-8$:14'5*44*4k$l5$&6*'"$9*./$"*4*!"76+$v--./$!5/$,!():*..$ !.4-$ '/*5&'9*/$!$51(:*"$-8$9"(4$&6!&$ &6*#$.!:*.*/$!4$[95!57'!.$7-5&"-.\$7-()!5'*4k$x6*#$8-15/$&6!&$ &6*4*$9"(4$ 2'*3$:1/0*&4$!4$!$[7-5&"!7&\$:*&3**5$7-")-"!&*$*=*71&'2*4$!5/$ '5/'2'/1!.$:14'5*44*4+$!5/$[&6!&$!551!.$95!57'!.$ )*"8-"(!57*$'4$&6*$7"'&'7!.$(*!41"*$-8$!76'*2*(*5&\$>@aia]$@^ ĵk l&s4$ 3'/*.#$ !441(*/$ &6!&$ *=*71&'2*4$ 36-$ 6-./$ !$ 95!57'!.$ 7-5&"-.$ -"'*5&!&'-5$ 3'..$ )1"41*$ (-"*$ 15"*.!&*/$ /'2*"4'97!&'-5$>q.'04&*'5+$@aiajk$%'57*$&6*#$.!7;$-)*"!&'50$-"$&*765'7!.$*=)*"&'4*$!:-1&$'5/'2'/1!.$:14'5*44$15'&4+$&6*4*$ *=*71&'2*4$!"*$!.4-$(-"*$.';*.#$&-$*()6!4'd*$0"-3&6$&6"-106$!7p1'4'&'-5$-2*"$'5&*"5!.$/*2*.-)(*5&$-8$:14'5*44*4$ >c!#*4$d$g:*"5!&6#+$@aiejk$x6*$95!57'!.$7-5&"-.$7-()!5'*4$'5$v--./$!5/$,!():*..s4$>@aiaj$4!().*$3*"*$!..$!7&'2*$ !7p1'"*"4+$!5/$&6*#$!.4-$8-15/$&6!&$&6*$*=*71&'2*4$:*.'*2*$&6!&$)--"b)*"8-"('50$:14'5*44*4$46-1./$:*$/'2*4&*/k$c!#*4$ !5/$g:*"5!&6#$3*"*$7-57*"5*/$&6!&$*=*71&'2*4$36-$*()6!4'd*/$95!57'!.$7-5&"-.4$3-1./$4)*5/$.*44$-5$fd?$!5/$ product development. summary and the research questions addressed by this study g..$-8$&6'4$&6*-"'d'50$'4$!."*!/#$!77*)&*/$!4$7-52*5&'-5!.$3'4/-(+$:1&$!4'/*$8"-($&6*$/*&!'.*/$9*./$'5&*"2'*34$ 7-5/17&*/$:#$v--./$!5/$,!():*..+$3*$6!2*$.'&&.*$'54'06&$'5&-$36*&6*"$&6*$&-)$(!5!0*"4$-8$/'2*"4'9*/$9"(4$41:47"':*$ &-$7-((-5.#$6*./$2'*34$!:-1&$&6*$(!5!0*(*5&$-8$/'2*"4'97!&'-5k$x614+$3*$)"-)-4*$&6*$8-..-3'50$"*4*!"76$p1*4&'-5] f*4*!"76$h1*4&'-5$i@]$g"*$&6*"*$)!&&*"54$-8$*=*71&'2*$:*.'*84$!:-1&$&6*$(!5!0*(*5&$-8$/'2*"4'97!&'-5+$!5/$'8$4-+$ 36!&$!"*$&6-4*$:*.'*84u %'('.!".#+$7-05'&'2*$&6*-"#$)-4'&4$&6!&$:*.'*84$'5<1*57*$/*7'4'-54k$x614+$!$7-05'&'2*$)*"4)*7&'2*$-5$&6*$(!5!0*(*5&$ -8$/'2*"4'97!&'-5$4100*4&4$&6!&$*=*71&'2*4$36-$6-./$/'88*"*5&$7-05'&'2*$-"'*5&!&'-54$3'..$(!;*$/'88*"*5&$/*7'4'-54+$ !5/$&6'4$"*!4-5'50$4100*4&4$!$4*7-5/$p1*4&'-5] f*4*!"76$ h1*4&'-5$ iw]$ l8$ &6*$ &-)$ (!5!0*"4$ -8$ /'2*"4'9*/$ 9"(4$ 6-./$ 4)*7'97$ )!&&*"54$ -8$ :*.'*84$ !:-1&$ &6*$ (!5!0*(*5&$-8$/'2*"4'97!&'-5+$/-$&6*4*$:*.'*84$6!2*$!$/'47*"5!:.*$'5<1*57*$-5$&6*$;*#$4&"!&*0'7$/*7'4'-54$(!/*$:#$ /'2*"4'9*/$9"(4+$'57.1/'50$/*7'4'-54$!:-1&$/'2*"4'97!&'-5$4&"!&*0#+$!7p1'4'&'-5$!5/$/'2*4&(*5&+$)"-/17&$/*2*.-)(*5&+$ !5/$fd?u d9c9ed ?&-94?f)fgfhi the survey questionnaire and cognitive variables ,!"*81..#$/*4'05*/$41"2*#4$7!5$:*$!5$*88*7&'2*$3!#$&-$!44*44$*=*71&'2*4s$:*.'*84$>j!g!7$d$%6-"&*..+$@aiajk$x6*#$ are especially effective when researchers hope to obtain large numbers of observations in order to perform rigorous 4&!&'4&'7!.$!5!.#4*4k$x6'4$4&1/#$*().-#4$!$15'p1*$4*&$-8$)"'(!"#$/!&!$&6!&$3!4$/*2*.-)*/$'5$!$(1.&'4&!0*$)"-7*44$&6!&$ '52-.2*/$9*./$'5&*"2'*34$3'&6$*=*71&'2*4$-8$4*2*"!.$.!"0*$/'2*"4'9*/$9"(4$!4$3*..$!4$41"2*#4$-8$!$.!"0*"$4*&$-8$4176$ 9"(4k$x6-106$/*2*.-)*/$'5$@aa@+$!5/$!."*!/#$14*/$'5$)"*2'-14$4&1/'*4+$'&$'4$'/*!..#$!))"-)"'!&*$8-"$!//"*44'50$&6'4$ 4&1/#s4$"*4*!"76$p1*4&'-54k$_-"$/-$3*$:*.'*2*$&6!&$'&4$"*.*2!57*$-"$14*81.5*44$6!4$:**5$/'('5'46*/$:#$&'(*k$g..$-&6*"$ measures used in this study have been gathered for time periods appropriately matched to this primary dataset. x6*$ 9"4&$ 4&*)$ '5$ /*2*.-)'50$ &6*$ p1*4&'-55!'"*$ 3!4$ &-$ 7-5/17&$ !$ &6-"-106$ 4*!"76$ -8$ &6*$ .'&*"!&1"*$ !'(*/$ !&$ '/*5&'8#'50$ !..$ -8$ &6*$ )"-7*44*4$ 8-"$ (!5!0'50$ /'2*"4'9*/$ 9"(4$ &6!&$ 6!2*$ :**5$ /*47"':*/$ '5$ )!4&$ "*4*!"76k$ x6'4$ .'&*"!&1"*$4*!"76$'/*5&'9*/$8-1"$:"-!/$7!&*0-"'*4$-8$(!5!0*(*5&$)"-7*44*4+$'57.1/'50$@j$&6*$46!"'50$-8$8157&'-5!.$ skills or technological capabilities across businesses (goold & luchs, 1993; kazanjian & drazin, 1987; porter, 1985, @aiab$f1(*.&+$@aat+$@aiwb$y*6"44-5+$weezb$y'47'&*..-+$weetj+$wj$*57-1"!0'50$:14'5*44*4$&-$)1"41*$&6*$4!(*$0*5*"'7$ 4&"!&*0#$>y-"&*"+$@aiaj+$ ĵ$!$3'/*$"!50*$-8$(!5!0*(*5&$!5/$95!57'!.$7-5&"-.$4#4&*(4$>?15/!4$d$f'76!"/4-5+$@aiwb$ v--./$d$,!():*..+$@aiab$x**7*+$@aiwb$n'..'!(4-5+$@aamj+$!5/$tj$!7p1'4'&'-5$!5/$'5&*"5!.$/*2*.-)(*5&$!4$)-44':.*$ 2010, vol. 1, no. 1, 62-72 stimpert and duhaime 65 advances in business research (-/*4$-8$/'2*"4'97!&'-5$> !(-5&$d$g5/*"4-5+$@aimb$%-50+$@aiwjk$x6'4$7-()'.!&'-5$-8$(!5!0*(*5&$)"-7*44*4$3!4$ 8-..-3*/$:#$'5&*"2'*34$3'&6$*=*71&'2*4$8"-($4'=$q-"&15*$mee$9"(4+$36'76$)"-2'/*/$7-""-:-"!&'50$41))-"&$8-"$&6*$ 8-1"$4*&4$-8$)"-7*44*4$'/*5&'9*/$'5$-1"$.'&*"!&1"*$"*2'*3+$36'.*$!.4-$4100*4&'50$!$8*3$!//'&'-5!.$)"-7*44*4k ultimately, the literature review and the interviews produced a list of 24 survey items to assess executive beliefs !:-1&$&6*$(!5!0*(*5&$-8$/'2*"4'97!&'-5k$,`e$"*7')'*5&4$-8$&6*$41"2*#$3*"*$!4;*/$&-$)"-2'/*$&6*'"$!44*44(*5&4$-8$ *!76$-8$&6*$wt$'&*(4$-5$!$92*b)-'5&$47!.*$>8"-($[@\$8-"$&6'4$3-1./$!.(-4&$!.3!#4$:*$!5$'5!))"-)"'!&*$)-.'7#$&-$[m\$ 8-"$&6'4$3-1./$!.(-4&$!.3!#4$:*$!5$!))"-)"'!&*$)-.'7#jk$x6"**$&-)$).!55'50$-897*"4$!5/$!$,`e$k$!..$8"-($/'2*"4'9*/$ q-"&15*$mee$9"(4$k$)"*&*4&*/$&6*$41"2*#$!5/$-88*"*/$(!5#$4100*4&'-54$8-"$'()"-2*(*5&k )*j*#(*#%&'#(& !#%0!=&k'0$'>=*, x6*$76-'7*$-8$&6*$/*)*5/*5&$4&"!&*0'7$/*7'4'-5$2!"'!:.*4$3!4$p1'&*$/*.':*"!&*k$g"&'7.*4$:#$c!(:"'7;$!5/$r!4-5$ >@aitj$!5/$y"!6!.!/$!5/$o*&&'4$>@aizj$"*8*"$&-$/'2*"4'97!&'-5$4&"!&*0#+$!7p1'4'&'-5$!5/$/'2*4&(*5&$!7&'2'&#+$)"-/17&$ development, and r&d efforts as the key decisions that managers must make. all of these decisions are included in &6'4$4&1/#$!4$/*)*5/*5&$2!"'!:.*4+$!5/$&6*#$!"*$(*!41"*/$-2*"$!$92*b#*!"$)*"'-/$8"-($@aaw$&6"-106$@aaz$'5$-"/*"$ 7!)&1"*$&6*$'5<1*57*$-8$(!5!0*"'!.$&6'5;'50$!&$!$)-'5&$'5$&'(*$-5$41:4*p1*5&$4&"!&*0'7$!7&'2'&#k ?'2*"4'97!&'-5$3!4$!44*44*/$14'50$&6*$*5&"-)#$(*!41"*$-8$/'2*"4'97!&'-5$>y!.*)1+$@aimj+$!5/$'4$7!.71.!&*/$14'50$ !4]$$?'2*"4'97!&'-5$l$ [p j .5>@my j jn+$36*"*$y j $'4$&6*$46!"*$-8$4!.*4$'5$*!76$4*0(*5&$g$!5/$.5>@my j j$'4$&6*$"*.!&'2*$3*'06&$ -8$*!76$4*0(*5&$g+$4-$&6!&$6'06*"$2!.1*4$'5/'7!&*$0"*!&*"$/'2*"4'97!&'-5k$n*$-:&!'5$&6*$5*7*44!"#$/!&!$8"-($r*"0*5&$ e5.'5*$!5/$7!.71.!&*/$!$92*b#*!"$!2*"!0*$/'2*"4'97!&'-5$47-"*$8-"$&6*$#*!"4$@aaw$&6"-106$@aazk x-$ (*!41"*$ !7p1'4'&'-5+$ /'2*4&(*5&+$ !5/$ 5*3$ )"-/17&$ /*2*.-)(*5&$ !7&'2'&#+$ 3*$ -:&!'5*/$ &6*$ 51(:*"$ -8$ !7p1'4'&'-54+$/'2*4&(*5&4+$!5/$5*3$)"-/17&$'5&"-/17&'-54$(!/*$-2*"$&6*$92*b#*!"$)*"'-/$@aaw$&6"-106$@aaz$8"-($ moody’s industrial manuals and the wall street journal index. any shorter time frame seemed to be too narrow !$3'5/-3$&-$!44*44$36*&6*"$!$)!"&'71.!"$9"($3!4$!7&'2*.#$!7p1'"'50$-"$/'2*4&'50$:14'5*44*4+$!5/$!$92*b#*!"$)*"'-/$ !.4-$4**(*/$41897'*5&$&-$7!)&1"*$&"*5/4$'5$5*3$)"-/17&$/*2*.-)(*5&$*88-"&4k$fd?$4)*5/'50+$7-/*/$!4$!$)*"7*5&!0*$-8$ 9"($4!.*4+$3!4$7!.71.!&*/$!4$&6*$92*b#*!"$!2*"!0*$8-"$@aaw$&6"-106$@aazk$$?!&!$8-"$&6*4*$7!.71.!&'-54$3*"*$-:&!'5*/$ from mergent online. x6"**$7-5&"-.$2!"'!:.*4$3*"*$!.4-$'57.1/*/k$,`e$&*51"*$3!4$'57.1/*/$:*7!14*$,`e$:*.'*84$(!#$:*$"*'58-"7*/$ !5/$&6*'"$/*7'4'-54$(-"*$4&"-50.#$(!5'8*4&*/$'5$&6*'"$9"(4$-2*"$&'(*k$$feg$3!4$!.4-$'57.1/*/$:*7!14*$9"($4177*44$ (!#$!.4-$"*'58-"7*$(!5!0*"'!.$&6'5;'50k$g5/+$9"($4'd*$'4$'57.1/*/$:*7!14*$'&$6!4$:**5$)"*2'-14.#$46-35$&-$:*$!5$ '5<1*57*$-5$(!5#$-8$&6*$/*)*5/*5&$2!"'!:.*4k$$?!&!$8-"$&6*4*$2!"'!:.*4$3*"*$!.4-$0!&6*"*/$8"-($r*"0*5&$e5.'5*$8-"$ 1991. sample o*7!14*$/'2*"4'97!&'-5$ '4$!$7"'&'7!.$ '441*$8-"$ .!"0*$9"(4$!5/$,`e%$!"*$1.&'(!&*.#$"*4)-54':.*$8-"$ &6*'"$9"(4s$ /'2*"4'97!&'-5$/*7'4'-54+$3*$(!'.*/$-1"$41"2*#$&-$&6*$,`e4$-8$&6*$.!"0*4&$@+eee$ok%k$7-()!5'*4k$x6*$14*$-8$,`e4$ !4$'58-"(!5&4$'4$7-54'4&*5&$3'&6$&6*$"*4*!"76$p1*4&'-54$)-4*/$'5$&6'4$4&1/#+$!5/$(!5#$-&6*"$4&1/'*4$*=!('5'50$&6*$ '5<1*57*$-8$&-)$*=*71&'2*4$6!2*$!.4-$"*.'*/$-5$,`e4$!4$'58-"(!5&4$>*k0k+$j!g!7$d$%6-"&*..+$@aiajk$q"-($&6'4$'5'&'!.$ and two follow-up mailings, 174 completed and usable responses were received, for a response rate of just under 20 percent. this compares favorably with most mail surveys reported in the strategy literature that have been addressed &-$&6*$*=*71&'2*4$-8$.!"0*$9"(4$>c!(:"'7;$*&$!.+$@aa ĵk$%&!&'4&'7!.$!5!.#4*4$7-()!"'50$&-&!.$!44*&4+$4!.*4$"*2*51*4+$!5/$ "*&1"5$-5$!44*&4$-8$&6*$"*4)-5/'50$!5/$5-5b"*4)-5/'50$,`e4s$9"(4$"*2*!.*/$5-$4'05'97!5&$/'88*"*57*4k )'%'&e#'=l,$, f*4)-5/*5&4s$"!&'504$-8$&6*$wt$(!5!0*(*5&$:*.'*8$2!"'!:.*4$3*"*$8!7&-"$!5!.#d*/$&-$'/*5&'8#$!$(-"*$95'&*$4*&$-8$ 15/*".#'50$/'(*54'-54+$-"+$'5$&6'4$7!4*+$)!&&*"54$-8$:*.'*84$!:-1&$&6*$(!5!0*(*5&$-8$/'2*"4'97!&'-5$>c!'"$*&$!.+$weemjk$ q!7&-"$!5!.#4'4$'4$&6*$'/*!.$(*&6-/$8-"$!5!.#d'50$&6*$41"2*#$/!&!k$l&$"*/17*4$-1"$wt$2!"'!:.*4$'5&-$!$(-"*$95'&*$4*&$-8$ 8!7&-"4$&6!&$46-3$7*5&"!.$&*5/*57'*4$'5$*=*71&'2*4s$:*.'*84$!:-1&$6-3$&-$(!5!0*$/'2*"4'97!&'-5k$?1*$&-$&6*$*=).-"!&-"#$ nature of the study, principal components analysis was employed to factor analyze the data and identify patterns of beliefs. the resulting factors were rotated using the varimax transformation, since orthogonal transformations tend &-$:*$*!4'*"$&-$'5&*")"*&$!5/$!"*$"*7-((*5/*/$36*5$8!7&-"$47-"*4$!"*$&-$:*$14*/$'5$41:4*p1*5&$4&!&'4&'7!.$!5!.#4*4$ >c!'"$*&$!.k$weemjk$x6*$8!7&-"$47-"*4$!"*$4&!5/!"/'d*/$>'k*k+$&6*'"$(*!54$l$e$!5/$&6*'"$4&!5/!"/$/*2'!&'-54$l$@j$4&!&'4&'7!.$ composites representing each of the factors that were used in regression analyses to assess relationships between *=*71&'2*4s$-"'*5&!&'-54$!5/$&6*'"$9"(4s$4&"!&*0'*4k 2010, vol. 1, no. 1, 62-72 stimpert and duhaime 66 advances in business research d9cmg4c 9:*+7%$/*,;&<*=$*8,&'#(&m#(*0,%'#($#",&'>!7%&%5*&-'#'"*3*#%&!8&)$/*0,$1+'%$!# x6*$ 9"4&$ "*4*!"76$ p1*4&'-5$ !4;*/$36*&6*"$ &-)$ *=*71&'2*4$ 6!2*$ /'47*"5!:.*$ :*.'*84$ !:-1&$ &6*$(!5!0*(*5&$ -8$ /'2*"4'97!&'-5k$g5!.#4'4$ -8$ &6*$ 41"2*#$ /!&!$ 46-3*/$ &6!&$ &6*#$ /-k$ `=!('5'50$ &6*$ "*41.&4$ -8$ 4*2*"!.$ '5'&'!.$ 8!7&-"$ analyses suggested that a three-factor solution offered the most explanatory power and produced the fewest number -8$7"-44b.-!/'504k$x6*$-"'0'5!.$&6"**b8!7&-"$4-.1&'-5$'57.1/*/$&6"**$2!"'!:.*4$&6!&$/'/$5-&$.-!/$4'05'97!5&.#$-5$!5#$-8$ &6*$8!7&-"4k$q-..-3'50$&6*$"*7-((*5/!&'-5$-8$c!'"$*&$!.$>weemj+$&6*$&6"**b8!7&-"$4-.1&'-5$3!4$"*"15$-('&&'50$&6*4*$ &6"**$2!"'!:.*4k$x6*$"*41.&'50$4-.1&'-5$>46-35$'5$x!:.*$@j$)"-/17*/$!$2*"#$4&"!'06&8-"3!"/$!5/$'5&*")"*&!:.*$8!7&-"$ (!&"'=$3'&6$5-$7"-44b8!7&-"$.-!/'504$!5/$!..$:1&$-5*$-8$&6*$"*(!'5'50$w@$2!"'!:.*4$.-!/'50$4'05'97!5&.#$-5$-5*$-8$&6*$ &6"**$8!7&-"4k$q!7&-"$.-!/'504$3'&6$!:4-.1&*$2!.1*4$0"*!&*"$&6!5$k^e$7!5$:*$7-54'/*"*/$4'05'97!5&$!5/$!"*$46-35$'5$ :-./$)"'5&$>c!'"$*&$!.+$weemjk 4'>=*&no&9:*+7%$/*&f0$*#%'%$!#,&!0&<*=$*8,&'>!7%&%5*&-'#'"*3*#%&!8&)$/*0,$1+'%$!# -!/'50$ 4'05'97!5&.#$ -5$ &6*$ 9"4&$ 8!7&-"$ 3*"*$ :*.'*84$ &6!&$ :14'5*44*4$ 46-1./$ 14*$ &6*$ 4!(*$ (!518!7&1"'50$ processes, distribution channels, and marketing methods; that businesses should sell to the same customer groups; that manufacturing and marketing should be coordinated at the corporate level; and that businesses should be in the same industry. these beliefs are consistent with the view that executives should try to capture synergies by 7--"/'5!&'50$!7&'2'&'*4$!7"-44$&6*'"$9"(4s$:14'5*44*4$>f-5*4$d$c'..+$@aiib$y-"&*"+$@aimb$f1(*.&+$@aat+$@aiwjk$$g5/+$ &6'4$8!7&-"$'4$!.4-$4'('.!"$&-$&6*$4&"!&*0'7$).!55'50$(!5!0*(*5&$4&#.*$'/*5&'9*/$:#$v--./$!5/$,!():*..$>@aiajk$$x6'4$ factor is labeled core business orientation. loading on the second factor are principles that products and services should have strong brand name recognition and that businesses should be market share leaders; that businesses should emphasize r&d, product line extensions, the development of new products, and the reallocation of cash to support product development; that businesses should :*$'5$/'88*"*5&$.'8*$7#7.*$4&!0*4b$!5/$&6!&$!7p1'4'&'-54$46-1./$"*/'"*7&$&6*$9"($'5&-$5*3$!"*!4$-8$-))-"&15'&#k$x6*4*$ :*.'*84$!"*$7-54'4&*5&$3'&6$&6*$2'*3$&6!&$&6*$*88*7&'2*$(!5!0*(*5&$-8$/'2*"4'97!&'-5$"*41.&4$8"-($!)).#'50$!$7-((-5$ set of marketing and product development skills to all businesses (farjoun, 1998; kazanjian & drazin, 1987; porter, @aim+$@aiab$y"!6!.!/$d$o*&&'4+$@aizjk$e&6*"$41))-"&$8-"$&6*$*='4&*57*$-8$!$(!";*&'50$-"'*5&!&'-5$7-(*4$8"-($!$4&1/#$ :#$%&'()*"&$!5/$?16!'(*$>@aaaj+$36'76$8-15/$&6!&$(!5#$*=*71&'2*4$7-54'/*"*/$&6*'"$9"(4$&-$:*$)1"41'50$"*.!&*/$ /'2*"4'97!&'-5$4&"!&*0'*4$:*7!14*$&6*#$3*"*$!)).#'50$!$7-((-5$4*&$-8$(!";*&'50$!5/$/'88*"*5&'!&'-5$4;'..4$>'k*k+$5*3$ )"-/17&+$!/2*"&'4'50+$!5/$:"!5/$*p1'&#$/*2*.-)(*5&j$!7"-44$ &6*'"$9"(4s$:14'5*44*4+$*2*5$&6-106$&6*4*$:14'5*44*4$ may not share product or process similarities. this factor is labeled marketing orientation. variable factor 1 factor 2 factor 3 businesses should use the same marketing methods .8222 -.0569 .0399 businesses should use the same distribution channels .7953 .1136 .0850 marketing should be coordinated at the corporate level .7126 .1435 -.0982 businesses should sell to the same customer groups .7098 -.0098 -.0751 businesses should use the same manufacturing processes .6902 -.1441 .0258 manufacturing should be coordinated at the corporate level .6415 .1794 -.1006 all businesses should be in the same industry .4676 .2743 -.0003 products and services should have strong brand name recognition .1767 .6335 -.0265 businesses should develop totally new products .0425 .6132 .1133 businesses should be market share leaders -.0017 .6053 .0321 businesses should emphasize research and development .1986 .5774 -.0824 businesses should be in different stages of the life cycle .0914 .5134 .0871 businesses should develop extensions of existing products -.0744 .4982 -.0716 cash should be reallocated to support new product development -.0004 .4894 .0054 acquisitions should offer opportunities to redirect the firm .0394 .3372 .2219 businesses should always meet financial goals .0413 .1551 .7629 businesses should be evaluated primarily by financial criteria -.0167 .0722 .6197 acquisitions should be some minimum size -.0173 .0800 .2939 acquisitions should be in the same industry .2634 .1582 -.3115 acquisitions should strengthen the firm’s existing businesses .1074 .1674 .3187 businesses can miss financial goals if other objectives are met -.0858 -.0071 -.7346 eigenvalues 3.60 2.60 1.91 factor name core business orientation marketing orientation financial control orientation 2010, vol. 1, no. 1, 62-72 stimpert and duhaime 67 advances in business research q'5!..#+$:*.'*84$&6!&$!..$:14'5*44*4$46-1./$7-54'4&*5&.#$(**&$95!57'!.$0-!.4$!5/$&6!&$:14'5*44*4$46-1./$:*$*2!.1!&*/$ )"'(!"'.#$:#$95!57'!.$7"'&*"'!b$&6!&$!7p1'4'&'-54$46-1./$5-&$5*7*44!"'.#$:*$'5$&6*$4!(*$'5/14&"#$5-"$4&"*50&6*5$9"(4s$ *='4&'50$:14'5*44*4b$!5/$&6!&$95!57'!.$&!"0*&4$46-1./$5-&$:*$('44*/$*2*5$'8$-&6*"$4&"!&*0'7$0-!.4$!"*$:*'50$(*&$.-!/$ -5$&6*$&6'"/$8!7&-"k$x6*4*$:*.'*84$!"*$7-54'4&*5&$3'&6$&6*$2'*3$&6!&$/'2*"4'97!&'-5$'4$:*4&$(!5!0*/$:#$*()6!4'd'50$ 95!57'!.$ 7-5&"-.4$ !5/$ 95!57'!.$ )*"8-"(!57*$ -:g*7&'2*4$ >f-5*4$ d$ c'..+$ @aiib$n'..'!(4-5+$ @aamjk$ %'('.!"$ &-$ &6*$ 95!57'!.$7-5&"-.$(!5!0*(*5&$4&#.*$'/*5&'9*/$:#$v--./$!5/$,!():*..$>@aiaj+$&6'4$8!7&-"$'4$.!:*.*/$95!57'!.$7-5&"-.$ orientation. d*='%$!#,5$j,&>*%@**#&9:*+7%$/*,;&<*=$*8,&'#(&c%0'%*"$+&)*+$,$!#&-'.$#" due to space limitations, means, standard deviations, and correlations among the variables are not shown here, :1&$7!5$:*$-:&!'5*/$8"-($&6*$!1&6-"4$1)-5$"*p1*4&k$x6*$4*7-5/$"*4*!"76$p1*4&'-5$!4;*/$&-$36!&$*=&*5&$*=*71&'2*4s$ :*.'*84$ !:-1&$ &6*$(!5!0*(*5&$ -8$ /'2*"4'97!&'-5$3-1./$ :*$ !44-7'!&*/$3'&6$ &6*'"$ 4&"!&*0'7$ 76-'7*4+$ !5/$ "*0"*44'-5$ analysis was used to evaluate the existence of relationships between the independent management belief variables !5/$&6*$4&"!&*0'7$/*7'4'-5$2!"'!:.*4k$g..$"*0"*44'-5$(-/*.4$*=!('5*/$&6*$'5<1*57*$-8$&6*$'5/*)*5/*5&$2!"'!:.*4$'5$ !$6'*"!"76'7!.$ 4*p1*57*k$x6*$7-5&"-.$2!"'!:.*4$3*"*$*5&*"*/$9"4&$ !5/$ &6*$(!5!0*(*5&$-"'*5&!&'-5$2!"'!:.*4$3*"*$ then included. for all of the dependent variables except the number of new products, the control variables produced !$4'05'97!5&$(-/*.k$x6*$!//'&'-5$-8$&6*$7-05'&'2*$2!"'!:.*4$4'05'97!5&.#$'()"-2*/$!..$-8$&6*$(-/*.4$*=7*)&$8-"$&6*$ 51(:*"$-8$!7p1'4'&'-54+$!5/$4-$-5.#$&6*$"*41.&4$8-"$&6*$7-().*&*$"*0"*44'-5$(-/*.4$!"*$46-35$6*"*k$$x6*$"*41.&4$46-3$ that the cognitive variables are associated with many key strategic choices. 4'>=*&po&d*='%$!#,5$j,&'3!#"&9:*+7%$/*&<*=$*8,&'>!7%&%5*&-'#'"*3*#%&!8&)$/*0,$1+'%$!#&'#(&45*$0&2$03,;& c%0'%*"$+&)*+$,$!#,&qc%'#('0($r*(&>*%'&*,%$3'%*,&'0*&0*j!0%*(s&%t,%'%$,%$+,&'0*&,5!@#&$#&j'0*#%5*,*,u as summarized in table 2, regression analyses found that the cognitive factors are associated with four of the 92*$4&"!&*0'7$/*7'4'-5$2!"'!:.*4+$'57.1/'50$/'2*"4'97!&'-5$4&"!&*0#+$&6*$51(:*"$-8$/'2*4&(*5&4+$&6*$51(:*"$-8$5*3$ product introductions, and the level of r&d spending. the core business orientation is negatively associated with the *=&*5&$-8$/'2*"4'97!&'-5+$'5/'7!&'50$&6!&$*=*71&'2*4$36-$6-./$!$7-"*$:14'5*44$-"'*5&!&'-5$&*5/$&-$)1"41*$(-"*$8-714*/$ /'2*"4'97!&'-5$4&"!&*0'*4k$x6*$7-"*$:14'5*44$-"'*5&!&'-5$'4$!.4-$5*0!&'2*.#$!44-7'!&*/$3'&6$&6*$51(:*"$-8$/'2*4&(*5&4$ and the number of new product introductions. the marketing orientation factor is positively associated with the number of new product introductions and the level of r&d spending. (log of sales, was not included in the model *=!('5'50$&6*$2!"'!&'-5$'5$fd?$4)*5/'50$:*7!14*$&6'4$2!"'!:.*$'4$!."*!/#$!/g14&*/$8-"$9"($4'd*kj$ l5&*"*4&'50.#+$ &6*$ 95!57'!.$ 7-5&"-.$ -"'*5&!&'-5$ 3!4$ 5*0!&'2*.#$ !44-7'!&*/$ 3'&6$ &6*$ *=&*5&$ -8$ /'2*"4'97!&'-5+$ '5/'7!&'50$ &6!&$9"(4$36-4*$ *=*71&'2*4$6-./$ !$95!57'!.$ 7-5&"-.$ -"'*5&!&'-5$ !"*$ .';*.#$ &-$:*$ .*44$ "!&6*"$ &6!5$(-"*$ /'2*"4'9*/k$l5$!//'&'-5+$&6*$"*41.&4$4100*4&$&6!&$9"(4$36-4*$*=*71&'2*4$6-./$!$95!57'!.$7-5&"-.$-"'*5&!&'-5$!"*$5-&$ (-"*$.';*.#$&-$(!;*$!7p1'4'&'-54$!5/$/'2*4&(*5&4+$'5&"-/17*$8*3*"$5*3$)"-/17&4+$-"$4)*5/$.*44$-5$fd?+$!..$p1'&*$ 7-5&"!"#$&-$&6*$7-57*"54$-8$c!#*4$!5/$g:*"5!&6#$>@aiej$!5/$&6*$2'*3$&6!&$!$95!57'!.$-"'*5&!&'-5$3-1./$"*41.&$'5$!5$ *()6!4'4$-5$!7p1'4'&'-5$!&$&6*$*=)*54*$-8$5*3$)"-/17&$/*2*.-)(*5&$!5/$fd?$4)*5/'50k )ac mccaf6 contributions $ x6'4$4&1/#$-88*"4$'()-"&!5&$!5/$)"-2-7!&'2*$95/'504$&6!&$7-5&"':1&*$&-$-1"$15/*"4&!5/'50$-8$&6*$;*#$"-.*$ -8$&-)$*=*71&'2*4$'5$.!"0*$/'2*"4'9*/$9"(4]$q'"4&+$!5!.#4'4$-8$&6*$41"2*#$/!&!$"*2*!.*/$&6"**$:"-!/$)!&&*"54$-8$:*.'*84$ dependent variables: independent variables: extent of diversification number of acquisitions number of divestments number of new products r&d spending tenure .078 (.99) -.096 (-1.15) -.015 (-.19) -.103 (-1.22) -.117 (-1.24) return on assets -.211** (-2.74) .062 (.76) -.159* (-2.01) .169* (2.04) .305** (3.06) log(sales) .347*** (4.41) .281** (3.30) .344*** (4.21) .033 (.38) core business orientation -.302*** (-3.97) -.115 (-1.44) -.189* (-2.44) -.177* (-2.18) .028 (.29) marketing orientation -.052 (-.70) -.050 (-.63) .074 (.98) .167* (2.09) .245* (2.59) financial control orientation -.179* (-2.37) -.090 (-1.13) -.079 (-1.03) -.060 (-.75) .004 (.04) f 6.94*** 2.49* 4.12*** 2.25* 3.76** adjusted r2 .26 .07 .14 .06 .16 * p < .05 ** p < .01 *** p < .001 2010, vol. 1, no. 1, 62-72 stimpert and duhaime 68 advances in business research !"#$% $&'%( ) *'(')$% "+% ,-.'/0-12 $-")% 3% 2"/'% !#0-)'004%( /5'$-)*4% ),%1) )26% 2")$/"6% "/-')$ $-")0% 3% $& $% /'% 2"((")67%&'6,%!7%$&'%'8'2#$-.'0%"+%6 /*'%,-.'/0-1',%1/(09 :'2"),4%0#!0';#')$%, $ % ) 670-0%+"#),%$& $%$&'0'%( ) *'(')$%"/-')$ $-")0%<'/'% 00"2$',%<-$&%5'7%0$/ $'*-2% 2&"-2'09%:='2-12 6674%$&'%2"/'%!#0-)'00%"/-')$ $-")%-0%)'* $-.'67% 00"2$',%<-$&%$&'%'8$')$%"+%1/(0>%,-.'/0-12 $-")% strategies, the number of divestments, and the number of new products introduced. the marketing orientation is ="0-$-.'67% 00"2$',%<-$&%$&'%-)$/",#2$-")%"+%)'<%=/",#2$0% ),%?@a%0='),-)*9%b&'%1) )26%2")$/"6%"/-')$ $-")%-0% )'* $-.'67% 00"2$',%<-$&%$&'%'8$')$%"+%1/(0>%,-.'/0-12 $-")%0$/ $'*-'09 b&'0'% 1),-)*0% 6'),% '(=-/-2 6% 0#=="/$% $"% $&'% /*#(')$0% "+% c/ & 6 ,% ),% d'$$-0% efghij4% <&"% 0#**'0$',% $& $% '8'2#$-.'0>%,"(-) )$%6"*-20%"/%5)"<6',*'%0$/#2$#/'0%<"#6,%!'% )%-(="/$ )$%-)k#')2'%")%$&'-/%0$/ $'*-2%2&"-2'09%d#$4% "#/%1),-)*0% 60"%2 66%-)$"%;#'0$-")%0"('%6")*0$ ),-)*%2").')$-") 6%<-0,"(9%l"/%'8 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25%-)$"%$&'% =-2$#/'9%x)%?9%?#('6$4%a9%:2&'),'64%@%a9%b''2'%er,09j4%fundamental issues in strategy%e==9%ugo3^ufj9%%d"0$")]% harvard business school press. c"05-00")4%?94%@%c-$$4%m9%fgga9%z)$'2',')$0% ),%='/+"/( )2'%"#$2"('0%"+%,-.'/0-12 $-")]%z%/'.-'<% ),%2/-$-;#'%"+% theoretical perspectives. journal of management4%fi]%`if3sag9 c#++4%z9%fghu9%%x),#0$/7%-)k#')2'0%")%0$/ $'*7%/'+"/(#6 $-")9%strategic management journal4%^]%ffg3f^f9 johnson-laird, p. 1983. mental models9%_ (!/-,*'4%mz]%b&'%h)-.'/0-$7%c/'009%% \")'04%b94%@%c-664%_9%fghh9%b/ )0 2$-")%2"0$% ) 670-0%"+%0$/ $'*730$/#2$#/'%2&"-2'9%strategic management journal, g]%fsg3fou9 d n )[)4%?94%@%a/ n-)4%?9%fgho9%x(=6'(')$-)*%-)$'/) 6%,-.'/0-12 $-")]%_")$-)*')27%+ 2$"/0%+"/%"/* )-n $-")%,'0-*)% choices. academy of management review4%fu]%^`u3^s`9 d-'2&'64%f9%fghu9%_"/="/ $'%0$/ $'*-0$0%#),'/%1/'9%fortune4%a'2'(!'/%uo]%^`3^g9 kor, y., & leblebici, h. 2005. how do interdependencies among human-capital deployment, development, and ,-.'/0-12 $-")%0$/ $'*-'0% ++'2$%1/(0>%1) )26%='/+"/( )2'v%strategic management journal4%ui]%gio3ghs9 w (")$4% d94% @%z),'/0")4% _9% fghs9% m",'% "+% 2"/="/ $'% ,-.'/0-12 $-")% ),% '2")"(-2% ='/+"/( )2'9% academy of management journal4%uh]%gui3g^`9 w' .74%d9%uaaf9%_/' $-)*%. 6#'%-)%$&'%(#6$-3!#0-)'00%1/(9%d.>'*)4/.5/e1*1')4/f)*)(161*-4%uo]%sf3ii9 w'.74%y9%uaas9%b&'%-)k#')2'%"+%$"=%( ) *'(')$%$' (% $$')$-")%= $$'/)0%")%*6"! 6%0$/ $'*-2%="0$#/'%"+%1/(09%%journal .5/&'()*+,)-+.*)4/b13)8+.'4%ui]%ogo3hfg9 w"#)0!#/74%m94%@%b67))4%m9%uaaf9%_#6$#/'%')$/'=/')'#/0&-=]%:$"/-'04%6'*-$-( 274% ),%$&'% 2;#-0-$-")%"+%/'0"#/2'09%% strategic management journal4%uu]%s`s3si`9 m 0")4%d94%@%c //-04%w9%uaas9%c-$+ 660%-)%'. 6# $-)*%( /5'$%"/-')$ $-")]%z)%'8=6"/ $-")%"+%'8'2#$-.'0>%-)$'/=/'$ $-")09% g.*(/ )*(1/h4)**+*(4%^h]%^o^3^gf9 m-66'/4%a94%l'/)4%m94%@%_ /,-) 64%w9%uaao9%b&'%#0'%"+%5)"<6',*'%+"/%$'2&)"6"*-2 6%-))". $-")%<-$&-)%,-.'/0-1',%1/(09%% academy of management journal4%sa]%uah3^ui9 t 77 /4% c9% fgg^9% :$"25%( /5'$% /' 2$-")0% $"% /'6 $',% ,-.'/0-12 $-")%(".'0% !7% 0'/.-2'% 1/(0% 0''5-)*% !')'1$0% +/"(% information asymmetry and economies of scope. strategic management journal4%f`]%sig3sgf9 neill, s., & rose, g. 2006. the effect of strategic complexity on marketing strategy and organizational performance. journal of business research4%sg]%f3fa9 2010, vol. 1, no. 1, 62-72 stimpert and duhaime 71 advances in business research c 6'=#4% d9% fghs9% a-.'/0-12 $-")% 0$/ $'*74% =/"1$% ='/+"/( )2'% ),% $&'% ')$/"=7% (' 0#/'9% strategic management journal4%i]%u^g3uss9 c'&/00")4%z9%uaai9%d#0-)'00%/'6 $',)'00% ),%='/+"/( )2']%z%0$#,7%"+%( ) *'/6%='/2'=$-")09%strategic management journal4%uo]%uis3uhu9 c-02-$'66"4% w9% uaa`9% _"/="/ $'% ,-.'/0-12 $-")4% 2"&'/')2'% ),% '2")"(-2% ='/+"/( )2'9% industrial and corporate change4%f^]%oso3oho9 porter, m. 1985. competitive advantage9%t'<%g"/5]%b&'%l/''%c/'009 porter, m. 1987. from competitive advantage to corporate strategy. a)'8)'7/b>9+*199/ 18+1c4%is]%`^3sg9 c/ & 6 ,4%_94%@%d'$$-04%?9%fghi9%b&'%,"(-) )$%6"*-2]%z%)'<%6-)5 *'%!'$<'')%,-.'/0-$7% ),%='/+"/( )2'9%strategic management journal4%o]%`hs3sau9 ? ( )#[ (%e94%@%e / , / [ )4%c9%fghg9%?'0' /2&%")%2"/="/ $'%,-.'/0-12 $-")]%z%07)$&'0-09%strategic management journal4%fa]%su^3ssf9 robertson, d., & ulrich, k. 1998. planning for product platforms. sloan management review4%^g]%fg3^f9 rumelt, r. 1974. strategy, structure and economic performance9%_ (!/-,*'4%mz]%c /. /,%h)-.'/0-$7%c/'009 ?#('6$4%?9%fghu9%a-.'/0-12 $-")%0$/ $'*7% ),%=/"1$ !-6-$79%strategic management journal4%^]%^sg3^oa9 :")*4%\9%fghu9%a-.'/0-12 $-")%0$/ $'*-'0% ),%$&'%'8='/-')2'%"+%$"=%'8'2#$-.'0%"+%6 /*'%1/(09%strategic management journal4%^]%^oo3^ha9 spender, j. 1989. industry recipes9%y8+"/,]%d 0-6%d6 25<'669 :$ /!#254%f94%@%m-66-5')4%l9%fghh9%r8'2#$-.'0>%='/2'=$# 6%16$'/0]%f& $%$&'7%)"$-2'% ),%&"<%$&'7%( 5'%0')0'9%%x)%a9% c (!/-25%er,9j4%231/1@10>-+81/15510-=/$.*01;-9/)*7/61-3.79/5.'/9->7<+*(/-.;/6)*)(1'9%e==9%̂ s3isj9%b/'')<-2&4% _b]%%\zx%c/'009 :$-(='/$4%\94%@%a#& -('4%x9%fggo9%x)%$&'%'7'0%"+%$&'%!'&"6,'/]%_")2'=$# 6-n $-")0%"+%/'6 $',)'00%&'6,%!7%$&'%( ) *'/0% "+%6 /*'%,-.'/0-1',%1/(09%strategic management journal4%fh]%fff3fus9 b )/-.'/,-4%c94%@%e')5 $/ ( )4%t9%uaas9%d)"<6',*'%/'6 $',)'00% ),%$&'%='/+"/( )2'%"+%(#6$-!#0-)'00%1/(09%strategic management journal4%us]%ff^f3ffs^9 b''2'4% a9% fghu9% b"< /,0% )% '2")"(-2% $&'"/7% "+% $&'% (#6$-=/",#2$% 1/(9% d.>'*)4/ .5/ !0.*.6+0/ b13)8+.'/ )*7/ &'()*+,)-+.*4%^]%^g3i^9 e )& .'/!'5'4%f94%@%c''$'/04%t9%uaas9%r(!/ 2-)*%-))". $-")% 0%0$/ $'*7]%_"/="/ $'%.')$#/-)*4%2"(='$')2'%!#-6,-)*% and corporate strategy making. creativity and innovation management4%f`]%u`i3uso9 f 60&4%\9%fggs9%m ) *'/6% ),%"/* )-n $-") 6%2"*)-$-")]%t"$'0%+/"(% %$/-=%,"<)%('("/7%6 )'9%&'()*+,)-+.*/%0+1*01, i]%uha3^uf9 williamson, o. 1975. f)'i1-9/)*7/3+1')'03+19=/j*)4<9+9/)*7/)*-+-'>9-/+6;4+0)-+.*99%t'<%g"/5]%b&'%l/''%c/'009 f"",/#++4% ?9% fggo9% _#0$"('/% . 6#']% b&'% )'8$% 0"#/2'% +"/% 2"(='$-$-.'% ,. )$ *'9% journal of the academy of marketing science4%us]%f^g3fs^9 i [ 24%r94%@%:&"/$'664% :9% fghg9%_& )*-)*% *')'/-2% 0$/ $'*-'0]%w-5'6-&"",4% ,-/'2$-")4% ),% ='/+"/( )2'% -(=6-2 $-")09%% strategic management journal4%fa]%`f^3`^a9 2010, vol. 1, no. 1, 62-72 stimpert and duhaime 72 advances in business research g)''</%-+6;1'-% -0% =/"+'00"/%"+% '2")"(-20% ),%!#0-)'00% $%_"6"/ ,"%_"66'*'9%c'% /'2'-.',%&-0%c&9a9% -)%!#0-)'00% ,(-)-0$/ $-")% +/"(% $&'% h)-.'/0-$7% "+% x66-)"-0% $% h/! ) 3_& (= -*)9% c-0% /'0' /2&% -)$'/'0$0% -)26#,'% 2"/="/ $'% 0$/ $'*7% ),%,-.'/0-12 $-")4%( ) *'/6% ),%"/* )-n $-") 6%2"*)-$-")4% ),%2"/="/ $'%*".'/) )2'9%c'%& 0%=#!6-0&',% in the academy of management journal, the journal of management, and the strategic management journal. k'1*1/l>3)+61%-0% %=/"+'00"/%-)%$&'%,'= /$(')$%"+%( ) *'/6%02-')2'0% $%$&'%\9%m 25%?"!-)0")%_"66'*'%"+%d#0-)'00% administration at georgia state university, where she also serves as the associate dean for administration. she received her ph.d. from the university of pittsburgh. her research interests include corporate strategy, entrepreneurship, and family business. she has published in the academy of management journal, the academy of management review, the strategic management journal, and the journal of management. 2010, vol. 1, no. 1, 62-72 stimpert and duhaime advances in business research 2011 volume 2.pdf pier advances in business research 2011, vol. 2, no. 1, 138-148 138 the effect of securities litigation reform and regulation fair disclosure on forwardlooking disclosures chuck pier, angelo state university in the late 1990s, both congress and the securities and exchange committee (sec) sought to encourage more forward-looking disclosures. this led to three specific items of legislation/regulation: the private securities litigation reform act of 1995 (pslra), the securities litigation uniform standards act of 1998 (slusa), and regulation fair disclosure (reg.-fd) (2000). although the specific purposes of each of these acts were different, they each were founded on the desire of congress and the securities and exchange commission to improve the flow of information, particularly information about future operations from firms to investors. this paper looks at the effectiveness of these three acts in increasing the number of forward-looking disclosures provided by companies in three disparate industries. using a sample of 150 firms in the consumer staples, consumer durables, and software industries, it was found that the number of forward-looking disclosures significantly increased following the passages of the slusa, and reg.-fd, but not after the passage of the pslra. the securities and exchange commission (sec) has two underlying purposes for disclosure requirements: access to information to aid in decision-making and the prevention of fraudulent reporting (skousen, 1991). in addition, the sec has expressed a desire for fairness in reporting for many years. bentson (1973, p. 134) noted that “perhaps even more important is the concept of ‘fairness’, the belief that all investors, large and small, insiders and outsiders, should have equal access to relevant information.” before being able to make decisions about firms, investors must first have access to information regarding those firms. although historical financial data are abundant, prospective or “forward-looking” data have been much less available to the investing public. numerous studies baker and haslem (1973), chandra (1975), frazier and ingram (1983), frazier, et al. (1984), hawkins and hawkins (1986), hoskin, et al. (1986), epstein and pava (1994), the jenkins report (aicpa, 1994), epstein and pava (1995), bryan (1997), and barron, et al., (1999) among others] have found that accountants, investors, academicians, and other interested parties consider forward-looking disclosures of financial and other corporate information relevant to decision making. at several points over the past two decades, the sec and congress have attempted to increase the number of forward-looking disclosures provided by public companies. two congressional acts and one sec regulation have been implemented with at least an indirect impact on the issuance of forwardlooking disclosures: (1) the private securities litigation reform act of 1995 (pslra), (2) the securities litigation uniform securities act of 1998 (slusa), and (3) regulation fair disclosure (reg. fd). while it may be argued that the specific intent of each of these actions was not to increase the quantity of forward-looking disclosures, it was always considered to be an important indirect outcome from the regulations. in 1996, then-sec chairman arthur levitt declared, in a speech regarding his thoughts on the pslra (levitt 1996) that, “most of the interaction between the sec and capitol hill centered on the bill’s safe harbor provisions. our goal was to encourage companies to provide more meaningful forwardlooking information to the market by affording them greater protection” (emphasis added). literature review corporate disclosure is necessary for the efficient functioning of capital markets and there is a rich history of research in required financial disclosures. however, there has been little research on voluntary corporate disclosures (healy and palepu 2001). such disclosures can be provided through regulated financial reports (including the financial statements, footnotes, management discussion and analysis, and other regulatory filings). in addition many firms will voluntarily disclose information such as pier advances in business research 2011, vol. 2, no. 1, 138-148 139 management forecasts as well as sales and earnings results in conference calls, press releases, internet sites and other, non-regulated reports. disclosure studies assume, that even in efficient markets, managers possess superior information on their firms’ expected future performance when compared to the knowledge of outside investors and analysts (healy and palepu 2001). however, some studies have shown that it is in a firm’s best interest to disclose more as opposed to less. for example, milgrom (1981) found that, assuming both credible disclosures and no cost to disclose, full disclosure will occur because investors will assume that firms not making voluntarily disclosures have the worst possible circumstances. lang and lundholm (1993) found that the more information a firm voluntarily discloses the higher the return on that firm’s stock. in addition to the increase in stock performance, healy, et al., (1999) found that firms that increased their disclosure levels experienced increases in institutional ownership, the number of analysts following the stock and stock liquidity. the history of forward-looking statements is fairly short. prior to 1972, so-called “soft” forwardlooking information was prohibited in sec-filed documents because such information was believed to be inherently unreliable and unpredictable (kerr, 1987). however, in 1979, the sec reversed its position with the enactment of rule 175 (hiler, 1987). rule 175 provided that forward-looking statements would not be deemed fraudulent if they were made in “good-faith” and if they had a “reasonable basis” of assumptions (calderon and kowal, 1997). this introduction of a “safe harbor” for forward-looking disclosures was severely limited. the main drawback to rule 175 was its application only to written forward-looking statements filed with the sec or oral statements that reaffirmed in writing with the sec. in other words, oral statements by themselves were not provided any safe harbor protection. both skinner (1995) and pownall et al., (1993) found that despite the sec’s encouragement, forward-looking disclosures were rare due to potential stockholder litigation. the first mention in sec literature of a required forward-looking disclosure occurred in 1980 (sar no. 33-6231). this release required a more comprehensive discussion of the financial statements as a whole with particular regard to liquidity, capital resources, and results of operations, as well as a discussion of forward-looking disclosures in the same three areas. this change in emphasis brought about the new reporting section entitled management’s discussion and analysis (md&a). there was substantial criticism of the new requirement due to the lack of guidance on the form of the md&a section. to address these concerns and provide guidance, the sec issued financial reporting release no. 36 (frr-36) in 1989. frr-36 sought to address inadequacies in prior disclosures in the md&a section. of particular interest to this paper was the inclusion of guidance on the use of the safe harbor provisions provided by rule 175 to encourage more complete forward-looking information with a lower level of legal liability. studies by hooks and moon (1993) and eikner (1994) found that the implementation of frr-36 led to a very small increase in the number of forward-looking disclosures. a1994 survey of the manufacturers alliance (a group of 500 manufacturing companies) indicated that only 17% of its members made any type of forward-looking disclosures. of the 83% not making forward-looking disclosures, nearly half (49%) said that additional protection from legal liability would encourage them to make forward-looking disclosures (barlas, 1995). frost (1998) found that the number of firms making forward-looking disclosures in the united states was significantly less than in countries where legal actions for misleading statements are infrequent. the private securities litigation reform act (pslra) was enacted in response to claims of widespread abuse in the area of securities litigation (conference report, 1995; avery 1996). the act’s proponents alleged that federal securities laws promoted the filing of “strike” suits based solely on a decline in stock price. these same proponents expressed concern that frivolous suits were severely limiting managers’ communication of forward-looking information to the marketplace (johnson, et al., 2001). the proponents argued that shareholders would benefit from the passage of the pslra through decreased litigation costs associated with frivolous litigation. coffee (1985) found that frivolous litigation significantly increased costs to companies involved with all forms of litigation. it was also thought that the pslra’s safe harbor and the increased difficulty in filing suit might encourage firms to adopt a more pier advances in business research 2011, vol. 2, no. 1, 138-148 140 forthcoming disclosure policy which would yield a lower cost of capital (botosan, 1997) and more interest by investors (lang and lundholm, 1996). these arguments were countered by pslra opponents who argued that the safe harbor would increase the risk of firms disclosing less accurate information. additionally, although there may be increased disclosures, the ability to create cautionary statements to accompany the new disclosures would be more important than the actual information disclosed (spiess and tkac, 1997). on december 22, 1995, after being vetoed by president clinton, both the house and the senate overrode the president’s veto and the pslra became effective on january 1, 1996 (pl 104-67). the pslra defines the term “forward-looking statement” as a projection of revenues, income, or other financial items; a statement of management’s plans and objectives for future operations (including products or services); a statement of future economic performance; and a statement of assumptions underlying these projections (pslra, sec. 13a (b) of u.s. public law 67, 104th congress). the basic framework of the safe harbor provided in the pslra is quite simple. the pslra safe harbor has two tests that operate in an ‘or’ fashion. if either test is met, the person or issuer making the statement is protected from private liability (cases filed in civil courts as opposed to criminal cases), but not necessarily from the sec. in other words, a statement that meets one of the two prongs cannot be sued by investors but can still be subject to sec action. the first test is one of “actual knowledge” (avery, 1996). under this test, the person or issuer is protected with respect to the forward-looking statement if the plaintiff fails to prove that the statement was made with actual knowledge that the statement was false or misleading. the “actual knowledge” test does not need to be accompanied by any cautionary language. (u.s. public law 67, 104th congress). the second test is known as the “bespeaks caution” test. (avery, 1996) under this test the person or issuer making the statement is protected if the statement is identified as a forward-looking statement and is accompanied by meaningful cautionary statements that identify important factors that could cause actual results to differ materially from those in the forward-looking statement (boyle and knopf, 1996). this test has two interesting aspects. first, the test protects statements that are immaterial. second, and perhaps more interesting, is the fact that, if read literally, the “bespeaks caution” test would protect knowingly false statements as long as they were accompanied by meaningful cautionary statements. specifically, the statement of the managers in the conference report that approved the final version of the pslra specifically instructed the courts to examine only the cautionary statement accompanying the forward-looking statement and “not examine the state of mind” of the issuer making the statement (congressional record h13703, 1995). numerous critics of the pslra cited this as a, “license to lie.” there are two citations that attribute the phrase, “license to lie” (with regard to the pslra) to specific individuals. janis (1996) attributes the phrase to consumer activist ralph nader. carney (2002) and spector (2002) attribute the remark to then sen. joseph biden during the debate to override the presidential veto of the pslra. despite the significance of the pslra on corporate financial reporting, and particularly on forwardlooking disclosures, there has been limited research on it. grundfest and perino (1997) were among the first to look at the effects of the passage of the pslra. they found that in the year following the pslra’s passage there was a drop in the number of lawsuits filed, but not the numbers expected. despite the fact that the overall litigation rate was relatively unchanged after the passage of the pslra, grundfest and perino (1997) found that there was a significant drop in the number of complaints alleging false forward-looking disclosures as the basis for filing a lawsuit. although this decline was welcome news and seemed to satisfy the intentions of congress, the same report noted that an almost equal increase in filings was noted in state courts. grundfest and perino (1997) attributed this increase in state court filings to a “substitution effect” where plaintiffs chose to file in state courts to avoid the more stringent requirements of the new law in federal courts. the sec, in its report to the president and congress on the first year of practice after passage of the pslra, noted that the “quality and quantity of forward-looking disclosures has not significantly improved following enactment of the safe harbor for forward-looking statements” (sec 1997). however, the sec performed no empirical tests and based its statements on anecdotal evidence only. additionally pier advances in business research 2011, vol. 2, no. 1, 138-148 141 the sec called the shift of securities fraud cases from federal to state courts “the most significant development in securities litigation” since the passage of the pslra (sec 1997). the report also noted that the increases in state court filings were almost wholly attributable to the passage of the pslra, given that there was essentially no significant securities litigation in state courts prior to the passage of the pslra. in late 1997, legislation was introduced in congress to address the issue of plaintiffs attempting to circumvent the pslra by filing in state courts. the securities litigation uniform standards act (slusa) was designed to make federal court the exclusive venue for most securities suits, preventing plaintiffs from seeking to evade the provisions of the pslra. the slusa also enables defendants to force all actions arising out of the same set of facts into one court, thereby avoiding the common problem of being forced to litigate in several state and federal courts simultaneously (hamilton and trautmann, 1998). studies completed since the passage of the slusa (day 1999, rosen 1999) have found that the number of lawsuits filed decreased only minimally. however, it should be noted that these studies dealt with only the number of filings. although quantity of lawsuits is an important piece of information it is not totally reflective of actions; many cases that are filed never make it to the courtroom because they are dismissed on procedural or other grounds, such as being frivolous. no studies were found that investigated the actual number of cases filed versus the number that actually make it to trial. however cashin (1999) cites anecdotal evidence that both the pslra and slusa have been successful in reducing the number of cases actually going to trial. of particular interest to this study was the finding by rosen (1999) that, based on a quantitative analysis of cases, the pslra’s safe harbor provision was deterring the filing of cases in which a securities issuer made a projection and met the pslra requirements. rosen noted that relatively few pure projection cases were being filed. although both the pslra and slusa had the potential to increase the number of forward-looking disclosures, sec regulation-fd (reg fd) may actually lead to the largest increase. this regulation was designed to promote the full and fair disclosure of information by issuers (sec regulation fd, 2000). former sec chairman arthur levitt pushed for this rule that would prohibit the selective disclosure of material nonpublic information in an effort to level the playing field. the sec believed that selective disclosure created a loss in investor confidence in the integrity of the capital markets (hamilton and trautmann, 2000). numerous criticisms have been made against reg. fd, but the most common concern was that the regulation would have the effect of ‘chilling corporate disclosure’ (hamilton and trautmann, 2000; hassett, 2000; and anonymous, 2000). these critics felt that rather than risk sanctions from the sec regarding selective disclosures, many companies would simply discontinue all disclosures. an article in the cpa journal (anonymous 2001) described two surveys that expressed opposite opinions on the initial results of reg fd. the first survey, conducted by the association for investment management and research (aimr) found that analysts believed (emphasis added) that reg fd had reduced the amount of information provided by companies. this survey also noted that information regarding forecasts was particularly less available after implementation. also, a pricewaterhousecoopers survey of top corporate executives believed (emphasis added) that reg fd had favorably affected company disclosures in quantity, quality, and frequency. implementation of reg fd has produced a significant quantity of research in the area of information dissemination. these studies have found that reg fd has reduced selective disclosures without impairing the flow of information to investors (straser, 2002; sunder, 2002; zitzewitz, 2002; aslan, 2003; bailey et al., 2003; and heflin et al., 2003). research questions and methodology this paper seeks to determine whether the passage of the pslra, the slusa and reg fd lead to an increase in the number of forward-looking disclosures. since this research relates to the passage of three pier advances in business research 2011, vol. 2, no. 1, 138-148 142 pieces of legislation/regulations, the effects of these regulations were measured both preand postimplementation of each piece of legislation/regulation. (see figure 1 on next page for study time line). the operational hypothesis, stated in the alternate form, is: h: the mean number of forward-looking disclosures is different between at least two of the periods under study. in notational form, this hypothesis is expressed as: !"#"$"%"$"&"$"'(")*+,+! a = the mean number of forward-looking disclosures prior to passage of the pslra (data from the second quarters of 1993, 1994, and 1995). b = the mean number of forward-looking disclosures after passage of the pslra (data from the second quarter of 1996). c = the mean number of forward-looking disclosures after passage of the slusa (data from the second quarter of 1999). d = the mean number of forward-looking disclosures after implementation of reg. fd (data from the second quarter of 2001). statistical tests the effects of passage of the pslra and slusa as well as the implementation of reg. fd are measured by the use of a single-factor, within-subjects anova. if the overall anova is significant, the inference can be made that there was a change in the number of forward-looking disclosures after the implementation of the legislation/regulations. when the anova f ratio is significant and more than two sample means are involved, multiple comparison procedures must be used to determine which means are significantly different from the other means. because this study is interested in all possible pairwise comparisons, the most appropriate test is the tukey hsd (sheskin, 2000). sample size a sample size of 150 companies in total, with 50 from each industry subset was selected for this study. the following requirements were placed on the firms in this study: 1. firms must be included in the standard & poor’s research insight (formerly known as compustat) database. 2. firms must have a global industry classification standard (gics) of 2520 (consumer durables); 3010, 3020, and 3030 (consumer staples); and 4510 (software). 3. firms must be reporting in the second quarter of the periods under study. 4. firms must end their fiscal year on december 31. the gics included in this study were chosen to provide a diverse group of sectors. gics 2520 (consumer durables) were chosen to represent a cyclical sector; gics’s 3010, 3020, and 3030 (consumer staples) were chosen to represent a defensive sector; and gics 4510 (software) were chosen to represent a high growth sector. each piece of legislation/regulation (pslra, slusa, and reg.-fd) was enacted in the fourth quarter of the calendar year. since some of the legislation was passed very late in the fourth quarter (the pslra was passed on december 22nd), it may not have been implemented at the beginning of the first calendar quarter. therefore the second calendar quarter was chosen as the period to analyze the number of forward-looking disclosures. in addition to these periods for post-implementation data gathering, a baseline had to be established. the pre-implementation data were pulled from the second calendar quarter of 1995. to ensure that an anomaly in this quarter did not affect the study, it was decided that the baseline data should be the mean number of forward-looking disclosures of the second calendar quarter of the three years (1993, 1994, and 1995) preceding the first act’s implementation. pier advances in business research 2011, vol. 2, no. 1, 138-148 143 figure 1: time line of study note: all data collection occurs in the second calendar quarter of the year in question. based on the criteria discussed above, all firms selected must be reporting in the second quarter of 1993, 1994, 1995, 1996, 1999, and 2001. results and analysis the initial sample of firms was selected from standard & poor’s research insight database. a random sample of 50 firms from each gics industry classification that met the criteria listed above was then selected for study. the samples were randomized to allow for generalization of the results across the industry in each sample. (see appendices a through c at the end of the paper for a complete list and size of companies in the each of the samples.) lexis-nexis academic universe’s (news) wire service reports was searched for both the company name and ticker symbol of the selected firms. in addition to firm name, various keywords typically associated with forward-looking disclosures or forecasts were used. the specific search string used was, “expect! or predict! or forecast! or project! or anticipate! or estimate! or outlook or foresee! or believe.” the wildcard “!” allows for the return of any wire that contains the base form of the word depicted, therefore the search term “expect!” would return disclosures that contained the words “expect,” expectations,” “expected,” etc.. this string was based on the search string used in johnson, et al., (2001). 1993 2001 2000 1999 1998 1997 1996 1995 1994 pslra: december 22, 1995 slusa: november 3, 1998 regulation fd: october 23, 2000 baseline data collection period (a) post-reg. fd data collection period (d) post-slusa data collection period (c) post-pslra data collection period (b) pier advances in business research 2011, vol. 2, no. 1, 138-148 144 since most firms simultaneously send out press releases to many wire services, the list of disclosures in the wire services generated numerous duplications. all redundant disclosures were eliminated. examples of typical forward-looking disclosure are listed in appendix d at the end of the paper and an example of a redundant disclosure is provided in appendix e. the criteria above resulted in a total of 612 unique (non-redundant) forward-looking disclosures identified for the sample firms. the breakdown by industry and time period is provided in table 1. table 1: forward-looking disclosure sample distributions consumer durables industry consumer staples industry software industry year gics 2520 gics 3000 gics 4510 total 1993 11 16 4 31 1994 12 17 17 46 1995 19 18 23 60 1996 15 27 23 65 1999 44 48 61 153 2001 60 73 124 257 totals 161 199 252 612 anova results the hypothesis posits that there is a statistical difference between the mean number of forwardlooking disclosures in each of the periods analyzed. results of the anova are shown in table 2. descriptive statistics are provided in table 3. overall, the anova shows that there is a statistical difference between at least two of the data points measured, with an f value of 39.159, which generates a p-value of < 0.000. table 2: anova results for hypothesis (h) source of variation ss df ms f p-value f crit between groups 47.527 3 15.842 39.159 0.000 2.620 within groups 241.125 596 0.405 total 288.652 599 table 3: descriptive statistics n mean std. dev. min. max. average of square root of baseline data 150 .3446 .43238 .00 1.63 square root of 1996 data 150 .3797 .53957 .00 2.00 square root of 1999 data 150 .7292 .70108 .00 2.45 square root of 2001 data 150 1.0339 .80542 .00 3.46 table 4: test of multiple comparisons analysis paired differences of forward-looking disclosures calculated q baseline to 1996 -1.28065 baseline to 1999 -7.1098*** baseline to 2001 -13.9988*** 1996 to 1999 -5.82915*** 1996 to 2001 -12.7182*** 1999 to 2001 -6.889*** !"#$"%"&'$()'()*)+),-,. multiple comparison results although the anova provides proof that there is a significant difference in the means of the four periods under study, it does not provide the necessary information to know which of the means differed significantly. to determine this, each pair of time periods under study were compared, producing six different test statistics (q). the results from these multiple comparisons are listed in table 4. the absolute value of a calculated q must be equal to or greater than 3.63 for significance at the .05 level and greater than or equal to 4.40 for significance at the .01 level. table 4 shows that the only pair of sample means pier advances in business research 2011, vol. 2, no. 1, 138-148 145 that failed to show significance was from the period just prior to the implementation of the pslra (baseline data from 1993, 1994 and 1995) and the first data collected after the implementation of the pslra (1996). analysis the results of the statistical tests showed that there was a significant difference in the mean number of forward-looking disclosures during the periods under study. in addition, multiple comparisons were conducted to determine which periods differed significantly from other periods. these results showed significance at < 0.01 for five out of the six comparisons. the only pair of samples that failed to show significance was the sample immediately prior to the passage of the pslra and the sample immediately after passage of the pslra. these results would support grundfest and perino (1997), hamilton and trautmann (1998), and the sec (in its 1997 report on the first year of practice under the pslra) that the passage of the pslra did not alter the total securities litigation landscape. instead the pslra just served to shift litigation from federal courts to the state courts. this shifting, as opposed to a reduction in the threat of litigation could explain why firms failed to issue more forward-looking disclosures following the passage of the pslra. once this bypassing of the pslra through state courts was removed by passage of the slusa a significant increase in the mean number of forward-looking disclosures was noted. another significant increase in forward-looking disclosures was found after implementation of reg.-fd. limitations of the current study this study has three primary limitations. first, because only three industries were sampled, no generalization can be made to firms in all industries. although care was taken to ensure that a random and complete sample in each industry was obtained, many firms in other industries were not analyzed. second, the possibility of confounding events within the time periods under study was not addressed. use of three different industries and a fairly large sample from each industry would help to mitigate individually occurring confounding events, but systemic events that would affect either all companies in the study or all of the companies within a particular industry however were not addressed. finally, inferences that can be made from the current study are also limited because of the use of archival data. the use of archival data means there is inability to manipulate or control variables. any significance attributed to certain aspects under study may be due to a simple association, as opposed to a causality relationship between the variables. conclusions and future research as this study has shown, an increase in forward-looking disclosures was brought about by the passage of laws and regulations. however, despite the increases in forward-looking disclosures over prior periods, the level of disclosures desired by congress, the sec, and the investing public has yet to materialize. while empirical evidence has shown a reduction in cost of capital for firms that voluntarily disclose forward-looking information, anecdotal evidence and the feelings of executives regarding a fear of litigation has overridden the benefits of this reduction in capital costs. laws and regulations mandating more disclosures or further reducing litigation risks could be passed, and have the potential to provide stakeholders with beneficial information, but the prospects for these types of intervention appear limited for the foreseeable future. as noted above, there are several limitations to the current study. as with most limitations, these areas provide for future research projects. since this study looked only at the immediate impact of the legislation, a more detailed long-range study to see the impact on future disclosures would be of interest. in addition, a more detailed study that looked at each company within a sector could look to see if there are characteristics that lead to more disclosures by one company over 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but, as the corporation grew over time, a number of smaller subcultures blossomed. no stronger subculture existed than the silver border brand, which at one time was the third "&594'($,&(49!52$65&+#$.+$(34$:!5"#-$;0,3$!59&+.<&(.!+&"$".(45&(054$4=.'('$(!#&2$(3&($(&>4'$4=,41(.!+$(!$(34$&''0/1(.!+$ that monolithic cultures even exist within corporations. this research, however, not only clearly shows the existence of a monolithic culture in a corporation but also provides insight into its strength when its behaviors are threatened 62$&$/!54$4?@,.4+($&+#$4??4,(.84$'06,0"(05485!.+# 30+#9:;<2,# 30+# 3+%)#=.1'31%+>#0"2#?&1%520+@# 5!# 30+# '"!a1"a+#&b# 2&.5&'&a5232# "!@# "!30%&*&'&a5232# 5!# 30+# broad sense of civilizations, customs, and artistic achievements of people. today, the term “corporate culture” ?&1%520+2# 5!#&%a"!5c"35&!"'# '53+%"31%+,# "2#d+''e#f%&)# 30+5%# .&!.+*3# &b# .1'31%+,#)"!7# "!30%&*&'&a5232# 0"6+# "%a1+@# that a corporation’s shared values and beliefs, the hows in the way people do business, and patterns of behaviors do not constitute a “culture.” but those of us who have lived and studied corporations recognize that the factors that result from enculturation from the time of a person’s employment do manifest themselves in a culture construct. no corporate culture is incidental to anyone who spends a great deal of time living in it. it impacts physical and mental health and may be tied to a person’s sense of self-worth. $1'31%+#52#*+%0"*2#30+#)&23#23"g'+#+'+)+!3#5!#.&%*&%"35&!2#g+."12+#53#52#30+#*%&@1.3#&b#*"23#21..+22e#h3#@+i!+2#30+# values, beliefs, and behaviors which people use to interpret the world in which they work. its symbols, language, and dress help to identify its employees and serve to help them behave in ways to ensure the bottom line success of the company. although corporate cultures may have subcultures that deviate from the espoused ways of the monolithic .1'31%+,#53#52#30+#)&!&'5305.#.1'31%+#30"3#@+i!+2#30+#d"72#"!@#."''2#=b&1'>#d0+!#"!7#&b#30+)#"%+#.0"''+!a+@e# !@#5b#30+# company’s bottom line begins to erode, a subculture may become a target. sadly, depending on the strength of the monolithic culture, a subculture may even be destroyed under the disguise of a cultural transformation that senior management deems necessary to increase the bottom line. 789:; 9<;:!;:08:= **'75!a# 30+# 3+%)# =.1'31%+># 3&# &%a"!5c"35&!2# 52# !&3# !+de# %!&'@# j9:klm# "!@# n"%!"%@# j9:kom# )&6+@# g+'&d# the conscious level of organizations to capture a deeper, more powerful force in everyday life. the aspects of &%a"!5c"35&!"'#.1'31%+#0"6+#g++!#+p*'&%+@#g7#q+"'#"!@#r+!!+@7#j9:osm#"!@#t5'/5!2#u#v1.05#j9:okmw#30+#'+6+'2#&b# .1'31%+#g7#8"./)"!#j9::sm#"!@#r5')"!!#u#8"p3&!#j9:oxmw#30+#5)*".3#&b#.1'31%+#g7#8.0+5!#j9:oym#"!@#v1.05#u#z%5.+# j9:lomw#.1'31%+#"!@#&%a"!5c"35&!"'#+bb+.356+!+22#g7#["%.&1'5@+2#u#\+./#j9::km#"!@#]"'g%"530#u#r"c"!^5"!#j9:oxmw# .1'31%+#"2#%+'"3+@#3&#23%"3+a5.#.0"!a+#g7#n1%a+')"!#j9::9m,#"!@#.&%*&%"3+#.1'31%+#"!@#)"!"a+%5"'#".35&!#g7#8"30+# j9:okme#q+"'#u#r+!!+@7#j9:osm#0"6+#.%+"3+@#!1)+%&12#.1'31%+#)&@+'2,#"!@#t5'/5!2#j9:okm#@+6+'&*+@#"#.1'31%+#"1@53. while some research exists that supports the notion of a monolithic culture, many others propose something @5bb+%+!3e#h!23+"@#&b#30+#+p523+!.+#&b#"#)&!&'5305.#.1'31%+,#["%35!#u#85+0'#j9:okm#g+'5+6+#&%a"!5c"35&!"'#.1'31%+2#"%+# =.&)*&2+@#&b#6"%5&12#5!3+%'&./5!a#!+23+@,#2&)+35)+2#.&!?5.35!a#21g.1'31%+2e>#8&)+#21**&%3#30+#!&35&!#30"3#2&)+# organizations are not accurately described as having a “monolithic dominant culture but rather a web of interwoven "!@#05+%"%.05."'#.1'31%+2e>#83&7/&#js<<:m#g+'5+6+2#30"3#&%a"!5c"35&!2#%"%+'7#0"6+#)&!&'5305.#.1'31%+2#30"3#."!#g+#="*3'7# @+2.%5g+@#d530#"#35@7#'"g+'e>#["%35!,#853/5!,#u#n&+0)#j9:o;m#%+b+%#3&#&%a"!5c"35&!2#"2#=1)g%+''"2#b&%,#&%#"%g53%"%7# boundary lines around, collections of subcultures.” researchers have depicted subcultures as detracting from a strong organizational culture although “the very existence of a strong organizational culture, one whose members "a%++#"!@#."%+#"g&13#30+5%#&%a"!5c"35&!_2#6"'1+2,#2++)2#3&#*%+.'1@+#21g.1'31%+2>#jv_-+5''7,#9:o:me#8&)+#g+'5+6+#30"3# large organizations often have many subcultures, which form over time as a result of “segmentation, importation, 3+.0!&'&a5."'#5!!&6"35&!,#5@+&'&a5."'#@5bb+%+!35"35&!2,#"!@#."%++%#i'3+%2>#j "̀!#[""!+!#u#n"%'+7,#9:o;me#$1'31%+#."!# 3"/+#@5bb+%+!3#b&%)2#d5305!#30+#2")+#&%a"!5c"35&!,#&b3+!#2+335!a#1*#*&3+!35"'#.&!?5.32#g+3d++!#21g.1'31%+2#j["%35!,# 853/5!,#u#n&+0),# 9:o;me#425!a# 30+#)+3"*0&%# &b# "# *"%+!3# "!@# .05'@,#t&'ba"!a# "!@#f+%%".135# j9:l<m# 21aa+23# 30"3# a “subculture, like a child, could never be entirely different from its ‘parent’ because it emerges from the parent .1'31%+_2#6"'1+2e#a0+%+b&%+,#2&)+#21g.1'31%+#6"'1+2#)"7#.&!?5.3#d530#30+#*"%+!32_#.1'31%+2_#6"'1+2#d05'+#&30+%2#)"7# not.” 2010, vol. 1, no. 1, 198-209 lampe 199 advances in business research studying a culture can reveal the richly textured fabric of meaning and attachment that persons associate with 30+5%#d&%/#'5b+e#83+%!#j9:oom#2.%135!5c+@#30+#]&'@#$&"23#g%"!@#5!#30+#b&%)#&b#"!#+!.7.'&*+@5"#&b#a%"*05.#237'+2,#"# .0%&!5.'+#&b#30+#0523&%7#&b#30+#g%"!@,#"!@#"#.&1%2+#5!#'"!a1"a+,#"!@#bf&1!@+%c#"!@# !@+%2&!#j9::sm#@+'6+@#5!3&#30+# '5b+#&b#30+#]&'@#$&"23,#h!.e#b&1!@+%e#a0+2+#g&&/2,#0&d+6+%,#a56+#'533'+#"33+!35&!#3&#g%"!@2#&30+%#30"!#30+#]&'@#$&"23# brand and ignore the magnitude and importance of the subbrand, silver border, which at one time was the world’s third largest brand in its industry. (")*+#"!@#]56"!#j9::;m#.&!@1.3+@#"#.1'31%"'#"1@53#d5305!#]&'@#$&"23,#h!.e#(")*+#j9::xm#+p*'&%+@#30+#.1'31%+# &b#)"!"a+%5"'#d&)+!#5!#30+#v*+%"35&!2#q56525&!#&b#]&'@#$&"23,#h!.e,#d05.0#*%&65@+2#"#.&!3+p3#b&%#30+#."23+#2723+)# d05.0#+p5232#d5305!#30+#.&%*&%"35&!w#(")*+#j9::xm#"'2&#+p*'&%+@#30+#*"7#*&'5.5+2#"!@#*%".35.+2#3&d"%@#]&'@#$&"23,# h!.e#!&!d3%+"21%7#+)*'&7++2w#"!@#e2.0%5.0#j9::xm#@+'6+@#5!3&#30+#*&235!a#2723+)#&b#]&'@#$&"23,#h!.e#!&!d3%+"21%7# employees both of which additional give credence to the fact that some groups are treated differently. finally, lampe js<<sm#+p*'&%+@#30+#*+%6"256+#5)*".3#30+#.1'31%+#&b#"!#&%a"!5c"35&!#0"2#&!#532#i!"!.5"'#*+%b&%)"!.+#"!@#0&d#*+&*'+# defend against knowing, emotionally and cognitively, precisely what they need to know in order to impact the bottom line. f&%#3052#%+2+"%.0,#.1'31%+#52#@+i!+@#"2#=30+#d"7#d+#@&#305!a2#"%&1!@#0+%+>#jn&d+%,#9:xxme#a0%&1a0#30+#231@7#&b#"# large midwest company, the paper will investigate whether a corporation can have a monolithic culture, whether its 23%+!a30#."!#g+#"#@+3%5)+!3#3&#30+#.&%*&%"35&!,#"!@#0&d#)"!"a+)+!3#."!#'+6+%"a+#30+2+#i!@5!a2#3&#+!21%+#.&%*&%"3+# health. >5'5!*#%%-)'&#$!5$3!"-'(#3#%#?@ 2#*"%3#&b#"#.&%*&%"3+#.1'31%+#5!535"356+,#]&'@#$&"23_2,#h!.e#65.+#*%+25@+!3#&b#\1)"!#-+2&1%.+2#g%&1a03#3&a+30+%#"# 3+")#&b#5!@565@1"'2#3&#.%+"3+#30+#$1'31%"'#$&%+#a+")f#@5%+.3&%#&b#v%a"!5c"35&!"'#q+6+'&*)+!3w#@5%+.3&%#&b#$&%*&%"3+# f5!"!.+w#65.+d*%+25@+!3#&b#z1g'5.# bb"5%2#"!@#$&))1!5."35&!2w#@5%+.3&%#&b#e)*'&7++#-+'"35&!2w#@5%+.3&%#&b#$&%*&%"3+# e@1."35&!#"!@#a%"5!5!aw#@5%+.3&%#&b#$&)*+!2"35&!#"!@#n+!+i32w#23%"3+a523#b&%#["%/+35!a#"!@#83%"3+a7w#"!#&1325@+# consultant who supported the cultural change effort for another hundred year old company; and a research manager. a0+#&13.&)+2#&b#30+#.1'31%"'#%+!+d"'#+bb&%32#&b#30+#$1'31%+#$&%+#a+")#d&1'@#g+#30+#g"252#b&%#"#)1'35d7+"%#5!535"356+e# a0+# i%23# *0"2+# d&1'@# .%+"3+# 30+# .&)*+''5!a# ."2+# b&%# .0"!a+# "!@# g+a5!# d530# 1!@+%23"!@5!a# 30+# .&)*"!7_2# i!"!.5"'2,#*%&@1.32,#@523%5g135&!,#2"'+2,#"!@#g%"!@2e#n+."12+#+)*'&7++2#'+"%!#3&#*+%.+56+#30+5%#d&%'@#30%&1a0#30+5%# &d!#.1'31%"'#a'"22+2#30+#i%23#*0"2+#d&1'@#"'2&#5!.'1@+#2++5!a#]&'@#$&"23#30%&1a0#30+#+7+2#&b#&30+%2f#+)*'&7++2,# retailers, suppliers, and subsidiaries. the research manager was charged with delivering a research plan and interviewing the stakeholders. ..&%@5!a# 3&# ]1g"# "!@# (5!.&'!# j9:o:m,# 125!a# )1'35*'+# @"3"# 2&1%.+2# 52# "@6"!3"a+&12# g+."12+# 53# "''&d2# anthropologists to deepen their understanding of the culture, as well as providing the material that contributes to .%+@5g'+#5!3+%*%+3"35&!#je52!+%,#9::9me#a052#%+2+"%.0#5!.'1@+@#)1'35*'+#@"3"#2&1%.+2#5!.'1@5!a#*"%35.5*"!3#&g2+%6"35&!# jn1%"d&7,#9::9mw#.1%%+!3#*1g'5.#"!@#.&!i@+!35"'#@&.1)+!32#jn&a@"!#u#n5/'+!,#9::smw#b&.12#a%&1*2#"!@#2)"''#a%&1*# @52.1225&!2#j[+%3&!#"!@#r+!@"'',#9:yxw#$"'&%5#u#8"%!5!,#9::9mw#3+'+*0&!+#b&.12#a%&1*2#j$&''52,#9::xmw#5!3+%65+d2# j$"'&%5#u#8"%!5!,#9::9w#n&a@"!#u#n5/'+!,#9::smw#.&!6+%2"35&!2#j 3/5!2&!#"!@#\+%53"a+,#9:oym,##"%.056"'#@&.1)+!32,# "%35b".32#je52!+%,#9::9m,#g1+235&!!"5%+2#j\&b23+@+,#9:o<m#"!@#30+#h5!3+%21g^+.356+#%+2&!"!.+#&b#1!.&!2.5&12#*%&.+22+2# g+3d++!#"!30%&*&'&a523#"!@#.'5+!3>#jva@+!,#9:o:me#a0+#-+2+"%.0#["!"a+%#"'2&#%+65+d+@#30+#%+21'32#&b#30+#.&%*&%"3+'7# "@)5!523+%+@#)&%"'+#21%6+7#g1+235&!!"5%+2#+p*'&%5!a#30+#&%a"!5c"35&!"'#.'5)"3+#&b#"#23%"35i+@#*&*1'"35&!#j]"''1*,# s<<xme#f5!"''7,#30+#@52.&6+%7#*%&.+22#5!.'1@+@#+)*"305.#'523+!5!a,#5!3+%*%+35!a,#a+!3'7#.&!b%&!35!a,#"2/5!a#g1+235&!2,# and spending time in safe places with stakeholders inside and outside the corporation. e"%'7#&!#5!#30+#*%&.+22,#53#g+.")+#"**"%+!3#30"3#)"!7#+)*'&7++2#0"@#"#@5bi.1'3#35)+#3"'/5!a#"g&13#30+#=]&'@# $&"23>#.1'31%+#g+."12+#30+#.1'31%+#5!#d05.0#30+7#d&%/+@#j5e+e,#30+#85'6+%#n&%@+%m#d"2#6+%7#@5bb+%+!3#30"!#30+#&!+#d+# d+%+#"2/5!a#30+)#3&#@+2.%5g+e#h3#"'2&#g+.")+#"**"%+!3#30"3#)&23#+)*'&7++2#2"d#]&'@#$&"23#g%"!@#"!@#]&'@#$&"23,# h!.e#"2#&!+#"!@#30+#2")+e#a0+#$1'31%+#$&%+#a+")#)"@+#30+#@+.525&!#3&#5!535"3+#"#2+*"%"3+#.1'31%"'#"1@53#d05.0#d&1'@# @+'6+#5!3&#g&30#"!@#"2/#g1+235&!2#"g&13#g&30#.1'31%+2#125!a#30+#2")+#5!3+%65+d#a15@+e a0+#-+2+"%.0#["!"a+%#.&!@1.3+@#+5a03#b&.12#a%&1*2#d530#"#3&3"'#&b#;:#*"%35.5*"!32#j[+%3&!#"!@#r+!@"'',#9:yxme# z"%35.5*"!32#d+%+# 5!653+@#b%&)#"#23%"35i+@#2")*'+#&b#.&%*&%"3+#+)*'&7++2#"3# 30+#.&%*&%"3+# b".5'537f#85'6+%#n&%@+%# g%"!@#)"!"a+%2w#85'6+%#n&%@+%#g%"!@#3%+"21%7w#85'6+%#n&%@+%#g%"!@#!&!d3%+"21%7w#]&'@#$&"23#g%"!@#)"!"a+%2w#]&'@# $&"23#g%"!@#3%+"21%7w#"!@#]&'@#$&"23#g%"!@#!&!d3%+"21%7e#a0+#-+2+"%.0#["!"a+%#"'2&#.&!@1.3+@#s<#&!+d&!d&!+# 5!3+%65+d2#jn&a@"!#u#n5/'+!,#9::sm#30"3#5!.'1@+@#"!#"%3523#d0&#0"@#)"@+#30+#.&)*"!7#"#a%+"3#@+"'#&b#)&!+7w#"# man who had spent 30 years in the research department; a manager from the silver border brand; a female manager 5!#30+#]&'@#$&"23#g%"!@w#"#)"!"a+%#5!#30+#&*+%"35&!2#@56525&!w#"#b+)"'+#+p+.1356+#b%&)#30+#85'6+%#n&%@+%#g%"!@w#"# merchandising manager; a manager who had worked on both brands; an treasury employee who had worked on both 2010, vol. 1, no. 1, 198-209 lampe 200 advances in business research brand; a non-treasury employee who had worked on both brands; and someone who had a “reputation” for “telling it like it is.” the research manager also had a number of formal and informal conversations (atkinson & heritage, 9:oym#d530#*+&*'+#30%&1a0&13#30+#.&%*&%"35&!e#8&)+#&b#30+2+#3&&/#*'".+#&6+%#'1!.0,#&6+%#30+#*0&!+#'"3+#"3#!5a03,#"!@# even in the restrooms. the collected data was interpreted using narrative analysis. once the recorded conversations were transcribed, @+2.%5*3&%2#30"3#%+b+%+!.+@#]&'@#$&"23#&%#85'6+%#n&%@+%#d+%+#05a0'5a03+@e#a0+2+#@+2.%5*3&%2#d+%+#+!3+%+@#5!3&#"!# +p.+'#2*%+"@20++3#5!3&#&!+#&b#2+6+%"'#g1./+32#&b#.1'31%+#+'+)+!32#30"3#30+#$1'31%+#$&%+#a+")#5@+!35i+@#5!.'1@5!a# teamwork, customer focus, communication, achieving results, management style, and organizational design. when "**%&p5)"3+'7#l;i#&b# 30+#*+&*'+#12+@# 25)5'"%#@+2.%5*3&%2,# 30+7#d+%+# .&!25@+%+@#6"'5@# "!@#+!3+%+@# 5!3&# 30+#i!"'# !"%%"356+#"!"'7252#j8++#f5a1%+#9me#("3+%,#30+2+#i!@5!a2#d+%+#3%5"!a1'"3+@#d530#&30+%#23"/+0&'@+%2_#@"3"#j5e+e,#21**'5+%2,# %+3"5'+%2,#"!@#21g25@5"%5+2me# a&?+,-!b.!c5,,5'&d-! $5%@1&1 birthing a monolithic culture ]&'@#$&"23,#h!.e#52#'&."3+@#5!#30+#[5@d+23#"!@#2+''2#*%&@1.32#3&#+!%5.0#*+&*'+_2#'56+2#"!@#+!0"!.+#30+5%#%+'"35&!205*2e# z%&@1.32#"%+#d%533+!#5!#2+6+%"'#'"!a1"a+2#"!@#@523%5g13+@#5!3+%!"35&!"''7#1!@+%#g%"!@2#5!.'1@5!a#]&'@#$&"23,#85'6+%# n&%@+%,#e6+!5!a#$"''2,#"!@#8*%5!a#f'&d+%2e#h32#*"%+!3#g%"!@,#]&'@#$&"23,#d"2#&!+#&b#30+#)&23#%+.&a!5c"g'+#g%"!@2# in america. as this company’s industry and population aged, consumers had less free time to shop; and they were reducing the number of the relationships they were sustaining. distribution choices continued to increase. furthermore, large %+3"5'+%2#d+%+#"g'+#3&#a+3#g+33+%#d0&'+2"'+#3+%)2,#%+21'35!a#5!#*%&i3#)"%a5!#*%+221%+2#b&%#21**'5+%2e#a0+#3&3"'#5!@123%7# gold coast culture silver border culture organizational behaviors focal point is your neighbor neighbor is the competition arrogance dictates what a retailer needs must believe in the program focal point is the other card companies other card companies are the competition partnering do anything to help the retailer can speak up against a program communication have to have a meeting don’t know top accounts never see the numbers can’t lose temper people must be same level at meetings nice people don’t have conflicts do business at water fountain always know top account see numbers daily talks open and honestly everyone from secretary to vps at meetings conflict handled at team level achieving results run like government focuses on system everything perfect complicated systems promoted without results tired: takes so much energy to get things done run like business focus on getting job done doesn’t have to be perfect just get it done promoted with results fun, energizing, lighter walk teamwork managers own projects individual competition team owns projects camaraderie management style arrogant cocky secretive self-promoting breeds face time down to earth all are equal candid and open team decisions done when done customer focus talks customer focus dictates what retailer needs talks innovation walks customer focus do what will help retailer sometimes too eager to help organizational design lots of contacts for a few dollars internal focal point big and cumbersome silo-driven and compartmentalized linear lots of management layers one contact for lots of dollars external focal point smaller self-contained team based fewer layers of management 2010, vol. 1, no. 1, 198-209 lampe 201 advances in business research 2"'+2#d"2#@+.'5!5!a#g7#%&1a0'7#ji#"#7+"%,#"!@#30+#*%5.+#&b#]&'@#$&"23#*%&@1.32#d+%+#5!.%+"25!a#"3#"#%"3+#b"23+%#30"!# many other consumers products. 2#"#%+21'3#&b#30+2+#+.&!&)5.#"!@#)"%/+3#+!65%&!)+!3#.0"!a+2,#]&'@#$&"23,#h!.e#0"@#b"5'+@#3&#)++3#2+6+%"'#&b# its performance targets over a seven-year period. in fact, one year it had failed to meet all but one. “although our performance in the past has been good, in fact enviable by some measures, it has not matched the growth of some &b# )+%5."_2#g+23#.&)*"!5+2,>#23"3+@#]&'@#$&"23_2#65.+#*%+25@+!3#d#f5!"!.+e# !@#3&#30"3,#]&'@#$&"23,#h!.e_2#$ev,# added, “either the company has set poor targets or we need to change the ways we do things around here.” the .&%*&%"3+#.1'31%+#&b#]&'@#$&"23#]%++35!a2#0"@#g++!#%+5!b&%.+@#&6+%#35)+#g7#@+."@+2#&b#)"%/+3#'+"@+%205*e#t0+!#30+# )"%/+3*'".+#g+a"!#3&#.0"!a+,#0&d+6+%,#]&'@#$&"23,#h!.e#+p*+%5+!.+@#@5bi.1'37#5@+!35b75!a#d0+%+#.0"!a+#!++@+@#3&# occur. a0+#'53+%"31%+#3&'@#]&'@#$&"23,#h!.e#)"!"a+)+!3#30"3#&%a"!5c"35&!2#30"3#0"@#.1'31%+2#d530#30+#"g5'537#3&#"!35.5*"3+# "!@#%+2*&!@#+bb+.356+'7#3&#.0"!a+2#5!#30+#g125!+22#+!65%&!)+!3#25a!5i."!3'7#&13#*+%b&%)+@#30&2+#30"3#@5@#!&3#jr&33+%# u#\+2/+33,# 9::sme# hb#]&'@#$&"23,# h!.e#d"2# 3&#g+# 3%"!2b&%)+@# 5!3&# "# .1'31%+# 30"3#d"2# "g'+# 3&# "@"*3# 3&# .0"!a+2# 5!# 30+#g125!+22#+!65%&!)+!3,#53#%+g15%+@#1!@+%23"!@5!a#532#.1'31%+e#80&%3'7#30+%+"b3+%,#30+#$ev#b&%)"''7#"!!&1!.+@#"# .1'31%"'#5!535"356+#d530#30+#25@+#!&3+#30"3#]&'@#$&"23#!++@+@#3&#g15'@#5!3&#30+#.1'31%+#"#.&!35!15!a#"g5'537#3&#"@"*3# behavior to changing business circumstances “without losing our timeless core values.” f%&)#30+#)&)+!3#30+#b&1!@+%#+!6525&!+@#]&'@#$&"23,#0+#g5%30+@#d0"3#d&1'@#g+.&)+#"#)&!&'5305.#.1'31%+#d#30+# %5a03#d"7#3&#@&#g125!+22e#["/5!a#30+#6+%7#g+23#*%&@1.32#d"2#%+?+.3+@#5!#30+#.&%+#6"'1+#&b#g1"'537#"!@#d"2#+65@+!.+@# in all areas of the corporation. although never referred to as a monolithic culture, everyone understood that the ]&'@#$&"23#g%"!@_2#d"7#&b#@&5!a#g125!+22#d"2#30+#%5a03#d"7#3&#@&#g125!+22#"!@#30+#&!'7#&!+#30"3#2+!5&%#)"!"a+)+!3# &*+!'7#"./!&d'+@a+@e# !@#"'30&1a0#30+#85'6+%#n&%@+%#g%"!@#a+!+%"3+@#25a!5i."!3#%+6+!1+#b&%#30+#.&)*"!7,#532#d"7# &b#@&5!a#g125!+22#d"2#!+6+%#&bi.5"''7#"./!&d'+@a+@e# t0+!#i%23#g1+%5+@,#"''#30+#+)*'&7++2#5!3+%65+d+@#@+2.%5g+@#30+#.1'31%+#&b#]&'@#$&"23,#h!.e#d530#*&25356+#d&%@2# such as “polite, caring, and full of bright and creative people.” but when they talked about the individual brand cultures in which they worked, their cultures began to sound very different. creating a subculture h!# 30+#)5@d9:;<2,#]&'@#$&"23# .&))5225&!+@# 30+#n5%a+%#t5@)"!#$&)*"!7# 3&# "!"'7c+# 30+# 5!@123%7_2# a%&d30# *&3+!35"'#"!@#]&'@#$&"23_2#.1%%+!3#"!@#b131%+#5!@123%7#*&2535&!#j["!"a+%5"'#(+"@+%205*#$&1%2+,#9::sme#a0+#%+2+"%.0# 20&d+@#30"3#]&'@#$&"23#*%&@1.32#d+%+#g+5!a#2&'@#5!#&!'7#&!+#&13#&b#+6+%7#3+!#23&%+2#2+''5!a#"#25)5'"%#*%&@1.3e#a0+# other nine stores in most cases were drug stores, variety stores, and supermarkets. after careful analysis, the founder @+.5@+@#2+''5!a#30+#]&'@#$&"23#g%"!@#5!#30+2+#&30+%#23&%+2#d&1'@#!&3#g+#"#d52+#)"%/+35!a#@+.525&!e#h3#.&1'@#+%&@+# 30+#."%+b1''7#!1%31%+@#*&2535&!#]&'@#$&"23#0"@#"33"5!+@#d530#532#g%"!@#!")+#%+.&a!535&!,#.123&)+%#*%+b+%+!.+,#"!@# g1"'537#5)"a+e#h!23+"@,#30+#b&1!@+%#@+.5@+@#3&#.%+"3+#"!&30+%#g%"!@,#@+25a!+@#3&#2+''#3&#"2#)"!7#"2#*&225g'+#&b#30&2+# !5!+#&13#&b#3+!#23&%+2#5!#d05.0#30+#]&'@#$&"23#g%"!@#d"2#!&3#%+*%+2+!3+@e## in 1959 the silver border brand was launched (anniversary 25thme#a0+#.%+"356+#"%3d&%/#&!#30+#."%@2#d"2#.&)*%52+@# &b#@+25a!2# 30"3#0"@#"**+"%+@# 5!# 30+#]&'@#$&"23# '5!+# 30%++# 3&#b&1%#7+"%2#+"%'5+%e#8"'+2#&b# 30+#!+d#g%"!@#5!.%+"2+@# substantially each year, and by 1969, the silver border brand was shipping 2 million products a week to 12,000 accounts (anniversary 25thme## 8+''5!a#30+#!+d#1!/!&d!#g%"!@#d"2#!&3#+"27e# 3#i%23,#2"'+2)+!#g+a"!#2+''5!a#3&#"!7#g125!+22#30"3#d&1'@#a56+# 30+)#2*".+,#+6+!#g+"137#20&*2,#?&d+%#20&*2,#"!@#a"2&'5!+#23"35&!2e#e6+!31"''7,#30+2+#.0"!!+'2#&b#@523%5g135&!#g+.")+# 30+#+p.'1256+#b&.12#g13#2+''5!a#3&#30+)#d"2#!&3#30+#2")+#"2#2+''5!a#3&#]&'@#$&"23#"..&1!32e#85'6+%#n&%@+%#@5@#!&3#0"6+# 30+#g%"!@#%+.&a!535&!#&b#30+#]&'@#$&"23#g%"!@e#a0+%+b&%+,#!+d#2+''5!a#23%"3+a5+2#0"@#3&#g+#@+6+'&*+@#3&#0+'*#85'6+%# border compete with the other companies selling in these channels. silver border began offering sales incentives, =3+%)2>#.&!25235!a#&b#b%++#b%+5a03,# b%++#ip31%+2,# %+31%!2#&!#2+"2&!"'#*%&@1.32,#23&%+#*'"!!5!a,#"!@#)+%.0"!@525!a# "22523"!.+e#a0+2+#d+%+#"''#3+%)2,#d05.0#30+#]&'@#$&"23#g%"!@#d&1'@#!+6+%#0"6+#3&#&bb+%e#n13#!&#)"33+%#0&d#d+''# the silver border culture worked, as one long-tenured employee said, “we were always thought of as a ‘step child’.” :e/-,&-$)&$?!'(-!*5,3!4(#//&$?!*+%'+,-1 as a young mother wheels her shopping cart through the supermarket in des moines, iowa, a colorful display catches her eye. positioning the cart beyond her toddler’s reach, she scans the rows of greetings, selects one, opens it, "!@#2)5'+2e#\+%#g+23#b%5+!@#d5''#'&6+#53e#80+#@&+2!_3#/!&d#&%#*%&g"g'7#."%+#d0+30+%#53#52#"#85'6+%#n&%@+%#&%#]&'@#$&"23# ."%@#g+."12+#53_2#=^123#i!+e>#("3+%,#"2#20+#.&!35!1+2#0+%#20&**5!a,#20+#)"/+2#"#)+!3"'#!&3+#b&%#!+p3#d++/_2#20&**5!a# 2010, vol. 1, no. 1, 198-209 lampe 202 advances in business research '523f#'"1!@%7#@+3+%a+!3,#"#.&!a%"31'"3&%7#."%@#b&%#0+%#!+*0+d#d0&#52#a%"@1"35!a#b%&)#.&''+a+,#"#g&33'+#&b#$0"%@&!!"7,# a gift bag, and party goods for her three-year-old’s birthday. this is the convenience shopper, the person whose needs the silver border brand tries to anticipate and meet in drug stores, variety stores, and supermarkets. silver border’s success in meeting those needs, and thus its growth, d"2#*0+!&)+!"'e# 3#&!+#35)+,#30+#g%"!@#%"!/+@#305%@#5!#2"'+2,#%5a03#g+05!@#30+#]&'@#$&"23#"!@# )!537#g%"!@2,#85'6+%# n&%@+%_2#"!@#]&'@#$&"23_2#g5aa+23#.&)*+353&%e# h!#"#23%5*#)"''#5!#$'+6+'"!@,#v05&#"#7&1!a#d&)"!#@%+22+@#5!#"#g125!+22#2153#)"/+2#652532#30+#]&'@#$&"23#23&%+#&6+%# 0+%#'1!.0#0&1%e#h!25@+#20+#2++2#!+"3#&%@+%'7#"52'+2#&b#ip31%+2#i''+@#d530#."%@2#b&%#+6+%7#&.."25&!#"!@#b&%#+6+%7&!+# from her son’s soccer coach to her administrative assistant. she browses through the beautiful store enjoying the shopping experience that she doesn’t get when she’s buying a head of lettuce with her birthday card at the grocery store. a&@"7#20+_2#'&&/5!a#b&%#"#g5%30@"7#."%@#b&%#0+%#2523+%e#80+#*1''2#"#."%@#b%&)#&!+#&b#30+#@52*'"7#ip31%+2e#h3#0"2#"# g+"135b1'#a&'@#0+"%3#&!#30+#b%&!3#&b#30+#."%@#d530#30+#d&%@#=$"%5!a>#+)g&22+@#5!3&#30+#0+"%3e#h!25@+#53#%+"@2f a%1+#."%5!a#d#30+#g1"'537#&b#g+5!a#*"35+!3,#a+!3'+,#"!@#/5!@#3&#"!&30+%#d#52#"#65%31+,#d05.0#."!#.0"!a+#'56+2,#)+!@# hearts, and strengthen love. it only takes a moment to perform a caring act, but its impact can last a lifetime. happy birthday to the most caring of sisters. 80+_2#a'"@#20+#)"@+#30+#2*+.5"'#3%5*#3&#30+#]&'@#$&"23#23&%+e## c5d&?5'&$?!'(-!f#%3!*#51'!5$3!4&%d-,!2#,3-,!*+%'+,-1 e)*'&7++2#@+2.%5g+@#30+#]&'@#$&"23#g%"!@#"2#=*"3+%!"'5235.,>#=*&!@+%&12,>#=3%"@535&!dg&1!@,>#=25!a1'"%#5!#532# *1%2153#&b#g1"'537,>#"!@#=+)5!+!3'7#21..+22b1'e>#v!+#d&)"!#d0&#0"@#g++!#"3#30+#("/+#(&152+#.&%*&%"3+#0+"@g1"%3+%2# b&%#&6+%#3d&#@+."@+2#%+?+.3+@#&!#d0"3#53#d"2#'5/+#3&#d&%/#b&%#g&30#30+#85'6+%#n&%@+%#"!@#]&'@#$&"23#g%"!@2e# h#/!+d#2&#'533'+#&b#d0"3#d+!3#&!#&1325@+#)7#"%+"#&b#%+2*&!25g5'537#d0+!#h#d&%/+@#&!#30+#b]&'@#$&"23c#g%"!@e#h!# b85'6+%#n&%@+%c#h#"'d"72#/!&d#d0&#3&#a&#3&#"2/#g1+235&!2e#v!#30+#b]&'@#$&"23c#25@+#h#"'d"72#b+'3#'5/+#h#d"2#5!#0"!@.1bb2e# a0+#+6+%d+p5235!a#*"3+%!"'52)#&b#30+#b]&'@#$&"23c#g%"!@,#.&1*'+@#d530#532#20++%#25c+,#235?+2#+6+%7&!+_2#.%+"356537e# ["!7#&b#)7#b%5+!@2#"g"!@&!+@#30+#b]&'@#$&"23c#205*#+"%'7#&!#b&%#30+#b85'6+%#n&%@+%c#g%"!@#d0+%+#5!!&6"35&!#0"2# always been welcomed and encouraged. -"!@7#$&''5!2#j9:oym,#&!+#&b#30+#+"%'7#*%+25@+!32#&b#85'6+%#n&%@+%#/!&d!#"2#[%e#z+%2&!"'537,#d"2#/!&d!#b&%#30+# energy and enthusiasm he brought to the company. he believed in taking an active part in the company’s operations "!@#b%+g1+!3'7#3%"6+''+@#"%&1!@#30+#.&1!3%7#3&#)++3#30+#85'6+%#n&%@+%#2"'+2#b&%.+#"!@#)"!7#%+3"5'+%2#b".+#3&#b".+e#\+# +p+)*'5i+@#30+#237'+#&b#)"!"a+)+!3#&b#30+#85'6+%#n&%@+%#g%"!@,#30"3#&b#)"!"a5!a#g7#d"'/5!a#"%&1!@#"!@#)"/5!a# 052#5!b&%)"35&!#*1g'5.#5!b&%)"35&!e#h!#30+#]&'@#$&"23#.&%*&%"3+#)"a"c5!+,#j$&"23"'#["a"c5!+,#9:oym,#$&''5!2#3"'/+@# about the “close-knit atmosphere of [silver border], the necessity of meeting consumers’ and retailers’ needs, and [silver border’s] ability to meet and beat the competition based on the hard work and customer focus of the [silver border] people.” jeff, a silver border product development manager, spoke with enthusiasm about the certain energy and special @7!")5.2#30"3#d+!3#&!#5!25@+#85'6+%#n&%@+%f [silver border] people work hard and we make every minute count. it’s an exciting, competitive environment and we have no choice but to be very aware of the marketplace. we make sure we are constantly ready not only to react, but also to act. amy, a recent college graduate who worked on the silver border for only a short time, smiled enthusiastically as she talked, it seemed like everyone enjoys working in [silver border]. we complained sometimes because we worked some long hours, but it was wonderful to be part of a still-growing brand with tremendous potential in channels of distribution with unlimited growth potential. and it was fun to be operating in such a dynamic and changing environment where we were continually challenged by the increased sophistication of our retailers and retail customers alike. tom, one of the salesmen who had been with the company for 30 years, described the challenges silver border 0"@#5!#30+#+"%'7#@"72f our challenges were a lack of identity and acceptance. we were new in the marketplace and we couldn’t always 135'5c+#30+#3+.0!5g1+2#30"3#*%&6+@#21..+22b1'#b&%#b]&'@#$&"23ce#h3#3&&/#"#'&3#&b#*+%2523+!.+#"!@#@+3+%)5!"35&!#30"3# 2010, vol. 1, no. 1, 198-209 lampe 203 advances in business research 1'35)"3+'7#.%+"3+@#"#b85'6+%#n&%@+%c#.1'31%+#6+%7#1!'5/+#&1%#b]&'@#$&"23c#.&1!3+%*"%3#&b#3&@"7#g13#6+%7#25)5'"%#3&# 30+#b]&'@#$&"23c#.1'31%+#30"3#30+#b]&'@#$&"23c#b&1!@+%#.%+"3+@e e)*'&7++2#d0&#0"@#'56+@#"!@#g%+"30+@#30+#]&'@#$&"23#g%"!@#30%&1a0&13#30+5%#."%++%2#12+@#6+%7#@5bb+%+!3#d&%@2# to describe their brand and told very different stories. they talked about the “captive buyer mentality” with the =)&)d"!@d*&*#%+3"5'+%2>#d0&#&d!+@#30+#23&%+2#d0+%+#30+#]&'@#$&"23#g%"!@#d"2#2&'@f t+#.&1'@#2+''#30+)#"!7305!ae#a0+7#d&1'@#"2/#12#"''#30+#35)+,#=\&d#)1.0#20&1'@#d+#&%@+%k>#h3#d"2#"#6+%7#'&!a# time before we were forced to focus on the retailer or the consumer. 83+6+,#"#2+!5&%#)"!"a+%,#d0&#0"@#g++!#"225a!+@#"#!+d#^&g#5!#30+#]&'@#$&"23#g%"!@#+6+%7#3d&#7+"%2,#@+2.%5g+@# 052#b%123%"35&!f i’ve had a new job every two years, and it seems to be like it took me six months to learn the system, six months to try to change the system, six months to try to beat the system, and six months to make the best of it. i use to get so frustrated. that frustration was heard in the silver border organization. ellen, a silver border manager, described +)*&d+%)+!3#5!#30+#85'6+%#n&%@+%#+!65%&!)+!3f i was given the opportunity to take over an area that was performing poorly. i felt bad for the employees who were in the group because they were feeling pretty frustrated because they knew they weren’t performing. one &b#30+#i%23#305!a2#h#@5@#d"2#g%5!a#30+#a%&1*#3&a+30+%#3&#"2/#30+)#"g&13#30+#.1%%+!3#'+6+'#&b#*+%b&%)"!.+#"!@#d0"3# they thought needed to be done. many of the ideas they suggested turned out to be very simple things that could be implemented in a short time frame and which allowed for some early successes. once people started to see the impact they could have on the operation, ideas to improve ‘snowballed,’ and it was hard to keep up with them. we @5@!_3#0"6+#3&#a&#30%&1a0#30+#)"!7#'"7+%2#&b#b]&'@#$&"23c#)"!"a+)+!3#3&#)"/+#305!a2#0"**+!#"!@#5!#'+22#30"!# nine months, our performance measures showed impressive results. mary, an employee who left silver border for what she referred to as the “real brand,” described the frustration 30"3#20+,#'5/+#83+6+,#+p*+%5+!.+@#i%23d0"!@#d&%/5!a#b&%#30+#]&'@#$&"23#g%"!@f v!#30+#b]&'@#$&"23c#25@+,#7&1#d&%/#3&#*'+"2+#7&1%#)"!"a+%#"!@#!&3#!+.+22"%5'7#30+#.&!21)+%e#h#g+aa+@#)7#)"!ager to let me put a stitched card into the line because i knew it would sell. my manager said, ‘no. on the [silver border] side everyone had input into product decisions.” (+"!!+,#"#]&'@#$&"23#."%@#*'"!!+%,#"@@+@f v!#30+#b]&'@#$&"23c#25@+,#)"!"a+%2#3&'@#12#d0"3#d+#.&1'@#)"/+e#t+#.&1'@!_3#+6+!#.0"!a+#g"25.#25a!5!a#&!#"# $0%523)"2#g&p+@#."%@#@52*'"7#d530&13#"#65.+d*%+25@+!3_2#"**%&6"'e#t0+!#h#)&6+@#3&#b]&'@#$&"23c,#d+#2*+!3#"#@"7# deciding what color a pid should be. that decision went on to the management team that ultimately decided on yet another color! that would never happen on the silver border side. g/-,5'&$?!8$1&3-!5$3!g+'1&3-!'(-!*+%'+,-1 a+@,#"#%+2+"%.0+%,#.")+#3&#]&'@#$&"23#5!#9:xle#t530#"!#[n #b%&)#30+#4!56+%2537#&b#h''5!&52,#052#*%&b+225&!"'# choices were narrowed to becoming a sales rep for ibm; marching in line with the us army and ultimately visiting 30+#%5.+#*"@@5+2#&b#`5+3!")#t"%w#&%#3"/5!a#"#^&g#d530#]&'@#$&"23,#h!.e#\+#.0&2+#]&'@#$&"23,#h!.e#a+@#.")+#5!3&#30+# company as a career development person. he had several rotations including product management, where he helped .%+"3+#30+#i%23#]&'@#$&"23#."'+!@"%2w#%+2+"%.0,#d0+%+#0+#@5@#"#)"^&%#"!"'7252#&b#g5%30@"72w#"!@#"3#30+#a&d!#\"''#83&%+,# where he said, “i found lost pocketbooks.” i came back to work in research in 1968. we had a system called the product information system. it kept track of +6+%7#25!a'+#b]&'@#$&"23c#."%@e#h3#d"2#"#a%+"3#g5a#)&!23+%#&b#"#2723+)#30"3#.&1'@#a+!+%"3+#30+#6"'1+#&b#"#%&2+#&%#&%.05@,# ?533+%#?&./#&%#b&5',#30+#+@53&%5"',#"!@#30+#!1)g+%#&b#'"7+%2#&b#@+25a!e# !@#53#d"2#@%56+!#g7#30+#b]&'@#$&"23c#g%"!@e# a+@#!+6+%#g1+235&!+@#d07#!&#&!+#@5@#30+#2")+#/5!@#&b#%+2+"%.0#b&%#30+#85'6+%#n&%@+%#g%"!@e#=a0+#"221)*35&!#d"2# 30"3#5b#30+#."%@2#2&'@#5!#30+#]&'@#$&"23#.0"!!+'2,#30+7_@#2+''#5!#30+#85'6+%#n&%@+%#.0"!!+'2e#v30+%#305!a2#+p523+@,#"2# d+'',#30"3#!+530+%#0+#!&%#&30+%2#g1+235&!+@e#v!+#&b#30&2+#305!a2#d"2#30+#3%"@535&!#&b#30+#.&bb++#g%+"/e#a0+#.&bb++#g%+"/# 2010, vol. 1, no. 1, 198-209 lampe 204 advances in business research *%&.+22#d"2#"#6+%7#5!3+%+235!a#2&.5"'#*0+!&)+!&!#"3#]&'@#$&"23#"!@#a+@#'5/+!+@#30+#.&))1!5."35&!#30"3#3%"!2*5%+@# @1%5!a#30+2+#g%+"/2#3&#30+#1!23%1.31%+@#.&))1!5."35&!#&b#85'6+%#n&%@+%#3&@"7f# it was at the same time everyday. the… ladies would ring the bell and you’d line up and get your coffee. you d&1'@#i!@#&13#d0"3#d"2#a&5!a#&!#"!@#2&)+35)+2#"#*5+.+#&b#5!b&%)"35&!#7&1#!++@+@#3&#a+3#7&1%#d&%/#@&!+e#h3#%+"''7# 0+'*+@#12#@&#g125!+22e#b85'6+%#n&%@+%c#@&+2#g125!+22#"3#30+#d"3+%#b&1!3"5!#3&@"7e#v!#30+#&30+%#0"!@#b]&'@#$&"23c#52# compelled to call a meeting to discuss every little decision. and there’s never a room large enough for all the people who supposedly need to be there. similar to the coffee break, ted talked about an informal mode of communication similar to one he enjoyed in .&''+a+f research analysts had a tradition of breaking around 3 p.m. on thursdays, going to a small bar on king street, having a few brewskies, and talking about what was going on. it was a really good way to talk about what was going on with our projects. today the people in [silver border] are still comfortable with doing business that way. the only difference is you can’t have alcohol until after hours. v!#30+#&30+%#+p3%+)+#d"2#30+#b&%)"'#g+0"65&%#&b#30+#b]&'@#$&"23c#g%"!@#)"!"a+)+!3e#a+@#+p*+%5+!.+@#53#i%23# 0"!@#"2#"#?+@a'5!a#%+2+"%.0+%f h#."!#%+)+)g+%#d&%/5!a#&!#"#*%+2+!3"35&!#30"3#!++@+@#2&)+#ia1%+2#b%&)#"#b]&'@#$&"23c#)"!"a+)+!3#%+*&%3e#h3# d"2#.&!i@+!35"'#g+."12+#53#0"@#2"'+2#6&'1)+#g7#1!532#"!@#@&''"%2#b&%#30+#g%"!@e# !7d"7#53#d"2#/+*3#1!@+%#'&./#"!@# key, and i had to sign for the report when i took it out. and then because i really needed the information to do my "225a!)+!3,#h#d+!3#3&#30+#.&*5+%#3&#.&*7#"#b+d#*"a+2e# g&13#30"3#35)+#"#b]&'@#$&"23c#65.+d*%+25@+!3#b%&)#"!&30+%# area went by the copy machine and recognized the report. he demanded to know who i was, who my supervisor was, and what authority i had to be reading that report. i doubt that would have happened if i had been copying a [silver border] report. a+@#3&'@#)+#3&#3"'/#3&#l+!!7,#"#85'6+%#n&%@+%#23%"3+a523,#d0&#0"@#"#25)5'"%#3"'+#3&#3+''f i had been with [silver border] for a few years and had been assigned to an important and highly visible project. i forged ahead on it without a ton of meetings because i knew who to call and whose input to get. i wrapped it up by g5!@5!a#"''#30+#*%+2+!3"35&!2#)72+'b,#0&**5!a#&!#30+#.&%*&%"3+#^+3,#?75!a#3&#h!@5"!"*&'52#"!@#*%+2+!35!a#30+#*%&^+.3# 3&#30+#%+3"5'+%_2#)"!"a+)+!3#3+")e#v!#30+#b]&'@#$&"23c#25@+,#53#d&1'@#0"6+#3"/+!#i6+#'+6+'2#&b#)"!"a+)+!3#3&# d&%/#"!@#%+d&%/#"#*%&^+.3#30"3#"#23%"3+a523#g+a"!e#4'35)"3+'7,#"#a+!+%"'#)"!"a+%#d&1'@#0"6+#?&d!#&!#30+#^+3#"!@# presented the project to the retailer. a+@#52#&!+#&b#30+#b+d#=&1325@+%2,>#d0&#0"@#.'&2+#d&%/5!a#%+'"35&!205*2#d530#g&30#30+#]&'@#$&"23#"!@#85'6+%#n&%@+%# g%"!@2#d530&13#".31"''7#g+5!a#&!# 30+#&%a"!5c"35&!"'#.0"%3#&b#+530+%#&!+e#\"65!a#2*+!3#s;m#7+"%2# 5!# 30+#-+2+"%.0# @+*"%3)+!3,#a+@#0"@#"!#&**&%31!537#3&#d"3.0#g&30#g%"!@2f [silver border] was always smaller and relatively self-contained so communicating was easier. there was always "#3+")#2*5%53n"#%+"'#.")"%"@+%5+e##b]&'@#$&"23c#g+.")+#"!@#235''#52#g5a,#.1)g+%2&)+,#"!@#25'&d@%56+!e#h3#52#'5!+"%,# compartmentalized, and burdened with a lot of layers of management. l1'5+,#"#]&'@#$&"23#'5!+#@+25a!+%,#"@@+@#d530#+)*"307, a0+#@%56+#b&%#g1"'537#"!@#"#6+%7#23%1.31%+@#2723+)#&b#.0+./2#"!@#g"'"!.+2#)"@+#g15./#&*+%"35&!"'#@+.525&!2#30+# exception, not the rule, and innovation remained in the hands of designers, new product developers and executives, instead of being widespread. but on the [silver border] side, everyone from the secretaries to the president was held responsible for coming up with new ideas, ways to make things better for the customer and for the company. throughout the many interviews and focus groups done to explore the cultures of these two brands, no &!+#@+2.%5g+@# 30+# %+"2&!2# b&%# 30+#.1'31%"'#@5bb+%+!.+2#"2#+'&g1+!3'7#"2#a+@e#\+#2++)+@# 3&#a+3#"3# 30+#0+"%3#&b# 30+# issue, separating the organizational culture from the people. his description gives credence to the theory that an &%a"!5c"35&!"'#.1'31%+#.&)+2#i%23#"!@#30"3#30+#*+&*'+#b&''&d#j "̀!#[""!+!#u#n"%'+7,#9:o;me# every social organization needs some target upon which to vent its frustration. in orwell’s 1984, no one saw the enemy that no one participated in the war. every time you needed to get mad at someone you got mad at the war that 2010, vol. 1, no. 1, 198-209 lampe 205 advances in business research never touched anyone. it served, however, as a focal point for aggression and negativity. in [silver border], that focal point is [amnity]. [silver border] has always known who the villain was and he was ‘outside’ the building. on the b]&'@#$&"23c#25@+,#53_2#7&1%#!+5a0g&%e#n+."12+#b]&'@#$&"23c#@&+2!_3#%+.&a!5c+#30+#+p523+!.+#&b#.&)*+3535&!,#7&1%#!++@# for competition is directed at the person in the next cubicle. and the whole idea that there could be anyone out there d&%30#.&)*+35!a#d530#d0&2+#@+.525&!2#"!@#&*5!5&!2#)"33+%+@#d"2#^123#"!#"!"30+)"#3&#30+#b]&'@#$&"23c#25@+e#(5/+#h# said, in that kind of culture, you have to focus your aggression and negativity on someone. if there is no recognizable .&)*+3535&!,#7&1#0"6+#3&#i!@#2&)+&!+#5!25@+#3&#d5!#&%#'&2+#"a"5!23e#b85'6+%#n&%@+%c#d&!#&%#'&23#g"2+@#&!#g125!+22# &1325@+#30+#g15'@5!ae##b]&'@#$&"23c#d&!#&%#'&23#g"2+@#&!#d0+30+%#7&1#."!#a+3#7&1%#*%&a%")#30%&1a0#30+#a17#5!#b%&!3# of you. r"%+!,#d0&#g+a"!#0+%#."%++%#&!#30+#]&'@#$&"23#25@+#"!@#d+!3#&!#3&#g+.&)+#&!+#&b#30+#i%23#b+)"'+#85'6+%#n&%@+%# +p+.1356+2,#b1%30+%#@+2.%5g+2#30+#@5bb+%+!.+2#g+3d++!#30+#3d&#g%"!@2f v!#30+#b]&'@#$&"23c#25@+,#d+#3&'@,#"!@#235''#@&#3&#"#.+%3"5!#+p3+!3,#30+#%+3"5'+%2#d0"3#3&#@&e#h3#52#"!#"%%&a"!.+#305!ae# o&1_''#0+"%#30"3#b%&)#"#'&3#&b#*+&*'+#d0+!#30+7#3"'/#"g&13#30+#b]&'@#$&"23c#g%"!@e# !@#7&1#."!#2++#30+#"%%&a"!.+e# h3_2#g5a#.&%*&%"3+#b]&'@#$&"23c#"a"5!23#"#'533'+#."%@#20&*e# !@#2&#30+#d0&'+#.1'31%+#52#g15'3#"%&1!@#30"3#/5!@#&b#"3titude. what we’re all concerned about …i mean if this integration thing really happens, is losing touch with the outside world. being in touch is what [silver border] has always been good at. v!+#&b#30+#85'6+%#n&%@+%#2+.%+3"%5+2,#d0&#0"@#d&%/+@#&!#g&30#g%"!@2,#6&5.+@#53#3052#d"7f when someone gets a new account in [silver border], everyone knows about it within 24 hours. everyone is *1)*+@e#a0+#'5!/"a+#52#30+%+e##h!#b]&'@#$&"23c,#*+&*'+#."!_3#!")+#30+5%#3&*#"..&1!32#g+."12+#30+7#"%+!_3#5!#3&1.0# with them. a+@#a&+2#&!#3&#*%&1@'7#@+2.%5g+#052#*"%35.5*"35&!#5!#0+'*5!a#3&#=d5!>#"!#"..&1!3f t0+!#&!+#&b#30+#.0"5!2#'5/+#30+#b 6&!@"'+c#b&&@#23&%+2#652532#.&%*&%"3+#0+"@g1"%3+%2#b&%#"#7+"%'7#65253#&%#"#.&!3%".3# renewal, we have always done ‘dog and pony’ shows to sell the [silver border] brand. the entire [silver border] brand rallies together and pulls every bit of research and information they have to win or keep the account. it @&+2!_3#)"33+%#d0+30+%#7&1#"%+#"!#"%3523#&%#"#i+'@#%+*#&%#"#)"%/+35!a#65.+d*%+25@+!3w#+6+%7&!+#"22&.5"3+@#d530#30+# g%"!@#)"/+2#53#0"**+!#b&%#b85'6+%#n&%@+%ce#b]&'@#$&"23c#@&+2!_3#0"6+#3&#2+''#30+#g%"!@#3&#"!7&!+e### a+@#21))"%5c+@#30+#@5bb+%+!.+2#'5/+#3052f# 3#b]&'@#$&"23c,#7&1#!++@#"#'5.+!2+#3&#i20e# 3#b85'6+%#n&%@+%c,#"''#7&1# !++@#52#"#d&%)>e#r"%+!#21))"%5c+@#30+)#d530#"#'533'+#@5bb+%+!3#3d523f#= 3#b85'6+%#n&%@+%c#7&1#."!#"2/#+p+.1356+2#d07# 30+7#"%+#"''#3"!#"!@#g"'@e#o&1#g+33+%#!&3#"2/#30"3#&b#30+#b]&'@#$&"23c#+p+.1356+2p> 8$'-?,5'&$?!'(-!=,#$?!*+%'+,-!&$'#!'(-!;&?('!g$a0+#%+21'32#&b#30+#.1'31%"'#"1@53#&b#30+#]&'@#$&"23#g%"!@#"!@#30+#85'6+%#n&%@+%#g%"!@#d+%+#*%+2+!3+@#3&#2+!5&%# management. less than two weeks later, senior management decided to integrate the brands. in the face of declining *%&i32#g%&1a03#&!#g7#@+.'5!5!a#)"%/+3#20"%+,# 2+!5&%#)"!"a+)+!3#g+'5+6+@# 30"3# %+23%1.31%5!a#+bb&%32#.&1'@#@+'+3+# &%a"!5c"35&!"'#%+@1!@"!.5+2#"!@#%+@1.+#.&232e#a0+#@"5'7#.&%*&%"3+#!+d2*"*+%#g1&3+@#30+#$ev#.&!.+%!5!a#d0"3#0+# %+b+%%+@#3&#"2#30+#=3%"!2b&%)"35&!#&b#30+#.&)*"!7e>#\52#*+%2&!"'#6525&!#b&%#30+#.&)*"!7#d"2#30"3#]&'@#$&"23,#h!.e# could apply the principles of teamwork across divisions, creating a community of partnerships. analysis one of the functions of any subculture is to create a sense of group cohesion to protest against the monolithic .1'31%+e#h3#%+?+.3+@#d0"3# '"2113"%5#j9::;m#."''+@#=5!3+%a+!+%"35&!"'#.&!?5.3e>#q&d0+%+#d"2#30+%+#"#a%+"3+%#2+!2+#&b# group cohesion than within the silver border culture. its own ways of doing business both manifested and resolved 30+#.&!?5.32#&b#30+#]&'@#$&"23#g%"!@#.1'31%+e#a0+#85'6+%#n&%@+%#g%"!@#3&&/#30+#5!535"356+#3&#.%+"3+#532#&d!#d"72#&b# working, its own set of meanings, demonstrate that the hierarchy and formality of the monolithic culture could be %+d&%/+@#2&#30"3#"#.1'31%+#d530#b+d+%#2723+)2#"!@#%1'+2#.&1'@#g+#^123#"2#*%&i3"g'+e the new internal slogan, “one organization, one team, one greeting” suggested an integration of the two brands %+21'35!a#5!#"#.1'31%+#&b#d0"3#30+#$ev#g+'5+6+@#&bb+%+@#'5)53'+22#*&3+!35"'e##n13#3&#30+#*+&*'+#5!25@+#30+#85'6+%#n&%@+%# brand, it became clear that all the goodness of their culture would be usurped by what people inherently knew to be 2010, vol. 1, no. 1, 198-209 lampe 206 advances in business research 30+#.1'31%+#&b#30+#]&'@#$&"23#g%"!@,#23++*+@#5!#2723+)2,#23%1.31%+,#"!@#d0"3#2+!5&%#)"!"a+)+!3#g+'5+6+@#d"2#30+# only way of doing business. silver border voices from all levels of the company feared what employees had always recognized as the monolithic culture. and despite all the goodness inherent in the ways the silver border brand did business, few ways of their =@&5!a#g125!+22>#d&1'@#21%656+#5!#30+#5!3+a%"35&!e#a0+#.1'31%+#&b#30+#]&'@#$&"23#g%"!@#3&3"''7#121%*+@#30+#85'6+%# border culture. to employees, it was devastating and a clear indication of just how powerful the monolithic culture was. silver border employees realized they would soon be working in a culture laced with arrogance, controlling 2723+)2,#g1%+"1.%".7,#"!@#5!?+p5g5'537#d05'+#'&25!a#30+5%#&*+!#"!@#0&!+23#d"72#&b#.&))1!5."35!a,#30+5%#@+i!535&!# &b#.123&)+%db&.12,#"!@#30+5%#2+!2+#&b#3%1+#3+")d&%/e#a0+#]&'@#$&"23#.1'31%+#6"'5@"3+@# )+%5."_2#@+*"%3)+!3#23&%+# theory that “bigger is better.” h%&!5."''7,#!&3#3&&#'&!a#"b3+%#85'6+%#n&%@+%_2#5!3+a%"35&!#5!3&#30+#)&!&'5305.#.1'31%+,#]&'@#$&"23,#h!.e#5!3%&@1.+@# 30+#*&d+%#&b#g%"!@#+g1537#g7#'"1!.05!a#$&))1!5."35&!2#g7#]&'@#$&"23e#a0+#!+d#g%"!@#d"2#.%+"3+@#3&#'+6+%"a+# ]&'@#$&"23,#h!.e_2#05a0#%+.&a!535&!#g%"!@#!")+e#a0+#85'6+%#n&%@+%#g%"!@,#d05.0#2&'@#5!#)&%+#30"!#s<,<<<#23&%+2,#d"2# positioned as getting a boost from new products including new cards and gift wrap. but silver border employees knew it was lip service and recognized all too well that their brand’s culture was not only being integrated but was "'2&#g+5!a#*120+@#3&#30+#g"./#&b#30+#g%"!@#*&%3b&'5&e# b3+%"'',#=85'6+%#n&%@+%#b%&)#]&'@#$&"23>#0"@#!+6+%#&!.+#g++!# considered for the new brand. *gc*7<48gc !#&%a"!5c"35&!_2# b&1!@+%# .%+"3+2# "# .1'31%+# 30"3# %+?+.32# 052# &%#0+%#g+'5+b2# "!@#6"'1+2,#d"72#&b#/!&d5!a,# "!@# behaviors of how to do business. over time, the characteristics which are collectively created through years of interaction and which unconsciously direct every activity performed by its employees add strength to the monolithic culture. subcultures, on the other hand, are born when groups of people, who live vertically and horizontally within "!#&%a"!5c"35&!,#i!@#g+33+%#d"72#&b#@&5!a#g125!+22,#"'g+53#@5bb+%+!3#b%&)#30+#)&!&'5305.#.1'31%+,#30"3#+!21%+#30+5%# own success. this research not only clearly validates the existence of a monolithic culture in one corporation but also provides insight into goliath behaviors that can rear their ugly heads. identifying and understanding the differences between 30+#]&'@#$&"23#g%"!@#"!@#30+#85'6+%#n&%@+%#g%"!@#*%&65@+@#5!25a03#5!3&#30+#23%+!a30#&b#30+#)&!&'5305.#.1'31%+#"!@#30+# inherent oppressive power of a monolithic culture, as well. given that corporate culture is crucial to organizational effectiveness, it follows, therefore, that a key task for the leadership of the company is to understand the dynamics between the monolithic culture and the subcultures. by giving employees permission to do what works and actively leveraging the strengths of both the monolithic and subcultures, everyone wins. to accomplish this, senior managers must recognize that when they develop personal stakes in a monolithic culture, they may also unintentionally send messages that discount the subcultures. if these managers are heavily vested in the monolithic culture, they may conspire to protect everything in the culture no matter how outdated their ways of knowing and working may be. because of their intense emphasis on their own future in management and the monolithic culture lenses through which they want to see themselves, these senior managers are often blind to 30+#a&&@!+22#5!0+%+!3#5!#30+#21g.1'31%+2e#h3#52#3052#g'5!@!+22#30"3#."!#.%+"3+#.&!b125&!#"!@#.&!?5.3#"!@#)7#%+21'3#5!# an “us vs. them” mentality. t0+!#"#)&!&'5305.# .1'31%+# 121%*2# "# 21g.1'31%+# 30"3# 2+%6+2# 3&# .%+"3+#)+"!5!a# "!@# 25a!5i."!.+# b&%# a%&1*2#&b# employees, all employees lose. senior management must take responsibility for recognizing and validating all the subcultures, especially when they are generating revenue. if done judiciously, the corporation can adapt and thrive. if !&3#30+#.&%*&%"35&!#d5''#g+.&)+#i''+@#d530#%+2+!3)+!3#"!@#@52"**&5!3)+!3e#a052#.0"''+!a+#52#*%&b&1!@#"!@#*+%2&!"',# and its potential for impact on the company’s performance is enormous. ]&'@#$&"23,#h!.e#d+!3#&!#3&#+!@1%+#@+.'5!5!a#2"'+2#"!@#%+6+!1+2e#h!#s<<o,#%+6+!1+2#d+%+#&bb#s#i#b%&)#s<<lw# 5!# s<<:# %+6+!1+2#d+%+#&bb# oi# b%&)#s<<oe# # h!#s<<:,#]&'@#$&"23,# h!.e# d# "# .&)*"!7#d530# "# %+*13"35&!#&b# 0&'@5!a# &!3&# +)*'&7++2# b&%# @+."@+2# d# @%&**+@# o#i#&b# 532#d&%/# b&%.+e#]&'@#$&"23#d5''# !+6+%# /!&d# b&%# 21%+#d0+30+%# 30+# revenue drops and layoffs were due to the recession, due to the generational shift to more immediate forms of communication, or due to its inability to recognize and leverage the strengths of the silver border subculture. 2010, vol. 1, no. 1, 198-209 lampe 207 advances in business research ;:a:;:c*:4 adams, g., & ingersoll, v. 1985. 9(-!3&hi)+%'@!#h!h,56&$?!5!/-,1/-)'&d-!#$!#,?5$&j5'&#$5%!)+%'+,-. in p. frost & (e#[&&%+#je@2em,#v%a"!5c"35&!"'#.1'31%+ j**e#sskdskyme#8"!#f%"!.52.&f#8"a+#z1g'5."35&!2e alasuutari, p. 1995. ;-1-5,)(&$?!)+%'+,-.!k+5%&'5'&d-!6-'(#3!5$3!)+%'+,5%!1'+3&-1e#(&!@&!f#8"a+#z1g'5."35&!2e arnold, t. 1937. the folklore of capitalisme#q+d#\"6+!f#o"'+#4!56+%2537#z%+22e atkinson, j., & heritage, j. 1984. 4',+)'+,-1! #h! 1#)&5%! 5)'&#$.! 4'+3&-1! &$! )#$d-,15'&#$! 5$5%@1&1e# $")g%5@a+f# $")g%5@a+#4!56+%2537#z%+22e n"%!"%@,#$e#9:koe#g,?5$&j5'&#$!5$3!65$5?-6-$'.!4-%-)'-3!/5/-,1e#$")g%5@a+f#\"%6"%@#4!56+%2537#z%+22e bogdan, r., & biklen, s. 1992. k+5%&'5'&d-! ,-1-5,)(! h#,! -3+)5'&#$.! $! &$',#3+)'&#$! '#! '(-#,@! 5$3!6-'(#31. n&23&!f# ''7!#u#n".&!e bower, m. 1966. 9(-!l&%%!'#!65$5?-.!*#,/#,5'-!1+))-11!'(,#+?(!/,#?,566-3!65$5?-6-$'e#q+d#o&%/f#[.]%"dd hill. n1%"d&7,#[e,#n1%3&!,# e,#f+%a12&!,#8e,#f&p,#re,#]")2&!,#le,#]"%3+'',#qe,#\1%23,#(e,#r1%c)"!,#$e,#8"'c5!a+%,#(e,#u# schiffman, s. 1991. :'($#?,5/(@!+$m#+$3.!n#l-,!5$3!,-1&1'5$)-! &$!'(-!6#3-,$!6-',#/#%&1e#n+%/+'+7,#$ f# 4!56+%2537#&b#$"'5b&%!5"#z%+22e n1%a+')"!,#-e#9::9e#h!3%"&%a"!5c"35&!"'#+.&'&a7#&b#23%"3+a7#)"/5!a#"!@#&%a"!5c"35&!"'#"@"*35&!f#a0+&%7#"!@#i+'@# research. g,?5$&j5'&#$5%!4)&-$)-,#sf#sk:dsx9e $"'&%5,#-e,#u#8"%!5!,#ze#9::9e#$&%*&%"3+#.1'31%+#"!@#+.&!&)5.#*+%b&%)"!.+f# #f%+!.0#231@7e#g,?5$&j5'&#$!4'+3&-1, 9sf#y:dlye $&''5!2,#-e#9:oye# #3+")#30"3#/!+d#532#3"2/e#z%+25@+!3#-"!@7#$&''5!2#"!"'7c+2#85'6+%#n&%@+%_2#21..+22#23&%7e#coastal "5?5j&$-,# 1a123f#9<d99e $&''52,#$e#9::xe#$&!b+225&!2#&b#"#3+'+*0&!+#b&.12#a%&1*#2/+*35.e#k+&,op1!"5,o-'&$?!;-1-5,)(!;-d&-l,#9<f#9sd9ke deal, t., & kennedy, a. 1982. *#,/#,5'-!)+%'+,-1.!9(-!,&'-1!5$3!,&'+5%1!#h!)#,/#,5'-!%&h-e#-+"@5!a,#[ f# @@52&!d wesley. eisner, e. 1991. 9(-!-$%&?('-$-3!-@-.!k+5%&'5'&d-!&$q+&,@!5$3!'(-!-$(5$)-6-$'!#h!-3+)5'&#$5%!/,5)'&)-. new o&%/f#[".)5''"!e eschrich, j. may, 1996. r+65$!,-1#+,)-1!1'5o-(#%3-,1e#j:x q<<sme#(+!+p",#r8f#$"3"'723#r1"'53"356+#8+%65.+2,#h!.e# j 6"5'"g'+#b%&)#30+#n125!+22#-+2+"%.0#(5g%"%7,#b]&'@#$&"23c,#h!.e,#b("/+#(&152+cem f&1!@+%,#u# !@+%2&!,#$e##9::se#=(-$!@#+!'-%%e#-56+%#$537f#]&'@#$&"23,#h!.e galbraith, j. & kazanjian, r. 1986. 4',5'-?@!&6/%-6-$'5'&#$.!4',+)'+,-s!1@1'-61s!5$3!/,#)-11e#83e#z"1'f#t+23#z1ge gallup. 2004, 2006, 2008. :6/%#@--!1+,d-@e#(5!.&'!f#qef#a0+#]"''1*#v%a"!5c"35&!e glaser, r. 1983. the corporate culture surveye#n%7!#["d%,#z f#v%a"!5c"35&!#q+25a!#"!@#q+6+'&*)+!3e guba, e., & lincoln, y. 1989. fourth generation evaluatione#q+dg1%7#z"%/,#$ f#8"a+e guba, e., & lincoln, y. 1994. competing paradigms in qualitative researche#h!#qe#q+!c5!#u#oe#(5!.&'!#je@2em,# \"!@g&&/#&b#g1"'53"356+#%+2+"%.0#j**e#9<;d99lme#a0&12"!@#v"/2,#$ f#8"a+e hofstede, g. 1980. *+%'+,-p1!)#$1-q+-$)-1e#q+dg1%7#z"%/,#$ f#8"a+#z1g'5."35&!2e 2010, vol. 1, no. 1, 198-209 lampe 208 advances in business research r5')"!!,#-e,#u#8"p3&!,#[e#9:oxe#[+"21%5!a#"#.&)*"!7_2#.1'31%+da"*f#z5!*&5!35!a#30+#@5%+.35&!2#b&%#.1'31%"'#.0"!a+e# 9(-!r+65$!;-1#+,)-1!n%5$$&$?!c-l1%-''-,,#xf#9dse# kotter, j., & heskett, j. 1992. corporate culture and performancee#q+d#o&%/f#f%++#z%+22e lampe, a. february, 1996. g/-,5'&#$1!3&d&1&#$.!>&d-,1&'@!&11+-1!5hh-)'&$?!l#6-$e#j:x-4<<kme# 6"5'"g'+#b%&)#30+# n125!+22#-+2+"%.0#(5g%"%7,#]&'@#$&"23,#h!.e,#("/+#(&152+e lampe, a. august, 1996. :6/%#@--1! &$! 536&$&1',5'&d-!/#1&'&#$1.!n,#/#1-3! )#6/-$15'&#$!6#3-%e# j:x-4<<yme# 6"5'"g'+#b%&)#30+#n125!+22#-+2+"%.0#(5g%"%7,#]&'@#$&"23,#h!.e,#("/+#(&152+e (")*+,# e#l1!+,#s<<se#a0+#25'+!.5!a#&b#6&5.+2f#a0+#.&%*&%"3+#=@"%/!+22>#!&g&@7#0+"%2e#*+%'+,-!5$3!g,?5$&j5'&#$, of#9s:d9yye lampe, a., & givan, l. april, 1995. cultural audit focus groupse#j:x-4<<;me# 6"5'"g'+#b%&)#30+#n125!+22#-+2+"%.0# (5g%"%7,#]&'@#$&"23,#h!.e,#("/+#(&152+e ["!"a+%5"'#(+"@+%205*#$&1%2+e#9::se#the silver border storye#]&'@#$&"23,#h!.e,#("/+#(&152+e ["%35!,# le,# u# 85+0',# $e# 9:oke# v%a"!5c"35&!"'# .1'31%+# "!@# .&1!3+%d.1'31%+f# !# 1!+"27# 27)g5&252e#g,?5$&j5'&#$5%! >@$56&)1,#9sf#;sdxye martin, j., sitkin, s., & boehm, m. 1985. founders and elusiveness of a cultural legacy. in p. frost & l. moore je@2em,#v%a"!5c"35&!"'#.1'31%+#j**e#::d9syme#8"!#f%"!.52.&f#8"a+#z1g'5."35&!2e merton, r., & kendall, p. 1946. the focused interview. american journal of sociology,#;9f#;y9d;le# ogden, t. 1989. the primitive edge of experiencee#q&%306"'+,#qlf#l"2&!# %&!2&!e v_-+5''7,#$e#9:o:e#$&%*&%"35&!2,#.1'31%+#"!@#.&))53)+!3f#[&356"35&!#"!@#2&.5"'#.&!3%&'#5!#&%a"!5c"35&!2e#california management review, 31f#:ds;e v1.05,#te,#u#z%5.+,#-e#9:loe#\5+%"%.05+2,#.'"!2,#"!@#30+&%7#sf# #!+d#*+%2*+.356+#&!#&%a"!5c"35&!"'#@+6+'&*)+!3e# g,?5$&j5'&#$5%!>@$56&)1,#lf#s;dyye 8"./)"!,# 8e# 9::se# $1'31%+# "!@# 21g.1'31%+2f# !# "!"'7252# &b# &%a"!5c"35&!"'# /!&d'+@a+e#administrative science quarterly,#klf#9y<d9x9e 8"30+,# è#9:oke#h)*'5."35&!2#&b#.&%*&%"3+#.1'31%+f# #)"!"a+%_2#a15@+#3&#".35&!e#g,?5$&j5'&#$5%!>@$56&)1,#9sf#;dske 8.0+5!,#ee#9:oye#$&)5!a#3&#"#!+d#"d"%+!+22#&b#&%a"!5c"35&!"'#.1'31%+e#sloan management review,#s;f#kd9xe silver border. anniversary, 25th,#$y]ek,#\523&%5."'#$&''+.35&!2#u# %.056+2,#]&'@#$&"23,#h!.e,#("/+#(&152+e stern, e. 1988. the very best from the greeting cards through the yearse#q+d#o&%/f#\"%%7#qe# g%")2,#h!.e stoyko, p. 2009. g,?5$&j5'&#$5%!)+%'+,-!5$3!'(-!65$5?-6-$'!#h!#,?5$&j5'&#$5%!6-6#,@s!g,?5$&j5'&#$5%!)+%'+,-! in an age of diversity.#v33"d",#vqf#f1a5356+#r!&d'+@a+#z%+22e van maanen, j., & barley, s. 1985. *+%'+,5%!#,?5$&j5'&#$1.!a,5?6-$'1!#h!5!'(-#,@e#h!#ze#f%&23#u#(e#[&&%+#je@2em,# v%a"!5c"35&!"'#.1'31%+#j**e#k9d;kme#n+6+%'7#\5''2,#$ f#8"a+#z1g'5."35&!2e t5'/5!2,# e#9:oke#a0+#.1'31%+#"1@53f# #3&&'#b&%#1!@+%23"!@5!a#&%a"!5c"35&!2e#g,?5$&j5'&#$5%!>@$56&)1,#9sf#sydkoe t5'/5!2,# e,# #u#v1.05,#te#9:oke#ebi.5+!3#.1'31%+2f#ep*'&%5!a# 30+# %+'"35&!205*#g+3d++!#.1'31%+#"!@#&%a"!5c"35&!"'# performance. administrative science quarterly,#sof#yxodyo9e 2010, vol. 1, no. 1, 198-209 lampe 209 advances in business research wolfgang, m., & ferracuti, f. 1970. 4+m)+%'+,-!#h!d&#%-$)-.! $! &$'-?,5'-3!)#$)-/'+5%&j5'&#$. in d. o. arnold je@em,#a0+#2&.5&'&a7#&b#21g.1'31%+2f#9k;d9y:e#n+%/+'+7,#$ f#a0+#]'+!@+22"%7#z%+22e $$5!756/-!is a visiting assistant professor of management at rockhurst university. her current research interests 5!.'1@+#&%a"!5c"35&!"'#.1'31%+e#80+#0"2#*1g'520+@#5!#l&1%!"'#&b#$1'31%+#"!@#v%a"!5c"35&!,#l&1%!"'#&b#]+!@+%,#t&%/# and organization and others. she spent 30 years working in corporate america. 2010, vol. 1, no. 1, 198-209 lampe advances in business research 2010 volume 1.pdf 142 advances in business research 2010, vol. 1, no. 1, 142-151 forbus, newbold and mehta !"#$%&"'()*+,,-'$%).'-/$!'&0)1",$)23!34$,$!'5).'%$&&)637'+%&)3!/)*+8"!4).'%3'$4"$& patricia forbus, sam houston state university john newbold, sam houston state university sanjay mehta, sam houston state university universities are evolving from the traditional, residential student population to institutions with a large population of commuter students. this study investigated the stress factors and methods of coping for these commuter students during their university experience as compared to residential students along with the time management capabilities of !"#$%&"%$!'$%"()&*"%+$,$%(-.&/$01%$2!*)(2"&)$1"$1$'!(-3/&1-$%!("#0&%"&-*$%"1"&$(*4.&-%4"/$"#1"$01%$5-!6&2"1 7&$"!$"#&$ &*"4-&$%"()&*"$5!5(71"4!*+$8&%5!*)&*"%$0&-&$9(&-4&)$04"#$-&:1-)$"!$)&;!:-15#42%<$%"-&%%!-%$1*)$2!54*:$ &#1.4!-%+$ =#&$ -&%&1-2#$ 4*)421"&%$ "#1"$ 2!;;("&-$ %"()&*"%$ &>5&-4&*2&)$)4''&-4*:$0!-?@'1;47/@%2#!!7$ -!7&$ -&%5!*%4 474"4&%$ "#1*$ their residential counterparts which related to differing levels of stress and methods of coping between the two groups of students. from a demographic and involvement standpoint, this investigation was similar to earlier research. in studies !"#$%&'()*+%,-&+."-/*,%,0.!1-$.$%,1(*'.&-",.'*2","!1(()*3"!"*$-",.$4"-*1'*.5%'"*35%*51-*,%.*6%((%3"-*1*+%,.$,&%&'* "-&+1.$%,1(* 1.5*$,.%*+%(("2"*718$,2*.5"7/*4!'.*%6*1((/*+51!1+."!$'.$+1(()*%(-"!*.51,*.!1-$.$%,1(*'.&-",.'/*&'&1(()*%#"!* 24 years of age, working full time, and typically having dependents to support. many non-traditional students attend +%(("2"* 1!.*.$7"*9:"3;%(-/*<"5.1*=*>%!;&'/*?@a@bc*d%77&."!*'.&-",.'*51#"*;"",*'5%3,*.%*51#"*71,)*%6*.5"*'17"* +51!1+."!$'.$+'*1'*.5%'"*-"4,"-*6%!*,%,0.!1-$.$%,1(*'.&-",.'*9e%3"*=*f1)("/*?@@gbc*h5"*$,+!"1'"*$,*+%77&."!*'.&-",.* $,#%(#"7",.*$,*5$25"!*"-&+1.$%,*51'*-!$#",*'%7"*!"i"+.$%,*%,*.5"* !"''&!"'*.51.*'.&-",.'*7$25.*61+"*.5!%&25*.5"$!* #1!$%&'*!"' %,'$;$($.$"'*9j';%!,"*".*1(c/*?@@abc* the experience of the more mature, commuting students and the many challenges that they face in their work, social life, family life, and study are dissimilar to those of the traditional, residential notion of university students & %,*35$+5* 5$25"!* "-&+1.$%,* !$,+$ ("'* 1!"* &'&1(()* "'.1;($'5"-* 9e%3"*=*f1)("/* ?@@gbc*<1.&!"* '.&-",.'* .",-* .%* diverge from younger students in their expectations of the college or university, in their motivations for attending, 1,-*.5"$!*"k "!$",+"'*3$.5*5$25"!*"-&+1.$%,*9d%7 .%,/*d%k/*=*e11,1,/*?@@lbc*m-&(.*'.&-",.'*51#"*51-*"k "!$",+"'* in life and in their careers that have broadened their general outlook. this study expands the previous research by investigating time management characteristics, the origins of stress in commuter and residential students, and the coping strategies typically used by each group. this paper sheds 6&!.5"!*($25.*%,*.5"*+%,'"n&",+"'*%6*+%77&.$,2*;".3"",*1*3%!8*($6"/*'%+$1(*($6"/*1,-*617$()*1,-*+5$(-*!"1!$,2*35$("* 1..",-$,2*1,*$,'.$.&.$%,*%6*5$25"!*"-&+1.$%,*1,-*.5"*,"21.$#"*%&.+%7"'*.51.*71)*1!$'"c*h5"*3%!8o($6"o'.&-)*;1(1,+"*$'* central to commuter student participation. an improved understanding of the complexity of the inter-relationship is important to theorizing lifelong learning and policy development. 9:1;<=1 <;)<;>:;? h5"*'$p"*%6*.5"*+%77&."!o,%,0.!1-$.$%,1(*'.&-",.* % &(1.$%,*51'*;"",*%,*.5"*$,+!"1'"*9:"3;%(-/*<"5.1*=*>%!;&'/* ?@a@bc*q".3"",*arrl*1,-*?@@l/*.5"*,&7;"!*%6*.5"'"*&,-"!2!1-&1."*+%(("2"*'.&-",.'*$,+!"1'"-*1.*1*!1."*%6*s@t*.%* u@t*9q)"/*v&'581!/*=*d%,31)/*?@@gbc*h5"'"*'.&-",.'*;!$,2*3$.5*.5"7*-"'$!"'*1,-*,""-'*.51.*1!"*-$66"!",.*6!%7*.5"$!* .!1-$.$%,1(*+%&,."! 1!.'*%,*+17 &'*9:"3;%(-/*<"5.1*=*>%!;&'/*?@@rbc*h5"*'5$6.$,2*+17 &'* % &(1.$%,*.%31!-*7%!"* mature, married, working, and commuting students necessitates that colleges and universities understand and adapt to the changing student needs in order to improve student satisfaction and involvement with the college experience and their persistence toward degree attainment. d%77&."!* '.&-",.'* .",-* .%*;"* .) $+1(()*%(-"!* .51,* .!1-$.$%,1(/* !"'$-",.$1(* '.&-",.'* 9w#"(),/*?@@?bc*x5$("* .5"* demographic characteristics of the commuter student are reasonably well-understood, the sources of their stress with college life and the coping strategies they employ have not been as thoroughly researched. with their maturity come responsibilities associated with careers, social connections, and families. university students, in general, are 1*#"!)*#&(,"!1;("*2!%& *.%*"k "!$",+"*'.!"''*9:"221/*m ("35$."*=*e$#$,2'.%,/*?@@gb*1,-*.5"*+%77&."!*'.&-",.'y* 3%!8*1,-*617$()*($6"*51#"*;%.5* %'$.$#"*1,-*,"21.$#"*+%,'"n&",+"'c*h$7"*71,12"7",.*'8$(('*51#"*;"",*$-",.$4"-*1'* 1* %''$;("*$,-$+1.$%,*%6*5$25"!* "!6%!71,+"*1,-*(%3"!*'.!"''*1,-*1,k$".)*9z"1!,'*=*f1!-$,"!/*?@@gbc*h5"*'$2,$4+1,.* 143 advances in business research 1' "+.'*35$+5*-$66"!",.$1."-*+%77&."!*'.&-",.'*35%*3"!"*1+5$"#$,2*+%,.!%((1;("*3%!8o($6"o'.&-)*;1(1,+"*1 "1!"-* to be their coping strategies and the level of support from their families, employers, fellow students and from the $,'.$.&.$%,*9e%3"*=*f1)("/*?@@gbc these more mature students are apt to be diverse from younger students in their expectations of the college %!* &,$#"!'$.)* 1,-* $,* .5"$!* $,+",.$#"* 6%!* 1..",-$,2* 9:"3;%(-/* <"5.1* =* >%!;&'/* ?@a@bc* m-&(.* '.&-",.'* 51#"* 51-* "k "!$",+"'* $,* ($6"*1,-* $,* .5"$!*+1!""!'* .51.*51#"*;!%1-","-* .5"$!*2","!1(*%&.(%%8c*d%77&."!*&,$#"!'$.)*'.&-",.'* 51#"* +%,'$-"!1;()*7%!"* .$7"* 1,-* !%("* '.!1$,'* .51,* !"'$-",.$1(* +%(("2"* '.&-",.'* 9<%!!$'/* q!%%8'/*=*<1)/* ?@@sbc* h5"'"*+%77&."!*'.&-",.'*%6.",*6""(*'.!"''"-/*71,12$,2*.5"$!*#1!$"-*!%("'*1,-*!"' %,'$;$($.$"'*9d&!1'$/*=*q&!851(."!/* ?@@rbc*h5"*"k."!,1(*-"71,-'*1,-*-$66"!$,2*!"' %,'$;$($.$"'*+!"1."*.$7"*($7$.1.$%,'*.51.*!"'$-",.$1(*'.&-",.'*71)*,%.* ",+%&,."!*9e&,-;"!2/*?@@sbc*x$.5*.5"*$,+!"1'"*$,*+%77&."!*'.&-",.'*1..",-$,2*+%(("2"/*.5"!"*$'*1*,""-*.%*&,-"!'.1,-* how the balancing of the multiple demands and roles of work, school, and life affects adult students. academic stresses for commuter students include being capable of coping at a higher education level, time management, and study skills with additional concerns centered on coping with existing responsibilities and with the added study tasks 9q1!!%,*=*[ym,,&,p$%0f!"",/*?@@rbc an issue of prominence for commuter students is the stress of balancing multiple demands and roles at work, at school, and in their personal life. in keeping with the resource scarcity theory, entering a university produces another 6&,+.$%,1(* !"1(7* .51.* +%7 "."'* 6%!* ($7$."-* !"'%&!+"'\* .5"* '.&-",.y'* .$7"/* ","!2)/* 1,-*4,1,+"'* 9q&.("!/* ?@@gbc* ],* contrast to the traditional, residential student, commuter students have additional responsibilities within their job and "!'%,1(*($6"*.51.*+1,*("1-*.%*-"71,-*%#"!(%1-*1,-*$,."!0!%("*+%,i$+.*35",*+%7;$,"-*3$.5*'+5%%(*9>1$!+5$(-/*?@@sbc* m*6"3*%6*.5"*,&7"!%&'*-$64+&(.$"'*.51.*+%77&."!*'.&-",.'*61+"*$,+(&-"*1+1-"7$+*!"' %,'$;$($.)/*617$()*%;($21.$%,'/* 3%!8/*71$,.1$,$,2* "!'%,1(*!"(1.$%,'5$ '/*.$7"*71,12"7",./*4,1,+$1(*%;($21.$%,'/*1,-*;"+%7$,2*1++($71."-*.%*.5"* &,$#"!'$.)*",#$!%,7",.*9:"221/*m ("35$."*=*e$#$,2'.%,/*?@@gbc*].*51'*;"",*'&22"'."-*.51./*"#",*.5%&25*+%77&."!* students are more apt to work full time, they are not as stressed by working, commuting, or time limitations because .5")* 51#"*7%!"* "k "!$",+"* 1.* .$7"*71,12"7",.* 9e&,-;"!2/* ?@@sbc* ],* %.5"!* '.&-$"'/*7%!"*71.&!"* '.&-",.'* 51#"* %$,."-*%&.* .5"* $7 %!.1,+"*%6* .$7"*71,12"7",.*1,-*%!21,$p1.$%,*1,-*51#"*6%&,-*.51.*%!21,$p1.$%,*1,-*-"4,$,2* !$%!$.$"'*1!"*"' "+$1(()*'$2,$4+1,.*9>""/*^c*>c/*v!%(71,/*_c*=*h5%71'/*^c*9?@@rbc to enhance the progress of learning and persistence of commuter students, it is important for higher education institutions to understand the stress of these students and provide resources that can decrease stressors and assist commuters with coping. student health issues have been found to involve stress management and the development of .$7"*71,12"7",.*'8$(('*9`1$0^"3/*?@@rbc*h5"* !"''&!"'*%6*71$,.1$,$,2*1*;1(1,+"*;".3"",*%++& 1.$%,1(*!"(1.$%,'5$ '/* academic demands, and maintaining personal relationships can be a tremendous task (negga, applewhite & e$#$,2'.%,/*?@@gbc*_.!"''*51'*;"",*!"+%2,$p"-*1'*1,*$7 %!.1,.*#1!$1;("*3$.5*'$2,$4+1,.*!"(1.$%,'5$ '*.%*2!1-"* %$,.* 1#"!12"*9fvmb/*$,.",.*.%* "!'$'./*1,-*2%1(*+%77$.7",.*9_1,-("!/*?@@?bc*_.!"''*17%,2*+%77&."!*'.&-",.'*71)*-"#"(% * 6!%7*%#"!"k.",-"-*3%!8(%1-'/*-$64+&(.)*3$.5*.$7"*71,12"7",./*$''&"'*3$.5*$,."! "!'%,1(*!"(1.$%,'5$ '/*%!*+%,+"!,* 1;%&.*1+1-"7$+*61$(&!"*9v$"!+"1((*=*z"$7/*?@@gbc d%77&."!* '.&-",.'y* +5%$+"*%6* .!1#"(*7%-"* $'* $,i&",+"-*;)*71,)* 61+.%!'* $,+(&-$,2* .5"* 1#1$(1;$($.)* %6* &;($+* transport which could provide the most environmentally friendly mode of commuting (kerr, a. lennon, a. j. & x1.'%,/*qc*dc/* ?@a@bc*d%77&.$,2* #$1* 1&.%7%;$("* $'* 1* 61+.%!* $,* #1!$%&'* "+%(%2$+1(* 1,-* .!164+* $7 "-$7",./* '&+5* 1'* %((&.$%,* 1,-* +%,2"'.$%,* 9m;!1517'"* ".* 1(c/* ?@@rbc* * d%77&."!* '.&-",.'* 51#"* -"'+!$;"-* .!1,' %!.1.$%,* '.!"''* !"(1."-*.%*.5"*5$25*("#"(*%6*.!164+/*1#1$(1;$($.)*%6* 1!8$,2/*1,-*.5"*17%&,.*%6*.$7"*1,-*","!2)*$,#%(#"-*$,*+%77&.$,2* 9`"!,1,-"p/*?@@?bc*h5"!"*$'*1('%*'.!"''*1''%+$1."-*3$.5*.5"*$,+%,#",$",+"*%6*,""-$,2*.%*!".&!,*.%*+17 &'*6%!*1++"''* .%*($;!1!)*%!*+%7 &."!*61+$($.$"'*9`"!,1,-"p/*?@@?bc*d%77&."!*'.&-",.'*51#"*-$'+&''"-*6""($,2'*%6*2&$(./*'1+!$4+"* 1,-* +%,i$+.* $,* !"' "+.* .%* .5"$!* 617$()* !"(1.$%,'5$ '* 1(%,2*3$.5* 51!-'5$ '* $,* .5"$!*3%!8* ",#$!%,7",.'* +1&'"-* ;)* '& "!#$'%!'*!"n&$!$,2*"k.!1*%#"!.$7"*.%*+%7 ",'1."*6%!*.5"*.$7"*' ",.*1.*.5"*&,$#"!'$.)*9e%3"*=*f1)("/*?@@gbc differences have been found between commuter and residential students in their perceptions of stressful events 9v$"!+"1((*=*z"$7/*?@@gbc*h5$'*7"1,'* .51.* 1* '$.&1.$%,* !"21!-"-*1'* '.!"''6&(*;)*%,"* '.&-",.*71)*,%.*;"* '.!"''6&(* 6%!*1,%.5"!*9j7&!1/*?@@gbc*h5$'*$'*1,*$7 %!.1,.*$''&"*35",*5"( $,2*'.&-",.'*-"#"(% *+% $,2*7"+51,$'7'c*_.!"''* can have a positive effect allowing individuals to react effectively in times of urgency. stressed students need to understand that it is an individual’s perception of the demands placed upon them that cause stress and not the demands .5"7'"(#"'*9a%;%.517/*?@@bbc*h5"*.$7"*71,12"7",.*"k "!$",+"*%6*+%77&."!*'.&-",.'*51'*.5"*"66"+.*%6*$7 !%#"-* 6&,+.$%,$,2*1,-*1(("#$1.$%,*%6*6""($,2'*%6*'.!"''*9z"1!,'*=*f1!-$,"!/*?@@gbc d%77&."!*'.&-",.'*+%77%,()*51#"*1*;&')*($6"*3$.5*3%!8*1,-*617$()*!"' %,'$;$($.$"'*1,-*1,*"'.1;($'5"-*'%+$1(* circle before they enroll in a university course. study is taken on as an additional commitment (kember & leung, ?@@cbc*h5!""* '&++"''6&(* +% $,2*7"+51,$'7'*3%!8*3$.5$,* .5"* ",#$!%,7",.* %6* +1!""!/* '%+$1(* ($6"/* 617$()* ($6"/* 1,-* '.&-)*1,-*+1,*;"*$-",.$4"-*1'*'1+!$4+"/*'& %!.*1,-*,"2%.$1."-*1!!1,2"7",.'*9z"7;"!*=*e"&,2/*?@@cbc*h5"*$-"1* %6*'1+!$4+"*+%7"'*6!%7*.5"*+%,+" .*.51.*d'%7".5$,2*51'*.%*2$#"/e*1,-*$.*$'*&'&1(()*1''%+$1."-*3$.5*.5"*2$#$,2*& *%6* 2010, vol. 1, no. 1, 142-151 forbus, newbold and mehta 144 advances in business research "!'%,1(* ("1'&!"*%!* .5"*'&!!",-"!*%6*1' "+.'*%6*%,"y'*'%+$1(* ($6"* 9z"7;"!*=*e"&,2/*?@@cbc*:"2%.$1.$,2*51'*;"",* successful at the family level where the household division of labor and childcare are adjusted to accommodate for .5"*+51,2"'*$,*'+5"-&("'*1,-*3%!8(%1-'*9_3"".*=*<%",/*?@@gbc*q&.*,"2%.$1.$%,*-%"'*,%.* "!6%!7*1'*'&++"''6&(()* $,*.5"*3%!8*",#$!%,7",.*;"+1&'"*+1!""!'*1!"*'%*$7 %!.1,.*.51.*.5"!"*$'*($7$."-*i"k$;$($.)*6%!*71,$ &(1.$%,*9z"7;"!* =*e"&,2/*?@@cbc*d% $,2*$,*'.!"''6&(*'$.&1.$%,'*+1,*;"*1$-"-*;)*.5"*'& %!.*%6*6!$",-'f*5%3"#"!/*6%!*71,)*71.&!"/* commuter students, comparatively little time is devoted to actions traditionally associated with developing support groups. it is the residential students who are more involved with fraternal and social organizations, and dormitories, +(&;'/*."17'*9d%% "!*=*a%;$,'%,/*?@@@bc*d%77&."!*'.&-",.'*1!"*($8"()*.%*!"()*%,*.5"*'17"* "% ("*1'*.5")*-$-* !$%!*.%* ;"2$,,$,2*&,$#"!'$.)/*718$,2*.5"$!*,"3*6!$",-'5$ '*("''*$7 %!.1,.*6%!*.5"$!*'.!"''*+% $,2c*9q&%."*".c*1(/*?@@gbc* j#"!1((/* +% $,2* '.!1."2$"'* +1,* ;"* +(1''$4"-* 1'* "$.5"!* 1+.$#"* %!* 1''$#"c* m+.$#"* +% $,2* ;"51#$%!'* +1,* ("1-* .%* +%,'.!&+.$#"*%&.+%7"'*.5%&25* (1,,$,2/*'& %!.*1,-*.$7"*71,12"7",.*9f$1,+%(1/*f!13$.+5*=*q%!+5"!./*?@@rbc*>%!* +%77&."!*'.&-",.'*' "+$4+1(()/*.1'806%+&'"-/*1-1 .$#"*+% $,2*31'*!"(1."-*.%*("1!,$,2*2%1(*%!$",.1.$%,/*%!*("1!,$,2*6%!* d$.'*%3,*'18"/e*35$+5*31'*!"(1."-*.%*5$25"!*fvm'*9<%!!$'*q!%%8'*=*<1)/*?@@sbc*h1'80%!$",."-*+% $,2*1+.$%,*7$25.* include engaging a tutor, setting aside more study time, or other active ways to solve the stress-causing problem. with the multiple roles of the commuter student, there is a basic increase in task-oriented strategy in supporting the focus %,*("1!,$,2*6%!*("1!,$,2y'*'18"*9<%!!$'/*q!%%8'*=*<1)/*?@@sbc*h5"!"*1!"*5%3"#"!/*'%7"*7%!"*71(1-1 .$#"*6%!7'*%6* active coping behaviors. these are types of avoidance or escape and lead to more negative outcomes such as venting, denial, missing meetings or classes, and drinking alcohol, smoking and using illegal drugs.(giancola, grawitch & q%!+5"!./*?@@rf*v1(7"!*=*a%-2"!/*?@@rf*1,-*v$"!+"1((*=*z"$7/*?@@gbc*w1!($"!* '.&-$"'* 6%&,-* .51.* +%77&."!*1,-* residential students utilize different active coping styles with more positive active coping skills being utilized more %6.",*;)*+%77&."!*'.&-",.'*9<%!!$'/*q!%%8'*=*<1)/*?@@sbc* passive coping behavior involves emotional coping or modifying the meaning of events, in order to adapt to or downplay their importance. again, passive forms of coping can be both positive and negative, depending upon the ' "+$4+*'$.&1.$%,c*h%*;".."!*&,-"!'.1,-*.5"*$''&"'/*+%,+"!,'/*1,-*,""-'*%6*+%77&."!*'.&-",.'/*1*'.&-)*31'*+%,-&+."-* 1.*1*'%&.53"'."!,*6%&!0)"1!*&,$#"!'$.)*3$.5*1*'$2,$4+1,.* !% %!.$%,*%6*+%77&."!*'.&-",.'*+%7 1!$,2*+%77&."!*1,-* residential students and their stressors and coping methods. <;.;=<*@)2;1@ab. ;c8d+%3'+%()<$&$3%7e to facilitate the development of the survey instrument, a focus group was conducted with a convenience sample of undergraduate students. the results of the focus group clearly demonstrated that the needs of commuter students 71)*;"*'$2,$4+1,.()*-$66"!",.*6!%7*.5%'"*%6*!"'$-",.$1(*'.&-",.'c the survey instrument h5"* $,'.!&7",.* -"#"(% "-* 6%!* .5"* '.&-)*31'* 1* '"(601-7$,$'."!"-/* '.!&+.&!"-/* 1,-* &,-$'2&$'"-* n&"'.$%,,1$!"c* q"'$-"'*.5"*61+.*.51.*.5$'*.) "*%6*$,'.!&7",.*$'*.5"*61'."'./*("1'.*"k ",'$#"/*1,-*7%'.* % &(1!*9m(-!"8*=*_"..("/*?@@cb/* our primary motivation for selecting this form of instrument was that it was the most appropriate methodology (given %&!*'17 ($,2*6!17"/*.1!2"."-*'17 ("*'$p"/*.$7"*6!17"/*".+bc* recognizing the fact that the instrument was meant to measure ideas and concepts that are abstract and non%;'"!#1;("/*"k.!1*+1!"*31'*.18",*$,*-"'$2,$,2*.5"*n&"'.$%,,1$!"*$,*."!7'*%6* !% "!* 5!1'$,2*%6*.5"*n&"'.$%,'/*1,-*1*,"1.* layout of the various sections. face validity was conducted with three researchers in the marketing department. a pilot study was conducted with a sample of the population to determine the accuracy of instructions, the best wording %6*.5"*n&"'.$%,'/*.5"*1 !% !$1.","''*%6*'+1("'/*".+c*_$,+"*.5"*.% $+*&,-"!*$,#"'.$21.$%,*31'*'%7"351.*'",'$.$#"/*"k.!1* +1!"*31'*.18",*.%*"($7$,1."*1,)*17;$2&$.)*$,*.5"*n&"'.$%,,1$!"c*_"#",0 %$,.*e$8"!.*'+1("'*3"!"*&'"-*"k.",'$#"()*.%* assess students’ time management strategies, their attitudes toward stress and their stress coping strategies. approximately 3-4 items were developed to represent each construct under investigation. nominal to ratio scales 3"!"*&'"-*.%*%;.1$,*+(1''$4+1.$%,*$,6%!71.$%,c*h5"*'&!#")*.%%8*;".3"",*a@*1,-*a?*7$,&."'*.%*+%7 ("."c*h%*",+%&!12"* participation from respondents, all completed responses were eligible to participate in a random drawing. a8$%3'"+!3d"f"!4)g*+,,-'$%).'-/$!'h d%77&."!*'.1.&'*51'*;"",*% "!1.$%,1($p"-*1*,&7;"!*%6*-$66"!",.*31)'*$,*.5"* !"+"-$,2*!"'"1!+5c*j,"*+%77%,1($.)* %6* 1((* -"4,$.$%,'* $'* .5"* !"n&$!"7",.* .51.* .5"* '.&-",.* ,%.* ($#"* 3$.5$,* u*7$("'* 6!%7* .5"* +17 &'c* >%!* &! %'"'* %6* 2010, vol. 1, no. 1, 142-151 forbus, newbold and mehta 145 advances in business research this research, “commuter” was operationalized living outside of the county where the university is located. this constitutes a distance of over 5 miles. it was felt that students some students who, essentially, live “in town” also lived more than 5 miles from campus. these students were not considered commuter students for purposes of this '.&-)c*j6*.5"*%#"!1((*",-$,2*'17 ("*%6*cb@*!"' %,-",.'/*a?c*9?ltb*1!"*+(1''$4"-*1'*d+%77&."!e/*3$.5*.5"*!"71$,$,2* 356 being considered “non-commuters” or “residential” students. a8$%3'"+!3d"f"!4)g=7'"#$)*+8"!4h)3!/)gi3&&"#$)*+8"!4h m*7%!"*,"21.$#"*6%!7*%6*d1+.$#"*+% $,2e*$'*% "!1.$%,1($p"-*1'*1*61+.%!*+%,'$'.$,2*%6*.3%*$."7'*1'*6%((%3'\ 1. “when i get overly stressed, i sometimes skip a class or two.” 2. “when i get overly stressed, i sometimes skip meetings (group meetings, meetings at work, meetings with 6!$",-'bce h5"*d!%,;1+5*m( 51*%,*.5$'*61+.%!*$'*clrg*9+1,*;"*!%&,-"-*.%*cg@b dv1''$#"*d% $,2e*$'*% "!1.$%,1($p"-*1'*1*'$,2("*$."7*1'*6%((%3'\ “when things aren’t going so well, i put things in a broader perspective, organize, and prioritize.” this item, representing a form of passive coping behavior, is generally considered to be a more mature, positive 6%!7*%6*+% $,2*;"51#$%!c*_$,+"*$.*$'*1*'$,2("*$."7*9$c"c/*,%.*1*61+.%!b/*$.*$'*,%.*1 !% !$1."*.%*+%7 &."o!" %!.*1,*m( 51* score .3,8d"!4)3!/)b3'3)*+dd$7'"+! the study was conducted among a projectable sample of the student population at a mid-sized southwestern fouryear university. the general demographic of the students attending this university include 42% male and 58% female; whites = 67%, african-americans = 15%, hispanics = 14%, and others = 4%; and freshmen = 21%, sophomores = 18%, juniors = 21%, seniors = 27%, and others = 13%. in order to create the ability to generalize the responses and to eliminate any type of bias in the responses, students of an undergraduate marketing research course were trained to obtain 5 completed surveys each. to ensure 1++&!1+)*%6*-1.1*+%(("+.$%,*1,-*+%7 (".$%,/*ut*%6*"1+5*'.&-",.y'*+%&!'"*2!1-"*31'*.$"-*$,.%*.5$'* !%+"''c*m*'.!1.$4"-* '17 ($,2* (1,*31'*-" (%)"-/*3$.5*'.!1.1*+%,.!%(($,2*6%!*;%.5*)"1!* $,*'+5%%(* 9$c"c/* 6!"'571,/*'% 5%7%!"/*".+cb*1,-* +%(("2"*1..",-$,2*9d%(("2"*%6*q&'$,"''*m-7$,$'.!1.$%,/*d%(("2"*%6*w-&+1.$%,/*".+cbc*h5"*",-$,2*'17 ("*31'*6%&,-*.%* represent student population as a whole with a margin of error of ± 4.5%. the validity of the sample was examined ;)*1*d5$0'n&1!"*2%%-,"''0%604.* ."'.*35"!"* .5"* '17 ("*31'* +%7 1!"-* .%* .5"* % &(1.$%,*%6* .5"* $,'.$.&.$%,*%,*8")* -"7%2!1 5$+*#1!$1;("'c*m((*d5$0'n&1!"'*3"!"*-"."!7$,"-*.%*;"*,%,0'$2,$4+1,.*1.*.5"*@c@u*("#"(c*h5$'*$'*1,*$,-$+1.%!* that the sample is projectable to the population under study. b3'3)j-3d"'( the items in the survey were developed based upon the literature review, focus groups, and the special +$!+&7'.1,+"'* %6* .5"* $,'.$.&.$%,* 35"!"* .5"* !"'"1!+5* 31'* +%,-&+."-* 9d5&!+5$((* =* q!%3,/* ?@@gbc* _$,+"* .5$'* 31'* !$71!$()* 1,* "k (%!1.%!)* '.&-)/* 1*7$,$7&7* 61+.%!* (%1-$,2*%6*@cs@* 9:&,,1(()/* argbb*31'*&'"-*1'* 1*2&$-"($,"* 6%!* including items in a factor. the reliability of each factor was evaluated utilizing an internal consistency measure. >1+.%!'*3$.5*d!%,;1+5*m( 51*("''*.51,*@cg@*3"!"*,%.*&'"-*6%!*.5"*1,1()'$'c*],*'%7"*+1'"'/*.5"*1,1()'$'*31'* "!6%!7"-* utilizing individual items. @kia1@;.;. l+!m1%3/"'"+!3d).'-/$!'& h5"* 4!'.* %;g"+.$#"* 31'* .%* -"."!7$,"* 35".5"!* +%77&."!* '.&-",.'* .%-1)* 1!"* '$2,$4+1,.()* -$#"!'"* 6!%7* ,%,0 commuter students. previous research demonstrated that commuter students are more likely to have the characteristics 2010, vol. 1, no. 1, 142-151 forbus, newbold and mehta 146 advances in business research of the non-traditional student such as being over 24 years of age, working full time, and usually having dependents .%*'& %!.*9e%3"*=*f1)("/*?@@gf*q)"/*v&'581!/*=*d%,31)/*?@@gf*1,-*:"3;%(-/*<"5.1*=*>%!;&'/*?@a@;bc*h5$'*6%+&'* ("1-'*.%*.5"*4!'.*5) %.5"'$'c `) %.5"'$'*a\*d%77&."!*'.&-",.'*1!"*7%!"*($8"()*.51,*!"'$-",.$1(*'.&-",.'*.%* %''"''*.5"*.!1$.'*%6*,%,0.!1-$.$%,1(* students. stress the differences in the characteristics of commuter and residential students lead to the opinion that there is a variation in the intensity of stress and the coping strategies in the college experience. stress levels among commuter '.&-",.'*3"!"* "!+"$#"-*1'*7%-"!1."()*5$25/*1,-*4,1,+$1(*$''&"'*1!"*%,"*%6*.5"*;$22"'.*+%,.!$;&.%!'*.%*'.!"''*9d1,1("'0 f%,p1("'*=*z!1,p/*?@@bbc*h5"*!"' %,'$;$($.$"'*+%,,"+."-*3$.5*"7 (%)7",.*$,+!"1'"'*'.&-",.'y*'.!"''*("#"('/*35$("*1* 71g%!$.)*%6*3%!8$,2*'.&-",.'*!" %!.'*.51.*.5")*6""(*1,*%;($21.$%,*.%*3%!8*9a%;%.517/*?@@rbc*h5"*+%77&.$,2*'.&-",.* tackles challenges that the non-commuting student typically doesn’t face, especially feelings of isolation, multiple life !%("'*1,-*-$66"!",.*'& %!.*')'."7'*9:"3;%(-/*<"5.1*=*>%!;&'/*?@a@1bc*m,%.5"!*'%&!+"*%6*$,+!"1'"-*'.!"''*$'*($,8"-* to the fact that commuter students have more time limitations on academics and campus activities because of a more +%7 ("k*($6"'.)("*.51,*!"'$-",.$1(*'.&-",.'*9:"3;%(-/*<"5.1*=*>%!;&'/*?@a@1bc*d%77&."!*'.&-",.'*1!"*.!1#"($,2*6!%7* home or work to attend their university courses. for these students, hours are valuable and appreciated resources, and .5"*+17 &'*$'*1* (1+"*.%*d!",-"p#%&'e*6%!* 1!.*%6*.5"$!*.$7"*9a&+5.$/*:"3;%(-*=*<"5.1/*?@@bbc*h$7"*71,12"7",./* balancing multiple roles, getting to campus are all issues that face commuter students. these lead to the next four hypotheses. `) %.5"'$'*?\*d%77&."!*'.&-",.'*1!"*("''*($8"()*.51,*!"'$-",.$1(*'.&-",.'*.%*51#"*'&64+$",.*.$7"*.%*+%7 ("."*1((* tasks. `) %.5"'$'*s\*d%77&."!*'.&-",.'*1!"*7%!"*($8"()*.51,*!"'$-",.$1(*'.&-",.'*.%*51#"*1*5$25"!*("#"(*%6*'.!"''*!"(1."-* to a general lack of time. `) %.5"'$'*c\*d%77&."!*'.&-",.'*1!"*7%!"*($8"()*.51,*!"'$-",.$1(*'.&-",.'*.%*51#"*1*5$25"!*("#"(*%6*'.!"''*!"(1."-* to money issues. `) %.5"'$'*u\*d%77&."!*'.&-",.'*1!"*7%!"*($8"()*.51,*!"'$-",.$1(*'.&-",.'*.%*51#"*1*5$25"!*("#"(*%6*'.!"''*!"(1."-* to work issues. `) %.5"'$'*l\*d%77&."!*'.&-",.'*1!"*7%!"*($8"()*.51,*!"'$-",.$1(*'.&-",.'*.%*51#"*1*5$25"!*("#"(*%6*'.!"''*!"(1."-* to commuting issues. *+8"!4)2$7e3!"&,&0)=7'"#$)#&n)i3&&"#$)*+8"!4)2$'e+/& a coping style is the usual method in which an individual will deal with a stressful situation. with their characteristics similar to non-traditional and traditional students, commuter and residential students employ dissimilar coping styles with active coping skills being utilized more often by commuter students (morris, brooks =*<1)/*?@@sbc*x$.5*1+.$#"*+% $,2/* '.!"''* $'*1--!"''"-*-$!"+.()*3$.5* ."+5,$n&"'* ($8"* .$7"*71,12"7",./* (1,,$,2/* and developing solutions. a passive coping style is related to mitigating the emotional impact of the stress, through '&+5*."+5,$n&"'*1'*7$,$7$p$,2*.5"* $7 %!.1,+"*%6* .5"*'%&!+"*%6*'.!"''*%!* (1+$,2*.5"*35%("*'$.&1.$%,*$,*1*;!%1-"!* "!' "+.$#"*9v1(7"!*=*a%-2"!/*?@@rbc* for purposes of this study, active coping strategies and passive coping are represented by a factor consisting of .3%*$."7'*1,-*1*'$,2("*$."7/*!"' "+.$#"()/*1'* !"#$%&'()*-"'+!$;"-*9'""*dj "!1.$%,1($p$,2*m+.$#"*d% $,2*1,-*v1''$#"* d% $,2ebc*h5&'/*.5"*4,1(*.3%*5) %.5"'"'*1!"*1'*6%((%3'\ `) %.5"'$'* g\* d%77&."!* '.&-",.'* 1!"* ("''* ($8"()* .51,* !"'$-",.$1(* '.&-",.'* .%* &.$($p"* ,"21.$#"* 1+.$#"* '.!"''* management methods. `) %.5"'$'* b\* d%77&."!* '.&-",.'* 7%!"* ($8"()* .51,* !"'$-",.$1(* '.&-",.'* .%* &.$($p"* %'$.$#"* 1''$#"* '.!"''* management methods. 2010, vol. 1, no. 1, 142-151 forbus, newbold and mehta 147 advances in business research results h1;("'*a*1,-*?*'&771!$p"*.5"*!"'&(.'*%6*.5"*!"'"1!+5c*h5"*4!'.*5) %.5"'$'*1--!"''"-*+%77&."!*'.&-",.'y*'$7$(1!$.)* to non-traditional students. to assess this, each respondent was asked about the number of hours spent during a typical week studying, working, and traveling to college, their age, and family status. table 1 shows that, like nontraditional students, commuter students were more likely to work in excess of 21 hours per week and to spend more .51,*aa*5%&!'* "!*3""8*'.&-)$,2*%&.'$-"*%6*+(1''c*d%77&."!*'.&-",.'*3"!"*1('%*'$7$(1!*.%*,%,0.!1-$.$%,1(*'.&-",.'* by being older, more likely to be married and caring for children. all of these results proved to be statistically '$2,$4+1,.c**h5&'/*`) %.5"'"'*a*$'*1++" ."-c h5"*,"k.*4#"*5) %.5"'"'*$,#"'.$21."-*.5"*-$66"!",+"'*$,*.5"*'.!"''*;".3"",*+%77&."!*1,-*!"'$-",.$1(*'.&-",.'c* hypothesis 2 was concerned with commuter students feeling less likely to have enough time in a day to complete all the necessary tasks. on a 7-point scale, the mean for hypothesis 2 was 3.6 for commuter students and 4.1 for residential students. the next four hypotheses addressed stress as it related to time, money, work, and commuting issues, respectively. hypothesis 3, addressing a general lack of time, had a mean value of 5.2 for commuter students and 4.8 for residential students. stress relating to money issues, hypothesis 4, had a mean value of 5.4 for commuter students and 4.8 for residential students. associated with hypothesis 5, commuter students reported higher levels of stress related to work with a mean of 4.6 while residential students reported a mean of 3.9. as suggested in hypothesis 6, commuting issues showed a higher level of stress for commuting students with a mean of 5.1 compared to 2.6 for !"'$-",.$1(*'.&-",.'c*m((*%6*.5"'"*-$66"!",+"'*3"!"*'.1.$'.$+1(()*'$2,$4+1,.c*h5&'*"1+5*%6*.5"'"*4#"*5) %.5"'"'*31'* accepted. the last two hypotheses dealt with coping mechanisms. the research showed that commuter students are more apt to utilize more positive passive stress management coping strategies while residential students are more apt to turn to more negative active coping methods. the mean values for passive stress management was 5.3 for commuter students and 4.8 for residential students. the mean values for the more negative active stress management coping '.!1."2)*31'*scu*6%!*+%77&."!*'.&-",.'*1,-*cc@*6%!*!"'$-",.$1(*'.&-",.'c*h5"'"*!"'&(.'*3"!"*'.1.$'.$+1(()*'$2,$4+1,.c* thus, these two hypotheses were accepted. 13od$)p0)*+,,-'$%)#&n)<$&"/$!'"3d).'-/$!'&)q;c3,"!3'"+!)+r)1%3"'&)+r)l+!m1%3/"'"+!3d).'-/$!'&s 13od$)t0)*+,,-'$%)#&n)<$&"/$!'"3d).'-/$!'&)q*+,83%"&+!)+r)2$3!&)+!)=''"'-/"!3d)b",$!&"+!&s b"&7-&&"+! h5"*4,-$,2'*%6*.5$'*!"'"1!+5*-$' &."*.5"*$,+($,1.$%,*.%*'""*'.&-",.'*%,()*1'*("1!,"!'/*1,-* %$,.*$,'."1-*.%*1* $+.&!"* of a student as a whole person with roles as partner, parent, worker, and money manager for which time must be found $,*;&')*'+5"-&("'*9e%3"*=*f1)("/*?@@gbc*h5"*4,-$,2'*1('%* %$,."-*%&.*.51.*"-&+1.$%,1(*'&++"''*+1,*;"*!"1($p"-*;)* students who experience a variety of life stresses if the right support is available. their success can also be related to .5"*i"k$;$($.)*%6*.5"*&,$#"!'$.)c*`$25"!*"-&+1.$%,* !%2!17'*.51.*1!"*1#1$(1;("*.%*'.&-",.'*$,*1*#1!$".)*%6*'.)("'/*6!%7*1* -"4,"-*6&((*.$7"*+%&!'"*.%*1* "!'%,1($p"-* !%2!17*%!*1*5);!$-*+%&!'"*%6*'.&-)*3%&(-*5"( *+!"1."*1,*",#$!%,7",.*.51.* related hypotheses item commuter students (n= 124) resident students (n= 356) chi square p value h1 more than 21 hours working 54.4% 30.4% 28.656 .000 more than 11 hours studying 36.8% 26.0% 5.247 .073 more than 5 miles commuting 98.4% 18.7% 247.212 .000 older than 25 years 33.6% 7.2% 77.932 .000 married 24.0% 3.9% 47.447 .000 caring for children 19.2% 3.9% 30.121 .000 38 .014 2 02 .000 stress management methods 24 related hypotheses item commuter students (n = 124) resident students (n = 356) p-value accept reject h2 sufficient time for tasks 3.6 4.1 .038 h3 stress related to lack of time 5.2 4.8 .014 h4 stress related to money issues 5.4 4.8 .002 h5 stress related to work issues 4.6 3.9 .002 h6 stress related to commuting issues 5.1 2.6 .000 h7 item: more positive passive stress management methods 5.3 4.8 .002 h8 factor: active stress management methods 3.5 4.0 .024 2010, vol. 1, no. 1, 142-151 forbus, newbold and mehta 148 advances in business research !"#$%! &%$$#&'()& "**()!&+%&"%#$) !,%#+%-&!.$&/()012+'$1 !"#3&4,2,%5$&67(/$&8&9,32$:&;<<=>? there is an increase in the number of older, working, commuting students who attend institutions of higher $#"5,!+(%&69+,%5(2,:&9),/+!5.&,%#&@()5.$)!:&;<<a>?&b%23&,4("!&(%$&!.+)#&('&"%#$)-),#",!$& !"#$%! &,)$&%(!&/()0+%-& ,#"2! &6@$)0$):&c()%&8&d,))(22:&;<<e>?&f+!.&,%&+%5)$, $&+%&5(gg"!$)& !"#$%! &,!!$%#+%-&5(22$-$:&!.$)$&+ &,&%$$#&!(& "%#$) !,%#&.(/&/()01 5.((212+'$& !)$ $ &+g*,5!&,#"2!& !"#$%! ? there is a difference between the coping styles of commuter and residential students. since they tend to be younger and less mature, residential students are more likely than their commuting counterparts to choose to “skip out” on course when they become too stressed. more prone to utilize more positive active coping strategies, commuter college !"#$%! &/$)$&'("%#&!(&g()$&('!$%&5(*$&!.)("-.&*( +!+h$:&*, +h$&g$!.(# &6+?$?:&!,0+%-&,&i4)(,#$)&*$) *$5!+h$j>&!.,%& did the younger residential college students who relied more on active coping methods associated with cutting class, 2$,h+%-&.(g$/()0&"%#(%$:&,%#&#)+%0+%-&g()$&6k())+ :&@)((0 :&8&k,3:&;<<e>?& students who reported more effective problem solving skills were more likely to use coping strategies aimed towards task-oriented or problem solving. learning goal orientations were associated with increased use of taskoriented coping that may imply, for example, that a student, who chooses to cope with stress more actively, sets up *2,% &,%#&g,* &("!& (2"!+(% &6k())+ :&@)((0 :&8&k,3:&;<<e>?&l%&)$m$5!+%-&"*(%&!.+ & !"#3:&+!&/("2#&,**$,)&!.,!&!.$& commuter students are already engaging in many of these positive, active coping strategies. success can be achieved by students who experience a variety of life circumstances if the right support is ,h,+2,42$&67(/$&8&9,32$:&;<<=>?&n&0$3&)(2$&'()&.+-.$)&$#"5,!+(%&+% !+!"!+(% &+%&)$2,!+(%&!(& !)$ &+ &!.$&,h,+2,4+2+!3& ('& "+!,42$&)$ (")5$ & !(&$%,42$& +%#+h+#",2 & !(&g,%,-$& !)$ &6o$g4$)&8&7$"%-:&;<<p>?&d(gg"!$)& !"#$%! &,)$& +%& need of solutions to deal with the increasing encumbrances on their lives and their ability to cope with and juggle competing demands on their time. the time management experience of commuter students has the effect of improved '"%5!+(%+%-&,%#&,22$h+,!+(%&('&'$$2+%&('& !)$ &6o$,)% &8&9,)#+%$):&;<<=>?&q.$&g"2!+*2$&'"%5!+(% &!.,!&')+$%# &'"2r22:& and their provisions of support and well-being, suggest that having a close friend during stressful experiences would .$2*&+%#+h+#",2 &5(*$&6@"(!$&$!?2!:&;<<=>?& s!"#$%! & /.(& 2((0& *( +!+h$23& (%& !.$& (*$%%$ & ('& ,#g+%+ !),!+(%& !$%#& !(& 4$& g()$& ,!+ r$#& /+!.& !.$& 5,g*" & $%h+)(%g$%!&6t+5(2 (%&8&@$ :&uaa=>?&d(gg"!$)& !"#$%! &.,h$& !)(%-$)&)$2,!+(% .+* &/+!.&,#g+%+ !),!() &,%#&*2,5$& ,&-)$,!$)&h,2"$&(%&',5"2!3&+%!$),5!+(%&!.,%&!.$+)&%(%v5(gg"!+%-&$w"+h,2$%!&6t$/4(2#:&k$.!,:&8&x()4" :&;<u<>?& !"!#$#!%&'($&)(*+#+,-(.-'-$,/0 the research was conducted concerning the stress and coping mechanisms of commuter and residential students. a further breakdown of the commuter students could be helpful in understanding student needs if a determination were made between the non-traditional commuter students and the more traditional students (many of whom may 4$&r) !v-$%$),!+(%& !"#$%! >&/.(&.,**$%&!(&4$&5(gg"!+%-?&n%(!.$)& +-%+r5,%!&h,)+,42$&4$!/$$%& !"#$%! &!.,!&/("2#& .$2*&#$r%$&!.$+)&!+g$&g,%,-$g$%!&5,*,4+2+!+$ &#$,2 &/+!.&!.$&*$) (%,2+!3&!3*$&('&!.$& !"#$%!?&@3&!.$+)&+%#$*$%#$%!& %,!")$:&,&q3*$&n&*$) (%,2+!3& !"#$%!&/("2#& $$g&!(&4$&4$!!$)&$w"+**$#&'()&-(,2& $!!+%-:&g(!+h,!+(%:&,%#&*( +!+h$& thinking. at the opposite end of the spectrum, type d personality students might experience more uncertainty when ',5$#&/+!.&5.,%-$?&d(%!)(22+%-&!.+ &h,)+,42$&/+!.+%&!.$&)$ $,)5.&('&5(gg"!$)& !"#$%! &,%#&)$ +#$%!+,2& !"#$%! &/("2#& '")!.$)&#$r%$&!.$&)$ "2! &('&'"!")$&)$ $,)5.? future research is needed to better understand the balance of work lives and school for both commuter and )$ +#$%!+,2& !"#$%! ?&l!&+ &#+'r5"2!&'()&"%+h$) +!+$ &!(&+g*2$g$%!&5,g*" &,5!+h+!+$ &,%#&*)(-),g &/.$%&!.$3&#(%y!&'"223& understand the lives of either group. students, in theory, are sharing much of the same burden of work and school commitments and have less time for school functions. perhaps research should be done on why commuter students and residential students share the somewhat similar stress factors, and have divergent coping methods. some particular variables that complicate the study of stress in commuter students and residential students relate !(&!.$& !"#$%!y &)(2$&+%&!.$&',g+23&,%#&!.$&,g("%!&('&5(%m+5!&/+!.+%&!.$&',g+23&*,)!+5"2,)23&, &+!&)$2,!$ &!(& ,5)+r5$#& ',g+23&!+g$&'()&,& !"#$%!y & !"#+$ ?&q(&4$!!$)&"%#$) !,%#&!.$&r%,%5+,2& !)$ &('&!.$&#$5+ +(%&!(&)$!")%&!(&5(22$-$:&+!& would be advisable to research the income level of the commuter students and residential students and the number of dual income households that are represented in the study. in future research, time as a stress factor could be reviewed from the standpoint of the amount of time a student has allocated for taking university classes as compared to the ,5!",2&,g("%!&('&5(") $v/()0&!+g$&)$w"+)$#?&n%(!.$)&h,)+,42$&/.+5.&/("2#&, + !&+%&"%#$) !,%#&!.$&2$h$2 &('& !)$ & )$2,!$ &!(&!.$&,5!",2&5(gg"!$&$z*$)+$%5$#?&l!&/("2#&4$&+g*()!,%!&!(&"%#$) !,%#&!.$&w",2+!3&('&!.$&5(gg"!$:&!.$&2$%-!.& ('&!.$&5(gg"!$&, &/$22&, &/.$!.$)&!.$&5(gg"!$&)$w"+)$ &#)+h+%-&+%&.$,h+23&!),'r50$#&,)$, &()&!.)("-.&,&5,2g&5("%!)3& area. 2010, vol. 1, no. 1, 142-151 forbus, newbold and mehta 149 advances in business research research has shown that some universities are developing a framework and assessment tool to evaluate their $''$5!+h$%$ &+%& $)h+%-&5(gg"!$)& !"#$%! &6d(g*!(%:&d(z&8&7,,%,%:&;<<[>?&l%&',5!:& (g$&"%+h$) +!+$ &,)$& *$5+r5,223& !,)-$!+%-&,%#&5,!$)+%-& !(& !.$&%$$# &('&,& "4v $!& 6+?$?:& $%+()&5+!+\$% >&('& !.$&5(gg"!$)& !"#$%! & 6@),%#(%:&;<<[>?& along with this, it is pertinent for universities to reexamine the methods for informing students of the programs that could be helpful in managing time and stress more positively and proactively. perhaps satisfaction as a whole could be increased once the university knows what is desired by each distinct group of students. .1*1.12314 n4),.,g $:&f?:&s!$-:&7?:&9+''()#:&]?:&8&̂ 2$0:&d?&;<<a?&x,5!() &+%m"$%5+%-&5,)&" $&'()&5(gg"!+%-&,%#&!.$&+%!$%!+(%&!(& )$#"5$&+!_&n&w"$ !+(%&('& $2'v+%!$)$ !&()&g(),2+!3`&q),% *()!,!+(%&)$ $,)5.&a,)!&x:&5,$67/(8'9/0%:%;9($&)(<-0$=!%,, u;_&eu=ve;p aldrek, p., & settle, r. 2004. the survey research handbook?&t$/&b()0_&k59),/vc+22? @,))(%:&a?:&8&cyn%%"%\+(v9)$$%:&t?&;<<a?&n& g((!.&!),% +!+(%`&d#"5,!+(%&,%#& (5+,2&$z*$5!,!+(% &('&#+)$5!&$%!)3& students. >/#!=-( -$,&!&;(!&(?!;0-,(1)+/$#!%&:&u<_&=v;e?& @$)0$):& n?:& c()%:& 7?:& 8& d,))(22:& d?& ;<<e?& @%,a( 7,'#b( '#+)9( '-/%&)c( >)+:#( +&)-,;,$)+$#-'( d0%( /%"<!&-( -"8:%9"-&#( $&)( 8%'#'-/%&)$,9( -&,%::"-&#e postsecondary education descrptive analysis reports. national d$%!$)&'()&d#"5,!+(%,2&s!,!+ !+5 :&tddsv;<<evu[=? brandon, e. 2006. tips on paying for college as a retiree. f4(2-d'($&)(@%,:)(.-8%,#'?&.!!*_11///?" %$/ ?5(g1& " %$/ 14+\!$5.1,)!+52$ 1<[u<;[1;[)$!+)$$ 5(22$-$?.!g @"(!$:& ?̂:&a),%5$):&s?:&a),!!:&k?:&n#,g :&9?:&7$'5(h+!5.:&s?:&a(2+h3:&f?:&8&f+%!)$:&k?&;<<=?&q.$&+g*()!,%5$&('&')+$%# _& friendship and adjustment among 1st-year university students. journal of adolescent research:&;;_&[[ev[ga? @"!2$):&n?& ;<<=?& f(4& 5.,),5!$)+ !+5 & ,%#& 5(22$-$& *$)'()g,%5$& ,%#& ,!!+!"#$ _&n&g(#$2& ('&/()0v 5.((2& 5(%m+5!& ,%#& facilitation. journal of applied psychology:&a;_&e<<veu<? @3$:&c?:&a" .0,):&c?:&8&d(%/,3:&k?&;<<=?&k(!+h,!+(%:&+%!$)$ !:&,%#&*( +!+h$&,''$5!&+%&!),#+!+(%,2&,%#&%(%!),#+!+(%,2& undergraduate students. >)+:#(1)+/$#!%&(g+$,#-,:9:&&e=_&upuvueg? d,%,2$ v9(%\,2$ :& a?:& 8& o),%\:& a?& ;<<g?& a$)5$+h$#& !)$ & 43& !"#$%! & +%& ,& *.,)g,53& 5"))+5"2"g?& 1)+/$#!%&, u;a_&ueavup[? d.")5.+22:&9?:&8&@)(/%:&q?&;<<=?&basic marketing research?&q,g*,:&x7_&q.(g (%&s("!./$ !? d(g*!(%:& f?:& d(z:& d?:& 8& 7,,%,%:& x?& ;<<[?&n#"2!& 2$,)%$) & +%& !),% +!+(%?&2-d( h!,-/#!%&'( 6%,( 4#+)-&#( 4-,=!/-', uup_&=evg<? d((*$):&f?:&8&](4+% (%:&a?&;<<<?&q.$&,)-"g$%!&'()&g,0+%-&2,)-$&52, $ & $$g& g,22?&2-d(h!,-/#!%&'(6%,(5-$/0!&;( $&)( -$,&!&;:&gu_&evu[? d"), +:& d?:& 8& @")0.,2!$):& f?& ;<<a?&n%& $z,g+%,!+(%& ('& !.$& g(!+h,!+(%& ('& 4" +%$ & "%+h$) +!3& !"#$%! ?& business 1)+/$#!%&(h!;-'#:&ug_&uvug? dh$23%:& f?& ;<<;?& t(%!),#+!+(%,2& !"#$%! & #(g+%,!$& "%#$)-),#",!$& $%)(22g$%! :& !"#3& r%# ?&30,%&!/:-( %6(?!;0-,( 1)+/$#!%&:&pg_&ep? fairchild, e. 2003. multiple roles of adult learners. 2-d(h!,-/#!%&'(6%,(4#+)-&#(4-,=!/-':&u<;_&uuvu[? x$$:&f?:&a)(2g,%:&s?:&8&q.(g, :&f?&;<<a?&k,0+%-& !.$&g( !&('&,& g,22&g+#/$ !$)%&"%+h$) +!3_&q.$&5, $&('& !),% '$)& students. college student journal:&pe_&u;<pvu;u[? 2010, vol. 1, no. 1, 142-151 forbus, newbold and mehta 150 advances in business research giancola, j., grawitch, m., & borchert, d. 2009. dealing with the stress of college, >)+:#(1)+/$#!%&(g+$,#-,:9, ea_&;p[v;[e? c,+vf$/:&s?&;<<a?&q.$&"%+h$) +!3&2+'$&5,'$_&a)(g(!+%-& !"#$%! y&$g(!+(%,2&.$,2!.?&1)+/$+'-(g+$,#-,:9:&e;_&p? c$)%,%#$\:&f?&;<<;?&n&w",2+!,!+h$&$z*2(),!+(%&('&!.$&r) !v3$,)&$z*$)+$%5$&('&7,!+%(&5(22$-$& !"#$%! ?&2>4i>(j%+,&$:, pa_&[avgp? o$,)% :& c?:& 8& 9,)#+%$):&k?& ;<<=?& l & +!& !+g$& /$22& *$%!`& q.$& )$2,!+(% .+*& 4$!/$$%& !+g$&g,%,-$g$%!& 4$.,h+() :& perceived effectiveness and work-related morale and distress in a university context. ?!;0-,(1)+/$#!%&(.-'-$,/0( k(h-=-:%8"-&#:&;[_&;eev;p=? kember, d., & leung, d. 2004. relationship between the employment of coping mechanixms and a sense of belonging for part-time students. 1)+/$#!%&$:(i'9/0%:%;9:&;p_&epevee=? o$)):&n?:&7$%%(%:&n?:&8&f,! (%:&@?&;<u<?&q.$&5,22&('&!.$&)(,#_&x,5!() &*)$#+5!+%-& !"#$%! y&5,)&!),h$22+%-&+%!$%!+(% &,%#& behavior. transportation:&e=_&uvue? 7(/$:& f?:&8&9,32$:& ?̂& ;<<=?&dz*2()+%-& !.$&/()012+'$1 !"#3&4,2,%5$?&j%+,&$:( %6(*+,#0-,($&)(?!;0-,(1)+/$#!%&, eu_&;;ev;eg? 7"%#4$)-:&d?& &;<<e?&q.$& +%m"$%5$&('& !+g$& 2+g+!,!+(% :& ',5"2!3:&,%#&*$$)& )$2,!+(% .+* &(%&,#"2!& !"#$%!& 2$,)%+%-_&n& casual model. 50-(j%+,&$:(%6(?!;0-,(1)+/$#!%&:&=p_&[[ev[gg? morris, e., brooks, p., & may, j. 2003. the relationship between achievement goal orientation and coping style. college student journal:&e=_&evg? negga, f., applewhite, s., & livingston, i. 2007. african american college students an stress. college student journal:&pu_&g;evge<? newbold, j., mehta, s., & forbus, p. 2009. f'!&;("$,a-#!&;(#%(+&)-,'#$&)(#0-(&--)'(%6(&%&l#,$)!#!%&$:('#+)-&#'. a,*$)&*)$ $%!$#&,!&!.$&l%!$)%,!+(%,2&n5,#$g3&('&@" +%$ &,%#&a"42+5&n#g+%+ !),!+(%&c+ 5+*2+%$ &6ln@anc>&f+%!$)& d(%'$)$%5$&b)2,%#(:&x7? newbold, j., mehta, s., & forbus, p. 2010. a comparative study between non-traditional students in terms of their demographics, attitudes, behavior and educational performance. m&#-,&$#!%&$:(j%+,&$:(%6(1)+/$#!%&(.-'-$,/0, e_&uv;p? newbold, j., mehta, s., & forbus, p. 2010a. 3%""+#-,( '#+)-&#'( ='e( &%&l/%""+#-,( '#+)-&#'c(>( ;$8( $&$:9'!'( examination of differences in satisfaction with higher education?&a,*$)&*)$ $%!$#&,!&!.$&n (5+,!+(%&('&d(22$-+,!$& k,)0$!+%-&d#"5,!() &6ndkd>&n%%",2&d(%'$)$%5$h&c,22, :&qi? t$/4(2#:&f?:&k$.!,:&s?:&8&x()4" :&a?&;<u<4?&d(gg"!$)& !"#$%! _&l%h(2h$g$%!&,%#&+#$%!+r5,!+(%&/+!.&,%&+% !+!"!+(%&('& higher education. >/$)-"9(%6(1)+/$#!%&$:( -$)-,'0!8:&up_&eevee? t+5(2 (%:&d?:&8&@$ :&f?&uaa=?&stress and anxiety in adult learners and liberal arts schools. paper presented at the n%%",2&k$$!+%-&('&!.$&n (5+,!+(%&'()&!.$&s!"#3&('&c+-.$)&d#"5,!+(%:&n24"w"$)w"$:&tk? nunnally, j. 1978. psychometric theory?&t$/&b()0_&k59),/vc+22 omura, k. 2007. situation-related changes of causal structures and the stress model in japanese college students. social behavior and personality:&ee_&apeva[<? b 4()%$:&k?:&@)+%0:&@?:&d2((%,%:&k?:&c,h+$ :&a?:&k,)0 :&n?:&q")%$):&d?:&8&f+22+,g :&f?&;<<u?&for me or not for me in 4/%#:$&)c($(,-8%,#(%6("$#+,-('#+)-&#(8$,#!/!8$#!%&(!&(0!;0-,(-)+/$#!%&:&692, -(/:&d]77>? palmer, a., & rodger, s. 2009. mindfulness, stress, and coping among university students. canadian journal of counseling:&pe_&uagv;u;? 2010, vol. 1, no. 1, 142-151 forbus, newbold and mehta 151 advances in business research pierceall, e., & keim, m. 2007. stress and coping strategies among community college students. community college journal of research and practice:&eu_&=<ev=u;? robotham, d. 2008. stress among higher education students. ?!;0-,(1)+/$#!%&:&e[_&=eev=p[? ruchti, a., newbold, j., & mehta, s. 2008. f&)-,'#$&)!&;(#0-('8-/!$:(&--)'(%6(/%""+#-,('#+)-&#'. paper presented ,!&ue!.&n%%",2&k,)0$!+%-&k,%,-$g$%!&n (5+,!+(%&x,22&d#"5,!() y&d(%'$)$%5$:&7("+ h+22$&ob? sandler, m. 2002. a structural examination of academic integration, perceived stress, academic performance, and goal commitment from an elaborated model of adult student persistence. paper presented at the annual meeting of the american educational research association, new orleans, l.a. sweet, s., & moen, p. 2007. integrating educational careers in work and family. 3%""+&!#9b(@%,a($&)(*$"!:9, u<_&;euv;e<? patricia forbus earned her mba from the university of arkansas, and has completed post-graduate work at s,g&c(" !(%&s!,!$&j%+h$) +!3?&s.$&+ &)$!+)$#&')(g&nq8q17"5$%!1s@d&,%#&., &/()0$#&, &,&4" +%$ &#$h$2(*g$%!& h(2"%!$$)&'()&!.$&a$,5$&d()* &+%&!.$&j0),+%$?&c$)&5"))$%!&)$ $,)5.&+%!$)$ ! &+%52"#$&*$#,-(-+5,2&)$ $,)5.&)$2,!$#&!(& r) !&-$%$),!+(%:&%(%v!),#+!+(%,2&,%#&5(gg"!$)& !"#$%! ? j%0&(2-d<%:) is an associate professor of marketing at sam houston state university. he received his dba in marketing from st. louis university. his current research interests include pedagogical research with commuter, %(%v!),#+!+(%,2&,%#&r) !&-$%$),!+(%& !"#$%! :&g,)0$!&)$ $,)5.&,%#&5(g*$!+!+h$&+%!$22+-$%5$:&,%#&g,)0$!+%-& !),!$-3?&& c$&., &/)+!!$%&5, $ &(%&!.$&.( *+5$&+%#" !)3:&'(5" +%-&(%&!.$&'()v*)(r!&.( *+5$&*.$%(g$%(%?&c$&., &*"42+ .$#&+%& f(")%,2&('&n**2+$#&d, $&]$ $,)5.:& !.$&f(")%,2&('&x+%,%5$&d, $&]$ $,)5.:& !.$&l%!$)%,!+(%,2&f(")%,2&('&d#"5,!+(%& research, and the academy of educational research journal, among others. 4$&n$9(o-0#$&$,)%$#&.+ &a.?c?&,!&!.$&j%+h$) +!3&('&t()!.&q$z, &+%&uaaa?&d"))$%!23:&.$&+ &*)('$ ()&('&g,)0$!+%-&,!& s,g&c(" !(%&s!,!$&j%+h$) +!3?&c+ &5"))$%!&)$ $,)5.&+%!$)$ ! &+%52"#$&*$#,-(-+5,2&)$ $,)5.&)$2,!$#&!(&r) !&-$%$),!+(%:& non-traditional and commuter students. also, he conducts research in the area of small business, entrepreneurship, and franchising. 2010, vol. 1, no. 1, 142-151 forbus, newbold and mehta advances in business research 2011 volume 2-194-202-dearman-and-bell.pdf dearman and bell advances in business research 2011, vol. 2, no. 1, 194-202 194 business financing factors influencing entrepreneurs’ decisions to prepare a business plan david dearman, university of arkansas at little rock joseph bell, university of arkansas at little rock this paper investigates factors that influence entrepreneurs’ decisions to prepare business plans. data is obtained from a survey administered to clients of the arkansas small business and technology development center and designed to address various aspects of financing options, including availability/use of outside debt or equity funds and owner attitudes toward various funding options. factors identified as influencing the decision to prepare a formal business plan in support of financing efforts include greater amount of required start-up costs, proportion of start-up costs raised from outside sources, and self-assessment of financial knowledge. the business press often promotes the writing of a business plan as being indispensable for entrepreneurs’ decision-making, but tends to do so without resorting to systematic empirical evidence. clearly, the mere existence of a business plan does not justify making an inference as to its actual use or even its perceived usefulness. it may well be that two organizations both have a business plan, but that they use them in rather different ways, and consider them useful in different senses. furthermore, not having a plan may be beneficial in some way. for example, an entrepreneur that was previously employed in the industry may be assumed to be more informed about markets and industry practices than a person who was not previously employed in the industry. in such a case, writing a business plan may be particularly beneficial to a previously unemployed entrepreneur. likewise, a novice entrepreneur may gain more benefit from writing a business plan than a serial entrepreneur. in a different sense, a portfolio entrepreneur facing the challenge of juggling the complexity of the simultaneous involvement in different ventures may feel that the presence of written business plans helps to shift their focus from one venture to the next. so, there are good reasons to believe that the impact of business plans on venture performance may not be uniform across all entrepreneurial profiles and contexts. the added complication is that the propensity of entrepreneurs to select to write a business plan may itself be influenced by the profile of the new venture and its business context. a venture which contains people with plenty of relevant experience may feel that writing a business plan is a costly use of time. by contrast, an entrepreneur that knows little about the market and with ‘lower’ entrepreneurial capabilities may feel that the paper exercise of writing a business plan is both informative and instructive. it is, therefore, likely that, due to selection effects, the profile and context of ventures with business plans will vary systematically from those without plans. the issue is that it is easy to confuse the impact of business plans on performance with differences in performance due to selection effects. the contribution of this paper is to identify those types of selection effects related to business financing that impact the entrepreneurial decision as to whether to prepare a business plan in support of efforts to obtain funding. the second section reviews the literature and develops hypotheses related to factors influencing the preparation of business plans. the third section describes the research method employed for this study, the forth section presents results, and the final section discusses implications of these results and makes recommendations for future research. literature review planning has always been regarded as a cornerstone of management (gulick, 1937; fayol, 1949; koontz and o'donnell, 1955). at the same time, there has been considerable debate in the management literature about the actual merits that planning activities bring for organizations. while some studies have documented a positive impact of the extent of planning on performance, others have cast doubt at the existence of such a causal relationship (pearce, et al., 1987; boyd, 1991; greenley, 1994). the question dearman and bell advances in business research 2011, vol. 2, no. 1, 194-202 195 concerning the value of planning has also been addressed in the entrepreneurship literature (see gruber, 2007 for a recent review). a primary role of planning is to allow organizations and individuals to respond proactively to opportunities and threats presented by their uncertain environments (anshoff, 1979; chakravarthy, 1987; hax and majluf, 1990). in new ventures just starting up, plans may be of particular relevance, since these companies do not yet have much experience which they could use as a substitute for planning. alternatively, one may argue that sophisticated planning practices are less relevant in new ventures, given that these companies often operate in dynamic environments which demand quick action rather than extensive deliberation. the entrepreneurship literature is divided about the relative merits of planning activities, with some authors stressing the possible benefits of planning (e.g. block and macmillan, 1985; matthews and scott, 1995; shane and delmar, 2004) and others warning against excessive planning (e.g. bird, 1988; carter et al., 1996; allinson et al., 2000). furthermore, surprisingly little is known about the ways in which business plans are actually used in new ventures and to what extent they are considered useful by the entrepreneurs and managers themselves. in quantitative studies, business planning is often treated as a “black box” and approximated with often crude measures. while such an approach may be instructive for understanding broad patterns concerning the existence of a business plan, its level of detail, or the frequency of its modification, such an approach leaves somewhat unexplored the dynamics of business planning and the details of how and why plans are actually used (see gartner and birley, 2002). for example, it has been demonstrated in a primitive entrepreneurial setting that the demand for planning arises from the need for control; that is, plans provide the basis for performance measures that promote accountability for results (gstraunthaler and hendry, 2011). business plans are a prevalent feature of new venture management and are encouraged by government agencies, education institutions, and consultants. they are frequently a core requirement when seeking financial support. there is also a widespread belief that writing a business plan will impact favorably on venture performance. for example, bygrave and zacharakis (2004) argue that the development of an entrepreneurial idea alongside a sound execution strategy are the key means through which writing a business plan can enhance the performance of a new venture. they point out that most business plans require entrepreneurs to address various questions and employ analytical management techniques. this process allows entrepreneurs to develop and test their business strategy and subject it to market research (gruber, 2007). and so, it is argued that business plans stimulate faster and better decision making because entrepreneurs can test their assumptions before expending valuable resources. in contrast, honig (2008) and honig and karlsson (2004) question if written business plans are anything more than mimetic devices that, at best, serve to legitimate the new venture. indeed, formal business planning by the small business sector has been characterized as unwarranted (gibson and cassar, 2005), yet recognizing that while planning does not necessarily lead to high performance, high performers are likely to use planning. also, bhide (2000) suggests that the impact of business plans on new venture performance is unlikely to have a generically positive, negative, or negligible effect. instead, he posits that the efficacy of business plans is governed by the context within which business plans are written. some are written to raise loan finance with the purpose of reassuring lenders of the low risk and secure positive cash flow position of the venture; others are written to help a founding self-funded entrepreneur devise a market entry and growth strategy for a high risk innovative new product in an emerging uncertain market. the effects on performance are unlikely to always be the same in such widely varying contexts. thus, the efficacy of written business plans may be context specific: potentially likely to have a positive impact in more predictable, stable markets but less so in more uncertain markets where entrepreneurs are introducing highly innovative products and services (bhide 2000). this discussion suggests that contexts and venture profiles influence the amount of information available to an entrepreneur and how a business plan might help increase this influence. dearman and bell advances in business research 2011, vol. 2, no. 1, 194-202 196 capital acquisition is one of the most important and challenging issues facing small firms (ang, 1992). key specific contexts related to the initial financing requirements for the business operations include amount of initial investment required to begin operations of the business and the percent of start-up funds obtained from outsiders. as the required investment increases, especially investment obtained from outside sources, the pressure to justify and safeguard that investment through formal planning processes is likely to increase. h1: preparation of business plans will be positively associated with initial investment. h2: preparation of business plans will be positively associated with the proportion of outside investment. other contextual considerations expected to impact the formal planning decision involve the likely sources of personal financial contribution by the owner(s) at start-up, sources of outside financing (including both debt and equity capital sources), the projected sufficiency of start-up funds, and extent of investor involvement in the activities of the business. small businesses rely on private capital markets, while larger firms are financed through public markets. information on small businesses is much less readily available than information on larger firms, thus the private capital markets are characterized by complex contracts managed by specialized financial intermediaries (berger and udell 1998). in contrast, bootstrap capital can complement or reduce dependence on traditional sources of capital, allowing firms to leverage assets through informal arrangements (ebben and johnson, 2006; van auken, 2003; bhide, 1992), it is likely that those businesses with greater reliance on more formal financial arrangements will be more likely to prepare a business plan in support of those financing efforts than those businesses that arrange for financing using less formal bootstrapping arrangements. however, there is no expectation that the formal arrangements associated with debt financing will result in different formal planning frequencies than equity financing. h3: preparation of business plans will be positively associated with the formality of financing arrangements. h4: the incidence of business plan preparation associated with debt financing will not be different from that associated with equity financing. in addition, owner knowledge of financial issues and the nature of financial advice given to the owner may have an impact on the extent of formal planning that is undertaken. a recent study to delineate capital budgeting processes in small firms noted that a majority of small business owners did not have financial expertise due to their educational background (danielson and scott, 2006). furthermore, there is some consensus that cognitive processes play a critical role in social behavior and thought (bandura, 2001; krueger, 2005). the role of perceived self-efficacy, an individual’s judgment of their capability to attain a designated type of performance, is such that it mediates the relationship between knowledge and human action (bandura 1986). whereas high entrepreneurial self-efficacy produces strong probabilities of entrepreneurial activity (mcgee et al. 2009), it is expected that perceived level of financial knowledge by the entrepreneur is related to their efforts to execute formal financial planning. h5: preparation of business plans will be positively associated with the self-assessment of financial knowledge. method a survey was administered by email to small business entrepreneurs identified and selected from the client pool of the arkansas small business and technology development center (asbtdc), which provides a broad variety of consulting services to different client groups, from entrepreneurs in the planning stage to small companies that have been in business for many years. the survey population dearman and bell advances in business research 2011, vol. 2, no. 1, 194-202 197 included 1,303 going-concern companies that had been in operation for at least two years, having valid email addresses and receiving any type of counseling services from the center. three sets of email messages prepared by the researchers were sent by asbtdc to the selected survey population. the first message was sent was sent a week before the survey was available to potential respondents; the second message was sent when the survey became available and requested that the clients complete the survey; and the third message was sent the following week as a reminder that the survey was on-line and available for responses. as required by institutional review board guidelines, potential survey respondents were assured of confidentiality and anonymity, noting that participation was strictly voluntary. no incentives were offered by the researchers or asbtdc for participation in the survey. the researchers are unaware of the identities of the respondents and are not personally involved with any respondents to this study. survey respondents were asked to complete a 28-item survey instrument. in addition to asking questions about the use of a business plan, the survey instrument was designed to address various aspects of financing within small businesses including the availability and use of outside debt or equity funds and owner attitudes toward various funding options. specific question topics included founders’ ownership and allocation of equity within the firm, owners’ knowledge level concerning business financing, owners’ financial contributions to the business startup, the nature and extent of external funding for the firm, current capital structure, owners’ attitudes toward funding options (both previously employed and potential future options), the purposes for previously received debt and equity funding, and plans for raising additional capital. results a total of 162 survey responses were collected from the 1303 survey population, resulting in a 12.4% response rate. business plans were prepared for 103 of the 162 businesses represented (64%). respondents included 89 males, 66 females, and 7 individuals who did not indicate gender. there was with no significant difference between gender with regard to the decision as to whether to prepare a !"#$%""&'()$&*+ 2 = 0.261, p = 0.609, df = 1). in addition, there were 79 businesses with one founder, 59 with two founders, 13 with three founders, and 11 with four or more founders (mean = 1.8, median = 2). this result is generally consistent with a recent national survey in which small business firms had an average of three owners with a median of one (mach and wolken, 2006). figure 1: initial cost of investment the dollar amount of start-up costs was one factor related to the decision to prepare a business plan (see figure 1). the sample mean for initial start-up costs was $114 thousand with standard deviation of $140 thousand. this variation is indicative of a wide range of operating costs associated with different types of businesses. consistent with h1, business plan preparation is associated with the amount of startdearman and bell advances in business research 2011, vol. 2, no. 1, 194-202 198 !" #$%&%" '( 2 = 13.613, p = 0.034, df = 6). in the smallest two groups 29 of 50 (58%) entrepreneurs prepared a business plan, whereas only 21 of 24 (88%) prepared a business plan in the largest two groups. figure 2: percent of startup cost obtained from outsiders with regard to the question concerning the percent of total start-up finances received from outside sources, results shown in figure 2 (mean = 35.8%) are consistent with similar results reported by cassar (2003) (mean = 40.2%). however, the observed relationship with business plan preparation is marginally !"#!$!%&#'( )* 2 = 11.915, p = 0.064, df = 6). while 43 of 70 respondents in the two lowest categories prepared business plans, 57 of 75 (76%) in the top three categories did. thus, h2 is marginally supported. figure 3: sources of personal financial contribution at start-up the overwhelming majority of respondents (97%) reported that they used at least some of their own funds in the start-up phase. as shown in figure 3, ninety-three (57%) provided funds from savings, while 27 (17%) provided money from home equity, 17 (10%) used monies from sale of personal assets, and 16 (10%) provided money from retirement accounts. however, direct financing through banks and/or credit cards is still one of the most important sources (31.2%) of business funding. yet, no one factor or categorical combinations of factors are significantly associated with preparation of a business plan; significance levels of the individual chi-square analyses range from 0.378 to 0.948. thus, h3 is not supported. dearman and bell advances in business research 2011, vol. 2, no. 1, 194-202 199 figure 4: sources of outside financing figure 4 summarizes responses to a question about types of financing received over the life of the business, not just at start up. similar to the findings presented in figure 3, credit cards and bank loans are the primary sources of on-going financing. however, the likelihood of preparing a business plan for entrepreneurs obtaining financing with equity-based financing from outsiders, relatives, or venture capitalists was marginally different from that of entrepreneurs obtaining debt financing from the various !"#$%&'()!%$*+%#! $,-2 = 6.305, p = 0.098, df = 3), based on the summary data presented in table 1, which summarizes the number of respondents obtaining debt financing, equity financing, both types, or neither at some time over the life of the business at or after start up. the majority of respondents obtained debt financing only and had the lowest incidence of business plan preparation, while the highest incidence of business plan preparation was observed for respondents who either obtained both debt and equity financing or neither type of financing. thus, h4 presented as a null hypothesis is marginally rejected, not with regard to a difference between debt and equity financing but with regard to the combination of both or the lack of both. table 1: outside financing: debt vs. equity debt equity both neither total plan 53 20 20 16 109 no plan 35 10 5 3 53 total 88 30 25 19 162 plan % 60% 67% 83% 84% 67% figure 5: owners’ financial expertise at start-up dearman and bell advances in business research 2011, vol. 2, no. 1, 194-202 200 respondents were asked to reflect upon and rate their level of financial knowledge before they attempted to acquire money to start their business. as summarized in figure 5 in the previous page, while 30% of the respondents rated themselves as “novice”, a majority considered that they had some more advanced level of financial expertise and 4% evaluated their knowledge at the expert level. table 2: outside financing: debt vs. equity expert comp know novice total plan 6 29 41 33 109 no plan 0 22 12 19 53 total 88 30 25 19 162 plan % 100% 57% 77% 63% 67% the pattern of business plan preparation, summarized in table 2, indicates significant differences in knowledge level for those who develop plans and those !"# $"# %"&# '( 2 = 8.222, p = 0.042, df = 3), although the differences were not strictly linear. while the self-professed experts unanimously prepared business plans, those who considered themselves knowledgeable, but not competent was the second highest category of planners. conclusion and recommendations the contribution of this paper is to identify those types of selection or contextual effects that impact the entrepreneurial decision as to whether to prepare a business plan in support of efforts to obtain funding. the results reported above provide insights into a dynamic and complex process related to the development of business plans by entrepreneurs. although the amount of financing required to start a business is significantly related to the incidence of formal planning, there is no clear relationship between the decision to prepare a business plan and the type of financing sought at or subsequent to start up. the fact that the highest incidence of formal planning occurred either when both types of financing were sought or when neither was sought indicates that a significant motivation for investing the time and effort into formal planning processes related only to magnitude of finances required, not type of financing sought. furthermore, one or more factors unrelated to outside financing considerations seem to effect the decision to prepare a business plan. this latter result is consistent with prior studies that suggest entrepreneurs utilize the planning process as a learning experience, and further suggest that the resulting learning accomplished in the process is achieved with varying degrees of success. future research should investigate the psychological dynamics related to planning and related management control processes. of particular interest would be various business contexts and entrepreneurial profiles that mediate or moderate the positive effects of planning on organizational performance. references allinson, c., chell, e., & hayes, j. 2000. intuition and entrepreneurial behavior. european journal of work and organizational psychology, 9: 31-43. ang, j. 1992. small business uniqueness and the theory of financial management. journal of small business finance, 1: 3-13. bandura, a. 1986. social foundations of thought and action: a social cognitive theory. englewood cliffs, n. j.: prentice-hall. bandura, a. 2001. social cognitive theory: an agentic perspective. annual review of psychology, 52: 136. dearman and bell advances in business research 2011, vol. 2, no. 1, 194-202 201 berger, a., & udell, g. 1998. the economics of small business finance: the roles of private equity and debt markets in the financial growth cycle. journal of banking and finance, 22: 873-897. bird, b. 1988. implementing entrepreneurial ideas: the case for intention. academy of management review, 13: 442-453. bhide, a. 1992. bootstrap finance: the art of start-ups. harvard business review, 70: 109-117. bhide, a. 2000. the origin and evolution of new businesses. new york: oxford university press. block, z., & macmillan, i. 1985. milestones for successful venture planning. harvard business review, 63: 184-196. boyd, k. 1991. strategic planning and financial performance: a meta-analytic review. journal of management studies, 28: 353-374. burke, a., fraser, s., & greene, f. 2010. the multiple effects of business planning on new venture performance. journal of management studies, 47: 391-415. carter, n., gartner, w., & reynolds, b. 1996. exploring start-up event sequences. journal of business venturing, 11: 151-166. danielson, m., & scott, j. 2006. the capital budgeting decisions of small businesses. journal of applied finance, 16: 45-56. ebben, j., & johnson, a. 2006. bootstrapping in small firms: an empirical analysis of change over time. journal of business venturing, 21: 851-865. fayol, h. 1949. general and industrial management. london: pitman. gartner, w., & birley, s. 2002. introduction to the special issue on qualitative methods in entrepreneurship research. journal of business venturing, 17: 387-395. gibson, b., & cassar, g. 2005. longitudinal analysis of relationships between planning and performance in small firms. small business economics, 25: 207-222. greenley, g. 1994. strategic planning and company performance: an appraisal of the empirical evidence. scandinavian journal of management, 10: 383-396. gruber, m. 2007. uncovering the value of planning in new venture creation: a process and contingency perspective. journal of business venturing, 22: 782-807. gulick, l. 1937. notes on the theory of organization. in l. gulick, & l. urwick, (eds.), papers on the science of administration. new york: institute of public administration, columbia university. gstraunthaler, t., & hendry, s. 2011. entrepreneurial and accounting education through action-based learning: the genesis project. journal of entrepreneurship education, 14: 125-146. honig, b. 2008. institutional isomorphism and the likelihood of business planning: the moderating effects of environmental uncertainty. babson annual conference, unc chapel hill. honig, b., & karlsson, t. 2004. institutional forces and the written business plan. journal of management, 30: 29-48. koontz, h., & o'donnell, c. 1955. principles of management. new york: mcgraw-hill. dearman and bell advances in business research 2011, vol. 2, no. 1, 194-202 202 krueger, n. 2005. the cognitive psychology of entrepreneurship. in z. acs, & d. audretsch, (eds.), handbook of entrepreneurship research: an interdisciplinary survey and introduction, pp. 106-140, new york: springer. mach, t., & wolken, j. 2006. financial services used by small businesses: evidence from the 2003 survey of small business finances. washington d.c.: federal reserve board. matthews, c., & scott, s. 1995. uncertainty and planning in small and entrepreneurial firms: an empirical assessment. journal of small business management, 33: 34-52. mcgee, e., peterson, m., mueller, l., & sequeria, m. 2009. entrepreneurial self-efficacy: refining the measure. entrepreneurship theory and practice, 28: 129-144. pearce, j., freeman, e., & robinson, r. 1987. the tenuous link between formal strategic planning and financial performance. academy of management review, 12: 658-675. shane, s., & delmar, f. 2004. planning for the market: business planning before marketing and the continuation of organizing efforts. journal of business venturing, 19: 767-785. van auken, h., & neeley, l. 1996. evidence of bootstrap financing among small start-up firms. entrepreneurial and small business finance, 5: 235-249. david dearman is associate professor of accounting at university of arkansas at little rock. he received his ph.d. in accounting from university of memphis. his primary research interests include judgment and decision making in management accounting. he has published in journal of management accounting research, contemporary accounting research, journal of ethics and behavior, and others. joseph bell is an associate professor of entrepreneurship at university of arkansas at little rock. he received his mba at michigan state university and a j.d. from thomas m. cooley law school. his current research interests include early-stage fundraising, entrepreneurship course work, issues affecting entrepreneurial businesses, and case writing. he has published in entrepreneurship theory and practice, entrepreneurial executive, new england journal of entrepreneurship, and others. advances in business research 2010 volume 1.pdf 188 advances in business research !"#$%"#&'#(!"#)"*#+,(-".-","/-0# !"#123"#4(/56#$..-&27!#(&#8#9-:,7:.;"3#'&-#<&&3(:,%# 9=>?@ 4a#9-:&-:(:"3b=>@#c"7:3:&,#d2(-:e#2,5#</3:,"33#="2;:(6#1!2,%"#d&5"; rosalie lober, nova southeastern university thomas tworoger, nova southeastern university j. preston jones, nova southeastern university !"#$%!&'())*+'!,$'-'./0123 '.45%65)*$&7'!,$'.45845!5$&9/02':$65&58%';(!45<'(%#'!,$'="&5%$&&'/$(*5!+'>,(%?$';8#$*' to three business cases with various capital structures. these principles and tools guide entrepreneurs to transform !,$54'@"&5%$&&'!8'!,$'%$<!'*$a$*'8b'&"66$&&'(%#')48c!(@5*5!+'@+'$<)*85!5%?')4(6!56(*'&8*"!58%&'(#8)!$#'@+'184!"%$'dee' companies. instructors introduce students to the principles and tools and then assign teams of students to work on !,$'6(&$&f' !"#$%!&')*(+'!,$'48*$'8b'!,$'68g)(%+h&'$%!4$)4$%$"4'5%'g(i5%?'*8%?'!$4g')48c!(@*$'#$65&58%&'(%#'!8'(a85#' &$*bj#$b$(!5%?')(!!$4%&f' !!"#$%&'( )"( )*+(,-.-(/"0+#&1+&)(.1233(456%&+66(789!+("8( $0"!2!:;( )*+#+(2#+(2<<#"=%12)+3:(>?-@(1%33%"&( small business enterprises in the united states with approximately 10.6 million enterprises owned by women, 37 million baby boomers, former corporate employees, small manufacturers, service providers and future generation a(2&$(b(+&)#+<#+&+5#6-(c&(>dd>;()*+#+(e+#+(>>-f(1%33%"&(61233(g56%&+66+6(<#"0%$%&'(h?(<+#!+&)("8(&+e(i"g6(%&()*+( economy. small business entrepreneurial endeavors represent 99.7 percent of all employers and 97 percent of all us +=<"#)+#6(j.1233(456%&+66( $1%&%6)#2)%"&;(>ddklm+12&$6("&(+&)#+<#+&+5#6(2<<+2#()"(g+('#+2)+#(&"e()*2&(2)(")*+#()%1+6(%&()*+(*%6)"#:("8(g56%&+66-(n56)"1+#6( !2&(g+( %&!#+26%&'3:($+12&$%&'(2&$(9!o3+( %&( )*+%#(!*2&'%&'($+6%#+6;(g+))+#(+$5!2)+$(2&$(1"#+(6"<*%6)%!2)+$( )*2&( previously. global competition, decreasing product life cycles, new and innovative technology and creative strategic 233%2&!+6()*#+2)+&(+0+&()*+(1"6)(+6)2g3%6*+$(g56%&+66+6-(.5<+#6)"#+6(e%)*("&+p6)"<(6*"<<%&'(65<<32&)(q523%):(2&$( !56)"1+#(6+#0%!+(8"#()*+(*2##%+$(!"&651+#-(n"&q5+#%&'()*+(!*233+&'+6("8(3+2$+#6*%<;(6)#5!)5#%&'(2&$(5&$+#6)2&$%&'( the capital and commodity markets and dealing with ambiguity separate the winners and losers. there is a new +1<*26%6(8"#(+&)#+<#+&+5#6()"(g+(!*2&'+(3+2$+#6(e*"(!2&(%&r5+&!+(2&$(1"g%3%s+(6)2o+*"3$+#6;(g")*(%&(2&$("5)("8( )*+%#(g56%&+66-(t*+:(2$2<)()"(!*2&'%&'(6)#2)+'%+6(g26+$("&($+12&$6(8"#(r+=%g%3%):;(#+q5%#+1+&)6(8"#(%&&"02)%"&(2&$( <#"0%6%"&6(8"#(6)#2)+'%!(<2#)&+#%&'-(t*+(9))+6)(+&)#+<#+&+5#6(e*"(2#+(e%33%&'()"(%&&"02)+(2&$()2o+(#%6o6(e%33(g+()*+( survivors. today, it appears that entrepreneurs must balance the day-to-day tactical operations with the larger strategic issues of vision and building customer relationships. delegating responsibilities, building a leadership base and 8"!56%&'("&(+1<3":++(2!!"5&)2g%3%):;(233(0+#:(q5%!o3:;(#+653)(%&()"$2:u6(+&)#+<#+&+5#%23(<#+665#+6.)5$+&)6(2<<3:()*+(h(vw7xct.(v#%&!%<3+6;(v#%"#%)%+6yw7c(m+!%6%"&(z2)#%=(2&$()*+(456%&+66(w+23%):(n*2&'+(z"$+3( j["g+#;(>ddfl()"()*+(!26+(6)5$%+6-(t*+6+(<#%&!%<3+6(<#"0%$+6(+&)#+<#+&+5#6(e%)*(2(6:6)+12)%!(2<<#"2!*()"(12o%&'( solid decisions that incorporate strategy, tactics and key conclusions, ensuring the most promising opportunities 2&$()5#&%&'()*+1(%&)"(<#"9)2g3+(0+&)5#+6-(.)5$+&)6(!2&(2<<3:()*+(<#%&!%<3+6;(12)#%=(2&$(1"$+3(n\76("8(](v#"$5!)6( c&!-;( '5#5( c12'+6( 2&$(^>z( )"( %3356)#2)+( +88+!)%0+(56+("8( )*+(1"$+3-(\2!*(n\7( 82!+$($%88+#+&)( !*233+&'+6( 2&$( opportunities. f"6#$33/g.(:&,3#9-&h:5"#1&,("e(#'&-#(!"#9-:&-:(:"3b=>@#c"7:3:&,#d2(-:e#2,5#</3:,"33#="2;:(6#1!2,%"#d&5";# i<=1dj t*+(25)*"#6(65''+6)()*+(8"33"e%&'(o+:(26651<)%"&6(8"#(+88+!)%0+3:(56%&'(g")*($+!%6%"&p12o%&'(1"$+36_ `( balance stability and change to avoid unnecessary chaos. `( !!+<)()*2)(:"5#(<+"<3+(12:(*20+($%89!53):(1"0%&'(g+:"&$(2&(%&)+#&23(8"!56`( people overestimate the capabilities of their own company. `( n*233+&'+6(2&$('"236(2#+(3%o+($:&21%!;(3%0%&'("#'2&%616`( learning is continuous. 2010, vol. 1, no. 1, 188-197 lober, tworoger and jones 189 advances in business research t*+( 456%&+66( w+23%):( n*2&'+(z"$+3( %6( 2&( %)+#2)%0+( <#"!+66-( t*+( 4wnz( %6( 2( <#"!+66( )*2)( %6( &"&p3%&+2#( 2&$( #+q5%#+6(!"&)%&5"56(2$i56)1+&)(g26+$("&(&+e(%&8"#12)%"&(g+!"1%&'(202%32g3+-( 6(&+e(%&8"#12)%"&(%6($%6!"0+#+$;( the information is incorporated into the already existing framework. many times, this information will challenge *:<")*+6+6(2&$($%#+!)%"&(8"#(6"30%&'()*+(<#"g3+1("#(2<<#"2!*%&'(2&("<<"#)5&%):-(4:(9#6)(56%&'()*+(w7cyv#%"#%)%+6( m+!%6%"&(z2)#%=;()*+(+&)#+<#+&+5#(12:(9#6)(<3")(6"1+("8()*+(a)"<("8(1%&$u("<)%"&6(2&$(9&+()5&+()*+%#(!*"%!+6(56%&'( )*+(456%&+66(w+23%):(n*2&'+(z"$+3-( n32#%):(2&$(8"!56;()*+(*23312#o("8(g")*()*+('#2<*(2&$()*+(1"$+3(e%33(+&2g3+()*+(&+e(+&)#+<#+&+5#()"(12o+(e%6+#;( )2#'+)+$(2&$(826)+#($+!%6%"&6(e%)*(2&(+1<*26%6("&('#"e)*(2&$(<#"9)2g%3%):(%&()*+%#(12#o+)6-(t*%6(12)#%=(*+3<6("&+( 1"0+(g+:"&$()*+(9#6)(%&6)%&!)6(2&$('5%$+6()"()*+(1"6)(<#+66%&'(<#"g3+1("#('#+2)+6)("<<"#)5&%):-(( b")(233(<#"g3+16(#+q5%#+( )*+(621+(%&0+6)1+&)("8( )%1+(2&$(1"&+:-(x"#(+=21<3+;(2(<#"$5!)( 3%&+(12:(g+( 3"6%&'( 12#o+)(6*2#+-(.*"53$(:"5(%&0+6)(1"#+(1"&+:(%&()*%6(<#"$5!)("#(3+20+(%)(a26(%6u;("#(+0+&(3%q5%$2)+()*+(<#"$5!)()"(56+()*+( 1"&+:(+36+e*+#+c(t*+(2&6e+#($+<+&$6("&(e*2)(+36+(%6(*2<<+&%&'(%&()*+(g56%&+66-( &")*+#(<#"$5!)(12:(g+(6+33%&'( well, generating high margins and projecting a continuous high revenue stream for the next few years. further investment in the successful product may be a better alternative than adding money to a declining product. =>@b9-:&-:(:"3#c"7:3:&,#d2(-:e t*+(w7cyv#%"#%)%+6(m+!%6%"&(z2)#%=(o++<6()*+(8"!56_(c&0+6)(%&()#2&68"#1%&'(!*2&'+6()"()*+(g56%&+66()*2)(2#+(g")*( *%'*(<#%"#%):(2&$(<#"0%$+(2(*%'*(#+)5#&("&(%&0+6)1+&)6-( 6(2(#+653)("8()*+(w7cyv#%"#%)%+6(m+!%6%"&(z2)#%=;()*+(&+e( +&)#+<#+&+5#;( 6)#%0%&'( )"(g""6)(g56%&+66( )"( %)6(12=%151(<#"9)(<")+&)%23(e%33(g+!"1+( 8"!56+$("&( )*+( %&)+#6+!)%"&( "8(e*2)( %6(1"6)( <#"9)2g3+( 8"#( )*+( !56)"1+#( 2&$(e*2)( %6(1"6)( <#"9)2g3+( 8"#( )*+%#( g56%&+66-( t*+( $+!%6%"&(12)#%=( 6:6)+12)%!233:(%$+&)%9+6(6)#2)+'%!("<<"#)5&%)%+6(8"#()2o%&'(2!)%"&."1+("8()*+6+("<<"#)5&%)%+6(2#+_(m"(&")*%&'(2&$(o++<(26(%6;(*%#+(2(!"&653)%&'(!"1<2&:()"($"()*+(e"#o;(*%#+(1"#+( 6)288;(2$$(1%66%&'(!2<2g%3%):( jg5:("#($+0+3"<( %)l;("g)2%&(9&2&!%&';(1+#'+(e%)*(2&")*+#(!"1<2&:;(2!q5%#+(2&")*+#( company, outsource the function needed, sell the company and form strategic alliances with other companies. there is less risk for a business when it has systematically evaluated its priorities and the probable returns on %&0+6)1+&)(e%)*()*+(w7cyv#%"#%)%+6(m+!%6%"&(z2)#%=-(t*+(2=+6("8()*+(12)#%=(2#+(v#%"#%)%+6(2&$(w+)5#&("&(c&0+6)1+&)priorities v#%"#%)%+6("<)%"&6(j%&0+6)1+&)("<)%"&6l(156)(3+2$()"(!#+2)%"&("8(!56)"1+#(0235+-(t*+(q5+6)%"&6()"(26o(e*+&(<3"))%&'( )*+(<#%"#%)%+6(2=%6(2#+_ `( d"e(e%33()*%6(!*2&'+(g+&+9)()*+(!56)"1+#c `( d"e($"+6()*+(+&)#+<#+&+5#(o&"e()*%6c the priorities selected may result in a strategic change in direction or operational actions resulting in more +89!%+&)(<#"!+66+6()*2)(<#"$5!+('#+2)+#(12#'%&6(2&$y"#(<#%!%&'(2$i56)1+&)6-(( return on investment t*+(<#"i+!)(2!)%"&6(<3"))+$("&()*%6(2=%6(12:(#+653)( %&(9&2&!%23;(<+"<3+;( )%1+(2&$(")*+#(#+)5#&("&(%&0+6)1+&)6-( t*+(8"5#(q52$#2&)6("8()*+(12)#%=(#+<#+6+&)("<)%"&6(8"#(2!)%"&6()"()2o+(#%'*)(&"e-(v#%"#()"()2o%&'(2!)%"&;()*+(4wnz(%6( #+!"11+&$+$(j6++(g+3"el-(t*+(q52$#2&)6("8()*+(12)#%=(<#"0%$+(%&8"#12)%"&(8"#(#+)5#&("&(%&0+6)1+&)(j*%'*("#(3"el( 2&$(<#%"#%):(j*%'*("#(3"el(8"#(+2!*(<"66%g3+("<)%"&(2&$(65g6+q5+&)(2!)%"&6-(t*+(8"5#(q52$#2&)6(2#+_ high low low high r e tu rn o n i n v e s tm e n t !"#!"$% &''()*+)"+ transform,($"-".' profits opportunity 2010, vol. 1, no. 1, 188-197 lober, tworoger and jones 190 advances in business research k# keep as is. a business is running well with no pressing problems may choose to remain at the current level of <#"9)2g%3%):(2&$(&")(12o+(!*2&'+6()"('#"e()*+(g56%&+66-(c8(266%'&+$()"()*%6(q52$#2&);(%)(12:(g+(e%6+()"(!*233+&'+( %8( )*+(g56%&+66( %6( g+!"1%&'( !"1<32!+&)-( #+("<<"#)5&%)%+6(1%66+$( )"( !#+2)+('#+2)+#( !56)"1+#(0235+c(t*+(o+:( learning is not to drift into the “keep as is” mode of operating. k# >.(:g:l"-(e*+&(<#"9)2g%3%):(%6()*+(#+653)("8(+89!%+&)(2&$(+88+!)%0+("<+#2)%"&6;()*+&(#+)5#&("&(%&0+6)1+&)(%6(*%'*( 2&$()*+#+(%6(3"e(<#%"#%):()"(!*2&'+(2)()*%6()%1+-(t*+(1+662'+("8()*%6(q52$#2&)(%6()"(ao++<(:"5#(+:+("&()*+(g233u(2&$( 12&2'+()*+(!5##+&)(6%)52)%"&(e+33-(7<)%1%s+(2!)%"&6(g:(+&65#%&'(!"&)%&5"56(+89!%+&!:(2&$(%1<#"0+1+&)-(^++<( abreast of market trends and changes to avoid complacency and have a clear frame of reference and time frame. k# act quickly-(e%)*%&()*%6(q52$#2&);(2(g56%&+66(82!+6(%11+$%2)+()*#+2)(8#"1(e%)*%&("#(8#"1("5)6%$+(12#o+)(8"#!+6-( c8(2(g56%&+66(1%66+6()*+("<<"#)5&%):()"(2!)(q5%!o3:;(%)(12:(&+0+#(#+!"5<(#+0+&5+("#(12#o+)(6*2#+(3"6)()"()*+()*#+2)-( threats can be new entrants or competitors that emerge in the market with a superior solution or unanticipated expenses that may reduce the funds available to address the threat. threats may include a key employee may leave, sales may fall, misreading the market or unexpected customer market changes may occur. there may also g+(!*2&'+6(%&('"0+#&1+&)(#+'532)%"&6()"(2$$#+66-(t*"5'*()*+(#+)5#&("&(%&0+6)1+&)(8"#(!*2&'+6(#+q5%#+$()"(1++)( any of these threats may be low, failure to change may result in a big loss. it is important to stay aware. k# transform-( (6"35)%"&(%&()*%6(q52$#2&)(#+q5%#+6(2($#212)%!(6)#2)+'%!(6*%8)-(w+)5#&("&(%&0+6)1+&)(%6(*%'*(e*+&()*+( solution is effective. action is a high priority because to remain a key player in the marketplace, there must be change. balancing risks is essential. a business must have the core capabilities for changing right now. if not, the )#2&68"#12)%"&(12:(g+()""($%6#5<)%0+(8"#(+1<3":++6-(t*+#+(12:(&")(g+(6589!%+&)(85&$%&'(!"11%)1+&)6(+%)*+#-( however, with this matrix, the entrepreneur knows that a dramatic shift is important for the company’s future. t*%6(12)#%=(g+!"1+6()*+(#"2$12<(8"#(2(!"1<2&:()"()2o+()*+(2!)%"&6(#+q5%#+$()"(a'+)(<#+<2#+$u(2&$(<"6%)%"&()*+( !"1<2&:(8"#()*+()#2&68"#12)%"&(26(q5%!o3:(26(<"66%g3+n%#!516)2&!+6(!2&(!*2&'+(q5%!o3:-(x"!56%&'("&("&+(q52$#2&)(!2&(288+!)(2&")*+#(q52$#2&)(2&$()*+(12#o+)<32!+( !2&(6*%8)(%&(2(12))+#("8(e++o6("#(1"&)*6-(t*+($+!%6%"&p12)#%=(+=+#!%6+(%6(g+6)(5)%3%s+$(+0+#:()*#++(1"&)*6-(n#%)+#%2( for business priorities and return on investment may also change over time. business reality change model t*+( 456%&+66( n*2&'+( w+23%):(z"$+3( !"&6%6)6( "8( )*#++( +66+&)%23( <*26+6( )*2)( 5&$+#6!"#+( )*+( !#%)%!23( )*%&o%&'( #+q5%#+$(8"#(+=!+33%&'(2)(<#"g3+1(6"30%&'(2&$($+!%6%"&p12o%&'-(t*"5'*()*+#+(2#+(6%1%32#%)%+6()"(")*+#(1"$+36;()*+( 456%&+66(n*2&'+(w+23%):(z"$+3(%6(5&%q5+(%&(%)6(+1<*26%6("&(3%&o2'+;(23%'&1+&)(2&$(%&)+'#2)%"&("8(+0+#:(<*26+-(t*+( <*26+6(2#+()*+(8"33"e%&'_ vw7xct.(v#%&!%<3+6( &23:6%6(f(e*2)( %6(*2<<+&%&'(2&$(e*:c(e*2)( 2#+( )*+(!"&!356%"&6("8( )*+(2&23:6%6c(t*+( 2&23:6%6(#+q5%#+6(2)(3+26)("&+(o+:("gi+!)%0+;(e*%!*(2$$#+66+6()*+(q5+6)%"&;(e*2)(2#+()*+(+=<+!)+$("5)!"1+6c( 6(e%)*( most well designed plans, at least one strategy is developed. how should the objective be met and what approach is )2o+&c(\0+#:('""$(6)#2)+':(!2336(8"#(2(<32&-(e*2)(2#+()*+($+)2%36(8"#()*+(<32&c t*+(&+=)(<*26+(%6(+=+!5)%&'()*+(<32&-(e*2)(2!)%"&6(12o+(%)(*2<<+&c(z"&%)"#%&'(<#"'#+66(2&$(!#%)%!23(1+265#+6( 266+66(2&$(+02352)+(65!!+66-(e*2)(1%3+6)"&+6(2#+(%1<"#)2&)(26()*+(2&23:6%6(2&$(<#"i+!)(1"0+(8"#e2#$c(e*2)(6+3+!)%"&( "8(1+265#+1+&)(!#%)+#%2(3+2$()"(65!!+66853(#+653)6c m@ +=$ n=+#=+o@+p though businesses continuously evolve, the current demand for entrepreneurs to radically adapt occurred when the dot-com bubble burst. with new precedence, the ability to speedily synthesize surplus information and to arrive at mission critical decisions intelligently became criteria for success or failure. global connectivity became 2(!"11"$%):-(t*+()%<<%&'(<"%&)(j/32$e+33;(>dd>l(8"#()*%6(e"#3$pe%$+(!"&&+!)%0%):(2##%0+$(e%)*()*+(65<+#2g5&$2&!+( "8( '3"g23( 9g+#( "<)%!( !2g3+( &+)e"#o6-( ( !"1<5)+#( 2&$( !2<2g%3%):( )"( !"&&+!)( )"( )*+( %&)+#&+)( '20+( +q523( 2!!+66( )"( %&8"#12)%"&(q5%!o3:(2&$(+26%3:(8"#(233(2!#"66()*+('3"g+ $$%)%"&233:;()*+(a8#++(2'+&)('+&+#2)%"&u(!"%&+$(%&()*+(32)+(gffdu6(jv%&o;(gff@l(!*#"&%!3+6(2(153)%)5$+("8(<+"<3+;( 2010, vol. 1, no. 1, 188-197 lober, tworoger and jones 191 advances in business research 12&:( <#+0%"563:( +1<3":+$( %&( )#2$%)%"&23( e"#o( 6+))%&'6( e*"( &"e( 3""o( 8"#( e"#o( )*2)( %6( <#"9)2g3+;( 8+26%g3+( 2&$( structured with variety and alternative work arrangements. today, opportunities abound for those who want to expand businesses into the emerging markets, for those with mental and physical challenges that public workplaces may view as a liability and for those who start businesses with extremely limited resources. businesses can outsource just about anything. big companies can act small and small companies can act big. however, there is a downside to so many choices. “we have to sort out what to keep, what to discard, what )"( 2$2<);(e*2)( )"(2$"<);(e*+#+( )"( #+$"5g3+("5#(+88"#)6( 2&$(e*+#+( )"( %&)+&6%8:("5#( 8"!56h( jx#%+$12&;(>ddkl-(t*+( implication is that unless we do this well and fast, we will fall behind. with more options coupled with the need 8"#(826)($+!%6%"&(12o%&';(%)(%6($%89!53)()"(!2)!*(5<("&!+(:"5(8233(g+*%&$-(z"6)(g56%&+66+6(2#+(1"0%&'(26(826)(26()*+:( can to merely keep up and for many, there may be trouble ahead. the ability to take bold action with urgency, while 12%&)2%&%&'(6)#2)+'%!(r+=%g%3%):(e%)*%&(2(#+23%6)%!(!"&)+=)(*26(&+0+#(g++&(1"#+(%1<"#)2&)results of studies emphasize that entrepreneurs are motivated by independence and intrinsic factors. these include creating a job for themselves, increasing their income opportunities, being one’s own boss, controlling one’s "e&($+6)%&:;('#"e%&'(2&$(2!*%+0%&'(j4"e+&;(>ddfl(23"&'(e%)*($+9&%&'(2&$(3%0%&'(2(!"11%)1+&)()"(2(*%'*(6)2&$2#$( "8(+=!+33+&!+(jx2*+$p.#+%*;(>ddflt*+( <#"!+66( "8( +&)#+<#+&+5#6*%<( )"$2:( *26( g++&( $+9&+$( 26( 12&2'+#%23( g+*20%"#( )*2)( !"&6%6)+&)3:( +=<3"%)6( opportunities to deliver results that seem to be beyond one’s own capabilities. today’s entrepreneur is a change leader spearheading progressive strategies to capitalize on competitive advantages fueled by innovation, technology and the +1+#'+&!+("8()*+('3"g23(12#o+)<32!+(jn*2#2&;(>dd@lthere are several studies on business failures that provide lessons for entrepreneurs to learn about opportunities 1%66+$("8(3+66(8"#)5&2)+(!"33+2'5+6-(."1+("8()*+(<%)82336(!%)+$(2#+($+&:%&'(#+23%):(2&$(&")(#+!+66%"&(<#""9&'()*+%#( g56%&+66( j4+#6"&;( >ddfl-( \&)#+<#+&+5#6( )+&$( )"( g+( "<)%1%6)%!( 2&$( 2!)%"&( "#%+&)+$;(12&:( )%1+6( $+&:%&'(e2#&%&'( signals. entrepreneurs are individuals that sometimes are overly optimistic with unrealistic “desired expectations” jn2#32&$;(gffki(z2662(j(t+6)2;(>ddhl-(t*+:(65''+6)( )*+(<#+12)5#+(56+("8( i"%&)(233%2&!+6;( 2!q5%6%)%"&6(2&$(")*+#( 0+&)5#+6()"(12%&)2%&(!"1<+)%)%0+(2$02&)2'+()"(#+6<"&$()"(#2<%$3:(!*2&'%&'(+&0%#"&1+&)6(e%)*"5)(2$+q52)+(2g%3%):()"( manage the people and design issues that ensure success. ‘hunkering down’ and going into survival mode may not be appealing to action oriented entrepreneurs. however, )2o%&'()*+()%1+()"(#+p+&'%&++#(<#"!+66+6(jd211+#(j(n*21<:;(gffkl;(6*"#%&'(5<(:"5#(g56%&+66(9&2&!+6(2&$("<+#2)%"&6( by re-evaluating every part of the business plan including contracts, suppliers and customers (fried, 2009; berson, >ddfl(*+3<6(+&)#+<#+&+5#6($+23(e%)*(!*2&'+6(%&(202%32g%3%):("8(!2<%)23(2&$(!*2&'+6(%&(32e6(2&$(#+'532)%"&6()*2)(!2&( !*2&'+()*+(&+)(e"#)*("8(2(!"1<2&:-(z2&:()%1+6()*+(+&)#+<#+&+5#($"+6(&")(#+3%&q5%6*(25)*"#%):("0+#(85&!)%"&6()*2)( !2&(g+($+3+'2)+$()"(")*+#6(jz!/2#0+:;(gff@l(g+!256+()*+:(*20+()*+%#("e&(0%6%"&(8"#(*"e()*+(e"#o(6*"53$(g+($"&+-( however, this takes time and energy from developing strategy and future positioning of the company. it is not always easy for entrepreneurs to work on teams. n35)+(2&$(/2#12&(jgf@dl(+=21%&+$(#+26"&6(9#16(82%3-(t*+:(6)5$%+$()*+(+88+!)6("8(8+$+#23(<"3%!:("&(g56%&+66+6( including variations in the money supply, the volume of bank loans and changes in interest rates. they concluded )*2)( )e"( "8( )*+( 02#%2g3+6( j1"&+:( 65<<3:( 2&$( g2&o( 3"2&6l( *20+( 2&( %&0+#6+;( 32''+$( #+32)%"&6*%<(e%)*( )*+( g56%&+66( 82%35#+( #2)+-( c)( %6( +66+&)%23( )*2)( +&)#+<#+&+5#6( 12o+( %&8"#1+$( 9&2&!%23( $+!%6%"&6-( e*+&( +&)#+<#+&+5#6( <+#!+%0+( themselves as marketing and sales or product and engineering specialists, many times they believe they can delegate 9&2&!%23($+!%6%"&6z"$%8:%&'(12#o+)%&'(6)#2)+':(!2&(12%&)2%&("#(%1<#"0+(623+6;(12#o+)(6*2#+(2&$(<#"9)2g%3%):(j^lo623(j(ms'n3;( >ddhl-( ( 32!o( "8( 2))+&)%"&( )"( a12#o+)( "#%+&)2)%"&u;( 65!*( 26( %$+&)%8:%&'( !56)"1+#( &++$6;( e2&)6;( 26<%#2)%"&6( 2&$( $+3%0+#%&'("88+#%&'6()*2)(2#+(!"1<+)%)%0+3:(g+))+#()*2&(#%023(9#16(j432&o6"&;(z")e2&%(j([+0+&g5#';(>ddkl(%6(2&")*+#( shortcoming that leads to failure. avoiding failure means balancing external and internal focus with the correct emphasis on strategy and tactics. the balance between tactics and strategy is a major issue for many entrepreneurs. «strategy without tactics is the slowest route to victory. tactics without strategy is the noise before defeat”, (sun tzu, n*%&+6+(/+&+#23;(?dd(4-n-l-(e*+&("&+(%6()2!)%!23;(%)(2<<+2#6()*2)(e"#o(%6()2o%&'(<32!+-(t*%6(<#"<"6+6(2(q5+6)%"&_(e*2)( %6(<#"$5!)%0+("#(1+#+3:(a#2)(%&()*+(12s+u(2!)%0%):c(( .)5$%+6( %&!35$%&'( t*+( .)%)!*( d"56+_( ( n26+( "8( \&)#+<#+&+5#%23( x2%35#+( j^21<6!*#"+$+#;( [5$e%';( z5##2:;( v2$12&2g*2&;(>dd@l(2&$([""o%&'(4+8"#+([+2<%&'(j[+2<)#"));(z!m"&23$;(>dd@l(*%'*3%'*)(!*2#2!)+#%6)%!6("8(<""#( decision-making on business success and failure. how can today’s entrepreneur enhance the decision making skills 8"#("<)%123(65!!+66c 4+3"e(2#+()*+($+)2%36(8"#(+2!*(<*26+("8()*+(456%&+66(w+23%):(n*2&'+(z"$+3;(8"33"e+$(g:()*#++(!26+(6)5$%+6-(e+( 2<<3:()*+(456%&+66(n*2&'+(w+23%):(1"$+3()"()*+(8"33"e%&'()*#++($%88+#+&)(!2<%)23(6)#5!)5#+$(g56%&+66(1"$+36_ 2010, vol. 1, no. 1, 188-197 lober, tworoger and jones 192 advances in business research `( ](v#"$5!)6(c&!-_(ok(1%33%"&(!"&$%1+&)6(!"1<2&:(j<#%02)+(%&0+6)1+&)(85&$%&'l`( '5#5(c12'+6_(o?(1%33%"&(!"1<2&:("88+#%&'(#+23%6)%!(#+<#+6+&)2)%"&6("8(*512&(82!%23(!*2#2!)+#%6)%!6(8"#(0%6523( +88+!)6(%&()*+(931;('21%&';(!"1<5)+#(2&$(%&$56)#%23(12#o+)6(j<#%02)+(+q5%):;()+!*&"3"':()#2&68+#;(5&%0+#6%):(85&$6l`( ^z>(."35)%"&6_(o>d(1%33%"&(!"1<2&:(<#"0%$%&'(!56)"1+#(6+#0%!+;(!"33+!)%"&6(2&$(!233(!+&)+#("<+#2)%"&6(j"e&+#( "e&+$l (<#"g3+1y"<<"#)5&%):(q5+6)%"&(2$$#+66+6(2(!#%)%!23(g56%&+66(%665+-(t*+(q5+6)%"&(%&%)%2)+6(2&(%&)+&6%0+(2&23:6%6( "8()*+(12#o+);(!56)"1+#6(2&$(!"1<2&:-(c8(%)(%6(21g%'5"56("#(%&!"##+!)3:(8"!56+$;()*%6(<#"g3+1y"<<"#)5&%):(q5+6)%"&( e%33(&")(g+(#+3+02&)(2&$y"#(2!)%"&2g3+\=21<3+6("8(<#"g3+1y"<<"#)5&%):(q5+6)%"&6(2#+_(*"e(!2&(e+(%&!#+26+(12#o+)(6*2#+(%&()*+(a(<#"$5!)(3%&+(%&(a( )%1+8#21+(2&$(*"e(!2&(e+(+&)+#()*+(a(12#o+)(e%)*%&(a(1"&)*6c t*+(8#21+("8(#+8+#+&!+(%6("&+("8()*+(1"6)(%1<"#)2&)(8+2)5#+6("8(2(<#"g3+1(6)2)+1+&)-(c)(%6("0+#3""o+$(8#+q5+&)3:-( the frame of reference is essential to provide boundaries for the analysis. the frame of reference of a particular market, industry, location or product and includes a time frame. 9=>?@ 4#9-:,7:.;"3#$,2;63:3 vw7xct.(v#%&!%<3+6( &23:6%6(%6()*+(*+2#)("8()*+(<#"!+66-(t*+(9#6)(6)+<("8()*+(2&23:6%6(%6()"('2)*+#(g")*(+=)+#&23( and internal vital information. this process is iterative, and information is tested and revised often to make sure it links to the problem statement and frame of reference. linkage is critical. \=)+#&23( &23:6%6(%&!35$+6(6%'&%9!2&)(%&8"#12)%"&(g+:"&$($%#+!)(!"&)#"3;(65!*(26()*+(+&0%#"&1+&)(8"#()*+(%&$56)#:( 2&$(g56%&+66;()*+(!"1<+)%)%"&;(!56)"1+#6;(2&$(+&$p56+#6(j)*+(!56)"1+#u6(!56)"1+#6l-(c)(12:(%&!35$+(6%s+("8(12#o+);( )2#'+)+$(6+'1+&)6;(!5##+&)(2&$(85)5#+()#+&$6;('#"e)*;(#+3+02&)(*%6)"#%!23(%&r5+&!+6("&(<#+6+&)(!%#!516)2&!+6(2&$( 3+'23(2&$('"0+#&1+&)(!"&6%$+#2)%"&6-(c)(12:(236"(%&!35$+($+1"'#2<*%!(!*2&'+6(2&$()#+&$6(%&(9&2&!%23(12#o+)6(23"&'( e%)*( '3"g23;( %&$56)#:;( !:!3%!23( 2&$( <#"9)2g%3%):( !"&6%$+#2)%"&6-( ( 65112#:( 6)2)+1+&)( "8( )*+(1"6)( %1<"#)2&)( o+:( conclusions from this analysis is written to address the problem statement. $$%)%"&23(%&8"#12)%"&(6*"53$(g+(%&0+6)%'2)+$-(e*2)($"(:"5(o&"e(2g"5)()*+(!"1<+)%)%"&c(e*"(%6()*+(!"1<+)%)%"&c( e*+#+($"()*+:(!"1<+)+c( #+()*+#+(#+!+&)(+&)#2&)6()"()*+(%&$56)#:c(e*2)(2#+(!"1<+)%)"#6u(6)#+&')*6(2&$(e+2o&+66+6c( d"e($"(!"1<+)%)"#6(#+6<"&$()"(!*2&'+c(d"e($"()*+:($"($%88+#(8#"1(")*+#(!"1<+)%)"#6c(m"()*+:(<#"0%$+()*+(621+( 6+#0%!+6(8"#(:"5#(!56)"1+#6(26(:"5($"c e*"(2#+(:"5#(!56)"1+#6c(e*:($"()*+:(&++$(:"5#(<#"$5!)("#(6+#0%!+c(e*2)(+36+($"()*+:(g5:c((e*2)(%6(%1<"#)2&)( %&()*+%#(3%0+6(2&$(*"e($"+6(%)(288+!)()*+%#(#+32)%"&6*%<(e%)*(:"5#(!"1<2&:c(t*%&o(2g"5)(")*+#(!56)"1+#6(%&()*+(!*2%&;( +6<+!%233:()*"6+(e*"(12:(g5:(8#"1(:"5#(!56)"1+#6-(d"e(e+33($"(:"5(5&$+#6)2&$(e*2)(1")%02)+6()*+1c(e*2)($"( )#+&$6(%&$%!2)+(2g"5)(<")+&)%23(&+e(!56)"1+#6c internal analysis is the review of internal processes and systems that include operations, human resources j<"3%!%+6;(!"1<+&62)%"&;()#2%&%&';($+0+3"<1+&);(#+!#5%)1+&);(6+3+!)%"&;(65!!+66%"&(<32&&%&'l;(3"'%6)%!6;(j$%6)#%g5)%"&( 2&$( )#2&6<"#)2)%"&( 6:6)+16l;( <#"$5!)( $+0+3"<1+&);( 9&2&!%23( 6:6)+16;( <#"$5!)( g5%3$%&';( 12#o+)%&'( j<#"1")%"&6;( 2$0+#)%6%&'l(2&$(623+6-(( e*2)( 2#+( )*+( 6:6)+16u( 6)#+&')*6( 2&$( e+2o&+66+6c( d"e( +88+!)%0+( 2#+( )*+( <#"!+66+6( 2&$( 6:6)+16( %&( *+3<%&'( !"1<3+)+()26o6("&()%1+(2&$(e%)*%&(g5$'+)c(m"()*+:(*+3<(2!!"1<3%6*(6<+!%9!('"236c(m"+6()*+(!"1<2&:(*20+(202%32g3+( 9&2&!%23(3%q5%$%):(2&$(e"#o%&'(!2<%)23c(e*2)(2#+()*+(!"&6)#2%&)6c(e*2)(%6()*+($+g)p)"p+q5%):(#2)%"c(d"e($"(9&2&!%23( #2)%"6(%&)+##+32)+c(e*2)($"+6(%)(!"6)()"(<#"$5!+(+2!*(<#"$5!)c(d"e($"(12)+#%23(2&$(32g"#(!"6)6(288+!)()*+(0235+(!*2%&c( what are the opportunity costs of various projects, including breakeven analysis, payback period and net present 0235+c(d"e($"()*+6+()*%&'6(288+!)(:"5#(<#"9)2g%3%):("0+#()*+($5#2)%"&("8(:"5#(8#21+("8(#+8+#+&!+c(e*2)(!"1g%&2)%"&6( "8(9&2&!%23(1+265#+6(j65!*(26(<+#8"#12&!+(2'2%&6)('"236()"(%&!#+26+(12#'%&6;(%&0+&)"#:()5#&("#(!26*(g:(3"e+#%&'( "<+#2)%"&23(!"6)6l(288+!)(<#"9)6c(( d"e($"("<+#2)%"&6;(623+6;(12#o+)%&';(*512&(#+6"5#!+6;()+!*&"3"':;(#+6+2#!*(2&$($+0+3"<1+&)(%&)+#2!)c(n"&6%$+#( plant locations, machinery, distribution, production capacity, warehousing, materials, purchasing, logistics, packaging, and other relevant value chain components. marketing analysis includes demographics, segmentation, brand management, pricing, advertising and public relations, media, promotions, market research. technology may include engineering, database and computer software, and the capacity to innovate. human resources are accountable for organizational structure and culture including how people work together individually and in teams. this consists of assessments of capability and talent, employee census and company policies. 2010, vol. 1, no. 1, 188-197 lober, tworoger and jones 193 advances in business research sales analysis includes information about the sales organization, including size of the sales force, strength of customer relationships, expectations of the sales force, sales training, forecasting and selling patterns across your frame of reference. 4/gg2-:l:,%#(!"#$,2;63:3## n*2#)(%&)+#&23(.)#+&')*6(2&$(e+2o&+66+6(2&$(+=)+#&23(7<<"#)5&%)%+6(2&$(t*#+2)6(j.e7t(2&23:6%6l-(c)(%6(!#%)%!23( to take swot information directly from the external and internal analysis and that all the data link directly to )*+( <#"g3+1( 6)2)+1+&)-( t*+( 456%&+66( w+23%):( n*2&'+(z"$+3( $+#%0+6( %)6( <"e+#( 8#"1( )*+( !"&&+!)%"&6( 21"&'( %)6( components. it is also useful to do a swot analysis for each of the key competitors. this competitor analysis will *%'*3%'*)(!#%)%!23(053&+#2g%3%)%+6-(.5112#%s+()*+(.e7t(2&23:6%6-(t*+(!"1<"&+&)6("8()*+(6511+#:(2#+()*+(8"33"e%&'_ `( limitations resulting from threats and weaknesses must be addressed. strategies and plans are designed to remedy them. `( horsepower includes those strengths and opportunities that help build the business. these address how to maximize the opportunity. `( .56)2%&2g3+(n"1<+)%)%0+( $02&)2'+(%6(5&%q5+()"()*+(!"1<2&:(2&$(%6()*+(g26%6(8"#(3"&'p)+#1(<#"9)2g%3%):-((c)(6*"53$( be the primary focus for your next steps. 1$4+#4 nc@+4 q#9-&5/7(3a#r&,2(!2,#4&2-"3a#1+> q products was founded in 2005 when jonathan soares decided to market his mother’s homemade original honey 44](.25!+(#+!%<+(2&$($+0+3"<+$()*+(d%!o"#:(t+#%:2o%(2&$(.<%!:(n2i5&(r20"#6-(c&(z2:("8(>dd?(e*+&(p"&2)*2&(e26( 20 years old, he invested all of his $10,000 in savings and started q products which marketed jonathan’s q™ all natural bbq sauces. p"&2)*2&(2&$(](v#"$5!)6(#+<#+6+&)()*+(&+e(+&)#+<#+&+5#-(e%)*(*%6(<266%"&(2&$(21g%)%"&;(p"&2)*2&(+=+1<3%9+6( new independent thinking. he designed a fully outsourced business model, built upon relationships and social media. at the same time, jonathan blends these attributes with a conservative style of operating his business. the company %6(9&2&!%233:(%&$+<+&$+&)(2&$(#+)5#&6(233(<#"9)6(g2!o(%&)"()*+(g56%&+66-(( e*+&(n\7(p"&2)*2&(."2#+6(<3"))+$("<<"#)5&%)%+6("&()*+(v#%"#%)%+6yw7c(m+!%6%"&(z2)#%=;(*+(8"5&$()*+("<<"#)5&%):( 8"#('#"e)*(%&()*+(."5)*+26)(#+'%"&("8()*+(,&%)+$(.)2)+6;(%&()*+( !)(]5%!o3:(q52$#2&),6%&'()*+(456%&+66(w+23%):(n*2&'+(z"$+3;(p"&2)*2&(8"5&$()*+(8"33"e%&'(o+:(!"&!356%"&6()*2)(3%&o()"(2&$(65<<"#)( his problem statement, frame of reference, external and internal analyses. d%6("<<"#)5&%):(6)2)+1+&)(g+!21+_(](v#"$5!)6_(d"e(!2&(e+('#"e(%&()*+(."5)*+26)(#+'%"&(e%)*%&()*+(&+=)()*#++( 1"&)*6c(p"&2)*2&(e2&)+$()"('#"e(](v#"$5!)u6(g"))"1(3%&+(8"#(#+0+&5+6(2&$()"<(3%&+('#"e)*(8"#(6)2g%3%):;(g26+$("&( !"&6%6)+&)(<#%!%&';(+=!+33+&)(!56)"1+#(6+#0%!+(2&$((q523%):(<#"$5!)6-(( )()*2)()%1+;()*+(!"1<2&:(+&i":+$(#+0+&5+6( of $2 million and increased placement penetration three-fold, transitioning from 1500 4500 stores primarily as a result of q products’ new manufacturing partner. q products increases opportunities through promotion and public #+32)%"&6-( (t*+(!"&$%1+&)y44](625!+(!2)+'"#:( %6('#"e%&'(k(p(?q(<+#(:+2#(26(<+"<3+(2#+(<5#!*26%&'(1"#+(2)( )*+( grocery store and going out to eat less often. t*+( +=)+#&23( 2&23:6%6( 65<<"#)6( )*+( 8"33"e%&'( o+:( !"&!356%"&6_(](v#"$5!)6( 2&)%!%<2)+6( '#"e%&'( )*+( ."5)*+26)( region with the potential for penetrating 1500 new stores with revenues between $500,000 and $750,000 within three 1"&)*6(j%&(2(ok?g(1%33%"&(12#o+);(e%)*(kfq(12%&6)#+21(44](625!+(<#"$5!)6(jgd(g#2&$6l;(gdq(<#%02)+(32g+3(2&$( >gq(<#+1%51(g#2&$6l-( 6('#"!+#%+6(2#+(3"6%&'(12#'%&;(](v#"$5!)6u(<#%&!%<3+(6)#2)+':(%6()"(g5%3$(#+32)%"&6*%<6(e%)*( !56)"1+#6(2&$(!"&651+#6(56%&'(6"!%23(1+$%2(j+-'-;(b"5t5g+;(x2!+g""o;(te%))+#l^+:(9&$%&'6( g26+$( "&( )*+( %&)+#&23( 2&23:6%6( $+1"&6)#2)+( 6)#"&'( !2<%)23( %&8#26)#5!)5#+( g26+$( "&( ogd;ddd( 6++$( money with no external funding has provided stability within the company including validation of a fully outsourced g56%&+66(1"$+3;(!"6)(+89!%+&!%+6(2&$(%&$+<+&$+&!+(e%)*(>dq(<#"9)2g%3%):-(p"&2)*2&(%6(3""o%&'(8"#(&+e(12&582!)5#%&'( <2#)&+#6()"(%&!#+26+(+89!%+&!%+6(g:(5)%3%s%&'($%6)#%g5)%"&;(e2#+*"56%&'(2&$(3"'%6)%!6("8()*+(&+e(<2#)&+#6-( $$%)%"&233:;( he plans to decrease pricing by 10% or greater, particularly in the southeast in the short term. the outsourcing model works well with additional support from an advisory board and an outside sales force. t*+(2g"0+(2&23:6+6(<#"0%$+()*+(%&8"#12)%"&(8"#()*+(.e7t( &23:6%6-(](v#"$5!)6u(6)#+&')*6(2#+_(!26*("&(*2&$;( 2010, vol. 1, no. 1, 188-197 lober, tworoger and jones 194 advances in business research the knowledge and experience of the holding company advisory board and the new volume-centric model with a new manufacturing partner. weaknesses include jonathan being ‘spread too thin’ by coordinating all the outsourced 85&!)%"&6(2&$($%88+#+&)(!"1<2&:(!53)5#+6(e%)*"5)(623+6( 3":23):(6<+!%9!233:( )"(](v#"$5!)6-(v#"1")%"&6(2&$(6"!%23( &+)e"#o%&'(2#+(+66+&)%23(12#o+)%&'("<<"#)5&%)%+6(2&$()*+(12%&()*#+2)()"(623+6(j%&()*+(."5)*+26)l(%6(!56)"1+#(3":23):()"( 12%&6)#+21(g#2&$6-(](v#"$5!)6(236"(32!o6(6"1+("8()*+(12&582!)5#%&'(+89!%+&!%+6("8(!"1<+)%)"#6-(d"e+0+#;(p"&2)*2&( is rectifying this as he seeks a new manufacturing partner with greater capacity than q products currently has. t"(e%&;(](v#"$5!)6(156)(*20+(2(3"!23(8"33"e%&'(2&$(<#+6+&!+(%&()*+(."5)*+26)(j+q523()"(3"!23(#+6)25#2&)6(2&$( ")*+#(#+'%"&23(<32:+#6l(2&$('+&+#2)+(0"351+;(e*%3+(236"(!"1<+)%&'(%&(6+3+!)+$(12%&6)#+21(0+&5+6(je2#+*"56+(!35g6;( 65<+#12#o+)6l-(](v#"$5!)6(#+q5%#+6(2(6)#"&'+#(656)2%&2g3+(!"1<+)%)%0+(2$02&)2'+-(t*+(!"1<+33%&'(#+26"&()"(g+(%&( g56%&+66(2&$()"(2$$#+66_(e*:(156)(!"&651+#6(g5:(](v#"$5!)6(44](625!+c( t*+(&+=)(6)+<6(8"#(](v#"$5!)6(%&!35$+(2$$#+66%&'()*+("gi+!)%0+-(e*2)(e%33(65!!+66(3""o(3%o+c how will jonathan generate volume in 4500 stores within the next 60 90 days in the southeast, with revenues of oh?d;ddd(g26+$("&(12&582!)5#%&'(+89!%+&!:(2&$()*#"5'*(%&)+&6+(2$0+#)%6%&';(<#"1")%"&(2&$(<5g3%!(#+32)%"&6c notice how this strategy links back to the problem statement and frame of reference and the key external and internal conclusions. next, we review the strategies. q products must increase volume, build share, increase funding for marketing activities within 60 90 days. ](v#"$5!)6(#+q5%#+6(<32&6(8"#(+2!*(6)#2)+':-(t*+6+(2#+()*+(8"33"e%&'(q5+6)%"&6_(e*2)(&++$6()"(g+($"&+c(e*"(%6( #+6<"&6%g3+c(e*+&y)%1%&'(%6(%)(+=<+!)+$()"(g+(!"1<3+)+$c(e*2)(2#+()*+(!"6)6(2&$(#+6"5#!+6(#+q5%#+$c(t*+(<32&6(236"( &++$()"(3%&o(g2!o()"(+=)+#&23y%&)+#&23(2&23:6%6(2&$(#+!"&9#1()*+("gi+!)%0+(2&$(6)#2)+'%!($%#+!)%"&$%/-/#@g2%"3a#42/;#>-s27!a#1>> n77( .253( 7#g2!*( $+6!#%g+6( *%16+38( 26( 2( <#"g3+1( 6"30+#( e%)*( %&&2)+( 2&23:)%!( 2g%3%):;( %&+=*256)%g3+( $#%0+;( <+#6%6)+&!+;( *%'*3:( !"1<+)%)%0+( 2&$( 6+38p!"&9$+&)-( .253( e"#o+$( $%3%'+&)3:( e*+&( )*+( +!"&"1%!( $"e&)5#&( e26( imminent to decrease aguru images debt. he sought other investors for funding and other companies with which to <2#)&+#(2&$y"#(!#+2)+(6)#2)+'%!(233%2&!+6-( '5#5(c12'+6("88+#6()*+(9#6)(2&$("&3:(!"1<3+)+(6"35)%"&()"(!2<)5#+(2&$(<#"!+66(233(<"66%g3+(3%'*)%&'(!"&$%)%"&6( of real world textured surfaces for use in 3d computer generated imagery. the technology was discovered at new b"#o(,&%0+#6%):(2&$()*+(,&%0+#6%):("8(."5)*+#&(n23%8"#&%2(2&$(32)+#()#2&68+##+$(e%)*(2&(%&%)%23(85&$%&'(g:( b/[\( t+!*&"3"':(r+&)5#+6(8"#(!"11+#!%23%s2)%"&-( <<3%!2)%"&6(8"#()*+()+!*&"3"':(%&!35$+(0%6523(+88+!)6(8"#(931;(!"1<5)+#( and video games and industrial materials. at one time, this privately held company had revenues of approximately $4 million. 6(*+(3""o+$(2)()*+(<"66%g%3%)%+6("&()*+(v#%"#%)%+6yw7c(m+!%6%"&(z2)#%=;(<2#)%!532#3:(8"#()*+(&+=)()*#++((1"&)*6;( .253(2&$(*%6(g"2#$($+!%$+$()"(8"!56(1"#+(6)#2)+'%!233:(2&$(2!)(q5%!o3:()"(9&$(")*+#(!"1<2&%+6(e%)*(!"1<3+1+&)2#:( applications and ‘roll them up’ to form one company, a one-stop shop for their customers in the fragmented visual effects industry. based on the downward economy and a promising investor that did not close an expected deal, consolidation appeared to offer the best potential opportunity within the next few months. ,6%&'()*+(456%&+66(w+23%):(n*2&'+(z"$+3;(.253(65112#%s+$()*+(8"33"e%&'(!"&!356%"&6()*2)(3%&o()"(2&$(65<<"#)( his opportunity statement, frame of reference, external and internal analyses. t*+("<<"#)5&%):(6)2)+1+&)(g+!21+_( '5#5(c12'+6_(d"e(!2&(e+(9&$(!"1<3+1+&)2#:(!"1<2&%+6()"(!"&6"3%$2)+( e%)*(e%)*%&()*+(&+=)()*#++(1"&)*6c(m5#%&'()*+(<#"!+66("8($%6!"0+#%&'("<<"#)5&%)%+6;(2&")*+#(!"1<2&:(<#+6+&)+$()*+( "<)%"&("8(2!q5%#%&'( '5#5-(t*+(!"1<2&:()*2)(e2&)+$()"(2!q5%#+()*+1(e26(&")(%&)+#+6)+$(%&()*+(%&$56)#%23(<#"$5!)6(%&( aguru’s business model. though this was not one of aguru’s initial considerations, saul and the board of directors assessed the options again. thus, the opportunity statement changed, as it should, since problem-solving is an iterative process. new information offers other possibilities and opportunities. the external analysis offered important information. aguru was in a recessionary economy and there were $%89!53)%+6(%&()*+(1"0%+(e"#3$(j%-+-;(2(<#"3"&'+$(e#%)+#u6(5&%"&(6)#%o+(2&$(2(6%1%32#(6)#%o+()*#+2)+&+$(g:()*+(2!)"#6u( '5%3$l-(x5#)*+#1"#+;( )*+(0%6523( +88+!)6(12#o+)(*2$(&"(9&2&!%23( 2&23:6)6( )"($+)+#1%&+( )*+( 6%s+("8( )*+(12#o+)( 2&$( investment money was scarce. on the upside, there were no competitors and aguru’s management team had good knowledge of hollywood’s customers. the conclusions noted as a result of the internal analysis include top in-house talent with a board of directors #+<#+6+&)+$(g:(12&2'+1+&)(8#"1(v%=2#;(m#+21e"#o6;(z%!#"6"8);( $"g+;(bb,;(,&%0+#6%):("8(."5)*+#&(n23%8"#&%2( 2&$(")*+#(%&$56)#:(&")2g3+6-(d"e+0+#;(1%66%&'(e26(2(n\7(e%)*(%&$56)#:(+=<+#%+&!+(e*"(!"53$(6<5#(623+6(2&$(6*2<+( the industry. with two synergistic but different industries, a bifurcated sale seemed imminent with two buyers and double work. acting as their own investment bankers, aguru could minimize sales related expenses. the swot analysis, must utilize the conclusions of the external and internal assessment. thus aguru’s strengths 2010, vol. 1, no. 1, 188-197 lober, tworoger and jones 195 advances in business research %&!35$+$(2(6)#"&'(12&2'+1+&)()+21(2&$(4"2#$("8(m%#+!)"#6;(2&(%&)+#+6)+$(g5:+#(8"#()*+(0%6523(+88+!)6(931(2&$('21%&'( business, the ability to be its own investment banker and no threatening competition. weaknesses highlighted a poor investment environment with no analysts paying attention to the visual effects market, capital structure relying *+20%3:("&($+g)(2&$( 3+66("&(<#"9)2g%3%):( %&( )*+(*%'*+#( #+0+&5+($%0%6%"&-(t*+('#+2)+6)("<<"#)5&%):(e26( )"( 6+33( )*+( g56%&+66(26(q5%!o3:(26(<"66%g3+t"(e%&;( '5#5(c12'+6(&++$+$()"(9&$(2(g5:+#(e%)*(6589!%+&)(!2<%)23()"(#+$5!+( '5#5($+g)(2&$(%&!#+26+(<#%!%&'( )*2)(e"53$(%&()5#&(%&!#+26+(<#"9)2g%3%):(e%)*"5)($+!#+26%&'(#+0+&5+6 '5#5(c12'+6(656)2%&2g3+(!"1<+)%)%0+(2$02&)2'+(e26(%)6(6)2)+p"8p)*+p2#)(0%6523(+88+!)6(e*%!*(%6(5&%q5+(%&(g")*( the entertainment and industrial arenas. for aguru images to become more attractive to other buyers, they must have a more directed strategy in place for sales and marketing. up until now, both these areas occurred organically, rather than by plan. if possible, aguru 6*"53$(*%#+(2&( %&)+#%1(n\7(e%)*(2( #+!+&)(g2!o'#"5&$( %&( )*+(+&)+#)2%&1+&)( 6%$+("8( )*+(g56%&+66( )"(*+3<( %&!#+26+( <#"9)2g%3%):(%11+$%2)+3:(2&$(e*"(!2&(6+#0+(26(2(9#6)(2$"<)+#(%&($+0+3"<%&'(6)#2)+'%+6()*2)(!3+2#3:($+9&+(2&$(6*2<+( %)6(%&$56)#:(e%)*(6<+!%9!(1+)#%!6(2&$(1%3+6)"&+6fdt#u#c2h:5#f-":33a#1+> ()#5+(+&)#+<#+&+5#;(m20%$(^#+%66(g+!21+($%6%3356%"&+$(e*+&(e"#o%&'(e%)*(<#%02)+(+q5%):('#"5<6()"(6)#5!)5#+( $+236(e%)*(61233(!"1<2&%+6(8"#(n%)%g2&o(2&$( 1+#%!2&(\=<#+66-(m20%$u6(+=<+#%+&!+(3+$(*%1()"(g+3%+0+()*2)(<#%02)+( +q5%):('#"5<6(e%)*()*+%#("e&(9&2&!%23(1"$+36(#2#+3:(i"%&+$(6)#2)+'%!(8"#!+6(65!!+668533:(e%)*()*+(12&2'+1+&)()+216( )*+:(85&$+$-(m20%$("g6+#0+$(15!*(<")+&)%23(<#"9)2g%3%):(3+8)(g+*%&$-(t2o%&'(2&("<<"#)5&%):()"(!"&653)(e%)*( 7[( and then becoming their outsourced vendor for collections and customer care, david realized his entrepreneurial !"1<+)+&!%+6(26(*+(g5%3)(*%6("e&(!"1<2&:-(t"$2:;(m20%$u6(8533:(6+38p85&$+$(!"1<2&:;(^z>;(g26+$(%&()*+(n2#%gg+2&;( with projected revenue of $20 million in 2010, serves the world’s largest companies in customer care (previously o&"e&(26(!233(!+&)+#6l(2&$(g%33%&'(!"33+!)%"&6m20%$(^#+%66(5)%3%s+6()*+(v#%"#%)%+6yw7c(m+!%6%"&(z2)#%=(2&$()*+(456%&+66(n*2&'+(w+23%):(z"$+3-(d%6(65!!+66( appears to be directly related to his ability to incorporate the comprehensive perspective for his business. earlier it was stated that the new entrepreneur blends the characteristics of a new way of thinking that incorporates alternative 2&$(!#+2)%0+(g56%&+66(1"$+36;(6<++$(2&$(r+=%g%3%):-( (65!!+66853(a&+eu(+&)#+<#+&+5#(1+3$6()*%6(&+e(e2:("8()*%&o%&'( e%)*(g56%&+66(1"$+36(8#"1()*+(<26)-(m20%$u6(+=<+#%+&!+(2)(x"#)5&+(gdd(!"1<2&%+6;(n%)%g2&o(2&$( 1+#%!2&(\=<#+66;( helped him learn the importance of continuously testing and revising his strategies. the km2 opportunity statement has always been the same, to grow a self-funded business by focusing on continuously improving error-free processes and excellent execution of deliverables. for each frame of reference, the opportunity varies, yet the underlying opportunity statement is always consistent. 6(*+( 3""o+$( 2)( )*+( <"66%g%3%)%+6( "&( )*+(v#%"#%)%+6yw7c(m+!%6%"&(z2)#%=;( 8"#( )*+( &+=)( 6%=(1"&)*6;(m20%$( 8"!56+$( 6)#2)+'%!233:(2&$("g6+#0+$()*2)()*+(^z>(!5##+&)(6%)52)%"&(9)(g+6)(%&)"()*+(q52$#2&);( !)(]5%!o3:-(t";( !)(]5%!o3:;( km2 will continue their current methods and standards of operation, yet on a greater scale. using the business w+23%):( n*2&'+(z"$+3;( m20%$( 65112#%s+$( )*+( 8"33"e%&'( o+:( !"&!356%"&6( )*2)( 3%&o( )"( 2&$( 65<<"#)( *%6( <#"g3+1( 6)2)+1+&);(8#21+("8(#+8+#+&!+;(2&$(+=)+#&23(2&$(%&)+#&23(2&23:6+6-(t*+(!5##+&)("<<"#)5&%):(6)2)+1+&)(%6_(/#"e(^z>( )"(65<<"#)()*+(&+e(!3%+&)(j!"&9$+&)%23l(e%)*(kdd(&+e(^z>("<+#2)"#6(e%)*%&(6%=(1"&)*6-( t*+(+=)+#&23(2&23:6%6(!"&!356%"&6(2#+()*+(8"33"e%&'_(^z>(%6(&"e()*+(<#+1%+#(!56)"1+#(!2#+(!233(!+&)+#(g56%&+66( %&()*+(e"#3$-(426+$(%&()*+(n2#%gg+2&;(%)(*26(12&:(2$02&)2'+6("0+#(6%1%32#(g56%&+66+6(%&(c&$%2(2&$()*+(v*%3%<<%&+6-( their stable workforce has less than a 15% turnover. as compared with india and the philippines where workers are +$5!2)+$(2&$(6++o(g+))+#("<<"#)5&%)%+6(q5%!o3:;()*"6+(%&()*+(n2#%gg+2&(2<<+2#(*2<<:()"(*20+(i"g6;()2o+(<#%$+(%&()*+%#( work and rarely leave the island. km2 builds relationships with local governments and is incentivized for providing local employment opportunities. z2&:(e"#o+#6(%&(c&$%2(2&$(v*%3%<<%&+6(*20+($%89!53):(e%)*()*+(\&'3%6*(32&'52'+;(2#+(8#+q5+&)3:(1%65&$+#6)""$( g:(!56)"1+#6(%&()*+(,-.-(2&$(2#+(&")(821%3%2#(e%)*()*+(,-.-(!53)5#+-((t#2%&%&'(%&()*+6+(2#+26(%6("8)+&(%&2$+q52)+-(c&( !"&)#26);(<+"<3+(%&()*+(n2#%gg+2&;(<#%12#%3:(%&()*+(6+#0%!+(2&$(*"6<%)23%):(%&$56)#:(2&$(!2)+#%&'()"(\&'3%6*(6<+2o%&'( americans, can speak english beautifully. they are almost always well received by u.s. customers. km2 brings %&(,-.-(e"#o+#6()"()#2%&(2&$(e"#o(23"&'6%$+()*+%#(n2#%gg+2&(!"5&)+#<2#)6(2&$()"(%&)+'#2)+()*+1(%&)"()*+(!"1<2&:( culture and norms. km2 feeds their inbound calls to other island facilities through a sophisticated infrastructure that is much advanced compared to competitors. this infrastructure includes t-1 lines, which move data at a high rate of speed at low cost. internal analysis conclusions include excellent operational processes that are modeled 28)+#(x"#)5&+(gdd(!"1<2&%+6-(^z>(#+q5%#+6( %)6(12&2'+#6( )"(e"#o(%&( )*+(n2#%gg+2&(2&$()#2%&( 3"!23(+1<3":++6-( c)( participates in government and local community building which strengthen relationships and provide incentives 2010, vol. 1, no. 1, 188-197 lober, tworoger and jones 196 advances in business research to the km2 business because it is perceived as a socially responsible company. km2 has the capability to transfer 6589!%+&)(,-.-(e"#o+#6()"()#2%&(2<<#"=%12)+3:(kdd(%632&$(e"#o+#6(e%)*%&()*+(&+=)(6%=(1"&)*6the swot analysis utilizes analyses and conclusions of the external and internal assessment. thus km2’s 6)#+&')*6(%&!35$+(2(6)#"&'(12&2'+1+&)()+21(e%)*(2(3"!23(<#+6+&!+;(,-.-(!3%+&)(!"1<2&:(2!!+<)2&!+("8()*+(n2#%gg+2&( workers in the customer care and call centers, km2 strong government relationships and self-funding. weaknesses 2#+(1%&%123-(t*+#+(2#+(8+e()*#+2)6-(t*"5'*(g2##%+#6("8(+&)#:(2#+(3"e;(26()*+(9#6)(2$"<)+#;(^z>(%6(82#(2*+2$("8(2&:( !"1<2&:()*2)(12:($+!%$+()"(!"&$5!)(g56%&+66(%&()*+(n2#%gg+2&;(g")*(%&()+#16("8(3"!23(<#+6+&!+(2&$(6"<*%6)%!2)%"&( of processes. to win, km2 must maintain its current level of operational business and people excellence in its work execution. km2 must be able to do this as they scale up within the next six months and bring approximately 600 new workers on board. 1>)1mn4@>)4 today’s entrepreneur incorporates new business models with outsourced and strategic alliances, technological savvy using the internet and extensive databases and unprecedented speed in decision making. they must learn from mistakes of the past and build strong customer and stakeholder relationships. t*+(h(vw7xct.(v#%&!%<3+6;()*+(v#%"#%)%+6yw7c(m+!%6%"&(z2)#%=(2&$()*+(456%&+66(n*2&'+(w+23%):(z"$+3("88+#6( the entrepreneur an integrated, systematic and comprehensive critical thinking tool for making realistic choices for both problems and opportunities. the key message is to have a well-integrated business where all company functions 3%&o%&'(+89!%+&)3:(2&$(+88+!)%0+3:(%&(<#"9)2g3+(+!"&"1%!()%1+6(2&$($"e&)5#&6though focused integration is vital for all companies, it especially has critical implications for companies that 6++o(85&$%&';(+6<+!%233:()*"6+(#+q5%#%&'(2$$%)%"&23(!2<%)23-(t:<%!233:;(%&0+6)"#6(e2&)()"()2o+("&3:(!23!532)+$(#%6o6 when something appears lacking integration, whether it is technology, people or marketing strategy, investors will $+!3%&+()*+("<<"#)5&%):-(c&()*+(2#)%!3+;(n2<%)23%61()"()*+(w+6!5+(p(/#++&(t+!*(w%6%&'(jb+e(b"#o(t%1+6_(7!)"g+#(?;( >dd@l;(2&(%&)+#0%+e(e%)*(0+&)5#+(!2<%)23%6)6(12o+6(%)(+=)#+1+3:(!3+2#-(t*+(e+33p%&)+'#2)+$(!"1<2&:(g")*(i56)%9+6(%)6( actions and demonstrates the ability to focus, organize and execute the business vision. this paper gives students an opportunity to apply the principles to the case studies where they can practice the #"3+("8()*+(+&)#+<#+&+5#()"(12o+(3"&'()+#1(<#"9)2g3+($+!%6%"&6 future research future research could result in a longitudinal study of the three cases presented. how successful were the $+!%6%"&6(26(0%+e+$()e"(:+2#6(8#"1(&"e-(e+#+()*+(!"1<2&%+6(r+=%g3+(%&()*+(+0+#(!*2&'%&'(+&0%#"&1+&)c(d20+()*+( 2!*%+0+$(3"&'(#5&(<#"9)2g3+(656)2%&2g%3%):c( =+?+=+)1+4 berson, s. (2009. recession-proof your practice. aba journal;(p2&52#:_(g432&o6"&;(n-;(z")e2&%;(p-;(j([+0+&g5#';(b-(>ddk-(,&$+#6)2&$%&'()*+(<2))+#&6("8(12#o+)("#%+&)2)%"&(21"&'(61233( businesses. d2-v"(:,%#@,(";;:%",7"#w#9;2,,:,%;(>s_(?h>p?fdbowen, m. 2009. x"2-(# ",(-".-","/-30#$,# 233"33g",(# &'# (!":-# (-2:,:,%a#g&(:h2(:&,3# 2,5# .-&s;"g3. global entrepreneurship monitor global report. n2#32&$;(p-;(n2#32&$;(p-;(j(.)+e2#);(e-(gffk-(.++%&'(e*2)u6(&")()*+#+_(t*+(+&%'12("8(+&)#+<#+&+5#6*%<-(journal of small business strategy;(h_(gp>dn*2#2&;(w-;(j([2r+:;( -(>dd@-( !"#%2g"y7!2,%"-0#x&*#6&/#72,#5-:h"#-"h",/"#2,5#.-&z(#%-&*(!#*:(!#:,,&h2(:&,. n#"e&(456%&+66-( n35)+;(w-;(j(/2#12&;(/-(gf@d-(t*+(+88+!)("8(,-.-(+!"&"1%!(<"3%!%+6("&()*+(#2)+("8(g56%&+66(82%35#+-(american journal of small business;(?_(kpg>2010, vol. 1, no. 1, 188-197 lober, tworoger and jones 197 advances in business research fahed-sreih, j. 2009. m"25"-3!:.#:,#3g2;;#s/3:,"330# !"#:g.&-(2,7"#&'#(!"#,""5#'&-#27!:"h"g",(#23#2#g&(:h"#:,# .-"5:7(:,%# 3/77"33#&'#&*,"-yg2,2%"-3#&'# 3g2;;#s/3:,"33"3. lebanese american university, allied academies c&)+#&2)%"&23(n"&8+#+&!+x#%+$;(n-(>ddf-(t*+(e"53$pg+(+&)#+<#+&+5#u6(*2&$g""o-(money;(k@_(fgfriedman, t. 2006. !"#*&-;5#:3#[2(-(b+e(b"#o_(x2##2#;(.)#256(j(/%#"5=gladwell, m. 2002. !"#(:..:,%#.&:,(0#x&*#;:((;"#(!:,%3#72,#g2v"#2#s:%#5:''"-",7"-(4"6)"&_(42!o(42:(4""o6d211+#;(z-;(j(n*21<:;(p-(gffk-(="",%:,""-:,%#(!"#7&-.&-2(:&,0#$#g2,:'"3(&#'&-#s/3:,"33#-"h&;/(:&,-(b+e(b"#o_( harper business books. ^21<6!*#"+$+#;(^-;([5$e%';(b-;(z5##2:;(z-;(v2$12&2g*2&;(v-( >dd@-(t*+( 6)%)!*(*"56+_( (!26+("8( +&)#+<#+&+5#%23( failure. journal of the international academy for case studies;( <#%3_(g^lo623;(z-;(j(ms'n3;(\-(>ddh-(t*+(#+32)%"&6*%<(g+)e++&(12#o+)%&'(6)#2)+'%+6(2&$(<+#8"#12&!+(%&(2&(+!"&"1%!(!#%6%6-( d2-v"(:,%#@,(";;:%",7"#w#9;2,,:,%;(>?_(k>kp 342. [+2<)#"));( p-;(j(z!m"&23$;( p-( >dd@-([""o%&'(g+8"#+( 3+2<%&'_(t*+( +88+!)( "8( "e&+#($+!%6%0+&+66("&( 61233( g56%&+66( performance. $725"g6#&'#+,(-".-","/-3!:.#r&/-,2;;(gs_(gpg>lober r. 2009. =/,#6&/-#s/3:,"33#;:v"#2#'&-(/,"#\]]0#8#.-:,7:.;"3#'&-#s&&3(:,%#9=>?@ 4-(b+e(b"#o_(p"*&(e%3+:( & sons. z2662;(.-;(j(t+6)2;(.-(>dd@-(c&&"02)%"&(2&$(.z\6_(z%623%'&+$(<+#6<+!)%0+6(2&$('"236(21"&'(+&)#+<#+&+5#6;(2!2$+1%!6( and policy makers. technovation;(>@_(kfkpsdhz!/2#0+:;(w-(gff@-(w+2$:;(6+)($+3+'2)+t_(d2&$%&'("5#()26o6(%6()*+(o+:()"('#"e%&'(:"5#(g56%&+66-(+,(-".-","/-;(>k_( 77-79. v%&o;(m-(>dd>-(x#++(2'+&)(&2)%"&_(t*+(85)5#+("8(e"#o%&'(8"#(:"5#6+38_(business plus, 1st ed. small business administration-(>ddk-(,-.-(/"0+#&1+&)(.1233(456%&+66(789!+("8( $0"!2!:stangler, d. 2009. the coming entrepreneurship boom. kaufman foundation study. sun t. 1983. the art of war;(\$%)+$(g:(p21+6(n320+33;(w+<#%&)(+$%)%"&-(b+e(b"#o_(m+32!"#)+(v#+66=&32;:"#m&s"-(%6(2&(266"!%2)+(<#"8+66"#("8($"!)"#23(<6:!*"3"':(2)(n2#3"6( 3g%s5(,&%0+#6%):(2&$(2$i5&!)(<#"8+66"#( at nova southeastern university. she received her ph.d. in applied psychology, specializing in human resource management and organizational development at new york university. she has published run your business like a x"#)5&+(gdd_(h(v#%&!%<3+6(8"#(4""6)%&'(vw7xct.(jp"*&(e%3+:(j(."&6;(>ddfl-(d+#(8"#)*!"1%&'(g""o(%6_(m+3%0+#2&!+_( from the valley of death to sustainable profits in bioenergy. thomas tworoger is an associate professor and chair of the entrepreneurship department at nova southeastern university. he received his dba at nova southeastern university. his current research interests include +&)#+<#+&+5#6*%<;(1%!#"9&2&!+;(2&$(3+2$+#6*%<-(d+(*26(<5g3%6*+$(%&(p"5#&23("8([+2$+#6*%<(j(7#'2&%s2)%"&23(.)5$%+6;( journal of business and leadership, academy of information management sciences journal, and the academy of information and sciences journal. r^# 9-"3(&,# r&,"3 is an assistant professor of business administration and the executive associate dean at nova southeastern university. his current research interests include business turnaround strategies, leadership, and organizational culture. he has published in the journal of applied management and entrepreneurship, accounting net, and journal of small business management. 2010, vol. 1, no. 1, 188-197 lober, tworoger and jones advances in business research 2010 volume 1.pdf 1 advances in business research !"#$%&'()*+,)-./0&*1)$2)3.4&',44)5,4,/#6+)71)849&'():&('&;6/'*)-.,4*&$'4<)8)5,%&,=)/'>) suggested technique for increasing relevance aaron buchko, bradley university kathleen buchko, bradley university we suggest that organizational and managerial research tends to suffer from incremental approaches that marginalize the results. we review the history and nature of organizational research as a means of pointing out !"#$%&% ' %()*#(+#,'-%(.*#'//-('0!"*# (# !"#%**."#(+#1","$(/%)2#!%2!#3.'$% 4#-"*"'-0!# !' #0')#*%2)%50') $4#%&/'0 # research and practice. we note that research that tends to affect practice comes from qualitative studies that lack rigor, but frequently provide meaningful insights. we then examine one technique, called spectrum analysis, as a means of improving the assessment of organizational information and as a basis for improving the quality of future qualitative research efforts. this is demonstrated by applying the spectrum analysis to the information from the book built to last as a way of providing an example of the utility of such approaches to furthering knowledge of organizational and managerial experience. !"#$%&'#(")*("#+,#'!"#'-".'/0$%&'#)".'1%/#!*&#.+'#2"".#34.(#'+#'!"#4.&'4'1'4+.#+,#21&4."&&#*.(#21&4."&&#&)!++5&6## 7"84..4.8# -4'!# '!"# 9.%+.# :2*.3%1;')/# $54.8# <")"=2"%# >??@a# *.(# b+%5(c+=# :2*.3%1;')/# $54.8# d15/# >??>a# &)*.(*5&#*'#'!"#&'*%'#+,#'!"#(")*("e#'+#'!"#)+55*;&"#+,#'!"#$.*.)4*5#&")'+%#&;*%3"(#2/#'!"#f"!=*.#7%+'!"%&#2*.3%1;')/# :g";'"=2"%#>??hae#'!"#7"%.*%(#i*(+,,#&)*.(*5#:)!*%8"&#$5"(#<")"=2"%#>??hae#'!"#jkl#("2*)5"#:m)'+2"%#>??hae#'!"# severe economic recession of 2009, and the bankruptcy of general motors, once the largest of u.s. corporations :d1."#>??nae#'!"#21&4."&&#&")'+%#!*&#&"".#=+%"#'!*.#4'&#&!*%"#+,#;%+25"=&6#b!45"#'!"#."-&#!*&.o'#2"".#*55#2*(e#'!"# 8"."%*5#;"%)";'4+.#+,#21&4."&&#&""=&#'+#2"#&+="-!*'#."8*'4p"#*=+.8#'!"#8"."%*5#;1254)#:q+(+5./e#>??na6 business schools have not been exempt from the criticism levied against the “greedy wall street types” and '!"#;"%,+%=*.)"#+,#)+%;+%*'"#=*.*8"=".'6#l!+&!*5#:>??ra#*&&"%'"(#'!*'#s+1%#'!"+%4"&#*.(#4("*&#!*p"#(+."#=1)!# '+#&'%".8'!".#'!"#=*.*8"=".'#;%*)'4)"&#'!*'#-"#*%"#*55#3.+-#&+#5+1(5/#)+.("=.4.8t#:l!+&!*5e#>??ra6#k*.#i4'%+,,# suggested that business schools foster an amoral learning environment that does not provide managers with proper '++5&#,+%#(")4&4+.#=*34.8#:i4'%+,,e#>??ua6## k.#&""34.8#'+#"v;5*4.#'!"#%"*&+.&#,+%#'!"#"%+&4+.#+,#)+.$(".)"#4.#21&4."&&#*.(#21&4."&&#"(1)*'4+.e#q+(+5./#:>??na# suggests that the historical development of the business school is partly to blame. he notes that half a century ago, '!"#w+%(#w+1.(*'4+.#*.(#c*%."84"#w+1.(*'4+.#&'1(4"&#+,#x6g6#21&4."&&#"(1)*'4+.#)+.)51("(#'!*'#'!"#+p"%*55#y1*54'/# +,#&)!+5*%&!4;#-*&#s'"%%425"6t#k.#'!"#-*3"#+,#'!"&"#$.(4.8&e#'!"#%";+%'&#%")+==".("(#'!*'#21&4."&&#&)!++5&#*(+;'# a more traditional and more rigorous academic approach to the profession, focusing on disciplines that emphasized =+%"#y1*.'4'*'4p"#'")!.4y1"&6# !4&#*;;%+*)!#!*&#2/#*.(#5*%8"#2"".#&1))"&&,155/#*(+;'"(#*.(#4=;5"=".'"(#4.#=+&'# x6g6#21&4."&&#&)!++5&6# !"#%"&15'4.8#"=;!*&4&#+.#y1*.'4'*'4p"#*;;%+*)!"&#!*&#)%"*'"(#8%"*'"%#%48+%#4.#'!"#21&4."&&# schools. but at the same time, the study of business has become fragmented as academics working within functional *%"*&#,%*8=".'"(#21&4."&&#;%+25"=&#'+#$'#'!"4%#*%"*&#+,#"v;"%'4&"6# !"#%"&15'#!*&#2"".#*.#4.*2454'/#+.#'!"#;*%'#+,# managers to properly combine the disciplines in decision making, leading in part to the types of disastrous decisions and public relations nightmares that we have observed over the past months. +#*((%"&&# '!"&"#)+.)"%.&e# 4'#!*&#2"".#&188"&'"(#'!*'# '!"%"#.""(&# '+#2"#=+%"#+,#*#y1*54'*'4p"#*;;%+*)!#'+# '!"# &'1(/#+,#21&4."&&#:f""e#@nnnz#i+%8*.#[#g=4%)4)!e#@nh?z#q+(+5./e#>??na6# !4&#4("*#)"%'*4.5/#!*&#="%4'#*.(#-*%%*.'&# )+.'4.1"(#("p"5+;=".'6#\+-"p"%e# &"''4.8#21&4."&&# %"&"*%)!#*.(#"(1)*'4+.#1;#*&#*#y1*.'4'*'4p"#p"%&1&#y1*54'*'4p"# issue, implying that these approaches are somewhat in opposition to one another, may miss an essential point (the 4&&1"#+,#%"5"p*.)"a6 in his presidential address to the member of the academy of management in 1994, hambrick challenged *)*("=4)&#-4'!#*#,1.(*=".'*5#y1"&'4+.]#b!*'#4,#'!"#j)*("=/#*)'1*55/#=*''"%"(^#:\*=2%4)3e#@nnua6# !"#;+4.'#+,#!4&# message was to note that much academic research has virtually little or no impact on the practice of organizational =*.*8"=".'z#'!*'#4'#4&#*)*("=4)&#'*534.8#'+#*)*("=4)&e#-4'!4.#'!"#)+.$."&#+,#'!"#*)*("=/e#*.(#(+"&#.+'#4._1".)"# managerial behaviors. this theme has been reiterated several times since, but apparently to no effect, because *)*("=4)&# )+.'4.1"# '+# %*4&"# '!"# &*="# '+;4)&e# "686e# :q"*%)"e# >??uz# q,",,"%e# >??`a6#j&# *)*("=4)&# 4.'"%"&'"(# 4.# '!"# organizational sciences, we must ask ourselves if the methods are more important than the information and knowledge '!*'#-"#+2'*4.6#i*./#y1*.'4'*'4p"# %"&"*%)!#;*;"%&# *%"#="'!+(+5+84)*55/# 4.'"%"&'4.8#*.(#)+=;5"ve#21'#=*3"#+.5/# =4.+%#)+.'%421'4+.&#'+#+1%#3.+-5"(8"#2*&"6#f43"-4&"e#y1*54'*'4p"#&'1(4"&#;%+p4("#,+%#*#%4)!."&&#+,#4.,+%=*'4+.#*.(# 1.("%&'*.(4.8#'!*'#y1*.'4'*'4p"#*;;%+*)!"&#5*)3e#21'#(+#&+#*'#'!"#%4&3#+,#&12&'4'1'4.8#8"."%*5#;%4.)4;5"&#,+%#"=;4%4)*55/# based information. buchko and buchko 2010, vol. 1, no. 1, 1-14 2 advances in business research b"#)+.,"&&#'!*'#-"e#543"#=+&'#+,#+1%#)+55"*81"&e#$.(#+1%&"5p"&#)*18!'#1;#4.#'!"#*)*("=4)#54,"&'/5"6# !"#.""(# ,+%#;1254)*'4+.&#,+%#'".1%"#*.(#;%+=+'4+.#-455#)+.'4.1"#'+#(%4p"#=1)!#+,#'!"#%"&"*%)!#;%+)"&&#:q,",,"%e#>??`ae#*.(# therefore we can expect “more of the same” in business school research. we believe it is important, though to continually challenge ourselves as academicians and as organizational scientists to continuously improve our tools *.(#'")!.4y1"&#,+%#;"%,+%=4.8#%"&"*%)!#&+#*&#'+#;%+(1)"#%"&"*%)!#$.(4.8&#'!*'#-455#2"#'%15/#%"5"p*.'#'+#+1%#$"5(6# !"# purpose of this paper is to present one approach that may facilitate this process by providing a new tool for systematic "p*51*'4+.#+,#y1*54'*'4p"#(*'*e#'!"#g;")'%1=#*.*5/&4&6#k.#*((4'4+.e#-"#&!*55#4551&'%*'"#'!"#;+'".'4*5#2"."$'#+,#'!4&#'++5# 2/#*;;5/4.8#4'#'+#-"5503.+-.#*.(#;1254)5/#*p*45*25"#y1*54'*'4p"#(*'*#,%+=#'!"#2"&'0&"554.8#21&4."&&#2++3#7145'#'+#f*&'# :c+554.&e#[#q+%%*&e#@nnua 8""#$/6+,4)*$)3.4&',44)5,4,/#6+<)8)3#&,2)?&4*$#1)$2)3.4&',44)@>.6/*&$' <"p"5+;=".'#+,#'!"#21&4."&&#&)!++5&#)*.#2"#(4p4("(#4.'+#'!%""#;%4=*%/#;"%4+(&]#+%484.&#*.(#"*%5/#8%+-'!#:@hh?#0 @n@uae#"v;*.&4+.#*.(#(4p"%&4$)*'4+.#:@n@u#0#@nu?ae#*.(#%"*&&"&&=".'#*.(#%"+%8*.4a*'4+.#:@nu?#0#;%"&".'a#:q4"%&+.e# @nrna6#k.#'!"#"*%5/#/"*%&e#21&4."&&#&)!++5&#-"%"#;%4=*%45/#4.#"&'*254&!4.8#*#;+&4'4+.#-4'!4.#'!"#)+55"8"#+%#1.4p"%&4'/# &"''4.8e#*.(#=*./#-"%"#4.4'4*55/#g)!++5&#+,#c+=="%)"#-4'!#;%4=*%45/#*#'%*("0&)!++5#+%4".'*'4+.6#j&#*5%"*(/#.+'"(e# *# &"=4.*5# "p".'#+))1%%"(# 4.# '!"#@nr?&#-4'!# '!"# &'1(4"&# )+==4&&4+."(#2/# '!"#c*%."84"# *.(#w+%(# ,+1.(*'4+.&#+.# 21&4."&&# &)!++5# "(1)*'4+.# :g)!5+&&=*.e#g"(5*3e#[#b")!&5"%e# @nnha6# !"#=+&'# 4=;+%'*.'# %"&"*%)!# *.(#)1%%4)15*%# +1')+="&#,%+=#'!"&"#&'1(4"&#-*&#'!"#4.)%"*&"(#"=;!*&4&#+.#y1*.'4'*'4p"#'")!.4y1"&6#c+.)"%."(#-4'!#'!"#*;;*%".'# imbalance between advances in mathematics and those in the behavioral sciences, both studies emphasized a change 4.#'!"#*)*("=4)#=+("5#,%+=#'!"#'%*("0&)!++5#*;;%+*)!#'+#*#=+%"#%48+%+1&#*)*("=4)#(4&)4;54."6#j&#;*%'#+,#'!"#y1"&'# ,+%#*)*("=4)#5"84'4=*)/e#'!"#=*.*8"=".'#$"5(#!*&#;5*)"(#*#&48.4$)*.'#"=;!*&4&#+.#*#(4&)4;54."02*&"(#=+("5#,+%#'!"# training and promotion of faculty, with the primary mechanism being contributions to academic journals (agarwal [#\+"'3"%e#>??`a6#b!45"#'!4&#!*&#".*25"(#'!"#$"5(&#+,#=*.*8"=".'#*.(#+%8*.4a*'4+.#&)4".)"#'+#*)!4"p"#*)*("=4)# legitimacy, there is a concern that such considerations have overlooked the need for research to impact managerial ;%*)'4)"#:i)l%*'!e#>??`a6 j'# '!"# &*="# '4="e# +'!"%# *;;%+*)!"&# '+-*%(# '!"# &'1(/# +,# +%8*.4a*'4+.&# -"%"# ("p"5+;4.8# ,%+=# *# y1*54'*'4p"# ;"%&;")'4p"6#b!/'"o&#m%8*.4a*'4+.#i*.#:b!/'"e#@nrbae#*.(#'!"#c+.)";'#+,#'!"#c+%;+%*'4+.#:<%1)3"%e#@nura#;%+p4("(# insights into the complex world of organizations. as the organization sciences developed, others working form a =+%"#y1*54'*'4p"#,%*="-+%3#;%+p4("(#4.&48!'&#4.'+#'!"#4.'"%;"%&+.*5#.*'1%"#+,#+%8*.4a*'4+.&#*.(#=*.*8"%4*5#54,"e#*# ;%+)"&&#'!*'#)+.'4.1"&#'+#'!"#;%"&".'#(*/#:c5"4."%e#>??ha6#g1)!#*;;%+*)!"&#)+p"%#*#%*.8"#+,#="'!+(&#*.(#'")!.4y1"&e# from observation to content analyses to participant studies to the intervention work of organization development practitioners. while all such efforts provide insights on organizations, such methods do not provide the empirical %48+%#+,#'!"#y1*.'4'*'4p"#*;;%+*)!6 quantitative, qualitative, and mixed methods 7/#,*%#'!"#(+=4.*.'#("2*'"#+p"%#'!"#/"*%&#!*&#2"".#'!"#)+.'%*&'#2"'-"".#'!"#y1*.'4'*'4p"#*.(#y1*54'*'4p"#*;;%+*)!"&# to the study of organizations. while there are numerous distinctions between the two approaches, some of the more &48.4$)*.'#*%"#*&#,+55+-&#:7%/=*.e#>??uz#c*&&"55e#>??uz#c*p*.*e#<"5*!*/"e#[#g"3"%*.e#>??@a] 1. qualitative methods seek to provide a complete, detailed description of the phenomena under investigation; y1*.'4'*'4p"#*;;%+*)!"&#*4=# '+#)5*&&4,/# ,"*'1%"&e#)+1.'# '!"&"e#*.(#)+.&'%1)'# &'*'4&'4)*5#=+("5&# '+#"v;5*4.# what is observed. 2. k.#=*./#y1*54'*'4p"#&'1(4"&e#'!"#%"&"*%)!#=*/#3.+-#+.5/#%+18!5/#4.#*(p*.)"#-!*'#&!"d!"#4&#5++34.8#,+%z# y1*.'4'*'4p"#="'!+(&#4.p+5p"#)5"*%#!/;+'!"&"&#*.(#("54."*'4+.#+,#'!"#4&&1"#1.("%#4.p"&'48*'4+.6 3. !"#%"&"*%)!#("&48.#"="%8"&#*&#'!"#&'1(/#1.,+5(&#4.#y1*54'*'4p"#%"&"*%)!#",,+%'&z#-!45"#4.#'!"#y1*.'4'*'4p"# approach, all aspects of the study are carefully designed before data is collected. 4. k.#y1*54'*'4p"#%"&"*%)!#'!"#%"&"*%)!"%#4&#'!"#(*'*#8*'!"%4.8#4.&'%1=".'e#-!45"#4.#y1*.'4'*'4p"#%"&"*%)!e#'!"# %"&"*%)!"%#1&"&#'++5&e#&1)!#*&#y1"&'4+..*4%"&#+%#"y14;=".'#'+#)+55")'#.1="%4)*5#(*'*6 5. e1*54'*'4p"#%"&"*%)!#(*'*#4&#4.#'!"#,+%=#+,#-+%(&e#;4)'1%"&e#+%#+2f")'&z#)+.p"%&"5/e#y1*.'4'*'4p"#(*'*#4&#4.#'!"# form of numbers and statistics. 6. qualitative studies involve subjective analysis, as the individuals’ interpretation of events is important; y1*.'4'*'4p"#%"&"*%)!#1&"&#+2f")'4p"#="*.&#'+#*.*5/a"#(*'*e#&""34.8#;%")4&"#="*&1%"=".'#*.(#*.*5/&4&#+,# target concepts. 2010, vol. 1, no. 1, 1-14 buchko and buchko 3 advances in business research 7. e1*54'*'4p"#(*'*#4&#=+%"#s%4)!te#'4="#)+.&1=4.8e#*.(#5"&&#*25"#'+#2"#8"."%*54a"(z#y1*.'4'*'4p"#(*'*#4&#=+%"# ",$)4".'#*.(#*25"#'+#'"&'#!/;+'!"&"&e#21'#=*/#=4&&#)+.'"v'1*5#("'*456 8. !"#%"&"*%)!#4.#*#y1*54'*'4p"#4.p"&'48*'4+.#'".(&#'+#2")+="#&12f")'4p"5/#4=="%&"(#4.#'!"#&12f")'#=*''"%z#'!"# y1*.'4'*'4p"#%"&"*%)!"%#'".(&#'+#%"=*4.#+2f")'4p"5/#&";*%*'"(#,%+=#'!"#&12f")'#=*''"%6 !"&"# :*.(# &"p"%*5# +'!"%a# (4,,"%".)"&# !*p"# 5+.8# 2"".# '!"# &+1%)"# +,# ("2*'"# 4.# *)*("=4*e# ;*%'4)15*%5/# 4.# '!"# &+)4*5# &)4".)"&e#*&# '!"&"# 5"*(# '+#*#)5*&&4)#)+.,%+.'*'4+.#2"'-"".#)+=;"'4.8#;*%*(48=&# 4.# %"&"*%)!# :c1!.e#@nb>a6# unfortunately, focusing on this debate frames these two methods in opposition to one another. while each has &'%".8'!&#*.(#2"."$'&e#*&#-"55#*&#-"*3."&&"&#*.(#54=4'*'4+.&ee#4'#4&#4=;+%'*.'#'+#,+)1&#+.#!+-#'!"&"#)*.#2"#4.'"8%*'"(# *&#4.#=4v"(#="'!+(&#%"&"*%)!#:g*5"e#f+!5,"5(e#[#7%*a45e#>??>z# *&!*33+%4e#@nnha6# !"%"#4&#543"5/#8%"*'"%#2"."$'#,%+=# &+)4*5#&)4".)"#%"&"*%)!"%&#("p"5+;4.8#&3455&#4.#2+'!#'")!.4y1"&#%*'!"%#'!*.#'+#("2*'"#-!4)!#+,#'!"&"#4&#&1;"%4+%6 action science b!45"# 2+'!# y1*54'*'4p"# *.(# y1*.'4'*'4p"# *;;%+*)!"&# *%"# 1&",15# ,+%# &)4".'4$)# 4.y14%/# *.(# 4.p"&'48*'4+.# 0# *.(# both have a place within the business school another approach that has been developed is called action science. <"p"5+;"(#;%4=*%45/#2/#j%8/%4&#:@nnrae#'!"#)+.)";'#2"84.&#-4'!#'!"#&'1(/#+,#!+-#!1=*.#2"4.8&#("&48.#'!"4%#*)'4+.&# 4.#(4,$)15'#&4'1*'4+.&6#\1=*.#*)'4+.&#*%"#("&48."(#'+#*)!4"p"#4.'".("(#)+.&"y1".)"&#*.(#*%"#8+p"%."(#2/#*#&"'#+,# environmental variables. how those governing variables are treated in designing actions are the key differences 2"'-"".#&4.85"# 5++;#*.(#(+125"# 5++;# 5"*%.4.86#b!".#*)'4+.&#*%"#("&48."(# '+#*)!4"p"# '!"# 4.'".("(#)+.&"y1".)"&# *.(#'+#&1;;%"&&#)+._4)'#*2+1'#'!"#8+p"%.4.8#p*%4*25"&e#*#&4.85"#5+;#5"*%.4.8#)/)5"#1&1*55/#4&#1&"(6#\+-"p"%e#-!".# *)'4+.&#*%"#'*3".#.+'#+.5/#'+#*)!4"p"#'!"#4.'".("(#)+.&"y1".)"&#21'#'+#+;".5/#)+.&4("%#*.(#;+&&425/#'%*.&,+%=#'!"# governing variables, both single and double loop learning cycles are employed. (argyris, 1995; argyris, putnam, & g=4'!e#>???a !"#;%4=*%/#2"."$'#+,#'!"#*)'4+.#&)4".)"#*;;%+*)!#'+#'!"#&'1(/#+,#=*.*8"=".'#*.(#+%8*.4a*'4+.&#4&#'!"#;%"&1=;'4+.# that the circumstances are complex, dynamic, and uncertain, and that the goal is some action or behavioral outcome. g1)!# ="'!+(+5+8/# $'&# y14'"# -"55# -4'!4.# '!"# =+("%.# 21&4."&&# +%8*.4a*'4+.e# *&# =*.*8"%4*5# &4'1*'4+.&# *%"# +,'".# (4,$)15'e#4.p+5p"#.1="%+1&#".p4%+.=".'*5#p*%4*25"&e#*.(#%"y14%"#*)'4+.6#q%*)'4'4+."%&#4.#;*%'4)15*%#'".(#'+#p4"-#&1)!# *;;%+*)!"&#*&#1&",15#(1"#'+#'!"#"=;!*&4&#+.#'*34.8#*)'4+.#'+#*((%"&&#&;")4$)#&4'1*'4+.&6###g1)!#*#,%*="-+%3#4&#&"".#*&# ;+'".'4*55/#'%*.&,+%=*'4p"#,+%#'!"#&+)4*5#&)4".)"&#:q1'.*=e#@nnna#*.(#,+%#21&4."&&#"(1)*'4+.#:w+%(#[#m845p4"e#@nn`a6 clinical research models c54.4)*5#=+("5&#+,#+%8*.4a*'4+.#%"&"*%)!#"=;!*&4a"#'!"#%+5"#+,#'!"#%"&"*%)!"%#4.#4.'"%*)'4+.#-4'!#'!"#+%8*.4a*'4+.e# and are often based on interventions within organization settings. in the clinical approach to research, the investigator, working with managers, individuals, or the organization, seeks to take the results of organizational experience and combine these with other similar experiences to form an understanding of the phenomena under investigation. this approach offers a more complex or ‘richer” context for investigation; however, it does allow for the introduction +,#.1="%+1&#p*%4*'4+.&#-!4)!#)*.#=*3"#,+%#(4,$)15'4"&#4.#4.'"%;%"'*'4+.#+,#%"&15'&e#*.(#,+%#'!"#"v'"%.*5#p*54(*'4+.# +,#$.(4.8&6 if properly employed, however, clinical models of research can provide insights into organizations and the practice of management that cannot be obtained in any other manner. the complexity of the situation is closer to the reality of day-to-day organization life, thus affording a more accurate and realistic view of the practice of management. in '!4&#&".&"e#)54.4)*5#%"&"*%)!#!*&#'!"#*(p*.'*8"#2"4.8#;"%,+%="(#4.#'!"#*)'1*5#+%8*.4a*'4+.*5#&"''4.86# !"#y1"&'4+.# of relevance or spanning the boundary between research and practice are largely moot, as the research is being conducted within the organizational setting and within the context of organizational activity. there has been a suggestion that the adoption of a clinical approach may lead to more effective forms of business education, as students are more exposed to the nature of managerial activity (blaylock, mcdaniel, falk, \+55*.(&-+%'!e#[#c+;,e#>??na6#k.(""(e#'!"#1&"#+,#)54.4)*5#&"''4.8&#!*&#2"".#&!+-.#'+#2"#1&",15#,+%#%"&"*%)!#*&#-"55e# particularly for research that seeks to explore the types of behaviors managers are likely to exhibit in various real-+%5(#+%8*.4a*'4+.*5#&4'1*'4+.&#:g*1'."%#[#b"2"%e#>??na6## case study research business schools have longed use the case study method as a means of educating students, and certainly some such as the harvard business school have built the business educational model around the case approach. what is 2010, vol. 1, no. 1, 1-14 buchko and buchko 4 advances in business research less known, perhaps, is that the case approach can also be a form of business research. it is suggested that the more *#%"&"*%)!#y1"&'4+.#&""3&#'+#"v;5*4.#&+="#;%"&".'#)4%)1=&'*.)"e#*.(#'!"#=+%"#'!"#%"&"*%)!#y1"&'4+.#%"y14%"&#*.#4.0 depth and extensive treatment of some social phenomenon, the more appropriate and valuable the case study approach '+#%"&"*%)!#:g4.e#>??na6#7"/+.(#1&"#*#;"(*8+84)*5#'++5e#)*&"#%"&"*%)!#)*.#2"#1&"(#'+#("p"5+;#."-#3.+-5"(8"#*.(# understandings of the manner in which complex organizations and managers operate. k.#,*)'e#c!%4&'".&".#*.(#c*%545"#:>??na#!*p"#%")".'5/#&188"&'"(#'!*'#&+1.(#)*&"#&'1(4"&#)*.#1.4'"#'!"#("p"5+;=".'# of theory with teaching. they suggest that teachers and students can be viewed as part of a collective process of building, improving, and using management theory. further, they believe that instead of compartmentalizing teaching and research into separate categories, the use of case methodology can aid in the theory-building process by providing a structure in which it is possible to display the phenomena under investigation in all its complexity :c!%4&'".&".##[#c*%545"e#>??na6# !4&#&*="#)*;*2454'/#!*&#2"".#.+'"(#2/#+'!"%&#4.#'!"#=*.*8"=".'#$"5(#*&#!*p4.8# *;;54)*'4+.#,+%#'!"+%/02145(4.8#4.#'!"#+%8*.4a*'4+.#&)4".)"&#:94&".!*%('e#@nhna6# !"#*(p*.'*8"#+,#)*&"#&'1(/#4&#'!*'# it does allow researchers to probe deeply into the circumstances surrounding a particular organizational issue or =*.*8"%4*5#&4'1*'4+.6#m."#(4&'4.)'#(4&*(p*.'*8"e#!+-"p"%e#4&#'!*'#'!"#1.4y1"."&&#+,#"*)!#4.(4p4(1*5#)*&"#0#;*%'4)15*%# ,+%#)+=;5"v#+%8*.4a*'4+.&#0#)*.#=*3"#4'#(4,$)15'#'+#8"."%*54a"#,%+=#+."#)*&"#&'1(/#'+#+'!"%#+%8*.4a*'4+.&6##\+-"p"%e# case studies have strong appeal due to the realism and the complexity of the case under consideration, and if done 4.#&1,$)4".'#y1*.'4'/e#)*.#2"#1&",15#,+%#'!"+%/#("p"5+;=".'6#b!"'!"%#4.0(";'!#*.*5/&4&#+,#&4.85"#)+=;*.4"&#:"686ee# :l*%%e#@nnnz#g5*'"%e#@nnnaa#+%#)*&"#&'1(4"&#+,#=15'4;5"#+%8*.4a*'4+.&#:"686e#:c!*.(5"%e#@nb>z#c+554.&e#>??@z#q"'"%&#[# b*'"%=*.e#@nh>aae##&1)!#",,+%'&#!*p"#;%+p".#+p"%#'4="#'+#4._1".)"#2+'!#*)*("=4)&#*.(#;%*)'4'4+."%&#*543"6 @%&>,'6,a3/4,>)8""#$/6+,4 one of the more recent responses to this ongoing debate about research methodology has been a suggestion '!*'#=*.*8"%&#*(+;'#*.#*;;%+*)!#'+#=*.*8"%4*5#;%*)'4)"#'!*'#2+%%+-&#,%+=#'!"#="(4)*5#;%+,"&&4+.]#"p4(".)"02*&"(# management. that is, managers should adopt and embrace those practices which the overwhelming weight of the "=;4%4)*5#"p4(".)"#&188"&'&#-+%3#)+.&4&'".'5/e#-!"'!"%#'!4&#2"#4.#$.*.)4*5e#!1=*.#%"&+1%)"&e#"=;5+/""#("p"5+;=".'e# etc. much as physicians are encouraged to adopt those medical practices which clinical and empirical research demonstrate to be effective, so likewise should managers and organizational professionals adopt those practices that !*p"#2"".#s;%+p".t#'+#2"#",,")'4p"#:q,",,"%e#[#g1''+.e#>??b*z#q,",,"%#[#g1''+.e#>??b2a6 this perspective focuses on managerial practice and not on research methods per se. however, the suggestion is that managerial practice be informed by the results of empirical and clinical research in order to produce better organizational outcomes. in this sense, evidence-based management spans the boundaries between academic research and managerial practice, and offers opportunity to develop research grounded in practice, informed by '!"+%/e#*.(#814("(#2/#'!"#%48+%&#+,#&+1.(#%"&"*%)!#="'!+(+5+8/#:h+1&&"*1e#>??ba6# !4&#;"%&;")'4p"#!*&#'!"#;+'".'4*5# to re-frame the research process in the business school and to address the issue of research relevance in an effective =*.."%#:h+1&&"*1#[##i)c*%'!"/e#>?? z̀#g6#f6#h/."&e#l1543e#[#7%+-.e#>??`a6# b/70,)c<)d$!"/#&4$')$2)e#(/'&f/*&$'/0)5,4,/#6+)g,*+$>4 research objective results design process data gathering data format form of analysis researcher role qualitative complete, detailed description of phenomena ultimate results may be unknown research design emerges with the study researcher is the data gathering instrument data is in words, pictures, or objects subjective analysis/ individual interpretation researcher is immersed in subject matter quantitative classify features, count, construct statistical models defined hypotheses and research issues research is carefully designed in advance researcher uses tools to gather data data is in numerical form objective analysis/ precise measurement researcher is objectively removed from subject matter action science how human beings define actions taking action to address issues singleand double loop learning interactive – researcher and subjects data is narrative and numerical subjective analysis/ practitioner defined researcher is involved with subject matter clinical interactively develop understanding of the phenomena intervention; address defined organizational issue interactive; researcher working with subjects interactive – researcher and subjects data is complex; includes experience, words, and numbers subjective; defined by researcher and subjects researcher interacts with subject matter case study in-depth, extensive treatment of social phenomena case description and evaluation historical/ interview narrative format researcher as historian; may use tools and experience data is narrative, descriptive, objects subjective; based on selection by the researcher researcher gathers, selects and interprets subject matter 2010, vol. 1, no. 1, 1-14 buchko and buchko 5 advances in business research to summarize this discussion we present the key elements of the various approaches to conducting organizational %"&"*%)!#4.#*#)+=;*%4&+.#'*25"e# *25"#@#*2+p"6# !4&#'*25"#;%"&".'&#'!"#$p"#=*f+%#,+%=&#+,#+%8*.4a*'4+.*5#%"&"*%)!#*.(# )+=;*%"&#'!"&"#+p"%#&"p"%*5#(4=".&4+.&#+,#%"&"*%)!#*)'4p4'/]#:@a#'!"#%"&"*%)!#+2f")'4p"e#:>a#'!"#4.'".("(#%"&15'&#,%+=# '!"#%"&"*%)!e#:ia#'!"#%"&"*%)!#("&48.#;%+)"&&e#:ua#'!"#(*'*#8*'!"%4.8#;%+)"&&#1&"(e#:ra#'!"#,+%=*'#+,#'!"#(*'*e#:ba#'!"# '/;"#+,#*.*5/&4&#;"%,+%="(e#*.(#:`a#'!"#%+5"#+,#'!"#%"&"*%)!"%#4.#'!"#%"&"*%)!6##j&#.+'"(#4.#'!"#;%")"(4.8#(4&)1&&4+.e# the various forms have different advantages and disadvantages. the nature of the organizational problem and the 8+*5#+,#'!"#%"&"*%)!#!"5;#("$."#'!"#*;;%+*)!#'!*'#=*/#2"#1&"(6 h"8*%(5"&&#+,#'!"#%"&"*%)!#="'!+(+5+8/#"=;5+/"(e#'!"#4&&1"#%"=*4.&#!+-#'+#4=;%+p"#'!"#y1*54'/#+,#+%8*.4a*'4+.*5# %"&"*%)!6#x.,+%'1.*'"5/e#="'!+(+5+8/#(+"&#.+'#81*%*.'""#'!"#y1*54'/#+,#'!"#%"&"*%)!6#k'#4&#;+&&425"#,+%#*#%"&"*%)!"%#'+# "=;5+/#%48+%+1&#="'!+(+5+8/#*.(#4.'".&4p"#",,+%'#*.(#&'455#;%+(1)"#%"&"*%)!#'!*'#4&#+,#."8548425"#p*51"#'+#'!"#$"5(6# w+55+-4.8#*#%"&"*%)!#;%+)"&&#(+"&#.+'#4.&1%"#'!"#y1*54'/#+,#'!"#+1')+="6#k'#4&#*34.#'+#"=;5+/4.8#kgm#)"%'4$)*'4+.# ;%+)"&&"&z#kgm#)"%'4$)*'4+.#;%+)"&&#)"%'4,/#'!*'#'!"#;%+)"&&#1&"(#'+#("p"5+;#*#;%+(1)'#+%#&"%p4)"#*%"#(+)1=".'"(e# under control, and repeatable; but do not determine whether or not the product or service is of any value. it has 2"".#+2&"%p"(#'!*'#4'#4&#'!"+%"'4)*55/#;+&&425"e#1&4.8#kgm#="'!+(+5+8/e#'+#!*p"#*.#kgm#)"%'4$"(#)+.)%"'"#54,"f*)3"'6# likewise, we would observe that much organizational research is methodologically sound but of limited utility and '!"%",+%"#(+"&#.+'#=""'#'!"#15'4=*'"#'"&'#+,#y1*54'/#%"&"*%)!#0#(+"&#'!"#%"&"*%)!#=*''"%#'+#'!"#$"5(^ return on research !4&#y1"&'4+.#+,#%"&"*%)!#%"5"p*.)"#)*1&"(#1&#'+#)+.&4("%#'!"#4=;*)'#:+%#'!"#5*)3#'!"%"+,a#+,#=1)!#+,#'!"#*)*("=4)# research in business. while there has been an increase in the number of outlets, and an increase in the volume of %"&"*%)!#2"4.8#;%+(1)"(#*.(#;1254&!"(e#-"#*&3"(#+1%&"5p"&e#s-!*'#4&#'!"#%"*5#+%#'%1"#2"."$'#+,#'!4&#%"&"*%)!#*)'4p4'/^t# b"#,+1.(#p"%/#54''5"#-%4'4.8#'!*'#*((%"&&"(#'!4&#4&&1"6#i1)!#+,#'!"#"v4&'4.8#-+%3#!*&#2"".#'+#&4=;5/#y1"&'4+.#'!"# %"5"p*.)"#+,# '!"#-+%3#(+."#4.#'!"#$"5(#+%#+%8*.4a*'4+.#*.(#=*.*8"=".'#&'1(/#:\*=2%4)3e#@nnuz#q+(+5./e#>??na6# \+-"p"%e#.+#%"&"*%)!#)+15(#2"#,+1.(#'!*'#*((%"&&"(#'!"#8*4.&#+,#2"."$'&#'+#'!"#$"5(#,%+=#*)*("=4)#%"&"*%)!#",,+%'&6# b"#'!"%",+%"#s2+%%+-"(t#,%+=#'!"#21&4."&&#(4&)4;54."&#*.(#-+15(#543"#'+#&188"&'#*#)+.)";'#,+%#(4&)1&&4+.]##h"'1%.#+.# h"&"*%)!e#+%#hmh6## !*'#4&e#-!*'#4&#'!"#."'#8*4.#+%#2"."$'#,%+=#%"&"*%)!#*)'4p4'/^##b!*'#4&#'!"#'+'*5#8%*4.#;%+(1)"(# ,%+=#;1254&!"(#%"&"*%)!^#b"#&188"&'#'!*'#'!"&"#%"'1%.&#'*3"#+."#+,#'!%""#,+%=&] academic return on research. academic ror is the type of return most often discussed in the literature. j)*("=4)#hmh#*%"#'!"#%"'1%.&#'+#'!"#*)*("=4)#$"5(#,%+=#'!"#%"&"*%)!#*)'4p4'/6#g1)!#%"'1%.&#'*3"#'!"#,+%=#%"&"*%)!# *)'4p4'/#'!*'#*(p*.)"&#'!"#2+(/#+,#3.+-5"(8"#+,#'!"#'+;4)e#(4&)4;54."e#+%#$"5(6#j)*("=4)#hmh#+))1%&#-!".#%"&"*%)!# informs further theoretical development or research activity. “seminal” books and articles that advance theory, develop new constructs, create new measures of existing constructs, or suggest new avenues for future exploration are examples of academic research with a high ror. some potential measures of academic ror might include )4'*'4+.&#4.#+'!"%#&)!+5*%5/#-+%3&#*.(#%*'4.8&#+,#'!"#y1*54'/#+,#%"&"*%)!#f+1%.*5&6 pedagogical return on research. pedagogical ror is research that informs the teaching practice of the academy. such research is useful for instruction, training, and development. the returns primarily generated from this type of research are the educated students that proceed from academic programs of business study. examples of such pedagogical ror methods would take the form of case studies, textbooks, teaching guides, and curricular materials. such research furthers the educational mission of the academy and provides returns in the knowledge imparted to students. potential measures of pedagogical ror would include assurance of learning programs that measure students’ gains in knowledge throughout a program of study as well as testing and other academic performance measures. professional returns on research. professional ror occurs through the dissemination of academic research that informs business practice. as a profession, business relies upon practice to differentiate from general arts and sciences. research that contributes to practice by enabling professional managers to do a better job managing organizations represents the primary outcome of professional ror. such contributions as articles in professional journals and professional or “trade” publications, along with trade books and case studies or histories of managerial behaviors and organization activities would be examples of professional ror. measures of such returns might include managers’ self-reports of the publications read, sales records for business trade books, and similar information about managers’ familiarity with and use of such information. 5,*.#') $') 5,4,/#6+)e74,#%/*&$'4. what we see from this admittedly brief description of the concept of ror is that much of the academic research may have a high academic ror and have very little pedagogically or 2010, vol. 1, no. 1, 1-14 buchko and buchko 6 advances in business research ;%+,"&&4+.*55/6#\"%"4.#54"&#'!"#4&&1"#+,#%"&"*%)!#%"5"p*.)"z#,+%#-!45"#*)*("=4)&#=48!'#y1"&'4+.#'!"#p*51"#+,#'"v'2++3&e# trade books, and articles in professional publications, such outlets often have a high pedagogical or professional ror. for example, there are certain textbooks that are widely adopted and are leaders in the teaching discipline, and -!4)!#4=;*)'#'!+1&*.(&#+,#&'1(".'&#*..1*55/#4.#("p"5+;4.8#3.+-5"(8"#*2+1'#'!"#$"5(#+,#21&4."&&#*.(#=*.*8"=".'6# !"&"#'"v'&#!*p"#*#!48!#q"(*8+84)*5#hmh#*.(#=*/#!*p"#*#8%"*'#4._1".)"#+.#&'1(".'&e#/"'#*%"#;"%)"4p"(#'++#+,'".# have little value academically for tenure and promotion decisions. likewise, many trade books and publications are p4"-"(#*&#!*p4.8#54''5"#*)*("=4)#&48.4$)*.)"#+%#%"&"*%)!#%48+%e#&1)!#*&#built to last# :c+554.&#[#q+%%*&e#@nnua#+%# good to great#:c+554.&e#>??@az#/"'#'!"&"#2++3&#*%"#-4("5/#%"*(#2/#;%*)'4)4.8#=*.*8"%&#*.(#!*p"#8%"*'#4._1".)"#+.# managerial behaviors and decision making. however, such books are often lightly regarded by academics as having 54''5"# '!"+%"'4)*5# %48+%# +%# *;;%+;%4*'"# %"&"*%)!#="'!+(+5+84"&6# k'# 4&# ;+&&425"# '!*'# '!"# $"5(# +,# +%8*.4a*'4+.# &'1(4"&# !*&#2"".#'++#.*%%+-5/#("$.4.8#'!"#hmh#4.#'"%=&#+,#+.5/#j)*("=4)#%"'1%.&e#-!".#+'!"%#%"'1%.&#:'+#&'1(".'&#*.(# ;%*)'4'4+."%&a#*%"#+,#%"*5#p*51"#'+#'!"#=*.*8"%4*5#(4&)4;54."6#\+-"p"%e#'!4&#&'455#2"8&#'!"#y1"&'4+.e#-!/#(+"&#&+#=1)!# 21&4."&&#%"&"*%)!#!*p"#5+-#+p"%*55#%"'1%.&^ improving the quality of business research this review of the approaches to conducting organization and managerial research does point out the richness +,#'!"#$"5(6#i*.*8"=".'#&)!+5*%&!4;#!*&#2"".#&1))"&&,15#4.#4.)+%;+%*'4.8#(4p"%&"#%"&"*%)!#="'!+(&#4.'+#*#2+(/#+,# knowledge that has provided a rich tapestry of information. while criticisms that much of the work is done in the s4p+%/#'+-"%et#&+)4*5#&)4".'4&'&#=*.*8"=".'#&)!+5*%&#%")+8.4a"#'!"#.""(#'+#=""'#'!"#%48+%&#+,#y1*54'/#4.#)+.(1)'4.8# their investigations. at the same time, as members of a profession, there is a realization that the research must inform '!"#;%*)'4)"#+,#=*.*8"=".'#'+#%"*54a"#'%1"#p*51"#:7*a"%=*.e#>??ra6 b!/#'!".#(+"&#&+#=1)!#+%8*.4a*'4+.*5#%"&"*%)!#!*p"#p"%/#54=4'"(#1'454'/^# !"#y1"&'#,+%#%"5"p*.'#%"&"*%)!#4&#.+# less important today than in 1994 when hambrick challenged the profession to increase the relevance of research and increase the impact of research on the managerial profession. yet despite the overwhelming volume of research *.(#;*;"%&#2"4.8#;%+(1)"(#2/#21&4."&&#*)*("=4)&# '+(*/e# '!"%"# 4&#&""=4.85/# 54''5"#)!*.8"#4.# '!"# 4._1".)"#+,# '!*'# research on organizations and managers. there is no shortage of good, reasonable recommendations for doing so, "686e# :f*'!*=e#>?? z̀#<6#i6#h+1&&"*1e#>??`a6# !"#$"5(#=*/#2"#2145(4.8#1;# '+-*%(#*#)%1)4*5#;+4.'#*'#-!4)!# '!"&"# (1*5# &'*3"!+5("%&# -455# ="%8"# *.(# %")+8.4a"# '!"# p*51"# '!*'# "*)!# )*.# +,,"%# '+# '!"# $"5(# +,# +%8*.4a*'4+.*5# &)4".)"# :h/."&e#>??`a6 b"#-+15(#543"#'+#=*3"#*#=+("&'#&188"&'4+.#,+%#=*.*8"=".'#&)!+5*%&#*.(#;%*)'4'4+."%&#'+#)+.&4("%]#;"%!*;&#'!"# %"*&+.#'!*'#=1)!#%"&"*%)!#4&#+,#54=4'"(#p*51"#4&#2")*1&"#4'#4&#2*&"(#+.#'!"#-%+.8#y1"&'4+.&6#q%*)'4'4+."%&#!*p"#5+.8# 3.+-.#'!*'#'!"#y1"&'4+.#'!*'#+."#*&3&e#*.(#'!"#=*.."%#4.#-!4)!#+."#*&3&#4'e#)*.#&48.4$)*.'5/#4._1".)"#'!"#*.&-"%#+%# %"&15'6#w+%#4.&'*.)"e#4,#k#*&3#*#)!45(#s(4(#/+1#2%"*3#'!"#85*&&^t#4.#*#'!%"*'".4.8#'+."#k#-455#8"'#*#p"%/#(4,,"%".'#%"&;+.&"# '!*'# 4,# k# *&3# '!"# &*="#)!45(# s-!+#2%+3"# '!"#85*&&^t#+%# s!+-#(4(# '!"#85*&&#8"'# 2%+3".^te# *.(# '!"# 4.'"%*)'4+.# '!*'# ,+55+-&#-455#2"#8%"*'5/#("'"%=4."(#2/#'!"#.*'1%"#+,#'!"#y1"&'4+.6#f43"-4&"#=*.*8"%&#%"*54a"#'!*'#'!"%"#4&#*#&48.4$)*.'# (4,,"%".)"#2"'-"".#*&34.8#sb!/#*%"#+1%#y1*54'/#="*&1%"&#&+#5+-^t#*.(#*&34.8#s\+-#)*.#-"#4=;%+p"#'!"#y1*54'/#+,# +1%#;%+(1)'&#+%#&"%p4)"&^t !"#y1"&'4+.#,%*="&#'!"#*.&-"%#0#4'#"&'*254&!"&#)%4'"%4*#,+%#%"&+51'4+.e#2+1.(*%4"&#,+%#4.y14%/e#*.(#'!"#&)+;"#+,# the problem. it seems to us that one reason that so much organization research suffers from limited value is that the y1"&'4+.&#'!*'#*%"#1.("%#4.p"&'48*'4+.#*%"#54=4'"(e#-"*3e#+%#.+'#p"%/#4.'"%"&'4.8#'+#'!"#$"5(6# !1&#-"#)+.'".(#'!*'#8%"*'# %"&"*%)!#4&#*#2/0;%+(1)'#+,#8%"*'#y1"&'4+.&6#m.)"#'!"#%48!'#y1"&'4+.#4&#"&'*254&!"(e#;"%&+.&#'%*4."(#4.#%"&"*%)!#*.(# &)!+5*%&!4;#)*.#("p+'"#&48.4$)*.'#*=+1.'&#+,#'4="e#"."%8/e#*.(#%"&+1%)"&#'+#("p"5+;4.8#*.&-"%&#'+#'!"&"#y1"&'4+.&6# i+&'#&'1(".'&#-!+#8%*(1*'"#-4'!#q!<#("8%""&#*%"#)*;*25"#+,#(+4.8#&)4".'4$)#%"&"*%)!6#x.,+%'1.*'"5/e#'!"#'".1%"#*.(# ;%+=+'4+.#;%+)"&&#0#-!4)!#'".(&#'+#"=;!*&4a"#)+1.'4.8#;1254)*'4+.&#%*'!"%#'!*.#'!"#y1*54'/#+,#'!+&"#;1254)*'4+.&# 0#(%4p"&#=*./#4.#*)*("=4*#'+#;1%&14.8#=4.+%#4'"%*'4+.&#+,#"v'*.'#%"&"*%)!#y1"&'4+.&#-4'!#p"%/#54''5"#'!+18!'#'+#'!"# overall value of the research on the discipline. and there is very little in the phd education process that enables &'1(".'&# '+# 5"*%.#!+-# '+#*&3# 4.'"%"&'4.8# %"&"*%)!#y1"&'4+.&z#=+&'#*%"# &4=;5/#)+.&1="(#-4'!#*#y1"&'4+.# '!*'#-455# enable them to complete their dissertation and earn their degrees. !"#".(#%"&15'#4&#*#;5"'!+%*#+,#'%4'"e#4.&48.4$)*.'e#*.(#.*%%+-5/#,+)1&"(#%"&"*%)!#'!*'e#-!45"#+,#4.'"%"&'#'+#*#&=*55# body of scholars and perhaps a few practitioners in the discipline, has very little impact on the overall advancement of the body of knowledge regarding organizations and the practice of management. when faced with such outcomes, one response is to look for structural explanations hence the call for increased relevance and for processes that merge academics and practitioners. however, structural changes will not lead to meaningful research if there is .+# )+.&4("%*'4+.# +,# '!"# %"&"*%)!# y1"&'4+.6#m1%# "v;"%4".)"# 4.# %"p4"-4.8# '!"#-+%3&# +,# )+55"*81"&# 4.# '!"# $"5(# ,+%# 2010, vol. 1, no. 1, 1-14 buchko and buchko 7 advances in business research professional meetings or various journals has led to the inescapable conclusion that much of what is submitted lacks *#)5"*%#%"&"*%)!#y1"&'4+.#+%#4&#2*&"(#+.#*#%"&"*%)!#y1"&'4+.#'!*'#4&e#,%*.35/e#1.4.'"%"&'4.86 71'# -!*'# =*3"&# ,+%# 4.'"%"&'4.8# %"&"*%)!# y1"&'4+.&^# 7*%'1."3e# h/."&e# *.(# k%"5*.(# :>??ba# ;"%,+%="(# &1%p"/# %"&"*%)!#+,#*)*("=4)&#*.(#;%*)'4'4+."%&#,+1.(#'!*'#*)*("=4)&#,+1.(#%"&"*%)!#'+#2"#4.'"%"&'4.8#4,#:4.#("&)".(4.8#+%("%a# 4'#:@a#)!*55".8"(#"v4&'4.8#'!"+%/#4.#*#)+1.'"%4.'14'4p"#=*.."%z#:>a#-*&#+,#!48!#y1*54'/#4.#'!"+%/#("p"5+;=".'#+%#4.# '")!.4)*5#;%"&".'*'4+.z#:ia#-*&#-"55#-%4''".z#:ua#;%+p4("(#."-#'!"+%/#+,#$.(4.8&z#:ra#!*(#;%*)'4)*5#4=;54)*'4+.&z#*.(# :ba#!*(#*#="*&1%*25"#4=;*)'#+.#'!"#$"5(e#"4'!"%#4.#'"%=&#+,#)4'*'4+.&#+%#*2454'/#'+#&'4=15*'"#."-#%"&"*%)!#:7*%'1."3e# h/."&e#[#k%"5*.(e#>??ba6# !4&#;%+p4("&#&+="#4.&48!'#+.#*)*("=4)&o#;"%)"4p"(#)!*%*)'"%4&'4)&#+,#4.'"%"&'4.8#%"&"*%)!e# 21'#(+"&#.+'#*,,+%(#=1)!#4.&48!'#4.'+#!+-#+."#=48!'#8+#*2+1'#("p"5+;4.8#%"&"*%)!#y1"&'4+.&#'!*'#-+15(#2"#+,#4.'"%"&'6 interesting theories are those which deny certain assumptions about their audience, while non-interesting theories *%"#'!+&"#-!4)!#*,$%=#)"%'*4.#*&&1=;'4+.&#+,#'!"4%#*1(4".)"#:<*p4&e#@n`@a6# +#("p"5+;#&1)!#'!"+%4"&e#*#8++(#%"&"*%)!# y1"&'4+.#)!*55".8"&#%"&"*%)!"%&# '+#&""#=*''"%&#,%+=#*#."-#;"%&;")'4p"#*.(#&""#&+="'!4.8#."-#:f4;+-&34e#>??ha6## proposed research must meet important professional and societal goals, yet be answerable within existing resources *.(#*#%"*&+.*25"#'4="#,%*="6# !%""#&'";&#!*p"#2"".#;+&4'"(#,+%#,+%=15*'4.8#*#8%"*'#%"&"*%)!#y1"&'4+.#:f4;+-&34e# >??ha]#:@a#*&3#4.'"%"&'4.8#y1"&'4+.&e#:>a#&"5")'#'!"#2"&'#y1"&'4+.#,+%#%"&"*%)!e#*.(#:ia#'%*.&,+%=#'!"#%"&"*%)!#y1"&'4+.# into a testable hypothesis. these are certainly valid guidelines. but how researchers might systematically explore an *%"*#+,#%"&"*%)!#*.(#("p"5+;#4.'"%"&'4.8#%"&"*%)!#y1"&'4+.&#4&#.+'#*((%"&&"(6 !4&# !*&# 5"(# 1&# '+# 4.y14%"# 4.'+#="'!+(&# ,+%# 4=;%+p4.8# '!"# y1*54'/# +,# %"&"*%)!# y1"&'4+.&z# '!*'# 4&# !+-e#=48!'# %"&"*%)!"%&#8+#*2+1'#'!"#;%+)"&&#+,#4(".'4,/4.8#4&&1"&#,+%#4.p"&'48*'4+.#'!*'#*%"#&48.4$)*.'e#="*.4.8,15e#*.(#-+15(# !*p"#*#%"*5#",,")'#1;+.#2+'!#'!"#2+(/#+,#*)*("=4)#3.+-5"(8"#*&#-"55#*&#'!"#;%*)'4)"#+,#=*.*8"=".'^#j+&&#:>??ia# offered some ideas for how this might be done. he suggested that incremental innovations in research (which reinforce "v4&'4.8#)+%"#)+.)";'&#*.(#'!"#54.3*8"&#2"'-"".#'!+&"#)+.)";'&a#*%"#5"&&#4.'"%"&'4.8#:*.(#5"&&#543"5/#'+#8"'#;1254&!"(az# likewise, radical innovations in research (which introduce new conceptualizations and changes in constructs and %"5*'4+.&!4;&# *=+.8# )+.&'%1)'&a# *%"# %*%"# *.(# (4,$)15'# '+# 4=;5"=".'e# *.(# %*%"5/# 8"'# ;1254&!"(6# !"# '-+# '/;"&# +,# %"&"*%)!#=+&'# 543"5/#'+#2"#p4"-"(#*&#4.'"%"&'4.8#:*.(#=+&'# 543"5/#'+#2"#;1254&!"(a#*%"#"4'!"%#=+(15*%# 4..+p*'4+.&# :-!4)!#("$."e#="*&1%"e#+%#*.*5/a"#)+%"#)+.&'%1)'&#4.#."-#-*/&a#+%#*%)!4'")'1%*5#4..+p*'4+.&#:-!4)!#"v*=4."#."-# &4'1*'4+.&#,+%#,+)*5#%"5*'4+.&!4;&e#+%#."-#)+.&'%1)'&#'!*'#=*/#*,,")'#,+)*5#%"5*'4+.&!4;&a#:j+&&e#>??ia6## it is in these latter categories of modular or architectural innovations that we wish to focus our attention, since %"&"*%)!#'!*'#(+"&#.+'#8"'#;1254&!"(#0#.+#=*''"%#!+-#4.'"%"&'4.8#'!"#y1"&'4+.#0#)*..+'#4._1".)"#*)*("=4)#%"&"*%)!#*.(# theory development, organizational knowledge, or managerial practice. we were curious as to whether or not there -"%"#*./#"v4&'4.8#*;;%+*)!"&#'!*'#=48!'#*&&4&'#%"&"*%)!"%&#4.#("p"5+;4.8#8%"*'#%"&"*%)!#y1"&'4+.&#'!*'#-+15(#5"*(#'+# great research. however, there is a remarkable paucity of writing and thought, and very few practical suggestions, *&#'+#!+-#%"&"*%)!"%&#=48!'#8+#*2+1'#("p"5+;4.8#!48!#y1*54'/#%"&"*%)!#y1"&'4+.&6#b"#-"%"#;*%'4)15*%5/#4.'"%"&'"(#4.# a process or systematic approach. finding very little in the available resources, we turned to another approach that !*&#2"".#,+1.(#'+#2"#",,")'4p"#4.#8"."%*'4.8#1&",15#%"&"*%)!#y1"&'4+.&#,%+=#"v4&'4.8#%"&"*%)!e#*# '")!.4y1"#)*55"(# spectrum analysis. the spectrum analysis k.#+%("%# '+#2")+="#"=;+-"%"(# '+#$.(#*.&-"%&# '+#=*.*8"=".'#*.(#+%8*.4a*'4+.*5#;%+25"=&e# %"&"*%)!"%&#*.(# ;%*)'4'4+."%&#=1&'#2"84.#-4'!#'!"#%48!'#y1"&'4+.&6#g)4".)"#;%+=4&"&#'!"#%"p"5*'4+.#+,#*#p*&'#*=+1.'#+,#4.,+%=*'4+.e# *.(#("p"5+;4.8#4.'"%"&'4.8#y1"&'4+.&#4&#"&&".'4*5#'+#&)4".'4$)#(4&)+p"%/#:j+&&e#>??ia6# !"#2"&'#%"&"*%)!#y1"&'4+.&#*%"# 4.'"%"&'4.8e#$'#'!"#%"&"*%)!#-"55e#)*.#2"#'%*.&,+%="(#4.#'"&'*25"#!/;+'!"&"&e#*.(#4.p+5p"#&+="#)+.)";'#%"5*'"(#'+#'!"+%/# +%#*.#*;;54"(#)+.'"v'#:7%*(5"/e#>??@z#f4;+-&34e#>??ha6#j&#-"#!*p"#.+'"(e#4'#4&#'!"#y1"&'4+.&#'!*'#("'"%=4."#%"&"*%)!# design, conceptual framework, and the methods utilized (blaikie, 2000; bryman, 2004; flick, 1998; lipowski, 2008; i*&+.e#>??>z#g*)3"''#[#b"..2"%8e#@nn`a6 m."#+,# '!"#2"."$'&#+,#.+.0y1*.'4'*'4p"#%"&"*%)!#:y1*54'*'4p"#="'!+(&e#)*&"#&'1(/#%"&"*%)!e#*.(#*)'4+.#&)4".)"# %"&"*%)!a# 4&# '!"# *2454'/# +,# &1)!# %"&"*%)!# '+# (4&)+p"%# y1"&'4+.&# *.(# 8"."%*'"# !/;+'!"&"&# '!*'# )*.# 2"# '"&'"(# 1&4.8# y1*.'4'*'4p"#="*&1%"&#:7"%.*%(e#>???z#7%/=*.e#>??uz#c*&&"55e#>??ua6#x.543"#y1*.'4'*'4p"#="'!+(&e#'")!.4y1"&e#*.(# tools, which emphasize numerical data, statistical analyses, and tools such as scatterplots, graphs, and histograms, y1*54'*'4p"# &'1(4"&# 8"."%*55/# 1&"# ("&)%4;'4p"# (*'*# '!*'#=*/#.+'# 2"# 4=="(4*'"5/# %"p"*54.86# !4&e# !+-"p"%e# )%"*'"&# (4,$)15'4"&#4.#8"."%*'4.8#%"&"*%)!#y1"&'4+.&e#*&#;+'".'4*55/#4.'"%"&'4.8#;*''"%.&#+%#+2&"%p*'4+.&#=*/#.+'#2"#4=="(4*'"5/# observable to the researcher or manager. as a result, many research issues may go unexplored. b!45"#y1*54'*'4p"#="'!+(&#(+#;+&&"&&#*;;%+;%4*'"#%48+%e#'!"#.*'1%"#+,#'!"#*&&"&&=".'#*.(#"p*51*'4+.#0#%"5/4.8#+.# '!"#4.&48!'&#*.(#3.+-5"(8"#+,#'!"#4.p"&'48*'+%#0#)*.#=*3"#4'#(4,$)15'#'+#4(".'4,/#*((4'4+.*5#%"&"*%)!#+;;+%'1.4'4"&e# 2010, vol. 1, no. 1, 1-14 buchko and buchko 8 advances in business research *.(# '+#$.(# 4.'"%"&'4.8#y1"&'4+.&# ,+%# ,1'1%"# %"&"*%)!6#\".)"#-!45"#=*./#y1*54'*'4p"# &'1(4"&# *%"# ".548!'".4.8# *.(# pathbreaking, and may become popular best-selling managerial books such as in search of excellence (peters & b*'"%=*.e# @nh>a# +%#l++(# '+#l%"*'# :c+554.&e# >??@ae# &1)!#-+%3&# %*%"5/# 5"*(# '+#="*.4.8,15# ,+55+-0+.# %"&"*%)!# +%# ("p"5+;#*#&/&'"=*'4)e#"=;4%4)*5#2+(/#+,#3.+-5"(8"#'!*'#4&#+,#=1)!#1&"#'+#'!"#$"5(#+,#=*.*8"=".'#%"&"*%)!6 b!45"# y1*.'4'*'4p"# (*'*# 8*'!"%"(# ,%+=# +%8*.4a*'4+.&# 4&# *.*5/a"(# *.(# &!*%"(# 1&4.8# &'*'4&'4)*5# *.(# %"5*'"(# y1*.'4'*'4p"#'")!.4y1"&e#y1*54'*'4p"#(*'*#4&#+,'".#."85")'"(#,+%#-*.'#+,#*.#",,")'4p"#="*.&#'+#*.*5/a"#&1)!#(*'*#*.(# to share such data. researchers and mangers know that this data is valuable, but lack the ability to organize the data *.(#85"*.#,%+=#'!"#(*'*#4=;+%'*.'e#1&",15e#*.(#4.'"%"&'4.8#%"&"*%)!#y1"&'4+.&6# ++5&#)1%%".'5/#*p*45*25"#'+#*.*5/a"# *.(#;%"&".'#y1*54'*'4p"#4.,+%=*'4+.e#"686e#(*'*2*&"#&"'&e#.*%%*'4p"&e#)*'"8+%4)*5#'*25"&e#"')6#,*55#,*%#&!+%'#+,#=*')!4.8# '!"#*.*5/'4)*5#;+-"%e#,*=454*%4'/e#*.(#"*&"#+,#&!*%4.8#+,#'%*(4'4+.*5#y1*.'4'*'4p"#'++5&#&1)!#*&#&'*'4&'4)*5#*.*5/&"&#*.(# numerical graphs. !1&#-"#;"%)"4p"#*#8*;#4.#"v4&'4.8#%"&"*%)!#'")!.4y1"&e#;%4=*%45/#2"'-"".#y1*.'4'*'4p"#"=;4%4)*5#&'1(4"&#*.(# y1*54'*'4p"6#9*)!#!*&#4'&#(",".("%&#*.(#("'%*)'+%&6#b"#-+15(#543"#'+#&188"&'#'!*'#'!"%"#=*/#2"#*#;%+(1)'4p"#=4((5"# 8%+1.(#'!*'#=48!'#".*25"#'!"#$"5(#'+#8%+-#*.(#("p"5+;#2/#5"*(4.8#'+#."-#*p".1"&#+,#4.y14%/#*.(#'!"#("p"5+;=".'#+,# 4.'"%"&'4.8#%"&"*%)!#y1"&'4+.&6# !4&#=4((5"#8%+1.(#54"&#4.#'!"#1&"#+,#&/&'"=*'4)#*.*5/'4)#'")!.4y1"&#*.(#="'!+(+5+84"&# +.#%"&"*%)!#'!*'#4&#y1*54'*'4p"#4.#.*'1%"6#7/#,%*=4.8#y1*54'*'4p"#%"&"*%)!#4.#.+p"5#-*/&e#*.(#2/#(+4.8#&+#4.#*#&/&'"=*'4)# *.(# %";"*'*25"#=*.."%e# 4'#=*/#2"#;+&&425"# '+#("p"5+;#."-# %"&"*%)!#y1"&'4+.&# '!*'# 5"*(# '+#;%+(1)'4p"# &'%"*=&#+,# *)'4p4'/#*.(#'!*'#;%+p4("#&48.4$)*.'#%"'1%.&#'+#'!"#$"5(6 m."# '")!.4y1"# '!*'#=48!'#2"#1&",15# ,+%#*.*5/a4.8#&1)!#y1*54'*'4p"#(*'*#*.(#8"."%*'4.8#y1"&'4+.&# '!*'#=*/#2"# +,#1&"#,+%#,1'1%"#%"&"*%)!#4&# '!"#g;")'%1=#*.*5/&4&#:g5+."e#>??ra6# !"#8+*5#+,#g;")'%1=#*.*5/&4&# 4&# '+#=*3"#(*'*# *p*45*25"#'+#*#-4("#*1(4".)"#+,#y1*54'*'4p"#*.*5/&'&#f1&'#*&#!4&'+8%*=&e#8%*;!&e#*.(#&)*''"%;5+'&#*%"#*p*45*25"#,+%#1&"# 2/#y1*.'4'*'4p"#%"&"*%)!"%&6# !%+18!#;*''"%.#%")+8.4'4+.e#*#g;")'%1=#)*.#,*)454'*'"#*.*5/&4&#2/#!"5;4.8#%"&"*%)!"%&# &!*%"#%"&15'&#=+%"#",$)4".'5/#*.(#2/#&1;;+%'4.8#4.,"%".'4*5#4.'"%;%"'*'4+.&6 !"#g;")'%1=#;%"&".'&#*#p4&1*5#*.*5/&4&#+,#y1*54'*'4p"#(*'*6#c"/#y1*54'4"&#+%#)!*%*)'"%4&'4)&#+,#'!"#)+=;*./#+%# (*'*#1.("%#4.p"&'48*'4+.#*%"#4(".'4$"(#*.(#)*'"8+%4a"(6#b4'!4.#"*)!#)*'"8+%/e#(*'*#1.4'&#*%"#+%8*.4a"(#+.#'!"#2*&4&# +,#&4=45*%4'/#'+#+'!"%&#4.#'!"#&*="#)*'"8+%/6# !1&#'!"#g;")'%1=#;%+p4("&#*#&/&'"=*'4)#-*/#+,#)+=;*%4.8#y1*54'*'4p"# data. spectrum has been used to examine the relationship between mental models, motivation, and search habits +,#k.'"%."'#1&"%&#:g5+."e#>??>ae#'!"#*&&+)4*'4+.#2"'-"".#*8"#8%+1;#*.(#k.'"%."'#&"*%)!#8+*5&#*.(#"v;"%4".)"#:g5+."e# >??`ae#*.(#)*'"8+%4)*5#(4,,"%".)"&#4.#'!"#-*/&#".(01&"%&#&"*%)!"(#'!"#k.'"%."'#*.(#*.#+.54."#542%*%/#)*'*5+8#:g5+."e# >??ra6## k.#;"%,+%=4.8#*#g;")'%1=#*.*5/&4&e#(*'*#+%#4.,+%=*'4+.#,%+=#y1*54'*'4p"#&'1(4"&#*%"#'*3".#*&#;%"&".'"(#2/#'!"# original researcher and organized according to the researcher’s framework. thus characteristics of organizations, individuals, or categories of information are used as initially conceptualized by the investigator. within these categories of data, the information can be organized according to the original researchers’ intentions and then ;%"&".'"(#4.#*#p4&1*5#=*.."%#'!*'#*55+-&#,+%#)+=;*%4&+.&e#*.*5/&4&e#*.(#("p"5+;=".'#+,#;+'".'4*5#%"&"*%)!#y1"&'4+.&6## 8')@h/!"0,<)8):",6*#.!)8'/014&4)$2)3.&0*)*$)i/4*)d$!"/'&,4) to highlight and demonstrate the potential utility of the spectrum analysis as a tool for organization researchers, *#g;")'%1=#*.*5/&4&#-*&#;"%,+%="(#+.#'!"#y1*54'*'4p"#(*'*#,%+=#'!"#2"&'0&"554.8#21&4."&&#2++3#7145'#'+#f*&'#:c+554.&# [#q+%%*&e#@nnua6# !"%"#4&#"p4(".)"#'!*'#'!4&#-+%3#!*&#!*(#*#&48.4$)*.'#4._1".)"#+.#+%8*.4a*'4+.&#*.(#'!"#;%*)'4)"# of management. for example, authors have pointed to this work to clarify the notion of extended high performance ,+%#4.(1&'%4"&#:w+&'"%#[#c*;5*.e#>??@az#'+#(4&)+1%*8"#"=15*'4.8#p4&4+.*%/#)+=;*.4"&#-4'!+1'#1.("%&'*.(4.8#'!"&"# +%8*.4a*'4+.&#:h"4.8+5(#[#x.("%-++(e#>??uaz#'+#&1;;+%'#(4&)4;54."(#8%+-'!#%*'!"%#'!*.#%"p+51'4+.*%/#2%"*3'!%+18!&# :h++."/e#>??baz#*.(#'+#;%+=+'"#'!"#("p"5+;=".'#+,#)+%"#p*51"&#:l%1/&e#g'"-*%'e#l++(&'"4.e#74.8e#[#b4)3&e#>??ha6# x&4.8# &1%p"/&# *.(# !4&'+%4)*5# (*'*e# c+554.&# *.(# q+%%*&# :@nnua# 4(".'4$"(# @h# sp4&4+.*%/t# )+=;*.4"&# 2*&"(# +.# characteristics that helped these companies succeed over decades and compared each of these to a durable but less &1))"&&,15#)+=;"'4'+%#$%=#4.#'!"#&*="#4.(1&'%/6#j4&4+.*%/#)+=;*.4"&#-"%"#("$."(#*&#s;%"=4"%#4.&'4'1'4+.&#k#'!"# )%+-.#f"-"5&#0#4.#'!"4%#4.(1&'%4"&e#-4("#*(=4%"(#2/#'!"4%#;""%&#*.(#!*p"#*#5+.8#'%*)3#%")+%(#+,#=*34.8#*#&48.4$)*.'# 4=;*)'#+.#'!"#-+%5(#*%+1.(#'!"=t#:c+554.&e#[#q+%%*&e#@nnue#;6#@a6#b!45"#'!"&"#$%=&#-"%"#.+'#,%""#+,#;%+25"=&e#'!"# visionary companies were resilient in the face of problems and had managed to survive and prosper over an extended ;"%4+(#+,# '4="6# !"#8+*5&# +,# '!"4%# y1*54'*'4p"# &'1(/#-"%"# '+# 4(".'4,/# )!*%*)'"%4&'4)&# )+==+.# '+#!48!5/#p4&4+.*%/# )+=;*.4"&#*.(#1&"#'!"&"#y1*54'4"&#*.(#)!*%*)'"%4&'4)&#'+#4._1".)"#=*.*8"%4*5#;%*)'4)" w%+=#&1%p"/&#+,#)!4",#"v")1'4p"#+,$)"%&#:c9m&a#,%+=#5"*(4.8#)+=;*.4"&#4.#(4,,"%".'#4.(1&'%4"&#*.(#5+)*'4+.&e#'!"# c+554.&#*.(#q+%%*&#:@nnua#("p"5+;"(#*#54&'#+,#p4&4+.*%/#)+=;*.4"&e#4(".'4$"(#'!"#>?#=+&'#)+==+.5/#=".'4+."(#2/# 2010, vol. 1, no. 1, 1-14 buchko and buchko 9 advances in business research '!"#c9m&e#*.(#"54=4.*'"(#)+=;*.4"(#,+1.("(#*,'"%#@nr?6# !"/#'!".#("p"5+;"(#*#)+.'%+5#&"'#+,#=*')!4.8#)+=;*.4"&# ,%+=# '!"# &*="# ,+1.(4.8# "%*# *.(# 4.(1&'%/# '!*'# -"%"# 8++(# )+=;*.4"&# 21'# 8*%."%"(# ,"-"%# ;+4.'&# ,%+=# '!"# c9m# assessment than the visionary company. after identifying the 2 groups, the authors conducted an in-depth historical *.*5/&4&#+,#'!"#$%=&6# !"#$.*5#*.*5/&4&#,+)1&"(#+.#(*'*#%"5*'"(#'+#+%8*.4a*'4+.*5#&'%1)'1%"e#&+)4*5d)15'1%*5#;%*)'4)"&# *.(# .+%=&e# ;!/&4)*5# &"''4.8e# '")!.+5+8/e# 5"*("%&!4;e# ;%+(1)'&# *.(# &"%p4)"&e# p4&4+.d)+%"# p*51"&e# $.*.)"&e# *.(# '!"# external environment. the authors then narrowed the information down to a set of narratives and tables to describe distinguishing characteristics of visionary companies. the results were then presented in tabular form, each table corresponding to one of the six characteristics of success. the data from those tables has been distilled using the spectrum analysis into one display, shown in figure 1 below. j&(.#,)c<):",6*#.!)k&4"0/1)$2)5,4.0*4)2#$!)3.&0*)*$)i/4* k.#'!4&#(4&;5*/e#'!"#.1)5"1&#:'!"#25*)3#)4%)5"#4.#'!"#)".'"%#+,#'!"#g;")'%1=a#(4&;5*/&#'!"#'+'*5#.1=2"%#+,#)*&"&#+%# )+=;*.4"&#:.#l#iba6# !"#5*%8"%#&"=40)4%)5"#*2+p"#'!"#.1)5"1&#%";%"&".'&#)+=;*./#'/;"#:j4&4+.*%/#+%#c+=;*%4&+.# )+=;*./a6#c+.)".'%4)#+1'"%#&"=40)4%)5"&#4.)51("#&/=2+5&e#4.#'!"#,+%=#+,#s2155"'#;+4.'&et#'!*'#%";%"&".'#%*'4.8&#+,#'!"# )+=;*.4"&#+.#'!"#p*%4+1&#)!*%*)'"%4&'4)&6#f*2"5&#4(".'4,/#'!"&"#)!*%*)'"%4&'4)&e#-!4)!#4.)51("#c+%"#k("+5+8/#0#'!"# ;%4.)4;5"&# '!*'#(%4p"# *# )+=;*./#2"/+.(#;%+$'&z#74,#\*4%/#j1(*)4+1&#l+*5&# :7\jl&a# 0# (*%"("p450543"#8+*5&# '!*'# *%"#4.#54."#-4'!#*#)+=;*./o&#)+%"#4("+5+8/#*.(#-4'!4.#'!"#%"*5=#+,#;+&&42454'/z#c15'4&=#0#*#)15'0543"#)+==4'=".'# to the company and the core ideology; purposeful evolution the process of evolving and trying new things as the )+=;*./#"v;*.(&z#i*.*8"=".'#c+.'4.14'/#0#$554.8#'+;#=*.*8"=".'#;+&4'4+.&#,%+=#4.&4("#'!"#)+=;*./z#*.(#g"5,0 k=;%+p"=".'#0#'!"#y1"&'#'+#(+#2"''"%#'+(*/#'!*.#/"&'"%(*/6 the names of the companies are listed for each row of visual data, and the numbers in parentheses represent the =*')!#2"'-"".#'!"#p4&4+.*%/#)+=;*./#*.(#'!"#)+=;*%4&+.#)+=;*./6#c+=;*.4"&#%*'"(#'!"#!48!"&'#4.#"*)!#)*'"8+%/# are shown with the dark black bullets; dark gray bullets mark the mid-range companies; and the light gray bullets the 5+-"&'#%*.3"(#)+=;*.4"&6#j4&4+.*%/#)+=;*.4"&#*%"#%*.3"(#!48!#:b*50i*%'a#'+#5+-#:j="%4)*.#9v;%"&&e#+%#ji9ma# 2*&"(#+.#'!"#.1=2"%#*.(#5+)*'4+.#+,#2155"'&#,+%=#'!"#c9m#*.(#*1'!+%&o#%*'4.8&6#c+=;*%4&+.#)+=;*.4"&#*%"#&4=45*%5/# purposeful evolution management continuity self-improvement core ideology n=36 comparison companies 18 (50%) visionary companies 18 (50%) cultism big hairy audacious goals (bhags) high: medium: low: !"#$%"&''( texas instruments (7) bristol-myers squibb (9) general motors (5) melville (13) kenwood (16) colgate (15) norton (1) chase (4) rjr nabisco (14) howard johnson (10) zenith (12) westinghouse (6) mcdonnell douglas (3) wells fargo (2) columbia (18) burroughs (8) ames (17) amex (2) philip morris (14) ford (5) ibm (8) citicorp (4) disney (18) boeing (3) ge (6) nordstrom (13) marriott (10) johnson & johnson (9) 3m (1) proctor & gamble (15) hewlett-packard (7) motorola (12) merck (11) sony (16) walmart (17) 2010, vol. 1, no. 1, 1-14 buchko and buchko 10 advances in business research %*.3"(#:q$a"%#'+#j="&a6# !"#4.4'4*5#4=;%"&&4+.#,%+=#'!"#(*'*#)+.$%=&#'!"#$.(4.8&#+,#c+554.&#*.(#q+%%*&#'!*'#'!"# p4&4+.*%/#)+=;*.4"&#;"%,+%=#2"''"%#4.#3"/#y1*54'*'4p"#)!*%*)'"%4&'4)&#'!*.#(+#'!"#)+=;*%4&+.#)+=;*.4"&6 i+%"#&48.4$)*.'5/e#!+-"p"%e#'!"#g;")'%1=#(4&;5*/&#;%"&".'#."-#y1"&'4+.&6#b!/#(+"&#'!"#%"'*45#(4&)+1.'#4.(1&'%/# )+.'*4.#2+'!#'!"#!48!"&'0%*'"(#)+=;*./#+p"%#'4="#:b*50i*%'a#*.(#'!"#5+-"&'#:j="&a^#<+"&#'!"#5+)*'4+.#+,#w+%(#*.(# l"."%*5#i+'+%&#*'#'!"#'+;#+,#'!"#(4&;5*/#&188"&'#'!"%"#4&#5"&&#y1*54'*'4p"#(4,,"%".)"#2"'-"".#!48!#*.(#5+-#;"%,+%=4.8# $%=&#4.#'!"#*1'+#4.(1&'%/#'!*.#4.#+'!"%#4.(1&'%4"&^#<+#!48!#%*'4.8&#+.#c+%"#k("+5+8/#*.(#7\jl&#(4&'4.814&!#!48!# ;"%,+%=4.8#)+=;*.4"&# 4.# '!"# *1'+# 4.(1&'%/# ,%+=# 5+-#;"%,+%=4.8#)+=;*.4"&^#<+"&# '!"# ,*)'# '!"#i"%)3# 4&#+."#+,# '!"#=+&'#&1))"&&,15#p4&4+.*%/#)+=;*.4"&#*.(#'!*'#4'&#=*')!e#q$a"%e#4&#'!"#2"&'#+,#'!"#)+=;*%4&+.#)+=;*.4"&#="*.# '!*'#)+=;*.4"&#4.#'!"#;!*%=*)"1'4)*5#4.(1&'%/#;"%,+%=#2"''"%#+p"%*55#'!*.#'!+&"#4.#+'!"%#4.(1&'%4"&^#b!/#(+#=+%"# )+=;*.4"&# %*.3#!48!5/#+.#i*.*8"=".'#c+.'4.14'/# '!*.#+.#*./#+'!"%#)!*%*)'"%4&'4)^#b!*'# 4&# '!"# &48.4$)*.)"#+,# '!"#,*)'#'!*'#2+'!#'!"#)+=;*.4"&#4.#'!"#)%"(4'#)*%(#4.(1&'%/#:ji9m#*.(#b"55&0w*%8+a#!*p"#5+-#g"5,0k=;%+p"=".'# %*'4.8&^# !"&"#'/;"&#+,#y1"&'4+.&#+;".#(++%&#'+#,1%'!"%#4.y14%/e#*.(#)*.#,+%=#'!"#2*&4&#,+%#."-#&'%"*=&#+,#!48!0 y1*54'/#%"&"*%)!#",,+%'&6 in addition, the use of the spectrum analysis can lead to new avenues for thought and theory development that can ".!*.)"#y1*54'*'4p"#*.(#y1*.'4'*'4p"#%"&"*%)!#2/#+,,"%4.8#4.&48!'&#4.'+#;+'".'4*5#*p".1"&#,+%#'!"+%"'4)*5#("p"5+;=".'6# b!45"#8"."%*'4.8#%"&"*%)!#y1"&'4+.&#4&#4=;+%'*.'#4.#4=;%+p4.8#'!"#y1*54'/#+,#%"&"*%)!e#*.(#("&)%424.8#+%8*.4a*'4+.*5# ;!".+=".*#1&4.8#"v4&'4.8#'!"+%"'4)*5#=+("5&#4&#1&",15e#'+#)%"*'"#*#'%15/#&48.4$)*.'#4=;*)'#+.#21&4."&&#+%8*.4a*'4+.&# %"y14%"&#'!*'#'!"#'!"+%4"&#*.(#=+("5&#2"#*;;54)*25"6# !*'#4&e#'!"+%4"&#*.(#=+("5&#)*..+'#2"#="%"5/#("&)%4;'4p"e#21'# to have maximum utility should be predictive as well. relevance to practicing managers comes when the theories of organization researchers can provide insights and answers to the problems and challenges that affect people in organizations. however, for such theories to be valid, they ought to be based on meaningful research. b"#$.(#'!*'#'!"#g;")'%1=#*.*5/&4&#)*.#;%+p4("#4.&48!'&#'+#.+'#+.5/#("&)%4;'4p"#*.(#*.*5/'4)#%"&"*%)!e#21'#=*/# be able to offer avenues for theoretical exploration of information that increases the predictive value as well. for example, it has been noted that seven of the eighteen companies cited as examples of outstanding and enduring companies would not have met the authors’ criteria for inclusion in the book a few years later (reingold & underwood, >??ua6# !"#&;")4$)#$%=&#-"%"#g+./e#i"%)3e#i+'+%+5*e#n+%(&'%+=e#7+"4.8e#<4&."/e#*.(#w+%(6#k.'"%"&'4.85/e#1&4.8# '!"#4.,+%=*'4+.#,%+=#'!"#g;")'%1=#*.*5/&4&e#4'#4&#;+&&425"#'+#$.(#;*''"%.&#4.#'!4&#54&'#+,#)+=;*.4"&#'!*'#=48!'#&188"&'# *p".1"&#,+%#,1%'!"%#'!"+%"'4)*5#("p"5+;=".'#*.(#"v;5+%*'4+.6#j55#+,#'!"#$%=&#'!*'#-+15(#!*p"#,*55".#,%+=#'!"#54&'#+,# s7145'#'+#f*&'t#)+=;*.4"&#-"%"#%*'"(#!48!#2/#'!"#*1'!+%&#-4'!#%"&;")'#'+#c+%"#k("+5+8/#*.(e#-4'!#'!"#&4.85"#"v)";'4+.# +,#n+%(&'%+=o&e#*55#-"%"#%*'"(#!48!5/#,+%#!*p4.8#*#748e#\*4%/e#j1(*)4+1&#l+*5&#:7\jla6#b!/#=48!'#'!"&"#;*''"%.&# 2"#&48.4$)*.'^#k,#-"#)+=24."#'!4&#4.,+%=*'4+.#-4'!#'!"#3.+-5"(8"#'!*'#'!"%"#!*p"#2"".#&48.4$)*.'#)!*.8"&#4.#'!"# 21&4."&&#".p4%+.=".'#2"'-"".#@nnu#:-!".#'!"#2++3#-*&#;1254&!"(a#*.(#>??u#:-!".#'!"#+2&"%p*'4+.#*2+1'#'!"#&"p".# 5"&&#&1))"&&,15#)+=;*.4"&#-*&#=*("ae#-"#)*.#*&3#4,#'!"#;%"&".)"#+%#*#&'%+.8#)+%"#4("+5+8/#*.(#7\jl#=48!'#;%"p".'# companies from being able to change with shifting business conditions. perhaps a strong core ideology and lofty *&;4%*'4+.*5#8+*5&#=48!'#54=4'#'!"#*2454'/#'+#*(f1&'#'!"#$%=o&#21&4."&&#=+("5#'+#%"&;+.(#'+#)+.(4'4+.&6#w155/#!*5,#:`#+,# @ua#*.(#."*%5/#'-+#'!4%(&#:`#+,#@@a#+,#'!"#)+=;*.4"&#'!*'#-"%"#%*'"(#!48!"&'#+.#'!"&"#'-+#(4=".&4+.&#-+15(#.+'#!*p"# met the criteria for being a “built to last” company. by detecting the patterns in the spectrum analysis and combining this with other data, researchers can develop '!"+%"'4)*5#)+.)";'&#'!*'#*,,+%(#."-#+;;+%'1.4'4"&#,+%#4.p"&'48*'4+.e#*.(#'!*'#%"$."#'!"#8"."%*54a*'4+.&#'!*'#'".(#'+# )!*%*)'"%4a"#=*./#y1*54'*'4p"#&'1(4"&6#k.#'!"#)*&"#+,#s7145'#'+#f*&'et#1&4.8#'!"#g;")'%1=#*.*5/&4&#=48!'#&188"&'#'!*'#4'# is not enough for a company to have a “core ideology” and to focus on “bhags,” as strong internal emphases might prevent a company from being able to adapt and modify as needed to meet business conditions. perhaps a strong core 4("+5+8/#*.(#7\jl#4&#1&",15#+.5/#4,#'!"#$%=#4&#4.#*#&'*25"#4.(1&'%/#+%#=*%3"'6#k.#'4="&#+,#'1%215".)"e#&1)!#,+%)"&# =48!'#;%"p".'#$%=&#,%+=#!*p4.8#'!"#%"y14&4'"#_"v42454'/#,+%#)!*.8"6 n+'"#'!*'#'!4&#;%+)"&&#"v'".(&#'!"#y1*54'*'4p"#*&&"&&=".'#+,#s7145'#'+#f*&'t#*.(#*((&#."-#'!"+%"'4)*5#)+.&'%1)'&#'+# '!"#,%*="-+%36#k'#4&#'!4&#'/;"#+,#*.*5/&4&#'!*'#)*.#"v'".(#"v4&'4.8#%"&"*%)!#'")!.4y1"&#*.(#=+("5&e#)%"*'"#."-#*p".1"&# ,+%#"v;5+%*'4+.e#;%+p4("#;%"&)%4;'4p"#2"."$'&#'+#=*.*8"%&e#*.(#4.)%"*&"#'!"#%"5"p*.)"#+,#%"&"*%)!#0#'!"%"2/#4=;%+p4.8# '!"#y1*54'/#+,#y1*54'*'4p"#%"&"*%)!6 deldim: el <*'*# *2+1'# )+%;+%*'4+.&# 4&# 8*'!"%"(# )+.'4.1+1&5/6# g+="# +,# '!"# (*'*e# &1)!# *&# $.*.)4*5# %";+%'&e#=*%3"'# &!*%"# information, and the like provides an independent, relatively objective set of numerical data that is well suited to the '/;"&#+,#y1*.'4'*'4p"#="'!+(&#*.(#*.*5/&"&#'!*'#*%"#'!"#2*&4&#,+%#=1)!#+%8*.4a*'4+.#%"&"*%)!6#j((4'4+.*5#(*'*e#4.#'!"# ,+%=#+,#&1%p"/&#*.(#4.0!+1&"#&'1(4"&e#;%+p4("&#,1%'!"%#(*'*#,+%#y1*.'4'*'4p"#%"&"*%)!#="'!+(+5+8/6#g1)!#(*'*#*.(# 2010, vol. 1, no. 1, 1-14 buchko and buchko 11 advances in business research methods are useful for understanding organization issues, problems, and managerial behaviors, and will certainly continue to form the base for much future knowledge generation. however, there are much more data available regarding organizations and the practice of management that do .+'#$'#-"55#4.'+#'%*(4'4+.*5#y1*.'4'*'4p"#*;;%+*)!"&#'+#%"&"*%)!e#.+%#4.'+#y1*54'*'4p"#+%#=4v"(0="'!+(&#&'1(4"&6# !4&# information is useful, meaningful, and potentially valuable to managers and organization researchers. however, without some means to organize and assess such data, we are often left with broad prescriptive themes or platitudes regarding the practice of management. for the discipline to continue to grow and develop, new ways must be ,+1.(#'+#'*3"#&1)!#4.,+%=*'4+.#*.(#("p"5+;#="*.4.8,15e#4.'"%"&'4.8e#*.(#1&",15#y1"&'4+.&#'!*'#)*.#,+%=#'!"#2*&4&# ,+%#)+.'4.1+1&#%"&"*%)!#0#2+'!#y1*.'4'*'4p"#*.(#y1*54'*'4p"6#k.#'!4&#;*;"%e#-"#!*p"#("=+.&'%*'"(#+."#&1)!#'++5e#'!"# g;")'%1=#*.*5/&4&6#b"#2"54"p"#'!*'#2/#;1%&14.8#&1)!#'")!.4y1"&#+%8*.4a*'4+.#&)4".'4&'&#*.(#=*.*8"=".'#%"&"*%)!"%# -455#2"#2"''"%#*25"#'+#4(".'4,/#'!+&"#)%4'4)*5#%"&"*%)!#y1"&'4+.&#'!*'#,+%=#'!"#2*&4&#,+%#8%"*'#%"&"*%)!#0#%"&"*%)!#'!*'# 4=;*)'&#'!"+%/#*&#-"55#*&#;%*)'4)"e#'!*'#4&#1&",15#,+%#,1'1%"#%"&"*%)!#*&#-"55#*&#,+%#4.)%"*&4.8#4.(4p4(1*5&o#*.(#$%=&o# ;"%,+%=*.)"6#b"#*%"#".)+1%*8"(#2/#'!"&"#;%"54=4.*%/#%"&15'&#+,#4.y14%/#*.(#1%8"#+'!"%&#'+#"=;5+/#&1)!#'")!.4y1"&# to improve our understanding of organizations and management. 5@j@5@ld@: j8*%-*5e#h6e#[#\+"'3"%e#l6#>?? 6̀#j#w*1&'4*.#2*%8*4.^# !"#8%+-'!#+,#=*.*8"=".'#*.(#4'&#%"5*'4+.&!4;#-4'!#%"5*'"(# disciplines. academy of management journale#r?]#@i?u0@i>>6 j%8/%4&e#c6#@nnr6#j)'4+.#&)4".)"#*.(#+%8*.4a*'4+.*5#5"*%.4.86#journal of managerial psychologye#@?]#>?0> 6̀ j%8/%4&e#c6e#q1'.*=e#h6e#[#g=4'!e#<6#>???6#action science6#g*.#w%*.)4&)+e#cj]#d+&&"/07*&&6 7*%'1."3#d6e#h/."&6e#g6e#[#k%"5*.(e#h6#>??b6#b!*'#=*3"&#=*.*8"=".'#%"&"*%)!#4.'"%"&'4.8e#*.(#-!/#(+"&#4'#=*''"%^# academy of management journale#un]#n0@r6 7*a"%=*.e# i6# >??r6# c+.(1)'4.8# 4._1".'4*5# %"&"*%)!]# !"# .""(# ,+%# ;%"&)%4;'4p"# 4=;54)*'4+.&6# academy of management reviewe#i?]#>r0i@6 bernard, h. 2000. :$6&/0)#,4,/#6+)!,*+$>4<)-./0&*/*&%,)/'>)n./'*&*/*&%,)/""#$/6+,46# !+1&*.(#m*3&e#cj]#g*8"# publications, inc. blaikie, n. 2000. k,4&('&'()4$6&/0)#,4,/#6+6#mv,+%(]#75*)3-"556 75*/5+)3e#76e#i)<*.4"5e#d6e#w*53e#c6e#\+55*.(&-+%'!e#h6e#[#c+;,e#d6#>??n6#j#2+%%+-"(#*;;%+*)!#,+%#*#=+%"#",,")'4p"# business education. o$.#'/0)$2)g/'/(,!,'*)@>.6/*&$'e#ii]#r``0rnr6 7%*(5"/e#<6#>??@6#<p"5+;4.8#%"&"*%)!#y1"&'4+.&#'!%+18!#8%*.'#;%+;+&*5#("p"5+;=".'6#@>.6/*&$'/0)p,#$'*$0$(1e#> ]̀# 569-581. bryman, a. 2004. social research methods6#mv,+%(]#mv,+%(#x.4p"%&4'/#q%"&&6 c*&&"55e#c6e#g/=+.e#l6#>??u6#@44,'*&/0)(.&>,)*$)n./0&*/*&%,)!,*+$>4)&')$#(/'&f/*&$'/0)#,4,/#6+. thousand oaks, cj]#g*8"#q1254)*'4+.&e#k.)6 c*p*.*e#h6e#<"5*!*/"e#76e#[#g"3"%*.e#x6#>??@6#8""0&,>)7.4&',44)#,4,/#6+<)-./0&*/*&%,)/'>)n./'*&*/*&%,)!,*+$>4. i45'+.e#e1"".&5*.(e#j1&'%*54*]#d+!.#b45"/#[#g+.&6 c!*.(5"%e#j6#@nb>6#:*#/*,(1)/'>)4*#.6*.#,<)d+/"*,#4)&')*+,)+&4*$#1)$2)*+,)&'>.4*#&/0),'*,#"#&4,6#c*=2%4(8"e#ij]# mit press. c!%4&'".&".e#c6e#[#c*%545"e#q6#>??n6#c+1%&"#%"&"*%)!]#x&4.8#'!"#)*&"#="'!+(#'+#2145(#*.(#'"*)!#=*.*8"=".'#'!"+%/6# 86/>,!1)$2)g/'/(,!,'*)i,/#'&'()q)@>.6/*&$'e#h]#>u?0>r@6 c+554.&e#d6#>??@6#p$$>)*$)(#,/*6#n"-#g+%3]#\*%;"%c+554.&6 c+554.&e#d6e#[#q+%%*&e#d6#@nnu6#3.&0*)*$)0/4*<):.66,442.0)+/7&*4)$2)%&4&$'/#1)6$!"/'&,46#n"-#g+%3]#\*%;"%c+554.&6 2010, vol. 1, no. 1, 1-14 buchko and buchko 12 advances in business research davis, m. 1971. that’s interesting! towards a phenomenology of sociology and a sociology of phenomenology. philosophy of the social sciencese#@]#i?n0iuu6 drucker, p. 1945. the concept of the corporation6#n"-#g+%3]#i)l%*-0\4556 eisenhardt, k. 1989. building theories 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b+,)/(,)$2)+,#,*&64<)8)+&4*$#1)$2)*+,)#/>&6/0)*+&'9,#4)=+$)#,&'%,'*,>)6$"$#/*,)!/'/(,!,'*. g*.#w%*.)4&)+]#d+&&"/07*&&6 kuhn, t. 1962. b+,)4*#.6*.#,)$2)46&,'*&;6)#,%$0.*&$'46#c!4)*8+e#kf]#x.4p"%&4'/#+,#c!4)*8+#q%"&&6 f*'!*=e#l6#>?? 6̀#j#&;")15*'4p"#;"%&;")'4p"#+.#'!"#'%*.&,"%#+,#2"!*p4+%*5#&)4".)"#$.(4.8&#'+#'!"#-+%3;5*)"]# !"#'4="&# they are a-changin. academy of management journale#r?]#@?>`0@?i>6 lee, t. 1999. m4&'()n./0&*/*&%,)!,*+$>4)&')$#(/'&f/*&$'/0)#,4,/#6+6# !+1&*.(#m*3&e#cj]#g*8"#q1254)*'4+.&e#k.)6 f4;+-&34e#96#>??h6#<"p"5+;4.8#8%"*'# %"&"*%)!#y1"&'4+.&6#8!,#&6/'):$6&,*1)$2)?,/0*+):14*,!)s+/#!/6&4*4e#br]# 1667-1670. mason, j. 2002. qualitative researching6#f+.(+.]#g*8"6 i)l%*'!e#h6#>?? 6̀#n+#5+.8"%#*#&'";)!45(]#\+-#'!"#=*.*8"=".'#$"5(#)*.#)+="#4.'+#4'&#+-.6#academy of management journale#r?]#@ibr0@i`h6 mitroff, i. 2004. an open letter to the deans and faculties of american business schools. o$.#'/0)$2)3.4&',44)@*+&64, ru]#@hr0@hn6 i+%8*.e#l6e#[#g=4%)4)!e#f6#@nh?6# !"#)*&"#,+%#y1*54'*'4p"#%"&"*%)!6#academy of management reviewe#r]#un@0r??6 q"*%)"e#d6#>??u6#b!*'#(+#-"#%"*55/#3.+-#*.(#!+-#(+#-"#%"*55/#3.+-#4'^#academy of management reviewe#>n]# 175-179. peters, t., & waterman, r. 1982. ')4,/#6+)$2),h6,00,'6,<)i,44$'4) 2$#!)8!,#&6/t4)7,4*a#.')6$!"/'&,4. new g+%3]#\*%;"%#[#h+-6 q,",,"%e#d6#>?? 6̀#j#=+("&'#;%+;+&*5]#\+-#-"#=48!'#)!*.8"#'!"#;%+)"&&#*.(#;%+(1)'#+,#=*.*8"%4*5#%"&"*%)!6#academy of management journale#r?]#@iiu0@iur6 2010, vol. 1, no. 1, 1-14 buchko and buchko 13 advances in business research pfeffer, j., & sutton, r. 2006a. ?/#>)2/6*4u)>/'(,#$.4)+/02a*#.*+4u)/'>)*$*/0)'$'4,'4,<)s#$;*&'()2#$!),%&>,'6,a based management6#c*=2%4(8"e#ij]#\*%p*%(#71&4."&&#g)!++5#q%"&&6 pfeffer, j., & sutton, r. 2006b. evidence-based management. ?/#%/#>)3.4&',44)5,%&,=e#hu]#b>0̀ ?6 pierson, f. 1959. b+,),>.6/*&$')$2)8!,#&6/')7.4&',44!,'<)8)4*.>1)$2).'&%,#4&*1a6$00,(,)"#$(#/!4)&')7.4&',44) administration6#n"-#g+%3]#i)l%*-0\4556 q+(+5./e#d6#>??n6# !"#21)3#&'+;&#:*.(#&'*%'&a#*'#21&4."&&#&)!++56#?/#%/#>)3.4&',44)5,%&,=u#h ]̀b>6 q1'.*=e#h6#@nnn6# %*.&,+%=4.8#&+)4*5#;%*)'4)"]#j.#*)'4+.#&)4".)"#;"%&;")'4p"6#g/'/(,!,'*)i,/#'&'(e#i?]#@``0@h 6̀ h"4.8+5(e#d6e#[#x.("%-++(e#h6#>??u6#b*&#2145'#'+#5*&'#2145'#'+#5*&'^#fast companye#hh]#@?i0@@@6 rooney, j. 2006. being great is not just a matter of big ideas. advertising agee#` ]̀#@6 h+1&&"*1e# <6# >??b6# q%"&4(".'4*5# *((%"&&]# k&# '!"%"# &1)!# *# '!4.8# *&# "p4(".)"02*&"(# =*.*8"=".'^# academy of management reviewe#i@]#>rb0>rn6 h+1&&"*1e#<6#>?? 6̀#j#&'4)3e#5"p"%*84.8e#*.(#&)*5*25"#&'%*'"8/#,+%#!48!0y1*54'/#)+..")'4+.&#2"'-"".#+%8*.4a*'4+.*5# practice and science. academy of management journale#r?]#@?i`0@?u>6 h+1&&"*1e# <6e# [# i)c*%'!"/e# g6# >?? 6̀# 9(1)*'4.8# =*.*8"%&# ,%+=# *.# "p4(".)"02*&"(# ;"%&;")'4p"6# academy of g/'/(,!,'*)i,/#'&'()q)@>.6/*&$'e#b]#hu0@?@6 h/."&e#g6#f6# :>??`a6#f"'o&# )%"*'"# *# '4;;4.8#;+4.']# #b!*'# *)*("=4)&#*.(#;%*)'4'4+."%&# )*.#(+e# *5+."#*.(# '+8"'!"%6# academy of management journale#r?]#@?ub0@?ru6 rynes, s., gulik, t., & brown, k. 2007. the very separate worlds of academic and practitioner periodicals in !1=*.#%"&+1%)"#=*.*8"=".']#k=;54)*'4+.&#,+%#"p4(".)"02*&"(#=*.*8"=".'6#academy of management journal, r?]#nh`0@??h6 g*)3"''e#<6e#[#b"..2"%8e#d6#@nn 6̀#c!++&4.8#'!"#2"&'#%"&"*%)!#("&48.#,+%#"*)!#y1"&'4+.]#k'o&#'4="#'+#&'+;#&y1*2254.8# over the “best” methods. british medical journale#i@r]#@0>6 g*5"e# d6e# f+!,"5(e# f6e# [# 7%*a45e# c6# >??>6# h"p4&4'4.8# '!"# y1*.'4'*'4p"0y1*54'*'4p"# ("2*'"]# k=;54)*'4+.&# ,+%# =4v"(0 methods research. quality and quantitye#ib]#ui0ri6 g*1'."%e#o6e#[#b"2"%e#i6#>??n6#\+-#(+#=*.*8"%&#2"!*p"#4.#&'+)3#+;'4+.#;5*.&^#c54.4)*5#"p4(".)"#,%+=#"v"%)4&"#*.(# survey data. the journal of financial researche#i>]#@>i0@rr6 g)!5+&&=*.e#g6e# g"(5*3e#i6e#[#b")!&5"%e#\6# @nnh6# !"# s."-# 5++3t]# !"#w+%(#l+1.(*'4+.# *.(# '!"# %"p+51'4+.# 4.# business education. selectionse#@u]#h0>h6 slater, r. 1999. o/69)r,06+)/'>)*+,)p@)=/16#n"-#g+%3]#i)l%*-0\4556 g5+."e#<6#>??>6# !"#4._1".)"#+,#=".'*5#=+("5&#*.(#8+*5&#+.#&"*%)!#;*''"%.&#(1%4.8#-"2#4.'"%*)'4+.6#journal of the american society for information science and technologye#ri]#@@r>0@@bn6 slone, d. 2005. a birds-eye view of cross-platform web interaction. o$.#'/0)$2)k$6.!,'*/*&$'e#b@]#br`0bbn6 slone, d. 2007. the impact of time constraints on web search goals and behavior. journal of the american society for information science and technologye#rh]#r?h0r@ 6̀ *&!*33+%4e#j6e#[# "((54"e#c6 1998. g&h,>)!,*+$>$0$(1<)d$!7&'&'()n./0&*/*&%,)/'>)n./'*&*/*&%,)/""#$/6+,4. !+1&*.(#m*3&e#cj]#g*8"#q1254)*'4+.&e#k.)6 j+&&e# 76# >??i6# w+%=15*'4.8# 4.'"%"&'4.8# %"&"*%)!# y1"&'4+.&6# journal of the academy of marketing science, i@]#irb0irn6 2010, vol. 1, no. 1, 1-14 buchko and buchko 14 advances in business research whyte, w. 1956. b+,)$#(/'&f/*&$')!/'6#n"-#g+%3]#g4=+.#[#g)!1&'"%6 yin, r. 2009. d/4,)4*.>1)#,4,/#6+<)k,4&(')/'>)!,*+$>46# !+1&*.(#m*3&e#cj]#g*8"6 aaron buchko is a professor of management at bradley university. he received his ph.d. in management from michigan state university. his research interests include knowledge management, institutional theory, and business ethics. he has published in advances in strategic management, the academy of management journal, the journal of business research, the journal of business ethics education, management, and several others. kathleen buchko is an associate professor of counseling at bradley university. she received her ph.d. from michigan state university. her current research interests include spirituality and counseling, and exercise and sport ;&/)!+5+8/6#g!"#!*&#;1254&!"(#4.#'!"#d+1%.*5#+,#71&4."&&#9'!4)&#9(1)*'4+.e#g;+%'#q&/)!+5+84&'e#d+1%.*5#+,#c+55"8"# student, and others. 2010, vol. 1, no. 1, 1-14 buchko and buchko advances in business research 2010 volume 1.pdf 114 advances in business research !" !#$%&'&"()"*+," --(.!*'!/"0(-*(1#$"2!3.&*1%4"56&,17#*'(!&"#!3"8!#!&9,1,3":.,&*'(!& amelia baldwin, university of arkansas fort smith !"#$%&"#'()%*"+,#(%-.!.+%/(01+"20.3 the shortage of doctoral graduates in accounting is evidence of a problem in the industry as a whole. while demand !"#$"%&'"())"(**&#+, +-"-'(.#(,/!0"!#$$)1" !" +!#%2* /+,3"45 !"(', *)/"/6(7 +/!",5/"(*(./7 *"(**&#+, +-" +.#!,'1"(!"(" whole, using a macro perspective to analyze data about doctoral graduates and programs, in order to identify positive and negative attributes of the market and identify further areas for inquiry. uniquely detailed data on u.s. accounting .&*,&'()"-'(.#(,/!"89:;<=>>?"('/"#!/." +",5/"(+()1! !3"@$/* 2*",'/+.!"('/" ./+, 2/."(+."%#,#'/"(a/+#/!"%&'"'/!/('*5" are also addressed. the academic accounting industry is in crisis. some of the problems are good ones, e.g. high demand for !44#5(.0(,%,"!65!.+2%!.%!$$%$+1+$27%*.8+"2%!"+%609:45$.%!(6%;5<<$0(,7%=+2;0.+%.8+%6+>!(6%9#"%!44#5(.0(,%,"!65!.+2% and the need for accounting professors to train them, the academic accounting industry is not educating the needed number of accounting doctoral graduates on an annual basis. rather than measuring the number of graduates or the lack of graduates to meet demand, what happens if the academic !44#5(.0(,%0(652."3%02%+?!>0(+6%>#"+%6++;$3@%a802%!".04$+%0(1+2.0,!.+2%!44#5(.0(,%!4!6+>0!%!2%!(%0(652."3%.8!.%;"#654+2% accounting graduates, with a focus on the doctoral graduates. the purpose is to identify the characteristics of the important players, doctoral programs and doctoral graduates, as well as, secondarily, other stakeholders, such as universities and 4#$$+,+2)%:">2)%4#>;!(0+2)%,#1+"(>+(.)%!(6%#.8+"%0(.+"+2.+6%;!".0+27%a802%0(9#">!.0#(%>!3%8+$;%06+(.093%.8+%9!4.#"2%.8!.% are driving, aggravating, or potentially alleviating the shortage problem. b8!.%02%6"010(,%.8+%$!4c%#9%d8=%,"!65!.+2%0(%!44#5(.0(,@%b8!.%!"+%.8+%6+:(0(,%48!"!4.+"02.042%#9%.802%0(652."3% .8!.%;"#106+2%!44#5(.0(,%d8=2%.#%.8+%4#5(."3e2%0(2.0.5.0#(2%#9%80,8+"%$+!"(0(,@%b8!.%4$5+2%0(%.8+%;!2.%!(6%.8+%;"+2+(.% 4!(%f+%9#5(6%.#%8+$;%2#$1+%.8+%!44#5(.0(,%d8=%28#".!,+%;"#f$+>@%a8+2+%g5+2.0#(2%!"+%!66"+22+6%0(%.8+%9#$$#'0(,% sections, including a literature review, a general discussion of the academic accounting market, research methods, and an extended discussion of the nature of u.s. accounting doctoral market, and its descriptive trends. ;2<=> <8>=">=?2=@ the literature describing accounting doctoral programs is mostly comprised of various studies attempting to rank ;"#,"!>2%#(%;5f$0280(,%#5.;5.%#9%9!45$.3%!(6h#"%,"!65!.+2%i&"#'(%j%k!"(+"%lmnop%&"#'(%lmmqp%r1+"+..)%s$!>>%j% -.#$.<952%tuuvp% 8!(%+.%!$7%tuuwp%&"#'(%j%x!c2>!(!%tuuwy)%0(0.0!$%;$!4+>+(.%#9%,"!65!.+2%i-.!>>+"z#8!(%j%[!$$% tuutp%\#,!".3%j%-!9.(+"%lmm]!%j%lmm]fy)% %!(6%9!45$.3% "+;"+2+(.!.0#(%#(%+60.#"0!$%f#!"62% i^0..+">!0+"%lmmly7%_#% 2.560+2%8!1+%2;+40:4!$$3%2+.%#5.%.#%6+24"0f+%.8+%0(652."3%!2%!%'8#$+)%!$.8#5,8%"+4+(.%!".04$+2%8!1+%,+(+"!$$3%$!>+(.+6% the state of accounting academia (fellingham 2007; fogarty & markarian 2007; demski 2007; grasso 2008; mcnair tuuny7% \+$$0(,8!>% ituuwy% ;#20.2% .8!.% !44#5(.0(,% 02%>#10(,% .#'!"62% f+0(,% !% 1#4!.0#(!$% 60240;$0(+% "!.8+"% .8!(% !(% academic discipline. fellingham notes that accounting journals are internally focused, self referential and rarely referenced by other disciplines and that accounting academics focus on the current generation of students rather than 95.5"+% ,+(+"!.0#(2% .8"#5,8% 4#(."0f5.0#(2% .#% .8+% !4!6+>37%=+>2c0% ituuwy% ;"#106+2% .+(% 0(604!.#"2% .8!.% !44#5(.0(,% 02%>#"+%!%1#4!.0#(!$%60240;$0(+%.8!(%!(%!4!6+>04%60240;$0(+7%k"!22#%ituuny%40.+2%4!52+2%#9%.8+%0(4"+!2+%0(%6+>!(6% for accounting education, concludes that the demand cannot be met through traditional means due to a shortage of accounting phds and posits that the shortage should be viewed as an opportunity for transformational change. ^4_!0"%ituuny%!22+".2%.8!.%.8+%"##.%4!52+%#9%.8+%28#".!,+%#9%!44#5(.0(,%d87=72%02%.8+%6+!.8%#9%.8+%.+!48+"̀ 248#$!"7%a% .+!48+"̀ 248#$!"%02%6+:(+6%i^4_!0"%tuun)%tty%!2%2#>+#(+%'8#%b02%!2%6+604!.+6%.#%.+!480(,%!2%.#%;5"250(,%(+'%06+!2%!(6% engaging in scholarly discourse.” mcnair cites three causes that set up what he calls the loop of doom for the teacher248#$!"7%a8+%.8"++%!"+c%aa -&%6+:(0.0#(2%#9%ad%!(6%dd%9!45$.3)%;5f$04!.0#(%0(%(!""#'$3%6+:(+6%a%z#5"(!$2%f+0(,%!%c+3% metric for tenure in more schools, and schools adopting student-teacher ratios and number of scholarly publications as key >+!25"+2%#9%;"#,"!>%g5!$0.37%a8+%$##;%#9%6##>%434$+2%9"#>c%9+'+"%!44#5(.0(,%!4!6+>042%"+!480(,%80,8+"%.8"+28#$62p%.#% .+!48+"%248#$!"2%f+0(,%;528+6%$#'+"%0(%.8+%!4!6+>04%80+"!"483p%.#%80,8+"%g5!(.0.3%.+!480(,%f+0(,%!22#40!.+6%'0.8%$#'+"% 2!$!"0+2p%.#%;!220#(%9#"%0(g50"3%6+4$0(0(,%65+%.#%0(!6+g5!.+%.0>+)%"+2#5"4+2%!(6%"+'!"62p%.#%'!(0(,%0(2;0"!.0#(!$%.+!480(,% and scholarship, a reduction in innovation and a loss of relevance; to reduced pool of potential academics; then back to the start. in other words it is just not as much fun as it used to be. 2010, vol. 1, no. 1, 114-132 baldwin & brown 115 advances in business research e(%4#(."!2.)%.8+%"+4+(.%$0.+"!.5"+%6+24"0f0(,%.8+%28#".!,+%#9%!44#5(.0(,%,"!65!.+2%02%g50.+%609952+7%f+$+1!(.%"+;#".2% 8!1+%f++(%;"+;!"+6%f3%4#>>0..++2%#9%.8+%a>+"04!(%a44#5(.0(,%a22#40!.0#()%.8+%a>+"04!(%a22#40!.0#(%#9% #$$+,0!.+% -48##$2%#9%&520(+22% iaa -&% `% .8+%;"0>!"3%!44"+60.#"%#9%f520(+22% !(6%!44#5(.0(,%;"#,"!>2y)% !(6%#.8+"27%a8+2+% "+;#".2%8!1+% 06+(.0:+6% .8+%28#".!,+)%6+24"0f+6% .8+% $0c+$3% 95.5"+%6+>!(62% 9#"%!44#5(.0(,%d8=2%!(6%6+24"0f+6% .8+% supply problem in a number of ways. aaa%ituun!y%40.+2%f#.8%.8+%28#".!,+%#9%!44#5(.0(,%d8=%4!(606!.+2%!(6%!%6+4"+!2+%0(%95$$`.0>+%!44#5(.0(,%9!45$.3% ;#20.0#(2%!2%+106+(4+%#9%.8+%48!$$+(,+2%9!40(,%.8+%!22#40!.0#(7%aaa%ituunfy%(#.+2%!%20,(0:4!(.%6+4$0(+%0(%(5>f+"% #9%!44#5(.0(,%9!45$.3%il]7]gy%!(6%!%20,(0:4!(.%0(4"+!2+%0(%2.56+(.2%ilt7]gy%0(%.8+%;+"0#6%#9%2.563%lmm]`tuuv7%a8+% decline in faculty is not shared by other business disciplines which increased during the same period. in addition .#%.8+%20,(0:4!(.%6+4"+!2+%0(%.8+%!f2#$5.+%(5>f+"%#9%!44#5(.0(,%9!45$.3%>+>f+"2%.8+%9!45$.3%>0?%02%48!(,0(,7%a8+% decline in numbers of faculty members has primarily been men so the proportion of women has increased even though their absolute numbers has not. the faculty is aging and more faculty members are nearing retirement age. the number of faculty members under 40 is declining while the number of faculty over 55 is growing. the report (#.+2%!(%0(4"+!2+%0(%.8+%;+"4+(.!,+%#9%a20!(%9!45$.3%i!f#5.%logy)%!%2$0,8.%0(4"+!2+%0(%.8+%;+"4+(.!,+%#9%f$!4c%9!45$.3% >+>f+"2%ilgy%'0.8%!%6+4"+!2+%0(%.8+%;+"4+(.!,+%#9%[02;!(04%9!45$.3%>+>f+"2%i]gy%!(6%!%6+4"+!2+%#9%!f#5.%lg%0(% the other category. while it can be said that the faculty is more diverse due to the shift from white to asian faculty, the overall percentage of underrepresented minorities has not improved. pay has improved dramatically for younger 9!45$.3% ivo% !(6% 5(6+"y% f5.% 8!2% #($3% 0>;"#1+6% !% $0..$+% 9#"% #$6+"% 9!45$.3% ivq% !(6% #1+"y)% "+25$.0(,% 0(% 2+"0#52% 2!$!"3% inversion. the average number of hours worked has increased from a little over 48 hours per week in 1993 to over 52 8#5"2%;+"%'++c%0(%tuuv7%&#.8%.8+%(5>f+"%#9%"+4+(.%;5f$04!.0#(2%ilvg%0(4"+!2+y%!(6%.#.!$%;5f$04!.0#(2%itg%0(4"+!2+y% occurred between 1993 and 2004. a8+%aa -&%ituu]y%"+;#".%6+24"0f+2%!%20>0$!"%6+4"+!2+%0(%(+'%f520(+22%d87=72%!(6%!(%0(4"+!2+%0(%6+>!(6%9#"% business education. the report indicated that while applications for doctoral programs had increased admissions had not. lack of funding for doctoral students and availability of faculty were cited as the most important limiting factor in admissions. the lack of outside funding for business research was also noted as a reason for universities lack of willingness to grow business ph.d. programs. an increasing number of those receiving ph.d.s are either not available to meet the increasing demand by us educational institutions or are choosing employment outside education. the percentage of those receiving business doctorates that choose industry over academic employment increased from 7.3% in 1990 to 14.8% in 2000. further, 27.3% of the 1999-2000 graduates had temporary visas and 52.2% of the enrolled ph.d. students did not have permanent visas. d$5>$++% +.% !$7% ituuqy% "+;#".2% .8+% "+25$.2% #9% .8"++% tuuv% 25"1+327%a8+% .8"++% ,"#5;2% 25"1+3+6%'+"+% !44#5(.0(,% doctoral program directors to determine the expected supply in total and by specialization, accounting department heads to determine expected demand in total and by specialization, and accounting doctoral students. they found that the estimated supply of new accounting ph.d.s was only 49.9% of the expected demand. the shortages over the tuuo`tuun%;+"0#6%'!2%+1+(%>#"+%+?."+>+%0(%.!?%itw7lg%#9%6+>!(6%>+.y)%!560.%itt7ng%#9%6+>!(6%>+.y%!(6%>5$.0;$+% 2;+40!$.0+2%iug%#9%6+>!(6%>+.y7%=099+"+(4+2%f+.'++(%2.56+(.2%#9%_#".8%a>+"04!(%i/-%!(6% !(!6!y%#"0,0(%!(6%#.8+"% students were found. teaching was more important to north american students while research was more important to non-north american students. north american students felt less well prepared than the non-north american students. north american students incur more debt than non-north american students. about one third of the north a>+"04!(%2.56+(.2%f+$0+1+6%.8!.%.8+%25;;#".%'!2%0(!6+g5!.+%'80$+%#($3%#(+%:9.8%#9%.8+%(#(`_#".8%a>+"04!(%2.56+(.2% did. about half of all students thought the program was too stressful and 29% thought the program was harmful to their health. \#,!".3%j%^!"c!"0!(% ituuwy% 25,,+2.% .8!.% !44#5(.0(,% !2% !(% !4!6+>04% 60240;$0(+% 02% (#'% 0(% 6+4$0(+% f!2+6% #(% analysis of data over a 20 year period from 1982 to 1992. the total number of both tenure track and full-time non.+(5"+% ."!4c%9!45$.3%8!2%6+4$0(+67%a8+%6+4$0(+% 02%4#(4+(."!.+6%!.% .8+%!2202.!(.%;"#9+22#"% "!(c%i]t7wgy7%\"#>%lmnt% .#%lmmt%.8+%.#.!$%.+(5"+%."!4c%9!45$.3%!.%!$$%"!(c2%0(4"+!2+6%i!2202.!(.%o7og)%!22#40!.+%lt7lg)%95$$%tq7]gy%'80$+%.8+% number of full-time non-tenure track faculty declined by 19.6% giving an overall increase of 7%. from 1992 to tuut%!$$%"!(c2%f5.%95$$%;"#9+22#"2%6+4$0(+6%i!2202.!(.2%`]q7tg)%!22#40!.+2%`]7mg)%(#(`.+(5"+%."!4c%`tq7wgy%'80$+%95$$% professors increased by a modest 9.6%. these changes suggest an aging professorate without enough new entrants 0(.#%.8+%:+$6%.#%"+;$!4+%.8#2+%'8#%'0$$%2##(%"+.0"+7%a8+%48!(,+2%!"+%(#.%4#(202.+(.%!4"#22%6099+"+(.%.3;+2%#9%248##$2% with the doctoral granting institutions actually increasing their non-tenure track faculty (1982 to 1992 up 11.4%, lmmt%.#%tuut%5;%lq7lg%9#"%!%.#.!$%0(4"+!2+%#9%tm7vgy7%a8+%(5>f+"%#9%(+'%6#4.#"!.+2%0(%!44#5(.0(,%:"2.%0(4"+!2+6% from 744 in 1978-1982 to 894 in the period 1988-1992 then decreased to 581 in 1998-2002. the distribution of these graduates among schools has also changed. from the period 1988-1992 to the period 1998-2002 graduates 9"#>% .8+% .#;% g5!".0$+% #9% 248##$2% 6+4$0(+6% f3% vu7ng%'80$+% ,"!65!.+2% 9"#>% .8+% f#..#>% g5!".0$+% 0(4"+!2+6% mn7vg7% in addition to the overall decline in numbers, accounting is losing ground when compared to the other business 2010, vol. 1, no. 1, 114-132 baldwin & brown 116 advances in business research disciplines. from 1990 to 2004, while the total business faculty increased by 3.3%, the accounting faculty declined by 2.8%. while the fact of the shortage of accounting phds seems well documented, what really drives the shortage and what might be done to alleviate it are unclear. in the following section the accounting doctoral market is examined as a whole. the academic accounting market in this section the general academic accounting market is analyzed from a macro perspective. the various players are described, including the doctoral programs, the graduates, the colleges and universities that employ them, and the 2.!c+8#$6+"2%.8!.%0(h5+(4+%.8+%0(652."37%a8+%;5";#2+%#9%.8+%!44#5(.0(,%6#4.#"!$%>!"c+.%i.8+%$+9.%206+%#9%\0,5"+%ly%02% to train accounting doctorates for research and teaching positions, largely in academic institutions. the purpose of the academic accounting market, more generally, is to educate future professional accountants, as shown on the right 206+%#9%.8+%:,5"+7 a'/.1,"b4" -#3,c'-" --(.!*'!/"d#1e,* while the accounting doctoral market seems simple doctoral programs train phds who are hired by various !44#5(.0(,%248##$2%`%.8+%!44#5(.0(,%6#4.#"!$%>!"c+.%02%8+!10$3%0(h5+(4+6%f3%.8+%"+2.%#9%.8+%6#'(2."+!>%!4!6+>04% accounting market, the entry-level professional accountant market. therefore, this section discusses this downstream academic accounting market, its stakeholders and how they may impact the accounting doctoral market. accounting programs a44#5(.0(,%6#4.#"!$%,"!65!.+2%!"+%80"+6%f3%!44#5(.0(,%;"#,"!>2%0(%!.% $+!2.%muu%5(01+"20.0+2%!(6%4#$$+,+2%iae da% tuun4y7% e(% !660.0#()%>!(3% 4#$$+,+2% !(6% 5(01+"20.0+2% 8!1+% f520(+22%>!z#"2% #"%^&a%;"#,"!>2%'0.8#5.% !$2#% 8!10(,% .8+% accounting major. some of these programs also need to hire accounting doctoral graduates. of course, many foreign 248##$2%!$2#%80"+%/7-7%!44#5(.0(,%6#4.#"!$%,"!65!.+2%ilog%#"%>#"+y7%a(%!660.0#(!$%]g%#9%!44#5(.0(,%6#4.#"!$%,"!65!.+2% $+!1+%!4!6+>0!%9#"%0(652."3)%,#1+"(>+(.%#"%#.8+"%z#f2%i&!$6'0()%&"#'(%j%a"0(c$+)%tuluy7 this group of universities and colleges is not homogenous. some confer only bachelor’s degrees in accounting, #.8+"2%4#(9+"%>!2.+"%#9%!44#5(.!(43%#"%.!?!.0#(%#"%^&a%6+,"++27%-#>+)%#9%4#5"2+)%!"+%!$2#%.8+%mui%6#4.#"!$%,"!(.0(,% institutions. even among the non-doctoral granting institutions, the size range is wide; the types of degree programs, .+!480(,%$#!62)%"+2+!"48%"+g50"+>+(.2)%!(6%2!$!"0+2%!$$%1!"3%'06+$37%_#%20(,$+%20>;$+%6+24"0;.0#(%!;;$0+2%.#%!$$%#9%.8+2+% !44#5(.0(,%;"#,"!>2)%3+.%.8+%"+$!.01+$3%2>!$$%(5>f+"%#9%/7-7%6#4.#"!$%;"#,"!>2%02%25;;$30(,%.8+%6#4.#"!$$3%g5!$0:+6% accounting faculty to the vast majority of these american institutions. f#-+,$(1&"#!3"d#&*,1&"g1#3.#*,& the demand for accounting graduates at all levels has been steadily rising in recent years. the demand for masters !(6%f!48+$#"2%,"!65!.+2%28#5$6)%#9%4#5"2+)%0>;!4.%.8+%(++6%9#"%6#4.#"!$%,"!65!.+2%i07+7%;"#9+22#"2y7% masters like the accounting profession, the u.s. academic accounting industry has been undergoing drastic changes in recent 3+!"27%a8+%0(2.0.5.0#(%#9%.8+%lou%8#5"%"+g50"+>+(.%9#"%.8+% da%+?!>%0(%.8+%>!z#"0.3%#9%/7-7%2.!.+2%2.!".+6%!%,"#'0(,%."+(6%0(% >!2.+"2%6+,"++2%4#(9+""+67%-0(4+%lmn])%vw%#9%ov%z5"02604.0#(2%8!1+%!6#;.+6%.8+%lou%8#5"%"+g50"+>+(.7%_+'%j#"c%!6#;.2%.8+% "+g50"+>+(.%0(%tuum7%a8+%#($3%20,(0:4!(.%+?4+;.0#(%02%45""+(.$3% !$09#"(0!%i !";+(.+"%j%[#4c%tuuny7%a2%2++(%0(%\0,5"+%t)% 2010, vol. 1, no. 1, 114-132 baldwin & brown 117 advances in business research .802%."+(6%$##c2%$0c+$3%.#%4#(.0(5+c%m)uno%>!2.+"2%6+,"++2%0(%!44#5(.0(,%'+"+%4#(9+""+6%0(%.8+%tuuv`tuuo%!4!6+>04% 3+!")%.8+%>#2.%"+4+(.%3+!"%9#"%'8048%6!.!%!"+%!1!0$!f$+%9"#>%.8+%_!.0#(!$% +(.+"%9#"%r654!.0#(%-.!.02.042%ituuu`ly7% if this trend continues, the current academic year could see over 13,000 accounting masters degrees conferred. on .8+%80"0(,%+(6)%0(%tuuw% da%:">2%"+;#".+6%80"0(,%#1+"%n)uuu%>!2.+"2%,"!65!.+27%a8+%$!",+2.% da%:">2%80"+%!%$!",+% ;"#;#".0#(%#9%>!2.+"2%,"!65!.+2)%]og%#9%.#.!$%80"+2%iae da%tuun!y7%^!2.+"2%,"!65!.+2%!"+%!$2#%80"+6%0(%0(652."3)% ,#1+"(>+(.%!(6%(#(`;"#:.%2+4.#"2)%2#%.8+2+%(5>f+"2%"+;"+2+(.%#($3%!%25f2+.%#9%,"!65!.+27 a'/.1,"h4"8iji" --(.!*'!/"d#&*,1&"0,/1,,&"k(!),11,3l"bmnophqqr bachelors more recently, the passage of the sarbanes-oxley act of 2002 has helped drive an increasing demand for bachelors graduates in accounting. while the numbers of accounting bachelors degrees conferred dropped consistently in the 1990s, the trend reversed in 2002, as shown in figure 3. if the upswing continues, around 50,000 accounting bachelors degrees could be conferred in the current academic year. a'/.1,"s4"8iji" --(.!*'!/"f#-+,$(1&"0,/1,,&"k(!),11,3l"bmnophqqr a8+%45""+(.%6+>!(6%02%2#%,"+!.%.8!.% da%:">2%80"+6%n]g%>#"+%!44#5(.0(,%,"!65!.+2%0(%tuuq`w%.8!(%.8+3%606% 0(%tuu]`v%iae da%tuun!y7%e(%!660.0#()%!$>#2.%qug%#9%4#>;!(0+2%!(6%:">2%;$!(%.#%80"+%>#"+%!44#5(.0(,%,"!65!.+2% 2010, vol. 1, no. 1, 114-132 baldwin & brown 118 advances in business research 0(%tuun%i_a r%tuuny7%b0.80(%!%6+4!6+)%.8+%(5>f+"%#9%z#f2%2;+40:4!$$3%9#"%!44#5(.!(.2%!(6%!560.#"2%'0$$%,"#'%f3% 18% according to us department of labor projections. from 2006 to 2016, an additional 226,000 accountants and !560.#"2%'0$$%f+%(++6+6%0(%.8+%/-a%i/-%=+;!".>+(.%#9%x!f#"%tuuny7% =ct$(%,1&"#!3"5*+,1"j*#e,+($3,1& a8+%6+>!(6%9#"%!44#5(.0(,%,"!65!.+2%f3% da%:">2%!(6%#.8+"%+>;$#3+"2%02%1+"3%80,87%^!(3%4#>;!(0+2%!"+%2.0$$% 2."5,,$0(,%'0.8%0>;$+>+(.!.0#(%#9%-!"f!(+2`*?$+37%-.0$$%#.8+"2%!"+%!(.040;!.0(,%.8+%>#1+%.#%k&fx%"+;#".0(,%9#"%-r % purposes, and the likely future implementation of ifrs in the u.s. these and other issues drive the need for more !44#5(.!(.27% da%:">2)%0(%;!".045$!")%!"+%,#0(,%.#%,"+!.%$+(,.82%.#%!.."!4.%>!z#"2%!(6%,"!65!.+27%a8+%ae da%8!2% numerous programs for accounting scholarships, as do many other associations, such as the ima and the aswa. in !660.0#()%2#>+%:">2%+(6#'%248#$!"280;2%!.%"+,0#(!$%5(01+"20.0+2%!(6%4#$$+,+2%.#%8+$;%+(.04+%>#"+%!44#5(.0(,%>!z#"27% new accounting graduates in 2008 are being offered an average salary very close to $50,000. -#>+%#9%.8+%&0,%\#5"%:">2%!(6%.8+%(!.0#(!$%!22#40!.0#(2%i2548%!2%.8+%e^ay%8!1+%(#.+6%.8+%28#".!,+%0(%!44#5(.0(,% phds and have created initiatives, programs and scholarships to encourage doctoral applicants. the phdproject ituuny% 02% #(+% 2548% 0(0.0!.01+)% !0>+6% !.% !.."!4.01+%>0(#"0.0+2% .#% 4!"++"2% 0(% f520(+22% !4!6+>0!7% f+4+(.$3% .8+% da% ;"#9+220#(%;$+6,+6%llo%>0$$0#(%.#%8+$;%:$$%.8+%28#".!,+%#9%!44#5(.0(,%;"#9+22#"2)%;"+9+"!f$3% da2%'0.8%!560.0(,%!(6% .!?!.0#(% +?;+"0+(4+% ia44#5(.0(,%=#4.#"!$%-48#$!"2% tuuny7%b80$+% .8+% 28#".!,+% #9% 6#4.#"!$$3% g5!$0:+6% !44#5(.0(,% faculty may severely impact the future stream of professional accounting graduates, the direct relationship between .8+%;"#9+220#(!$%!44#5(.0(,%>!"c+.%;$!3+"2%i:">2)%4#>;!(0+2)%+.47y%!(6%.8+%!44#5(.0(,%6#4.#"!$%>!"c+.%6#+2%(#.%2++>% to be a close direct one, but rather an indirect relationship. 0(-*(1#$"g1#3.#*,& $+!"$3)%.8+%0(4"+!20(,%25;;$3%#9%f!48+$#"2%!(6%>!2.+"2%6+,"++%,"!65!.+2%0(%!44#5(.0(,%8!2%(#.%,$5..+6%.8+%>!"c+.7% firms, companies, government and other organizations are still demanding more accounting graduates. therefore, the number of professors needed to train these future accountants should be growing as well. in addition, the impending "+.0"+>+(.%#9%>548%#9%.8+%f!f3%f##>+"%,+(+"!.0#(%i.8#2+%f#"(%9"#>%lmvo`lmqvy%02%!$2#%!%9!4.#"%.8!.%4!(%0>;!4.%.8+% number of professors in academia. however, the number of accounting doctorates conferred has not been growing in recent years. despite the high demand for professional accountants, us accounting doctoral programs have been unable or unwilling to deliver the number of doctoral graduates needed to train these growing numbers of professional accountants. these doctoral programs, as an industry, have generated fewer doctoral graduates over the past decade .8!(%0(%;"+10#52%6+4!6+27%a8+%45""+(.%28#".!,+%#9%!44#5(.0(,%6#4.#"!$%,"!65!.+2%02%'+$$%6#45>+(.+6%iaa -&%tuu]p% d$5>$++%+.%!$7%tuuqp%aaa%tuun!)%tuunfy7%a8+%6+4"+!20(,%."+(6%0(%.8+%(5>f+"%#9%!44#5(.0(,%6#4.#"!.+2%;"#654+6% each year has been sustained for some time and reported in numerous places. the visual picture of the volume of doctorates granted in the past two decades is telling, as shown in figure 4. a'/.1,"r4"8iji"0(-*(1#$" --(.!*'!/"0,/1,,&"k(!),11,3l"bmnophqqu 2010, vol. 1, no. 1, 114-132 baldwin & brown 119 advances in business research #(."!2.%.802%."+(6%'0.8%.8+%."+(62%0(%!44#5(.0(,%6+,"++2%!.%.8+%f!48+$#"2%!(6%>!2.+"2%$+1+$27%-0(4+%.8+%3+!"%tuuu)% the number of bachelors degrees conferred in the usa has increased each year. the latest trend is an annual increase of more than six percent. the number of masters degrees conferred in accounting has been growing for decades and 8!2%6#5f$+6%0(%.8+%$!2.%.+(%3+!"2%i_ r-%tuuu`ly7%a8+%6+>!(6%9#"%f!48+$#"2%!(6%>!2.+"2%$+1+$%!44#5(.0(,%,"!65!.+2% 02%+?;+4.+6%.#%4#(.0(5+%,"#'0(,%9#"%.8+%9#"+2++!f$+%95.5"+%i/7-7%=+;!".>+(.%#9%x!f#"%tuuny7%a8+%"+2.%#9%.802%!".04$+% describes the accounting doctoral market in more detail, with particular focus on the programs and their doctoral ,"!65!.+27%a8+%"+2+!"48%>+.8#62%!"+%f"0+h3%6+24"0f+6%:"2.7 research methods the data are described next, followed by a description of the methods used to identify and locate the relevant data and useful sources, and the analysis, which for present purposes largely consists of the generation of descriptive statistics for each item of interest. a8+%f!204%6!.!%4#(202.%#9%"+4+(.%/7-7%!44#5(.0(,%6#4.#"!$%,"!65!.+2%ilmnw`tuuqy7%a8+2+%,"!65!.+2%'+"+%0(0.0!$$3% 06+(.0:+6%.8"#5,8%[!22+$f!4ce2%ituuwy%#($0(+%$02.0(,%#9%6#4.#"!$%,"!65!.+2%f3%248##$7%a8+()%.802%6!.!%'!2%"+2+!"48+6% and updated with corrections and additions of supplemental variables based on information obtained from doctoral program websites, university websites, general internet searches, phone calls and emails. further internet searches, ;8#(+%4!$$2%!(6%+>!0$2%+(!f$+6%.8+% 06+(.0:4!.0#(%#9%,+(6+"%9#"% .8+%>!z#"0.3%#9%,"!65!.+2%immogy7%e(9#">!.0#(%#(% >0(#"0.3%2.!.52%'!2%;"#106+6%f3%.8+%d8=d"#z+4.%ituuwy7%\#"%.8+%;5";#2+2%#9%.802%"+2+!"48)%>0(#"0.0+2%!"+%06+(.0:+6%!2% african-american, native american, and hispanic american. these are recognized as under-represented minorities !(6%!"+%.8#2+%2;+40:4!$$3%+(4#5"!,+6%f3%.8+%d8=d"#z+4.%ituuwy%.#%;5"25+%6#4.#"!.+2%0(%f520(+22%60240;$0(+27 a8+"+9#"+)% .802% 2.563% !(!$3<+2% !% 5(0g5+% !(6% +?."!#"60(!"0$3% 6+.!0$+6% 6!.!2+.7% [#'+1+")% .802% "+2+!"48% 02% (#.% concerned with individual characteristics, but rather with each program’s characteristics as described by its graduates. using this data on individuals, programs are analyzed on the basis of size, of growth, and of prestige. the programs 8!1+%f++(%60106+6%f3%20<+c%l%.#%m%,"!65!.+2%i0(%.8+%tu%3+!"%;+"0#6y)%lu`lm%,"!65!.+2)%!(6%2#%9#".8%5;%.#%;"#,"!>2% 4#(9+""0(,%>#"+%.8!(%nu%6+,"++2%0(%.8+%tu%3+!"%;+"0#67%d"+2.0,+%02%6+:(+6%f3%.8+%0(2.0.5.0#(!$%;"+2.0,+%>+!25"+%9#"% 6#4.#"!$`,"!(.0(,%0(2.0.5.0#(2%6+1+$#;+6%f3%\#,!".3%j%^!"c!"0!(%ituuwy7 in addition to the general demographic statistics, further analysis is provided comparing and contrasting the ,"#'0(,% ;"#,"!>2)% .8+% 28"0(c0(,% ;"#,"!>2% !(6% .8#2+% 0(% !% "+$!.01+$3% 2.+!63% 2.!.+7% a8+2+% 4!.+,#"0+2% !"+% 6+:(+6% f3%4#>;!"0(,% .8+%(5>f+"%#9%,"!65!.+2% 0(% .8+%:"2.%6+4!6+% ilmnw`lmmqy% .#% .8+%(5>f+"%#9%,"!65!.+2% 0(% .8+%2+4#(6% 6+4!6+%ilmmw`tuuqy7%k"#'0(,%;"#,"!>2%!"+%.8#2+%'0.8%!(%0(4"+!2+%#9%!.%$+!2.%qug%0(%.8+%2+4#(6%6+4!6+7% #(1+"2+$3)% shrinking programs are those with a decrease of at least 60%. programs falling in between these two categories are 6+:(+6%9#"%.8+%;5";#2+2%#9%.802%2.563%!2%f+0(,%0(%!%2.+!63%2.!.+7 <+," --(.!*'!/"0(-*(1#$"d#1e,* a8+%;5";#2+%#9%.8+%!44#5(.0(,%6#4.#"!$%>!"c+.%i.8+%$+9.%206+%#9%\0,5"+%ly%02%.#%."!0(%!44#5(.0(,%6#4.#"!.+2%9#"% research and teaching positions, largely in academic institutions. therefore, this section discusses this upstream accounting doctoral market by describing and analyzing its two major players, the programs and their graduates. 0(-*(1#$"v1(/1#c& as previously shown in the left side of figure 1, the accounting doctoral market consists of doctoral programs that produce accounting phds. as of 2006, 94 programs had conferred doctoral degrees in accounting in the previous 20 years. these programs range in size from 87 graduates during this period to 1 graduate. j+1'!e'!/l"j*,#3%"(1"g1(9'!/"v1(/1#c& by dividing these programs into ten size groups based on the number of doctoral degrees conferred during the 10 year period 1987-1996, they can be analyzed as an industry. like companies in any industry, some programs are ,"#'0(,%0(%20<+)%#.8+"2%!"+%28"0(c0(,%!(6%2#>+%!"+%"+$!.01+$3%2.+!63%0(%.+">2%#9%.8+0"%#5.;5.%9"#>%.8+%:"2.%6+4!6+%.#% the second. while one might expect to have some schools in each size category growing and some shrinking, that 02%(#.%.8+%;!..+"(%.8!.%+>+",+2%9"#>%:,5"+%o)%'8048%28#'2%.8+%60"+4.0#(%!(6%;+"4+(.!,+%#9%48!(,+%9#"%;"#,"!>2%0(% +!48%20<+%,"#5;7%a$$%#9%.8+%248##$2%0(%.8+%.8"++%$!",+2.%20<+%4!.+,#"0+2%ivt`ol)%]]`vl)%tw`]]y%6+4"+!2+6%.8+%(5>f+"%#9% ,"!65!.+2%9"#>%.8+%:"2.%.#%.8+%2+4#(6%lu%3+!"%;+"0#627%*($3%#(+%#9%.8+2+%$!",+"%248##$2%28#'+6%!%>#6+2.%6+4"+!2+% inlogy%'0.8%.8+%>!z#"0.3%28#'0(,%!%6+4$0(+%#9%vog%#"%>#"+7%e(%,+(+"!$)%.8+%$!",+"%;"#,"!>2%!"+%>#"+%$0c+$3%.#%6+4$0(+% in the number of graduates than smaller programs and the percentage decrease is likely to be larger as well. 2010, vol. 1, no. 1, 114-132 baldwin & brown 120 advances in business research a'/.1,"w4"j.tt$',1"j*#/,&4"j+1'!e'!/l"j*,#3%"#!3"g1(9'!/"v1(/1#c& _#.+c%b8+"+%.8+"+%'!2%!%.0+%9#"%20<+%!.%.8+%f#"6+"%#9%.8+%,"#5;%.8+%;"#,"!>%'0.8%.8+%$!",+"%(5>f+"%#9%,"!65!.+2%0(% the second period was assigned to the larger group. if the decline in graduates was solely caused by fewer individuals wanting to get ph.d.s in accounting one would expect the changes in graduates to either be relatively evenly distributed across the size categories, or perhaps the smaller less well established schools would be more likely to decline in size compared to their larger, more well established counterparts. that is not the pattern that emerges. thus, it appears that the decline in the number of accounting ph.d. degrees is not solely based on lack of interest by potential degree 4!(606!.+27% a802% 4#(4$520#(% 02% 25;;#".+6% f3% .8+%aa -&% ituu]y% "+;#".% .8!.% 0(604!.+6% .8!.%'80$+% !;;$04!.0#(2% 9#"% doctoral programs in business had increased, admissions had not. k+#!/,"'!"g1#3.#*,"x.c6,1& the industry can be further analyzed by looking more closely at the changes in the number of graduates from the :"2.%6+4!6+%.#%.8+%2+4#(6%6+4!6+%0(%.8+%;+"0#6%#9%2.5637%\0,5"+%q%,"!;804!$$3%0$$52."!.+2%.8+%48!(,+%0(%.8+%(5>f+"%#9% graduates for programs by size and stage. a'/.1,"u4"k+#!/,"'!"x.c6,1"()"g1#3.#*,&"6%"v1(/1#c"j'y, 2010, vol. 1, no. 1, 114-132 baldwin & brown 121 advances in business research note the large negative change in the number of graduates for the shrinking programs in all the larger size groups. also note the correspondingly small positive numbers on the top, representing the growing programs (all toward .8+%2>!$$%+(6%!(6%9+'%28#'0(,%20,(0:4!(.%0(4"+!2+2y7%b80$+%2#>+%>0,8.%2!3%.8+%2#$5.0#(%.#%.8+%28#".!,+%;"#f$+>%02% to create more doctoral programs, clearly the larger and longer lived programs are producing fewer graduates than f+9#"+7%a8+%2>!$$+"%!(6h#"%(+'%;"#,"!>2%8!1+%(#.%f++(%4"+!.0(,%+(#5,8%,"!65!.+2%.#%#1+"4#>+%.8+%28"0(c!,+%#9%.8+% other programs. v+0"g1#3.#*,& a8+%0(652."3%4"+!.+2%.'#%;"#654.2)%+99+4.01+$3c%85>!(%!44#5(.0(,%,"!65!.+2%!(6%c(#'$+6,+%i"+2+!"48y7%-0(4+%.8+% former is more easily measurable, that is the focus here. the human outputs of the academic accounting industry !"+%6#4.#"!$%,"!65!.+2)%>!2.+"2%,"!65!.+2%!(6%f!48+$#"2%,"!65!.+27%=#4.#"!$%,"!65!.+2%!"+%.8+(%80"+6%.#%.+!48h."!0(% bachelors and masters degree candidates. of course, the reality is not this simple, as some schools use masters degree graduates to train bachelors graduates. however, the simple model will do for this discussion. "g,!3,1"g#tz while many studies have measured the status or lack of status of women in academic accounting, who still haven’t reached parity with males on graduation rates and rank and such, the trends in graduates according to ,+(6+"% !"+% g50.+% 0(.+"+2.0(,7%f+.5"(0(,% .#% \0,5"+% ]e2% 6+;04.0#(% #9% 6#4.#"!$% 6+,"++2% 4#(9+""+6)% \0,5"+% w% !662% .8+% gender dimension. while percentage-wise, the females seem to be making some gains on the males, in fact the number of females graduating is not growing, but is relatively steady or declining slightly. the number of males, however, has been 6"#;;0(,%20,(0:4!(.$3)%+1+(% .8#5,8% .8+%>!$+2%2.0$$% $!",+$3%#5.(5>f+"% .8+% 9+>!$+2)%'0.8% .8+%;#220f$+%+?4+;.0#(%#9% tuul7%b8!.%02%8!;;+(0(,%.#%.8+%>!$+2@ a'/.1,"o4" --(.!*'!/"0(-*(1#$"g1#3.#*,&"6%"[,#1"#!3"g,!3,1 -++)%9#"%+?!>;$+)%&5488+0.%+.%!$7%tuuup% !"#$:%+.%!$7lmmqp% #$$0(2%+.%!$7%lmmnp%='3+"%lmmvp%o#"6!(%+.%!$7%tuuqp%x!(0+"% & tanner 1999; norgaard 1989; rama et al. 1997; streuly & maranto 1994; tinker & fearfull 2007. 2010, vol. 1, no. 1, 114-132 baldwin & brown 122 advances in business research a'/.1,"n4"x.c6,1"()"g1#3.#*,&"6%"g,!3,1"#!3"v1(/1#c"j'y, to put this drop in the number of male graduates in perspective, figure 8 illustrates the number of males, females !(6%5(c(#'(%,+(6+"%,"!65!.+6%9"#>%.8+%:"2.%6+4!6+%.#%.8+%2+4#(6%6+4!6+)%f3%+!48%;"#,"!>%20<+%,"#5;7 \#"%\0,5"+%m%.8+%20<+%#9%.8+%248##$%'!2%6+.+">0(+6%f3%.8+%(5>f+"%#9%,"!65!.+2%0(%.8+%:"2.%lu%3+!"2%#9%#5"%2.5637% this chart shows that all the largest schools decreased both the number of male and the number of female graduates 9"#>%.8+%:"2.%lu%3+!"%;+"0#6%.#%.8+%2+4#(6%lu%3+!"%;+"0#67%b0.8%>0(#"%+?4+;.0#(2%.8+%2!>+%02%."5+%9#"%.8+%(+?.%.8"++% size group. only the smaller size programs show any substantial increase in the number of male or female graduates. a'/.1,"m4"k+#!/,"'!"*+,"x.c6,1"()"g1#3.#*,&"6%"j'y,"()"j-+(($"#!3"g,!3,1 2010, vol. 1, no. 1, 114-132 baldwin & brown 123 advances in business research the patterns of growth are evident in the smaller half of the programs, though the growth and the decline in most of those smaller programs appear to zero out. however in these smaller categories the increases in women exceed the decreases. in the larger program groups, no sizable increase in female graduates is evident, while decreases are evident in all categories. !"=7,!"g1,#*,1"d'!(1'*%"j+(1*#/, a44#5(.0(,% 6#4.#"!$% ;"#,"!>2% $!f#"% .#% !.."!4.% 5(6+"`"+;"+2+(.+6% >0(#"0.0+2% i[!>>#(6% lmmoy)% 0(4$560(,% african-americans, native americans and hispanic americans. for more than a decade, efforts have been made to increase the number of minority graduates of accounting doctoral programs. in 1994, kpmg and others created the phdproject, whose purpose is increasing faculty diversity in u.s. business schools. the phdproject provides :(!(40!$%!(6%#.8+"%25;;#".% .#%5(6+"`"+;"+2+(.+6%>0(#"0.0+2%2548%!2%a9"04!(`a>+"04!(2)%[02;!(04%a>+"04!(2%!(6% _!.01+%a>+"04!(2% ;5"250(,% 6#4.#"!$% 2.560+2% 0(% f520(+22)% 0(4$560(,% !44#5(.0(,% iae da% tuuqp% d8=d"#z+4.% tuuwp% -.+'!".%+.%!$7%tuuny7%e(%!660.0#()%;"#9+220#(!$%,"#5;2)%2548%!2%.8+%ae da%!(6%e^a%!"+%!$2#%0(1#$1+6%0(%>0(#"0.3% 0(0.0!.01+2%'0.8%6#4.#"!$%4!(606!.+2%!(6%9!45$.3%iae da%tuunfy7%a8+%aa&)%#9%4#5"2+)%+?;+4.2%!44"+60.+6%248##$2% .#%6+:(+%601+"20.3%'0.80(%.8+0"%>0220#(2%!(6%45$.5"!$%4#(.+?.2%ib+02+(9+$6%j%f#f0(2#(`&!4c>#(%tuuwy7% returning to figure 4’s data, figure 10 adds a dimension for under-represented minorities and non-minorities. the number of underrepresented minorities is increasing in recent years, which is encouraging. however, the increase is not large. a'/.1,"bq4" --(.!*'!/"3(-*(1#$"/1#3.#*,&"6%"%,#1"#!3"c'!(1'*%"&*#*.& over this twenty year period, the percentage of under-represented minorities earning accounting doctorates is 5.7 percent, 6.7 percent in the most recent year. while progress is encouraging, these percentages fall far short of the related data for the u.s. population. the u.s. population includes more than one-third minorities and has been becoming more diverse over time. the under-represented minorities now comprise about 30%, of which hispanic americans are log)%a9"04!(`a>+"04!(2%!"+%l]7og)%!(6%_!.01+%a>+"04!ha$!2c!(h[!'!00!(2%!"+%tg%i/7-7% +(252% &5"+!5%tuuny7%/7-7%2#40+.3%02%f+4#>0(,%>#"+%!(6%>#"+%601+"2+%!(6)%.8+"+9#"+)%!4!6+>04%!44#5(.0(,%>52.%f+4#>+% >#"+%!44+;.0(,%!(6%+(4#5"!,0(,%#9%601+"20.3%i&$!(4#%!(6%6+%$!%f#2!%tuuny7%b8!.%4!(%f+%6#(+%.#%!.."!4.%>#"+%5(6+"` "+;"+2+(.+6%>0(#"0.0+2%.#%!4!6+>04%!44#5(.0(,@ figure 11 examines the change in minority graduates from decade one to decade two for each program size group. a few programs, mostly in the upper-middle size range, are graduating fewer minorities than in the past. most programs are graduating more minorities than in the past. strangely, the programs of the 50-59 group (graduating t7o%.#%]%,"!65!.+2%;+"%3+!"%#(%!1+"!,+y%8!1+%!%(+.%6+4"+!2+%0(%>0(#"0.3%,"!65!.+27%a802%,"#5;)%8#'+1+")%"+;"+2+(.2%!% relatively small number of programs. 2010, vol. 1, no. 1, 114-132 baldwin & brown 124 advances in business research a'/.1,"bb4"k+#!/,"'!"8!3,1p>,t1,&,!*,3"d'!(1'*%"g1#3.#*,&"6%"v1(/1#c"j'y, programs in a steady state have no change in minority graduates. this is primarily due to most of these programs having no minority graduates in either decade. most programs have increased their minority graduates at least 60% in the second decade. the numbers of minority graduates have decreased 60% or more in some programs. while many smaller programs have no minority graduates, most of the larger programs have at least one minority ,"!65!.+%i\0,5"+%lty7 a'/.1,"bh4"<(*#$"v1(/1#c&"k(ct#1,3"*("v1(/1#c&"9'*+"x("d'!(1'*%"g1#3.#*,&"6%"v1(/1#c"j'y, v1(/1#c"v1,&*'/,"#!3"g1#3.#*,& having examined these patterns according to program size, a further examination is warranted according to ;"#,"!>%;"+2.0,+7%\#,!".3%!(6%̂ !"c!"0!(%ituuwy%4#>f0(+6%.8+%"!(c0(,2%0(%.'#%;"0#"%2.560+2%i[!22+$f!4c%!(6%f+0(2.+0(% lmmop%\#,!".3%lmmoy%.#%4"+!.+%!%601+"2+%;"+2.0,+%4#(2."54.%f!2+6%#(%;"+`lmm]%0(9#">!.0#(7%/20(,%.802%>+!25"+)%.8+% programs are divided into nine groups. the last group includes programs that were not rated, presumably because they did not exist at the time the prior studies were undertaken. figure 13 shows the number of schools in each prestige grouping that increased and decreased in the number of ,"!65!.+2%9"#>%.8+%:"2.%lu%3+!"%;+"0#6%.#%.8+%2+4#(6%lu%3+!"%;+"0#67% 2010, vol. 1, no. 1, 114-132 baldwin & brown 125 advances in business research a'/.1,"bs4"v1(/1#c"j*#/,"6%"v1,&*'/,">#!e'!/& a very different picture emerges when the programs are viewed by prestige rankings. fewer of the schools with higher prestige rankings had large declines when compared with schools at the lower end of the rankings. the vast majority of the growth in doctoral graduates is coming from programs that were unranked in the fogarty and ^!"c!"0!(%ituuwy%2.563)%!(6%;"+25>!f$3%.8+2+%!"+%.8+%(+'+"%;"#,"!>2%9#"%'8048%6!.!%606%(#.%+?02.%.#%f+%52+6%0(%.8+% +!"$0+"%;"+2.0,+%"!(c0(,27%-#)%.8+%(+'%i5("!(c+6y%;"#,"!>2%4"+!.+%2#>+%,"#'.8)%f5.%.8+%6+4$0(+%0(%.8+%(5>f+"%#9% graduates is fairly consistent across various levels of prestige groups. figure 14 shows the change in the number of graduates in each prestige grouping. the decline in the number of graduates from the top 10 ranked schools was relatively modest compared to those further down the rankings. ^#2.%#9%.8+%6+4"+!2+%0(%,"!65!.+2%02%9"#>%248##$2%0(%.8+%$#'+"%>066$+%#9%.8+%"!(c0(,2%ivl`wuy)%'0.8%!%2>!$$+"%f5.%2.0$$% 25f2.!(.0!$%6+4"+!2+%0(%.8+%5;;+"%>066$+%"!(c0(,2%ill`vuy7 2010, vol. 1, no. 1, 114-132 baldwin & brown 126 advances in business research a'/.1,"br4"k+#!/,"'!"g1#3.#*,&"6%"v1,&*'/,">#!e'!/& v1,&*'/,"#!3"g,!3,1 this prestige measure can be further described using gender and minority data. figure 15 shows the changes in male and female graduates by prestige ranking groups. increases in women are present in every prestige group and relatively similar in size. decreases are also present in all prestige categories. in the highest and lowest prestige categories and the programs that were not ranked the increases in women exceed the decreases but in all other categories the decreases in women exceed the increases. in all categories, except unrated programs, the decrease in men far exceeds the increase in men. 2010, vol. 1, no. 1, 114-132 baldwin & brown 127 advances in business research a'/.1,"bw4"k+#!/,"6%"g,!3,1"#!3"v1,&*'/,">#!e'!/ minorities and prestige this prestige measure can be further described using gender and minority data. figure 16 illustrates only the underrepresented minority graduates according to prestige group and whether the programs are shrinking, steady #"%,"#'0(,7%_#.+% .8!.%(#%;"#,"!>2%!;;+!"% .#%8!1+%c+;.% .8+%(5>f+"2%#9%>0(#"0.3%,"!65!.+2% 2.+!63% 9"#>% .8+%:"2.% decade to the second. the growing programs’ minority graduates increases far outnumber the decreases in minority graduates of the shrinking programs. figure 16, however, does not give a complete picture of minorities according to prestige groups. figure 17 compares the total number of programs in each prestige group to the number of programs that do not appear to 8!1+%!(3%5(6+""+;"+2+(.+6%>0(#"0.3%,"!65!.+2% 0(% .8+%tu%3+!"%;+"0#67%-#)%!% 20,(0:4!(.%(5>f+"%#9%;"#,"!>2%8!1+% not graduated minority graduates. these programs span the range of prestige groups. the unrated programs have a higher total and a higher number of no-minority programs. however, many of these unrated programs are very small, graduating only one or a few ph.d. students. 2010, vol. 1, no. 1, 114-132 baldwin & brown 128 advances in business research a'/.1,"bu4"k+#!/,"'!"d'!(1'*%"g1#3.#*,&"6%"v1(/1#c"v1,&*'/, a'/.1,"bo4"k(ct#1'&(!"()" $$"v1(/1#c&"#!3"<+(&,"9'*+"x("d'!(1'*%"g1#3.#*,&"6%"v1,&*'/, 56&,17#*'(!&"#!3"8!#!&9,1,3":.,&*'(!& a802% !(!$3202% 52+2% 5(0g5+% !(6% +?.+(201+% 6!.!% #(% !44#5(.0(,% 6#4.#"!$% ,"!65!.+2% .#% 28#'% .8!.% .8+% 48!(,+2% 0(% programs are not uniform whether considered by size or by prestige. while new programs have been created, their volume of graduates is not large enough to replace the established programs’ decline in volume of graduates. with regard to overall trends, the shrinking programs outnumber both the growing programs and the steady state programs. in general, the new programs are growing, by default, and the older, larger programs, in general, tend to be shrinking. 2010, vol. 1, no. 1, 114-132 baldwin & brown 129 advances in business research the majority of the programs with steady graduation numbers are in the middle to smaller size range. this leads to a (5>f+"%#9%g5+2.0#(2c%%b83%!"+%8!$9%#9%.8+%6#4.#"!$%;"#,"!>2%"+6540(,%.8+%(5>f+"%#9%d87=7%2.56+(.2%.8+3%8!1+%f++(% ,"!65!.0(,@%b83%!"+%>#2.%$!",+"%;"#,"!>2%ivu`wm%,"!65!.+2%0(%.'#%6+4!6+2y%28"0(c0(,@%e2%0.%!%95(60(,%0225+@%e2%0.%!% 48#04+%#(%.8+%;!".%#9%.8+2+%;"#,"!>2%.#%f+%2>!$$+"@%e2%0.%!%$!4c%#9%2+(0#"%9!45$.3%>+(.#"2%.#%!6102+%,"!65!.+%2.56+(.2% !(6%60"+4.%6022+".!.0#(2@ with regard to gender, the number of male graduates has been falling for the past two decades, much more sharply than the slight decline in the number of female graduates. the net decrease in male graduates is spread across the board, except for the largest programs and the smaller ones. why are men less and less interested in ;5"250(,%!44#5(.0(,%6#4.#"!$%2.560+2@%a8+%6+4"+!2+%0(%9+>!$+%,"!65!.+2%02%20>0$!"$3%2;"+!6%!4"#22%.8+%>066$+%20<+2% #9%;"#,"!>2%f5.%.8+%(+.%6+4"+!2+%i07+7%9+'%;"#,"!>2%'0.8%,"#'.8%0(%9+>!$+%,"!65!.+2y%02%;"#(#5(4+6%9#"%.8+%;"#,"!>2% .#'!"6%.8+%$!",+"%+(6%iou`wm%,"!65!.+2%0(%.'#%6+4!6+2y7%b83%!"+%"+$!.01+$3%9+'+"%'#>+(%!.."!4.+6%.#%#"%"+4"50.+6%f3% .8+2+%"+$!.01+$3%$!",+%;"#,"!>2@ with regard to minorities, clearly the accounting doctoral market is falling short on recruiting minorities. the small bit of good news is the recent uptick in minority graduates, as well as the increase in graduates across different program sizes. the impact of the phdproject seems obvious. however, many programs, including a few large programs and many in the smaller half, have not graduated any underrepresented minorities during the last twenty years. what more can be done to attract african-americans, hispanic americans and native americans to careers 0(%!44#5(.0(,%!4!6+>0!@ b0.8%"+,!"6%.#%;"+2.0,+)%!$$%#9%.8+%;"+2.0,+%,"#5;2%8!1+%2++(%!%(+.%6+4"+!2+%0(%,"!65!.+2%9"#>%.8+%:"2.%6+4!6+%.#% the second. the only group with a net increase is the group of programs that were not rated, presumably the newer ;"#,"!>2%'0.8#5.%+(#5,8%802.#"3%.#%8!1+%6!.!%9#"%.8+%;"+2.0,+%4!$45$!.0#(2%52+6%f3%\#,!".3%!(6%^!"c!"0!(%ituuwy7% the higher levels of shrinkage are in the middle 75% of prestige groups. the highest prestige and lowest prestige ,"#5;2%8!1+%2>!$$+"%6+4"+!2+2%0(%,"!65!.+2%.8!(%.8+%0(.+">+60!.+%;"+2.0,+%,"#5;27% $+!"$3%.8+%;"#f$+>%#9%6+4"+!20(,% numbers of accounting doctoral graduates is not centered on any one prestige group but is a widespread problem. the newer, unranked programs are not educating enough graduates to overcome the net decreases in graduates from all the other programs. k01+(%.8+2+%"+25$.2)%2#>+%f0,%;04.5"+%g5+2.0#(2%2.0$$%"+>!0(%.#%f+%0(1+2.0,!.+6c%b8!.%4!(%f+%6#(+%.#%."!0(%>#"+% 6#4.#"!$%,"!65!.+2@%%[#'%$#(,%'0$$%.802%80,8%6+>!(6%;8!2+%$!2.@%[#'%4!(%>#"+%g5!$0:+6%!;;$04!(.2%f+%!.."!4.+6%.#% !44#5(.0(,%6#4.#"!$%2.560+2@%[#'%4!(%>#"+%>0(#"0.0+2%f+%!.."!4.+6%.#%!44#5(.0(,%6#4.#"!$%2.560+2@ proposed future research $+!"$3)%>548%"+2+!"48%"+>!0(2%.#%f+%6#(+7%[#;+95$$3)%!44#5(.0(,%!4!6+>040!(2%'0$$%f+4#>+%0(.+"+2.+6%0(%.802% ;"#f$+>%.8!.%2#%4#(4+"(2%52%!$$%!(6%'0$$%2.!".%"+2+!"480(,%.8+2+%609:45$.%g5+2.0#(27%a#%.802%+(6)% .802%:(!$%2+4.0#(% 6+24"0f+2%2;+40:4%!"+!2%9#"%"+2+!"487 b83%!"+%.8+%$!",+"%;"#,"!>2%5(09#">$3%28"0(c0(,@%%a"+%2#>+%;"#,"!>2%z52.%.##%$!",+@%[!1+%248##$2%6+.+">0(+6% .8!.%>#6+"!.+$3%20<+6%#"%2>!$$%20<+6%6#4.#"!$%,"#5;2%;+"9#">%f+..+"%#"%!"+%0(%2#>+%#.8+"%'!3%f+..+"%#"%6+20"!f$+@% very few programs that graduate, on average, more than one graduate per year, are actually growing. almost every program, in fact, that graduates more than one person per year is shrinking. future research should examine this phenomenon and identify whether large size, or some related characteristic that is commonly found in large programs, is a detriment to long term program success and why. b83%!"+%!$$%.8+%0(4"+!2+2%0(%,"!65!.+%#5.;5.%4#>0(,%9"#>%2>!$$+"%;"#,"!>2@%af#5.%8!$9%#9%.8+%2>!$$+"%;"#,"!>2% inlo%,"!65!.+2% 0(% tu%3+!"2y% !"+% ;"#1060(,% !$$% .8+%,"#'.8% 0(%(5>f+"2% #9% ,"!65!.+2)%'80$+% .8+%#.8+"% 8!$9% #9% 2>!$$% programs are shrinking in similar patterns to the large programs, which are uniformly shrinking. so, what are these 2>!$$%f5.%,"#'0(,%;"#,"!>2%6#0(,%"0,8.@%b8!.%48!"!4.+"02.042%602.0(,5028%.8+2+%,"#'0(,%2>!$$%;"#,"!>2%9"#>%.8+0"% 28"0(c0(,%f5.%20>0$!"$3`20<+6%4#5(.+";!".2@%\5.5"+%"+2+!"48%28#5$6%25"1+3%.8+2+%;"#,"!>2)%4#>;!"0(,%!%f"#!6%"!(,+% of program features for the purpose of identifying demographics of successful small programs. this information may 8+$;%(+'%;"#,"!>2%!(6%+(6!(,+"+6%;"#,"!>2%:(6%;!.82%.#'!"6%2544+227 !(%'+%0(1+2.0,!.+%.8#2+%'8#%!"+%48##20(,%(#.%.#%;5"25+%6#4.#"!.+2%0(%!44#5(.0(,%.#%:(6%#5.%'83@%a802%02%>#2.% 609:45$.7%[#'+1+")%.8+%g5+2.0#(2%"+>!0(7%b83%!"+%>!$+2%+!"(0(,%9+'+"%!(6%9+'+"%6+,"++2@%\+>!$+2)%'80$+%6+4$0(0(,% 0(%.#.!$)%8!1+%2++(%0(4"+!2+2%0(%.8+%2>!$$+"%;"#,"!>2%i;"#,"!>2%,"!65!.0(,%$+22%.8!(%ln%0(%tu%3+!"2y7%%*9%4#5"2+)%.802% could be the result of changes in recruiting practices over time since many of the smaller programs are also newer programs. perhaps many of these programs have been working hard to attract more female students. future research should examine the recruiting practices of doctoral programs to identify what methods of recruitment characterize those programs who have been recruiting most successfully. 2010, vol. 1, no. 1, 114-132 baldwin & brown 130 advances in business research -0>0$!"$3)%!%20,(0:4!(.%;#".0#(%i>#"+%.8!(%vugy%#9%!44#5(.0(,%6#4.#"!$%;"#,"!>2%8!1+%(#.%,"!65!.+6%!(3%5(6+"` "+;"+2+(.+6%>0(#"0.0+2%0(%.8+%;!2.%.'#%6+4!6+2%ilmnw`tuuqy7%=0245220#(2%'0.8%6#4.#"!$%;"#,"!>%60"+4.#"2%25,,+2.%.802% 02%65+)%0(%;!".)%.#%.8+%609:45$.3%0(%"+4"50.0(,%.8+2+%>0(#"0.3%4!(606!.+27%\5.5"+%"+2+!"48%28#5$6%+?!>0(+%.8+%"+4"50.0(,% practices of doctoral programs to identify what methods of recruitment characterize those programs successfully recruiting minorities. growth with regard to prestige of schools, appears to be greatest at schools with programs that are too new to 8!1+%f++(%"!(c+6%0(%.8+%\#,!".3%!(6%^!"c!"0!(%ituuwy%2.563%'8048%52+6%"!(c0(,2%9"#>%.8+%+!"$3%.#%>066$+%lmmu27% $+!"$3)%80,8%;"+2.0,+%248##$2%6#%(#.%8!1+%!%4#"(+"%#(%.8+%,"#'.8%>!"c+.7%b8!.%!"+%.8+%(+'+"%,"#'0(,%;"#,"!>2% 6#0(,%.#%!.."!4.%2.56+(.2%.8!.%02%6099+"+(.%9"#>%>#"+%+2.!f$028+6)%80,8%;"+2.0,+%;"#,"!>2@%*f10#52$3)%.8+2+%248##$2% !"+%!.."!4.0(,%2.56+(.2%i!44#5(.0(,%9#"%>#2.%#9%.8+%,"#'.8%!>#(,%!(%#.8+"'02+%602>!$%;04.5"+y7%a(%+?!>0(!.0#(%#9% recruitment practices should shed light on how the recruitment practices of these unranked but growing programs differ from the ranked established programs. when further parsing the prestige groups by gender, the biggest area of grown for both males and females is among the unranked, and presumably newer, programs. similarly, the unranked and lowest ranked program groups, !$#(,%'0.8%.8+%>066$+%"!(c0(,%;"#,"!>2%itl`vuy%28#'%.8+%>#2.%2544+22%0(%0(4"+!20(,%>0(#"0.3%,"!65!.+27%^0(#"0.0+2% 6#%(#.%!;;+!"%.#%f+%!.."!4.+6%+g5!$$3%f3%.8+%95$$%"!(,+%#9%;"#,"!>2%f3%;"+2.0,+7%\5".8+"%"+2+!"48%28#5$6%+?!>0(+%8#'% applicants, both minority and non-minority, choose between programs. a survey of current and recent graduates on this topic should provide insight into the factors motivating program choice. understanding how future doctoral graduates choose their programs will help struggling program identify areas to target for change. >=a=>=xk=j aaa%ia>+"04!(%a44#5(.0(,%a22#40!.0#(y7%tuun!7% c,1'-#!"#--(.!*'!/"#&&(-'#*'(!4"5.1"&+#1,3"7'&'(!. (january tuuny7%-!"!2#.!)%\$#"06!c%aaa7%8..;chh!!!8g7#",h!f#5.haaa-8!"+p020#(=#45>+(.o!(un9($qvq7;697 aaa%ia>+"04!(%a44#5(.0(,%a22#40!.0#(y7%tuunf7% --(.!*'!/")#-.$*%"'!"8iji"-($$,/,&"#!3".!'7,1&'*',&4"j*#*.&"#!3" *1,!3&l"bmmsphqqr7%a%"+;#".%#9%.8+%a>+"04!(%a44#5(.0(,%a22#40!.0#(%i\+f"5!"3%lm)%tuuny7%-!"!2#.!)%\$#"06!c%aaa7% 8..;chh!!!8g7#",h.+>;h;86ha44#5(.0(,\!45$.3/#$$+,+2/(017;697 aa -&% ia22#40!.0#(% 9#"% .8+%a61!(4+>+(.% #9% #$$+,0!.+% -48##$2% #9%&520(+22y7% tuu]7%sustaining scholarship in 6.&'!,&&"&-+(($&i" "1,t(1*"()"*+,"3(-*(1#$")#-.$*%"-(cc'&&'(!7%-.7%x#502)%^022#5"0c%aa -&7%8..;chh'''7,9>+7% #",h0225+2h;692h-52.!0(0(,-48#$!"280;7;697 --(.!*'!/"0(-*(1#$"j-+($#1&7%tuun7%b+f20.+c%8..;chh'''7!62;867#",h7 ae da%ia>+"04!(%e(2.0.5.+%#9% +".0:+6%d5f$04%a44#5(.!(.2y7%tuuq7%f,1!#13"\i"d'$#!("()"]vdg"1,-,'7,&" 2kv " &t,-'#$" 1,-(/!'*'(!" #9#13" ^!,9&" 1,$,#&,_7% 8..;chh'''7!04;!7#",h6#'($#!6h(+'2htuuqh&+"(!"6qgtuoq^0$$!(#q% #9qsd^kqf+40+1+2qae daqa'!"67;697 ae da7%tuun!7%hqqn"<1,!3&"'!"*+,"&.tt$%"()"#--(.!*'!/"/1#3.#*,&"#!3"*+,"3,c#!3")(1"t.6$'-"#--(.!*'!/"1,-1.'*&" ^1,t(1*_7%8..;chh4+!+7!04;!7#",hf+2#5"4+2hd5f$04!.0#(2if+;#".2h7 ae da7%tuunf7% 2kv "c,3'#"-,!*,1"p"c'!(1'*%"'!'*'#*'7,&7%8..;chh'''7!04;!7#",h^+60! +(.+"h^0(#"0.3q%e(0.0!.01+27 htm. ae da7%tuun47%colleges and universities offering accounting degree programs7%8..;chh'''7!04;!7#",h4#$$+,+$02.h% index.htm. &!$6'0()%a7)%&"#'()% 7)%j%a"0(c$+)%&7%tulu7%a44#5(.0(,%6#4.#"!$%;"#,"!>2c%a%>5$.060>+(20#(!$%6+24"0;.0#(7%advances '!" --(.!*'!/"=3.-#*'(!)%llc%lul`ltn7 &$!(4#)% f7)% j% 6+% $!% f#2!)% =7% tuun7% [02;!(042% 0(% f520(+22% +654!.0#(c%a(% 5(6+"`"+;"+2+(.+6% 2+,>+(.% #9% .8+% /7-7% population. critical perspectives on accounting)%lmc%lw`tm7 &"#'()% x7% lmmq7% e(h5+(.0!$% !44#5(.0(,% !".04$+2)% 0(601065!$2)% d8=% ,"!(.0(,% 0(2.0.5.0#(2% !(6% 9!45$.0+2c%a% 40.!.0#(!$% analysis. --(.!*'!/l"51/#!'y#*'(!&"#!3"j(-',*%)%tlc%wt]`wov7 2010, vol. 1, no. 1, 114-132 baldwin & brown 131 advances in business research &"#'()% x7)%j% x!c2>!(!)% e7% tuuw7%a44#5(.0(,% d87=7% ;"#,"!>% ,"!65!.+2c%a9:$0!.0#(% ;+"9#">!(4+% !(6% ;5f$04!.0#(% performance. review of quantitative finance and accounting)%tmc%tno`tl]7 brown, l., & gardner, j. 1985. applying citation analysis to evaluate the research contributions of accounting faculty and doctoral programs. accounting review)%quc%tqt`tww7 &5488+0.)%-7)% #$$0(2)%a7)%j% #$$0(2)%=7%tuuu7%̂ 52.%9+>!$+%!44#5(.0(,%9!45$.3%;5f$028%>#"+%.#%!480+1+%.+(5"+@%@(c,!" in management review)%loc%]vv`]ov7 !"#$:)%e7)%j%d0$$2f5"3)% 7%lmmq7%a8+%80"0(,%#9%'#>+(%0(%!44#5(.0(,%!4!6+>0!7%\(.1!#$"()"=3.-#*'(!")(1"f.&'!,&&, wlc%lol`loq7 !";+(.+")% 7)%j%[#4c)% 7%tuun7%a8+%lou`8#5"%"+g50"+>+(.e2%+99+4.%#(%.8+% da%+?!>7%cpa journal)%wnc%qt7% 8!()%s7)% 8+()% 7)%j% 8+(,)%x7%tuuw7%k$#f!$%"!(c0(,%#9%!44#5(.0(,%;"#,"!>>+2%!(6%.8+%+$0.+%+99+4.%0(%!44#5(.0(,% research. accounting and finance)%vwc%lnwrttu7 #$$0(2)%a7)%d!""028)%&7)%j% #$$0(2)%=7%lmmn7%k+(6+"%!(6%.8+%.+(5"+%."!4cc%-#>+%25"1+3%+106+(4+7%issues in accounting =3.-#*'(!)%l]c%tww`tmm7 =+>2c0)%o7%tuuw7%e2%!44#5(.0(,%!(%!4!6+>04%60240;$0(+@% --(.!*'!/"`(1'y(!&)%tlc%lo]`low7 ='3+")%d7%lmmv7%k+(6+"%6099+"+(4+2%0(%.8+%248#$!"$3%!4.010.0+2%#9%!44#5(.0(,%!4!6+>042c%a(%+>;0"04!$%0(1+2.0,!.0#(7% 2&&.,&"'!" --(.!*'!/"=3.-#*'(!)%mc%t]l`tvw7 everett, j., klamm, b., & stoltzfus, r. 2004. developing benchmarks for evaluating publication records at doctoral programs in accounting. \(.1!#$"()" --(.!*'!/"=3.-#*'(!)%ttc%ttm`tot7 \+$$0(,8!>)%o7%tuuw7%e2%!44#5(.0(,%!(%!4!6+>04%60240;$0(+@% --(.!*'!/"`(1'y(!&)%tlc%lom`lq]7 \#,!".3)%a7%lmmo7%a%"!(c0(,%.#%+(6%!$$%"!(c0(,2c%a%>+.!`!(!$3202%!(6%4"0.0g5+%#9%2.560+2%"!(c0(,%!4!6+>04%!44#5(.0(,% departments. accounting perspectives)%lc%lrtt7 \#,!".3)%a7)%j%-!9.(+")%=7% lmm]!7%=#'(% .8+%5;% 2.!0"4!2+c%/-%!4!6+>04% !44#5(.0(,%;"+2.0,+% !(6% .8+%;$!4+>+(.%#9% doctoral students. --(.!*'!/"=3.-#*'(!)%tc%m]`luu7 \#,!".3)%a7)%j%-!9.(+")%=7%lmm]f7%a4!6+>04%6+;!".>+(.%;"+2.0,+c%a%(+'%>+!25"+%f!2+6%#(%.8+%6#4.#"!$%$!f#"%>!"c+.7% >,&,#1-+"'!"`'/+,1"=3.-#*'(!)%]vc%vtwrvvm7 fogarty, t., & markarian, g. 2007. an empirical assessment of the ride and fall of accounting as an academic discipline. 2&&.,&"'!" --(.!*'!/"=3.-#*'(!)%ttc%l]w`lql7 k"!22#)%x7%tuun7%a8+%!44#5(.0(,%d87=7%28#".!,+c% "0202%#"%#;;#".5(0.3@%%cost management)%ttc%lo`to7 hammond, t. 1995. some considerations in attracting and retaining african-american doctoral candidates in accounting. 2&&.,&"'!" --(.!*'!/"=3.-#*'(!)%luc%lv]`lon7 hasselback, j., & reinstein, a. 1995. a proposal for measuring scholarly productivity of accounting faculty. issues in --(.!*'!/"=3.-#*'(!)%luc%tqmr]uq7 o#"6!()% 7)% d!.+)% k7)% j% $!"c)% -7% tuuq7% k+(6+"% 0>f!$!(4+% 0(% !44#5(.0(,% !4!6+>0!c% d!2.% !(6% ;"+2+(.7% journal of =3.-#*'(!")(1"f.&'!,&&)%nlc%lqo`lqm7 lanier, p., & tanner, j. 1999. a report on gender and gender-related issues in the accounting professoriate. journal of =3.-#*'(!")(1"f.&'!,&&)%woc%wq`nt7 ^4_!0")% 7%tuun7%/(0(.+(6+6%4#(2+g5+(4+2c%=+!.8%#9%.8+%.+!48+"`248#$!"7%cost management)%ttc%tl`tn7 2010, vol. 1, no. 1, 114-132 baldwin & brown 132 advances in business research ^0..+">!0+")%x7%lmml7%f+;"+2+(.!.0#(%#(%.8+%+60.#"0!$%f#!"62%#9%!4!6+>04%!44#5(.0(,%z#5"(!$2c%a(%!(!$3202%#9%!44#5(.0(,% faculties and doctoral programs. 2&&.,&"'!" --(.!*'!/"=3.-#*'(!)%qc%ttl`t]n7 _!.0#(!$%a22#40!.0#(%#9% #$$+,+2%!(6%r>;$#3+"27%tuun7%\(6"(.*$((e"hqqn7%8..;chh'''7(!4+'+f7#",h;"#654.2h0(9#q;!,+2h% joboutlookreport.htm. _!.0#(!$% +(.+"%9#"%r654!.0#(%-.!.02.042%i/7-7%=+;!".>+(.%#9%r654!.0#(y7%tuuu`l7%0,/1,,&"#!3"(*+,1")(1c#$"#9#13&" -(!),11,3"&.17,%l"#!3" '!*,/1#*,3"t(&*&,-(!3#1%",3.-#*'(!"3#*#"&%&*,cl"-(ct$,*'(!&"&.17,%" ^2v=0jpk4qb_i" 2!"`'/+,1"=3.-#*'(!"g,!,1#$"2!)(1c#*'(!"j.17,%"^`=g2j_7%8..;chh(4+27+67,#1h;5f2tuuoh+g50.3h%-+4.0#(lt7!2;7 _#",!!"6)% 7%lmnm7%a%2.!.52%"+;#".%#(%!4!6+>04%'#>+(%!44#5(.!(.27%2&&.,&"'!" --(.!*'!/"=3.-#*'(!)%vc%ll`tn7 v+0"v1(a,-*7%tuun7%8..;chh'''7;86;"#z+4.7#",7 plumlee, r., kachelmeier, s., madeo, s., pratt, j., & krull, g. 2006. assessing the shortage of accounting faculty. 2&&.,&"'!" --(.!*'!/"=3.-#*'(!)%tlc%ll]rlto7 rama, d., raghunandan, k., logan, l., & barkman, b. 1997. gender differences in publications by promoted faculty. 2&&.,&"'!" --(.!*'!/"=3.-#*'(!)%ltc%]o]`]qo7 -.!>>+"z#8!()%b7)%j%[!$$)%-7%tuut7%r1!$5!.0#(%#9%6#4.#"!$%;"#,"!>2%0(%!44#5(.0(,c%a(%+?!>0(!.0#(%#9%;$!4+>+(.7%journal ()" --(.!*'!/"=3.-#*'(!)%tuc%l`tw7 -.+'!".)%^7)%b0$$0!>2#()%e7)%j%s0(,)%o7%tuun7%b8#%'!(.2%.#%f+%!%f520(+22%d8=@%r?;$#"0(,%>0(#"0.3%+(."3%0(.#%.8+% faculty pipeline. -#3,c%"()"d#!#/,c,!*";,#1!'!/"b"=3.-#*'(!)%wc%vt`oo7 -."+5$3)% 7)%j%^!"!(.#)% 7%lmmv7%a44#5(.0(,%9!45$.3%"+2+!"48%;"#654.010.3%!(6%40.!.0#(2c%a"+%.8+"+%,+(6+"%6099+"+(4+2@% 2&&.,&"'!" --(.!*'!/"=3.-#*'(!)%mc%tvw`tqm7 tinker, t., & fearfull, a. 2007. the workplace politics of u.s. accountingc%f!4+)%4$!22%!(6%gender discrimination at &!"548% #$$+,+7%critical perspectives on accounting)%lnc%lt]`l]n7 /7-7% +(252%&5"+!57%tuun7%8iji"`'&t#!'-"t(t.$#*'(!"&.1t#&&,&"rw"c'$$'(!4"x(9"bw"t,1-,!*"()"*(*#$7%8..;chh'''7 4+(2527,#1hd"+22`f+$+!2+h'''h"+$+!2+2h!"4801+2h;#;5$!.0#(hullmlu78.>$7 u.s. department of labor, bureau of labor statistics. 2008. =ct$(%c,!*"t1(a,-*'(!&4"hqqupbu7%8..;chh'''7f$27%,#1h (+'27"+$+!2+h;69h+4#;"#7;697 weisenfeld, l., & robinson-backmon, i. 2007. accounting faculty perceptions regarding diversity issues and academic environment. 2&&.,&"'!" --(.!*'!/"=3.-#*'(!)%ttc%vtm`vvo7 amelia baldwin is the neal pendergraft professor of accounting at the university of arkansas fort smith. she earned her ph.d. in accounting & information systems from virginia tech. her primary research areas are emerging technology impacts on accounting and accounting labor markets. she has published in british accounting review, european accounting review, journal of information systems, international journal of auditing, journal of emerging technologies in accounting, information systems management, international journal of accounting information systems, advances in public interest accounting, and advances in accounting education, among others. carol brown%02%!22#40!.+%6+!(%9#"%;"#,"!>2%0(%*"+,#(%-.!.+%/(01+"20.3e2% #$$+,+%#9%&520(+227%-8+%+!"(+6%8+"%d87=7% in computer science from oregon state. her primary research areas are emerging technologies and accounting labor markets. she has published in journal of information systems, journal of emerging technologies in accounting, r?;+".% -32.+>2% '0.8% a;;$04!.0#(2)% \0(!(40!$% #5(2+$0(,% j% d$!((0(,)% ^!(!,+>+(.% a44#5(.0(,)% o#5"(!$% #9% accountancy, accounting education, journal of education for business, advances in accounting education, and intelligent systems in accounting, finance & management, among others. 2010, vol. 1, no. 1, 114-132 baldwin & brown advances in business research 2010 volume 1.pdf 53 advances in business research !"#$%$&' ()' *!+)&$%,!' "$-' *!"+(' ()' .%/"/(!#0' 12!' 3456"#&"7!'899#)"+2' ()' :(#"(!&%+' management brian huffman, university of wisconsin river falls !"#$%""&'%"!()"&*'%&+,-#$*)%+&./&0 (*12&34*$"5&6(,478',.*.#(#)/9:#;:7#-8*1)&%<%$)"=&.,):&8,"#)#<%&*$+&$%;*)#<%>&& black swans cannot be predicted although they look predictable in retrospect. this paper focuses on the negative black swans, the disasters. since disasters cannot be predicted the ability to quickly recognize and react to them is the key. this paper recommends the processural strategic paradigm as the correct approach to strategic management #$&):%&?*1%&,?&+#"*")%'">&38%1#@1*((/a&#)&#"&'%1,--%$+%+&):*)&),8&-*$*;%-%$)&#-8',<%&):%#'&*.#(#)/&),&'%1,;$#b%&*$+& '%*1)& ),&+#"*")%'"&./&8(*/#$;&4*';*-%"&+%"#;$%+& ),& #$1,'8,'*)%&4:*)& #"& (%*'$%+&<#*&1,-8%)#)#<%& #$)%((#;%$1%&6cd=>& the wargames represent situations that could, but not necessarily will, happen; they are not intended to be accurate ?,'%1*")">&e:#"&'%1,--%$+*)#,$&#"&1*((%+&):%&0cd9f*';*-%&g88',*1:>5&& 12!';"(<#!')='.%/"/(!#/'"$-'(2!'3)##!+('899#)"+2'()':(#"(!&%+'>"$"&!7!$( just as money is the root of all evil, risk is the root of all irony. for example, credit default swaps, designed !"#$%&'$"#()*)+"(,'#$-)$%" .$/" !"-"0!(, " ." .$"1!#2%3)"4,-,'(-2")5) $/",$-#25"'!22-0)$%"67(#)'.+"899:;<"=!#$" (#!,5>" .$"?.-# !,"@'.!!2"!a"b&)(,$))3"c!!*"!,"%$'()(!,"/-*(,d"#$'!//$,%$%"-",$1"#()*"/-,-d$/$, "0-#-%(d/" $/$#d(,d"(," .$"'!/02$e"$2$' #('"0!1$#" #-%(,d"$,f(#!,/$, "67!'."g"h&,#$& .$#+"899i;<"?."0-#-%(d/j"k.$"!,$" pioneered by enron…a corporation that was bankrupt almost before that book hit the bookstores. when most people think of risk management they think of insuring against foreseeable risks like auto accidents !#"4#$<"k.()" .(,*(,d"(,) (22)"-"a-2)$")$,)$"!a")$'&#( 5l"1$"-#$",! "-c2$" !"(,)&#$"-d-(,) " .$"#$-2"%()-) $#)"6 .$"!,$)" ."'!&2%"%$) #!5"&);"c$'-&)$"1$"1(22",$f$#")$$" .$/"'!/(,d<"m".!) "!a"-& .!#)+"(,'2&%(,d" .()"!,$"67&aa/-,+"899n;+" -d#$$" ."#$-2"%()-) $#)"-#$")(/025"&,0#$%(' -c2$<"o!#"$e-/02$+"p$"q$&)"6irrs;"#$'-22)".!1"@.$223)"tu,( $%"v2-,,(,d" machinery” was dead wrong precisely at the three points in time when the oil company faced disaster. p()-) $#)"(," .()"'!, $e "-#$"$w&(f-2$, " !" .$",$d(f$"tb2-'*"@1-,)x"%$)'#(c$%"(,"k-2$c"6899s;<"b2-'*"@1-,)" -#$"%$4,$%"-)"2!1"0#!c-c(2( 5y.(d."(/0-' "$f$, )" ."-#$"(/0!))(c2$" !"0#$%(' "c$'-&)$" .$5"'!/$"a#!/"!& )(%$" .$" realm of regular expectations. black swans can be both positive and negative (winning the lottery is a positive black @1-,;<"m"0-# ('&2-#25"(,)(%(!&)"'.-#-' $#() ('"!a" .$",$d(f$"b2-'*"@1-,"()"( "1(22")$$/" !".-f$"c$$,"0#$%(' -c2$"(," #$ #!)0$' <"zf$#5"-#/'.-(#"w&-# $#c-'*"t*,!1)x"1.").!&2%".-f$"c$$,"%!,$" !"-f!(%"-"%()-) $#"-a $#" .$"a-' <"" ?."()" .$"'!##$' "-00#!-'." !") #$d('"/-,-d$/$, "d(f$," .$",&#$"!a"b2-'*"@1-,)j"[-,"%$#"7$(\%$,"6899];" %$)'#(c$)" .#$$"'!/0$ (,d")'.!!2)"!a" .!&d. "(,") #$d('"/-,-d$/$, >" .$"#(!,-2() +"$f!2& (!,-#5+"-,%"0#!'$))&#-2" paradigms. the rationalist paradigm is incompatible with the nature of negative black swans because it attempts to “predict and control” the future. this paradigm assumes a stabile business environment that no longer exists. both the evolutionary and processural paradigms reject the belief that managers can improve their corporation’s chances of survival by predicting the future and then crafting the right strategy to meet it. the evolutionary paradigm is completely pessimistic in regard to management; it not only denies management’s ability to forecast disasters, but even recommends that they do not attempt any centralized reaction to them once they happen. this paradigm suggests that strategies must be left to evolve by themselves as businesses adapt to their environment; strategies are not to be developed by top management, but evolve as many employees at various levels muddle through. the processural paradigm is slightly less pessimistic; while it agrees that the right strategy cannot be developed before ( "()",$$%$%+"( ",$f$# .$2$))"$/0.-)(^$)" ."'$, #-225_%(#$' $%"6 !0"/-,-d$/$, ;" -' ('-2"/!f$)"'-,"c$"$aa$' (f$"(," handling disasters as long as the decision makers are engage in ongoing perception, thinking, and action. van der heijden recommends “scenario planning” (a balanced approach to strategic management compatible with -22" .#$$")'.!!2)"!a" .!&d. ;"-)" .$"c$) "1-5" !"/-,-d$") #$d5<"`,"'!, #-) +" .$"a`y1-#d-/$"-00#!-'."#$'!//$,%$%" here focuses exclusively on the processural paradigm. only that paradigm strikes the proper balance between what can and cannot be done. it recognizes that managers can recognize and react to disasters, but cannot predict them. that paradigm emphasizes the importance of focusing management’s attention on negative black swans because c&)(,$))"#$)&2 )"1(22"c$"%$ $#/(,$%"-2/!) "$e'2&)(f$25"c5".!1" .$"c&)(,$))"#$)0!,%)" !" .$/<"k-2$c"6899s;".-//$#)" this point too; he notes, for example, that half of the returns in the u.s. stock market over the last 50 years can be explained by only the 10 most extreme days! 2010, vol. 1, no. 1, 53-61 huffman 54 advances in business research since disasters cannot be predicted, businesses will either survive or fail not on how they plan and act, but on .!1" .$5" #$'!d,(^$"-,%" #$-' <"k.$"a`y?-#d-/$"-00#!-'." !"c$"%$)'#(c$%"-,%" #$'!//$,%$%".$#$"1-)"%$)(d,$%" !".$20" !0"%$'()(!,"/-*$#)>"i;"#$'!d,(^$"%()-) $#)"$-#25+"8;"a!#/&2$" .$"'!##$' "#$-' (!,+"-,%"b;"(/02$/$, " ." #$-' "1.(2$" .$#$" ()") (22" (/$<"k.$",$e " 1!")$' (!,)"1(22"/-*$" .$"'-)$"a!#" .$"a`y?-#d-/$"-00#!-'."c5"d(f(,d" more details about why disasters cannot be predicted and about the resulting need to be able to recognize and react !" .$/"w&('*25<"ma $#" .+" .$"a`y?-#d-/$"-00#!-'."1(22"c$"%$)'#(c$%"c5"2!!*(,d""1-#d-/(,d"(,"d$,$#-2+" .$" 1!"'!/0!,$, "0-# )"!a"a`y?-#d-/(,d"6'!/0$ ( (f$"(, $22(d$,'$"-,%"1-#d-/(,d;+"-,%"4,-225".!1" .$"a`y?-#d-/$" approach compares and contrasts with scenario planning. ?#!-%+(%$&'(2!'@<(<#!'a'62b';)c)-b'3"$'d"(' !"/('62!$'%('3)<$(/e ?.$,"?(,) !,"a.&#'.(22"1-)" -)*$%" !",-/$"!,$"!a" .$"w&-2( ($)" -"0!2( ('(-,"/&) "0!))$))+" .$" #$02($%+" tk.$" ability to foretell what is going to happen tomorrow, next week, next month, and next year and to have the ability afterwards to explain why it didn’t happen.” ?-2 !," 6ir:c;",! $)" ." .$"d#$"w&-2( 5"d&#&"?<"z%1-#%)"p$/(,d"1-)"'!,f(,'$%" ." .$"/!) " (/0!# -, " .(,d)"6(,'2&%(,d" .$"a& &#$;"-#$"&,*,!1,"-,%"&,*,!1-c2$<"?.$,"-"c&)(,$))"/-,-d$#"1!&2%"-)*".(/".!1"2!,d"( " /(d. " -*$"a!#"m/$#('-,)" !"''." .$"d-0-,$)$+"p$/(,d"1!&2%"6#.$#"(/0($, 25;"#$025+"tp!"5!&" .(,*" .$"d-0-,$)$" -#$") -,%(,d") (22jx" v$!02$"-#$"!a $,")&#0#()$%" !"%()'!f$#" ."p$/(,d")-1" .$"0#(/-#5"d!-2"!a"c&)(,$))"-)"/$#$")&#f(f-2<"k.$"w&-2( 5" guru who was endless optimistically about our ability to produce world-class products and about the worker’s desire to do a good job, nevertheless pessimistically though that survival was a lofty enough goal for business. he was clearly well aware of disaster’s potential. there is no doubt that many incorrectly believe the future of a particular business or even the entire economy '-,"c$"0#$%(' $%"1( .")&a4'($, "-''&#-'5" !"/!#$"!#"2$))"d&-#-, $$"c&)(,$))")&''$))<"b-&/!.2"6899:;"!aa$#)"-"c!!*" a&22"!a"$'!,!/('"f-#(-c2$)"1.('."6-''!#%(,d" !".(/;"t'-,+" (a"#$-%"'!##$' 25+"0#!f(%$" (/$25"(,)(d. )"!,"1.$#$" .$" $'!,!/5"()".$-%$%ex"[-&d.-,"g"[-&d.-,"6899:;+"%$)0( $")!/$"%-#*"2-,d&-d$"!,"0&#$"#()*+",$f$# .$2$))") $" ." the objective of risk management is “to guarantee that the organization is not prevented from achieving its other objectives by the losses that might arise out of pure risk.” if risk management could really guarantee anything, then 1."$e02-(,)" .$"bv"%()-) $#"(," .$"q&2aj we do use forecasting methods to predict a lot of things such as the demand for products in retail, or the weather at an airline. these predictions work fairly well as long as conditions do not change. that is, they work well only in the short run. these predictions are not much more than extrapolations of short-term trends. we can predict the number of gallons of milk that we will sell next week because we will probably have roughly the same number of customers -,%" .$(#"c&5(,d".-c( )"0#!c-c25"1(22",! "'.-,d$" ."w&('*25<"` "1!&2%"c$")(225" !"0#!\$' "/(2*"%$/-,%"!& "-"%$'-%$" )(,'$"-,5",&/c$#"!a"%()-) $#)"'!&2%"/-*$",!,)$,)$"!a" ."a!#$'-) >"!&#" !1,"'!&2%"2!)$"0!0&2(!,"%&$" !"-"a-' !#5" closing, the percentage of children in the population could change, etc. disasters can’t be extrapolated since they don’t happen on any regular basis…there is nothing to extrapolate. furthermore, business disasters invariably involve human interactions which do not conform to a deterministic t0.5)(')" 0-#-%(d/<x" m,%" 4,-225+" $f$," (a" .$" 0.5)(')" 0-#-%(d/" %(%" -0025+" -" /!%$2" ." )&a4'($, 25" '-0 &#$%" -22" .$" (, $#-' (!,)" (," c&)(,$))" -,%" $'!,!/(')" 6.&/-," -,%" ! .$#1()$;" 1!&2%" c$" )!" '!/02$e" ." ( " 1!&2%" %$a5" mathematical tractability. the physics paradigm refers to the deterministic approach to prediction that works in physics problems. it is possible to accurately predict the future position, velocity, and acceleration of an object using newton’s laws of motion, but it is impossible to predict the actions of humans in the market. many authors contend that it was economists’ pursuit of the high degree of forecast reliability they saw in hard sciences like physics that temped them to apply the physics paradigm to the world of business and economics. but wishing economics was a hard science %(%,3 "/-*$"( "!,$l"o#($%#('."m&d&) "f!,"7-5$*"/-%$" .()"0!(, "f$#5"'2$-#"(,".()")0$$'."-''$0 (,d" .$"4#) "f!c$2" prize in economics in 1974. human interactions caused the bp well blowout in the gulf. human interactions caused the stock market to plummet on october 19, 1987. economists have used the physics paradigm to describe human interaction in aggregate just as physicists use it to describe the motion of atomic particles in aggregate. the problem is that humans do whatever they please while atomic particles always follow the rules. statistical distributions may be useful to explain motion in a physics problem, but they are useless to explain human interaction. if the sum of human interactions that causes stock market movements were really normally distributed 6-)".-%"0#$f(!&)25"c$$,"-))&/$%;+" .$," .") !'*"/-#*$ "%#!0"(,"ir:s"6-"_"8s") -,%-#%"%$f((!,"/!f$/$, ;"1!&2%" be expected only once in 10160 days. since the universe itself is only about 5 trillion days old (5 times 1012"%-5);+" 2010, vol. 1, no. 1, 53-61 huffman 55 advances in business research .$#$"-#$",!"1!#%)"-%$w&$" !"%$)'#(c$".!1"&,2(*$25" ."%#!0"1!&2%".-f$"c$$,"6d-'*1$# ."-,%"g&c(,) $(,+"irrc; still, the optimist might say that prediction errors are due to overly simplistic assumptions such as assuming that stock market movements are normally distributed. he or she might say that the fault isn’t the physics paradigm per se, but the simplifying assumptions or lack of detail in the prediction models. that might be true, but adding complexity !"$'!,!/('"/!%$2)"w&('*25"0&).$)" .$/" !"(, #-' -c(2( 5<"o!#"$e-/02$+"g-/!"6899r;"%$)'#(c$)".!1"'!/02$e( 5"(," a very simple but certainly deterministic system, bak’s sandpile, yields intractability once there are more than just a few grains of sand. the “sandpile effect” states that there is no way to determine whether a single grain of sand added to a sandpile will trigger an avalanche or have no apparent effect whatsoever. thus prediction methods cannot even distinguish c$ 1$$," 1!"0!2-#"!00!)( $"$f$, )<"@-,%0(2$"'!/02$e( 5"w&('*25"d$ )" !" .$"0!(, " ."t,! .(,d" (," .$".() !#5"!a" physics or mathematics could tell you what was going to happen next.” since nobody would seriously argue that human interactions are more deterministic than the motion of grains of sand in the sandpile the conclusion is simple enough. business disasters cannot be predicted, period. '*!+)&$%,%$&'"'.%/"/(!#'"$-'@)#7<f"(%$&'(2!'3)##!+('*!"+(%)$' @(,'$"%()-) $#"'-,,! "c$"0#$%(' $%+"( "()"(/0!# -, " ."c&)(,$))$)"w&('*25"#$'!d,(^$"-,%"#$-' " !" .$/<"g$'!d,( (!," guides action. one is to “feed a cold and starve a fever” so if the diagnosis is a cold then the prescription is feeding. b& " #$'!d,( (!," '-," c$" %(a4'&2 " c$'-&)$" '!/02$ $25" %(aa$#$, " %()-) $#)" '-," .-f$" .$" )-/$" )5/0 !/)e .$" )-/$" t0#$)$, (,d" 0#!c2$/x" 6 .$" (,( (-2" %$4,( (!," !a" -," &,a!2%(,d" %()-) $#;<" o!#" $e-/02$+" )$f$#-2" '!/02$ $25" %(aa$#$, " %()-) $#)"/(d. "c$"%$4,$%"-)" t#-0(%25" a-22(,d" )-2$)<x"k.$"-' &-2"%()-) $#+" -)"/(d. " 2$#"c$"%()'!f$#"1!&2%"/!#$" -''&#$25"c$"%$4,$%"-)"t .$"-##(f-2"!a"-") #!,d",$1"'!/0$ ( !#x+"t .$"(, #!%&' (!,"!a"-",$1"0#!%&' x+"t-")2(0"(," 0#!%&' "w&-2( 5x+"$ '< incorrect recognition leads to incorrect reaction; therefore it is vitally important to get recognition right. business /&) "2$-#," !"#$'!d,(^$"%()-) $#)<"h$-#,(,d" -*$)"02-'$"(,"-"t2$-#,(,d"2!!0x"6%$)'#(c$%"c5"[-,"%$#"7$(\%$,+"899];<" k.$"2!!0"c$d(,)"1( ."$e0$#($,'$+"1.('."()"a!22!1$%"c5"#$i$' (!,"6(,"1.('."/$, -2"/!%$2)"/-5"'.-,d$;+"1.('."()" followed by the formation of theories which are tested by new experiences…and the loop continues for another cycle. k!"2$-#," !"#$'!d,(^$"-,%"#$-' " !"%()-) $#"#$w&(#$)"2$-#,(,d"a#!/"%()-) $#)<"`," .()"'-)$" .$"$e0$#($,'$"" .$" beginning of each learning loop is a disaster which may be real, simulated, or vicarious. real experience comes from having “been there and done that.” simulated experience comes from having been involved in simulations such -)")'$,-#(!"02-,,(,d"!#"1-#d-/$)"6 .$"$e0$#($,'$"#$'!//$,%$%".$#$;<"[('-#(!&)"$e0$#($,'$"'!/$)"a#!/".-f(,d" -c)!#c$%"-,! .$#3)"$e0$#($,'$"6c5"#$-%(,d"-"#$0!# "!#") &%5(,d".() !#5;<"" 7-51-#%" 6irrs;" )-(%" ."!,$"!a" .$"*$5)" !"a.&#'.(223)" 2$-%$#).(0"1-)".()" t.() !#('-2" (/-d(,(!,<x"k." ()+" a.&#'.(22"-21-5)"*,$1"1." !"%!"%&#(,d"??``"c$'-&)$".$".-%"0#$f(!&)"#$-2"-,%"0#$f(!&)"f('-#(!&)"$e0$#($,'$" with nearly every type of problem he faced. he knew what would work because he knew what had worked. he had previous real experience from having served in government at the highest levels including a stint as first lord of the admiralty in wwi; this is the sort of extremely costly-to-obtain experience that very few people have, and cannot 0#-' ('-225"c$"0#!f(%$%"c5" #-(,$#)<"a.&#'.(22".-%"0#$f(!&)"f('-#(!&)"$e0$#($,'$"a#!/".()"$e $,)(f$") &%5"!a".() !#5<"" `,"a-' +"(a"a.&#'.(22",! "c$$,")&'."-"d#$") $)/-,+".$"1!&2%".-f$"c$$,"#$/$/c$#$%"-)"!,$"!a" .$"1!#2%3)"d#$$) " .() !#(-,)"6.()"ir]b"f!c$2"v#(^$"(,"h( $#&#$"()"-" $) -/$, " !" ."a-' ;<"" those who lack an historical imagination will have trouble both in recognizing a disaster and reacting to it. v#$'. $#"6899r;"%$/!,) #$)" .$"(,'!##$' "#$-' (!,)"!a" .!)$"2-'*(,d".() !#('-2"(/-d(,(!,"(,"-,"$e$#'()$"(,"1.('." he offers his students a deal with the devil in which they receive a perfect prediction of the news one day in advance. k.$") &%$, "(," .()"$e$#'()$"%!$),3 ".-f$" !"1!##5"-c!& "0#!0$#25"#$'!d,(^(,d" .$"%()-) $#l".$y).$",$$%"!,25"'!/$"&0" with the right reaction. all that prechter’s devil demands in return is that any reaction the student takes on the ill-gotten news must #$/-(," (," 02-'$" a!#" \&) " !,$"%-5<"k.()" ()" '2$-#25" -" f$#5"d$,$#!&)"!aa$#<"ma $#" -22+"a.&#'.(22"1-)",$f$#" d(f$," .$" news before it happened, had to properly recognize disasters himself, had to devise and execute a reaction, and his #$-' (!,)"'$# -(,25"2!'*$%".(/"(, !"/&'."/!#$" .-,"8n_.!&#"'!//( /$, )<"p$)0( $" .$)$"%()-%f-, -d$)+"a.&#'.(22" succeeded while the students failed miserably. b&)(,$))"%$'()(!,"/-*$#)"-#$"d$,$#-225",! "-)"0#$0-#$%"-)"a.&#'.(22"1-)" !"%$-2"1( ."%()-) $#)<"k.$5"-#$"&,2(*$25" !".-f$".-%"$( .$#" .$"#$-2"!#" .$"f('-#(!&)"$e0$#($,'$"1( ."%()-) $#" ."a.&#'.(22".-%<"@(,'$"%()-) $#)"-#$"&,'!//!,+" it is unlikely that business people would have learned from their own real experience with a wwi when faced with a wwii. since most business people are not business historians it is also unlikely that they would have read enough history to be able to recall an analogous situation to the disaster they are presently battling. 2010, vol. 1, no. 1, 53-61 huffman 56 advances in business research since business decision makers will probably not have the previous real or vicarious experience to recognize and react to a disaster, it is important that they be given simulated experiences. while these simulated experiences will help them recognize and form a reaction to a disaster, there is still no guarantee that they will actually react. that fact is considered next. failure to react people do not always react even when they know they must. a graphic example of a failure to react can be found in night, elie wiesel’s account of his life as a prisoner in auschwitz and buchenwald concentration camps (wiesel, irs8;<"?($)$23)") !#5"c$d(,)"1( ."-"'2$-#"1-#,(,d"%$2(f$#$%"c5"-"a!#$(d,"d$1+"=!().$" .$"b$-%2$<"=!().$"2(f$%"(," wiesel’s village until he and all other foreign jews had been rounded up by the hungarian police. these foreign jews were taken to poland where the gestapo had them dig their own graves before machine gunning them all. moishe was left for dead, but miraculously survived and returned to wiesel’s village around the end of 1942. he told everyone of the horror he had survived thus warning them of their impending doom. despite the fact that the villagers hated the nazis and expected the worst from them, they nevertheless “not only #$a&)$%" !"c$2($f$".()"6=!().$3);" -2$)+" .$5"#$a&)$%" !"2() $,<x"@!/$"$f$," -'*$%".(/")-5(,d" .".$"1-)" $22(,d"-"2($" in search of sympathy. in the end most of the villagers died horribly in concentration camps when they had until the )0#(,d"!a"irnn"6/!#$" .-,"-"5$-#;" !")-f$" .$/)$2f$)<"m,%"-)"?($)$2".(/)$2a",! $%+"t`," .!)$"%-5)"( "1-)") (22"0!))(c2$" !"c&5"$/(d#(!,"'$# (4'$)" !"v-2$) (,$<x"zf$,"/!#$"(,'#$%(c2$>"=!().$".(/)$2a"-00-#$, 25"#$/-(,$%"(," .$"f(22-d$" too! while moishe’s ‘tales’ might have been too unbelievable for the villagers to process, what could explain his own a-(2&#$" !"#$-' j `,"2$"899n" .$"u<@<"7!&)$"!a"g$0#$)$, (f$)"b-,*(,d"a!//( $$"/$ " !"%()'&))" .$"#$)&2 )"!a"c!!**$$0(,d" 0#!c2$/)""o#$%%($"=-'"-,%"o-,,($"=-$<"a"@vmf"8"6,!,0-# ()-,"-,%"&,$%( $%;"f(%$!"'!,4#/)" ."'!//( $$" members chose not only to ignore the explicit warnings of improprieties related to them by armando falcon, director !a" .$"ja4'$"!a" .$"o$%$#-2"7!&)(,d"z, $#0#()$"jf$#)(d. "6 .$"q!f$#,/$, 3)"!1,"#$d&2!#;"c& "-' &-225" -'*$%" and chastised him a!#"#$0!# (,d" .$"c-%",$1)"6a"@vmf"8+"899n;<"j,$"/(d. "-#d&$" ." .$"a!//( $$")(/025"%(%,3 " believe mr. falcon, but what possible reason would he have had to lie especially when his report made his own -d$,'5"2!!*"(,'!/0$ $, j"m,%" .()"()",! "-,"()!2$%"'-)$l"1."$e02-(,)"a!,d#$))3"2-'*"!a"#$-' (!," !"-"/5#(-%"!a" 1$22_*,!1" ('*(,d" (/$"c!/c)>"@!'(-2"@$'&#( 5+"=$%('-#$+"=$%('-(%+"$ '<j all these stories involve a failure to react. this isn’t the sort of panic-driven paralysis one sees in “no pull” parachuting accidents. in those instances sky divers fail to pull their ripcords because they are temporarily unable to #$-' " !" .$"i!!%"!a"&,,&#-2") (/&2(!,"i!1(,d"(, !" .$(#"c#-(,)"6h$-'."g"q#(a4 .+"899:;<"k.")!# "!a"0-#-25)()" doesn’t last more than a few minutes, but the type of failure to react discussed here plays out over much longer periods of time. ?-'*"6ir:]-;"!c)$#f$%" .()"2!,d$#_#&,,(,d"a-(2&#$" !"#$-' "(,""2$-) " 1!" .(#%)"!a" .$"%$'()(!,"/-*$#)""@.$22<" k.$)$"/-,-d$#)"a-(2$%" !" -*$"-00#!0#($"/$-)&#$)" !"#$%&'$"#$4,$#5"-,%"%() #(c& (!,"'-0-'( 5"1.$," .$5"1$#$"1$22" -1-#$" ."'#&%$"!(2")&002($)"1!&2%"c$"a-22(,d<"m")$'!,%"0-0$#"c5"?-'*"6ir:]c;"/$, (!,$%"a!&#"! .$#"/-\!#"'-)$)"(," ! .$#"c&)(,$))$)",! (,d" ."(,"$-'."(,) -,'$" .$"/-,-d$#)"t(,-00#!0#($"c$.-f(!#"6 .$(#"a-(2&#$" !"#$-' ;"$e $,%$%" over several months or even years...” p$"q$&)"6irrs;"'!,'2&%$%" ." .$)$"a-(2&#$)"#$)&2 $%"a#!/"t-"'#()()"!a"0$#'$0 (!,"#.$#" .-,"a#!/"0!!#") #$d('" reasoning.” de geus outlined the work of neurobiologist david ingvar on this issue. ingvar found that humans are '!,) -, 25"-,%")&c'!,)'(!&)25"/-*(,d"/-,5"-2 $#,(f$"02-,)"a!#" .$"a& &#$<"b(22(!,)"!a"0($'$)"!a"%-"i5"c5" .$" typical business person every day so the subconscious mind must be selective, grabbing only those bits that will be useful for the alternative futures it is planning. de geus describe one example of this process which concerned a traveling business person who intends to take a car ferry from england to france. this person’s subconscious mind locks onto a radio news report about a strike at the ferry port that others would have ignored. the traveler’s subconscious immediately begins to build new plans for the future. it builds not one plan but several alternatives that provide “memories of the future” (possible courses of -' (!," ."/-5"2$#"c$"&)$a&2" !" .$"'!,)'(!&)"/(,%"(,"%$-2(,d"1( ." .$") #(*$;<"" de geus noted that companies are not hard-wired to produce these memories of the future. therefore, shell developed scenario planning to do for the organization what the subconscious mind does for the individual…explore alternative futures in order to build decision makers memories of the future. but scenario planning has failed to take decisions makers all the way around the learning loop. the decision makers had the simulated experiences and may .-f$"#$i$' $%"&0!," .$/" !")!/$"$e $, +"c& " .$(#"$e() (,d"/$, -2"/!%$2)"%(%",! "'.-,d$<"k.&)" .$5".-%",! "2$-#,$%" to form new theories and test their implications. m2 .!&d."?-'*"6ir:]c;"1-)"!0 (/() ('"-c!& " .$"0!1$#"!a")'$,-#(!"02-,,(,d" !"'.-,d$"-"/-,-d$#3)"/$, -2"/!%$2+" 2010, vol. 1, no. 1, 53-61 huffman 57 advances in business research $f$,".$"!aa$#$%")!/$".() !#('-2"$e-/02$)" ."'-22$%" ."!0 (/()/"(, !"w&$) (!,<"`,"!,$"$)0$'(-225"1!##()!/$"'-)$" the majority of shell executives still considered the supply of oil to be fairly reliable despite having been subjected to a scenario in which it was practically proven that the supplies would not remain reliable. what hope is there for 2$-#,(,d"(,")'$,-#(!"02-,,(,d"1.$,"/-,5")'$,-#(!)"1(22")$$/"-"2! "2$))"(,$f( -c2$j the wargame approach recommended here would seem to have more power to affect mental models and therefore get managers to recognize and react to disasters. it will be seen that the decision makers being trained would not be given an inevitability in a prepared scenario, but would have to discover it themselves in the wargame. people are more likely to believe something they discover for themselves; for example, it is one thing to be told that tic-tac-toe ()"&,1(,,-c2$"-d-(,) "-,"!00!,$, "1.!"*,!1)" .$" #('*+"c& "( "()"w&( $"-,! .$#" .(,d" !"%()'!f$#" ."(,$f( -c(2( 5"c5" playing the game. 12!'3456"#&"7!'899#)"+2' k.$"a`y1-#d-/$" #-(,(,d"#$'!//$,%$%".$#$"'!,)() )"!a" .#$$") $0)>"o(#) +"'!/0$ ( (f$"(, $22(d$,'$"6a`;"()"&)$%" !"4,%"!& "-22" ."'-,"$ .('-225"-,%"2$d-225"c$"%()'!f$#$%"-c!& " .$"'!/0-,53)"'!/0$ ( (f$")( &(!,<"@$'!,%+")$f$#-2" future scenarios are developed which incorporate what the company knows about itself, and what it learns about its '!/0$ ( (f$")( &(!,"a#!/"a`<"k.$)$")'$,-#(!)"-#$"2(*$" .!)$"&)$%"(,"-(#'#-a ")(/&2!#)l" .$5"%$)'#(c$")( &(!,)" ." could happen but are not intended to be accurate predictions of the future. we do not worry about whether or not one )'$,-#(!"()"/!#$"2(*$25" .-,"-,! .$#" !"-' &-225".-00$,<"k.(#%+"/-,-d$#)"6$)0$'(-225" !0"/-,-d$/$, ;"0#-' ('$" .$(#" %$'()(!,"/-*(,d"(,"1-#d-/$)"c-)$%"!," .$)$")'$,-#(!)<"v2-5(,d" .$)$"1-#d-/$)"0#$0-#$)"/-,-d$/$, " !"w&('*25" recognize disaster, formulate the correct reaction, and react. 6"#&"7%$&'%$'g!$!#"f business wargaming generally involves a role-playing simulation in which teams representing various business stakeholders compete over a series of rounds in which they execute moves and countermoves within the context of -"d(f$,")'$,-#(!<"k.()"0-0$#"1(22",! "d$ "(, !" .$"/$'.-,(')"!a"c&)(,$))"1-#d-/(,d+"c& "h&# ^"6899b;"0#!f(%$)"-," excellent description of that level of detail. ?)!,"6899:;"%$)'#(c$)" .#$$"&)$)"a!#"c&)(,$))"1-#d-/(,d<"` "'-,"c$"&)$%" !"&,%$#) -,%"'.-,d$)"(," .$"c&)(,$))" $,f(#!,/$, +" !" a-'(2( $" ) #$d('"02-,,(,d+"-,%" !"4,%"0#$f(!&)25"&,%$ $' $%" .#$)<"f!,$"!a" .$)$" .#$$"&)$)" $e-' 25"4 " .$"0&#0!)$".$#$+"c& " .$"4,-2"!,$"'!/$)"'2!)$) <"̀ ,"a`y1-#d-/(,d" .$"0&#0!)$"()",! "\&) " !"4,%"0#$f(!&)25" &,%$ $' $%"6-,%" .$#$a!#$"-2#$-%5"$e() (,d;" .#$)+"c& " !" #-(,"/-,-d$#)" !"4,%"c! ."0#$)$, "-,%"a& &#$" .#$)"-,%" !" #$-' " !" .$/<"k.$"%() (,' (!,"()")(d,(4'-, l"4#) +"%$ $' (!,"1( .!& "#$-' (!,"(),3 "$,!&d."-,%")$'!,%"a`y1-#d-/(,d"()" valuable even if no threats currently exist since threats are like busses…there is always another one coming. kurtz, also, describes the uses of business wargaming, but he does it in terms of “hard” and “soft” deliverables. this author is skeptical the ability to achieve the hard deliverables which represent an immediately obvious bang for .$"c&'*<"7-#%"%$2(f$#-c2$)"'-,"c$"%!'&/$, $%""( )"6 .$"1-#d-/$3);"'!,'2&)(!,"(,"-,"k-a $#"-' (!,"#$0!# 3<"k.$)$"-#$" .(,d)")&'."-)" .$"(%$, (4'(!,"!a"$f$, )"!#" #$,%)" ."'!&2%"!''&#+" .$"0#!c-c(2( 5"!a" .$(#"!''&##$,'$+"-,%")0$'(4'" steps that could be taken to deal with them. a`y1-#d-/$)"-#$"$e'2&)(f$25"!#($, $%" !1-#%)"h&# ^3)")!a "%$2(f$#-c2$)<"k.$"(, $, (!,"()"6-)".$"0& )"( ;" !"'.-,d$" .$"0-# ('(0-, )3".$-# )"-,%"/(,%)<"j .$#"-& .!#)+")&'."-)"a.&))(2"6899s;+"/$, (!,"-,! .$#")!a "%$2(f$#-c2$>"-"'!//!," 2-,d&-d$<"k.$"a`y1-#d-/$"-00#!-'."()")&''$))a&2"(a"/-,-d$#)"c$'!/$"-c2$" !"%$ $' "-,%"#$-' " !"%()-) $#)+"-,%"0-# " of reacting to the disaster will necessarily entail having the common language to be able to describe it to others. 3)79!(%(%h!'4$(!ff%&!$+!'%$'6"#&"7%$& ?(*(0$%(-" %$4,$)" a!/0$ ( (f$" `, $22(d$,'$" c#!-%25" -)" .$" -' (!," !a" %$4,(,d+" d.$#(,d+" -,-25^(,d+" -,%" distributing intelligence about products, customers, competitors and any aspect of the environment needed to )&00!# " /-,-d$#)" (," /-*(,d" ) #$d('" %$'()(!,)" a!#" -," !#d-,(^(!,<" `," a`y?-#d-/(,d+" .$" 0&#0!)$" !a" a`" ()" !" 0#!f(%$"(,a!#/(!,"a!#"%$)(d,(,d"02-&)(c2$"a& &#$")'$,-#(!)"a!#"1-#d-/(,d<"`,"! .$#"1!#%)+"a`"()"c$(,d",! "&)$%" !" support strategic decisions directly, but to support them indirectly by building scenarios that can be used to develop managers’ historical imaginations. @a`v"6 .$"@!'($ 5"!a"a!/0$ ( (f$"`, $22(d$,'$"v#!a$))(!,-2);"%$4,$)"a`"-)" .$"2$d-2"-,%"$ .('-2"'!22$' (!,"-,%" analysis of information regarding the capabilities, vulnerabilities, and intentions of business competitors. most %$4,( (!,)"!a"a`"'!,)() "!a"$2$/$, )" a#!/" .$)$" 1!"%$4,( (!,)<"k.$"%$4,( (!,)") #$))"-,-25)()" 61.('."/-*$)"a`" %(aa$#$, "a#!/" .$"/$#$"%())$/(,(!,"!a"(,a!#/(!,"%!,$"c5"2(c#-#($)"-,%"(,a!#/(!,"'$, $#);<"k.$"%$4,( (!,)"-2)!" 2010, vol. 1, no. 1, 53-61 huffman 58 advances in business research stress that the purpose of the analysis is to provide a perspective aimed at keeping the business competitive. both d!-2)"-#$"(,"*$$0(,d"1( ." .$"1-5"a`"()"&)$%".$#$< ` "()"d$,$#-225"#$'!//$,%$%" ."a`" -)*").!&2%"c$"c&(2 "-#!&,%"v!# $#3)"]"o!#'$)"/!%$2"-,%"d&(%$%"c5"-")0$'(4'" w&$) (!,<"k.$"]"o!#'$)"=!%$2"0#!f(%$)"-"d$,$#('"'.$'*2() "!a"$,f(#!,/$, -2"a-' !#)"a!#" .$"a`"0#!a$))(!,-2" !"#$)$-#'.>" competitors, potential new entrants, suppliers, customers, and substitute products. k.$"0&#0!)$"!a" .$")0$'(4'"w&$) (!,"()" !"a!'&)" .$"(,f$) (d(!,<"?.(2$" .$"a`"2( $#&#$"-,%" .$"a`"$e0$# " .()" -& .!#"(, $#f($1$%"c! ."(,)() " ."a`"/&) "c$"a!'&)$%"c5"-"w&$) (!,+"c! ."-2)!") #$))" ." .$"w&$) (!,").!&2%",! " c$")&'." ."-,)1$#(,d"( "()" -, -/!&, " !"d(f(,d"-"#$'!//$,%(!,"a!#"-' (!,<"b! ."a`"-,%"/(2( -#5"0#!a$))(!,-2)" -d#$$" ." .!)$"1.!"d.$#"-,%"-,-25^$"(, $22(d$,'$").!&2%",! "#$'!//$,%"-' (!,)<"k.$"a$$2(,d"()" ."1.$,"a`" professionals intend to recommend a course of action, they will be blinded to any new intelligence that argues against .$(#"#$'!//$,%(!,"!,'$" .$5".-f$"(%$, (4$%"( <"m)"d$aa)!,"6irr:;",! $)+" .()"%!$)",! "/$-," .!)$"(,"(, $22(d$,'$" should operate ‘in the blind’ in regards to future operations, but it does mean that they should never be given the task of providing support for a particular action. a`"0#-' ( (!,$#)"-,%"/(2( -#5"(, $22(d$,'$"0$!02$"c! ."$/0.-)(^$"'#$(f( 5+"!a $,"#$a$##(,d" !" .$(#"1!#*"-)"-," -# <"g-/!"6899r;",! $)" ."@05/-) $#"m.-#!,"o-#*-).+"!,$"!a" .$"a$1".$-%)"!a"`)#-$2("/(2( -#5"(, $22(d$,'$" !")$#f$" his full term, succeeded because of his creative use of information that would not normally be regarded of military (/0!# -,'$<"o-#*-)." #($%" !"2!!*""0#!c2$/)"a#!/" .$"c! ." .$"(,)(%$"-,%" .$"!& )(%$"-,%" !"'!,)(%$#"w&-2( (f$"-)" 1$22"-)"w&-, ( (f$"%-<"7$" .!&d. " ."!2%"-00#!-'.$)" !"(, $22(d$,'$"1.('."'!,)() $%"0#(/-#(25"!a"w&-, ( (f$"%-" f($1$%"a#!/" .$"!& )(%$"6)$22( $"0.! !)+"qfv+"$ '<;+"'-&)$%"-,-25) )" !"a!'&)" !!"/&'."!,"1." .$5"'!&2%"/$-)&#$" and not enough on what they could not. farkash found value in unusual bits of information such as whether or not people were out shopping in beirut; he reasoned that if his enemy was shopping that was a pretty good indication that their economy was doing well, that they were fairly happy, and thus less likely to launch an unprovoked attack. a`" 0#-' ( (!,$#)" -2)!" $/0.-)(^$" ." .$(#" %()'(02(,$" ()" -," $ .('-2" -,%" 2$d-2" c&)(,$))" 0#-' ('$" 6(," '!, #-) " !" (,%&) #(-2"$)0(!,-d$;<"k.$(#"a!%$"!a"z .(')"#$w&(#$)"'!/02(-,'$"1( ."-22"-002('-c2$"2-1)+"%!/$) ('"-,%"(, $#,(!,-2l" ( "-2)!"#$w&(#$)" .$"-''&#$"%()'2!)&#$"!a"-22"#$2$f-, "(,a!#/(!,+"(,'2&%(,d"!,$3)"(%$, ( 5"-,%"!#d-,(^(!,+"0#(!#" !" all interviews. a`3)"&)$"!a"2$d-2"/$-,)"-,%"0&c2('-225"-f-(2-c2$"(,a!#/(!,"%!$)",! "0#$f$, "( "a#!/"0#!%&'(,d"-,-25)()" ."!,$" might think could only be obtained by espionage. most managers would be shocked to learn what a clever competitor '-,"4,%"!& "-c!& " .$/"a#!/" .$(#"0&c2('-225_-f-(2-c2$"42(,d)"1( ."d!f$#,/$, -2"-d$,'($)<"d!.,)!,"689i9;"0#!f(%$)" a cookbook formula for legally spying on a competitor’s private aircraft with the help of government agencies and 0#(f$"%-"4#/)<"k.()" -& .!#"f$#(4$%" d!.,)!,3)" a!#/&2-" (,"!c -(,(,d" -(2" ,&/c$#)+" )$#(-2" ,&/c$#)+" -,%"/!%$2" ,-/$)"!a"ib"0#(f$"-(#'#-a "!1,$%"c5"b="a!#0!#(!,<"k.$"-& .!#"-2)!"'!,4#/$%" ."( "()"0!))(c2$" !"2() $,"(,"!," -(#" #-a4'"'!, #!2"'$, $#)"-,%"&)$"! .$#"2$d-2")!&#'$)" !"4,%" .$"'&##$, "2!'(!,+"-2 ( &%$+"-,%")0$$%"!a"-(#'#-a "&,%$#" -(#" #-a4'"'!, #!2<"" k.$"-& .!#"(, $#f($1$%"-"a!#/$#"$/02!5$$"!a"-"o!# &,$"i99"4#/"1.!".-%"c$$,"( )"!,25"a&22_ (/$"a`"$/02!5$$"a!#" many years, and was surprised at the level of detailed knowledge that employee had legally collected concerning his '!/0-,53)"'!/0$ ( !#)<"k.$"$/02!5$$"#$2$%".!1".()"'!/0-,5".-%"'!/02$ $25"4d&#$%"!& " .$"'!/0$ ( (f$") #$d5" of a particular competitor, and how it had been possible to accurately predict how it would behave under nearly any hypothetical circumstance. `,"a`y?-#d-/(,d+"a`"()"&)$%" !"%$)(d,"1-#d-/$)"1.('."-#$" !"c$"&)$%" !" #-(," !0"%$'()(!,"/-*$#)"\&) "-(#02-,$" )(/&2!#)"-#$"&)$%" !" #-(,"0(2! )<"k#-(,(,d"!,"1-#d-/$)"-,%"-(#'#-a ")(/&2!#)"c! ."#$w&(#$" .$")(/&2!#"( )$2a" 6 .$"0.5)('-2"/!%$2"!a" .$"$,f(#!,/$, ;"-,%"-"0-# ('&2-#"/())(!,y)'$,-#(!" !"c$"$e02!#$%<"a`"()"&)$%" !"%$)(d,"c! ." the competitive environment and scenarios to be used in wargames. the scenario-based planning used at shell also uses information about the environment to develop scenarios, but it is unclear if the information is gathered by /$ .!%)" ."-/!&, " !"a`<"j .$#"%(aa$#$,'$)"-,%")(/(2-#( ($)"c$ 1$$,"a`y?-#d-/(,d"-,%")'$,-#(!_c-)$%"02-,,(,d" are discussed in the next two sections. :%7%f"#%(%!/'c!(i!!$'3456"#&"7%$&'"$-':+!$"#%)aj"/!-'?f"$$%$& ?-#d-/(,d"(,"a`y?-#d-/(,d"()")(/(2-#"(,")!/$"#$)0$' )" !" .$"1!#*"%!,$"(,")'$,-#(!_c-)$%"02-,,(,d""@.$22" j(2"-)"%$)'#(c$%"(,"[-,"%$#"7$(\%$,"6899];<"@.$22"02-,,$#)".-%"(,( (-225".!0$%" !"%$f$2!0")'$,-#(!)" ."-''&#$25" predicted the future. they soon discovered that predicting the future wasn’t possible, but found that there was ) (22"f-2&$"(," .$")'$,-#(!)"-)"t) !#($)" !"$e02!#$<x"a`y?-#d-/(,d"2(*$1()$"#$\$' )" .$",! (!," ." .$"a& &#$"'-,"c$" 0#$%(' $%"-,%"-2)!"4,%)"f-2&$"(,")'$,-#(!)"-)") !#($)" !"$e02!#$<"""" @.$22"a!&,%" ." .$")'$,-#(!)"1$#$".$20(,d" .$/" !>"%$f$2!0"0#!\$' )"-,%"/-*$"%$'()(!,)" ."1$#$"/!#$"#!c&) " &,%$#"-"f-#($ 5"!a"0!))(c2$"a& &#$)+"%!"/!#$" .!#!&d." .(,*(,d"-c!& " .$"a& &#$"6)0$'(4'-225"-c!& "1."'-&)$)"!(2" 2010, vol. 1, no. 1, 53-61 huffman 59 advances in business research 0#('$)" !"'.-,d$;+"-,%"/!#$"w&('*25"#$'!d,(^$"-,%"#$-' " !"1."1-)".-00$,(,d<"k.$"4,-2"c$,$4 "6w&('*"#$'!d,( (!," -,%"#$-' (!,;"()" .$"!,$") #$))$%"(,"a`y1-#d-/(,d<"" scenarios in scenario-based planning and wargaming both combine the predictable or “predetermined elements” and unpredictable “uncertainties.” in both cases all scenarios contain the same predetermined elements while the unpredictable uncertainties vary from one scenario to the next. using the aircraft simulator analogy, the simulator itself represents the predetermined elements; it is constructed and programmed to react in exactly the same way the real aircraft would to any control action taken by the pilot or any environmental condition provided by the scenario. the simulator itself doesn’t change from one training scenario to the next. again, using the aircraft simulator analogy, an uncertainty would be something unpredictable like an engine a-(2&#$"!," -*$!aa<"z-'.")'$,-#(!"1!&2%"0#$)$, "( )"!1,"&,(w&$"&,'$# -(, ($)+"-,%").!&2%"#$0#$)$, ")!/$ .(,d" ." could conceivably happen. however, prediction isn’t the goal and just as the training scenarios in aircraft simulators are unlikely to exactly match the actual disaster a pilot eventually faces, so to scenarios in both wargames and scenario-based planning are unlikely to exactly match anything that actually ends up happening. that said, if the )'$,-#(!"()")&a4'($, 25"1$22"%!,$+"%$-2(,d"1( ."( "1(22"c$"&)$a&2"(,"c&(2%(,d" .$"/-,-d$#3)".() !#('-2"(/-d(,(!,"-,%" his or her ability to recognize and handle real world disasters. o!#" $e-/02$+" %$)0( $" .$" a-' " ."u@"m(#1-5)"a-0 -(,"@&22$,c$#d$#"/&) " .-f$".-%" -" d#$" %$-2" !a" 0#$f(!&)" actual and simulated learning prior to the disaster he faced during flight 1549, he had never experienced the exact '(#'&/) -,'$)".$"a-'$%"!," ."i(d. <"@ (22".()" #-(,(,d"-,%"$e0$#($,'$".-%"a!#/$%".()".() !#('-2"(/-d(,(!,"-22!1(,d" .(/" !"w&('*25"#$'!d,(^$" .$"%()-) $#".$"a-'$%"-,%"$e$'& $" .$"0#!0$#"#$-' (!,< @$f$#-2"-& .!#)".-f$"$e0#$))$%"!0(,(!,)"-c!& " .$"w&-2( ($)")'$,-#(!)").!&2%"-,%").!&2%",! ".-f$<"k.$)$"w&-2( ($)" 1!&2%"c$"%$)(#$%"(,"$( .$#")'$,-#(!_c-)$%"02-,,(,d"!#"1-#d-/(,d<""o!#"$e-/02$+" .$")'$,-#(!)"/&) > l" a-&)$"-"c#!-%"-,%"(, $,)(f$"%$c$"(,f!2f(,d" $'.,('-2"())&$)"-,%") #$d('"#$0$#'&))(!,)< l" b$"#$2$f-, " !" .$"'!/0-,5"(,"w&$) (!,< l" provoke surprise and even emotion responses … they should be disturbing. l" not be sold as exact predictions. l" be done with top operating managers as participants. .%//%7%f"#%(%!/'j!(i!!$'3456"#&"7%$&'"$-':+!$"#%)aj"/!-'?f"$$%$& despite the similarities just described, the wargaming recommended here is fundamentally different from shell’s scenario-based planning in that in the shell-model the scenario is presented in its entirety before decision makers do .$(#" #-(,(,d"1.(2$" .$")'$,-#(!"()"!,25")2!125"#$f$-2$%"(,"a`y?-#d-/(,d<"k.$"@.$22"-00#!-'."()"$w&(f-2$, " !" $22(,d" the test pilot that the upcoming exercise will involve a dead-stick landing. in that case operating managers train by making strategies, developing plans, or devising projects with the complete scenario in mind. `,"a`y1-#d-/(,d"%$'()(!,"/-*$#)"/&) ") #&dd2$" !"#$'!d,(^$" .$")( &(!,"1.(2$" .$5")(/&2 -,$!&)25" $/0 " !" make decisions. since they do not know the nature of the scenario, it will be much harder for them to make strategies, develop plans, or devise projects. this difference in the way the scenario is revealed implies a difference in the role of those facilitating the )(/&2(!,<"?-#d-/(,d"()"-,-2!d!&)" !" .$"1!#*"%!,$"c5" .$" $) "0(2! )"(,"4,%(,d" .$"#(d. "1-5" !"i5<"k.$")(/&2!#" operator subjects the test pilot to the scenario, but does not give hints as to what is happening and certainly does not 0#$)&/$" !"d(f$".(, )"-)" !".!1" !"%$-2"1( ."( <"o2(d. ")(/&2!#"!0$#!#)"-,%"1-#d-/$"a-'(2( !#)"-#$",! "$w&(00$%" to teach test pilots and decision makers respectively how to recognize and react to problems. the test pilot will #$'!d,(^$"-"0#!c2$/"c5" .$"(,) #&/$, "#$-%(,d)+" .$"a$$2"!a" .$"-(#'#-a +".()y.$#".() !#('-2"(/-d(,(!,+"$ '<"h(*$1()$" .$"%$'()(!,"/-*$#"1(22"#$'!d,(^$" .$"0#!c2$/"c5" .$"(,a!#/(!,"i!1(,d"a#!/" .$")(/&2(!,"-,%".()y.$#".() !#('-2" imagination. in contrast, those facilitating the scenario-based planning begin by telling the decision makers all about the scenario. since decision makers often have the ego of test pilots, they will most likely have trouble accepting the scenario’s inevitabilities if they are simply given to them. in order to believe in them they must discover them for .$/)$2f$)<"k.$"/-(,"%(aa$#$,'$"c$ 1$$," .$")'$,-#(!"02-,,(,d""@.$22"-,%" .$"a`y?-#d-/$"-00#!-'."()" ."(," .$" wargame approach players must discover inevitabilities for themselves. m(#'#-a ")(/&2!#)"'-,"c$"&)$%" !"$e02!#$"-")'$,-#(!"a!#" .$"4#) " (/$"-,%" !"%()'!f$#"-"1-5" !"%$-2"1( ."( +"!#" .$5" '-,"c$"&)$%" !" $-'."/$ .!%)"a!#"i5(,d"-,%"%$-2(,d"1( .")'$,-#(!)" ."! .$#)".-f$"%()'!f$#$%<"b! .")'$,-#(!_c-)$" 02-,,(,d"-,%"1-#d-/(,d"-#$"a!#"$e02!#(,d")'$,-#(!)"a!#" .$"4#) " (/$l"c! ."-#$"a!#"t $) "0(2! )<x"b& " .")-(%+" .$" 50$" of the exploration is very different. in the apollo 13 disaster, an earth-based simulator was used to discover the correct way to boot up systems in 2010, vol. 1, no. 1, 53-61 huffman 60 advances in business research the real command module out in space. the procedure developed by trial-and-error in safety on earth was radioed to .$"-' &-2")0-'$'#-a "1.$#$" .$"-) #!,-& )".-%" !"d$ "( "#(d. " .$"4#) " (/$<"k.$" 50$"!a"$e02!#(!,"%!,$"c5" .$"$-# ._ c-)$%" $) "0(2! )"(," ."%()-) $#"()")(/(2-#" !"$e02!#(!,"%!,$"(,")'$,-#(!"02-,,(,d>"-"'!/02$ $%")'$,-#(!"()"0#$)$, $%" to business managers who then work out a course of action for dealing with it. `," '!, #-) +"a`y1-#d-/(,d" ()"/!#$" 2(*$" .$"/!#$" .$' ('" 50$" !a" $e02!#(!," ."1-)" %!,$" c5" .$"m0!22!" ib" -) #!,-& )"!& "(,")0-'$<"k.$5".-%" !"4,%"-"1-5" !".-,%2$" .$")0-'$'#-a "-a $#" .$"$e02!)(!,<"k.$5"1$#$,3 ")&#$"$e-' 25" 1." .$5"1$#$"%$-2(,d"1( ."1.$," .$5"1$#$"%$f$2!0(,d" .$(#" .$!#($)"-,%"#$-' (,d"!," .$"i5<"k.$5".-%" !"2$-#,"-)" the events happened. @'$,-#(!_c-)$%"02-,,(,d".-)" ( )"c$,$4 )<"@.$22" $e$'& (f$)" 2$-#,$%" !"'#-a " )!2& (!,)" -(2!#_/-%$" !".-,%2$"-22" aspects of the scenarios they are exploring. the problem is that the executives are not trained to recognize a growing disaster or to react to it as it plays out. also, as mentioned earlier, this may explain the fact that many shell executives did not have their mental models changed; they didn’t believe the inevitabilities imbedded in the scenario because they hadn’t discovered them for themselves. shell executives under their scenario-based planning are like football coaches who have watched game videos of .$(#",$e "'!/0$ ( !#<"̀ ," .$"-' &-2"d-/$" .$"'!-'.$)"1(22"c$"w&('*$#" .-," .$5"1!&2%".-f$"c$$," !"#$'!d,(^$"1." .$" '!/0$ ( !#"()" #5(,d" !"%!"6-))&/(,d" .$"'!/0$ ( !#"%!$),3 "/-*$"-,5"a&,%-/$, -2") #$d('"'.-,d$);+"-,%"'-,"'-22" .$"02-5" .$5"%$)(d,$%" !"%$-2"1( ."( <"p$q$&)"6ir::;")-(%" ." .$"@.$22"/-,-d$#)" #-(,$%"(,")'$,-#(!_c-)$%"02-,,(,d" 1$#$"(,"a-' "w&('*$#" .-," .$(#"&, #-(,$%"'!/0$ ( !#)""#$'!d,(^(,d"-"0-# ('&2-#")( &(!,+"c& " .$"-' &-2")( &(!,)" they recognized might have been atypically easy to recognize because they happened to resemble the scenarios the /-,-d$#)".-%" #-(,$%"!,l" .$"/-,-d$#)"/(d. ",! ".-f$"c$$,"-c2$" !"#$'!d,(^$"!#"#$-' " !"-"%()-) $#"(a"( ".-%"c$$,"w&( $" a bit different from the scenarios. m2 .!&d." .$" 0#!0$#" -002('(!," !a" '!/0$ ( (f$" (, $22(d$,'$" (," a`y?-#d-/(,d" ()" (, $,%$%" !" 5($2%" )'$,-#(!)" which are plausible and therefore should have some chance of resembling what actually happens, there is always the 0!))(c(2( 5" ."-"0#!c2$/"1(22"'!/$"'!/02$ $25"!& "!a"2$a "4$2%<"@&#$25" .!)$"1.!"-#$" #-(,$%"c5"a`y?-#d-/(,d" !" formulate a response to an unknown situation would have an advantage over those who are used to having the entire problem laid out for them. a!#0!#$"/-,-d$#)"1.!"02-5"1-#d-/$)").!&2%"c$"w&('*$#" !"0#!0$#25"#$'!d,(^$"-"%()-) $#"-)" ( "&,a!2%)"-,%" better at inventing reactions under pressure. in short, wargaming would have all of the advantages of scenario-based training and leave the manager in a better position to deal with unforeseeable real world disasters. *k@k*k;3k: baumohl, b. 2008. 12!'/!+#!(/')='!+)$)7%+'%$-%+"()#/0'l%--!$'+f<!/'()'=<(<#!'!+)$)7%+'(#!$-/'"$-'%$h!/(7!$(' opportunities<"u00$#"@-%%2$"g(f$#+"fd<>"v$-#)!,"z%&'(!,+"`,'<" a.&))(2+"=<"899s<"h$-#,(,d"a-) $#" .-," .$"'!/0$ ( (!,>"?-#"d-/$)"d(f$" .$"-%f-, -d$<"journal of business strategy, 8:>"bs_nn<"" a"@vmf"8<"899n<"u<@<"l)</!'k$(!#9#%/!/':<c+)77%((!!'2!"#%$&'#!&"#-%$&'"ff!&!-'c))mm!!9%$&'%##!&<f"#%(%!/'"(' freddie mac and fannie mae<"mn!& &c$"[(%$!o<"u,( $%"@ $)>"a"@vmf"8<"g$ #($f$%"!,"o$c#&-#5"ic+"89i9"a#!/" . 0>yy111<5!& &c$<'!/y1'.jfpq=qkq'@(sg)ga$&#$p#$2$% degeus, a. 1997. 12!'f%h%$&'+)79"$b0'l"c%(/'=)#'/<#h%h"f'%$'"'(<#c<f!$('c</%$!//'!$h%#)$7!$(<"b!) !,>"7-#f-#%" business school press. degeus, a. 1988. planning as learning. l"#h"#-'j</%$!//'*!h%!i+"n>"s9_sn< hayward, s. 1997. 32<#+2%ff' )$' f!"-!#/2%90' kn!+<(%h!' /<++!//' %$' (2!' ="+!' )=' "-h!#/%(b<" g!'*2(,+" am>" v#(/-" publishing. hirsch, p. 2008. o$("$&f%$&'+#!-%('-!="<f('/i"9/<"g$ #($f$%"!,"d&,$"n+"89i9"a#!/". 0>yy111<5!& &c$<'!/y"1'. jfpp%z`cv*qrh:ga$&#$p#$2$% hoch, s., & kunreuther, h. 2001. 62"#()$')$'7"m%$&'-!+%/%)$/<"f$1"n!#*>"d!.,"?(2$5"g"@!,)+"`,'< huffman, b. 2004. why environmental scanning works except when you need it. j</%$!//'l)#%,)$/+"ns>"br_n:< 2010, vol. 1, no. 1, 53-61 huffman 61 advances in business research jackwerth, j., & rubinstin, m. 1996. recovering probability distributions from option prices. journal of finance, ]i>"icii_icbi< jeffson, j. 1998. p9!#"(%)$'7"#m!(a&"#-!$0'of(#"' %$(!ff%&!$+!' %&$)#!-<"b!22(,d"m(#" o!#'$"b-)$>" d!(, "=(2( -#5" `, $22(d$,'$"a!22$d$< johnson, d. 2010. tracking private aircraft<"g$ #($f$%"!,"=-5"8s+"89i9" a#!/". 0>yy111<-&#!#-1%'<'!/yc2!dy" tracking-private-aircraft-aurora-wdc-director-research-derek-johnson h&# ^+"d<"899b<"b&)(,$))"1-#d-/(,d>"@(/&2(!,)"d&(%$"'#&'(-2") #$d5"%$'()(!,)<":(#"(!&b'q' !"-!#/2%9+"bi>"i8_8i< h$-'.+"d<+"g"q#(a4 .+"g<"899:<"g$) #(' (!,)"(,"1!#*(,d"/$/!#5"'-0-'( 5"%&#(,d"0-#-'.& (,d>"m"0!))(c2$"'-&)$"!a"k,!" pull’ fatalities. applied cognitive psychology+"88>"ins_i]s< prechter, r. 2009. 1)i"#-'"'$!i'/+%!$+!')='/)+%"f'9#!-%+(%)$0'*)c!#('?#!+2(!#'"('(2!' )$-)$':+2))f')='k+)$)7%+/' r:)+%)$)7%+/'@%f7':!#%!/'s)f<7!'tu<"u,( $%"@ $)>"@!'(!,!/(')"`,) ( & $<" ramo, j. 2009. the age of the unthinkable<"f$1"n!#*>"h( 2$+"b#!1,"g"a!/0-,5< taleb, n. 2007. 12!'cf"+m'/i"$0'12!'%79"+(')='(2!'2%&2fb'%79#)c"cf!<"f$1"n!#*>"g-,%!/"7!&)$< van der heijden, k. 2005. the art of strategic conversation<"?$) "@&))$e+"z,d2-,%>"d!.,"?(2$5"g"@!,)+"h %< vaughan, e., & vaughan, t. 2008. fundamentals of risk and insurance<"7!c!*$,>"d!.,"?(2$5"g"@!,)+"`,'<" ?-'*+"v<"ir:]<""@'$,-#(!)>"u,'.-# $%"1$#)"-.$-%<"l"#h"#-'j</%$!//'*!h%!i+"cb>"sb_:r< ?-'*+"v<"ir:]<"@'$,-#(!)>"@.!! (,d" .$"#-0(%)<"l"#h"#-'j</%$!//'*!h%!i+"cb>"ibr_i:]< walton, m. 1986. 12!'.!7%$&'7"$"&!7!$('7!(2)-<"f$1"n!#*>"k.$"v& ,-/"v&c2().(,d"q#!&0< ?)!,+"b<"899:<"k.$"c&)(,$))"c 2$4$2%<"34p'4$/%&2(+"rr>"ni_nn<" wiesel, e. 1972. ;%&2(<"f$1"n!#*>"7(22"g"?-,d< j#%"$'l<==7"$' is a professor of management and chair of the department of management and marketing at the university of wisconsin river falls. he received his ph.d. in management for the university of minnesota. his research interests include computer simulation, strategy, and organizational behavior. he has published in informs transactions on education, business horizons, review of business research, and others. 2010, vol. 1, no. 1, 53-61 huffman advances in business research 2011 volume 2.pdf chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 innovation and recoverable slack interaction: how does it affect firm performance? lisa lucarelli chandler, quinnipiac university elizabeth scott, eastern connecticut state university james stodder, rensselaer polytechnic institute thomas tworoger, nova southeastern university this paper investigates the impact of the interaction effect between a slack variable and innovation on financial performance. specifically, the interaction effect between recoverable slack resources and an innovation input on financial performance were analyzed using financial data of u.s firms in aerospace and computer science industries. an extensive review of literature on slack, innovation, and environmental shock develops the conceptual model. this study examines the relationship as representative of a specific bundle of resources governed by the strategic direction of management. the results suggest evidence of a positive and significant interaction effect under certain conditions. innovation has been accepted as a necessary and important resource for firm sustainability and growth (bourgois, 1981; nohria and gulati, 1996; zahra and covin, 1993) and has been an important topic of interest in organizational theory. slack is another construct that has garnered the attention of organizational theorists (bourgeois, 1981; cyert and march, 1963; tan and peng, 2003; voss et al., 2008). the relationship of excess resources above that necessary to produce a product or service has been argued to both contribute and hinder innovation in firms. it has been theorized that above optimal levels of slack are counterproductive and wasteful while below optimal levels of slack inhibit innovation (geiger and cashen, 2002; nohria and gulati, 1996). empirical research has clarified the relationship to be curvilinear. there is also established literature that discusses the relationship of firm-specific factors which would include the slack-innovation relationship to the sustained generation of above normal levels of return or rents (barney, 1991; wernerfelt, 1984). as firms increasingly face greater pressures to be both more innovative and to manage resources most efficiently, a possible dilemma arises. if firms maintain lean levels of slack resources, innovation may be inhibited. decisions for resource allocation are made at a specific point in time, but the environment is not static. is there justification then for keeping excess above minimum levels of slack resources and if so, what type of slack resources? this presses the question. what happens to this relationship when an event takes place that is outside of the industry norms, such as during an environmental shock? this study suggests that the slack-innovation relationship represents a specific bundle of resources governed by the strategic direction of management, and as such, testing of this relationship can give further insight into slack innovation allocation strategies (sirmon et al., 2007). another purpose of this research was to provide greater insight into what sirmon et al., (2007) described as the “black-box”. the results of this research provide a model for practitioners making strategic decisions grounded in the resource-based view of the firm. the resource-based view of the firm holds that heterogeneous firmspecific bundles of resources and capabilities provide sources for sustained competitive advantage (barney, 2001, 1991; conner, 1991; dierickx et al., 1989; sirmon et al., 2007). resources and capabilities within the firm can be categorized into tangible assets, such as physical and financial capital resources and intangible assets, such as human and organizational capital resources (barney, 1991). generally, resources are considered available assets that can be traded in the market place; alternatively capabilities are considered firm-specific attributes. amit and schoemaker state: “capabilities are based on developing, carrying and exchanging information through the firm’s human capital” (1993: 36). as noted in the literature, it takes more than just the presence of resources to provide a firm with a distinct competitive advantage (prahalad and hamel, 1990; priem and butler, 2001; sirmon et al., 2007; van de ven, 1986). it is the identification and bundling of specific resources in combination with the effective and efficient use of capabilities that can ultimately create a sustainable competitive advantage (amit and schoemaker, 1 chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 2 1993; pralahad and hamel, 1990). sirmon et al., state, “bundling refers to the processes (i.e., stabilizing, enriching, and pioneering) used to integrate resources to form capabilities” (2007: 273). competitive firms design organizational systems to operate under industry specific environmental pressures (anand and ward, 2004; sharfman, 1985). optimal slack resources would then be expected to be maintained to create environments that support and protect innovation during environmental turbulence. ruiz-moreno et al., state, “the key issue is not whether slack is good or bad for innovation, but that the managers, depending whether or not they have slack, organized and managed differently the resources that the organization can bundle and apply to the maintenance and development of competitive advantage” (2006: 520). following the resource-based tradition, the allocation of slack resources designed to create an optimal amount of innovation meet the empirical construct of a valuable resource (amit and schoemaker, 1993; barney, 1991). there has been recent interest in the dynamic capability framework as a way to explain why some firms are better able than others at bundling resources and capabilities to address rapidly changing environments. (danneels, 2008; teece et al., 1997). teece et al., (1997) argue competitive advantage can be attained through the exploitation of existing internal and external firmspecific capabilities and developing additional ones (prahalad and hamel, 1990). danneel classified “competence to build new competencies” as the first form of dynamic capabilities. the study also identified specific organizational antecedents that had an effect on firm’s dynamic capabilities including organizational slack. the findings suggested surplus resources be set aside to “foster second-order competences, which will allow the firm to engage in exploration to avert the threat of environmental shifts or to take advantage of new opportunities (2008, p.536). therefore, this study contributes to the existing research in the following ways: firstly, it offers a model to test the recoverable slack-innovation interaction effect on financial performance. secondly, two industries with different investment horizons will be examined for industry effects on the recoverable slack-innovation relationship’s effect on financial performance. in the sections that follow, a literature review summarizing the relationship between the multiple dimensions of slack and innovation are discussed, followed by associated hypotheses. it considers various aspects contributing to the measures used in our research for slack resources, innovation, and environmental shock. the methodology, analysis, and implications of the study follow. in the final section, a discussion of the findings and the potential for future research is offered. literature review environmental shock this study proposes that subtle yet important differences exist between the concept of environmental shock and the notion of environmental pressure (anand and ward, 2004; dess and beard, 1984; meyer, 1982; porter, 1980). figure i provides a graphical comparison between the two concepts. chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 3 environmental pressure has been discussed in the literature from both economic and organizational theory perspectives (dess and beard, 1984). there is agreement in the literature on the constructs of the environment reflected by sharfman’s definition of environmental pressure, “environmental pressure is defined as the product of the dynamism in the environment and the firm’s resource relationships and dependencies” (1988: 33). research indicates firms are less able to cope with unpredictable demands and rapid changes in technologies than with predictable normal business pressures (anderson and tushman, 2001). firms in dynamic industry environments can create coping strategies with the allocation of resources allowing for greater flexibility as a response to discontinuous change. one cause for a lack of capability to respond has been related to inertia resulting in an inability to adapt. cheng and kesner (1997) argued that firms will target slack resources as a response to environmental pressure depending on the firm’s strategic focus. the response will either be one of applying greater available slack as an external response or one of applying adjustments to recoverable slack to gain greater internal efficiencies. anand and ward (2004) argued firm structure should be designed to fit the dynamics within an industry. a review of the literature has shown a need to more clearly define the terms “environmental pressure” and “environmental shock” to gain greater understanding of the effect of organizational strategies, structures, or outcomes (dess and rasheed, 1991). environmental pressure stems from changes to market factors resulting in a change to economic equilibria. an example has been noted in the technological change that took place in the photographic manufacturing industry with the introduction of consumer digital imaging systems (christensen, 2002). although the probability for the introduction of a new competitive technology was known by the firms, they did not react with successful business strategies in the short-term in part because of inertia or internal political concerns. as stated previously, the nuances between environmental pressure and shock are subtle, yet important for clarity in environmental research findings. sirmon et al., refer to the occurrence of an environmental shock as, “the introduction of discontinuous innovation or a major political catastrophe as in the event of 9/11” (2007: 287). however, there is no commonly referred to definition for environmental shock. it has been argued in the literature that organizations can allocate resources and design organizational forms to be responsive to dynamic environments (anand and ward, 2004; barney, 1991). thus, the introduction of discontinuous (radical) innovation may cause an increase of dynamism or reduce munificence, while not necessarily cause an environmental shock (sirmon et al., 2007). in meyer’s (1982) study of hospital administrative reactions to policy changes, he distinguished normal business surprises from environmental shocks as: “environmental events that were transient perturbations whose occurrences are difficult to foresee and whose impacts on organizations are disruptive and potentially inimical” (1982: 515). criteria for an environmental shock would comprise events that are difficult or impossible to foresee within the timeframe of a business quarter and out of the firm’s internal control. for example, it could be reasonably argued that deregulation or privatization are political processes that give some advance notification of potential change, and therefore provide some measure of strategic decision making. this paper suggests the basis for environmental shock is one where there is minimal warning for an event that brings about a radical and disruptive change. this study presents a definition that builds upon the work of meyer (1982) and sirmon et al., (2007) using the events of 9/11 as a reference point for analysis. environmental shock is defined as an external event that is large, infrequent, and structural, whose occurrence is difficult or impossible to foresee within the timeframe of a business quarter, out of the firms internal control, and whose impact on organizations is disruptive and potentially inimical. slack resources and innovation the notion of slack resources as having a relationship to innovation has been widely discussed (see bourgeois, 1981, for a review). nohria and gulati offer a definition that presents the common notion of chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 4 slack as excess resources: “the pool of resources in an organization that is in excess above the minimum necessary to produce a given level of output.” (1996: 32). it is from this definition that perceptions of the term, “excess above the minimum”, vary. proponents of slack resources argue that slack is a positive and a significant determinant of performance outcomes as slack provides a cushion that protects the firm from environmental shocks (bourgeois, 1981) as well as acts as a facilitator of creative behavior (bourgeois, 1981; cyert and march, 1963). alternatively, this reserve or cushion has been argued to reflect inefficiencies and waste (nohria and gulati, 1996; sharfman, 1985) as well as poor internal control practices (jensen, 1993). most recently, research indicates the relationship between organizational slack and innovation to be curvilinear. in essence, limiting slack resources may negatively impact firm capabilities to innovate, while an excess over a certain amount may result in inefficiencies (bourgeois, 1981; bourgeois and singh, 1983; cheng and kesner, 1997; geiger and cashen, 2002; nohria and gulati, 1996). most common measures of slack resources are framed as available, potential, and recoverable. available slack. the term “available slack” reflects the readily available (unabsorbed) nature of the resource for use by management. a common example is cash or credit lines (voss et al., 2008). this category of resource holds the greatest level of discretionary use and thus is considered highly accessible in a short time frame. ease of accessibility may act as a buffering mechanism against environmental variability (workflow variability) and function as a catalyst for innovation and strategy formulation (bourgeois, 1981). alternatively, as optimum levels are exceeded, control mechanisms may become lax resulting in inefficiency and waste (jensen, 1993). potential slack. the literature presents an alternative dimension of slack, “potential slack”, which measured the amount of debt available to the firm. the findings are range from a positive linear relationship between potential slack and innovation (geiger and cashen, 2002) to a relationship that does not appear to be direct nor predictive (herold et al., 2006). findings indicate further research is needed to investigate the impact of the different debt structures on r&d intensity as modeled in this study (david et al., 2008). recoverable slack. firms also hold recoverable (absorbed) resources or excess overhead that has been absorbed into the system with the potential to be recovered or redistributed. studies that have examined operational slack have indicated recoverable slack acts very similarly to available slack in relationship to innovation as both a buffering mechanism and catalyst for innovation, and alternatively as a potential for inefficiencies. at optimal levels, it fulfills the purpose of slack which is to absorb irregularities and shocks in the environment (e.g. bourgeois, 1981; cyert and march, 1963; thompson, 1967). proponents of slack argue for high levels of uncommitted resources while also stating the need for finding the balance between buffering levels that would protect the core with associated costs. as such, prior research suggests recoverable slack and innovation will have a curvilinear relationship (geiger and cashen, 2002; nohria and gulati, 1996; singh, 1986). examples range from additional employees kept on the payroll during slower economic times to additional distribution channels that serve as buffers in dynamic environments. one example of recoverable slack is redundancy. the importance of redundant and diverse systems was evident after the 9/11. organizations that had a physical presence at the world trade center on september 11, 2001 suffered tremendous, immediate and incalculable loss. managers reported after addressing critical concerns for employee their attention needed to focus on restoring capabilities within their departments. those companies maintaining backup systems and shared services with offsite departments were able to respond in innovative ways to meet the needs of the organization more quickly (gallagher, 2001; yossi, 2001). innovation. interestingly, there has not been equal development or agreement for multiple measures of innovation based on specific determinants. the main criterion that differentiates innovation from mere change is the introduction of something new, something rare and unique (gopalakrishnan and damanpour, 1997; nohria and gulati, 1995; schumpeter, 1939). the various dimensions of innovation that contribute to outcomes of the innovation process have been an important focus of the literature on innovation since schumpeter (1939). this research has evolved into a rich area of interdisciplinary study chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 5 resulting in heterogeneity of concepts, yet with no consistent model linking various disciplines. contributing researchers from various disciplines and even within the same discipline conceptualize innovation from different dimensions. to this point, an integrated concept has not been introduced (castellacci et al., 2005; gopalakrishnan and, damanpour, 1997; johannessen et al., 2001). therefore, there is a need to discuss or identify which dimension of innovation is being addressed and at what level of analysis. for example, herold et al., (2006) argued for the use of patent-based statistics as a proxy for innovation. although patent-based activity can be considered an important determinant of innovation, it specifically looks at innovation output. helfat states, “this focus on patents, however, obscures the fact that in many industries, an important part of developmental research in particular entails alterations and enhancements to existing firm assets, production processes, and products.” (1994: 176). thus it is important to address which factor is being examined within the innovation process. alternatively, a variable commonly used to measure innovation, r&d intensity, is a well-respected measure of an innovation input. previous studies have identified r&d intensity as an input to innovation within the innovation process at the firm level (bourgeois and singh, 1983; geiger and cashen, 2002; hitt et al., 1996; hambrick and macmillan, 1985). this paper reflects the spirit of schumpeter’s definition of innovation to include positive outcomes with respect to customers, stakeholders, and the organization with the creation of new products within the firm (geiger and cashen, 2002; rainey, 2005; schumpeter, 1939). as such, innovation was conceptualized in this study as r&d intensity and operationalized as (r&d/sales). this is reflective of the investment the firm makes in research and development as a percent of sales (r&d/sales) (baysinger and hoskisson, 1989; geiger and cashen, 2002; hitt et al., 1996; hambrick and macmillan, 1985). immediately following an environmental shock, firms will seek to deploy both available and recoverable slack resources. under some circumstances, firms with additional cash resources may be able to respond more vigorously than those who have not maintained such available slack resources. at other times, the resources needed will not be available at any price. firms with recoverable slack resources may have the competitive advantage. research analyzing multiple dimensions of slack resources using regression analysis has shown recoverable slack to have the most significant relationship to innovation (geiger and cashen, 2002). therefore, based on the research findings discussed regarding the resourcebased view of the firm, the relationship between recoverable slack and innovation was chosen as the most salient measure to examine the slack-innovation relationship as it relates to firm financial performance. relationship between recoverable slack innovation and financial performance no previously published research studies have examined the recoverable slack-innovation relationship as it relates to firm financial performance. the recoverable slack-innovation relationship is representative of a specific bundle of resources governed by the strategic direction of management (barney, 1991; sirmon et al., 2007). recoverable slack includes excess overhead that has been absorbed, but has the potential to be recovered or redistributed. testing of this relationship can give further insight into what has been termed the “black box” of the resource-based view of the firm (sirmon et al., 2007). it is expected the interaction effect between recoverable slack-and innovation will have a positive influence on financial performance recoverable slack has features that can be categorized as ease of implementation and the time it takes to implement (sharfman et al., 1988; singh, 1986). the identification and bundling of recoverable resources in combination with the effective and efficient use of innovation can ultimately create a sustainable competitive advantage (amit and schoemaker, 1993; pralahad and hamel, 1990). based on research findings discussed regarding the resource-based view of the firm, slack and innovation, the following hypothesis is offered: hypothesis 1: the interaction effect between recoverable slack and innovation will be positively related to firm performance. chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 6 there is an emerging literature addressing the organizational effects from the tragic events of september 11, 2001. findings specifically looking at the aerospace product and parts manufacturing industry showed the industry suffered a significant demand shock (and lee, 2004). gittell et al., (2006) presented a model that clarified the role between relational reserves (people) and financial reserves during a crisis. the study analyzed the effects to organizational resilience in airline industry post 9/11. the authors concluded: “…financial reserves coupled with a strong commitment to employees are pivotal to an organization's ability to cope with environmental jolts” (2006, p.325). hypothesis 2: the interaction effect between recoverable slack and innovation will be positively related to firm performance in the aeronautics industry, but diminish after an environmental shock. according to standard and poor’s industry reports, every product segment in the computer science industry was negatively affected by the events on 9/11 in both business and consumer sectors. although business conditions caused a decline in demand earlier in the year following september 11, 2001, the global economic recession negatively affected world-wide computer sales (bouwman et al, 2003; graham-hackett, 2002; rudy, 2002) hypothesis 3: the interaction effect between recoverable slack and innovation will be positively related to firm performance in the computer science industry, but diminish after an environmental shock. methods the sample was drawn from secondary data from standard and poor’s research insight (compustat® north america) database (davis and duhaime, 1992; venkatraman and ramanujam, 1986). this sample was drawn from the following industry sectors: (33641) aerospace product and parts manufacturing, (334) computer and electronic product manufacturing sectors and (511210) software publishers. the aerospace product and parts manufacturing sector was reported to be directly affected by environmental shock on september 11, 2001 (ito and lee, 2005). in addition, the computer and electronic product manufacturing, and software publishers industry are representative of innovation. firms represent both short and long cycle industries with differing r&d investment horizons. it is also likely these firms would have reported research and development expenditures in the 1999 2005 period. two additional conditions for selection were: the firms providing data must be listed as a united states fortune 1000 company from the years 1999 through 2005, and the firms must report r&d expenditures for all years included in the study. the following assumptions were made to determine appropriate sample size for statistical analysis. an alpha level of .05, a power level of .80, and a medium effect size of .05 was used and predictor variables were set at 15 as a conservative sample size (cohen, 1992; green, 1992; geiger and cashen, 2002). it was determined in that study that a sample size of at least 138 firms would be necessary. in order to capture the effects of environmental shock, the years 1999 through and inclusive of 2005 were captured. dependent variable performance. return on assets (roa) was used as an indicator of firm performance. roa is defined as net income plus interest expense divided by sum of total assets. independent variables innovation. the input to innovation (in) is conceptualized as r&d intensity of the firm and was operationalized using the ratio r&d/sales (zachariadis, 2003; geiger and cashen, 2002; hitt et al., 1991). recoverable slack. it is common in slack-innovation relationship research to use financially derived data to conceptualize slack (herold et al., 2006; geiger and cashen, 2002; bourgeois and singh, 1983; bourgeois, 1981). recoverable (absorbed) slack (rs) captures resources within the firm that can be chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 7 identified as excess costs, but can be utilized to respond in times of financial difficulty or to take advantage of new opportunities (singh, 1986; bourgeois and singh, 1983). recoverable slack has been conceptualized using selling and general administrative expenses divided by sales (sg&a/sales) of the firm (geiger and cashen, 2002; bourgeois and singh, 1983; bromiley, 1991). interaction effect. empirical studies regarding the slack innovation relationship relied upon accounting performance measures to operationalize recoverable slack and innovation (geiger and cashen, 2002; cheng and kesner, 1997; baysinger and hoskisson, 1989; hitt et al., 1996; hambrick and macmillan, 1985). this study used the interaction effect between recoverable slack and innovation as an indicator of a specific bundle of resources governed by the strategic direction of management (sirmon et al., 2007; barney, 1991). also, lin et al., 2006 used an interaction effect to model the relationship between commercial orientation, r&d intensity, and firm performance. the interaction in this paper was calculated as the ratio of sga (selling, general and administrative) to total sales multiplied by the ratio of r&d expense divided by total sales (agresti and finlay, 1986). control variables relying on methods from prior studies, the variables of firm size, risk, product diversification, industry characteristics, and time were included in this study. research has shown a positive relationship between size and r&d spending (baysinger and hoskisson, 1989). as such, firm size would be directly related to innovation. sorenson (2000) suggested that as large firms have the advantage of economies of scale and size, these would act as buffers from short term shocks. one could reasonably argue firm size may have an impact on the slack-innovation relationship. this study measured firm size by using the log of total sales. systematic risk is a common measure to assess firm risk (geiger and cashen, 2002; chatterjee and lubatkin, 1988). information on firm beta was retrieved from the compustat® database. the level of unrelated product diversification has been shown to have a significant and negative relationship to innovation (hoskinsson and hitt, 1988; hitt et al., 1996). product diversification was calculated using an entropy measure that takes into account the number of segments in which a firm operates weighted by sales in each segment (palepu, 1985; hitt et al., 1996; geiger and cashen, 2002). !"#$%&'()*#+#,#-j x in (1/p), where pj represents the percentage of firm sales in segment j and ln (1/p) is the weight for each segment (hitt et al., 1996). firms were divided into computer science and aerospace industries to control for industry characteristics (damanpour and gopalakrishnan, 1998; hitt and ireland, 1985). a time trend variable was included to test for long and short term structural sifts. data and analysis an initial panel data least squares series was conducted to test the significance of the control variables as they related to the innovation recoverable slack relationship. the nature of the data a cross section of firms, each with a few periods worth of observations (years 1999 2005) makes panel estimation the natural technique for estimates (wooldridge, 2002). to capture fixed individual differences for each firm, a fixed-effects or ‘dummy variable’ formalization was used, where the intercept is different for every firm and does not change over time. in addition to the panel data formation, strong evidence of serial correlation and unit roots for many of the variables made it desirable to pursue an approach that takes account of cointegrated series. a vector error correction model (vec) was able to handle most of the panel data. the longer-term trends are accounted for in the error-correction (ec) portion of the equation, showing stable relationships between key variables. in earlier specifications of the vec model shown in table 1, it was noted that constant and residual terms were highly significant in the v portion of the vec, but most other coefficients were not. nonetheless, the r-squared was fairly high, suggesting significant multi-collinearity between these nominally ‘independent’ right-hand-side variables. by eliminating most of the control variables, this problem was mitigated in the specification shown in table 1. that is, of the three control variables, rs was the only one reporting consistently significant coefficients in the v portion of the equation when, as chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 8 in table 1, both aeronautics and computer science industries were included in the dataset. prior research also confirms a lack of demonstrated significance of additional control variables (latham and braun, 2009). table 1 dependent variable change in innovation d(in) (a) 1999-2005 inc. per. = 7 c.s. = 214 obs. = 812 (b) 1999-2005 inc. per. = 7 c.s. = 214 obs. = 812 (c) 1999-2005 inc. per. = 7 c.s. = 214 obs. = 812 cointegrating equation: in(-1) 1,000 1,000 1,000 constant -0. 2063 [-3.427]*** 0.0359 [0.689] -0.1492 [-2.220]** risk(-1) -0.1164 [-3.305]*** -0.0723 [-1.749]* -0.1440 [-3.276]*** size(-1) 0.0769 [4.824]*** 0.0145 [1.549] 0.0643 [3.859]*** rs(-1) -0.3521 [-4.021]*** post01(-1) -0.0149 [-5.162]*** r-squared adjusted r-squared 0.8256 0.7767 0.8537 0.8127 0.8196 0.7693 independent variables: cointegrating equation -0.9167 [-6.371]*** -0.9708 [-6.392]*** -1.0316 [-7.732]*** constant 0.0036 [3.170]*** -0.0012 [-1.414] 0.0034 [3.988]*** d(in(-1)) 0.1818 [2.308]** 0.0535 [0.657] 0.1865 [2.587]*** d(risk(-1)) -0.0677 [-1.301] -0.0820 [-1.456] -0.0472 [-0.948] d(size(-1)) 0.0351 [2.168]** 0.0861 [4.388]*** 0.0258 [1.759] d(rs(-1)) 0.0383 [0.776] d(post01(-1)) -0.0097 [-4.306]*** r-squared adjusted r-squared 0.5279 0.3543 0.4851 0.2958 0.6007 0.4548 log likelihood f-statistic 1849.723 3.0413 akaike aic schwarz sc -4.0166 -2.7491 -3.9298 -2.6624 -4.1866 -2.9249 t-statistics in [ ]; *** -p-val < 0.01, **-p-val < 0.05, * -p-val <0.10. inc. per – included periods, c.s – cross sections, obs. observations chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 9 the wooldridge-wald test on the regressions in table 1 rejects the null of no serial correlation at the 5 percent level. thus serial correlation is likely to be a serious problem. to mitigate this problem, however, in table 1 the authors are using white (1980) period estimators, which arellano (1987) shows to be robust to within-cross-section serial correlation. the analysis will now turn to the “interaction effect” regressions. a single-equation method was used to test the hypotheses. a model of the interaction of residual slack (rs) and innovation (in), and their effect upon return on assets (roa) in the final period was based on the average levels of rs and in over the entire period 1 to 7 years. thus, the authors relied on a simple cross-sectional data set, as this test did not require panel methods. ordinary least squares was sufficient. as the r-squared was little changed by removing the control variables, this invites the option of removing all the control variables other than rs, as was done for each of the regressions below (latham and braun, 2009; geiger and cashen, 2007). hypothesis 1 proposes that the interaction effect between recoverable slack and innovation will be positively related to firm performance. it can be seen that the interaction effect between innovation and recoverable slack has an overall positive effect on financial performance. in a larger sense the interaction is positive, that the effect of the individual terms is positive, and there is just a small corrective for the joint effect (see table 2). by adding the interaction term, the authors transform the combined influence of in and rs from a linear to a non-linear effect which the r-squared statistics in column a of table 2 show to be much more accurate than the other specifications. table 2 dependent variable: return on assets (roa) (a) 2005 inc. per. = 1 c>s> = 136 obs. = 136 (b) 2005 inc. per. = 1 c>s> = 136 obs. = 136 © 2005 inc. per. = 1 c>s> = 136 obs. = 136 (d) 2005 inc. per. = 1 c>s> = 136 obs. = 136 (e) 2005 inc. per. = 1 c>s> = 136 obs. = 136 independent variables: constant 3.5908 [3.054]*** 11.5206 [9.1694]*** 10.2144 [8.8068]*** 6.9575 [8.5618]*** 9.2884 [13.8292]*** in 34.2077 -0.6630 -29.0976 rs 11.5743 [2.3889]*** 14.1850 -[-2.45888]*** -02313 [-1.5773] in*rs -76.3984 [-10.8063]*** -40.9424 [-9.9041]*** r-squared adjusted r-squared 0.546586 0.536281 0.145466 0.132616 0.6622 0.099955 0.017836 0.010667 0.422640 0.418331 log likelihood f-statistic -444.8075 53.04154 -487.9025 11.32021 -490.9253 15.99251 -508.8770 2.487968 -461.2404 98.09081 akaike aic schwarz sc 6.60011 6.68578 7.219154 7.2834404 7.248902 7.291735 7.350748 7.392971 6.812359 6.855192 hypothesis 2 proposes that the interaction effect between recoverable slack and innovation will be positively related to firm performance in the aeronautics industry, but diminish after an environmental shock. the results as shown in table 3 support a positive and significant relationship between the recoverable slack and innovation interaction effect and financial performance. this result is significant even after accounting for the combined effect. the significance of these results is impressive, and the wooldridge-wald test can only reject the null of no serial correlation for the regression in column a at the 15% level. thus, serial correlation is not likely to be a serious problem. hypothesis 3 suggests the interaction effect between recoverable slack and innovation will be positively related to firm performance in the computer science industry, but diminish after an environmental shock. the results as shown in table 3, show that over the long term (i.e., in the ec equation) the interaction effect is positive and significant in aerospace (column a), but not in computer science (column b). chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 10 table 3 dependent variable: change in return on assets (roa) industry (a) 1999-2005 !"#$%&'#$($)$$$*+,+$-$./ obs. = 163 0 (b) 1999-2005 !"#$%&'#$($)$$$*+,+$-$01 obs. = 423 1 cointegrating equation: roa(1) 1.00000 1.00000 constant -12.28649 [-7.2106]*** -34.2151 [-3.8280]*** in(-1) 92.9082 [4.0073]** -26.8449 [-0.4122] rs(-1) 40.3497 [2.5297]*** 92.1327 [-4.0930]*** in(-1)*rs(-1) *-449.9306 [-2.7194]** -24.9587 [-0.7868] @trend 0.3125 [1.8869 0.5878 [2.0920]** r-squared adjusted r-squared 0.574777 0.448971 0.4138 0.2758 independent variables cointegrating equation constant -0.32006 [-6.70922]*** -1.0505 [-3.1852]*** res_roa(-1) -1.19794 [-13.0600]*** -1.3256 [-42.8084]*** d(roa(-1) 0.18376 [1.7922]* 0.5764 [14.0125]*** d(in(-1) 35.54318 [2.51888]*** 100.2749 [0.7509] d(rs(-1)) 21.63838 [2.3769]** 4.9062 [0.0689] d(in(-1)*rs(-1)) -213.33300 [-3.7337]*** -25.5237 [-1.8486]* r-squared adjusted r-squared 0.57799 0.41064 0.624537 0.507933 log likelihood f-statistic -384.4050 3.45382 -1842.699 5.356074 akaike aic 5.29331 9.190066 schwarz sc 6.18538 10.15646 please note that coefficient signs are reversed in the form of the ec equation. thus the original equation behind the ec term shows a coefficient on the interaction term in column a that is positive, significant, and very large. the interaction coefficient is negative in the v part of the regressions, however, and is again quite large and significant in the case of column a. the post 2001 shock effect shows a significantly negative trend in both columns. discussion the implications of this study provide greater insight into conditions under which recoverable slack resources have on organizational functioning (cheng and kesner, 1997). this research provides empirical evidence that recoverable slack and innovation allocation decisions can affect financial performance. these findings indicate specifically in the aeronautics industry investments in this particular bundle of resources can provide a competitive advantage after an environmental shock. the authors presented a model with three hypotheses and conducted an empirical study of u.s. aerospace and computer firms. the testing of the relationship between the recoverable slack, innovation and financial performance presented in this research has given further insight into what has been termed the “black box” of the resource-based view of the firm (sirmon et al., 2007). this model has implications for future research in chandler, scott, stodder, and tworoger advances in business research 2011, vol. 2, no. 1, 1-15 11 the area of the resource-based view by providing an additional measure that can be used to predict the relationship of firm-specific resources to financial performance. the results support a positive and significant relationship between the recoverable slack and innovation interaction effect and financial performance in the long term for aeronautics industry. investments in innovation and recoverable slack in this industry can provide a competitive advantage after an environmental shock. consequently, this analysis will assist managers to make more informed decisions with regard to investments in buffering mechanisms against environmental variability (workflow variability), and the return on investments in innovation. in addition, industries included in this study were both long and short cycle. for example, aerospace firms can have r&d cycles of twenty years while software companies can have short-term r&d requirements of nine months. the recoverable slack-innovation relationship presented in this research model is representative of a specific bundle of resources governed by the strategic direction of management. implicit in the innovation variable used in this study is r&d investment. a consequence of this investment is a contribution to the knowledge-base within the firm that ultimately translates to goodwill (david et al., 2008; helfat, 1994). helfat (1994) suggests r&d’s value is in large part linked to the nature of the cumulative learning that takes place both corporately and individually. management may find decisions to reduce funding in r&d will inadvertently affect the routines that take place in the organization. learning that is disrupted may not be preserved (dosi, 1988; dougherty, 1992; helfat, 1994). as managers in this industry must have long term investment horizons these results have practical implications. the results suggest the aeronautics industry did see a change in the relationship between the interaction effect and financial performance over time. although the industry was severely affected by the events of september 11th , the interaction effect played a positive role in financial performance outcomes in the long term. however, the results are quite different for the computer science industry. the interaction effect between recoverable slack and innovation did not have a significant relationship to financial performance in either the short or long term. the results could be interpreted as a tendency toward greater short-term instability post 2001. there may have been other factors. the industry was feeling the effects of poor business conditions. even before the events of september 11th , the computer industry was expecting dramatically slowing growth (graham-hackett, 2002; rudy, 2002). these findings suggest industry characteristics are an important factor in this stream of research. further, this paper offers insight into the differences between environmental pressure and environmental shock. it has been suggested within this paper that the basis for environmental shock is one where there is minimal warning for an event that brings about a radical and 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wooldridge, j. 2002. econometric analysis of cross section and panel data. cambridge, ma: mit press. yossi, s. 2001. supply chain management under the threat of international terrorism. international journal of logistics management, 12: 1-11. zachariadis, m. 2003. r&d, innovation, and technological progress: a test of the schumpeterian framework without scale effects. canadian journal of economics/revue canadienne d'economique, 36: 566-586. zahra, s., & covin, j. 1993. business strategy, technology policy and firm performance. strategic management journal, 14: 451-478. lisa lucarelli chandler is a visiting assistant professor at quinnipiac university. she received her d.b.a from nova southeastern university. her current research includes developing business models on innovation, leadership, and gender perceptions. she worked in the telecommunications industry where she designed, and directed merger and acquisition integration programs for both fortune 500 and start-up companies. she continues to advise managers and specializes in the effects of disruptive innovation. elizabeth scott is a professor at eastern connecticut state university. she received her ph.d. in management from university of pennsylvania. her research interests include honesty, prejudice, moral values, and employee-organization fit. she has published in business & society, business ethics quarterly, teaching business ethics, and journal of personality and social psychology. james stodder is a clinical associate professor at rensselaer polytechnic institute. he received his ph.d. in economics from yale. he is a prolific author and researcher. he has had a long term interest in the evolution of exchange systems seen in "primitive" economies through anthropology, in economic history, and in current technological developments. his latest publication, “complementary credit networks and macro-economic stability: switzerland’s wirtschaftsring,” was published in journal of economic behavior and organization. thomas tworoger is an associate professor at nova southeastern university and the chair of the entrepreneurship department which includes a concentration in the mba program as well as an undergraduate minor in entrepreneurship. he received his dba at nova southeastern university. his current research interests include entrepreneurship, microfinance, and leadership. he has published in journal of leadership & organizational studies, journal of business and leadership, academy of information management sciences journal, and academy of information and sciences journal. http://journals.sfu.ca/abr advances in business research 2014, volume 5, pages 16-32 16 capital structure over the life cycle chase parker dehan university of south carolina, upstate whether firms in highly innovative industries — those with high risk, yet higher potential return — will be more likely to raise funds through stock markets than firms in mature industries is investigated within the context of the trade-off theory of capital structure using the product life-cycle as a theoretical framework. empirically, the relationship of innovative activity to equity issuance is tested by regressing patent activity (as a proxy for innovation) on the ratio of funds raised through the stock market to total funds raised. the results are statistically and economically meaningful. keywords: corporate finance, capital structure, life cycle, trade-off theory introduction one aspect of capital structure literature that does not receive attention is that firms have different capital requirements over their life cycle. firms’ external capital decisions are hypothesized to change depending upon where they fall within the innovation life cycle. in the beginning of the life cycle, firms are more innovative and those in innovative industries will be more likely to raise funds through the stock market than mature firms that are further into the life cycle. banks ration credit, limiting the amount of funds to newer industries with higher levels or risk, even though there is a high potential return. even in the presence of a high risk premium, banks have asymmetric returns in high risk/return industries as they are exposed to losing their entire investment in the event of default while returns are limited to a fixed interest rate. at the beginning of the innovation life cycle, the industries emerging are classified as being radically innovative because the products or processes they are promoting are radical departures from others currently on the market. innovations tend to be clustered in the beginning of the innovation life cycle (keklik, 2003), while competition intensifies as the product begins production. after the weaker firms begin to drop out, successful firms become more attractive for debt financing. these supply constraints imposed by lenders do not reduce firms’ requirements for capital. these radically innovative firms still have large capital requirements in spite of the inability to obtain the debt instruments mature industries typically can access. to avoid extinction, these firms will continue to seek capital, having a larger portion of equity to debt in their capital structure. the trade-off theory (kraus & litzenberger, 1973) posits that firms will balance the tax advantages of debt with the increased probabilities of bankruptcy as they become more leveraged. theoretically, an optimal level of leverage maximizes the firm’s value, thus taking on more debt than the optimal will result in a lower valuation. the life cycle theory argues that radically innovative industries are more likely to default, which will lead to a lower optimal level of leverage. since innovative firms have additional capital requirements above the optimal leverage ratio, they will be forced to raise the additional funds through equity/stock markets. firms in innovative industries can be empirically shown to have a higher likelihood of raising funds through the stock market, controlling for portfolio returns and other market conditions. while the data do not allow for a precise positioning of firms within the life cycle, the empirical results http://journals.sfu.ca/abr dehan 17 support of the theory that firms at the beginning of the innovation life cycle will be more likely to raise funds through equity than firms at the end of the life cycle. this is performed using patents as a proxy for innovation, operating on the assumption that more innovation occurs in the early stages of the life cycle. probit estimation methods with clustered standard errors are used to estimate this relationship between innovation and firm choice as to whether debt or equity financing is used. the results are straightforward; significant evidence suggests that the more innovative a firm is, the more likely it is to use the stock market than the bond market to raise funds when seeking external capital. financing in the earlier states of the product life cycle — when there are high levels of innovation — a company will not be able to raise capital through debt markets and are more likely to rely on equity markets for external capital. this is primarily a supply constraint because the level of risk to lenders is too high given the expected return. lenders, while they may be able to see the venture as being profitable, have a limited upside in the form of an interest rate, yet risk losing their entire investment if the firm fails. in order to raise funds, these firms in new and innovative industries are likely have a higher reliance on equity in order to compensate investors for the additional risk. innovation is defined as any improvement over old products, processes, or ideas. the innovations earlier in the life cycle are larger departures from those currently seen, while those towards the end do not have much of an impact. established firms that are constantly innovating are treated in the same manner as brand new firms if the radically innovative activities consume a large portion of their activities. the main distinguishing feature is that established firms may have more retained earnings to fall back on. under the assumption that firms will use internal funds before seeking external capital, firms entering new industries will exhaust their retained earnings, and will be more likely to raise funds through equity than firms still engaged in an old industry. the relevant factor of the above is how large a percentage of activity the radically new technology consumes of a company. if a massive company like general electric begins operating a radically new innovation, it may only be a small portion of their portfolio and would not have much influence on their external capital needs. on the other hand, a small company shifting their entire focus toward a radical innovation would be treated similarly to a brand new firm. regardless of whether a new firm or established firm is engaged in the radically innovative activity, their external capital decisions will be similar if the innovations pertain to a large percentage of their activity. traditional theory suggests that increases in the interest rate are compensation for holding risk. charging higher interest rates on loans for riskiness is a common practice. however, high risks like those found in new industries would require interest rates that would be higher than normal rates. merton (1974) presented the first comprehensive theory on the risk structure of interest rates, finding that bonds are more difficult to price when there is significant risk of default. therefore, investors find these bonds less desirable in spite of the higher interest rates received. not only do firms in new industries have higher probabilities of default, they also have large amounts of intangible capital that is difficult to price. when an asset is difficult to price, investors will discount the price. investors will not be satisfied with the current risk premium and either i) demand a higher interest rate or ii) not lend at all. while difficulties in pricing risk do exist, once interest rates rise above a point, banks will no longer lend funds out of fear of adverse selection where the only firms accepting high interest rate loans will be bad risks. stiglitz and weiss (1981) conceptualized this with the introduction of a theory of credit rationing. basic economic theory posits that market equilibrium is where supply meets demand; as prices rise, suppliers will produce more. however, debt markets act differently with investors retaining their excess funds rather than lending them out at higher interest rates. lenders capital structure over the life cycle 18 care about two things: risk and return; as risk increases, the banks are induced to loan at a higher interest rate in order to compensate for the additional risk. the problem arises when interest rates rise as the rate increase itself may influence the riskiness of the project. increased rates make debt service more expensive, tightening margins and threatening the likelihood of repayment. lenders, therefore, are aware of the lemons problems where those who would borrow at the highest interest rates may be worse risks; the interest rates would be able to act as a screening device, keeping bad investments out. banks may interpret the radical industries’ willingness to accept high interest rates as a signal of poor investments, thereby rationing credit. barnhart and dwyer (2012) find that firms in new industries have a much higher volatility in their returns, but have a much higher expected return compared to the rest of the market. their findings indicate that a small number of companies generate outstanding stock market returns while a high number of firms failed. bankers are aware of the high potential return, but fear volatility. the firm’s need for capital allows speculative investors to reap the benefits of higher risk through the stock market, allowing for the diversifying investment while delivering the necessary capital to innovative firms. into the third stage, the innovations are not substantial departures from previous innovations. this does not lend itself to high rates of return, yet presents lower risk to investors. at this time, firms still have capital requirements, but now have the ability to raise capital through debt and retained earnings to expand production. these options allow more flexibility in choosing the lowest cost of capital as they can attract bank financing. the difference from stage two in relation to bank financing is that the firms are able to receive a lower interest rate because of a low, measurable risk. firms will choose the cheapest way to raise the necessary capital and with interest rates lower than the cost of equity, the firms will choose significantly more debt financing. capital structure as the first widely accepted theory of capital structure, modigliani and miller (1958) showed that the value of the firm is not affected by how the firm is financed. the theory is that firms will raise external capital through whichever avenue is the least expensive, bringing the most capital at the lowest cost. the implication is that the underlying capital structure does not matter. whether firms raise funds through equity or debt and how they pay dividends is irrelevant to firm value, and that firms will be indifferent to their capital structure. modigliani and miller reached this irrelevance proposition under some crucial assumptions: perfect capital markets in the absence of taxes, bankruptcy costs, asymmetric information, adverse selection, and agency costs. arguing that taxes are an important factor in how firms finance themselves, kraus and litzenberger (1973) introduced the trade-off theory of capital structure. the mix of financing depends on the tax savings and the states in which a firm would become insolvent. the significant tax advantages for firms are gained by issuing debt that far outweigh any of the costs incurred by investors’ personal taxes. paying interest on outstanding debt is tax deductible and lowers the cost to service the debt. on the dark side of leverage, kraus and litzenberger introduce bankruptcy costs into consideration. modigliani and miller (1958) assumed that firm value does not depend on how certain they are to repay their debt obligations; the value of a firm is not affected by its leverage since bankruptcy penalties do not exist in perfect capital markets. however, under the trade-off theory, as the leverage ratio increases, the value of a firm begins to fall because of the increased probability of becoming insolvent. an illustrative, stylized model of the trade-off theory is shown in figure 1. the total value of the firm on the vertical axis is plotted against the leverage ratio, debt to assets (d/a) on the horizontal figure 2 dehan 19 figure 1. trade-off theory axis. the intercept, �̂�, is the value of a firm with no leverage and funded purely by equity or retained earnings. when a firm is at this point, it is not maximizing the value of the firm as borrowing would allow the firm to pursue additional profit opportunities. 𝐹𝑉𝑛𝑑 represents firm value, with the nd subscript indicating no default that shows what a firm’s value would be in the absence of any costs associated with increased leverage. with no chance of default, a firm could theoretically borrow unlimited funds, invest them, and watch the value of the firm grow. the flip side of the leverage is that while leverage can multiply profit rates, it can also multiply losses. the more leverage a firm maintains, the higher the probability a shock or poor investment will leave the firm insolvent. 𝐹𝑉′ is the firm value that incorporates bankruptcy costs and additional borrowing costs imposed by lenders to cover a higher risk of default. eventually, the costs of increased leverage outweigh the benefits, causing the firm’s value to drop. 𝐹𝑉′ would be close in value with 𝐹𝑉𝑛𝑑 up until a point, 𝐷/𝐴′, because at low levels of leverage, the probability of default is negligible. firms, as profit maximizing entities, will attempt to maximize their value and select the optimal leverage ratio at 𝐷/𝐴∗ where the marginal benefits of debt equal the marginal costs of bankruptcy. at leverage levels between 𝐷/𝐴′ and 𝐷/𝐴∗, the costs of leverage are non-negligible, but increasing at an increasing rate. until 𝐷/𝐴∗ is reached, the benefits still exceed the costs; at leverage levels greater than 𝐷/𝐴∗, bankruptcy costs exceed the tax benefits. if a firm has additional profitable opportunities and is in need of more capital than it would receive at the optimal leverage ratio, the firm would then turn to equity markets. the trade-off theory maintains that firms will reach their optimal leverage ratio in order to maximize their value. the only circumstances where they would utilize equity financing is if capital in excess of the optimal level was needed. adjusting the level of bankruptcy costs and tax benefits has important implications for the trade-off theory of capital structure. when the probability of default is altered, the trade-off theory predicts a change in the optimal level of leverage. figure 2 illustrates how changing the probability of default for an innovative industry will alter the optimal leverage ratio. two types of firms are assumed: one in a new industry and the other in an old industry. the distinction between the two types of firms is that the firm in the new industry has a higher probability of default, yet higher potential return due to a product in the beginning of the life cycle. this is contrasted by the firm in the old industry that capital structure over the life cycle 20 figure 2. trade-off with new industries has a standardized product and concrete forecasts of future profits. both firms enjoy the same tax benefits of debt and will both have a no default value curve at 𝐹𝑉𝑛𝑑 and an unlevered value at the intercept, �̂�. incorporating different probabilities of default gives two separate fv functions, 𝐹𝑉𝑜 and 𝐹𝑉𝑛, where the subscripts respectively indicate old and new industries. 𝐹𝑉𝑛, with a higher probability of default, pushes the optimal leverage ratio, 𝐷/𝐴𝑜 ∗ , to the left as the bankruptcy costs become greater than the tax benefits at a lower leverage ratio. firms in radically new industries still have significant profit opportunities and will turn to equity markets for the large amounts of capital they require. firms in old industries, on the other hand, do not have as many profit opportunities or capital requirements above their optimal leverage ratio and are less likely to seek equity financing. firms in stagnant industries with few profitable growth opportunities are not expected to even reach the optimal leverage ratio as the tax benefits of borrowing are insignificant compared to profitable investments. note that increasing the costs of bankruptcy also lead to a lower market value of the firm; 𝑉𝑛 is the market value for new industries while 𝑉𝑜 shows the higher market value for old, established industries. the market value of new firms has to be lower in order to compensate investors for the increased risk and should be associated with higher expected returns. the firms will seek to bolster available debt funds with equity. hsu (2009) proposes that technological innovations increase returns on stocks, finding that firms with more technological innovations (as proxied by patenting activity) are typically assigned higher risk premiums, in keeping with market valuations for firms in new industries as shown by 𝑉𝑛. new and radically innovative industries are associated with higher volatility and higher probabilities of default; therefore, they should also have higher expected returns. empirical results show that firms involved in innovative industries have a higher likelihood of failure (eisdorfer & hsu, 2011) and leverage and volatility have an inverse relationship (bradley, jarrell, & kim, 1984). these results are consistent with the reduced leverage ratio and valuation due to increased bankruptcy costs. to restate, firms in the earlier stages of the innovation life cycle are hypothesized to be more likely to raise funds through the stock market than firms in the later stages. in the earlier stages of the innovation life cycle, when firms are engaged in radically new technologies, they will have high capital dehan 21 requirements and be a questionable risk for lenders. because of the limited upside in the form of an interest rate and a reasonable likelihood of default, debt will be less of an option; these highly innovative firms are then left with equity as a more viable option. due to data limitations on pinpointing where firms fall within the innovation life cycle, it is also difficult to track firms’ specific financing choices over the life cycle. because of this, empirically testing the direct relationship between firms’ position in the life cycle and their stock/bond choice is not possible. however, testing whether firms engaged in highly innovative industries are more likely to raise funds through the stock market versus the bond market is possible. since more innovative activity will occur at the beginning of the life cycle, this will be an acceptable way to show support for the idea that firms in the earlier stages of the life cycle will be more likely to raise capital through the stock market. empirical methodology the empirical section presents an unbalanced panel of stock/bond issuance, patent activity, and various control variables for the time period 1970 to 1992. 1970 was selected as the beginning of the time period because of the reliability of data on stock and bond issuance before that time is questionable. having the observed time period stop at the end of 1992 was to exclude the wave of stock offerings in the mid-1990s that could skew the results. as most observers are aware, the mid1990s saw an incredible number of technology companies issue ipos. since most of these companies were in brand new industries, this time period was marked predominately by firms in new industries issuing equity. the setup of the empirical models is performed following the basic specifications of choe, masulis, & nanda (1993). in this case, the dependent variable is firm level stock market decisions, with the important explanatory variable being industry patenting while controlling for other industry, and market conditions. considering the two types of financing in each time period, firms had an option of financing their operations by using debt or equity. the dichotomous relationship of choosing to raise funds through equity or debt financing makes using a simple linear regression a potentially hazardous method of estimation. for this reason, a probit model is used to estimate the probability of raising funds through the stock market relative to bond financing based around the simplified regression equation: 𝑃(𝑆𝑡𝑜𝑐𝑘 𝑀𝑎𝑟𝑘𝑒𝑡)𝑓,𝑖,𝑡 = 𝛽0 + 𝛽1𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦𝑖,𝑡 + 𝛽2𝑀𝑎𝑟𝑘𝑒𝑡𝑡 + 𝜀𝑡,𝑖.𝑡 (1) where 𝑃(𝑆𝑡𝑜𝑐𝑘 𝑀𝑎𝑟𝑘𝑒𝑡)𝑓,𝑖,𝑡 is the probability of firms raising capital through the stock market, and is defined at firm level, f, in i industry in the time period t. since the instances where firms are seeking external capital are of interest, and only two options exist, bond and stock, the probabilities of raising funds through the bond market, 𝑃(𝐵𝑜𝑛𝑑 𝑀𝑎𝑟𝑘𝑒𝑡)𝑓,𝑖,𝑡, must be equal to (1𝑚𝑃(𝑆𝑡𝑜𝑐𝑘 𝑀𝑎𝑟𝑘𝑒𝑡)𝑓,𝑖,𝑡). 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦𝑖,𝑡 represents the industry level variables for all firms, f, within the industry, i. the industry level contains the important explanatory variable of industry innovation/patenting activity. an additional industry-level control of returns will also be included. various time variant market conditions are controlled with 𝑀𝑎𝑟𝑘𝑒𝑡𝑡; within this are a number of market factors traditionally in the literature and discussed in detail in the section below (complete data descriptions can be found in table 1). capital structure over the life cycle 22 table 1 data description var name description mean std dev s/b ratio ratio of stock issuance to bond issuance for all public issuance 1970-1992. computed as: total proceeds of stock issuance to proceeds from bond issuance plus stock issuance for each 6 month period. binomial variable equal to one when the firm raises funds through stock market issuance and zero when through the bond market. bond classifications included: asset backed, convertible, highyield corporate, investment grade corporate, and mortgage backed. source: thomson reuters sdc database n/a n/a pgrant granted patents per 2 digitover the six month time periods. source: nber patent database, hall, jaffe, and trajtenberg (2001) 1.838 2.336 time time factor; used to control for the time trend of stock market issuance. calculated as time period minus 1969, resulting in time periods ranging between 1 – 22.5 n/a n/a ind. return industry returns computed as a market return average 2-digit sic industries over the six month time periods. includes returns on all publicly held stocks in the united states listed on the nyse, amex, and nasdaq stock exchanges. values listed as percentage. source: crsp us stock database. 0.037 0.257 bus. cycle dummy business cycle variable equal to one when economy is in expansion and zero when a contraction. source: nber business cycle dating committee n/a n/a 10 yrtbill average 10 year t-bill rate over each 6 month period and acts as the long run interest rate source: wrds 8.94 1.98 rf risk free rate (1 month t-bill), averaged over the six month time periods. source: fama french, wrds 0.0059 0.0018 mkt. return average market (s&p 500) return over the 6 month period. source: s&p 500 0.0095 0.0113 mktrf excess return on the market as measured by a value weighted return of all securities minus the rate of return on one month t-bills. averaged over the 6 month period. source: fama french, wrds 0.006 0.021 because of the possible presence of intra-industry and time correlations in the error terms, clustering standard errors is important. the data include industry and time variant effects. heterogeneity bias is treated by removing the inter-industry effects and time (year) effects. as such, the standard errors are clustered at the industry/time level. within the dataset, there were 25,064 instances of firms raising capital across 71 industries and 46 time periods; clustering at the industry/time level results in a maximum possible 3,266 observations. however, some periods have no fundraising activity for a specific industry, leaving 2,106 total independent observations. data the dependent variable is this model is the ratio of stock market financing to the total amount of financing received in each time period. the dataset incorporates all stock and bond issuance occurrences in the united states between 1970 and 1992 as reported in the thomson reuters sdc database. the dependent variable, sb.ratio is given as: 𝑆𝐵. 𝑅𝑎𝑡𝑖𝑜𝑡 = 𝑆𝑡𝑜𝑐𝑘 𝑀𝑎𝑟𝑘𝑒𝑡 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑛𝑔𝑡 (𝑆𝑡𝑜𝑐𝑘 𝑀𝑎𝑟𝑘𝑒𝑡 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑛𝑔𝑡+𝐵𝑜𝑛𝑑 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑛𝑔𝑡) (2) fund raising activity has been organized into 6 month time periods in order to gather a complete picture of their total external fund raising activity. firms may have large capital requirements dehan 23 and raise funds from numerous sources in a relatively short period. each time period is organized as january through june and july through december, for a total of two time periods in each year between 1970 and the end of 1992 for a total of 46 time periods. for example, when t=1970, it indicates the first 6 months of 1970; t=1970.5 indicates july through december of 1970; etc. these time designations are used for every variable in this model; firm fundraising, industry patenting, and market considerations are all factored over the 6-month time periods. the value of the dependent variable for a firm that raises capital only through the bond market would equal zero, while a firm that raised all their funds through the stock market would equal one. as can be seen from firm’s actions in capital markets, it was unusual for a firm to raise capital through both stock and bond issuance in the same time period. of the 25,153 fund raising instances, only 89 firms raised capital through both the bond and stock market in one of the 6-month time periods. these 89 instances present an interesting anomaly as the only plausible explanation as to why a firm would seek both bond and stock market issuance in the same time period would be that the costs/benefits were exactly identical. this rare occurrence, 0.3%, demonstrates that firms are unlikely to seek funds through both avenues simultaneously. these are dropped from the analysis to allow for the use of binomial regressions, leaving 25,064 instances of firm level fund raising. this leads to a simpler dependent variable, where: 𝑆𝐵. 𝑅𝑎𝑡𝑖𝑜𝑓,𝑖,𝑡 = { 1, 𝑓𝑢𝑛𝑑 𝑟𝑎𝑖𝑠𝑖𝑛𝑔 = 𝑠𝑡𝑜𝑐𝑘 𝑚𝑎𝑟𝑘𝑒𝑡 0, 𝑜𝑡ℎ𝑒𝑟𝑤𝑖𝑠𝑒 (3) figure 3 displays the distribution of how many times a firm enters the market for external capital. the horizontal axis displays the number of time a firm appears in the sample while the vertical axis is the number of firms that are included in each group. of the 12,131 firms that raised capital through either the bond or stock market in the time period the vast majority, 8,571, only went to the market a single time. firms that raised capital less than five times between 1970 and 1992 represent 93.5 % of the observed firms. the large number of firms with limited observations precludes the ability to use a dynamic panel or fixed effects model. for example, the use of a fixed effects model results in the dropping of 96.7% of observations. industry level variables these data include all patents issued by the united states patent and trademark office (uspto) and compiled by hall, jaffe, and trajtenberg (2001). the relationship between where a firm is in the life cycle is as follows: stock market issuance correlates with patenting, innovative industries patent more, and more innovation occurs at the beginning of the innovation life cycle. the empirical estimations of this paper are focused specifically on the relationship between patents and stock market issuance. the patent data used in this analysis includes only utility patents granted in the united states as these are issued for the invention of “any new and useful process, machine, manufacture, or composition of matter, or a new and useful improvement thereof…” (patent laws and regulations, 2000, p. e-25) and are generally referred to as patents for invention. this data set excludes plant and design patents as these patents cannot be considered a radical departure from previous innovations. industry level patenting is important; path-breaking innovations generated by innovation come in clusters, providing more opportunities for innovation by others in the industry. while one firm in an industry might be the leader in patenting activity, a large number of other firms will attempt to bring a similar product to market. industries with higher levels of patenting will contain firms with higher levels of innovation. information as to which firms are going to survive and succeed is not known with any level of certainty, but accurate forecasts of the success of the wider industry is known by most investors. pastor and veronesi (2005) found that during technological revolutions investors capital structure over the life cycle 24 figure 3. fund-raising will diversify their investments among many in the industry. this is done because some will be winners, others losers, and cannot be known a priori who will be the winners. patent data from the uspto are classified by internal codes that are not relatable to other variables. hall et al. (2001) were able to relate the internal uspto codes to industries and other outside factors through a 3-digit us patent class. this us patent class is assigned to the appropriate 2-digit sic industry codes; the broader 2-digit codes were chosen because of the necessity to incorporate the spillover effects on closely related industries. due to the way assignments are referenced by the uspto, some patents were referenced in a number of industries. when this occurred, patents with applicability in multiple industries were included with the total count of patents for each industry they referenced; this results in total patent counts being overestimated. during the time period, the total amount of actual patents was just under 1.9 million while my assignments resulted in just over six million assigned patents. this is the optimal practice as there are innovations that have a wider application, and attempting to select a single industry for these would result in subjective assessments of the data. patents are reported according to the year they were received; the time periods, however, are every 6 months. to reconcile this, the way the patents are assigned was to place the half of the yearly number of patents in the first half of the year (e.g., 1970, 1971, etc.) and then assign the second half of the year as the average of the two surrounding time periods (e.g., 1970.5 = (1970 + 1971)/2). assigning patents in the manner allows for continuous patenting data. following the market timing literature (baker & wurgler, 2002), when stock values are higher, firms are more likely to raise funds through equity. while market returns are also included, industry returns are also necessary to control for since individual industries do not necessarily correlate with the wider market. one of the main considerations for the inclusion of industry controls is that if an asset price bubble is emerging in a specific industry, the valuations an innovative firm would receive could be greatly overvalued. these high valuations could be an easy decision for a firm to raise capital through equity. time variant stock returns for industries are included to pick up the industry level variation that could be overlooked by returns from the entire market. as industry returns rise, more stock issuances are expected because of the higher valuations associated with the industry. industry returns data are from the center for research in security prices (crsp) and incorporates all publicly listed stocks in the united states on nyse, amex, and nasdaq exchanges. this index was then computed as a market cap-weighted price index according to the 28571 1579 1190 472 247 54 18 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 1 2 5 10 20 30 more n u m b e r o f fi rm s number of instances a firm raises external capital frequency dehan 25 digit sic codes. this computation is accomplished by computing the return accrued from the overall industry. the returns over the period were computed as a simple percentage change from the beginning of the period to the end of the time period based on the cumulative industry prices of publicly traded stock. some of the smaller industries with less external capital raised, have no publicly traded stocks. this was the case for 59 of the fund raising instances; these without any corresponding public stocks were discarded from the analysis. market control variables in order to control for hypotheses proposed by market timing theorists, a number of variables are used to proxy for market conditions. these are time variant and include the business cycle, interest rates, market return, and other constructed variables commonly used in the literature. the business cycle plays a key role in the fundraising decisions surrounding firms due to its effects on both investor and company expectations. the expected impact of the business cycle on sb.ratio is ambiguous. it could be negative since when the economy is in an expansion, equity tends to receive a higher market value, leading to more stock issuance relative to bonds. it could also be positive since in times of economic expansion lenders typically assign lower probabilities of default and bankruptcy. supporting this idea, choe, et al. (1993) found evidence that common stock offerings are positively correlated with the business cycle. with a positive correlation, supply constraints placed on innovative firms will be lessened and firms will raise more funds through the stock market. the business cycle is controlled for using the official estimates of us business cycle expansions and contractions as released by the national bureau of economic research (nber). the nber defines a contraction as significant declines in a number of factors: real gdp, real income, employment, industrial production, and wholesale-retail sales. the subjectivity of these measurements is used alongside the traditional definition of a recession as two consecutive quarters of decline in real gdp in order to more accurately date the peaks and troughs in the changes of economic activity. 1 the time between the trough and the peak was considered to be a time of economic expansion, while contraction was the time following a peak until the trough was reached again. a simplistic dummy variable is used with expansions equal to one and contractions equal to zero. since the exact peak and trough are not likely to be assigned on exactly january 1 or july 1, they are going to fall somewhere within the 6 month time periods. for this reason, the 6 month time periods that included a peak were assigned the expansion value of one, while those including the trough received the contraction value of zero. to account for changes in interest rates, the rates on 1-month and 10-year treasury bills are used. the reasoning for including interest rates is that there is a positive relationship between interest rates and costs to service debt; when these costs rise, firms should be more likely to look to equity financing since the costs of stock market financing have become less expensive relative to debt. the coefficients attached to the different interest rates are expected to be positive. the short-term and long-term are both used in order to be inclusive of the decisions firms may make. while long-and short-term interest rates typically move together, the long-term interest rates are expected to have more of an impact on stock market issuance since most future projects are based off long term debt contracts. the other factor of stock/bond issuance is the current market return; if the market seems to offer a higher return on stocks, investors will pay more for a stock offering; the higher valuation means the firm has a higher likelihood of being overvalued and, therefore, is going to be more likely to raise funds through the stock market. this variable, mkt return, is measured as the weighted average equity 1 for a complete description of how the nber dates the business cycle, please see the most recent nber announcement, dated 09/20/2010. capital structure over the life cycle 26 return of the standard & poor’s 500 index over the 6-month time periods. the s&p 500 is used because it is one of the most followed indexes of equity returns, and its diversity makes it an indicator of the health of the united states economy. the expected coefficient of market return should be positive; when the stock market is booming and there are high returns, firms’ value is increasing and will be more likely to raise funds through equity issuance. an additional variable used for determining relative returns to both investors and firms is mktrf, which is the difference between the market return and the risk free rate. the measurement of market return under this variable differs from the variable mkt return in that it is the value-weight return of all firms in the crsp database incorporated in the united states and listed on the nyse, amex, or nasdaq, rather than the narrower s&p 500. a positive relationship is expected between mktrf and sb.ratio. the intuition is that when mktrf is higher, equity is receiving a greater return relative to debt, and there is a reasonable likelihood that equity is overvalued by the market. perhaps one of the most important single variables, this difference is a direct test of the difference between returns to equity and debt. table 2 shows the total number of stock and bond issuances by year along with a simplified ratio of instances of stock financing to total financing activities; this is computed as ipo/(bond + ipo). the bond market has significantly more activity than the stock market, with minimal activity from the mid to late 1970s. the total dollar value of the bond market issuances is substantially larger than the fundraising used through stock issuance; the ratio of funds raised through the stock market is in the column labeled sb.ratio. figure 4 shows the total number of fundraising instances graphically across time and figure 5 displays the total dollar value of the fundraising activities. results in every estimation, evidence is found in support of my hypothesis that innovative firms are more likely to pursue financing from the stock market relative to the bond market. the first of these cohorts directly tests the market timing variables to control for market circumstances and is shown in table 3. industry returns are added and presented in table 4. each table provides coefficients, standard errors, statistical significance, and the marginal effects at the median for each variable, along with variance inflation factors (vif) testing for multicollinearity. testing the hypothesis that more innovative firms are more likely to raise funds through stock market issuance uses the number of patents granted (pgrant) as a proxy for innovation. as such, as more patents are granted, firms are expected to be more likely to raise funds through equity issuance. pgrant enters into every estimation highly significant, effectively showing that firms in industries with large amounts of innovative activity will be more likely to raise funds through the stock market than those in industries without technological innovations. pgrant was significant at least at the 0.1% level in every estimation. the marginal effects did not vary much, and a one standard deviation increase from the median2 in granted patents ranges between a 1.27 and 1.62 % increase in probability of raising funds through the stock market with an average of 1.42 %. considering that the probability of raising funds through the stock market remained around 8.4 %, a one standard deviation change from patent grant’s median of 1.42 % is substantial. regardless of which controls were added to the model, there were only small changes in coefficients, p-values, or marginal effects observed for pgrant, resulting in strong support for my hypothesis 2 the median was used rather than the mean due to a skewed distribution of patents. computing from the mean would create an upward bias and overstate the effect of patents. dehan 27 table 2 data summary ipo bond ipo/total ipo ($ mil) bond ($ mil) sb.ratio 1970 16 187 0.079 48 9,397 0.005 1970.5 8 240 0.032 25 13,778 0.002 1971 22 251 0.081 109 13,686 0.008 1971.5 21 184 0.102 104 9,505 0.011 1972 34 225 0.131 118 10,336 0.011 1972.5 27 157 0.147 158 8,829 0.017 1973 14 140 0.091 727 7,118 0.085 1973.5 2 125 0.016 6 8,491 0.001 1974 1 169 0.006 2 13,170 0.000 1974.5 0 168 0.000 14,414 0.000 1975 0 252 0.000 22,073 0.000 1975.5 1 183 0.005 17 11,961 0.001 1976 6 181 0.032 72 16,374 0.004 1976.5 4 166 0.024 66 13,050 0.005 1977 5 147 0.033 80 12,747 0.006 1977.5 2 163 0.012 5 12,111 0.000 1978 1 154 0.006 26 10,947 0.002 1978.5 3 122 0.024 12 9,302 0.001 1979 6 129 0.044 38 13,077 0.003 1979.5 7 138 0.048 43 12,213 0.004 1980 8 206 0.037 63 21,710 0.003 1980.5 31 163 0.160 398 15,067 0.025 1981 40 423 0.086 360 25,063 0.014 1981.5 33 441 0.070 360 22,637 0.015 1982 8 402 0.020 52 20,109 0.003 1982.5 15 582 0.025 228 42,632 0.005 1983 57 552 0.094 1,553 38,240 0.038 1983.5 121 507 0.193 1,894 33,857 0.050 1984 40 422 0.087 673 34,487 0.019 1984.5 35 629 0.053 730 60,809 0.012 1985 36 684 0.050 692 58,270 0.012 1985.5 58 911 0.060 2,638 92,647 0.027 1986 83 931 0.082 2,573 124,712 0.020 1986.5 130 1087 0.107 5,764 148,183 0.036 1987 108 1023 0.095 8,652 127,891 0.060 1987.5 88 982 0.082 4,489 131,663 0.032 1988 57 1072 0.050 7,185 164,414 0.040 1988.5 55 1148 0.046 4,851 168,924 0.027 1989 54 1016 0.050 4,057 188,098 0.021 1989.5 67 1088 0.058 4,521 203,971 0.021 1990 66 857 0.072 4,870 160,651 0.029 1990.5 31 796 0.037 1,902 149,075 0.012 1991 76 878 0.080 4,063 227,327 0.017 1991.5 132 896 0.128 8,075 229,081 0.033 1992 160 951 0.144 11,220 334,536 0.031 1992.5 137 1089 0.112 6,246 307,170 0.020 total 1906 23217 0.076 89,767 3,373,805 0.026 capital structure over the life cycle 28 figure 4. bond and ipo activity over time: total instances figure 5. bond and ipo activity over time: total dollar proceeds 0 20 40 60 80 100 120 140 160 180 0 200 400 600 800 1000 1200 1400 1 9 7 0 1 9 7 1 .5 1 9 7 3 1 9 7 4 .5 1 9 7 6 1 9 7 7 .5 1 9 7 9 1 9 8 0 .5 1 9 8 2 1 9 8 3 .5 1 9 8 5 1 9 8 6 .5 1 9 8 8 1 9 8 9 .5 1 9 9 1 1 9 9 2 .5 bond ipo 0 2000 4000 6000 8000 10000 12000 0 50000 100000 150000 200000 250000 300000 350000 400000 1 9 7 0 1 9 7 1 .5 1 9 7 3 1 9 7 4 .5 1 9 7 6 1 9 7 7 .5 1 9 7 9 1 9 8 0 .5 1 9 8 2 1 9 8 3 .5 1 9 8 5 1 9 8 6 .5 1 9 8 8 1 9 8 9 .5 1 9 9 1 1 9 9 2 .5 bond proceeds ipo proceeds dehan 29 table 3 base model ratio 1 2 3 4 5 6 7 8 pgrant 0.046 0.046 0.045 0.045 0.046 0.045 0.044 0.046 0.009*** 0.009*** 0.009*** 0.009*** 0.009*** 0.009*** 0.009*** 0.009*** 1.47% 1.38% 1.38% 1.31% 1.29% 1.35% 1.35% 1.38% bus.cycle -0.110 -0.097 -0.135 -0.197 -0.140 -0.098 -0.146 0.067 0.066 0.070' 0.072** 0.068* 0.066 0.068* -1.55% -1.36% -1.85% -2.74% -2.00% -1.36% -2.11% 10yr tbill -0.015 0.055 0.077 -0.008 0.014 0.028* 0.028** 0.014 -0.38% 1.33% 1.83% -0.20% rf -88.419 -108.048 -40.408 -40.492 29.0** 29.53*** 14.99** 14.47** -2.01% -2.38% -0.96% -0.97% mkt return 10.766 9.145 8.981 2.46*** 2.43*** 2.41*** 1.45% 1.33% 1.31% constant -1.526 -1.446 -1.323 -1.397 -1.550 -1.281 -1.217 1.441 0.039*** 0.067*** 0.143*** 0.144*** .149*** .120*** 0.118*** 0.148*** pseudo r2 0.01 0.01 0.01 0.01 0.02 0.02 0.01 0.01 mean vif 1.00 1.00 1.03 2.25 2.07 1.03 1.00 1.06 bolded value is coefficient, second is se with statistical significance, third is 1 stdev change *** significant at 0.1% ** sig at 1% * sig at 5% 'at 10% table 4: base plus industry returns ratio 9 10 11 12 13 14 15 16 pgrant 0.047 0.046 0.045 0.045 0.046 0.044 0.044 0.045 0.009*** 0.009*** 0.009*** 0.009*** 0.009*** 0.009*** 0.009*** 0.009*** 1.47% 1.39% 1.39% 1.31% 1.27% 1.33% 1.35% 1.36% ind.return 0.058 0.029 0.023 0.032 -0.135 -0.141 0.019 -0.140 0.066 0.071 0.073 0.068 0.127 0.128 0.073 0.132 0.20% 0.10% 0.08% 0.10% -0.41% -0.46% 0.06% -0.46% bus.cycle -0.107 -0.095 -0.133 -0.215 -0.159 -0.096 -0.165 0.068 0.067 0.070' 0.075** 0.071* 0.067 0.071* -1.50% -1.33% -1.81% -3.01% -2.29% -1.34% -2.41% 10yr t-bill -0.015 0.055 0.077 -0.008 0.014 0.028* 0.028** 0.014 -0.38% 1.35% 1.81% -0.21% rf -88.712 -107.734 -40.640 -40.396 29.01** 29.37*** 15.01** 14.49** -2.02% -2.36% -0.96% -0.97% mkt return 11.690 10.125 9.971 2.677*** 2.656*** 2.663*** 1.57% 1.46% 1.45% constant -1.529 -1.449 -1.327 -1.404 -1.538 -1.270 -1.220 -1.430 0.040*** 0.068*** 0.144*** 0.145*** 0.149*** 0.120*** 0.119*** 0.147*** pseudo r2 0.01 0.01 0.01 0.01 0.02 0.02 0.01 0.01 mean vif 1.00 1.02 1.04 2.01 1.95 1.08 1.02 1.11 bolded value is coefficient, second is se with statistical significance, third is 1 stdev change *** significant at 0.1% ** sig at 1% * sig at 5% 'at 10% capital structure over the life cycle 30 base model the basic model estimating the effects of innovation on stock market issuance is based around the market timing literature with results presented in table 3. controls used in this model include estimating the influence of the business cycle (bus.cycle), short-term and long-term interest rates (rf and 10.yrt-bills respectively), and return on the market (mkt.ret). because of the relationship between short-and long-term interest rates and the perceived importance of market returns, model selection includes a number of combinations. the important, explanatory variable, pgrant, did not face much variation within the results from the models included in the first estimations. results from these estimations show coefficients for innovation (pgrant) in a tight band from 0.044 to 0.046, with statistical significance at the 0.1% level in every estimation. where this becomes important is in determining the changes in the likelihood of raising funds through the stock market relative to the bond market. an increase in one standard deviation change in patenting activity from the median will result in a higher likelihood of raising funds through the stock market between 1.29 and 1.47 %. the differences between the least innovative industries are a significant number of patents; the difference between the most and least patenting industries results in the most innovative being 14.25% more likely to raise funds through stock market issuance. the business cycle (bus.cycle) plays an important role in the decisions firms make when they are seeking external capital. bus.cycle enters significantly (at the 5% level) into three out of seven regressions it is included in, with one of those being significant at the 1% level. computing the change in the likelihood of raising stock versus bonds on the models where bus.cycle is significant, a discrete change results in a change in the likelihood ratio between -2.00 and -2.74%. effectively this means that during expansions, firms are at least 2% more likely to raise funds through the bond market; the intuitive explanation for this is that lenders assign a lower probability of default when the economy is expanding and will ration credit less. the inclusion of the two interest rates (10yrt-bill and rf) provided some surprising results. where the traditional expectation is that increases in the interest rate (in both the short and long term rates) will lead to higher borrowing costs for the firm, creating an incentive to seek equity financing, the opposite is seen. sign flipping can be viewed on 10yrt-bill when short-term interest rates (rf) are included, yet are still statistically significant in every model it is included in. the interaction of these two interests rates are expectedly related and show some collinearity between them. on the two models where they are both included (5 and 6), the mean vif jumps to 2.25 and 2.07. using the rule of thumb that vif values above 5 needs to be reevaluated, these models would be acceptable. however, individual vif values for 10yrt-bill and rf are both around 3.5 and tolerance values below 0.3, meaning that these variables show some collinearity. even though these two variables are collinear with each other, no adjustments to the model are made as they are not collinear with or change the variable of interest, pgrant. if an attempt is made to quantify the individual impact of these variables out of collinear estimations, confidence in the estimates would rise. as the impact of these interest rates is not being qualified, but rather they are only used to control for external factors, it is acceptable to leave the model as is, report the results, and acknowledge the limitations. this decision was made because the inclusion of the variables provides a better fit as both interest rates can influence the costs incurred by firms when seeking capital. rf displays strongly negative coefficient values between -40.408 and -108.048 and they are significant at the 1% level. the one standard deviation change in the likelihood ratio from over 2% when 10yrt-bills are included drops to under 1% when it is excluded. this negative coefficient indicates that as the risk free rate increases, investors will require a higher return on any other investments since the risk premium is indexed off the risk free rate. these higher returns must come from a lower valuation assigned to firms looking for capital through equity issuance. the strength of dehan 31 the coefficient indicates that the effects on the costs of debt service are far outweighed by investor requirements for equity returns. the relationship between 10yrt-bill and rf shows the possibility of joint effects. the interesting thing to note is that the only time the coefficients attached to t-bills are statistically significant is when both variables are included in the same model. by itself, x has a negative, insignificant coefficient while the inclusion of y turns it into being positive and statistically significant. the coefficient for y also changes as x are both in the same model as y’s coefficient increases in magnitude. a possible explanation of this phenomenon is that financing decisions are sensitive to the spread between the interest rates. these coefficients support the notion that as the spread widens between interest rates, firms would be more likely to raise funds through the stock market. the intuition is that since investments are risk adjusted to the risk free rate, as the spread widens between the variables, long-term debt becomes more expensive relative to other avenues of financing. under the assumptions of the market time theorists, this could influence a shift away from debt to equity as firms attempt to maximize their value. past market returns (mkt return) are strongly associated with stock market issuance. the average coefficient of 9.8 is in keeping with the predictions of theory. as the market return rises, firms’ valuations rise with it; at higher valuations, firms will be more likely to raise funds through equity issuance. highly statistically significant at the 0.1% level, this variable has relatively high marginal effects, with a one standard deviation change from the median changing the likelihood of raising funds through the stock market between 1.31 and 1.45%. even controlling for interest rates, high past market returns are a significant indicator that firms will be more likely to issue equity. industry returns cohort the second cohort of models on the determination of the stock/bond choice includes industry controls (ind.returns), with model selection being identical to the first cohort; results are reported in table 4. controlling for industry returns should pick up any industry factors that went excluded in the first cohort of models as those controls were purely based off the market. there are only minor changes for pgrant and the other control variables; this variation is subtle enough to not question the results from the first models. according to vif tests, the only models with elevated vif levels are 13 and 14, which include rf and 10yrt-bills as the collinear factors, discussed in the base model cohort section. including the industry return control variable should pick up any inter-industry variation. the results from this variable are insignificant in every model. some differences among industries were expected to drive any debt/equity decisions. the dominance of market returns seem to point to the wider market as being more important in determining capital decisions than industry returns. conclusion in answering the question of when firms seek equity financing over debt financing when searching for external capital, it was hypothesized that radically innovative firms at the beginning of the innovation life cycle will be more likely to look to the stock market than firms at the end of the life cycle with less innovative activity. the primary contribution of this paper was linking this life cycle to firm capital structure and decisions firms make when attempting to raise external capital through the bond and stock channels. by using patent activity as a proxy for innovative activity, statistically significant evidence suggests that innovative firms are more likely to raise capital through equity issuance than firms without innovative activity. these results were robust while controlling for industry returns and a variety of market factors, including short-and long-run interest rates, returns on the market and capital structure over the life cycle 32 business cycle factors. the impact of patents appeared as a much stronger predictor of whether a firm will seek stock market or bond market financing than some of the other variables found prominently in the literature. a limitation of this study is the inability to pinpoint where in the innovation life cycle firms are when they are seeking external capital. this is an avenue in which future research would be able to contribute; the determination of where the transition points occur and at what point firms begin searching for equity financing through the stock market would be of significant value. the other path in expanding this research is to formalize the relationship of the innovation life cycle to models of capital structure. references baker, m., & wurgler, j. (2002). market timing and capital structure. journal of finance, 57, 1–32. barclay, m., & smith, c. (1999), the capital structure puzzle: another look at the evidence. journal of applied corporate finance, 12, 8–20 barnhart, c., & dwyer, g. (2012). returns to investors in stocks in new industries. economic inquiry, 50, 1031–1049. bradley, m., jarrell, g., & kim, e. h. (1984). optimal financial policy and firm valuation. journal of finance, 39, 593–607. choe, h., masulis, r., & nanda, v. (1993). common stock offerings across the business cycle: theory and evidence. journal of empirical finance, 1, 3–31. eisdorfer, a., & hsu, p. h. (2011). innovate to survive: the effect of technology competition on corporate bankruptcy. financial management, 40(4), 1087-1117. hall, b., jaffe, a., & trajtenberg, m. (2001). the nber patent citations data file: lessons, insights, and methodological tools. nber working paper 8498. hsu, p. h. (2009). technological innovations and aggregate risk premiums. journal of financial economics, 94, 264-279. keklik, m. (2003). schumpeter, innovation and growth: long-cycle dynamics in the post-wwii american manufacturing industries. burlington, vt: ashgate publishing company. kraus, a., & litzenberger, r. (1973). a state preference model of optimal financial leverage. journal of finance, 28, 911–922. merton, r. (1974). on the pricing of corporate debt: the risk structure of interest rates. journal of finance, 29, 449–470. modigliani, f., & miller, m. (1958). the cost of capital, corporate finance and the theory of investment. american economic review, 48, 261–297. pastor, l., & veronesi, p. (2005). technological revolutions and stock prices. retrieved from: http://www.nber.org/papers/w11876. patent laws and regulations. (2000) title 35, u.s. code. retrieved from: http://www.uspto.gov/web/offices/dcom/olia/35amend2.pdf stiglitz, j., & weiss, a. (1981). credit rationing in markets with imperfect information. american economic review, 71, 393-410. chase parker dehan is an assistant professor of finance at the university of south carolina upstate. his research primarily highlights the financing of innovation. dr. dehan can be reached at cdehan@uscupstate.edu http://www.uspto.gov/web/offices/dcom/olia/35amend2.pdf mailto:cdehan@uscupstate.edu advances in business research 2011 volume 2.pdf phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 71 self-leadership change project jim phillips, northeastern state university david kern, northeastern state university jitendra tewari, northeastern state university kenneth jones, northeastern state university-broken arrow this study employs self-leadership theory applied to developing and implementing a change project involving senior level students at a regional university. preliminary research found evidence of students’ ability to make meaningful changes through the project, and exhibit a subsequent level of influence over those who observe their change process. this is relevant to the current business environment, in that shared leadership, empowerment, and participative management require business graduates to attain some level of leadership ability to function effectively in organizations. a significant stream of research has evolved from the self-leadership concept developed by charles manz in the mid-1980’s (manz 1983, 1986). the focus of this stream of literature is on leading oneself in contrast to external leadership or direction (neck and houghton 2006; stewart et al., 2010). central to the theory are three strategies to assist in leading oneself: behavior-focused, natural reward and constructive thought pattern (manz and neck, 2004; manz and sims, 2001; neck and houghton, 2006; prussia et al., 1998). much of the research has employed a questionnaire (houghton and neck, 2002) designed to measure the subject’s use of the three strategies, and associated sub-strategies in determining their level of self-leadership. research has found relationships between self-leadership measures and job satisfaction (houghton and jinkerson, 2004; manz and neck, 2004), self-efficacy (neck and manz, 1996; prussia et al., 1998). in a comprehensive review of self-leadership literature, neck and houghton (2006, 285) suggest that “the application of self-leadership strategies may result in a number of predictable outcomes/performance mechanisms, including commitment, independence, creativity, innovation, trust, team potency, positive-affect, job satisfaction, psychological empowerment and self-efficacy.” a complementary concept of self-leadership is presented by schaetti et al., (2008, p. 4), "being responsible for ourselves…is the first step in being able to effectively lead others". this expands the concept to address both internal leadership and external leadership, whereas the former provides the foundation of the latter. in essence, self-leadership contributes to achieving personal change and improvement, while simultaneously influencing and “leading” others who observe the individual’s change through self-leadership. it is this dual concept of self-leadership that created our interest in the selfleadership change project, implemented in a university setting with senior-level business students. this study contributes to the growing research on leadership concepts and, specifically, self-leadership theory in two ways. first, the theory is applied in a learning environment where many of the studentparticipants have had little opportunity to develop broad leadership skills, and little exposure to selfdevelopment techniques. the structure of the self-leadership change project slcp) employed in this experiment specifically applies cognitive, behavioral and motivational concepts central to the theory. second, the study evaluates the level of influence exerted by “self-managed” individuals on those who observe the behavior and changes experienced by these individuals. the idea that self-leadership behavior will influence others (as a form of external leadership) is suggested in the literature, but is not specifically addressed. we specifically propose that successful self-leadership contributes to individuals’ ability to lead others through external influence. the objective of the self-leadership change project are to introduce students to a learning experience that first, has the potential to enact meaningful change in their lives, second, reveals the power of selfmanagement in influencing (“leading”) others, and third, builds a skill and knowledge of self-leadership that can be enacted multiple times in their careers/lives. the objective of the research is to evaluate the phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 72 effects of the slcp on self-leadership results, on external influence of observers of the students’ behavior, and on students’ intentions to continue to employ self-leadership in the future. literature review self leadership since argyris (1957) and mcgregor (1960) advanced a humanistic perspective on leadership that emphasized self-actualization and autonomy for individuals in an organization, there has been an increasing emphasis on distributive leadership in scholarly publications. leadership models that embrace the distributed leadership concept in one form or another have received increasing attention, including empowerment (pearce and sims, 2002), authentic leadership (e.g., luthans and avolio, 2003: avolio and gardner, 2005), servant leadership (e.g., van dierendonck, 2011), superleadership (manz and sims, 1991), and ethical leadership (brown et al., 2005). the focus of this study, self-leadership theory (e.g., manz 1983), shares this focus on inclusion and participation, and is particularly relevant to a learning environment. self-leadership theory is substantially based on behavioral and cognitive processes, which can be learned and practiced in a university setting. moreover, an underlying assumption of selfleadership is that individuals can self-select objectives and capitalize on intrinsic motivation. these attributes suggest that self-leadership theory can be applied effectively in a learning environment, thus building a valued set of capabilities to be employed throughout ones business career. self-leadership plays an important role in the modern organization. manz and sims (1980), in setting the stage for self-leadership theory, discuss the importance of leaders encouraging self-managed subordinates, which “can be instrumental in achieving organizational goals, and that it is a useful and legitimate role of the supervisor to develop and encourage self-management capabilities. “…selfmanagement…can be indeed be a substitute for leadership.” theories of shared leadership and empowered leadership focus on the abilities of multiple individuals to lead themselves or even provide leadership in a team setting. in 2004, quinn noted that “understanding that leadership is a temporary dynamic state brings us to a radical redefinition of how we think about, enact and develop leadership. … anyone can be a leader” (whetton and cameron, 2007, p 542). self-leadership was initially advanced as a unique theoretical perspective in management literature in 1983 by charles manz, building on the concept of self-management and self-control theories (e.g., manz and sims, 1980; cautela, 1969). self-leadership has been viewed as providing a more comprehensive framework for the enactment and application of individual development, specifically addressing selfawareness, self-regulation, intrinsic motivation, and specific behavioral and cognitive strategies (e.g., stewart et al., 2011). self-leadership theory draws on a number of theories and research streams, including self-regulation, self-management, self-control, goal-setting, intrinsic motivation, and social cognitive theory (e.g., manz, 1983; neck and houghton, 2006). a core definition is offered by neck and houghton (2006, page 271): “self-leadership is a selfinfluence process through which people achieve the self-direction and self-motivation necessary to perform (manz, 1986; manz and neck, 2004). self-leadership consists of specific behavioral and cognitive strategies designed to positively influence personal effectiveness. self-leadership strategies are usually grouped into the three primary categories of behavior-focused strategies, natural reward strategies and constructive thought pattern strategies (manz and neck, 2004; manz and sims, 2001; prussia et al., 1998).” the prescriptive nature of the three strategies, and associated discussions of specific techniques act as an important resource in the application of the theory to a learning environment. consequently, the structure of the slcp experiment incorporates self-leadership strategies most appropriate for the university setting, particularly behavior-focused strategies and natural reward strategies. additional information on the origin and details of self-leadership theory can be found in recent articles by neck and houghton (2006), boss and sims (2008), and stewart et al., (2011) self-leadership as influence in the modern organization, individuals are often expected to develop leadership skills in order to succeed at virtually all levels of organizations, beginning with managing themselves, and ultimately, phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 73 acting as models for others to follow. dwight eisenhower (lyon, 1974)) modeled himself after george marshal, recognizing that a primary responsibility of leaders was to develop leaders and delegate responsibilities. peter drucker (1996) noted that “executives who do not manage themselves for effectiveness cannot possibly expect to manage their associates and subordinates. management is largely by example.” john kotter, in “a force for change: how leadership differs from management” emphasizes the need for recognizing and rewarding those who develop leaders in their businesses. the concept of authentic leadership (george and sims, 2007) calls for empowered leaders at all levels of the organization. although the importance of influencing others plays a secondary part in self-leadership literature, it is implied as a complementary outcome to self-mastery. manz and sims (1980), in an earlier discussion of self-management, note that “if a leader reinforces self-management in one subordinate, a selfmanagement model is available for other subordinates. …the leader’s own self-management behavior inevitably serves as a model to subordinates.” in 1991, manz and sims (p18, 25) built on this logic in proposing a “super leader who can lead others to lead themselves”, and who facilitate “the self-leadership energy within each person” “...if we want to lead others to be self-leaders, we must first practice selfleadership ourselves. if you want to lead somebody, the first critical step is to lead yourself.” the influencing aspect of self-leadership is based on social cognitive theory, which identifies modeling (bandura, 1986) as a way in which individuals influence others to successfully engage in personal change. “if knowledge and skills could be acquired only through direct experience, the process of human development would be greatly retarded, not to mention exceedingly tedious, costly and hazardous. fortunately, people can expand their knowledge and skills on the basis of information conveyed by modeling influences (wood and bandura, 1989).” as such, we look to social cognitive theory in providing the “glue” between the personal self-benefits of self-leadership, and the external benefits associated with its positive external influence. bandura’s (1986) discussion of self-mastery and influence is directed toward the individual who is involved in learning, whereas she observes the behavior and outcomes of the model, and employs this knowledge gained in practicing his own behavior, which ultimately contributes to the recipient’s self mastery. the extension of this logic is that an individual who successfully engages in self-leadership strategies, not only develops self-mastery, but also influences others, acting as a model themselves in the process. this resonates with the playwright, philip messinger’s assertion, “he that would govern others must first master himself”. this oft quoted statement provides the jumping off point for leadership and development learning in whetton and cameron’s “developing management skills” (2007, page 58). this is echoed in popular leadership literature, which supports the idea that leaders must first develop self-control, and is embedded in the logic of emotional intelligence (goleman, 1998; sternberg, 1996). structure of the self-leadership change project and hypotheses the self-leadership change project (slcp) is structured to encourage and support self-motivated action in a learning environment (appendix a). we specifically draw on behavioral and intrinsic reward strategies, which are outlined below and are documented in multiple self-leadership articles (e.g., boss and sims, 2008; neck and houghotn, 2006; sims and manz, 1996), and applies to each of the following strategies: self-goal setting: the first and most critical step in the slcp is to set a personal goal, which is mirrored in the self-leadership behavioral strategy. this sets a direction and desired outcome for the student. in that it is self-assigned it provides personal involvement and commitment. the research on goal setting (locke and latham, 2002), provides strong support for this as the most critical aspect of self-leadership (boss and sims, 2008). intrinsic reward: the self-goal setting process is reinforced by encouraging students to select anything they choose. moreover, they are encouraged to select something they really want to do, and one that is well within their control avoiding difficult or negative objectives. by making the project phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 74 desirable and clearly achievable, the doing of the project, and making progress becomes the reward itself. this intrinsic reward strategy is integrated with the first step, self-goal setting. self-observation/self-evaluation/cueing: students are required to keep a journal of their activities associated with their change project, and personal observations of the process. they are also required to review outside information relative to the specific project they have chosen. both provide increased self-awareness and provide a venue for evaluating behavior and results, and acts as a cueing strategy as a reminder that they must not only record their activities and thoughts, but actually complete the activity. self-reward: in concert with social cognitive theory principles, students are coached in developing projects that provide early successes. in essence, following weick’s (1984) notion of a “small wins” strategy. they are encouraged to reward themselves with simple ideas a special treat or a time to do something that they enjoy. students are warned to avoid negative feedback and penalties. external feedback: this is not a strategy identified in the literature; however, it is integral to the slcp. observers provide feedback and encouragement that reinforces self-observation, selfevaluation, self-cueing combined with intrinsic rewards. students generally ask for periodic feedback from observers, who not only give them a sense of progress, but are often very positive about students’ changes and progress. the slcp, in its current structure, does not include cognitive focused strategies (e.g., mental imagery, mental rehearsal, self-talk, and managing beliefs and assumptions). the circumstances involved do not permit sufficient time allocation to train and rehearse in these strategies. the following four hypotheses are surmised appropriate from the observations: hypothesis 1: changes in behavior associated with successful self-leadership change projects will be apparent to others who have observed the change project. hypothesis 2: successful completion of self-leadership change projects will influence the actions and behavior of those observing the change process. hypothesis 3: successful completion of self-leadership change projects will affect student intentions to employ the slcp approach in the future: a) continue existing project; b) start a new project. hypothesis 4: the level of positive feedback from observers will relate positively to student intentions to employ the slcp approach in the future. preliminary responses and results at the end of the project the students complete a written report that has provided substantial benefit from the project for many of the students. they also complete a survey (appendix b), which provides selfreported information on the effect/success of their change project, which leads to the first suggested hypothesis listed above. the concluding remarks offered freely by students at the conclusion of the course are listed in appendix c. since this is a preliminary study, a work in progress, the following key indicators are presented in this report to express our encouragement in proceeding further. from the survey instrument, particularly questions six, eight, nine, fourteen, sixteen, and twenty, the researchers determined very positive results, which are discussed here in order and in relation to each class group a and b. question 6: what amount of change did you notice in yourself? on a likert scale of 1 to 5, with 1 being “none” to 5 being “a great deal”, class a had a mean score of 3.87 and class b a mean of 4.03. this reflects the student has seen the results of the project in their own lives. since class a had 15 students and class b had 40 students, it was encouraging to see the increase in mean score as the class size increased in this preliminary sample. phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 75 question 8: to what degree did you notice any change in others around you as a result of your slcp? class a presented a mean score of 3.00, while class b was again higher at 3.08. again, a very favorable response to a question that requires the student to become aware of the impact their behavior has on her/his environment. more detailed answered can be seen in the student statement in appendix c. question 9: to what degree did your observers notice any change in others around you as a result of your slcp? class a had the higher mean of 2.80 with class b falling slightly to 2.68. this response was lower than student awareness of observer impact, but this query implies the student may not be aware of the impact their change behavior had on other, noted by their chosen observer/observers. see appendix c for detailed statements by participants. question 14: do you feel that you will continue the change that you began? this was very important feedback in relation to the study being critical to impact on participants. class a presented a unanimous positive response with 15 of 15 affirming, while class b affirming a strong 37 of 40 students. this positive response could be affected by the decreasing difficulty of maintaining their change goal, as will be intimated in question 20. question 16: are you planning on starting a new change project in the near future? again, class a offers a strong response with 80% (12 of 15) affirming the desire to continue the change process as a lifestyle, and 70% of class b seeing value in this leadership behavior. question 20 has three parts, which are addressed below: (1) what was your slcp's perceived difficulty level to you at the very beginning?, (2) what was your slcp's perceived difficulty level to you halfway through?, and (3) what was your slcp's perceived difficulty level to you toward the very end? class a’s fifteen student responses displayed a decreasing difficulty in continuing the change behavior with the mean scores of 3.47, 3.13, and 2.27 respectively. class b responded in kind with diminishing mean values of 3.43, 2.90, and 2.34 in order. the higher mean in response to question 20 may reflect the difficulty of the challenge the students selected for themselves. discussion modeling is a core concept of social cognitive theory, and is included in the slcp in two ways. first, students engage three or more observers who are asked to observe the student as they make their way through the change project. some observers provide written feedback periodically, while others provide verbal feedback. the observers are often family members, friends or co-workers. it is not unusual that some observers join in the structured behavior chosen by the students (e.g., working out together, or sharing healthier meals). a second way feedback is provided is in day-to-day contact with co-workers and colleagues, where they have not been asked to observe the change, and notice the change in behavior or attitude, sometimes without realizing it. an example is a student whose objective was to overcome extreme shyness by speaking first to people when she met them. she found that people responded much more positively to her new approach, which encouraged that individual further, and influenced her interpersonal relationships. another student who focused on spiritual development had such a dramatic change in behavior that coworkers asked what was happening and how her change impacted them and their relationship. the potential for influencing others provided the basis for hypothesis 2 listed above. an important element in learning to lead is the likelihood that individuals will employ similar strategies in the future to continue self-development. students were asked to provide feedback on their intention to utilize self-leadership strategies in the future. future steps might include the following concepts and actions: addressing “ideal-self concepts”, linking applied results to self-leadership measures that currently exist, building more effective learning processes, and/or incorporating testing within different types of learning techniques. based on student reactions, there are limitations and modest anticipation. limitations and conclusion the thrust of this paper is to discuss and evaluate a project that applies self-leadership strategies to actual learning environments. unlike previous studies, the objective is not to evaluate individuals’ level of phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 76 self-leadership aptitude, but to build that aptitude. consequently, the survey instrument relies on selfreported results. our results should be compatible with the information that students provide in end of project reports, and comments provided by outside observers. this provides some support for the value of the selfreported information. for future studies, additional reporting techniques will be considered. a second criticism is that the survey and results do not tie to previous studies that measure individuals’ level of self-leadership prior to the project. this is a potentially rich research avenue that should be pursued in the future. moreover, the opportunity to introduce additional self-leadership strategies into the project could provide additional information. the researchers have determined to continue the data collection process and provide more statistical analysis of the preliminary and larger, future sample populations. future focus should incorporate critical path training and change affect for the participant. the research, learning, and change exercise all seem to reflect good use of class time and future skills development. references avolio, b., & gardner, w. 2005. authentic leadership development: getting to the root of positive forms of leadership. leadership quarterly, 16: 315-338. bandura, a. 1986. social cognitive theory. new york: free press. brown, m., treviño, l., & harrison, d. 2005. organizational behavior and human decision processes. organizational behavior and human decision processes, 97: 117-34. boss, a., & sims, h. 2008. everyone fails! using emotion regulation and self-leadership for recovery. journal of managerial psychology, 23: 135-150. goleman, d. 1998. working with emotional intelligence. new york: bantam books. houghton, j., & jinkerson, d. 2004. constructive thought strategies and job satisfaction: a preliminary examination. paper presented at the 2004 western academy of management conference, alyeska, ak. houghton, j., & neck, c. 2002. the revised self-leadership questionnaire: testing a hierarchical factor structure for self-leadership. journal of managerial psychology, 17: 672-91. luthans, f., & avolio, b. 2003. authentic leadership development. in k. cameron, & j. dutton, (eds.), positive organizational scholarship: 241-254. san francisco: berrett-koehler. manz, c. 1983. the art of self-leadership: strategies for personal effectiveness in your life and work. englewood cliffs, nj: prentice-hall. manz, c. 1986. self-leadership: toward an expanded theory of self-influence processes in organizations. academy of management review, 11: 585-600. manz, c., & neck, c. 2004. mastering self-leadership: empowering yourself for personal excellence. upper saddle river, nj: pearson prentice-hall. manz, c., & sims, h. 1980. self-management as a substitute for leadership: a social learning theory perspective. academy of management review, 5: 361-7. manz, c., & sims, h. 1991. super leadership: beyond the myth of heroic leadership. organizational dynamics, 22: 18-35. phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 77 neck, c., houghton, j. 2006. two decades of self-leadership theory and research: past developments, present trends, and future possibilities. journal of managerial psychology, 21: 270-95. neck, c., & and manz, c. 1996. thought self-leadership: the impact of mental strategies training on employee behavior, cognition, and emotion. journal of organizational behavior, 17: 445-67. pearce, c., & and sims, h. 2002. vertical versus shared leadership as predictors of the effectiveness of change management teams: an examination of aversive, directive, transactional, transformational, and empowering leader behaviors. group dynamics: theory, research, and practice, 6: 172-197. prussia, g., anderson, j., & manz, c. 1998. self leadership and performance outcomes: the mediating influence of self-efficacy. journal of organizational behavior, 19: 523-38. schaetti, b., ramsey, s., & watanabe, g. 2008. making a world of difference: personal leadership. seattle, wa: flyingkite. sternberg, r. 1996. successful intelligence. new york: simon and schuster. stewart, g., courtright, s., & manz, c. 2011. self-leadership: a multilevel review. journal of management, 37: 1185-222. stodgill, r. 1975. the evolution of leadership theory. academy of management proceedings, julyaugust: 49–61. van dierendonck, d. 2011. servant leadership: a review and synthesis. journal of management, 37: 1228-1261. wieck, k. 1984. small wins. american psychologist, 39: 40-49. jim phillips is an associate professor of management at northeastern state university. he received his ph.d. in management from new mexico state university. his research interests include personal & organizational transformation, strategic planning and self-leadership change. jitendra tewari is an associate professor of marketing at northeastern state university. he received his ph.d. in marketing from florida atlantic university. his research interests include international bidding practices, pricing, and supply chain management. dave kern is an assistant professor of management at northeastern state university. he received his ph.d. in management from oklahoma state university. his research interests include strategic decisionmaking, leadership and organizational change. he has published in journal of private equity, journal of higher education theory and practice, and others. ken jones is an instructor of information systems and supply-chain management at northeastern state university broken arrow. he received his d.b.a. from anderson university. his research interests include remote work environments, product-specific incentives, pre/post assessment in course-specific objectives, and change leadership. he has published in advances in business research, journal of the scholarship of teaching and learning for christians in higher education, and others. phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 78 appendix a: self-leadership change project (slcp) instructions © legion associates, llc. select and begin slcp each participant selects and begins a personal success/achievement program within the first week of the program (choose from many see below). then, write a simple sentence or two describing and explaining the slcp. also, include how your personal change will benefit someone or something outside of yourself. select and orient observers in addition, each participant selects observers (3-5). participant orients observers to record each week anything related to the slcp that has affected or made a difference in anyway with the participant's family, friends, co-workers, colleagues, any others. journal each day each day each participant writes in his/her journal any personal thoughts, analysis and insights as a result of the slcp. read and study participants read and study materials related to their slcp (books, periodicals, online sources). then, provide a brief summary (brief literature review) of their learning, naming authors and titles used. summary paper participants write a summary of their slcp using their observers' notes and including their own personal comments. particulars... for the self-leadership change project (slcp) we have tried to leave as much as possible open for your own discretion. we don't want to be too controlling due to the vast differences in projects possible. hence, this should be very personalized. nonetheless, here are our most specific guidelines... -> describe simply what you are changing about yourself. you might ask the following questions: "what do i want to begin doing in my life?" "what do i want to stop doing in my life?" this could be one line or a paragraph or so. keep it simple and yet provide enough detail that will help guide you to fruition. remember to include how your personal change will benefit someone or something outside of yourself. -> the idea is to actually carry out the self-leadership change project (slcp) until the end of the timeframe. -> work on personal change. don't try to change something that you don't have control of. for the most part, only work on yourself. -> you need to be interested in working on something that you can change immediately, and not think about for the future. -> your slcp need not be complex. it would be better to try something that you are ready to begin and have the confidence to accomplish. -> ideas for personal change may include, but are not limited to the following areas: physical fitness healthier eating anger management spiritual improvement methods emotional improvement methods thinking more positively read a specific book or books to learn more about a subject be a better neighbor financial planning budgeting a specific daily, or weekly goal focusing on overcoming a particular weakness -> keep a journal each day with thoughts of your progress with your slcp. -> you need to set up data collection methods (before you begin). you will need 3-5 observers. they will record changes in you and more particularly, if there are any changes in your environment. your observers will provide reporting of your success and how your slcp has affected (in any way) your environment and the others in it. your observers need to ask: "how has the slcp affected others in any way?" -> your final report or summary paper will include your slcp, any learning on the topic (see bullet immediately below), your daily journal entries, and a summary and analysis of the data provided by the observers.t -> you probably have already looked at materials and information as you have contemplated and embarked on your slcp. just simply provide a short summary of what you have discovered in reading about your slcp. step-by-step self-leadership change project (slcp) process 1) select a project and begin personal change 2) write a simple sentence or two that describes your slcp 3) select and orient observers 4) record slcp progress each day 5) provide summary of readings about your slcp 6) at the end of the timeframe write a final report or summary paper that includes summaries from readings, observer notes, and personal observations phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 79 appendix b: survey the survey (see below) is a completely different item from the class assignment (see above). circle one (1-none, 2-little, 3-somewhat, 4-much, 5-a great deal) survey questions 1) what was your slcp (please be brief)? 2) did you include in your slcp a purpose to help others? y/n 3) if yes, what was the purpose? 4) why did you choose the project you did for your slcp? 5) to what degree did you achieve your goal? circle one (1-none, 2-little, 3-somewhat, 4-much, 5-a great deal) 6) what amount of change did you notice in yourself? circle one (1-none, 2-little, 3-somewhat, 4-much, 5-a great deal) 7) to what degree did your observers notice any change in you as a result of your slcp? circle one (1-none, 2-little, 3-somewhat, 4much, 5-a great deal) 8) to what degree did you notice any change in others around you as a result of your slcp? circle one (1-none, 2-little, 3-somewhat, 4much, 5-a great deal) 9) to what degree did your observers notice any change in others around you as a result of your slcp? 10) did non-observers comment on any change in you or others around you? y/n 11) if yes, please explain. 12) what method(s) did you use to meet your goal? 13) what learning(s) did you have as you experienced the change? 14) do you feel that you will continue the change that you began? y/n 15) explain your answer to the question above. 16) are you planning on starting a new change project in the near future? y/n 17) if yes, are you planning to make any changes to the slcp process? y/n 18) explain your answer to the question above. 19) information about you: age____, gender m/f____, years of full time work expected phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 80 appendix c: concluding remarks by preliminary participants class a statements for slcp survey question 1: what was your slcp (please be brief)? a001 to work out more (3-5 times a week) a002 to gain more patience in my everyday life a003 being more polite a004 to gain 10 pounds of muscle before end of the semester. a005 exercise 4-5 times a week and stop drinking alcohol a006 photo blog 1 uploaded picture of my son noah each day for the duration of the semester a007 financial stability -budget money better a008 i was to completely stop chewing tobacco, to help me live longer to support my friends and family a009 to read my bible daily a010 read the new testament of the bible a011 keeping healthy in mental and physical aspects a012 to read more books so in the long run i can become more knowledgeable. a013 pray vocally twice daily a014 to get in better shape a015 improve my organization skills and become a well-organized person. question 3: if yes, what was the purpose to help others? a005 to be held accountable and to get their input on the changes a006 to help members of my family share in the milestones and growth of my little boy a008 to live longer, healthier, and happier to help support my friends and family for years to come a009 by strengthening myself i will be able to help others a010 to encourage them to read the bible, just not the new testament a012 to help other people appreciate how important it is to read and explore a whole new world of books a013 to be aware and hold myself accountable of my thoughts, words, and actions to others a014 to help others feel better about themselves and become more healthy a015 to show others how being well organized can be extremely beneficial. question 4: why did you choose the project you did for your slcp? a001 to become more physically and emotionally better as a person a002 so i could have a less stressful life a003 to better myself as a person a004 cause i wanted to try and test my limits of my body a005 to reduce stress in my life a006 i wanted to capture important moments of my son's life and familiarize myself with my camera and the art of photography a007 because i felt it was the most important aspect of my life that needed change a008 i felt like it was time to change from my old habits and start with new "fresh" and healthier habits a009 it was something that i wanted to improve such as my spiritual growth and bible knowledge a010 it was an area that i was doing regularly already a011 know the relationship between mental and physical health and the physical activity toward mentality a012 because i never read and all success stories read had something with that person reading a013 it felt right when it came to me a014 because of my wedding in april a015 something i had wanted to do for years question 11: if non-observers commented on any change in you or others around you explain: a001 my mom noticed i was for one working out, and was happier with life in general a004 people just said i gained a lot of weight and i look thicker a006 non-observers given a link to my blog; commented in the quality of my photos; inspired to start blog a008 my fiancé' spoke to the fact, "i look like i had won something all the time." a009 how others can begin to strive to do better in themselves and some seek god a012 someone saw me reading a times magazine and made a comment about it a013 my relationships with my family is much better a014 i like to work-out more and i'm more aware of what i'm eating. others have lost weight with new exercise question 12: what method(s) did you use to meet your goal? a001 a set schedule of times and days to go to the gym a002 i used meditation, counting techniques, and breathing techniques a003 self-motivation a004 i maintained a regular workout schedule and had an all you can eat diet but with protein a005 i used self-motivation, will power, and prayer. i used the journal to keep me motivated and accountable a006 posting a photo each day a007 designing a budgeting plan that allowed me to track and regulate my expenses a008 cold turkey, this did not work, so a slow cut-down on amount of tobacco consumed a009 i had to live what i preach to be an example. many times action is louder than words. people see you living right will encourage them more than telling them how to live their lives phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 81 a010 i read one hour to one-and half hour a day a011 go to the physical fitness center at least 3 times a week; research beneficial information in various media; keep doing a012 just stuck with the slcp method; write it down and go step by step a013 kept a journal and mentally held myself accountable a014 working out regularly, eating healthy a015 research-planning-small wins-reward systemjournal to document question 13: what learning(s) did you have as you experienced the change? a001 that small things make a difference. and that people are influenced easily by others. a002 that i could actually control my patience level no matter what happens a003 to never give up a004 that you can do anything if you really put the hard work and effort into what you want to accomplish a005 a great deal of things about myself and how the changes affect your household. a006 i did a lot of research on how to properly use my camera. i spent lots of time reading articles published by photographers. a007 i learned that this project required a lot of work and that unknown obstacles could cloud the progress that is trying to be obtained a008 i learned that in order to succeed at anything worth doing you must push yourself and be persistent a009 began to see and hear other people’s problems what they had been through and realize mine were not as bad so i shouldn't let the small things get to me. a010 to read the bible more a011 keep doing is important; we've very accustomed to do routine works a012 books are educators to those who read them. every book i read helped out and i gained a little knowledge ever time. a013 i can change and small changes do matter. a014 that i'm my biggest fan and motivator. i can do and achieve anything that i put my mind to. a015 several ways to not only become well organized, but steps to stay that way question 15: explain if you feel that you will continue the change that you began a001 i have noticed the impact of working out, and want to remain this way a002 my family seems so much happier since i have changed a003 i chose my slcp because it was something that i could continue long after class a004 i love to work out and stay in shape so i will for sure continue this a005 i think i learned a great deal and will do it again. a006 i plan to continue my blog a007 i feel that the slcp needs more improvement and this project is very beneficial a008 i did not completely quit chewing, but have cut down about 70%, and i will continue to cut down, and eventually quit and quit smoking a009 continue to study to show myself improved a010 it will help me better understand the history of the church and other major events that happened in the bible a011 it's very beneficial to me. a012 because i have set a goal and plan to continue a013 i want to do this always. i have ideas on how to modify this better a014 because my project isn't completed, and after it is it will stick because it is a life style change a015 lifelong commitment to staying well organized question 18: explain if you are planning to make any changes to the slcp process a006 no response even though respondent wants to make changes. a008 stop smoking a015 longer time to achieve goalkeep on trackmake routine class b statements for slcp survey question 1: what was your slcp (please be brief)? b001 to take more control of my life and do a complete make over b002 exercise more, eating healthier and losing about 20 pounds b003 originally to save money for after college; changed to creating more volunteer opportunities on campus b004 physical fitness b005 be more controlling of my budget b006 improve time management skills b007 healthier eating habits for me and my family b008 lose weight and begin exercising more so that i could get physical activity and feel better about myself b009 to prepare myself for getting a job after graduation b010 to create a healthier lifestyle by eating healthier and starting to exercise and maintain both b011 to start saving money for retirement and for future needs b012 getting in shape and eating healthier b013 to be a hotel manager b014 develop a regular fitness routine b015 become a vegan and work out more b016 to eat healthier and to work out at least 30 min b017 cook more at home and in turn eat healthier b018 to live a healthier lifestyle, physically, mentally and spiritually b019 to manage time better b020 saving money phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 82 b021 setting a goal to work out at least three times a week and to stop saying negative things b022 to quit stressing about things i had no control over b023 becoming a person who is on time to events, class, work, and church b024 change in exercise habits b025 to be more social, build rapport with others, and assist others with problem solving b026 originally write 20 songs then due to time constraints releasing a vinyl b027 eat healthier and work out more often b028 meet someone once a week to get to know them personally and make a difference in their life b029 stop letting sentimentalities disrupt my life b030 to do something specific and intentional each day to make someone else's day better b031 to play less video games and focus more on my homework b032 become more of a leader in my church b033 paying off my school debt and physical fitness b034 become a less selfish person by volunteering; becoming a better listener and doing kind acts to others b035 procrastination b036 to work out b037 read bible every day b038 changing the way i treat others and understanding their feelings b039 less stressed on the everyday tasks; more emotionally stable; change view of myself, others, and my life b040 create happiness in myself and others on a daily basis while working, internship, and 16 hours question 3: if yes, what was the purpose to help others? b003 providing opportunities to volunteer to help people help people b004 be less reliant b005 to be able to support them b006 to provide more quality time with my kids b007 to improve the health of my children b008 to get my family to do more physical activity and spend some quality time together b015 to be healthier b020 to benefit loved ones in the future b025 means to help others; did not state how b026 i'll get to that b028 to help them feel good about themselves and to feel cared for b029 less stress on my family; clothes donation b032 to help other people with their faith b033 i try to accomplish something i couldn't do tomorrow b034 to concentrate less on myself and more on others b037 the basis of my religious belief is to live to serve god and others b038 for others to try slcp i encouraged many friends and family members to do so b040 create happiness through a positive attitude and passing that on to others question 4: why did you choose the project you did for your slcp? b001 because i put everyone else before me, then i procrastinate towards the end b002 2 years ago i had my gallbladder removed and never started my exercise or weight loss that i needed to b003 because it is something i am passionate about b004 something i've neglected for a while b005 because, i felt it was important b006 because my kids deserve more of my time b007 i was concerned about my family's quality of life b008 so that i could feel better about myself and be more healthy. it might reduce my stress level b009 so that i would take the correct steps in finding a job and be prepared b010 to become healthier; graduate healthier; get married and be healthier b011 i have a problem saving money. i wanted to do something that would help me and become independent b012 i got tired of running out of breath going up stairs and just wanted to be a healthier person b013 i want to know how to start and where to go b014 i wanted to get back in shape and lose some weight b015 it’s something i thought about doing for a long time and this gave me the final push b016 i was tired of being lazy and wasting money on junk food. i felt i needed to self-discipline b017 i like to cook and i thought this would motivated me to do it and make myself make time to cook b018 trying to lose weight and be more rested so i can focus on and have time for the important things in life b019 being a last minute person stresses me out; in order to stop i knew i needed to manage my time better b020 to help save money and prepare for my future b021 physical fitness is a key to a long and healthy life; giving up negative thoughts good for mental health b022 to help myself learn to focus on me and what is best for myself b023 that was an issue i have always had and needed to improve b024 health issues b025 strengthen weak areas of life b026 want to have outlet to release my friend's music. using vinyl is best method for recording b027 i felt that i wasn't as athletic as i used to be b028 i meet people all the time but never get the chance to actually get to know them personally phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 83 b029 it was something i wanted to do that i had been putting off. b030 i thought it would be enjoyable and rewarding b031 i thought i was playing video games too much and i had a lot of homework that needed to be done b032 i felt it was necessary for me to be more involved in my church b033 because i needed to change my habits b034 i thought it would improve my quality of life and make me a better person b035 i'm always waiting to the last minute for everything b036 to get in shape b037 my relationship with god is important. i am human and cannot honestly say most important b038 i felt it was something i needed to work on b039 it is an area of my life i want to change and improve to be a better individual b040 because i love and care about the people in my life and want to be a ray of sunshine in their life question 11: if non-observers commented on any change in you or others around you explain: b001 my husband noticed a change like the way i started to carry myself at home. b002 i had people come up to me that i knew and told me that it looked like i had lost weight b003 a non-observer noticed my progress and mentioned it in a formal meeting and an awards committee meeting b004 they noticed better eating habits b007 lots of friends commented on loss of weight b008 my mom and my sister said that i looked better and seemed much healthier and happier b009 how i dressed and ways i would take a stand for equal rights or being politically correct b010 parents noticed i was happier and that i had lost weight b011 my mother noticed when i didn't ask for money and that i was giving her money to put in my savings b016 they noticed i was beginning to look more fit, bringing lunch to work, and not eating out as much b017 i lost weight and people noticed b018 they would comment on what i would bring to lunch, or joke about my "bedtime" b020 friends and family all noticed i was being much more responsible and not so careless with my money b021 i had several individuals comment on my positive attitude of late and better physical shape b024 happier, more energy b025 more openness, willingness to be present more in activities and resources that interested others b026 they were stoked to know that i wanted to help tulsa's flourishing music scene. b027 some of my friends that knew my laziness said they liked the new me working out more b029 several members of my family made comments b032 they said that i seemed to have more confidence question 12: what method(s) did you use to meet your goal? b001 i went to the beauty salon and started shopping for myself more b002 keeping track of what needed to be done, of calories, and exercised as much as i could b003 persevering regardless of desired income; set mini-goals in order to reach end goal b004 exercise b005 self control b006 i prioritized things better and made better use of my time b007 i researched different diets, settled on atkins, bought the guide and downloaded the ap on my phone b008 walked 1 mile, progressed to 2 miles, implemented small exercises on other days in my routine b009 classes, interviews, professional dress and actions, job searches, and created a backup plan b010 observing, structure of project, rewards, acknowledgement of success b011 really no methods just put it in savings b012 doing lots of research b013 i used vision method b014 worked out regularly and ran, played a lot of baseball and golf b015 i was positive about it, researched b016 dedication, self-discipline, motivation, time, calendar b017 i started to eat healthier and feel better physically, started to exercise about 30 min. daily b018 small steps to change instead of immediate change b019 doing homework ahead of time and at a set scheduled time to prevent procrastination b020 kept project in mind when shopping and only bought necessary things b021 the assignment helped me to stay on track, determination, wanted to be successful b022 i made myself refocus my attention; made lists to only concentrate on things in immediate future b023 counting method when dealing w/ocd. b024 excited about project, then forced myself to go, then enjoyed going b025 reading materials, exercise activities, social events, personal follow-up, using business skills b026 change check to fund production of vinyl, record album funds from playing shows b027 being patient and focused b028 i used methods such as being more social and more noticing of others b029 focus, emotional growth b030 set time aside each day to plan for the next day’s assignment b032 i volunteered in different areas of the church and helped lead a bible study group b033 save i didn't eat out as much and buy useless things i did not need b034 avoid distractions when conversing; gave feedback to listener; helped others and volunteered b035 started early on things rather than late phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 84 b036 worked out twice a week and ate healthier b037 no method; tried hard to read as often as i did which was nowhere near where i want to be b038 book, readings, and advice from dr. phillips b039 books, articles, accountability partners, better eating habits, creating new habits b040 own ability to control and direct my attitude by believing in myself. i kept with it question 13: what learning(s) did you have as you experienced the change? b001 i learned that it can be fun to do things for yourself b002 i had it in me to lose the weight b003 to achieve change one must have the desire and motivation to make the change b004 how much better and confident i felt b005 it was much harder to give up things, even if you didn't need them b006 it was rewarding to make the changes and that my kids did notice that they had more of my time b007 how terrible i felt before and how the body processes food b008 i could do anything that i set my mind to and that i should continue to do a new project when i find one b009 i found myself and a lot of who i was; my mind changed how i thought, i became more professional b010 better to be healthy in the long run; more things work out better; project good for other things b011 economy is changing and social security won't be there. i can work hard now and have fun later b012 it is very hard to get started, but once started and don't give up, the easier it becomes b013 i learned to ask the right person for information b014 i learned that i could do a lot of things if i put my mind to it b015 lots of nutritional things; i cook way more now and am a better cook b016 understand strengths; use others motivation; practice self-discipline; make small goals b017 if i write my goals down it makes them easier to achieve b018 i can be very routine about things, it releases stress in not so healthy ways (eating) b019 i learned a great deal about myself and noticed more things that i would like to change b020 packing a lunch can save you tons of cash b021 changing things about myself was harder than i thought it would be b023 that i need to tackle my ocd quicker and faster b024 that you can make changes; it isn't always as difficult as it seems; progress makes others want change b025 how difficult change is; person must desire change; the gap between desired and actual results b026 the financial aspect is a hard pill to swallow; change check paid all of my bills b027 i could do anything i want if i'm really dedicated to it b028 i learned how to appreciate life and what it has to offer b030 i learned that it took time and effort consistently to maintain. i also learned to be less selfish b033 that i was able to come out of $1,500 debt with my income b035 that it's hard to change what you are used to but if changing for the good it's worth it in the long run b036 i can be diligent in doing this b037 i evolved some into a life of service; project was a catalyst for a serving lifestyle b038 i learned to consider others feelings and listen and be more positive to others thoughts and ideas b039 change is gradual; over time it becomes more significant; must be committed; persevere want to change b040 to believe in myself and my power to affect others. we are all connected and must live like that question 15: explain if you feel that you will continue the change that you began b001 i will continue to change. i will be a take charge person again b002 keep on exercising b003 after graduating i plan on continuing to volunteer and try to instill this desire in others b004 it helped me focus on the most important things b005 this is a life goal not a short term goal b006 i think this is important enough i will continue to focus on it b008 yes, because i do feel better about myself and i am beginning to feel healthier and it feels good b009 because my project is not done b010 you cannot just quit my goal and assume it will always stay the same. i will constantly work on it b011 i'm going to keep saving and building my retirement b012 yes because it will take some time to get where i want to be b013 i will take some courses in hotel management b014 i will continue to work out regularly after this class is over b015 this is a lifestyle change. the more i learn the more i stand by what i am doing b016 i would really like to practice for a marathon b017 i will continue to eat healthy and exercise because if i don't i will not feel physically good b018 staying balanced is important to sanity b019 this is something i have needed to change; it is something that will help me in the long run b020 you don't realize how much you can save; i think i have saved $800 in 3 months ($300 not eating out) b021 the changes i made were good ones that i will continue in the future b022 this change has benefitted me. i want to continue to work on it until it becomes automatic b023 i'm tired of my semi ocd issue and i want to go to work and school not rushing and relaxed b024 i love the way i feel now. i will continue b025 i did not achieve my goal which was more difficult than i thought; i still need to work on it b026 i want to have an outlet to put music out and do it on my own terms. b028 it feels good to meet people and get to know them phillips, kern, tewari, and jones advances in business research 2011, vol. 2, no. 1, 71-85 85 b029 ongoing process b030 i will continue, but probably not on a daily basis--maybe 2-3 times a week b031 because this is my last semester and don't expect to have more homework b033 because physical fitness is important to me and i will continue to save as much as possible for future b034 it felt good to help others, so of course i will continue it b035 it's better to start on things early other than dwelling and stressing about it at the last minute b036 i feel good, want to keep it up b037 this project opened my eyes to the importance of continuously growing and positively changing question 18: explain if you are planning to make any changes to the slcp process b001 there will always be new things that i want to do; i will make changes for that purpose b011 i'm going to learn a new language b014 i plan on changing my work out routine at the end of may b019 well i won't be writing everyday but i do have one goal that i want to achieve b020 no journal entries, just reading the card every morning b023 to drink more water and get healthier b026 just the financial aspect; i'd like to front production costs for the bands and have them pay me back b035 i don't know; depends note: all non-responses are vacant from this form. microsoft word abr--first-time-online-submission.docx advances in business research first time online submission instructions go to the journal website: http://journals.sfu.ca/abr/ click on register fill out the form. make sure you check the register as: author: able to submit items to the journal tick box (and others as applicable). submit the form (it might reject, for example, if you mistype the validation text, just try again). once the form is successfully submitted, you’ll see the user home where you can see your roles such as author or reviewer. click on author and it will take you to the active submissions page. you’ll see this: start a new submission click here to go to step one of the five-step submission process. follow the five steps and the last step is “confirm submission.” after you finish step five, you’ll be taken to your active submissions page. advances in business research 2011 volume 2.pdf tiger and parker advances in business research 2011, vol. 2, no. 1, 156-162 156 operations management service learning case study: using optimization to increase the effectiveness of the sife student care package program andrew tiger, union university matthew parker, union university the student care package program is a fundraising project conducted by a local chapter of students in free enterprise (sife) at a private university in the southern united states. the most arduous aspect of the program is determining which products to purchase to meet demand requirements, while minimizing purchasing costs. to reduce the amount of time and effort, and to develop a sustainable process, sife students utilized computer optimization software. incorporation of the microsoft excel add-in what’sbest! by lindo systems enabled students to reduce the time spent calculating materials and develop more efficient purchasing plans. optimization is initially presented to students in a sophomore quantitative methods business course. through optimization software, sife members are able to achieve higher levels of efficiency, sustainability, and profitability for the student care package program. the international organization students in free enterprise (sife) encourages students to seek ways to apply business lessons in the real world. each sife chapter brings business professionals and university student leaders together through work on various projects. these projects give student leaders opportunities to further explore the ideas they have encountered in their formal instruction and private study. with the help of seasoned business professionals, students plan and implement projects to improve their community, especially the lives of people in need. the students present reports on their chapter’s successful community outreach at a series of regional and national conferences, which recognize students for developing creative and beneficial projects and for presenting their results effectively and professionally (http://www.sife.org/). sife projects fall into the realm of service learning, and this paper presents a case study in which sife members applied mixed-integer linear programming to develop purchasing plans for their annual fund raising program. below, relevant literature is summarized and focuses primarily on the nature and benefits of service learning in business schools. service learning in business schools is gaining popularity; however, a gap exists in the field of operations management. following the literature review, the problem is presented, followed by the solution. a key part of the solution is its reproducibility for future sife members. additionally, other organizations can use to teach students operations management techniques, while benefiting the organization. finally, a reflection section discusses that students learned the appropriate modeling techniques by applying the techniques in later courses. literature review the literature supports the premise that service learning pedagogy is beneficial. service learning is an instructional method used by academic disciplines to enhance students' involvement in the community by providing them with several opportunities to complement classroom instructions (kenworthy-u'ren and peterson, 2005). opportunities in the form of service learning projects not only enhance students' abilities in applying academic learning to community issues, but in several instances the projects also address unmet needs in communities (anderson-butcher, 2004; peebles-wilkins, 2004). service learning programs contribute towards improving the educational and social fabric of a community (andersonbutcher, 2004). additionally, business schools have begun embracing service learning (govekar and rishi, 2007). service-learning pedagogy that supports community involvement values and promotes leadership development offers more effectiveness and efficiency for management educators interested in incorporating real-world learning into their courses than traditional internships and cooperative education (godfrey and grasso, 2000). real-world education in the business school classroom is based on imparting tiger and parker advances in business research 2011, vol. 2, no. 1, 156-162 157 "learnings that are dynamic, emergent, context-sensitive, and holistic" (billimoria, 1998: 266). some business school applications found are in the areas of marketing (hagenbuch, 2006; jakus, 1990; chapman and avila, 1991); management (andrews, 2007); entrepreneurship (shuman and hornaday, 1975); finance and banking (govekar and rishi, 2007). still, service learning is still limited or seemingly nonexistent in certain business disciplines (gujarathi and mcquade, 2002). specifically, little evidence exists for the application of quantitative operations management in service learning activities. since operations management overlaps with industrial engineering, some evidence was discovered in service learning in engineering (dukhan et al., 2008) and computer science (dahlberg, 2010). neither offer a strong use of powerful analytics often used in planning and scheduling. experiential learning research does exist for operations management. notably, mit’s beer game is often used to study the bullwhip effect in supply chains (tiger et al., 2006). other simulation games exist such as the strategic capstone by capsim (http://www.capsim.com). however, none of these offer the benefits of service learning activities, which address unmet needs in communities. the sife chapter the sife chapter operates out of a private university in the southern united states and has a rich history of activity. each year, this chapter implements projects both on campus and in the local community. the chapter itself consists of business students as well as students studying other subjects, such as art and nursing. the university offers a unique opportunity for students to earn college credit through involvement in the chapter’s projects. since 1993 when the chapter was established, its members have won awards at sife regional conferences fifteen times. the main reason for the consistent success of the chapter is that it is involved in numerous service projects each year. a major focus of sife is teaching concepts and principles of business to children and young adults. the chapter maintains a strong presence in the community’s elementary and secondary schools. through its kids count financial literacy program, sife students teach second graders the importance of saving money. in the chapter’s world at play program, sixth graders learn about product development and the free enterprise system by creating a business model from start to finish. the chapter’s roadmap to success program teaches high school students mainly the ones who are at-risk valuable skills necessary to acquire their first job. back on the university campus, the sife chapter’s freshman financial seminar teaches freshman basic financial management skills. the student care package fundraising project sife programs are free to the participants. rather than charging “tuition” fees for its programs, the chapter must finance its projects and conference trips in other ways. there are approximately seventy student organizations at the university, all competing for adequate funding through fund raising efforts on campus. because the groups often vie for the same dollars, effective fundraising can be difficult. sife has taken a unique approach. many other student groups sell goods and services to other students. in fact, projects that sell t-shirts or holiday grams to students have become so common that they are now considered to be staples of the student center on campus. the sife chapter recognized that students’ family members are often overlooked in many fundraising attempts by campus organizations. this is understandable since students’ parents, grandparents, uncles, aunts, etc., are seen on campus far less than students themselves. this realization led the sife chapter to focus its fundraising efforts off-campus. one such effort is the student care package project, which gives parents whose children attend the university the opportunity to send their sons and daughters a care package prepared by the chapter. students receive their care packages during finals week a stressful time when encouragement is most needed. since the project’s inception in 2004, sife has generated almost $60,000 in revenue. the student care package project is valuable for several reasons. parents can show love to their children in an easy way. the sife chapter raises money so that it can provide kids count, world at play, roadmap to success, and freshman financial seminar. the profits enable chapter members to attend regional and tiger and parker advances in business research 2011, vol. 2, no. 1, 156-162 158 national conferences. having one lucrative fundraiser allows the chapter to give greater focus to the true purpose of the organization, rather than being distracted by the ongoing need for money making projects throughout the year. perhaps the greatest benefit of the student care package project is the real-world experience that it provides to the chapter members who are involved with it. through the project, students apply the knowledge they have learned in their classes. granted, this application is limited and takes place within a controlled setting; nevertheless, students have the opportunity to use the principles of marketing, management, economics and accounting that they may have previously only grasped in theory. the project coordinator is exposed to a variety of business situations and is expected to make decisive decisions. marketing the student care packages begins months before assembly of the packages. to market the care packages, the project coordinator must determine the best way to reach the target market. he or she must commission and later approve the design of promotional materials, such as postcards and flyers. these tasks demand that the coordinator apply knowledge learned in his or her marketing courses. this student is also responsible for selecting the items to be included in the care packages. such a decision calls for the project coordinator to price materials and analyze the benefits and costs of adding new items to the packages. to maximize fundraising dollars, the chapter must seek the right balance of quality and cost for the items in the care package and put a reasonable price on its product. the project coordinator must plan the production and assembly of the care packages carefully to ensure efficiency and consistency. other tasks include scheduling workers and communicating with care package recipients. the project coordinator and the other workers must rely on many aspects of their business education to successfully raise funds for the chapter. organization and communication skills are vital. while the project coordinator has ample opportunity to employ his or her knowledge and gain practical experience, the students in other positions have similar possibilities. for instance, students who input information about customer orders use various software programs, and students who handle consumer questions use customer service skills. students who prepare the student care packages must follow a standardized production plan to assure that their work is consistently high quality. during distribution, students can develop communication skills as they interact with the recipients of the care packages. the problem from one semester to the next, the student care package project’s success has varied. turnover of students due to graduation can create challenges. of all the project coordinator’s responsibilities, the acquisition of input materials is generally the most arduous task. he or she must calculate the quantity of materials required to fulfill each order, while also considering the profit margin. prior to using computer optimization, these calculations were performed by hand, and a student can expect to spend more than five hours working them. calculating the cost of raw material takes so much time for two reasons. the first is that input materials are purchased in bulk at a wholesaler such as costco or sam’s. the second is the variety of care packages offered. the fundraiser offers four types of packages known as standard, premium standard, healthy, and premium healthy. each care package contains 25 to 30 items. some items, such as animal crackers and kraft easy mac, are included whether the package is non-healthy or healthy. other items, such as trail mix and nerds rope, are only included in the healthy and non-healthy packages respectively. since the items are purchased in bulk at wholesale prices to minimize expense, the number of items purchases may not match the quantity required to fill the orders. this leads to a materials surplus. for example, as shown in figure 1, assume that 60 standard packages and 40 premium packages have been ordered. bags of popcorn and cheez-it crackers are in both packages; therefore 100 bags of popcorn and 100 bags of cheez-it crackers are needed to fill the orders. popcorn is purchased in 30-bag bundles and cheez-it crackers in 36-bag bundles. when purchasing popcorn, one can acquire four bundles (120 bags in total) or three bundles (90 bags in total). the first option results in an excess of 20 bags; the second option results in a shortage of 10 bags. in this example, the better solution is to simply purchase tiger and parker advances in business research 2011, vol. 2, no. 1, 156-162 159 more popcorn than required to ensure that each package has the right one bag. when purchasing cheeseit crackers, the same problem exists. the orders call for 100 bags, but an excess or a shortage is the result of the two best purchasing options available. but if the popcorn could be substituted for the cheese-it crackers in 20 packages, then the overall waste could be reduced. the problem arises in complexity due to the many different items that are used to assemble a packages and the allowance of equivalent substitutions. figure 1: equivalent substitution example the solution part i: using optimization to minimize purchasing costs in an undergraduate sophomore-level “quantitative methods for business” course, sife chapter members first considered using computer spreadsheets to model their project. such tools can help with purchasing decisions that yield the maximum output or profit, or minimum cost, waste, or production time (what’sbest!, user’s manual, 2005). computer optimization modeling traditionally uses linear programming to find the optimal solution to a problem. the students hoped the program would achieve three main goals: reduce the time spent calculating, increase the profit margin, and establish consistent decision-making approach to ensure continuity for new project coordinators in the future. the sife chapter was directed to use the microsoft excel add-in what’sbest! by lindo systems for the student care package program. in math modeling, there are three kinds of inputs. sometimes called the abcs of modeling, these kinds of inputs are known as decision variables, the objective function and constraints. in what’sbest! nomenclature, these three inputs are called the abc’s of modeling and are the adjustable cells, best cells, and constraints. table 1 lists the decision variables; table 2 lists the objective function and constraints; and table 3 lists the inputs. the what’sbest! model is available upon request. table 1: decision variables decision variables location (cell range) variable type bulk packages to purchases =main!m4:m103 integer individual items used in each final product =main!n4:n103 continuous, naturally integer equivalent substitutions matrix =substitutions!c4:cw103 continuous, naturally integer logic variables forcing substitutions to be only given or taken, not both =substitutions!da4:da103 binary table 2: objective function and constraints item location (cell range) description objective function =main!ac1 minimize total purchasing costs constraint =main!ab4:ab103 meet demand (either through product or equivalent substitutions) constraint main!u4:aa103 minimum quality, i.e., all products cannot be replaced by the cheapest substitute constraint =substitutions!db4:dd103 supporting binary variables which force substitutions to be either givers or takers tiger and parker advances in business research 2011, vol. 2, no. 1, 156-162 table 3: inputs input location (cell range) list of bulk products to purchase =main!b4:b103 quantity per bulk package =main!c4:c103 cost per bulk package =main!d4:d103 bill of materials =main!i4:j103 product demand =main!i1:j2 currently, each care package contains 29 different products. in anticipation of future demand for additional items, the optimization model was built to accommodate up to 50 different products per care package. if 21 more items were added to the care packages, the model would have over 10,000 adjustable cells, and about 500 constraints. with a platform for expansion, the student care package program is positioned to continue meeting the needs of students. part ii: care packages assembly once the orders have been received and the optimal mix of materials has been determined, the materials are purchased and assembly begins. to accommodate the different types of student care packages, sife utilizes a three stage production process known as general fill, type fill, and shirt fill. see figure 2. figure 2: care package assembly plan 160 all types of care packages contain some of the same items such as a bottled drink and animal crackers. in the first stage of production known as general fill, the packs are filled with items that are common to all care packages. at the end of this stage, the identical care packages are divided into two groups, “healthy” and “standard”. in the second stage of production known as type fill, the healthy items =15+8$%>'%3!8$%7!09!5$%:--$;"#<%7#!)% % % !"#! all 1 all 2 all 3 all 4 $%&! healthy 1 healthy 2 healthy 3 healthy 4 $%&! healthy shirt add '&(&)* !"!#$ standard 1 stanard 2 standard 3 standard 4 %&'!( standard shirt add !"!#$ !"!#$ )*"*+,'!''. all packs get the same thing. /0&*!''. healthy and nonhealthy items receive their unique items . %$!+(!''. the premium packs receive a t-shirt while the standard and healthy are sealed and finished. tiger and parker advances in business research 2011, vol. 2, no. 1, 156-162 161 are placed into the “healthy” packs, while the “standard” packs are filled with standard items. packs from both groups are then designated as premium (premium h and premium s) and segregated to enter the third processing stage known as shirt fill. in this stage, each premium pack receives a t-shirt and is sealed. the packs which are not designated as premium (standard and healthy) do not include shirts and only need to be sealed in the third stage of production. approximately 16 sife students work together to assemble the student care packages. in each of the three stages of production (general fill, type fill, and shirt fill), there are several stations where sife members place about three items in each care package. each sife member follows a detailed production plan that provides instructions regarding the type and quantity of items to be placed in each care package. included in the detailed production plan are the equivalent substitutions instructions. conclusion the realized benefits of the working model before the final model was ready for operation, there were seven versions created, tested, and edited. building a spreadsheet optimization model as complex as this one takes time. the development process was validated by comparing model solutions to solutions generated by experts, including the current project coordinator. after validation, the sife students realized some of the benefits of their efforts. for instance, the easyto-use model could make calculations and recommend a purchasing plan in mere seconds; whereas, the students spent hours with pencil, paper, and calculator arriving at similar results. furthermore, the computer optimization approach could be used in future projects, bringing some consistency to the work of all project coordinators present and future. in theory, the model’s optimized purchasing plan should increase the project’s profit margin. however, it is difficult for the chapter to determine whether this actually happened this semester because some of the sife chapter’s records from past fundraising projects were not available. but thanks to the spreadsheet optimization model, the chapter can maintain better records in the future. reflection the student care package project has given sife students the opportunity to utilize some of the concepts they have learned in the classroom. they identified a problem that involved purchase calculations, and with the assistance of faculty, they found a solution using the optimization model. students were active participants in developing this solution, rather than being passive observers. such participation reinforces what they have learned in the classroom. in addition to improving the student care package project, the successful use of the software program has also inspired students to utilize it in other areas. in general, it encourages students to apply what they have learned in class to solve real life problems using business models before they graduate from college. of all the fundraisers implemented by student groups, the student care package project is uniquely complex. sife has been motivated to incorporate advanced technology to solve the problems that arise in making and selling a product with variable and multiple components. successful utilization of optimization software demonstrates the members’ degree of competency and commitment to excellence in business. references anderson-butcher, d. 2004. transforming schools into 21st century community learning centers. children & schools, 26: 248-252. andrews, c. 2007. service learning: applications and research in business. journal of education for business, 83: 19-26. tiger and parker advances in business research 2011, vol. 2, no. 1, 156-162 162 billimoria, d. 1998. from classroom learning to real-world learning: a diasporic shift in management education. journal of management education, 22: 265-268. chapman, j., & avila, r. 1991. sales training for students: an experiential approach. marketing education review, 1: 54-59. dahlberg, t., barnes, t., & bean, k. 2010. applying service learning to computer science: attracting and engaging under-represented students. computer science education, 20: 169-180. dukhan, n., schumack, m., & daniels, j. 2008. implementation of service-learning in engineering and its impact on students' attitudes and identity. european journal of engineering education, 33: 21-31. godfrey, p., & grasso, e. 2000. introduction. in p. godfrey, & e. grasso, (eds.), service-learning in the disciplines: management (1-10). washington, d. c.: american association for higher education. govekar, m., & rishi, m. 2007. service learning: bringing real-world education into the b-school classroom. journal of education for business, 83: 3-10. gujarathi, m., & mcquade, r. 2002. service learning in business schools: a case study in an intermediate accounting course. journal of education for business, 77: 144-150. hagenbuch, d. 2006. service learning inputs and outcomes in a personal selling course. journal of marketing education, 28: 26-34. jakus, j. 1990. the use of client-sponsored projects in university professional salesmanship classes. in d. good, (ed.,), professional sales and sales management practices leading towards the 21st century. paper presented at the 1990 pi sigma epsilon and mu kappa tau annual conference in sales management, dallas, tx. kenworthy-u'ren, a., & peterson, t. 2005. service-learning and management education: introducing the "we care" approach. academy of management learning & education, 4: 272-277. peebles-wilkins, w. 2004. the full-service community school model. children & schools, 26: 131-133. shuman, j., & hornaday, j. 1975. experiential learning in an entrepreneurial course. collegiate news and views, 29: 5-9. tiger, a., benco, d., & fogle, c. 2006. teaching the importance of information, supply chain management, and modeling: the spreadsheet beer-like game. issues in information systems, vii: 108113. what'sbest! user's manual. 2005. chicago, il: lindo systems. andrew tiger is a professor of management at union university. he received his ph.d. in industrial engineering from the university of houston. his current research interests include analytics, golf pace of play modeling, and service learning activities in the field of operations management. he has published in journal of hospitality and leisure management, academy of information and management science journal, issues in information systems, and others. matthew parker is a senior business administration major at union university. he is involved with students in free enterprise where he serves as president. he also serves as secretary and treasurer of union’s student activities council. upon graduation parker hopes to peruse a career in management or operations. advances in business research 2010 volume 1.pdf 15 advances in business research 2010, vol. 1, no. 1, 15-25 !"#$% !!"#$%$&'()#*+,(#&-(.$%/(01(2033,"4$#*( %%,5%6(75"#5$18$&'(59,(:0-$;,-(<&5,"&#*(.#5,(01( .,5+"&($&(#&( 3,"$4#&(#&-(=+"0!,#&(>+5(?!5$0&( &#*8%$% &'()($* !"#$%+*,!-.*/0!$'*1$!)(23!'4 in comparative project valuations, there is an assumption of equality of risk across investments. two commercial !"#$%$&'(!%)*+,-+./0%1#!%21,*!-%1(($#-+./%"$%)$"3%1%4*#$5!1.%1.-%6 !#+(1.%7*"%85"+$.9%)#$1-!.+./%"3!%.* )!#%$&% 1((!5"1),!%1("+$.0%&$#%+.2!0"$#0:%;3+0%515!#%5#!0!."0%1%"!(3.+<*!%"31"%!.31.(!0%"3!%'.1,%+.2!0" !."%-!(+0+$.%5#$(!00:% =5!(+'(1,,>9% "3+0%515!#%5$0+"0% "31"9%0*5!#+$#% "$% "3!%?."!#.1,%@1"!%$&%@!"*#.%a?@@b9%0"#1"+&>+./% "3!%c$-+'!-%?."!#.1,% @1"!%$&%@!"*#.%ac?@@b%5#$2+-!0%1.$"3!#%,1>!#%$&%#+0d%1.1,>0+0%"31"%&1(+,+"1"!0%5#$e!("%($ 51#+0$.0%!2!.%f3!#!%$"3!#% "!(3.+<*!0%312!%,!-%"$%($.g+("+./%#!0*,"0: in making commercial real estate valuation decisions, the process of analyzing competitive locations is based 560$*'.(*5$!75(*2(#8*(3'#'(*6206(2'!(3*'.(93(8)(3+*0'.(2*#)#!8#:8(*!$)(3'9($'*06602'5$!'!(3+* '.(*(;6(<'(%*2#'(3*0=* return, and the degree of risk associated with each of the capital projects. this paper posits that with the appraisal of the value of commercial assets, real options exist for an investor. it compares the existence of a european put option >.(2(*2()(23!0$*)#85(*?-2033*3(88!$-*62!<(@*<#$*0<<52*0$84*#'*'.(*($%*0=*'.(*8(#3(*'(29*#$%*#$*a9(2!<#$*/5'*b6'!0$* >.(2(*2()(23!0$*<#$*.#66($*#'*#$4*'!9(*%52!$-*'.(*.08%!$-*6(2!0%c*&6(<!d<#884+*!'e3*'.(*62(3($<(*0=*:0'.*'.(*f5206(#$* and american put options that gives the investor the right but not the obligation to make a sell decision. just like >!'.*d$#$<!#8*06'!0$3+*'.(*)#85(*0=*'.(*2(#8*06'!0$*!3*<0$'!$-($'*0$*=5'52(*()($'?3@*35<.*#3*$('*8(#3(*2()($5(*2(<(!6'3* and the expected future re-sale value. g.(*)#85(*0=* 2(#8*(3'#'(*620h(<'3*#2(* 8!i(84* '0*"5<'5#'(*3'0<.#3'!<#884*#$%* '.(* !$)(3'02*>!88*<.003(* '0*(;(2<!3(* '.(*06'!0$+*'.(2(*!3*$0*0:8!-#'!0$+*>.($*!'*!3*6(2<(!)(%*'0*:(*j!$k'.(k90$(4e*?l!;!'*#$%*/!$%4<i+*mnno@c*g.!3*6#6(2* recognizes and supports prior works which state that investors have the choice to make net capital expenditures with 02*>!'.05'* '.(*#:!8!'4*'0*#:#$%0$*02*3(88k0==* '.(*620h(<'c*p'*=0<53(3+*:#3(%*0$*#<'5#8*2(#8*(3'#'(*%#'#+*0$*#*36(<!d<* 95'5#884*(;<853!)(*<#3(*:('>(($*'>0*3!9!8#2*0=d<(*:5!8%!$-3*!$*9('20*%0>$'0>$*q.!<#-0c*** p$*'.(*'2#%!'!0$#8*l!3<05$'(%*q#3.*r80>*?lqr@*620<(33+*'.(*p$'(2$#8*s#'(*0=*s('52$*?pss@*!3*$029#884*53(%*'0* rank the desirability of projects. in order to determine the relative weights and timing of the various components of '.(*2('52$+*'.(*pss*<#$*:(*6#2'!'!0$(%*?t25(--(9#$*#$%*r!3.(2+*uvvw@c*,0>()(2+*'.(*pss*!3*35:h(<'*'0*>(#i$(33(3* 35<.*#3*620%5<!$-*958'!68(*2#'(3*0=*2('52$*%(6($%!$-*0$*'.(*3!-$*0=*'.(*<#3.*"0>3+*#$%*'.(*2#'(*!'3(8=*!3*53(%*#3*'.(* 2(!$)(3'9($'*2#'(*0=*2('52$*=02* '.(*620h(<'c*g.!3*6#6(2*#%)0<#'(3* '.(*53(*0=* '.(*x0%!d(%*p$'(2$#8*s#'(*0=*s('52$* ?xpss@*#3*#$*#8'(2$#'!)(*:(<#53(*!'*>!88*$0'*620%5<(*958'!68(*2#'(3*0=*2('52$*#$%*53(3*'.(*<03'*0=*<#6!'#8*#$%*$0'* itself as the reinvestment rate of return and offers a more conservative return. in an extension of the literature, the stratifying of the mirr adds another layer to the risk analysis aspect that goes beyond that of the irr and its partitioning. this paper looks at the related real option literature and the source of the data for the analysis, the methodology section and the empirical results, and the analysis of the empirical results and the conclusion end the paper. .=@ a=b(@<a=. ac.= the impact of risk and uncertainty on rational decision rules used in the selection of projects to include in a <02602#'(*<#6!'#8*:5%-('*.#3*:(($*#*9#h02*d$#$<(*'06!<*=02*%!3<533!0$*#$%*2(3(#2<.c* !$'$(2*?mnyz@*=05$%*'.#'*'.(* expected return in a capital budgeting case was an increasing function of the risk-free rate of return, the market price of dollar risk, the project’s variance of returns, the aggregate present value of the project and its co-variance with (;!3'!$-*#33('3*0=*'.(*d29+*#$%*'.(*<0k)#2!#$<(*0=*'.(*620h(<'*>!'.*0'.(2*620h(<'3*!$<85%(%*!$*'.(*<#6!'#8*:5%-('c*a* 3!'5#'!0$*0=*<(2'#!$'4*(;!3'3*>.($*'.(*!$)(3'02*i$0>3*=02*352(*?mvv[*620:#:!8!'4@*>.#'*.!3*=5'52(*2('52$3*>!88*800i* 8!i(*? ()4*#$%*&#2$#'+*mnwo@c*** 00i!$-*#'*<#6!'#8*:5%-('!$-*5$%(2*5$<(2'#!$'4*?,5#$-*#$%* !'\(9:(2-(2+*mnww@*#$%*? 5<#3*#$%*/2(3<0''+*mn]m@+* 53!$-*'.(*&.#26(k !$'$(2kt8#<i*90%(8*0=*<#6!'#8*9#2i('*(75!8!:2!59+*r#9#*?mn]]@*=05$%*'.#'*'.(*62(3($'*)#85(*0=* (;6(<'(%*=5'52(*<#3.*"0>3*%(6($%3*0$*'.(*2!3ik#%h53'(%*%!3<05$'*2#'(3*=02*(#<.*0=*'.(*6(2!0%3*5$'!8*'.(*"0>*0=*=5$%3* is realized. the discount rate experienced adjustments for risk over the time period due to the possible reassessment 0=*'.(*=5'52(*<#3.*"0>3c*f)($*'.05-.*'.(*'2#%!'!0$#8*l!3<05$'(%*q#3.*r80>*?lqr@*9('.0%*'#i(3*!$'0*#<<05$'*'.(* '!9(*)#85(*0=*90$(4+*343'(9#'!<*<#3.*"0>3+*#$%*'.(*58'!9#'(*2(3#8(*0=*'.(*6206(2'4+*!'*.#3*#*>(#i$(33*!$*'.#'*!'*'($%3* to be passive and does not capture the ability of the investor to adapt or revise their decisions in response to market 16 advances in business research 2010, vol. 1, no. 1, 15-25 !"#$% developments. it is generally accepted that investors will follow a set of rigid rules and will not alter a project at any 36(<!d<*3'#-(*0=*!'3*53(=58*06(2#'!$-*8!=(*?g2!-(02-!3+*mnn @̂+*?g2!-(02-!3*#$%*x#30$+*mnw]@c*** real options allow investors to take a more strategic approach to decision making as they have the right but not '.(*0:8!-#'!0$*'0*9#i(*#$*!$)(3'9($'*%(<!3!0$c*_53'*#3*d$#$<!#8*06'!0$3*%(2!)(*'.(!2*)#85(*=209*'.(*5$%(284!$-*#33('+* '.(*)#85(*0=*2(#8*06'!0$3*!3*<0$'!$-($'*0$*=5'52(*()($'3*?`!(+*uvvn@c*p$*#*2(<($'*>02i*:4*&'05'+*`!(+*#$%*a!*?uvvw@+* they create a hypothetical example where the managers of a rental car company are faced with the problem of trying '0*%(<!%(*>.('.(2*'0*:54*#*"(('*0=*-#308!$(k60>(2(%*<#23*02*.4:2!%*)(.!<8(3*!$*8!-.'*0=*6($%!$-*$(>*-0)(2$9($'* regulation. they claim that within this situation is an embedded abandonment option. there is an option to sell the -#3k60>(2(%*)(.!<8(*!$*#$4*0$(*4(#2*#'*#*36(<!d<*3#8)#-(*)#85(c* g.(*75(3'!0$*:(<09(3*.0>*95<.*)#85(*!3*#%%(%*=209*'.(*#:#$%0$9($'*06'!0$*?t0$!$!+*mn]]@c*g.(*#:#$%0$9($'* 06'!0$*!3*#$#80-053*'0*#$*a9(2!<#$*/5'*06'!0$*0$*#*%!)!%($%*6#4!$-*3(<52!'4c*t(2-(2+*b=(i+*#$%*&>#24*?mnnz@*62(%!<'* '.#'*9#2i('*)#85(*!3*603!'!)(84*2(8#'(%*'0*8!75!%#'!0$*)#85(*#='(2*<0$'2088!$-*=02*'.(*2(8#'!0$*:('>(($*#*d29e3*9#2i('* )#85(*#$%*!'3*(;6(<'(%*=5'52(*<#3.*"0>3c*q0$<(2$(%*>!'.*)#85!$-*620h(<'3*'.#'*.#%*3()(2#8*06'!0$3*#)#!8#:8(*#$%*'.($* 75#$'!=4!$-*'.(!2*!$'(2#<'!0$3+*g2!-(0-!3*?mnn @̂*=05$%*'.#'*'.(*)#85(*0=*2(#8*06'!0$3*9#4*$0'*:(*#%%!'!)(c*b#85!$-*'>0* 06'!0$3*!$*#*'088k20#%*620h(<'*!$*a53'2#8!#+*s03(*?mnnw@*=05$%*'.#'*#'*8(#3'*0$(*0=*'.(*06'!0$3*%!368#4(%*#*3!-$!d<#$'* )#85(c*g.(*!$'(2#<'!0$*:('>(($*'.(*06'!0$3*!$"5($<(%*'.(*0$(*3!-$!d<#$'*06'!0$*)#85(c*p-$02!$-*(9:(%%(%*06'!0$3* <058%*2(358'*!$*5$%(2(3'!9#'!$-*'.(*)#85(*0=*#*620h(<'c*g.(*d$%!$-3*0=*'.(3(*8#''(2*'>0*>02i3*!9684*'.#'*'.(*"(;!:!8!'4* '.#'*#<<25(%* '0*9#$#-(9($'* '.205-.* '.(*2(<0-$!'!0$*0=*#* 2(#8*06'!0$*<058%*:(*#3*(<0$09!<#884*3!-$!d<#$'*#3* '.(* (;6(<'(%*=5'52(*<#3.*"0>3*0=*'.(*620h(<'c b#5#(.,d$,e the data for the comparison of alternative real estate investments is obtained from reis, inc. the company !3* #*620)!%(2*0=* <099(2<!#8* 2(#8* (3'#'(*6(2=029#$<(*%#'#*#$%*#$#843!3c* p'* 36(<!d<#884* =0<53(3*0$* '.(*9('20* ?<!'4@+* 35:9#2i('*?$(!-.:02.00%@+*#$%*6206(2'4*8()(8c*g.(!2*!$'(2$('*3!'(*!3*www.reis.com. the site offers coverage of 80 u.s. 9('20608!'#$*#2(#3*#$%*0)(2*u+^vv*35:9#2i('3*=02*'.(*0=d<(+*#6#2'9($'+*2('#!8+*#$%*!$%53'2!#8*3(<'023c* g.!3* 6#6(2* #$#84\(3* #*95'5#884* (;<853!)(* 3!'5#'!0$* '.#'* 36(<!d<#884* <096#2(3* '>0* %0>$'0>$*q.!<#-0* 0=d<(* building investments, projects riverside and lasalle. their valuations will follow a traditional discounted cash "0>*?lqr@*620<(33c*g.(*6.43!<#8*<.#2#<'(2!3'!<3*=02*/20h(<'3*s!)(23!%(*#$%* #&#88(*#2(*62(3($'(%*!$*g#:8(*p*>.!8(* '.(*6(2'!$($'*%088#2*6(2*375#2(* =00'*%#'#+*53(%* !$* '.(*lqr*90%(8+* =02*(#<.*6206(2'4+* !3* 2(602'(%* !$*g#:8(* ppc*g.(* initial outlay for project lasalle was approximately $108.7 million and the initial outlay for project riverside was approximately $144.1 million. these are historical purchase prices from 2008 based on data from reis, inc. a#f*,(<6(>98%$4#*(29#"#45,"$%5$4%(10"(>"0g,45%(.$d,"%$-,(#&-(@#7#**, a#f*,(<<6(b0**#"(!,"(7h+#",(i005(j!%1k(b#5#(10"(>"0g,45%(.$d,"%$-,(#&-(@#7#**,( c0'(3*=02*g#:8(*g>0e3*8!$(*!'(93d e* a88*6(2*375#2(*=00'*?63=@*d-52(3*#2(*0$*#$*#$$5#8*:#3!3c** e* c('*s($'#:8(*a2(#*?csa@*0=*#*:5!8%!$-*!$<85%(%*!$*'.(*'2#$3#<'!0$+*(;62(33(%*!$*375#2(*=(('+*!3*#$*#6620;!9#'!0$* :#3(%*0$*)(2!d(%*65:8!<*2(<02%3c** project name project riverside project lasalle city chicago chicago property type multi-tenant multi-tenant building area (sf) 702,439 621,428 buildings/floors 1/22 1/30 year built/renovated 1965/1994 1984/not yet property address project riverside project lasalle net rentable area (psf) 702,439 621,428 sale price (psf) $205.00 $175.00 average asking rent (psf) $27.51 $26.36 vacancy loss rate (%) 14.40% 9.20% expense stop (psf) $12.89 $10.91 free rent concessions (psf) $0.23 $0.25 credit loss (%) 1.00% 1.00% operating expenses (psf) $14.12 $11.89 capital reserves (psf) $0.10 $0.11 going-in-cap-rate (%) 5.20% 7.50% 17 advances in business research 2010, vol. 1, no. 1, 15-25 !"#$% e* the potential rent revenue is the product of the building rentable area estimate and the average asking rent which is the market rent paid by a potential tenant. e* &#8(*/2!<(*?63=@*!3*'.(*652<.#3(*62!<(*0=*'.(*6206(2'4*6(2*375#2(*=00'*0=*$('*2($'#:8(*#2(#*?csa@c* e* a3i!$-*s($'*=02*0=d<(*6206(2'!(3*!3*#*>(!-.'(%*#)(2#-(*750'(%*#3*#$$5#8*-2033*2($'*6(2*375#2(*=00'c* e* vacancy losses are estimated rent losses from unoccupied space and unpaid rents. e* the expense stop creates an upper limit on the amount of operating expenses that the owner will be responsible for. e* expense reimbursement recovery is the difference between the operating expense psf and the expense stop psf. the excess must be paid by the tenant. the recoverable operating expenses are property taxes, insurance, and maintenance. e* r2((*s($'*q0$<(33!0$+*'0*!$%5<(*'.(*8(#3(*3!-$!$-+*!3*'.(*0==(2*0=*#*=2((*2($'*6(2!0%*%52!$-*>.!<.*$0*2($'*!3*2(75!2(%* to be paid. it is the total dollar amount or number of months free rent granted per lease terms. e* q2(%!'* 033*!3*'.(*'0'#8*#905$'*0=*2($'*%5(*'.#'*'.(*8#$%802%*!3*5$#:8(*'0*<088(<'*%5(*'0*'($#$'*%(=#58'c* e* b6(2#'!$-*f;6($3(3*#2(*'.(*#)(2#-(*#$$5#8*<03'3+*6(2*375#2(*=00'+*0=*06(2#'!$-*:5!8%!$-3*'.#'*!$<85%(*6206(2'4* taxes, energy, janitorial service, insurance, common area maintenance, and management and leasing fees. e* q#6!'#8*s(3(2)(3*!3*#$*#880>#$<(*'.#'*620)!%(3*'.(*6(2!0%!<*2(68#<(9($'*0=*:5!8%!$-*<0960$($'3*'.#'*>(#2*05'* more rapidly than the building itself. they must be replaced during the economic life of the building. e* g.(*2(602'(%*(3'!9#'(%*f0!$-k!$*q#6!'#8!\#'!0$*s#'(*?q#6*s#'(@*<#$*:(*<096#2(%*'0*'.(*s(!3*p$%(;(%*x('20*b=d<(*q#6*s#'(*0=*]co[c*g.(*sfp&*p$%(;(%*x('20*b=d<(*q#6*s#'(*!3*90%(8(%*#3*#*=5$<'!0$*0=*2!3ik=2((*!$'(2(3'* rates, metro rent growth expectations, current construction activity, and by running measures of volatility in rents. these measures are proxies for capital conditions, income expectations, and risk. sfp&+*p$<c*#830*<096!8(3*#--2(-#'(*9('20*6206(2'4*%#'#*'.205-.*x('20*a$#843!3+*s($'*q096#2#:8(3*#$%*&#8(3* q096#2#:8(3*2(602'3c*g.(*9('20*02*9('20608!'#$*#2(#*!3*#*-(0-2#6.!<#8*%!)!3!0$*0=*'.(*1$!'(%*&'#'(3*'.#'*!$<85%(3* #*9#h02*<!'4+*=02*(;#968(+*q.!<#-0+*#$%*!'3*352205$%!$-*<0995$!'!(3*#$%*<05$'!(3c*g.(3(*x('20*a$#843!3*2(602'3* offer reasonable property benchmarks for the time frame of the paper’s study. relevant facts from their analyses are presented in table iii below. a#f*,(<<<6(.,*,d#&5(b#5#(1"03(:,5"0( ",#( &#*8%$%(40&-+45,-(f8(.=<7l(<&4m c0'(3d e* vacancy rate is the amount of available space expressed as a percentage of total inventory. e* (#3(*'(29*!3*'.(*#)(2#-(*'(29*<522($'84*:(!$-*750'(%*=02*$(>*8(#3(3+*!$*4(#23c e* (#3!$-*q099!33!0$*!3*#$*#905$'*6#!%*'0*#*2(#8*(3'#'(*:20i(2*!$*(;<.#$-(*=02*:2!$-!$-*'0-('.(2*'.(*6#2'!(3*0=*'.(* lease agreement. e* usually it’s paid in the form of a percentage of the yearly rent. e* q0$3'25<'!0$ga:3026'!0$*!3*'.(*<0$3'25<'!0$*02*<0968('!0$3*%52!$-*'.(*'!9(*6(2!0%*%!)!%(%*:4*#:3026'!0$*%52!$-* the same time period. e* h&'#:!8!\#'!0$*!3*#<.!()(%*>.($*'.(*#)(2#-(*)#<#$<4*2#'(*0=*'.(*6206(2'!(3*:5!8'*!$*#$4*-!)($*4(#2*(75#83*02*!3*8(33* '.#$*'.(*x('20e3*#)(2#-(*0)(2#88*)#<#$<4*2#'(*=02*'.(*8#3'*d)(*4(#23c g.(3(* <099(2<!#8* #33('3* #2(* #<75!2(%* 35:h(<'* '0* (;!3'!$-* 8(#3(3* #3* $0'(%* :4* '.(* 8(#3(* '(293* #$%* 8(#3!$-* commissions in table iii. even if this were a new development project, the property lease would be based on typical leases in the marketplace. the lease and its terms, such as rent and expense reimbursements, must be accounted for in '.(*<#8<58#'!0$*0=*'.(*6206(2'4e3*2(8()#$'*=5'52(*$('*06(2#'!$-*!$<09(*?cbp@*#$%*=5'52(*2()(23!0$*?sb@*02*3#8(*62!<(c* g.(*8($-'.*0=*'.(*6206(2'4*8(#3(+*'.!3*3'5%4*53(3*#$*#)(2#-(*d)(*4(#2*6(2!0%+*6853*!'3*0'.(2*36(<!d<*'(293*#==(<'*'.(* risk and return of the respective projects and cannot be ignored in the determination of the expected future property <#3.*"0>3c** annualized 5-year rent growth 2.1% annualized 5-year vacancy rate 17.6% average lease term (years) 5.5 average leasing commissions 4.1% annualized 5-year construction/absorption 1.9 inflation rate per www.inflationdata.com 3.85% stabilization rate* 68.18% 18 advances in business research :=an?b?@?op p$*02%(2* '0*<0$3!%(2* '.(*<.0!<(*:('>(($*/20h(<'*s!)(23!%(*#$%*/20h(<'* #&#88(+* '.!3*6#6(2*62(3($'3*#*d$#$<!#8* analysis that enables an investor to assess whether the risk associated with these projects is commensurate with their expected returns. the concept of due diligence is critical and is extended by this paper by reviewing the riskreturn tradeoff within an american and european put option framework. within these two real option strategies, #*%!3<05$'(%* <#3.*"0>* ?lqr@*9('.0%* !3* =0880>(%* #80$-*>!'.* '.(* <096#2!30$*0=* :0'.* '.(* pss*#$%*xpssc*g.!3* comparison is further enhanced by contrasting the partitioning of the irr with the stratifying of the mirr. the relevancy of the latter accrues from the overall strengths of the mirr over the irr and the ability of an investor to %('(29!$(*.0>*95<.*0=*'.(*2('52$*!3*#330<!#'(%*>!'.*'.(*#$$5#8*=5'52(*06(2#'!$-*<#3.*"0>3*0=*'.(*620h(<'*#$%*'.(* '!9!$-*0=*'.(*(3'!9#'(%*=5'52(*<#3.*"0>*=209*'.(*2(3#8(*0=*'.(*6206(2'4c*p'e3*'.(*>(!-.'3*#330<!#'(%*>!'.*'.(3(*'>0* 36(<!d<*<#3.*"0>*<0960$($'3*'.#'*#880>3*'.(*!$<02602#'!0$*0=*2(8#'!)(*2!3i*>.!<.*($#:8(3*#$*!$)(3'02*'0*<096#2(* 620h(<'3*()($*>.(2(*0'.(2*'(<.$!75(3*.#)(*8(%*'0*<0$"!<'!$-*2(358'3*?/8#'.*#$%*i($$(%4+*mnno@c* regarding the two commercial projects, the appeal of the properties is not for the use or occupancy of the owner, they are considered to be income producing assets. income properties are bought and sold on their ability to generate =5'52(*!$<09(*3'2(#93c*g.!3*!$<09(*3'2(#9*!3*#*<#3.*"0>c*13!$-*'.(*%!3<05$'(%*<#3.*"0>*9('.0%*?lqr@+*#$*!$)(3'02* will capitalize the expected future net operating income associated with the property and determine the asset’s (3'!9#'(%*$('*62(3($'*)#85(*?f#88!$(88!*uvvn@c*g.(*lqr*#$#843!3*.(863*'0*%('(29!$(*!=*#*620603(%*620h(<'*<#$*-($(2#'(* strong enough risk-adjusted returns. it is a standard framework for multi-period real estate investment analysis. for /20h(<'3*s!)(23!%(*#$%* #&#88(+*:0'.*62(3($'*<.#$-!$-*2($'*20883*#$%*8(#3(*2($(>#83*#$%*8(#3(*)#2!#:8(3*?!$"#'!0$@*'.#'* can change the level of gross operating income. also impacted are the operating expenses and expense reimbursements >.!<.*#==(<'*:0'.*'.(*$('*06(2#'!$-*!$<09(*?cbp@*=02*(#<.*4(#2*#$%*'.(*$('*'(29!$#8*)#85(*02*2()(23!0$*?sb@*?l( !38(+* uvvn@c*g.(*:#3!<*lqr*90%(8*'0*()#85#'(*'.(*6206(2'4e3*$('*62(3($'*)#85(*?c/b@*!3d c/b*b=d<(*t5!8%!$-*j*k*cbp t g*?m*l*<#62@t l*sb'*g*?ml<#62@t – io 0 g.(*c/b*!3*(75#8*'0*'.(*62(3($'*)#85(*0=*=5'52(*<#3.*!$"0>3*m*!$!'!#8*!$)(3'9($'+*>.(2(d cbp*j*(;6(<'(%*$('*06(2#'!$-*!$<09(*?<#3.*"0>3@*=02*'.(*0=d<(*:5!8%!$sb*j*2()(23!0$*?2(3#8(@*)#85(*0=*'.(*6206(2'4n*$('*'(29!$#8*)#85( io = initial investment outlay <#62*j*q#6!'#8!\#'!0$*s#'(*=02*'.(*0=d<(*:5!8%!$'*j*5$!75(*'!9(*6(2!0%*=02*(#<.*0=*'.(*(;6(<'(%*=5'52(*<#3.*"0>3 a#f*,(<)6(>"0g,45,-(q,5(2#%9(i*0e(1"03(?!,"#5$0&%6(>"0g,45(.$d,"%$-,( 2010, vol. 1, no. 1, 15-25 !"#$% s($'#:8(*a2(#*a33596'!0$*?3=@* ]vu+o^n average asking rate 3.85% $ 27.51 $ 28.57 $ 29.67 $ 30.82 $ 32.00 $ 33.23 potential rent revenue 3.85% $ 19,327,015 $ 20,071,105 $ 20,843,843 $ 21,646,331 $ 22,479,714 $ 23,345,183 vacancy loss 14.40% 2,783,090 2,890,239 3,001,513 3,117,072 3,237,079 3,361,706 effective rent revenue $ 16,543,925 $ 17,180,866 $ 17,842,329 $ 18,529,259 $ 19,242,635 $ 19,983,477 operating expense psf 3.85% $ 14.12 $ 14.66 $ 15.23 $ 15.81 $ 16.42 $ 17.06 expense stop psf 3.85% 12.89 13.39 13.90 14.44 14.99 15.57 expense reimbursement psf $ 1.23 $ 1.28 $ 1.33 $ 1.38 $ 1.43 $ 1.49 expense reimbursement $ 864,00 $ 897,264 $ 931,809 $ 967,683 $ 1,004,939 $ 1,043,629 r2((*s($'*q0$<(33!0$3* o**vcu^* * * mym+zym* * mym+zym* * mym+zym* * mym+zym* * mym+zym* * mym+zym* * q2(%!'* 033* mcvv[* * * 193,270 200,711 208,438 216,463 224,797 233,452 effective gross revenue $ 17,053,094 $ 17,715,858 $ 18,404,139 $ 19,118,918 $ 19,861,216 $ 20,632,093 total operating expenses $ 9,918,439 $ 10,300,299 $ 10,696,860 $ 11,108,689 $ 11,536,374 $ 11,980,524 q#6!'#8*s(3(2)(3* o**vcmv* * * 70,244 70,244 70,244 70,244 70,244 70,244 total expenses $ 9,988,683 $ 10,370,542 $ 10,767,104 $ 11,178,933 $ 11,606,618 $ 12,050,768 c('*b6(2#'!$-*p$<09(*?cbp@*02*c('*q#3.*r80>* * o* * 7,064,411 $ 7,345,315 $ 7,637,035 $ 7,939,985 $ 8,254,599 $ 8,581,325 hf;6(<'(%*!$"#'!0$*2#'(*!3*^cwz[ **other variable % and $ from table ii p,#"( rsst( rssu( rsvs( rsvv( rsvr( rsvw 1 2 3 4 5 6 19 advances in business research c0'(3*=02*g#:8(3*pb*#$%*bd e* g.(*(3'!9#'(%*#)(2#-(*#$$5#8*!$"#'!0$*2#'(*#%h53'9($'*!3*^cwz[c*g.(*cbp*!$<2(#3(3*(#<.*4(#2*()($*!=*8(#3(3*#2(* not renewed. e* vacancy losses are estimated rent losses from unoccupied space and unpaid rents. e* expense stop creates an upper limit on the amount of operating expenses that the owner will be responsible for. e* expense reimbursement recovery is the difference between the operating expense psf and the expense stop psf. the excess must be paid by the tenant. the recoverable operating expenses are property taxes, insurance, and maintenance. e* r2((*s($'*q0$<(33!0$+*'0*!$%5<(*'.(*8(#3(*3!-$!$-+*!3*'.(*0==(2*0=*#*=2((*2($'*6(2!0%*%52!$-*>.!<.*$0*2($'*!3*2(75!2(%* to be paid. it is the total dollar amount or number of months free rent granted per lease terms. e* q2(%!'* 033*!3*'.(*'0'#8*#905$'*0=*2($'*%5(*'.#'*'.(*8#$%802%*!3*5$#:8(*'0*<088(<'*%5(*'0*'($#$'*%(=#58'c e* effective gross revenue is determined as the effective rent income plus the operating expense recoveries less the provisions for the free rent period and potential credit losses. e* b6(2#'!$-*f;6($3(3*#2(*'.(*#)(2#-(*#$$5#8*<03'3+*6(2*375#2(*=00'+*0=*06(2#'!$-*:5!8%!$-3*'.#'*!$<85%(*6206(2'4* taxes, energy, janitorial service, insurance, common area maintenance, and management and leasing fees. e* q#6!'#8*s(3(2)(3*!3*#$*#880>#$<(*'.#'*620)!%(3*'.(*6(2!0%!<*2(68#<(9($'*0=*:5!8%!$-*<0960$($'3*'.#'*>(#2*05'* more rapidly than the building itself. they must be replaced during the economic life of the building. e* c('*06(2#'!$-*!$<09(*?cbp@*!3*<#8<58#'(%*#3*'.(*$('*0=*'.(*(==(<'!)(*-2033*2()($5(*#$%*:0'.*'.(*06(2#'!$-*(;6($3(3* and the provision for future capital outlays. even though the worksheet calculates the noi, the measure is not income as described under generally accepted #<<05$'!$-* 62!$<!68(3* ?faa/@* :5'* !3* <#3.* "0>c* g.(* '(29* cbp* !3* !$'(2<.#$-(#:8(* >!'.* '.(* $('* <#3.* "0>* =209* operations. if the appraised value of the project is a function of the income stream and the noi results from the income stream that is generated from the operations of the property, the real estate investment is independent of external factors 35<.*#3*'#;(3*02*d$#$<!$-c*g.(*!$)(3'02*!3*%(<!%!$-*560$*#*6206(2'4e3*!$<09(*60'($'!#8*$0'*'.(*6206(2'4*!'3(8=c*g.(* before-tax noi serves as an objective means of measuring the potential income stream from the property while the -0!$-k!$*<#6!'#8!\#'!0$*2#'(*#<'3*#3*#$*!$)(3'02e3*35:h(<'!)(*(3'!9#'(*0=*.0>*>(88*'.(*<#6!'#8*!3*2(75!2(%*'0*6(2=029* ?f#88!$(88!+*uvvo@c*g#;*:($(d'3*#2(*$0'*!-$02(%+*2#'.(2+*'.(*!968!<#'!0$*!3*'.#'*#$*!$)(3'02*>!88*<0$3!%(2*'.(*:(=02(*'#;* <#3.*"0>3+*5$%(23'#$%!$-*'.#'*#*'#;*:($(d'*>!88*:(*2(#8!\(%*?t25(--(9#$*#$%*r!3.(2+*uvvw@c* g.(*(;!3'!$-*d$#$<!$-*'(293*#2(*#3359(%*'0*:(*3!9!8#2*=02*:0'.*6206(2'!(3*#$%*#3*35<.+*'.(*(;6(<'(%*2('52$3*=02* #$4*6#2'!<58#2*-2056*0=*!$)(3'023*3.058%*$0'*:(*!96#<'(%*:4*'.(*d$#$<!$-*0=*'.(*620h(<'c*p'e3*$0'*'.#'*!$'(2(3'*2#'(3*02* #<<(33*'0*%(:'*9#2i('3*%0$e'*!96#<'*)#85(+*:5'*5$%(2*#$4*(<0$09!<*<8!9#'(+*#$*!$)(3'02**>!88*<.003(*'.(*(75!'4k%(:'* #880<#'!0$*:#3(%*0$*'.(*%(-2((*0=*2!3i*'.#'*'.(4*#2(*903'*<09=02'#:8(*>!'.*?r!3.(2*uvvw@c* 2010, vol. 1, no. 1, 15-25 !"#$% a#f*,()6(>"0g,45,-(q,5(2#%9(i*0e(1"03(?!,"#5$0&%6(>"0g,45(@#7#**,( rentable a2(#*a33596'!0$*?3=@* yum+ouw average asking rate 3.85% $ 26.36 $ 27.37 $ 28.43 $ 29.52 $ 30.66 $ 31.84 potential rent revenue $ 16,380,033 $ 17,010,664 $ 17,665,575 $ 18,345,699 $ 19,052,009 $ 19,785,511 vacancy loss 9.20% 1,506,963 1,564,981 1,625,233 1,687,804 1,752,785 1,820,267 effective rent revenue $ 14,873,070 $ 15,445,683 $ 16,040,342 $ 16,657,895 $ 17,299,224 $ 17,965,244 operating expense psf 3.85% $ 11.89 $ 12.35 $ 12.82 $ 13.32 $ 13.83 $ 14.36 expense stop psf 3.85% 10.91 11.33 11.77 12.22 12.69 13.18 expense reimbursement psf $ 0.98 $ 1.02 $ 1.06 $ 1.10 $ 1.14 $ 1.18 expense reimbursement $ 608,999 $ 622,276 $ 635,807 $ 649,595 $ 663,644 $ 677,956 r2((*s($'*q0$<(33!0$3* o**vcuy* * * mym+z]m* * mym+z]m* * mym+z]m* * mym+z]m* * mym+z]m* * mym+z]m* * q2(%!'* 033* mcvv[* * * my^+wvv* * m]v+mv]* * m]y+yzy* * mw^+oz]* * mnv+zuv* * mn]+wzz effective gross revenue $ 15,156,698 $ 15,736,281 $ 16,337,922 $ 16,962,462 $ 17,610,776 $ 18,283,773 total operating expenses $ 7,388,779 $ 7,673,247 $ 7,968,667 $ 8,275,461 $ 8,594,066 $ 8,924,937 q#6!'#8*s(3(2)(3* o**vcmm* * * 68,357 68,357 68,357 68,357 68,357 68,357 total expenses $ 7,457,136 $ 7,741,604 $ 8,037,024 $ 8,343,818 $ 8,662,423 $ 8,993,294 c('*b6(2#'!$-*p$<09(*?cbp@*02*c('*q#3.*r80>* * o* * 7,699,562 $ 7,994,677 $ 8,300,898 $ 8,618,644 $ 8,948,353 $ 9,290,479 hf;6(<'(%*!$"#'!0$*2#'(*!3*^cwz[ **other variable % and $ from table ii p,#"( rsst( rssu( rsvs( rsvv( rsvr( rsvw 1 2 3 4 5 6 20 advances in business research g.(*$('*62(3($'*)#85(* ?c/b@*#$%* '.(* p$'(2$#8*s#'(*0=*s('52$* ?pss@*#2(* '>0*#<<(6'(%*9(#352(3*0=*#$#84\!$-* '.(*#''2#<'!)($(33*0=*2(#8*(3'#'(*!$)(3'9($'3c*g.(*pss*:5!8%3*0$*'.(*c/b*=2#9(>02i*#''(96'!$-*'0*d$%*#*%!3<05$'* 2#'(*>.!<.*(75#'(3*'.(*c/b*'0*\(20c*p'*!3*3!9!8#2*'0*#*:2(#i()($*60!$'c*p.!8(*!'*<0$3!%(23*:0'.*'.(*9#-$!'5%(*#$%* '!9!$-*0=*(#<.*<#3.*"0>+*!'*#3359(3*#*<#3.*"0>*2(!$)(3'9($'*2#'(*#'*'.(*pss+*>.!<.*<#$*-!)(*#$*5$2(#8!3'!<*)!(>*0=*#* 620h(<'e3*60'($'!#8*)#85(c*a*620h(<'*>!'.*603!'!)(*#$%*$(-#'!)(*<#3.*"0>3*%(8!)(23*958'!68(*pss3c*a*<0$"!<'*:('>(($* '.(*%(<!3!0$*258(3*0=*(#<.*'(<.$!75(*<#$*0<<52*9#i!$-*<096#2!30$3*:('>(($*#8'(2$#'!)(*620h(<'3+*(36(<!#884*95'5#884* (;<853!)(*0$(3+*%!=d<58'c*a$* !$)(3'02*<#$*6#2'!'!0$* '.(*pss*?t25(--(9#$*#$%*r!3.(2+*uvvw@*>!'.* '.(*0:h(<'!)(*0=* d$%!$-*05'*>.#'*602'!0$*0=*'.(*2('52$*!3*=209*'.(*#$$5#8*06(2#'!$-*<#3.*"0>3*#$%*>.#'*602'!0$*<09(3*=209*'.(*2(3#8(c** there generally is more certainty associated with the funds that occur earlier than later in the investment holding !"#$%&'(!)*!+',-!'."!/,!"',-!' "$ $",#$)'$0'"!1/2!'*/1-'3$4+',-!'."!/,!"',-!'"#15'/)'#)6!1,$"'781,'0/*!&'($4!6!"+'!6!)' /",#,#$)#).',-!'9::+'#,1'4!/5)!11!1'/"!')$,'/%%"!11!%&';-!'81!'$0',-!'7$%#<!%'#),!")/2'"/,!'$0'"!,8")'=>9::?'.#6!1' ,-!'#)6!1,$"'/' $,!),#/22@'1,"$).!"',!*-)#a8!',$'/)/2@b!',-!'*/1-'3$41'$0'/' "$c!*,&'9,'"!182,1'#)'/'7$"!'*$)1!"6/,#6!' "!,8")',-/)',-!'9::d')!./,#6!'*/1-'3$41'/"!'*/)*!22!%'$8,'e@' $1#,#6!'$)!1+'/)%'*$7 $8)%1',-!'*/1-'3$41'0$"4/"%'/,' /'7$"!'"!/2#1,#*'"!#)6!1,7!),'"/,!'e/1!%'$)',-!' "$c!*,f1'*$1,'$0'*/ #,/2&'9,',-!)'%#1*$8),1',-#1'08,8"!'*/1-'3$4'e/*5',$' ,-!'#)#,#/2'$8,2/@'%/,!'/,'/'"/,!',-/,'7$"!'0/#"2@'"! "!1!),1',-!'#)6!1,7!),'"#15'$0',-!' "$c!*,&';-!'e/1#*'7$%!2',$'<)%' the mirr is presented below. zero = fvnoi t g'=h'i'>9::?t'i':j t g'=h'i'>9::?t io 0 ;-!'>9::'#1',-!'"/,!'4-#*-'!a8/,!1',-!'klj',$'m!"$ future value of the sum of each noi @ capr n'ko9 t =hi'*/ "?t = fvnoi at the end of the lease term :j'p',-!'"!6!"1#$)'=1/2!?'6/28!'/,',-!'!)%'$0',-!'2!/1!',!"7 ko9'p',-!')!,'$ !"/,#).'#)*$7!'$"')!,'*/1-'3$4'0$"'!/*-'@!/"'#)',-!'#)6!1,7!),'-$"#b$) q/ "'p',-!'*/ #,/2#b/,#$)'"/,!'81!%',$'%!,!"7#)!',-!'08,8"!'6/28!'$0')!,'*/1-'3$41' fvnoi = the future value of the sum of each periodic noi by the end of the lease term :j'p',-!':!6!"1#$)'6/28!'0$"',-!'$0<*!'e8#2%#).'/,',-!'!)%'$0',-!'2!/1!',!"7 >9::'p',-!'7$%#<!%'#),!")/2'"/,!'$0'"!,8")'0$"'!/*-'$0<*!'e8#2%#). io = the initial investment outlay t = the time period as of the end of the lease term. ;-#1' / !"' 8,1'0$",-',-/,',-!'"!2/,#6!' "$ $",#$)1'$0',-!'>9::+'"! "!1!),!%'e@',-!',4$'*/1-'3$4'1$8"*!1+'*/)' provide another layer of analysis that reveals that the risk differences between the income properties are strong !)$8.-',$'*-/22!).!+'1 !*#<*/22@'#)',-!'*/1!'$0',-!'78,8/22@'!r*281#6!':#6!"1#%!'/)%'s/t/22!' "$c!*,1+',-!',"/%#,#$)/2' %!*#1#$)'"82!1'$0',-!'klj+'9::+'/)%'#,f1' /",#,#$)#).&';-!' "$*!11'$0',-!'1,"/,#0@#).'$0',-!'7$%#<!%'#),!")/2'"/,!'$0' return is presented below. !"# $%&'%()*(+, -) %"# .-/(0#/ 1+%#&+'2 3'%# -) 3#%4&+ t,! 'hu'q/2*82/,!',-!'>9::'/1'%!1*"#e!%'/e$6!& t,! 'vu'w1!',-!'>9::',$'%#1*$8),'e/*5',-!'ko9'*/1-'3$41'/)%',-!':j'*/1-'3$4 t,! 'xu'y$"782/,!',-!'4!#.-,'$"'1,"/,/'$0',-!'>9:: [a] pvnoi t 'i'lj:j t p';ljqy t [b] pvnoi t g';ljqy t = relative proportion of mirr from the discounted total future noi [c] pvrev t g';ljqy t = relative proportion of mirr from the discounted future rv, where pvnoi t = present value of future net operating income from the end of lease term pvrv t = present value of future reversion value from the end of lease term ;ljqy t p';$,/2' "!1!),'6/28!'$0'e$,-'$ !"/,#).'/)%'"!6!"1#$)'*/1-'3$41'/,',#7!' !"#$%'b!"$ k$,!u'z8"$ !/)'l8,'o ,#$)'['08,8"!'"!6!"1#$)'$"'1/2!'$0',-!'$0<*!'e8#2%#).'*/)'$)2@'$**8"'/,',-!'!)%'$0',-!'-$2%#).' ,!"7&'\7!"#*/)'l8,'o ,#$)'['08,8"!'"!6!"1#$)'$"'1/2!'$0',-!'$0<*!'e8#2%#).'*/)'$**8"'/,'/)@',#7!'%8"#).',-!'-$2%#).' term. ;-!'1,"/,#<*/,#$)'$0' ,-!'7$%#<!%'#),!")/2' "/,!'$0'"!,8")' #1'1,"!).,-!)!%+' #)' ,-#1' / !"+'e@' ,-!'0/*,' ,-/,'/22' ,-!' /),#*# /,!%'08,8"!'*/1-'3$41'/"!' /",#/22@'%!,!"7#)!%'e@'!r#1,#).'2!/1!1+'7#,#./,#).'1$7!'$0',-!'8)*!",/#),@',@ #*/22@' /11$*#/,!%'4#,-'!1,#7/,#).',-!1!'08,8"!'*/1-'3$41& 5.6131789 8:89;$1$ 2010, vol. 1, no. 1, 15-25 s#3/)% 21 advances in business research this study posits that an investor can approach the income property valuation process either adhering to the z8"$ !/)'l8,'o ,#$)'1,"/,!.@'4-!"!'!/*-' "$ !",@'4#22'e!'1$2%'/,',-!'!)%'$0',-!'<0,-'@!/"'=v]hv?'$"'0$22$4#).'/)' \7!"#*/)' l8,'o ,#$)' 1,"/,!.@' ,-/,' $00!"1' ,-!' 3!r#e#2#,@' $0' *-$$1#).' ,$' 1!22' ,-!' "$ !",@' %8"#).' /)@' @!/"' $0' ,-!' #)6!1,7!),'-$2%#).' !"#$%&'9)'$"%!"',$'%!,!"7#)!',-!'"!6!"1#$)'6/28!'=:j?'0$"'e$,-' "$c!*,':#6!"1#%!'/)%'s/t/22!+' ,-!#"')!,'$ !"/,#).'#)*$7!'=ko9?'0$"',-!'1#r,-'@!/"'=v]hx?+'=;/e2!1'9j'/)%'j?'#1'%#6#%!%'e@'!/*-' "$ !",@f1'!1,#7/,!%' .$#).[#)'*/ #,/2#b/,#$)'"/,!'=q/ ':/,!?'=;/e2!'99?&';-!'.#6!)'*/ '"/,!'"! "!1!),1',-!'"!,8")'"!a8#"!%'0$"',-!' /",#*82/"' property investment based on its risk when compared to returns earned from competing investments. when direct */ #,/2#b/,#$)'#1'81!%+',-!' "$ !",#!1'e!#).'"!6#!4!%')!!%',$'e!'*$7 /"/e2!&';-!',4$'$0<*!'e8#2%#).1'/ !/"',$'e!' similar in terms of their construction, size, age, location, and functionality. when making estimates of the future "$ !",@' 6/28!+' ,-!' -/)%2#).' $0' */ #,/2' $8,2/@1' #1' #7 $",/),+' ,$$&'(!"!+' !/*-' "$ !",@' "!3!*,1' /)' /*,8/2' ^q/ #,/2' :!1!"6!f' "$6#1#$)'=;/e2!' 99?' #)'%!,!"7#)#).' ,-!')!,'$ !"/,#).' #)*$7!'=ko9?&'y8",-!"+'*$)1#1,!)*@' #1'7/#),/#)!%' through the use of table iii’s relevant data from the metro area analysis conducted by reis, inc on important items /1',-!'/6!"/.!'2!/1!',!"7'/)%'#)3/,#$)'"!),'!1*/2/,$"&';-!'!r !*,!%'08,8"!'*/1-'3$41'0"$7',-!'"!1/2!'$0'!/*-' "$ !",@' under both the european put option and american put option are presented in table vi below. !'<2# =1> 7'?" @2-a )&-b 3#?'2# c3#d#&?(-+ ='24#e )-& 6&-f#g% 3(d#&?(/# '+/ 6&-f#g% 9'$'22# h+/#& %"# 54&-i#'+ '+/ 8b#&(g'+ 64% ji%(-+ $%&'%#,(#? k$,!u'z8"$ !/)'l8,'o ,#$)'_':!6!"1#$)'6/28!'$)2@'/,',-!'!)%'$0',-!'-$2%#).',!"7&'\7!"#*/)'l8,'o ,#$)'_':!6!"1#$)' value calculated at the end of each year in holding period. ;-!'klj1'$0'!/*-' "$c!*,'8)%!"',-!'z8"$ !/)'/)%'\7!"#*/)'l8,'o ,#$)'1,"/,!.#!1'#1' "!1!),!%')!r,'#)';/e2!'j99u !'<2# =11> :#% 6&#?#+% ='24# c:6=e )-& 6&-f#g% 3(d#&?(/# '+/ 6&-f#g% 9'$'22# h+/#& %"# 54&-i#'+ '+/ 8b#&(g'+ 64% ji%(-+ $%&'%#,(#? k$,!u'z8"$ !/)'l8,'o ,#$)'_'klj'e/1!%'$)'"!6!"1#$)'$)2@'/,',-!'!)%'$0',-!'-$2%#).',!"7&'\7!"#*/)'l8,'o ,#$)'_'klj'#1' calculated as if reversion can occur at the end of any year in the holding period. ;-!')!r,'1,! '#)',-!'`qy' "$*!11'#1',-!'%!,!"7#)/,#$)'$0'e$,-',-!'#),!")/2'"/,!'$0'"!,8")'/)%',-!'7$%#<!%'#),!")/2' rate of return. the results for projects riverside and lasalle, under the european and american put option strategies, are presented below in table viii. 2010, vol. 1, no. 1, 15-25 s#3/)% european put option project riverside project lasalle noi period 6 (2013) $8,581,325 $9,290,479 cap rate 5.20% 7.50% cash flow from reversion $165,025,487 $123,873,052 american put option lease term reversion value reversion value year 1 $134,737,369 $92,756,207 year 2 141,743,712 99,712,923 year 3 149,114,386 107,191,392 year 4 156,868,334 115,230,746 year 5 165,025,487 123,873,052 european put option project riverside project lasalle initial outlay $143,999,995 $108,749,900 cap rate 5.20% 7.50% net present value $16,878,443 $10,983,976 american put option lease term npv npv year 1 ($9,207,428) ($15,302,673) year 2 (2,570,319) (8,384,618) year 3 3,989,284 (1,702,722) year 4 10,471,996 4,750,923 year 5 16,878,443 10,983,976 22 advances in business research !'<2# =111> 1+%#&+'2 3'%# -) 3#%4&+ c133e '+/ .-/(0#/ 1+%#&+'2 3'%# -) 3#%4&+ c.133e @-& 6&-f#g%? 3(d#&?(/# '+/ 9'$'22# h+/#& %"# 54&-i#'+ '+/ 8b#&(g'+ 64% ji%(-+ $%&'%#,(#? k$,!u'')/'#1'a)$,'/ 2#*/e2!b'/1',-!'klj'c']&';-#1'0/*,'.8/"/),!!1',-!'>9::',$'e!'c',-!'q/ ':/,!+'*/ "'p'.$#).[#)' cap rate, european put option – irr and mirr based on reversion only at the end of the holding term, american put option – irr and mirr are calculated as if reversion can occur at the end of any year in the holding period. !'<2# 1k> 7-+%&'?%(+, -) %"# $%&'%()*(+, -) %"# .-/(0#/ 1+%#&+'2 3'%# -) 3#%4&+ a(%" %"# 6'&%(%(-+(+, -) %"# 1+%#&+'2 3'%# -) 3#%4&+ )-& 6&-f#g%? 3(d#&?(/# '+/ 9'$'22# h+/#& %"# 54&-i#'+ '+/ 8b#&(g'+ 64% ji%(-+? k$,!u')/'#1'a)$,'/ 2#*/e2!b'/1',-!'klj'c']&' ';-#1'0/*,'.8/"/),!!1',-!'>9::'/)%'9::',$'e!'c',-!'q/ ':/,!+' european put option – based on reversion only at the end of the holding term, american put option – based on reversion occurring at the end of any year in the holding period, partitioning the irr under-estimates the risk /11$*#/,!%'4#,-',-!'"!6!"1#$)'*/1-'3$41'8)%!"'e$,-',-!'z8"$ !/)'/)%'\7!"#*/)'l8,'o ,#$)1& 2010, vol. 1, no. 1, 15-25 s#3/)% european put option project riverside project lasalle relative proportions of the mirr from operational (noi) cash flows 20.39% 27.94% from reversion (rv) cash flow 79.61% 72.06% relative proportions of the irr from operational (noi) cash flows 21.21% 28.86% from reversion (rv) cash flow 78.79% 71.14% american put option stratifying of the mirr lease term year 1 na na year 2 na na year 3: from operational cash flows 13.37% na from reversion cash flows 86.63% na year 4: from operational cash flows 17.09% 23.98% from reversion cash flows 82.91% 76.02% year 5: from operational cash flows 20.39% 27.94% from reversion cash flows 79.61% 72.06% partitioning of the irr lease term year 1 na na year 2 na na year 3: from operational cash flows 13.57% na from reversion cash flows 86.43% na year 4: from operational cash flows 17.50% 24.31% from reversion cash flows 82.50% 75.69% year 5: from operational cash flows 20.21% 28.86% from reversion cash flows 78.79% 71.14% european put option project riverside project lasalle capitalization rate 5.20% 7.50% internal rate of return (irr) 7.78% 9.87% modified internal rate of return (mirr) 7.56% 9.59% excess of mirr over cap rate 2.36% 2.09% excess of irr over cap rate 2.58% 2.37% american put option lease term irr mirr irr mirr year 1 na na na na year 2 na na na na year 3 6.21% 6.16% na na excess of internal return over capr 1.01% 0.96% na na year 4 7.20% 7.06% 8.78% 8.66% excess of internal return over capr 2.00% 1.86% 1.28% 1.16% year 5 7.78% 7.56% 9.87% 9.59% excess of internal return over capr 2.58% 2.36% 2.37% 2.09% 23 advances in business research ! "#$%$&'(&)*+%,%"&,)$."/$ the decision regarding investing in project riverside and project lasalle is being made under a mutually exclusive !"#$%&#!%'$ %()% *!+',!'%-#'./0'12)&#3*245')!')66#7%#8'2(9#' $'%*')66#7%'%-#'72*:#6%'3 %-'%-#'6*&7)2)% "#';2#)%#2' 7*$ % "#'<=>+'?)@9#'>,,5'(!8#2'%-#'a(2*7#)!'=(%'$#6% *!5'2#7*2%$'%-)%'=2*:#6%$'b "#2$ 8#')!8'c)d)99#'2#e#6%'7*$ % "#' !#%'6)$-'e*3$'*1'fgh5iji5jjk')!8'fgl5mik5mjh'2#$7#6% "#9n+'=2*:#6%'b "#2$ 8#'3*(98'@#'1)"*2#8'*"#2'=2*:#6%'c)d)99#+' o!8#2'%-#'p&#2 6)!'=(%'q7% *!5'3 %!'%-#'r"#'n#)2'-*98 !;'7#2 *85'=2*:#6%'b "#2$ 8#'*11#2$')'" )@9#'7*$ % "#'<=>' !'#)6-'*1'n#)2$'%-2##5'1*(25')!8'r"#' !'%-#')&*(!%$'*1'fk5mim5sit5'fgl5tjg5mmh5')!8'fgh5iji5ttk'2#$7#6% "#9n+'.(2 !;' %-#'r2$%'%3*'n#)2$5'1*2'@*%-'72*7#2% #$5'%-#2#' $')!'#$% &)%#8'!#;)% "#'!#%'72#$#!%'")9(#5'&)4 !;'%-#'6-* 6#'%*'$#99' within that period not a prudent one. for project lasalle, under the american put option, the investor would realize )!'*77*2%(! %n' !'n#)2$'1*(2')!8'r"#')$'n#)2'%-2##'3)$'&#%'3 %-'!#;)% "#'!#%'6)$-'e*3$+',%$'7*$ % "#'<=>' !'n#)2'1*(2' 3)$'ft5jul5msk')!8' !'n#)2'r"#'3)$'fgl5mik5mjh+',!"#$%*2$'-)"#'&*2#'e#v @ 9 %n'3 %-'=2*:#6%'b "#2$ 8#+'''' to corroborate the actions dictated by the npv rule, the internal returns on both investments need to be compared. the expectation is that the respective internal rates of return will be greater than the project’s going-in capitalization 2)%#')!8'@#'6*!$ $%#!%'3 %-'%-#'<=>'2(9 !;+'o!8#2'%-#'a(2*7#)!'=(%'q7% *!5'%-#'b "#2$ 8#'72*7#2%n'2#e#6%$')!',bb' *1'j+jiw'x?)@9#'>,,,y'39#'=2*7#2%n'c)d)99#';#!#2)%#8')!',bb'*1'm+ijw+'z#2#5'=2*:#6%'c)d)99#' $'1)"*2#8')$' %$',bb' #v6##8$'!*%'*!9n' %$'*3!'6*$%'*1'6)7 %)9'*1'j+uw'@(%' $';2#)%#2'%-)!'%-)%'*1'%-#'b "#2$ 8#'72*7#2%n+''p'6*!e 6%'@#%3##!' the npv and irr exists. when considering the american put option, there is still no resolution, as table viii 2#7*2%$'%-)%'%-#',bb$'*1'=2*:#6%'c)d)99#'#v6##8'%-)%'*1'=2*:#6%'b "#2$ 8#' !'n#)2$'1*(2')!8'r"#+''b#6*;! [ !;'%-)%'%-#' 3#)4!#$$#$')$$*6 )%#8'3 %-'%-#' !%#2!)9'2)%#'*1'2#%(2!'6)!'@#')"* 8#8'3 %-'%-#'($#'*1'%-#'&*8 r#8' !%#2!)9'2)%#'*1' 2#%(2!5'?)@9#'>,,,')9$*'2#7*2%$'%-#'\,bb'r!8 !;$')$'3#99+'o!8#2'%-#'a(2*7#)!'q7% *!5'=2*:#6%'b "#2$ 8#'-)8')'\,bb' *1'j+uhw'36-'#v6##8#8' %$'6)7'2)%#'*1'u+sw'@n')'&)2; !'*1's+khw'x%-#',bb'#v6##8#8'%-#'6)7'2)%#'@n's+uiwy+'?-#' mirr associated with project lasalle was 9.59% and exceeded its cap rate of 7.5% by a margin of 2.09% (the irr 3)$';2#)%#2'%-)!'%-#'6)7'2)%#'@n's+kjwy+'' project lasalle is favored by its mirr but not by its npv. within the american put option strategy, there is !*'6*!e 6%' !'n#)2'%-2##')$'=2*:#6%'c)d)99#]$'\,bb' $'9#$$'%-)%' %$'6)7'2)%#'39#'=2*:#6%'b "#2$ 8#'-)$')'\,bb'%-)%' #v6##8$' %$';* !;^ !'6)7'2)%#'&)4 !;' %')'72#1#22#8'72*:#6%+'_*%-'72*7#2% #$'2#e#6%'\,bb'")9(#$'36-'#v6##8'%-# 2' 6)7'2)%#$' !'n#)2$'1*(2')!8'r"#+',!'n#)2't5'=2*:#6%'c)d)99#]$'\,bb'*1'i+hhw'#v6##8#8' %$'6)7'2)%#'@n'g+ghw'39#' %$' irr of 8.78% had a spread of 1.28%. project riverside’s mirr of 7.06% exceeded its cap rate by 1.86% while its irr *1'j+slw'-)8')'$72#)8'*1's+lw+'.(2 !;'n#)2'r"#5'=2*:#6%'c)d)99#]$'\,bb'*1'm+umw'3)$'9)2;#2'%-)!' %$'6)7'2)%#'@n')' margin of 2.09% while its irr of 9.87% had a spread of 2.37%. for project riverside, its mirr of 7.56% exceeded its cap rate by a spread of 2.36% while its irr of 7.78% was associated with a spread of 2.58%. the mirr delivers a more conservative return measurement as evidenced by the relatively larger cap rate spreads associated with the irr calculations. the irr consistently overstates the return associated with each project. ` %!'%$'#!" 2*!&#!%'*1'6*!e 6% !;' !"#$%&#!%'8#6 $ *!'2(9#$5'%-#'72*7#2%n' !"#$%*2'!##8$'%*'@#')@9#'%*'1(2%-#2' &#)$(2#')'72*:#6%]$'#v7#6%#8'1(%(2#'6)$-'e*3'2 $4+'q!#'&#%-*8'%*'-#97')882#$$'%-#'9)%%#2' $'%-#'7)2% % *! !;'*1'%-#' internal rate of return. its objective is to gain some sense of the relative proportion of the components of the return )!8' %*'" #3'%-#' % & !;')!8a*2'&);! %(8#'*1')'72*:#6%]$'6)$-'e*3$+'?$'7)7#2'#v%#!8$' %-#' 9 %#2)%(2#' %-2*(;-' %-#' !%2*8(6% *!'*1' %-#' $%2)% 1n !;'*1' %-#'&*8 r#8' !%#2!)9' 2)%#' *1' 2#%(2!+'p3)2#'*1' %-#' $%2#!;%-$' *1' %-#'\,bb'*"#2' %-#',bb')!8'" #3 !;' %' !'6*!:(!6% *!'3 %-'*%-#2'2 $4'1)6%*2$'x$(6-')$'*1r6#'@( 98 !;'6*!$%2(6% *!'#v6##8$'&)24#%' )@$*27% *!'*2'%-#2#' $')!'#v7#6%#8' !62#)$#' !'")6)!6n'2)%#$y5' %'*11#2$')!' !$ ;-%1(9'&#)$(2#'*1'%-#'2 $4')$$*6 )%#8' 3 %-'#v7#6%#8'*7#2)% *!)9')!8'2#"#2$ *!'6)$-'e*3$+'' ` %!'?)@9#',b5'%-#'a(2*7#)!'=(%'q7% *!'2#7*2%$' !%#2#$% !;'2#$(9%$+',%'-)$'@##!'#$%)@9 $-#8'%-)%'@*%-'%-#'\,bb' )!8',bb'1)"*2'=2*:#6%'c)d)99#'*"#2'=2*:#6%'b "#2$ 8#+'c#%5'%2)8 % *!)9'./0')!)9n$ $'3*(98'-)"#'%-#' !"#$%*2'8#1#2'%*' %-#'!#%'72#$#!%'")9(#'2(9#'%*'&)4#')'r!)9'8#6 $ *!')!8'6-**$#'=2*:#6%'b "#2$ 8#+'_#1*2#'&)4 !;'%-)%'8#6 $ *!5'-*3#"#25' the stratifying of the mirr and the partitioning of the irr reveal that approximately 80% and 79% of riverside’s 2#$7#6% "#'6)$-'e*3$')2#')$$*6 )%#8'3 %-'%-#'2#"#2$ *!'")9(#'*1'%-#'72*:#6%+'q!'%-#'*%-#2'-)!85'1*2'=2*:#6%'c)d)99#5' %-#'2#9)% "#'72*7*2% *!$'*1'%-#'\,bb')!8',bb'6*& !;'12*&' %$'2#"#2$ *!'6)$-'e*3')2#')772*v &)%#9n'jsw')!8'jgw+' p'2#9)% "#';2#)%#2'2 $4' $')$$*6 )%#8'3 %-'%-#'1(%(2#'6)$-'e*3$'@#n*!8'%-#'-*98 !;'7#2 *8'1*2'=2*:#6%'b "#2$ 8#+' ` %!'%-#'p&#2 6)!'=(%'q7% *!5'=2*:#6%'b "#2$ 8#'-)8'%-#'*!9n'" )@9#'7*$ % "#'6)$-'e*3'*7% *!' !'n#)2'%-2##+' the respective stratifying of the mirr and partitioning of the irr show relative proportions from the resale of the property to be approximately 87% and 86% respectively. project riverside’s relative proportions of the mirr )$$*6 )%#8'3 %-'%-#'#v7#6%#8'2#$)9#'6)$-'e*3'*"#2'n#)2$'1*(2')!8'r"#')2#')772*v &)%#9n'ikw')!8'ilw+'?-#',bb' partitioned according to its reversion value during the same time period was approximately 83% and 79%. project c)d)99#';#!#2)%#8'2#9)% "#'72*7*2% *!$'*1' %$'\,bb'12*&'%-#'1(%(2#'$)9#$'72 6#'*"#2'n#)2$'1*(2')!8'r"#'%-)%'3#2#' approximately 76% and 72%. regarding the proportions of the irr over the same time frame, project lasalle showed approximate weights of 76% and 71%. 2010, vol. 1, no. 1, 15-25 c e)!8 24 advances in business research ?-#' !"#$%*2^@(n#2'&($%'@#')3)2#'*1'%-#'2#9)% "#';2#)%#2'2 $4')$$*6 )%#8'3 %-'%-#'4#n'2#"#2$ *!'6)$-'e*3+'?-#' 2#$(9%$'*1'%-#'$%2)% 1n !;'*1'%-#'\,bb'*"#2'n#)2$'1*(2')!8'r"#'2#"#)9')'6*!$ $%#!%'7)%%#2!'3-#2#'%-#'#v7#6%#8'2#"#2$ *!' 6)$-'e*3'2 $4'*1'=2*:#6%'b "#2$ 8#' $';2#)%#2'%-)!'%-)%'*1'=2*:#6%'c)d)99#]$+'o!8#2'@*%-'%-#'a(2*7#)!')!8'p&#2 6)!' =(%'q7% *!'$%2)%#; #$5'%)4 !;' !%*')66*(!%'%$')$$#$$&#!%'*1'6)$-'e*3'2 $4'12*&'%-#'$%2)% 1n !;'*1'%-#'\,bb'!##8$' %*'@#'7#21*2&#8' !'2#6*;! % *!'*1'*%-#2'$7#6 r6'2 $4'1)6%*2$+'02*&'?)@9#',,5'2#7*2% !;'2#9#")!%'8)%)'12*&'%-#'&#%2*' )2#)5'ba,d5',!6+'2#7*2%#8'%-)%'%-#')!!()9 [#8'u^n#)2'")6)!6n'2)%#'3)$'gj+hw+'=2*:#6%'c)d)99#' $'3#99'@#9*3'%$'r;(2#' with a rate of 9.2% while project riverside stands at 14.4%. the annualized 5-year rent growth rate is only 2.1%. the 2#; *!'$-*3$')!')772*v &)%#'sdg'2)% *'*1'%-#'6*!$%2(6% *!'*1'*1r6#'@( 98 !;$'2#9)% "#'%*'%-# 2')@$*27% *!+'?$'6*(98' lead to a future downward pressure on rent revenue as well as an increase in vacancy rates. the area shows a stability rate of approximately 68%. stabilization is achieved when the average vacancy rates of %-#'72*7#2% #$'@( 9%' !')!n'; "#!'n#)2'x-#2#5' %' $'slliy')2#'#e()9'%*'*2'9#$$'%-)!'%-#'&#%2*]$')"#2);#'*"#2)99'")6)!6n' 2)%#'1*2'%-#'9)$%'r"#'n#)2$+'?-#' !e)% *!'1)6%*2'1*2'%-#'7#2 *8'3)$'k+iuw'36-' &7)6%$'&*$%'*1'%-#'6)$-'e*3'#$% &)%#$' !'?)@9#$',>')!8'>+'?-#'$%2)% 1n !;'*1'%-#'\,bb'%*;#%-#2'3 %-'%-#$#'2 $4'1)6%*2$5')!8')!' !"#$%*2]$'(! e(#')"#2$ *!' to risk, the npv default rule may not be followed by the investor. the acceptance decision could be directed back towards project lasalle and not the riverside property. -'!-".$%'! a"#!'%-*(;-'%-#'%2)8 % *!)9'. $6*(!%#8'/)$-'09*3'x./0y'&#%-*8'%)4#$' !%*')66*(!%'%-#'% &#'")9(#'*1'&*!#n5' $n$%#&)% 6'6)$-'e*3$5')!8'%-#'(9% &)%#'2#$)9#'*1'%-#'72*7#2%n5' %'-)$')'3#)4!#$$' !'%-)%' %'%#!8$'%*'@#'7)$$ "#')!8'8*#$' not capture the ability of the investor to adapt or revise their decisions in response to market developments. with %$'@)6482*75'%$'7)7#2'9**4$')%'%-#'./0')!)9n$ $'3 %!'%-#'12)&#3*24'*1')!'p&#2 6)!')!8'a(2*7#)!'=(%'q7% *!' $%2)%#;n+',%'7(%$'1*2%-'%-#'!*% *!'%-)%'%-#$#'2#)9'*7% *!$'; "#'%-#'72*7#2%n' !"#$%*2'%-#'e#v @ 9 %n'%*'&)4#'6-* 6#$')%' &(9% 79#'7* !%$'8(2 !;'%-#' !"#$%&#!%'-*98 !;'7#2 *8+'?2)8 % *!)9'./0')!)9n$ $'$#%%9#$'72*:#6%')66#7%)!6#'6*!e 6%$' @n'6*&7)2 !;'%-#'<=>'3 %-'%-#' !%#2!)9'2)%#'*1'2#%(2!'x,bby+'?-#'6)$#' $'&)8#'%-)%'%-#'&*8 r#8' !%#2!)9'2)%#'*1' 2#%(2!'x\,bby' $')'@#%%#2'%#6-! e(#'%-)!'%-#'9)%%#2+'?-#'\,bb'8#9 "#2$')'2#%(2!'%-)%' $'&*2#'6*!$#2")% "#5'6)!'-)!89#' )'$#e(#!6#'*1'7*$ % "#')!8'!#;)% "#'6)$-'e*3$5')!8'$7#6 r#$'%-#'72*:#6%]$'6)7'2)%#')$'%-#'2# !"#$%&#!%'2)%#+'' ?$'7)7#2'#v%#!8$'%-#'9 %#2)%(2#'3 %-'%-#'$%2)% 1n !;'*1'%-#'&*8 r#8' !%#2!)9'2)%#'*1'2#%(2!'36-'@2#)4$'*(%'%-#' 72*7*2% *!'*1'%-#'\,bb'%-)%'6*&#$'12*&'@*%-'%-#'*7#2)% *!)9')!8'2#"#2$ *!'6)$-'e*3$+',%' &79 #$'%-)%'%-#' !"#$%*2' faces more risk the greater the proportion of the mirr that is comprised of the future resale value. under conditions of uncertainty the need to have accurate measures of risk is essential. in this study, the irr consistently overstates the return, as compared with the mirr, in each of the years in the holding period. the partitioning of the irr (!8#2$%)%#$'%-#'&*$%'"*9)% 9#'*1'%-#'<=>'6)$-'e*3'6*&7*!#!%$'1)6 !;'%-#' !"#$%*25')$'6*&7)2#8'3 %-'%-#'$%2)% 1n !;' of the mirr, in every year of the holding period, under both the european and american put option strategies. the stratifying of the mirr provides a practical improvement over the irr partitioning and offers another layer of risk )!)9n$ $'%-)%'1)6 9 %)%#$'72*:#6%'6*&7)2 $*!$'#"#!'3-#2#'*%-#2'%#6-! e(#$'9#)8'%*'6*!e 6% !;'2#$(9%$+' ,)(),)!-)$ berger, p.g., ofek, e., & swary, i. 1996. investor valuation of the abandonment option. journal of financial )012134055'tsd'suj^sij+' _*! ! 5' /+' gmjj+' /)7 %)9' !"#$%&#!%' (!8#2' (!6#2%) !%n' 3 %-' )@)!8*!&#!%' *7% *!$+' journal of financial and quantitative analysis5'gsd'km^ut+ brueggeman, w., & fisher, j. 2008, ,678&659796&:27206&72;&42<6593629+'<#3'c*24d'\6f2)3^z 99',23 !+ delisle, j. 2009. &=>436>&12&;4501?296;&075@&a1b&7278c545. www.jrdelisle.com. dixit, a., & pindyck, r. investment under uncertainty+'=2 !6#%*!5'<gd'=2 !6#%*!'o! "#2$ %n'=2#$$+ fama, e. 1977. risk-adjusted discount rates and capital budgeting under uncertainty. d1?>278&1e&(42720478&)01213405, ud'k^st+' gallinelli, f. 2004. f@79&6<6>c&>678&659796&42<6591>&266;5&91&g21b&7h1?9&075@&a1b5+'<#3'c*24d'\6f2)3^z 99+ huang & litzemberger. 1988. (1?2;794125&e1>&:2720478&601213405+'a9$#" #2'd6 #!6#'=(@9 $-#2$'/*+5',!6+ 2010, vol. 1, no. 1, 15-25 c e)!8 25 advances in business research h #2(9115'z+'slli+'\,bbd'p'@#%%#2'&#)$(2#+'i?542655&j1>4k1255'ugd'ksg^ksm+ c)!8#25'.+5'i'= !6-#$5'f+'gmmi+'/-)99#!;#$'%*'%-#'72)6% 6)9' &79#&#!%)% *!'*1'&*8#9 !;')!8'")9( !;'2#)9'*7% *!$+'the l?7>96>8c&,6<46b&1e&)01213405&72;&(4272065'kid'ukj^uhj+ levy, h., & sarnat, m. 1984. +1>9e1841&72;&42<6593629&568609412m&/@61>c&72;&=>7094065'a!;9#3**8'/9 11$5'<+gd' prentice-hall international. lintner, j. 1965. the valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. /@6&,6<46b&1e&)01213405&72;&$9794594055'tjd'gk^kj+ lucas, r., & prescott, e. 1971. investment under uncertainty, )0121369>4075'kmd'hum^hig+ plath, d., & kennedy, w. 1994. teaching return-based measures of project evaluation. financial practice and );?0794125'td'jj^ih+ rose, s. 1998. valuation of interacting real options in a tollroad infrastructure project. the quarterly review of )01213405&72;&(4272065'kid'jgg^jsk+' d%*(%5'.+5'b #5'c+5'i'j 5'z+'slli+',&72*" !;'6)7 %)9'@(8;#% !;'8#6 $ *!$'3 %-'2#)9'*7% *!$+'management accounting quarterly5'md'34-41. ?2 ;#*2; $5'c+'gmmk+'b#)9'*7% *!$')!8' !%#2)6% *!$'3 %-'r!)!6 )9'e#v @ 9 %n+'financial management5'ssd'sls^sst+ ?2 ;#*2; $5'c5'i'\)$*!5'd+'gmij+'>)9( !;'&)!);#2 )9'e#v @ 9 %n+'midland corporate finance journal5'ud'gt^sg+ b #5'0+'sllm+'\)!);#2 )9'e#v @ 9 %n5' (!6#2%) !%n5' )!8'6*27*2)%#' !"#$%&#!%d'?-#' 2#)9'*7% *!$'#11#6%+' international ,6<46b&1e&)01213405&72;&(4272065'gid'htk^huu+ $96<62&"4a72; is an a$$*6 )%#'72*1#$$*2'*1'r!)!6#')%'z ;-'=* !%'o! "#2$ %n+'z#'2#6# "#8'$'=-+.+' !'r!)!6#'12*&' q98'.*& ! *!'o! "#2$ %n+'z $'6(22#!%'2#$#)26-' !%#2#$%$' !69(8#'2#)9'#$%)%#'")9()% *!5'6*27*2)%#' !!*")% *!d'bi.' )!8'7)%#!%$5'a?0$5'ba,?$5'3*24 !;'6)7 %)9'&)!);#&#!%5')!8'r!)!6 )9'#8(6)% *!+'z#'-)$'7(@9 $-#8' !'%-#'g*(2!)9'*1' managerial finance and journal of academy of business and economics. p64!*39#8;#&#!%d'?-#')(%-*2'3 $-#$'%*')64!*39#8;#'%-#'6*&&#!%$'*1'%-#'2#" #3#2+'?-#'$(;;#$% *!$'-#97#8'%-#' author provide further insight and clarity in the presentation. 2010, vol. 1, no. 1, 15-25 c e)!8 advances in business research 2010 volume 1.pdf 36 advances in business research ! "#$%#&! '(! )*+#,,#-+./,! 0/1%+/,! 2%+#3/+.3#! 43'1'5%*6! 7/,/*-#! 89##+! :%5-,'5.3#5! '(! )*+#,,#-+./,!0/1%+/,!;4,.5!<$/,./+%$#!0'==#*+/3>!(3'=!/!?%*/*-%/,! --'.*+%*6!@#/5.3#=#*+! 4#351#-+%$#a john morgan, winona state university frederic ihrke, winona state university james hurley, winona state university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more fully measure and report intellectual assets on the balance sheet. we conclude that intractable measurement )&+:-123&.4! 0#.-21).! ,'*! (13! 401#&$14!/.,41#.4! +$#!/$43! &3./4! $+! &'3.#',22*! ".'.#,3.)! &'3.22.-31,2! -,0&3,2! $'! 35.! balance sheet. therefore we are against these measurements. concept “intellectual capital” !"#$%&'($!(#$)#*(+%+!($!,$+(%#--#.%/'-$.'0+%'-$0"#1#(%-2$.!30#%#1$+($3'+(1%"#'3$+(%#--#.%/'-$.'0+%'-$-+%#"'%/"#$ 456#21#7#"'8$9::;<=$>#?#"%&#-#118$+(%#--#.%/'-$.'0+%'-$+1$)#*(#)$+($"#'1!('6-2$1+3+-'"$@'21$62$3!1%$!,$+%1$')?!.'%#1=$ a!"$#b'30-#8$ '""$49::;<$1/cc#1%1$+(%#--#.%/'-$.'0+%'-$"#,#"1$%!$%&#$3'(2$+(%'(c+6-#$,'.%!"1$%&'%$.!(%"+6/%#$%!$)#-+?#"2$ !,$ '($!"c'(+d'%+!(e1$ 1%"'%#c28$ +(.-/)+(c$ %&"##$3'+($ 1/6f.'%#c!"+#1g$&/3'($.'0+%'-$ 47(!@-#)c#$'()$ 17+--1$ "#1+)+(c$ @+%&+($#30-!2##1<8$"#-'%+!('-$.'0+%'-$4,!"3'-$'()$+(,!"3'-$"#-'%+!(1&+01$6!%&$+(%#"('--2$'()$#b%#"('--2<8$'()$1%"/.%/"'-$ .'0+%'-$ 4)'%'6'1#18$ 0"!)/.%+!($ "!/%+(#18$ '()$ .!)+*#)$ 7(!@-#)c#$ !,$ '--$ 1!"%1<=$ h%#@'"%$ 49::i$ '()ijjk<$ )#*(#1$ +(%#--#.%/'-$.'0+%'-$'1$7(!@-#)c#8$+(,!"3'%+!(8$+(%#--#.%/'-$0"!0#"%28$'()$#b0#"+#(.#$0/%$%!$/1#$62$'$*"3$%!$."#'%#$ wealth. he also conceptualizes intellectual capital as having three broad components human capital (employees '()$%&#+"$7(!@-#)c#<8$1%"/.%/"'-$.'0+%'-$4#=c=$1!,%@'"#8$)!./3#(%18$!"c'(+d'%+!('-$0"!.#11#1<8$'()$./1%!3#"$.'0+%'-$ 4#=c=$#b+1%+(c$./1%!3#"$"#-'%+!(1&+01<=$l)?+(11!($49::9<$'"c/#1$+(%#--#.%/'-$.'0+%'-$+1$'$.!36+('%+!($!,$&/3'($.'0+%'-$ and structural capital. he describes human capital as embodied in the knowledge of current employees, whereas 1%"/.%/"'-$ .'0+%'-$ +1$ #36!)+#)$ +($ ./1%!3#"$ "#-'%+!(1&+018$ 0"!)/.%+!($0"!.#11$ #,*.+#(.+#1$ +30-#3#(%#)$!?#"$ %+3#8$ +(%#"('-$ )'%'6'1#18$ '()$ !%&#"$ +(1%+%/%+!('-+d#)$ 7(!@-#)c#$ 1%"/.%/"#1=$m#61%#"$ '()$ n#(1#($ 49::o<$ &'?#$ 1/cc#1%#)$ %&#$#b+1%#(.#$!,$,!/"$)+1%+(.%$.-'11#1$!,$+(%#--#.%/'-$.'0+%'-g$i<$&/3'($.'0+%'-$"#1+)+(c$+($%&#$17+--1$'()$7(!@-#)c#$!,$ %&#$0"#1#(%$@!"7,!".#p$$9<$!"c'(+d'%+!('-$.'0+%'-$"#1+)+(c$+($%&#$'".&+%#.%/"#$!,$6!%&$,!"3'-$'()$+(,!"3'-$121%#31$ /1#)$62$%&#$!"c'(+d'%+!(p$$q<$3'"7#%+(c$.'0+%'-$"#1+)+(c$+($#b+1%+(c$3'"7#%+(c$"#-'%+!(1&+01$'()$3'"7#%+(c$(#%@!"71$ )#?#-!0#)$!?#"$ %+3#p$'()$r<$0"!)/.%+!($.'0+%'-$ "#1+)+(c$ +($10#.+'-+d#)$0"!)/.%+!($0"!.#11#1$)#?#-!0#)$ +(%#"('--2$ over time. general agreement seems to exist that intellectual capital refers to value derived from internal knowledge developed and institutionalized over time. interest in intellectual capital as a critical component of business success is evident from the large and growing number of academic and popular journal articles directed towards it. john kenneth galbraith is believed to have coined the phrase intellectual capital in a 1969 letter to fellow economist michal kaleck, and thereby initiated a 1%"#'3$!,$ %&!/c&%$ '6!/%$ %&#$ .&'(c+(c$('%/"#$!,$ ?'-/#$ +($3!)#"($6/1+(#11#1$ 4s!(%+18$ 9::i<=$ '('c#3#(%$ -#c#()$ t#%#"$u"/.7#"$0"!?+)#)$1+c(+*.'(%$3!3#(%/3$%!$%&+1$1%"#'3$!,$%&!/c&%$62$6#.!3+(c$'($#'"-2$'()$'")#(%$')?!.'%#$ of the importance of knowledge and its artifacts to growth and success in modern business organizations. drucker’s @"+%+(c1$@#"#$ '3!(c$ %&#$ ?#"2$*"1%$ !,$ %&!1#$@&+.&$ -'%#"$@#"#$ %!$ 6#.!3#$ '($ '?'-'(.&#$ !,$ '.')#3+.$ '()$ 0!0/-'"$ literature concerning the importance intellectual capital, its stewardship, and the related concepts of knowledge 3'('c#3#(%8$ '()$ 7(!@-#)c#$ !"c'(+d'%+!(1$ 4v"!113'(8$ 9::o<=$u"/.7#"$ '()$ %&!1#$ %&'%$ ,!--!@#)$0!+(%#)$ !/%$ %&'%$ %"')+%+!('-$0&21+.'-$'11#%1$"#0"#1#(%$'($#?#"$13'--#"$,"'.%+!($!,$%!%'-$?'-/#$!,$'$*"3$%&'($%&#2$&'?#$+($%&#$0'1%=$$w($ a technology-driven world the increasing importance of internally generated knowledge and its related artifacts '"#$(!@$"#.!c(+d#)$'1$6#+(c$'$-'"c#"$0'"%$!,$%&#$'6+-+%2$%!$."#'%#$,/%/"#$.'1&$x!@1$4y!1-#()#"$'()$a+(.&'3$9::ip$ .>'66$ijj;p$h%#@'"%$ijjk<=$$ 2010, vol. 1, no. 1, 36-44 morgan, ihrke and hurley 37 advances in business research >!%@+%&1%'()+(c$%&#$0'"%+./-'"$)#*(+%+!($!,$+(%#--#.%/'-$.'0+%'-$!(#$')!0%18$+%$+1$.-#'"$%&'%$+(%#--#.%/'-$.'0+%'-$+1$ 6#-+#?#)$62$3'(2$!,$+%1$')?!.'%#1$%!$'))$1+c(+*.'(%$?'-/#$%!$!"c'(+d'%+!('-$#(%#"0"+1#1=$z&#$+(."#'1+(c$+30!"%'(.#$!,$ +(%#--#.%/'-$.'0+%'-$"#-'%+?#$%!$!%&#"$'11#%1$&'1$6##($(!%#)$62$1#?#"'-$+(%#--#.%/'-$.'0+%'-$.!33#(%'%!"1$4[#d'+"8$9::;8$ \#?8$9::q<=$\#?$+($0'"%+./-'"$)!./3#(%1$'$121%#3'%+.$+(."#'1#$+($%&#$"'%+!$]%!%'-$*"3$3'"7#%$?'-/#$%!$%!%'-$6!!7$?'-/#^$ !../""+(c$!?#"$%&#$0'1%$%&"##$)#.')#1=$\#?$"#0!"%1$%&'%$%&#$'?#"'c#$"'%+!$!,$]%!%'-$*"3$3'"7#%$?'-/#$%!$%!%'-$6!!7$ ?'-/#^$,!"$'--$h%'()'")$'()$t!!"e1$_::$*"31$1+(.#$ij;:$+(."#'1#)$,"!3$'00"!b+3'%#-2$i$+($ij;:$%!$`/1%$!?#"$k$62$%&#$ 2#'"$9:::$4\#?8$9::_$'()$9::q<=$z&+1$"#3'"7'6-#$+(."#'1#$+1$+(%#"0"#%#)$62$\#?$%!$6#$%&#$)+"#.%$,/(.%+!($!,$c"!@+(c$ unmeasured and unreported internally generated intellectual assets, necessary to success in modern high-technology *"318$6/%$/(3#'1/"#)$'()$/("#0!"%#)$!($6'-'(.#$ 1&##%1$/()#"$ %"')+%+!('-$ '..!/(%+(c$ "/-#1=$ $ w(%#--#.%/'-$ .'0+%'-$ commentators robert elliot, tom davenport, leif edvinsson, and steven wallman have all asserted unreported +(%'(c+6-#1$'"#$c"!@+(c$6!%&$+($1+d#$'()$"#-'%+?#$0"!0!"%+!($%!$%!%'-$*"3$?'-/#$4 '+(#18$s'"%!?8$a'+"*#-)8$'()$a+"1%8$ #%=$'-=8$9::q<=$$ calls for additional balance sheet reporting of intellectual assets intellectual capital advocates over the past two decades have increasingly expressed concerns and frustration '6!/%$ %&#$c"!@+(c$)+1."#0'(.2$6#%@##($"#0!"%#)$6'-'(.#$1&##%$(#%$'11#%1$'()$ %!%'-$*"3$?'-/#=$ !1%$6#-+#?#$ %&'%$ unrecorded intellectual assets are the major source of this discrepancy. for example, sveiby in his 1997 book, the >#@$ b"c'(+d'%+!('-$ m#'-%&g$ '('c+(c$ '()$ #'1/"+(c$ c(!@-#)c#fs'1#)$ 511#%18$ ."+%+.+d#1$ %"')+%+!('-$ 6'-'(.#$ sheets for failing to report intangible factors that he believes have more to do with a company’s total worth than %"')+%+!('--2$"#0!"%#)$0&21+.'-$'11#%1=$h?#+62e1$1/cc#1%1$%&#$%!%'-$'3!/(%$!,$'$*"3e1$/("#0!"%#)$+(%#--#.%/'-$'11#%1$ 4@&+.&$h?#+62$.'--1$+(?+1+6-#$'11#%1<$'"#$#1%+3'6-#$62$%'7+(c$%&#$)+,,#"#(.#$6#%@##($%!%'-$3'"7#%$?'-/#$!,$'cc"#c'%#$ stock shares and the total reported book value of net assets on the balance sheet. sveiby notes that this difference is !,%#($?#"2$-'"c#8$#?#($*?#$%!$%#($%+3#1$c"#'%#"$%&'($"#0!"%#)$6'-'(.#$1&##%$'11#%1$'%$&+c&$%#.&$*"31$1/.&$'1$ +."!1!,%=$ because unreported invisible assets are proportionately so large relative to reported assets, sveiby suggests balance 1&##%1$&'?#$6#.!3#$6'"#-2$"#-#?'(%$+($'11#11+(c$*"3$?'-/#= a!-3#($49::_<$#.&!#1$h?#+62e1$.!(.#"($%&'%$6'-'(.#$1&##%1$'"#$+(."#'1+(c-2$+""#-#?'(%=$a#$0!1#1$%&#$d/#1%+!(8$ ]m&2$ 3/1%$ @#$ 3#'1/"#$ +(%#--#.%/'-$ .'0+%'-e^$ a!-3#($ '(1@#"1$ &+1$ !@($ d/#1%+!($ 62$ 1/cc#1%+(c$ %&#$ ?'"+#%2$ !,$ )#.+1+!(f3'7+(c$6#(#*%1$%&'%$"#1/-%$,"!3$'$,/--#"$3#'1/"#3#(%$'()$"#0!"%+(c$!,$+(%#--#.%/'-$.'0+%'-=$a!-3#($1'21$ %&#1#$6#(#*%1$+(.-/)#$'11+1%+(c$6/2#"1$+($?'-/+(c$*"31$)/"+(c$3#"c#"1$'()$'.d/+1+%+!(18$)#?#-!0+(c$0"!0#"$+(.#(%+?#f based compensation plans for top managers that recognize stewardship of intellectual assets, and communicating %!$#b%#"('-$1%'7#&!-)#"1$ %&#$,'+"$?'-/#1$!,$ +(%#--#.%/'-$0"!0#"%2$&#-)$62$ %&#$*"3=$w,$h?#+62$'()$a!-3#($'"#$ %!$6#$ believed, omitting measures of intellectual capital from an organization’s balance sheet not only reduce its relevance, 6/%$?+!-'%#$%&#$6'1+.$'..!/(%+(c$0"+(.+0-#$!,$,/--$'()$,'+"$)+1.-!1/"#$!,$'($!"c'(+d'%+!(e1$*('(.+'-$0!1+%+!(= other intellectual capital researchers also posit that the balance sheet is largely irrelevant since intellectual assets '"#$(!%$3#'1/"#)$'()$"#0!"%#)$/()#"$%"')+%+!('-$'..!/(%+(c$"/-#1=$h##%&'"'3'(8$h!!"+'8$'()$h'"'?'('($49::9<$0!+(%$ out that the biggest challenge facing the accounting profession today is measuring and explaining the growing gap 6#%@##($6'-'(.#$1&##%$(#%$'11#%1$'()$1%!.7$3'"7#%$?'-/'%+!(1=$y!)!?$'()$\#-+'#"%$49::9<$1/cc#1%$1%'()'")$*('(.+'-$ "#0!"%+(c$0"!?+)#1$'$%!%'--2$+(')#d/'%#$'..!/(%+(c$,!"$+(%#--#.%/'-$'11#%1=$z&#2$6#-+#?#$%&#$%!%'-$?'-/#$!,$/("#.!")#)$ 7(!@-#)c#$'11#%1$3/1%$6#$+(.-/)#)$!($1%'()'")$*('(.+'-$"#0!"%1$+,$%&!1#$"#0!"%1$'"#$%!$6#$"#-#?'(%$,!"$*"3$?'-/'%+!(=$ 536-#"$49::9<$'"c/#1$%&'%$'..!/(%'(%1$1&!/-)$+(.!"0!"'%#$/("#0!"%#)$+(%#--#.%/'-$'11#%1$+(%!$*('(.+'-$"#0!"%+(c$!"$ "+17$*('(.+'-$1%'%#3#(%1$%&'%$'"#$(!$-!(c#"$"#-#?'(%$%!$1&'"#&!-)#"1$,!"$'11#11+(c$*"3$?'-/#=$ '-&!%"'$49:::<$1'21$ 6'-'(.#$1&##%1$%&'%$,'+-$%!$+(.-/)#$+(%#--#.%/'-$.'0+%'-$'"#$3+1-#')+(c$3#'1/"#1$!,$!"c'(+d'%+!('-$?'-/#=$[!--#.%+?#-2$ %&#1#$"#3'"71$3'7#$d/+%#$.-#'"$43!1%$.!3+(c$,"!3$3'+(1%"#'3$+(%#--#.%/'-$.'0+%'-$-+%#"'%/"#<$%&'%$3!"#$.!30"#&#(1+?#$ balance sheet measures of intellectual assets are believed to be desirable, and that the accounting profession has been "#3+11$,!"$(!%$')?'(.+(c$%&#1#$3#'1/"#1$3!"#$d/+.7-2= review of asset measurement theory z&#$a+('(.+'-$5..!/(%+(c$h%'()'")1$s!'")$4a5hs<8$%&#$w(%#"('%+!('-$5..!/(%+(c$h%'()'")1$s!'")$4w5hs<8$%&#$ [&'"%#"#)$a+('(.+'-$5('-21%$w(1%+%/%#$4[a5$w(1%+%/%#<8$%&#$a#)#"'-$5..!/(%+(c$h%'()'")1$5)?+1!"2$s!'")$4a5h5s<8$ '()$ %&#$v!?#"(3#(%'-$5..!/(%+(c$h%'()'")1$s!'")$ 4v5hs<$&'?#$'--$ '.7(!@-#)c#)$ +($ %&#$0'1%$ %&#$ ,/()'3#(%'-$ +30!"%'(.#$!,$%&#$.!(.#0%8$'11#%$+($*('(.+'-$"#0!"%+(c=$w($.!((#.%+!($@+%&$"#.#(%$#,,!"%1$%!$/(+,2$a5hs$'..!/(%+(c$ 1%'()'")1$ @+%&$ w5hs$ +(%#"('%+!('-$ *('(.+'-$ "#0!"%+(c$ 1%'()'")18$ '$ n!+(%$ [!(.#0%/'-$ a"'3#@!"7$ t"!`#.%$ @'1$ /()#"%'7#($@&+.&8$ '3!(c$!%&#"$ %&+(c18$ '%%#30%1$ %!$ .!--'6!"'%+?#-2$)#*(#$6'1+.$*('(.+'-$ "#0!"%+(c$ #-#3#(%1$ '()$ their measurement principles. this project resulted in the following statement about the fundamental importance of %&#$.!(.#0%8$'11#%8$%!$*('(.+'-$"#0!"%+(cg 2010, vol. 1, no. 1, 36-44 morgan, ihrke and hurley 38 advances in business research ]511#%1$'"#$%&#$3!1%$,/()'3#(%'-$"#'-f@!"-)$#.!(!3+.$0&#(!3#('$%&'%$*('(.+'-$"#0!"%+(c$1##71$%!$0!"%"'2=$$w,$ %&#$)#*(+%+!($+1$%!!$?'c/#$!"$1/6`#.%$%!$+(%#"0"#%'%+!(8$%&#($%&#$,!/()'%+!($!,$*('(.+'-$"#0!"%+(c$+1$'%$"+17$!,$6#+(c$ /()#"3+(#)=$z&#"#,!"#$+%$ +1$(#.#11'"2$%&'%$%&+1$)#*(+%+!($+1$'1$"!6/1%$'1$0!11+6-#=̂ $4n!+(%$[!(.#0%/'-$a"'3#@!"78$ t"!`#.%8$t&'1#$s8$9::o8$0'"'c"'0&$o<= other authoritative bodies in the past have also remarked on the central importance of the concept asset to *('(.+'-$"#0!"%+(c=$z&#$./""#(%$'()$!0#"'%+?#$a5hs$)#*(+%+!($,!"$'11#%1$+1g ]511#%1$'"#$0"!6'6-#$,/%/"#$#.!(!3+.$6#(#*%1$!6%'+(#)$!"$.!(%"!--#)$62$'$0'"%+./-'"$#(%+%2$'1$%&#$"#1/-%$!,$0'1%$ %"'(1'.%+!(1$!"$#?#(%1=̂ $4a5hs$[!(.#0%1$h%'%#3#(%$o8$0'"'c"'0&$9_<= z&#$./""#(%$!0#"'%+?#$w5hs$)#*(+%+!($,!"$'11#%1$+1g ]5($'11#%$+1$'$"#1!/".#$.!(%"!--#)$62$%&#$#(%+%2$'1$'$"#1/-%$!,$0'1%$#?#(%1$'()$,"!3$@&+.&$,/%/"#$#.!(!3+.$6#(#*%1$ '"#$#b0#.%#)$%!$x!@$%!$%&#$#(%+%2=̂ $4w5hs8$a"'3#@!"7$,!"$%&#$0"#1#(%'%+!($'()$0"#0'"'%+!($!,$*('(.+'-$1%'%#3#(%18$ 0'"'c"'0&$rj<= z&#$./""#(%$a#)#"'-$5..!/(%+(c$h%'()'")1$5)?+1!"2$s!'")$4a5h5s<$+($%&#$fh5=$u#*(+%+!($,!"$'11#%1$+1g ]5($ '11#%$ +1$ '$ "#1!/".#$ %&'%$ #36!)+#1$ #.!(!3+.$ 6#(#*%1$ !"$ 1#"?+.#1$ %&'%$ %&#$ ,#)#"'-$ c!?#"(3#(%$ .!(%"!-1=̂ $ 4a5h5s8$hha5[$>!=$_8$u#*(+%+!(1$!,$#-#3#(%1$'()$6'1+.$"#.!c(+%+!($."+%#"+'$,!"$'.."/'-f6'1+1$*('(.+'-$1%'%#3#(%18$ 0'c#$i<= z&#$./""#(%$n!+(%$[!(.#0%/'-$a"'3#@!"7$t"!`#.%$)#*(+%+!($,!"$'11#%1$+1g “an asset is a present economic resource to which the entity has a present right or other privileged access.” (joint [!(.#0%/'-$a"'3#@!"7$t"!`#.%8$t&'1#$s8$9::o8$0'"'c"'0&$9o<= w($%&#+"$`!+(%$0"!`#.%$)+1./11+!(1$%&#$a5hs$'()$w5hs$'c"##)$%&'%$%&#$)#?#-!03#(%$!,$'$0"!0#"$)#*(+%+!($!,$'11#%1$ @'1$'$."+%+.'-$*"1%$1%#08$6/%$not the only step$c/+)+(c$%&#$"#.!c(+%+!($'()$"#0!"%+(c$!,$'11#%1$!($*('(.+'-$1%'%#3#(%1=$5$ second and 3!"#$)+,*./-%$1%#0$@!/-)$6#$%!$#1%'6-+1&$"/-#1$'6!/%$%&#$."+%#"+'$,!"$)#%#"3+(+(c$@&#%&#"$0'"%+./-'"$+%#31$ 3##%+(c$%&#$)#*(+%+!('-$1#(1#$!,$'11#%1$.!/-)$'-1!$6#$/1#,/--2$3#'1/"#)$,!"$"#.!c(+%+!($'()$"#0!"%+(c$+($*('(.+'-$ 1%'%#3#(%1$4n!+(%$[!(.#0%/'-$a"'3#@!"7$t"!`#.%8$9::o8$t&'1#$s8$0'"'c"'0&$9<=$z&+1$+(1+c&%$%&'%$(!%$'--$)#*(+%+!('-$ '11#%1$1&!/-)$6#$"#.!c(+d#)$'()$"#0!"%#)$+($*('(.+'-$1%'%#3#(%1$+1$(!%$(#@$'()$&'1$'$-!(c$&+1%!"2$+($!,*.+'-$*('(.+'-$ reporting communities. authoritative around the world bodies recognize that measurement uncertainties inherent to some types of assets will prohibit their useful measure. for instance, the fasb has consistently ruled that merely 3##%+(c$ %&#$ )#*(+%+!($ !,$ '11#%8$ '-%&!/c&$ 1+c(+*.'(%8$ )!#1$ (!%$ '/%!3'%+.'--2$ d/'-+,2$ '($ +%#3$ ,!"$ +(.-/1+!($ +($ %&#$ *('(.+'-$1%'%#3#(%1$4a5hs$[!(.#0%1$h%'%#3#(%$o8$'00#()+b$s<=$z&#$a5hs$"#'1!(1$%&'%$3#'1/"#3#(%$/(.#"%'+(%+#1$ can be so large as to destroy any potential usefulness of dollar disclosures made, and may in fact harm other data. in their joint conceptual framework project, both the fasb and the iasb concurred that not every item meeting %&#+"$`!+(%-2$)#?#-!0#)$@!"7+(c$)#*(+%+!($!,$'11#%$.!/-)$6#$/1#,/--2$"#.!c(+d#)$!"$"#0!"%#)$!($*('(.+'-$1%'%#3#(%1$ 6#.'/1#$!,$3#'1/"#3#(%$/(.#"%'+(%+#1$4n!+(%$[!(.#0%/'-$a"'3#@!"7$t"!`#.%8$9::o<=$5$1+3+-'"$?+#@$@'1$#b0"#11#)$ 62$%&#$a#)#"'-$5..!/(%+(c$h%'()'")1$5)?+1!"2$s!'")$+($hha5[$_g “this statement establishes two basic recognition criteria that an item must meet to be a candidate for recognition +($%&#$6!)2$!,$'$*('(.+'-$1%'%#3#(%g$$4i<$%&#$+%#3$3/1%$3##%$%&#$)#*(+%+!($!,$'($#-#3#(%$4+=#=$'11#%<$'()$49<$%&#$+%#3$ must be measurable, meaning a monetary amount can be determined with a reasonable certainty or is reasonably #1%+3'6-#=̂ $4a5h5s8$hha5[$>!=$_8$u#*(+%+!(1$!,$#-#3#(%1$'()$6'1+.$"#.!c(+%+!($."+%#"+'$,!"$'.."/'-f6'1+1$*('(.+'-$ 1%'%#3#(%18$0'c#$i<= w($1&!"%8$%&#$n!+(%$[!(.#0%/'-$a"'3#@!"7$t"!`#.%8$%&#$a5hs8$w5hs8$'()$a5h5s$&'?#$'--$1#0'"'%#-2$'%$)+,,#"#(%$ %+3#1$.!(.-/)#)$%&'%$3##%+(c$%&#$.!(.#0%/'-$3#'(+(c$!,$'11#%$+1$'$(#.#11'"2$'()$+30!"%'(%$.!()+%+!($,!"$*('(.+'-$ 1%'%#3#(%$ +(.-/1+!(8$6/%$ +1$(!%$62$+%1#-,$1/,*.+#(%=$f(-#11$%&#$+%#3$.'($'-1!$3##%$.#"%'+($d/'-+%'%+?#$3#'1/"#3#(%$ ."+%#"+'8$+%$3'2$(!%$6#$/1#,/-$%!$+(.-/)#$%&#$+%#3$'1$0'"%$!,$*('(.+'-$"#0!"%+(c= the fasb summarizes this sentiment ?#"2$(+.#-2g ]z&#$.&'"'.%#"+1%+.1$!,$+(,!"3'%+!($%&'%$3'7#$+%$'$)#1+"'6-#$.!33!)+%2$.'($6#$?+#@#)$'1$'$&+#"'".&2$!,$d/'-+%+#18$ @+%&$ /1#,/-(#11$ ,!"$ )#.+1+!($3'7+(c$ !,$3!1%$ +30!"%'(.#=$m+%&!/%$ /1#,/-(#118$ %&#"#$ @!/-)$ 6#$ (!$ 6#(#*%1$ ,"!3$ +(,!"3'%+!($%!$1#%$'c'+(1%$+%1$.!1%1=̂ $$4a5hs$[!(.#0%1$h%'%#3#(%$98$0'"'c"'0&$i<=$$ 2010, vol. 1, no. 1, 36-44 morgan, ihrke and hurley 39 advances in business research z&#$a5hs8$%&#$w5hs8$'()$%&#$a5h5s$&'?#$#'.&$+)#(%+*#)$"#-#?'(.#$'()$"#-+'6+-+%2$'1$%&#$%@!$0"+3'"2$d/'-+%+#1$ 3'7+(c$*('(.+'-$+(,!"3'%+!($/1#,/-$%!$)#.+1+!(f3'7+(c=$h&!/-)$#+%&#"$!,$%&#1#$%@!$d/'-+%+#1$6#$#(%+"#-2$'61#(%8$%&#$ +(,!"3'%+!($+%1#-,$.'($&'?#$(!$)#.+1+!(f3'7+(c$?'-/#=$4a5hs$[!(.#0%1$h%'%#3#(%$98$0'"'c"'0&$9<=$$ with regard to the measurement of intellectual capital, it seems obvious that additional measures of intellectual .'0+%'-8$+,$0!11+6-#$+($'$3#'(+(c,/-$@'28$.!/-)$6#$"#-#?'(%$%!$*"3$?'-/'%+!($)#.+1+!(1$'()$%&#"#,!"#$@!/-)$3##%$%&#$ relevance criterion of useful information. on the other hand, it is the reliability of these measures where the problem exists. possible measures for most internally developed items of intellectual capital, when examined closely, are so inherently so lacking in reliability as to preclude decision utility. the commentary which follows focuses on the problems of reliability of intellectual capital measures, and not their relevance if reliably measured. w($)+1./11+(c$"#-+'6+-+%28$%&#$a5hs$1/cc#1%1$+(,!"3'%+!($+1$!(-2$"#-+'6-#$%!$%&#$#b%#(%$+%$0!11#11#1$%&"##$d/'-+%'%+?#$ .&'"'.%#"+1%+.1=$z&#$*"1%$+1$?#"+*'6+-+%2=$y#-+'6-#$+(,!"3'%+!($3/1%$%!$1!3#$)#c"##$6#$+()#0#()#(%-2$?#"+*'6-#8$'()$ (!%$0/"#-2$%&#$,/(.%+!($!,$%&#$/(?#"+*'6-#$1/6`#.%+?#$`/)c3#(%1$!,$%&#$3#'1/"#"=$f%%#"-2$1/6`#.%+?#$+(,!"3'%+!($+1$ thought to be without decision utility because it affords no reasonable basis for determining whether or not it is correct. if there is no reasonable basis to believe information is correct, it is unhelpful. a second related characteristic of reliability is representational faithfulness (i.e. information must be a reasonably '../"'%#$)#1."+0%+!($!,$@&'%$+%$0/"0!"%1$ %!$)#1."+6#<=$w($%&#$.'1#$!,$*('(.+'-$3#'1/"#3#(%$%&+1$3#'(1$%&#$)!--'"1$ '11+c(#)$%!$'($+%#3$0"!?+)#$'$"#'1!('6-2$'../"'%#$"#x#.%+!($!,$ %&#$?'-/'%+!($+(%#()#)$4#=c=$.!1%$!"$,'+"$?'-/#<=$z!$ %&#$#b%#(%$`/)c3#(%1$!"$#1%+3'%#1$'"#$+(?!-?#)$+($#1%'6-+1&+(c$)!--'"$'3!/(%1$4'1$?#"2$!,%#($+1$%&#$.'1#$+($*('(.+'-$ "#0!"%+(c<8$%&#$`/)c3#(%1$!"$#1%+3'%#1$3/1%$)#"+?#$,"!3$1!3#$-!c+.'--2$)#,#(1+6-#$0!1+%+!($%&'%$%&#2$'"#$"#'1!('6-2$ accurate. reasonable accuracy does not mean absolute accuracy, only that the measurement is expected to contain enough information to offset its error term. the principle of reasonable accuracy, or representational faithfulness, is (#.#11'"+-2$1/6`#.%+?#-2$'00-+#)$'()$"#d/+"#1$1!3#$`/)c3#(%$+($'00-+.'%+!(=$m&#($#1%+3'%#1$',,!")$d#"!$#b0#.%'%+!($ that they are accurate, they can be of no decision-making utility. this principle explains why local weather forecasters "#,"'+($,"!3$0"#)+.%+(c$@#'%&#"$%!!$,'"$+(%!$%&#$,/%/"#=$s#2!()$'$.#"%'+($,/%/"#$0!+(%$4%&!/c&$0!%#(%+'--2$"#-#?'(%<$ weather forecasts have little expectation of any accuracy and are assigned no value. a third characteristic important to reliability is that of neutrality. neutrality refers to the particular environment in which information has been collected and interpreted. ideally, information is gathered in an environment free of systematic bias. systematic bias occurs when those responsible for gathering and interpreting information also have a strong personal stake in one particular outcome above others. the environment in which information is collected 3'2$+($1!3#$.'1#1$6#$%&'%$!,$)+1+(%#"#1%#)$!6`#.%+?+%2$'()$+($!%&#"1$3'2$6#$!(#$!,$1%"!(c$0#"1!('-$6#(#*%$,"!3$'$ 0'"%+./-'"$!/%.!3#=$t#"1!('-$+(%#"#1%$+1$@#--$7(!@($%!$6+'1$3#'1/"#3#(%$#10#.+'--2$@&#($%&#$"#d/+"#)$3#'1/"#3#(%1$ '"#$1/6`#.%+?#-2$)#%#"3+(#)$62$%&!1#$@+%&$'$1%"!(c$0#"1!('-$+(%#"#1%$+($!/%.!3#1$!,$%&#$3#'1/"#1=$[!(.#"(1$'6!/%$ systematic bias explain why tobacco industry studies on the health impacts of tobacco are viewed as less reliable than those of independent university research. in the next section we review proposals from intellectual capital literature concerning how to more fully measure and report intellectual assets on the balance sheet. this is followed by our commentary (from an accounting 3#'1/"#3#(%$0#"10#.%+?#<$!($%&#$3#"+%1$!,$%&#1#$0"!0!1'-1=$ review of intellectual capital measurement proposals and related commentary several recent comprehensive literature reviews of intellectual capital literature identify just three broad theoretical approaches for measuring internally generated intellectual assets in that literature (grossman, 2006; s!(%+18$9::ip$'()$t#%%2$'()$v/%&"+#8$9:::<=$z&#1#$6"!')$'00"!'.&#1$'"#$ "#,#""#)$ %!$'1g$ 4i<$3'"7#%$.'0+%'-+d'%+!($ 3!)#-1$ "#.!c(+d+(c$ '()$ "#0!"%+(c$ +(%#--#.%/'-$ '11#%1$ +($ '3!/(%1$ #d/'-$ %!$ %&#$)+,,#"#(.#$6#%@##($ %&#$ ./3/-'%+?#$ %"')+(c$0"+.#$!,$'--$!/%1%'()+(c$1%!.7$!,$'$.!30'(2$'()$%&#$6!!7$?'-/#$!,$'--$+%1$(#%$'11#%1$./""#(%-2$"#0!"%#)p$49<$ "#%/"($!($'11#%1$3!)#-1$"#.!c(+d+(c$'()$"#0!"%+(c$+(%#--#.%/'-$'11#%1$+($'3!/(%1$#d/'-$%!$%&!1#$+30-+#)$62$.!30'"+(c$ a company’s return on assets ratio to an industry benchmark return on assets ratio. under these models it is assumed that whenever a company’s return on assets ratio is found to be higher than the industry benchmark, it must have unrecorded intellectual assets explaining the higher than average return on assets ratio, the amount of which is inferable using algebra. (note if a company’s return on assets ratio is lower than the benchmark, no intellectual .'0+%'-$+1$0"#1/3#)$%!$#b+1%=<$'()p$$4q<$+()+?+)/'-$#-#3#(%1$3!)#-1$@&+.&$'%%#30%$%!$#b&'/1%+?#-2$+)#(%+,2$'()$-+1%$ the knowledge assets thought to exist and then assign dollar amounts to each on some basis. some of these models attempt to estimate the historical cost of developing each item on the list, others estimate current replacement costs, '()$1%+--$!%&#"1$#1%+3'%#$,/%/"#$)+1.!/(%#)$.'1&$x!@1$'11!.+'%#)$@+%&$#'.&$+)#(%+*#)$+%#3= v"!113'($49::o<$(!%#1$'$3'`!"$)+1')?'(%'c#$!,$%&#$*"1%$%@!$3!)#-1$+1$%&'%$%&#2$0"!?+)#$!(-2$-/30f1/3$%!%'-1$,!"$ '--$+(%#--#.%/'-$'11#%1$.!36+(#)$'()$0"!?+)#$-+%%-#$+(1+c&%$+(%!$%&#$0'"%+./-'"$!"$10#.+*.$'11#%1$%&'%$&'?#$0"#1/3'6-2$ 2010, vol. 1, no. 1, 36-44 morgan, ihrke and hurley 40 advances in business research 6##($+)#(%+*#)$'()$3#'1/"#)=$s&'"%#1&$'()$s'()2!0')&2'2$49::_<$(!%#$%&'%$%!$!?#".!3#$%&#$0"!6-#3$!,$'$1+(c-#$ undifferentiated total for intellectual capital, some of these models involve a stage 2 disaggregation of total intellectual .'0+%'-$+(%!$?'"+!/1$1/6fc"!/0+(c1$4#=c=$&/3'($.'0+%'-8$1%"/.%/"'-$.'0+%'-8$./1%!3#"$.'0+%'-8$#%.<=$ better known examples of market capitalization models include sveiby’s invisible balance sheet, the investor 511+c(#)$ '"7#%$ g'-/#$ 4w g5<8$ '()$ z!6+(e1$ ]h^$ 4v"!113'(8$ 9::op$ s!(%+18$ 9::ip$ t#%%2$ '()$ v/%&"+#8$ 9:::<=$$ protagonists of market capitalization models justify them on the basis that they provide investors information more /1#,/-$,!"$'11#11+(c$%!%'-$*"3$?'-/#$%&'($)!$0"#1#(%$)'2$6'-'(.#$1&##%1$4v"!113'(8$9::o<=$$ a"!3$'$3#'1/"#3#(%$0#"10#.%+?#$3'"7#%$.'0+%'-+d'%+!($3!)#-1$'00#'"$%!$6#$+(1/,*.+#(%-2$"#-+'6-#$%!$&'?#$)#.+1+!(f utility. values assigned to total intellectual assets under this approach would be unstable and would change over time in ways suggesting the measures themselves have little representational faithfulness. the measured amount !,$ +(%#--#.%/'-$'11#%1$@!/-)$.&'(c#$'1$.!30'(2$1%!.7$0"+.#1$x/.%/'%#=$u'2f%!f)'2$.&'(c#1$ +($1%!.7$0"+.#1$@!/-)$ likely bear little relationship to actual new investments made in intellectual assets (or the expiration of intellectual '11#%1<=$51$1%!.7$0"+.#1$"+1#8$1!$%!!$@!/-)$%&#$3#'1/"#)$?'-/#$!,$+(%#--#.%/'-$'11#%1$#?#($+,$%&#"#$&'?#$6##($(!$(#@$ investments made in knowledge assets. if stock prices fall, computed amounts of intellectual capital would decline 4!"$0!11+6-2$c!$(#c'%+?#<$+($10+%#$!,$%&#$,'.%$%&#"#$3'2$&'?#$6##($1+c(+*.'(%$(#@$+(?#1%3#(%1$3')#$+($7(!@-#)c#$ '11#%1=$z&#1#$x/.%/'%+!(1$@!/-)$(!%$6#$13'--$+($0"!0!"%+!('%#$%#"31$'()$+($1!3#$2#'"1$@!/-)$#b.##)$9::i$%!$q::i$ of beginning of year values. precisely what market capitalization models are measuring is unclear relative to the 10#.+*.$+%#31$!,$+(%#--#.%/'-$.'0+%'-$0/"0!"%#)-2$6#+(c$?'-/#)8$'()$@!/-)$6#&'?#$!?#"$%+3#$+($@'21$+(.!(1+1%#(%$@+%&$ underlying inputs and expirations. this suggests to accountants lack of representational faithfulness. 5))+%+!('--28$@#$(!%#$'1$&'?#$n#(7+(1$'()$f0%!($49::i<8$%&'%$3'"7#%$.'0+%'-+d'%+!($3!)#-1$'"#$.+"./-'"$+($%#"31$ !,$/()#"-2+(c$-!c+.$`/1%+,2+(c$%&#+"$/1#=$ '"7#%$.'0+%'-+d'%+!($3!)#-1$%20+.'--2$'"#$`/1%+*#)$'1$/1#,/-$,!"$0"!?+)+(c$ +(?#1%!"1$6#%%#"$6'-'(.#$1&##%$3#'1/"#1$!,$%!%'-$*"3$@!"%&=$z&#$3!)#-1$%&#($)#*(#$/("#.!")#)$+(%#--#.%/'-$'11#%1$'1$ %&#$)+,,#"#(.#$6#%@##($"#0!"%#)$6'-'(.#$1&##%$(#%$'11#%1$'()$'cc"#c'%#$1%!.7$0"+.#$4%!%'-$*"3$@!"%&<$+($!")#"$%!$6#%%#"$ 0"#)+.%$%&#$%!%'-$*"3$@!"%&=$z&#$)#*(+%+!($'11/3#1$7(!@-#)c#$!,$%&'%$@&+.&$+%$+1$/1#)$%!$0"#)+.%=$$ we also note that the decision utility of an extremely large undifferentiated total called intellectual capital 3#'1/"#)$+($%&+1$@'2$+1$&+c&-2$d/#1%+!('6-#=$>!$)#1."+0%+?#$+(1+c&%$+(%!$%&#$10#.+*.$+%#31$0/"0!"%#)-2$6#+(c$3#'1/"#)$ is gained. the undifferentiated total would be a ‘black box’ to users much in the same way that purchased goodwill +1$(!@8$%&#$)+,,#"#(.#$6#+(c$%&'%$%&#$?'-/#$@!/-)$x/.%/'%#$@+)#-2$'1$1%!.7$0"+.#1$.&'(c#)=$$ a+('--2$@#$(!%#$3'"7#%$.'0+%'-+d'%+!($3!)#-1$'"#$6'1#)$!($%&#$'11/30%+!($4+(.!""#.%$+($!/"$?+#@<$%&'%$'$.!30-#%#$ -+1%$!,$6'-'(.#$1&##%$'11#%1$1&!/-)$#d/'%#$@+%&$%!%'-$*"3$?'-/#=$a+('(.#$%&#!"2$&'1$-!(c$0!1+%#)$%&'%$*"3$?'-/#$+1$(!%$ '$,/(.%+!($!,$1/33#)$/(#b0+"#)$+(0/%1$4'11#%1<8$"'%&#"$+1$'$,/(.%+!($!,$#b0#.%#)$,/%/"#$)+1.!/(%#)$(#%$.'1&$+(x!@1$ 4!/%0/%1<$4v+%3'(8$9::qp$ '+(#18$s'"%!?8$a'+"*#-)8$j$a+"1%8$9::q<=$z&#$0!+(%$6#+(c$*"3$?'-/'%+!($'00"!'.&#1$,"!3$ the summation of unexpired inputs, no matter how complete the list of inputs, are theoretically inappropriate for #1%+3'%+(c$*"3$?'-/#$@&+.&$+1$'00"!0"+'%#-2$'$,/(.%+!($!,$)+1.!/(%#)$#b0#.%#)$,/%/"#$.'1&$x!@1=$51$'($#b'30-#8$+1$ the value of a $10 million dollar winning lottery ticket its unexpired input cost, or would it be the present value of +%1$#b0#.%#)$0'2!/%e$v+%3'($49::q<$(!%#1$%&#$%@!$3!1%$@+)#-2$'..#0%#)$*"3$?'-/'%+!($3!)#-1$+($*('(.#$4#=c=$%&#$ v!")!($ !)#-$'()$%&#$['0+%'-$511#%$t"+.+(c$4[5t <$3!)#-<$'"#$6!%&$6'1#)$!($)+1.!/(%#)$#b0#.%#)$,/%/"#$(#%$.'1&$ +(x!@1$4')`/1%#)$,!"$"+17<$(!%$%&#$1/3$!,$/(#b0+"#)$+(0/%1=$$ thus, while market capitalization models provide an easy computation for the dollar total of unrecorded intellectual assets, it is not clear the measure itself represents what is purportedly being measured, provides no '))+%+!('-$+(,!"3'%+!($'6!/%$%!%'-$*"3$@!"%&$(!%$'-"#')2$'?'+-'6-#8$'()$@!/-)$6#$'$0!!"-2$/()#"1%!!)$/()+,,#"#(%+'%#)$ total that behaves in counterintuitive ways. the degree of error evident in this measure would be large relative to its +(,!"3'%+!($.!(%#(%$4+,$'(2$+(,!"3'%+!($.!(%#(%$#b+1%1<=$$ the second of the three measurement models proposed in intellectual capital literature is referred to as the return on assets model. this model compares an individual company’s return on assets ratios to some benchmark return on assets, usually an industry average. total unrecorded intellectual assets are then inferred through reference to excess return on assets, presumed to exist only because unreported intellectual assets are excluded from the company’s )#(!3+('%!"$ 4+=#=$ %!%'-$'11#%1<=$s#%%#"$7(!@($"#%/"($!($'11#%1$3!)#-1$ ,!"$#1%+3'%+(c$ %!%'-$/("#.!")#)$ +(%#--#.%/'-$ '11#%1$+(.-/)#$h%#@'"%e1$l.!(!3+.$g'-/#$5))#)$3!)#-$4lg5<8$%&#$a/3'($y#1!/".#$[!1%+(c$3!)#-$4ay[5<8$'()$%&#$ c(!@-#)c#$['0+%'-$l'"(+(c1$3!)#-$4v"!113'(8$9::op$t#%%2$'()$v/%&"+#8$9:::<=$$ though return on assets models also provide an easily calculable dollar estimate for unrecorded intellectual assets, they have many of the same inherent measurement shortcomings of the market capitalization models (i.e. -'.7$!,$ "#0"#1#(%'%+!('-$ ,'+%&,/-(#11$ +(.-/)+(c$ +""'%+!('-$6#&'?+!"$!?#"$ %+3#$'()$!0'd/#(#11<$0-/1$!%&#"1$'1$@#--= as with market capitalization models an undifferentiated total value results from this approach that behaves in unstable and unpredictable ways. additional shortcomings of return on assets models are apparent. presently there is no theoretical basis for justifying how the benchmark ratio would be established for purposes of comparison 2010, vol. 1, no. 1, 36-44 morgan, ihrke and hurley 41 advances in business research 4v"!113'(8$9::o<=$m&'%$ ,'.%!"1$ 1&!/-)$ +($ ,'.%$6#$/1#)$ %!$ 1#-#.%$ .!30'(+#1$ ,!"$ +(.-/1+!($ +($ %&#$6#(.&3'"7$ 4#=c=$ +()/1%"28$ 1#.%!"8$ 1+d#8$ "+178$ #%.=<8$ '()$&!@$1&!/-)$ %&#+"$@#+c&%+(c1$6#$)#%#"3+(#)e$5))+%+!('--28$ "#c'")-#11$!,$ %&#$ benchmark selected, the benchmark companies themselves also presumably have unrecorded intellectual assets affecting them as well, a complication ignored by the proponents of the model. additionally, return on assets models result in valuations that are highly unstable year-to-year as changes in net income occur suggesting very poor "#0"#1#(%'%+!('-$,'+%&,/-(#11$!,$%&#$/()#"-2+(c$+(%#--#.%/'-$'11#%1$0"#1/3'6-2$6#+(c$3#'1/"#)$4v"!113'(8$9::o<=$$ v"!113'($ 49::o<$ '-1!$ (!%#1$ "#%/"($ !($ '11#%1$ 3!)#-1$ 0"!?+)#$ +(%#--#.%/'-$ '11#%$ ?'-/'%+!(1$ %&'%$ 6#'"$ -+%%-#$ resemblance to intellectual asset valuations provided by market capitalization models suggesting that whatever has 6##($3#'1/"#)$62$ #'.&$3!)#-$ +1$ (!%$ %&#$ 1'3#$ %&+(c=$5$*('-$ %"!/6-+(c$ '10#.%$ !,$ "#%/"($!($ '11#%1$3!)#-1$ +1$ %&'%$ companies with return on asset ratios below the selected benchmark norm are presumed to have zero intellectual .'0+%'-$4!"$(#c'%+?#$+(%#--#.%/'-$.'0+%'-<8$'($+30-'/1+6-#$"#1/-%$+($%&#$.'1#$!,$&+c&$%#.&(!-!c2$.!30'(+#1$@+%&$c!!)$ 0"!*%1$ '()$ %"'+(#)$ #30-!2##1=$ z&#1#$ 1&!"%.!3+(c1$ .!36+(#)$ 4#=c=$ -'.7$ !,$ 1/00!"%+(c$ %&#!"28$ "#-'%+?#$ +(1%'6+-+%2$ !?#"$%+3#8$,'+-/"#$%!$.!""#.%$,!"$%&#$/("#.!")#)$+(%#--#.%/'-$'11#%1$+($%&#$6#(.&3'"78$#%.=<$&'?#$.'/1#)$y!)&!?$'()$ \#-+'#"%8$49::9<$%!$.!(.-/)#$%&'%$"#%/"($!($'11#%1$3!)#-1$&!-)$%&#$-#'1%$0"!3+1#$!,$%&#$%&"##$0"!0!1#)$'00"!'.&#1$,!"$ ')#d/'%#-2$3#'1/"+(c$'()$"#0!"%+(c$+(%#"('--2$c#(#"'%#)$+(%#--#.%/'-$'11#%1=$$$ a third approach proposed for measuring unrecorded intellectual assets is known as the individual elements 3!)#-=$z&#1#$3!)#-1$ 6#c+($@+%&$ +)#(%+*.'%+!($ '()$ -+1%+(c$ #'.&$ !,$ %&#$ 1#0'"'%#$ .!30!(#(%$ 6#-+#?#)$ %!$ .!30"+1#$ total intellectual capital. in a second step dollar amounts are estimated and assigned to each component is some manner. each component is assigned a value without reference to any known total value in advance. better known individual elements models include the technology broker, the value explorer, intellectual asset valuation, and the a+('(.+'-$ #%&!)$!,$w(%'(c+6-#$511#%1$ #'1/"+(c$4a+ w5 <$4v"!113'(8$9::op$$y!)!?$'()$\#-+#"%8$9::9p$t#%%2$'()$ v/%&"+#8$9::i<=$$ w()+?+)/'-$#-#3#(%1$3!)#-1$&'?#$1!3#$%&#!"#%+.'-$'00#'-$+($%&#$1#(1#$%&'%$%&#2$.'"#,/--2$#-'6!"'%#$%&#$10#.+*.$ +%#31$!,$+(%#--#.%/'-$.'0+%'-$0/"0!"%#)-2$6#+(c$3#'1/"#)8$'()$'"#$(!%$3#"#-2$!0'd/#$-/30f1/3$%!%'-1=$f(,!"%/('%#-28$ these models are by nature utterly subjective in terms of what items are listed and what values are assigned to them. widely differing items have been included in many different models of this type that have been developed, and widely )+,,#"#(%$?'-/'%+!(1$!,%#($"#1/-%8$0"+3'$,'.+#$#?+)#(.#$!,$%&#$1/6`#.%+?+%2$+(&#"#(%$%!$%&+1$'00"!'.&=$$y/%-#)c#$4ijjk<$ )#10'+"1$'%$%&#$&/()"#)1$!,$#-#3#(%1$3!1%$!,$%&#$.!33#".+'-$3!)#-1$+(.-/)#=$[!33#".+'--2$)#?#-!0#)$+(%#--#.%/'-$ capital measurement instruments which have blossomed in recent years purport to identify large numbers of individual components of unrecorded intellectual capital and then value each. these instruments, though universally complex !,%#($@+%&$1#?#"'-$&/()"#)$+()+?+)/'-$#-#3#(%18$-'.7$1+c(+*.'(%$'c"##3#(%$'6!/%$@&'%$%&#$#-#3#(%1$'"#=$z&+1$'-!(#$ 0!+(%1$ %!$1/6`#.%+?+%2$ +($ +)#(%+,2+(c$ %&#$#-#3#(%18$ -#%$'-!(#$'11+c(+(c$?'-/'%+!(1$ 4v"!113'(8$9::o<=$5)?!.'%#1$!,$ individual elements models have yet to agree whether it is better to develop a single generic list of intellectual assets ,!"$'--$.!30'(+#1$!"$%!$)#?#-!0$'$/(+d/#$-+1%$,!"$#'.&$1#0'"'%#$.!30'(2$!"$#'.&$+()/1%"2$4a/(%#"8$m#61%#"8$'()$m'2'%%8$ 9::_<=$s!(%+1$49::i<$(!%#1$%&'%$.!33#".+'--2$)#?#-!0#)$+(%#--#.%/'-$.'0+%'-$+(1%"/3#(%1$/1/'--2$+(.-/)#$'$&/()"#)$ !"$3!"#$+()+?+)/'-$,'.%!"18$'()$%&#($'11+c($#d/'-$?'-/#$%!$#'.&$,'.%!"8$'$&+c&-2$+30-'/1+6-#$?'-/'%+!($1.#('"+!$+($&+1$ view. he says such ‘devoid-of-theory’ measurements are exercises in complexity without demonstrable validity. advocates of individual elements models have also not agreed on the best valuation approach for assigning dollars %!$,'.%!"1$!(.#$%&#2$'"#$+)#(%+*#)=$h!3#$"#1#'".&#"1$'"c/#$%&'%$)!--'"1$1&!/-)$6#$'11+c(#)$6'1#)$&+1%!"+.'-$.!1%1$%!$ develop them over time. others believe dollars should be assigned based on current market values, or replacement .!1%18$!"$./""#(%$%"')+(c$0"+.#1$4#?#($%&!/c&$(!(#$!,$%&#1#$?'-/#1$'.%/'--2$#b+1%<=$h%+--$!%&#"1$6#-+#?#$)!--'"1$1&!/-)$6#$ '11+c(#)$%!$.!30!(#(%1$!,$+(%#--#.%/'-$.'0+%'-$6'1#)$!($%&#$)+1.!/(%#)$(#%$,/%/"#$.'1&$x!@1$#b0#.%#)$%!$"#1/-%$,"!3$ %&#+"$!@(#"1&+0$46/%$0"!?+)#$?+"%/'--2$(!$c/+)'(.#$'1$%!$&!@$%&+1$3+c&%$6#$"#'1!('6-2$'.&+#?#)<=$m&'%$0"!0!(#(%1$ !,$'--$?'-/'%+!($'00"!'.&#1$4#=c=$&+1%!"+.'-$.!1%8$"#0-'.#3#(%$.!1%8$)+1.!/(%#)$.'1&$x!@18$#%.=<$,'+-$%!$.!(1+)#"$+1$%&'%$ not only are the particular components of intellectual capital highly subjective, their valuations are not reasonably determinable under any valuation approach. many of these items have been developed internally over decades. their +(0/%$.!1%1$&')$3/-%+0-#$!6`#.%+?#18$'"#$(!%$#'1+-2$+)#(%+*#)8$'()$3'2$&'?#$#b0+"#)=$5(2$0'"%+./-'"$?'-/'%+!($@!/-)$ 6#$'1$`/1%+*'6-#$'1$'(2$!%&#"8$%&#$#11#(.#$!,$.!30-#%#$1/6`#.%+?+%28$'()$@+%&$(!$"#'1!('6-#$6'1+1$,!"$'..#0%+(c$!(#$ ?'-/'%+!($'1$1/0#"+!"$%!$'(!%&#"=$w(,!"3'%+!($!,$%&+1$1!"%$62$)#*(+%+!($-'.71$)#.+1+!($/%+-+%2=$l?#($@!"1#$+%$.'($3'171$ or destroy the information content of other more valid measures that are grouped with it. in summary, individual elements models are also unacceptable in the sense of measurement reliability. they are &+c&-2$1/6`#.%+?#8$'()$'"#$('k?#$+($%#"31$!,$%&#+"$#b0#.%'%+!(1$'6!/%$@&'%$.'($6#$/1#,/--2$3#'1/"#)$,!"$*('(.+'-$ "#0!"%+(c=$a/(%#"8$m#61%#"8$'()$m2'%%8$49::_<8$.'0%/"#$%&+1$1#(%+3#(%$62$1/cc#1%+(c$+(%#--#.%/'-$.'0+%'-$&'1$/(.-#'"$ inputs, has uncertain legal status, is rarely accepted as collateral, is rarely bought or sold, is of uncertain value, and "'"#-2$1/"?+?#1$1#0'"'%+!($,"!3$%&#$!"c'(+d'%+!($%&'%$&'1$)#?#-!0#)$+%=$>!%$1/"0"+1+(c-2$+%$+1$'3!(c$%&#$3!1%$)+,*./-%$ of all assets to measure in a decision useful way. 2010, vol. 1, no. 1, 36-44 morgan, ihrke and hurley 42 advances in business research it seems to the authors that mainstream intellectual capital advocates while highly critical of the accounting profession for not developing better measures of internally generated intellectual assets, have only proposed measures ,!"$+(%#--#.%/'-$'11#%1$%&'%$+c(!"#$!,$-!(cf"#.!c(+d#)$'()$+(%"'.%'6-#$*('(.+'-$3#'1/"#3#(%$.!(1%"'+(%1$@&+.&$-+3+%$ %&#+"$/1#,/-$3#'1/"#3#(%$'()$)+1.-!1/"#=$5..!/(%+(c$6!'")1$'"!/()$ %&#$@!"-)$.!(./"$ %&'%$(!%$#?#"2$)#*(+%+!('-$ asset can be usefully measured. we have reviewed and evaluated the proposals coming out of intellectual capital literature and found them wanting in terms of possessing the characteristics of useful information. the fact that a 0'"%+./-'"$c!'-$4#=c=$'$3!"#$.!30-#%#$"#0!"%+(c$!,$+(%#"('--2$c#(#"'%#)$+(%#--#.%/'-$'11#%1<$3'2$6#$)#1+"'6-#$+($1!3#$ sense, does not also mean it is possible in a useful way. aesop, in one of his most clever fables, relates the story of a mouse who proposed a bell be tied to the cat’s neck so mice would be alerted when the cat was near and thereby avoid danger. the idea of “belling the cat” was widely applauded until one wise old mouse asked who among the mice intended to bell the cat. aesop’s moral of course was that is easy to propose impossible solutions. a careful '('-21+1$!,$ %&#$3#'1/"#3#(%$)+,*./-%+#1$1/""!/()+(c$+%#31$!,$+(%#"('--2$c#(#"'%#)$+(%#--#.%/'-$.'0+%'-$1/cc#1%1$ %!$ the authors that intellectual capital protagonists may be guilty of proposing an impossible solution in this case. the present absence of internally generated intellectual capital from balance sheets is not accounting negligence, nor accountants’ resistance to change, nor is it even the accounting profession’s lack of imagination as has been suggested in intellectual capital literature. rather the exclusion of items of internally generated intellectual capital from the 6'-'(.#$1&##%$"#1/-%1$,"!3$/(,!"%/('%#$3#'1/"#3#(%$"#'-+%+#1$%&'%$-+3+%$@&'%$.'($6#$/1#,/--2$3#'1/"#)$+($*('(.+'-$ terms. intellectual capital protagonists would be well advised to address measurement issues if they ever hope for their calls for broader reporting of internally generated intellectual assets on the balance sheet to be heeded by the accounting community. 0bc02d8)bc this paper has reviewed suggestions coming out of intellectual capital literature for fuller measurement and reporting internally generated intellectual assets on the balance sheet and has found them unworkable from a measurement perspective. each of the three proposed approaches for measuring intellectual capital found in +(%#--#.%/'-$.'0+%'-$-+%#"'%/"#$'00#'"1$)##0-2$x'@#)=$w,$+30-#3#(%#)$(!(#$@!/-)$"#1/-%$+($)#.+1+!(f/1#,/-$3#'1/"#1$ !,$+(%#"('--2$c#(#"'%#)$+(%#--#.%/'-$.'0+%'-8$%&+1$0"+3'"+-2$6#.'/1#$!,$%&#+"$-'.7$!,$"#-+'6+-+%2$4+=#=$-'.7$!,$?#"+*'6+-+%28$ "#0"#1#(%'%+!('-$,'+%&,/-(#118$'()l!"$(#/%"'-+%2<=$ '"7#%$.'0+%'-+d'%+!($3!)#-1$0"!?+)#$!(-2$6-'.7$6!b$)!--'"$%!%'-1$ that are poor representations of the intellectual assets they purport to measure. furthermore, market capitalization 3!)#-1$&'?#$6##($`/1%+*#)$%&"!/c&$.+"./-'"$"#'1!(+(c$%&'%$'11/3#1$7(!@-#)c#$!,$%&#$?#"2$3'"7#%$?'-/'%+!(1$%&#2$'"#$ supposed to predict. return on assets models depend upon benchmark comparisons that have no theoretical basis, do not correct for the unrecorded intellectual assets in the denominators of the benchmarks, provide highly unstable "#1/-%1$!?#"$%+3#8$'()$,'+-$%!$#b0-'+($@&2$1!3#$0"!*%'6-#$%#.&(!-!c2$.!30'(+#1$&'?#$d#"!$!"$(#c'%+?#$+(%#--#.%/'-$ capital. individual elements models are totally subjective in terms of their construction and implementation. individual #-#3#(%1$3!)#-1$0"!?+)#$@+)#-2$)+,,#"+(c$!/%.!3#1$+($@&+.&$(!$!/%.!3#$+1$3!"#$`/1%+*'6-#$%&'($'(2$!%&#"=$$ m#$.!(.-/)#$62$.!33#(%+(c$!($'$1%/)2$62$\#?$'()$m'"!@+($4ijjj<$+($@&+.&$%&#2$0/6-+1&#)$#30+"+.'-$*()+(c1$ 1&!@+(c$ '$ .!(1+1%#(%$ )#.-+(#$ +($ %&#$ /1#,/-(#11$ !,$ &+1%!"+.'-$*('(.+'-$ '..!/(%+(c$ +(,!"3'%+!($ 46!!7$?'-/#18$ .'1&$ x!@18$'()$#'"(+(c1<$,!"$0"#)+.%+(c$,/%/"#$1%!.7$"#%/"(1=$\#?$'()$m'"!@+($.!(.-/)#)$4'3!(c$!%&#"$%&+(c1<$%&'%$%&#$ decline in usefulness must be in some part due to the failure of accounting numbers to accurately include the value of internally generated intellectual assets and to accurately expense them as they expire. while we readily concede %&#$)#.-+(#$ +($ %&#$.!""#-'%+!($6#%@##($&+1%!"+.'-$*('(.+'-$ +(,!"3'%+!($'()$ ,/%/"#$1%!.7$ "#%/"(18$@#$ +(%#"0"#%$ %&+1$ decline differently than did lev and zarowin. we think a rapidly increasing rate of technological and social change explains the decline in predictability of historical numbers for the future. if rate of technological and social change +1$'..#-#"'%+(c$4'()$@#$6#-+#?#$+%$+1<8$%&#$,/%/"#8$+%1#-,8$('%/"'--2$#(%'+-1$'$&+c&#"$)#c"##$!,$/(.#"%'+(%2$%&'($+%$&'1$ in the past and is less predictable. historical data in a rapidly changing environment intuitively must be less likely to accurately predict a more uncertain future than it once did in a more slowing changing world. in our view the '..#-#"'%+!($!,$.&'(c#$+1$%&#$6#%%#"$#b0-'('%+!($,!"$%&#$\#?$'()$m'"!@+($*()+(c=$ !"#$%!$%&#$0!+(%8$)#.-+(#1$+($%&#$ 0"#)+.%'6+-+%2$!,$%"')+%+!('-$*('(.+'-$"#0!"%1$@!/-)$(!%$6#$"#?#"1#)$'()$0#"&'01$@!/-)$#?#($6#$+(."#'1#)$62$+(.-/)+(c$ in those historical data spurious measures of unrecorded intellectual assets. since proposals for measuring internally generated intellectual assets provide spurious measures that would not be useful to decision making, and since bright minds have been unable to devise any other suitable approaches to measure intellectual assets, we conclude that including a broader set of internally generated intellectual assets on the balance 1&##%$+1$/("#'-+1%+.$+($'$/1#,/-$@'2=$5..!")+(c-28$%&#"#$+1$-+%%-#$"#'1!($%!$#b0#.%$%&#$*('(.+'-$'..!/(%+(c$.!33/(+%2$ will change its present position on these matters. intellectual capital advocates who argue for broader inclusion of +(%#"('--2$c#(#"'%#)$+(%#--#.%/'-$'11#%1$!($%&#$6'-'(.#$1&##%$1&!/-)$*"1%$'))"#11$%&#$#b0"#11#)$3#'1/"#3#(%$.!(.#"(1$ of accountants if they are to successfully advance their argument. 2010, vol. 1, no. 1, 36-44 morgan, ihrke and hurley 43 advances in business research "<?<"<c0<8 56#21#7#"'8$w=$9::;=$w(%#--#.%/'-$.'0+%'-$0"'.%+.#1$!,$*"31$'()$.!33!)+*.'%+!($!,$-'6!/"=$accounting, auditing, and accountability journal8$9ig$qofr;=$ ambler, t. 2002. accounting for untouchables. accountant8$a#6"/'"2g$iofi;= s&'"%#1&8$c=8$j$s'(2!0')&2'28$5=$9::_=$w(%#--#.%/'-$.'0+%'-g$[!(.#0%$'()$+%1$3#'1/"#3#(%=$finance india8$ijg$iqo_f 1375. s!(%+18$>=$9::i=$511#11+(c$7(!@-#)c#$'11#%1g$5$"#?+#@$!,$%&#$3!)#-1$/1#)$%!$3#'1/"#$+(%#--#.%/'-$.'0+%'-=$international journal of management reviews8$qg$rifo:= [#d'+"8$n=$9::;=$w(%#--#.%/'-$.'0+%'-g$a+)+(c$+($0-'+($?+#@=$journal of performance management8$9ig$9jfqj= edvinsson, l. 2002. 0'31'3/+#!,'*6%+.e#f!g9/+!>'.!*##e!+'!h*'&!+'!*/$%6/+#!+9#!h*'&,#e6#!#-'*'=>. upper h'))-#$y+?#"8$>ng$financial times prentice hall. edvinsson, l., & malone, m. 1997. )*+#,,#-+./,!-/1%+/,f!"#/,%i%*6!>'.3!-'=1/*>j5!+3.#!$/,.#!k>!l*e%*6!%+5!9%ee#*! brainpower=$>#@$n!"7g$a'"0#"$s/1+(#11= ?#e#3/,! --'.*+%*6!8+/*e/3e5!7'/3e!;? 8 7am$9::k=$hha5[$>!=$_8$u#*(+%+!(1$!,$#-#3#(%1$'()$6'1+.$"#.!c(+%+!($ ."+%#"+'$,!"$'.."/'-f6'1+1$*('(.+'-$1%'%#3#(%1=$00=$if99$ ?%*/*-%/,! --'.*+%*6! 8+/*e/3e5! 7'/3e! ;? 87am 1985. 0'*-#1+5! 8+/+#=#*+! c'm! no! a2./.'34! $+! >&','-&,2! statements. stamford, ct: fasb. gitman l. 2003. 43%*-%1,#5!'(!=/*/6#3%/,!l*/*-#. boston, 5g addison wesley. grossman, m. 2006. an overview of knowledge management assessment approaches. journal of american academy of business8$;g$9r9-277. holmen, j. 2005. intellectual capital reporting. management accounting quarterly8$og$ifj=$$ hunter, l., webster, e=8$j$m2'%%8$5=$9::_=$ #'1/"+(c$+(%#--#.%/'-$.'0+%'-g$5$"#?+#@$!,$./""#(%$0"'.%+.#=$australian accounting review8$i_g$rf99=$$ international accounting standards board=$ 9::i=$ a"'3#@!"7$ ,!"$ %&#$ 0"#1#(%'%+!($ '()$ 0"#0'"'%+!($ !,$ *('(.+'-$ statements. london, uk, iasb. n#(7+(18$l=8$j$f0%!(8$m=$9::i=$w(%#"('--2$c#(#"'%#)$+(%'(c+6-#$'11#%1g$a"'3+(c$%&#$)+1./11+!(=$australian accounting review8$iig$rfii= p'%*+!0'*-#1+./,!?3/=#&'3h!43'q#-+!;) 87!/*e!? 87a. 2006. phase b, elements and recognition, attachment f, pp. 1-12. \#?8$s=$9::_=$w(%'(c+6-#$'11#%1g$[!(.#0%1$'()$3#'1/"#3#(%1=$<*->-,'1#e%/!'(!8'-%/,!@#/5.3#=#*+8$9g$9jjfq:_= lev, b. 2003. remarks on the measurement, valuation, and reporting of intangible assetsm!<-'*'=%-!4',%->!"#$%#&, jg$ikf99= \#?8$s=8$j$m'"!@+(8$t=$ijjj=$z&#$6!/()'"+#1$!,$*('(.+'-$"#0!"%+(c$'()$&!@$%!$#b%#()$%&#3=$journal of accounting research8$qkg$q_qfq;_= '+(#18$\=8$s'"%!?8$l=8$a'+"*#-)8$t=8$j$a+"1%8$l=$9::q=$w30-+.'%+!(1$!,$'..!/(%+(c$"#1#'".&$,!"$%&#$a5hse1$+(+%+'%+?#1$ on disclosure of information about intangible assets. --'.*+%*6!r'3%i'*58$ikg$ik_fi;_=$$ 2010, vol. 1, no. 1, 36-44 morgan, ihrke and hurley 44 advances in business research '-&!%"'8$n=$9:::=$c(!@-#)c#$'11#%1$+($%&#$c-!6'-$#.!(!32g$511#113#(%$!,$('%+!('-$+(%#--#.%/'-$.'0+%'-=$journal of s,'k/,!)*('3=/+%'*!@/*/6#=#*+8$;g$_fi_= marr, b. 2008. intangible assets measurement. financial management8$n/(#g$q9fqr= mcnabb, d. 1998. brainpower’s worth soon to be part of the balance sheet. t9#!:'=%*%'*8$50"+-g$9_= t#%%28$y=8$j$v/%&"+#8$n=$9:::=$w(%#--#.%/'-$.'0+%'-$-+%#"'%/"#$"#?+#@g$ #'1/"#3#(%8$"#0!"%+(c8$'()$3'('c#3#(%=$journal of intellectual capital8$ig$i__fiko= y!)!?8$w=8$j$\#-+'#"%8$t=$9::9=$a+3+'3g$a+('(.+'-$3#%&!)$!,$+(%'(c+6-#$'11#%1$3#'1/"#3#(%=$journal of intellectual capital8$qg$q9qfqqk= roslender, r., & fincham, r. 2001. thinking critically about intellectual capital accounting. accounting, auditing, and accountability journal8$irg 383-399. rutledge, j. 1997. you’re a fool if you buy into this. forbes8$50"+-g$r9fro= seetharaman, a., sooria, h., & saravanan, a. 2002. intellectual capital accounting and reporting in the knowledge economy. journal of intellectual capital8$qg$i9;firj= stewart, t. 1997. )*+#,,#-+./,!-/1%+/,f!t9#!*#&!&#/,+9!'(!'36/*%i/+%'*5=$>#@$n!"7g$u!/6-#)'2= stewart, t. 2001. t9#!g#/,+9!'(!h*'&,#e6#f!)*+#,,#-+./,!-/1%+/,!/*e!+9#!+&#*+>ul35+!-#*+.3>!'36/*%i/+%'*. new n!"7g$u!/6-#)'2= sveiby, k. 1997. t9#! *#&! '36/*%i/+%'*/,! &#/,+9f! @/*/6%*6! /*e! =#/5.3%*6! h*'&,#e6#uk/5#e! /55#+5. san a"'(.+1.!8$[5g$$s#""#%%fc!#&-#"$t/6-+1&#"1= m#61%#"8$l=8$j$n#(1#(8$t=$9::o=$w(?#1%3#(%$+($+(%'(c+6-#$.'0+%'-g$5($#(%#"0"+1#$0#"10#.%+?#=$t9#!<-'*'=%-!"#-'3e, ;9g$;9fjo= john morgan is a professor in the department of accounting at winona state university. he received his ph.d. in '..!/(%'(.2$,"!3$%&#$f(+?#"1+%2$!,$>#6"'17'f\+(.!-(=$a+1$./""#(%$"#1#'".&$+(%#"#1%1$+(.-/)#$%&#$*('(.+'-$"#0!"%+(c$ +11/#1$"#-'%#)$%!$+(%#--#.%/'-$.'0+%'-8$6/1+(#11$1.&!!-$'.."#)+%'%+!($+11/#18$[t5$#b'3$1/..#11$,'.%!"18$'()$3#'1/"+(c$ teacher effectiveness. he has published in the journal of 21st$ [#(%/"2$5..!/(%+(c8$ %&#$ n!/"('-$ !,$s/1+(#11$ '()$ \#')#"1&+08$%&#$[-'"+!($s/1+(#11$'()$l.!(!3+.$y#?+#@8$'()$+($\#'"(+(c$'()$z#'.&+(c$+($a+c&#"$l)/.'%+!(fv/-,$ perspectives. frederic ihrke is a professor and chair in the department of accounting at winona state university. he received his sz$,"!3$%&#$f(+?#"1+%2$!,$ +((#1!%'$'()$&+1$n=u=$,"!3$m+--+'3$'()$ +%.&#--$[!--#c#$!,$\'@=$a+1$./""#(%$"#1#'".&$ interests include income tax policy, income tax law, and accounting for intangible assets. he has published in the journal of business and leadership. p/=#5!r.3,#> is an associate professor in the department of accounting at winona state university. he received his t&=u=$+($'..!/(%'(.2$,"!3$%&#$f(+?#"1+%2$!,$>#6"'17'f\+(.!-(=$a+1$"#1#'".&$+(%#"#1%1$+(.-/)#$*('(.+'-$'..!/(%+(c$ reporting and social audits. he has published in the journal of business and leadership. 2010, vol. 1, no. 1, 36-44 morgan, ihrke and hurley http://journals.sfu.ca/abr advances in business research 2014, volume 5, pages 63-73 63 management theory’s impact on external financial reporting joshua sauerwein george fox university prevailing threads of management theory over the past century provide an intriguing backdrop for major innovations in external financial reporting. three prevailing management theories, the efficiency movement, the human resource movement, and the strategy movement, are first identified and discussed. evidence demonstrates that financial reporting innovations coincided with the rise of these theories. thus, the needs of management, and not merely investors, play a critical role in external financial reporting. the article concludes with an examination of the strategy movement’s continuing role in financial reporting through integrated reporting. keywords: reporting innovations, efficiency movement, human resource movement, strategy movement, management theory, integrated reporting introduction “economic life goes on in a social and natural environment which changes and by its change alters the data of economic action (schumpeter, 1942, 119).” while schumpeter acknowledged that many different forces created smaller changes in the economy, it was innovation and creative destruction that truly altered the economic landscape. one might ask the same question regarding financial reporting what forces created smaller changes and what forces truly altered the landscape? obviously, the changing needs of investors, technological advancements, and international pressures have created both small and large-scale changes in financial reporting. additionally, far-reaching scandals have spurred overhauls and innovations to financial reporting as seen in the case of enron and worldcom. however, this paper contends that prevailing management theory has also been a catalyst of large-scale innovation. a review of the major themes in u.s. management theory shows three predominant threads; the efficiency movement, the human resource movement, and the strategy movement (wren & bedeian, 2009). using these themes, this paper will show their immediate and continuing impact on financial reporting. while some of the innovations identified are no longer used in reporting, the shifts in thinking they spawned continue to produce fruit in today’s reporting environment. this paper begins with a review of frederick taylor and scientific management, to show how the focus on efficiency impacted the development of external financial reporting. then the focus shifts to the works of likert, herzberg, and the movement toward human resources identifying their influence on reporting and qualitative information included in the notes to the financial statements. finally, this paper focuses on the works of ansoff, drucker, and porter demonstrating the connections between strategic thinking and the rise of social accounting, forward-looking financial information, and integrated reporting. it concludes by discussing unresolved issues spurred by the strategy movement and identify emerging trends of financial reporting. http://journals.sfu.ca/abr management theory’s impact on external financial reporting 64 the efficiency movement before the industrial revolution, the predominant form of business was a family-owned business. because taxation of business by governmental entities was either minimal or non-existent, the only people needing information were family members (ownership), who often were also the managers as well. therefore, what is currently termed management (cost) accounting, was an allencompassing form of accounting. during these early years, management accounting and external financial reporting were virtually the same. however, with the rise of capital markets, public ownership, and the clear distinction between ownership and management, external financial reporting started to become a second thread of accounting practice and study. these delineations sparked debate about the informational needs of ownership and the informational needs of management. one of the most influential management practitioners of the late 19th and early 20th centuries was frederick taylor (wren & bedeian, 2009). in his practice and study of scientific management, taylor’s focus was predominantly on efficiency. because of this focus, his contributions had profound impacts on the field of management accounting as they determined how to measure efficiency and how to increase it. from this came the concepts of standard costing, various wage incentive plans, and measures of underutilization of capital assets (vollmers, 1996). taylor and other scientific managers found it necessary to develop accounting systems to measure, report, and analyze the success of his scientific management programs. taylor presented a paper to the american society of mechanical engineers in which he argued that one of the leading functions of management (planning department) should be to determine and report the complete cost of all products manufactured (chen & pan, 1984). as noted in an earlier lecture given at harvard, taylor intended for this type of reporting to have both internal and external outlets. in an 1886 lecture, taylor stated that regular monthly reporting to ownership should not only include a balance sheet and a detailed profit and loss statement, but also a detailed cost sheet (chen & pan, 1984). because the distinction between management accounting and external reporting was often minimal during this time, taylor’s concepts also heavily influenced external reporting as well. this focus on efficiency, elimination of waste, and external reporting mechanisms to measure them began to appear in accounting literature and in an increasing number of public company financial reports through the stock market crash of 1929. nau (1913) struggled to define the roles of the internal bookkeeper and the outside public accountant. in contrast to current accounting practices at the time, nau gave the public accountant primary responsibility for cost accounting functions. for him, the main role of the public accountant went beyond providing information to the investing public, but instead they should be charged with giving information to management concerning the elimination of waste and even the direction of efforts (nau, 1913). to achieve this, he focused primarily on the measurement of income and expenses. more specifically, he advocated for cost accounting measures to be included in the external financial reports. such techniques would include the allocation of overhead to different functions of the business, such as production and administration, and the reporting of actual costs compared against standard costs to determine efficiency of procurement and production (nau, 1913). though the allocation of overhead is not specifically reported on the face of the financial statements, in current day reporting they are included in expense accounts and identified in the notes to the financial statements. the comparison of actual costs to standard costs is not currently a function of external financial reporting, but a widely used technique of current cost accounting. using taylor’s focus on efficiency, nau’s ideas made a valuable contribution to the current shape of external reporting. after nau, mucklow (1917) refined the focus to the financial reporting of institutions such as hospitals, hotels, schools, and orphanages. he again focused on efficiency and its impact on the 65 income statement. he first proposed to break out all variable costs from fixed costs. he stated that the responsibility for fixed costs should be assigned to management, and the control of variable costs to the heads of departments and the staff (mucklow, 1917). next, he suggested that the attention on total expenses should be minimized, and instead reports should establish a permanent standard of comparison across time to evaluate efficiency of both parties. he therefore proposed that financial reports should include ratios of costs per person/per day to aid in this determination (mucklow, 1917). mucklow believed this approach to cost analysis could be used by all companies and not merely limited to the above named institutions. few other institutions or businesses currently use such measures. taylor’s focus on efficiency and its impact on financial reporting were not limited to accounting literature and theory. in the early part of the 20th century, there is also evidence to suggest that publically traded companies crafted their external financial reports to satisfy the desire of ownership to evaluate efficiency. most notably, there was a fundamental shift in focus away from the balance sheet and towards the determination of income and the classification of expenses on the income statement. after reviewing the article titles in the journal of accountancy from its inception in 1905 to 1920, it is apparent that far more of the focus of external reporting was on the development of the income statement. this focus is consistent with taylor’s focus on efficiency and its measurement as well. additionally, there were concurrent advances in the interpretation of financial statements to assess efficiency in multiple areas of an entity. building on taylor’s work, wildman (1914) advocated the use of ratios to determine relationships between sales and accounts receivable, relationships between finished-goods inventories and sales, and profit margin ratios. currently, many accounting textbooks use a form of these ratios to assess the efficiency of receivable collections, the efficiency of inventory management, and the efficiency of labor contributions to inventory. many of taylor’s contributions to management theory can still be seen in external financial reporting and his focus on efficiency appears to be a continuing contribution. the human resource movement some of taylor’s greatest critics claimed his work was so focused on efficiency that it became detrimental to the actual people doing the work. though taylor disagreed and challenged these claims, they did pave the way for researchers such as follett, mcgregor, herzberg, and likert to begin studying the field of human interactions in the work place (wren & bedeian, 2009). this research was not as easy to quantify as scientific management leading to a rise in qualitative studies on job satisfaction, job attitudes, and the attempt to correlate financial performance to managerial leadership styles. the effects of this research were not limited to management circles. because of this research, the theory and practice of external financial reporting was shaped in two major ways. first, there were numerous debates in the academy concerning the creation and implementation of models to value human resources as assets on the balance sheet. second, as the qualitative informational needs of management increased and the amount of qualitative research grew, there was a concurrent rise in the volume of qualitative information included in external financial reporting. human resource accounting in response to two books by likert (1961)(1967), brummet et al. (1968), developed the concept of human resource accounting (hra). this new paradigm trumpeted the importance of including human resources as assets in the financial statements (brummet, et al., 1968). they argued that while a number of corporate annual reports consistently report that their most important assets management theory’s impact on external financial reporting 66 are their employees, all costs to recruit, hire, train, and develop their employees are treated as expenses against income rather than capital assets that have long-term value. since there is a meaningful correlation between the profitability of an organization and their expenditures on human resources, according to the authors, the measurement of value of human resources should assist in management and investor decision making (brummet, et al., 1968). additionally, if human resources were measured as assets, the authors claimed that mass layoffs of employees, which have a tendency to increase current income but harm long-term income because of deteriorating employee attitudes and motivation, would decrease and force managers to place greater emphasis on the long-term profitability and capital budgeting of the organization. the article ended by describing the authors attempts to institute hra at r.g. barry corporation, a public company, and the measurement models that were used. as expected, hra began a vigorous debate among academics and practitioners. in response to brummet et al., likert & bowers (1969) underscored the importance of hra research and described pilot studies being undertaken to establish a framework of theory. using multiple questionnaires drafted from his two books mentioned above, they described their five-year longitudinal study in progress at twenty organization sites, including over 11,000 people (likert & bowers, 1969). the study focused on the correlation between a set of causal and intervening variables and their effects on a set of end-result variables. the causal variables are independent variables that “can be directly and purposely altered or changed by the organization and its management,”such as organizational structure, management policies and decisions, and leadership strategies, skills, and behaviors (likert & bowers, 1969, 586). they described intervening variables as another set of independent variables that can proxy for the “internal state, health, and performance capabilities of the organization” (likert & bowers, 1969, 586). these include such variables as the loyalties, attitudes, motivations, performance goals, and perceptions of all members of the organization which affect the interaction, communication, and decision making capability of the organization (likert & bowers, 1969). the authors correlated these two sets of independent variables against dependent variables such as productivity, costs, growth, share of the market, and earnings. over a two-year span of study, the authors found statistical significance in the coefficients of all twelve variables included in the causal and intervening variables. based on the strength of these findings, the authors called for extended research in this area and offered their research model as a possible foundation for the measurement of human resource assets (likert & bowers, 1969). one year later, the authors’ model would be used to further develop measurement techniques for hra. flamholtz’s (1972) article established a framework to measure the value of human resources. his model attempted to project the future benefits of service attributable to an employee and discount it back to present value, or, as flamholtz suggests, “the ultimate measure of a person’s worth is his expected realizable value (flamholtz, 1972, 675).” the future benefits, known as conditional value, are comprised of the following variables: employee skills, motivation level, promotability, productivity, transferability, organizational role, and organizational rewards received (flamholtz, 1972). all of these are projected out over a five to ten year time horizon and discounted back to present value using a function of the employee’s probability of tenure in the organization. flamholtz suggested this model will not only help investors make better capital allocation decisions, but it should aid management is assessing employee performance, and help directors assess management’s stewardship of human resources. problems naturally arose in the use of this model since the performance of an individual employee is difficult to distinguish from the performance of an entire team or organization. even though this model was never used in practice, a diluted form of it was used at r.g. barry corporation (barry corporation, 1969). in 1969 and 1970, r.g. barry corporation filed the first corporate reports including hra measurements (barry corporation, 1969). during these years, r.g. barry capitalized, rather than 67 expensed, selected recruiting, hiring, and training costs of many employees. however, when the annual reports were released to the public there was a considerable public outcry claiming “there go the accountants again, trying to reduce people to numbers and dehumanize the workplace” (previts & merino, 1998). rhode, lawler, and sundem (1976) were critical of the effects this might have on the employees being valued. they stated that if the value placed on employee was less than the value of the compensation received, dissatisfaction would increase. additionally, the authors claimed “publicizing human resource data could also have a disastrous impact on the attitudes (self-esteem) of employees whose resource values are declining” (rhode, et al., 1976). the research and implementation of hra hit its apex in 1974 when the american accounting association established a temporary committee on human resource accounting. after only a couple of years the committee was discontinued and hra met its demise. ultimately, the acceptance of an accurate model and public perception of placing value on humans brought the research to an end. however, as the rise of the knowledge worker gained footing in the late 1990s and 2000s, the topic has again appeared in accounting literature, though to a much lesser extent. currently, according to the fasb’s technical agenda (2014), there are no plans to take up the project, but the insights and models established in hra have been refined and put into use in the valuation of other intangible assets, such as customer lists. qualitative information the human resource movement in management theory also affected the volume of qualitative information disclosed in external financial reporting. prior to 1934, accounting did not have a central governing body. therefore, much of the regulation of public financial statements was the responsibility of individual states. before 1930, no state required disclosures to the investing public (hawkins, 1986). however, since 1930 there has been an exponential rise of both required and voluntary note disclosures in united states corporate reports. lanfranconi found similar results among canadian companies when he found that the number of pages devoted to footnotes in the annual reports increased tenfold over the period 1955 to 1974 (lanfranconi, 1976). therefore, as management theorists turned their attention on more qualitative aspects, such as human resources, the accounting profession also started to include more qualitative information in their external reporting. clearly, the human resource movement was not the sole driver of the volume of corporate disclosures. there were obviously other significant factors such as the increased legal liabilities of corporations and auditors, the appearance of corporate analysts, and the establishment of formal accounting policy bodies, such as the committee on accounting procedures, the accounting principles board, and the financial accounting standards board. however, it is important to note that the solution given for many of external financial reporting’s limitations during this period was increased disclosures. this easy-fix remedy continues to be given today, even though the cost of preparing such disclosures makes the listing of a company on a public exchange more cost prohibitive, giving rise to move private finance options and overseas listings. the strategy movement known as the father of strategic management, igor ansoff was on the leading edge of a new direction of management thought. beginning with his works in the 1960s and continuing through michael porter’s works, which began in the late 70s and continues today, strategy has become a major focus in management literature. during this same time-period, the field of accounting began concerted management theory’s impact on external financial reporting 68 efforts to incorporate strategic thinking into external financial reporting in two different ways. the first is social accounting and the second is forward-looking financial projections and information. social accounting ansoff’s (1965) book, corporate strategy: an analytical approach to business policy for growth and expansion, was ground-breaking for a number of reasons, but his greatest contribution to accounting was the development of the stakeholder theory. in this work, ansoff argued for the existence of two types of corporate objectives: economic and social. he purported that the focus of management should go beyond the individuals who own shares of stock to all parties who may be affected by a corporate decision (ansoff, 1965). this same thread of stakeholder theory was addressed by many management theorists such as porter (1985), and mintzberg (1983). as a result, accounting standard setters began to shift their understanding of reporting as well. instead of using external financial statements only to report stewardship of resources to ownership, standard setters broadened the intent of reporting to include stakeholders too. the result of this new way of thinking and reporting was called social accounting. during the 1950s and 1960s, a select few publically-traded companies included voluntary disclosures in their external financial statements regarding their involvement in social responsibility. these reported activities often included contributions to charities and involvement in community activities (ramanathan, 1976). however, beginning in the early 1970s, as the stakeholder theory of management began to gain footing, social accounting became a hot button issue in accounting circles. in 1972, the american institute of certified public accountants sponsored a conference on social measurement (american accounting association, 1975). concurrently, in 1972, the american accounting association started the committee on social costs. the central focus of their efforts was to define and develop measurement tools to determine the impact any given entity has on society and the surrounding environment (american accounting association, 1975). this committee was a major advocate for including cost/benefit measurement of a firm’s social programs and activities in external financial reporting. however, they expanded the scope of social programs and activities beyond contributions to charity to include affirmative action programs, environmental activities, product safety and quality, responsibility to personnel, and even bank lending activities to low-income families and students. using this committee’s work as a springboard, it is apparent many firms began incorporating social accounting into their external financial reports. the company receiving the most attention for incorporating social accounting was abt associates, inc. in their 1971, 1972, and 1973 annual reports, abt included a social income statement and a social balance sheet. in these reports, they developed a “ series of social accounting cost/benefit statements to tie in with five consulting services they offer in social accounting: an, a social audit, an social evaluation of routine operations, and an analysis of social policy impact on financial performance” (american accounting association, 1975, 60). abt would later provide their social audits to a number of firms and assist them in producing social balance sheets that included society’s equity as an account and included footnotes to describe measurement techniques (american accounting association, 1975). the work of abt was highly controversial in management and accounting circles at that time. though abt is still a viable firm, it appears they no longer assist companies in external financial reporting of social accounting. a second leader in social accounting was eastern gas and fuel associates. included in their external reports was a three page account of the firm’s social activities entitled “toward social accounting” (american accounting association, 1975). this report contained a discussion on industrial safety, minority employment, charitable giving, and pensions, with overall performance measured quantitatively. after surveying their current shareholders, eastern was pleased to find their shareholders were satisfied with this type of reporting and desired even more information on 69 environmental responsibilities and consumer’s rights (american accounting association, 1975). in spite of the good reviews from shareholders, eastern discontinued this practice in the late 1970s. first pennsylvania bank was another leader in external reporting of social accounting. in april, 1973, they included a social scorecard in their financial reports showing the main areas of social involvement and performance measures for these areas (american accounting association, 1975). the main areas addressed were “minority lending, minority and female employment, minority purchasing, and contributions to urban affairs” (american accounting association, 1975, 61). in a similar fashion, scovill manufacturing also produced a social action report in the same year. using a balance sheet format, scovill reported on areas such as employment opportunities, environmental controls, community involvement, and consumerism (american accounting association, 1975). however, these entries were only qualitative and did not attempt to quantify the nature of assets or liabilities of the social concerns. throughout the mid-1970s companies such as abbott labs, bank of america, eastman kodak, exxon, ford, general motors, ibm, u.s. steel, and xerox piloted attempts at social accounting in their external financial reports. in fact, 298 of the fortune 500 industrial firms disclosed some type of social performance data in their 1973 annual reports (beresford, 1974). in addition to its growing application in practice, there was also significant attention given to the topic in accounting literature. as with most of accounting literature on revolutionary reporting practices, the discussion started with a general framework and definition, moved to valuation and measurement topics, and culminated with proposed reporting standards. much attention was given to investor’s reactions to such disclosures and the effects on stock price and firm perception. however, the challenges of implementation proved to be too much and this topic met its demise by the end of the 1970s. social accounting created as many questions as answers. while many accountants were in favor of creating standards for the reporting of social accounting, efforts to operationalize it were met with great resistance. first, there was never a consistent definition of what constituted a social action. some claimed only quantifiable measures, such as charitable contributions, should be included. others claimed that the firm’s responsibility to society went far beyond mere monetary contributions. second, the issue of whether accountants should be making implicit value judgments or simply reporting economic events became a controversial issue (previts & merino, 1998). third, there never appeared to be a consistent method of measurement. benefits and costs to society of specific programs and efforts would not only require more cost to the reporting entity, but their measurements would be based on high levels of management subjectivity, thus reducing the reliability of financial reports. fourth, because disclosures and measurements were being included in external financial reports, this social data was almost unauditable leaving the cpa firms wide open to potential litigation. some claim that the fascination with social accounting ended with the oil embargos of the 1970s, ushering in return to managing profitability in tight economic times (previts & merino, 1998). additionally, in spite of the work of the committee on social costs, the fasb never created any standards on the issue, which destroyed enforceability and consistency of measurements. however, pieces of social accounting, like the triple bottom line and the global reporting initiative, have survived. today, the inclusion of corporate sustainability measures in external reports is gaining acceptance. while most social accounting efforts ended in the late 1970s, some companies continued to provide additional disclosures of social activities throughout the 1980s. in the 1990s, the standalone social accounting reports re-emerged – primarily in the private sector (gray, dillard, & spence, 2009). these new reports have focused primarily on corporate sustainability and responsibility over societal resources, using new measures such as the triple bottom line (tbl) and the global reporting initiative (gri). as recently as 2002, the environmental management accounting network was formed to advocate for the increased use of accounting measures in corporate sustainability (gray, et management theory’s impact on external financial reporting 70 al., 2009). though the progress in academic literature has not kept pace, it appears this subject may again become one of interest for practitioners and academics. forward-looking financial information the strategy movement in management theory has not only helped to create social accounting, it has also helped spawn forward-looking financial information and the management discussion and analysis section of external financial reporting. in 1979 the securities and exchange commission (sec) passed rule 175, which began the process of establishing guidance and regulation on the topic of forward-looking financial information. leading up to the passage of this rule, publically traded corporations had predominantly reported on historical financial information included in the balance sheet, income statement, and statement of cash flows. however, during the mid-70s, corporations began to reveal some of their strategic thinking by including projected earnings in their corporate financial reports. the sec passed rule 175 to establish a safe harbor to encourage more corporations to provide this type of information to investors and mitigate their liability for providing potentially misleading information. just a year later, the sec (1980) passed release no.33-6231 requiring a management discussion and analysis (md&a) section to be added to the annual financial reports of publically traded firms. as stated by the sec, the primary objective of this requirement was to provide additional information to investors regarding the entity’s purpose, operations, and future expectations (sec, 1980). the policy stated that md&a should address five specific areas: operations, financial condition, liquidity, forward-looking information, and risk and uncertainty (emphasis mine). though currently these are requirements for all corporate financial reports, they started with a few select firms attempting to disseminate specific pieces of corporate strategy to current and potential investors. the future the influence of management theory on external financial reporting is substantial and intriguing. knowing the ongoing impact of management theory on accounting, the logical question is to ask if the past will be prologue for the future of financial reporting. more specifically, how will management theory continue to impact the future of financial reporting? while new, major threads of management theory have emerged since the strategy movement (see leadership and strategic leadership), it would appear that financial reporting is still being deeply impacted by the focus on strategy. an issue that is now receiving much press, often negative, and the full attention of standard setters is the call for forward-looking and fair value financial information. because these measurements often involve the use of projected cash flows, there must be consideration given to the models and discount factors used. these models and discount factors are “a function of management’s future actions, including managers’ conceptualization and implementation of firm strategy” (ramanna & watts, 2012). therefore, it is imperative that external users have access to key pieces of strategy, provided in the notes to the financial statements, in order to make independent verifications and assess the quality of management’s estimates. while fasb has made promulgations in sfas 157 (fasb, 2006) addressing these informational needs, they do not currently require the needed disclosure to make independent verifications. international financial reporting standards (ifrs) contain the same weakness. this is not surprising as the fasb and the international accounting standards board (iasb) have worked to converge their standards in accordance with the norwalk agreement of 2002 and subsequent memorandums of understanding (mou) in 2006, 2008, and 2010. as stated in their 2006 mou, one of the significant projects undertaken by the two standard-setters was fair value measurements 71 (financial accounting standards board, 2006). in response to sfas 157, the iasb released ias 13 in may of 2011. while ias 13 does require companies to disclose their methods and significant assumptions of fair value measurements, they do not require companies to disclose their discount rates. this obviously leads to greater “information asymmetry between preparers and users” (palea & maino, 2013, 266). in spite of the progress made on sfas 157 and ifrs 13 (iasb, 2013), the sec has backed off of their convergence project with the iasb. in july, 2012 the sec released a report claiming that there was little support in the u.s. capital markets for iasb authority over accounting standards (kaya & pillhofer, 2013). while the fasb and iasb will still continue to work together on specific reporting objectives, this report made it clear that total convergence with or adoption of ifrs by the united states will not be forthcoming in the near future. given these recent developments, it will be interesting to watch how far each of these standard setters will push the requirements for disclosure of proprietary, corporate strategy. while some reporting entities will wait on standard setters to require additional disclosures, other entities are seeking to be on the leading edge of financial reporting innovation. in recent years, the impact of the strategy movement has spawned the international integrated reporting council (iirc), which seeks to redefine financial reporting by providing integrated reports that “report….an organization’s ability to create value over time” (international integrated reporting council, 2013, 4). the initial guiding principle of these reports is to provide “insight into the organization’s strategy, and how it relates to the organization’s ability to create value in the short, medium and long term, and to its use of and effects on the capitals” (international integrated reporting council, 2013, 2). going far beyond the traditional corporate reports, these integrated reports would provide key details on an organization’s governance structure, business model, relationships with customers, suppliers, business partners, and local communities, as well as information on employees and future outlook. while integrated reporting is still in its infancy stages, the reports themselves as well as their impact on users is fascinating to consider. will these innovations bridge important gaps in backwardslooking performance reporting and true corporate value? will they increase transparency and help restore market confidence? how will stakeholder relationships be measured? will there be concurrent innovations in assurance services? whatever the outcome, mervyn king, chairman of the iirc, states that “it has to be accepted that corporate reporting as we have known it for years is no longer fit for the purpose because it does not deal with the total value of a company” (pwc, 2013, 5). management theory has generated many important financial reporting innovations, from measurement of income, to measurement of human resources, to the measurement of corporate value. as one takes a broad view of their history, it is easy to see that they are connected in some deep ways. as these relationships are further examined, it naturally begs the question; are the needs and preferences of internal and external users that different, or can we observe their needs and preferences converging over time? these are important questions for standard setters, preparers and academics to wrestle with as they look to the future of financial reporting. references american accounting association. 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(1913). accounting as a basis for and a measure of efficiency in business. the journal of accountancy, march, 15(3), pp. 143-156. palea, v. & maino, r. (2013). private equity fair value measurement: a critical perspective on ifrs 13. australian accounting review, 23(3), pp. 264-278. porter, m.e. (1985). competitive advantage: creating and sustaining superior performance. new york: free press. previts, g. j. & merino, b. d. (1998). a history of accountancy in the united states. columbus, oh: ohio state university press. pwc. (2013). the value creation journey: a survey of jse top-40 companies’ integrated reports. london: price waterhouse coopers. ramanathan, k. (1976). toward a theory of corporate social accounting. the accounting review, july.pp. 516-528. ramanna, k. & watts, r. l. (2012). evidence on the use of unverifiable estimates in required goodwill impairment. review of accounting studies, volume 17, pp. 749-780. 73 rhode, j. g., lawler iii, e. e. & sundem, g. l. (1976). human resource accounting: a critical assessment. industrial relations, february, 15(1), pp. 13-25. schumpeter, j. (1942). capitalism, socialism, and democracy. s.l.:harper and row. vollmers, g. (1996). accounting for idle capacity: its place in the historical cost literature and conjecture about its disappearance. the accounting historians journal, june, 23(1), pp. 2549. sec. (1980). release no. 33-6231, final rule: amendments to annual report form, related forms, rules, regulations, and guides; integration of securities act disclosure systems. wildman, j. (1914). interpretation of financial statements. the journal of accountancy, pp. 185-195. wren, d.a., bedeian, a.g. (2009). the evolution of management thought. hoboken, nj: john wiley & sons, inc. dr. joshua sauerwein is an assistant professor of accounting at george fox university. his research interests include the ethical decision-making process of accountants, the professional development of accounting students, and the history of accounting. advances in business research 2010 volume 1.pdf 152 advances in business research !!"#$%&'()!*+,-%."/0%1#%&2(+,"+#/"1)%3+1,#"#$%4,!$,1'5%6"2%6/+(-%/!%78'1#%9+-!8,:+% ;1#1$+'+#/%<1,++,%=((!,/8#"/"+-%>!,%?!8,%6/8@+#/ !"#$%&'#()*+,-.$/"$0,+!1#+$2,33!4!$,5$6(&-! i present in this paper a teaching methodology for introducing students to the workplace through collaboration between !" #$%&'()!'*!+#,%-#%!,-!".),-%))!/01,-,)2( 2,'-!3"+"/4!5.1 -!6%)'.(#%!7 8%1%-2!35674!9('8( 1! -0! -! '(8 -,: 2,'-!;,2$!-%%0)! 99('9(, 2%!*'(!%-2(<!&%=%&!%19&'<1%-2! )),8-1%-2)>!7<!,-2%-2,'-!,)!*'(!2$,)! (2,#&%!2'! #2! )! a blueprint for professors, as well as organizational sponsors, in undertaking an experiential learning partnership. in order to provide the reader with such a guide, i highlight rubrics necessary for a successful collaboration, including -%#0'2 &!(%).&2)!*('1!?!)%1%)2%()@!9('a%#2!2'9,#)@!# (%%(!9& #%1%-2)@!*(%b.%-2!#$ &&%-8%)! -0!'-8',-8!#'&& c'( 2,'-)>! i focus solely on pedagogy appropriate for undergraduate business programs, which adapt well to basic operational and topical research projects. in addition, to provide context and validation, i note applicable academic research on experiential learning. in 2007, with entry level jobs drying up before my students’ eyes, i initiated a human resource management 78%69$:(;,)$<&"#$"#!$&-"!-"$,5$')!("&-4$(-$!=1!)&!-'!$"#("$<,>3*$)!(*?$:?$+">*!-"+$5,)$"#!$<,)@5,)'!$&-$($',-')!"!$ and practical manner. neither an internship nor a cooperative program, yet not a traditional curriculum, my concept <(+$),,"!*$&-$:?$,<-$'()!!)$1),4)!++&,-$(-*$:?$&*!-"&a'("&,-$<&"#$"#,+!$+">*!-"+$<#,$!-"!)!*$($b>+&-!++$*!4)!!$ program with few professional role models. the same “deep obligation” to my students that george gore articulated in his 1968 article calling for management educators to provide students direct and meaningful contact with the b>+&-!++$<,)3*$7c,)!.$1d$efg9.$1),:1"!*$:!$",$')!("!$($4>&*!*$!=1!)&!-'!$<#!)!$+">*!-"+$>-5(:&3&()$<&"#$($b>+&-!++$ environment were introduced to the workplace and professional assignments. this article outlines my experience in doing and provides a guide for faculty interested in functioning as a liaison in developing learning opportunities and :("!)&(3+$"#("$+>11,)"$!=1!)&!-"&(3$3!()-&-4$+>''!++d$h#!$5,33,<&-4$*&(4)(:+$1)!+!-"$"#!$i,<$,5$"#!$1),4)(:$5),:$ both the student’s and instructor’s perspective. !"!#$%&'()!#$*%$+,$% -,$#+%#,'!!!'%% ./$!'!*$*%%0%%*1.""*% 2!3.!4%!3,"5,6(/%7!!89,#1% ,/8%:',8./:%4.$+%./*$'5#$(';% ,*1%<=+,$%#(5"8%>%+,3!%8(/!% 8.?!'!/$"@a<% b'!&,'!%7('%'!+!'*,"*;% 5*!%8',c%&,&!'*%$(%$!*$% .8!,*%,/8%7('-,$;%5*!% 6-!%4.*!"@;%8(/d$%4,.$% 5/6"%",*$%-(-!/$% 2!3.!4%:5.8!"./!*e%'59'.#*%0% !3,"5,6(/%*$,/8,'8*;#(-&,'!% $+!-%$(%@(5'%f/.*+!8%&'(85#$;% 5*!%$+!-%,*%%*$,/8,'8*%(7%g5,".$@% h,1!%,83,/$,:!%(7%#("",9(',63!% &'()!#$%5&8,$!*;%,*1%#",**-,$!*% 7('%7!!89,#1;%9!%#'!,63!%./%@(5'% ,&&'(,#+!*%,/8%$+(5:+$*% b",/%4('1%,'(5/8%8,$!*%7('% #+!#1i./*e%8',c%*59-.**.(/*e% '!+!,'*,"*%0%&'!*!/$,6(/% j88%%@(5'%&'()!#$% ,**.:/-!/$%%$(%@(5'% '!*5-!%5/8!'% <kl&!'.!/#!<;%.7%*5##!**75"e% ,*1%@(5'%./*$'5#$('%7('%,% '!#(--!/8,6(/% b',#6#!%&'!*!/$,6(/%$(% '!".!3!%/!'3(5*/!**;%8'!**% &'(7!**.(/,""@;%,''.3!%!,'"@% $(%#+!#1%$!#+/("(:@%,/8% '((-%*!$i5&;%-,./$,./%!@!% #(/$,#$% !"#$%!&'()$*&+%#&'$*,(%*-.-)-!-$*& /0'1&23,$4-$%!-+)&54(6$7!*/& 2010, vol. 1, no. 1, 152-167 richardson 153 advances in business research 6?$',-'!1"$b!4(-.$j>&"!$+&:13?.$(+$($:!"#,*$",$&-+>)!$<,)@13('!$!=1!)&!-'!$5,)$(33$+">*!-"+$!-),33!*$&-$"#!$8%6$ :(;,)d$k$)!+>:!$)!i!'"&-4$1),5!++&,-(3$!=1!)&!-'!$3&-@!*$",$(-$('(*!:&'$1),4)(:$<,>3*.$l$b!3&!m!*.$*&+"&-4>&+#$ my students from the thousands of others in our metropolitan area searching for entry-level positions. i encouraged students in the hrm program at$/(&-"$0,+!1#n+$2,33!4!$,5$6(&-!, to commit to extended, 10 to 15 week internships ("$ 3,'(3$ b>+&-!++!+d$8,<!m!).$ (+$ "#!$ !',-,:?$ 5(3"!)!*.$ &-"!)-+#&1$ ,11,)">-&"&!+$<!)!$ *&5a'>3"$ ",$ >-!()"#$ &-$ "#!$ under budgeted function of human resources. if internship slots did still exist in the economically challenged area of southern maine the competition was staggering and the positions were often unpaid. the lack of pay, albeit for a position that often could carry academic credit, limited students’ ability to secure these opportunities. 0>3&(--!$6(3m!(>=.$1)!+&*!-"$,5$ !--!""$2,33!4!$5,)$o,:!-.$-,"!+$ "#("$p"#!$>3"&:("!$',-+!j>!-'!$,5$>-1(&*$ internships is an increased opportunity gap between the haves and have-nots” resulting in a situation that is “implicitly unfair to lowand moderate-income students because those students need to earn income to pay college ',+"+q$76(3m!(>=.$rsst9d$l-*!!*.$(+$l$&-5,):!*$:?$#>:(-$)!+,>)'!$:(-(4!:!-"$:(;,)+$(b,>"$>-1(&*$&-"!)-+#&1$ ,11,)">-&"&!+$("$3,'(3$a):+.$"#!&)$(-+<!)+$b!'(:!$1)!*&'"(b3!u$pl$'(-n"$4&m!$>1$vw$(-$#,>)$("$"#!$+(-*<&'#$+#,1$5,)$($ gx$:&->"!$*)&m!$,-!$<(?$",$($-,-y1(?&-4$;,b.$-,$:(""!)$#,<$4,,*$&"$<&33$3,,@$,-$:?$)!+>:!q$7z(3(*&-,.$rss[9d$\m!-$ with the possibility for academic credit, the reception to the unpaid internship remained negative. additional credit often meant additional tuition. the divide between the students who could afford unpaid work and those who had to <,)@$"#!&)$<(?$"#),>4#$+'#,,3$4)!<$<&*!)$7](4,*(.$rss[9d$ h#!$p#(m!^#(m!$-,"q$*&m&*!$&-$:?$'(1+",-!$8%6$',>)+!$4(m!$)&+!$",$($*&+"&-'"$1,++&b&3&"?$,5$')!("&-4$($*&55!)!-'!$ in academic achievement. however, i was unwavering in my belief that hrm majors had to have applicable work experience in order to practice in the work place their learning derived from the classroom lectures, case studies and guest speakers’ advice. without organizationally-situated experiential learning, these students would not, upon graduation, present as attractive candidates for entry level human resource positions. internships would provide an experiential or action based approach to learning human resource theory and concepts, critical within the context of a thinning job market, where reduced budgets translate into less time and money spent on training. but was this (++>:1"&,-.$b(+!*$,-$:?$1!)+,-(3$(-!'*,"(3$)!+!()'#.$+>b+"(-"&("!*_$`("($5),:$:?$2,33!4!n+$2()!!)$/!)m&'!+$,5a'!$ clearly indicated that experience is critical to students’ eventual career success, as internships lead to full time jobs. this connection is also supported by current literature. !"#$%&'()*#"+%,-"$% +.-//+%0%-1"*'*+"% 2*3-*,%*3!/4!5(1% 6**78!#.%!17% 9'!7-19%,-"$% +"47*1"+% :-1*++*%"$'(49$% '*$*'+!/+;%&!&*'%0% +/-7*%+$(,%7'!<+%% 2*3-*,%94-7*/-1*+;% '48'-#+%0%*3!/4!5(1% +"!17!'7+%,-"$%+"47*1"+% =1#(4'!9*%#(//!8('!53*% &'()*#"%4&7!"*+>%94-7*% +"47*1"%'*+*!'#$%!17% #'*!53-"?%"(,!'7%&'()*#"% (4"#(@*% a#$*74/*%#$*#.b-1+;%74*% 7!"*+;%'*$*!'+!/+%0% &'*+*1"!5(1+% 7*3*/(&%&'&()*#"+% ,-"$%#4''*1"%!17% 1*,%+&(1+('+%6('% 1*c"%%+*@*+"*'% d(/7%e1!/% &'*+*1"!5(1%!"% ('9!1-f!5(1!/% +&(1+('g+% ,('.&/!#*% !"#$%&#'$()'*+"(,!-()+".'!"/0/*/#/+"( 12)3(45.+$/+!#/,*(6$'7+&#"1( 2010, vol. 1, no. 1, 152-167 richardson 154 advances in business research !"#"$%&'"()*+(!*)&+$#&,-#)./ internships and co-op programs are, indeed, one of the most effective recruiting tools, offering an expectation of success to the point that some employers will not consider a candidate for employment who has not completed !"#!$%&!'(#)"*+ &,!%&-".//012"34)567%&'" !,"'$8,%!$'"96$(" :;!6<5%,=%-"(6<%>%&-"$( $" !"#!$%&!'(#)"#'"'8::%''?85" 6!57"<(%!"$(%"#!$%&!"( '"$(%"9%!%@$"6?" "'8))6&$#>%"'8)%&>#'6&-"$& #!#!=" !,"&%')6!'#95%-":( 55%!=#!="6))6&$8!#$#%'" *+ &,!%&-" .//012"a(%",%:5#!#!=" %:6!647" #4) :$'" % :(" '$%)"6?" $(#'" :7:5%b" $(%" > #5 9#5#$7"6?" #!$%&!'(#)")6'#$#6!'c" the availability of internship supervision; the level of college hiring, and the availability of university resources $6" =%!%& $%" " &698'$" #!$%&!'(#)" 6&" :6d6)" )&6=& 4" *e5%$:(%&-" .//f1" *+ &,!%&-" .//012"g#:( %5"h%7!65,'" !,"h8''" vince of lancaster and hull universities assert that learning and knowledge in management education are derived ?&64" !,"#!$%=& 5" $6"%>%&7, 7"$ ';'" !,"%i)%&#%!:%'" $"<6&;"*h%7!65,'"j"k#!:%-".//l1-" $(8'" 5% ,#!="$6"'$8,%!$'" $ ;#!="&%')6!'#9#5#$7"?6&"$(%#&"5% &!#!="*m?%??%&"j"e6!=-".//.12"n!$%&!'(#)'"6??%&" "&#)%"%!>#&6!4%!$"?6&"4 ;#!="$(#'" learning-experience connection, providing organizations with more valuable employees resulting in higher retention !,"56<%&":6'$'"*e5%$:(%&-".//f1"*+ &,!%&-".//01"*+8$!%&-".//f12 g !7" @&4'" &%" #!$%&%'$%," #!" hiring new college graduates because it is simply less expensive compared to hiring"o69"'%%;%&'"<#$("<6&;"%i)%&#%!:%"*+8$!%&-".//f12"a(%"& 4#@: $#6!'"6?"$( $"(#&#!=",%:#'#6!" &%":64)5%i" !," time-consuming. relationships with entry level college graduates cover a spectrum of interaction, from mentor-like =8#, !:%"6!")&6)%&"9%( >#6&" !,",&%''-" $(&68=("4 ! =%4%!$"=8#, !:%"6!"%??%:$#>%" !,"%?@:#%!$"<6&;"( 9#$'-" $6" '8)%&>#'6&7",#&%:$#6!"6!")%&?6&4 !:%"'$ !, &,'" !," $& #!#!="6))6&$8!#$#%'" *+ &,!%&-".//012"p,," $6" $(#'"':%! &#6" the complexity of introducing college graduates into a workforce suffering from recent layoffs and baby-boomer retirements. institutional history has been depleted, workloads increased and the number of potential role models &%,8:%,2"q6!'%r8%!$57-"&%5%> !$"<6&;"%i)%&#%!:%"#!"$(%"(#&#!=",%:#'#6!"6?"&%:%!$":655%=%"=& ,8 $%'":6!$#!8%'"$6"= #!" #4)6&$ !:%"*e5%$:(%&-".//f12 a(%"@! !:# 5"9%!%@$'"6?"$(%"56<%&") 7" ''6:# $%,"<#$("%!$&7d5%>%5")6'#$#6!'"#!" !"8!)&%,#:$ 95%"%:6!647"o8'$#@%'" the hire of a new college grad. m $&#:# "s6(!'6!-"t#&%:$6&"6?"u$ ?@!=" !,"t%>%56)4%!$"?6&"e #&:(#5,"u%4#:6!,8:$6&" *ve #&:(#5,w1-" "e6&$8!%"x///"4 !8? :$8&%&"6?")6<%&"4 ! =%4%!$":64)8$%&":(#)'-"'$ $%,"#!"y6>%49%&-".//0"$( $" the good news from her company was the expansion of its number of entry-level positions geared for new college =& ,8 $%'"<(#5%"&%,8:#!="#$'"!849%&"6?"%i)%&#%!:%,"(#&%'"*z8#497-".//012"a(%";%7"$6"'8:(" "'$& $%=7-"!6$%,"s6(!'6!-" is to hire the recent graduate who possesses skills that allow “an immediate return on the hiring investment” and that applicant most commonly originates, for fairchild, from a pool of co-op students nurtured through the academic year *s6(!'6!-".//012"p5$(68=("s6(!'6!"(6)%,"$6"4 #!$ #!"$(%"q64) !7['".//f")665"6?"\]"$6"l/"<6&;"'$8,7")6'#$#6!'"?6&" :655%=%"'$8,%!$'-"^ ==#!="' 5%'"&%'85$%,"#!"$(%"%5#4#! $#6!"6?"'%>%& 5":6dop opportunities, with emphasis on reducing work study positions in the company’s administrative departments such as human resources. just a month prior to s6(!'6!['"(6)%?85")&%,#:$#6!-"$(%"y $#6! 5"p''6:# $#6!"6?"q655%=%'" !,"34)567%&'")&6o%:$%,"$( $"$(%"!849%&"6?"o69'" > #5 95%"?6&"$(%"q5 ''"6?".//f"<685,"&%4 #!"^ $-"<#$("].")%&:%!$"6?"$(%":64) !#%'"'8&>%7%,"%i)%:$#!="$6"(#&%"?%<%&" =& ,8 $%'"$( !"5 '$"7% &"*z8#497-".//012 given hiring situations such as that managed by fairchild, one of only a few large employers in southern maine, where over 20,000 college students reside, how can colleges support the career aspirations of their students, %')%:# 557"$(6'%"?6:8'%,"6!"$(%"!6!d$%:(!#: 5" &% '"6?":6&)6& $%" ,4#!#'$& $#6!_"m&6?%''6&'-",#&%:$#!="'$8,%!$'"$6< &," internship assignments, hope and, admittedly, expect, the internships to teach students something that often evades $(%":5 ''&664b"(6<"$6" :$8 557" ))57":5 ''&664":6!:%)$'"$6"<6&;)5 :%"$ ';'2"a(%'%"%i)%:$ $#6!'-"(6<%>%&-" &%"6?$%!" not realized as companies lack the money for paid internships, the personnel for intern supervision and the time to #,%!$#?7"<6&;" ''#=!4%!$'"$( $" :$8 557"$% :(" !,"@!%''%"98'#!%''"';#55'"*e5%$:(%&-".//f12"n$"< '"$(%"$%!'#6!"9%$<%%!" the need for experience and the current economic climate, and the resulting dearth of paid internships that became the foundation of my hrm experiential program. if internships were scarce or unpaid yet represented a necessary action-based approach to business education, especially for students at a small liberal arts college with little notoriety, the development of an alternative model was critical. a hybrid concept based on cooperative education methods with #!$%&!'(#)d5#;%"$& ))#!='" '" ":68&'%"&%r8#&%4%!$"'%%4%,"$(%"6!57"< 7"$6"'%:8&%"?6&"$(%"'$8,%!$'"$(%"%i)%&#%!:%"$(%7" needed while avoiding higher tuition costs and unpaid work. q66)%& $#>%"%,8: $#6!")&6=& 4'-"<(#:(")% ;%,"#!")6)85 &#$7" ))&6i#4 $%57"x]"7% &'" =6-" &%":8&&%!$57"#!")5 :%" in 400 colleges and universities in the us, with the vast majority of enrollment in about two dozen relatively large ':(665'-" '8:(" '" y6&$(% '$%&!" `!#>%&'#$7" !," h6:(%'$%&" n!'$#$8$%" 6?" a%:(!656=7" *q( )4 !-" .//f12" q66)%& $#>%" education is a structured educational strategy integrating classroom studies with learning through productive work %i)%&#%!:%'" #!" "@%5," &%5 $%," $6" " '$8,%!$['" : ,%4#:"6&" : &%%&"=6 5'2" *p968$"q66)%& $#>%"3,8: $#6!b"yqq31"a6" @$"$(%"46,%5'"%')68'%," !,"'8))6&$%,"97"$(%"y $#6! 5"q644#''#6!"?6&"q66)%& $#>%"3,8: $#6!-"$(%")&6=& 4"48'$" provide progressive experiences in integrating theory and practice, and be a partnership among students, educational 2010, vol. 1, no. 1, 152-167 richardson 155 advances in business research #!'$#$8$#6!'" !,"%4)567%&'-"<#$("')%:#@%,"&%')6!'#9#5#$#%'"?6&"% :(") &$72"*p968$"q66)%& $#>%"3,8: $#6!b"yqq31"a(%'%" programs provide students an integrative course of work and study, guided by an on-campus cooperative education :66&,#! $6&-"$(%&%?6&%"&%^%:$#!="?6&4 5"&%:6=!#$#6!"97"$(%"':(665"6?":66)%& $#>%"%,8: $#6!" '" !"%,8: $#6! 5"'$& $%=7" !,"$(%"@! !:# 5"'8))6&$"&%r8#&%,2"*p968$"q66)%& $#>%"3,8: $#6!b"yqq31"a6<%>%&-"'#!:%"$(%"?%,%& 5"=6>%&!4%!$" ,#':6!$#!8%,"@! !:# 5" ''#'$ !:%-":655%=%'"48'$"!6<"&%57"6!":64) !#%'" !," =%!:#%'"$( $" &%" 95%"d" !,"<#55#!="d"$6" $ ;%"6!"768!=-" $%4)6& &7"%4)567%%'" *q( )4 !-".//f12"q6!'%r8%!$57-" :655%=%'"!6$" :8&&%!$57" '8))6&$#!=" ":6d6)" program are relying instead on computer simulations, case studies, guest speakers and most often, internships, #!:&% '#!=57" 8!) #,-" $6" #!$&6,8:%" '$8,%!$'" $6" $(%" &% 5"<6&5," 6?" 98'#!%''" *+6&%-" xfb01" *s6'o#-"t >#'-"c $(&8# -"j" d%#,!%&"nn-".//\1"*a68=($6!-".//e12 0*-%*+1&2)3).-41)$(& n!" "'%&%!,#)#$68'":68&'%"6?"%>%!$'-"n"< '" 95%"$6"r8#:;57"$%'$" !"ahg"%i)%&#%!$# 5")&6=& 42"t8&#!=" ":6!>%&' $#6!" with a former corporate colleague, i listened to her describe her depleted budget and overwhelming amount of work necessary to “keep current”, for which her human resources staff had neither the time, the consulting assistance !6&"98,=%$"$6":64)5%$%2"*s6(!'6!-".//01"n"#44%,# $%57")&6)6'%,"$( $"47": )'$6!%"ahg":5 ''"6?"0"'%!#6&"98'#!%''" students alleviate her overwhelming workload by taking on projects for her over the course of an academic semester, at no cost to her and under my supervision. `!,%&"47"'8)%&>#'#6!-"$(%"'$8,%!$'":685,"@!%''%" ")&6o%:$"'$ $%4%!$"?6&":6&)6& $%" ))&6> 5-":6!,8:$"&%'% &:("6!" 9%'$")& :$#:%'-":8&&%!$"5%=#'5 $#>%" :$#>#$7"d" !7$(#!="&%r8#&%,"d" !,")&%'%!$"$(%#&"@!,#!='"96$("#!" "?8557"'8))6&$%," &%'% &:(") )%&-" '"<%55" '":6!,8:$" "5#>%"m6<%&m6#!$")&%'%!$ $#6!2"p55"n" ';%,"?&64"(%&"<%&%"$(&%%"$(#!='b"*x1"$( $" someone from her human resource department visit the class at the beginning of the semester and talk about the :64) !7" !,"#$'"(84 !"&%'68&:%"'$& $%=#%'-"=#>#!="'$8,%!$'" ":6!$%i$"?6&"$(%")&6o%:$'c"*.1"$( $"% :(")&6o%:$"( >%" " :6&)6& $%"')6!'6&"<(6"<685,"9%" > #5 95%"># "%4 #5"?6&"r8%'$#6!'"6&"5#4#$%,",#&%:$#6!-" !,"*\1"$( $"$(%"'$8,%!$'"9%" 556<%,"$6")&%'%!$" $"$(%":64) !7['"6?@:%'"#!"?&6!$"6?" '"4 !7")%6)5%" '")6''#95%-" 55"6?"<(64"<685,"9%"<#55#!="$6"@55" out an evaluation at the end of the presentations. she agreed to take the concept back to the company’s hr executive. p"<%%;"5 $%&"n"&%:%#>%," "(% &$7"vn$['" "=6fw"%4 #5"<#$(" "5#'$"6?"@>%")6$%!$# 5")&6o%:$'"*p))%!,#i"x12" 5"6&5()4/&(-7+*#&864)*")$("+.&')+*$"$%&5!99)// u#!:%"$(%"9& #!'$6&4#!="58!:("6?".//e-"n"( >%":6!$#!8 557"&%@!%,"$(%"ahg"%i)%&#%!$# 5")&6=& 4"8!$#5"#$":5% &57" )&%'%!$%," '#i" ,%@!#$%" '$%)'" $( $" 5%," $6" '8::%''?85" %i)%&#%!:%'" ?6&" 55" #!>65>%,2" a(%" ) &$!%&'(#)" )&6o%:$'-" !6<" " &%r8#&%4%!$"#49%,,%,"#!"% :("6?"$(%"8))%&"5%>%5"(84 !"&%'68&:%"4 ! =%4%!$":68&'%'" $"u #!$"s6'%)('"q655%=%"6?" g #!%-"?6556<" "'$ !, &,#g%,")&6:%''"?&64"#!#$# $#6!"97"$(%"6&= !#g $#6! 5") &$!%&"$(&68=("@! 5"'$8,%!$")&%'%!$ $#6!" !," %> 58 $#6!2"a(#'" )&6:%''"( '" %>65>%,"6>%&" $(%" :68&'%"6?" $(&%%" : ,%4#:"7% &'-"@!%''%," !," &%?6&485 $%," '" results appear. 5()4&:$);&2)3).-4&+&<.)+*&+$#&=9("-$+>.)&0*-?)9(&5(+()1)$( i ask the organizations interested in working with my hrm students to develop a project concept by addressing $(%"?6556<#!="&%r8#&%4%!$'b 1. a(%")&6o%:$":6!:%)$"48'$"%#$(%&" ';" "r8%'$#6!"6&"r8%'$#6!'"$( $"48'$"9%" !'<%&%,"97"$(%"'$8,%!$*'1"or clearly state $(%"%i)%:$%,"68$:64%"6?"$(%"<6&;" !,h6&"@! 5")&6,8:$2 86+14.)&@&a!)/("-$b"d( $" &%"'64%"')%:#@:"< 7'"#!"<(#:("$6"&%:&8#$"+%!%& $#6!'"i"j"j"$6"a6')#$ 5_"d( $"#'" $(%")&%?%&&%,"'68&:%"6?":6448!#: $#6!d"(6<": !"<%"9%'$"&% :("$(#'"$ &=%$"=&68)_"d( $"9%!%@$'" &%"#4)6&$ !$"$6"$(#'" =%!%& $#6!_"d( $",6"$(%7"< !$"$6"'%%"#!" !" ,>%&$#'%4%!$" !,"<(%&%"'(685,"$(%"(6')#$ 5" ,>%&$#'%"#!"6&,%&"$6"=%$"$(%#&" $$%!$#6!_"d( $" &%"6$(%&":64) !#%'"d"(% 5$(: &%" !,"!6!d(% 5$(: &%"d",6#!="$6"$ &=%$"$(%'%"=%!%& $#6!'_"*p8$(6&-" h%:&8#$4%!$"u%5%:$#6!" !,"a& #!#!="u)&#!="/f"m&6o%:$'-".//f1 86+14.)& @& :!(9-1)b" q6!,8:$" r8 !$#$ $#>%" !," r8 5#$ $#>%" &%'% &:(" #!$6" $(%" 8'%" 6?" '6:# 5" 4%,# " 97" (#=(%&" education institutions with a focus on adult students. the outcome of this research will be a fully documented research paper entitled “the use of social media by higher education institutions to attract adult students”. the @! 5")&%'%!$ $#6!"<#55"&%>#%<"$(%"&%'% &:(" !,",%46!'$& $%"$(%"8'%"6?"$(%"'6:# 5"4%,# "97"6$(%&"#!'$#$8$#6!'"*p8$(6&-" h%:&8#$4%!$"u%5%:$#6!" !,"a& #!#!="u)&#!="/f"m&6o%:$'-".//f12 2010, vol. 1, no. 1, 152-167 richardson 156 advances in business research a(%"r8%'$#6!"6&"68$:64%"&%r8#&%4%!$"( '")&6>%!"$6" ''#'$"6&= !#g $#6! 5") &$!%&'"<#$("?& 4#!="$(%#&")&6o%:$'" !," :5 &#?7#!="%i)%:$ $#6!'-"?6&"$(%4'%5>%'" '"<%55" '"?6&"$(%"'$8,%!$'2"a(%"@&'$"'%$"6?")&6o%:$'"#!".//e"&%'85$%,"#!"&%'% &:(" &%r8%'$'" <#$(" 5#$$5%" &$#:85 $#6!" 6?" <( $" $(%" '$8,%!$'" <%&%" $6" :6!:58,%" ?&64" $(%" &%'% &:(2" a(%" ?6556<#!=" )&6o%:$" '$ $%4%!$"< '"#!$%&)&%$%,"97"$(%"'$8,%!$'" '" "&%r8%'$"?6&")8&%"&%'% &:("<#$("!6"%i)%:$%," ! 57'#'"6&":6!:58'#6!b 3i%:8$#>%"q64)%!' $#6!"q64) &#'6!'b"a#'$6&#: 5"h%'% &:("6?"q3k" !,"a6)"]"3i%:8$#>%"m 7"*l '%,-"l6!8'-" 3r8#$71" = #!'$" "'%5%:$")%%&"=&68)"*$6"9%")&6>#,%,1"8'#!=")895#:"x/dc" !,")&6i7"@5#!='"*p8$(6&-".//e12 t8&#!=" $(%" @! 5" )&%'%!$ $#6!" 6?" $(#'" 3i%:8$#>%" q64)%!' $#6!" )&6o%:$-" $(%" ''#=!%," '$8,%!$'" <%&%" ';%," 97" staff members of the sponsoring organization for conclusions that the students did not anticipate and therefore did not address through analysis of the semester’s research. although the analysis and resulting conclusions may have seemed obvious to seasoned human resource practitioners, the same was not true for undergraduate business '$8,%!$'-") &$#:85 &57"=#>%!" $(%" $6)#:"6?"%i%:8$#>%":64)%!' $#6!2"p'" " &%'85$"6?" $(#'"@&'$" '%4%'$%&['"%i)%&#%!:%-" n" #!'$&8:$"47"'$8,%!$'"$6"%'$ 95#'("$(%#&":6&)6& $%") &$!%&'["%i)%:$ $#6!'-"'%%;#!=":5 &#@: $#6!"8!$#5"$(%"'$8,%!$'" &%" able to articulate the expectation in a project statement which is then approved by the sponsoring organization. in ,,#$#6!-"n"%!:68& =%":6&)6& $%"')6!'6&'"$6")&%'%!$",%'#&%,"68$:64%'"')%:#@:"%!68=("$6"=#>%"$(%"'$8,%!$"=8#, !:%" $6< &,"%i)%:$ $#6!'"?6&"$(%"@! 5")&6,8:$-"<#$(68$")&%'8))6'#!=":6!:58'#6!'" !,"9&6 ,"%!68=("$6" 556<":&% $#>#$7" and alternate solutions. if the sponsor has not done so, it is the students’ responsibility to work with the sponsor until :5 &#@: $#6!"#'"&% :(%," !," ")&6o%:$"'$ $%4%!$"#'" ))&6>%,"97"$(%":6&)6& $%"')6!'6&" !,"$(%":68&'%"#!'$&8:$6&2 2. a(%")&6o%:$":6!:%)$"48'$"'$ $%", $ "&%r8#&%4%!$'"6&":655%:$#6!")&6:%''%'"#?":&#$#: 5"$6"$(%",%'#&%,"68$:64%2" 86+14.)b"p?$%&"<%"( >%" ))&6)&# $%57"&%:&8#$%,"+%!'"i"j"jd"(6<",6"<%"%??%:$#>%57"&%$ #!"$(%4_"d#$("$(%"9 97" 9664%&'"9%=#!!#!="$6"&%$#&%"#!"5 &=%&"r8 !$#$#%'" !,"$(%"%>%&d"8!'$ 95%"%:6!647-"<( $": !"<%",6"$6"&%$ #!"68&"+%!"i" j"j"%4)567%%'_""d( $"4 ;%'"$(%4"'$ 7"<#$(" !"6&= !#g $#6!ho69_"p"'8&>%7"$ ;%!"?&64")%6)5%"6?"$(%'%"=%!%& $#6!'-" <#$(" "?6:8'"6!"%4)567%%'"6?"(% 5$(: &%"6&= !#g $#6!'-"#'" "&%r8#&%4%!$"6?"$(#'")&6o%:$"*p8$(6&-"h%:&8#$4%!$"u%5%:$#6!" !,"a& #!#!="u)&#!="/f"m&6o%:$'-".//f1. 86+14.); 1" q6!,8:$"r8 !$#$ $#>%" !,"r8 5#$ $#>%"&%'% &:("#!$6"$(%"8'%"6?" 5$%&! $#>%"&%:&8#$4%!$"4%$(6,'"97"! $#6! 5"5 <" @&4'-"<#$(" "?6:8'"6!"#!$%&!%$"d"9 '%,"&%:&8#$4%!$"4%$(6,'-"#!:58,#!=-"98$"!6$"5#4#$%,"$6-"$(%"8'%"6?"'6:# 5"4%,# " tools. 91" q6!,8:$"#!$%&>#%<"6&"'8&>%7"9 '%,"&%'% &:("<#$("m <"':(665": &%%&"'%&>#:%"6?@:%'"#!$6"$(%"&%:&8#$4%!$"4%$(6,'"69'%&>%," !,h6&")&%?%&&%,"97"$(6'%"6?@:%'2 :1" q6!,8:$"#!$%&>#%<"6&"'8&>%7"9 '%,"&%'% &:("<#$(":8&&%!$"5 <"'$8,%!$'" !,":8&&%!$"xst year attorneys to deter4#!%" $(%" o69" '% &:("4%$(6,'"8'%," !,h6&")&%?%&&%," ?6&" %!$&7" 5%>%5" $$6&!%7")6'#$#6!'" *p8$(6&-"h%:&8#$4%!$" u%5%:$#6!" !,"a& #!#!="u)&#!="/f"m&6o%:$'-".//f12 a(%",%'#&%"?6&"')%:#@:"r8 !$#$ $#>%")&6:%''%'"#'"(%5)?85",#&%:$#6!"$6"$(6'%"'$8,%!$'"<(6"( >%"!6$"9%%!"%i)6'%,"$6" 4 &;%$"&%'% &:("$%:(!#r8%'"#!"6$(%&"98'#!%''":68&'%'2"y6"'$8,%!$"%!&655%,"#!"47"ahg":68&'%'"( '"7%$"$6":64)5%$%" a traditional research methods course, reserved for the social science majors in academic departments such as )'7:(656=7" !,"'6:#656=7" !,"!6$"6??%&%,"#!"$(%"lulp")&6=& 42"a(#'", $ ":655%:$#6!"&%r8#&%4%!$"!%:%''#$ $%,"$(%" ,,#$#6!"6?" &8,#4%!$ &7" &%'% &:("4%$(6,'" $6" $(%"(84 !" &%'68&:%":68&'%":8&&#:85 2"a(#'" #!'$&8:$#6!" 5'6"9%!%@$'" those students who had not held professional part-time or summer positions, where they would be more inclined to use survey tools or participate in data collection or compilation. over the course of 7academic semesters in 10 courses, the development of project statements has evolved '#=!#@: !$57-" )&#4 &#57" $(&68=(" $&# 5" !," %&&6&-" %49 && ''#!=" 464%!$'" $" )&%'%!$ $#6!'" !," ?&%'(" $(#!;#!=" 6?" :655%=%"8!,%&=& ,'2"p":64) &#'6!"6?"$(%"@&'$")&6o%:$'"<#$("$(%"'%:6!,"'%$"6?")&6o%:$'-"8!,%&$ ;%!",8&#!="$(%"')&#!=" semester of 2008, and those of spring semester 2009, as presented in appendix 1 indicates a growing focus on clarity, expectations, outcomes, data, analysis and conclusions. 2010, vol. 1, no. 1, 152-167 richardson 157 advances in business research 5()4&b7-;&2)3).-4&0*-?)9(&b)+1/&>+/)#&-$&<-14."1)$(+*c&5d"../&+$#&e-*d&5(c.)/ t8&#!="$(%"@&'$"'%4%'$%&"6?")&6o%:$" ''#=!4%!$'-"#!"$(%"? 55"6?".//e-"n":655 96& $%,"<#$("$(%"'$8,%!$'"$6" ''#=!" projects so that students had a say in what they were doing. i decided, rightly, as i learned, that when they were doing something that they chose they were more likely to excel. a simple concept, yes; but when instructors are accustomed to assigning work to avoid competition for plum topics, research teams made up of best friends, and baseball teammates who don’t necessarily work well together, dictating assignments seems far more preferably than asking the students for preferences. however, this test class had formed, stormed, normed and performed over the :68&'%"6?" "?%<"<%%;'"6?",#?@:85$-" :$#6!d9 '%," ''#=!4%!$'" !,":5% &57";!%<"<(6"<6&;%,"<%55"$6=%$(%&" !,"<( $" $(%7"< !$%,"$6",62"*l#6!-"xfb012" i made the mistake, after a successful experience with the test class choosing their own subjects and partners, of directing the next class to do the same. roommates chose roommates and pitchers chose their catchers. bedlam ensued. relationships were harmed and roommates moved out after students with superior work ethics saw friends )&6:& '$#! $%-" :$"#&&%')6!'#957"6&"#=!6&%")&6o%:$"&%r8#&%4%!$'-"4 ;#!="$(%#&"$% 4"566;"9 ," !,"&%:%#>%"56<"=& ,%'2" q $:(%&'"&%?8'%,"$6")5 7"<#$(":%&$ #!")#$:(%&'2"a(%"> &'#$7"9 '%9 55":6 :("#!r8#&%," 968$"$(%":68&'%['"#4) :$"6!"(#'" team. i became a counselor, having many frank discussions about work ethic and behavior with students who had !%>%&"9%%!"( !,%," '"48:("&%')6!'#9#5#$7" '"$(%"%i)%&#%!$# 5")&6o%:$'"&%r8#&%,2" in future courses, when the projects are the semester’s curriculum and there is less time for the group to coalesce, i now intervene more often to insure balanced assignments, complimenting skills and even division of work. this is made easier by the small student population at u #!$"s6'%)(['"q655%=%"6?"g #!%, allowing personal insight into individual skill level and motivation. 5()4&bf*));&2)g$)&+&<.)+*&0*-?)9(&b"1)."$) a(%"!%i$"r8%'$#6!")6'%," ?$%&"vd(6": !"n"<6&;"<#$(_w" #'" 5< 7'"vd(%!" #'" $(#'",8%_w"3 &57" #!" $(%"'%4%'$%&-" i set presentation dates with each of the corporate sponsors, allowing me to work backwards in developing the class schedule as i invite guest speakers to share their insights into human resource strategy. this also allows busy executives to schedule the presentation on their calendars and secure access to corporate board or conference rooms. the presentation dates are typically the week before the end of the semester, allowing additional class time following $(%"@! 5")&%'%!$ $#6!'"?6&")6$%!$# 5"&%':(%,85#!=-",%9&#%@!=" !,"%> 58 $#6!'2" t8%", $%'-"(6<%>%&-"!%%,"$6" ))57"$6"46&%"$( !"o8'$"$(%"@! 5")&%'%!$ $#6!'2"a#4%"4 ! =%4%!$"#'"!6$"8!#?6&457" mastered at the college undergraduate level and those practices play a distinct role in educational achievement, ( >#!=")&6>%!" $6" #4) :$" $(%"r8 5#$7"6?" $(%"m&6o%:$" 68$:64%" *l&#$$6!"j"a%''%&-" xffx12"u$8,%!$'[" $#4%" #'" )&6!%" $6" interruption. athletics schedules, campus weekend celebrations, relationships, jobs and late night dorm parties tend to erode the best intentions. indeed, those students who do not select, prioritize, and monitor their goals, sub-goals, and tasks, and who therefore seem disorganized, regardless of ability and intention, accomplish relatively little *l&#$$6!"j"a%''%&-"xffx-")2"l/b12" m%?$"$6" !"6)%!d%!,%,")&6o%:$":64)5%$#6!"':(%,85%" !,")&6>#,#!="6!57" "@&4")&%'%!$ $#6!",8%", $%-"$(%"#!#$# 5" :5 ''"4%49%&'"<%&%"!6$"8!#?6&4"#!" $(%#&"4 ! =%4%!$"6?" $(%")&6o%:$"'$%)'2"q6!'%r8%!$57-" " n" ,,%," $6" $(%")&6o%:$" :8&&#:8584"#!$%&#4",8%", $%'"?6&"> &#68'",%5#>%& 95%'" !,"=6 5'b":5 ''"4%%$#!='"$6":(%:;d#!"6!"&%'% &:(")&6=&%''c" dates for research completion; drafts of sections of the research paper; student discussions with the entire class on challenges, road blocks and confusion; multiple run-throughs of presentations, with alternate foci on presentation '$75%" !," '5#,%":64)6'#$#6!c",& ?$'"6?"@! 5") )%&'" !,")%%&"%> 58 $#6!"6?")&%'%!$ $#6!'" $(%", 7")&#6&" $6" $(%"@! 5" presentation. because students must present their updates orally to the entire class, the dynamics of the session are 9%!%@:# 5" #!" $(%#&"6<!" &#=($2"p'"6$(%&'"( >%"%i)%&#%!:%,-" v9%!%@$'" #!:58,%" '( &#!=" &%?%&%!:%'" !,", $ " '68&:%'-" &%:%#>#!="')%:#@:":644%!$'"6!"#4)&6>#!=",& ?$":64)6!%!$'-" !," :$#>%":5 ''&664",#':8''#6!'" 968$"'658$#6!'"$6" ) &$#:85 &")&695%4'w"*g:35&67-"xffe-")2"\l12"" t%')#$%" ":5% &"$#4%5#!%-"n"?68!,"'$8,%!$'"? #5#!="$6",%5#>%&"$(%" ''#=!4%!$'"&%r8#&%,"'%%4"!6$"#&&%')6!'#95%"98$" confused and scared. kolb notes that successful experiential learners must “be able to involve themselves fully, 6)%!57-" !,"<#$(68$"9# '"#!"!%<"%i)%&#%!:%'"*c659-"xf0l-")2"\/12"a(%")&6o%:$'" '",%':&#9%," 96>%"&%)&%'%!$",& '$#: 557" !%<"%i)%&#%!:%'"?6&"% :("'$8,%!$2"n!'$#$8$#6! 5",%46=& )(#:'"#!,#: $%"$( $"!% &57"b/n"6?"u #!$"s6'%)(['"q655%=%['" '$8,%!$'" &%"@&'$"=%!%& $#6!":655%=%"=6%&'"*a =%&4 !-"./x/12"g7"98'#!%''"'$8,%!$'"( >%"5#$$5%"%i)6'8&%"$6"?6&4 5" organizational settings and no exposure, typically, to hrm strategies, issues or concepts outside of classroom #!'$&8:$#6!2"q6!'%r8%!$57-"$(%"$& !'#$#6!"?&64"$& ,#$#6! 5":5 ''&664"5%:$8&%'" !,": '%d9 '%,")&6o%:$'-"$6"'%5?"46!#$6&%," )&6o%:$'"9 '%,"6!" !"%i)%:$ $#6!"6?":6!$ :$"<#$("68$'#,%")&6?%''#6! 5'"5% >%'"'$8,%!$'"^8446i%,2"m & 57'#'": 8'%," by fear of the unknown and resulting self doubt leads to procrastination. i have found that the pedagogical cure for 2010, vol. 1, no. 1, 152-167 richardson 158 advances in business research this initial state has been weekly verbal and written “check-ins” to the entire class, including a mandatory explanation 6?":( 55%!=%'"6&-" '") '$"'$8,%!$'"( >%":6#!%,"$(%4-"v!6d:58%'w2"p"v:(%:;d#!w"&%r8#&%'" ,,&%''#!="$(%"?6556<#!="$6)#:'b 1" l&#%?"#!$&6,8:$#6!"6?")&6o%:$-"&%r8#&%,"% :("'%''#6!"$6"6&#%!$"$(%")&%'%!$ $#6!-" '"<%55" '")&6>#,%" ":6!$%i$"?6&" 69'%&> $#6!" !,"&%^%:$#6!2 91" work accomplished since previous check-in. :1" m&6=&%''"4 ,%"6!")&6)6'%,")&6o%:$"68$:64%" '" "&%'85$"6?"<6&;" ::64)5#'(%,2"u$8,%!$'"<#55"@!,"$(%4'%5>%'" sometimes reporting on work that sounds impressive and important but has little impact of progress toward the @! 5"<6&;")&6,8:$2" ,1" q( 55%!=%'-":6!:%&!'-"5 :;"6?";!6<5%,=%"6&"5 :;"6?",#&%:$#6!2" 5()4&h-!*;&0*-3"#)&<.)+*&<-14-/"("-$&+$#&0*)/)$(+("-$& !"#)."$)/ admittedly, i had little idea how much assistance students would need in developing the heart of the project assignment what to do and when to do it. i anticipated wrongly, it turns out that the presentation would be the 46'$",#?@:85$" ')%:$"6?"$(%" ''#=!4%!$-" '"'$8,%!$'"6?$%!"'( ;%" $"$(%":6!:%)$"6?")&%'%!$#!="#!"?&6!$"6?"6$(%&'2"a&8%-" they are nervous when we enter corporate board rooms no more so than me, it turns out but where they truly ^68!,%&"#'"#!":(6&%6=& )(#!="$(%#&"&%'% &:("4%$(6,656=7" !,",%>%56)#!="$(%#&"@! 5"<&#$$%!")&6,8:$2" i)/)+*9f&+$#&<-14-/"("-$& !"#)."$)/ a(%"?6&4 $'"6?"$(%"&%'% &:(") )%&" !,")&6o%:$")&%'%!$ $#6!" &%"$#%,"$6"$(%"&%'% &:("=8#,%5#!%'-"<(#:("&%^%:$"$(%" )&6o%:$"'$ $%4%!$2"t#&%:$#6!'"?6&"&%'% &:("$%:(!#r8%'"( >%":6!'#'$%!$57")&6>%,"!%:%'' &7",8%"$6"$(%"&%:%!$"%5#4#! $#6!" 6?" $(%" &%'% &:(" ) )%&" ?&64" $(%" :655%=%['" e&%'(4 !"q655%=%"d&#$#!=" :8&&#:85842"a(#'" :( !=%" #!" $(%" #!$&6,8:$6&7" writing class has left upperclassmen without detailed instruction on research and composition often until their senior year business seminars. research based solely on internet searches is to be commonly a point of confusion and contention as well. “just google it” seems to be students’ answer to anything unknown. the familiarity and ease with which students’ access and use the internet seems to have created a void in the student’s information literacy, leading to a tendency to not >%&#?7", $ "6&" !%:,6$ 5"#!?6&4 $#6!"97":(%:;#!="485$#)5%"&%'68&:%'"*d 5;%&"j"3!=%5-".//\12""a(%"ahg")&6o%:$'" depend on formal, peer reviewed research documentation but often rely on, as well, anecdotal research and data produced from survey and interview sources. a research guide provides students with a uniform starting point for )&6o%:$",%>%56)4%!$" !,"'%$'"&%r8#&%4%!$'"?6&"$(%"?68!, $#6!"6?"&%'% &:(" !," ! 57'#'2"*p))%!,#i".1"n!" ,,#$#6!-" " >#'#$"% &57"#!"$(%"'%4%'$%&"?&64"$(%"q655%=%['"&%'% &:("5#9& &# !"!6$"6!57",%47'$#@%'"$(%")%%&"&%>#%<" : ,%4#:"o68&! 5-" 98$",#>85=%'"$(%"#!$%&!%$" ::%''#9#5#$7"6?"$(%"5#9& &7['"&%'% &:(", $ 9 '%'"*d%55%( !"m#9& &712 q64)6'#$#6!"=8#,%5#!%'"$ ;%"#!$6":6!'#,%& $#6!"$(%"')%:$&84"6?"$(%")6$%!$# 5"&% ,%&'-"& !=#!="?&64"$(%":64) !7['" human resource and senior executives to entry level human resource staff tasked with continuing research. the '8==%'$%,"?6&4 $")&%'%!$'"#!?6&4 $#6!"#!" "56=#: 5" !,"$(6&68=("4 !!%&" !,"'$ !, &,#g%'"$(%"8'%"6?b"'%:$#6!'" !," subsections to help make the paper easier to follow or understand; font by using only 12 point times roman, and :#$ $#6!"=8#,%5#!%'"97"8!#?6&457"?6556<#!="pmp"=8#,%5#!%'2""a(%"&%'% &:(") )%&"?6&4 $"#'" '"?6556<'b the inclusion of an executive summary acknowledges the limited time available from senior executives to dedicate to review of the material. i use class time to introduce the concept of an executive summary and review samples from previous research papers. the objective is a restatement of the project statement and acts as an introduction to the )8&)6'%" !,":6!$%!$"6?" $(%") )%&2"p"'%:$#6!"6!"4%$(6,656=7" #'" &%r8#&%,"'6" $(%"'$8,%!$'"4 7"%i)5 #!" $(%")&6:%''" upon which they relied to gather data and information; this assists the corporate sponsor to continue the work, if it wishes, using the same or a purposefully different methodology. students also include appendices made up of raw 1. title page .2" a 95%"6?"q6!$%!$' 3. executive summary 4. objective 5. methodology 6. findings and analysis " e2" q6!:58'#6!' 8. appendices 9. references 10. author biography 2010, vol. 1, no. 1, 152-167 richardson 159 advances in business research , $ -"%i 4)5%'"6?"9%'$")& :$#:%'-"6&":&#$#: 5"&%'68&:%'2"q5 ''"$#4%"#'"8'%,"$6"#!$&6,8:%"$(%"&65%"6?"p))%!,#:%'" !," differentiate between the use of a resource citation and that of an appendix. a(%"@! 5") )%&"&%r8#&%4%!$"#'" "9&#%?" 8$(6&"9#6=& )(72"u$8,%!$'"%!&655#!="#!"$(%":68&'%'"?6&"<(#:(")&6o%:$'" &%" &%r8#&%," &%"6?$%!"#!$%&%'$%,"#!"%4)5674%!$"<#$("$(%":6&)6& $%"')6!'6&'2"a(%"9#6=& )(7"=#>%'"$(%4" !"6))6&$8!#$7"$6" put their work in context of their academic major, work experience and honors. the biography must be professional, 9&#%?" !,":6!$ #!":%&$ #!"9 '#:"#!?6&4 $#6!c" ) &$"?&64"$(%'%"&%r8#&%4%!$'-"n",6"!6$"%,#$"6&"&%:644%!,":( !=%'"$6" the biography. 0*)/)$(+("-$& !"#)."$)/ presentation guidelines are less format driven, relying instead on encouragement of creativity and development of texture. each student is, or has previously been enrolled in a business seminar, the capstone course for the entire lulp")&6=& 4-"<(%&%")&%'%!$ $#6!"$%:(!#r8%'-"#!:58,#!="$(%"?6&4 $$#!="6?"m6<%&m6#!$"'5#,%'-" &%"6!%"?6:8'"6?"$(%" :8&&#:85842"a(%"ahg")&6o%:$'" &%")&%'%!$%," ::6&,#!="$6"$(%'%"' 4%"&%r8#&%4%!$'-"!6$%,"9%56<2"h%(% &' 5'"6?"$(%" )&%'%!$ $#6!" &%"':(%,85%,"?6&"$(%"$<6":5 ''"'%''#6!'")&#6&"$6"$(%"?6&4 5")&%'%!$ $#6!c"$(%"@&'$"&%(% &' 5"#'" !"#!?6&4 5" &%(% &' 5"<(%&%"'$8,%!$'" &%" 556<%,"$6" ';"r8%'$#6!'"6?"4%" !,"$(%#&":5 ''4 $%'-",#':8''#6!")6$%!$# 5" ))&6 :(%'" ,8&#!="$(%")&%'%!$ $#6!" !,"%,#$"'5#,%'2"q5 ''4 $%'" &%"%!:68& =%,"$6")&6>#,%"?%%,9 :;-"'8==%'$#6!'" !," ''#'$ !:%"$6" help make the presentation the best it can be. the second rehearsal is a formal dress rehearsal, in professional dress, where classmates in the audience take notes and offer feedback after the presentation is completed. the collaborative nature of the rehearsals has been one of the most gratifying aspects of this process, as i have seen all students 8!,%&'$ !,"$( $"$(%"9%$$%&"$(%#&"?&#%!,'")&%'%!$"$6" ")6$%!$# 5"%4)567%&-"$(%"9%$$%&"$(%"q655%=%"#'")%&:%#>%," !,"$(%" more valuable their degree becomes. 0-7)*0-"$(&0*)/)$(+("-$& !"#)."$)/ 1. q6!'%&> $#>%"7%$" ))% 5#!="$%4)5 $% 2. include the company symbols, logo, etc. to tailor it to the company 3. presentation should follow format of written report 4. use bullets with phrases for ideas, not extensive verbiage 5. slides should contain charts, appropriate pictures, diagrams, etc to illustrate the work 6. feel free to include audio, video, other examples to peak interest and bring texture to your presentation. 7. be prepared to discuss the meaning and context of charts, graphs, etc on slides 8. no reading from slides – use slides to prompt a discussion of more detailed info 9. use note cards if necessary 5()4&h"3);&j$#)*/(+$#&k-!*&i-.)&+/&l$/(*!9(-* as the academic sponsor, i, as the course instructor, carry full responsibility for oversight of the project, providing 6!=6#!="=8#, !:%" $6" #!'8&%" $( $" $(%"@! 5"&%'85$" ,,&%''%'" $(%" #!#$# 5")&6o%:$",%':&#)$#6!" !,"?6556<'" $(%",#&%:$#6!" provided by the organizational sponsor. i have found that the role of teacher in a course containing an experiential 5% &!#!=d9 '%,")&6o%:$"48'$"9%"%!$#&%57"5% &!%&d:%!$%&%," !,":6!'#'$"6?"? :#5#$ $6&-"r8%'$#6!%&-"'8))6&$%&-" ,>6: $%" !,",%>#5['" ,>6: $%-"& $(%&"$( !" '" ",#''%4#! $6&"6&"#4) &$%&"6?";!6<5%,=%"*h69%&$'6!-".//]12" the paradox inherent in the role of teacher of an upper level curriculum containing organizationally-sponsored )&6o%:$'"#'":&#$#: 5"$6" :;!6<5%,=%"*h69%&$'6!-".//]12"p'" "?6&4%&"a84 !"h%'68&:%"%i%:8$#>%-"n": 55%,"6!"?6&4%&" :655% =8%'" !,")&6?%''#6! 5" :r8 #!$ !:%'"$6"')6!'6&"'$8,%!$")&6o%:$'-" 59%#$"$6"9%":64)5%$%,"8!,%&"47"'8)%&>#'#6!o but not by me. my concern was admittedly egocentric. i initially wanted my students to present a work product that could have been completed by me, evidenced by a facile grasp of industry jargon, and sporting complex critical ! 57'%'" !,"^ <5%''"=& 44 &-"%>%!"#?"47"<6&;"!%>%&" :$8 557" :(#%>%,"$( $"5%>%5"6?"r8 5#$72" the clear paradox is that even though companies, by partnering in these projects, are able to have work completed that otherwise may not have been, that work is assigned to a college undergrad with little or no experience in a corporate setting, and rarely exposure to a human resources department. the work is costing the company nothing in actual money spent and little in terms of time allocation. my expectation was that the work should be professional; n" ,4#$$%,57"?68!,"47'%5?"$(%"!#=($"9%?6&%"@! 5")&%'%!$ $#6!'-"(% >#57"%,#$#!="$(%"'$8,%!$'[",& ?$'-":( !=#!="'#4)5%" phrasing to that of a seasoned practitioner. following robertson’s advice, i acknowledged the paradox, not only to myself but to the corporate sponsors 2010, vol. 1, no. 1, 152-167 richardson 160 advances in business research and the students. i could not correct everything. learning would only occur with risks taken, mistakes made and spectacular blunders such as a company name misspelled on every one of 25 powerpoint slides. i now teach the tools $6")&%>%!$"$(%"958!,%&'"?&64"6::8&&#!=2"q5 ''"$#4%"#'"')%!$"&%>#%<#!="=& 44 &":(%:;" !,":( !=%"$& :;#!="$665'"#!" g#:&6'6?$"d6&,-"$7)#: 557",%46!'$& $%,"97"'$8,%!$'2"n"&%r8%'$":6&)6& $%"')6!'6&'"$6"6??%&")&6o%:$'" ))&6)&# $%"?6&" entry level human resource employees and alert them that mistakes most likely will occur. “to teach is to learn twice” *h69%&$'6!-".//]-")2"x0f12 5()4&5"6;&0*-3"#)&:44-*(!$"(c&m-*&<.)+*n&<-14*)f)$/"3)&+$#&b"1).c&83+.!+("-$&+$#&h))#>+9d several semesters of hrm projects has shown me that students work better and receive more value from this course when expectations are clearly set. this is true as much for presentation guidelines as it is for evaluation and =& ,#!="&89&#:'2"q6!'%r8%!$57-"n"&%>#%<"$(%"%> 58 $#6!"?6&4'"*p))%!,#i"\1" !,"=& ,#!="&89&#:"*p))%!,#i"l1"<#$("$(%" '$8,%!$'",8&#!="$(%"@&'$"46!$("6?":5 ''-" '"$(%")&6o%:$'"=%$"8!,%&< 72"a(%7"8'%"$(#'"#!?6&4 $#6!"$6"#,%!$#?7"<( $"$(%7" expect from themselves as well as their expectations of their teammates. students view evaluations as the most important aspect of the projects. the feedback from the organizational ')6!'6&'"#'":6!'$&8:$#>%-"')%:#@:" !,"r8 !$#@ 95%-" !,"8'%?85" '"48:("$6"$(%"#!'$&8:$6&" '"$6"$(%"'$8,%!$'2"e%%,9 :;" from the instructor is also valuable to the student, as it integrates the instructor’s professional perspective on the 6&= !#g $#6! 5"?%%,9 :;"<#$("$(%":68&'%"&%r8#&%4%!$'" !,")%&'6! 5";!6<5%,=%"6?"$(%"'$8,%!$['"';#55'" !," 9#5#$#%'2" p'"n"!6$%,"% &5#%&-"6!%"6?"$(%"&%r8#&%4%!$'"$6" :$" '" !"6&= !#g $#6! 5"')6!'6&"6?" !"ahg")&6o%:$"#'"$(%":64)5%$#6!" 6?"%> 58 $#6!'"97"%4)567%%'" $$%!,#!="$(%"@! 5")&6o%:$")&%'%!$ $#6!2"a(%"?6&4 5"')6!'6&"%> 58 $#6!"?6&4",6%'"!6$" relate to the research paper but focuses only the presentation and provides feedback on ten aspects of presentation skills and ten characteristics on the material content. students examine the evaluation form each semester it is used !,":&#$#r8%"$(%"?6&4 $"'6"$6"#55#:#$"$(%"46'$":6!'$&8:$#>%"#!?6&4 $#6!")6''#95%2" students are keenly interested in my feedback on their work, from content knowledge to dress to presentation skills. my feedback is guided by an evaluation form which is anecdotal and addresses the students’ efforts throughout the entire semester, as well as by a grading rubric which is points-based. i incorporate the paper and presentation guidelines into the entire evaluation, as well as the students’ ability to follow direction from the instructor and peers given during presentation rehearsals. i review the instructor evaluation form and grading with each student during a private feedback meeting. these meetings allow conversation about successes, challenges and frustrations, performance, team dynamics, but no negotiation on grades. a completed instructor evaluation form is attached as appendix 5. <:o<'j5l:o in the fall semester of 2010, i found myself in front of a class of 20 students, all enrolled in the capstone hrm :68&'%"#!$&6,8:#!="$(%"@>%"%i)%&#%!$# 5")&6o%:$'"?6&"$(%":8&&%!$"'%4%'$%&2"n"( ,"$6"$8&!" < 7"'$8,%!$'"#!"$(%#&"o8!#6&" 7% &-" $6";%%)"$(%":5 ''"4 ! =% 95%-" !,"$8&!",6<!"'%>%& 5"&%r8%'$'"?&64" &% "98'#!%''%'"?6&")&6o%:$'-":6!>#!:#!=" them to hold off until the spring 2011 semester. the six steps once again provided guidance, as 15 of the 20 students were close friends through varsity athletics and all 15 wanted to work together…and shouldn’t. a review of the project &%r8#&%4%!$'-"%> 58 $#6!"?6&4'" !,"=& ,#!="&89&#:'"( ,"'64%"6?"$(%'%"'$8,%!$'"&%$(#!;#!="$(%#&":(6#:%"6?") &$!%&" !,"$(%"&#=6&"6?"$(%'%"'$ !, &,'": 8'%,"$<6"'$8,%!$'"$6",&6)"$(%":68&'%2""a(%"@&'$":(%:;d#!"< '"& 4) !$"<#$("v!6d clues”, but i sensed that the projects would be providing sheltered students with opportunities to experience actual, professional work assignments. the community interest in the programs has led to newspaper coverage and college alumni magazine highlights. u8:("<%55";!6<!"98'#!%''%'" '"m2m2l% !-"`!84-"e #&:(#5,"u%4#:6!,8:$6&" !,"d66, &,"j"q8&& !"( >%"! 4%'"$( $" : $:("'$8,%!$'[" $$%!$#6!" !," ,,"'89'$ !:%"$6"$(%#&"&%'84%'2""p,4#$$%,57"47"%i)%&#%!$# 5":68&'%'"( >%"9%!%@$$%," ?&64"$(%":8&&%!$"%:6!64#:"!%%,"?6&"6)%& $#6! 5"'$ ?@!="5%>%& =%"<#$(#!" ,4#!#'$& $#>%",%) &$4%!$'"'8:(" '"(84 !" resources. the program has also been served by support of local society for human resource management chapter which made meetings open to students at no charge, encouraged corporate members to become project sponsors and sponsored a project as a meeting presentation on social networking best practices for human resources. projects are currently scheduled through the spring semester of 2011 for each 300 and 400 level human resource management course. the projects have provided local companies with not only “free” research, but a clear perspective of generation y. a(%" 56!=" $%&4" #4) :$" 6?" $(%" )&6o%:$" ) &$!%&'(#)'" #'" !6<" %>#,%!$b" ?855" $#4%" )6'#$#6!'" ( >%" 9%%!" 6??%&%," $6" e" students participating in the projects by their project sponsors; new annual giving relationships have been established with 4 of the corporate sponsors, and a “permanent” partnership has been established with a local hospital, resulting 2010, vol. 1, no. 1, 152-167 richardson 161 advances in business research in an internship per semester and one each summer for human resource majors and two projects per semester for the upper level human resource courses. p5$(68=(" $(%" )&6o%:$" )&6:%''%'-" '" &%^%:$%," #!" $(%" u#i" u$%)'-" &%" :6!$#!8 557" %>65>#!=-" $(%" 9%!%@$'" 6?" $(%" :8&&#:8584"( >%"#4) :$%,"$(%"%!$#&%":655%=%2"p'"g &;"q66;-"t#&%:$6&"6?"34)567%%"l%!%@$'"?6&"m2m2l% !"!6$%,"<(%!" discussing his company’s role as an organizational sponsor of a 2010 project, ““it’s work i didn’t have to do and spend $#4%"6!-" !,"#$"< '">%&7"(%5)?85"$6"4%2"o"*$(#'")&6=& 4"#'1" $"$(%"?6&%?&6!$"6?":6!!%:$#!=" : ,%4#:'"$6"$(%"$& !'#$#6!" #!$6"$(%"<6&;"<6&5,w"*a &,#4 !-"./x/12""p!,&%<"m 5 ,#!6-" "'$8,%!$"%!&655%,"#!"6!%"6?"$(%".//f"ahg"%i)%&#%!$# 5" courses, described much more simply and succinctly the impact of the course on him. “it prepared me for life after :655%=%w"*a &,#4 !-"./x/12 i8h8i8o<85 =>-!(&<--4)*+("3)&8#!9+("-$;&o<<82"*!2,212"h%$&#%>%,"s857".f-".//f-"?&64"y $#6! 5"q644#''#6!"6?"q66)%& $#>%" 3,8: $#6!"d%9"'#$%b"($$)bhh<<<2:6d6)2%,8 p8$(6&2" *.//e-" k:$69%&12" h+"*9f".#& /)1"9-$#!9(-*& 4*)/)$(+("-$& 4*-?)9(/& pi& qrs& h+..& rsst. hr 320 hr & k&= !#g $#6! 5"u$& $%=7"q8&&#:8584-"u #!$"s6'%)('"q655%=%"6?"g #!%2 p8$(6&2"*.//f-"s !8 &712"i)9*!"(1)$(&/).)9("-$&+$#&(*+"$"$%&/4*"$%&su&4*-?)9(/. recruitment selection and training q8&&#:8584-"u #!$"s6'%)('"q655%=%"6?"g #!%2 bion, w. 1968. 864)*")$9)/&"$&%*-!4/;&=$#&-(f)*&4+4)*/2"e56&%!:%-"cjb"h68$5%,=%2 britton, b., & tesser, a. 1991. effects of time management practices on college grades. v-!*$+.&-m&8#!9+("-$+.& psychology-"0\b"l/]dlx/2 q( )4 !-"g2"g &:(".\-".//f2":$)&>)$)g(&-m&9-@-4&)#!9+("-$;&'"d)."f--#&-m&+&?->. new york times. fletcher, b. april 16 , 2009. the importance of internships in a declining economy2" h%$&#%>%," ?&64" b" ($$)bhh" &o69'2:642 + &,!%&-"m2"q2"*.//012"i)+#c&m-*&4*"1)&("1)w&p-7&"$()*$/f"4/&+$#&9-@-4/&+mm)9(&#)9"/"-$/&-$&m!..@("1)&?->&-mm)*/& x7f"()&4+4)*y2"h%$&#%>%,"s857"./-".//f-"?&64"g6!'$%&a& ;"b"($$)bhh4%,# 246!'$%&2:642 gore, g. 1968. the management internship. academy of management journal-"xxb"xb\dxe02 gutner, t. march 30, 2009. *+#!+("$%&7"(f&+&1+?-*&"$&%-@%)(("$%. wall street journal, p. d6. hagerman, r. august 20, 2010. vice president of enrollment management, saint josephs college. (p. b. richardson, n!$%&>#%<%&12 hardiman, s. june 16, 2010. 5(z& v-/)4f[/& "$()*$/f"4/&%"3)& 9-..)%"+$/&+& ?!14& "$&pi. portland press herald, p. business section 1. a68=($6!-"s2".//e2"u#4m&6o%:$b"p")&6o%:$"4 ! =%4%!$"'#485 $#6!"?6&":5 ''&664"#!'$&8:$#6!2"academy of management ')+*$"$%&\&8#!9+("-$-"bb"]ebd]e02 johnson, p. december 15, 2008, 2"*)9(-*&-m&/(+mg$%&#)3).-41)$(n&h+"*9f".#&5)1"9-$#!9(-*2"*p8$(6&-"n!$%&>#%<%&12 s6'o#-" g2-" t >#'-" 32-" c $(&8# -" h2-" j" d%#,!%&-" q2" .//\2" m% &!#!=" !," $% :(#!=" '$& $%=#:" 4 ! =%4%!$" $(&68=(" experiential methods. academy of management proceedings-"*))2"txd"tb12 kolb, d. 1984. 864)*")$("+.& .)+*$"$%;&864)*")$9)& +/& (f)& /-!*9)& -m& .)+*$"$%& +$#& #)3).-41)$(. upper saddle h#>%&b"ys-b"m&%!$#:%da 552 g:35&67-"s2"xffe2"a(%"4%!$6&",%46!'$& $#6!"46,%5b"d&#$#!="<#$("'$8,%!$'"#!"$(%"'%!#6&"%:6!64#:'"'%4#! &2"journal -m&89-$-1"9&8#!9+("-$-".0b"\xd\]2 2010, vol. 1, no. 1, 152-167 richardson 162 advances in business research m?%??%&-"s2-"j"e6!=-"q2".//.2"a(%"%!,"6?"98'#!%''"':(665'_"m%''"'8::%''"$( !"4%%$'"$(%"%7%2"academy of management ')+*$"$%&+$#&8#!9+("-$-"xb"e0df]2 quimby, b. november 16, 2008. <-..)%)&/)$"-*/&/))&("%f(&?->&1+*d)(. portland press herald. h%7!65,'-" g2-" j" k#!:%-" h2" .//l2" q&#$#: 5" 4 ! =%4%!$" %,8: $#6!" !," :$#6!d9 '%," 5% &!#!=b" u7!%&=#%'" !," contradictions. =9+#)1c&-m&,+$+%f)1)$(&')+*$"$%&+$#&8#!9+("-$-"\b"ll.dl]b2 robertson, d. 2005. generative paradox in learner-centered college teaching. l$$-3+("3)&p"%f)*&8#!9+("-$-" .fb" 181-194. u$8,%!$'"u$#55"q(66'%"l8'#!%''2"*xfb0-"e%9&8 &7"xf12"jz5z&o)7/&\&e-*.#&i)4-*(, p. 99. d 5;%&-" a2-" j" 3!=%5-" c2" .//\2" h%'% &:(" %i%&:#'%'b" p" '%r8%!:%," ))&6 :(" $6" o8'$d#!d$#4%" #!?6&4 $#6!" 5#$%& :7" instruction. research strategies-"xfb"x\]dxle2 d%55%( !"m#9& &72"*!2,212"'">*+*c&2-9!1)$(/;&5+"$(&v-/)4f/&<-..)%)&-m&,+"$)2"h%$&#%>%,"?&64"b"<<<2'o:4%2%,8h" 5#9 &7h,6:84%!$'h#,%!$#?7#!=':(65 &57o68&! 5'2),?2 beth richardson" #'" ''#'$ !$")&6?%''6&"6?"98'#!%''" ,4#!#'$& $#6!" $"u #!$" s6'%)(['"q655%=%"6?"g #!%"<(%&%" '(%" oversees the human resource management major and has introduced an experiential component to all hrm courses. u(%"&%:%#>%,"(%&"st-":84"5 8,%-"?&64"p4%&#: !"`!#>%&'#$7['"d '(#!=$6!"q655%=%"6?"m <2"m&#6&"$6"(%&")6'#$#6!" $"u$2" s6'%)(['"q655%=%-"'(%"(%5,"> &#68'"(84 !"&%'68&:%'"%i%:8$#>%")6'#$#6!'-"#!:58,#!="'%&>#!=" '"%i%:8$#>%">#:%")&%'#,%!$" of global human resources and administration at enterasys networks in portsmouth, new hampshire. in 2006, )&6?%''6&"h#:( &,'6!"< '" "e859&#=($"u:(65 &" $"$(%"̀ !#>%&'#$#%'"6?"u #!$'"q7&#5" !,"g%$(6,#8'"#!"u;6)o%-"g :%,6!# 2" 2010, vol. 1, no. 1, 152-167 richardson 163 advances in business research =44)$#"6&];&&0*-?)9(&5(+()1)$(&<-14+*"/-$ h+..&rsst;&0*)/)$(+("-$&0*-?)9(/ 1. a84 !"h%'68&:%"g%$&#:'"b"l%'$")& :$#:%'"6!"8'%"6?"g%$&#:'"#!"ah",%) &$4%!$' 2. q655%=%"u%4#:6!,8:$6&"m&6=& 4'b"':(665'"<#$("'%4#:6!,8:$6&"&%5 $%,":8&&#:8584'" !,"$(%"!849%&" !,"$7)%"6?"?6&%#=!"! $#6! 5'" $"$(%'%" schools 3. `), $%'"$6"axl"k#' "m&6=& 4"h%r8#&%4%!$'b")6$%!$# 5"'$& $%=#%'h'658$#6!'"$6",% 5"<#$("68&"=6>%&!4%!$'"adxl">#' ": )' 4. t%%4%,"3i)6&$"h%=85 $#6!'b")6$%!$# 5"'$& $%=#%'h'658$#6!'"<#$("(#=("$%:(":64) !#%'"$6"9%"#!":64)5# !:%"<#$(",%%4%,"%i)6&$'"$6":68!$&#%'" of concern 5. 3i%:8$#>%"q64)%!' $#6!"q64) &#'6!'b"a#'$6&#: 5"h%'% &:("6?"q3k" !,"a6)"]"3i%:8$#>%"m 7"*l '%,-"l6!8'-"3r8#$71" = #!'$" "'%5%:$")%%&" =&68)"8'#!=")895#:"x/dc" !,")&6i7"@5#!=' 54*"$%&s^&0*-?)9(/ ]z& :*")$(+("-$&0*-%*+1 evaluate bank’s current program and advise whether it is effective. if you determine it is not, develop ideas and a structure that would work better for new employees. bank will provide the resources for students to use to conduct research with other community banks and survey bank newly hired employees. students will attend a bank orientation program to give them an idea on what bank includes and the paperwork that is involved. rz& recruiting venuesb"<( $" >%!8%'-"$665'-"4%,# -"%$:"$6"8'%"$6"&%:&8#$"'8::%''?8557"?6&"9 !;'2"d(%&%",#,"$(%"'8::%''?85"%4)567%%'":64%" ?&64_"y%<"#,% '"?6&"&%:&8#$4%!$2"p! 57'#'"6?")&%'%!$"$%:(!#r8%'2 qz& b)/("$%&-m&_=o`&)14.-c1)$(&9+$#"#+()/b"#'"lpyc"$%'$#!=" ,%r8 $%"?6&"(#&#!="$(%"&#=($")%6)5%_"p! 57'#'"6?"<( $"#'"9%#!="8'%,"!6<" >%&'8'" &%$%!$#6!" !,"'8::%''"6!" $(%" o69c"<( $",6"6$(%&"9 !;'" !,"@! !:# 5"'%&>#:%'"8'%" ?6&" $%'$#!=c" &%:644%!, $#6!'"?6&" &%>#'#6!'" $6" :8&&%!$" $%'$#!=" )&6$6:652"q64) & $#>%" '$8,7"6?" $%'$#!=" &%'85$'-" %,8: $#6!" !," %i)%&#%!:%"<#$(" &%$%!$#6!" !," $%!8&%" 6!" o692"t%$%&4#!%" ) $$%&!'c"&%)6&$"6!"@!,#!='-" !,"4 ;%"'8==%'$#6!'"9 '%,"6!"@!,#!='2 az& interview protocolb"d( $"r8%'$#6!'" !,"$%:(!#r8%'",8&#!="#!$%&>#%<'"<#55"9%'$" 556<"lpyc"$6",%$%&4#!%"<(%$(%&" ": !,#, $%"#'"r8 5#@%," !,"<#55"'$ 7"#!"$(%"o69_"h%'% &:("'$ $%d6?d$(%d &$"#!$%&>#%<"$%:(!#r8%'-" ! 57g%"lpyc['":8&&%!$"#!$%&>#%<#!=-" !,"&%:644%!,":( !=%'2 54*"$%&rssu&0*-?)9(/ p-/4"(+.&0*-?)9(;&i)9*!"(1)$(&+$#&*)()$("-$&-m& )$&b&+$#&k 1" what are some /4)9"g9"< 7'"#!"<(#:("$6"&%:&8#$"+%!%& $#6!'"i"j"j"$6"a6')#$ 5_"d( $"#'"$(%")&%?%&&%,"'68&:%"6?":6448!#: $#6!d"(6<" : !"<%"9%'$"&% :("$(#'"$ &=%$"=&68)_"d( $"9%!%@$'" &%"#4)6&$ !$"$6"$(#'"=%!%& $#6!_"d( $",6"$(%7"< !$"$6"'%%"#!" !" ,>%&$#'%4%!$" !," <(%&%"'(685,"<%" ,>%&$#'%"#!"6&,%&"$6"=%$"$(%#&" $$%!$#6!_"d( $" &%"6$(%&":64) !#%'"p"(% 5$(: &%" !,"!6!d(% 5$(: &%"d",6#!="$6"$ &=%$"$(%'%" =%!%& $#6!'_""p"'8&>%7"$ ;%!"?&64")%6)5%"6?"$(%'%"=%!%& $#6!'"#'" "&%r8#&%4%!$"6?"$(#'")&6o%:$2 91" p?$%&"<%"( >%" ))&6)&# $%57"&%:&8#$%,"+%!'"i"j"jd"(6<",6"<%"%??%:$#>%57"&%$ #!"$(%4_"d#$("$(%"9 97"9664%&'"9%=#!!#!="$6"&%$#&%"#!" 5 &=%&"r8 !$#$#%'" !,"$(%"%>%&d"8!'$ 95%"%:6!647-"<( $": !"<%",6"$6"&%$ #!"68&"+%!"i"j"j"%4)567%%'_""d( $"4 ;%'"$(%4"'$ 7"<#$(" !" 6&= !#g $#6!ho69_ '+7&h"*1&0*-?)9(;&=.()*$+("3)&1)(f-#/&m-*&(f)&*)9*!"(1)$(&-m&.+7&/(!#)$(/&m-*&/!11)*&+//-9"+()&+$#&]st&c)+*&+//-9"+()&4-/"("-$/z 1" q6!,8:$"r8 !$#$ $#>%" !,"r8 5#$ $#>%"&%'% &:("#!$6"$(%"8'%"6?" 5$%&! $#>%"&%:&8#$4%!$"4%$(6,'"97"! $#6! 5"5 <"@&4'-"<#$(" "?6:8'"6!"#!$%&!%$" –based recruitment methods, including, but not limited to, the use of social media tools. 91" q6!,8:$"#!$%&>#%<"6&"'8&>%7"9 '%,"&%'% &:("<#$("m <"':(665": &%%&"'%&>#:%"6?@:%'"#!$6"$(%"&%:&8#$4%!$"4%$(6,'"69'%&>%," !,h6&")&%?%&&%," 97"$(6'%"6?@:%'2 :1" q6!,8:$"#!$%&>#%<"6&"'8&>%7"9 '%,"&%'% &:("<#$(":8&&%!$"5 <"'$8,%!$'" !,":8&&%!$"xst year attorneys to determine the job search methods 8'%," !,h6&")&%?%&&%,"?6&"%!$&7"5%>%5" $$6&!%7")6'#$#6!'2 ,1" t%>%56)" !" 5$%&! $#>%"&%:&8#$4%!$"4%$(6,'")5 !"?6&"m <"e#&4-"<#$("$(%"!%:%'' &7",%$ #5" !,"=8#,%5#!%'"$6"%! 95%"$(%"@&4"$6"#4)%55%!$"$(%" ) !"?6&"#$'".//fh./x/"&%:&8#$4%!$"7% &"9%=#!!#!="#!"p8=8'$".//f %1" n4)5%4%!$"$(%")5 !"?6&"#$'".//fh./x/"&%:&8#$4%!$"7% &"9%=#!!#!="#!"p8=8'$".//f2 2010, vol. 1, no. 1, 152-167 richardson 164 advances in business research =44)$#"6&r;&p!1+$&i)/-!*9)&0*-?)9(/&i)/)+*9f& !"#) 83)*c&4*-?)9(&1!/(&"$3-.3)&(f)/)&*)/-!*9)/&+$#&*)/)+*9f&+9("3"(")/n&"m&+44*-4*"+(); recent academic researchb"566;"?6&", $ -":6!:58'#6!'-"%$:2"m%%&"&%>#%<%,"o68&! 5'" &%"!%:%'' &7-" !,"$(%"9%$$%&";!6<!-"$(%"9%$$%&"768&" 8,#%!:%" will receive the information. harvard business review and other business periodicals by the better known universities are the place to start. then, branch out widely. the research librarian is always a resource for your work and is aware of these project assignments. current trends – anecdotal rather than research based. use shrm, on-line and hard copy business periodicals, etc. periodicals that can help you get started include the wall street journal, fortune, forbes, business week, the economist, as examples. also consult industry trade =&68)'"*p4%&#: !"l !;#!="p''6:# $#6!-"%$:1" !," !7")%&#6,#: 5"$( $"#'"&%5%> !$"$6"$(%"#!,8'$&7"768" &%"<6&;#!="<#$(#!"*u8)%&4 &;%$"y%<'-"%$:12" )$)*+()#&#+(+b"j68&"6<!"&%'% &:("#!$6"6$(%&":64) !#%'[" :$#>#$#%'2"e#=8&%"68$"<( $":64) !#%'"$6" ))&6 :(-" !,",6"'6" '"'66!" '")6''#95%2" let people know that you are working on a research project and if they need to hear from me, i am glad to get in touch and verify what you are ,6#!=2"tky[a"h3mj"ky"3gpnm2"j68"4 7"( >%"$6"4 ;%"95#!,": 55'"$6":64) !#%'"6&"@!," ":6!$ :$"$6"=%$"#!?62"e%%5"?&%%"$6"8'%"47"6?@:%")(6!%" $6"4 ;%"56!=",#'$ !:%": 55'" !,"$(%"? i"#!"$(%"e :85$7"u%:&%$ &7['"6?@:%"#'" > #5 95%"$6"768-" '"<%55"p"o8'$"$%55"4%" !,"n"<#55"'%$"#$" 55"8)"?6&"7682 ')%+.&9-$/"#)*+("-$/b"g ;%"'8&%"$6"&%'% &:("&%:%!$"5 <'8#$'-":( 55%!=%'-"!%<"5%=#'5 $#6!-")&6)6'%,"5%=#'5 $#6!-"%$:2"&%= &,5%''"6?"768&")&6o%:$" topic. you might even want to interview an employment lawyer or two – see me for suggestions. 86+14.)/b"l%"&% ,7"$6"( >%"%i 4)5%'"6?"<( $"768" &%"&%:644%!,#!=-"<(%$(%&"#!"( &,":6)7-"6!5#!%",%46!'$& $#6!'-">#,%6'-"%$:2"a(#!;" 968$" this now so you get copies of what you need. be creative. 2010, vol. 1, no. 1, 152-167 richardson 165 advances in business research appendix 3: presentation evaluation form project sponsor and title: student name(s): presentation date: presentation skills ratings: 1 (low) 2 3 4 5 (high) 1. topic knowledge 2. ability to stay focused on the topic 3. ability to hold your interest 4. pace of presentation 5. effective responses to questions 6. use of relevant examples 7. clarity of spoken words 8. evidence of preparation 9. use of eye contact, gestures, voice 10. overall presentation performance overall material content ratings: 1 (low) 2 3 4 5 (high) 1. organization of materials 2. usefulness of information presented 3. ability to hold your interest 4. clarity of information 5. content of responses to questions 6. use of time 7. formatting and relevancy of slides 8. creativity and originality 9. accuracy of information 10. overall material content comments on overall material content: what parts of this presentation were most helpful? what parts of this presentation were least helpful? suggestions for the presenters: additional feedback: this presentation is representative of the focus of an experiential upper-level course in the human resource major within the business dept. at st. joseph’s college. students are, for often the 1 st time, exposed to actual issues challenging human resource departments and to the daily workings of businesses. any feedback you have for the students or the instructor, particularly suggestions for improvement, are very much appreciated. 2010, vol. 1, no. 1, 152-167 richardson 166 advances in business research =44)$#"6&a;& *+#"$%&i!>*"9&m-*&pi,&864)*")$("+.&0*-?)9(/ ]z& individual 8mm-*(b" 3>%&76!%" =%$'" =& ,%," #!,#>#,8 557" 6!" $(%" %??6&$" (%h'(%" )8$'" #!$6" $(%" )&6o%:$b" u%&#68'!%''-" $$#$8,%-" '%!'%" 6?" 8&=%!:7-"4%%$#!=",% ,5#!%'-"&%')6!,#!="$6"<( $"#'"&%r8#&%," !,"'8==%'$%,-"%??%:$#>%"$% 4"4%49%&2".]")6#!$' rz& powerpointb"u( &%,"=& ,%b"a(%"m6<%&m6#!$")&%'%!$ $#6!"=8#,%5#!%'"48'$"9%"?6556<%,2"n!" ,,#$#6!-",%46!'$& $%")&6?%''#6! 5#'4-":&% $#>#$7-" $%:(!#r8%'"$6";%%)")%6)5%['" $$%!$#6!2".]")6#!$'" qz& paperb"u( &%,"=& ,%b"j68"48'$"?6556<"$(%") )%&"?6&4 $"&%r8#&%4%!$'2"3 :("=& 44 $#: 5"%&&6&"*#!:58,#!="')%55#!=1"#!"$(%"@! 5") )%&"<#55" result in a one point reduction in the paper grade. 25 points az& presentationb" #!,#>#,8 5" =& ,%b" 566;#!=" ?6&" :6!@,%!:%-" %i)%&$#'%" 6!" $(%"4 $%&# 5-" %>#,%!:%" $( $" $(%" &65%" #!" $(%" )&%'%!$ $#6!"( '" 9%%!" )& :$#:%,c":5% &" !," &$#:85 $%")&%'%!$ $#6!c"=66,"8'%"6?" '5#,%'c"6&= !#g $#6!c" 9#5#$7" $6" !'<%&"r8%'$#6!'" &%^%:$#!=";!6<5%,=%"6?"768&" material. 25 points bf)&g$+.&4*-?)9(&%*+#)&"/&+$&+3)*+%)&-m&(f)/)&az 2010, vol. 1, no. 1, 152-167 richardson 167 advances in business research =44)$#"6&c;&l$/(*!9(-*&83+.!+("-$ m&6o%:$"%> 58 $#6!" !,"=& ,%" "" " u$8,%!$b"s6(!"t6%"" " " " m&6o%:$b"e)..$)//&i:l&d& <:,0=ok l$#"3"#!+.&8mm-*(b"s6(!"t6%-"n" ))&%:# $%,"768&"%!$(8'# '4" !,"#!$%&%'$2"j68",6"!%%,"$6";!6<-"$(68=(-" $( $"6?" 55"6?" $(%"%> 58 $#6!'"$( $" mentioned a part of the presentation that was least helpful, all but one noted that it was your food section. the audience did not see a clear connection between the nutritional section and the roi research to support <:,0=ok’s wellness program. i do believe this happened because there was nothing about <:,0=ok"$( $"768"')%:#@: 557"4%!$#6!%,"( >#!="$6",6"<#$("!8$&#$#6!2"n"( ,"'8==%'$%,"$6"768" "!849%&"6?"$#4%'"$( $"768" talk about nutrition-related actions the company could take, like addressing the content of their vending machines, but you never introduced that focus on the company. in addition, you were very slow to do the research on roi and how it related to nutrition, to the point that i virtually ended up ,6#!="#$"?6&"768o<(#:("nu"yka"47"&65%2"n",#," "'#4)5%"+66=5%"'% &:("p"#$"< '![$"%>%!" !"3luqk"'% &:("$(&68=("$(%"5#9& &7", $ 9 '%"d" !,"n"?68!," two very current presentations that contained some of the information you needed…which, unfortunately, you did not use to its fullest potential in your section. additional constructive feedback i have is that you should have, as a team, paid more attention to guest speaker’s presentation and what he planned to do. guest speaker was mentioned in one evaluation as the part of the presentation that was least helpful. all others mentioned the food section. *+#);&^s powerpoint the powerpoint point was generally creative, used a good mix of text, charts, data and video and related well to the points you <%&%"4 ;#!="$6"$(%" 8,#%!:%2"n$"^6<%,"<%55-"< '"6&= !#g%,"56=#: 557" !,"< '" !"#!$%&%'$#!=") &$"6?"$(%"%!$#&%")&%'%!$ $#6!2""s6(!"t6%-"768&"'5#,%'" could have used more variety and creativity – talking about foods and nutrition, you had a good opportunity for pictures, videos, etc. *+#);&us 0+4)*;"a(%") )%&"$66;"4 !7",& ?$'"$6"=%$"$6"$(%"@! 5")&6,8:$-"98$"$( $")&6,8:$"< '"%i:%55%!$2"a(%") )%&"?6556<%,"<%55-"< '"<%55"&%'% &:(%,-" after some considerable prodding by me, and was formatted in a way that made it easy to read and understand. the one part of the paper that was 4#''#!="#'" ",#':8''#6!"6?"$(%")5 !"$( $"qkgmpyj"< '"#4)5%4%!$#!="#!"s !8 &72"n,% 557-"768"'(685,"( >%":6!$ :$%,"$(%":64) !7" !,"#!$%=& $%," that information into your paper and therefore your presentation. the issue that i have with the process of creating the paper was the need for teammate 1 to rewrite the short term roi section and the lack of research and writing that was done by teammate 2. the section written by teammate 2 was confusing, poorly organized and used wording that was awkward. from what i can tell, instead of bringing the paper to the writing center and redoing it, nothing was done until teammate 1 simply re-did the entire section. this is unacceptable as far as the responsibility 6?"$(%"$% 4"?6&"$(%")&6,8:$#6!"6?"$(%"@! 5") )%&2""n" 4"=6#!="$6":6!'#,%&"$(#'-"#!") &$-"#!"$(%"=& ,%"?6&"$(%") )%&" '"<%55" '"#!"$(%"=& ,%"6?"#!,#>#,8 5" effort for various team members. *+#);&&us 0*)/)$(+("-$; john doe, your presentation was good and you demonstrated some solid expertise in your subject matter. you knew your material well, but relied on your note cards too much, sometimes losing track of your place in slides. the evaluations note this tendency a number 6?"$#4%'2"a(%"%> 58 $#6!'" 5'6"!6$%"$( $"768"<%!$"#!$6"$66"48:(",%$ #5"<#$("$(%"?66,"*&%:#)%'1" !,"!6$"%!68=(",%$ #5"6!"<( $"$(%7"<%&%"#!$%&%'$%,"#!" *hkn12" *+#);&^c& & & 0*-?)9(&%*+#);&^e 2010, vol. 1, no. 1, 152-167 richardson advances in business research 2011 volume 2.pdf schäfer and fukasawa advances in business research 2011, vol. 2, no. 1, 172-178 172 factors determining the operational self-sufficiency among microfinance institutions kai schäfer, midwestern state university yoshi fukasawa, midwestern state university this paper is to determine factors best describing a microfinance institution’s (mfi’s) operational selfsufficiency (oss). the oss is defined as the ratio of an mfi’s operating revenues to it operating expenses including the financial costs and impairment losses on loans. the outreach of an mfi, the writeoff ratio and regional differences are found significant in determining the oss of mfis. surprisingly, neither an mfi’s depositors-to-borrowers ratio nor its deposits-to-loan portfolio ratio was found to be significant to explain an mfi’s oss. there was no significant difference in the oss in 2006 before the worldwide financial crisis and in 2008. one of the eight millennium development goals of the united nations is the “eradication of extreme poverty and hunger.” the un defines extreme poverty as living on u.s. $1.25 or less per day. in 2005 1.4 billion people worldwide were declared extremely poor. the un’s target is to halve the proportion of the extreme poor by 2015 using the year 1990 as a basis. microfinance is considered to be one of the measures that will help reach that goal (united nations, 2008). the year 2005 was declared as the “international year of microfinance” (united nations, 2004). dr. muhammad yunus, the founder of the bangladeshi microfinance institution (mfi) grameen bank, received together with his bank the nobel peace prize in 2006 “for their efforts to create economic and social development from below” (nobel foundation, 2008). grameen’s pioneering work made microfinance more and more popular worldwide. the microcredit summit campaign brings together microcredit practitioners, advocates, educational institutions, donor agencies, international financial institutions and non-governmental organizations (microcredit summit campaign a, 2009). since 1999 it has published annually the state of the microcredit summit report. in its reports the organization compiles outreach data from mfis all around the world (microcredit summit campaign b, 2009). the 2009 report shows growth in the number of mfis from 618 in 1997 to 3,552 in 2007. that is an increase of almost 500 percent over the ten-year period. the microfinance movement is not limited to developing countries; the report also mentions a total of 192 microfinance programs in developed countries in 2007 (daley-harris, 2009). in january 2008, for example, the bangladeshi mfi grameen bank expanded its service from bangladesh to a developed country by opening its first branch in the u.s. surprisingly, grameen america was established during the greatest financial crisis in modern history (foroohar, 2010). the main purpose of this paper is to examine the sustainability of mfis worldwide by studying the factors that determine their operational self-sufficiency (oss). the oss rather than the financial selfsufficiency (fss) can easily be related to the standard profitability definition of revenues minus associated expenses. furthermore, the oss helps determine whether an mfi is able to cover all its costs that incur by doing business. oss also allows getting a subjective and global picture of the institution in terms of its financial performance (barres, 2006). the examination of the fss requires such additional information as the inflation rate and the adjusted cost of capital, which are often not readily available for the developing countries included in this study. the year 2006 and 2008 are chosen to test if the recent worldwide recession had any significant impact on the oss of mfis. the microfinance sector differs mainly from other financial sectors in that microfinance addresses clients who are less financially rewarding or are not in conventional banks’ interest. mfis serve poor populations which cannot post any collateral or other financial securities with microfinance services, such as small-sized loans, often $100 or even less, so called micro credits (reno-weber, 2008). the success of schäfer and fukasawa advances in business research 2011, vol. 2, no. 1, 172-178 173 mfis is based on their two main goals: the group-lending concept and teaching self-help to the poor, as pointed out by robinson (2001) the provision of financial services to the poor has gone through three distinct, but overlapping phases. in the first phase, the focus was on providing subsidies to the poor and was the dominating form in the 1960’s. this form was mainly implemented by governmental agencies and the aim was to help farmers improve their productivity and achieve food security (cgap, 2003). during the 1960s and 1970s the poor population was considered to be “unbankable” (campion and white, 1999). imboden (2005) describes the term “bankable” as individuals or enterprises being in a position to benefit from financial services. generating income enables them to repay loans, to save or to build assets. thus, “unbankable” refers to individuals or enterprises that are not in such a position. in the early 1970s the first microfinance pioneers, such as the bangladeshi grameen bank or accion international in latin america, experimented with small loans given to poor women for small businesses. in the mid-1970s, ngos took the role of giving credit to the poor and developed more innovative methods, such as group lending, to meet the requirements of the poor. this period is seen as the birth of microcredit. in the 1980s, an increasing number of mfis improved their efficiency and were able to recover their costs and even attract deposits, commercial loans and investment capital (helms, 2006). this was followed by the third phase in the mid-1990’s, when ngos were transformed into commercial banks or formal financial institutions (getu and kempton). rather than just granting micro credits, the range of financial services was extended to more comprehensive services, including savings and insurance (helms, 2006). the seep network (seep network, 2005) defines an mfi’s oss as percentage ratio as follows: oss = (operating revenue) / (operating expenses + financial costs + impairment losses on loans) the operating expenses include administrative and personnel expenses that are incurred by providing financial services while financial revenues represent the product of an mfi’s loan portfolio and the interest rates charged on loans. the oss focuses on an mfi’s core business revenues and expenses. financial expenses and impairment losses on loans are included in this calculation because they are normal and significant costs of microfinance operation. the oss indicates also if an mfi is able to continue business without further external subsidies or not. this is the case when the oss is above 100%. a ratio of 100% in oss is also a break-even point for an mfi’s operation. a ratio below 100%, however, indicates that the mfi is incurring losses. the seep network found that start-up mfis tend to have a lower oss than mature mfis, implying start-ups are less profitable. model and empirical results for the analysis of the model, the ordinary least squares regression method was used. the data sample used in this study was retrieved from the mix and is based on the mix global composite ranking in 2006 and 2008. the ranking contains factors such as efficiency, outreach, and financial performance. the ranking from 2008 includes data from 500 mfis worldwide and is based on data from the financial year 2008. the 2006 ranking is based on 500mfis using the 2006 data. overall the sample includes 1,000 mfis composed of 113 serving in eastern europe/central asia (eca), 117 in latin america/caribbean (lac), 27 in middle east/north africa (mena), 59 in sub-saharan africa (africa), and 684 serving in the region of southern and eastern asia (asia). the model in this study is specified as follows: !"!#0 $!#1x1 $!#2x2 $!#3x3 $!#4x4 $!#5x5 $!#6x6 $!#7x7 $!#8x8 $!#9x9 $!#10x10 + #11x11 $!#12x12 + #13x13 $!% schäfer and fukasawa advances in business research 2011, vol. 2, no. 1, 172-178 174 where: y = operational self-sufficiency (oss) of an mfi; x1 = number of borrowers in 1,000s served by an mfi; x2 = write-off ratio (%); x3 = depositors/borrowers ratio; x4 = cost per borrower/gni per capita ratio (%); x5 = gross loan portfolio at risk > 30 days (%); x6 = deposits/gross loan portfolio ratio; x7 = market penetration (%); x8 = growth in borrowers (%); x9, x10, x11, x12 = dummy variables for the region; and x13 = dummy variable for the year. with respect to the variable x1, it is expected that an mfi’s oss is positively related to the number of borrowers served by the financial institution. with a greater number of borrowers, an mfi can experience economies of scale, reducing its average cost of operation by spreading overhead costs over a large number of borrowers, and ultimately increase its profit. a bigger case of borrowers also means a greater potential for larger revenue from interest earning, thus the expected sign for the coefficient being positive. the write-off ratio (x2) represents the percentage of the gross loan written off. an increase in the write-off ratio means a greater loss of outstanding loans relative to an mfi’s loan portfolio, forgoing the chance to realize the loans’ revenues. the revenues from interests on the loans are not generated and therefore have a negative impact on an mfi’s oss. the expected sign for the coefficient estimate is thus negative. the variable x3 measures an mfi’s depositorsto-borrowers ratio. a higher depositors-to-borrowers ratio has a significantly positive effect on an mfi’s oss. the higher the ratio, the greater the diversity in the funding sources for potential loans by the mfi, improving its oss. the variable x4 represents the ratio of the cost per borrower as a percentage of the gross national income (gni) per capita. the cost per borrower is defined as the operating expenses divided by an mfi’s average number of borrowers. the lower cost per borrower relative to the country’s per gni implies that an mfi is more efficient to reduce the borrowing cost compared to the per-capita income of potential borrowers. a loser cost structure through the economies of scale, for example, gives the mfi a comparative advantage and can lead to a higher profit. therefore, mfis with a lower ratio have a higher oss, leading to a negative sign for the coefficient. the gross loan portfolio at risk > 30 days (x5) is the value of all loans outstanding that have one or more installments of principal past due longer than 30 days. this includes the entire unpaid principal balance including both the past due and future installments but not accrued interest. it also includes loans that have been restructured, rescheduled, or renegotiated. the greater is the portfolio at risk, the greater is the potential for a loss in revenue, lowering the oss of an mfi. the expected sign for the coefficient is negative. the variable x6 represents the ratio of deposits to gross loan portfolio of an mfi. it is hypothesized that a higher deposit to loan portfolio ratio leads to a lower oss, because a higher amount of deposits to loan portfolio reduces the opportunity to make revenues through interest earnings on loans, giving the negative sign for the coefficient. market penetration, the variable x7, measures the outreach of borrowers relative to the potential market and how many clients are actually served compared to an mfi’s potential market. the potential market is the number of people living below the national poverty level in which the mfi is operating. the great is market penetration, the greater the revenue, and the higher the oss. the expected sign for the coefficient is positive. the variable x8 measures growth in borrows in percentage. an mfi that has strong growth in the number of borrowers is able to serve more clients. a larger customer base triggers a positive economy-ofschäfer and fukasawa advances in business research 2011, vol. 2, no. 1, 172-178 175 scale effect, leading to lower operating costs. a reduction in costs per borrower helps raise the overall oss of an mfi, thus the coefficient is expected to be positive. the variables x9, x10, x11, and x12 are dummy variable for the region of the examined mfis, representing eca (x9), lac (x10), mena (x11), and africa (x12). the benchmark in this model is the region of asia. it is hypothesized that there are regional differences in mfi’s oss. mfis in asia have the longest experience in microfinance and therefore have an advantage of economies of scale and economies of scope. the variable x13 is the dummy variable for the year of retrieving data. the benchmark for this model is the year 2006. it is expected that mfis in 2008 would have a lower operational self-sufficiency than in 2006, because of the worldwide recession beginning in december 2007 in the u.s. mfis, as any other financial intermediaries, would have suffered during the financial and economic crisis that reached its peak in 2008. it is expected that mfis were less profitable in 2008 than in 2006. the results of the ordinary least squares regression is shown in table 1. the overall fit of the model is relatively weak with the adjusted r2 of 0.025. the f-statistic is highly significant at 0.0003, implying that the independent variables are important as factors determining the oss. among the independent variables, the number of borrowers (x1), the write-off ratio (x2), the depositors/borrowers ratio (x3), the gross loan portfolio at risk > 30 days (x5), and the deposits/gross loan portfolio ratio (x6) show the expected signs and the first three variables are significant at 0.05 level. table 1: regression results regression statistics _____________________________ multiple r 0.1937 r square 0.0375 adjusted r square 0.0248 standard error 30.5958 observations 1000 _____________________________ anova _______________________________________________________________________________________ df ss ms f significance f regression 13 35988.1738 2768.3211 2.9573 0.0003 residual 986 923000.2012 936.1057 total 999 958988.3750 _____________________________________________________________________________________ coefficient standard error t-stat p-value intercept 124.5751 2.8756 43.3220 0.0000 number of borrowers 0.0077 0.0028 2.7465 0.0061 write-off ratio (%) -1.7560 0.5802 -3.0264 0.0025 depositors/borrowers ratio 1.3711 1.1013 1.2450 0.2134 cost per borrower/dnp per capita (%) 0.0233 0.0264 0.8799 0.3791 gross loan portfolio at risk > 30 days (%) -0.3432 0.2197 -1.5621 0.1186 deposits/gross loan portfolio ratio -4.1064 3.3006 -1.2441 0.2137 market penetration (%) -0.0657 0.4898 -0.1341 0.8934 growth in borrowers (%) -0.0020 0.0043 -0.4621 0.6441 eca 10.4915 4.0147 2.6133 0.0091 lac 3.6935 3.5605 1.0373 0.2998 mena 17.0084 6.4757 2.6265 0.0088 africa 5.2535 4.7935 1.0960 0.2734 year of retrieving data 3.3442 2.9859 1.1200 0.2630 schäfer and fukasawa advances in business research 2011, vol. 2, no. 1, 172-178 176 first, the outreach measured in the number of borrowers of an mfi was found to be important factor determining the sustainability of an mfi. as other research had already found in the past and was hypothesized in this model, an mfi that is able to expand its outreach and serve more customers with micro finance intermediation has a higher financial stability and oss. it can make use of both economies of scale and economies of scope by serving a greater number of borrowers. the write-off ratio that represents uncollectable loans relative to an mfi’s gross loan portfolio was also found significant in the model. as it reduces the gross loan portfolio, it reduces the ability to earn interest on the loan and reduces an mfi’s revenue. in turn, less revenue, ceteris paribus, eventually reduces an mfi’s oss. surprisingly, neither the balance between an mfi’s deposit and lending mobilization (depositors/borrowers ratio) nor the same ratio in terms of assets (deposits/gross loan portfolio) was found to be significant to explain an mfi’s oss. as expected, there are regional differences in the oss. the oss of mfis in the eca and mena regions were found to be significantly higher than in the benchmark asian region. the most surprising discovery was that there was no significant difference in the oss from mfis reporting in 2006, before the worldwide financial crisis, and those reporting in 2008. it was expected that the microfinance sector was impacted by the crisis as was the rest of the global finances. the coefficient estimate for the year x13, although insignificant, implies that the oss for mfis was higher in 2008 than in 2006, despite the fact that the industrialized economies entered recession beginning december 2007. in addition, the market penetration was not a significant factor. it is thus concluded that market power did not have a significant influence on a mfi’s oss in the model. conclusions this paper examined the factors best describing an mfi’s oss. the examination of those factors is important to help understand the sustainability, and the survival, of mfis that serve a vital role in economic development of many less-developed countries. the number of borrowers, the write-off ratio, and the depositors/borrowers ratio were found to be important factors determining the sustainability of an mfi. the mfis in the eastern europe/central asia exhibited the better operational self-sufficiency than those in the benchmark region, asia. there was no evidence to support that significant deterioration in the sustainability of mfis occurred due to the 20072009 recession. in the future, the model can be modified to attain a more comprehensive picture of an mfi’s overall performance. additional variables such as the lending mechanism (group lending vs. individual lending) that is used by an mfi or the type of an mfi (ngo, bank etc.) could be included since the revenue and cost structure may differ. since the model in this paper focuses on the determinants of the oss, it does not reveal the causes of variables being (in) significant. the following questions would be interesting to answer: why are there regional difference in the oss? is it because of the cost structure, the average loan amount, the level of interest rates, or even the clients’ characteristics? why does neither the client (depositors/borrowers ratio) nor the asset (deposits/gross loan portfolio ratio) structure impact an mfi’s oss, even though an mfi generates its revenues from interest rates on loans and public deposits? furthermore, why the recent worldwide financial crisis and economic downturn had no significant impact on the oss in the model? is it because crisis like this have a delayed effect on the microfinance sector and therefore not yet found significant? or is it because the microfinance sector is more resilient to crisis? if it is found in the future that the crisis actually has affected mfis’ profitability, operational sustainability, or the ability to grant loans, how will they provide service to the poor? as mentioned, oss is a good measure of the financial sustainability of an mfi, but as any other measure of financial performance, it does not assess the social benefit to a single client, a community, or even a whole country in terms of increasing welfare or reducing poverty. financial performance and sustainability in the microfinance sector has become increasingly important to attract socially responsible investors. but, at the same time mfis must achieve their fundamental goal of reducing poverty by helping to build inclusive financial sector and by giving the poor access to financial intermediation. both goals, schäfer and fukasawa advances in business research 2011, vol. 2, no. 1, 172-178 177 being financially sustainable and achieving the social objective, have to be considered. a promising future of the microfinance sector and its providers (mfis) will only be possible if both goals are realized. only then will it be possible to achieve the millennium development goal of the united nations to “eradicate extreme poverty and hunger” by the use of microfinance. references barres, i. 2006. financial self-sufficiency (fss). the microbanking bulletin 2006, 13, washington, d.c.: microfinance information exchange market, inc., 21-22. campion, a., & white, v. 1999. institutional metamorphosis: transformation of microfinance ngos into regulated financial institutions. the microfinance network occasional paper, no. 4. cgap. 2003. microfinance overview. retrieved on november 27, 2009, from http://www.cgap.org/ about/microfinance.html. daley-harris, s. 2009. state of the microcredit summit campaign report 2009. retrieved on october 10, 2009 from http://www.microcreditsummit.org/uploads/socrs?socr2009_english.pdf foroohar, r. 2010. it’s payback time how a bangladeshi bank is growing in the u.s. by making tiny loans to groups of poor women with entrepreneurial dreams. newsweek, july 26: 44-45. getu, m., & kempton, l. 2004. enterprise development analysis and design: a framework for making the case for tearfund’s development in enterprise development. london: tearfund. helms, b. 2006. access for all: building inclusive financial systems. consultative group to assist the poor (cgap). washington, d.c.: world bank. imboden, k. 2005. building inclusive financial sectors: the road to growth and poverty reduction. journal of international affairs, 58: 65-86. ledgerwood, j. 1999. microfinance handbook. an institutional and financial perspective. washington, d.c.: the world bank. microcredit summit campaign. 2009. about the microcredit summit campaign. retrieved on october 7, 2009 from http://www.microcreditsummit.org/about_the_microcredit_summit_campaign/. microcredit summit campaign. 2009. state of the campaign report archive. retrieved on october 7, 2009 from http://www.microcreditsummit.org/socr_archive/. mix. 2009. the microbanking bulletin, no. 19. washington, d.c.: microfinance information exchange inc. norbel foundation. the nobel peace prize 2006. retrieved on october 3, 2009 from http://www. nobelprize.org/nobel_prizes/peace/laureates/2006/index.html. reno-weber, b. 2008. microfinance goes mainstream. harvard kennedy school review, 8: 123-128. robinson, m. 2001. the microfinance revolution: sustainable finance for the poor. washington, d.c.: world bank publications. rosengard, j. 2001. kinks in the links: financial intermediation for africa’s poor. african economic policy discussion paper. schäfer and fukasawa advances in business research 2011, vol. 2, no. 1, 172-178 178 barres, i., bruett, t., curran, l., escalona, a., nelson, e., & norell, p. 2005. measuring performance of microfinance institutions a framework for reporting, analysis, and monitoring. washington, d.c.: the seep network. united nations. (2008, september 25). goal 1: eradicate extreme poverty and hunger. retrieved on october 6, 2009 from http://www.un.org/millenniumgoals/2008highlevel/pdf/newsroom/goal%201% 20final.pdf. united nations. (2004, november 18). press release dev/2492 obv/452. retrieved on october 3, 2009 from http://www.un.org/news/press/docs/2004/dev2492.doc.htm. kai schäfer received his mba from midwestern state university in 2010 while simultaneously earned a masters degree in environmental business administration from university of applied sciences trier in germany. he works for a business consulting firm in the field of energy and public services in germany. he has published in journal of managerial issues. yoshi fukasawa is professor of economics at midwestern state university in wichita falls, texas. he received his ph.d. in economics from kansas state university. his research interest includes international economics and the texas economy. he has published in journal of business and leadership, southwestern journal of economics, and texas business review. advances in business research 2011 volume 2.pdf heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 sales ethics: the impact of situational factors on gender evaluation differences timothy heinze, california state university, chico casey donoho, california state university, chico the number of sales positions is increasing, and the number of women in sales is growing. the current study seeks to understand gender-related ethical evaluations through testing responses to ethical situations in sales. findings indicate that 1) women are less tolerant of ethical abuse in personal selling situations, 2) ethical evaluations do not vary based on situational outcomes, and 3) situations involving money, customers, and/or the companies that employ salespeople are evaluated with less ethical tolerance. findings may be useful for pedagogical preparation and for the development of codes and training manuals within academia and industry. growing at a 9% rate, sales careers remain a bright spot in today’s economy (bureau of labor statistics, 2010). the number of women in sales and related occupations is also growing and is nearing the fifty-percent mark (bureau of labor statistics, 2010). despite the growth, ethical issues continue to haunt both public and private perceptions of sales (luthy, 2007; ramsey et al., 2007). females are generally more sensitive to ethical issues in business, and, given the increased number of women in sales, research is required to better understand the specific ways in which males and females handle ethical scenarios in sales (o’fallon and butterfield, 2005). prior studies have uncovered that 1) philosophical frameworks (moral idealism and relativism) impact ethical evaluations in sales, and 2) females are generally more idealistic than males (donoho and heinze, in press). however, philosophical framework divergence accounts for only a small portion of the variance in male/female sales ethics evaluations (donoho and heinze, in press). in a macro marketing ethics model, ethical evaluations are antecedent to decision making (hunt and vitell, 1986). this study moves prior research toward a more refined model through not only studying ethical evaluations, but also intentions. the latter constructs are tested via an experimental methodology in which unethical behavior and anticipated consequences are included within manipulated scenarios. the paper begins with a review of past research on ethics and gender-specific evaluations. particular attention is paid to selling process evaluations, positive/negative outcome influences, monetary influences, and the effects of involved parties. a series of ethical experiments and scale responses is then conducted to determine and clarify varying gender responses. first, an updated version of the personal selling ethics scale (pse-2) is used to replicate previously uncovered male/female evaluative differences related to ethical misconduct in personal selling situations. second, a positive/negative outcome experiment tests the manner in which positive or negative consequences affect ethical evaluations. finally, an experiment including money and affected parties studies the influence of money and involved parties on the relative ethical evaluations of each gender. the paper concludes by discussing the manner in which the findings may be useful in both academia and industry. the paper’s specific objectives are: 1. replicate previously uncovered differences in male/female personal selling ethics evaluations (dabholkar and kellaris, 1992; donoho and heinze, in press). 2. further the development of a gender/sales ethics model through studying the impact of situational factors (positive/negative outcomes, monetary involvement, affected parties) on gender-specific ethical evaluations. 3. suggest applications for use in both academia and industry. literature review and hypotheses informing the current study are two streams of research. the first highlights the broad question of gender variation in ethical evaluations. the second reviews specific findings related to sales ethics evaluations. 16 heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 17 ethical evaluations and gender although early feminist researchers largely discounted the notion of innate gender differences (grant, 1988), research within the past 30 years has recognized innate gender variations (pool, 1994; smith and rogers, 2000). the current sub-section reviews gender research centered on ethical evaluations. both genders consider their own ethical standards as superior (kidwell et al., 1987), but research indicates that males are generally more tolerant of ethical misconduct (beu et al., 2003; dobson and white, 1995; gilligan, 1982). the gender evaluation divide has been criticized (walker 1984; sikula and costa, 1994), but meta-reviews of ethical evaluation research generally support the contention that males are less ethically sensitive. for example, collins (2000) reviewed forty-seven studies in the journal of business ethics and found that few empirical analyses conclusively proved otherwise. similarly, although half the studies (23 papers) reviewed by o’fallon and butterfield (2005) showed few evaluation differences, the remaining studies uniformly found men to be less ethically sensitive. ford and richardson (1994) reviewed fourteen studies and found a gender evaluation difference in half the studies. similar findings emerged in weeks et al., (1999) review of ethical evaluation research. although each review uncovered a substantive number of studies with no gender evaluation differences, the remaining studies uniformly demonstrated less ethical sensitivity on the part of males. male evaluations were less ethically sensitive across a range of issues, from sexual ethics to double standards to social concerns (smith and oakley, 1997; vermeir and van kenhove, 2008). in sales, specific gender evaluation differences have been studied using dabholkar and kellaris’ (1992) personal selling ethics scale (pse). the pse presents an array of ethical situations and asks respondents to identify the degree to which they feel the situation is ethical. in the original pse, statistically significant gender differences emerged in four sales scenarios (kellaris and dabholkar, 1989). evaluation differences have also emerged in a wide variety of subsequent studies using the pse (donoho et al., 1998, donoho et al., swenson, 2003). an updated version of the pse, referred to as the pse-2 (donoho and heinze, 2011), is used to test ethical evaluation differences in the current study. in light of prior research and in order to provide a basis for the current study, the following hypothesis is proposed: hypothesis 1: females will be less tolerant of unethical behavior in sales ethics dilemmas than males. sales ethics evaluations and gender providing a foundation from which to better understand the divergence in male/female sales ethics evaluations, donoho and heinze (in press) examined the evaluative effects of moral idealism and relativism. the two perspectives flow from hunt and vitell’s (1986) general theory of marketing and can offer a nuanced view of ethical gender variation (schminke, 1997). idealistic perspectives view activities as either moral or immoral, regardless of the consequences associated with the activity. actions can be judged by universal principles as either right or wrong. relativistic, or utilitarian, frameworks propose that actions and resulting consequences cannot be separated. therefore, the relative morality of an action is dependent on the action’s effects. although donoho and heinze (in press) found that males and females possess moderately disparate ethical frameworks, they also uncovered that idealism and relativism accounted for less than 9% of the variance in gender-related sales ethics evaluations. additional factors behind evaluative disparity are clearly present and may include the presence of money and the parties that are affected by the action. dabholkar and kellaris’ (1992) original pse study uncovered that the presence of money in a sales situation heightens ethical sensitivity. likewise, donoho and heinze (2011) conducted a content analysis of recent sales material and found that the nature of involved parties (i.e. customers, company, competitors) is an important variable. therefore, the following hypotheses are proposed in order to further explore moral frameworks, monetary involvement, and affected parties: hypothesis 2: both males and females will be less tolerant of sales dilemmas whose outcomes are negative than with sales dilemmas whose outcomes are positive. heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 18 hypothesis 3: both males and females will be less tolerant of sales dilemmas which directly involve money than with scenarios that do not directly involve money. hypothesis 4: both men and women will be less tolerant of ethical misconduct in sales ethics dilemmas that affect the following parties in the following order (a. customers, b. company, c. competitors). hypothesis 5: ethical sensitivity (as measured by the pse-2) will influence experimental ethical evaluations. method to replicate prior findings regarding ethical evaluative disparity and to examine associated factors, the current study administered a scale questionnaire and conducted two experiments. the scale questionnaire consisted of an updated version of dabholkar and kellaris’ (1992) personal selling ethics scale. the new scale is referenced as the pse-2 (see donoho and heinze, 2011). it presents 20 ethical dilemmas related to the personal selling process. the scale was used as a gender divide replication device, and results were compared with prior utilizations of the scale (dabholkar and kellaris, 1992, donoho and heinze, in press). following testing of the gender divide via the pse-2, the study adapted an experiment from tanner et al., 2009. the experiment was designed to examine the relative effects of utilitarian/relativistic factors on ethical evaluations. using ethical evaluation as the dependent variable, the study reviewed two independent variables. the first was ethical behavior within the scenario (ethical or unethical), and the second was the outcome/consequence of the situation (positive or negative). the experimental situation and four experimental cells can be found in exhibit 1. the second experiment was designed to examine the relative evaluative influences of monetary involvement and affected parties. ethical evaluation was the dependent variable. the first independent variable was monetary involvement (money directly involved or not directly involved), and the second independent variable was the affected party (company, customer, or competitor). the experimental situation can be found in exhibit 2. respondents were asked to use a 7-point scale (“1” = very unethical; “7” = very ethical) to rate the ethical acceptability of the situation. exhibit 1: experimental scenario ethical/unethical behavior by positive/negative outcome scenario: salesperson x graduated from college and went to work for patman paper company, a provider of office supplies. the salesperson had recently been married and life was good. sales were slow initially, and after 6 months, the salesperson had only sold 80% of quota. a brief meeting with the sales manager indicated that this was unacceptable performance and may result in termination. what bothered salesperson x was there was an account worth 30% of quota just waiting for a deal to be made. entertaining clients is not unusual for salesperson x, especially for breakfast and lunch. the meeting with the buyer went well and the salesperson got a small order, but not enough to make quota. “there’s a lot more where that came from,” winked the buyer to the salesperson. an attractive person, the buyer leaned over and put a hand on the salesperson’s knee. “what do you say we head over to o’malley’s for happy hour and talk it over?” ethical/(unethical) behavior: the salesperson replied, “my spouse is expecting me home for dinner soon, but how about if we meet for breakfast in the morning to discuss the rest of the order?” (salesperson x agreed to go to the bar and drank and danced with the buyer until the wee hours of the morning.) positive/(negative) outcome positive/(negative) response: the buyer agreed and the next morning placed a large enough order for the salesperson to exceed quota by a generous amount. (the buyer did not place the large order with the salesperson as originally suggested. shortly thereafter, the salesperson was terminated.) heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 19 data collection and sample characteristics part of an on-going, multi-sample, multi-questionnaire study at medium-sized u.s. university in the west, the current study administered the pse-2 to 669 undergraduate business students at two western universities. the experiments, conducted separately, netted 491 usable responses. the pse-2 and experiments were administered using the survey/quiz function of the webct/blackboard learning system. the multiple surveys took less than 30 minutes to complete and were a voluntary, extra credit assignment. table 1 presents sample characteristics. males comprised 58% of the sample. the 18-24 age range represented 87% of the sample. most respondents were juniors (45.0%) or seniors (51.5%). thirty-five percent were marketing majors. seventy-six percent had 3 or more years of work experience, and only 24% had 3 or more years of sales experience. almost 40% had no sales experience. the sample generally represents today’s traditional, undergraduate business student enrolled in upper division classes. table 1: sample characteristics by gender (n = 491) male female total count percent count percent count percent chi-sq. p age 11.457 .022 20 or younger 49 17.3 54 26.0 103 21.0 21-22 137 48.4 105 50.5 242 49.3 23-24 56 19.8 25 12.0 81 16.5 25-34 35 12.4 17 8.2 52. 10.6 35+ 6 2.1 7 3.4 13. 2.6 class standing 2.315 .510 fresh/soph 8 2.8 6 2.9 14 2.9 junior 121 42.8 100 48.1 221 45.0 senior 153 54.1 100 48.1 253 51.5 graduate 1 0.4 2 1.0 3 0.6 major 9.811 .133 accounting 19 6.7 19 9.1 38 7.7 info. systems 21 7.4 5 2.4 26 5.3 economics 1 0.4 0 0.0 1 0.2 finance 20 7.1 10 4.8 30 6.1 management 50 17.7 37 17.8 87 17.7 marketing 100 35.3 72 34.6 172 35.0 other 72 25.4 65 31.3 137 27.9 work experience 12.949 .044 0 17 6.0 20 9.6 37 7.5 1 23 8.1 8 3.8 31 6.3 2 26 9.2 22 10.6 48 9.8 3 37 13.1 18 8.7 55 11.2 4 58 20.5 46 22.1 104 21.2 5-9 97 34.3 85 40.9 182 37.1 10+ 25 8.8 9 4.3 34 6.9 sales experience 16.145 .013 0 118 41.7 75 36.1 193 39.3 1 67 23.7 39 18.8 106 21.6 2 42 14.8 31 14.9 73 14.9 3 21 7.4 18 8.7 39 7.9 4 14 4.9 25 12.0 39 7.9 5-9 14 4.9 19 9.1 33 6.7 10+ 7 2.5 1 0.5 8 1.6 total 283 57.6 208 491 42.4 exhibit 2: experimental scenario money directly involved (not directly involved) by party affected (customer, company, competitor) salesperson c was involved in a certain practice that might be questionable. the practice involved (did not involve) money in a direct way. the main party affected by c's action was a customer (company, or competitor). heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 20 results pse-2 results. analyzing responses to the pse-2 allowed for confirmation of hypothesis 1 (see table 2 for description of all 20 pse-2 ethical dilemma scenarios). gender differences clearly exist in the pse-2 scale, and this finding confirms and mirrors the findings of prior studies (dabholkar and kellaris, 1992; donoho and heinze, 2011). gender table 2 presents the results. a manova of the 20 pse-2 scale items by gender was conducted, resulting in significant gender differences (wilks’ lambda = 2.651, p = .000). individual anovas revealed that 6 scale items (offer monetary bribe to buyer, inflate expense report, sneak vacations on company time, sneak vacations on company time, false promises used to close sale, cheating on the bidding process and charging customers different prices) were responsible for the rejection. all six items were viewed as less ethical by females (p < .05). additionally, the mean for all 20 pse-2 items was significantly lower for females than for males (f = 3.83, p < .033). thus, females are less tolerant of ethical misconduct in sales than are males. table 2: gender differences in the pse-2 scale (1 = very unethical, 7 = very ethical) pse pse2 ethical scenarios male serror female serror f sig. f 1 offer monetary bribe to buyer 2.74 .07 2.52 .08 4.76 .029 2 steal from competitor at trade show 1.95 .06 1.82 .07 1.97 .161 3 inflate expense report 2.61 .07 2.18 .08 18.48 .000 4 sneak vacations on company time 2.55 .07 2.29 .08 6.62 .010 5 conflict of interest with company (moonlighting) 3.33 .09 3.15 .10 1.98 .160 6 lavish entertaining 3.71 .08 3.50 .09 2.99 .084 7 cheating on sales contest 2.43 .07 2.30 .08 1.75 .186 8 false promises used to close sale 2.31 .06 2.13 .07 4.32 .038 9 cheating on bidding process 4.02 .08 3.77 .09 3.99 .046 10 fear exploitation used to close sale 4.04 .08 4.10 .09 0.23 .630 11 frequent flyer abuse 3.22 .09 3.26 .10 0.81 .777 12 information leaks about one customer to another 2.95 .07 2.89 .08 0.39 .535 13 withholding information to customer about product 3.90 .07 3.70 .08 3.29 .070 14 defamation of a competitor 3.58 .07 3.48 .08 1.02 .314 15 tying agreement 3.46 .08 3.42 .09 0.13 .715 16 charging customer different prices 3.93 .09 3.44 .10 14.30 .000 17 puffery 5.11 .08 5.20 .09 .56 .457 18 reciprocity 4.42 .08 4.63 .09 2.95 .086 19 special treatment 4.48 .08 4.61 .09 1.00 .318 20 scarcity (excessively limited choice) 3.59 .08 3.63 .09 0.11 .745 pse-2 pse-2 mean (of all scale items) 3.42 .03 3.30 .04 4.580 .033 manova (wilks’ lambda) pse-2 20 scale items by gender 2.651 .000 cronbach alpha = .802 table 3: means ethical evaluation by gender of salesperson and gender pse 7 pse 9 pse 2 pse x male male salesperson 2.48 4.21 2.27 4.17 female salesperson 2.64 4.17 2.28 4.14 total 2.57 4.19 2.27 4.16 female male salesperson 2.37 3.82 2.22 4.37 female salesperson 2.38 4.13 2.07 3.96 total 2.38 3.98 2.15 4.18 total male salesperson 2.43 4.05 2.25 4.25 female salesperson 2.53 4.15 2.19 4.06 total 2.48 4.10 2.22 4.17 pse scale male 2.43 4.02 1,95 n/a items female 2.30 3.77 1.82 n/a additional analysis utilizing the pse-2 was also conducted to determine the competence of the pse-2 in predicting how current student respondents will make ethical evaluations in their future industrial careers. four scenarios were chosen based on their representation of the full ethical spectrum. results (see table 3 above) indicated that the gender of the salesperson did not significantly affect ethical evaluations. heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 21 overall, ethical sensitivity was significantly related to each scenario, and therefore, the pse-2 scale mean is a good predictor of how “future managers” will make their ethical evaluations. note: pse-7, 9, and 2 are “repeats” from the actual scale modified for gender. the pse-2 scale was part of survey 1, and the gender manipulation was part of survey 2. experiment 1 results. a manipulation check of the first experiment indicated that the ethical and unethical scenarios were clearly evaluated as different (f = 35.3, p = .000). to test h2 (both males and females will be less tolerant of sales dilemmas whose outcomes are negative than with sales dilemmas whose outcomes are positive), a series of tests was conducted. first, it was hypothesized that scenarios with positive outcomes would be evaluated as more ethical than scenarios with negative outcomes. this hypothesis was not confirmed (f = 1.2, p = .279). however, there was an interaction effect between ethical/unethical behavior and outcome (f = 8.2, p = .004). for the ethical behavior scenario, the scenario was considered more ethical if there was a negative outcome, while for the unethical behavior, the scenario was considered more ethical if there was a positive outcome. second, it was hypothesized that females would evaluate the scenarios as less ethical than males. the hypothesis was confirmed (f = 10.4, p = .001) and was followed by a test of the hypothesis that ethical evaluation would be lower for respondents who have lower pse-2 mean scores (ethically sensitive). tests results confirmed this hypothesis (f = 10.4, p = .001). next, in line with the hunt & vitell (1986) model of marketing ethics, it was hypothesized that ethical evaluations are positively related to ethical intentions. ethical intentions were measured via two questions that addressed 1) personal ethical intentions regarding the situation and 2) the relative degree to which the situation fell within accepted social norms. results confirmed the hypothesis (males r2 =.392, females r 2 = .621, total r 2 = .522). ethical evaluations are positively related to ethical intentions. likewise, social norm evaluations are positively related to social norm ethical intentions (males r 2 = .208, females r 2 = .149, total r 2 = .297). finally, personal ethical evaluations have a larger effect on ethical intentions than do social norm evaluations (males: norm eval std. beta = .244, personal ethical eval std. beta = .499; females: norm eval std. beta = .373, personal ethical eval std. beta = .519; total: norm std. beta = .277, personal ethical evaluation std. beta = .537). for females, the “normative” effect is larger (42% = .373/.892) than for males (33% = .244/.743), indicating that females are more prone to take the views of others into consideration when making their own ethical evaluations. table 4: means ethical evaluation by behavior (ethical, unethical) and outcome (positive, negative) (1=strongly disagree, 7=strongly agree) male positive outcome negative outcome total ethical behavior 4.94 5.26 5.11 unethical behavior 3.96 3.49 3.76 total 4.42 4.45 4.43 female positive outcome negative outcome total ethical behavior 4.37 5.31 4.68 unethical behavior 2.87 2.85 2.86 total 3.72 3.66 3.69 table 5: anova ethical evaluation by behavior (ethical, unethical) and outcome (positive, negative) source df mean square f sig eta squared corrected model 8 53.7 18.8 .000 .238 ethical/unethical behavior 1 320.7 112.0 .000 .189 positive/negative outcome 1 3.36 1.2 .279 .002 behavior by outcome 1 23.5 8.2 .004 .017 gender by behavior 1 10.2 3.6 .059 .007 gender by outcome 1 5.7 2.0 .159 .004 gender by behavior by outcome .4 0.1 .707 .000 gender 1 29.9 10.4 .001 .021 pse-2 mean 1 33.1 11.6 .001 .023 heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 22 table 6: regression: intentions by ethical evaluations dependent variable: sexh3 i would act in the very same way independent variables: sexh i consider the action very ethical sexh2 most people consider the action very ethical pse-2 sales ethics scale (ethical sensitivity) (1=strongly disagree, 5=strongly agree) adj. r2 f sig. f std beta t p males .418 112.2 .000 i consider the action very ethical .499 9.3 .000 most people consider the action very ethical .214 4.0 .000 females .686 265.7 .000 i consider the action very ethical .519 9.9 .000 most people consider the action very ethical .373 7.1 .000 total .563 406.8 .000 i consider the action very ethical .537 15.1 .000 most people consider the action very ethical .277 7.8 .000 table 7: regression intentions by ethical evaluation personal and social norm i would act in the same way adj. r2 f sig.f std eta t p males: i consider the action very ethical .392 201.5 .000 .628 14.2 .000 females: i consider the action very ethical .621 398.3 .000 .789 20.0 .000 total: i consider the action very ethical .522 690.1 .000 .723 26.3 .000 most people would act in the same way adj. r2 f sig.f std eta t p males: most people consider the action very ethical .208 165.3 .000 .456 12.9 .000 females: most people consider the action very ethical .149 55.5 .000 .390 7.5 .000 total: most people consider the action very ethical .297 103.1 .000 .547 10.2 .000 in summary, results associated with experiment 1 (see tables 4-7 above) indicate that ethical evaluations were not different in the positive or negative outcome conditions (p-.235), females evaluated the scenario as less ethical than their male counterparts (p = .001), and the experimental factors explained about 21% of the variance in ethical evaluations. experiment 2 results. experiment 2 was conducted to test h3 (both males and females will be less tolerant of sales dilemmas which directly involve money than with scenarios that do not directly involve money) and h4 (both men and women will be less tolerant of ethics situations that affect the following parties in the following order (a. customers, b. company, c. competitors)). results indicate that scenarios in which money is directly involved are viewed as less ethical than those in which money is indirectly involved (f = 5.6, p = .019). likewise, it was partially confirmed that scenarios in which customers are affected are viewed as less ethical than those in which the company or the competition is affected (f = 7.5, p = .001). however, pairwise comparisons showed that the difference lies between customer/company and competitors, but not between customers and company. in the scenario in which money was directly involved, females ordered their evaluations in the hypothesized manner (customers, company, competitors). second, females were found to evaluate the scenarios as less ethical than males (f = 9.9, p = .003). finally, h5 was confirmed. the pse-2 was found to be a good predictor of ethical evaluations in experiment 2 (f = 57.7, p = .000). in summary, experiment 2 results (see tables 8-10 below) indicate that respondents evaluate situations involving money as less ethical than situations in which money is not directly involved (p<.062). additionally, situations that affect customers or the company are evaluated as less ethical than situations that affect competitors. females evaluate the scenario as less ethical than their male counterparts (p = .001), and the experimental factors explained approximately 5% of the variance in ethical evaluations. heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 23 table 8: means ethical evaluation by money involved and party affected male customer company competition total money directly involved 2.96 2.74 3.43 3.04 money not directly involved 3.26 3.28 3.41 3.32 total 3.1 3.02 3.42 3.18 female customer company competition total money directly involved 2.23 2.69 3.11 2.66 money not directly involved 2.75 2.65 3.13 2.81 total 2.51 2.67 3.12 2.73 table 9: anova ethical evaluation by money involved and party affected source df mean square f sig eta squared corrected model 12 11.9 8.4 .000 .173 money involved (directly, not directly) 1 8.0 5.6 .019 .012 party affected (company, customer, competitor) 2 10.7 7.5 .001 .030 gender by money involved .4 .3 .570 .001 gender by party affected 1.7 1.2 .303 .005 money involved by party affected 2.3 1.6 .206 .007 gender by money involved by party affected 2.5 1.8 .170 .007 gender 13.0 9.9 .003 .019 pse-2 mean 82.6 57.7 .000 .108 discussion, limitations, and recommendations pse-2 overall conclusions confirm prior findings (dabholkar and kellaris, 1992; donoho and heinze, in press), indicating that females are often less tolerant of ethical misconduct in the sales arena. in the current study, females were more sensitive across the 20 situational items in the pse-2 and in two small experiments that manipulated several ethical factors. although the current study merely confirmed prior gender evaluation research utilizing the personal selling ethics scale (dabholkar and kellaris, 1992; donoho and heinze, 2011), it did additionally demonstrate the scale’s ability to predict ethical evaluations. the utility of the scale is therefore markedly increased for those within academia and industry. experiment 1 the model associated with experiment 1 explained approximately 24% of the variation in ethical evaluation, with the ethical/unethical behavior factor explaining a larger portion of the variation. if ethical behavior is in question, both males and females evaluated negative outcomes as more ethical than positive outcomes. rescheduling the appointment for the next morning was evaluated as quite ethical, and being fired for doing the right thing was evaluated as more ethical than making the sale. therefore, both females and males “rewarded” ethical behavior when it was accompanied by a known, negative outcome. however, with the unethical behavior in experiment 1, the outcomes did not affect female evaluations. conversely, male evaluations were affected. males viewed the unethical scenario as less ethical when associated with a negative outcome than when associated with a positive outcome. an explanation could be the impact of relativism/utilitarianism. prior research on moral frameworks and sales evaluation indicates that males are more relativistic/utilitarian than females (donoho and heinze, in press). since females lean toward moral idealism in sales scenarios (donoho and heinze, in press), the positive or negative outcomes associated with experiment 1 did not pragmatically influence their judgment of the relative morality of the action. however, relativistic males were more likely to color their ethical evaluations based on situational outcomes. limitations associated with experiment 1 include the unrealistic fact that the “consequence” of the described action was known with 100% probability. in “real-life” situations, consequences have unknown heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 24 probabilities and weights must be determined by the individuals making the evaluation (hunt and vitell, 1986). second, confounding variables may have colored responses. for example, the description of the “new” spouse may have unintentionally increased ethical sensitivity. finally, experiment 1 was gender neutral. most respondents likely assumed that the buyer was a member of the opposite sex, and this assumption could influence responses. future studies should include a follow-up question in which respondents are asked to identify their assumptions regarding the buyer’s gender. experiment 2 the second experiment clarified evaluative differences related to important factors such as the presence of money and the nature of the involved parties. as expected, the presence of money increases evaluative stringency. likewise, the involved party increases ethical sensitivity to the situation, with situations involving customers and the company being evaluated with less tolerance. overall, females were shown to be less tolerant of ethical misconduct than were males. recommendations although prior research indicates that moral idealism and relativism are not the only drivers behind male/female evaluative differences (donoho and heinze, in press), the influence of these variables is still strongly felt. gender differences in experiment 1 can be partially, yet plausibly, explained by genderrelated moral stance variation. experiment 2 added additional factors by which the overall model is strengthened. nevertheless, the importance of moral frameworks remains and should be considered as a key component in academic and corporate ethical sales training. the study’s first recommendation moves beyond gender and highlights the importance of including ethical sales training in both academia and industry. the overall mean pse-2 score (males, 3.42; females 3.30) indicate that today’s students have fairly tolerant evaluations of ethical misconduct in sales. most pse-2 scenarios involve serious ethical breaches, but respondents averaged an evaluation that fell between “somewhat unethical” and “neither unethical nor ethical.” this average response indicates that a large percentage of respondents are tolerant of ethical misconduct in sales. the study’s second implication concerns the use of morally idealistic frameworks in sales training. regardless of gender, individuals who favor idealistic frameworks exhibit increased ethical sensitivity. idealistic approaches also provide a foundation from which to discuss situational factors such as the presence of money or variation in the involved parties. therefore, encouraging idealistic orientations may increase the likelihood of positive ethical responses to ethically questionable sales scenarios. teachers and training managers can incorporate idealistic perspectives through using ethical codes or practical representations of ethical codes (e.g. pse-2). third, situational and relativistic perspectives should also be included in training since there are a large number of individuals (especially men) who hold these perspectives (donoho and heinze, in press). these orientations can be addressed through reviewing situational variables (such as the presence of money or the unique party involved) within the context of ethically idealistic frameworks. in this manner, relativists can be introduced to the utility and necessity of idealistic frameworks. finally, additional work is required to develop a truly comprehensive model of ethical sales evaluations and gender. the current paper highlights important elements of the model, but further research is still required. conclusion despite the growth in sales and the increasing number of women in sales-related occupations, ethical issues continue to negatively color public and private perceptions of sales. since females are generally more sensitive to ethical issues in business, the current study reviewed ethical evaluations variations heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 25 through testing gender responses to ethical situations in sales. the personal selling ethics scale (pse-2) was used to confirm gender-related evaluative differences toward ethical misconduct in personal selling situations. second, a positive/negative outcome experiment tested the manner in which positive or negative consequences affect ethical evaluations. finally, an experiment including money and affected parties studied the influence of money and involved parties on the relative ethical evaluations of each gender. findings indicated that 1) women are less tolerant of ethical abuse in personal selling situations, 2) ethical evaluations do not vary based on situational outcomes, and 3) situations involving money, customers, and/or the companies that employ salespeople are evaluated with less ethical tolerance. findings may be useful for pedagogical preparation and for the development of codes and training manuals within academia and industry. references beu, d., buckley, m., & harvey, m. 2003. ethical decision-making: a multidimensional construct. business ethics: a european review, 12: 88-106. bureau of labor statistics. 2010. employed persons by detailed occupation, sex, race, and hispanic or latino ethnicity. retrieved on march 11, 2010 from http://www.bls.gov/cps/cpsaat11.pdf. collins, d. 2000. the quest to improve the human condition: the first 1,500 articles published in the journal of business ethics. journal of business ethics, 26: 1-73. dabholkar, p., & kellaris, j. 1992. toward understanding marketing students’ ethical judgment of controversial personal selling practices. journal of business research, 24: 313-329. dobson, j., & white, j. 1995. toward the feminine firm: an extension to thomas white. business ethics quarterly, 5: 463-478. donoho, c., & heinze, t. 2011. the personal selling ethics scale: revisions and expansions for teaching sales ethics. journal of marketing education, 33: 107-122. donoho, c., & heinze, t. (in press). gender differences in personal selling ethics evaluations: do they exist and what does their existence mean for teaching sales ethics? journal of marketing education. donoho, c., herche, j., & swenson, m. 2003. a cross cultural study of the effects of achievement and relationship values on student evaluations of personal selling ethical dilemmas. marketing education review, 13: 53-63. donoho, c., polonsky, m., cohen, d., balazs, a., herche, j., swenson, m., & smith, m. 1998. a preliminary investigation of the universality of the personal selling ethics scale. contemporary issues in international business and marketing, 1: 109-122. ford, r., & richardson, w. 1994. ethical decision making: a review of the empirical literature. journal of business ethics, 13: 205-221. gilligan, c. 1982. in a different voice. cambridge, ma: harvard university press. grant, j. 1988. women as managers: what they can offer to organizations. organizational dynamics, 16: 56-63. hunt, s., & vitell, s. 1986. a general theory of marketing ethics. journal of macromarketing, 6: 5-16. kellaris, j., & dabholkar, p. 1989. the pse scale: a scenario-based approach to assessing the ethical sensitivity of sales students and professionals. proceedings of the pi sigma epsilon national conference in sales management, new orleans, louisiana, 32-37. heinze and donoho advances in business research 2011, vol. 2, no. 1, 16-26 26 kidwell, j., stevens, r., & bethke, a. 1987. differences in ethical perceptions between male and female managers: myth or reality? journal of business ethics, 6: 489-493. luthy, m. 2007. influences on undergraduates considering a career in professional selling. academy of educational leadership journal, 11: 1-7. o’fallon, m., & butterfield, k. 2005. a review of the empirical ethical decision-making literature: 19962003. journal of business ethics, 59: 375-413. pool, r. 1994. eve’s rib: searching for the biological roots of sex differences. new york: crown publishers. ramsey, r., marshall, g., johnston, m., & deeter-schmelz, d. 2007. ethical ideologies and older consumer perceptions of unethical sales tactics. journal of business ethics, 70: 191-207. schminke, m. 1997. gender differences in ethical frameworks and evaluation of others’ choices in ethical dilemmas. journal of business ethics, 16: 55-65. sikula, a., & costa, a. 1994. are women more ethical than men? journal of business ethics, 13: 859871. smith, a., & rogers, v. 2000. ethics-related responses to specific situation vignettes: evidence of gender-based differences and occupational socialization. journal of business ethics, 28: 73-86. smith, s., & oakley, e. 1997. gender-related differences in ethical and social values of business students’ implications for management. journal of business ethics, 16: 37-45. tanner, j., honeycutt, e., & erffmeyer, r. 2009. sales management: shaping future sales leaders. upper saddle river, nj: prentice hall. vermeir, i., & van kenhove, p. 2008. gender differences in double standards. journal of business ethics, 81: 281-295. walker, l. 1984. sex differences in the development of moral reasoning: a critical review. child development, 55: 677-691. weeks, w., moore, c., mckinney, j., & longenecker, j. 1999. the effect of gender and career stage on ethical judgment. journal of business ethics, 20: 301-313. tim heinze is an assistant professor of marketing at california state university, chico. he received his ph.d. in organizational management with an emphasis in marketing from capella university. his current research interests include sales ethics, generation y marketing, and impression management. he has published in journal of marketing education, research in consumer behavior, journal of business & economics research, and others. casey donoho is an associate professor of marketing at california state university, chico. he received his ph.d. in marketing from university of oregon. his current research interests include sales ethics, marketing case research, and sales education pedagogy. he has published in journal of business research, journal of marketing education, journal of services marketing, case research journal, and others. advances in business research 2010 volume 1.pdf 94 advances in business research !"#$%&'()*'(+",*-.+/" (0" 1,2" 33(0.4*0.",35''&6"'7"2-64!066"80)354!9"#*5436"2)60." '!"*50"#*5436"#.-3)*4'!"8)6:";'(30"<03'==0!.)*4'!6> victor heller, university of texas san antonio nathan heller, tarleton state university janis petronis, tarleton state university business leaders have tried to use one set of ethics for their professional responsibilities, another for their personal activities and still another for their family responsibilities. this circle of circumstantial ethics has gotten many leaders !"#$"%#&'()*$+", -.$ .$)", -./$0 1)!$"#2345.$)", -3($-,3(()!6).7$'&. !)..$)", -.$ .$ ",)$."&24$#8$,#9$:)%.#!3($;#%3($ !#%;.$3::(4$"#$",)$3-" 1 " ).$3!2$6#3(.$#8$",)$'&. !)..*$<#%$:&%:#.).$#8$", .$:3:)%7$'&. !)..$)", -.$ .$2)=!)2$3.$",)$ study of how individuals, at all levels of an business, try to make decisions and live their lives according to a standard of right or wrong behavior, business ethics is not a separate moral standard, but the study of how the business environment poses its own unique challenges for the moral person who acts as an agent of the business. this paper examines the standards established for business ethics education in aacsb accredited undergraduate programs, the ethical challenges in today’s society, and a review of aacsb accredited business school courses to determine if they are addressing the aacsb standards and the ethical challenges in today’s business world. !"#$%"&'() *!+,) &-') "#./'#&)0!''1$2) '&-/.$) !'*'!$) &+) +#'3$) &-'+!4) +*) %/*') 56'$7"!(/#$2) 899:;<) =&) "((!'$$'$) &-') >?'$&/+#2)-+@)$-+?%()=)%/a'),4)%/*'b)5c/.1$)"#()d"%,'!2)899:;<)e?$/#'$$)'&-/.$)/$)+*&'#)('f#'()"$)&-')@!/&&'#)"#() unwritten codes of principles and values that govern decisions and actions within a business. in the business world, the business’s leaders and culture sets the standards for determining the difference between good and bad decision making and behavior. the phrase business ethics is used to describe the actions of individuals within a business, as well as the business "$)")@-+%'<) -?$2)g?$/#'$$)'&-/.$)/$)")a"$&)f'%()+*)$&?(4)!'h"!(/#h)&-')g?$/#'$$3)$/&?"&/+#$2)".&/a/&/'$2)"#()('./$/+#$) @-'!')/$$?'$)+*)!/h-&)"#()@!+#h)"!')"((!'$$'()5i!"#')"#()j"&&'#2)89k9;<)0/a'#)&+("43$)'&-/."%).-"%%'#h'$2)g?$/#'$$) ethics is the study of how personal moral norms apply to the activities and goals of the business. ethicist ghillyer, 5899:;2)('f#'$)g?$/#'$$)'&-/.$)"$)&-'l$&?(4)+*)-+@)m'+m%')&!4)&+)%/a')&-'/!)%/a'$)"..+!(/#h)&+)")$&"#("!()+*)+!)!/h-&) or wrong behavior, in both how they think and behave towards others and how they would like them to think and behave toward us. for some, it is a conscious choice to follow a set of moral standards or ethical principles that provide guidance on how they should conduct themselves in their daily lives. for others, where the choice is not so clear, they look to the behavior of others to determine what is an acceptable standard of right, and wrong or good and g"()g'-"a/+!<)n+@)&-'4)"!!/a')"&)&-')('f#/&/+#)+*)@-"&3$)!/h-&)+!)@!+#h)/$)")!'$?%&)+*),"#4)*".&+!$2)/#.%?(/#h)-+@)&-'4) were raised, their spiritual orientation, and the traditions and beliefs of their culture and society. business ethics is not a separate moral standard, but the study of how the business environment poses its own ?#/>?').-"%%'#h'$)*+!)&-'),+!"%)m'!$+#)@-+)".&$)"$)"#)"h'#&)+*)&-')g?$/#'$$<)e?$/#'$$)'&-/.$)('"%$)@/&-)&-').-+/.'$) of what the laws are verses what they should be and whether or not to follow them or how to follow them. it is the choices about the social and economic issues outside the domain of the law, and choices about the priority of selfinterest over the business’s interest. for decades leaders have tried to use one set of ethics for their professional responsibilities, another for their personal activities and still another with their family responsibilities. this circle of circumstantial ethics has gotten %'"('!$)/#&+)&!+?g%'<)o),+!"%%4)'(?."&'()%'"('!)/$)+#'2)@-+)/$)p'>?/mm'()@/&-)'&-/."%)"@"!'#'$$2)'&-/."%)!'"$+#/#h) $1/%%$l"#()/$)m+$&?!'()&+)$-+?%('!)&-')(?&/'$)"#()!'@"!($)+*)5'&-/."%;)$&'@"!($-/m2)/#.%?(/#h).+#$/('!"&/+#)+*),?%&/m%') $&"1'-+%('!$3).+#.'!#$2)g'*+!'),"1/#h)('./$/+#$)"#()?$/#h)m+@'!)!'$m+#$/g/%/&4q)57".1$+#2)899r;<)e"("!"..+)5k::8;) noted that leaders have four spheres of ethical responsibility; as a person, as a business leader, as an economic agent, "#()"$)".&/#h)g'4+#()&-')f!,3$)g+?#("!/'$<) -?$2)'&-/.$)/$)'&-/.$s) e?$/#'$$)'t/$&$)&+),"1')")m!+f&<)c/&-+?&)m!+f&$2)")g?$/#'$$).+?%()#+&)g')$?$&"/#'(<) -')'.+#+,/.)m+/#&)+*)a/'@)/$) &-'!'*+!')"#)'$$'#&/"%)*".&+!)/#)"%%)g?$/#'$$)('./$/+#u,"1/#h<)n+@'a'!2)%+#hu&'!,)$?$&"/#"g/%/&4)!'>?/!'$)&-"&)g?$/#'$$) leaders build relationships with key stakeholders. stakeholders are those individuals and outside organizations '$$'#&/"%)*+!)&-')$?!a/a"%)+*)&-')g?$/#'$$<)d!/,"!4)$&"1'-+%('!$)/#.%?('v)',m%+4''$2)f#"#./"%)/#$&/&?&/+#$2)$-"!'-+%('!$2) customers, vendors and suppliers, government regulators and community-at-large. secondary stakeholders include; government regulators, special interest groups, citizens at large, etc., to mention a few. when making an economic 2010, vol. 1, no. 1, 94-102 heller, heller and petronis 95 advances in business research ('./$/+#2)%'"('!$)$-+?%()"$1)&-',$'%a'$w)=$)&-/$)('./$/+#)/#)&-')g?$/#'$$3$)g'$&)'.+#+,/.)/#&'!'$&2)/$)&-/$)('./$/+#)/#) my best economic interest as a leader, and is this decision in the business stakeholders’ best economic interest. it is essential that business leaders take into consideration the legal environment within which they operate. p=*)/&3$)%'h"%2)&-'#)/&3$)xy2q)'tm!'$$'$)&-')m'!.'m&/+#)&-"&)&-')%"@)/$)")$?*f./'#&),+!"%).+,m"$$)*+!)g?$/#'$$)%'"('!$) &+) "#.-+!) &-'/!) ('./$/+#$<)n+@'a'!2) /$) &-/$) "%@"4$) &!?'b) =$)@-"&) /$) %'h"%) $4#+#4,+?$)@/&-) (+/#h)@-"&) /$) !/h-&b) n+@)(+)g?$/#'$$)%'"('!$)1#+@)@-"&)/$)%'h"%)"#()!/h-&b)e?$/#'$$)%'"('!$)?$')%"@$)"#()h+a'!#,'#&)!'h?%"&/+#$)"$) h?/('$) *+!) ('./$/+#u,"1/#h<)n+@'a'!2) h+a'!#,'#&"%) !?%'$) "#() !'h?%"&/+#$) "!') +*&'#) #+&) ('f#/&/a') "#() "!') +m'#) for interpretation. laws may not be clear and law making is slow. they, therefore, have to look to the courts for /#&'!m!'&"&/+#$)+*)%"@$)"#()!'h?%"&/+#$<)i+?!&)."$'$)."#)&"1')4'"!$)&+)f#"%/z'2)4'&)g?$/#'$$)%'"('!$)-"a')&+).+,m%4) with laws and regulations today. however, the strength of the legal point of view, as a guide for business decisions, is &-"&)&-')%"@)/$)&-').+(/f."&/+#)+*)$+./'&43$)a"%?'$<) -?$2)&-')%"@)-"$)-/$&+!/."%%4)"((!'$$'(),"#4)+*)&-')'&-/."%)/$$?'$) that arise in business. business leaders often respond to pressures from the external political environment within which they operate. they may be challenged to make decisions which may or may not be in their best short-term economic interests, but may be in the business’ long-term economic interests. additionally, business leaders may make external political decisions based on the best interests of the broader industry needs of which they are a part. examples can include political contributions to candidates, political parties, political action committees, and industry lobbying efforts. like all individuals, business leaders may make emotional decisions. external or internal pressures from various stakeholders, personal interests, or personal ego may lead to such decision-making. such decisions, when not found to be economically feasible, are often disguised as “good public relations” or “good brand awareness” opportunities. [/#"%%42)g?$/#'$$)%'"('!$),"1')'&-/."%)('./$/+#$)g"$'()+#),+!"%)*+?#("&/+#$<)o$)'&-/./$&)i/?%%"2),"!&/#)"#()\+%+,+#) 5899];)#+&'(2)@-"&) /$) &-/#1/#h)'&-/."%%4b)=&) /$) &-/#1/#h)/#)&'!,$)+*).+,m%/"#.')@/&-)&-')!?%'$2) /,m%/./&)"$)@'%%)"$) explicit, thinking in terms of the contributions one can make as well as one’s own possible gains, thinking in terms +*)"a+/(/#h)-"!,*?%).+#$'>?'#.'$)&+)+&-'!$)"$)@'%%)"$)+#'$'%*< business decision-making is sloppy. leaders should examine all points of view without one view dominating &-')+&-'!$<)[+!) &+("43$)g?$/#'$$) %'"('!$2) &-!'')+*) &-')fa')m+/#&$)+*)a/'@),?$&)g')g"%"#.'()"h"/#$&) &-')+&-'!) &@+<) economic, legal and ethical decision-making represents an integrated approach. political and emotional decision making can seldom be integrated into the other three. often, they stand alone as the sole decision making referent. the integrative approach can maintain consistency and continuity for long-term business sustainability. the beginning of the 21st)i'#&?!4)$"@)?#m!'.'('#&'()g?$/#'$$)$."#("%$)/#)o,'!/."<)̂ ",'$)%/1')e!/&/$-)d'&!+%'?,2) _#!+#2) o('%m-/"2) n"%%/g?!&+#2) c+!%(i+,2) 4.+2) o!&-?!) o#('!$+#2) 64#'h42) "#() `?'$&) (+,/#"&'() &-') m?g%/.3$) "@"!'#'$$) +*) g?$/#'$$) $."#("%$<)n"#(4) 58998;) #+&'() &-"&v) *'@) g?$/#'$$) %'"('!$2) &-"#1*?%%42) -"a') g''#) h?/%&4) +*) deliberate fraud or wickedness. all they’ve been doing is playing the game according to the new rules. unfortunately, &-')o,'!/."#)m?g%/.)@"$)?#.+,*+!&"g%')@/&-)&-'$')#'@)!?%'$<) -')m?g%/.3$).+#f('#.')-"$)@'"1'#'()/#)g?$/#'$$) america was shaken by excessive salaries and buyouts for leaders in poor performing companies, exorbitant earning g4)'#'!h4).+,m"#/'$2)+?&$+?!./#h)+*) a+g$) &+)('a'%+m/#h)#"&/+#$2) "#() &-') *"/%?!')+*)f#"#./"%) /#$&/&?&/+#$)"#() &-') automobile industry. ethics programs, as was expected, were effective in improving the ethical culture of businesses (trevino and e!+@#2)899bv)y"m&'/#)"#()oa'%/#+2)899cv)y"m&'/#2)899d)"#()y"m&'/#2)899:;<)i!/&/.$).%"/,)&-"&)g?$/#'$$)$.-++%$)-"() encouraged their students to focus too much on analytical skills in order to manipulate bottom line performance "&)"%%).+$&$)@/&-+?&).+#$/('!"&/+#)+*)&-')'&-/."%)/,m%/."&/+#$)+*)&-'/!)".&/+#$)5j/&!+**2)899bv)0-+$-"%2)899c;<) -'4) also argued that the theoretical foundations of business education were linked to ethical lapses of leaders trained in business schools. business schools traditionally had taught transaction based economics, economic liberalism, +!)"h'#.4)&-'+!4)*+.?$/#h)+#)$-+!&u&'!,)m!+f&$)"&)&-').+$&)+*)%+#hu&'!,)m!+f&"g/%/&4)"#()$&"1'-+%('!$)!'%"&/+#$-/m$) 5j/&!+**2)899b;<)_&-/./$&$)"!h?'()&-"&)&-')&'".-/#h)+*)&-'$')&-'+!/'$)-"()*!''()g?$/#'$$)$&?('#&$)*!+,)")$'#$')+*),+!"%) !'$m+#$/g/%/&4)50+$-"%2)899cv)d+(+%#42)899:;<)) business schools took pride in, and marketed the success of their graduates, but they failed to assume any !'$m+#$/g/%/&4)*+!)&-'/!)'&-/."%)*"/%?!'$<)o#+&-'!)"!h?,'#&)*+!)&-')%".1)+*)"('>?"&')'&-/.$)'(?."&/+#)/#)g?$/#'$$)$.-++%$) @"$)&-').+,m'&/&/a')#"&?!')+*)#"&/+#"%)!"#1/#h$<) -'$')!"#1/#h$)+*)g?$/#'$$)$.-++%$)m%".'()',m-"$/$)+#)>?"#&/&"&/a') "#"%4$/$).+?!$'$)"#()$./'#&/f.)!'$'"!.-)m?g%/$-'()g4)&-')*".?%&4<)e'##/$)"#()x3 ++%')5899c;)#+&'()&-')!++&)."?$') of problems in management education was that business schools had adapted this self-defeating model of business '(?."&/+#<))d+(+%#4)5899:;)'tm"#('()&-/$)"!h?,'#&)g4)#+&/#h)&-"&)g?$/#'$$)$.-++%$)&"?h-&),"#4)&'.-#/."%)$1/%%$2)g?&) they appeared to do little to foster responsibility or accountability. he went on to note that business schools taught %'"('!$-/m)"$)")$+*&2)g/h)m/.&?!'u+!/'#&'().+?!$'2)(/$&/#.&)*!+,)&-')('&"/%$)+#)@-/.-)-"!()>?"#&/&"&/a').+?!$'$)*+.?$'(<) leadership was about setting vision, not the detail work that was done without consciously considering factors such "$)a"%?'$)"#()'&-/.$)5d+(+%#42)899:;<)o#+&-'!)!++&)m!+g%',)!'%"&/#h)&+)'&-/.$)m!+h!",$)/#)g?$/#'$$)$.-++%$2)/('#&/f'() 2010, vol. 1, no. 1, 94-102 heller, heller and petronis 96 advances in business research g4)\?&&+#)5899:;2)@"$)p&-"&)&++),"#4)5g?$/#'$$)$.-++%$;)@'!')/#*'$&'()@/&-)"$$?,m&/+#$)&-"&)!'/#*+!.'()"#()g!+?h-&) out the worst in human beings. most economists are clueless about the nitty-gritty of management, which cannot be captured in elegant mathematical model.” y'!!)5899:;)"(a+."&'()&-"&)g?$/#'$$)$.-++%$)$-+?%()#+&)g')-'%()"..+?#&"g%')*+!)&+("43$)f#"#./"%)"#()'.+#+,/.) crisis. however, he noted the public has the right to expect our business schools to teach right from wrong relating &+)g?$/#'$$)m!/#./m%'$)"#()m!".&/.'$<)6+#+a"#)5899:;)!'/#*+!.'()&-/$)!'"$+#/#h)g4)#+&/#h2)p=$) /&) &-')!'$m+#$/g/%/&4) +*)$.-++%$) &+) &'".-)'&-/.$b) =) &-/#1) /&) /$ug?&)+#%4) /*) /&) /$)(+#') /#) &-') !/h-&)@"4l&-'4)5$&?('#&$;)#''()")$/,m%') &++%) kit that they can understand and have at the ready, not an impression that all ethics are relative or just intellectual chewing gum.” 7'##/#h$)5899r;)"!h?'()&-"&2)p/&)@"$)#+&)&-')1#+@%'(h')+*)g?$/#'$$)'&-/.$)&-"&)@"$)%".1/#h)/#)%'"('!$2)g?&)")%".1) +*)")$&!+#h),+!"%).-"!".&'!)&+)!'$/$&)@!+#hu(+/#h)/#)&-')*".')+*)m!'$$?!'$<q)j'!!/&&)5899e;)"#()e'hh$)"#()6'"#)5899];) #+&'()&-"&2)g?$/#'$$)'&-/.$)'(?."&/+#)@"$)@-'!')."!''!$)g'h/#2)"#()/&)$-+?%()m%"4)")$/h#/f."#&)!+%')/#).%'"#/#h)?m) business america. it was where a leader began to understand the importance of becoming a strong moral being. y+!&'#)5899:;)!"/$'()&-')>?'$&/+#$v)6+)g?$/#'$$)$.-++%$)-"a')")!'$m+#$/g/%/&4)&+)m!'m"!')&-'/!)$&?('#&$)&+)!'('$/h#)&-') g?$/#'$$)$4$&',)$+)&-"&).!?./"%)m?g%/.)#''($)"!'),'&b)x!)"!')&-'4),'!'%4)*"#.4)&!"(')$.-++%$b) today, business leaders, policy-makers, investors, consumers and other stakeholders are increasingly concerned about the vibrancy of the capital markets and their responsible delivery of products and services. the national e?$/#'$$)_&-/.$)\?!a'4)5^e_\;)"$1$w)o!')g"()g?$/#'$$)'&-/."%)m!".&/.'$)&-!'"&'#/#h)&-')o,'!/."#)'.+#+,/.)$4$&',b) -'!')/$)g+&-)h++()"#()g"()#'@$<) -')h++()#'@$)/$w)";)&-')#?,g'!)+*)*+!,"%)'&-/.$)"#().+,m%/"#.')m!+h!",$)/#) g?$/#'$$)$.-++%$)/$)+#)&-')!/$'2)g;)&-').+,m"#/'$)&-"&),+a')g'4+#()")$/#h?%"!).+,,/&,'#&)&+)a?$&).+,m%4/#h)@/&-) %"@$)"#()!'h?%"&/+#$)"#()@-+)"(+m&)"#)'#&'!m!/$'u@/(')'&-/."%).?%&?!')"!')(!","&/."%%4)!'(?./#h),/$.+#(?.&2)"#().;) &-').-"!".&'!/$&/.$)&-"&).+,m!/$')"#)'**'.&/a')'&-/."%).?%&?!')."#)g')/('#&/f'(<)5_&-/.$)f'$'"!.-)i'#&'!2)899:;<) -')g"()#'@$2)"..+!(/#h)&+)&-')^e_\2)/$w)";)'&-/."%),/$.+#(?.&2)/#)h'#'!"%2)/$)-/h-2)"#()g;),"#4)',m%+4''$)"!') +g$'!a/#h) ?#'&-/."%) m!".&/.'$<) -'),+$&) m!+,/#'#&) +g$'!a'() '&-/."%) /$$?'$) +*),/$.+#(?.&) "!'w) g?$/#'$$) !'$+?!.') "g?$'2) "g?$/a') g'-"a/+!2) %4/#h) &+) ',m%+4''$2) ',"/%) +!) =#&'!#'&) "g?$'2) "#() .+#g/.&$) +*) /#&'!'$&) 5_&-/.$) f'$'"!.-) i'#&'!2)899:;< 1,2"2-64!066"#*5436"8)6:";'(30"<03'==0!.)*4'! o$$+./"&/+#)&+)o(a"#.')i+%%'h/"&')\.-++%$)+*)e?$/#'$$)=#&'!#"&/+#"%)5ooi\e;)"..!'(/&'()g?$/#'$$)$.-++%$)"#() their undergraduate programs cannot be expected to assume total responsibility for ethical dilemmas in today’s business world. an undergraduate business education is not the only determinant of human behavior, and responsibility for ethics education is not the exclusive province of higher education. nonetheless, business ethics education is part of ")g?$/#'$$).?!!/.?%?,v)"#()ooi\e)=#&'!#"&/+#"%)"..!'(/&"&/+#)$&"#("!($)-"a'),"#("&'()&-"&)'&-/.$)g')&"?h-&)"$)m"!&) +*),"#"h','#&)('h!'').?!!/.?%"<)=#)899b2)ooi\e)'$&"g%/$-'()&-')_&-/.$)_(?."&/+#) "$1)[+!.')+#)&-')m!',/$')&-"&) the crisis in business ethics was not only a challenge for business america, but was also an opportunity to strengthen ,"#"h','#&)'(?."&/+#)5=g/(2)899b;< -/$)!'m+!&)."%%'()*+!)ooi\e)$.-++%$)&+)!'#'@)&-'/!).+,,/&,'#&)&+)&-').'#&!"%/&4)+*)'&-/."%)!'$m+#$/g/%/&4)"&) both the individual and business levels in preparing business leaders. both at the undergraduate and graduate levels, business schools are to encourage students to develop a deep understanding of the myriad of challenges surrounding business, business responsibility, and business governance. additionally, they are encouraged to provide students with the tools they needed for recognizing and responding to ethical issues, both personally and organizationally and to engage them at an individual level through analyses of both positive and negative examples of everyday conduct in business. faculty are encouraged to think more deeply and creatively about how to advance ethical awareness, ethical reasoning skills, and core ethical principles that would help to guide business leaders respond to a changing %'h"%)"#().+,m%/"#.')'#a/!+#,'#&2)"$)@'%%)"$).+,m%'t2).+#g/.&/#h2)"#()$+,'&/,'$)-/h-%4)m!+g%',"&/.)/#&'!'$&$)"#() +mm+!&?#/&/'$) 5=g/(2)899b;<)ooi\e)*?%%4) !'.+h#/z'() &-"&)'".-) /#$&/&?&/+#)@+?%() /('#&/*4)(/**'!'#&).-"%%'#h'$)"#() would use different approaches to business ethics education concurrent with their institutional mission. four broad aacsb themes [+?!)g!+"()&-','$)@'!')/('#&/f'()"$)'$$'#&/"%)*+!)").+,m!'-'#$/a')?#('!h!"(?"&')'&-/.$)m!+h!",<) -'$')@'!'w) the responsibilities of business in society; ethical decision-making; ethical leadership; and business governance 5ooi\e2)899b;<) -'$')*+?!)"!'"$)@'!')a/'@'()"$)&-').+!#'!$&+#'$)+*)").+,m!'-'#$/a')"#()a/"g%')'&-/.$)'(?."&/+#) .?!!/.?%?,)/#)"#4)ooi\e)"..!'(/&'()?#('!h!"(?"&')g?$/#'$$).?!!/.?%?,< [/!$&2)&-').+,,/&&'')!'.+h#/z'()&-"&)&-')f!$&)!'$m+#$/g/%/&4)+*)g?$/#'$$)/#)$+./'&42)/#)"((/&/+#)&+)m!+a/(/#h)m!+f&) 2010, vol. 1, no. 1, 94-102 heller, heller and petronis 97 advances in business research to owners or shareholders, was to act lawfully, produce safe products and services at costs commensurate with >?"%/&42) m"4) &"t'$2) $''1) +mm+!&?#/&/'$) *+!) @'"%&-) .!'"&/+#) &-!+?h-) a+g$) "#() /#a'$&,'#&$2) #'@) &'.-#+%+h/'$2) "#() minimizes negative social and environmental impacts. unless business leaders attended to all their responsibilities, achieving fair returns to shareholders was not possible. there was more to the story of business than making money. business and society were and are mutually interdependent. society depends on business for wealth creation. business depends on society for an environment wherein it can meet its obligation to create wealth. it was essential for undergraduate students to understand the symbiotic relationship between business and society, especially in terms of the moral dimensions of the power placed in the hands of owners and business executives. the decisions of business leaders affected not only the business, but also direct and indirect stakeholders, e.g., customers, employees, investors, suppliers, governments, citizens, and communities. additionally, the abuse of power by business leaders undermined trust in business and in the markets needed to ensure commercial success. \'.+#(2)ooi\e)"..!'(/&'()g?$/#'$$)$.-++%$)@'!')'tm'.&'()&+)-'%m)?#('!h!"(?"&')$&?('#&$) &+)?#('!$&"#()&-') criticality of ethical decision-making in order to become effective and successful business leaders. few undergraduates @/%%)g')/#)&-')m+$/&/+#)&+)/#g?'#.')$/&?"&/+#$)$?.-)"$)&-')ed)0?%*)+*)j't/.+)+/%)$m/%%<)e?&)?#('!h!"(?"&'$2)!'h"!(%'$$) of their levels in the business, will face issues of potential harm and fairness on a regular basis. preparing students for ethical decision-making was to be a key component of the preparation of undergraduate faculty. most business school undergraduates are at the conventional level of cognitive moral development, looking outside themselves to peers and leaders for guidance relating to ethical issues and dilemmas. the ethical messages leaders send and the business cultures which they create are potentially the greatest motivating force behind ethical behavior in business. ethical leaders must be both “moral persons” and “moral leaders.” additionally, leaders become moral leaders by recognizing and accepting their responsibility for acting as ethical role models. they “manage ethics” by communicating about ethics and values on a regular basis and by holding the business accountable for ethical conduct. third, undergraduates will not be business leaders early in their careers; but they need to understand that, even as ,"#"h'!$)+!)$?m'!a/$+!$2)&-'4),"4)m%"4)")1'4)'&-/."%)!+%')/#)&-')g?$/#'$$)g4)/#g?'#./#h)&-'/!)(/!'.&)!'m+!&$<)j"#"h'!$) and supervisors demonstrate ethical leadership by being open, fair, trustworthy, and caring with employees; by communicating about ethics and values; by role modeling ethical conduct; by focusing on means as well as ends in !'@"!()$4$&',$v)"#()g4)(/$./m%/#/#h)?#'&-/."%).+#(?.&)@-'#)/&)+..?!$)5=g/(2)899b;<)h#('!h!"(?"&')$&?('#&$)+*&'#) get their information from the electronic media; and, as a result, they are often cynical and skeptical about business ethics. undergraduate students should learn about scandalous and unethical behavior, as well as business that operate at a higher level of integrity and social responsibility. undergraduate students need to be familiar with the formal m!+h!",$)&-"&)$?mm+!&)'&-/."%).+#(?.&2)$?.-)"$)&-')i"(g?!4)i+(')"#()&-')y/#h)f'm+!&2)&-')h<\<)\'#&'#./#h)0?/('%/#'$) "#()&-')\"!g"#'$uxt%'4)o.&<)=#),"#4)ooi\e)"..!'(/&'()$.-++%$2)&-').+,,/&,'#&)&+)'&-/.$)'(?."&/+#).?&$)".!+$$)&-') g?$/#'$$).?!!/.?%?,<)n+#+!).+('$)*+!)"%%)$&?('#&$2)")m!".&/.')'#(+!$'()/#)&-')ooi\e)\&"#("!($)/#&'!m!'&"&/+#$2)@'!') *!'>?'#&%4)/#&'h!"&'()/#&+)&-')g?$/#'$$)$.-++%).?!!/.?%?,<)\?.-).+('$)',m-"$/z'()&-')/,m+!&"#.')+*)m!+*'$$/+#"%) conduct, ethics and civility for administrators, faculty, and students in their professional and personal actions. \'a'!"%)+&-'!)ooi\e)"..!'(/&'()$.-++%$)"(+m&'()(/$./m%/#"!4)$4$&',$2)+"&-$2)$'!a/.')m!+a'.&$2)"#()+&-'!).+#.'m&$) to stress the importance of ethical behavior. learning experiences encouraged undergraduate students to explore &-') .+h#/&/a') "#() %'"('!$-/m) /#g?'#.'$) +#) '&-/."%) ('./$/+#u,"1/#h) /#) g?$/#'$$) $'&&/#h$<)o((/&/+#"%%42) /&) '#"g%'() undergraduate students to envision their responsibilities as business leaders who will manage their own ethics and the ethics of those who report to them. fourth, although ethics education was vital, it may be unrealistic to assume an undergraduate ethics program will negate the likelihood of future managerial wrongdoing relating to business governance. situational pressures on undergraduates will occur in the future when a course in ethics is far from the consciousness of the stressed individual. an undergraduate’s knowledge of the principles, practices, and philosophies of sound, and responsible business governance may be an important deterrent to unethical behavior. additionally, an undergraduate student’s understanding of the complex interdependencies between business governance and other institutions, such as $&+.1)'t.-"#h'$)"#()!'h?%"&+!4)g+(/'$2)."#)g')"#)/,m+!&"#&)*".&+!) /#),"#"h/#h)!/$1)"#()!'m?&"&/+#)5=g/(2)899b;<) \'a'!"%)ooi\e)"..!'(/&'()$.-++%$)-"a')'$&"g%/$-'().'#&'!$)*+!)g?$/#'$$)h+a'!#"#.'2)-"a/#h)('$/h#'().?!!/.?%")&-"&) /#.%?('()h+a'!#"#.')'%','#&$2)%'"!#/#h)h+"%$2)"#(),'"$?!'()+?&.+,'$<)ooi\e)!'.+,,'#('()&+m/.$)/#.%?('(w)&-') role and responsibilities of the governing board of directors, the role and responsibilities of the audit committee, an understanding of internal controls, the role and responsibilities of management, and critical monitoring activities such as internal auditing, elements of an effective code of conduct, understanding of u.s. federal sentencing guidelines "#() \"!g"#'$uxt%'42) &-')h<y<)i"(g?!4)i+('2) &-')y/#h)f'm+!&) *!+,) \+?&-)o*!/."2) "#() $/,/%"!) !'h?%"&/+#$) "#() !'.+,,'#("&/+#$)*!+,)+&-'!)m"!&$)+*)&-')@+!%()5=g/(2)899b;< c-/%')&-')ooi\e)_&-/.$)_(?."&/+#) "$1)[+!.')(/()#+&)m!'$.!/g')")m"!&/.?%"!).?!!/.?%?,2)+!).+?!$'2)/&)!'.+,,'#('() &-"&)ooi\e)'#.+?!"h')/&$),',g'!)$.-++%$)"#()&-'/!)*".?%&/'$)&+)!'#'@)"#()!'a/&"%/z')&-'/!).+,,/&,'#&)&+)'&-/."%) 2010, vol. 1, no. 1, 94-102 heller, heller and petronis 98 advances in business research responsibility at both the individual and business levels. schools were encouraged to demonstrate this commitment throughout their academic programs, assessment processes, research agendas, and outreach activities. the task force !'.+,,'#('()&-"&)ooi\e)$?mm+!&)"#()'#.+?!"h')")!'#"/$$"#.')/#)'&-/.$)'(?."&/+#)"#()'t'!./$'$)/&$)%'"('!$-/m)!+%') &+)'#$?!')&-').+,,/&,'#&)+*)g?$/#'$$)$.-++%$)5=g/(2)899b;< ?#8@abacde 6?!/#h)&-')*"%%)899:)"#()$m!/#h)89k9)$','$&'!$2)f*&4)ooi\e)"..!'(/&'()g?$/#'$$)$.-++%$)@'!')!"#(+,%4)$'%'.&'(2) one per state, by the authors to examine the undergraduate business ethics course content, textbooks and related !'"(/#h$))h#/a'!$/&/'$)!"#h'()/#)$/z')*!+,)"mm!+t/,"&'%4)b2999)&+)cc2999i)$&?('#&$<)\4%%"g/)@'!')+g&"/#'()+#%/#'<) business school websites were also reviewed for additional information on the philosophy of teaching business ethics at that institution. o)("&"g"$')@"$)('a'%+m'().+!!'%"&/#h) &-') /#$&/&?&/+#$)"#() &-') *+?!)ooi\e)g!+"() &-','$<) -'$') *+?!) &-','$) @'!'w)";)&-')!'$m+#$/g/%/&4)+*)g?$/#'$$)/#)$+./'&4v)g;)'&-/."%)('./$/+#u,"1/#hv).;)'&-/."%)%'"('!$-/mv)"#()(;)g?$/#'$$) governance. the authors and three graduate students conducted a content analysis on the documents, identifying @-"&)*+?!)&-','$)@'!').+a'!'()/#)&-').+?!$'<)o)!"&/#h)$."%')+*)k)&+)c2)@/&-)+#')"$)&-')%+@'$&)"#()fa')&-')-/h-'$&) rating, was designed to evaluate the course content. each team member scored each syllabus. a consensus was +g&"/#'()&-!+?h-)+#h+/#h)(/"%+h?'$)g'&@''#)&-')fa')m"!&/./m"#&$)+*)&-')"a'!"h'$<)) a second database was designed by the authors listing the institutions on the horizontal axis with identifying &'t&g++15$;)"#()!'%"&'()!'"(/#h$)?$'()/#)'".-).+?!$')5$'')omm'#(/t)k;<) -')&@'#&4u$'a'#)^"&/+#"%)e?$/#'$$)_&-/.$) \?!a'4) p\m'./f.) [+!,$) +*)j/$.+#(?.&q)@'!') %/$&'() +#) &-') a'!&/."%) "t/$<) -'$')@'!'w) .+,m"#4) !'$+?!.') "g?$'2) "g?$/a')g'-"a/+!2)%4/#h)&+)',m%+4''$2)',"/%)+!)=#&'!#'&)"g?$')2.+#g/.&$)+*)/#&'!'$&2)(/$.!/,/#"&/+#2)%4/#h)&+)2+?&$/(') $&"1'-+%('!$2) ',m%+4'') g'#'f&) a/+%"&/+#$2) -'"%&-) +!) $"*'&4) a/+%"&/+#$2) ',m%+4'') m!/a".4) g!'".-2) /,m!+m'!) -/!/#h) m!".&/.'$2)*"%$/*4/#h)&/,')+!)'tm'#$'$2)m++!)m!+(?.&)>?"%/&42)$&'"%/#h2)$'t?"%)-"!"$$,'#&2)$?g$&"#.')"g?$'2)(+.?,'#&) "%&'!"&/+#2) ,/$?$') +*) .+,m"#4) .+#f('#&/"%) /#*+!,"&/+#2) .?$&+,'!) m!/a".4) g!'".-2) '#a/!+#,'#&"%) a/+%"&/+#$2) ,/$!'m!'$'#&) f#"#./"%) $&"&','#&$2) "..'m&) h/*&$) +!) 1/.1ug".1$2) ?$') .+,m'&/&+!$3) /#*+!,"&/+#2) "#&/u.+,m'&/&/a') m!".&/.'$2)g!/g')m?g%/.)+*f./"%$2)/#$/('!)&!"(/#h2)"#()/%%'h"%)m+%/&/."%).+#&!/g?&/+#$< o$)/#)&-')ooi\e)"#"%4$/$2)&-')"?&-+!$)"#()&-!'')h!"(?"&')$&?('#&$).+#(?.&'()").+#&'#&)"#"%4$/$)+#)&-')&'t&g++1) .+#&'#&)"#()&-').+#&'#&)/#)&-')!'%"&'()!'"(/#h$)+*)&-').+?!$') -')&'",)/('#&/f'()/*)&-')&+m/.$)@'!')"((!'$$'()/#)&-') textbook and related readings, how they were addressed (text reading, case study, situational analysis, embedded in &-')!'"(/#h)"$)"#)'t",m%'2)+!)',g'(('()/#)")>?'$&/+#;)"#()&-')('m&-)+*).+#&'#&)@"$)!"&'(<)o((/&/+#"%%42)&-')&'",) .%"$$/f'()&-')g'-"a/+!$)&+)&-')ooi\e)[+?!) -','$<)o)!"&/#h)$."%')+*)k)&+)c2)@/&-)+#')"$)&-')%+@'$&)"#()fa')&-') highest rating, was used. each team member scored each textbook and related reading. a consensus was obtained &-!+?h-)+#h+/#h)(/"%+h?'$)g'&@''#)&-')fa')m"!&/./m"#&$)5$'')omm'#(/t)8;<) !)&+646"'7"2-64!066"#*5436"1'-(606 -') .+#&'#&) "#"%4$/$) +*) &-') f*&4) '&-/.$) .+?!$'$) !'a'"%'() &-"&) &-') *+?!) g!+"() ooi\e) &-','$v) !'$m+#$/g/%/&4) of business in society; ethical decision-making; ethical leadership; and business governance were inconsistently addressed in the courses. the responsibility of business in society was directly addressed in 100% of the courses reviewed. ethical decision-making was addressed in 84% of the courses reviewed. ethical leadership was addressed in 92% of the courses reviewed; and business governance was addressed in 88% of the courses. the intensity of content followed a similar pattern as above. the responsibility of business in society averaged 4.8; ethical decision-making averaged 4.2; ethical leadership averaged 4.6; and business governance averaged 3.9. -') .+#&'#&) "#"%4$/$) /%%?$&!"&'() &-"&)ooi\e)?#('!h!"(?"&')g?$/#'$$) '&-/.$) .+?!$'$) *+.?$'()m!/,"!/%4)+#) &-'w) k;) !'$m+#$/g/%/&4)+*)g?$/#'$$)/#)$+./'&42)8;)'&-/."%)%'"('!$-/m2)e;)g?$/#'$$)h+a'!#"#.'2)"#()b;)'&-/."%)('./$/+#),"1/#h<) c-/%')'&-/."%)('./$/+#u,"1/#h)-"()&-')%+@'$&)$.+!'$2),"#4)+*)&-')+&-'!)"!'"$)"((!'$$'()&-').+#$'>?'#.'$)+*)'&-/."%) decision making. unfortunately, the authors found that most of the discussions evolved around applied decision,"1/#h)@/&-)%/&&%')!'*'!'#.'$)&+)&-'+!'&/."%)'&-/."%)*+?#("&/+#$)+*)('./$/+#),"1/#h<)i+#&'#&)"#"%4$/$)+*)&-')&@'#&4u $'a'#)^"&/+#"%)e?$/#'$$)_&-/.$)\?!a'4)j\m'./f.)[+!,$)+*)j/$.+#(?.&q)!'a'"%'()")h!'"&)('"%)+*)(/a'!$/&4)/#)&-'/!) course coverage. findings -').+#&'#&)"#"%4$/$)+*)&-')f*&4)'&-/.$)ooi\e)"..!'(/&'()?#('!h!"(?"&').+?!$'$)!'a'"%'()&-"&)&-')oo\ie)*+?!) broad standards of the responsibility of business in society, ethical decision-making, ethical leadership, and business 2010, vol. 1, no. 1, 94-102 heller, heller and petronis 99 advances in business research governance were addressed in all the courses examined. the responsibility of business in society was directly addressed in 100% of the courses reviewed. ethical decision-making was addressed in 84% of the courses reviewed. ethical leadership was addressed in 92% of the courses reviewed; and business governance was addressed in 88% +*)&-').+?!$'$<) -')"?&-+!$)g'%/'a'()&-"&)/#)&-')$/t)4'"!$)&-"&)&-')ooi\e)g!+"()$&"#("!($)-"a')g''#)/,m%','#&'(2) ooi\e)-"$)g''#)+?&$&"#(/#h) /#).+,,?#/."&/#h) &-'/!) 'tm'.&"&/+#$)+*).%"$$!++,)m'!*+!,"#.') /#)g?$/#'$$)'&-/.$) '(?."&/+#<)d'!-"m$)&-/$)@"$)(?')/#)m"!&)&+)&-')"$$+./"&/+#3$)fa')4'"!)!'a/'@)+*)g?$/#'$$)$.-++%3$).?!!/.?%?,< ,f?? <e" gb"1ag1cf,hag, given today’s ethical challenges, business ethics is the study of how personal moral norms apply to the activities "#()h+"%$)+*)&-')g?$/#'$$<)[+!)m?!m+$'$)+*)&-/$)m"m'!2)g?$/#'$$)'&-/.$)@"$)('f#'()"$)&-')$&?(4)+*)-+@)/#(/a/(?"%$2)"&) all levels of a business, try to make decisions and live their lives according to a standard of right or wrong behavior. -/$)m"m'!)'t",/#'()&-')$&"#("!($)'$&"g%/$-'()*+!)g?$/#'$$)'&-/.$)'(?."&/+#)/#)ooi\e)"..!'(/&'()?#('!h!"(?"&') programs, the ethical challenges in today’s society as presented in the 2009 national business ethics survey, and ")!'a/'@)+*)ooi\e)"..!'(/&'()g?$/#'$$)$.-++%).+?!$'$)&+)('&'!,/#')/*)&-'4)"!')"((!'$$/#h)&-')ooi\e)$&"#("!($) "#()&-')'&-/."%).-"%%'#h'$)/#)g?$/#'$$<)c-/%')&-')f#(/#h$)(',+#$&!"&'()&-"&)ooi\e)"..!'(/&'()g?$/#'$$)$.-++%$) were successfully implementing ethics programs in the undergraduate programs, by addressing the associations four broad themes, added emphases was needed in the classroom to raise students’ awareness of the importance of a broader horizon of ethical issues confronting the workplace and society. the authors recognized the exploratory nature of this paper and the need for more comprehensive research across business disciplines. further research could be discipline based to determine if what is learned in the general business undergraduate ethics courses is g'/#h)&!"#$*'!!'(2)g4)&-')$&?('#&2)/#&+)-/$k-'!)$'%'.&'()(/$./m%/#'v)."#)g?$/#'$$)'&-/.$)g')&"?h-&)/#)+&-'!)@"4$)&-"#)/#) &-').%"$$!++,v)"#())-+@)"!')ooi\e)$.-++%$)"..'$$/#h)&-'/!)$&?('#&$)'&-/."%)?#('!$&"#(/#h< <#;#<#g1#, association to advance collegiate schools of business international<)8999b<)_&-/.$)'(?."&/+#)/#)g?$/#'$$)$.-++%$w) report of the ethics education task force. tampa, fl. e"("!"..+2)7<)k::8<)e?$/#'$$)'&-/.$w)[+?!)$m-'!'$)+*)'t'.?&/a')!'$m+#$/g/%/&4<)california management review2)ebw) 64-79. e'hh$2)7<2)l)6'"#2)y<)899]<)m'h/$%"&'()'&-/.$)+!)'&-/.$)'(?."&/+#b)[".?%&4)a/'@)/#)&-')m+$&u_#!+#)'!"<)journal of 2-64!066"#*54362)]kw)kcue]< bennis, w., & o’toole, j. 2005. how business schools lost their way. @)(i)(."2-64!066"<0i40j2)dew):ruk9c< i!"#'2)o<2)l)j"&&'#2)6<)89k9<)business ethics<)^'@)n+!1w)xt*+!()h#/a'!$/&4)d!'$$< i/?%%"2)7<2)j"!&/#2)i<2)l)\+%+,+#2)f<)899]<)@'!06*"j'(:<)^'@)n+!1w)xt*+!()h#/a'!$/&4)d!'$$< desjardins, j. 2009. an introduction to business ethics<)^'@)n+!1w)j.0!"@un/%%k=!@/#< 6+#+a"#2)o<)899:<)i"#)'&-/.$).%"$$'$).?!').-'"&/#hb)n+@)&+)ft)g?$/#'$$)$.-++%$<)@)(i)(."2-64!066"<0i40j, april kbw)b8ubr< #*5436"<060)(35"10!*0(<)899:<)^"&/+#"%)g?$/#'$$)'&-/.$)$?!a'4<)c"$-/#h&+#2)6<i< ghillyer, a. 2008. business ethics<)^'@)n+!1w)j.0!"@un/%%k=!@/#< ghoshal, s. 2005. bad management theories are destroying good management practices. academy of management c0)(!4!9")!."#.-3)*4'!2)bw)]cu:k< n"#(42)i<)8998<)c-"&3$)")g?$/#'$$)*+!b)@)(i)(."2-64!066"<0i40j2)6'.',g'!)kw)b:ucc< 7".1$+#2)y<)899r<)e!'"1/#h)(+@#)&-')g"!!/'!$w)e!/#h/#h)/#/&/"&/a'$)"#()!'"%/&4)/#&+)g?$/#'$$)'&-/.$)'(?."&/+#<)journal '7"?)!)90=0!*"#.-3)*4'!2)e9w)rcud:< 2010, vol. 1, no. 1, 94-102 heller, heller and petronis 100 advances in business research 7'##/#h$2)j<)899r<)=#)&-'/!)+@#)@+!($w)c-"&)@')%'"!#)"g+?&)'&-/."%)%"m$'$)"#()&-'/!)m!'a'#&/+#)*!+,)&-')-/#($/h-&)+*) those who committed them. business finance review2)k9w)bbub]< y'!!2)\<)899:<)6+)#+&)g%",')&-')g?$/#'$$)$.-++%$2)-+@)&+)ft)g?$/#'$$)$.-++%$<)@)(i)(."2-64!066"<0i40j2)om!/%)8w) 20-25. y"m&'/#2)j<)899:<)_&-/.$)m!+h!",$)"#()'&-/."%) .?%&?!'w)o)#'t&) $&'m) /#)?#!"a'%/#h) &-'/!),?%&/u*".'&'() !'%"&/+#$-/m<) k'-(!)&"'7"2-64!066"#*54362)d:w)8rko8dk< y"m&'/#2)j<) 899d<)6'a'%+m,'#&) +*) "),'"$?!') +*) ?#'&-/."%) g'-"a/+!) /#) &-')@+!1m%".'w)o) $&"1'-+%('!) m'!$m'.&/a'<) journal of management2)ebw):]dok99d< y"m&'/#2)j<2)l)oa'%/#+2)\<)899c<)j'"$?!/#h)g?$/#'$$)/#&'h!/&4w)o)$?!a'4ug"$'()"mm!+".-<)2-64!066"d'i0(!)!302)cw) 45–54. y+!&'#2)6<)899:<) -')$4$&',)/$)g!+1'#<)c/%%)e)$.-++%$)-'%m)ft)/&b)n+@)&+)ft)g?$/#'$$)$.-++%$<)@)(i)(."2-64!066" review2)om!/%)89w)b]ub:< merritt, j. 2003. ethics is also b-school business. 2-64!066"l00:2)7"#?"!4)8]w)edk]2)k9c< mitroff, i. 2004. an open letter to the deans and faculties of american business schools. k'-(!)&"'7"2-64!066"#*5436, cbw)kdcukd:< d+(+%#42)7<)899:<)o!')g?$/#'$$)$.-++%$)&+)g%",'b)n+@)&+)ft)g?$/#'$$)$.-++%$<)@)(i)(."2-64!066"<0i40j, october 8]w)]ukc< \?&&+#2)f<)899:<)6+)'.+#+,/$&$)g!''()h!''()"#()h?/%'b)n+@)&+)ft)g?$/#'$$)$.-++%$2)@)(i)(."2-64!066"<0i40j, april cw)8ru8:< !'a/#+2)m<2)e!+@#2)j<)899b<)j"#"h/#h)&+)g')'&-/."%w)6'g?#1/#h)fa')g?$/#'$$)'&-/.$),4&-$<)academy of management #$03-*4i02)kdw)r:odk< wicks, a., & palmer, b. 2009. an introduction to ethics. darden business publishing, uv1040. m43*'("@0&&0( is an associate professor of marketing and director of executive education at the university of texas at san antonio. he received his ph.d. from arizona state university. his current research interests include organization ethics, crises management, marketing strategy and tourism marketing. he has published in the european business review, organization development journal, journal of professional services marketing, journal of tourism studies, and journal of vacation marketing and others. he is the author of multiple textbooks. g)*5)!"@0&&0( is an assistant professor of marketing and management at tarleton state university. he received his d-<6<)*!+,)o!/z+#")\&"&')h#/a'!$/&4<)n/$).?!!'#&)!'$'"!.-)/#&'!'$&$)/#.%?(')#+#m!+f&),"!1'&/#h2)$&!"&'h/.)"%%/"#.'$2) "#()'&-/.$<)n')-"$)m?g%/$-'()/#)7+?!#"%)+*)^+#m!+f&)"#()d?g%/.)\'.&+!)j"!1'&/#h2)7+?!#"%)+*)omm%/'()e?$/#'$$)"#() economics and others. he is the author of multiple textbooks. janis petronis is a professor of marketing and international business at tarleton state university. she received her _(<6<)*!+,) 't"$)olj)h#/a'!$/&4ui+,,'!.'<)n'!)!'$'"!.-)/#&'!'$&$)/#.%?(')/#&'!#"&/+#"%/z"&/+#)+*)&-')g?$/#'$$) curriculum, impact of study abroad, and responsibility and liability of study abroad faculty leaders. 2010, vol. 1, no. 1, 94-102 heller, heller and petronis 101 advances in business research %%0!.4$"n/"1'-(60"80$*o'':6")!."<0&)*0."<0).4!96 p) o$$+./"&/+#) &+) o(a"#.') i+%%'h/"&') \.-++%$) +*) e?$/#'$$u=#&'!#"&/+#"%<) 8999b<) _&-/.$) '(?."&/+#) /#) g?$/#'$$) $.-++%$w)f'm+!&)+*)&-')'&-/.$)'(?."&/+#)&"$1)*+!.'<) ",m"w)[m< p) e'"?.-",m2) <2)l)e+@/'2)̂ <)899k<)_&-/."%)&-'+!4)"#()g?$/#'$$<)hmm'!)\"((%')f/a'!2)̂ <7<w)d'"!$+#)k)d!'#&/.')n"%%< p) e+"&!/h-&2)7<)899:<)_&-/.$)"#()&-').+#(?.&)+*)g?$/#'$$<)hmm'!)\"((%')f/a'!2)^<7<w)d'"!$+#)k)d!'#&/.')n"%%< p) i/?%%"2)7<2)j"!&/#2)i<2)l)\+%+,+#2)f<)899]<)n+#'$&)@+!1<)^'@)n+!1w)xt*+!()h#/a'!$/&4)d!'$$< p) i+#*+!&+2)6<)899d<)\'t?"%)-"!"$$,'#&).%"/,$)/#)*'('!"%).+?!&w)xa'!.+,/#h)&-')["!!"h-'!k_%%'!&-)('*'#$'<)e+$&+#2) jow)i+#*+!&+)m"@)0!+?m< p) 6'0'+!h'2)f<)899r<)e?$/#'$$)'&-/.$<)hmm'!)\"((%')f/a'!2)^<7<w)d'"!$+#)k)d!'#&/.')n"%%< p) 6+#"%($+#2) <2)c'!-"#'2)d<2)l)i+!(/#h2)j<)8998<)_&-/."%)/$$?'$)/#)g?$/#'$$w)o)m-/%+$+m-/."%)"mm!+".-<)hmm'!) \"((%')f/a'!2)^<7<w)d'"!$+#)k)d!'#&/.')n"%%< p) 6'$a"!(/#$2)7<2)l)j.i"%%2)7<)899c<)i+#&',m+!"!4)/$$?'$)/#)g?$/#'$$)'&-/.$<)e'%,+#&2)iow) -+,$+#kc"($@+!&-< p) _&-/.$)f'$'"!.-)i'#&'!<)899:<)^"&/+#"%)g?$/#'$$)'&-/.$)$?!a'4<)c"$-/#h&+#2)6<i< p) ['!!'%%2)x<2)[!"'(!/.-2) 7<2)l)['!!'%%2)m<)899d<)e?$/#'$$) '&-/.$w)_&-/."%)('./$/+#),"1/#h)"#()."$'$<)^'@)n+!1w) n+?h-&+#)j/*g/#)i+< p) 0-/%%4'!2)o<)899d<)e?$/#'$$)'&-/.$<)^'@)n+!1w)j.0!"@un/%%k=!@/#< p) 0/g$+#2)y<)899r<)e?$/#'$$)'&-/.$w)d'+m%'2)m!+f&$2)"#()&-')m%"#'&<)^'@)n+!1w)j.0!"@un/%%k=!@/#< p) 0+%(g'!h2)6<)k::c<) -')!+"()&+)'>?"%/&4w) -')"mm%/."&/+#)+*)&-')!'"$+#"g%')@+,"#)$&"#("!()/#)$'t?"%)-"!"$$,'#&) ."$'$<)i"!(+z+)c+,'#3$)m"@)7+?!#"%2)8< p) 0++(m"$&'!2)y<2)^"$-2)m<2)l)(')e'&&/h#/'$2)n<)899r<)e?$/#'$$)'&-/.$<)^'@)n+!1w)j.0!"@un/%%k=!@/#< p) n'"&-2)_<)8998<)j+!"%/&4)"#()&-'),"!1'&<))^'@)n+!1w)j.0!"@un/%%k=!@/#< p) hill, e. 2002. patents verses trade secrets. internet site. p) n+$,'!2)m<)899d<) -')'&-/.$)+*),"#"h','#&<)^'@)n+!1w)j.0!"@un/%%k=!@/#< p) 7?$&/"<.+,<)899:<) -')\?m!',')i+?!&)i'#&'!)c"$-/#h&+#2)6<i< p) m/g!"!4)+*)i+#h!'$$<)i+#h!'$$/+#"%)f'$'"!.-)i'#&'!<)x!('!)i+(')f\8kk8])58998;)['('!"%)\'.?!/&/'$)m"@w)=#$/('!) !"(/#h)c"$-/#h&+#2)6<i< p) d+a,"#2)m<)8999<) -'),+!"%)%/*'w)o#)/#&!+(?.&+!4)!'"('!)/#)'&-/.$)"#()%/&'!"&?!'<)^'@)n+!1w)xt*+!()h#/a'!$/&4) press. p) \-"@2)c<)899d<)e?$/#'$$)'&-/.$<)e'%,+#&2)iow) -+,$+#kc"($@+!&-< p) \-"@2)c<2)l)e"!!42)q<)899]<)j+!"%)/$$?'$)/#)g?$/#'$$<)e'%,+#&2)iow) -+,$+#kc"($@+!&-< p) \/#h'!2)d<)k:::<)d!".&/."%)'&-/.$<)i",g!/(h'2)h<y<w)i",g!/(h')h#/a'!$/&4)d!'$$< p) \+,,'!$2)i<2)l)\+,,'!$2)[<)k::]<)q/.')"#()a/!&?'<)[&<)c+!&-2) rw)n"!.+?!&)e!".'< p) \&"#@/.12)d<2)l)\&"#@/.12)\<)899:<)h#('!$&"#(/#h)g?$/#'$$)'&-/.$<)hmm'!)\"((%')f/a'!2)^<7<w)d'"!$+#)k)d!'#&/.') hall. p) !'a/#+2)m<2)l)^'%$+#2)y<)899]<)j"#"h/#h)g?$/#'$$)'&-/.$<)n+g+1'#2)^<7<w)7+-#)c/%'4)l)\+#$2)=#.< p) c'/$$2)7<)899r<)e?$/#'$$)'&-/.$<)j"$+#2)x-/+w) -+,$+#k\+?&-@'$&<) 2010, vol. 1, no. 1, 94-102 heller, heller and petronis 102 advances in business research %%0!.4$"p/"@'j",%034q3";'(=6"'7"?463'!.-3*" (0" ..(0660."4!" 80$*o'':6")!."1&)664q3)*4'!"*'" 1,2";'-("850=06 2010, vol. 1, no. 1, 94-102 heller, heller and petronis text case situation embedded aacsb business resource abuse 1.3 x x x el/cg abusive behavior 1.1 2.1 x x el/ed lying to employees 4.4 2.6 1.3 .5 el/crs email or internet abuse 2.6 1.5 x x el/crs conflicts of interest 3.6 3.1 .7 x el/crs discrimination 4.8 3.6 2.4 .3 el/csr lying to outside stakeholders 2.6 1.6 x x el/crs employee benefit violations 2.7 2.3 .4 x ed/cg health or safety violations 4.9 3.5 .6 x crs/el employee privacy breach 4.7 4.6 .9 x ed/el improper hiring practices 4.3 4.5 .6 .2 el/ed falsifying time or expenses 2.3 2.7 x x el/ed poor product quality 4.5 3.2 .3 x el/ed stealing 3.5 3.2 .4 .3 ed sexual harassment 4.9 4.6 1.7 x el/ed substance abuse 1.5 1.4 x x ed document alteration 1.3 .6 x x ed/el misuse of business confidential information 3.2 .5 x x ed/el customer privacy breach 2.2 4.2 x x ed/el environmental violations 4.5 4.6 .8 x crs/el misrepresent financial statements 4.6 4.4 .5 .3 el/cg accept gifts, kick-backs 4.7 3.7 x x el/cg anti-competitive practices 1.3 1.5 x x el/ed anti-competitive practices 4.2 4.3 .4 x el/ed bribe public officials 4.6 4.2 x x crs/cg insider trading 4.7 4.1 .6 x crs/cg illegal political contributions 3.7 3.2 x x crs/cg cg = business governance csr = business social responsibility ed = ethical decision making el = ethical leadership advances in business research 2010 volume 1.pdf 103 advances in business research 2010, vol. 1, no. 1, 103-113 mclaren !"!#$%&'()*)+'&"!,-&./)0&'*'1&*#)2,*3&'()4$$56)7)8*-!)9&-.$,/ bruce mclaren, indiana state university !"#$%$"&#&"$&"'"()'#)!"#"*$"&+"(,"#-.#,&"%)+(/#%#0(%(,+%1#)&%2+(/#&--3#%)#)!"#4,-))#5-11"/"#-.#67'+("''#%)#8(2+%(%# 4)%)"#9(+:"&'+);<#8)#+'#+()"(2"2#)-#$&-:+2"#,-33"()%&;#%(2#%2:+,"#.-&#)!-'"#,-()"3$1%)+(/#=7+12+(/#%#7(+:"&'+);#0(%(,+%1# )&%2+(/#&--3<#8)#%22&"''"'#2"'+/(>#,-(')&7,)+-(>#$&-?",)#-:"&'+/!)@+(')%11%)+-(>#=72/")>#%(2#3-&"<# !"#$%$"&#+'#%#,%'"# !+')-&;#-.#-7&#$%)!#)-#-$"&%)+(/#-7&#)&%2+(/#&--3#a+)!#&"/%&2#)-#!%&2a%&"@'-.)a%&">#:"(2-&'>#$&-?",)#3%(%/"3"()># =72/")# +''7"'>#-$"&%)+(/#$-1+,+"'>#%(2#'-# .-&)!<#b1)!-7/!#a"#%&"#$1"%'"2#a+)!# )!"#0(%1#$&-27,)#&"$&"'"()"2# +(#-7&# c+(%(,+%1# &%2+(/#d--3>#a"#')7=="2#%#."a#)-"'#%1-(/#)!"#a%;#%(2#="/%(#3%e+(/#%#1+')#-.#2",+'+-('#)-#%:-+2#.-&#)!"# ("*)#)&%2+(/#&--3<#c-&#+(')%(,">#a"#!%:"#3%2"#+()"&+3#,-(0/7&%)+-(#,!%(/"'<#f+(e'#)-#)!"#$!-)-'#-.#)!"#)&%2+(/#&--3# and vendors appear in the comprehensive references list. !"#$%&%'($%('#')*#$*!'$+','-.%/')*$.0$*!'$1)&)2"&-$*(&+")3$(../$")$*!'$42.**$5.--'3'$.0$67#")'##$&*$8)+"&)&$ 4*&*'$9)",'(#"*:;$1(#*$.%')'+$")$<==>?$@7($*(&+")3$(../$"#$%&(*$.0$*!'$a")&#$5')*'($0.($8),'#*/')*$&)+$b")&)2"&-$ education, and was partly funded by a grant from the lilly endowment. the paper explores design, construction, project oversight, installation, operations, and budget implications. the lessons we have learned are being applied to the new trading room in the new business building now under construction. 29:)0;<7<8;7=)247 ;<>)4??@ !'$1)&)2"&-$*(&+")3$(../$!&#$c'')$.%'(&*".)&-$#")2'$d'2'/c'($<==>?$ !'$%(.e'2*$*"/'-")'$")+"2&*'+$&$2./%-'*".)$ *"/'$'&(-:$")$*!'$#'/'#*'($%(".($*.$"*#$1(#*$7#';$&)+$&-*!.73!$f'$!"*$*!&*$#'/'#*'(;$"*$f&#$.)-:$07)2*".)&-$&*$*!'$')+$.0$ the term just in time for our grand opening. needless to say, it is wise to reserve a wide cushion of just-in-case time. !'$*(&+")3$(../$"#$-.2&*'+$.)$*!'$1(#*$g..($")$&$!"3!-:$,"#"c-'$&('&$.0$*!'$c7#")'##$c7"-+")3;$#./'*!")3$*!&*$*!'$ dean visualized as valuable for public relations and recruiting. we converted a popular classroom, and most students and visitors walk by the trading room as they enter our high rise building. there are two independent tickers inside and outside the trading room and the outside ticker can be used for college messages. for instance, in june it welcomes incoming students and families during summer orientation and in may it congratulates our graduates and their families. we often use it to welcome guests visiting our college. our display vendor was rise display and we have been mostly happy with them. they rated above the other vendors in pre-sale service and continue to give excellent, personalized service. rise’s personnel offered advice on vendors and continues to make suggestions for the new trading room. !'$/&")$*(&+")3$(../$2.)#"#*#$.0$<=$#*7+')*$*(&+")3h&)&-:#"#$#*&*".)#$")$1,'$(.f#$.0$0.7(;$&)+$&)$")#*(72*.($f.(i$ #*&*".)?$j&2!$#*&*".)$!&#$*f.$klm$n5d$/.)"*.(#$/.7)*'+$.)$&$#%'2"&-"o'+$/.)"*.($&(/$*!&*$!.-+#$c.*!$/.)"*.(#$")$ ,&("&c-'$2.)137(&*".)#?$ !'$f.(i#*&*".)$ "#$&$!"3!'($')+$ ('37-&($d'--$p")+.f#$q5?$p'$%7(2!&#'+$ *&c-'#$ 0.($ *f.$ #*&*".)#$%'($ *&c-';$2.)137('+$ ")$&$ *(&+"*".)&-$2./%7*'($ -&c$#'*7%$ ")$(.f#?$r*$ *!'$0(.)*$.0$ *!'$(../$&('$ *f.$,"+'.$ projectors that display the instructor’s dual monitor displays. the instructor’s computer also has a television tuner card so the campus cable television signal can be projected for the class. the speakers are located in the ceiling for *!'$2&c-'$ s$&)+$/7-*"/'+"&$tdsd;$5d;$su4v$&7+".?$d&*&$&)+$#.0*f&('$&('$+"#27##'+$-&*'(? the trading room has a large window in the lobby enabling visitors to see what is going on in the room. the front of the room is at the opposite end, so viewers can see the instructor’s projected screens and the student stations. the last row of four stations is in a separate student practice room with a push button combination lock on the door; our investment club students use this room heavily for individual analysis while class is going on and in the evenings. figure 1 below shows a general layout for the trading room and the rise displays. the key indicates the type of display and location. q!.*.3(&%!#$f"*!$2&%*".)#$"--7#*(&*'$*!'$c7"-+w.7*$%(.2'##$&)+$#!.f$,&(".7#$%&(*#$.0$*!'$1)"#!'+$*(&+")3$(../?$r$ link to the slide show with about thirty photographs appears in the references. !'$%7c-"2$('-&*".)#$,&-7'$.0$*!'$1)&)2"&-$*(&+")3$(../$"#$#"3)"12&)*$x$"*$"#$&$#*.%$.)$*!'$2&/%7#$&+/"##".)#$*.7(;$ &)+$!&#$3",')$.7($1)&)2"&-$#'(,"2'#$/&e.(#$&$('&-$#!.*$")$*!'$&(/$")$*'(/#$.0$'y%.#7('?$8)*'('#*$")$.7($1)&)2"&-$#'(,"2'#$ %(.3(&/#$!&#$")2('&#'+$#"3)"12&)*-:$#")2'$*!'$1)&)2"&-$*(&+")3$(../$.%')'+?$8)$<==z$*!'$)7/c'($.0$7)+'(3(&+7&*'$ 1)&)2'$&)+$1)&)2"&-$#'(,"2'#$/&e.(#$&,'(&3'+$&c.7*$zz?$4")2'$<==>$"*$!&#$3(.f)$#*'&+"-:$*.$&(.7)+$l=$#*7+')*#$")$ *!'#'$*f.$/&e.(#?$@7($3(&+7&*'#$&('$1)+")3$).$-&2i$.0$%.#"*".)#$*!&*$7*"-"o'$*!'"($#i"--#? 104 advances in business research 0&(a,!)b6)0&'*'1&*#)2,*3&'()4$$5)>!'!,*#)=*/$a. instructor station financial trading room scott college of business k e y !"#$%&'()*&% !"#"+,-./0 ticker 1+23&4 lobby 2010, vol. 1, no. 1, 103-113 mclaren 105 advances in business research 2c!) !-&(')d,$1!- !'('$f'('$#','(&-$2!&/%".)#$0.($*!"#$%(.e'2*$w$&$e7)".($1)&)2'$%(.0'##.($f!.$!&+$&22'##$*.$*!'$*(&+")3$(../$ &*$!"#$&-/&$/&*'(;$*!'$+'&);$&)+$*f.$#')".($1)&)2'$0&27-*:$/'/c'(#?$r#$c7"-+")3$2..(+")&*.(;$*!'$&##.2"&*'$+'&)$ t&7*!.(v$c'2&/'$*!'$%(.e'2*$2..(+")&*.($tc7*$).*$*!'$%(.e'2*$/&)&3'($w$&$%(.c-'/$+'#2("c'+$-&*'(v?$ p'$ ('[7'#*'+$&$ -"#*$.0$)''+#$&#$%&(*$.0$ *!'$ ")"*"&-$%-&))")3$%(.2'##?$\",')$ *!'$ ('27((")3$2.#*$.0$ *!'$+&*&$&)+$ software, it is important that this get nailed down early in the design. is the facility a faculty research tool, or for *'&2!")3$#*7+')*#$w$7)+'(3(&+7&*'$.($3(&+7&*']$8#$"*$.)-:$")*')+'+$0.($1)&)2"&-$#'(,"2'#$#*7+')*#;$.($0.($&--$c7#")'##$ #*7+')*#]$u.f$/&):$#*7+')*#$#!.7-+$c'$#'(,'+$&*$.)'$*"/']$p'$('2.//')+$*!&*$:.7$('[7'#*$&$0.(/&-$+.27/')*$ expressing what is needed and why, and then ask where the software will be used in the curriculum. assessment later #!.7-+$c'$+.)'$*.$2.)1(/$*!'$&2*7&-$7#'$")$2-&##'#?$ b.(/&-$+'#"3)$2&)$c'$c(.i')$+.f)$")*.$0.7($3')'(&-$2&*'3.("'#^$kv$(../$+'#"3);$<v$(../$'[7"%/')*$+'#"3);$_v$ f.(i$#*&*".)$t'-'2*(.)"2#$&)+$07()"*7('v$+'#"3);$&)+$`v$#.0*f&('$&)+$+&*&$+'#"3)?$ !':$&('$&++('##'+$.)'$&*$&$*"/'?$ 4$$5) !-&(' the room design was based on converting a classroom in a building that was originally a residence hall not the best shape for a trading room. the size of this existing classroom limited the number of work stations, which in turn, limited which class sections could use the facility. as it turned out, we don’t have enough trading stations and will resolve that in our new building with a much larger space for the trading room. as mentioned earlier, the location of the trading was crucial for us. we’re getting double duty here with the trading room serving as a wonderful publicity tool for the university. by converting a popular classroom in our main -.cc:;$f'$%7*$ *!'$0&2"-"*:$ ")$&$%("/'$,"'f")3$&('&?$ !'$.7*#"+'$*"2i'($ "#$ *'(("12$0.($&**(&2*")3$&**')*".)$w$c.*!$0.($ 27#*./"o'+$/'##&3'#$t,"#"*.(#;$',')*#v$&)+$0.($a&)).7)2")3m$*!'$1)&)2"&-$2.)*')*$,"&$).(/&-$1)&)2"&-$%(.3(&//")3?$ the outside ticker is built into a 90 degree corner so people can see it from two directions helpful. we often stage %!.*.3(&%!#$*!'('$f"*!$,"#"*.(#$#.$*!&*$f'$3'*$*!'$.7*#"+'$*"2i'($tf"*!$*!'"($)&/'#v$&)+$*!'$,"#"*.(#$")$*!'$#!.*?$ !'$+'&)$&)+$*!'$&##.2"&*'$+'&)$,"#"*'+$*!'$*(&+")3$(../$&*$b&"(1'-+$9)",'(#"*:$")$5.))'2*"27*?$p'$#&f$&$-&(3'($ *(&+")3$(../$&)+$3.*$&)$.%%.(*7)"*:$*.$&#i$-.*#$.0$[7'#*".)#?$p'$&-#.$2&--'+$#./'$#2!..-#$*.$&#i$[7'#*".)#$&c.7*$ design and other issues. p'$+'#"3)'+$*!'$(../$-"i'$&$2./%7*'($-&c$w$1,'$(.f#$.0$0.7($2./%7*'(#$'&2!b$"*$/"3!*$c'$3..+$0.($*'&2!")3;$c7*$"*$ is not a realistic depiction of actual trading rooms. from visitors, we have learned that trading stations often face each other in clusters so that the analysts can share information easily. however, our purpose is more based on training students in classes, so we might have a similar layout in a new building. talk to your stakeholders to see what they recommend. if the budget permits, it might be appropriate to have a main teaching facility like the one we built, and *!')$&$#/&--'($(../$f"*!$&$/.('$('&-"#*"2$1)&)2"&-$*(&+")3$f.(i#*&*".)$-&:.7*?$ we also designed the trading room with a 4-station “practice” area in the back, accessible from the lobby via a door with a push button lock. students from the investment club and certain others are given the combination and it is changed each semester. students can use the trading room practice area after hours or during a class. we have found that the practice room has been heavily used. remember to leave extra space for the furniture tables wide enough for two monitors per station, chairs, and room for the computers. leaving enough space to walk behind the chairs is important, so we ended up with perhaps half the student capacity when the same room was used as a classroom with regular student desks. 4"3!*$ -")'#$&('$2("*"2&-$ 0.($ #*7+')*#?$p!"-'$ *"2i'(#$&('$).*$ 0('[7')*-:$7#'+$c:$1)&)2"&-$&)&-:#*#;$ *!'$+&*&$f&--$ 2'(*&")-:$ "#$7#'+?$p'$!&,'$ *f.$z>m$n5d$+"#%-&:#$&((&)3'+$#"+'wc:w#"+';$&#$&$ #")3-'$ -.3"2&-$+"#%-&:;$&)+$ *!'$#"+'$ viewing angle is important, especially for the stations located near the wall the displays are mounted on. it might be best to leave an aisle between the display wall and the closest student stations to increase the viewing angle. p'$&+,"#'$*!&*$:.7$2!'2i$*!'$#"+'$,"'f")3$&)3-'$.0$:.7($n5d$+"#%-&:#;$&)+$%.##"c-:$&7+"*".)$"*$:.7(#'-0$&*$&).*!'($ installation. !'$'-'2*(.)"2$'[7"%/')*$7#'+$*.$+(",'$*!'$+"#%-&:#$#!.7-+$c'$-.2&*'+$.7*#"+'$*!'$(../$&)+$).*$")$*!'$*'&2!")3$ station as we did. these devices are noisy, generate a lot of heat, have lots of wiring, and most importantly are not &22'##"c-'$+7(")3$&$2-&##$0.($&+e7#*/')*#?$p'$!&,'$!&+$.22&#".)&-$!'&*w('-&*'+$%(.c-'/#$f"*!$*!'$'[7"%/')*$")$*!'$ *'&2!")3$#*&*".)?$t4''$*!'$8)*'("/$9%3(&+'$#'2*".)$-&*'($")$*!"#$('%.(*$0.($.7($('#.-7*".)$.0$*!"#$%(.c-'/?v p'$f'('$0.(*7)&*'$*.$-.2&*'$*!'$2./%7*'($*!&*$+(",'#$*!'$*"2i'(#$")$&)$'[7"%/')*$(../$")$.7($-.cc:;$7#")3$&)$ 'y"#*")3$p")+.f#$cq$2./%7*'($7#'+$*.$+(",'$*!'$-.cc:$q.f'(q.")*$/'##&3'$#:#*'/?$8*$"#$'&#:$*.$')*'($*!'$'[7"%/')*$ room at any time to make adjustments to the ticker programming. we discuss more about ticker programming in the j[7"%/')*$&)+$4.0*f&('$#'2*".)#?$ 2010, vol. 1, no. 1, 103-113 mclaren 106 advances in business research 4$$5):ea&%5!'.) !-&(' !'$(../$'[7"%/')*$+'#"3)$f&#$c&#'+$.)$*!'$(../d#$-&:.7*$&)+$.,'(&--$07)2*".)&-$+'#"3)?$ !'$(../$'[7"%/')*$ ")$.7($0&2"-"*:$")2-7+'#$*!'$*"2i'(#;$+&*&$f&--$+"#%-&:#;$*!'$*'&2!")3$#*&*".);$,"+'.$%(.e'2*.(#;$&)+$#.7)+$'[7"%/')*?$ 5./%7*'($'[7"%/')*$"#$+"#27##'+$")$&$#'%&(&*'$#'2*".)?$ for our trading room, we selected two three-color led tickers. the right-most section of each ticker contains the '/c'++'+$2./%7*'($/.+7-'$*!&*$+(",'#$*!&*$*"2i'(;$&)+$'&2!$('[7"('#$&)$'y*'()&-$8q$&++('##$f"*!$&%%(.%("&*'$2&c-")3?$ the remaining sections of the tickers are identical and they can be hooked together like model train tracks. because we are ultimately moving to a new building, we will be able to move the old tickers and possibly connect them all together as a single long message ticker for the student center. p'$2!.#'$*f.$#'%&(&*'$*"2i'(#$#.$f'$2.7-+$,&(:$*!'$%(.3(&//")3$&#$)''+'+?$6:$+'0&7-*;$*!'$.7*#"+'$t-.cc:v$*"2i'($ (7)#$*!'$+'0&7-*$1)&)2"&-$%(.3(&/$%(.,"+'+$c:$e"#'?$p'$-"i'$*.$+"#%-&:$%'(#.)&-"o'+$/'##&3'#$0.($,"#"*.(#?$ !'$*"2i'($ ")#"+'$*!'$*(&+")3$(../$&-f&:#$(7)#$*!'$+'0&7-*$1)&)2"&-$%(.3(&/$7)-'##$"*$"#$*7()'+$.00?$ !'$2./%7*'($*!&*$(7)#$*!'$ tickers boots automatically into the default programming for both tickers, so after a power failure we do not have to ('#*&(*$&):*!")3$/&)7&--:$t0.(*7)&*'-:v?$ from a technical standpoint, the tickers are driven by a single computer running rise ticker software. that #.0*f&('$ 3.'#$ *.$ ("#'+"#%-&:#?2./$ &)+$ ('*("','#$ *!'$ 1)&)2"&-$ &)+$ )'f#$ +&*&;$ 0.(/&**")3$ "*$ %'($ *!'$ ")#*(72*".)#$ programmed on that computer. the ticker computer then sends the character stream to the embedded computer in the right-most section of each ticker which controls the message as it cascades down the ticker. we have the ability to make changes to the programs locally. programming the ticker is a little tricky, and we had to write a two page instruction guide for those who might be asked to put a special message on. from the ticker computer, we cannot view the tickers while working with the ticker software that runs the tickers; now when we make a programming change, and then run around the corner to see if it f&#$+.")3$f!&*$f'$*.-+$"*$*.$+.("'#$#733'#*'+$f'$")#*&--$('/.*'$2.)*(.-$#.0*f&('$#72!$&#$sf5$.)$*!'$*"2i'($2./%7*'(;$ &)+$*!')$&22'##$*!&*$2./%7*'($0(./$&$-&%*.%$(7))")3$sf5$&*$&$*&c-'$f!"-'$#"**")3$")$0(.)*$.0$*!'$*"2i'(?$$tf.*'$*!&*$*!'$ ")*'("/$7%3(&+'$+"#27##'+$-&*'($'-"/")&*'+$*!'$'y*(&$q5$*.$(7)$*!'$*"2i'($/'##&3'#?v we have two video data walls provided by rise displays one inside and the other outside, with different programming. we do not have the ability to do our own programming on these displays the templates were prepared by rise when we purchased the system. however, we do have the ability to choose from different preprogrammed +"#%-&:#;$c7*$!&,')d*$2!.#')$*.$+.$*!&*?$ !'$+"#%-&:#$#*&:$%.f'('+$7%$<`h>$c7*$*!'$#"3)&-$0(./$e"#'$&7*./&*"2&--:$3.'#$ down from 11 pm to 6 am to extend the video displays’ lives. b.($.7($+&*&$f&--#;$f'$2!.#'$n5d$+"#%-&:#$0.($/&y"/7/$g'y"c"-"*:$.0$*'y*$&)+$3(&%!"2#?$ !'$%(',".7#$/'*!.+$ 7#'+$&-%!&)7/'("2$njd$+"#%-&:#$ *!&*$2.7-+$.)-:$c'$%(.3(&//'+$0.($f.(+#$&)+$)7/c'(#?$@7($n5d$+"#%-&:#$&('$ +'#"3)'+$*.$#f"*2!$c'*f'')$,&(".7#$%(.3(&/$#2('')#;$t&%%'&(")3$-"i'$*&c#$")$p")+.f#$+"&-.3$c.yv$*!&*$2:2-'$*!(.73!$ &$,&("'*:$.0$")0.(/&*".)$*!(.73!$*!'$+&:?$ !'$")#"+'$+&*&$f&--$"#$2./%.#'+$.0$*f.$z>m$fj5$n5d$+"#%-&:#$3&)3'+$ *.3'*!'($*.$&%%'&($&#$.)'$-.3"2&-$+"#%-&:?$ !'$.7*#"+'$+&*&$f&--$"#$&$`gm$fj5$n5d$+"#%-&:$')2-.#'+$")$&$f..+')$ cabinet with large metal letters naming the trading room. although the letters cost $20 each, it is a suitable welcome *.$.7($*(&+")3$(../?$j&2!$+&*&$f&--$")2-7+'#$&$2&c-'$ s$%"2*7(';$*:%"2&--:$5f65? we learned to cover the tv buttons on the bottom of the displays with black tape so wayward students sitting next to the wall aren’t tempted to push any buttons. better, put the displays on the other side of an aisle from the students to avoid inadvertent tampering and improving the side viewing angle. we took one remote control out of the teaching #*&*".)$&)+$i''%$"*$")$.7($.012'$&f&:$0(./$*!'$-&c;$e7#*$")$2&#'$&$('/.*'$f&-i#$.00?$8*$"#$3..+$*.$!&,'$+7%-"2&*'#$.0$i':$ .ce'2*#?$ !&*$")2-7+'#$*!'$(&+".$0('[7')2:$('/.*'$2.)*(.-$*.$&+,&)2'$q.f'(q.")*$#-"+'#$f!"-'$f&-i")3$&(.7)+$*!'$ room. when they went on sale at the campus computer store, we bought some extra remote systems just in case. we !&,'$0.7)+$&$)7/c'($.0$*(&+")3$(../$.ce'2*#$")$#*&00$.012'#$&0*'($*!':$f')*$/"##")3?$ the teaching station has many purposes in our trading room it houses the computer that runs the instructor’s #2('')#;$*!'$rhs$'[7"%/')*$*!&*$2.)*(.-#$*!'$#"+'wc:w#"+'$,"+'.$%(.e'2*.(#;$&$dsdhs5e$2./c.$7)"*;$&)+$&2*#$&#$*!'$ podium and instructor’s desk. it also holds the accessories in a drawer, and housing most of the electronics to drive the two data walls. as mentioned earlier, the electronic devices generate lots of heat and have fans the noise levels &('$%('**:$c&+?$r$0&27-*:$/'/c'($2&/'$*.$/:$.012'$*.$&#i$0.($+"('2*".)#$.)$!.f$*.$*7()$*!'/$.00$+7(")3$!"#$2-&##;$*.$ which we emphatically said that was not a user adjustment. we bought an expensive-looking teaching station and would do that again. its wood grain surface looks nice &)+$*!'$#*&*".)$"*#'-0$"#$-&(3'$').73!$*.$!.-+$-.*#$.0$c..i#;$).*'#;$&)+$#.$0.(*!$.)$*!'$#7(0&2'?$8*$"#$'[7"%%'+$f"*!$*!'$ 2&/%7#$#*&)+&(+$jy*(.)$a'+"&n")i$%7#!wc7**.)$,"+'.$#f"*2!")3$#:#*'/$0.($*!'$rhs$'[7"%/')*$w$c7*$*!"#$"#$/.('$ complicated than most found in other classrooms. 2010, vol. 1, no. 1, 103-113 mclaren 107 advances in business research the teaching station needs to be located in a spot where the instructor is able to see the data wall and the screen, yet not block any of the projected images. the teaching station should be able to be opened from both sides for 2.)137(&*".)$&)+$/&")*')&)2'$.0$*!'$'-'2*(.)"2#?$a&i'$#7('$"*$"#$+''%$').73!$*.$2.)*&")$*!'$+',"2'#$&)+$*!'$2&c-'#;$ and to be able to close the doors. we have two video projectors in the trading room, mounted on the ceiling. the two are similar panasonic 3200 -7/')$c\r$/.+'-#$7#'+$")$)'f'($2-&##(../#;$2&('07--:$/.7)*'+$&)+$&"/'+$*.$%(.,"+'$%&(&--'-$#"+'wc:w#"+'$"/&3'#$ on the front board. each projector was designed to display one of the two monitors in the instructor’s teaching station. p'$#733'#*$c'")3$.)$3..+$*'(/#$f"*!$*!'$2&/%7#$rhs$*'2!)"2"&)#$&*$*!"#$%.")*$c'2&7#'$"*$#''/#$f'$2&--'+$*!'/$&$ lot to tweak things. for security purposes, each projector is alarmed with the campus standard 125 db audio alarm our building has been faced with a number of thefts of the ceiling mounted projectors. the trading room experienced spontaneous &-&(/#$.)$*!'$2'"-")3$/.7)*'+$%(.e'2*.(#;$c7*$*!'$#*&00$f&#$7)&c-'$*.$[7"'*$*!'$&-&(/#$f"*!$*!'$i':$-.2i$")*')+'+$ for the purpose. ultimately the alarms were replaced but the alarm sounds continued. after lots of investigation, we found a raccoon in the ceiling had chewed on the alarm wires! we looked for a front wall covering that could do double duty serve as the projection surface most of the time &)+$&-#.$&2*$&#$&$+(:$'(&#'$f!"*'$c.&(+?$p'$2!.#'$p&-&-i'(#$c(&)+$c7*$"*$+"+)d*$f.(i$f'--^$f'$!&+$*(.7c-'$'(&#")3$ the writing. the company instructed us to buy their brand dry erase markers and erasers, and even that didn’t solve the problem. after investigation, it appeared that the wrong product type had been ordered. ultimately the company agreed to replace it at cost and the original wall covering was removed; a different type was installed that was +'#"3)'+$z=hz=$0.($%(.e'2*".)$&)+$f("*")3;$&)+$&-*!.73!$"*$f.(i#$&$-"**-'$c'**'(;$"*d#$#*"--$).*$&#$'00'2*",'$&#$f'$f"#!?$ our college installed extron panels in most of the smart classrooms to control the projectors. these simple devices have eliminated the use of the remote control for the video projector and also many of the service calls. the instructor pushes the proj on button to activate the projector, and selects which video source (desktop computer ")$*!'$#*&*".);$dsd;$s5e;$.($n&%*.%v$#!.7-+$c'$+"#%-&:'+?$ !"#$2&%&c"-"*:$"#$('2.//')+'+$w$"*$3('&*-:$('+72'#$*!'$ )7/c'($.0$*(.7c-'$2&--#;$&)+$%(.,"+'#$#./'$%(.*'2*".)$*.$*!'$'[7"%/')*?$ !'$jy*(.)$%&)'-$!&#$('%-&2'+$*!'$)''+$0.($ separate remote controls for the projectors and dvd player. r*$ *!'$ ('[7'#*$ .0$ *!'$ 0&27-*:$ 7#")3$ *!'$ *(&+")3$ (../;$f'$/.+"1'+$ *!'$ jy*(.)$ %&)'-$ *.$ *'/%.(&("-:$ *7()$ .00$ one projector in order to write on half of the white board while continuing to project on the other half of the front c.&(+?$6'2&7#'$*!"#$2-&##(../$#700'(#$0(./$-.f$2'"-")3#;$*!'$%(.e'2*".)$#7(0&2'#$t-'0*$&)+$("3!*v$#!&('$*"/'$f"*!$*!'$ underlying white board. if possible, a trading room should be designed so that the video projection surface does not have to share time as a writing surface. j&2!$+&*&$f&--$+"#%-&:$"#$+(",')$c:$&$')3")';$&$(&2iw/.7)*'+$p")+.f#$cq$2./%7*'($(7))")3$+'+"2&*'+$+"#%-&:$ software. there is a transmitter at the rise engine and a receiver at the display, and you can locate the display several hundred feet from the engine. the output from the rise engine is converted to a video signal that is pumped along &$-.f$,.-*&3'$f"('$t&2*7&--:$&$5&*$g$j*!'()'*$2&c-'v$*.$*!'$-.2&*".)$.0$*!'$+"#%-&:$f!'('$"*$"#$2.),'(*'+$c&2i$")*.$&$ regular computer video signal. a rise engine has no peripherals of its own to work on them you need to attach a keyboard, mouse, and use the large displays as a monitor. as mentioned earlier, locate display electronics outside of the teaching station! 5'"-")3w/.7)*$#%'&i'(#$f'('$")#*&--'+$*.$%-&:$*!'$&7+".$0(./$5d#;$dsd#;$su4$*&%'#;$&)+$*'-',"#".)$%(.3(&//")3?$ they also play the sound from the tv tuner card installed in the teacher’s station. the audio volume is controlled both from the instructor’s computer and from the extron panel. !'$e"#'$n5d$+"#%-&:#$")#"+'$*!'$-&c$t*!'$")#"+'$+"#%-&:#v$f'('$2.)137('+$f"*!$*!'"($.f)$#.7)+$%&)'-#$0.($*!'$ '/c'++'+$ s$+"#%-&:;$&)+$.22&#".)&--:$f'$*7()$7%$*!'$#.7)+$.)$*!'$*'-',"#".)$%(.3(&/?$ !'$.7*#"+'$+"#%-&:$t-.cc:v$ did not have speakers. rise provided no other sound for their data wall programming, but that may have evolved since we purchased our displays. for our trading room in the new building, we will not order the sound option for those fj5$+"#%-&:#$w$"*$f&#$,'(:$'y%')#",'$&)+$(&('-:$7#'+?$ our advice is carefully audition anything – furniture, monitors, wall coverings, projectors, data wall displays c'0.('$:.7$2.//"*$*.$"*?$5!'2i$.7*$*!'$07)2*".)&-"*:$&)+$*!'$'(3.)./"2#?$ ;'-.,a1.$,)*'3)f.a3!'.)g$,h)f.*.&$') !-&(' this section is divided into computer workstation, display technology, and furniture discussions. based on our %('-"/")&(:$,"#"*$*.$b&"(1'-+$9)",'(#"*:;$f'$-'&()'+$*!&*$&$3..+$!"3!$')+$p")+.f#$+'#i*.%$2./%7*'($f.7-+$#'(,'$ well as the trading work station for the trading room. much of the analysis that students are doing seems to be in jy2'-$7#")3$+&*&$'y*(&2*'+$0(./$*!'$,&(".7#$1)&)2"&-$+&*&$#.7(2'#$#*('&/")3$")*.$*!'$*(&+")3$(../?$ 2010, vol. 1, no. 1, 103-113 mclaren 108 advances in business research the workstation model initially selected in 2007 was a dell optiplex 755 small-footprint system unit that would #"*$.)$*!'$+'#i;$c')'&*!$*!'$/.)"*.(#?$ !'$27((')*$'[7",&-')*$f.7-+$c'$*!'$@%*"%-'y$>g=$9-*(&w4/&--$b.(/$b&2*.($ model. dimensions are 10.3” x 3.5” x 9.95”. the spec included a 3.4 ghz pentium d processor with 2 gb of ram &)+$p")+.f#$cq;$*!'$2&/%7#$#*&)+&(+$@h4?$p'$2!.#'$kgc$dsd$.%*"2&-$+(",'#$&)+$kg=$\6$4r r$!&(+$+(",'#?$ p'$('2'",'+$&##"#*&)2'$0(./$*!'$2&/%7#$8 $+'%&(*/')*$&)+$('-"'+$.)$*!'/$*.$3'*$&$3..+$,.-7/'$[7.*'?$ !':$ +'2"+'+$ *.$f&"*$7)*"-$ "*$f&#$ *"/'$*.$.(+'($&)+$ *!')$('w[7.*'$ *!'$2./%7*'(#?$p!')$f'$+"+;$#./'!.f$*!'$#*&)+&(+$ tower case was ordered. there was little space for them in the trading room, and certainly not on the desk top, blocking view. i did not take enough care to monitor the actual purchase order, even though i carefully reviewed the .("3")&-$[7.*'?$ !'$,')+.($('07#'+$*.$*&i'$*!'/$c&2i;$#.$f'$"),'#*"3&*'+$&)$7)+'(w*&c-'$/.7)*")3$#:#*'/$t&$5q9$#-")3$/.7)*v;$ c7*$*!.#'$f'('$).*$#&*"#0&2*.(:$&)+$f'('$('*7()'+?$p'$!&+$*.$/.,'$.)$&)+$")#*&--'+$*!'$#:#*'/$*.f'(#$.)$*!'$g..(?$ we were afraid of damage to the plastic bezels from the chair legs, but we haven’t had much of that. however, we !&,'$!&+$&$%(.c-'/$f"*!$27*$2&c-'#$)'&($*!'$g..(;$&)+$1)&--:$*"'+$*!&*$*.$*!'$,&277/$2-'&)'($7#'+$c:$*!'$27#*.+"&)$")$ *!'$-&c?$u'$+"+)d*$('%.(*$"*;$&)+$f'$.("3")&--:$+"&3).#'+$,&)+&-"#/$&)+$1-'+$&$%.-"2'$('%.(*h$n'##.)^$c'$2&('07-$f"*!$ locating cables in the room. !'$+7&-$/.)"*.(#$f'$2!.#'$f'('$!"3!$')+$d'--$klm$n5d$+"#%-&:#?$p'$!&+$*.$/&i'$#7('$*!'$f.(i#*&*".)#$!&+$ &%%(.%("&*'$3(&%!"2#$2&(+#$0.($+7&-$/.)"*.(#b$f'$2!.#'$r 8$e&+'.)$ck_==$q(.$d7&-$/.)"*.($&+&%*'(#$f"*!$s\r$ and dvi ports and 256 mb of video ram. we had been solicited by a high end monitor arm vendor (a referral from *!'$ '-'/'*$#&-'#%'(#.)v$c7*$')+'+$7%$f"*!$&$#"3)"12&)*-:$-'##$2.#*-:$#.-7*".)$0(./$a.,"'f?$8*$/"3!*$c'$+"#2.)*")7'+$ ).f;$c7*$*!'$2.#*$%'($#*&*".)$f&#$ik>=?$6'$#7('$*.$/&*2!$*!'$/.)"*.($&(/$f"*!$*!'$07()"*7('$*.$/&i'$#7('$"*$1*#$w$f'$ have trouble opening the table cable cover with the monitor arm attached to the table top. in retrospect, we might !&,'$c'')$&c-'$*.$+.$&f&:$f"*!$*!'$+7&-$/.)"*.($&(/$&)+$3.$f"*!$*!'$/.)"*.(d#$.f)$#*&)+$g&*$.)$*!'$*&c-'$*.%;$c7*$ we didn’t evaluate that option even though the ultra small cases did not get ordered after all. we have a storage room f"*!$`<$+"#2&(+'+$d'--$n5d$/.)"*.($#*&)+#h$ one unexpected problem was the amount of space that dual 19” monitors take up, blocking the view to the front of the room for shorter students. in retrospect we should have auditioned the complete workstation from tables and chairs to the electronics and mounting hardware. we suspect we could have done well with dual 17” monitors that would have permitted some space between work stations. see the photographs. 8)$*!'$)'f$c7"-+")3$8$&)*"2"%&*'$f'$f"--$+(.%$*!'$/.)"*.($&(/#$&-*.3'*!'($&)+$3.$f"*!$-.fw%(.1-'$/.)"*.(#$.)$*!'"($ own stands on the student desks. that way they can be moved as needed. i would want to be sure the stand is compact. the instructor’s computer in the teaching station is the same dell windows desktop computer used at each student work station, and has an internal tv tuner card installed. the tv tuner is attached to the campus cable tv system ,"&$2.&y$2&c-'$&)+$2&)$c'$7#'+$*.$+"#%-&:$5ff$.($5f65$.)$*!'$,"+'.$%(.e'2*.(#?$8*#$#.7)+$.7*%7*$"#$&/%-"1'+$&)+$ sent to the ceiling mounted speakers throughout the trading room. the tuner card comes with its own remote control, and it is access like other windows applications. using two monitors, the instructor can resize the tv window and +(&3$"*$*.$'"*!'($/.)"*.(d#$%.(*".)$.0$*!'$p")+.f#$+'#i*.%?$p!"-'$"*$"#$+"0127-*$*.$#&:$!.f$.0*')$"*$"#$7#'+$")$&$2-&##;$ we turn it on prior to every trading room visit and demonstration. we ran into a problem during a recruiting commercial shoot in the trading room. evidently someone had changed the workstation password in a previous session, and we were unable to log into the teaching station. everyone sat for more than an hour until one of our oit student workers hacked into the computer and reset the password. there is a *(&+'.00$c'*f'')$-.2i")3$"*$+.f)$t*.$%(',')*$#72!$',')*#v$&)+$/&i")3$"*$'&#:$').73!$0.($&$f"+'$,&("'*:$.0$")+","+7&-#$ to use. we suggest having a backup account name on that computer that can be used in the event of a lock-out situation such as we had. the student tables we used were designed for two computer work stations per table, two tables per row. the vendor was ki, a campus standard, using moderately expensive datalink training tables that come with a front panel to cover wiring from the wall between tables. there is a hole with grommet in the table top to route cables down to the system unit beneath the table. the adjustable chairs were also from ki, with casters. for 10 tables and 20 upholstered chairs, the ki cost with delivery was about $16,000. we have not had any problems with the ki furniture, but some of the furniture has some #*&")#$.)$*!'$#'&*#?$p'$0.(c"+$+(")i#$&)+$0..+$")$*!'$(../#$c7*$"*$"#$#./'*"/'#$+"0127-*$*.$')0.(2'$*!"#$%.-"2:?$ the instructor’s teaching station was the media director model from spectrum industries. there are several photographs of this station. the teaching station looks good and is functional. 2010, vol. 1, no. 1, 103-113 mclaren 109 advances in business research f$i.j*,!)*'3) *.*) !-&(' p'$&#i'+$*!'$1)&)2'$0&27-*:$*.$%(.,"+'$&$-"#*$.0$+&*&$&)+$#.0*f&('$)''+'+$0.($*!'$*(&+")3$(../;$&)+$3.*$-.*#$.0$ #733'#*".)#?$r#$/')*".)'+$'&(-"'(;$&0*'($f'$.%')'+$*!'$*(&+")3$(../;$"*$c'2&/'$.c,".7#$*!&*$#./'$.0$*!'$+&*&$('[7'#*#$ might not be as useful as others. nonetheless, it was a learning experience at every stage. it was very helpful to talk to other universities about how they employ their trading rooms. most are open and willing to share their experiences. r#$/')*".)'+$'&(-"'(;$*!'$1)&)2"&-$+&*&$0.($*!'$+&*&$f&--#$&)+$*"2i'(#$2./'#$0(./$*!'$e"#'$d"#%-&:$,')+.(?$p'$ 7#'+$*!'$#*&)+&(+$<=w/")7*'$+'-&:$+&*&$0(./$e"#'$0.($[7.*'#?$p'$-'&()'+$0(./$e"#'$*!&*$&-*!.73!$f'$2.7-+$)'3.*"&*'$ a real-time arrangement with each of the exchanges, we would have to sign a contract saying that nobody would use *!'$('&-$*"/'$+&*&$*.$/&i'$&2*7&-$*(&+'#?$ !"#$"#$&$%.*')*"&-$)"3!*/&(';$&)+$f'$[7"2i-:$+'*'(/")'+$*!&*$*!"#$%(&2*"2'$ was unenforceable, especially with the ticker and data wall display located in our public lobby outside the trading (../?$p'$!&,'$).*"2'+$*!&*$/&):$")+","+7&-#$#"*$&*$ *&c-'#$")$*!'$-.cc:$&)+$f&*2!$*!'$1)&)2"&-$+&*&$2./'$&2(.##;$ including our custodians! p'$ ")"*"&--:$c'-"','+$ *!&*$e"#'$%(.,"+'+$&--$ .0$ *!'$+&*&$ 0.($ *!'$ *(&+")3$ (../$ t")2-7+")3$ *!'$f.(i#*&*".)#v$c7*$ [7"2i-:$-'&()'+$f'$!&+$*.$&((&)3'$0.($*!'$f.(i#*&*".)$+&*&?$@7($e"#'$2.)#7-*&)*$%(.,"+'+$('0'((&-#$*.$,')+.(#$0.($ the workstation databases and software. we tried repeatedly to work with a well-known vendor for current market security prices, and had trouble getting them to return our phone calls. finally, rise suggested we talk to telemet north america who offered similar packages; we have worked with them for our trading room. p'$!&+$.("3")&--:$")*')+'+$*.$!&,'$.)'$.($*f.$!"3!$')+$6-../c'(3$1)&)2"&-$+&*&$*'(/")&-#$")$*!'$*(&+")3$(../$ one on the instructor’s station and perhaps one other. although the company had offered a 50% academic discount, *!&*$%("2'$")2('&#'+$#"3)"12&)*-:$e7#*$c'0.('$.7($*(&+")3$(../$f&#$#2!'+7-'+$*.$.%')?$d'#%"*'$%-'&#$0(./$&$)7/c'($ .0$7)",'(#"*"'#;$*!'$%("2'$")2('&#'$f&#$1)&-$t&*$*!'$*"/'v?$r-*!.73!$f'$+"+$).*$%7(2!&#'$6-../c'(3$")"*"&--:;$&$#")3-'$ *'(/")&-$f&#$('2')*-:$.(+'('+$0.($0&--$<=k=?$ !'$1)&)2"&-$+&*&$")"*"&--:$"/%-'/')*'+$")$.7($*(&+")3$(../$0&--#$")*.$ *!'#'$2&*'3.("'#^ j$ u"#*.("2&-$#'27("*:$%("2'#$t5e4q;$9)",'(#"*:$.0$5!"2&3.v$$fff?2(#%?2./h$ j$ 57((')*$c7#")'##$+&*&$t5./%7#*&*;$a2\(&fwu"--$v$fff?2./%7#*&*?2./h$ j$ 57((')*$/&(i'*$%("2'#$t '-'/'*$@(".)v$$fff?*&[7.*'?2./h$ j&2!$0&27-*:$/'/c'($")$1)&)2'$!&#$&)$")*'()&*".)&-$c&2i3(.7)+;$&)+$*!'"($('#'&(2!$"#$f.(-+f"+'?$p'$%7(2!&#'+$ f.(*!$r/'("2&$&)+$\-.c&-$,'(#".)#$.0$'&2!$.0$*!'$1)&)2"&-$+&*&$#.7(2'#?$p'$f'('$&c-'$*.$)'3.*"&*'$f"*!$*!'$#.0*f&('$ %(.,"+'(#$0.($/7-*"w:'&($%("2")3$2.)2'##".)#$"0$f'$-"2')#'+$c.*!$f.(*!$r/'("2&$&)+$\-.c&-$%&2i&3'#?$p'$[7"2i-:$ -'&()'+$*!&*$*!'$&))7&-$+&*&$0''$"#$*!'$/.#*$'y%')#",'$2./%.)')*$.0$*!'$1)&)2"&-$*(&+")3$(../$c7+3'*;$&)+$"*$"#$&)$ annuity each year, every year. before choosing the number of licenses for each of the packages, we had to estimate the number of simultaneous 7#'(#?$p!"-'$ '[7"%%")3$ ','(:$ #*&*".)$f&#$ "+'&-;$ *!'$ 2.#*$f&#$ *..$ !"3!;$ '#%'2"&--:$ 0.($ '-'/'*?$ !'$ .*!'(#$f'('$ licensed for the campus. we ended up with 8 or 9 telemet licenses, including one for the instructor station. we found that talking to other universities with trading rooms was helpful in determining how many stations need to have certain software. we also found that each vendor packages these data streams in an assortment of products, and that they often +7%-"2&*'$'&2!$.*!'(#d$+&*&?$a:$(.-'$&#$%(.e'2*$2..(+")&*.($c7*$f"*!$-"/"*'+$1)&)2'$c&2i3(.7)+$/'&)*$*!&*$f'$)''+'+$ !'-%$0(./$*!'$'y%'(*#?$p'$&#i'+$0.($&$,'(:$%(.%.#&-$#%'2"0:")3$*!'$+&*&$&)+$#.0*f&('$c'$7#'+$c:$'&2!$1)&)2'$&)+$ insurance course and asked the faculty to be explicit. it is also important to do assessment to see how the data and software are being used. based on experience from visits to other universities, we also purchased the fts financial trading system #.0*f&('$#%7)$.00$0(./$5&()'3"'wa'--.)$9)",'(#"*:?$ !"#$('&-w*"/'$#.0*f&('$#"/7-&*'#$*(&+'#$7#")3$&2*7&-$/&(i'*$ data and informs students about their virtual portfolios. the fts system includes many analytics to help student ',&-7&*'$%'(0.(/&)2'?$ !'$&))7&-$b 4$-"2')#'$0''$"#$-'##$*!&)$/.#*$.0$*!'$1)&)2"&-$+&*&?$ !'('$"#$&$!'-%07-$brk$&*$ the fts web site, listed in the references at the end of the paper. ;'-.*##*.&$')*'3)d,$k!1.)@*'*(!5!'.);--a! !'$1(#*$%!&#'$.0$")#*&--&*".)$f&#$2.),'(#".)$.0$*!'$2-&##(../;$(../$k=l$")$*!'$42.**$5.--'3'$.0$67#")'##?$ !"#$ was a 45 seat classroom with risers in the rear. we decided to remove the risers and reverse front and back; the large window in the lobby offers an excellent view of the room and screens for visitors to the trading room. the campus 2010, vol. 1, no. 1, 103-113 mclaren 110 advances in business research architect had drawn the layout and although we did some checking, we had little experience with actual trading rooms &*$*!'$*"/'$f'$1y'+$*!'$+'#"3)?$ !'$2-&##(../$#!&%'$+"2*&*'+$*!'$-&:.7*;$/.('$.($-'##?$ the university bid the renovation project and a local contractor received the work. i knew the contractor’s managers personally, and enjoyed visiting them on the job site. the contractor did an excellent job, and the price was very competitive. the campus architect served as project manager, representing all of the campus facilities management departments, and was the direct university contact with the rise project manager. as our building coordinator, i served as the liaison with the business school and was the self-described project coordinator for the faculty. while /:$*(&+")3$(../$i).f-'+3'$f&#$/")"/&-$&*$1(#*;$/:$'y%'("')2'$3('f$*!(.73!.7*$*!'$%(.e'2*?$ the architect was occasionally slow in following through on items. the project sat on the sideline for many weeks after we thought construction would commence. in fact, we took the classroom out of service nearly a full year before the project actually tied up the classroom. my advice is to lay out the time line and add plenty of safety time in order *!&*$*!'$*(&+")3$(../$"#$1)"#!'+$c'0.('$"*$"#$)''+'+?$ !'$ e"#'$ '[7"%/')*$ f&#$ ).*$ ('&+:$ *.$ ")#*&--$ &*$ *!'$ 2./%-'*".)$ .0$ *!'$ (').,&*".)$ f.(i?$ 8)$ 0&2*;$ *!'('$ f&#$ some minor slippage in the delivery date. i presume that is pretty typical, and we had plenty of time before our grand opening. u.f','(;$*!'$-.2&-$")#*&--&*".)$*'2!)"2"&)#$t*!"(+$%&(*:$#'(,"2'v$f'('$).*$7%$*.$*!'$*&#i;$&)+$e"#'$/.('$.($-'##$ &2i).f-'+3'+$*!&*?$ !'$*'2!#$")#*&--'+$+"3"*&-$/.,"'$*!'&*'($%(.e'2*.(#;$&)+$('%'&*'+-:$!&+$+"0127-*:$f"*!$.7($e.c;$ 2&--")3$*!'$%(.e'2*$/&)&3'($/&):$*"/'#$0.($2-&("12&*".)?$ !':$2.)0'##'+$*!':$!&+$)','($")#*&--'+$&$*"2i'($.($&$e"#'$ data wall. some rise pieces were missing, and we learned that we did not have all of the infrastructure pieces in order. i have technical it skills, and blame myself for not being in direct contact with rise. we instead relied on our 2&/%7#$&(2!"*'2*$f!.$"#$).*$&$*'2!)"2&-$8 $%'(#.)?$ !'$")0(&#*(72*7('$%(.c-'/#$.227(('+$")$*f.$*'2!)"2&-$&('&#^ 1. although we had external ip addresses for each ticker, the cabling was terminated in the teaching station and not &*$*!'$*"2i'(#$*!'/#'-,'#?$p'$1y'+$*!"#$")$`l$!.7(#$7#")3$2&/%7#$%'(#.))'-$*.$('f"(';$c7*$f'$#!.7-+$!&,'$!&+$*!&*$ right before the installation started. and because the lobby has a spline ceiling, the cabling extension to reach the ticker was unsightly. 2. power to the digital signs needed to have an isolated ground, and our old building wiring had shared ground throughout. even the new wiring used the same shared ground, or so we were told. this was a larger technical problem. p'$('#.-,'+$ *!'$1(#*$%(.c-'/$[7"2i-:;$c7*$.)-:$&0*'($ *!'$1(#*$ ")#*&--&*".)$ *'&/$ -'0*$ 2&/%7#?$ !'$ #'2.)+$ *..i$ longer and the university outsourced installation of six isolated ground circuits at a project cost of $500 per circuit. r0*'($*!&*$f.(i$f&#$1)"#!'+;$e"#'$2.)0'##'+$*!&*$f'$)''+'+$.)-:$.)'$"#.-&*'+$3(.7)+$2"(27"*$0.($&--$.0$.7($#"3)#;$ not six. they made a price reduction to offset some of the cost, and agreed they shared part of the blame for fuzzy communication. we recommend that you have a very clear understanding of the infrastructure needed, and make #7('$&)$ 8 h)'*f.(i")3$%'(#.)$ #"3)#$.00$.)$ *!'$7)+'(#*&)+")3$ 0(./$ *!'$7)",'(#"*:$')+?$u&+$f'$ *&i')$ *!'$ *"/'$ *.$ 2!&*$f"*!$e"#'$ &c.7*$ *!'#'$ ('[7"('/')*#;$ 8$ c'-"','$f'$f.7-+$ !&,'$ 2&73!*$ *!'$ .,'(#"3!*$ &)+$ 2'(*&")-:$ !&+$ c'**'($ working diagrams for things like terminations of ethernet cables. this is why i believe i should have served as project manager, not just the business school’s coordinator. once these infrastructure changes were complete, rise dispatched a more experienced installation team from texas to complete the installation. when it was discovered that the third rise engine that drive the tickers was not ")2-7+'+$")$*!'$#!"%/')*;$f'$#7c#*"*7*'+$.7($.f)$-.f$')+$q5$")$&)$'[7"%/')*$2-.#'*$'-#'f!'('$")$*!'$-.cc:?$r#$"*$ turns out, that was fortuitous because we have access to that computer at all times, even during class, to adjust the ticker programming for the outside ticker the announcements and events messaging system as needed. rise credited our account with the cost of the missing rise engine about $1000. as you might expect, there were glitches in the initial operations of the trading room, but rise was good for the *&#i;$%(.,"+")3$'y%'(*$&##"#*&)2'$0(./$m&)#&#$5"*:$0.($!&(+f&('$&)+$0(./$ .(.)*.$0.($#.0*f&('$#7%%.(*?$ !'$")"*"&-$ +&*&$f&--$%(.3(&//")3$f&#$e7#*$*.$3'*$7#$#*&(*'+;$&)+$*!'$%(.e'2*$/&)&3'($f.(i'+$f"*!$7#$*.$1)&-"o'$*!'$+'#"3);$%'($ our agreement with rise we had credit for so many hours of design and programming time in the original contract. some of the glitches we experienced were due to not making sure all the connections were made properly for 'y&/%-';$.7($2&/%7#$2&c-'$#:#*'/$*!&*$%(.,"+'+$*!'$5f65$%(.3(&//")3$0.($c.*!$+&*&$f&--#;$3'**")3$&%%(.%("&*'$8q$ addresses, and so forth. one glitch appeared the day of the grand opening when the tv picture was frozen behind the curtain we intended to remove to unveil the room. needless to say, we were sweating a little to have rise get the changes done in time, but in fact it did work shortly before the unveiling. the guests might have wondered why the &##.2"&*'$+'&)$i'%*$%''i")3$c'!")+$*!'$c-7'$27(*&")?$e"#'$&##"#*'+$")$#.-,")3$*!'$%(.c-'/$('/.*'-:$0(./$5&)&+&?$ 2010, vol. 1, no. 1, 103-113 mclaren 111 advances in business research ;'&.&*#)?%!,*.&$'-)*'3)fc*h!3$j')d!,&$3 we had the campus it staff install the computer workstations and monitors in the tables and connect them to *!'$nrf?$r*$1(#*$f'$+'2"+'+$*.$-'&,'$*!'$#*7+')*$#*&*".)#$.%')$t7)%(.*'2*'+v$*.$0&2"-"*&*'$/&i")3$07*7('$2!&)3'#$ as needed to each workstation. however, we found that bootleg software, inappropriate material, and lots of spam [7"2i-:$&%%'&('+$.)$*!'$/&2!")'#$")$*!'$-&c?$p'$7-*"/&*'-:$+'2"+'+$*.$-.2i$+.f)$*!'$!&(+$+(",'#$*.$%(',')*$%'(/&)')*$ changes by the users. we purchased a special card for each computer similar to that used in our other windows 2./%7*'($-&c#?$ !'$2&(+#$&--.f$2!&)3'#$*.$c'$/&+'$*.$*!'$2./%7*'(d#$2.)137(&*".)$+7(")3$&$#'##".);$c7*$f!')$*!&*$ 2./%7*'($"#$('c..*'+$*!'$!&(+$+(",'$(','(*#$*.$*!'$.("3")&-$1-'#?$4")2'$*!'$")"*"&-$")#*&--&*".);$f'$!&,'$/.,'+$*.$&$ software lock-down solution for campus computer labs. as with other campus computer labs, we prepared a hard drive image to use with transmit to all stations in the lab at the same time. thus with one command, we were able to put the same programs on all of the stations in this room. u.f','(;$f'$+"+$-.*#$.0$*f'&i")3$&#$)'f$#.0*f&('$"#$")#*&--'+;$*!7#$('[7"(")3$*!'$!&(+$+(",'$"/&3'$*.$c'$/.+"1'+?$8*$ might take a semester or two to get up and running in a steady state. we gave ourselves a few months to shake out the bugs, and we pilot tested the lab in the spring semester before assigning regular classes to meet there. the instructors need to become familiar with the resources in this room. training is always critical, and it took -.)3'($*!&)$f'$%('+"2*'+$*.$3'*$&$#2!'+7-'$f"*!.7*$*"/'$2.)g"2*#?$p'$0.7)+$*!&*$b("+&:$/.()")3#$&('$*!'$%('0'(('+$ time when few classes are scheduled. some training came from campus sources, while other sessions were conducted c:$.7($1)&)2"&-$+&*&$%(.,"+'(#?$ !'$#"/%-'#*$*'2!).-.3:$"#$*.$!&,'$&$#%'&i'($%!.)'$*.$&/%-"0:$*!'$,."2'$.0$&$('/.*'$ trainer. for remote trainers, newer methods are now available that use the instructor’s workstation ceiling speakers; consider webex and netmeeting software applications. maintenance issues p'$!&,'$'y%'("')2'+$#./'$.)3.")3$/&")*')&)2'$"##7'#$f"*!$*!'$'[7"%/')*?$8)$'&2!$2&#'$"*$('#7-*'+$")$&$)'f$ %"'2'$.0$'[7"%/')*$c'")3$#!"%%'+$.,'()"3!*$*.$*!'$2.--'3';$f"*!$")#*&--&*".)$#..)$&0*'(?$ !')$f'$#')*$*!'$.-+$7)"*$c&2i$ *.$e"#'$")$*!'$#&/'$c.y?$p'$')+'+$7%$('%-&2")3$*!'$0.--.f")3$"*'/#^ j$ `gm$fj5$n5d$+"#%-&:$t).*$0&"-'+$&*$*!'$#&/'$*"/'$&#$*!'$z>m$+"#%-&:v j$ @)'$z>m$fj5$n5d$+"#%-&:#$t#''$'y%-&)&*".)$c'-.fv j$ both of the two rise engines (one simply stopped working when the other hard drive failed; the other overheated ")$.7($*'&2!")3$#*&*".)v$ r0*'($ *!'$0&2*;$f'$-'&()'+$*!&*$ *!'$fj5$z>m$+"#%-&:$f&#$).*$+'0'2*",'b$ *!'$e"#'$')3")'$0&"-7('$%(',')*'+$*!&*$ display from working with some incidents the problem persisted after the new unit was installed and were solved in .*!'($f&:#?$u.f','(;$e"#'$f&#$,'(:$[7"2i$*.$('#%.)+$&)+$f.(i'+$f'--$f"*!$/:$#*&00$*.$2..(+")&*'$*!'$&((",&-$.0$%&(*#$ and a technician to do the installation. rise provides a web-based monitor report to let us know when various pieces .0$*!'"($'[7"%/')*$+.$).*$#''/$*.$c'$f.(i")3$w$,'(:$!'-%07-$c7*$f'$!&,'$!&+$#./'$0&-#'$")+"2&*".)#?$ b.($/.#*$.0$*!'$f.(i$f'$!&+$e"#'$+.$*!'$('%&"($.($'[7"%/')*$#f&%?$8$,.-7)*''('+$*.$('")#*&--$*!'$('%-&2'/')*$e"#'$ engine in the teaching station in order to get it back online sooner to meet a deadline. other than cutting myself inside *!'$*'&2!")3$#*&*".);$"*$f&#$#722'##07-?$@7($.f)$rhs$#*&00$f&#$,'(:$c7#:$&*$*!'$*"/';$&)+$")$0&2*$f"*!$c7+3'*$27*#$!&#$ c'2./'$',')$c7#"'(?$ !'$('%-&2'/')*$n5d$+"#%-&:#$&('$!'&,:;$&)+$f'$2!.#'$).*$*.$7#'$.7($7)",'(#"*:$#*&00$*.$")#*&--$ *!'$('%-&2'/')*$n5d$+"#%-&:#b$f'$+"+)d*$f&)*$*.$2!&)2'$+(.%%")3$&$+"#%-&:?$ p'$!&+$/&):$,"#"*#$ 0(./$ *!'$2&/%7#$&7+".h,"#7&-$ #*&00$ *.$+.$ *!'$ ")"*"&-$ ")#*&--&*".)$&)+$2.)137(&*".)$.0$ *!'$ teaching station and its extron control panel, and overall troubleshooting. the extron panel was more complex than other smart classrooms on campus, and until it functioned we controlled the projectors with a remote control. @7($rhs$#*&00$"#$!"3!-:$.,'(f.(i'+$&)+$*!&*$"#$*:%"2&-$.0$/.#*$2&/%7#'#$&#$*!'$2-&##(../$*'2!).-.3:$")2('&#'#$")$ complexity. most business schools will not have this expertise internally. @)'$!7/.(.7#$).*'$x$.)'$.0$*!'$*f.$z>m$n5d$+"#%-&:#$#*.%%'+$f.(i")3$f!"-'$*!'$.*!'($2.)*")7'+$*.$f.(i?$j&2!$ !&#$"*#$.f)$*(&)#/"**'(h('2'",'($%&"(;$2.))'2*'+$c:$*!'$j*!'()'*$5&*$g$2&c-'?$r0*'($[7"*'$&$c"*$.0$*(.7c-'#!..*")3;$.7($ rhs$#*&00$)&((.f'+$*!'$2&7#'$+.f)$*.$&$2!'f'+$f"('$*.$*!'$%.f'($#7%%-:$")$*!'$2'"-")3$*!&*$0'+$%.f'($*.$*!'$('2'",'(b$ the receiver converts the low voltage signal to a regular video output to feed into the monitor. evidently the same raccoon that chewed the projector alarm wires worked on the display’s power supply wire. rise was able to provide &$('%-&2'/')*$%.f'($#7%%-:$&*$/")"/&-$2.#*$*.$*!'$5.--'3'$.0$67#")'##?$p!"-'$f&"*")3$0.($*!'$)'f$%.f'($#7%%-:;$f'$ were able to temporarily resolve the problem using a nikon camera battery charger power cable – same design – to reconnect the receiver to its old charger. almost two years later we found the hole in the foundation that had allowed several raccoons to enter and solved that problem. 2010, vol. 1, no. 1, 103-113 mclaren 112 advances in business research f.!*3/)f.*.!6)?%!,*.&'().c!)2,*3&'()4$$5 expect to have some issues with operating this complex facility, so reserve time to monitor and respond to problems. some are inexperience of some faculty who don’t know how to operate the systems. we’ve seen settings 2!&)3'+$*!&*$)''+$*.$c'$('#'*$")$.(+'($*.$3'*$#.7)+$0(./$dsd#$&)+$#.$0.(*!?$u&,")3$*'2!).-.3:$&)+$rhs$%'(#.))'-$ on call is very helpful; a telephone in the room is necessary. interim changes after operating the trading room for about two years, we made some changes to room security, the display 2.)*(.--'($!&(+f&(';$&)+$+&*&h#.0*f&('?$@22&#".)&--:$f'$0.7)+$*!'$*(&+")3$(../$+..($2-.#'+$c7*$7)-.2i'+?$d'#%"*'$ pleas to all users to make sure the door was closed and locked, the problem persisted. we decided to replace the lock so that the trading room would remain locked. that is, when the door was opened with a key, it would remain locked from the outside. we contemplated adding video surveillance but did not have the budget at the time. in our new c7"-+")3$f'$")*')+$*.$&++$*!'$1)&)2"&-$*(&+")3$(../$*.$*!'$c7"-+")3$,"+'.$#7(,'"--&)2'$#:#*'/?$ in analyzing the maintenance issues with our rise engines in the teaching station, it became evident that we #!.7-+$ ('-.2&*'$ *!'$e"#'$ ')3")'#$ t&)+$ *!'$c(.&+2&#*'(#$ &)+$ 2&c-'$ *7)'($ c.yv$ 0(./$ *!'$ *'&2!")3$ #*&*".)$ ")#"+'$ *!'$ *(&+")3$(../$*.$&)$&+e&2')*$'[7"%/')*$(../$")$f!"2!$f'$!&,'$&$07--w#"o'+$2./%7*'($(&2i?$f.*$.)-:$+"+$*!"#$('-.2&*".)$ ('+72'$*!'$!'&*$c7"-+w7%$")$*!'$*'&2!")3$#*&*".)$&)+$-.f'($*!'$)."#'$-','-$t2..-")3$0&)#$")$*!'$e"#'$')3")'#v$c7*$*!'$ simplicity in programming the tickers was very helpful. we would recommend that anyone considering a similar trading room locate the display hardware elsewhere. now we are able to work on the hardware at any time, even during a class using the trading room. after speaking with the rise consultant, we chose to take advantage of his offer to upgrade our tickers to web controllers &)+$'-"/")&*'$.7($q5$*!&*$f'$7#'+$*.$2.)*(.-$*!'$*"2i'(#?$@)2'$")#*&--'+;$f'$f.7-+$%(.3(&/$*!'$*"2i'($%-&:$ lists via a web site rather than on our local computer. rise sent us the new controllers and dispatched a technician to install them. the new programming method can be done anywhere there is an internet connection, and it is considerably simpler. the most obvious missing data stream was the bloomberg terminal. initially too expensive, in 2010 we decided to adjust the budget and add a bloomberg terminal in a student accessible area of the trading room. although bloomberg offered an attractive multi-unit discount, at this time we were only able to afford a single unit. this added about $20,000 to our annual software and data license budget. ?"!,*##)la3(!.)d&1.a,! we learned that the least expensive part of our trading room project was the room construction. for us, renovating a classroom with a few special features (such as the viewing window and a push button lock for the student practice (../v$2.#*$&c.7*$i`=;===?$ !'$c&#"2$2./%7*'($'[7"%/')*$&)+$07()"*7('$2.#*$&c.7*$ikz=;===?$ !'$+"#%-&:$'[7"%/')*$ from rise was a little over $100,000 including a maintenance contract for the hardware and license for the data feeds to the signs. we added another $3000 to upgrade our ticker controllers in 2010. r))7&-$+&*&$-"2')#'$0''#$2./%("#'$*!'$-&(3'#*$2.#*$2./%.)')*$.0$.7($*(&+")3$(../$")$*!'$1(#*$*!(''$:'&(#?$4./'$ licenses are per-station, and others are campus-wide licenses. while it depends on the number of stations licensed for #%'2"12$#.0*f&(';$f'd('$).f$#%')+")3$&c.7*$ilg;===$%'($:'&($.)$#.0*f&('$&)+$+&*&;$&)+$f.7-+$%(.c&c-:$#%')+$/.('$ "0$f'$!&+$*!'$07)+#?$u.f','(;$f'$f.7-+$)''+$*.$#"*$+.f)$f"*!$*!'$1)&)2"&-$#'(,"2'#$0&27-*:$&)+$+"#27##$%(".("*"'#$&#$ well as duplicate services. summary p'$&('$%-'&#'+$f"*!$.7($ *(&+")3$ (../$'[7"%/')*;$ &)+$ 0''-$ *!&*$e"#'$d"#%-&:$f&#$ &$,'(:$3..+$%&(*)'(?$ !':$ assisted us initially in considering various design aspects, and other than some glitches in the installation process, rise has been a joy to work with. the rise consultant visited after the installation and has been very willing to answer *'2!)"2&-$[7'#*".)#$&#$*!':$&("#'?$b.($")#*&)2';$f'$!&+$&$/&")*')&)2'$3-"*2!$")$f!"2!$f'$f'('$*.-+$*!'$7)"*$f&#$).*$ 7)+'($2.,'(&3'$f!')$"*$0&"-'+?$8)$0&2*;$*!'$2.)#7-*&)*$[7"2i-:$")*'(,')'+$&)+$#&"+$"*$f&#$&$e"#'$+&*&$')*(:$'((.($w$f'$ were indeed covered with a three year service contract. the rise consultant has referred many potential customers to us and i am more than willing to provide tours, &)#f'($[7'#*".)#;$&)+$+'/.)#*(&*'$*!'$1)&)2"&-$*(&+")3$(../?$p'$!&,'$!&+$ s$&)+$)'f#%&%'($2.,'(&3';$&)+$*f.$ 2&/%7#$('2(7"*")3$2.//'(2"&-#$f'('$#!.*$")$.7($1)&)2"&-$*(&+")3$(../?$p'$c'-"','$f'$!&,'$&$f.)+'(07-$*..-$*!&*$.7($ 2010, vol. 1, no. 1, 103-113 mclaren 113 advances in business research students can use to competitive advantage in the workplace. we plan to apply the lessons learned to the development of the new trading room in our new building. we always knew that the current trading room was a pilot, and it provided a living laboratory for developing the concept. :ea&%5!'.)*'3)4!#*.!3)4!i!,!'1!j$ d'--$ @%*"%-'y$ p.(i#*&*".)$ 5./%7*'($ t")"*"&-$ #'-'2*".)v$ fff?+'--?2./h2.)*')*h%(.+72*#h%(.+72*+'*&"-#?&#%yh$ +'#i*.%w.%*"%-'yw>g=]2n7#o-n')o#nc#+o2#n=`$ j$ jy*(.)$s"+'.$4f"*2!")3$q&)'-$fff?'y*(.)?2./h%(.+72*h%(.+*:%'k`?&#%y j$ 8)#*(72*.($a'+"&$d"('2*.($ '&2!")3$4*&*".)$fff?#%'2*(7/07()"*7('?2./h j$ m8$ d&*&-")i$ &c-'#$ &)+$ 5!&"(#$ fff?i"?2./h%(.+72*#h<`hkzllhq.f'('+p &c-'#hd&*&n")ip$ (&")")3p &c-'p$ 4:#*'/h?&#%y])2&*n`o#"*'2&*nzk$ j$ q&)&#.)"2$q wn6g=9$c\r$s"+'.$q(.e'2*.($fff?07--2./%&##?2./h%(.+72*h_zz<z_?!*/-$/.+'-$('%-&2'+$c:$q w lb80u j$ rise display www.risedisplay.com j$ p&--*&-i'(#$d"#%-&:hp!"*'$6.&(+$5.,'(")3#$$fff?f&--*&-i'(#?2./$ f$i.j*,!)*'3) *.*)0!!3)4!i!,!'1!j$ 6-../c'(3$67#")'##$&)+$b")&)2"&-$8)0.(/&*".)$fff?c-../c'(3?2./h]cn=o8)*(.n")*(._$ j$ 5./%7#*&*$d&*&$4'(,"2'#$fff?2./%7#*&*?2./$ j$ 5e4q$x$5')*'($0.($e'#'&(2!$")$4'27("*:$q("2'#$fff?2(#%?2./$ j$ fts – financial trading system www.ftsweb.com j$ '-'/'*$@(".)$fff?*&[7.*'?2./$ additional information about the financial trading room in the scott college of business j$ b")&)2"&-$*(&+")3$(../$+'#2("%*".)^$fff?")+#*&*'?'+7hc7#")'##h1)&)2'h*(&+")3(../?!*/ j$ a")&#$5')*'($0.($8),'#*/')*#$&)+$b")&)2"&-$j+72&*".)$fff?")+#*&*'?'+7hc7#")'##h2')*'(#h/")&#?!*/ j$ (&+")3$e../$%!.*.$#-"+'$#!.f$f"*!$2&%*".)#^$fff?")+#*&*'?'+7hc7#")'##h*(&+")3(../?%+0?$2-"2i$*.$2!&)3'$#-"+'# 4:0:4:<8:f r-'y&)+'(;$q?;$u'2i;$5?;$o$a2j-('&*!;$e?$<==k?$r$37"+'$*.$c7"-+")3$&$7)",'(#"*:$*(&+")3$(../?$financial services review;$k=^$<=lw<<=? n:/&);$e?;$o$4*.)';$e?$<==g?$ !'$7#'$.0$&$1)&)2"&-$*(&+")3$(../$*.$+','-.%$("#i$/&)&3'/')*$2./%'*')2:?$journal $i)8$##!(!)2!*1c&'()m)=!*,'&'(;$_^$l_wll? siam, j. 2005. university trading centres and their role in business education. n$a,'*#) $i)0&'*'1&*#):3a1*.&$', g<^$kw<_? 4")!&;$r?;$b'(('"(&;$j?;$o$\('');$e?$<==g?$ (&+")3$(../$'+72&*".)&-$%(.3(&/#^$8##7'#$&)+$('2.//')+&*".)#?$journal $i)la-&'!--)m):1$'$5&1-)4!-!*,1c;$`^$zlwgl?$ l,a1!)@1=*,!'$ "#$ &##.2"&*'$ +'&)$ &)+$ &$ %(.0'##.($ .0$/&)&3'/')*$ ")0.(/&*".)$ #:#*'/#$ ")$ *!'$ 42.**$ 5.--'3'$ .0$ business at indiana state university. he received his ph.d. in operations management from purdue university. his current scholarly interests include assessment, curriculum development, retention of students, and developing #*7+')*$*'2!).-.3:$#i"--#?$u'$!&#$%7c-"#!'+$10*'')$*'y*c..i#$")$*!'$&('&$.0$")0.(/&*".)$*..-#;$'w2.//'(2';$&)+$*!'$ 8)*'()'*?$u'$#'(,'#$&#$c7"-+")3$2..(+")&*.($&)+$2..(+")&*'+$*!'$+','-.%/')*$.0$*!'$1)&)2"&-$ *(&+")3$(../$")$*!'$ a")&#$5')*'($0.($8),'#*/')*$&)+$b")&)2"&-$j+72&*".)$")$*!'$42.**$5.--'3'$.0$67#")'##?$$ 2010, vol. 1, no. 1, 103-113 mclaren advances in business research 2011 volume 2.pdf taylor advances in business research 2011, vol. 2, no. 1, 125-137 125 is the job market tight for your grads? beyond the abcs of job search: ‘suit’em up’, inside & out, and ‘brand’ them ruth taylor, texas state university this paper focuses on ‘fear’ found most common among upper-level college students and military veterans in today’s tight job market. one principles of marketing educator’s experiential project, entitled ‘suit’em up,’ inside & out, and ‘brand’ them is discussed at length with implementation details and perception survey findings provided along with pre-project related mini-lectures. the project moved individual participants beyond the typical abcs of the job search process to that of creating for a mission-centric, introspective-based marketing plan with the ultimate goal of finding meaningful, lifesatisfying work. implications for student cohortsat large and academic, veteran, and at-large career counselors are identified. with the u.s. economy lagging in 2011 and employment rates exceedingly high, educators are encouraged to advise students, veterans and other job seekers to re-think their personal job search readiness strategies. and, to encourage them to move beyond the typical abcs training of a job search learned in school: the resume, the cover letter and personal interview skills. helpful job search readiness actions that go beyond the abcs the following elements: (1) an introspectively-determined armor of skills; (2) a competitive position with a brand catch phrase; (3) an intensive study of industry of interest and alternative industries of interest; (4) a personal marketing plan; and (5) a meaningful long-term, lifesatisfying employment-oriented networking plan. the experiential project discussed in this paper, entitled ‘suit’em up,’ inside & out, and ‘brand’ them (hereafter referred to as the suit’em up…project) is a means of accomplishing these above listed actions and is most beneficial if completed before students begin to write their resumes and cover letters, make job applications. thus, the project is appropriately assigned at the junior level of a student’s academic studies. this project was assigned as a required experiential project in a principles of marketing course. it was designed to accomplish two main comprehensive objectives: (1) give students experience in applying the principles and practices of marketing, and (2) help students increase their job search readiness. individual project activities helped to move students toward taking personal responsibility for gaining the meaningful, life-satisfying work job seekers commonly desire. many u.s. unemployed/underemployed people still actively seeking employment’ (i.e., still part of the so-called workforce), and the many workforce dropouts (those unemployed, discouraged, former job seekers who are ‘no longer actively seeking employment), are all hurting psychologically and financially. these people may not have thought about the readiness element needed in preparing for a meaningful job search and the flexibilities necessitated by a necessitated by a tight job market, and necessitated by other job markets changes. the intent of this paper is to the share major details of the experiential project, suit’em up,…’to share the nine introductory mini-lectures associated with the project; to share empirical findings regarding students’ perception of the project’s worth in terms of helping them with job search readiness; and to share students perceived fears as related to job searching in a tight job market. the project is introduced and explained in terms of its usefulness in teaching principles of marketing course content and in terms of its usefulness in training students to develop a job search readiness plan and personal marketing plan as part of their job search readiness efforts. the project directed students as job seekers to complete the following actions: (1) conduct a drill-down personal assessment of abilities; (2) conduct intensive industry of interest and alternative industry of interest experiential research; (3) create personal branded position; (4) write an introspective-based brand catch phrase; (5) design a personal marketing mix; and (6) construct an individual-centric/alternative industries-centric networking plan. empirical findings discussed include the following: (1) focus group findings of sixty-five, upper-level business students’ greatest ‘fear’ in today’s tight job market, and their need for help in overcoming it; (2) taylor advances in business research 2011, vol. 2, no. 1, 125-137 126 findings of literature reviews regarding job search needs of unemployed military veterans (campbell, 2011); and (3) three-year project implementation findings. project details and survey findings hold implications for other academic educators, veteran and at-large career counselors; and for all job seekers, regardless of major area of academic study, prior work experience, or military service. literature review current ‘tight’ job market today, according to the u.s. census bureau (june, 2011), the unemployment rate of young adults (ages 18-24) is at a crisis point of 26.8%; the general population unemployment rate is at 9.0% (campbell, 2011); at least 50% of 2010 business school graduates and most of 2011 graduates are still seeking employment (business news, 2011); and the unemployment rate of military veterans seeking civilian jobs is at 8.8% (campbell, 2011). training people to develop different job search strategies in different types of labor markets and getting them to access their readiness for a meaningful job search are prerequisites in career counseling, albeit not always put into practice. according to piggott (1997), we need people who can reinvent themselves, as market changes occur, doing so to give themselves a competitive advantage. job seekers need to be encouraged to broaden their scope of job search by being curious about the way job market works in various industries and how their skill set is applicable in a variety of occupations in a variety of industries. some educators, career consultants, and u.s. government entities are beginning to provide enhanced training, although, as survey findings discussed in this paper demonstrates, more intensive training is needed that regard job search readiness and training in the value of and development of a personal marketing plan as part of one’s life-satisfying job search effort. help strategies in essence, based on reviews of current literature and websites analyses, it can be said that there are many and varied entities reaching out to help today’s job seekers. although this paper will not make a complete review of each helping entity, the essence of some help strategies is presented in table 1. table 1: job search help strategies provided student-cohort and graduates. academic business program internship programs job shadowing experiences ama; sife; other student organizations designing curricula & extracurricular activities to make program’s graduates more marketable college placement offices career counseling, job postings, job search advising, mock interviews, speed interviews, walk-in coaching, resume workshops, etc. internship fairs; job fairs industry-specific efforts online specific employment information & association listings industry-related career opportunities examples: agcareers.com (agricultural industry) aef.com (advertising industry); winetalent.blogspot.com (wine talent) oilcareers.com (oil and gas industry); youtube.com (fashion industry) u.s. government efforts department of labor (occupational outlook handbook ooh) joining forces (first lady michelle obama & dr. jill biden, http://www.whitehouse.gov/joiningforces online career counselors and recruiters indeed.co gijobs.com militaryhire.com careerbuilder..com resumeedcge.com ‘sharks’ .com ones that students need to be careful about using and educators need to warn against. taylor advances in business research 2011, vol. 2, no. 1, 125-137 127 in regard to u.s. government efforts/grant programs the u.s. government offers a variety of help aids and publishes many industry-specific statistics useful by job seekers. for example, the department of labor’s, bureau of labor statistics’ publishes the career guide to industries occupational outlook handbook (ooh) (bureau of labor statistics, 2011) that is a valuable job search readiness reference. another example is, as reported by campbell (2011) in the usaa magazine, the joining forces (2011) grant program that first lady michelle obama and dr. jill biden recently launched, accessible at http://www.whitehouse.gov/joiningforces. this grant program has the push objective of providing grant money to help educate employers on benefits of hiring veterans and their job seeking family members (campbell, 2011). campbell’s (2011) also showed that civilian hiring managers may not understand a veterans’ transferrable skills encoded in ‘military speak’ rather ‘corporate speak.’ thus, many companies, as the following select ones, have initiated specific efforts to help veterans and hiring managers translate military skill language to civilian skill language: www.careerbuilder.com, www.resumeedge.com, www.militaryhire.com, www.resume.info, www.regis.edu, and www.gijobs.com. translating military skills to private sector language is of utmost importance in a veteran’s successful job search effort. in regard to online career counselors and recruiters, today’s online recruiting and career help industry is international in scope and is dedicated to matching hiring employer need and job seeking candidate skills and to providing career-related help and hiring advice to their clients. in terms of helping hiring employers, some of these online companies train hiring managers in advanced on-line recruiting techniques. at times specialized help is offered as well. for instance, one online company, indeed.com (2011), accessible at http://www.indeed.com, has recently broadened its business scope to include a military veteran only link dedicated to helping veterans find jobs. many on-line career-oriented organizations are legitimate; others not. mixed in with the legitimate, highly beneficial company offerings, there are, likewise, company offerings not so helpful. with the current tight job market, many online marketing shysters and/or scammers have popped up to help; albeit, ‘help at a huge price,’ in the form of monies paid by job seekers or in private information elicited form them. these are to be guarded against as they exploit the fragility of the unemployed and underemployed. educators can help by guiding students to critically screen ‘career advice at a price’ or ‘free’ ones that may have a possible ulterior motive and do so before signing up for counseling engagements with any of them. likewise, there are sham on-line job postings specifically designed to elicit personal information from the unemployed. these exploiters create a ‘beware’ situation for job seekers. questionable practices by recruiters and career-assisting entities, onor off-line and/or any suspect job or suspect resume posting noted by suspect job seekers can be reported to the job seeker’s state’s office of the attorney general. unanswered questions however, many questions remain unanswered. one question is in regard to marketing program efforts to make graduates more marketable. in the process of business programs implementing revised strategies for enhancing the marketability of their students, thus increasing the placement rate of their graduates, an unanswered question arises. are these revised strategies, likewise, helping students to become more marketable from each student’s own personal perspective? for instance, do any of these programs offer training for students in developing for themselves a personal life-mission oriented marketing plan? and, in doing so, are students being helped such that they become more confident that they are seeking employment in the right places, for them, whether in industry of intent, adjacent industries, or alternate industry venues? when initiating the following discussed project three years ago, in this educator’s principles of marketing course, most on-line and off-line career-related, job-search advice was well meant and helpful but was, in this educator’s opinion, ‘surface’ in nature. today there is a plethora of websites advising introspective assessment of skills and help for veterans, but none, as could be determined by this educator/author that directly advised job seekers to develop a personal marketing plan applying the principles and practices of marketing as a way of keeping job seekers out of a potential existential job search vacuum (schultz and miller, 2004). taylor advances in business research 2011, vol. 2, no. 1, 125-137 128 experiential survey design approximately 390 junior level business students, enrolled in various sections of the principles of marketing course taught by the educator at a large university in the southwestern part of the united states, over a three-year period, 2008-2011, was the population studied in this research. two different surveys were conducted. a current year conducted focus group survey involved sixty-five upper-level business students. a three-year study including approximately 390 business students who completed the suit’em up... project was conducted. students participating in the focus group did so before the project was introduced to them. the project has not been implemented in a short-term summer principles of marketing course. the original project assignment three years ago was based on a marketing career advice-oriented project in a principles of marketing textbook by kerin et al., (2009). the project has been modified over time to fit the needs of contemporary students, seeking jobs in the contemporary workplace. the project required students to apply the principles and practices of marketing in personal job search readiness efforts. project assignments completed helped students gain an understanding of the ‘whys’ of needing to go above and beyond the typically-learned abcs of job search readiness before developing their resume or cover letter, not afterwards. students, too, learned the importance of starting job searches early and getting related experience, whether volunteeror pay-based. in today’s tight job market, with many job seekers and few job openings, many academic business programs, college placement offices, professional career consultant organizations, and government entities have enhanced their strategies to help as explained above. individual educators, likewise, have planned helpful course projects, such as the one discussed in the section just after the survey findings section that follows. survey findings in essence, the principles of marketing students as job seekers surveyed appear to be seeking help in their job searches that will move them above and beyond the abcs of job search training typically receive in school. this seeking of help is evidenced by the following specific findings. these past semesters’ findings are discussed here, before the project is presented, because the updated form of the project was based on past semesters’ learning curve. focus group findings focus group findings indicated that many business students in their third-year level of academic study, for the large part, are unacquainted with the following: 1. the value of the department of labor’s occupational outlook handbook (ooh) and the ooh’s usefulness as a resource for broadening one’s knowledge of industries and skills required. 2. the many industry-specific help websites such as the agricultural industry at agcareers.com; the advertising industry at aef.com; the wine industry at winetalent.blogspot.com; the oil and gas industry at oilcareers.com; and the fashion industry at youtube.com, and others. 3. the many general on-line help websites such as americanhires360.com, topusajobs.com, jobsdirectusa.com, monster.com, and others. 4. the introspective assessments and due-diligence research needed prior to resume writing. 5. the deep concern of their greatest fear (as discussed below). focus group job search ‘fear’ finding it was a surprising finding that, given the tight job market of the past few years, students appeared not so much worried about getting a job per se, but worried at a deeper level. the large majority of focus group participants, 53/65 or 81.5%, when asked what their greatest fear or apprehension was in applying an after graduation job. they stated that their greatest concern was not about finding a job per se, but rather finding life satisfying work. if not successful, they felt that they would think their time and money spent earning a degree in their major area of study would have been a total waste. the few, 3/65 or 4.6%, taylor advances in business research 2011, vol. 2, no. 1, 125-137 129 veteran as student participants indicated that they, likewise, were confident, given their prior military experience, that a post-graduation job would be there for them. although, they, likewise, sought more than just a job, they wanted meaningful, life-satisfying employment. these findings further revealed that surveyed students also feared knowing what they wanted to do, that they wouldn’t get a job they liked, and they would hate their jobs, and feared the inability of attempting to show their true self on a piece of paper. surveyed students’ expression of fears can be interpreted as their calls for help in eliminating these deep down job search fears. post-project completion survey findings post-project completion survey findings indicated that many business students in their third year level of academic study found the ‘suit’em up...’ project to aid them in the following positive ways. they felt the project experience helped them by increasing their job search readiness in the following ways: 1. increase job search skills beyond the abcs of resume, cover letter, and interview. 2. increased awareness needed and the ability to apply for meaningful, life-satisfying work. 3. increased awareness of many job opportunities in many industries previously not considered. the project ‘suit’em up,’ inside & out, and ‘brand’ them the comprehensive “suit’em up…” project was carried out in three parts; (1) introductory minilectures on topics related to job search readiness, (2) conducting introspective assessments of skills and experiences; creating a brand position and brand catch phrase, (3) creating a personal marketing plan, and creating a professional job search networking plan as shown in table 2. table 2: suit’em up,’ inside & out, and ‘brand’ them project part 1: introductory pre-project mini-lectures (the ‘why’) lecture 1: overcoming workplace ‘fear.’ lecture 2: step back and take a different approach. lecture 3: value of introspective, individually-based project (vs. team project). lecture 4: essentials of an extended job search. lecture 5: success with personal branding (and brand tags). lecture 6: need for networking & personal networking plan. lecture 7: need or relevant internship experience. lecture 8: marketing mix/introspective assessment job search relationship. lecture 9: need for company, industry & cross-industry analyses part 2: project logistics (the ‘how’)introspective and experiential due diligence research introspective assessment of interests, preferences & skills industry research of preferred industry and alternate(s) develop personal marketing plan with self as product, price, place and promotion. development of a brand catch phrase development of a professional networking plan develop of resume with ‘up front’ elements development of cover letters development of personal interview skills personal reflective statement of experience and complete a post-project survey. part 3: the personal strategic marketing “you” marketing plan (the ‘show’) determine target market (i.e., employers to target) development of personal marketing mix, “you” as: product place promotion price taylor advances in business research 2011, vol. 2, no. 1, 125-137 130 student project packets on the next page were developed and provided to all students including minilectures and specific project guidelines. student project packets when project was introduced early each semester, students were provided a packet with the associated mini-lectures and detailed project guidelines. the mini-lectures were orally to students and also included in writing in project packet. this organization, with project part completion interim due dates assigned, was chosen to cut down on students being overwhelmed with project comprehensiveness the assessments and due diligence research necessitated. due to space limitations, only the main parts of suit’em up… project are provided above. further project details can be obtained from the author. part 1: introductory pre-project mini lectures the following nine mini-lectures were embedded with past-semester student survey findings, current focus group findings, and related literature review findings as a means to increase the ‘realness’ of the project in a student’s job search processes. job search topics included in the mini-lectures were directly related to issues of concern that go beyond resume, cover letter and interview skill readiness. mini-lecture 1 overcoming workplace ‘fear’. the easiest way for employers to cut operating costs immediately is to downsize their labor force causing the unemployed and those threatened with unemployment, ‘fear.’ it is generally accepted that one of the best weapon against fear is ‘information.’’ for all job seekers, information co-joined with preparation and purposeful action will lead, in time, to meaningful and life-satisfying job landings. invalid assumptions, based on a lack of information about jobs, companies, industries, skills requirements, and so on, might lead, at times, to job seeker uncertainty and lack of motivation. and, unfortunately, at times, leads to a jobseeker’s exodus from the labor force (deemed no longer actively seeking employment). thus, information is one of the job seeker’s best assets. mini-lecture 2 step back and take a different approach. when things are not going right in one’s job search, it might be time to step back and approach it from a different direction (msi, 2011). a reapproach might require a break from tradition; creating the new; crossing industry lines, and in some cases crossing industry lines two or three times; and developing different job search strategies in different workplace environments to better accomplish planned mission. a stepping-back re-approach may require using creative and analytical approaches to re-direct job search efforts by analyzing past job seeking efforts and those of others, and staying motivated. unemployment is stressful. however, with the right introspective assessments and due diligent experiential industry-centric research; with the right approach, attitude and job search tools; and with the right strategic career plan, dedicated and motivated job seekers will eventually land meaningful and life-satisfying jobs. in this educator’s/author’s opinion, all educators and academic program planners have a responsibility to not only design program curricula in such a way that it helps students to become more marketable, thus increasing academic program’s graduate job placement rates, but likewise to ensure that these curricula help students to become more marketable in meaningful and life-satisfying ways. mini-lecture 3 value of introspective, individual-based projects. although a good many required principles of marketing projects are groupand team-based experiential projects, some incorporate a plethora of innovative technologies, such as, tablet computers (ipads and others); smartphones, wireless clicker systems; social media (such as linkedin, facebook, youtube, twitter and others (granitz and pitts, 2011), individually-assigned projects have intrinsic value as related to personal growth and development. the suit’em up… project is individually assigned, and can be done with or without the use of innovative technologies, was designed to help each student plan for and find employment opportunities that fits the student’s soul. the project was required students to ‘drill down’ getting at his or her psych level, helping individual students to know themselves better and have a holistic understanding of the comprehensive job search readiness process. the assigned suit’em up… project was designed to teach students the principles and practices of marketing and how to apply them to a level of learning most taylor advances in business research 2011, vol. 2, no. 1, 125-137 131 relevant to students the job search process. a major aspect of this applied project required students to apply the universally-applicable marketing mix to themselves, making the completed project a job search applicable. mini-lecture 4 extended job search process essentials. introspective and experiential information, preparation, motivated action, and good communication skills (along with well-honed cover letters, resumes, and interview skills), are the essentials of the extended job search preparation process. multiarmed with these job-landing essentials, job seekers stand a better chance, in a tight job market, and otherwise, at landing a meaningful job, than job applicants armed only with the abcs of typical job search preparation. mini-lecture 5 success with personal branding. a personal branding strategy includes the development of and use of a brand tag or brand catch phrase. brand tags or brand catch phrases have successfully been used in many industries, including the on-gaming industry; and the use of brand tags is showing up in creative job search processes. to promote understanding, an analogous example of the value of a brand catch phrase, or ‘brand tag,’ in marketing oneself, as used in the on-line gaming industry by individual on-line gamers, will now be given. in the gaming industry (large market of on-line video game players), branding and brand tags strategies are used by individual gamers (marketers) seeking contact with other like-minded gamers (market segmentation and target marketing), albeit, highly-experienced ones (niche marketing) in the army video game sector of the gaming industry (market segmentation). to attract high level gamers of a particular video game, for example, high-skilled at playing call of duty: black opps, accessible at http:www.activision.com/atvihub/home.do (activision, 2011), the first gamer who is a high-level call to duty: black opps, gamer, being highly-skilled his or herself, (a marketer) develops and uses a brand tag (i.e., brand catch phrase) always written just under the gamer’s own name on each electronic send-out, of any form, sent to other gamers with the aim of them, if likewise highly skilled, contacting the originating game player (a sale made). the highly-skilled gamer interested in being contacted, then identify themselves to the original high level gamer and a match is made (a sale made). personal branding and the use of brand tag are becoming very important and widely used in the gaming industry, and in other industries. personal branding and the use of brand tags is becoming widely used personal marketing strategy and has direct applicability to individual job seekers wanting to emulate the success of the gaming industry’s use of brand tags. personal branding, as defined in the literature, is interpreted as a job-seeker’s identification of his or her unique promise of value to employers (brown, 2011). with the use of personal branding becoming popular, brown (2011) advised job seekers to use a well-written, introspective-based brand catch phrase, or brand tag, by typing it just below the job seeker’s name in on-line and traditional communication efforts, job postings, and personal and professional profile postings. it likewise can be used in all face-out communication efforts such as at networking events and when speaking with or interviewing with potential employers. for example, a graphic designer could use the brand tag of, ‘creator of futuristic designs,’ assuming of course, that he/she is a creator of futuristic designs who can deliver what is promised by his or her brand tag. brand tags, appear to be a ‘hot’ job seeking technique with the benefit of giving a job seeker’s personal contacts a ‘handle’ useful in remembering the job seeker and differentiating him or her from competitive job seekers. however, not all uses of brand tags, especially ‘false front’ ones, are put to good use, creating a ‘hiring manager beware’ situation. if a job seeker can’t deliver what a brand tag promises, the job seeker is using a ‘false front’ brand tag. well-designed personal brand catch phases or brand tags need to be individual job seeker-centric, based on introspective assessment of job seeker self-awareness, strength of skill-set, and long-term career goals; as well as it should indicate the job seekers’ industry of preference or alternate industry of interest. if ‘false-front’ brand tags are used before or after a hiring, it creates a ‘job seeker beware’ situation as it doesn’t take rocket science to ferret out a fake. mini-lecture 6 need for networking. networking pays off. survey findings show that 50% of the employers surveyed (msi, 2011) stated that the large majority of their new-hires were a result of a networking contact, on the part of the employee, or on the part of the employer. network early and taylor advances in business research 2011, vol. 2, no. 1, 125-137 132 creatively, and expanding one’s networking circles, can go far in helping secure employment and contributing to professional development. matt youngquist, president of career horizons, stated that at least 70%, if not more, of jobs are not published, yet the majority of job seekers spend at least the same percent of their time surfing the web, when a better use of their time would be spent networking as the vast majority of new-hires is as a result of recommendations from trusted friends and acquaintances (msi, 2011). networking advisers encourage the following job seeker actions: (1) network early and often; (2) expand knowledge of employment opportunities by crossing industry lines and researching alternate industries of interest; and (3) emphasize to all networking contacts the job seekers’ transferable skills in understandable language regardless of prior specialization or experience used jargon. mini-lecture 7 need for relevant internship experience. the value of both a successful and not so successful educational internship experience cannot be overstated. all internships have value (http://www.about.com, 2009), as they teach the inside of a company and its industry helping students to determine their own industry of preference; alternative industries of interest; and determine industries they are not interested in. relevant hands on internship experience gained with pay or for experience only is the job seeker’s best asset (hoffman, 2008). all internship experiences, whatever the outcome, should be treated as experience on one’s resume. student internships lower employment risks for both student and employer and lessens employer training time and costs if the employer hires from within its internship pool. internships offer students the opportunity to gain hands-on experience; to build professional networks; to explore career options, and to do without long-term commitment. internship experiences help students develop industry-specific abilities and skills that and increase the likelihood that an intern will land a permanent job offering with the internship-sponsoring company or elsewhere. survey findings of recruiters show that more than 50% or more of their newly-hired employees come from their internship pool (students veterans of america, 2011). educational internships can be with pay or without, i.e., for experience only. either type brings the student the experience he or she seeks for resume building purposes. however, national attention is being given to unpaid internships by the u.s. department of labor. a new document recently released by the u.s. department of labor (lipka, 2011) is being used in regard to student internships in that it applies a six-part litmus test from the fair labor and standards act and applies other conditions that must be met for unpaid student internships at for-profit companies to be considered legal. unpaid internships not meeting the department of labor litmus test may be deemed as taking advantage of the intern as ‘free labor’ an illegal action. with changing internship rules and laws, most companies will comply, and students will continue to gain the true value of internships. mini-lecture 8 marketing mix/ introspective assessment/job search relationship. job hunting is about marketing one’s self. job seekers need to spend time taking stock of him or herself as introspective assessment is a critical foundation of any job search, or job change (career and work place, 2008). taking introspective stock should result having a clear picture of one’s self, what one enjoys; what competencies one does well; a clear picture of one’s skills set and other abilities; and of one’s personality traits. by answering the introspective-based questions in the suit’em up… project these questions helped each student to determine what matters to him or her, where the his or her work passion is; and then helps the student to create a personal resume, custom made for each job application if necessary, and cover letters that let his or her spirit and skills shine forth to potential hiring managers up front, not burying away in other resume matter. when seeking a job, in a tight job market, or otherwise, it is important for soon-to-be college graduates (typically entry-level job candidates), military veterans and other job seekers, to acquire for well-honed skills that are transferable to on-the-job performance: (1) introspective research skills; (2) search engine and database navigational skills, and (3) creative and critical thinking search skills; and (4) well-refined written and oral communication skills. completion of the suit’em up… project will help students develop in each of these skill areas; as well as help each learn how to apply marketing principles and practices of marketing as learned in the classroom. taylor advances in business research 2011, vol. 2, no. 1, 125-137 133 exploratory focus group findings indicated that there is a chance that many college juniors and seniors nationwide do not know ‘where’ to start their web searches, where to go to start identifying ‘open’ (unfilled) industry-specific employment positions and industry-specific information. this suit’em up… project will help student’s build their repertoire of workplace and job force information resources. mini-lecture 9 need for company, industry and cross-industry analyses. job seekers may go on online using netnographic content-analysis research (the intense study of on-line data and web sites) to determine organizations and positions where industry of preference and alternate industry of interest activities are being carried out and the places carried out; to determine how these industry activities align with job seeker interests and skills and long-term plans; and determine job opportunities. career advisors at large heartedly endorse a job seekers’ research of and learning of everything about any company the job seeker might want to work for with the goal of articulating in writing in his or her cover letter and embedding in his or her resume and cover letters how he/she will be a good fit within the hiring company. according to saunders (2009), this is the easiest step of all, however, often the most neglected. experience shows that, that for the large part, job seekers who have researched thoroughly the company associated with their interview usually increase their chances of getting hired. also, with netnographic research, job seekers can determine “ahead of the curve” careers (msi, 2011), e.g., cutting edge careers, where particular skills will be of future demand in growth industries. cutting edge jobs and cutting edge career paths can be identified in us news and world report’s annual publication, for example, ‘best careers in 2011,’ with the selection of the ‘best’ based on criteria of job outlook, job satisfaction, difficulty of the required training, prestige, and pay (grant, 2011). cross-analysis of industry of preference and alternative industry of interest is of importance the learning of cross-industry application of one’s skills and talents. many students majoring in one academic field have no idea how their skills might apply in different industries. and, sometimes they don’t know much about the job opportunities in an industry directly applicable to their major. for instance, one agriculture major student was personally interviewed. the student had not heard of the agcareers.com and none of the business majors participating in the exploratory research focus group had heard of the website. yet, job opportunities abound in the agricultural industry for both students of agriculture major, business major, and other academic majors. for example, echaore-mcdavid and mcdavid, (2011) argue that career opportunities abound in the agriculture, food, and natural resource industry and in other agriculture industry sectors of which many students are unaware: aquaculture and commercial fishing; forest production and management; agribusiness; food and beverage natural resource management and conservations; and travel, tourism and recreation, and others. job opportunities in agriculture are not limited just to food production, distribution, and marketing as many students think. in reality, the scope of job opportunities in the agriculture industry is very broad and deep, yet many times the agricultural industry is not considered as a career option by business students. part 2: project logistics (the ‘how’) introspective and experiential due diligence research part two of the ‘suit’em up…’ project included the requirement for students to conduct introspective and experiential research about the following issues: introspective assessment of interests, preferences & skills. industry research of preferred industry and alternate(s). develop personal marketing plan with self as product, price, place and promotion. development of a brand catch phrase. development of a professional networking plan. develop of resume with ‘up front’ elements. development of cover letters. development of personal interview skills. personal reflective statement of experience and complete a post-project survey. taylor advances in business research 2011, vol. 2, no. 1, 125-137 134 part 3: the personal marketing plan project part 3, the personal marketing plan, that included two sub-parts, will be further discussed here: 1. determination of target market industry and employer type desired based on introspective analyses related to industry of preference and alternate industry of interest. 2. development of a personal marketing mix i.e., a marketing ‘you’ marketing mix, consisting of the following subsections: product strategy the jobseeker treated as a product with benefits to contribute to a hiring employer as capsulized into a written product statement. promotion strategy the job seeker’s self-promotion plan to be used by the job seeker in promoting him or herself in the work place, that included: a personal brand catch phrase or brand tag, a twomonth networking improvement plan, an introspective-based resume and cover letter that highlighted the ‘shine’ of the job seeker. place strategy a statement of job seeker’s willingness to be flexible regarding place(s) where he or she is content in delivering his or her skills to the hiring employer; as well as a statement regarding any relocation limitations and hesitations. price strategy a statement of the salary range and benefit package the job seeker expects (not to be openly discussed until invited to do so by the hiring employer). project logistics looking deeply and introspectively, via the project requirements, students were asked to identify of their competitive points of difference in terms of benefits they could offer potential employers and to research industry of preference and alternative industries of interest. then the project required students to develop their personal marketing plan, a brand catch phrase, and a personal networking plan. in the last part of the project students were asked to highlight their introspective job/career, interest/skills set discoveries ‘up front’ in their resumes and cover letters. individual post-project surveys and large group discussions of project benefits were conducted on the day of project submission. table 3: suit’em up’ project benefits for students job readiness ‘they are now suited up.’ know more about one’s self. know more about many industries. applied principles of marketing to one’s self. took responsibility for long-term & interim job-search efforts. got jump-start on their real job search. lessened job search ‘fears.’ developed ability to ‘deeply’ assess self. identified and navigated relevant onand off-line industry/industry sector research sources. learned the importance of developing critical thinking skills. learned to scan research sources for workplace opportunities, trends and changes. cross industry lines in job search leading to ideas for new and different career paths. developed flexibility in job type and job location sought. practiced curiosity about other industries of interest other than academic major related ones. developed a strong, multi-faceted professional network. learned about and developed customized resumes. project benefits to students post-project completion survey findings related to student perception of project worth to job search readiness, continuously indicated that students really enjoyed the suit’em up… project, although they found it intensive. after completing the project, students felt they knew more about themselves; knew taylor advances in business research 2011, vol. 2, no. 1, 125-137 135 much more job search readiness process; and knew more about many jobs available in many industries of which they were previously unaware. students completing the project benefited in a multitude of ways, including their awareness of, or development of, skills in the following ways as illustrated in table 3 above. these life-skill learning encounters by students made teaching richly rewarding. project benefits to educator were, likewise, many as shown in table 4. table 4: suit’em up’ project benefits for educator involved students. students understood themselves better. stimulated students long-term career planning. witnessed principles and practices of marketing ‘coming alive’ in student applications. help students develop life skills. project grading was efficient as it was student-centered and required largely ‘completion’ grading grades given were a, b, c, or -0-. richly rewarding experience. grading of the project was very efficient in that it centered largely on each student’s introspectively completion of each project phase and professionalism of presentation thus detailed grading was minimized. most students that were part of the three-year study received a good grade (a or b) with some earning a c letter grade. points were taken off if the project was submitted late, if a section was skipped or not quite finished, for lack of organization, and for grammar or spelling errors. most students may have done well purposefully as they knew that they would receive a zero (‘0’) for gross non-commitment to the project, and gross non-compliance with guidelines. there were either good grades or average grades assigned, or zero credit was given to the project as d or f letter grades were not allowed. summary and implications in summary, completion of the ‘suit’em up inside and out, and brand them’ project empowered students of all cohorts; no one group appeared to benefit more or less than another. findings discussed in this paper have important implications for all academic, veteran and at-large career counselors, as well as the following groups of cohorts: (1) traditional college cohorts, (2) graduate cohorts, (3) unemployed cohorts, (4) underemployed cohorts and (5) veteran cohorts. furthermore this paper has alerted business educators to the need for them to likewise help by considering the embedding of introspective job search skill training into course content of courses taught. as the above described ‘suit’em up,’ inside and out, and ‘brand’ them project showed, job search readiness skills can be easily be incorporated into a principles of marketing course and done so efficiently and effectively while simultaneously teaching required academic course content. the need for, strategy for, and importance of conducting introspective-based, job-seeking efforts that move all job seekers beyond the abcs of the typical job search process were discussed in terms of helping them in their common mission to obtain meaningful, life-satisfying work careers. in a job seeker’s mission of obtaining meaningful, life-satisfying work, and with him or her armed with: (1) wellhoned introspective and experiential research and communication skills; (2) an introspectively built, industry-specific/company-specific abcs of job search (resume, cover letter and personal interview skills; and with (3) patience and motivation, he or she will be able to accomplish what thoreau advised (as paraphrased by this author) “go confidently in the direction of your dreams and you will usually hit what aimed at.” (quotationspage, 2011). references ativision. 2011. call to duty: black opps, on-line video game. retrieved from http:www.activision. com/atvihub/home.do. taylor advances in business research 2011, vol. 2, no. 1, 125-137 136 about.com. 2009. the true value of an internship. retrieved from http://internships.about.com/b/2009/ 05/03/the-true-value-of-an-internship.htm. brown, m. 2011. brand yourself, land the job. associations, 7: 17. bureau of labor statistics. 2011. career guide to industries. occupational outlook handbook, u.s. department of labor. business news. 2011. tight job market for college 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2011. us news and world report. retrieved from http://money.usnews.com/money/careers/articles/2010/12/06/the-50-best-careers-of-2011. indeed.com. 2011. retrieved from http://www.indeed.com. joining forces. 2011. retrieved from http://www.whitehouse.gov/joiningforces/. kerin, r., hartley, s., & rudelius, w. 2009. planning a career in marketing. new york: mcgraw-hill irwin, new york. lipka, s. 2011. u.s. labor department releases new rules for ‘educational’ internships. the chronicle of higher education. retrieved from http://chronicle.com/article/us-labor-department-releases/65197/. msi. 2011. job searching in a tight job market. career development office, university of michigan. retrieved from http://www.si.careers@umich.edu. piggott, c. 1997. graduate recruitment: we ask the questions here. euromoney, 340: 69-71. saunders, k. 2009. coping with the web: how to brand yourself online. agency sales, 39: 52-55. students veterans of america. 2011. the true value of an internship. retrieved from http://www. studentveterans.org/?p-1656. schultze, g., & miller, c. 2004. the search meaning for career development. career development international, 9: 142-152. quotationspage. 2011. go consistently in the direction of your dreams; and what a man aims as he hits in the long run, quotations by henry david thoreau. (transcendentalist philosopher, 1817-1862), retrieved from http://www.quotationspage.com/quote/27110.html. taylor advances in business research 2011, vol. 2, no. 1, 125-137 137 usaa. 2011. the usa magazine. san antonio, texas (fall). u.s. census. 2011. accessible at http://www.census.gov, june. ruth taylor is a professor of marketing and honorary professor of international studies at texas state university san marcos. she received her ph.d. in marketing from university of north texas. her current research interests include international marketing, branding, marketing education, and hand woven textile marketing. she has published in advances in business research, journal of brand management, journal of marketing education, marketing education review, journal for advancement of marketing, competitiveness review, journal of contemporary business issues, journal of global competitiveness, journal of professional services marketing, and others. advances in business research 2010 volume 1.pdf 240 advances in business research 2010, vol. 1, no. 1, 240-247 hasan !"#$%""&'#()*+,-"&.*/&-0%&12st century s. m. jameel hasan, eastern washington university !"#$%$"&#'())#$&*+(,"#-%./#(.0*&-%1(+"2#())3-(.%1(.42#%.,#())351&%1(+"#"6%-$)"5#*0#7&*55873)13&%)#-(53.,"&51%.,(.4# 1!%1#7*51#)(1"&%))/#!3.,&",#*0#-())(*.5#*0#,*))%&5#*0#935(."55#1*#1!"(&#&(+%)5#'!*#%&"#-*&"#73)13&%))/#%.,#7&*55873)13&%))/# nimble and savvy, enjoying a competitive sustainable advantage in the market place. the paper will examine the 0"%5(9()(1/#%.,#%$$)(7%9()(1/#*0#1'*#$&%71(7%)#-*,")5#8#35"03)#1*#%))#53$"&+(5*&/#%.,#-%.%4"&(%)#$"&5*..")#0&*-#1!"# 0*&"-%.#*0#1!"#$)%.1#1*#1!"#:!%(&-%.#*0#1!"#;*%&,#8#1*#-(.(-(<"#73)13&%)#7)3-5(."55#(.#1!"#4)*9%)#935(."55#7*.1"61# *0#1!"#=>st#7".13&/#8#,&(+".#9/#1!"#"7*.*-(7#0*&7"5#*0#)(9"&%)(<%1(*.2#-%&?"1(<%1(*.2#$&(+%1(<%1(*.2#%.,#1!"#(.0*&-%1(*.# &"+*)31(*.#1!%1#,&*+"#,"-*7&%1(<%1(*.#%.,#4)*9%)(<%1(*.#*0#1!"#@*'#%.,#7*.1".1#*0#(.0*&-%1(*.a !"#!$%"&'()*$+(#,&(+&%&#$!(+-&./01&%.'&$*2/3.(#(/.&/4&#5(+&4%2#&(+&6%$%-/!.#&(.&2$/++72!"#!$%"&8!+(.*++&$*"%#(/.+& %$/!.'&#5*&3"/8*9&:%25&2!"#!$*&5%+&'(44*$*.#&/$(3(.+1&"%.3!%3*1&'$*++1&+/2(%"&8*5%)(/$&6%##*$.+1&%.'&2!+#/-+9& !"#!$%"& 2"!-+(.*++1&/$&2!"#!$%"&(3./$%.2*1&(+&%&+(3.(;2%.#&4%2#/$&(.&-%(.#%(.(.3&*#5./2*.#$(2&%++!-6#(/.+9&<.*&2%../#&*+#%8"(+5& one culture as being superior to any other. it is necessary for people involved in cross-cultural communication to 4**"& #5*&2/.#(.!/!+&.%#!$*&/4&8*5%)(/$& (.& #5*&.*0&*$%&/4&3"/8%"&2/..*2#*'.*++&=>$(*'-%.1&?@@ab& (.&/$'*$& #/&3%(.& %0%$*.*++&%.'&(.+(35#&(.#/&+/2(%"c8!+(.*++&+(#!%#(/.+&%.'&%22/-6%.,(.3&2($2!-+#%.2*+9&d(25/"%+&e*$,%*)&0$(#*+f g2(*.2*&%.'&+2(*.#(;2&4/$*+(35#&3()*&-%.&6/0*$&%.'&+*2!$(#,1&8!#&#5*,&2%.&%"+/&'*)%+#%#*&5(+&2/.+2(/!+.*++&%.'& sever him from reality. indeed, it might be said that science is based upon the alienation of man from reality and of reality from man. the knower is outside reality, and the reality he knows is external to him. everything becomes an object, i.e., foreign to man and opposed to him…the meaning of things is revealed not through their entering into man who is passive in relation to them, but through man’s creative activity reaching out to meaning beyond %.&!.-*%.(.3&0/$"'&=hij@1&669&k7lb9 in other words, there is a necessity of cross-cultural sensitivity at home and abroad in a new era of globalism. m5*&6*2!"(%$&6$/8"*-&#5%#&3"/8%"&8!+(.*++&;$-+&4%2*& (+& #5%#&6*/6"*&%$*&!+!%"",&$%(+*'1& #$%(.*'&%.'&*'!2%#*'1&%.'& indoctrinated and oriented in one culture whereas global business management scenarios of the early decades of the 21st&2*.#!$,&%.'&8*,/.'&$*n!($*&*44*2#()*&%.'&*4;2(*.#&2$/++72!"#!$%"&2/--!.(2%#(/.1&+!6*$)(+(/.1&%.'&2//$'(.%#(/.& =o$!2p*$1&hiiib9 the writer of this paper believes in creative adaptation of interpersonal relations in cross-cultural context. the challenge to american business and over 4,500 foreign corporations operating in the u.s. is to practice cultural *-6%#5,&7&05(25&(+&#5*&%8("(#,&=p./0"*'3*&%.'&+p(""b&#/&!.'*$+#%.'&#5*&q5%8(#&/4&-(.'&%.'&5*%$#r&%.'&2/5*$*.2*&/4& foreign peoples’ ways of life, plus the determined and willful restraint “not to judge them as bad because they are '(44*$*.#f&4$/-&/.*s+&/0.&0%,&/4&#5(.p(.31&4**"(.31&%.'&8*5%)(.39 the purpose of the paper is to pose a challenge to global business managers to be cultured, cross-cultured business diplomats of the 21st century at home and abroad. the problem is how to live together not how to become alike “a world in which our success as well as our very survival depends on our respect and understanding for *%25&/#5*$r& =t'"*$1&hiihf&u((b9&v*#&!+& #%p*&%& "//p&%#& +/-*& (.4/$-%#()*&%.'& (""!+#$%#()*&*u%-6"*+&/4&2$/++72!"#!$%"& misunderstanding and then examine the feasibility and applicability of two practical models to minimize cultural clumsiness or blindness in the global business context of the 21st century. 3/*""43!)-!/,)&5#"!$6%/"-,$6#$7" the scope of cross-cultural communication involves the whole complex of human life with a myriad of individual )%$(%#(/.&0(#5(.&%.'&8*#0**.&+(3.(;2%.#",&'()*$+*&%.'&',.%-(2&2!"#!$%"&+,+#*-+9&t+&+!251&8,&.*2*++(#,1&#5*&3(+#&%.'& 4/2!+&/4&#5*&4/""/0(.3&2$/++72!"#!$%"&*u%-6"*+&(+&8%+(2%"",&/.&#5*&'/-(.%.#1&8$/%'1&2*.#$%"&)(*06/(.#c(.#*$6$*#%#(/.& based on research, observations, and impressions of scholars and practitioners of cross-cultural communications around the globe. for the convenience of the readers, the examples will be presented under ten general headings. the +*n!*.2*&/4&#5*&4/""/0(.3&(.4/$-%#()*&*u%-6"*+&(+&!.(-6/$#%.#9 241 advances in business research 2010, vol. 1, no. 1, 240-247 hasan 28& 9:%&3*$-,;t.&t-*$(2%.&+!6*$)(+/$1&05("*&#%"p(.3&#/&%.&*-6"/,**1&4**"+&#5%#&#5*&*-6"/,**&+5/!"'&"//p&5(-c5*$&(.&#5*&*,*9& w.&4%2#1&(4&#5*&*-6"/,**&*)%'*+&5(+c5*$&'($*2#&3"%.2*1&#5*&+!6*$)(+/$&x!'3*+&#5%#&#5*&*-6"/,**&(+&q+5(4#,1r&%.'&-%,&8*& trying to hide something. in many asian and latin american countries, however, it is a long-established habit for a 6*$+/.&.*)*$&#/&"//p&%.&*"'*$&/$&+!6*$(/$&(.&#5*&*,*9&m/&'/&+/&(+&2/.+('*$*'&(-6*$#(.*.#9& /.+*n!*.#",1&%.&t-*$(2%.& +!6*$)(+/$&05/&#$(*+&#/&'*%"&'($*2#",&0(#5&5(+c5*$&*-6"/,**+&(.&#5(+&-%..*$&-%,&;.'&#5%#&5*c+5*&2%../#&*+#%8"(+5& good human relations with them. 18& 3!)-!/%4<*!$6&=,$7!,7%&*.&>#.the japanese, everyone acts according to the rules, are great gift givers and one cannot outgift them the lose face if they are outdone. on the other hand, the arabs want to be outgifted “if you outdo him he loves it.” never give 3(4#+&0(#5&#5*&"*4#&5%.'&(.&g%!'(&t$%8(%&=#5*&"*4#&5%.'&(+&%&#/("*#&5%.'by&.*)*$&3()*&%&6(37+p(.&8$(*4&2%+*&/$&"!33%3*&+*#& /$&g2/#25&05(+p*,&(.&#5*&t$%8&0/$"'9&z()*&#5*&3(4#&0(#5&8/#5&5%.'+&(.&[%6%.&%.'&(.&-%.,&\%2(;2&](-&2/!.#$(*+9&<.*& never gives an unwrapped gift in japan or visits a japanese home empty-handed also do not open the gift in front of the giver. japanese never give four of anything or an item with four in the name because the word sounds like the one for death; also, do not give a potted plant when your japanese business friend is in a hospital, since you do not 0(+5&5(+&("".*++&#/&#%p*&q'**6*$&$//#+r&%.'&3*#&+(2p*$&=e!+(.*++&^**p1&o*29&j1&669&ih7i?b9 in spain and most of latin america, if a visitor expresses admiration of a vase or a picture, the host is likely to pick it up immediately and hand it to his guest with such words as “take it…it is yours”; the latter may mistake this polite gesture for a genuine gift and go off with the object, much to the chagrin of the unwilling donor. “take it… it is yours” does not mean just that it is simply a polite gesture with no real intent to give it away to the admiring guest. on the other hand, in the arab countries, “do not admire an object openly, you may be the recipient of it, for example %&2%-*"_r&=`"(.*8*$31&hijaf&hba7hbay&tu#*""1&hii@1&69&l@b9 e%$3%(.(.3&/)*$&6$(2*&=4/$&%&3(4#&,/!&6"%.&#/&3()*&#/&,/!$&4/$*(3.&8!+(.*++&4$(*.'c6%$#.*$b&(+&6$%2#(2%"",&#%8//&(.& britain or in the united states; it is not only permitted but expected in many parts of europe, africa, latin america %.'&#5*&>%$&:%+#&=c%""1&hiaiy&`"(.*8*$31&hija1&69&hbab9 a gift of cutlery, in latin america, conveys that you want to end a relationship; a handkerchief means that you 0(+5&#5*&$*2(6(*.#&#*%$+9& !#"*$,&(+&%&4$(*.'+5(6&2!##*$&4/$&#5*&]!++(%.+&%.'&>$*.25&%"+/9&w.&z*$-%.,1&5/0*)*$1&(4&,/!& give cutlery, always ask for a coin payment so that the gift will not cut your friendship. ]*'&$/+*+&4/$&%&z*$-%.&"%',&-*%.&qws-&(.&"/)*&0(#5&,/!_r&̂ 5(#*&%.'&,*""/0&d/0*$+&%$*&./#&3//'&25/(2*+&(.&-%.,& %$*%+&8*2%!+*&#5*,&2/../#*&'*%#5&=]*%$'/.1&hilab9&w.&>$%.2*1&,*""/0&d/0*$+&+!33*+#&(.;'*"(#,&%.'&+5/!"'&.*)*$&8*& 3()*.s&/''&.!-8*$+&/4&d/0*$+&%$*&3()*.&%+&3(4#+1&8!#&./#&h?1&%.'&./#&%.&!."!2p,&hb&=e!+(.*++&^**p1&o*2*-8*$&j1& hikj1&69ihb9 ?8& !"#$%""&3,/6&4&@'*$a-&=%,b%&c*+%&d#-0*!-&e-f in overseas business relations, your business card is the ultimate proof of your identity, rank, and profession. in w#%",1&*)*.&%&8%25*"/$s+&'*3$**&*.#(#"*+&,/!&#/&6!#&%&o$9&(.&4$/.#&/4&,/!$&.%-*&=tu#*""1&hii@1&69&lb9&w.&e*u(2/&#(#"*+& are also important. an individual with a bachelor’s degree in business administration is entitled to use the term “licenciado” before his or her name. w.&\%p(+#%.1&%&6*$+/.&0(""&6$(.#&5(+&.%-*f&[/5.&o/*1&e9&t9&%.'&*)*.&%''&%.&%##*-6#&%+f&[/5.&o/*1&e9t91&e9t9& =4%("*'b9&w.&#5*&f9g91&#5(+&+/$#&/4&6*$+/.%"&q%')*$#(+(.3r&(+&./#&%.&%22*6#*'&*u6$*++(/.&8,&%.&(.'()('!%"9&w.&t+(%1&(#&(+&./#& +/&-!25&05/&,/!&%$*&%+&05*$*&,/!&%$*&(.&#5*&6*2p(.3&/$'*$&/4&%&3()*.&+(#!%#(/.&7&4/$&*u%-6"*&%.&(.#*$)(*01&-**#(.3c .*3/#(%#(/.9&qw.&-/+#&/4&g/!#5*%+#&t+(%1&t4$(2%1&%.'&#5*&e(''"*&:%+#&=*u2*6#&w+$%*"b1&.*)*$&6$*+*.#&#5*&2%$'&0(#5&,/!$& left hand. in japan, present it with both hands, and make sure the type is facing the recipient and is right-side-up,” =tu#*""1&hii@1&69&lb9 g8& h*$4i%/<,)& %0,b#*/ the east indians shudder at the american hearty and “bone-breaking” handshake. in many moslem countries, linking arms or putting your arm around the shoulders of your wife would in most cases cause some embarrassment, +(.2*& +!25&65,+(2%"& 2/.#%2#& (+& $*3%$'*'&%+& %&6$()%#*&-%##*$& #5%#& +5/!"'&8*& 2/.;.*'& #/&6$()%#*&n!%$#*$+9& [%6%.*+*& grimace when a foreign business friend walks into a home without removing his shoes at the doorsill, and american men shudder with distaste at the warm embrace of greeting men in some of the latin american and south asian 242 advances in business research 2/!.#$(*+&=`"(.*8*$31&hija1&669&hba7bjb9&w.&m5%("%.'1&v%/+1&\%p(+#%.1&%.'&(.&-%.,&e!+"(-&2/!.#$(*+1&(#&(+&2/.+('*$*'& insulting and rude to display the sole of the foot. a pakistani may not eat with his left hand. at social gatherings, if a hostess offers food it is expected that at ;$+#&#5*&3!*+#&0(""&$*4!+*9&m5*&5/+#*++&(+&#5*.&*u6*2#*'&#/&/44*$&(#&%3%(.9&m5*&3!*+#&-!+#&$*4!+*&/.2*&-/$*&8!#&./#& n!(#*&%+&4/$2*4!"",9&m5*&5/+#*++&#5*.&/44*$+&#5*&4//'&%3%(.&05*$*!6/.&#5*&3!*+#&(+&+!66/+*'&#/&#5%.p&#5*&5/+#*++&4/$& 5*$&5/+6(#%"(#,9&w.&8/#5&#5*&f.(#*'&g#%#*+&%.'&\%p(+#%.&=%"+/&(.&/#5*$&2/!.#$(*+b&(#&(+&2!+#/-%$,&#/&+6/.#%.*/!+",&%+p& 4$(*.'+&/!#&4/$&%&2!6&/4&2/44**c#*%9&w.&t-*$(2%&(#&(+&!.'*$+#//'&#5%#&*%25&6*$+/.&0(""&6%,&4/$&5(+&'$(.p9&c/0*)*$1&(.& \%p(+#%.&=%.'&/#5*$&2/!.#$(*+b&+!25&%.&(.)(#%#(/.&(-6"(*+&#5%#&#5*&6*$+/.&05/&+!33*+#+&0(""&6%,&4/$&8/#5&'$(.p+9 e*"25(.3&%.'&./(+,&*%#(.3&5%8(#+&=!.%22*6#%8"*& (.& #5*&f9g9&2!"#!$*b&%$*&*u6*2#*'&%+&*)('*.2*&/4&q+%#(+4%2#(/.r& (.&/#5*$+9&g/-*& 5(.*+*&2!"#!$*+&4**"&(#&(+&6/"(#*&#/&#%p*&%&6/$#(/.&/4&*%25&4//'&+*$)*'9&<.*&t-*$(2%.&8!+(.*++-%.& "*%$.*'&/4&#5(+&2!+#/-&/.",&%4#*$&#%p(.3&+/-*& 5(.*+*&8!+(.*++-*.&#/&%&2%4*#*$(%9&:%25& 5(.*+*&0/!"'&!6&0(#5&#5$**& #$%,+&/4&4//'&%.'&#5*&t-*$(2%.&*u2**'*'&5(+&'%(",&*u6*.+*&%22/!.#&=`./##+1&hili1&69&b?b9 ^('*",&%22*6#*'&%+&#5*&t-*$(2%.&q/p%,r&+(3.&=>(.3*$+&2($2"*b1&*u2*6#&(.&e$%g("1&05*$*&(#&(+&2/.+('*$*'&)!"3%$&/$& /8+2*.*9&m5*&3*+#!$*&(+&%"+/&2/.+('*$*'&(-6/"(#*&(.&z$**2*&%.'&#5*&fgg]1&05("*&(.&[%6%.1&(#&+(3.(;*+&q-/.*,1r&%.'& (.&+/!#5*$.&>$%.2*1&qg*$/r&/$&q0/$#5"*++1r&=tu#*""1&hii@&69&akb9&c%+&8/',&"%.3!%3*&25%.3*'&-!25&/)*$&#5*&,*%$+h& the simple answer is yes it changes constantly, just as spoken language changes, for example the “v for victory” +(3.&!+*'&8,&^(.+#/.& 5!$25(""&'!$(.3&^/$"'&^%$&ww&8*2%-*&%&6*%2*&+(3.&(.&#5*&hij@+9&d/#&#//&-%.,&6*/6"*&0/!"'& !+*&#5*&qir&+(3.&%.,&-/$*&=e%g!$1&hilb1&69&akb9&t22/$'(.3&#/&#5*&*'(#/$&/4&%&8*+#&+*""(.3&8//p&/.&qo/s+&%.'&m%8//+& around, the world,” the smile is “one universal action, one signal, one form of communication that is used and !.'*$+#//'&8,&*)*$,&2!"#!$*&%.'&(.&*)*$,&2/!.#$,1&./&-%##*$&5/0&$*-/#*1r&=tu#*""1&hii@1&69&hlhb9&&c/0*)*$1&#5($#,& #5$**&,*%$+&%3/&0/$"'7$*./0.*'&+/2(%"&+2(*.#(+#&<##/&`"(.*8*$3&=/4&#5*&f.()*$+(#,&/4&\%$(+b&/8+*$)*'&#5(+&%8/!#&#5*& -*%.(.3&/4&+-("*&(.&#5*&[%6%.*+*&2!"#!$*f “a japanese will smile when he is amused, but he will also smile on certain other occasions; for example, it is customary for a servant to smile when he is scolded by his master. a smile is the appropriate response under these conditions, and serves the purpose of smoothing over an otherwise unpleasant situation. to a westerner who employs a japanese, such a response may be infuriating; he interprets it to mean that the servant is making fun of him. the japanese servant will also smile when he is forced to report an unfortunate event, for example, the death of his child. this has been interpreted as a polite gesture meaning that the servant does not wish to burden his master with his personal tragedies and therefore smiles in order to indicate to his master that it is not necessary to take the tragedy too seriously; the servant himself can smile at it. this also may be interpreted by westerners in contact with the japanese that they see smile as a sign of cynicism or lack of concern for the most fundamental 5!-%.&$*"%#(/.+5(6+1r&=`"(.*8*$31&hija1&69&hbjb9 j8& >/%:&c,#/kl&m:+<*)&*.&>/%,-&n%"(%;in japan and several other asian countries, many young business men take along an older man with grey hair to lend his prestige to their cause. in the u.s., competence and performance on the given task counts whether or ./#&,/!&5%)*&3$*,&5%($+&=c%""1&hij@1&669&a7h?b9&e%.,&+#!'*.#+&%+p&(.&/!$&(.#*$.%#(/.%"&-%.%3*-*.#&2"%++*+&%8/!#&#5*& market potential of hair-coloring products in these countries! o8& colors communicate each society has special meanings which it attaches to certain colors. red, white, and blue are thought of as +6*2(%"& 2/"/$+&05*.& !+*'& #/3*#5*$& (.& #5*&f9g9t9& +(.2*& #5*+*& %$*& #5*& 2/"/$+& /4& #5*& .%#(/.%"& d%39& m/& #5*& 5(.*+*1& red is a lucky color; the thai would prefer yellow for the same reason. the combination of green and purple is %22*6#%8"*&#5$/!35/!#&t+(%9&m5*&2/-8(.%#(/.&/4&8"%2p1&05(#*1&%.'&8"!*&(+&+!33*+#()*&/4&%&4!.*$%"&#/&#5*& 5(.*+*9&m5*& combination of red and white is widely regarded as appropriate to happy and pleasant occasions in japan. the whole idea of color to an asian is coupled with beliefs. many promotional, as well as social, efforts have failed as a result of using wrong colors in other cultures. for international business purposes, one cannot ignore the cultural meaning of color. for example, pepsodent reportedly tried to sell its toothpaste in regions of southeast asia through a promotion which stressed that the toothpaste helped enhance white teeth. in this area, where some local people chewed betel nut in order to achieve the social prestige of darkly stained teeth, such an ad was understandably ineffective. the slogan “wonder where the ,*""/0&0*.#r&0%+&%"+/&)(*0*'&8,&-%.,&%+&%&$%2(%"&+"!$&=](2p+1&hikif&jab9 2010, vol. 1, no. 1, 240-247 hasan 243 advances in business research p8& m-,-!"km#q%&*.&-0%&r.s;% m5*&+(g*&/4&%.&/4;2*&(.&$*"%#(/.&#/&/#5*$&/4;2*+&2/.)*,+&%&3$*%#&'*%"&%8/!#&#5*&+#%#!+&/4&%.&t-*$(2%.&8!+(.*++-%.9& w.&#5*&t$%8&0/$"'1&#5*&+(g*&%.'&"/2%#(/.&/4&%.&/4;2*&%$*&6//$&(.'(2%#/$+&/4&#5*&(-6/$#%.2*&/4&#5*&-%.&05/&/22!6(*+&(#9 \$/4*++/$&t#5/+&)*$8%"(g*'&#5*&(-6"(2(#&%++!-6#(/.+&/4&t-*$(2%.&+6%#(%"&"%.3!%3*f&\$()%#*&(+&8*##*$&#5%.&6!8"(21& 5(35*$&(+&8*##*$&#5%.&"/0*$1&.*%$&(+&8*##*$&#5%.&4%$1&%.'&(.&(+&8*##*$&#5%.&/!#&=t#5/+1&hijlf&jkb9&w.#*"& /$6/$%#(/.&(+&%& maverick in terms of compliance of the american language of objects and space; intel’s former president andrew s. z$/)*&*u6"%(.*'f “we don’t have many of the visible perks prevalent in more traditional industries. we have no reserved parking +6%2*+1& ./& *u*2!#()*& '(.(.3& $//-+1& ./& 2/$6/$%#*& x*#+9&^*& %""& d,& 2/%259&^*& '/.s#& *)*.& 5%)*& %.,& /4;2*+& (.& #5*& 2/-6%.,9&w.+#*%'&0*&"()*&(.&%&-%g*&/4&2!8(2"*+&+*6%$%#*'&8,&;)*74//#75(35&+/!.'6$//4*'&6%$#(#(/.+&7&%""&/4&!+1&4$/-& the chairman of the board and the president on down. a journalist puzzled by all this once asked me, “mr. grove, (+.s#&,/!$&2/-6%.,s+&*-65%+(+&/.&)(+(8"*&+(3.+&/4&*3%"(#%$(%.(+-&x!+#&#//&-!25&%44*2#%#(/.hr&e,&%.+0*$&0%+&#5%#&(#&(+& ./#&%44*2#%#(/.1&8!#&%&-%##*$&/4&+!$)()%"r&=z$/)*1&hilbf&?bb9 w.&[%6%.1&#5*&#/6&d//$&/4&%&'*6%$#-*.#&+#/$*&(+&$*+*$)*'&4/$&#5*&q8%$3%(.&8%+*-*.#r&%.'&./#&4/$&#/6&-%.%3*-*.#9& the french prefer to locate key managers in the center of activities, with their assistants located outward “on radii 4$/-&#5(+&2*.#*$1r&=e%""&j&e2 !""/251&hii@f&?llb9& /.#$%$,&#/&#5*&t-*$(2%.&/6*.7'//$&6/"(2,1&z*$-%.+&$*3!"%$",& p**6&#5*($&/4;2*&'//$+&2"/+*'9&t.#5$/6/"/3(+#&c%""&(.'(2%#*+&#5%#&#5*&2"/+*'&'//$&'/*+&./#&-*%.&#5%#&#5*&-%.%3*$c executive behind it does not wish to receive visitors but only that he or she deems open doors disorderly and sloppy =c%""1&hijif&hba7hbab9 t8& u/*v%+#;"k3*$b%/",-#*$,)&'#"-,$;% in the u.s.a., the “proper” distance to stand when talking to another adult male you do not know well is about two feet, at least in a formal business conversation. to a latin american, a distance of two feet seems to him %66$/u(-%#*",&05%#&;)*&4**#&0/!"'&#/&%.&t-*$(2%.9&m/&5(-1&t-*$(2%.+&+**-&'(+#%.#&%.'&2/"'9&m/&t-*$(2%.+1&5*& gives an impression of pushiness. as soon as the latin american moves close enough for him to feel comfortable, the american feels uncomfortable themselves enough “to outwait the silence of his hosts. it may be thirty minutes, 6*$5%6+&-/$*9r&=d%#(/.s+&e!+(.*++1&e%$25&hili1&69aab9&w.&:#5(/6(%1&#5*&-/$*&(-6/$#%.#&%&8!+(.*++&-%##*$1&#5*&-/$*& time is taken; whereas in the u.s.a., a delay in answering a communication is interpreted by the other party as a lack of interest. in turkey, where a degree of fatalism seems to arise from the muslim concept that tomorrow is in the hands of allah, there is a propensity to do little forward planning. what happens tomorrow is decided by god, qw.+%""%51r&kz/'70(""(.3y&^(#5&#5*&5*"6&/4&z/'9l&=e%""&j&e2 !""/251&hii@1&669&?jh7?jbb9 punctuality is a virtue in the united states, holland, switzerland, and in many other countries, but is relatively !.(-6/$#%.#&(.&g6%(.9&m5*&/.",&#(-*&,/!&-!+#&#%p*&6!.2#!%"(#,&+*$(/!+",&(+&05*.&%##*.'(.3&%&8!"";35#9&e/+#&/4;2*+& %.'&+5/6+&2"/+*&4/$&+(*+#%&%""&#5*&0%,&4$/-&hfb@&#/&afb@&\9e91&%.'&$*+#%!$%.#+&'/&./#&/6*.&!.#("&%4#*$&i&\9e9&/$&q3*#&(.#/& 4!""&+0(.3&!.#("&hh9r&=tu#*""1&hii@1&669&?i7b?y&`"(.*8*$31&hija1&69&hbab w8& '#/%;-&,$6&3)%,/&i%/"!"&i,7!%&<!-&u*)#-%&x,)y#$7 m5*&[%6%.*+*&8!+(.*++-*.c*u*2!#()*+&/4#*.&*u6$*++&#5*-+*")*+&(.&%&)%3!*&%.'&%-8(3!/!+&-%..*$&(.&2/.#$%+#&#/& +6*2(;21&'($*2#&"%.3!%3*&#,6(2%"",&!+*'&8,&#5*&t-*$(2%.&8!+(.*++-*.c*u*2!#()*+9&w.&#5*&f.(#*'&g#%#*+1&-%.,&4**"&(#& is not only desirable but natural to speak up to your superior, to tell the boss exactly what you think, even when you '(+%3$**&0(#5&5(-c5*$9&t-*$(2%.&2!"#!$*&*-65%+(g*+&#5*&#5$%+5(.3&/!#&/4&'(44*$*.2*+&(.&4%2*7#/74%2*&2/.#%2#+9 w.&-%.,&2/!.#$(*+c2!"#!$*+&%$/!.'&#5*&3"/8*1&6*/6"*&2/--!.(2%#*&/.&%&-/$*&(.#*$6*$+/.%"&+,+#*-&%.'&%&6%$#&/4& this system is to avoid disagreements or embarrassment by being polite, agreeable and submissive at the expense of %22!$%2,&%.'&'($*2#.*++9&t&[%6%.*+*&05/&(+&#//&+6*2(;2&$!.+&#5*&$(+p&/4&8*(.3&)(*0*'&%+&$!'*",&'(+6"%,(.3&+!6*$(/$& knowledge. the japanese “avoid independent or individual action and prefer to make decisions based on group discussions and past precedent. the japanese do not say no in public, which is why foreign business people often #%p*&%0%,&#5*&0$/.3&(-6$*++(/.9&>/$&*u%-6"*1&e$9&[/5.&d*)(.1& 5%($-%.&/4&>($*+#/.*1&05(25&0%+&8/!#&/!#&8,&#5*& [%6%.*+*&e$('3*+#/.*& 4/$& m?9j& 8(""(/.1& *u6"%(.+& %&-%x/$& 2/--!.(2%#(/.& 8$*%p'/0.&8*#0**.& #5*& #0/& 2/-6%.(*+f& “i’m seen as terribly abrupt and abrasive. if you’re very direct, you’re admired in american culture. the japanese culture is much more subtle. i can never get them to tell me what the actually mean, and they may think i’m rude and crass. but both sides are only behaving in ways familiar to their own cultures.” (time, october 9, 1989, pp. 72-73; %22/$'(.3&#/&#5*&+%-*&mwe:&$*6/$#&a@n&/4&t-*$(2%.&-%.%3*$+&*(#5*$&$*+(3.&/$&%$*&;$*'&0(#5(.&hl&-/.#5+&/4&4/$*(3.& takeover. foreign bosses in the u.s., like american managers who landed in post-war europe, will have to learn the 2010, vol. 1, no. 1, 240-247 hasan 244 advances in business research $(35#&8%"%.2*&8*#0**.&q"*%'*$+5(6&%.'&%22/--/'%#(/.f&(.&%&2!"#!$%"",&%66$/6$(%#*&4%+5(/.9&w.&/#5*$&0/$'+1&*)*$,& -%.%3*$(%"&#%+p&(+&2!"#!$%"",&'*#*$-(.*'&=t'"*$1&hiih1&669&bi7j?b9 2z8& @3,$&e&m)%%(&d#-0&[*!\] the following is a powerful story of a scottish businessman’s relationship with a japanese colleague an example of the cross-cultural communication process in terms of description, interpretation, evaluation, and empathy. the +#/$,&(+&#/"'&8,&#5*&g2/##(+5&8!+(.*++-%.&(.&#5*&4/""/0(.3&0/$'+f q<.*&-*-/$%8"*&*)*.(.3&-,&5/+#&%.'&w&5%'&;.(+5*'&/!$&-*%"&#/3*#5*$&(.&q-,r&$//-9&w&0%+&*u6*2#(.3&5(-&#/& shortly make his “good-night” and retire, as he had been doing all week, to his own room. however, he stayed unusually long and was to me, obviously in some sort of emotional crisis. finally, he blurted out, with great *-8%$$%++-*.#1&q %.&w&+"**6&0(#5&,/!h_ as they say in the novels, at this point i went very still! my mind was racing through all the sexual taboos and 6$*x!'(2*+&-,&/0.&!68$(.3(.3&5%'&(.+#(""*'1&%.'&w&2%.&+#(""&)*$,&2"*%$",&$*2%""&5/0&w&%.%",g*'f&qws-&8(33*$&#5%.&5*&(+& +/&w&2%.&;35#&5(-&/441&8!#&#5*.&5*s+&6$/8%8",&%.&*u6*$#&(.&#5*&-%$#(%"&%$#+1&8!#&/.&#5*&/#5*$&5%.'&5*s+&+5/0.&./&+(3.+& of being gay up until now and he is my host and there is a lot of business talk at risk and there’s no such thing as rape, et cetera…!” it seemed a hundred years, though it was only a few seconds, before i said, feeling as if i was pulling the trigger in russian roulette, “yes, sure.” ^5/&+%('&#5%#&#5*&<$(*.#%"+&%$*&(.+2$!#%8"*h&m5*&"//p&/4&$*"(*4&#5%#&4/""/0*'&-,&$*6",&0%+&/8)(/!+9&m5*&5*&"//p*'& 0/$$(*'&%.'&2/.2*$.*'&%3%(.1&%.'&+%('1&qt$*&,/!&+!$*hr&w&$*%++!$*'&5(-&%.'&5*&2%""*'&(.&#5*&-%('1&05/&4*#25*'&5(+& -%##$*++&4$/-&5(+&$//-&%.'&"%('&(#&/.&#5*&d//$&%"/.3+('*&-(.*9&^*&8/#5&0*.#&#/&8*'&%.'&+"*6#&%""&.(35#&0(#5/!#&%.,& physical interaction. later i learned that for the traditional japanese one of the greatest compliments you can be paid is for the host to %+p1&q %.&w&+"**6&0(#5&,/!hr&m5(+&3/*+&8%2p&#/&#5*&%.2(*.#&4*!'%"&#(-*+1&05*.&"(4*&0%+&25*%61&%.'&05%#&#5*&(.)(#%#(/.& really said was, “i trust you with my life. i do not think that you will kill me while i sleep. you are my true friend.” to have said “no” to the invitation would have been an insult “i don’t trust you not to kill me while i sleep” or, at the very least, my host would have been acutely embarrassed because he had taken the initiative. if i refused because i had failed to perceive the invitation as a compliment, he would have been out of countenance on two 3$/!.'+f&#5*&(.+!"#&#/&5(-&(.&#5*&#$%'(#(/.%"&2/.#*u#&%.'&#5*&*-8%$$%++-*.#&5*&0/!"'&5%)*&2%!+*'&-*&8,&q4/$2(.3r&%& negative, uncomprehending response from me. as it turned out, the outcome was superb. he and i were now “blood brothers,” as it were. his assessment of me as 8*(.3&q$*%',&4/$&[%6%.(g%#(/.r&5%'&8**.&2/$$*2#&%.'&5(+&/8"(3%#(/.+&!.'*$&%.2(*.#&[%6%.*+*&2!+#/-&5%'&8**.&4!";""*'9& i had totally misinterpreted his intentions through my own cultural conditioning. it was sheer luck or luck plus a gut feeling that i’d gotten it wrong, that caused me to make the correct response to his extremely complimentary and 2/--(##*'&(.)(#%#(/.9r&k>//#./#*&2(#%#(/.&.!-8*$&/-(##*'l1&kt'"*$1&hiih1&669&lk7llb9 the above examples illustrate many pitfalls inherent in the cross-cultural communication process surrounding international business relationships around the globe. the root cause of many international business problems is the unconscious reference to one’s own cultural values. the international businessmen’s natural tendency to interpret nearly all developments as if their foreign partners or 2/-6*#(#/$+&4!.2#(/.&0(#5(.&#5*($&/0.&+,+#*-&7&+*"47$*4*$*.2*&2$(#*$(/.&=g] b1&#5*&#*$-&2/(.*'&8,&\$/4*++/$&[%-*+&t9& v**&=hijjb1&(+&%++/2(%#*'&0(#5&+#!',(.3&4/$*(3.&2!"#!$*+&4$/-&/.*s+&/0.&4$%-*&/4&$*4*$*.2*9&^5("*&/.*&2%../#&%)/('& and escape completely from one’s own cultural heritage, international business managers should try to be aware of how their own cultural conditioning may be biasing their interpretation of behavior in other cultures. two promising practical models m5*$*&%$*&#0/&6$/-(+(.31&6$%2#(2%"&%66$/%25*+&#/&-(.(-(g*&2!"#!$%"&-,/6(%&%.'c/$&2!"#!$%"&8"(.'.*++&+/&2/--/.& in international businesses operating in multicultural environments around the globe. \$/4*++/$&[%-*+&t9&v**s+&e/'*"&/4&]*'!2(.3& !"#!$%"&e(%+9&c*$*&(+&%&+,+#*-%#(2&a7+#*6&/6*$%#(/.%"&-/'*"&4/$&f9g9& 8!+(.*++-*.&4/$&2!"#!$%"&%'%6#%#(/.f 2010, vol. 1, no. 1, 240-247 hasan 245 advances in business research 1. o*;.*&#5*&8!+(.*++&6$/8"*-&/$&3/%"&(.&#*$-+&/4&#5*&t-*$(2%.&2!"#!$*&#$%(#+1&5%8(#+1&./$-+1&/$&)%"!*+9 2. o*;.*&#5*&8!+(.*++&6$/8"*-+&/$&3/%"&(.&#*$-+&/4&4/$*(3.&2!"#!$%"&#$%(#+1&5%8(#+1&/$&./$-+9&e%p*&./&)%"!*&x!'3-*.#9 3. w+/"%#*&#5*&g] &8(%+(.3&(.d!*.2*&(.&#5*&6$/8"*-&%.'&*u%-(.*&(#&2%$*4!"",&#/&+**&5/0&(#&2/-6"(2%#*+&#5*&6$/8"*-9 4. ]*'*;.*& #5*& 6$/8"*-&0(#5/!#& #5*& g] & (.d!*.2*& %.'& +/")*& 4/$& #5*& /6#(-!-& 8!+(.*++& 3/%"& +(#!%#(/.9& w#+& !+*& -!+#&.*2*++%$(",&8*&d*u(8"*&#/&6$/'!2*&#5*&#/"*$%.2*&"*)*"&.*2*++%$,&#/&#5*&/8x*2#()(#,&$*n!($*'&4/$&%'%6#%#(/.& /4&%.& (.'()('!%"&/$&%&6$/'!2#& (.& (.#*$.%#(/.%"&8!+(.*++&/6*$%#(/.+&v**1&[9&hijj9& !"#!$%"&t.%",+(+& (.&<)*$+*%+& <6*$%#(/.+9&c%$)%$'&e!+(.*++&]*)(*01&e%$257t6$("f&h@k7hha9 \$/4*++/$&d%.2,&t'"*$s+&q !"#!$%"&g,.*$3,r&e/'*"9&c*$*&(+&%&b7+#*6&-/'*"&4/$&2!"#!$%"",&+,.*$3(+#(2&6$/8"*-& +/")(.3&(.&(.#*$.%#(/.%"&8!+(.*++&+(#!%#(/.+f 1. g(#!%#(/.&o*+2$(6#(/.9&̂ 5%#&(+&#5*&+(#!%#(/.&4$/-&,/!$&2!"#!$%"&6*$+6*2#()*h&>$/-&#5*&/#5*$&2!"#!$%"&6*$+6*2#()*=+b 2. !"#!$%"&w.#*$6$*#%#(/.9&^5%#&%$*&#5*&2!"#!$%"&%++!-6#(/.+&#5%#&*u6"%(.&,/!$&6*$+6*2#()*&%.'&8*5%)(/$h&^5%#&%$*& #5/+*&#5%#&*u6"%(.&#5*&/#5*$&2!"#!$*s+&6*$+6*2#()*&%.'&8*5%)(/$h&̂ 5%#&%$*&#5*&2!"#!$%"&+(-("%$(#(*+&%.'&'(44*$*.2*+h 3. !"#!$%"& $*%#()(#,9& $*%#*&.*0&%"#*$.%#()*+&8%+*'&/.1&8!#&./#&"(-(#*'&#/&#5*&2!"#!$*+&(.)/")*'9&o/*+&#5*&6/#*.#(%"& +/"!#(/.&;#&,/!$&2!"#!$%"&%++!-6#(/.+h&o/*+&(#&;#&#5*&/#5*$&2!"#!$*+s&%++!-6#(/.+h&w+&(#&.*0h&w-6"*-*.#&+/"!#(/.=+b1& %.'& /8+*$)*& #5*& (-6%2#& 4$/-&-/$*& #5%.& /.*& 2!"#!$%"& 6*$+6*2#()*9& ]*;.*& #5*& +/"!#(/.& 8%+*'& /.&-!"#(2!"#!$%"& 4**'8%2p&=t'"*$1&hiihb9 professor nancy adler’s 3-step “cultural synergy” model incorporates the best aspects of all members’ cultures in their strategy, structure, and process without violating “the norms of any single culture. managers in synergistic /$3%.(g%#(/.+&!+*&'()*$+(#,&%+&%&p*,&$*+/!$2*&(.&+/")(.3&6$/8"*-+&=t'"*$1&hiihb9 luu=e3lxerh&r^&xc9&l ri9&xdr&5r'9=m f.'*$&#5*&g] &-/'*"1&5/0&2%.&0*&'*%"&0(#5&%.&*u%-6"*&/4&%&4/$*(3.*$&05/&-%p*+&%.&%66/(.#-*.#&#/&+**&%.& t-*$(2%.&8!+(.*++-%.&(.&#5*&t-*$(2%.s+&=/)*$+*%+b&/4;2*1&8!#&+5/0+&!6&aa&-(.!#*+&"%#*h 1. `./0& #5*& f9g9& g] & %8/!#& #(-*ot-*$(2%.+& 5%)*& 5%'& -*%.+& =3//'& 6!8"(2& #$%.+6/$#%#(/.1& 2%$+1& 2"/2p+& %.'& 0%#25*+1&4$**0%,+1&*#29b&#/&8*&/.&#(-*&4/$&+*)*$%"&3*.*$%#(/.+9&t"+/1&-%.,&t-*$(2%.+&%$*&#5*&'*+2*.'%.#+&4$/-& time-conscious ancestors going back several centuries. 2. `./0&#5*&4/$*(3.&2!"#!$*s+&g] &%8/!#&#(-*9&<.*&2%.&/4#*.&$*%'(",&+**&6//$*$&#$%.+6/$#%#(/.&%.'&2/--!.(2%#(/.+& facilities and make less sense to set right time schedules. also, in some foreign cultures there will be some kind of fatalism and get-through the day carryover from centuries of survival struggles which serves as a deterrent to the development of planning skills. 3. /-6%$*&g#*6&h&%.'&g#*6&?&#/&'*#*$-(.*&5/0&(#&2/-6"(2%#*+&#5*&6$/8"*-&/4&"%#*.*++&4/$&%66/(.#-*.#+y&(+/"%#*& #5*&g] &8(%+(.3&(.d!*.2*9&m5*&t-*$(2%.&g] &2%.&8*&+**.&#/&5%)*&8"(.'*'&#5*&8%+(+&/.&05(25&/.7#(-*&8*5%)(/$& '*6*.'+1& #5*$*8,& 3*.*$%#(.3& (.2/.+(+#*.#& *u6*2#%.2(*+& (.& $*"%#(/.& #/& #5*& %2#!%"& +(#!%#(/.%"& =4/$*(3.& 2!"#!$*b& demands. moral judgment as to a foreigner being lazy, irresponsible, untrustworthy should be avoided. 4. ]*'*;.*&#5*&6$/8"*-&0(#5&#5*&g] &(.d!*.2*&%.'&+/")*&4/$&#5*&/6#(-!-&8!+(.*++&3/%"&+(#!%#(/.9 under the circumstances certain looseness in the other culture’s time system is both “desirable and functional.” c/0&2%.&#5*&t-*$(2%.&%'%6#&#/&#5*&+,+#*-h&g*)*$%"&+#$%#*3(*+&%$*&/6*.&4/$&#5*&t-*$(2%.9&e*3(.&#/&6"%.&/.&"%#*.*++&(.& others as a rule; arrange to be busy with other work until the foreigner arrives. as professor lee correctly observed, qc*&+5/!"'&%"+/&#$,&#/&#%p*&2/-4/$#&(.&#5*&p./0"*'3*&#5%#&5(+&4/$*(3.&)(+(#/$1&05*.&5*&'/*+&;.%"",&%$$()*1&0(""&8*& patient until the american’s substituted activity can be broken off. this is because the foreigner has developed a 6%#(*.2*&#/&;#&#5*&.*2*++%$,&"//+*.*++&/4&5(+&/0.&2!"#!$*s+&#(-*&+,+#*-r&=v**1&hijjf&hhbb9 f.'*$&#5*&q !"#!$%"&g,.*$3,r&-/'*"1&5/0&2%.&/.*&2$*%#*&%&2!"#!$%"",&+,.*$3(+#(2&+/"!#(/.&#/&#5*&4/""/0(.3&6$/8"*-& 8*#0**.&%&-%"*&f$!3!%,%.&'/2#/$&=#5*&'/2#/$b&%.'&%&4*-%"*&>("(6(.%&.!$+*&=#5*&.!$+*b&%#&%&-%x/$& %"(4/$.(%&5/+6(#%"h 1. situation description. the doctor became worried when he found out that the nurse was improperly using a particular machine for patient treatment. he explained the proper procedure to the nurse and asked if she understood. she said she did. due to the nurse’s continued improper administration of the treatment, the patient was doing poorly within two hours; the doctor again asked the nurse about her understanding of the procedure, %.'&+5*&%3%(.&+%('&,*+9&o/&0*&5%)*&%&6$/8"*-h 2010, vol. 1, no. 1, 240-247 hasan 246 advances in business research 2. !"#!$%"& w.#*$6$*#%#(/.9&m5*& '/2#/$1& (.& %.%",g(.3& #5*& +(#!%#(/.1& 8*2%-*& %0%$*& /4& #5*& 4%2#& #5%#&-%.,& >("(6(./+& 0(""&./#&2/.#$%'(2#&%!#5/$(#,&;3!$*+9&e%+*'&/.&#5*&.!$+*s+&2!"#!$%"&%++!-6#(/.+&=*939&#5*&'/2#/$&0%+&%.&%!#5/$(#,& ;3!$*1&%&-%.1&%.'&/"'*$1&05("*&+5*&0%+&(.&%.&(.4*$(/$&$/"*1&%&0/-%.1&%.'&,/!.3*$b1&+5*&2/!"'&./#&#*""&#5*&'/2#/$& that she did not understand without implying that he had given poor instructions and thus causing him to lose face. on the other hand, based on his cultural assumptions (e.g. open, direct clear communication expectation /4& #5*& .!$+*& #/& %+p& n!*+#(/.+& (4& +5*& '('& ./#& !.'*$+#%.'& 5(+& (.+#$!2#(/.+b& #5*& '/2#/$& 2/.+('*$*'& (#& q%& +(3.& /4& incompetence to assume responsibility for a patient’s care without fully understanding the manner of treatment” =t'"*$1&hiihf&hhbb9 3. !"#!$%"& $*%#()(#,9&m5*&5/+6(#%"&%'-(.(+#$%#/$&+/")*'&#5*&6$/8"*-&0(#5/!#&)(/"%#(.3&*(#5*$&2!"#!$*s+&%++!-6#(/.+9& the suggested synergistic solution was that the doctor, upon giving his initial instructions to the nurse, was to ask the nurse to describe the procedure that she would follow. the doctor, while listening carefully, could assess the accuracy of the nurse’s comprehension and identify areas needing further explanation. “the nurse, never having 8**.&%+p*'&'($*2#",&(4&+5*&!.'*$+#//'1&0/!"'&./#&8*&4/$2*'&#/&+%,&q./r&#/&%&+!6*$(/$r&=t'"*$1&hiihf&hhab9 conclusion m5*&n!*+#&4/$&(-6$/)*-*.#&)(%&2$*%#()(#,&(+&.*)*$&/)*$9&m5*&#%8"*&4/!.'&/.&#5*&.*u#&6%3*&('*.#(;*+&+*)*.&2!"#!$%"& variables considered in intercultural business relations and their purpose and effect. “we don’t look so much at what and where people have studied, but rather at their drive, initiative, cultural sensitivity…” (green, stephen, :<1&cge 1&w.#*$)(*0&0(#5&c%$)%$'&e!+(.*++&]*)(*01&t!3&?@@bb9&w#&-(35#&*."(35#*.&#5*&$*%'*$+&%8/!#&%&5(35",& +!$6$(+(.3&;.'(.3&/4&%&2$/++72!"#!$%"&+#!',&/4&bkk& 5(.*+*&%.'&]!++(%.&*.#$*6$*.*!$+&#5%#&0/-*.&*.#$*6$*.*!$+&5%)*& larger social networks for advice and resources. but men, surprisingly have larger emotional networks, the complex %++/2(%#(/.+&#5%#&6$/)('*&0%$-#51&6$%(+*1&%.'&*.2/!$%3*-*.#&7&%.'&-*.&%66%$*.#",&6$/;#&-/$*&4$/-&#5*+*&*-/#(/.%"& %##%25-*.#+&#5%.&0/-*.&'/9&=c%$)%$'&f.()*$+(#,&z%g*##*&t$25()*+1&>*8$!%$,&l1&?@@kb9 table 1 below shows these cultural variables considered in intercultural business relations have positive or .*3%#()*&$*+!"#+&'*6*.'(.3&/.&05*#5*$&/$&./#&2/.d(2#(.3&+,+#*-+&(.#*$%2#&#5$/!35&(.'()('!%"+9&w.&$*"%#(/.+&8*#0**.& individuals from different cultural areas they are crucial since each variable is contradictory as a result of different environmental circumstances. n9^9n9h39m >$(*'-%.1&m9&?@@a9&w#s+&%&d%#&0/$"'&%4#*$&%""9&x0%&h%_&[*/y&x#+%"&5,7,q#$%"`&t6$("f&bb9 z$%5%-1&[91&j&c*$8*$3*$1&]9&hilb9&d*3/#(%#(.3&t8$/%'f&o/.s#&+5//#&4$/-&#5*&5(69&c,/b,/6& !"#$%""&n%b#%_, julyt!3!+#f&hj@7hjl9 hall, e., & hall, m. 1987. c#66%$&6#..%/%$;%"a&'*#$7&<!"#$%""&_#-0&b,(,$%"%. d*0&p/$pf&t.25/$&\$*++&o/!8"*'%,9& hofstede, g. 1991. 3!)-!/%"&,$6&*/7,$#q,-#*$"a&m*.-_,/%&*.&-0%&+#$69&d*0&p/$pf&e2z$%07c(""9 lewis, r. 2003. the cultural imperative. p%$-/!#51&e:f&intercultural press. cultural variable purpose effect colors superstition associates magical powers or qualities to color, good or bad. determines outcome of program. implicit cognitive associations for luck, good or bad signs, etc. bribes & gifts increase income, prestige, or status through language of objects, social position, etc. ensure administrative process. business manners ways of doing business customary to a society. indicated degree of flexibility inherent in a business system. sets the tone of the inter-cultural interaction. physical objects communicates semantic meaning nonverbally language of objects. relationships and status of the individual defined. pride & status methods of self-identification and confirmation. social in origin. established position of individual in society and interpersonal relations. proxemics methods of structuring interpersonal relations; public, private, personal, social. indicates degree of involvement in interpersonal relations. temporal reference unit of time; day, year, fortnight, etc. different time priorities may disrupt communication channels. 2010, vol. 1, no. 1, 240-247 hasan 247 advances in business research lindstrom, g. 2002. '#()*+,-"&,$6&6#()*+,;:&.*/&-0%&12st century. doctoral dissertation. rand graduate school. lusting, m., & koester, j. 2005. e$-%/;!)-!/,)& ;*+(%-%$;%a& e$-%/(%/"*$,)& ;*++!$#;,-#*$& ,;/*""& ;!)-!/%". d**'5%-&c*(35#+1&e%f allyn and bacon. martin, j. 2004. intercultural communications in contexts9&d*0&p/$pf&e2z$%07c(""9 moran, r., harris, p., & moran, s. 2007. 5,$,7#$7&;!)-!/,)&6#..%/%$;%"a&>)*<,)&)%,6%/"0#(&"-/,-%7#%"&.*/&-0%&12st century9&e%$,"%.'&c*(35#+1&e<f&:"+*)(*$&w.29 *̂(++1&g9&hiia9&d*3/#(%#(.3&0(#5&q]/-%.+rf&\%$#&?9&sloan management review, bafla7ii b,+%%)&c,",$&is a professor of management at eastern washington university. he has taught international business, multinational people management, organizational behavior, and business and society for the past 41 years. prior to his academic career, he was an industrial analyst for the u.s. department of state. 2010, vol. 1, no. 1, 240-247 hasan advances in business research 2010 volume 1.pdf 26 advances in business research 2010, vol. 1, no. 1, 26-35 jolayemi !"#$%"&%#%'()!)*#)+",-.%/"0-'"1/2!!)!3"1'-.4+#)-!"542!#)#)%*")!"2",4/#)61'-.4+#7",4/#)6 1/2!#7"2!.",4/#)682'%$-4*%"9!:)'-!(%!# joel jolayemi, tennessee state university !"#$%&"'(')*+",)"*)&#*-.#-*)"(!/"&%0'1%23"451(3)0%"(!/"615*-!!%,57&"05/)1"8496"05/)1:"#5"0(;)"%#"05*)"(/5'#(<1)" and applicable in industries. the new model obtained from the restructuring process has only 7 constraints while the 496"05/)1"$(&"==>" !")(.$"52"#$)")?(0'1)&+"#$)"!-0<)*"52"%#)*(#%5!&"<)25*)"*)(.$%!@"5'#%0(1%#3",(&"&0(11)*"25*"#$)"!)," 05/)1"#$(!"25*"#$)"496"05/)1>"a$)")?(0'1)&"&$5,"#$(#"(&"<5#$"05/)1&"%!.*)(&)"%!"&%b)+"#$)"496"05/)1"<).50)&"05*)" (!/"05*)"/%2c.-1#"#5"&51d)"#$(!"#$)"!),"05/)1>" !"05&#"52"#$)")?(0'1)&+"#$)"5'#%0(1"&51-#%5!&"'*5/-.)/"<3"#$)"e?.)1" fggh"&51d)*"(*)"d)*3".15&)"#5"#$5&)"'*5/-.)/"<3"i jk6>" !"#$%$!&"'$(#)*"&+$#$"+(,$"-$$!").(#/!0"/!&$#$)&)"/!"&+$"(112/%(&/.!)".3")4112'"%+(/!"5678"9(!(0$9$!&"9$&+.:)" (!:"&$%+!/;4$)"/!"/!:4)&#/$)<"=+$)$"+(,$"!$%$))/&(&$:"&+$"!$$:"3.#"&+$":$,$2.19$!&)".3"9.#$"(!:"!$>"67"9$&+.:)" (!:"&$%+!/;4$)*"1(#&/%42(#2'".1&/9/?(&/.!"9.:$2)".#"&$%+!/;4$)"&+(&"/!&$0#(&$".#").2,$").9$".#"9(!'"67"1#.-2$9)" simultaneously for best decision outcomes. unlike before, industries are now beginning to realize that modeling and ).2,/!0"67"1#.-2$9)")$1(#(&$2'"2$(:"&.")4-@.1&/9(2").24&/.!)"(!:*"%.!)$;4$!&2'*"a2$))@&+(!@-$)&b":$%/)/.!)".4&%.9$)< c$)1/&$" &+$)$*" 14-2/)+$:" >.#d)" .!" &+$" :$,$2.19$!&)" .3" 9.:$2)e&$%+!/;4$)" 3.#" /!&$0#(&/!0" (!:" ).2,/!0" 67" 1#.-2$9)")&/22"3(22"-$2.>"!$$:)<"=+$"3$>"9.)&"/!&$0#(&$:"9.:$2)"/!"&+$)$"14-2/%(&/.!)"/!&$0#(&$"(-.4&"&+#$$"&."f,$" .3"&+$)$"1#.-2$9)<"6.9$".3"&+$)$"9.:$2)"%(!"-$")$$!"/!"g#9&?$!"$&"(2<"5hiij8*"g&&(#(!"k"g&&(#(!"5lmmn8*"o.2('$9/" k"p2.#4!!/>."5lmmq8*"r.4&#'"$&"(2<"5lmmi8*"6(#04&"k"r.9$/s!"5lmmn8*"=/>(#/"$&"(2<"5lmhm8*"=)/(d/)"k"t(1(0$.#0/.4" 5lmmn8*""(!:"u.4"k""v#.)9(!!"5lmmi8< g#9&?$!"$&"(2<"5hiij8":$,$2.1$:"("9/w$:"/!&$0$#"2/!$(#"1#.0#(99/!0"5x yt8"02.-(2"67"9.:$2"3.#":$&$#9/!/!0z" 5h8" &+$"!49-$#" (!:" 2.%(&/.!".3"c7)*" 5l8" %4)&.9$#" @" :/)&#/-4&/.!" %$!&#$" ())/0!9$!&)*" 5[8" &+$"!49-$#".3" $%+$2.!)*" (!:"5q8"1#.:4%&"@"12(!&"())/0!9$!&)< g&&(#(!"k"g&&(#(!"5lmmn8"1#.,/:$"(!".,$#,/$>".3"%.!&$91.#(#'")4112'"%+(/!" 5678"9(!(0$9$!&")')&$9)"&+#.40+"(!"/!@:$1&+".,$#,/$>"(!:"(!(2')/)".3"7.22(-.#(&/,$"t2(!!/!0*"\.#$%()&/!0*"(!:" r$12$!/)+9$!&"57t\r8<"7t\r"+$21)")4112'"%+(/!"1(#&!$#)" &." /!&$0#(&$":$9(!:"(!:" 2.0/)&/%"12(!!/!0*"1#.:4%&/.!" scheduling, and new product design. o.2('$9/" k" p2.#4!!/>." 5lmmq8" 3.#942(&$" (" &>.@)&(0$" 67" 9.:$2" &+(&" :$&$#9/!$)" &+$" .1&/9(2" ;4(!&/&/$)" .3" products to be produced at each plant, transported from each plant to each wh, subcontracted at each wh, and kept in inventory at each wh. the model also determines the optimal amount of extensions needed at each wh. it is one of the few most highly integrated models. however, due to the large numbers of its constraints and binary variables, its size increases rapidly as the numbers of products, plants, and whs increase. =+$" .1&/9/?(&/.!" .3" (" &>.@$%+$2.!" 67" /!" >+/%+" 1#.:4%&/.!*" /!,$!&.#'*" &#(!)1.#&(&/.!*" -(%d2.00/!0*" (!:" )4-%.!&#(%&/!0":$%/)/.!)"(#$"/!&$0#(&$:"/)"&+$"3.%4)".3"&+$"(#&/%2$"-'"6(#04&"k"r.9$/s!"5lmmn8<"=)/(d/)"k"t(1(0$.#0/.4" 5lmmn8":$,$2.1$:"("9.:$2"&+(&"/!&$0#(&$)"1#.:4%&/.!*"3(%/2/&'"2.%(&/.!*"(!:":/)&#/-4&/.!"(2.!0)/:$">/&+".&+$#"-4)/!$))" issues like import duties, plant utilization and maintenance, and exchange rates. g"+'-#/:"=(04%+/@ 994!$"(11#.(%+"/)"(112/$:"-'"=/>(#/"$&"(2<" 5lmhm8" &.".1&/9/?$"(!" /!&$0#(&$:")4112'"%+(/!" :$)/0!"1#.-2$9">/&+"942&/12$")+/11/!0".1&/.!)*":/)&#/-4&$:"%4)&.9$#":$9(!:)*"(!:"fw$:"2$(:"&/9$)<"r.4&#'"$&"(2<" 5lmmi8"(!:"u.4"k"v#.))9(!!"5lmmi8":$,$2.1"942&/@$%+$2.!"/!,$!&.#'"12(!!/!0"9.:$2)">/&+"2$(:"&/9$"(!:":$9(!:" uncertainties. you and grossmann’s model differs from the model by routry et al. by the addition of transportation component. x.#$"$w(912$)".3"&+$)$"&'1$)".3"/!&$0#(&$:"9.:$2)"%(!"(2)."-$")$$!"/!"7.d$2$?"k"]49"5hi^i8*"74!+("k"x4&(#$22/" 5lmmn8*"y/(!0"5lmm^8*"r/?d"$&"(2<"5lmm^8*"_/:'(&+/"$&"(2<"5lmmn8*"(!:"u4!0"$&"(2<"5lmm`8*"&."9$!&/.!"("3$><"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" due to their integrated nature, these models are usually very large and structurally complex. these can make &+$9":/3f%42&"&."(112'<"a$!%$*"-$)/:$)"&+$"!$$:"3.#":$,$2.1/!0"9.#$"/!&$0#(&$:")4112'"%+(/!".1&/9/?(&/.!"9.:$2)e &$%+!/;4$)*" &+$#$" /)" (2)." (" 0#$(&" !$$:" 3.#" #$@$w(9/!/!0" ).9$".3" &+$" $w/)&/!0".!$)" @" 1(#&/%42(#2'" &+$"9.)&" +/0+2'" integrated among them for the possibility of modifying, simplifying, or restructuring them to make them more $33$%&/,$*"9.#$"$3f%/$!&*"$()/$#"&.").2,$"(!:*"%.!)$;4$!&2'*"9.#$"(:.1&(-2$"(!:"(112/%(-2$"/!"/!:4)&#/$)< g)"%(!"-$")$$!"3#.9".4#"$(#2/$#":/)%4))/.!)"(-.,$*"&+$"9.:$2"-'"o.2('$9/"k"p2.#4!!/>."5lmmq8"/)".!$".3"&+$" few highly-integrated models. the model has many constraints and many decision variables including many binary variables. this makes its size to increase rapidly as the numbers of products, plants, and warehouses increase. 27 advances in business research 2010, vol. 1, no. 1, 26-35 jolayemi although, the model is applicable in industries in its present form, after a careful examination, we have observed that its adoptability and applicability will be much more enhanced if its size can be reduced much further. we believe that this can be achieved by carefully examining it and identifying where and how it can be restructured. =+$#$3.#$*"&+$"3.%4)".3"&+/)"#$)$(#%+"/)"&."#$)&#4%&4#$"(!:")/912/3'"o.2('$9/"(!:"p2.#4!!/>.b)"9.:$2"5o@p"9.:$28" &."9(d$"/&"9.#$"$33$%&/,$*"9.#$"$3f%/$!&*"9.#$"(:.1&(-2$"(!:"9.#$"(112/%(-2$<"g3&$#"("%(#$342"2..d"(&"&+$"9.:$2*">$" f!:"&+(&").9$")1$%/(2"3$(&4#$)"(!:")&#4%&4#$)".3"&+$"%.!)&#(/!&)"%(!"-$"$w12./&$:"&."#$:4%$"/&)")/?$",$#'")4-)&(!&/(22'" (!:"&.")/912/3'"/&"5&+$"9.:$28"/!".#:$#"&."9(d$"/&"$()/$#"&.").2,$< =+$"#$)&#4%&4#/!0".3"&+$"9.:$2">/22"!.&"-$"3.%4)$:".!2'".!"/&)"%.!)&#(/!&)<"c$">/22"(2)."#$:$f!$"(!:"#$)&#4%&4#$" some terms of the model’s objective function. in the way the objective function is presently formulated, it is easy to commit errors in the expansions of some of the terms that have multiple summations. we will clearly illustrate the procedures involved in the restructuring process. numerical examples will be given to illustrate the restructured model and to compare it with the old model. the %.91(#/).!)">/22"-$":.!$">/&+"#$)1$%&"&."9.:$2")/?$*").24&/.!"#$)42&)*"(!:"%.914&(&/.!(2"$3f%/$!%'<"=+$"y dcp"(!:" excel 2007 solvers will be used for this purpose. one of the major assumptions underlying the developments of the j-o model is that a producer will like to use his capacities to the maximum before subcontracting. while we believe that this is a good assumption that will suit the operations strategies of many producers, we also believe that there are many producers whose decision to produce or )4-%.!&#(%&">/22"-$"-()$:").2$2'".!"&+$"%.)&"()).%/(&$:">/&+"$(%+<"c$">/22")+.>"+.>"&+/)"9.:$2"%(!"-$"(112/$:";4/&$" easily when the decision to produce or subcontract is mainly based on cost consideration. ;$%"<6 ",-.%/"2!."=#*">%*#'4+#4')!3"1'-+%** !" .#:$#" 3.#" &+$" #$)&#4%&4#/!0" 1#.%$))" &." -$" %2$(#2'" .#">$22@/224)&#(&$:*">$" f#)&" 1#$)$!&" &+$" o@p"9.:$2" (!:" /&)" /!&$#1#$&(&/.!)"-$3.#$"$9-(#d/!0".!"&+$"1#.%$))<"=+$"o@p"9.:$2*"()":$,$2.1$:"-'"o.2('$9/"k"p2.#4!!/>."5lmmq8*"/)" ()"3.22.>)z ijt t 1t j 1j n 1i ijtijt 1-ijt t 1t j 1j n 1i ijtijt t 1t j 1j p 1p n 1i iptipjtijt q)g s( v)h (s ) vy(s maximize = = == = == = = = ++ jit t 1t j 1j jtipjt t 1t j 1j p 1p n 1i ipjtiptiptipt t 1t p 1p n 1i ipt we yk )xc zf( = == = = == = = + subject to (1.1) .... t. ...., 2, 1, t p; ...., 2, 1, p r; ...., 2, 1, r ,b xa rpt n 1i iptript === ! = (1.2) .... t. ...., 2, 1, t p; ...., 2, 1, p n; ...., 2, 1, i ,u x iptipt === (1.3) .... t. ...., 2, 1, t j; ...., 2, 1, j n; ...., 2, 1, i ,d vq v y ijtijtijt1-ijt p 1p ipjt ====++ = (1.4) .... t. ...., 2, 1, t p; ...., 2, 1, p n; ...., 2, 1, i 0, xzl iptipt1 === (1.5) .... t. t0, v j 1j n 1 ijt == = =i (1.6) .... 1. t0, v j 1j n 1 1-ijt == = =i (1.7) .... t. ...., 2, 1, t n; ...., 2, 1, t 0, u d j 1j p 1p iptijtit == ! ! ! " # $ $ $ % & ' ' = = 28 advances in business research model interpretation !"# $%&'# '"%(# )*# '!"# )+,"-'./"# *01-'.)1# .&# '!"# ')'23# %"/"10"# *%)(# '!"# &23"&# )*# 233# 4%)50-'&# &!.44"5# ')# '!"# 62%"!)0&"&#789&:#7";-305.1<#'!"#=021'.'."&#>"4'#.1#.1/"1')%?#2'#'!"#+"<.11.1<#)*#"2-!#4"%.)5:#*%)(#233#4321'&#.1# all the t periods. the second term is the total net revenue from the sales of inventory kept in all whs over the t periods after all the total inventory costs have been subtracted. the third term is the net revenue realized from all products subcontracted during the planning horizon after deducting the total cost of subcontracting. the fourth = ==! j 1j ijtit2 (1.8) .... t....., 2, 1, t n; ...., 2, 1, i 0, q l (1.9) .... t. ...., 2, 1, t n; ...., 2, 1, i ,u d q j 1j p 1p iptijtit j 1j ijt == ! " # # # $ % & ' '' = == (1.10) .... t ...., 2, 1, t p; ...., 2, 1, p n; ...., 2, 1, i 0, xy ipt j 1j ipjt ==== = (1.11) .... t. ...., 2, 1, t j, ...., 2, 1, j w w q v y ojt t 1m jmijt n 1i i n 1i 1-ijtiipjt p 1p n 1i i == ++ !!!!! ==== = tp, j, i, 1or 0 and 1or 0 z 0; y , x, w, v,q itiptipjtiptjtijtijt ==! where: :a ript amount of resource r required to produce a unit of product i in plant p in period t. :brpt the total amount of resource r available in plant p in period t. : i conversion factor in m 3 per ton of product i. :cipt the production cost per unit of product i in plant p in period t. :dijt demand for product i in warehouse j in period t. :e jt the cost of construction/extension per m 3 of warehouse j in period t. :fipt the setup cost with respect to product i in plant p in period t. :gijt the unit cost of subcontracting product i in warehouse j in period t. :hijt the holding cost per unit of product i in warehouse j in period t. ijptk : the cost of transporting a unit of product i from plant p to warehouse j in period t. 1l : a very large number. 2l : a very large number. it : a binary variable which is 1 if the quantities of product i produced in all p plants in period t cannot meet customers’ demands and zero otherwise. ijtq : the quantity of product i subcontracted in warehouse j in period t. ijts : the selling price of product i in warehouse j in period t. iptu : the maximum possible capacity of plant p in period t with respect to product i. ijtv : the amount of inventory of product i in warehouse j in period t. it is the portion of ipjty that is set aside to be kept in warehouse j in period t. jtw : the amount of extension in m 3 that is needed in warehouse j in period t. ojtw : the initial capacity of warehouse j in period t. xipt : the quantity of product i produced in plant p in period t. ipjty : the quantity of product i (in tons) shipped from plant p to warehouse j in period t. iptz : a binary variable which is 1 if product i is produced in plant p in period t and zero otherwise. 2010, vol. 1, no. 1, 26-35 jolayemi that is set aside to 29 advances in business research !" #$%" #&#'(")&!#"&*"+,&-.)# &/0" /)(./1" #$%"!%#.+")&!#!0"&2%," #$%"3"+%, &-!4"3$%"5*#$" #%,6" !" #$%" #&#'(")&!#"&*" transporting all products from all plants to all whs over the t periods. the last term is the total cost of extension /%%-%-" /"'(("#$%"7"89!" /"'(("#$%"3"+%, &-!4"3$.!0"#$%"&:;%)# 2%"*./)# &/"6'< 6 =%!"#$%"#&#'("+,&5#"&:#' /%-"'*#%," subtracting the production, transportation, inventory, wh constructions, and setup costs from total revenue. >&/!#,' /#" ?@4@a" %/!.,%!" #$'#" '" 6'/.*')#.,%," -&%!" /&#" +('/" :%b&/-" #$%" ,%!&.,)%!" #$'#" ',%" '2' (':(%" '#" %')$" +('/#" /"%')$"+%, &-4">&/!#,' /#" ?@4ca" %<+,%!!%!" #$%" *')#" #$'#"/&"+('/#" )'/"+,&-.)%":%b&/-" #!"6'< 6.6")'+') #b4" >&/!#,' /#"?@4da"%/':(%!"'"6'/.*')#.,%,"#&"!'# !*b"-%6'/-!"*&,"%')$"+,&-.)#4">&/!#,' /#"?@4ea"%/!.,%!"#$'#" *"+,&-.)#" " !"+,&-.)%-" /"+('/#"+" /"'/b"+%, &-"#0"#$%,%"f ((":%"'"!%#.+")&!#")$',1%-"'1' /!#"$ 6"f #$",%!+%)#"#&" 4">&/!#,' /#"?@4ga" %/!.,%!"#$'#"/&" /2%/#&,b",%6' /!" /"!#&)h"'#"#$%"%/-"&*"#$%"+('// /1"$&, =&/4">&/!#,' /#"?@4ia"%<+,%!!%!"#$%")&/# &/" that inventory should not be carried from one planning horizon to the next. in many situations, a producer would ( h%"#&"&+%,'#%"$ !"+('/#!"#&"6'< 6.6")'+') #b":%*&,%"!.:)&/#,')# /14">&/!#,' /#!"?@4ja"'/-"?@4ka"6'h%"#$ !"+&!! :(%4" >&/!#,' /#"?@4la"%/!.,%!"#$'#"#$%"#&#'("m.'/# #b"&*" #%6" "!.:)&/#,')#%-" /"'(("#$%"7"89!" /"+%, &-"#" !"/&#"1,%'#%,"#$'/" the difference between the total demand for i from all the j whs and the total capacity of all the p plants with respect to item i in period t. this ensures that subcontracting is done only when demand cannot be met after all plant capacities have been fully utilized. n2%,b"+,&-.)#"+,&-.)%-"'#"%2%,b"+('/#"$'!"#&":%"!$ ++%-"#&"#$%"89!4">&/!#,' /#"?@4@oa"6'h%!"#$ !"+&!! :(%4"p" 6'/.*')#.,%,"f&.(-"/&#"( h%"89"!+')%"#&":%"'")&/!#,' /#"#&"$ !"&+%,'# &/!4">&/!#,' /#"?@4@@a"#'h%!")',%"&*"#$ !4"3$%" constraint ensures that extension is made at any wh at any period whenever necessary. !"#$%&#'(&)*()&+,-%.&!*#'' (/0%1023145341678%9:%3/0%9;<0536=0%:4753697 """ q/" #$%" 5,!#" #%,6" &*" #$%" &:;%)# 2%" *./)# &/0" vijt is supposed to be the portion of yipjt kept in inventory in warehouse j in plant p. however, the exclusion of subscript p among the subscripts of vijt does not show that vijt is a portion of or that there is any relationship or connection between yipjt and vijt. additionally, since both yipjt and vijt are being summed over i, p, j, and t, the omission of p among the subscripts of vijt may lead to errors in the expansion of the multiple summation term, if great care is not taken. to correct for these, we replace vijt with vipjt" /"#$%"5,!#"'/-"!%)&/-"#%,6!"&*"#$%"&:;%)# 2%"*./)# &/"'/-"!.6" #$%"!%)&/-"#%,6"&2%," 0"+0";0"'/-"#0"( h%"#$%"5,!#"#%,60"#&"&:#' /r where vipjt is the amount of product i from plant p kept in inventory in warehouse j in period t and vipjt is a portion of yipjt %&023145341678%9:%3/0%>9?0@a2%597231b6732 in restructuring the model’s constraints, we identify and eliminate variables and constraints that are redundant. 8%" '(!&" ,%-.)%0" 6%,1%0" '/-s&," ,%*&,6.('#%" !&6%" )&/!#,' /#!4"3$%" )&/!#,' /#t,%!#,.)#., /1" +,&)%!!" !" '!" +,%!%/#%-" below. """" >&/!#,' /#!"?@4ga"'/-"?@4ia"',%"/&#$ /1"6&,%"#$'/":&./-")&/!#,' /#!4"3$%,%*&,%0"#$%b")'/":%"f, ##%/"'!":&./-" !#'#%6%/#!"'#"#$%"%/-"&*"#$%"6&-%("'!"*&((&f!r ijt t 1t j 1j n 1i ijtijt t 1t j 1j p 1p n 1i 1-ipjtijtijt t 1t j 1j p 1p n 1i ipjtipjtijt q)g s( v)h s( ) vy(s maximize = = == = = == = = = ++ jt t 1t j 1j jtipjt t 1t j 1j p 1p n 1i ipjtiptiptipt t 1t p 1p n 1i ipt we yk )xc zf( = == = = == = = + ijtv = 0 for t = t and v 1-ijt = 0 for t = 1 and for all i, and j (i = 1, 2, .…, n; j = 1, 2, …, j) …. (i). this reduces the number of the constraints of the model. in constraint (1.7), given that d j 1j ijt = > = p 1p iptu and that the values of d j 1j ijt = and = p 1p iptu are known, on substituting these known values into the constraint, it simplifies to: 0 it for all i and t (i = 1, 2, …., n; t = 1, 2, …, 2010, vol. 1, no. 1, 26-35 jolayemi 30 advances in business research t), …. (ii). similarly, if d j 1j ijt = < = p 1p iptu , constraint (1.7) will simplify to: 0 it for all i and t (i = 1, 2, ….,n; t = 1, 2, …., t), .… (iii). by definition, it can only be 0 or 1. therefore, 0 it it is 0 or 1, and 0 it 0 it = . therefore, if necessary, the constraint can be written as a bound constraint at the end of the model as: it = 0 or 1. for all i and all t (i = 1, 2, ….,n; t = 1, 2, …., t), .... (iv). otherwise, the constraint can be eliminated completely. either way, the number of the model’s constraints is reduced by nt. in constraint (1.8), = ! j 1j ijtit2 0 q l = ! j 1j ijtit2 q l = j 1j ijt q l it2 .... (v). in constraint (1.9), it is given that: u d q j 1j p 1p iptijtit j 1j ijt ! " # # # $ % & ' '' = == …. (vi). since 2 l is defined to be a very large number, l it2 in (v) must be, at least, equal to or greater than u d j 1j p 1p iptijtit ! " # # # $ % & & = = in (vi) above. hence, if constraint (vi) is satisfied, constraint (v) must be satisfied. therefore, constraint (1.8) is redundant and must be dropped. this further reduces the number of the model’s constraints by another nt. recall from the definition of it that it = 0 for d j 1j ijt = = p 1p iptu . this implies that, in constraint (1.9), = j 1j ijt q 0 whenever d j 1j ijt = = p 1p iptu . since ijtq must be equal to or greater than zero for all i, j, and t, = j 1j ijt q 0 ijtq = 0 for all i, j, and t for which d j 1j ijt = = p 1p ipt.u thus, in any application of this model, all constraints in (1.9) for which d j 1j ijt = = p 1p iptu should be dropped from the model together with their associated variables s'qijt this will reduce the size of the model much further. as defined earlier in the first sub-section, it = 1 for d j 1j ijt = ! = p 1p iptu . hence, 1 can be substituted for any it for which d j 1j ijt = ! = p 1p iptu in constraint (1.9) during the model’s application therefore, with 1 substituted for it whenever d j 1j ijt = ! = p 1p iptu and with all constraints for which d j 1j ijt = = p 1p iptu completely eliminated in constraint (1.9), all the binary variables s' it will be eliminated from constraint (1.9) during the model’s application. furthermore, since constraints (1.7) and (1.8) have been deleted from the model, all the binary variables s'it will be completely eliminated from the model during its application. this will reduce the model’s size drastically. putting everything together, the restructured or the new model is given as: ijt t 1t j 1j n 1i ijtijt t 1t j 1j p 1p n 1i 1-ipjtijtijt t 1t j 1j p 1p n 1i ipjtipjtijt q)g s( v)h s( ) vy(s maximize = = == = = == = = = ++ jt t 1t j 1j jtipjt t 1t j 1j p 1p n 1i ipjtiptiptipt t 1t p 1p n 1i ipt we yk )xc zf( = == = = == = = + 2010, vol. 1, no. 1, 26-35 jolayemi 31 advances in business research subject to as can be seen from the above results, the restructuring of the model has reduced the number of its main constraints from 11 to 7 through the elimination of four major constraints. this will amount to a very big reduction in any industry application in which many products, many plants, many whs, and many periods are involved. the restructuring has lead to the complete elimination of the binary variables from the model, leaving only the binary variables this will prevent the model’s size from increasing rapidly with increases in the numbers of products and plants. we believe that this new model will be much easier to solve than the old model, due to its smaller size. data !" #!#$%&'()#'*)"'$!+),%--)#-(&).")/012)"#(%"!),%$2)%$)$2#'),%$2)$2")&-*)/&*"-3)40!$2"!/&!"5)%$()(&-0$%&'),%--)!"60%!") less computer memory to process. !"#$%&'()#*'"+(#,)' -)&."+'$%,. , 7')$2")8!($)(0.("1$%&')&9)$2%()("1$%&'5),"):%;")9&0!)'0/"!%1#-)"<#/ -"()$&)%--0($!#$")$2")!"($!01$0!"*)/&*"-)#'*)$&) compare it with the j-o model. in the second subsection, we present the results of further examples given to illustrate the new model and compare it with the j-o model. the lindo and excel 2007 solutions to the examples are also 1&/ #!"*)%')$2")(0.("1$%&')=%3"3)$2")("1&'*)(0.("1$%&'>3)) /0123456)#7508619:)";<16)%66/9=25=3;>9:)5><)&;085239;>9 ?2")8!($)"<#/ -")=("")"<#/ -")@>)%')$#.-")@)%()&')#)/0-$%a "!%&*)#'*)/0-$%a !&*01$) !&*01$%&'a*%($!%.0$%&')#'*) warehouse capacity problem involving 2 products, 2 plants, 2 warehouses, and 2 periods. in the numerical example, the total demands for products 1 and 2 in period 2 are each less than plant capacity for each product. this made two constraints to be dropped from each of the model’s subcontract constraints (see 1&'($!#%'$()=@3b>)#'*)=@3c>)&9) $2")dae)/&*"-)#'*)1&'($!#%'$)=f3g>)&9) $2")h",)/&*"-) %') $2") !";%&0()("1$%&'>) %') $2") example. this reduced the number of constraints of the new model in the example from 56 to 54 and of the j-o model from 60 to 56. it also reduced the number of the j-o model’s binary variables from 12 to 10. the application of the results in the last subsection of the previous section)!"-#$%':)$&)1&'($!#%'$)=f3g>)!"*01"*)$2")'0/."!)&9)$2")'",)/&*"-i() binary variables from 10 to 8. as shown in the table, the numbers of the new and the j-o models’ continuous variables in the example are 40 and 36 respectively. this is after dropping all subcontract variables for which total demand is less than total plant (2.1) .... t. ...., 2, 1, t p; ...., 2, 1, p r; ...., 2, 1, r ,b xa rpt n 1i iptript === ! = (2.2) .... t. ...., 2, 1, t p; ...., 2, 1, p n; .... 2, 1, i ,u x iptipt === ....(2.3) t. ...., 2, 1, t j; ...., 2, 1, j n; ...., 2, 1, i ,d v q v y ijt p 1p ijt ijt p 1p p 1p 1-ijtipjt ====++ == = (2.4) .... t. ...., 2, 1, t n; ...., 2, 1, i ,u d q j 1j p 1p iptijtit j 1j ijt == ! " # # # $ % & ' '' = == (2.5) .... t. ...., 2, 1, t p; ...., 2, 1, p n; ...., 2, 1, i 0, xzl iptipt1 === (2.6) .... t ...., 2, 1, t p; ...., 2, 1, p n; ...., 2, 1, i 0, xy ipt j 1j ipjt ==== = ....(2.7) t. ...., 2, 1, t j; ...., 2, 1, j , w w q v y ojt t 1m jmijt n 1i i p 1p n 1i 1-ijtiipjt p 1p n 1i i == ++ !!!!!! === == = where it = 1 for d j 1j ijt = > = p 1p iptu and 0 otherwise, ijt q = 0 for d j 1j ijt = = p 1p iptu , ijtv = 0 for t = t, 1-ijtv = 0 for t = 1, and 1.or 0 z t;and j, p, i, allfor 0 y , x, w, v,q iptipjtiptjtijtijt = 2010, vol. 1, no. 1, 26-35 jolayemi 32 advances in business research capacities for the two products. the number of the new model’s continuous variables is greater than that of the j-o !"#$%&#'()*#%+(*%'(,%&#%*##,%-,%./#%01*.%(,"%$(*.%*)&*#'.-!,*%!2%./#%31#4-!)*%*#'.-!,5%./#%-,4#,.!16%'! 3!,#,.%!2%./#% former has more variables than those of the latter. the lindo solver was used to obtain optimal solution to each problem. the solver was run on a hp personal '! 3).#1%7-./%(%8#,.-) %+95%:;<<=>? 3 %31!'#**!1%),"#1%@-,"!7*%a8;%b/#%*!$).-!,*%.!%./#%.7!% !"#$*%*/!7#"%c!!"% results. the solutions to the new and j-o models were obtained after 111 and 141 iterations respectively. this amounts to a difference of 30 iterations. this shows that, with smaller number of binary variables, the new model is easier to solve. the optimal value of each of the model’s objective function is $3,536,800.00. this shows that the imperfections -,%./#%*.1)'.)1#*%!2%./#%def% !"#$%"!%,!.%(22#'.%-.*%(&-$-.6%.!%31!")'#%c!!"%1#*)$.*;%b/#6%!,$6% (g#%-.% !1#%"-20')$.%.!% solve. the numbers of products, plants, warehouses, and periods involved in example 2 is the same with those in example :%+*##%.(&$#%:5;%?!7#4#1h%),$-g#%-,%#i( 3$#%:h%,!,#%!2%./#%*)&'!,.1('.%4(1-(&$#*%(,"%'!,*.1(-,.*%!2%./#%def% !"#$%-*% dropped in example 2. this is because total demand for each product in each period is greater than plant capacity in the example. as a result, the number of its constraints is 60 and the numbers of its continuous and binary variables are 40 and 12 respectively. also, since total demand for each product in each period is greater than plant capacity, none of the new model’s subcontract constraints and variables is dropped. hence, the number of the model’s constraints is 56 while the number of its continuous variables is now 44 (see%.(&$#%j5;%?!7#4#1h%./#%(33$-'(.-!,%!2%./#%1#*)$.*%-,%the last subsection of the previous section%1#$(.-,c%.!%'!,*.1(-,.%+j;k5% (g#*%./#%,) &#1%!2%./#%,#7% !"#$l*%&-,(16%4(1-(&$#*%.!%&#%m%n%o)*.%(*%-,% example 1. the outputs of the lindo solutions to the two models in the example show that the number of iterations before obtaining optimal solutions to the new and j-o models are 120 and 144 respectively, resulting in a difference of 24 iterations. this result corroborates our conclusion in example 1 that the new model is easier to solve. again, the two models produce the same optimal value of the objective function. in example 3, the number of products is 3 and the total demand for each product in period 2 is less than plant capacity for each product. like in example 1, this made three constraints to be dropped from each of the model’s *)&'!,.1('.% '!,*.1(-,.*% +-;#;% 21! %'!,*.1(-,.*% +:;m5% (,"% +:;<5%!2% ./#% def% !"#$% (,"% +j;k5%!2% ./#%p#7% !"#$5;%b/-*% reduced the number of constraints of the j-o model from 80 to 74 and that of the new model from 74 to 71 respectively. the number of j-o model’s binary variables is also reduced from 18 to 14. the applications of the results in the last subsection of the previous section%1#$(.-,c%.!%'!,*.1(-,.%+j;k5%1#")'#"%./#%,) &#1%!2%./#%,#7% !"#$l*%&-,(16%4(1-(&$#*% from 15 to 12. table 1 shows that the lindo solutions to the two models were obtained after 185 and 215 iterations respectively, 7/-'/%-*%(%"-22#1#,'#%!2%=q%-.#1(.-!,*;%b/-*%*)33!1.*%./#%1#*)$.*%-,%./#%01*.%.7!%#i( 3$#*%7/-'/%*/!7%./(.%./#%,#7% model is easier to solve. unlike in example 3, none of the two plants has enough capacity to satisfy demand for each product in each period in example 4. therefore, due to the reasons explained for the similar case of example 2, the numbers of the new and j-o models’ constraints are 74 and 80 respectively and the numbers of their binary variables are respectively 12 and 18. the number of each model’s continuous variables is now 65 and 60 respectively. !"#$%&'%($)*#+)%,-%+.$%/*0$123!#%45!06#$)%,7%+.$%/$8%!79%+.$%:;<%=,9$#)> as can be seen in table 1 above, the lindo solver produced optimal solutions to the two models (the new and the def% !"#$*5%(2.#1%:r<%(,"%jms%-.#1(.-!,*%1#*3#'.-4#$6;%b/-*%( !),.*%.!%(%"-22#1#,'#%!2%:k<%-.#1(.-!,*h%7/-'/%-*%(%4#16% model details and values of solution parameters examples 1 2 3 4 new j-o new j-o new j-o new j-o number of products 2 2 2 2 3 3 3 3 number of plants 2 2 2 2 2 2 2 2 number of warehouses 2 2 2 2 2 2 2 2 number of periods 2 2 2 2 2 2 2 2 number of constraints 54 56 56 60 71 74 74 80 number of continuous variables 40 36 44 40 57 52 65 60 number of binary variables 8 10 8 12 12 14 12 18 number of iterations 111 141 120 144 185 215 179 285 objective function value 35360800 35360800 35661800 35661800 25020320 25020320 30580720 30580720 2010, vol. 1, no. 1, 26-35 jolayemi 33 advances in business research big difference. this remarkable result could be due to the fact that the difference between the new and j-o models’ binary variables is larger in this example than in example 2. @#%0,"%./#%tupvf%*!$4#1%.!%&#%4#16%c!!"%2!1%*!$4-,c%./#%.7!% !"#$*;%w2.#1%#,.#1-,c%./#%-,3).%"(.(%2!1%#('/% !"#$h% ./#%*!$4#1%31!")'#"%!3.($%*!$).-!,%-,*.(,.(,#!)*$6%(.%(%'$-'g%!,%./#%x!$4#%'! (,";%b/#%*!$4#1l*%1#3!1.*y*.(.-*.-'*% !,%#('/%*!$).-!,%*/!7#"%./#%#$(3*#%.#%.!%&#%z#1!;%b/-*%*/!7*%./(.%./#%[8\%.#%2!1%#('/%*!$).-!,%-*%4-1.)($$6%z#1!; ?*1+.$1%45!06#$)%!79%@,06!12),7) in this subsection, we use the excel solver to solve each of the four numerical examples in the previous subsection +./#%31#4-!)*%*)&*#'.-!,%!2%./-*%*#'.-!,5;%b/#%1#(*!,*%2!1%./#*#%(1#%.!%#,(&$#%)*]%+:5%"#.#1 -,#%./#%*!$).-!,%.#%2!1% #('/%!2%./#%,) #1-'($%#i( 3$#*h%+j5%'! 3(1#%./#%^i'#$%*!$).-!,*%(,"%*!$).-!,%.#*%2!1%./#%,#7% !"#$%7-./%./!*#%!2% ./#%def% !"#$%-,%#('/%,) #1-'($%#i( 3$#h%(,"%+=5%'! 3(1#%./#%tupvf%(,"%^i'#$%jqqr%*!$).-!,*;% additionally, we use a much bigger numerical example than any of the four numerical examples in the previous subsection to compare the two models. the purpose of this is to give the illustrations and comparisons of the two !"#$*%*! #% #(*)1#%!2%31('.-'($%1#($-.6;%b(&$#%j%*/!7*%./#%1#*)$.*%!2%./#%04#%,) #1-'($%#i( 3$#*%2!1%#('/%!2%./#% two models. u,%#i( 3$#%:%+*##%.(&$#%j5%./#%!3.($%!&o#'.-4#e2),'.-!,%4($)#*%31!")'#"%&6%./#%#i'#$%*!$4#1%2!1%./#%.7!% !"#$*% are the same. these optimal objective function values are also the same with the objective-function values produced 2!1%./#%.7!% !"#$*%&6%./#%tupvf%*!$4#1;%b/-*%*/!7*%./(.%./#%^i'#$%jqqr%(,"%./#%tupvf%*!$4#1%(1#%#_)($$6%c!!"%2!1% solving lp problems of this size. the excel solver produced optimal solution to each model in 2 seconds under the #i( 3$#;%b/-*% #(,*%./(.%./#%.7!% !"#$*%(1#%#_)($$6%#(*6%.!%*!$4#%),"#1%./-*%#i( 3$#; like in example 1, the optimal objective-function values produced by the excel solver for the two models in example 2 are the same. however, each of the values deviates from the corresponding value produced by the lindo *!$4#1%&6%q;m`%+*##%.(&$#%j5;%x-,'#%./-*%-*%(%4#16%* ($$%"#4-(.-!,h%-.%'(,%&#%-,2#11#"%./(.%./#%^i'#$%*!$4#1%-*%*.-$$%(*% good as the lindo solver in solving lp problems of these sizes. as can be seen in the table, the sizes of the lp problems for the new and the j-o models in this example are slightly larger than their respective sizes in example1. the numbers of their binary variables are also slightly larger. the excel-solution times for the new and the j-o models are one and two seconds respectively. this shows that the new model is relatively much easier to solve with excel than the j-o model. again, the excel solver produced the same objective-function values for the two models in example 3. each of the objective-function values deviates from the corresponding value produced by lindo by 0.00012%, which is practically zero. this shows that the excel solver is still as good as lindo in solving the problems, even though they (1#%$(1c#1%./(,%./#%31!&$# *%-,%./#%01*.%.7!%#i( 3$#*;% the excel solution times for the new and j-o models are 3 and 4 seconds respectively. this again shows that the new model is easier to solve than the j-o model. the results in example 4 are similar to those in the three earlier examples. the excel solutions to the new and the j-o models are the same. the solutions deviate from the lindo solutions by only 0.0001%. the excel solution times to the new and the j-o models are 4 and 7 seconds respectively, showing that the new model is relatively much easier to solve than the j-o model. b/#% #i( 3$#*% +#i( 3$#*% :% .!% k5% */!7% ./(.% (*% #('/% !"#$l*% *-z#% (,"% ,) &#1% !2% &-,(16% 4(1-(&$#*% -,'1#(*#h% -.% &#'! #*% !1#%(,"% !1#%"-20')$.%.!%*!$4#a%(,"%./(.%./#%def% !"#$%&#'! #*% )'/% !1#%"-20')$.%.!%*!$4#%./(,%./#%,#7% model. to inject some practical realities into the illustrations and comparisons of the two models and of the excel and lindo solutions, we increase the sizes of the problems in example 5. the lp problem for the new model has 150 constraints and 144 variables, 27 of which are binary variables. the one for the j-o model has 159 constraints and 153 variables, 36 of which are binary. w*%'(,%&#%*##,%-,%./#%.(&$#%+.(&$#%j5h%./#%^i'#$%*!$4#1%31!")'#"%./#%*( #%*!$).-!,%.!%./#%.7!% !"#$*;%b/#%!3.($% objective-function value for each of the two models deviates from the corresponding value produced by lindo by 1.82%. this is a small deviation for lp problems of these sizes. this shows that excel 2007 lp solver is almost as good as the lindo solver in solving big new and j-o models of these sizes. the excel-solution times for the new and the j-o models in this example are 26 and 42 seconds respectively. this strongly validates our observation in example 4 that as each model’s size and number of binary variables increase, it &#'! #*% !1#%(,"% !1#%"-20')$.%.!%*!$4#a%(,"%./(.%./#%def% !"#$%&#'! #*% )'/% !1#%"-20')$.%.!%*!$4#%./(,%./#%,#7% model. this means that the adoptions and applications of the new model in industries will result in much bigger time and cost savings than the applications of the j-o model. this can make the new model to be more appealing, more applicable, and more adoptable than the j-o model in industries. 2010, vol. 1, no. 1, 26-35 jolayemi 34 advances in business research !"#$%a'% .$%1$)*#+)%,-%+.$%$53$#%!79%bc/d<%),#*+2,7)%+,%+.$%/$8%!79%:;<%0,9$#) e66#23!+2,7%27%f1,9*3$;,1;g*"3,7+1!3+%d$32)2,7) one of the major assumptions underlining the development of our model is that a producer will like to use his plants to maximum capacities before subcontracting. however, there are situations in which produce-or-subcontract "#'-*-!,%(1#%&(*#"% (-,$6%!,%'!*.%'!,*-"#1(.-!,*;%b/-*% !"#$%'(,%&#%4#16%#(*-$6% !"-0#"%.!% (g#%-.%(33$-'(&$#%),"#1% such situations. v1!33-,c%'!,*.1(-,.%+j;k5%21! %./#%p#7% !"#$%($$!7*%./#%31!")'#1%.!%*)&'!,.1('.%-2%-.%-*%'/#(3#1%./(,%.!%31!")'#% and vice versa, irrespective of whether he has used his plant to maximum capacity or not. the fact that the model can be easily applied under this type of situations further enhances its adoptability and applicability in industries. we would like to recommend here that in applying the model to make produce-or-subcontract decision, the cost that may be incurred by the producer due to unused capacities must be factored in. concluding remarks we have examined and restructured the j-o model to correct some imperfections in its formulation. the new !"#$%!&.(-,#"%21! %./#%1#*.1)'.)1-,c%31!'#**%/(*%!,$6%r%'!,*.1(-,.*%7/-$#%./#%!1-c-,($% !"#$%+./#%def% !"#$5%/(*% 11. the restructuring process leads to the complete elimination of some binary variables from the new model. we used numerical examples to illustrate and compare the two models. the examples were solved with lindo and excel 2007 solvers. in each example, the number of iterations before obtaining optimal solution with lindo was smaller for the new model than for the j-o model. in nearly all the examples, the excel-solution times for the new model were less than those for the j-o model. in some of the examples, the differences between the numbers of iterations for the two models were large. w*%./#%.7!% !"#$*l%*-z#*%-,'1#(*#]%+:5%./#%,) &#1%!2%./#%def% !"#$l*%&-,(16%4(1-(&$#*%&#'! #*% )'/%$(1c#1%./(,% ./(.%!2%./#%,#7% !"#$h%+j5%./#%^i'#$e*!$).-!,%.#%-,'1#(*#*h%(,"%+=5%./#%,) &#1%!2%-.#1(.-!,*%&#2!1#%!3.($%*!$).-!,*% 7#1#%!&.(-,#"%+7-./%tupvf5%-,'1#(*#*;%%b/#%!&4-!)*%'!,'$)*-!,%21! %./#*#%-*%./(.%./#%def% !"#$%&#'! #*% !1#%(,"% !1#%"-20')$.%.!%*!$4#%./(,%./#%,#7% !"#$%(*%./#%.7!% !"#$*l%*-z#*%-,'1#(*#; the excel solutions to the two models are the same in each of the numerical examples. the lindo solutions to the two models are also the same in each example. these show that the imperfections in the structures of the j-o model do not actually affect its ability to produce good solutions. they only affect its processing and computational .#h%(,"%./-*%'(,%&#%(%&-c%31!&$# %-2%-.%+./#%def% !"#$5%-*%$(1c#; it is very obvious from the results of the numerical examples that the applications of the new model will lead .!%*-c,-0'(,.%.#%(,"%'!*.%*(4-,c*%!4#1%./#%(33$-'(.-!,%!2%./#%def% !"#$;%w3(1.%21! %./#%2('.%./(.%./#%,#7% !"#$% 1#_)-1#*%$#**%*!$).-!,y'! 3).(.-!,($%.#%(,"%'!*.h%"(.(%31#3(1(.-!,*%(,"%#,.1-#*%7-$$%&#% )'/%#(*-#1%7-./%-.% ./(,% 7-./%./#%def% !"#$;%w""-.-!,($$6h%7-./%./#%,#7% !"#$l*%* ($$#1%*-z#h%$#**%'! 3).#1% # !16%7-$$%&#%1#_)-1#"%2!1%"(.(% storage and processing. w%4#16%c!!"%("4(,.(c#%!2%./#% !"#$%-*%./(.%-.%'(,%&#%#(*-$6% !"-0#"%2!1%(33$-'(.-!,*%-,%*-.)(.-!,*%7/#1#%31!")'#e or-subcontract decisions can be based mainly on cost considerations, irrespective of whether there are enough capacities or not. the examples show that excel 2007 solver produces good solutions to the two models. in most of the examples, the optimal value of the objective function produced by the excel solver are very close to those produced by lindo. the only obvious drawback is that the former is much slower than the latter. after entering the in-put data in each example, optimal solution was instantaneously produced by lindo at a click on the solve command. it took some couple of seconds to solve each example with excel 2007 solver. examples model no. of binary variables no. of continuous variables total no. of variables no. of constraints objective function value (excel) objective function value (lindo) deviation from the lindo value excel solution time example 1 new model 8 40 48 54 35360800 35360800 0.0% 2 seconds j-o model 10 36 46 56 35360800 35360800 0.0% 2 seconds example 2 new model 8 44 52 56 35360800 35661800 0.8% 1 second j-o model 12 40 52 60 35360800 35661800 0.8% 2 seconds example 3 new model 12 57 69 70 25020288 25020320 0.00012% 3 seconds j-o model 14 52 66 72 25020288 25020320 0.00012% 4 seconds example 4 new model 12 65 77 74 30580688 30580720 0.00010% 4 seconds j-o model 18 60 78 80 30580688 30580720 0.00010% 7 seconds example 5 new model 27 117 144 150 74676055 76060300 1.82% 26 seconds j-o model 36 117 153 159 74676055 76060300 1.82% 42 seconds 2010, vol. 1, no. 1, 26-35 jolayemi 35 advances in business research !"! !#$! !"#$%&'()*'()!+,&'(-*'(./!!01+&'(2*'(3(2!/4#+&'(5*(6778*(-9+:/9(1;<<9=(>?/0&("/&/@%"%&#(/#(a0@0#/9(%b;0<"%&#( corporation. interfaces'(c8d(e7f7g* ##/!/&'(h*'(3( ##/!/&'(i*(cjjk*(l+99/:+!/#0m%(1;<<9=(>?/0&("/&/@%"%&#*(business process management journal, 6gd(g7jfnjn* l+o%9%$'(i*'(3();"'(p*(67q7*(r01#!0:;#0+&(1=1#%"1(f(,/!%?+;1%(9+>/#0+&(/&a(>/</>0#=*(%&'()'(6kd(n8f86* l;&?/'(l*'(3(h;#/!%990'(s*(cjj8*( (1<!%/a1?%%#f:/1%a(+<#0"0$/#0+&("+a%9(4+!(#?%(0&#%@!/#%a(<!+:9%"(+4(<!+a;>0&@(/&a( distributing a major weekly news magazine. !*+,-')./0,*+.)1/,2/%-'+)34,.5/ '5')+67'(6ked(7c8f7nj* p+9/=%"0'(p*'(3(t9+!;&&0,+'(s*(cjjn*( (a%#%!"0&01#0>("+a%9(4+!(<9/&&0&@(<!+a;>#0+&(b;/&#0#0%1(0&(/(";9#0f<9/&#'(";9#0f warehouse environment with extensible capacities. 8.3'+.)34,.)1/0,*+.)1/,2/9+,:*634,./!6,.,&465'(qkd(77f66g* liang, t. 2008. integrating production-transportation decision with multiple goals in supply chains. international journal of production research'(ned(6nkkf6nq7* rizk, n., martel, a., & d’amours, s. 2008. synchronized production-distribution planning in a single-plant multidistribution network. ;7'/0,*+.)1/,2/37'/%-'+)34,.)1/ '5')+67/<,64'3='(87d(7jf6jn* routry, s., & maddala, k. 2009. multi-echelon supply chain inventory planning with demand and lead time uncertainty. 8.3'+.)34,.)1/0,*+.)1/,2/%-'+)34,.5/ '5')+67'(8d(c86fc8n* i/!@;#'(s*'(3(u+"%0v&'(.*(cjjk*(l/</>0#/#%a(<!+a;>#0+&(/&a(1;:>+&#!/>#0&@(0&(/(1%!0/9(1;<<9=(>?/0&*(88!/;+).5)634,., g7d(6jg6f6jng* tiwari, m., raghavendra, n., argrawal, s., & goyal, s. 2010. a hybrid taguchi-immune approach to optimize an integrated supply chain design problem with multiple shipping. !*+,-')./0,*+.)1/,2/%-'+)34,.5/ '5')+67'(cjgd( 95-106. tsiakis, p., & papageorgiou, l. 2007. optimal production allocation and distribution supply chain networks. 8.3'+.)34,.)1/0,*+.)1/,2/9+,:*634,./!6,.,&465'(666d(neqfnqg* w0a=/#?0'(x*'(l%9%:0'(y*'(y9?%a?90'(i*'(3(p%,o%1'(y*(cjjk*(z&#%@!/#%a(<!+a;>#0+&(0&m%&#+!=fa01#!0:;#0+&(1=1#%"(a%10@&( ,0#?(!01od(h+a%9(4+!";9/#0+&(/&a(?%;!01#0>(1+9;#0+&*(transportation science'(n6d(g7cfnjq* [+;'( s*'( 3( -!+11"/&'( z*( cjj7*( h;9#0f%>?%9+&( 1;<<9=( >?/0&( ,0#?( 0&m%&#+!=( ;&a%!( ;&>%!#/0&#=d( hzx5\( "+a%91'( computational strategies. >8$7!/0,*+.)1'(8ed(n67fnnj* yung, k., tang, j., lp, a., & wang, d. 2006. heuristics for joint decisions in production, transportation, and order b;/&#0#=*(transportation science'(njd(77f66e* joel jolayemi is a professor of operations and supply chain management at tennessee state university. he received ?01(\?*r*(0&(+<%!/#0+&1(!%1%/!>?(4!+"(l/1%(]%1#%!&(u%1%!m%(^&0m%!10#=*(.01(>;!!%&#(!%1%/!>?(0&#%!%1#1(0&>9;a%(1;<<9=( >?/0&("/&/@%"%&#'( #+#/9(b;/90#=("/&/@%"%&#'(<!+v%>#(1>?%a;90&@'(a%>010+&(/&/9=101'(/&a("/#?%"/#0>/9("+a%90&@_ optimization. he has published in international journal of production research, international journal of production y>+&+"0>1'( <<90%a(h/#?%"/#0>1(/&a(l+"<;#/#0+&'( <<90%a(i#/#01#0>1(/&a(r/#/( &/9=101'(2+#/9(̀ ;/90#=(h/&/@%"%&#( /&a();10&%11(ya>%99%&>%'(t"%@/d(2?%(z&#%!&/#0+&/9(p+;!&/9(+4(h/&/@%"%&#(i>0%&>%'(i/&o?=/d(2?%(z&a0/&(p+;!&/9(+4( statistics, ecological modeling, and many others. 2010, vol. 1, no. 1, 26-35 jolayemi http://journals.sfu.ca/abr advances in business research 2014, volume 5, pages 33-49 33 long-run risk of dynamic asset allocation strategies thomas s. howe illinois state university ralph a. pope california state university, sacramento this study uses empirical resampling to examine the risk of three of perold and sharpe’s (1988) dynamic asset allocation strategies – buy and hold, constant mix, and constant proportion portfolio insurance (cppi). generally we find that the lower the floor percentage the greater the risk. however, which strategy has the most (or least) risk depends on how risk is measured. finally, despite the positive floor buy and hold places on portfolio value, buy and hold is less risky than constant mix only in a few cases. keywords: portfolio management; risk measurement introduction when viewed in a one-period context under a traditional mean-variance framework common stocks are on average much riskier than treasury bills. however, proponents of the concept of time diversification [for example, reichenstein (1986), levy (1978)] argue that over long horizons common stocks as a whole may not be riskier than treasury bills if certain shortfall risk measures are considered to be the relevant risk measures. levy points out that over every 25-year period beginning with january 1926 or later the rate of return on the stock market as a whole has exceeded that of treasury bills. butler and domian (1991, 1992) point out that levy’s finding may be biased in favor of common stocks, since the 25-year periods overlapped, and therefore were not independent. the 25year periods examined were january 1926 through december 1950, february 1926 through january 1951, and so on. to overcome this weakness, they use empirical resampling (also known as historical simulation or bootstrapping) to generate independent series of returns. although their results vary somewhat depending on the sub-period used in their resampling, the benefits of time diversification are apparent, especially over long investment horizons. the above studies focus on long-run returns of individual asset classes rather than portfolios composed of more than one asset class; thus, they do not examine the effect of diversification between asset classes. when one diversifies, one has rebalancing decisions to make—decisions that can have a considerable effect on the risk and return, especially over the long-run. perold and sharpe (1988) present three dynamic strategies which combine investment in stocks with investment in treasury bills to reduce the risk of equity portfolios—buy-and-hold (bh), constant mix (cm), and constant proportion portfolio insurance (cppi). dichtl and drobetz (2010) discuss the attractiveness of such strategies to both institutional and private investors and examine the performance of the cppi strategy. perold and sharpe discuss the payoffs and exposures of these strategies. for example, they point out that during a strictly rising or strictly falling market bh dominates cm while during an oscillating market cm dominates. however, they do not examine the empirical long-run performance or risk. while dichtl and drobetz examine the long-run performance of the cppi strategy, they use a period of only 22 years; given the volatility of the u.s. equity market, one may consider this to be too short a period. http://journals.sfu.ca/abr long-run risk of dynamic asset allocation strategies 34 this study differs from the above-mentioned studies in that it (1) examines a far greater variety of risk measures than they do; and (2) focuses entirely on the risk of strategies rather than both risk and return. although variance is a traditional measure of risk and is a key part of markowitz portfolio theory and the capital asset pricing model, it is not clear that variance is always the most useful risk measure. tversky (1990) points out that losses loom much larger than gains in people’s minds. also, the consequences of falling short of a given return target could determine the appropriate measure of risk. for example, if failure is defined as earning less than the treasury bill rate of return, the probability of earning less than what one could have by investing in treasury bills could be a useful measure of risk (balzer (1994) and sortino and price (1994)). on the other hand, as balzer (1994) points out, shortfall probability is an incomplete risk measure because it fails to consider the amount of the shortfall. if the consequences of falling short of the return that could have been earned from investing in treasury bills is more severe the farther one’s return is below that of treasury bills, expected shortfall or lower partial variance measures which consider the frequency and magnitude of deviations below what could have been earned by investing in treasury bills may be relevant. finally, value at risk is a commonly-used risk management tool. if value at risk is considered to be the appropriate risk measure, specified lower percentiles of wealth relatives, such as the first or fifth percentiles, may be relevant. still, if the conclusions as to which strategy is riskiest and the effect of floor percentage on risk are the same regardless of risk measure the choice of risk measure is unimportant. the questions examined in this study are: (1) which strategy has the most (or the least) risk; (2) what impact the floor percentage has on the risk; (3) whether the answers to the first two questions are the same for all risk measures; and (4) what effect, if any, the choice of investment horizon has on the answers to the first three questions. of these, the third question is the one of most interest. this study uses empirical resampling (historical simulation) as used in butler and domian (1991, 1992) and howe (1999) to examine the risk of the bh, cm, and cppi strategies. the study uses monthly morningstar/ibbotson sbbi data going back to 1926 as the basis of the simulation. thus, although this study uses fewer data points than dichtl and drobetz’s 22 years of daily returns, the sample period is much longer. this study focuses on an investment horizon of 10 years. however, to examine whether the conclusions regarding the risks of the strategies relative to each other and the relationship between risk and floor percentage depend on the investment horizon it also examines investment horizons of 20 and 30 years. this study uses cppi floor percentages ranging from 10 percent to 95 percent. for comparison, this study also examines the long-run risk and ending wealth of the bh and cm strategies using equity positions of 10 through 95 percent. in addition to variance, this study uses a number of downside risk measures: value at risk, conditional value at risk, and lower partial moments. this study examines three types of lower partial moments: shortfall probability, expected shortfall, and lower partial variance. lower partial moments require that the minimum acceptable wealth relative be specified. this study uses three different minimum acceptable wealth relatives: the mean wealth relative, the wealth relative one would have earned by investing entirely in treasury bills, and a wealth relative of 1.0, which corresponds to a return of zero. this study finds that generally the lower the floor percentage the greater the risk. however, which strategy is the riskiest (or the least risky) depends on how risk is measured. for risk measured based on deviations from the mean or deviations from the risk-free rate the cppi strategy is the riskiest and the constant mix strategy is the least risky, with the buy and hold strategy being only slightly riskier than the constant mix strategy. for the other risk measures examined in this study the findings as to how the risks of the strategies compare with each other are very mixed. finally, while the buy and hold strategy places a positive floor on value of the portfolio while the constant mix strategy does not, this does not make the buy and hold strategy less risky than the constant mix strategy howe & pope 35 unless one views risk as a particular low percentile of the ending wealth distribution, and even then only if the investment horizon is sufficiently short. survey of relevant literature the relevant literature addresses long-run assets class returns, portfolio insurance, and risk measurement. long-run asset class return studies one type of study examining long-run returns is a monte carlo simulation study, in which the return distributions (along with the autocorrelations and cross-correlations) of the various asset classes are assumed. examples of such studies are leibowitz and langetieg (1989) and shoven and sialm (1998). monte carlo simulation studies involve sampling from assumed distributions, often normal or lognormal distributions with specified means and variances. in addition to avoiding the problem of a small number of independent multi-year periods, simulation studies allow one to vary the expected returns and standard deviations (and other parameters if the assumed distribution is non-normal). this enables one to examine the sensitivity of the results to the expected returns, variances, and so on. a disadvantage of the monte carlo simulation study is its sensitivity to the choice of return-generating process. given the finding that return distributions tend to have fatter tails than a normal or lognormal distribution, using a normal or lognormal distribution is likely to underestimate the frequency and magnitude of extremely low returns, thus making common stocks look less risky than they really are (lucas and klaassen, 1998). a second type of study involves assuming return-generating distributions and analytically deriving the future wealth or return distributions. examples include reichenstein (1986), ho, milevsky, and robinson (1994) and mccabe (1999). while there is less of a problem of sampling error than in the monte carlo simulations, the results of this type of study are still sensitive to the choice of return-generating process. a third type of long-run investment performance study is the empirical resampling (also known as bootstrapping or historical simulation) study. depending on the extent to which past stock and treasury bill market performances repeat themselves, this is potentially more realistic than the monte carlo simulation study. empirical resampling differs from monte carlo simulation by using the observed distribution of monthly returns rather than an assumed distribution. butler and domian's initial study (1991) uses empirical resampling to examine the performance of lump-sum investments in common stocks and treasury bonds. their second study (1992) examines treasury bills, corporate bonds, and low-capitalization common stocks as well. in addition, their second study considers the case of making deposits into a retirement fund, where an equal amount (in real terms) is invested each month. both of their studies find that in the vast majority of cases common stocks earn more than bonds over periods of 20 years or longer. portfolio insurance studies the major motive behind portfolio insurance is to minimize the chance of the large losses possible from investing in common stocks. perold and sharpe (1988) present four portfolio insurance strategies: buy-and-hold, constant mix, constant proportion portfolio insurance (cppi), and optionbased portfolio insurance. two decades later, dichtl and drobetz (2010) point out the continuing popularity of cppi strategies, despite criticism from the academic community. long-run risk of dynamic asset allocation strategies 36 risk measurement variance and standard deviation have long been presented in textbooks as the most commonly-used measures of total risk. however, they are not necessarily the best measures. balzer (1994) lists several undesirable events that could imply risk measures other than variance are relevant. this list, which he points out is non-exhaustive, is dominated by shortfall situations such as negative returns or returns less than the risk-free rate. as further support for shortfall-based risk measures, tversky (1990) points out that losses loom much larger than gains in people’s minds. if investors are more concerned with downside variability than upside volatility, this would suggest that one should consider skewness when examining risk. models which consider skewness include a three-moment capm (kraus and litzenberger 1976) and the mean-lower partial moment capm (bawa and lindenberg 1977). methodology this section describes the historical simulation methodology used in this study as well as dynamic asset allocation strategies and expectations. historical simulation this study uses the empirical resampling methodology of butler and domian (1991, 1992) to simulate treasury bill and common stock returns. the steps in the empirical resampling procedure are as follows: 1. randomly select, with replacement, 600 months from the sample period, in this study january 1926 through december 2009. 2. obtain the return for each of these months for each asset category 3. use the returns from step 2 to calculate wealth relatives for 600 months. 4. repeat the first three steps 9,999 more times to generate distributions of the wealth relatives. thus, the simulation uses 10,000 series of 600 simulated monthly returns. to better identify the effects of the choice of strategy, floor percentage, and risk measure on the results, the same 10,000 series are used for each strategy, floor percentage, and risk measure. although this procedure generates wealth relatives for periods as long as 50 years, the study will focus on the results for 10-, 20-, and 30-year periods. the common stock and treasury bill returns used in this study are the monthly large-company common stock and 30-day treasury bill returns from morningstar/ibbotson associates. dynamic asset allocation strategies the constant mix strategy specifies an initial common stock/treasury bill allocation and rebalances the portfolio each period that the common stock and treasury bill returns were not equal. thus, the portfolio return in any given month i, rip, is: r)x1(rxr itbcsicscsip  (1) where xcs = weight of the portfolio invested in the common stock index rics = return on the common stock index in period i ritb = return on treasury bills in period i this study implements the constant mix strategy by creating a file of returns for each month from howe & pope 37 january 1926 through december 2009 for each weight of common stocks used in this study. in addition to examining the performance of 100 percent stock and 100 percent treasury bill portfolios, this study examines the performance of portfolios containing the following proportions of common stock: 0.05, 0.10, 0.20, 0.30, 0.40, 0.50, 0.60, 0.70, 0.80, and 0.90, which imply floor proportions of 0.95, 0.90, 0.80, 0.70, 0.60, 0.50, 0.40, 0.30, 0.20, and 0.10, respectively. thus, this study creates ten such return files to sample from in the simulation. the buy and hold strategy assumes a specified initial weight of common stocks but no rebalancing. therefore, the wealth relative, that is, the ending wealth per dollar initially invested, after n periods, wnp, is: w)x1(wxw ntbcsncscsnp  (2) where xcs = weight of the portfolio initially invested in the common stock index wncs = wealth relative on the common stock index in period n wntb = wealth relative on treasury bills in period n. this study uses the same initial weights for the buy and hold strategy as for the constant mix strategy. for the cppi strategy, the dollar amount allocated to common stocks as of period n, dncs, is calculated as )]r1(fw[md itb n 1i 0npncs    (3) where m = cppi multiplier f0 = initial floor value of the portfolio the multiplier for a typical cppi strategy is greater than 1. the greater the multiplier or the lower the floor the more aggressive the strategy. if the common stock index drops by a proportion greater than 1/m in one period the strategy fails in that the value of the portfolio drops below the floor. in such a case, this study assumes the entire portfolio is invested in treasury bills. in this study leveraging is not allowed; therefore, in this study, dncs is the lesser of wnp or the result from equation (3). the implementation of cppi strategies in this study involves a simulation with the following steps for each period t: 1. as of the beginning of period t calculate wt−1p and dtcs. 2. calculate the weights of common stocks and treasury bills as dtcs/wt−1p and 1−dtcs/wt−1p, respectively. 3. applying these weights to the returns on common stocks (xtcs) and treasury bills (1−xtcs), respectively, for period t, calculate the return on the portfolio, rtp, as rtp = xtcsrtcs + (1−xtcs)rttb 4. calculate the wealth relative for the end of period t as wt−1p (1+rtp). this study uses cppi multipliers of 1.5 and 2.0 and floor proportions of 0.10, 0.20, 0.30, 0.40, 0.50, 0.60, 0.70, 0.80, 0.90, and 0.95. this study applies various risk measures to the cross sectional distribution of 10-, 20-, and 30year wealth relatives. other than mean absolute deviation and value at risk, all of the risk measures this study examines are generalizations of: long-run risk of dynamic asset allocation strategies 38    10000 1j jb k n/)ww(ls (4) where l = a dummy variable equal to 1 for all observations included in calculating the risk measure and equal to zero for all other observations. for observations below the benchmark l equals 1. for downside risk measures, l equals 0 for all observations above the benchmark while for risk measures which consider all observations l equals 1 for all observations above the benchmark. wb = benchmark wealth relative. for calculations of the variance and standard deviation wb is the cross-sectional mean of the wealth relatives.in addition to the mean, this study uses benchmark wealth relatives equal to 1.0 (representing a geometric mean return of zero) and that earned by a 100 percent investment in t-bills. k = a parameter equal to 2 for variance-based measures, 1 for expected shortfall measures, and 0 for shortfall probabilities n = the number of degrees of freedom. if k equals 0 or 1, n equals the number of observations. if k equals 2, n equals the number of observations minus 1. normally x% value at risk is defined as the loss which is exceeded (100-x)% of the time, and a positive number for value at risk corresponds to a loss. in this study, however, the wealth relative that corresponds to this implies a positive return rather than a negative return in many cases. to avoid the possible confusion from negative value at risk numbers, this study reports the (100-x)th percentiles. as presented by jorion (2011), the (100-x)% conditional value at risk equals the expected loss below the xth percentile of ending wealth conditional on ending wealth being below the xth percentile of ending wealth. thus, (100x)% conditional value at risk can be calculated from equation (4) where: l equals 1 if the wealth relative is less than the xth percentile wealth relative and 0 otherwise; wb is xth percentile wealth relative; k equals 1; and n equals the number of observations less than the xth percentile wealth relative. expectations one would not expect the ending wealth relatives to be normally distributed. for one thing, the distribution of common stock returns has been found to be fatter-tailed than the normal distribution. also, even if one-period returns were normally distributed, the ending wealth relatives would not be normally distributed, since the wealth relatives are products of weighted sums of lognormal random variables. even if the ending wealth relatives could be assumed to be normally distributed, including only the observations below the threshold leaves a distribution that is nonnormal; for these reasons, standard significance tests such as the f-test for equality of variances are not appropriate. in addition, the same 10,000 series of stock and treasury bill returns are used for each strategy, floor percentage, and risk measure. therefore, the results for the different strategies, floor percentages, and risk measures are not independent of each other; this would also invalidate the standard statistical tests. even if valid statistical tests were available, the method used to calculate the wealth relatives would make the tests largely meaningless. every set of 10,000 calculated wealth relatives is based on the same 10,000 sets of common stock and treasury bill returns; the only things that differ when the strategy or floor percentage is changed are the weights of common stock and treasury bills. thus, this study is best viewed as a demonstration rather than a traditional hypothesis-based empirical study. in addition, historical simulation, which this study employs, assumes that the distributions of treasury howe & pope 39 bill and common stock returns over the 1926-2009 period are typical of the treasury bill and common stock markets. even though the simulated results generated in this study do not lend themselves to statistical testing, we can develop a priori expectations of some of the results. because on average common stocks earn a higher rate of return than treasury bills, one would expect the weight of common stocks in a buy and hold portfolio to generally increase over time. because common stocks have a higher variance of return than treasury bills, this implies that the variance and mean absolute deviation of the buy and hold strategy are higher than those of the constant mix strategy for any given initial weight of common stocks in the portfolio greater than 0 but less than 1. however, because the constant mix strategy involves buying stock as the value of the portfolio drops, the value of the constant mix portfolio could theoretically drop to practically 0. on the other hand, the initial investment in t-bills places a nonzero lower limit on the possible value of the portfolio in the buy and hold strategy. therefore, it is conceivable that some of the lower percentiles of the ending wealth distribution could be higher using the buy and hold strategy than the constant mix strategy, given the same initial common stock / treasury bill weights for the buy and hold strategy as for the constant mix strategy. because the greater the percentage of stock the greater the variation in wealth relative, the greater the percentage invested in common stocks the greater the conditional value at risk. this implies that the conditional value at risk for the buy and hold strategy is higher than that of the constant mix strategy the buy and hold strategy is a special case of the cppi strategy, in which the multiplier equals 1 and the floor equals the initial investment in t-bills. because for any given floor a higher cppi multiplier implies a higher proportion invested in common stocks, one would expect the average variance of ending wealth for the cppi strategy with a multiplier of 1.5 to be higher than those for the buy and hold strategy but lower than those for a cppi strategy with a multiplier of 2.0. results table 1 presents the mean-based risk measures, in this study the mean absolute deviation, variance, and semi-variance of the wealth relatives, for each strategy for the 120-month investment horizon. throughout this study the results for the 240and 360-month investment horizons are presented only if they differ qualitatively from those for the 120-month investment horizon. also, the results for the cppi strategy with a multiplier of 2.0 are qualitatively identical but more pronounced than those for the cppi strategy with a multiplier of 1.5 and are therefore not presented. the floor is the percentage invested in treasury bills for the constant mix and buy and hold strategies and is the floor initially calculated by equation (3) for the cppi strategies. initial floors of 0 and 100 percent correspond to 100 percent allocations in common stocks and treasury bills, respectively. as expected, for the most part, as the floor decreases the mean absolute deviation and variance of the wealth relative increase. there appears to a minor exception to this for cppi strategies with a floor percentage of approximately 1−1/cppi multiplier. the reason for this is unclear. as one would expect given the difference in the proportion invested in common stocks and the risk of common stocks relative to treasury bills, the constant mix strategy consistently has the lowest mean absolute deviation and variance of wealth relative and the cppi strategy with a multiplier greater than 1 has the highest mean absolute deviation and variance of wealth relative. although variance is a traditional measure of risk and is a key part of markowitz portfolio theory and the capital asset pricing model, it is not clear that variance is always the most useful risk measure. given evidence such as tversky (1990) that losses loom much larger than gains in people’s long-run risk of dynamic asset allocation strategies 40 table 1. mean-based risk measures — 120 month investment horizon floor % mad variance semivariance buy and hold 0 1.4603 4.1618 1.1241 10 1.3143 3.3708 0.9105 20 1.1682 2.6632 0.7195 30 1.0222 2.0389 0.5509 40 0.8763 1.4979 0.4049 50 0.7303 1.0403 0.2813 60 0.5844 0.6659 0.1803 70 0.4386 0.3748 0.1017 80 0.2931 0.1671 0.0456 90 0.1485 0.0427 0.0120 95 0.0785 0.0117 0.0036 100 0.0312 0.0015 0.0007 constant mix 0 1.4603 4.1618 1.1241 10 1.2219 2.7974 0.8131 20 1.0097 1.8415 0.5742 30 0.8212 1.1794 0.3933 40 0.6541 0.7277 0.2588 50 0.5067 0.4262 0.1612 60 0.3769 0.2311 0.0927 70 0.2632 0.1110 0.0471 80 0.1644 0.0428 0.0192 90 0.0806 0.0103 0.0049 95 0.0471 0.0035 0.0017 100 0.0312 0.0015 0.0007 cppi 1.5 0 1.4603 4.1618 1.1241 10 1.4603 4.1618 1.1241 20 1.4605 4.1631 1.1249 30 1.4627 4.1732 1.1307 40 1.4699 4.2006 1.1404 50 1.4691 4.1804 1.1170 60 1.4032 3.8140 0.9791 70 1.2476 3.0740 0.7307 80 0.9789 2.0083 0.4187 90 0.5662 0.8079 0.1333 95 0.3077 0.2848 0.0393 100 0.0312 0.0015 0.0007 howe & pope 41 minds, downside risk measures may be more useful that variance or mean absolute deviation. table 1 presents one such measure–the semi-variance of the wealth relatives. although semivariance considers only variations below the mean while variance and mean absolute deviation consider all variations from the mean, whether below or above the mean, the semi-variances show exactly the same pattern as the mean absolute deviation and the variance. this suggests that even if downside deviations weigh considerably more on people’s minds than upside deviations do, this does not qualitatively change the risk of the strategies relative to each other or the relationship between floor percentage and risk. the finding that the semi-variances are less than half of the corresponding variances, especially for the cppi strategy, is consistent with positive skewness in the distributions of the wealth relatives. table 2 presents three shortfall risk measures for which the benchmark is the wealth relative of a 100 percent investment in treasury bills. the measures are the shortfall probability, the expected shortfall, and the lower partial variance relative to treasury bills. for the buy and hold strategy it can be shown that if the initial investment in common stocks is greater than zero the probability of the wealth relative being less than that from a 100 percent investment in treasury bills is independent of the initial investment in common stocks and, therefore, the floor percentage. when the magnitude of the shortfall in considered, as in the expected shortfall and the lower partial variance, the risk increases as the floor percentage decreases. for the constant mix strategy, the increase in risk as the floor percentage decreases is apparent for all three risk measures. for the cppi strategy, the relationship between floor percentage and risk measure varies somewhat depending on the risk measure. for floor percentages of greater than 90 percent the probability of a wealth relative less than that from treasury bills increases as the floor percentage decreases. however, for floor percentages less than 90 percent the probability of a wealth relative less than that from treasury bills declines as the floor percentage decreases. this reversal is less pronounced and occurs at a lower floor percentage for the expected shortfall than for the shortfall probability. while there is a slight reversal in the lower partial variance, it is much less pronounced and occurs at a lower floor percentage than the reversal in expected shortfall. this finding is not surprising, considering that the amount of the shortfall affects the lower partial variance proportionally more than it affects the expected shortfall, and the amount of the shortfall has no effect on the shortfall probability. for all three risk measures, the constant mix strategy is the least risky and the cppi strategy is the riskiest for all floor percentages between 10 and 95 percent. however, the buy and hold strategy is only slightly riskier than the constant mix strategy. table 3 presents the same three risk measures as table 2 except that the benchmark return is zero. for floor percentages of 80 percent or higher all three risk measures were zero for all strategies; therefore, results for floor percentages greater than 80 percent are not presented. in general the relationships between floor percentage and risk measure are consistent with those in table 2, although the decline in the shortfall probability for the cppi strategy as the floor percentage decreases is much less pronounced and begins at a much lower floor percentage than it does in table 2. unlike the cases shown in tables 1 and 2, the buy and hold strategy generally appears less risky than the constant mix. this is consistent with the hypothesis that the buy and hold strategy places a positive lower limit on the value of the portfolio while the constant mix strategy implies that one sells t-bills and buys stocks as the value of the portfolio drops and therefore has a theoretical lower limit of zero. however, as table 4 shows, this effect disappears when the investment horizon is lengthened to 240 months. long-run risk of dynamic asset allocation strategies 42 table 2. shortfall risk relative to risk-free rate — 120 month investment horizon floor % prob. < rf exp. shortfall vs rf lpv vs rf buy and hold 0 0.1757 0.0635 0.0345 10 0.1757 0.0571 0.0280 20 0.1757 0.0508 0.0221 30 0.1757 0.0444 0.0169 40 0.1757 0.0381 0.0124 50 0.1757 0.0317 0.0086 60 0.1757 0.0254 0.0055 70 0.1757 0.0190 0.0031 80 0.1757 0.0127 0.0014 90 0.1757 0.0063 0.0003 95 0.1757 0.0032 0.0001 constant mix 0 0.1757 0.0635 0.0345 10 0.1681 0.0550 0.0276 20 0.1588 0.0471 0.0216 30 0.1513 0.0397 0.0164 40 0.1443 0.0328 0.0119 50 0.1362 0.0263 0.0082 60 0.1295 0.0203 0.0052 70 0.1226 0.0146 0.0029 80 0.1164 0.0094 0.0013 90 0.1100 0.0045 0.0003 95 0.1078 0.0022 0.0001 cppi 1.5 0 0.1757 0.0635 0.0345 10 0.1757 0.0635 0.0346 20 0.1757 0.0637 0.0354 30 0.1773 0.0659 0.0349 40 0.1882 0.0709 0.0289 50 0.2171 0.0737 0.0206 60 0.2498 0.0674 0.0133 70 0.2658 0.0535 0.0075 80 0.2717 0.0365 0.0034 90 0.2731 0.0186 0.0009 95 0.2729 0.0096 0.0002 howe & pope 43 table 3. shortfall risk relative to return of zero — 120 month investment horizon floor % prob. (loss) expected loss lpv vs 0 buy and hold 0 0.0625 0.0137 0.0046 10 0.0534 0.0099 0.0028 20 0.0444 0.0064 0.0015 30 0.0310 0.0036 0.0007 40 0.0196 0.0016 0.0002 50 0.0079 0.0004 0.0000 60 0.0008 0.0000 0.0000 70 0.0000 0.0000 0.0000 80 0.0000 0.0000 0.0000 constant mix 0 0.0625 0.0137 0.0046 10 0.0519 0.0101 0.0031 20 0.0415 0.0069 0.0019 30 0.0297 0.0044 0.0010 40 0.0205 0.0024 0.0005 50 0.0117 0.0011 0.0002 60 0.0045 0.0003 0.0000 70 0.0007 0.0000 0.0000 80 0.0000 0.0000 0.0000 cppi 1.5 0 0.0625 0.0137 0.0046 10 0.0625 0.0137 0.0046 20 0.0629 0.0140 0.0048 30 0.0674 0.0150 0.0047 40 0.0788 0.0142 0.0034 50 0.0778 0.0090 0.0014 60 0.0438 0.0025 0.0002 70 0.0019 0.0000 0.0000 80 0.0000 0.0000 0.0000 long-run risk of dynamic asset allocation strategies 44 table 4. shortfall risk relative to return of zero — 240 month investment horizon floor % prob (loss) expected loss lpv vs 0 buy and hold 0 0.0155 0.0035 0.0013 10 0.0102 0.0019 0.0006 20 0.0055 0.0008 0.0002 30 0.0027 0.0002 0.0000 40 0.0002 0.0000 0.0000 50 0.0000 0.0000 0.0000 60 0.0000 0.0000 0.0000 70 0.0000 0.0000 0.0000 constant mix 0 0.0126 0.0028 0.0010 10 0.0101 0.0021 0.0008 20 0.0059 0.0013 0.0004 30 0.0036 0.0007 0.0002 40 0.0019 0.0003 0.0001 50 0.0008 0.0001 0.0000 60 0.0001 0.0000 0.0000 70 0.0000 0.0000 0.0000 cppi 1.5 0 0.0155 0.0035 0.0013 10 0.0155 0.0035 0.0014 20 0.0175 0.0041 0.0014 30 0.0208 0.0037 0.0009 40 0.0164 0.0014 0.0002 50 0.0006 0.0000 0.0000 60 0.0000 0.0000 0.0000 70 0.0000 0.0000 0.0000 table 5 presents the fifth and first percentiles of ending wealth and the conditional value at risk associated with them. as expected based on the proportion of common stock in the portfolio, the lower the floor percentage the lower the first and fifth percentiles of ending wealth for the buy and hold and constant mix strategies. for the cppi strategy this relationship reverses slightly for low floor percentages, a finding consistent with the cppi findings shown on tables 1 through 3. the fifth percentiles of ending wealth are only slightly lower for the buy and hold strategy than for the constant mix strategy while the first percentiles of ending wealth are in almost all cases higher for the buy and hold strategy than for the constant mix strategy. furthermore, both the 95% and 99% conditional values at risk are lower for the buy and hold strategy than for the constant mix strategy, with the 95% conditional value at risk enough lower for the buy and hold strategy to more than make howe & pope 45 table 5. lower percentiles and conditional value at risk — 120 month investment horizon floor % 5th percentile 95% cvar 1st percentile 99% cvar buy and hold 0 0.9257 0.1918 0.6002 0.0989 10 0.9767 0.1827 0.6818 0.0879 20 1.0289 0.1733 0.7639 0.0773 30 1.0807 0.1560 0.8465 0.0674 40 1.1304 0.1385 0.9296 0.0582 50 1.1809 0.1189 1.0120 0.0490 60 1.2306 0.0815 1.0978 0.0439 70 1.2805 0.0637 1.1762 0.0329 80 1.3281 0.0456 1.2542 0.0247 90 1.3694 0.0277 1.3254 0.0195 95 1.3852 0.0221 1.3491 0.0143 100 1.3701 0.0015 1.3457 0.0012 constant mix 0 0.9257 0.1918 0.6002 0.0989 10 0.9842 0.1856 0.6676 0.0995 20 1.0439 0.1786 0.7390 0.0984 30 1.1015 0.1676 0.8137 0.0947 40 1.1589 0.1553 0.8918 0.0885 50 1.2120 0.1378 0.9752 0.0821 60 1.2629 0.1178 1.0603 0.0719 70 1.3106 0.0950 1.1497 0.0608 80 1.3515 0.0672 1.2383 0.0451 90 1.3841 0.0371 1.3218 0.0260 95 1.3919 0.0233 1.3538 0.0173 100 1.3701 0.0015 1.3457 0.0012 cppi 1.5 0 0.9257 0.1918 0.6002 0.0989 10 0.9257 0.1918 0.6002 0.0990 20 0.9229 0.1932 0.5968 0.1037 30 0.8935 0.1765 0.6011 0.0585 40 0.8694 0.1142 0.6803 0.0370 50 0.9223 0.0804 0.7915 0.0284 60 1.0128 0.0622 0.9146 0.0247 70 1.1142 0.0487 1.0362 0.0201 80 1.2168 0.0370 1.1577 0.0185 90 1.3140 0.0255 1.2725 0.0164 95 1.3584 0.0221 1.3222 0.0143 100 1.3701 0.0015 1.3457 0.0012 long-run risk of dynamic asset allocation strategies 46 up for the fifth percentile of ending wealth being slightly lower for the buy and hold strategy than for the constant mix strategy. combined, this implies that the average ending wealth of the bottom 1% and 5% of the wealth relatives is higher for the buy and hold strategy than for the constant mix strategy for almost all floor percentages examined in this study. this is consistent with the hypothesis that the buy and hold strategy places a positive lower limit on the value of the portfolio while the constant mix strategy does not. however, as table 6 shows, this does not show up in the 240-month results. this suggests that floor on the portfolio value provided by the buy and hold strategy provides less downside protection the longer the investment horizon. summary and conclusion this study has focused on the following questions: (1) of the buy and hold, constant mix, and cppi strategies, which strategy has the most (or the least) risk; (2) what impact the floor percentage has on the risk; (3) whether the answers to the first two questions are the same for all risk measures. in addition, this study has examined what effect, if any, the choice of investment horizon has on the answers to the first three questions. the study makes no attempt to determine which strategy is optimal; this would depend on not only on how the investor perceives risk, but also on the investor’s risk tolerance and return target. this study generally finds the cppi strategy to be the riskiest and the constant mix strategy to be least risky of the three strategies. consistent with expectations, the strategies which involve the greatest investment in common stocks showed the greatest variance of ending wealth. also generally consistent with expectations, as the floor percentage decreases the mean absolute deviation and variance of ending wealth increased in most cases, the exception being the constant proportion portfolio insurance strategy with a floor percentage below approximately 1-1/cppi multiplier. even though variance is the most traditional risk measure used in this study, the other risk measures based on deviations from the mean—semi-variance and mean absolute deviation—yield the same conclusions regarding the risk of the strategies relative to each other and regarding the relationship between risk and the floor percentage. in addition, the risk measures based on deviations below the risk-free rate yielded the same conclusions. if this were the case for all risk measures, the question of what risk measure to use would be largely moot. however, it is not the case. for the other risk measures examined in this study no strategy was consistently the most—or the least—risky. this raises the question of which risk measure is the best to use. there is no clear answer to this question. traditional finance theory suggests that variance is the best risk measure. however, evidence that investors prefer positive skewness (kraus and litzenberger 1976) and that deviations below the mean weigh two or more times as heavily on investors’ minds than deviations of equal magnitude above the mean (tversky 1990) suggests that downside risk measures are more appropriate than risk measures which consider upside and downside deviations equally. although shortfall probabilities and value at risk, which are measures of the mere probability of a sufficiently poor outcome, have been criticized for being too simplistic in that they ignore the severity of the shortfall, they have their uses. for example, using the probability of loss as a risk measure is consistent with an individual viewing risk as the possibility of losing money (kaiser 1990). also, value at risk is commonly used in financial institution risk management. finally, investment policy statements may specify that the mere fact that a portfolio manager earns less than a specified rate of return over a specified period may be grounds for the portfolio manager being replaced (trone, allbright, and taylor 1996). even if the magnitude of the shortfall is considered, there is no theoretical reason that howe & pope 47 table 6. lower percentiles and conditional value at risk — 240 month investment horizon floor % 5th percentile 95% cvar 1st percentile 99% cvar buy and hold 0 1.5768 0.4172 0.8782 0.1989 10 1.6244 0.3758 0.9924 0.1769 20 1.6717 0.3343 1.1163 0.1651 30 1.7190 0.2930 1.2284 0.1421 40 1.7708 0.2564 1.3489 0.1282 50 1.8153 0.2131 1.4617 0.1077 60 1.8599 0.1708 1.5752 0.0894 70 1.9077 0.1332 1.6863 0.0714 80 1.9502 0.0942 1.7940 0.0573 90 1.9863 0.0616 1.8851 0.0422 95 1.9899 0.0468 1.9101 0.0277 100 1.9232 0.0301 1.8746 0.0222 constant mix 0 1.5768 0.4172 0.8782 0.1989 10 1.6831 0.4137 0.9979 0.2118 20 1.7788 0.4005 1.1220 0.2203 30 1.8607 0.3757 1.2435 0.2182 40 1.9327 0.3450 1.3658 0.2098 50 1.9903 0.3055 1.4943 0.2010 60 2.0264 0.2520 1.6114 0.1759 70 2.0509 0.1964 1.7322 0.1512 80 2.0593 0.1372 1.8394 0.1145 90 2.0432 0.0757 1.9188 0.0634 95 2.0150 0.0484 1.9355 0.0358 100 1.9232 0.0301 1.8746 0.0222 cppi 1.5 0 1.5768 0.4172 0.8782 0.1989 10 1.5768 0.4177 0.8749 0.1976 20 1.5713 0.4404 0.8226 0.1711 30 1.4872 0.4147 0.8244 0.0905 40 1.3280 0.2483 0.9395 0.0551 50 1.3364 0.1461 1.0996 0.0430 60 1.4484 0.1056 1.2768 0.0415 70 1.5901 0.0831 1.4541 0.0402 80 1.7396 0.0685 1.6272 0.0386 90 1.8790 0.0545 1.7880 0.0320 95 1.9366 0.0468 1.8586 0.0265 100 1.9232 0.0301 1.8746 0.0222 long-run risk of dynamic asset allocation strategies 48 investors’ utility is inversely proportional to the square, or any other given power, of the deviations below the target return. the square of these deviations may be easier to work with statistically, but this does not imply that investors really perceive risk that way. finally, although the buy and hold strategy guarantees a higher floor value than the constant mix strategy, for floor percentages of 90 percent or less this led to the buy and hold strategy having a higher first percentile of wealth relative over relatively short investment horizons such as ten years, but not over investment horizons of twenty or more years. also, for floor percentages between 40 and 70 percent the buy and hold strategy had a lower shortfall probability relative to a benchmark return of zero that the constant mix strategy did. all other downside risk measures were higher for the buy and hold strategy than for the constant mix strategy. thus, while the buy and hold strategy theoretically has a floor greater than zero while the constant mix strategy does not, the effect of this floor appears to be beneficial only over relatively short investment horizons in the most extreme cases of poor performance. because the study is a historical simulation, it assumes that the distributions of treasury bill and common stock returns will continue to be similar to what they were over the sample period, 19262009. this assumption limits the extent to which one can generalize the results. an extension to this study would be to change the average return or volatility of treasury bills or common stocks. finally, this study assumes the first order serial correlation is 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(1990). individual investors. chapter 3 in j. l. maginn & d.l. tuttle (eds.), managing investment portfolios: a dynamic process (2nd ed.), (pp. 3.1-3.46). boston: warren, gorham, and lamont. file:///c:/users/abaldwin/appdata/local/temp/www.iijournals.com/toc/joi/current http://jfe.rochester.edu/ http://www.iijournals.com/toc/jpm/current http://www.drsm.org/fsr_journal/financial_services_review_home.htm http://www.iijournals.com/toc/jwm/current http://www.drsm.org/fsr_journal/financial_services_review_home.htm http://www.iijournals.com/toc/jwm/current https://www.garpdigitallibrary.org/display/frmhandbook.asp https://www.garpdigitallibrary.org/display/frmhandbook.asp howe & pope 49 kraus, a. & litzenberger, r. (1976). skewness preference and the valuation of risk assets. journal of finance 31(4), 1085-1089. http://www.afajof.org/details/landingpage/2866131/about-thejf.html leibowitz, m.l. & langetieg, t.c. (1989). shortfall risk and the asset allocation decision: a simulation analysis of stock and bond risk profiles. journal of portfolio management, 16(1), 6168. http://www.iijournals.com/toc/jpm/current levy, r.a. (1978). stocks, bonds, bills, and inflation over 52 years. journal of portfolio management, 4(4), 18-19. http://www.iijournals.com/toc/jpm/current lucas, a. & klaassen, p. (1998). extreme returns, downside risk, and optimal asset allocation. journal of portfolio management, 25(1), 71-80. http://www.iijournals.com/toc/jpm/current mccabe, b.j. (1999). analytic approximation for the probability that a portfolio survives forever. journal of private portfolio management, 1(4), 43-48. http://www.iijournals.com/toc/jwm/current perold, a.f. & sharpe, w. f. (1988). dynamic strategies for asset allocation. financial analysts journal, 44(1), 16-27. http://www.cfapubs.org/loi/faj reichenstein, w. (1986). when treasury bills are riskier than common stock, financial analysts journal, 42(6), 71-75. http://www.cfapubs.org/loi/faj shoven, j.b. & sialm, c. (1998). long run asset allocation for retirement savings. journal of private portfolio management, 1(2), 13-26. http://www.iijournals.com/toc/jwm/current sortino, f.a. & price, l.n. (1994). performance measurement in a downside risk framework. journal of investing, 3(3), 47-58. www.iijournals.com/toc/joi/current trone, d.b., allbright, w. r., & taylor, p.r. (1996). step 3—developing an investment policy statement. chapter 5 in trone, d.b., allbright, w. r., & taylor, p.r. (eds.), the management of investment decisions (pp. 103-130) burr ridge, il: irwin professional publishing company. tversky, a. (1990). the psychology of risk. in w. f. sharpe and k. f. sherrerd (eds.) quantifying the market risk premium phenomenon for investment decision making (pp. 73-78). charlottesville, va: aimr. thomas s. howe received his ph.d. degree in business administration (finance) at texas tech university in 1986. he is currently professor of finance at illinois state university. dr. howe has published 27 articles in journals, including the journal of economics and finance, financial counseling and planning, and the quarterly journal of business and economics. ralph a. pope received his d.b.a. degree in finance at mississippi state university in 1984. he is currently professor emeritus at california state university, sacramento. dr. pope has published 46 articles in peer-reviewed journals including the journal of economics and finance, the engineering economist, and the journal of accountancy. http://www.afajof.org/details/landingpage/2866131/about-the-jf.html http://www.afajof.org/details/landingpage/2866131/about-the-jf.html http://www.iijournals.com/toc/jpm/current http://www.iijournals.com/toc/jpm/current http://www.iijournals.com/toc/jpm/current http://www.iijournals.com/toc/jwm/current http://www.cfapubs.org/loi/faj http://www.cfapubs.org/loi/faj http://www.iijournals.com/toc/jwm/current file:///c:/users/abaldwin/appdata/local/temp/www.iijournals.com/toc/joi/current advances in business research 2010 volume 1.pdf 73 advances in business research !"#$%&'()&*+$!,%&-.&/012-3,4%&'()&5112!6'($% joseph gilbert, university of nevada, las vegas g. stoney alder, university of nevada, las vegas daniel mcallister, university of nevada, las vegas the task of hiring new employees presents multiple challenges. underlying many of these challenges is the need to balance applicants’ legal and ethical rights and duties with those of the organization. an array of federal laws faces the u.s. employer, prohibiting discrimination on a variety of bases. additionally, ethical issues, which extend beyond legal requirements, must be considered in the hiring process. privacy, personal dignity, and integrity are critical concerns which hiring companies and applicants must balance. this article discusses the rights and duties of employers and applicants, and demonstrates how these rights and duties can lead to better hiring decisions. !" #$%&'(## )*+ &#,-. /'&0"-*12&( '1 2"/'&0"-*12&(3 ! "#4 %'+2-2'" )*+ 5##" *%%1'/#6 *"6 $0+5# 7&&#63 applicants, some of whom are presently employed, some of whom are recently or not so recently unemployed, and some of whom are just entering the workforce, are seeking jobs. both the employer and the applicants have needs, but each also has rights and duties incumbent on them as the process of recruiting unfolds in seeking and screening applicants and selecting an employee. large companies typically have detailed procedures for recruiting including advertising or posting open %'+2-2'"+. +81##"2"9 *%%&28*"-+. 9*-)#12"9 2",'1$*-2'". 2"-#1/2#42"9 7"*&2+-+. *"6 $*:2"9 #$%&'($#"',,#1+3 ;" * small company, all of these tasks may fall to a single manager who also has much else to do (perhaps including the 4'1: ', -)# %'+2-2'" -)*2+ '%#"< *"6 &2--&# -1*2"2"9 2" #2-)#1 #$%&'($#"&*4 '1 )0$*" 1#+'018# %1*8-28#+3 =/#" 2" * large company, line managers or supervisors with limited knowledge or skills in the hiring process often play some part in this process. ;" -)2+ %*%#1 4# 71+26#"-2,( -)# $*>'1 '5>#8-2/#+ ', -)# )212"9 %1'8#++3 ;" -)# 1#$*2"6#1 ', -)# %*%#1. 4# '0-&2"# -)# $*>'1 &#9*& 1#?021#$#"-+ 2" -)# @"2-#6 a-*-#+ 42-) 1#9*16 -' )212"9. *"6 62+80++ #-)28*& 8'"+26#1*-2'"+ -)*9' 5#('"6 -)# +-128-&( &#9*& 1#?021#$#"-+3 b# *&+' 8'"+26#1 -)# &#9*& *"6 #-)28*& 1#?021#$#"-+ %&*8#6 '" *%%&28*"-+3 b# accomplish this objective by applying the concept of rights and duties, which has both legal and ethical meanings. we do this, however, not from the perspective of attorneys or philosophers, but from that of the hiring manager, who $0+'%#1*-# 2" -)# 1#*& 4'1&6. 2+ ,1#?0#"-&( )*112#6 *"6 +05>#8-#6 -' $0&-2%&# 6#$*"6+ 4)2&# '%#1*-2"9. *"6 $'+-&( just wants to get on with running the business and making money. 789,6$!:,%&-.&$#,&;!4!("&<4-6,%% it is important that each hiring choice both complies with the many laws that address this function and is fair to *&& *%%&28*"-+3 c'4#/#1. 22+ 2"+0,782#"-' 8'"+26#1 '"&( #*8) )212"9 6#82+2'" 2" 2+'&*-2'"3 ;" * &*19#1 8'"-#d-. 4)#" viewed as a pattern of such decisions the overall hiring process must show legal compliance and fairness. the basic objective of the hiring process, however, is to employ the applicant who will best perform the job. if every position 2" * 8'$%*"( 4#1# 7&&#6 42-) -)# 5#+%#1+'" */*2&*5&# -' 6' -)*>'5. -)# 8'$%*"( 4'0&6 5# 2" * %'+2-2'" -' +088##6 and prosper greatly. the more this ideal can be approximated, the more successful the company will be. legal compliance is an important, basic goal of the hiring process. this is not a simple thing to accomplish, and as we will show below, numerous laws and regulations apply. a company that hires the right people (and then treats -)#$ 4#&&< )*+ * +-1*-#928 *6/*"-*9# '/#1 8'$%#-2-'1+ 4)' 6' "'ef,#,,#1 ghhi<3 ! 8'$%*"( -)*,'&&'4+ 2&&#9*& )212"9 %1*8-28#+ *"6 2+ +05+#?0#"-&( +0#6 &'+#+ 2" +#/#1*& 4*(+. 1#9*16&#++ ', -)# '0-8'$# ', -)# &*4+02-3 j#9*-2/# publicity often accompanies lawsuits for illegal hiring practices, and the cost of defending such a suit, even if the outcome is successful, is often high. the hiring process provides an opportunity for the company to have important dealings not only with the individual it ultimately hires but also with others, sometimes many others, who are applicants. these individuals might apply again for another job, or become customers or suppliers of the company. if they feel they are treated fairly in the selection process they will likely think and speak well of the company, even though they do not get the job. on the other hand, if their experience as an applicant is bad, they will almost certainly not apply again, and may +%#*: %''1&( ', -)# 8'$%*"( -' $*"( '-)#1 2"62/260*&+ ek2&&2&*"6 ghhl<3 m)# )212"9 %1'8#++. -)#". 2+ 2$%'1-*",'1 * company in other ways than just selecting the best applicant for the open position. 2010, vol. 1, no. 1, 73-81 gilbert, alder and mcallister 74 advances in business research we recognize that intelligent discrimination based on job related factors is essential in the hiring process. however, patterns of illegal or unethical discrimination in hiring are a concern of both law and ethics. except for the 8*+# 4)#1# * 8'$%*"( 2+ +-*,7"9 * "#4 ,*82&2-( '1 '-)#142+# )212"9 $*"( #$%&'(##+ *'"8#. %*--#1"+ *12+# 91*60*&&(. one hire at a time. if a given department has seven job vacancies over a one year period, and ends up hiring seven young males, there is at least the appearance of a pattern of discrimination against older applicants and female applicants. the apparent pattern did not arise from the seventh hire, but began with the second one and continued with each additional hire. because of this, an individual hiring procedure for a single job opening must also be viewed in a larger perspective as part of a possible pattern. ;" -)2+ %*%#1. 4# 42&& 71+1#/2#4 -)# %*21#6 8'"8#%-+ ', 129)-+ *"6 60-2#+3 b# 42&& -)#" #d*$2"# -)# &#9*& 129)-+ of applicants and the duties that those rights impose on employers. after this discussion, we will extend the realm of applicant rights and employer duties to include those that go beyond strict compliance with the law, but are based in ethical theories. after examining applicant rights and corresponding employer duties, we shift our focus and consider the legal and ethical rights of employers, and the duties that those rights impose on applicants. we conclude 5( #d*$2"2"9 )'4 -)# 129)-+ *"6 60-2#+ ', *%%&28*"-+ *"6 #$%&'(#1+ 5#*1 '" -)# -*+: ', 7"62"9 *"6 )212"9 -)# 5#+ candidate for the job. !"#$%&'()&*+$!,% in a discussion of rights and duties, it is valuable to recognize the difference between various types of rights. a0$"#1 enooo< 62+-2"902+)#+ 8&*2$p129)-+ e-)# 129)-' )*/# +'$#-)2"9 6'"#. +08) *+ 5#2"9 %*26 ,'1 +#1/28#+ 1#"6#1#6< ,1'$ &25#1-(p129)-+ e-)# 129)-' 6' +'$#-)2"9 0"2$%#6#6 2, ; 8)''+# -' 6' +'<3 q'-) :2"6+ ', 129)-+ 2$%&( 60-2#+3 ! right to privacy is worthless if no one has a duty to leave me alone. most discussions of rights focus on two sources, human rights and legal rights. the notion of human rights is that all individuals possess them, simply because they *1# )0$*" e;9"*-2#,, noog<3 a08) 129)-+ 6' "'6#%#"6 '" -)# &*4+ ', * 8'0"-1( '1 '-)#1 ,'1$*& $#8)*"2+$+3 r#9*& rights are those that are granted by a government to its citizens, whether at the national, state, or local level. unless these rights are granted, and unless one is a citizen, they are not real rights and cannot properly be claimed. while this is the usual division of the sources of rights, it seems both useful and proper in our examination of the hiring process to recognize one additional source of rights, namely, position rights. under appropriate circumstances, * %'&28#$*" )*+ -)# 129)-' $*:# *11#+-+. * -#*8)#1 -' *++29" 91*6#+. *"6 * 8)2#, 7"*"82*& ',78#1 -' 62+501+# 8'$%*"( ,0"6+3 m)#+# 2"62/260*&+ )*/# -)#+# 129)-+ 5#8*0+# ', -)#21 %'+2-2'"+. *"6 1#&2"?02+) -)#$ 4)#" &#*/2"9 -)#21 organizational positions. table 1 summarizes the sources of rights. ='82,&>?&@-+46,%&-.& !"#$%&!(&$#,&;!4!("&<4-6,%% q'-) -)# 7#&6+ ', #-)28+ *"6 &*4 %1'/26# * -1#*-$#"', 129)-+. 50#-)28+ *"6 &*4 *1# "'26#"-28*& e!&6#1 s k2&5#1-. nootu r('"+ ghiv<3 ;, '"# 8'"+26#1+ -)# %'++252&2-( ', #-)28*& 41'"9p6'2"9. 22+ "'* +0,782#"*"+4#1 -' +*( e*+ * "0$5#1 ', #d#80-2/#+ )*/# 1#8#"-&( +*26< w; 626 "'-)2"9 41'"9. *+: $( &*4(#1xy r*4+ *1# $*6# 5( &#92+&*-'1+3 z*"( people would be uneasy with the idea that their personal moral code was made by legislators. we do not suggest that, as a whole, legislators are corrupt. however, it may well be argued that there is less than complete overlap between our political leaders and those individuals we look to as our moral leaders. a further consideration that shows the differences between law and ethics is illustrated by the fact that some technical violations of law, such as driving one mile an hour over the speed limit, are not seen by most people as ethical violations. there are also issues when the law is less vocal and the ethical code speaks loudly. for example, many people consider adultery to be a serious ethical matter. however, although some federal and state laws cover the issue, these laws are rarely, if ever enforced. finally, laws vary by government jurisdiction (gambling is legal in j#/*6* 50"'2" -)# *6>'2"2"9 +-*-# ', @-*)< '1 5( &#92+&*-2/# 6#82+2'" e*&8')'& %1'608-2'" *"6 +*&# 2" -)# @"2-#6 a-*-#+ 4#1# &#9*& 2" -)# ghoo[+. 2&&#9*& 2" -)# ghno[+. *"6 &#9*& *9*2" 2" -)# ghvo[+<3 z'+%#'%&# %1#,#1 -)*$'1*& codes have more stability in terms of both geography and time. law and ethics deal with many of the same issues, so it should not be surprising that many rights and duties embedded in a moral or ethical code should also be addressed in legal codes. as we saw above, human rights and source description applications in hiring human rights possessed by all individuals because they are human truth-telling, dignity (privacy) citizen rights granted by a government unit to its citizens by law non-discrimination based on prohibited categories position rights possessed by an individual because of the position that he or she holds fair treatment, honesty 2010, vol. 1, no. 1, 73-81 gilbert, alder and mcallister 75 advances in business research the duties they imply do not depend on laws. they apply to all humans, regardless of the nation or legal jurisdiction 2" 4)28) -)#( &2/#3 \2-2]#" 129)-+ *%%&( -' -)# 82-2]#"+ ', * +%#8278 9'/#1"$#"-. 4)#-)#1 "*-2'"*& '1 &'8*&. 50"'-' 82-2]#"+ ', '-)#1 9'/#1"$#"-+ e42-) +'$# #d8#%-2'"+<3 there is an ethical or moral duty to obey the law, and thus to observe citizen rights and duties. were this not so, *"6 '5#62#"8# '1 62+'5#62#"8# -' -)# &*4 )*6 #?0*& #-)28*& /*&0#. 4# 8'0&6 "')*/# +'82#-( *+ 4# :"'4 2-3 ;, 24#1# morally neutral whether we obeyed or disobeyed the law, then we could be ethical people and also be chronic lawbreakers. a person could discriminate in hiring on the basis of characteristics that have nothing to do with the job, /2'&*-# 8'"-1*8-+ ,1##&(. &2# 91'++&( 2" )2+ '1 )#1 $*1:#-2"9 $*-#12*&+ *"6 7"*"82*& 1#%'1-2"9. *"6 +-2&& 5# *" #-)28*& person. this makes no sense. human rights and duties, then, are more basic than those granted by governments. there is also an ethical obligation to observe duties legally imposed by government. b)28) 129)-+ ,*&& 0"6#1 -)# $'+5*+28 8*-#9'1(. )0$*" 129)-+^ m)# @"2-#6 j*-2'"+ _#8&*1*-2'" ', c0$*" `29)-+ e_'"*&6+'". b#1)*"# s \'162"9 noon< &2+-+ * 8'"+26#1*5&# "0$5#1 ', +08) 129)-+. 2"8&062"9 -)# 129)-' ,'1$ &*5'1 unions and the right to free choice of employment and protection from unemployment. other authors provide much shorter lists. there seems to be general agreement that all humans, by the fact of being human, have rights to life, dignity, truth-telling and property. some readers might debate whether the right to truth-telling is a basic human right. while it is clearly also an #-)28*& 129)-. -)# *0-)'1+ 8'"-#"6 -)*22+ $'1# ,0"6*$#"-*& -)*" -)*-3 ! $'$#"-[+ 1#a#8-2'" 42&& +)'4 -)*2, &(2"9 *"6 -10-)p-#&&2"9 *1# #?0*&&( /*&26 4*(+ ', 6#*&2"9 42-) '-)#1+. 4# 8'0&6 "')*/# +'82#-( *+ 4# :"'4 2eq': ghih<3 f1'$2+#+ *"6 8'"-1*8-+ 8'0&6 "#/#1 5# 1#&2#6 '". *"6 -10+4'0&6 )*/# "' 5*+2+3 c0$*" 129)-+ *1# #+%#82*&&( important in the consideration of ethical practices, because they are present, with concomitant duties, regardless of -)# &*4+ '1 1#90&*-2'"+ ', * 92/#" %'&2-28*& 0"2-. *"6 -)#( 6' "'1#?021# &*4+ '1 * 8#1-*2" %'+2-2'" ,'1 -)#21 #d2+-#"8#3 \2-2]#" 129)-+ *1# "0$#1'0+ *"6 /*12*5&#3 !-)# "*-2'"*& &#/#&. #/#" 4)#" * &*4 2+ %*++#6 91*"-2"9 '1 1#+-128-2"9 rights, there is often a great deal of ambiguity about how the law applies in various situations. for example, the law prohibiting employment discrimination based on gender provides virtually no guidance as to what kind of actions are or are not covered. it has taken decades of regulation, litigation and interpretation to explain this law, and many 4'0&6 +*( -)*22+ +-2&& "'8&#*1 %1#82+#&( 4)#1# -)# 5'0"6*12#+ *1# ec*&5#1s ;"90&&2 noot<3 q#8*0+# -)#+# 129)-+ *"6 8'11#+%'"62"9 60-2#+ *1# 2$%'+#6 5( +%#8278 &*4+ *"6 b'1 1#90&*-2'"+. *--'1"#(+ *1# 0+0*&&( $'1# :"'4&#69#*5&# -)*" $*"*9#1+ 4)#" +%#8278 ?0#+-2'"+ *12+#3 position rights and duties in business are typically granted by the organization in which the position exists, *&-)'09) +'$# *1# +%#&&#6 '05( &*43 m2-&# c;; ', -)# \2/2& `29)-+ !8', ghtv +%#827#+ -)*>'5 *%%&28*"-+ )*/# a right to be treated in a non-discriminatory manner as to age, religion, gender and other characteristics. hiring $*"*9#1+. 5#8*0+# ', -)# %'+2-2'" -)#( )'&6. )*/# 60-2#+ -' -)'+# 2" -)# %'+2-2'" ', *%%&28*"-+3 \'$%*"2#+ -(%28*&&( 6#-#1$2"# 4)#-)#1 7"*& %'4#1 -' $*:# *" #$%&'($#"',,#1 1#+-+ 42-) -)# )212"9 $*"*9#1 '1 * )0$*" 1#+'018#+ representative. in some cases, the decision is made by the hiring manager, but to assure that all legal and regulatory concerns are met, the formal offer of employment is made by a human resources representative. ;+0'(& !"#$%&-.&5112!6'($% in this section we will consider the human rights of applicants, those that each applicant possesses as a human being, regardless of the laws of a particular jurisdiction. as we discussed previously, all humans have the right to 5# -'&6 -)# -10-). *"6 -)# 129)-' )*/# -)#21 629"2-( 1#+%#8-#63 m)#+# *1# $'1*& 129)-+3 m)#( *1# ',-#" 1#a#8-#6 2" 82-2]#" 129)-+ e+'$#-2$#+ 8*&&#6 &#9*& 129)-+<. 5082-2]#" 129)-+ 8*" /*1( ,1'$ 8'0"-1( -' 8'0"-1( '1 +-*-# -' +-*-#3 moral human rights belong to everyone. as part of the right to be told the truth, applicants have a right to accurate information pertaining to aspects of the organization and the job that will personally affect them. thus applicants have a right to know the duties, working conditions, and general pay range of the jobs they are *%%&(2"9 ,'13 !%%&28*"-+ ,01-)#1 )*/# * 129)-' :"'4 4)*?0*&278*-2'"+ *1# 1#?021#6 ', +088#++,0& >'5p+##:#1+ 2" a given case. this knowledge can save them the time and effort involved in applying for jobs for which they are not ?0*&27#63 ! 8&#*1 +-*-#$#"', $2"2$0$ ?0*&278*-2'"+ 8*" *&+' +*/# #$%&'(#1+ ,1'$ -)# #,,'1', +81##"2"9 '0 *%%&28*"-+ 4)' $29)'-)#142+# *%%&( #/#" -)'09) -)#( *1# "'?0*&27#63 d2"*&&(. *%%&28*"-+ *&+' )*/# -)# 129)-' :"'4 4)#-)#1 -)# >'5 ,'1 4)28) -)#( *%%&2#6 )*+ 5##" 7&&#63 it is important to note that not every applicant has a human right to be told all the truth about a company. most *%%&28*"-+ )*/# "' "##6 -' :"'4. *"6 "' 129)-' :"'4. -)# +%#8278*-2'"+ ', * "#4 %1'608-' 5# 2"-1'608#6 "#d month, or the names of all employees who have been terminated over the last three years. applicants also have a human right to dignity, which includes privacy. indeed, the right to privacy has been * 8)#12+)#6 26#*& ,'1 8#"-012#+ e!&6#1 #*&3. nooeu b*11#" *"6 q1*"6#2+. giho<3 a*,#90*162"9 *%%&28*"-+[ %12/*8( 2+ 2$%'1-*",'1 5'-) #-)28*& *"6 50+2"#++ #,,#8-2/#"#++ 1#*+'"+3 !&6#1 #*&3 enooe< ,'0"6 -)*%#18#%-2'"+ ', 2010, vol. 1, no. 1, 73-81 gilbert, alder and mcallister 76 advances in business research privacy invasion related negatively to employees’ perceptions of the appropriateness of human resource programs. research indicates that privacy and fairness correlate strongly with each other (bies and moag, 1986; eddy et al., ghhhu a-'"# *"6 f'-8) ghih<3 f1'8#601#+ -)*/2'&*-# #d%#8-*-2'"+ ', %12/*8( 0"6#1$2"# %#18#%-2'"+ ', ,*21"#++ e!&9#. noogu =66( #*&3. ghhhu a-'"# *"6 f'-8). ghih<3 ;" -01". %#18#%-2'"+ ', ,*21"#++ 2"a0#"8# *%%&28*"-+[ /2#4+ toward the hiring organization, their job choice decisions, and their attitudes and performance after being hired ek2&&2&*"6. ghhl<3 \'$$'" -' $'+6#7"2-2'"+ ', %12/*8( 2+ -)# 2$%'1-*"8# ', 8'"-1'& '/#1 %#1+'"*& 2",'1$*-2'" e!&6#1 #*&3 nooe<3 d'1 #d*$%&#. a0"6+-1'$ #*&3 eghio< +099#+-#6 -)*%12/*8( 2"8&06#+ 8'"-1'& '/#1 -1*"+$2++2'" ', 2",'1$*-2'" *5'0 '"#+#&, -' '-)#1+3 b#+-2" eghte. %3 e< *190#6 -)*%12/*8( 2+. w-)# 8&*2$ ', 2"62/260*&+. 91'0%+. '1 2"+-2-0-2'"+ -' determine for themselves when, how, and to what extent information about them is communicated to others.” thus, the applicant’s right to privacy precludes a hiring company from disseminating information gathered in the hiring process beyond those who have a need to know. a-'"#p`'$#1' #*&3 enool< 8'"8&06# -)*-)#1# 2+ 1#*+'" -' 5#&2#/# -)*/*12*"-+ 2" -)# *%%&28*-2'" ', -)# +*$# 9#"#1*& )212"9 -#8)"2?0# $*( 62,,#1 2" -#1$+ ', -)#21 2"/*+2/#"#++3 m)*2+. -)# +*$# +#&#8-2'" %1*8-28# $*( 5# 8'"+26#1#6 $'1# '1 &#++ 2"/*+2/# 6#%#"62"9 '" -)# 8'"-#d*"6 )'4 -)# -#8)"2?0# 2+ *%%&2#63 g"# 2$%'1-*",*8-'1 here may be the trade-off between the degree of invasiveness and the organization’s need for the information 9*-)#1#63 ;" -)2+ 1#9*16. * 8'$%*"( -)*1#?021#6 6109 -#+-+ ', *&& *%%&28*"-+. *"6 "'>0+', -)'+# 4)' *1# 7"*&2+-+ for a job, might well be violating the applicants’ moral right to privacy. the information gathered from a potentially invasive drug test is more critical at the decision stage than at the applicant screening stage. similarly, a company that 1'0-2"#&( 9*-)#1+ 2",'1$*-2'" ,1'$ *%%&28*"-+ -)*2$*( "'0+# 2" )212"9 6#82+2'"+ e1#&292'0+ '1 %'&2-28*& *,7&2*-2'"u +#d0*& '12#"-*-2'"< 4'0&6 5# /2'&*-2"9 2-+ 60-( -' 1#+%#8-)# %12/*8( ', *%%&28*"-+3 under the right to dignity one could argue that applicants also have a moral right to be treated with respect. an employment process that fails to keep applicants informed of the status of the job search for long periods of time, or fails to notify them promptly when they are no longer under consideration for a job does not show respect for *%%&28*"-+3 =?0*&&( 2$%'1-*"-. 2" *662-2'" -' /2'&*-2"9 *" *%%&28*"-[+ 129)-+. +08) * %1'8#++ 2+ 5*6 50+2"#++3 c29)&( ?0*&27#6 *%%&28*"-+ 4)' *1# &#,4*2-2"9 2"6#7"2-#&( 42&& &2:#&( *88#%>'5+ #&+#4)#1# -)#1#5( 62&0-2"9 -)# ?0*&2-( ', )212"9 ,'1 -)# '1292"*& 8'$%*"( ec28:#"+ ghhi<3 !662-2'"*&&(. *+ "'-#6 #*1&2#1. *%%&28*"-+ 4)' *1# "'8)'+#" ,'1 * >'5 but who feel that they have been treated well in the process are more likely to think favorably of the company than those who are treated disrespectfully. such applicants may be or become customers or suppliers of the company, or $*( *%%&( ,'1 +05+#?0#">'5 '%#"2"9+3 a!$!b,(& !"#$%&-.&5112!6'($% while laws vary from one jurisdiction to another, major employment law in the united states is federal in nature. because of this, we will discuss relevant united states laws and regulations governing employment. legislators pass laws, and regulators working within the scope of these laws promulgate additional regulations. in the u.s. &#9*& +(+-#$. $*"( &*4+ -)**1# %*++#6 5( &#92+&*-'1+ *1# 1#&*-2/#&( 512#,3 `#90&*-'1( *9#"82#+. +08) *+ -)# =?0*& =$%&'($#"g%%'1-0"2-( \'$$2++2'". %1'$0&9*-# $08) $'1# 6#-*2&#6 1#90&*-2'"+ -)*5*+28*&&( )*/# -)# +*$# ,'18# *+ -)# '1292"*& &*43 \'016#82+2'"+ 2"-#1%1#-2"9 -)#+# &*4+ 2" +%#8278 8*+#+ *&+' *66 -' -)# $#*"2"9+ ', '1292"*& &*4+3 m)0+ -)# 82-2]#" 129)-+ ', *%%&28*"-+ e*"6 60-2#+ ', #$%&'(#1+< 1#9*162"9 -)# #$%&'($#"*%%&28*-2'" %1'8#++ *1# spelled out in a number of key laws. !$'"9 -)# $'+2$%'1-*"', -)#+# &*4+ *1# -)# \2/2& `29)-+ !8', ghtv em2-&# c;;<. *$#"6$#"-+ -' -)2+ !8 passed in 1991, the age discrimination in employment act, passed in 1967 and amended in 1987, the pregnancy discrimination act, passed in 1978, and the americans with disabilities act, passed in 1990. these laws prohibit discrimination in employment and in other job-related actions based on a variety of applicant characteristics. the =?0*& =$%&'($#"g%%'1-0"2-( \'$$2++2'" e==g\< 4*+ 81#*-#6 5( \'"91#++ '1292"*&&( -' #",'18# %1'/2+2'"+ ', m2-&# c;; ', -)# \2/2& `29)-+ !8', ghtv e==g\ b#5+2-#<3 the laws referenced above are often recognized for their use in protecting minorities, and some of them obviously 6' +'3 d'1 #d*$%&#. '"&( * $2"'12-( ', 82-2]#"+ **"( %'2"2" -2$# *1# %1#9"*"-3 c'4#/#1. m2-&# c;; ', -)# \2/2& rights act of 1964 prohibits discrimination based on an individual’s race, color, religion, sex or national origin. \&#*1&( *&& *%%&28*"-+ 42&& 5# ', +'$# 1*8#. 8'&'1. +#d. *"6 "*-2'"*& '1292"3 m)0+ -)#+# &*4+ 92/# +'$# 6#91## ', &#9*& '1 82-2]#" 129)-+ -' *&& >'5 *%%&28*"-+3 \'"8'$2-*"-&(. -)#+# &*4+ 2$%'+# 60-2#+ '" #$%&'(#1+ "'-' 0+# %1')252-#6 characteristics as the basis for employment decisions. these laws also give rights to hired employees in such areas as compensation and promotion, but these issues are beyond the scope of the present article. these laws and the regulations interpreting them spell out legal or citizen rights of applicants and duties of employers in the united states. some individual states provide, through their laws, additional rights to applicants and 2010, vol. 1, no. 1, 73-81 gilbert, alder and mcallister 77 advances in business research corresponding duties to employers. other countries obviously provide such rights through their own legal systems. one way to consider non-discrimination is to think of it as providing fair treatment to applicants. fairness is a term 42-) $*"( $#*"2"9+ e!&6#1 *"6 k2&5#1noot<3 g"# +08) 6#7"2-2'". *%%&28*5&# -' -)# )212"9 %1'8#++. 2+ -)*,*21"#++ means treating similarly situated people in similar ways regarding both process and outcome and with a sense of proportionality. it is useful here to differentiate between discrimination and legality. although the term discrimination holds a negative connotation for most management scholars and practitioners, it is important to remember that discrimination per se is not illegal, immoral, or unethical. to discriminate is to distinguish or differentiate among like objects 5( 62+8#1"2"9 '1 #d%'+2"9 62,,#1#"8#+ ez#112*$pb#5+-#1. ghht<3 =$%&'(#1+ $*( e*"6 2"6##6 $0+-< 62+812$2"*-# whenever there is more than one applicant for a position. unless a manager opts to make hiring decisions with a dartboard or a roll of the dice, he or she must do so by exposing differences among candidates. thus, managers must discriminate every time they make a hiring decision. indeed, discrimination in this sense is the heart and essence of selection procedures. m)# :#( &#9*& *"6 #-)28*& ?0#+-2'". -)#". 8#"-#1+ "''" 4)#-)#1 * $*"*9#1 62+812$2"*-#+ 2" -)# )212"9 %1'8#++ but rather on the basis for discrimination. laws and regulations as well as ethical mores specify several bases that may not be used to discriminate between or among applicants. often a key distinction is whether the basis for 62+812$2"*-2'" 2+ * "#8#++*1( ?0*&2-( ,'1 #,,#8-2/# >'5 %#1,'1$*"8#3 d'1 #d*$%&#. 22+ &#9*&&( ,*21 *"6 "#8#++*1( to discriminate against the sightless if one is hiring airline pilots, or against those who are unable to lift and carry packages of a certain weight if one is hiring delivery truck drivers. in these instances, the hiring organization is distinguishing and discriminating among applicants. however, the discrimination is morally and legally acceptable 5#8*0+# -)# 62+812$2"*-2'" 2+ 5*+#6 '" #&#$#"-+ *"6 1#?021#$#"-+ -)**1# #++#"-2*& -' -)# >'53 g" -)# '-)#1 )*"6. 22+ "'&#9*&&( ,*21 -' 1#?021# -)*-108: 612/#1+ 5# 4)2-# '1 $*&# '1 \*-)'&28 '1 0"6#1 ,'1-( (#*1+ '&6 5#8*0+# -)#+# 1#?021#$#"-+ *1# "'"#8#++*1( -' %#1,'1$ -)# >'53 !"( 62+812$2"*-2'" 2" -)# +#&#8-2'" ', #$%&'(##+ $0+1#+%#8-)# rights granted by these laws and regulations, and must be based on job-related characteristics. the various anti-discrimination laws cited above do not provide applicants with a right to a given job. obviously if there are thirty applicants and one job, the employer does not have a duty to hire more than one applicant for that job. the laws, and the regulations interpreting them, do grant to job applicants in the united states the right to be treated fairly. they specify various forms of unfair treatment (discrimination based on non-job-related factors such *+ *9#. 9#"6#1. #-)"28 5*8:91'0"6 '1 62+*52&2-(< *"6 2$%'+# 60-2#+ '" #$%&'(#1+ -' '5+#1/# -)# 129)-+ ', *%%&28*"-+ not to be excluded from a job based on any of these factors. position rights of applicants when a person applies for a job, he or she obtains certain rights as an applicant. many of these rights are reinforced by the legal system, because they are also citizen rights as discussed above. however, they only become relevant when an individual applies for a job. all citizens have a right to keep their life or their property, with some limitations. these rights, granted by the government, are universally applicable. only those citizens who apply for a job have the right, in any practical sense, to be considered for the job without regard to their race or gender or age. when an applicant is hired for a position, and thus no longer has the status of applicant, some of their rights as applicant no longer apply. regulations prohibit employers from asking applicants their age. new employees who are #&2925&# ,'1 5#"#7-+ $0+%1'/26# -)2+ 2",'1$*-2'" ,'1 2"+01*"8# *"6 '-)#1 5#"#7%01%'+#+3 !%%&28*"-+ )*/# * 129) not to be subjected to random drug testing; employees, at least under certain circumstances such as safety-related positions, no longer have this right. once an individual’s position changes from applicant to employee, both that individual’s rights and the employer’s duties change in some respects. as we will see below in our discussion of the 129)-+ ', 8'$%*"2#+. 7"*&2+-+ ,'1 %'+2-2'"+. 4)2&# -)#( *1# +-2&& *%%&28*"-+. *1# 2" * 62,,#1#"+2-0*-2'" -)*" -)# 9#"#1*& *%%&28*"%''&3 d2"*&2+-+ $*( 5# 1#?021#6 -' +088#++,0&&( 8'$%&#-# 6109 -#+-+. %)(+28*& #d*$+. *"6 +'$#-2$#+ '-)#1 forms of background checks. a!$!b,(& !"#$%&-.&/012-3,4% we have been discussing the employment process in companies that already have a number of employees. we have considered the company to be the employer, and not the individual or individuals within the company who actually engage in the process. however, individuals representing the company post jobs, screen applications, 8'"6082"-#1/2#4+ *"6b'1 $*:# ',,#1+3 ! )212"9 $*"*9#1. 2" -)*8*%*82-(. 1#%1#+#"-+ -)# '19*"2]*-2'"3 ;" * 1#*& sense, the hiring manager’s actions are the actions of the organization. a hiring manager who behaves unethically undermines the organization and its pursuit of moral responsibility. in contrast, a hiring manager that acts ethically 2010, vol. 1, no. 1, 73-81 gilbert, alder and mcallister 78 advances in business research promotes the ethical values of the organization. thus, it is essential that organizations develop clear guidelines and hiring procedures that adhere to legal and ethical principles and ensure that each hiring manager is carefully trained in these procedures. at the same time, it is imperative each hiring manager seriously consider his or her role as an ambassador for the organization with both those individuals who may ultimately join the organization as well as -)'+# 4)' $*( #2-)#1 5# 6#"2#6 -)*'%%'1-0"2-( '1 -01" 26'4" 2" -)# *%%&28*-2'" %1'8#++3 m)2+ 1#?021#+ -)*)212"9 managers take into account the organization’s various rights and duties. \'1%'1*-2'"+ *1# &#9*& %#1+'"+h -)#( )*/# &#9*& 129)-+ *"6 &#9*& 60-2#+3 !+ 6#+8125#6 *5'/#. -)#+# $*( 5# 1#,#11#6 to as the corporation’s citizen rights and duties. they are also sometimes described as having moral or ethical duties, *&-)'09) -)#21 $'1*& 129)-+ *1# &#++ ',-#" 62+80++#63 ! 8'1%'1*-2'"[+ 82-2]#"b&#9*& 129)-+ *"6 60-2#+ *1# 1#&*-#6 -' 2-+ moral and ethical duties. it is useful to think of moral and ethical duties as a pyramid with legal considerations at the base. there is an ethical or moral duty to obey the law, and thus to observe citizen rights and duties. the law is the starting point. however, to complete the pyramid of ethics and morals, it is essential to go beyond the legal code. in terms of duties, corporate social responsibility is a concept that has been widely discussed in recent years. its %1#82+# $#*"2"9 /*12#+ ,1'$ *0-)'1 -' *0-)'1. *"6 "' 9#"#1*&&( *91##6 0%'" 6#7"2-2'" )*+ #$#19#63 m)# 51'*6 "'-2'" is that corporations owe duties not just to their owners, the stockholders, but also to a variety of additional people and entities including the environment. there is broad overlap between corporate social responsibility and stakeholder theory. the antithesis of corporate +'82*& 1#+%'"+252&2-( 4*+ +%#&&#6 '02" * ,*$'0+ *1-28&# 5( z2&-'" d12#6$*" ed12#6$*" gheo<3 ;" 2-. )# $*2"-*2"+ -)* the only duty of corporate managers is to the company’s stockholders, and that any other use of corporate resources is wrong. the only limiting factors mentioned by friedman are that corporations should act within the bounds of the law and of ethical standards. he does not elaborate on what he means by ethical standards. beginning in the 1980’s an alternate theory was proposed. according to stakeholder theory, an organization’s stakeholders include those 2"62/260*&+ *"6 #"-2-2#+ -)*8*" *,,#8'1 *1# *,,#8-#6 5( -)# 8'$%*"([+ *8-2'"+ ed1##$*" ghiv<3 a-*:#)'&6#1 -)#'1( maintains that in modern times corporations have obligations to their multiple and varied stake holders. whether one accepts friedman’s limited view of corporate duties or the broader views of stakeholder theory and corporate social responsibility, corporations do have some moral duties. as we explained earlier in this paper, duties and rights go together. we have already discussed the rights of applicants and the duties that those rights impose on employers. we now turn to the rights of corporations and the duties imposed by those rights on applicants. as stated above, the most inclusive category of rights is human rights. while corporations are considered under the law as legal persons, they clearly are not human. hence it does not make sense to speak of the human rights or duties of corporations. a corporation receives its status as a legal person when its charter is approved by a state. this means that a corporation can sue and be sued within the framework of the law. it has both citizen rights and duties under the law. for example, not every corporation has the legal right to conduct a criminal background check on an individual, but a corporation considering the individual as an applicant for a sensitive position does have this right. as legal persons, corporations have citizen rights, or rights granted by law, with respect to applicants for employment. among these rights are those pertaining to information-gathering. when a corporation is trying to )21# +'$#'"# -' 7&& * %'+2-2'". 2)*+ -)# &#9*& 129)-' 9*-)#1 1#&#/*"2",'1$*-2'" *5'0-)'+# 4)' *%%&( ,'1 -)# >'53 ! 8'1%'1*-2'" 8'0&6 "'&#9*&&( %28: +'$#'"# ,1'$ * 91'0% ', %#'%&# %*++2"9 5( 2-+ ',78#+ *"6 6#$*"6 -)*-)#( +05$2-' * 6109 -#+-3 c'4#/#1. 28*" &#9*&&( 1#?021# '"# '1 +#/#1*& 7"*&2+-+ ,1'$ * %''& ', *%%&28*"-+ -' 0"6#19' drug testing. the individual involved does not have to take a drug test, but if they refuse to do so, the company can 1#,0+# -' )21# -)#$ ,'1 -)# '%#" %'+2-2'" *"6 242&& 5# &#9*&&( >0+-27#6 2" 6'2"9 +'3 a2$2&*1&(. 8'$%*"2#+ )*/# -)# right to ask applicants to provide information relevant to the selection process. an applicant can refuse to provide the information and withdraw from the pool of applicants, but cannot gain a legal judgment against the company for seeking the information. b)#-)#1 -)# 2",'1$*-2'" 1#?0#+-#6 ', *%%&28*"-+ %#1-*2"+ -' 4'1: '1 #608*-2'"*& )2+-'1(. -' %*+812$2"*& 8'"/28-2'"+. '1 -' -)# *52&2-( -' %#1,'1$ %)(+28*& -*+:+ 1#?021#6 5( -)# >'5. -)# 8'$%*"( )*+ -)# &#9*& 129)-' -)# 2",'1$*-2'" 2" -)# +#"+# -)*251#*:+ "' &*4+ 5( *+:2"93 m)# 8'$%*"( *&+' )*+ -)# &#9*& e82-2]#"< 129)-' /#12,( 2",'1$*-2'" %1'/26#6 5( /#12,(2"9 %*+#$%&'($#"-. 10""2"9 * 812$2"*& 5*8:91'0"6 8)#8:. '1 1#?0212"9 -)# 8*"626*-# to undergo drug testing. ! 8'1%'1*-2'" *&+' )*+ -)# &#9*& '1 82-2]#" 129)-' 6#-#1$2"# -)# $2"2$0$ ?0*&278*-2'"+ ,'1 * %'+2-2'". *+ 4#&& *+ -)# +*&*1(3 !" *%%&28*"4)' 2+ ',,#1#6 * %'+2-2'" 8*" 1#?0#+* )29)#1 +*&*1( -)*" -)*',,#1#6. 5022+ -)# 8'$%*"( *"6 "'-)# *%%&28*"4)' )*+ -)# &#9*& 129)-' 6#826#3 m)# +*$# 2+ -10# ', 5#"#7-+ ',,#1#6 ,'1 -)# %'+2-2'"3 ! company’s rights in this area are limited by various laws such as minimum wage provisions, but within the limits of the law the company has the right to determine compensation provisions. 2010, vol. 1, no. 1, 73-81 gilbert, alder and mcallister 79 advances in business research <-%!$!-(& !"#$%&-.&/012-3,4% \'1%'1*-2'"+ *&+' )*/# %'+2-2'" 129)-+3 j'#/#1( 8'1%'1*-2'" )*+ -)# 129)-' 6' * 812$2"*& 5*8:91'0"6 8)#8: '" an individual, but a corporation considering the individual as an applicant for a sensitive position does have this right. in this section, we consider the position rights of corporations with regard to applicants. while a corporation does not have a human right to be told the truth, and may not have a citizen right to truth-telling (for the most part, lying '" *" #$%&'($#"*%%&28*-2'" 2+ "'2&&#9*&<. 5( 2-+ %'+2-2'" *+ %1'+%#8-2/# #$%&'(#1 26'#+ )*/# +'$# 129)-+ 4)28) impose duties on applicants to tell the truth that would not otherwise be present. since there is usually no contractual relationship between an applicant and a corporation, contract rights are not relevant here. q( 2-+ %'+2-2'" ', %1'+%#8-2/# #$%&'(#1. * 8'$%*"( )*+ -)# 129)-' -10-),0& *"+4#1+ -' -)# ?0#+-2'"+ 2*+:+ ', *%%&28*"-+3 ;2+ "'2&&#9*& ,'1 *" *%%&28*"-' &2# '" *" *%%&28*-2'"3 \'$%*"2#+ 6' "'+0# *%%&28*"-+ 4)' *1# ,'0"6 -' have lied. however, a company can refuse to hire an applicant who lies on an application, or terminate an applicant 4)' )*+ 5##" )21#6 *"6 +05+#?0#"-&( )*+ 5##" ,'0"6 -' )*/# &2#6 '" -)# *%%&28*-2'"3 ! 8'$%*"( 6'#+ "')*/# -)2+ same right to truthfulness from the public at large, so the position of prospective employer does give the company moral rights it would not otherwise have. these rights impose duties of truthfulness on applicants that would not otherwise exist. the applicant has no duty to truthfully disclose his educational background or criminal record to any company that asks, but does have such a duty to the company which is his prospective employer. the rights of corporations in the hiring process are less extensive than those of applicants, but they do exist and their existence explains some procedural aspects of the ways in which applicants provide information and companies verify it. the rights of corporations are limited by various &*4+ *"6 1#90&*-2'"+3 !+ * 9#"#1*& 10&#. 8'$%*"2#+ $*( "'1#?0#+2",'1$*-2'" 2" -)# *%%&28*-2'" %1'8#++ 4)28) -)#( 8*""'&#9*&&( 0+# 2" $*:2"9 -)# #$%&'($#"6#82+2'"3 m)0+ 22+ *88#%-*5&# ,'1 *" *%%&28*-2'" ,'1$ -' 1#?021# -)* an applicant provide information about previous employers, but not about churches attended, unless the applicant is *%%&(2"9 -' 5# * $2"2+-#1 ', -)# 8)018)3 g"8# *9*2". -)# ?0#+-2'"+ +2$%&( "##6 -' 5# 621#8-&( >'5p1#&*-#63 @cdd5 e&5f*&a7fagc@h7f we have seen that both the law and ethics each provide rights and corresponding duties. these are sometimes but not always the same rights and duties. ethical rights can arise from law; this is the class of rights that we have called 82-2]#" 129)-+3 m)#( 8*" *&+' *12+# ,1'$ -)# ,*8-)*'"# 2+ * )0$*" e)0$*" 129)-+< '1 ,1'$ -)# ,*8-)*'"# )'&6+ * 8#1-*2" %'+2-2'". +08) *+ *%%&28*"e%'+2-2'" 129)-+<3 m)# 1*"9# ', #-)28*& '1 $'1*& 129)-+ *"6 60-2#+ 2+ 426#1 -)*" -)* of legal rights and duties. in the united states, there is an extensive body of laws, regulations, and court decisions that govern the hiring process. other countries have such laws, regulations and court decisions also, but their content varies from one country to another. human rights, such as truth-telling and dignity should apply to job applicants and to employers no matter what country they are in. we stated earlier that the primary purpose of the hiring process is to select the best available applicant for the job that is open. different companies take different approaches to accomplishing this goal. stability in the hiring process 8*" )#&% -' %1'/26# ,*21"#++ 2" -)# 4*( -)**%%&28*"-+ *1# -1#*-#6 e!&6#1 s k2&5#1noot<3 a08) ,*21"#++ 2+ 2$%'1-*" in respecting the rights of both applicants and the company. put another way, all applicants have certain rights, as well as duties, in the hiring process. some of these rights and duties are spelled out by law. we have developed the argument that there are additional 129)-+ *"6 60-2#+ %1#+#"2" -)# )212"9 %1'8#++. *"6 -)*-)#+# 8*" 5# 26#"-27#6 *+ #-)28*& '1 $'1*& 129)-+ *"6 60-2#+3 ;, *" #$%&'(#1 42+)#+ -' #+-*5&2+). '1 -' 1#/2#4. 2-+ )212"9 %1'8#++. -)# "'-2'" ', %'+2-2'" 129)-+ 2+ ?02-# 0+#,0& 2" thinking about standard practices such as information-gathering and communication with applicants. permissible and impermissible actions within the hiring process are determined by law and ethics, with ethics providing a broader framework than law. this framework forces attention to work-related characteristics of the applicants, and to prudent checking of information provided by applicants and used in the decision process. such a process makes it more likely that the best available candidate will be hired, and whenever this is accomplished the 50+2"#++ *+ 4#&& *+ -)# 8*"626*-# 5#"#7-+3 whether an individual is hired for the position or not, if they complete the process feeling that their rights have been respected and having acted honorably in their duties toward the hiring company, the individual, the company, and observers of the process will all recognize that business has been conducted well. 2010, vol. 1, no. 1, 73-81 gilbert, alder and mcallister 80 advances in business research /i/ /fa/@ !&6#1. k3. s k2&5#1-. i3 noot3 !8)2#/2"9 #-)28+ *"6 ,*21"#++ 2" )212"9h k'2"9 5#('"6 -)# &*43 journal of business /$#!6%. tih vvhpvtv3 alder, g., schminke, m., & noel, t. 2007. the impact of individual ethics on reactions to potentially invasive hr practices. j-+4('2&-.&k+%!(,%%&/$#!6%. ejh nogpngv3 alge, b. 2001. effects of computer surveillance on perceptions of privacy and procedural justice. journal of applied psychology. ith ehekiov3 q2#+. ̀ 3. s z'*9. i3 ghit3 ;"-#1*8-2'"*& >0+-28#h \'$$0"28*-2'" 812-#12* ', ,*21"#++. ;" ̀ 3 r#428:2. q3 a)#%%*16. s z3 q*]#1$*" e=6+3<. ,%,'46#&-(&(,"-$!'$!-(&!(&-4"'(!b'$!-(% ei!; f1#++. k1##"428). \m<. %%3 vlkjj3 bok, s. 1989. g3!("?&d-4'2&6#-!6,&!(&1+82!6&'()&14!:'$,&2!.,3 j#4 l'1:h c2"-*9# q'':+3 _'"*&6+'". m3. b#1)*"#. f3. s \'162"9. z3 noon3 /$#!6'2& !%%+,%& !(&8+%!(,%%l& '&1#!2-%-1#!6'2& '114-'6#. upper a*66&# `2/#1. j3i3h f1#"-28# c*&&3 eddy, e., stone, d., & stone-romero, e. 1999. the effects of information management policies on reactions to human 1#+'018# 2",'1$*-2'" +(+-#$+h !" 2"-#91*-2'" ', %12/*8( *"6 %1'8#601*& >0+-28# %#1+%#8-2/#+3 personnel psychology, jnh lljklji3 //7a 4#5+2-#h )--%hbb4443##'839'/3 freeman, r. 1984. @$4'$,"!6&0'('",0,($?&5&%$'m,#-2),4&'114-'6#3 z*1+)7#&6. z!h f2-$*" f05&2+)2"93 d12#6$*". z3 gheo3 m)# +'82*& 1#+%'"+252&2-( ', 50+2"#++ 2+ -' 2"81#*+# 2-+ %1'7-+3 j#4 l'1: m2$#+ z*9*]2"#. a#%-#$5#1 gl. gheo3 ;" m3 _'"*&6+'". f3 b#1)*"#. s z3 \'162"9 e=6+3<. /$#!6'2&!%%+,%&!(&8+%!(,%%?&5&1#!2-%-1#!6'2& approach3 @%%#1 a*66&# `2/#1. j3i3h f1#"-28# c*&&. noon3 %%3 llpli3 k2&&2&*"6. a3 ghhl3 m)# %#18#2/#6 ,*21"#++ ', +#&#8-2'" +(+-#$+h !" '19*"2]*-2'"*& >0+-28# %#1+%#8-2/#3 academy of management review. gih thvpelv3 halbert, t., & ingulli, e. 2006. g'n&'()&,$#!6%&!(&$#,&8+%!(,%%&,(:!4-(0,($3 z*+'". gch b#+r#9*& a-062#+ 2" business. hickens, m. 1998. the tables have turned. management review. ieh tpi3 ignatieff, m. 2001. ;+0'(&4!"#$%&'%&1-2!$!6%&'()&!)-2'$433 f12"8#-'". jih f12"8#-'" @"2/#1+2-( f1#++3 lyons, d. 1984. /$#!6%&'()&$#,&4+2,&-.&2'n3 \*$51269#. @3f3 \*$51269# @"2/#1+2-( f1#++3 merriam-webster. 1996. o,8%$,4p%&6-22,",&)!6$!-('433 j#4 l'1:h `*"6'$ c'0+#3 pfeffer, j. 1998. =#,&#+0'(&,q+'$!-(?&k+!2)!("&14-r$%&83&1+$$!("&1,-12,&r4%$3 q'+-'". z!h c*1/*16 q0+2"#++ school press. stone, d., & kotch, d. 1989. individuals’ attitudes toward organizational drug testing policies and practices. journal of applied psychology. evh jgikjng3 stone-romero, e., stone, d., & hyatt, d. 2003. personnel selection procedures and invasion of privacy. journal of social issues. jhh lvlklti3 a0$"#1. r3 nooo3 `29)-+3 ;" c3 r*d'&&#--# e=63<. the blackwell guide to ethical theory3 z*&6#". z!h q&*8:4#&& publishers. 2010, vol. 1, no. 1, 73-81 gilbert, alder and mcallister 81 advances in business research a0"6+-1'$. =3. q01-. `3. s f*$%. _3 ghio3 f12/*8( *4'1:h !18)2-#8-01*& 8'11#&*-#+ ', >'5 +*-2+,*8-2'"3 academy of management journal. nlh gogkgge3 warren, s., & brandeis, l. 1890. the right to privacy. ;'4:'4)&g'n& ,:!,n. vh ghlknno3 westin, a. 1967. privacy and freedom3 j#4 l'1:h !-)#"#0$3 j-%,1#&s!28,4$ is an associate professor of management at the university of nevada, las vegas. he received his ph.d. 2" 50+2"#++ *6$2"2+-1*-2'" 42-) *" #$%)*+2+ 2" +-1*-#9( ,1'$ -)# @"2/#1+2-( ', a'0-)#1" \*&2,'1"2*3 c2+ %12$*1( 1#+#*18) 2+ 2" -)# 7#&6 ', 50+2"#++ #-)28+. 42-) %*1-280&*1 #$%)*+2+ '" $*"*9#1p1#&*-#6 2++0#+3 c# )*+ %05&2+)#6 2" -)# journal of business ethics, ethics and behavior, business horizons, and others. st&@$-(,3&52),4 is an assistant professor of management at the university of nevada, las vegas. he received his ph.d. in organization management with emphases in organizational behavior and human resource management ,1'$ -)# @"2/#1+2-( ', \'&'1*6' *q'0&6#13 c2+ 8011#"1#+#*18) 2"-#1#+-+ 2"8&06# '19*"2]*-2'"*& >0+-28#. 50+2"#++ ethics, and performance monitoring. he has published in organizational behavior and human decision processes, c0$*" `#+'018# z*"*9#$#"`#/2#4. i'01"*& ', q0+2"#++ =-)28+. z*"*9#$#"\'$$0"28*-2'" m0*1-#1&(. i'01"*& ', !%%&2#6 \'$$0"28*-2'" 1#+#*18). *"6 '-)#1+3 *'(!,2&d6522!%$,4 is an associate professor of management at the university of nevada, las vegas. he earned his ph.d. in organization theory and management with emphases in organizational behavior and decision theory from the university of washington in seattle. his current research interests include performance evaluation strategies, #d*$2"*-2'" ?0#+-2'" %)2&'+'%)(. *"6 -)# 2$%*8', $#*+01#$#"'" 9'*& *--*2"$#"-3 c# )*+ %05&2+)#6 2" m)# academy of management journal, organizational behavior and human performance, and others 2010, vol. 1, no. 1, 73-81 gilbert, alder and mcallister advances in business research 2010 volume 1.pdf 82 advances in business research !"#$%#&'%()*+,#$%-../!.%0..1,+#)!'%2+)*%(34$15!!%6.!%17%81,+#$%9!)21:;. gundars kaupins, boise state university susan park, boise state university social networking sites such as facebook and twitter can help employees enhance a company’s marketing, recruiting, !"#$%&'()*+,) *-!&'.)/01!2!$()!3450'!! 6)# !)0-) 0"%*5)+!&10$7%+8) %&! )*+,)!3450'!$ 6)*""! )0-)&90 !) %&! )"*+)$! #5&) in illegal and unethical behavior, such as discrimination and privacy invasions. companies must gauge whether and how to rely upon employees’ use of personal social networking sites and how much freedom employees should have in using networks inside and outside of the companies. this research summarizes the latest legal and ethical issues regarding employee use of social networks and provides recommended corporate policies. !"#!$%&'(#)"%!$*+',-&%. /0&1%2,'3#4$%$52"'6$$&%)!4%7'8%)22"#()!*&%+#*9%)%2'+$,:;"%3$9#("$%*'%('55;!#()*$% personal and company information. these web-based services, which include facebook, myspace, twitter, <#!-$4=!>%?#-#2$4#)>%@';a;8$>%@$"2>%)!4%b"#(-,>%)!4%'*9$,&>%c)""'+%#!4#3#4;)"&%*'%.d1%('!&*,;(*%)%2;8"#(%2,'e"$fff>% .g1%),*#(;")*$%)%"#&*%':%'*9$,%;&$,&h>%)!4%.i1%3#$+%)!4%*,)3$,&$%*9$#,%"#&*%':%('!!$(*#'!&j%.k'64%)!4%l""#&'!>%gmmno%d1f%% p%8,')4$,%4$e!#*#'!%':% /0&%)"&'%(';"4%#!(";4$%=!*$,!$*%:',;5&>%8"'q&>%'!"#!$%2,'e"$&>%2'4()&*&>%$r5)#">% #!&*)!*% 5$&&)q#!q>%5;&#(r&9),#!q>%)!4%3'#($%'3$,%=s%.t9;,(9$&>%t,'(-$**>%)!4%u;-$&>%gmdm1f /0%;&$%9)&%&$$!%&#q!#e()!*%q,'+*9%#!%,$($!*%6$),&f%b)($8''-%$&2$(#)""6%9)&%q,'+!%&'%5;(9%#*%#&%!;58$,%'!$% )5'!q% /0&%.t9;,(9$&%$*%)">%gmdm1f%p&%*9$%!;58$,%':%b)($8''-%)!4%'*9$,% /0%;&$,&%('!*#!;$&%*'%,#&$>%&'%*''%+#""% *9$%)5';!*%':%2$,&'!)"%#!:',5)*#'!%$52"'6$$&%)!4%7'8%)22"#()!*&%2'&*f%p%v;#(-%w''q"$%&$),(9%':%cb)($8''-j%)!4% “employment” results in numerous examples of job applicants or current employees, particularly young ones, who have been denied or lost a job because of personal information posted on an osn site such as facebook or myspace. moreover, the number of employers who research applicants and employees on the internet is also on the rise. a recent survey indicates that 75% of u.s. recruiters and human resource professionals research job applicants on the internet, including social networking sites. a large majority of those surveyed have rejected applicants because of #!:',5)*#'!%*9$6%9)3$%4#&('3$,$4%'!"#!$%.x'&$!>%gmdm1f employers may encourage employees’ engagement with personal osn sites to enhance marketing and recruit new employees. job applicants may use osns to their advantage when seeking employment by posting only information +9#(9%&9'+&%*9$5%#!%)%2'&#*#3$%"#q9*f%y'+$3$,>%*9$%2'&&#8"$%('!&$v;$!($&%':%2'&*#!q%2$,&'!)"%#!:',5)*#'!%'!%)!% /0>% ',%$"&$+9$,$%'!%*9$%=!*$,!$*>%5)6%';*+$#q9%*9$%8$!$e*&>%$&2$(#)""6%:',%6';!q%('""$q$%q,)4;)*$&%+9'%),$%5',$%"#-$"6%*'% participate in online social networking than older employees. moreover, posting personal information also can lead to ethical lapses such as privacy violations, inaccuracies, subjectivity, and sharing inappropriate information. using *9$%=!*$,!$*%*'%&$),(9%7'8%)22"#()!*&%)!4%(;,,$!*%$52"'6$$&%,)#&$&%"$q)"%)!4%$*9#()"%v;$&*#'!&%*9)*%8'*9%$52"'6$,&%)!4% employees should consider, such as privacy, discrimination, fairness, and authenticity. !"#$%-../!.% the internet offers employers with an easy, inexpensive way of exercising their duty to learn as much job-related #!:',5)*#'!%)8';*%)22"#()!*&%)!4%$52"'6$$&%)&%2'&&#8"$f%l52"'6$,&%q$!$,)""6%9)3$%)!%):e,5)*#3$%'8"#q)*#'!%*'%)(*% reasonably with regard to hiring and supervising employees. regarding hiring, employers have a duty to exercise reasonable care when researching particular applicants. this means that employers typically have an obligation to 4'%)%,$)&'!)8"$%#!3$&*#q)*#'!%':%*9$%$52"'6$$>%#!(";4#!q%7'8%v;)"#e()*#'!&>%+',-%9#&*',6>%)!4%2$,&'!)"%(9),)(*$,f%a9$% employer has a similar obligation with regard to supervising and retaining current employees (amjur2d employment, gmmz1f%a9$&$%'8"#q)*#'!&%5)6%('52$"%$52"'6$,&% *'%cw''q"$j%$52"'6$$&%.#f$f%&$),(9% *9$%=!*$,!$*1% :',% #!:',5)*#'!% )8';*%7'8%)22"#()!*&%)!4%$3$!%(;,,$!*%$52"'6$$&%*'%)3'#4%&;8&$v;$!*%"#)8#"#*6%&9';"4%*9$6%4#&('3$,%5)*$,#)"%+9#(9% #!4#()*$&%*9)*%*9$%)22"#()!*%',%$52"'6$$%#&%;!e*%:',%*9$%7'8f%cw''q"#!q%7'8%)22"#()!*&%'::$,&%)%('52$""#!q%&;8&*#*;*$% :',%)%,$:$,$!($>%)&%)%&$),(9%#&%5',$%"#-$"6%*'%,$3$)"%.&!#22$*&%':1%*9$%(9),)(*$,%':%*9$%)22"#()!*j%./2,)q;$>%gmm[o%izz1f on the other hand, some practitioners advise against searching the internet for information about applicants and employees. one employment attorney stated that “it’s unlikely employers are going to learn a good deal of job-related #!:',5)*#'!%:,'5%)%b)($8''-%2)q$%*9$6%+'!\*%"$),!%#!%*9$%('!*$]*%':%)%+$""r,;!%#!*$,3#$+>%&'%*9$%2'*$!*#)"%8$!$e*% ':%4'#!q%*9#&%&',*%':%&$),(9%#&%';*+$#q9$4%86%*9$%2'*$!*#)"%,#&-j%.<$q)"k"'q?)*(9>%gmmzo%d1f%a9#&%5)6%8$%$&2$(#)""6% true when considering that employers continue to have traditional avenues through which to investigate applicants. if 2010, vol. 1, no. 1, 82-93 kaupins and park 83 advances in business research employers do search applicants’ osn sites, they should document a legitimate business reason for rejecting applicants who have been researched on the internet, and perhaps even disclose the practice to job applicants and employees before doing the search (legalblogwatch1f 0)<2+$$%(34$153!&) an analysis of employment law and employee rights typically begins with the doctrine of employment-at-will. =!%q$!$,)">%$52"'6$$&%#!%*9$%^!#*$4%/*)*$&%),$%$52"'6$4%)*%+#"">%+9#(9%q$!$,)""6%5$)!&%*9$6%5)6%8$%e,$4%:',%)!6% ,$)&'!%',%!'%,$)&'!%)*%)""%.w;*5)!>%gmmi_%/2,)q;$>%gmm[1f%a9#&%5$)!&%*9)*%)!%$52"'6$,%5)6%q$!$,)""6%9)3$%*9$%,#q9*% to refuse to hire a job applicant or to terminate an existing employee based upon information publicly posted by or about the applicant or employee on facebook or another osn site. however, most states recognize two or three common law exceptions to employment-at-will. for instance, a majority of states recognize a public policy exception which generally means that an employer may not take any )43$,&$%)(*#'!%)q)#!&*%)%7'8%)22"#()!*%',%$52"'6$$%:',%,$)&'!&%*9)*%3#'")*$%':e(#)"%2;8"#(%2'"#(6f%p%&$('!4%$]($2*#'!% prohibits employers from terminating an employee in violation of an express or implied contract of employment .w;*5)!>% gmmi1f% b#!)""6>% #!% )% &5)""% 9)!4:;"% ':% &*)*$&>% $52"'6$,&% ),$% 2,'9#8#*$4% :,'5% *)-#!q% )(*#'!% )q)#!&*% )!% employee that violates an implied covenant of good faith and fair dealing. generally, courts have applied the implied ('3$!)!*%':%q''4%:)#*9%)!4%:)#,%4$)"#!q%*'%&#*;)*#'!&%#!%+9#(9%*9$%$52"'6$,%q)3$%*9$%$52"'6$$%)%8$!$e*>%&;(9%)&%&#(-% ',%2$,&'!)"%"$)3$>%)!4%*9$!%*,$)*$4%*9$%$52"'6$$%;!:)#,"6%:',%*)-#!q%)43)!*)q$%':%*9$%8$!$e*%*9$%$52"'6$,%2,'3#4$4% .<$$>%a9;$>%$*%)"f>%gmmz1f%% of these three common law exceptions, violation of public policy is the most likely to apply to a situation in which the employer relies upon information posted by or about the applicant or employee on the internet (gutman, 2003; <#(9*$!&*$#!%)!4%`),,'+>%gmma_%s)*$"%gmmn1f%a9$%2;8"#(%2'"#(6%$]($2*#'!%$!('52)&&$&%&$3$,)"%4#::$,$!*%&($!),#'&o% whistle-blowing, exercise of a statutory right, performance of a statutory duty, or a refusal to break the law (zehrt, gmdm1f%a9#&%5$)!&>%:',%#!&*)!($>%*9)*%)!%$52"'6$$%+9'%2'&*&%2;8"#(%#!:',5)*#'!%)8';*%*9$%$52"'6$,&\%#""$q)"%)(*#3#*6% '!%*9$%$52"'6$$\&%2$,&'!)"% /0%&#*$>%',%+9'%5$!*#'!&%8$#!q%()""$4%*'%7;,6%4;*6%.)%*62#()"%&*)*;*',6%4;*61%5)6%8$% 2,'*$(*$4%:,'5%,$*)"#)*#'!%:',%&;(9%2'&*&%.w;*5)!1f ?#*9%,$q),4%*'%+9#&*"$r8"'+#!q%#!%2),*#(;"),>%5)!6%:$4$,)"%&*)*;*$&%&2$(#e()""6%2,'3#4$%2,'*$(*#'!%:',%$52"'6$$&% against retaliation for reporting the employer’s illegal behavior. zehrt reports that “[a]lmost all of the federal civil ,#q9*&%&*)*;*$&%$!)(*$4%#!%*9$%*+$!*#$*9%($!*;,6%('!*)#!%&2$(#e(%2,'3#&#'!&%2,'*$(*#!q%$52"'6$$&%:,'5%,$*)"#)*#'!j% .b$9,*>%gmdm_%dcg1f%b',%#!&*)!($>%*9$% ((;2)*#'!)"%/):$*6%)!4%y$)"*9%p(*%. /yp1%.gmma1>%0)*#'!)"%<)8',%x$")*#'!&% p(*%.0<xp1%.gmma1>%l52"'6$$%x$*#,$5$!*%=!('5$%/$(;,#*6%p(*%.lx=/p1%.dznd1>%b)5#"6%)!4%e$4#()"%<$)3$%p(*% .be<p1%.dzzi1>%)!4%/),8)!$&r ]"$6%p(*%.gmmg1%)""%('!*)#!%2,'3#&#'!&%*9)*%2,'*$(*%$52"'6$$&%:,'5%,$*)"#)*#'!%:',% simply opposing an unlawful practice and for participating in an investigation, hearing, or proceeding regarding the unlawful act. p%&5)""%9)!4:;"%':%&*)*$&%9)3$%"#5#*$4%*9$%)22"#()*#'!%':%*9$%)*r+#""%$52"'65$!*%4'(*,#!$%86%2,'3#4#!q%&2$(#e(% 2,'*$(*#'!%*'%$52"'6$$&%:',%2,#3)*$%"$q)"%8$9)3#',f%b',%#!&*)!($>%0',*9%`)-'*)%)!4%t'"',)4'%9)3$%$!)(*$4%&*)*;*$&% which protect employees from adverse employment action for any off-work activities which are otherwise legal and which do not have a negative impact on the employer’s business. however, these statutes typically contain a businessrelated exception which can be far-reaching. as sprague points out, “[i]mportantly, all of these statutes also condition the conduct of not having any connection with the employer’s business concerns. an employer could argue that information derived about a candidate, from the internet, had a direct correlation to the employer’s business since it was used in the hiring decision. …today’s employer may argue it has a legitimate business interest in whether #*&% $52"'6$$&% ),$% 2;8"#&9#!q% 2#(*;,$&% '!% *9$% =!*$,!$*% ':% *9$5&$"3$&% 4,#!-#!q% $]($&&#3$"6j% ./2,)q;$>% gmm[_% ddc1f%% e),&9%3f%`$"*)%p#,"#!$&% .dzzn1%2,'3#4$&%)!%$])52"$%':% *9#&f% =!%e),&9>% *9$%t'"',)4'%/;2,$5$%t';,*%9$"4% *9)*%)!% employee who was terminated after openly criticizing the employer in a letter to the editor of a local paper was not wrongfully discharged because the letter was a breach of the employee’s duty of loyalty to the employer and was thus work-related. an employee’s duty of loyalty extends beyond a mere duty to refrain from publicly embarrassing the employer. <$$>%a9;$>%$*%)">%2'#!*%';*%*9)*o%p((',4#!q%*'%*9$%x$&*)*$5$!*%.a9#,41%':%pq$!(6>%*9$%4;*6%':%"'6)"*6%#&%8,')4%)!4% #!(";4$&%8'*9%*9$%4;*6%':%'8$4#$!($%)!4%('!e4$!*#)"#*6f%e'4$,!%")+%)"&'%#!*$,2,$*&%*9$%4;*6%':%"'6)"*6%*'%#!(";4$%)!% obligation to refrain from acting in a manner that would adversely impact an employer’s interests. …an employee may also be in breach of the duty of loyalty where he has engaged in ‘[h]armful speech, insubordination, neglect, disparagement, or disruption of employer-employee relations…,’ or where he brings ‘dishonor to the business name, product, reputation or operation.’ in fact, the prevailing rule directs that an employee breaches the duty of loyalty by merely criticizing the employer’s products or services. …in sum, in most cases, an employer is 2010, vol. 1, no. 1, 82-93 kaupins and park 84 advances in business research 7;&*#e$4%#!%*$,5#!)*#!q%*9$%$52"'6$$%:',%2;8"#&9#!q%!$q)*#3$%',%('!e4$!*#)"%$52"'6$,%#!:',5)*#'!%'!%*9$%=!*$,!$*% .<$$>%a9;$*%)">%gmmzo%dddrdg1f =+.,:+3+&#)+1& e)!6%:$4$,)"%4#&(,#5#!)*#'!%&*)*;*$&>%&;(9%)&%a#*"$%f==%':%*9$%dzad%t#3#"%x#q9*&%p(*%.dzad1>%*9$%p5$,#()!&%+#*9% `#&)8#"#*#$&%p(*%.p`p1%.dzzm1>%)!4%*9$%pq$%`#&(,#5#!)*#'!%#!%l52"'65$!*%p(*%.p`lp1%.dzan1>%2,'*$(*%$52"'6$$&% and job applicants from discrimination on the basis of personal characteristics, status, and religious beliefs. various state statutes also protect employees from discrimination on the basis of a wide variety of personal characteristics &;(9%)&%5),#*)"%&*)*;&>%2'"#*#()"%):e"#)*#'!>%&$];)"%',#$!*)*#'!>%)!4%3$*$,)!&\%&*)*;&%.`$t$!g'%)!4%x'88#!&>%gmdm1f% employers who access an applicant’s facebook or other osn page may in, many circumstances, discover information that human resource experts routinely advise employers not to ask about in an interview. personal osn pages, such as those on facebook or myspace, typically reveal all sorts of information about the user’s characteristics, some of which may be protected. b',% #!&*)!($>% *9$%)22"#()!*%5)6%,$3$)"% #!:',5)*#'!%)8';*%9$,%5),#*)"% &*)*;&>%2'"#*#()"%):e"#)*#'!>%)!4%,$"#q#';&% beliefs. photos may show the applicant’s race, age or gender. evidence of a possible disability may be available. an $52"'6$,%+9'%9)&%)(($&&%*'%&;(9%#!:',5)*#'!%5)6%e!4%#*%4#:e(;"*%*'%)3'#4%,$"6#!q%'!%#*%+9$!%5)-#!q%$52"'65$!*% 4$(#&#'!&f%p&%k6,!&#4$%&*)*$&>%c$52"'6$,&%*9)*%5)-$%9#,#!q%4$(#&#'!&%8)&$4%'!%)22"#()!*&\%&'(#)"%!$*+',-#!q%2,'e"$&% 5)6%e!4%#*%4#:e(;"*%*'%4$:$!4%)q)#!&*%)%(")#5%*9)*%*9#&%#!:',5)*#'!%+)&%;&$4%)&%*9$%8)&#&%:',%*9$#,%9#,#!q%4$(#&#'!&f% this would be particularly true if it was found that applicants with a certain characteristic of a protected class race, sex, age, or disability were being systematically refused by employers who viewed applicants’ social networking 2,'e"$&%)*%*9$%$),"#$,%&*)q$&%':%*9$%)22"#()*#'!%2,'($&&j%.k6,!&#4$>%gmm[o%dai1f privacy privacy is perhaps the most common legal and ethical issue raised in discussions of employers who search the internet for information on employees and applicants. invasion of privacy suits generally involve a claim that the defendant intruded into an area in which the plaintiff had a reasonable expectation of privacy (brandenburg, 2008; k6,!&#4$>%gmm[1>% )!4%5)6% *)-$%'!$%',%5',$%':% *9,$$%2'&&#8"$% :',5&o% #!*,;&#'!%;2'!%&'"#*;4$%',% &$(";&#'!>%2;8"#(% 4#&("'&;,$%':%2,#3)*$% :)(*&>%',%2;8"#("6%2")(#!q%)!% #!4#3#4;)"% #!%)% :)"&$% "#q9*% .w)8$"%)!4%e)!&e$"4>%gmmi1f%x$($!*% literature suggests that intrusion upon seclusion is likely the most appropriate tort applicable to situations in which $52"'6$$&%9)3$%8$$!%*$,5#!)*$4%8$();&$%':%2$,&'!)"%&'(#)"%!$*+',-#!q%.<#(9*$!&*$#!%)!4%`),,'+>%gmma1f in related cases regarding online communication such as computer internet access and work e-mail systems, most courts have held that employees do not enjoy a reasonable expectation of privacy in these areas because the employer has legitimate interests for monitoring this type of workplace activity, such as protection of property ,#q9*&>%5)!)q#!q%$52"'6$$%2$,:',5)!($>%)!4%2,'*$(*#!q%$52"'6$$&% :,'5%+',-2")($%9),)&&5$!*% ./2,)q;$>%gmmn1f% a9#&%)**#*;4$%#&%"#-$"6%*'%)22"6%*'%&'(#)"%!$*+',-#!q%)&%+$""f%a9$%:'""'+#!q%&*)*$5$!*%86%/2,)q;$%.gmm[1%#&%#!4#()*#3$% ':%*9$%2,$3)#"#!q%'2#!#'!f%ct;,,$!*%2,#3)(6%")+%&;qq$&*&%*9)*%)%7'8%)22"#()!*%+9'%2'&*&%$58),,)&&#!q%',%2$,&'!)"% information on a blog or within a social networking site which can be accessed by anyone with an internet connection should have no expectation of privacy, and therefore, no recourse, when that publicly-available information is viewed, )!4%2'*$!*#)""6%;&$4>%#!%)!%$52"'65$!*%4$(#&#'!j%./2,)q;$>%gmm[o%dmn1f the limited available case law indicates fairly clearly that employees who willingly post personal information on the internet, even on a personal osn page which allows access to only friends or others in the user’s contact list, 4'%!'*%9)3$%)%,$)&'!)8"$%$]2$(*)*#'!%':%2,#3)(6%#!%*9)*%5)*$,#)"f%b',%#!&*)!($>%#!% f̂/f%3f%w#!$&rs$,$g%.gmmg1>%*9$% f̂/f% `#&*,#(*%t';,*%#!%s;$,*'%x#('%('!&#4$,$4%+9$*9$,%)%(,#5#!)"%4$:$!4)!*%+9'&$%#5)q$%+)&%2'&*$4%'!%9#&%$52"'6$,\&% 2;8"#(%+$8&#*$%9)4%)%,$)&'!)8"$%$]2$(*)*#'!%':%2,#3)(6%#!% *9)*% #5)q$f%a9$%t';,*%9$"4% *9)*%ch)i%,$)&'!)8"$%2$,&'!% cannot place ‘private’ information such as a ‘private’ photograph on the internet, if he or she desires to keep such information in actual ‘privacy.’ a reasonable person does not protect his private pictures by placing them on an =!*$,!$*%&#*$j%.w#!$&rs$,$g>%gmmgo%ggc1f% e',$%,$($!*"6>%#!%e',$!'%3f%y)!:',4%/$!*#!$">%=!(f>%.gmmz1>%*9$%t)"#:',!#)%t';,*%':%p22$)"&%+,$&*"$4%+#*9%*9$% v;$&*#'!%':%+9$*9$,%2;8"#&9#!q% #!:',5)*#'!%'!%)% &'(#)"%!$*+',-#!q% &#*$% (';"4%8$% ('!&#4$,$4%2,#3)*$% #:% *9$% #!*$!*% was to reach only a limited audience. in moreno, the plaintiff posted content about her hometown on her personal myspace page, which was available only to those she granted access. when the principal of her former high school submitted her post to the local newspaper as a letter to the editor, attributed to the plaintiff, the community responded +#*9%3#'"$!($%)!4%4$)*9%*9,$)*&%)q)#!&*%*9$%2")#!*#::%)!4%9$,%:)5#"6>%+9'%&;8&$v;$!*"6%("'&$4%*9$%:)5#"6%8;&#!$&&%)!4% *9$!%&;$4%*9$%4$:$!4)!*%)!4%&(9''"%4#&*,#(*%:',%#!3)&#'!%':%2,#3)(6%)!4%#!j#(*#'!%':%$5'*#'!)"%4#&*,$&&f%=!%")!q;)q$% 2010, vol. 1, no. 1, 82-93 kaupins and park 85 advances in business research similar to the court’s in gines-perez, the moreno court ruled against the plaintiff’s privacy claim, noting that an individual who published information on the internet could not have a reasonable expectation that it would remain 2,#3)*$>%4$&2#*$%*9$%:)(*%*9)*%&9$%)!*#(#2)*$4%'!"6%)%"#5#*$4%);4#$!($%.&$$%)"&'%`$]*$,%3f%`$]*$,>%gmmn1f%% thus, while many applicants and employees who participate on an osn site may believe they have created a reasonable expectation of privacy by relying upon the privacy settings the site provides them, the law does not appear to support such a claim, absent some additional facts suggesting employer wrongdoing. as discussed below, an invasion of privacy claim may succeed if the employer goes beyond a general internet search for public information and gains access to the employee’s osn page through illegal means. 6&#/)*1:+>!'%0,,!..%<%8)1:!'%?133/&+,#)+1&.%0,) a9$% /*',$4%t'55;!#()*#'!&%p(*% ./tp1% .gmmm1% 2,'9#8#*&% )!6% 2$,&'!% :,'5% #!*$!*#'!)""6% )(($&&#!q% )% c:)(#"#*6% through which an electronic communication service is provided” without authorization. two federal courts have ('!&#4$,$4% *9$% 4$e!#*#'!% ':% c);*9',#g$4% ;&$,j% #!% ()&$&% #!%+9#(9% )!% $52"'6$,% q)#!$4% )(($&&% *'% )!% )22"#()!*\&% ',% $52"'6$$\&%2$,&'!)"% /0%)((';!*%*9,';q9%v;$&*#'!)8"$%5$)!&f% =!%k'!'2%3f%y)+)##)!%p#,"#!$&%.gmmd1>%)%y)+)##)!%p#,"#!$&%2#"'*%.k'!'21%(,$)*$4%)%?$8&#*$%*9,';q9%+9#(9%9$%)!4% other employees criticized hawaiian airlines’ handling of its negotiations with the pilots’ union. only those konop approved and provided with a password could access and make comments on the site. the site’s terms and conditions &2$(#e()""6%2,'9#8#*$4%)!6%y)+)##)!%p#,"#!$&%5)!)q$5$!*%:,'5%)(($&&#!q% #*>%)!4%)"&'%2,'9#8#*$4%)22,'3$4%;&$,&% from sharing information found on the site with outsiders. when two hawaiian airlines pilots gave their username and password to the president of the company, who then accessed the site several times without konop’s permission, k'!'2%&;$4%y)+)##)!%p#,"#!$&%(")#5#!q>%)5'!q%'*9$,%*9#!q&>%3#'")*#'!%':%*9$%/tpf%0'*#!q%*9)*%*9$%/tp%2,'3#4$&% protection only to authorized users of an internet service, the court held that the vice president was not such an );*9',#g$4%;&$,%)!4>%)&%&;(9>%3#'")*$4%*9$%/tp%+9$!%)(($&&#!q%k'!'2\&%&#*$%*9,';q9%*9$%'*9$,%2#"'*&\%;&$,%#!:',5)*#'!f%% e',$%,$($!*"6>%#!%s#$*,6"'%3f%y#""&*'!$%x$&*);,)!*%w,';2%.gmmz1>%*9$% f̂/f%`#&*,#(*%t';,*%':%0$+%u$,&$6%('!&#4$,$4% an issue similar to that in konop. in pietrylo, a group of employees created a myspace page for the purpose of (,#*#(#g#!q% *9$%$52"'6$,f%a9$%4$:$!4)!*%$52"'6$,%+)&%!'*%)!%);*9',#g$4% :,#$!4%':% *9$% &#*$%)!4% &'% ,$v;$&*$4>% )!4% ,$($#3$4>%*9$%"'q#!%#!:',5)*#'!%:,'5%)!'*9$,%$52"'6$$>%+9'%*$&*#e$4%)*%*,#)"%*9)*%&9$%:$"*%)&%*9';q9%&9$%+)&%,$v;#,$4% to provide that information as part of her job. the court upheld the jury’s decision that the defendant’s access of the site was not authorized because the employee was “coerced” into provide the information, and thus the employer 3#'")*$4%*9$%/tpf% it is important to make clear that konop and pietrylo apply only to situations in which the information was not available to the employer by other means. if the information is publicly available, even though the employer gained unauthorized access, the employee’s claim might fail because the employee was still in control of the information and (9'&$%*'%2'&*%#*%'!%)%v;)&#r2;8"#(%:',;5%.k6,!&#4$>%gmm[1f%p"&'>%*9$%/tp%#&%;!"#-$"6%*'%)22"6%*'%&#*;)*#'!&%#!%+9#(9% an employer actually hires students or other young people demographically similar to job applicants for purposes of c:,#$!4#!qj%*9$%)22"#()!*&%*'%q)#!%)(($&&%*'%*9$#,%&#*$&f%a9#&%*62$%':%&"$;*9#!q>%+9#"$%2'&&#8"6%;!$*9#()"%.&$$%8$"'+1>% #&%!'*%"#-$"6%*'%3#'")*$%*9$%/tp%8$();&$%*9$%)22"#()!*%+#""#!q"6%)""'+$4%)(($&&%*'%*9$%c&26j%.k,)!4$!8;,q>%gmm[1f% fair credit reporting act a9$%b)#,%t,$4#*%x$2',*#!q%p(*%.btxp1%.dznm1%5)6%2,'3#4$%)!%)22"#()!*%)%();&$%':%)(*#'!%#!%)%"#5#*$4%!;58$,%':% (#,(;5&*)!($&%#!%+9#(9%*9$%$52"'6$,%9#,$&%)%*9#,4%2),*6%*'%('!4;(*%)%8)(-q,';!4%&$),(9%':%*9$%)22"#()!*f%a9$%btxp% 2,'3#4$&%*9)*%7'8%)22"#()!*&%5;&*%8$%!'*#e$4%+9$!%$52"'6$,&%9#,$%)%*9#,4r2),*6%('52)!6%*'%('!4;(*%)%8)(-q,';!4% (9$(-%':% *9$% )22"#()!*f%a9$%btxp% #&%!'*% "#-$"6% *'% )22"6% #!% *9'&$% ()&$&% #!%+9#(9% *9$% $52"'6$,%4'$&% *9$% =!*$,!$*% &$),(9#!q%#*&$":f%cy'+$3$,>%#:%)!%$52"'6$,%9#,$&%)%*9#,4%2),*6%*'%&$),(9%)22"#()!*&\%2,'e"$&>%*9$%$52"'6$,%+';"4%8$% 8';!4%86%*9$%2,'3#&#'!&%':%*9$%btxpf%?9#"$%*9$%btxp%+';"4%!'*%2,'9#8#*%$52"'6$,&%:,'5%;&#!q%*9$%#!:',5)*#'!% :';!4% #!%)22"#()!*%2,'e"$&>% #*%+';"4%)*% "$)&*% ,$v;#,$% *9$%$52"'6$,% *'% #!:',5%)22"#()!*&% *9)*%&;(9%)!% #!3$&*#q)*#'!% would occur and that information from the investigation resulted in the adverse employment decision” (byrnside, gmm[o%dacraa1f%a9$%btxp%5)6%)"&'%8$%)22"#()8"$%#!%*9'&$%&#*;)*#'!&%2,$3#';&"6%5$!*#'!$4%#!%+9#(9%*9$%$52"'6$,% hires outside “sleuths” to connect with job applicants by becoming “friends” of the applicant. #@1:% #2 =!%k'!'2%.gmmm1>%4#&(;&&$4%)8'3$>%*9$%zth%t#,(;#*%t';,*%':%p22$)"&%)"&'%('!&#4$,$4%+9$*9$,%*9$%$52"'6$$\&%;&$% of an e-bulletin board to criticize the employer hawaiian airlines’ negotiations with the pilot’s union violated the 2010, vol. 1, no. 1, 82-93 kaupins and park 86 advances in business research x)#"+)6%<)8',%p(*%.x<p1f%k$();&$%k'!'2%2,'3#4$4%)(($&&%*'%*9$%&#*$%*'%'*9$,%y)+)##)!%p#,"#!$&%$52"'6$$&%+9'%)"&'% used the site to comment on the negotiations, the court held that the site was a form of concerted activity protected by the rla. the konop holding could easily be applicable to an osn or other internet sites as well, provided that more *9)!%'!$%$52"'6$$%9)&%)(($&&%*'%*9$%&#*$%)!4%#&%('!*,#8;*#!q%('55$!*&%./*,$q$rb"',)>%gmmc1f% (34$15!:%a+,#:+1/.% +#@+$+)5 employers would also be wise to consider their potential vicarious liability for posts an employee makes on a 2$,&'!)"%!$*+',-#!q%&#*$f%l52"'6$$&%+9'%2'&*%4$:)5)*',6%',%('!e4$!*#)"%#!:',5)*#'!%)8';*%'*9$,&%5#q9*%&;87$(*% *9$%$52"'6$,%*'%"#)8#"#*6%#:%)%(';,*%e!4&%*9)*%*9$%$52"'6$$%+)&%)(*#!q%+#*9#!%*9$%(';,&$%)!4%&('2$%':%$52"'65$!*% at the time. even posts made on an employee’s personal social networking page might create employer liability if the employee posted the comments during the time and place of work or by using employer resources, or if the $52"'6$,\&%!$q"$(*%':%*9$%$52"'6$$\&%+',-%2$,:',5)!($%c5)4$%*9$%)(*#3#*6%2'&&#8"$j%.w;*5)!>%gmmio%dcd1f%l52"'6$$% 2'&*&%(';"4%)"&'%q#3$%,#&$%*'%)%();&$%':%)(*#'!%)q)#!&*%*9$%$52"'6$,%:',%#!*$!*#'!)"%#!j#(*#'!%':%$5'*#'!)"%4#&*,$&&% .w)8"$%)!4%e)!&e$"4>%gmmi1%',%(,#5#!)"%"#)8#"#*6%.w;*5)!1f =!7#3#)+1& although unlikely, employers should consider the possibility that an applicant denied a job based upon information the employer discovers about the applicant on the internet could sue the employer for defamation. for instance, if a company relies upon inaccurate information to make an employment decision and shares that information with '*9$,&>%*9$%4$!#$4%)22"#()!*%(';"4%9)3$%)%3)"#4%4$:)5)*#'!%(")#5%.k6,!&#4$>%gmm[1f !"#$%8/33#:5 in summary, the legal issues employers may face as a result of employees’ internet and social networking use are myriad and complex. it remains unclear how traditional law will apply to this relatively new source of information for employers. to avoid legal liability, employers may wish to implement a social media policy, such as the sample found in figure 1. this may be especially important in light of the various ethical issues employee social networking may raise, as the next section discusses. ()*+,#$%-../!. laws and ethics are often closely linked but they involve different goals. laws provide stability to social #!&*#*;*#'!&f% =!4#3#4;)"&% ),$% 2$!)"#g$4% :',% &2$(#e(% )(*&% *9)*% 4'% !'*% ('!:',5% *'% *9$% 2;8"#&9$4% ,;"$&f% % =!% ('!*,)&*>% $*9#(&%#!3'"3$%v;$&*#'!&%,$q),4#!q%+96%)!4%9'+%2$'2"$%&9';"4%8$9)3$f%a9$6%2,'5'*$%&'(#)"%#4$)&%5',$%*9)!%")+&%4'% .t)!4#"#&>%gmmg1f%l*9#()"%#&&;$&%q'%8$6'!4%"$q)"%('!($,!&%86%:'(;&#!q%'!%*9$%4;*#$&%&'(#$*6%$]2$(*&%':%#*&%5$58$,&% ./#5&>%gmmi1f%l*9#()"%v;$&*#'!&%:,$v;$!*"6%),#&$%+9$!%$]#&*#!q%")+%#&%#!)4$v;)*$%*'%)44,$&&%!$+%(#,(;5&*)!($&>%&;(9% )&%*9$%#&&;$&%,$")*$4%*'% /0&f%k'*9%"$q)"%)!4%$*9#()"%('!&#4$,)*#'!&%),$%!$$4$4%*'%4,):*%)4$v;)*$%$52"'6$$%9)!48''-% policies regarding osns. the purpose of this part of the paper is to raise and discuss the ethical issues surrounding employees’ and job )22"#()!*&\%;&$%':% /0&f%a9#&%2',*#'!%':%*9$%2)2$,%#&%4#3#4$4%#!*'%*+'%&$(*#'!&o%%*9'&$%$*9#()"%#&&;$&%+9#(9%2'#!*%#!% favor of employers’ research of employees’ private social network sites and those issues which point against such use. a sample employee handbook statement associated with osn use also is provided. ()*+,#$%b!&!c).% source of recruits p((',4#!q%*'%x'&$!%.gmdm1>%)8';*%ncl%':%('52)!#$&%,$&$),(9%*9$%=!*$,!$*%)!4%&'(#)"%!$*+',-#!q%&#*$&%:',%,$(,;#*#!q% )!4%&$"$(*#'!%2;,2'&$&f%p((',4#!q%*'% "&'!%.gmmn1>%7'8%()!4#4)*$&%5)6%;&$%&'(#)"%!$*+',-#!q%&#*$&%)&%,$&;5$%8)!-&% for searching for education, experience, and other skills. source of information employers can use osn sites for selection to see what online behaviors current and potential employees exhibit. 2010, vol. 1, no. 1, 82-93 kaupins and park 87 advances in business research a relevant part of the interview process is to look at applicants in nonformal situations. with such a large investment in employees, the nonformal lifestyle might be a make or break issue to increase the chance of having the employees ('!:',5%*'%*9$%(;"*;,$%':%*9$%('52)!6%)!4%*'%,$4;($%*9$%(9)!($%':%!$q"#q$!*%9#,#!q%.k,)!4$!8;,q>%gmm[1f accuracy another argument for relying upon an employee’s or applicant’s social networking is to consider cross-reference accuracy. beyond the resume and application form, employers need many ways to check applicants such as $52"'65$!*%9#&*',6>%(,$4#*%,$2',*&>%)!4%(,#5#!)"%)(*#3#*6%.k);2#!&%)!4%s),->%gmdm1f spotting inappropriate behavior employers also have a simple legitimate interest in employees’ personal online behavior while at work. 0;5$,';&%$])52"$&%&9'+%;2%'!%*9$%?$8f%t'26,#q9*%3#'")*#'!&>%2',!'q,)29#(>%'8&($!$>%',%&$];)""6%$]2"#(#*%5)*$,#)">% #!j)55)*',6%")!q;)q$>%(68$,8;""6#!q>%)!4%")!q;)q$%',%#5)q$&%*9)*%)43'()*$%3#'"$!($%',%4#&(,#5#!)*#'!%*'+),4%'*9$,% people are among the few examples of inappropriate behavior. employers need to monitor such behavior and provide )22,'2,#)*$%4#&(#2"#!$%.k#&&'!$**$>%gmmz_%k#&*>%gmdm_%0#*g&(9-$>%gmma1f%^&$%':%&'(#)"%!$*+',-#!q%&#*$&%5#q9*%,$4;($% *9$%(9)!($%':%!$q"#q$!*%9#,#!q%#:%$52"'6$,&%e!4%2'*$!*#)"%#""$q)">%;!$*9#()">%;!&):$>%',%4)!q$,';&%8$9)3#',&%#!%)%&'(#)"% !$*+',-%*9)*%#&%8)(-$4%;2%86%9),4%';*&#4$%$3#4$!($%.k);2#!&%)!4%s),->%gmdm1f%l52"'6$$&%5#q9*%2,'3#4$%('!e4$!*#)"% #!:',5)*#'!% )8';*% *9$#,% ',q)!#g)*#'!% &;(9% )&% 2)&&+',4&>% e!)!(#)"% &$(,$*&>% #!3$!*#'!&>% 5),-$*#!q% 2,'q,)5&>% )!4% 8;&#!$&&%&*,)*$q#$&f%?),!'(-%.gmmn1%,$3$)"$4%*9)*%)8';*%dml%':%',q)!#g)*#'!&%&*;4#$4%*9$%;!);*9',#g$4%4#&("'&;,$% ':%e!)!(#)"% #!:',5)*#'!%3#)%5$&&)q$%8'),4&%)!4%8"'q&f%s)&&+',4%,$3$")*#'!&%()!% "$)4% *'%('!&#4$,)8"$%9)(-#!q%':% (',2',)*$%#!*$,!)"%'2$,)*#'!&%)!4%?$8&#*$&%.k);2#!&%)!4%e#!(9>%gmma1f%% marketing t'52)!#$&%9)3$%8$$!%-!'+!%*'%;&$%&'(#)"%!$*+',-#!q%&#*$&%*'%5),-$*%*9$#,%2,'4;(*&%)!4%&$,3#($&f%a9$6%()!%(,$)*$% company communities on facebook, post locally relevant updates and photos, read what company fans say about themselves to get clues about their needs, and provide incentives not only to visit the page but to buy the company’s 2,'4;(*&%',%&$,3#($&%.m;#q"$6>%/;55$,e$"4>%)!4%a),8']>%gmdm1f% politics facebook has been instrumental in helping harvard students share political opinions since 2004. it also helped t'";58#)!&%"$)4%)%()52)#q!%)q)#!&*%q;$,#"")&%-!'+!%)&%*9$%x$3'";*#'!),6%p,5$4%b',($&%':%t'";58#)%.-!'+!%86%#*&% /2)!#&9%#!#*#)"&%r%bpxt1f% /0&%()!%2'*$!*#)""6%)""'+%$52"'6$$&%*'%)#,%!$q)*#3$%)(*#'!&%86%5)!)q$5$!*f%p((',4#!q% *'%b;(-$,8$,q>%:';!4$,%':%b)($8''->%)%5',$%*,)!&2),$!*%+',"4%5#q9*%8$%q'3$,!$4%8$**$,%.k#,-2)*,#(->%gmdm1f%% ()*+,#$%d:1@$!3. questionable accuracy social networking sites do not offer any guarantee that information posted on them is accurate, which can lead *'%"$q)"%)!4%$*9#()"%9#,#!q%#&&;$&f%e)!6%&#*$&%4'%!'*%9)3$%)%3$,#e()*#'!%2,'($&&>%)!4%!$),"6%)""%)""'+%;&$,&%*'%(,$)*$% 2,'e"$&%#!%)!'*9$,%2$,&'!\&%!)5$f%l3$!%:)(*;)"%#!:',5)*#'!%'!%)%&'(#)"%!$*+',-#!q%&#*$%()!%8$%*)-$!%';*%':%('!*$]*% .k);2#!&%)!4%s),->%gmdm1f 8/@e!,)+f+)5 screening employees based upon information found on social networking sites may not be objective. not all job applicants engage in social networking, and those who do often use different sites, each of which has different :$)*;,$&% )!4% 2;,2'&$&f% a9;&>% :)#,% )!4% $v;)"% *,$)*5$!*% ':% 7'8% ()!4#4)*$&% 5)6% 8$% 4#:e(;"*% .k);:5)!>% gmm[1f 2010, vol. 1, no. 1, 82-93 kaupins and park 88 advances in business research irrelevant information p((',4#!q%*'%k);2#!&%)!4%s),-%.gmdm1>%$52"'6$,&%()!%$)&#"6%4#&('3$,%7'8%)22"#()!*&\%#4$!*#*6%#!%*$,5&%':%)q$>% citizenship, disability, gender, genetic information, marital status, national origin, pregnancy, race, color, religion, sexual orientation, and veteran’s status though social networks. in addition to legal issues that may arise, as discussed previously, this may also pose ethical concerns for the employer. 1..%17%?134#&5%8!,:!). t;,,$!*%$52"'6$$&%5)6%2'&*%('52)!6%&$(,$*&%&;(9%)&%2)&&+',4&>%!$+%2,'4;(*&>%',%2,'*'*62$&%'!%*9$#,%2$,&'!)"% network sites. they may also defame competitors, clients, employees, suppliers, customers, or franchisers, or misuse 2,'2,#$*),6%#!:',5)*#'!%':%("#$!*&%.k);$,>%gmdm1f% *9$,%#!)22,'2,#)*$%2'&*&%5)6%#!(";4$%$52"'6$$%&$(,$*&%&;(9%)&% passwords or other personal information, personal customer or stockholder information, such as social security numbers, and possibly inside information regarding ongoing labor negotiations. employers who conduct regular internet research of employees may discover and demand immediate removal of this type of information, thus limiting the potential damage. privacy many social networks are intended for personal use, especially popular sites such as facebook and myspace. a9$%2$,&'!)"%)!4%2,':$&&#'!)"%"#3$&%':%7'8%()!4#4)*$&%5#q9*%8$%('!&#4$,)8"6%4#::$,$!*f%l52"'6$,&%()!%e!4%';*%)8';*% an employee’s interests, friends, and a host of other personal information that would not be related to the workplace .?9#**#$,>% gmma1f% e',$'3$,>% $52"'6$$&% )!4% )22"#()!*&% 5)6% 2;,2'&$"6% ,$:;&$% *'% :,#$!4% 8'&&$&% *'% 2,'*$(*% *9$#,% privacy. some companies have engaged in the practice of hiring young people, often college students, to “friend” applicants on behalf of the employer, who then has potentially unethical access to the applicant’s personal osn page .k,)!4$!8;,q>%gmm[1f reduced productivity employers may certainly have a legitimate business reason to search when employees are engaging in personal &'(#)"%!$*+',-#!qf%p((',4#!q%*'%?''"!';q9%.gmm[1>%*9$%*#5$%$52"'6$$&%+)&*$%'!%&'(#)"%!$*+',-#!q%&#*$&%#&%)%5)#!% concern of 69% of employers. in addition to the simple personal activities employees engage in on social networking &#*$&%)*%+',->%*9$6%(';"4%)"&'%&'(#)"%!$*+',-#!q%)*%+',-%*'%e!4%'*9$,%7'8&f%p((',4#!q%*'%w);4#!>%*9$%;&$%':%b)($8''-% in businesses cuts “an average of 1.5% in total employee productivity, according to a new report from nucleus research, an it research company. the survey of 237 employees also showed that 77% of workers who have a b)($8''-%)((';!*%;&$%#*%4;,#!q%+',-%9';,&j%.w);4#!>%gmmzo%d1f%e',$'3$,>%)8';*%[nl%':%*9'&$%$52"'6$$&%(")#5%*'% have no legitimate business use of the site while on working hours. ()*+,.%8/33#:5 in spite of social networking’s association with recruiting, marketing, and monitoring company information )!4% $52"'6$$&>% $52"'6$,&% &9';"4% 8$% ('!($,!$4% )8';*% v;$&*#'!)8"$% )((;,)(6>% "'&&% ':% ('52)!6% &$(,$*&>% 2,#3)(6% violations, and decreased employee productivity. the foregoing discussion of the ethical considerations raised by employee social networking makes clear that appropriate employee monitoring and discipline are important. employers would be wise to develop and enforce clear social media acceptable use policies, as discussed in the next section. 81,+#$%g!'+#%0,,!4)#@$!%6.!%d1$+,+!. p%s$)('(-%.gmm[1%&*;46%:';!4%*9)*%azl%':%('52)!#$&%&$$-%5',$%('!*,'"%'3$,%$52"'6$$&\%;&$%':%*9$%=!*$,!$*f% :% those, approximately 50% have considered limiting internet use to lunch times, and 33% have considered completely banning the personal use of the internet at work. seventy percent reports that they would consider discipline if they saw inappropriate photos on social networking sites that somehow reveal the employer. deciding on whether to limit social networking inside the business is a function of the strategy of the business, potential positive opportunities, potential negative threats, and managerial ethical preferences. management leadership styles may range from having complete control over employees by banning social networking to giving 2010, vol. 1, no. 1, 82-93 kaupins and park 89 advances in business research employees free range by offering few restrictions. the strategy of the business might allow considerable social networking inside and outside of the business not only because of the positive ethical considerations, as discussed above, but also because of the enormous amount of outside contacts and input it can create. marketing opportunities ),$%)"&'%&#q!#e()!*f%s'*$!*#)"%!$q)*#3$%)&2$(*&%#!(";4$%"$q)"%2,'8"$5&%+#*9%*,)4$%)!4%4#&(,#5#!)*#'!%")+&%)!4%$*9#()"% problems with inaccuracy, subjectivity, false information, and lack of privacy. ?9)*$3$,%*9$%()&$>%q#3$!%*9$%#!(,$)&#!q%2,$3)"$!($%':%&'(#)"%!$*+',-#!q%;&$>%)!4%*9$%2'*$!*#)"%8$!$e*&%$52"'6$,&% may enjoy, companies should take strategic advantage of such use and create policies to keep up with social !$*+',-#!q%&':*+),$%(9)""$!q$&f%p((',4#!q%*'%p,!'"4%.gmmz1>%+9$!%4,):*#!q%&;(9%2'"#(#$&>%$52"'6$,&%&9';"4%('!&#4$,% *9$%,$&*,#(*#'!&%'!%$52"'6$$&%.*9$%&2$(#e(%8$9)3#',%8'*9%('!4'!$4%)!4%2,'9#8#*$41>%$52"'6$,%5'!#*',#!q>%,$2',*#!q% violations, discipline, and acknowledgements. below are some examples of major policy provisions developed by ?#!*$,%?65)!%t'52)!#$&%4$&(,#8$4%#!%p,!'"4%.gmmz1f% h!&!:#$%d:1f+.+1&. employees should be restricted in their company-related personal use of social media applications, which are numerous. such applications include facebook, myspace, twitter, linkedin, wikipedia, youtube, yelp, flickr, /$('!4%<#:$>%@)9''%q,';2&>%?',42,$&&>%b''5=!:'>%=!*$,!$*%:',;5&>%8"'q&>%'!"#!$%2,'e"$&>%2'4()&*&>%$r5)#">%#!&*)!*% messaging, music-sharing, and voice over ip. training all employees should be informed of organizational policies and be trained on the proper use of social networks. the training could also involve employee monitoring, reporting violations, (34$15!!%g1&+)1:+&" employees should have no expectation of privacy associated with the use of any social media applications. the company has a right to monitor anything on the web. reporting violations employees should report any violations of company social networking policy to their supervisors, managers, or hr department. =+.,+4$+&!%71:%a+1$#)+1&. the company should reserve the right to discipline employees concerning their behavior on social networks. discipline may include oral warnings, written warnings, suspension, or discharge. the company should also reserve the right to take legal action for inappropriate internet behavior by employees. acknowledgement employees should sign an agreement acknowledging they have read and understood the employer’s social !$*+',-#!q%2'"#(6%.?#!*$,>%?65)!%t'52)!#$&%gmmz1f%% given the major issues shown above, figure 1 reveals sample social networking policy statements. to avoid legal and ethical problems, corporations should consider implementing this or a similar statement. i+"/:!%jk%8#34$!%81,+#$%9!)21:;+&"%d1$+,5%8)#)!3!&). 1. if you have a personal social network and discuss job related materials about the company, identify yourself as a company employee and inform readers that your views do not necessarily match the views of the company. 2. all posts must be truthful. 3. if there are any testimonials concerning endorsing products or services, endorsers must disclose information &9'+#!q%*9$%$!4',&$5$!*%,$")*#'!&9#2%.,$($#3#!q%*9$%2,'4;(*%:',%:,$$%',%8$#!q%2)#4%*'%$!4',&$1f 4. make sure that the message about the company is consistent with other messages related to the company. 2010, vol. 1, no. 1, 82-93 kaupins and park 90 advances in business research 5. ensure that all parties associated with social media within the organization are trained to appropriately use the media. 6. you might have to make a disclaimer that your views do not necessarily represent the company’s views. the 3#$+&%$]2,$&&$4%'!%*9#&%+$8&#*$%),$%5#!$%)!4%5)6%!'*%,$j$(*%*9$%3#$+&%':%56%$52"'6$,f 7. employees who have personal social media pages should ensure that such activity does not interfere with work. l52"'6$$&%5)6%$]2,$&&%*9$#,%3#$+&%)&%"'!q%)&%*9$6%4'!%!'*%('!j#(*%+#*9%('52)!6%2'"#(#$&f 8. employees may engage in social media activity during work if it is directly related to their work, approved by their manager, and does not reveal company clients, customers, or vendors without express permission. 9. show respect for vendors, customers, managers and employees. 10. l52"'6$$&%5)6%+,#*$%)8';*%*9$#,%7'8&%#!%q$!$,)"%8;*%&9';"4%)3'#4%4#&("'&#!q%('!e4$!*#)"%#!:',5)*#'! 11. `'%!'*%2'&*%)!6%e!)!(#)">%('!e4$!*#)">%&$!&#*#3$>%',%2,'2,#$*),6%#!:',5)*#'!%)8';*%*9$%('52)!6f 12. employees should comply with all laws regarding their behavior, not just with social-media use. 13. provide respect for current, former, and potential customers, employees, and competitors. 14. social networks should not be a place to share personal complaints. 15. forward unfavorable opinions or statements post about yourself or the organization to the human resources department. 16. do not post obscenities. 17. if you have an in-house policy prohibiting anything other than neutral recommendations, posting online recommendations should be prohibited. 18. do not post socially unacceptable or criminal behavior such as sharing information about sex or criminal )(('52"#&95$!*&%&;(9%)&%&*$)"#!q%:,'5%*9$%('52)!6%.p,!'"4>%gmmz_%k);$,>%gmdm_%k#&&'!$**$>%gmmz_%t9;,(9$&%$*% )">%gmdm_%e)!):6>%gmdm1f future research this study discussed many of the legal and ethical issues associated with social networking. much of the focus of this research has been on major federal laws and court cases. future research should update current federal law and also focus on state, municipal, and international law. the ethics research included some anecdotal and empirical studies. there will be many more studies analyzing organizational attitudes and behaviors. for example, a researcher could gather data on cases in which employees were terminated based on social network use to analyze increasing trends over time. employers could be surveyed regarding their reactions to various types of information found about )!%$52"'6$$%&;(9%)&% ,)($>% ,$"#q#'!>%2'"#*#()"%):e"#)*#'!>%8#!q$%4,#!-#!q>%)!4%'*9$,%(9),)(*$,#&*#(&f%a9$#,% ,$)(*#'!&% could affect hiring, compensation, training, and other human resource dimensions of an organization. summary % /'(#)"%!$*+',-#!q%+#""%8$%)%5)7',%(9)""$!q$%:',%$52"'6$,&f%0'*%'!"6%4'$&%#*%2,'3#4$%3#*)"%$*9#()"%8$!$e*&%&;(9% as improving recruiting, enhancing safety and security, improving accuracy of information, enhancing discipline, )!4%2,'3#4#!q%#!$]2$!&#3$%6$*%;&$:;"%5),-$*#!q>%8;*%)"&'%#*%()!%(,$)*$%&#q!#e()!*%"$q)"%)!4%$*9#()"%(9)""$!q$&%&;(9% )&% #!3)&#'!%':%2,#3)(6>%4#&(,#5#!)*#'!>% #!)((;,)(6>%)!4%&;87$(*#3#*6f%t'52)!#$&%5;&*%)&($,*)#!%9'+%*9$6%,$&2'!4% to employee social networking use by examining their corporate strategy, balancing the opportunities and threats of social networks, and by considering their ethical values. a policy might provide employee restrictions, employer 5'!#*',#!q>%,$2',*#!q%3#'")*#'!&>%4#&(#2"#!$>%&2$(#e(%8$9)3#',%('!4'!$4%)!4%:',8#44$!>%)!4%)(-!'+"$4q$5$!*&f references 0"!%=+.,:+3+&#)+1&%+&%(34$153!&)%0,)f%gz%^f/ftf%nn%agd%$*%&$v%.dzan1f 03!:+,#&.%2+)*%=+.#@+$+)+!.%0,)f%dg%^f/ftf%nn%dgdmd%$*%&$v%.dzzm1f% 03l/:%m'n%.gmmz1f%%l52"'65$!*%,$")*#'!&9#2>%gn>%nn%izgrznf p,!'"4>%uf%gmmzf%a+#**$,#!q%)!4%:)($8''-#!q%+9#"$%*9$6%+',-o%/$*%("$),%q;#4$"#!$&%)8';*%*9$%;&$%':%&'(#)"%5$4#)%#!%*9$% workplace. op%g#"#>+&!>%cdo%circcf 2010, vol. 1, no. 1, 82-93 kaupins and park 91 advances in business research k);$,>%ef%gmdmf%=%-!'+%=%!$$4%)%&'(#)"%5$4#)%2'"#(6o%0'+%+9)*%&9';"4%#*%&)6o%i:#&,*+.+&"%q1:$'>%dgo%df bissonette, a. 2009. ?5@!:% $#2k%g#r+3+>+&"% .#7!)5% #&'%3+&+3+>+&"% :+.;% +&% ,$#..:113.f%a9';&)!4% )-&>%tpo% t',+#!f k'64>%`f>%p%l""#&'!>%0f% gmmnf% /'(#)"% !$*+',-% &#*$&o%`$e!#*#'!>% 9#&*',6>% )!4% &(9'"),&9#2f%l1/:&#$% 17%?134/)!:< mediated communication>%dio%gdmrgimf k,)!4$!8;,q>% tf% gmm[f% a9$% !$+$&*% +)6% *'% &(,$$!% 7'8% )22"#()!*&o% p% &'(#)"% !$*+',-$,\&% !#q9*5),$f% federal ?133/&+,#)+1&.% #2%l1/:&#$>%amo%cznr626. k6,!&#4$>% =f%gmm[f%/#]%("#(-&%':%&$2),)*#'!o%a9$% "$q)"% ,)5#e()*#'!&%':%$52"'6$,&\%;&#!q%&'(#)"%!$*+',-#!q%&#*$&% *'% research applicants. a#&'!:@+$)%l1/:&#$%17%(&)!:)#+&3!&)%#&'%s!,*&1$1"5% #2>%dmo%ddcrdnnf%% t)!4#"#&>%sf%gmmgf%`#&*#!q;#&9#!q% ")+%)!4%$*9#(&o%p%(9)""$!q$% :',% *9$%5'4$,!%2,)(*#*#'!$,f%psychiatric times, 19. x$*,#$3$4%/$2*$58$,%[>%gmmc%:,'5%9**2oqq+++f2&6(9#)*,#(*#5$&f('5q4#&2")6q),*#("$qdmda[qd[adao2)q$0;58$,rdf t9;,(9$&>%pf>%t,'(-$**>%<f>%p%u;-$&>%=f%gmdmf%s*!%'+"+)#$%'+!)k%s1'#5t.%'+"+)#$%)11$.%+&%.3#$$%@5)!.. thousand oaks, tpo%t',+#!f `$t$!g'>%`f>%p%x'88#!&>%/f%gmdmf%fundamentals of human resource managementf%y'8'-$!>%0f%ufo%?#"$6f =!r)!:%fn%=!r)!:f%gmmn%?<%dcigm[d%. 9#'%p22f%dd%`#&*f1f (34$15!!%p!)+:!3!&)%-&,13!%8!,/:+)5%0,)f%d[%^f/ftf%n%dmmd%$*%&$v%.dznd1f fair credit reporting actf%dc%^f/ftf%nn%dc[d%$*%&$v%.dznm1f i#+:% #@1:%8)#&'#:'.%0,)f%gz%^f/ftf%nn%gdc%$*%&$v%.dzdz1f i#3+$5%#&'%g!'+,#$% !#f!%0,)f%gz%^f/ftf%nn%gamd%$*%&$v%.dzzi1f% fletcher, d. 2010. friends without borders. s+3!%g#"#>+&!>%e)6%ido%iif w)8$">% uf>%p%e)!&e$"4>%0f% gmmif%a9$% #!:',5)*#'!% ,$3'";*#'!% )!4% #*&% #52)(*% '!% *9$% $52"'65$!*% ,$")*#'!&9#2o%p!% analysis of the cyberspace workplace. 03!:+,#&%b/.+&!..% #2%l1/:&#$>%dmo%imdricdf gaudin, s. 2009. facebook cuts workplace productivity survey. computerworld>%gco%dnf%% gely, r., & bierman, l. 2006. workplace blogs and workers’ privacy. 1/+.+#&#% #2%p!f+!2>%aao%dmnzr 1110. w,$$!8);5>%?f>%p%b'""$,>%kf%gmma>%u;"6qp;q;&*f%t';,*%4$(#&#'!&%#52)(*%+',-2")($%#!*$,!$*%)!4%$r5)#"f%op%0'f+.1:. w;*5)!>%sf%gmmif%/)6%+9)*oo%k"'qq#!q%)!4%$52"'65$!*%")+%#!%('!j#(*f%?1$/3@+#%l1/:&#$%17% #2%#&'%)*!%0:)., gno%ddcrd[cf kaupins, g., & minch, r. 2006. legal and ethical implications of employee location monitoring. international l1/:&#$%17%s!,*&1$1"5%#&'%o/3#&%-&)!:#,)+1&>%go%daricf kaupins, g., & park, s. 2010. legal and ethical implications of corporate social networks. (34$15!!%p!.41&.+@+$+)+!.% and rights journal, forthcoming. kirkpatrick, d. 2010. s*!%i#,!@11;%!77!,)k%s*!%+&.+'!%.)1:5%17%)*!%,134#&5%)*#)%+.%,1&&!,)+&"%)*!%21:$'. new @',-o%/#5'!%p%/(9;&*$,f kist, w. 2010. s*!%.1,+#$$5%&!)21:;!'%,$#..:113k%s!#,*+&"%+&%)*!%&!2%3!'+#%#"!f%a9';&)!4% )-&>%tpo%t',+#!f u1&14%fn%o#2#++#&%0+:$+&!.v%-&,n, 302 f.3d 868 (9th%t#,f%gmmd1f 2010, vol. 1, no. 1, 82-93 kaupins and park 92 advances in business research lee, k., thue, m., oldham, j., & stephenson, t. 2009. an exercise for teaching the employment law implications of employee blogging. l1/:&#$%17% !"#$%8)/'+!.%('/,#)+1&>%gao%izzrdidf <$q)"k"'q?)*(9f%gmmz1f%=1%!34$15!:.%/.+&"%i#,!@11;%71:%@#,;":1/&'%,*!,;.%7#,!%$!"#$%:+.;.o%x$*,#$3$4%p;q;&*% i>%gmdm%:,'5%9**2oqq+++f"$q)"8"'q+)*(9f*62$2)4f('5q"$q)"s8"'qs+)*(9qgmm[qmiq4'r$52"'6$,&r;&f9*5"f <$]>%xf%gmmnf%t)!%e6/2)($% *;,!% #!*'%56% ")+&;#*oo%a9$%)22"#()*#'!%':%4$:)5)*#'!% ")+% *'%'!"#!$% &'(#)"%!$*+',-&f%% 151$#%17% 1.%0&"!$!.%(&)!:)#+&3!&)% #2%p!f+!2>%g[o%dnrnmf <#(9*$!&*$#!>%/f>%p%`),,'+>%uf%gmmaf%l52"'65$!*%*$,5#!)*#'!%:',%$52"'6$$%8"'qq#!qo%0;58$,%'!$%*$(9%*,$!4%:',%gmmc% )!4%8$6'!4>%',%)%,$(#2$%:',%q$**#!q%`''($4o%6? 0%l1/:&#$%17% #2%#&'%s!,*&1$1"5>%dmo%df e)!):6>%ef%gmdmf%/'(#)"%+$8%$*#v;$**$f%(?1&)!&)>%iio%df g#:.*%fn%=!$)#%0+:$+&!.f%zcg%bf%/;22f%ddc[%.`f%t'"'>%dzzn1f e#""#$,>%/f%gmmzf%a9$%b)($8''-%:,'!*#$,o%x$&2'!4#!q%*'%*9$%(9)!q#!q%:)($%':%2,#3)(6%'!%*9$%#!*$,!$*f%u!&)/,;5% #2% journal>%zno%cdd>%cddf e#""#q)!>%af%gmmzf%f#,*;)"%2$,:',5)!($o%l52"'65$!*%#&&;$&%#!%*9$%$"$(*,'!#(%)q$f%?1$1:#'1% #25!:>%i[o%gzf g1:!&1%fn%o#&71:'%8!&)+&!$f%dng%t)"fp22f%dth%ddgc>%zd%t)"fx2*,f%i4%[c[%.gmmz1f 9#)+1&#$% #@1:%p!$#)+1&.%0,)f%gz%^f/ftf%nn%dcd%$*%&$v%.dzdn1f nitschke, b. 2006, june. investigating staff misuse of district technology. school administrator>%aio%[f w,,/4#)+1&#$%8#7!)5%#&'%o!#$)*%0,)f%gz%^f/ftf%nn%acd%$*%&$v%.dznm1f s)*$">%kf%gmmnf%e6&2)($%',%6';,&o%a9$%)8,#4q$5$!*%':%*9$%8"'q'&29$,$%)*%*9$%9)!4&%':%)*r+#""%$52"'65$!*f%o1/.)1&% #2%p!f+!2>%ddo%nnnf peacock, l. 2008. employers watch facebook usage. (34$15!:.% #2, 4. d+!):5$1%fn%o+$$.)1&!%p!.)#/:#&)%h:1/4f%gmm[%?<%am[cdin%.`f0fuf1f m;#q"$6>%kf>%/;55$,e$"4>%kf>%p%a),8']>%kf%gmdmf%a$(9%#*%;2%)%!'*(9>%z%&*,)*$q#$&%:',%4'#!q%5',$%+#*9%*9$%*$(9!'"'q6% and web sites you already use. p!#$)1:%g#"#>+&!>%/$2*$58$,%dmo%gmrgdf x'&$!>%uf%.gmdm>%u;"6%gc1f%a9$%$!4%':%:',q$**#!qf%s*!%9!2%x1:;%s+3!.%g#"#>+&!. 8#&'!:.%fn%03!:+,#&%b:1#',#.)+&"%?134#&+!.f%=!(f>%zn[%sfg4%an%.dzzz1f 8#:@#&!.<wr$!5%0,)f%d[%^f/ftf%nn%gcdm%$*%&$v%.gmmg1f sims, r. 2003. ()*+,.%#&'%,1:41:#)!%.1,+#$%:!.41&.+@+$+)5k%q*5%"+#&).%7#$$f%?$&*2',*>%tao%s,)$q$,f sprague, r. 2008. rethinking information privacy in an age of online transparency. o17.):#% #@1:%y%(34$153!&)% #2%l1/:&#$>%gco%izcf /2,)q;$>%xf%gmmnf%b#,$4%:',%8"'qq#!qo%p,$%*9$,$%"$q)"%2,'*$(*#'!&%:',%$52"'6$$&%+9'%8"'qo%6&+f!:.+)5%17%d!&&.5$f#&+#% l1/:&#$%17% #@1:%#&'%(34$153!&)% #2>%zo%iccf% stored communications actf%d[%^f/ftf%nn%gnmd%$*%&$v%.gmmm1f /*,$q$rb"',)>%tf%?)#*t%`'!\*%e,$%*9)*%8"'qq$,t%?9)*%"#5#*&%4'$&%")8',%")+%#52'&$%'!%$52"'6$,%,$q;")*#'!%':%$52"'6$$% 8"'q&o%8*+'$!:%l1/:&#$%17% #2v%?133!:,!%y%s!,*&1$1"5>%go%ddf%% s+)$!%a--%17%)*!%jz[\%?+f+$%p+"*).%0,)f%dg%^f/ftf%nn%gmmm4%$*%&$v%.dzad1f 2010, vol. 1, no. 1, 82-93 kaupins and park 93 advances in business research 6n8n%fn%h+&!.<d!:!>f%gdd%bf/;22fg4%gmc%.gmmg1f ?),!'(->% f%%gmmnf%0$*+',-#!q%',%!'*%+',-#!qo%contract journal>%ddmo%idrigf ?9#**#$,>%`f%gmmaf%t68$,$*9#(&%#!%*9$%w''q"#!q%)q$f%l1/:&#$%17%('/,#)+1&>%d[no%dr[af woolnough, r. 2008. get out of my facebook. (34$15!:t.% #2>%e)6o%ddrdcf zehrt, l. 2010. retaliation’s changing landscape. h!1:"!%g#.1&%6&+f!:.+)5%?+f+$%p+"*).% #2%l1/:&#$>%gmo%ddif h/&'#:.%u#/4+&. is department chair and professor of management at boise state university. he received his s9f`f%#!%9;5)!%,$&';,($%5)!)q$5$!*%:,'5%*9$%^!#3$,&#*6%':%='+)%)!4%#&%)%($,*#e$4%&$!#',%2,':$&&#'!)"%#!%9;5)!% resources. he teaches human resource management, labor relations, and compensation. his publications include over 300 articles in job evaluation, training and development, baltic studies, and human resource ethics in journals such as the academy of management perspectives and international journal of technology and human interaction. susan park%#&%)%"$q)"%&*;4#$&%"$(*;,$,%)*%k'#&$%/*)*$%^!#3$,&#*6f%/9$%,$($#3$4%9$,%uf`f%.&;55)%(;5%");4$1%:,'5%*9$% ^!#3$,&#*6%':% =4)9'%t'""$q$%':%<)+f%/9$%9)&% *);q9*% "$q)"% $!3#,'!5$!*%':% 8;&#!$&&>% ('55$,(#)"% ")+>% )!4%9;5)!% resource law. her current research interests include the use of social media in the workplace, employee privacy, and 4#&(,#5#!)*#'!f%k$:',$%*$)(9#!q%)*%k'#&$%/*)*$>%s,':$&&',%s),-%+)&%)%")+%("$,-%)*%*9$%=4)9'%/;2,$5$%t';,*%)!4%)!% attorney in private practice in boise, idaho. 2010, vol. 1, no. 1, 82-93 kaupins and park advances in business research 2010 volume 1.pdf 133 advances in business research !"#$%""&'()*$+,)-"(#"$./0&",/#1$23!/4!,(5$+,/"5546",)"7 barbara burgess-wilkerson, winthrop university keith benson, winthrop university steven frankforter, winthrop university !"#$#%&'($")*+#%",-%+#$%!+$+.%+)%$%/$0!"1!$+2/%"/)-3$")%+33",+)1+$1-)$4+$#&11+##5&33($'+*+3/6+'$%!7/&,!$-$#+2+#%+78 3/),$13-##7//2$")%+7*+)%"/)$-)'$#+358'"7+1%+'$3+-7)"),$67/1+##$-2/),$#%&'+)%#$")$-$1/33+,+$/5$4&#")+##$-'2")"#%7-%"/)9$ we found that with emotional intelligence training, all students experienced improvement between the administrations /5$ 67+8%+#%#$ -)'$ 6/#%8%+#%#9$ !"#$ 7+#&3%$ -3#/$ !+3'$ 7+,-7'3+##$ /5$2-%&7"%($ 3+*+3$ :&)'+7,7-'&-%+$ /7$ ,7-'&-%+$ #%&'+)%$ #%-%&#;<$/7$,+)'+79 !"#$!%&#!'#&()#*+%&#,)-&."/0#&()#1-&)2213)-,)#4.!&1)-&#5678#&)%&#9+%#&()#*"1$+"/#$)&(!:#&!#3+.3)#1-&)2213)-,)# and was often used as a predictor for success in the corporate world. many human resource managers correlated 3"+:)#*!1-&#+;)"+3)#91&(#670#9(1,(#)<*2+1-%#9(/#3"+:)#*!1-&#+;)"+3)#9+%#!'&)-#+#")4.1")$)-&#1-#&()#=!>#+**21,+&1!-# process. however, research in the 1980’s found that cognitive ability, as demonstrated on iq tests, did not represent +# ,!$*")()-%1;)# *1,&.")# !'# (.$+-# 1-&)22),&?# !"# )<+$*2)0#@.-&)"# +-:#@.-&)"# 5abcd8# '!.-:# &(+&# 67# +,,!.-&%# '!"# +**"!<1$+&)2/#!-2/#ef#*)",)-&#!'#&()#;+"1+-,)#1-#,+"))"#%.,,)%%0#9(12)#g&)"->)"3#5abbh8#*!1-&):#!.&#&(+&#%&.:1)%#;+"/# +-:#&(+&#67#$+/#+,,!.-&#'!"#!-2/#+>!.&#ai#*)",)-&#!'#&()#;+"1+-,)#1-#,+"))"#%.,,)%%?#j()#4.)%&1!-#&()-#+"!%)k#1'#67#1%# -!&#+#;)"/#")21+>2)#*"):1,&!"#'!"#,+"))"#%.,,)%%0#&()-#9(+&#1%l g+2!;)/#+-:#m+/)"n%# 5abbi8# %&.:/#!'# %!,1+2# 5-!-o,!3-1&1;)8# 1-&)2213)-,)#*")%)-&):#+# '"+$)9!"p# '!"#)$!&1!-+2# 1-&)2213)-,)# 5q680# 9(1,(# 9+%# >+%):# !-# &()# +>121&/# &!# ")3.2+&)# !-)n%# )$!&1!-# +-:# +,,."+&)2/# $!-1&!"1-3# !&()"n%# )$!&1!-%?# r!2)$+-# 5abbf8# )<+$1-):# &()# ")2+&1!-%(1*# >)&9))-# &"+:1&1!-+2# ,!3-1&1;)# 67# &)%&%# +-:# %.,,)%%# 1-# &()# 9!"p*2+,)0#s-:1-3# &(+&# 67#>/# 1&%)2'#9+%#-!&#+#3!!:#*"):1,&!"#!'# =!>#*)"'!"$+-,)?#t()"-1%%# 5eiii8# '!.-:# &(+&#q6# is critical for effective work performance. a national survey found four in ten workers were not able to work ,!!*)"+&1;)2/#91&(#')22!9o)$*2!/))%#+-:#!-2/#ab#*)",)-&#!'#)-&"/o2);)2#+**21,+-&%#(+;)#%.'s,1)-&#%)2'o:1%,1*21-)#1-# 9!"p#(+>1&%#5@+""1%#q:.,+&1!-#u)%)+",(#t!.-,120#abba8?#t!-%1:)"1-3#%.,(#s-:1-3%0#*)"(+*%#>.%1-)%%#%,(!!2%#%(!.2:# consider incorporating emotional intelligence development into their curriculums. in this study, we examine whether emotional intelligence feedback can increase students’ emotional intelligence. 829+2:$;%$<+=28>=?82 j(!"-:1p)#+-:#g&)1-#5abvw8#%&+&):#&(+&#%!,1+2#1-&)2213)-,)#1%#&()#+>121&/#&!#.-:)"%&+-:#!&()"%#+-:#+,&#91%)2/#1-# (.$+-#")2+&1!-%?#q$!&1!-+2#1-&)2213)-,)#>.12:%#!-#&(1%#,!-,)*&?#x,,!":1-3#&!#g+2!;)/#+-:#m+/)"#5abbi8#q$!&1!-+2# intelligence is “a form of social intelligence that involves the ability to monitor one’s own and other’s feelings and )$!&1!-%0#&!#:1%,"1$1-+&)#+$!-3#&()$0#+-:#&!#.%)#&(1%#1-'!"$+&1!-#&!#3.1:)#!-)n%#&(1-p1-3#+-:#+,&1!-y#5abbikacf8?# r!2)$+-# 5abbf8# '!.-:# &(+&# )$!&1!-+2# 1-&)2213)-,)# 1%# +#$!")# 1$*!"&+-&#:)&)"$1-+-&#!'#$+-+3)$)-&# %.,,)%%# &(+-# technical expertise or cognitive ability. there is recognition among researchers and practitioners that emotions play a large role in organizational life. for example, emotional intelligence is a key area to help accountants perform better 5xp)"%#z#[!"&)"0#eiiv8?#x::1&1!-+22/0#r!2)$+-0#\!/+&]1%0#+-:#m,^))#5eiie8#'!.-:#&(+&#*+"&-)"%#1-#+#2+"3)#*.>21,# +,,!.-&1-3#s"$#91&(# %&"!-3# %)2'o$+-+3)$)-&# +-:# %!,1+2# %p122%# +,(1);):#+#vbi#*)",)-&# 1-,")$)-&+2# +--.+2#*"!s&# versus a 50 percent increase for partners with strong analytical skills. ## 6-#+#%&.:/#!'#m\x#%&.:)-&%0#\!/+&]1%0#g&.>>%0#+-:#j+/2!"0#5eiie8#,!-,2.:):#&(+&#m\x#*"!3"+$%#%(!.2:#*.&# forth a concerted effort to integrate emotional intelligence training using a more non-traditional holistic approach to positively impact employment outcomes. research indicates a positive correlation between emotional intelligence +-:# ,!3-1&1;)o>+%):#*)"'!"$+-,)# +$!-3#,!22)3)# %&.:)-&%?#_+$#+-:#^1">/# 5eiie8# +%,)"&+1-):# &()# 2);)2# &!#9(1,(# emotional intelligence accounts for increases in individual cognitive-based performance above the level attributable to general intelligence. they found a positive correlation existed in three of the four emotional intelligence subscales; overall ei, perceiving emotions, and regulating emotions. x#%.";)/#!'#)$*2!/)"%#,!-:.,&):#>/#&()#`+&1!-+2#x%%!,1+&1!-#!'#t!22)3)%#+-:#q$*2!/)"%#'!.-:#&(+&#)$*2!/)"%# "+&):#1-&)"*)"%!-+2#%p122%#+%#&()#$!%&#:)%1"):#%p122#!'#"),)-&#3"+:.+&)%#5g(1;*."1#z#̂ 1$0#eiid8?#6-#+#%&.:/#!'#+,,!.-&1-3# %&.:)-&%0#\+/#+-:#m,^)+3)#5eiih8#'!.-:#&()#+;)"+3)#+,,!.-&1-3#%&.:)-&%#:1:#-!&#(+;)#+#(13(#2);)2#!'#)$!&1!-+2# intelligence, and given the critical role of emotional intelligence in career success, those students were ill-prepared 2010, vol. 1, no. 1, 133-141 burgess-wilkerson, benson & frankforter 134 advances in business research for their futures. they argue that emotional intelligence has relevance for accountants in the areas of decision-making and also suggests that emotional intelligence is a variable that may explain the gap between ethical understanding and ethical behavior in the workplace. while graduates of business programs may be technically prepared for their disciplines, they are not necessarily prepared for the emotional aspects of work. esmond-kiger, tucker, and yost 5eiih8#");)+2):#&(+&#+2&(!.3(#+,,!.-&1-3#%&.:)-&%#!-#+;)"+3)#(+;)#(13()"#r[x%#&(+-#-!-o+,,!.-&1-3#,!.-&)"*+"&%0# they reported lower levels of emotional intelligence. they recommend the incorporation of emotional intelligence training into the accounting. j()#x$)"1,+-#t!22)3)#[)"%!--)2#x%%!,1+&1!-#,+22):#'!"#+#")%*!-%)#&!#&()#$!.-&1-3#);1:)-,)#!'#&()#1$*!"&+-,)#!'# emotional intelligence in academic and career success and advocated the promotion of a student development model of learning that incorporates emotional intelligence competencies, through engagement in applied research efforts to promote holistic learning through an integrated learning community commonly referred to as student learning 6$*)"+&1;)0#9(1,(#*2+,)%#%&.:)-&#:);)2!*$)-&#!-#*+"#91&(#%&.:)-&#2)+"-1-3#5_!90#_!$+<0#a+,p%!-#z#`)2%!-0#eiid8? @ab!/c"#"# business schools are creatively infusing emotional intelligence into the business curriculum as a holistic approach to promote student professional development. in one instance emotional intelligence theory was infused into a school’s business communication curriculum as a strategy for developing interpersonal and intrapersonal communications $!")#)''),&1;)2/#5m/)"%#z#j.,p)"0#eiif8?#b+-:)";!!"&#5eiih8#+:;!,+&)%#1$*"!;1-3#%&.:)-&#)$!&1!-+2#1-&)2213)-,)# >),+.%)# &(!%)# 91&(# (13()"# %)2'op-!92):3)# &)-:# &!# $+p)# >)&&)"# ,+"))"# ,(!1,)%0# (+;)# 2)%%# >)(+;1!"+2c)$!&1!-+2# problems, and have higher scores on standardized achievement tests. the purpose of this study is to investigate the extent to which emotional intelligence can be developed through +#%)$)%&)"o2!-3#,2+%%"!!$#1-&)";)-&1!-#+-:#%)2'o:1"),&):#2)+"-1-3#*"!,)%%#+$!-3#%)2),&):#%&.:)-&%#1-#+#t!22)3)#!'# business administration. we predict that emotional intelligence feedback will increase student scores on ei tests. we also predict that both graduate and undergraduate students will improve their ei scores. finally, we predict that both $+2)#+-:#')$+2)#%&.:)-&%#9122#1$*"!;)#&()1"#q6#%,!")%?#x,,!":1-32/0#9)#!'')"#&()#'!22!91-3#(/*!&()%)%k @ak## q$!&1!-+2#1-&)2213)-,)#')):>+,p#9122#")%.2&#1-#1-,")+%)%#1-#%&.:)-&#)$!&1!-+2#1-&)2213)-,)#%,!")%? @ek# q$!&1!-+2# 1-&)2213)-,)# ')):>+,p#9122# ")%.2&# 1-# 1-,")+%)%# '!"# >!&(# 3"+:.+&)# +-:# .-:)"3"+:.+&)# %&.:)-&# emotional intelligence scores. @vk## q$!&1!-+2# 1-&)2213)-,)# ')):>+,p# 9122# ")%.2&# 1-# 1-,")+%)%# '!"# >!&(# $+2)# +-:# ')$+2)# %&.:)-&# )$!&1!-+2# intelligence scores. 2.+de$;%$=@2$.=? f participants and assessment tool students in two graduate and one undergraduate course at a university in the southeastern united states during the fall semester of 2009 were informed of the opportunity to participate in an emotional intellegence project. the study included 121 students. there were 77 undergraduate and 44 graduate students, whose age ranged from 19 to 47, with an average age of 23. all undergraduate students were either juniors or seniors. sixty-two students were female +-:#fb#9)")#$+2)?#[+"&1,1*+-&%#&!!p#&()#q$!&1!-+2#6-&)2213)-,)#7.!&1)-&#@13()"#q:.,+&1!-#q:1&1!-#5q76@):8#!-21-)# self-assessment before intervention as a pre-test and then near the end of the semester, after intervention as a post&)%&?#j()#q76@):#1%#+#%)2'o")*!"&1-3#1-%&".$)-&#:);)2!*):#>/#\+"od-#5eiii8#&!#$)+%.")#+-#+""+/#!'#-!-o,!3-1&1;)# capabilities, competencies and skills based on the construct model of social and emotional intelligence. j()#+%%)%%$)-&#&!!2#1%#:1;1:):#1-&!#s;)#3)-)"+2#,!$*!-)-&%#+2!-3#91&(#%);)"+2#%.>,!$*!-)-&%?#j()#s"%&#3)-)"+2# component, intrapersonal, included measures of self-regard, emotional self-awareness, assertiveness, independence, and self-actualization. the second, interpersonal, included empathy, social responsibility, and interpersonal relationship. the third, stress management, included stress tolerance, and impulse control. the fourth, adaptability, 1-,2.:):#")+21&/#&)%&1-30#e)<1>121&/0#+-:#*"!>2)$o%!2;1-3?# 1-+22/0#3)-)"+2#$!!:0#1-,2.:):#!*&1$1%$#+-:#(+**1-)%%# 5m+/)"0#t+".%!#z#g+2!;)/0#eiii8?#j+>2)#a#>)2!9#%(!9%#&()#;+"1+>2)#:)s-1&1!-%#'!"#&()#q76@):#")*!"&#'"!$#\+"d-# emotional intelligence quotient technical manual. f)# ");1)9):# &()# m@g# &)%&1-3# 1-%&".,&1!-%# +-:# 6-&)"-+2# u);1)9# \!+":# 56u\8# ,!-%)-&# *!21,1)%# '!"# !*&1$+2# .-:)"%&+-:1-3#!'#*+"&1,1*+&1!-# ")4.1")$)-&%#+-:#,!-s:)-&1+2&/?#q+,(#%&.:)-&#*+"&1,1*+-&# "),)1;):#+#*+%%,!:)#+-:# instructions for accessing the eqihed protocol through the mhs website. there was no time limit for completion of the eqihed assessment, though the average time was 15 minutes. when the duration of the assessment was under 2010, vol. 1, no. 1, 133-141 burgess-wilkerson, benson & frankforter 135 advances in business research ai#$1-.&)%# 1&#9+%#e+33):#1-# &()#%,!"1-3#!"3+-1])"#'!"#'!22!9o.*#91&(# &()#%&.:)-&?#j("))#*!%%1>2)#%!.",)%#!'#>1+%# were controlled for. first, a positive impression score, to detect the feigning of enhanced emotional functioning. next, a negative impression score, to detect imulation or malingering. and last, an inconsistency index, to identify respondents who contradict themselves or respond randomly. in no case did any respondents in this study have bias scores that exceeded the critical values set forth by the baron emotional intelligence quotient technical manual. =('5"$gh$9(-4('5"$ "i,4/4!,# intervention [+"&1,1*+-&%#9)")#*"!;1:):#+#,!*/#!'#&()#q$!&1!-+2#t!$*)&)-,)# "+$)9!"p#'"!$#&()#t!-%!"&1.$#'!"#u)%)+",(# on emotional intelligence in organizations as part of a group discussion to fully comprehend the scope of emotional itelligence. assessment instructions and passcodes were emailed to participants with a deadline of one week for pre-test completion. after completing the initial assessment, students received a student summary reports, which included a four page summary of the three highest and two lowest scores. afer one week, participants received +#g&.:)-&#t!$*")()-%1;)#u)*!"&# ,!-&+1-1-3# +-# aco*+3)# ")*!"&# !'# +22# %,+2)# +-:# %.>%,+2)# ")%.2&%0# 1-%&".,&1!-%# '!"# interpretation, and instructions for the in-class coaching session. j()#,!+,(1-3#%)%%1!-#9+%#:)%13-):#&!#+,(1);)#&()#'!22!91-3#3!+2%k#&!#.-:)"%&+-:#&()#$)+-1-3#!'#&()#q6#%,+2)%#+-:# sub-scales and releated scores, to receive assistance in identifying strengths and growth areas for future development, and to develop a 30 day plan for self-improvement. in-class discussions addressed the impact of emotional intelligence in academic and career success, relationships, family life, and overall emotional well-being. proposed self-improvement plans were reviewed to ensure feasibility, measurability, and appropriateness on a set limit of two intervention areas. individuals were also provided an opportunity for individual counseling and coaching to address anxieties or concerns regarding any aspect of the report. throughout the semester, on-going classroom discussions empasized the relevance of emotional intelligence in the academic, professional and social realms. at the end of the semester, the eqihed test was re-administered online. participants were instructed to conduct a comparative analysis of preand post-test scores to ascertain the extent to which ei scored increased, decreased or remained unchanged. students were assigned to write a self-analysis paper &(+&#1-,2.):):#&()#!.&,!$)%#!'#&()#vi#:+/#*2+-k#&()1"#*")o#+-:#*!%&o&)%&#%,!")%0#&()#:)&+12%#!'#&()#vio:+/#1-&)";)-&1!-0# $)+%."+>2)#+-:#4.+21&+&1;)#!.&,!$)%0#+-:#'.&.")#*2+-%?# results we computed descriptive statistics for the pre-test and the post-test for the population of 121 students. table 2 shows the pre-test descriptive statistics and table 3 shows the post-test descriptive statistics. variable variable name variable definition t total emotional intelligence a general indication of a respondent’s level of emotional intelligent. intra intrapersonal it determines how in touch with your feelings you are, how good you feel about yourself and about what you’re doing in life. reg self regard the ability to respect and accept oneself as basically good. aw emotional self-awareness the ability to recognize one's feelings. ass assertiveness the ability to express feelings, beliefs and thoughts and defend one's rights in a non-destructive manner. ind independence the ability to be self-directed and self-controlled. act self-actualization the ability to realize one potential capacities. inter interpersonal concerns what are known as people skills. emp empathy the ability to be aware of, understand, and appreciate the feelings of others. soc social responsiblity the ability to demonstrate oneself as a cooperative, contributing, and constructive member of one’s social group. intrel interpersonal relationship the ability to establish and maintain mutually satisfying relationships that are characterized by intimacy and by giving and receiving affection. smgmt stress managment concerns the ability to withstand stress without caving in, falling apart, or losing control. stol stress tolerance the ability to withstand adverse events and stressful situations by actively and positively coping with stress. imp impulse control the ability to resist or delay an impulse, drive, or temptation to act. ada adaptability concerns the ability to size up and respond to a wide range of difficult situations. real reality testing the ability to assess the correspondence between what is expected and what objectively exists. flex flexibility the ability to adjust one’s emotions, thoughts, and behaviors to changing situations and conditions. prsol problem solving the ability to identify and define problems as well as to generate and implement potentially effective solutions. mood general mood concerns your overall outlook on life, your ability to enjoy yourself and others and your overall feelings of contentment or dissatisfaction opt optimism the ability to look at the brighter side of life. hap happiness the ability to feel satisfied with one’s life, to enjoy oneself and others, and to have fun. 2010, vol. 1, no. 1, 133-141 burgess-wilkerson, benson & frankforter 136 advances in business research =('5"$jh$k-"l="#/$ "#)-4b/4m"$./(/4#/4)# =('5"$nh$k!#/l="#/$ "#)-4b/4m"$./(/4#/4)# we analyzed student pre-test and post-test scores using a paired sample t-test. table 4 reports ei difference &o%&+&1%&1,%# +-:# %&+&1%&1,+2# %13-1s,+-,)# 2);)2%# '!"# +22# aea# %&.:)-&%?#x# -)3+&1;)# &o%&+&1%&1,# %(!9%# 1$*"!;)$)-&# '"!$# the pre-test to the post-test assessment, while a positive t-statistic would show decline from the pre-test to the post&)%&?#`1-)&))-#!'#&()#ei#q6#%.>%,!")%#%(!9):#%&+&1%&1,+22/#%13-1s,+-,)#1-,")+%)%#!'#+&#2)+%&#[#g#?if#'!"#%&.:)-&%#'"!$# the pre-test to the post-test. the only variable not showing improvement was impulse control. the ei total score 1$*"!;):#>/#[#g#?iia?#j()%)#")%.2&%#,!-s"$#@a0#&(+&#1-&)";)-&1!-#:!)%#1-,")+%)#+#%&.:)-&%n#)$!&1!-+2#1-&)2213)-,)? j()#%&.:/#&()-#'!,.%):#!-#9()&()"#$+&."1&/#2);)20#+%#:)$!-%&"+&):#>/#%&.:)-&#%&+&.%#5.-:)"3"+:.+&)#!"#3"+:.+&)80# 1-e.)-,):#q6#:);)2!*$)-&?#j+>2)#f#")*!"&%#q6#:1'')")-,)#&o%&+&1%&1,%#+-:#%&+&1%&1,+2#%13-1s,+-,)#'!"#.-:)"3"+:.+&)# %&.:)-&%?#j()#&!&+2#q6#%,!")#+-:#ah#!'#&()#ei#q6#%.>%,!")%#%(!9):#%&+&1%&1,+22/#%13-1s,+-,)#1-,")+%)%#!'#+&#2)+%&#[# g# ?if#'!"#.-:)"3"+:.+&)#%&.:)-&%# '"!$#&()#*")o&)%&# &!# &()#*!%&o&)%&?#j()#;+"1+>2)%#-!&#%(!91-3# 1$*"!;)$)-&#9)")# 1-:)*)-:)-,)0#%!,1+2#")%*!-%1>121&/0#1$*.2%)#,!-&"!20#+-:#e)<1>121&/? variable n minimum maximum mean std. deviation t1 121 62 131 102.81 11.921 intra1 121 58 130 102.99 13.158 reg1 121 58 127 105.39 11.982 aw1 121 61 129 102.12 14.284 ass1 121 62 130 102.21 14.134 ind1 121 52 126 99.64 14.605 act1 121 40 126 102.20 13.910 inter1 121 67 127 101.73 12.774 emp1 121 66 123 98.81 14.069 soc1 121 63 120 99.74 13.958 intrel1 121 66 127 104.14 12.691 smgmt1 121 67 128 102.79 12.430 stol1 121 57 130 98.92 14.216 imp1 121 58 129 105.88 13.042 ada1 121 64 133 102.01 12.397 real1 121 63 130 101.4 13.063 flex1 121 55 131 102.99 12.238 prsol1 121 63 126 100.83 13.188 mood1 121 62 125 103.75 10.988 opt1 121 59 124 100.30 12.333 hap1 121 72 123 106.48 10.708 121 77 134 110.74 11.153 121 74 132 110.67 10.815 121 80 129 110.07 10.446 121 67 132 109.73 13.702 121 68 130 108.96 11.825 121 62 126 104.14 13.160 121 68 124 108.43 10.774 121 60 127 107.12 12.840 121 48 123 104.53 14.663 121 52 123 103.00 13.729 intrel2 121 73 128 109.34 11.246 smgmt2 121 76 132 108.17 11.039 121 67 133 107.04 13.207 121 76 129 107.24 11.505 121 82 139 109.95 11.912 121 75 132 107.08 12.088 121 74 136 108.17 13.170 121 70 130 109.75 11.727 121 63 132 110.29 10.403 121 55 128 108.08 12.781 121 70 128 111.18 9.335 t2 121 77 134 110.74 11.153 intra2 121 74 132 110.67 10.815 reg2 121 80 129 110.07 10.446 aw2 121 67 132 109.73 13.702 ass2 121 68 130 108.96 11.825 ind2 121 62 126 104.14 13.160 act2 121 68 124 108.43 10.774 inter2 121 60 127 107.12 12.840 emp2 121 48 123 104.53 14.663 soc2 121 52 123 103.00 13.729 intrel2 121 73 128 109.34 11.246 smgmt2 121 76 132 108.17 11.039 stol2 121 67 133 107.04 13.207 imp2 121 76 129 107.24 11.505 ada2 121 82 139 109.95 11.912 real2 121 75 132 107.08 12.088 flex2 121 74 136 108.17 13.170 prsol2 121 70 130 109.75 11.727 mood2 121 63 132 110.29 10.403 opt2 121 55 128 108.08 12.781 hap2 121 70 128 111.18 9.335 2010, vol. 1, no. 1, 133-141 burgess-wilkerson, benson & frankforter 137 advances in business research !"#$%&'%()%*+,,$-$./$% 012!2+32+/3%!.4%12!2+32+/!#%1+5.+6/!./$%7$8$#3%,9-%:##%;<;%12=4$.23 !"#$%>'%()%*+,,$-$./$% 012!2+32+/3%:.4%12!2+32+/!#%1+5.+6/!./$%7$8$#3%?9-%@.4$-5-!4=!2$%12=4$.23 paired differences t df sig. 95% confidence interval of the difference mean diff. std. dev std. error mean lower upper pair 1 t1 – t2 -7.926 11.130 1.012 -9.929 -5.922 -7.833 120 .000 pair 2 intra1 intra2 -7.678 10.871 .988 -9.634 -5.721 -7.769 120 .000 pair 3 reg1 reg2 -4.678 9.416 .856 -6.372 -2.983 -5.465 120 .000 pair 4 aw1 aw2 -7.612 13.577 1.234 -10.055 -5.168 -6.167 120 .000 pair 5 ass1 ass2 -6.744 12.389 1.126 -8.974 -4.514 -5.988 120 .000 pair 6 ind1 ind2 -4.504 11.693 1.063 -6.609 -2.399 -4.237 120 .000 pair 7 act1 act2 -6.231 12.327 1.121 -8.450 -4.013 -5.560 120 .000 pair 8 inter1 inter2 -5.397 11.731 1.066 -7.508 -3.285 -5.061 120 .000 pair 9 emp1 emp2 -5.719 13.091 1.190 -8.075 -3.363 -4.806 120 .000 pair 10 soc1 soc2 -3.256 12.253 1.114 -5.462 -1.051 -2.923 120 .004 pair 11 intrel1 inter2 -2.983 13.317 1.211 -5.380 -.586 -2.464 120 .015 pair 12 smgmt1 smgmt2 -5.372 10.304 .937 -7.227 -3.517 -5.735 120 .000 pair 13 stol1 stol2 -8.124 11.196 1.018 -10.139 -6.109 -7.982 120 .000 pair 14 imp1 imp2 -1.364 10.773 .979 -3.303 .576 -1.392 120 .166 pair 15 ada1 ada2 -7.942 12.267 1.115 -10.150 -5.734 -7.122 120 .000 pair 16 real1 real2 -5.678 12.658 1.151 -7.956 -3.399 -4.934 120 .000 pair 17 flex1 flex2 -5.174 12.911 1.174 -7.497 -2.850 -4.408 120 .000 pair 18 prsol1 prsol2 -8.926 13.212 1.201 -11.304 -6.547 -7.431 120 .000 pair 19 mood1 mood2 -6.537 10.174 .925 -8.368 -4.706 -7.068 120 .000 pair 20 opt1 opt2 -7.785 11.703 1.064 -9.892 -5.679 -7.317 120 .000 pair 21 hap1 hap2 -4.702 10.133 .921 -6.526 -2.879 -5.105 120 .000 difference mean std. dev error mean lower pair 1 5.584 10.992 8.079 4.458 76 .000 pair 2 5.571 10.717 8.004 4.562 76 .000 pair 3 3.091 8.768 5.081 3.093 76 .003 pair 4 4.701 13.726 7.817 3.006 76 .004 pair 5 5.312 11.374 7.893 4.098 76 .000 pair 6 2.286 11.042 4.792 1.816 76 .073 pair 7 5.987 13.948 9.153 3.767 76 .000 ir 8 2.948 12.276 5.734 2.107 76 .038 pair 9 3.286 13.763 6.410 2.095 76 .040 ir 10 1.403 13.455 4.456 .915 76 .363 pair 11 2.649 11.414 5.240 2.037 76 .045 pair 12 smgmt2 3.091 9.852 5.327 2.753 76 .007 pair 13 6.221 11.260 8.776 4.848 76 .000 pair 14 .662 9.104 1.404 .638 76 .525 pair 15 5.896 12.178 8.660 4.248 76 .000 pair 16 3.610 12.998 6.561 2.437 76 .017 pair 17 2.636 12.514 5.477 1.849 76 .068 pair 18 8.468 13.409 11.511 5.541 76 .000 pair 19 5.883 10.162 8.190 5.080 76 .000 pair 20 7.299 12.440 10.122 5.148 76 .000 pair 21 3.844 9.919 6.096 3.401 76 .001 paired differences t df sig. 95 % confidence interval of the difference mean std. dev std. error mean lower upper pair 1 t1 – t2 -5.584 10.992 1.253 -8.079 -3.090 -4.458 76 .000 pair 2 intra1 intra2 -5.571 10.717 1.221 -8.004 -3.139 -4.562 76 .000 pair 3 reg1 reg2 -3.091 8.768 .999 -5.081 -1.101 -3.093 76 .003 pair 4 aw1 aw2 -4.701 13.726 1.564 -7.817 -1.586 -3.006 76 .004 pair 5 ass1 ass2 -5.312 11.374 1.296 -7.893 -2.730 -4.098 76 .000 pair 6 ind1 ind2 -2.286 11.042 1.258 -4.792 .220 -1.816 76 .073 pair 7 act1 act2 -5.987 13.948 1.589 -9.153 -2.821 -3.767 76 .000 pair 8 inter1 inter2 -2.948 12.276 1.399 -5.734 -.162 -2.107 76 .038 pair 9 emp1 emp2 -3.286 13.763 1.568 -6.410 -.162 -2.095 76 .040 pair 10 soc1 soc2 -1.403 13.455 1.533 -4.456 1.651 -.915 76 .363 pair 11 intrel1 inter2 -2.649 11.414 1.301 -5.240 -.059 -2.037 76 .045 pair 12 smgmt1 smgmt2 -3.091 9.852 1.123 -5.327 -.855 -2.753 76 .007 pair 13 stol1 stol2 -6.221 11.260 1.283 -8.776 -3.665 -4.848 76 .000 pair 14 imp1 imp2 .662 9.104 1.038 -1.404 2.729 .638 76 .525 pair 15 ada1 ada2 -5.896 12.178 1.388 -8.660 -3.132 -4.248 76 .000 pair 16 real1 real2 -3.610 12.998 1.481 -6.561 -.660 -2.437 76 .017 pair 17 flex1 flex2 -2.636 12.514 1.426 -5.477 .204 -1.849 76 .068 pair 18 prsol1 prsol2 -8.468 13.409 1.528 -11.511 -5.424 -5.541 76 .000 pair 19 mood1 mood2 -5.883 10.162 1.158 -8.190 -3.577 -5.080 76 .000 pair 20 opt1 opt2 -7.299 12.440 1.418 -10.122 -4.475 -5.148 76 .000 pair 21 hap1 hap2 -3.844 9.919 1.130 -6.096 -1.593 -3.401 76 .001 2010, vol. 1, no. 1, 133-141 burgess-wilkerson, benson & frankforter 138 advances in business research !"#$%&%'$()'*+%,-%./00$'$12$%*3+*!*/+*/2+%!1.%+*!*/+*/2!#%+/41/52!12$%#$6$#+%0)'%4'!.7!*$%+*7.$1*+8% 9$%*)*!#%,-%+2)'$% !1.%!##%:;%,-%+7"+2)'$+%+9)<$.%+*!*/+*/2!##=%+/41/52!12$%/12'$!+$+%)0%>%?%8;@%0)'%4'!.7!*$%+*7.$1*+%0')a%*9$%('$3*$+*% to the post-test. while the results for undergraduates were not as uniform as for graduate student participants, both 4')7(+%*)*!#%+2)'$+%/a(')6$.%"=%!*%#$!+*%>%?%8;;b8%c9/#$%'$+7#*+%!'$%+)a$<9!*%2)1+/+*$1*%</*9%('$6/)7+%'$+$!'29%*9!*% +744$+*+%*9!*%)#.$'%2)9)'*+%*$1.%*)%+2!#$%9/49$'%*)%+2)'$%9/49$'%)1%,-%*9!1%=)714$'%2)9)'*+%dc$""e%:;;fge%<$%2)12#7.$% that there is support for h2 because total ei scores improved for both undergraduate and graduate students. !"#$%a'%()%*+,,$-$./$% 012!2+32+/3%!.4%12!2+32+/!#%1+5.+6/!./$%7$8$#3%,9-%b-!4=!2$%12=4$.23 9$%+*7.=%*9$1%0)27+$.%)1%<9$*9$'%4$1.$'%/1h7$12$.%,-%.$6$#)(a$1*8% !"#$%i%'$()'*+%,-%./00$'$12$%*3+*!*/+*/2+% !1.%+*!*/+*/2!#%+/41/52!12$%0)'%0$a!#$%+*7.$1*+8% 9$%*)*!#%,-%+2)'$%!1.%bj%)0%*9$%:;%,-%+7"+2)'$+%+9)<$.%+*!*/+*/2!##=% +/41/52!12$% /12'$!+$+%)0%!*% #$!+*%>%?% 8;@% 0)'% 0$a!#$% +*7.$1*+% 0')a% *9$%('$3*$+*% *)% *9$%()+*3*$+*8% 9$%6!'/!"#$+%1)*% showing improvement were social responsibility and impulse control. !"#$%j%'$()'*+%,-%./00$'$12$%*3+*!*/+*/2+%!1.%+*!*/+*/2!#%+/41/52!12$%#$6$#+%0)'%a!#$%+*7.$1*+8% 9$%*)*!#%,-%+2)'$%!1.% bj%)0%*9$%:;%,-%+7"+2)'$+%+9)<$.%+*!*/+*/2!##=%+/41/52!12$%/12'$!+$+%)0%>%?%8;@%0)'%a!#$%+*7.$1*+%0')a%*9$%('$3*$+*%*)% the post-test. the variables not showing improvement were interpersonal relationship and impulse control. while the '$+7#*+%0)'%0$a!#$%!1.%a!#$%+*7.$1*+%<$'$%1)*%2)a(#$*$#=%/.$1*/2!#e%")*9%4')7(+k%*)*!#%+2)'$+%/a(')6$.%"=%!*%#$!+*%>%?% .001. therefore, we conclude that there is support for h3 because total ei scores improved for both female and male students. paired differences t df sig. 95 % confidence interval of the difference mean std. dev std. error mean lower upper pair 1 t1 – t2 -12.023 10.254 1.546 -15.140 -8.905 -7.778 43 .000 pair 2 intra1 intra2 -11.364 10.244 1.544 -14.478 -8.249 -7.358 43 .000 pair 3 reg1 reg2 -7.455 9.957 1.501 -10.482 -4.427 -4.966 43 .000 pair 4 aw1 aw2 -12.705 11.820 1.782 -16.298 -9.111 -7.130 43 .000 pair 5 ass1 ass2 -9.250 13.769 2.076 -13.436 -5.064 -4.456 43 .000 pair 6 ind1 ind2 -8.386 11.911 1.796 -12.008 -4.765 -4.670 43 .000 pair 7 act1 act2 -6.659 8.942 1.348 -9.378 -3.941 -4.940 43 .000 pair 8 inter1 inter2 -9.682 9.388 1.415 -12.569 -6.828 -6.841 43 .000 pair 9 emp1 emp2 -9.977 10.691 1.612 -13.228 -6.727 -6.190 43 .000 pair 10 soc1 soc2 -6.500 9.062 1.366 -9.255 -3.745 -4.758 43 .000 pair 11 intrel1 intrel2 -9.659 9.753 1.470 -12.624 -6.694 -6.570 43 .000 pair 12 smgmt1 smgmt2 -9.364 9.956 1.501 -12.391 -6.337 -6.239 43 .000 pair 13 stol1 stol2 -11.455 10.387 1.566 -14.612 -8.297 -7.315 43 .000 pair 14 imp1 imp2 -4.909 12.538 1.890 -8.721 -1.097 -2.597 43 .013 pair 15 ada1 ada2 -11.523 11.715 1.766 -15.084 -7.961 -6.525 43 .000 pair 16 real1 real2 -9.295 11.292 1.702 -12.729 -5.862 -5.460 43 .000 pair 17 flex1 flex2 -9.614 12.518 1.887 -13.420 -5.808 -5.094 43 .000 pair 18 prsol1 prsol2 -9.727 12.975 1.956 -13.672 -5.783 -4.973 43 .000 pair 19 mood1 mood2 -7.682 10.209 1.539 -10.786 -4.578 -4.991 43 .000 pair 20 opt1 opt2 -8.636 10.370 1.563 -11.789 -5.484 -5.524 43 .000 pair 21 hap1 hap2 -6.205 10.440 1.574 -9.379 -3.030 -3.942 43 .000 2010, vol. 1, no. 1, 133-141 burgess-wilkerson, benson & frankforter 139 advances in business research !"#$%&'%()%*+,,$-$./$% 012!2+32+/3%!.4%12!2+32+/!#%1+5.+6/!./$%7$8$#3%,9-%:$;!#$%12<4$.23 !"#$%='%()%*+,,$-$./$% 012!2+32+/3%!.4%12!2+32+/!#%1+5.+6/!./$%7$8$#3%,9-%>!#$%12<4$.23 paired differences t df sig. 95 % confidence interval of the difference mean std. dev std. error mean lower upper pair 1 t1 – t2 -6.758 11.719 1.488 -9.734 -3.782 -4.541 61 .000 pair 2 intra1 intra2 -6.581 11.793 1.498 -9.575 -3.586 -4.394 61 .000 pair 3 reg1 reg2 -4.161 8.679 1.102 -6.365 -1.957 -3.776 61 .000 pair 4 aw1 aw2 -4.806 14.077 1.788 -8.381 -1.232 -2.689 61 .009 pair 5 ass1 ass2 -7.032 13.080 1.661 -10.354 -3.711 -4.233 61 .000 pair 6 ind1 ind2 -3.758 12.999 1.651 -7.059 -.457 -2.276 61 .026 pair 7 act1 act2 -5.968 13.377 1.699 -9.365 -2.571 -3.513 61 .001 pair 8 inter1 inter2 -4.194 10.635 1.651 -6.894 -1.493 -3.105 61 .003 pair 9 emp1 emp2 -4.500 10.773 1.368 -7.236 -1.764 -3.289 61 .002 pair 10 soc1 soc2 -2.355 10.416 1.323 -5.000 .290 -1.780 61 .080 pair 11 intrel1 intrel2 -4.065 11.443 1.453 -6.971 -1.158 -2.797 61 .007 pair 12 smgmt1 smgmt2 -4.903 10.368 1.317 -7.536 -2.270 -3.724 61 .000 pair 13 stol1 stol2 -7.839 12.467 1.583 -11.005 -4.673 -4.951 61 .000 pair 14 imp1 imp2 -.758 8.702 1.105 -2.968 1.452 -.686 61 .495 pair 15 ada1 ada2 -6.387 12.607 1.601 -9.589 -3.186 -3.989 61 .000 pair 16 real1 real2 -3.903 12.520 1.590 -7.083 -.724 -2.455 61 .017 pair 17 flex1 flex2 -4.194 13.254 1.683 -7.559 -.828 -2.491 61 .015 pair 18 prsol1 prsol2 -8.016 12.381 1.572 -11.160 -4.872 -5.098 61 .000 pair 19 mood1 mood2 -6.742 9.554 1.213 -9.168 -4.316 -5.556 61 .000 pair 20 opt1 opt2 -8.403 10.836 1.376 -11.155 -5.651 -6.106 61 .000 pair 21 hap1 hap2 -4.419 9.382 1.191 -6.802 -2.037 -3.709 61 .000 confidence interval of the difference mean s.d. s.e. lower pair 1 9.153 10.433 1.358 11.781 6.738 58 .000 pair 2 8.831 9.777 1.273 11.378 6.937 58 .000 pair 3 5.220 10.180 1.325 7.873 3.939 58 .000 pair 4 10.559 12.478 1.624 13.811 6.500 58 .000 pair 5 6.441 11.724 1.526 9.496 4.220 58 .000 pair 6 5.288 10.196 1.327 7.945 3.984 58 .000 pair 7 6.508 11.227 1.462 9.434 4.453 58 .000 pair 8 6.661 12.750 1.660 9.984 4.013 58 .000 pair 9 7.000 15.141 1.971 10.946 3.551 58 .001 pair 10 4.203 13.955 1.817 7.840 2.314 58 .024 pair 11 3.407 13.787 1.795 7.000 1.898 58 .063 pair 12 smgmt2 5.864 10.301 1.341 8.549 4.373 58 .000 pair 13 8.424 9.782 1.274 10.973 6.614 58 .000 pair 14 2.000 12.637 1.645 5.293 1.216 58 .229 pair 15 9.576 11.786 1.634 12.648 6.241 58 .000 pair 16 7.542 12.640 1.646 10.836 4.583 58 .000 pair 17 6.203 12.571 1.637 9.479 3.790 58 .000 pair 18 9.881 14.076 1.833 13.550 5.392 58 .000 pair 19 6.322 10.865 1.415 9.153 4.469 58 .000 pair 20 7.136 12.612 1.642 10.422 4.346 58 .000 pair 21 5.000 10.940 1.424 7.851 3.510 58 .001 paired differences t df sig. 95 % confidence interval of the difference mean s.d. s.e. lower upper pair 1 t1 – t2 -9.153 10.433 1.358 -11.781 -6.434 -6.738 58 .000 pair 2 intra1 intra2 -8.831 9.777 1.273 -11.378 -6.283 -6.937 58 .000 pair 3 reg1 reg2 -5.220 10.180 1.325 -7.873 -2.568 -3.939 58 .000 pair 4 aw1 aw2 -10.559 12.478 1.624 -13.811 -7.308 -6.500 58 .000 pair 5 ass1 ass2 -6.441 11.724 1.526 -9.496 -3.385 -4.220 58 .000 pair 6 ind1 ind2 -5.288 10.196 1.327 -7.945 -2.631 -3.984 58 .000 pair 7 act1 act2 -6.508 11.227 1.462 -9.434 -3.583 -4.453 58 .000 pair 8 inter1 inter2 -6.661 12.750 1.660 -9.984 -3.338 -4.013 58 .000 pair 9 emp1 emp2 -7.000 15.141 1.971 -10.946 -3.054 -3.551 58 .001 pair 10 soc1 soc2 -4.203 13.955 1.817 -7.840 -.567 -2.314 58 .024 pair 11 intrel1 intrel2 -3.407 13.787 1.795 -7.000 .186 -1.898 58 .063 pair 12 smgmt1 smgmt2 -5.864 10.301 1.341 -8.549 -3.180 -4.373 58 .000 pair 13 stol1 stol2 -8.424 9.782 1.274 -10.973 -5.874 -6.614 58 .000 pair 14 imp1 imp2 -2.000 12.637 1.645 -5.293 1.293 -1.216 58 .229 pair 15 ada1 ada2 -9.576 11.786 1.634 -12.648 -6.505 -6.241 58 .000 pair 16 real1 real2 -7.542 12.640 1.646 -10.836 -4.248 -4.583 58 .000 pair 17 flex1 flex2 -6.203 12.571 1.637 -9.479 -2.927 -3.790 58 .000 pair 18 prsol1 prsol2 -9.881 14.076 1.833 -13.550 -6.213 -5.392 58 .000 pair 19 mood1 mood2 -6.322 10.865 1.415 -9.153 -3.491 -4.469 58 .000 pair 20 opt1 opt2 -7.136 12.612 1.642 -10.422 -3.849 -4.346 58 .000 pair 21 hap1 hap2 -5.000 10.940 1.424 -7.851 -2.149 -3.510 58 .001 2010, vol. 1, no. 1, 133-141 burgess-wilkerson, benson & frankforter 140 advances in business research conclusion this research indicates a student development model incorporating emotional intelligence competencies in the !""# !$!%& '!$(& )**#*+& #,& *+!(-,+& (-.-$'/%-,+0&1,& #%/'"+),+& 2,(#,3& #*& +4)+& 5'+4& !,(-"3")(!)+-& ),(& 3")(!)+-6 $-.-$&*+!(-,+*& ),&5-,-2+&7"'%&+4-&#,+-3")+#',&'7&-%'+#',)$&#,+-$$#3-, -&+")#,#,30&8,&),&#, "-)*#,3$9&*-".# -6'"#-,+-(& %)":-+/$) -;& #,+-"/-"*',)$;& ),(& #,+")/-"*',)$& *:#$$*& ),& *#3,#2 ),+$9& #, "-)*-& +4-& /"'5)5#$#+9& '7& )"--"& *! -**0& therefore, as higher educators we have a responsibility to increase both the theoretical knowledge and the emotional intelligence of students. !"! !#$!% !"#$%&'(%&)&*+#,"#%&-(&.//0(&1+2#&34&$!566$7&-+,&89:,&5,&,:!"$;&journal of accountancy%&<=>7&?>@a/( b:#@cd%&e(&.///(&3f+,5+d:6&:dg&$+h5:6&5d,"665i"dh"7&jd$5i9,$&k#+f&,9"&"f+,5+d:6&l2+,5"d,&5dm"d,+#n(&jd&e(&b:#@cd%&)& o(&*:#!"#%&p3g$(q%&&'()*+,-.//0)/1)(2/34/,+5)4,3(5546(,7((&prr&0?0@0ssq(&t:d&u#:dh5$h+7&o+$$"n@b:$$( b:n%&v(%&)&'hw":i"%&w(&.//?(&3f+,5+d:6&5d,"665i"dh"&5d&2dg"#i#:g2:,"&:hh+2d,5di&$,2g"d,$7&*#"65f5d:#n&:$$"$$f"d,(& 877/9,34,6)!-97+34/,:)8,);,3(<,+34/,+5)=/9<,+5%&<>7&x0=@x>x( boyatzis, r., stubbs, e., & taylor, s. 2002. learning cognitive and emotional intelligence competencies through graduate management education. 87+-(2>)/1)?+,+6(2(,3)@(+<,4,6)+,-)!-97+34/,%&<7&<>/@<?.( y9"#d5$$%&y(&.///(&t+h5:6&:dg&"f+,5+d:6&h+fr","dh"&5d&,9"&8+#!r6:h"(&jd&e(&b:#@cd&)&o(&*:#!"#%&p3g(q%&&'()*+,-.//0) of emotional intelligence(&prr&x00@x>sq(&t:d&u#:dh5$h+7&o+$$"n@b:$$( 3$f+dg@w5i"#%& y(%& z2h!"#%&'(%& )&1+$,%& y(& .//?(& 3f+,5+d:6& 5d,"665i"dh"7& u#+f& ,9"& h6:$$#++f& ,+& ,9"& 8+#!r6:h"(& management accounting quarterly%&a7&0>@x.( goleman, d. 1995. !2/34/,+5)4,3(5546(,7(:)a'>)43)2+33(<b)2/<()3'+,);c(&["8&1+#!7&b:d,:f&b++!$( goleman, d., boyatzis, r., & mckee, a. 2002. d<42+5)5(+-(<b'4e:) (+54f4,6)3'()e/g(<)/1)(2/34/,+5)4,3(5546(,7(. b+$,+d7&\:#m:#g&b2$5d"$$&th9++6&*#"$$ \:##5$& 3g2h:,5+d& e"$":#h9& y+2dh56(& <==<(&an assessment of american education(& ["8& 1+#!7& y+ff5,,""& k+#& economic development hunter, j., & hunter, r. 1984. validity and utility of alternative predictors of job performance. psychological bulletin, =?7&a.@=s( ]:f%&](%&)&w5#^n%&t(&.//.(&j$&"f+,5+d:6&5d,"665i"dh"&:d&:gm:d,:i";&& d&"_r6+#:,5+d&+k&,9"&5fr:h,&+k&"f+,5+d:6&:dg& general intelligence on individual performance. the journal of social psychology%&<x.7&<00@<x0( low, g., lomax, a., jackson, m., & nelson, d. 2004. !2/34/,+5) 4,3(5546(,7(:)8) ,(g) b39-(,3)2/-(5. a paper r#"$"d,"g&:,&,9"&[:,5+d:6&y+dk"#"dh"&+k&,9"& f"#5h:d&y+66"i"&*"#$+dd"6& $$+h5:,5+d(&*956:g"6r95:%&*"dd$n6m:d5: ':n"#%&o(%&y:#2$+%&v(%&)&t:6+m"n%&*(&.///(&t"6"h,5di&:&f":$2#"&+k&"f+,5+d:6&5d,"665i"dh"7&z9"&h:$"&k+#&:^565,n&$h:6"$(&jd& e(&b:#@cd&)&o(&*:#!"#&p3g(q%&the handbook of emotional intelligence(&prr&0./@0x.q(&t:d&u#:dh5$h+7&o+$$"n@b:$$( myers, l., & tucker, m. 2005. increasing awareness of emotional intelligence in a business curriculum. business communication quarterly%&?s7&xx@><( salovey, p., & mayer, j. 1990. emotional intelligence. imagination, cognition and personality%&=7&<s>@.<<( t95mr2#5%&t(%&)&w5f&b(&.//x(&v+&"fr6+n"#$&:dg&h+66"i"$&$""&"n"@,+@"n";&y+66"i"&$,2g"d,&g"m"6+rf"d,&:dg&:$$"$$f"d,(& #8$!)=/9<,+5%&?>7&0a@xx( sternberg, r. 1996. successful intelligence(&["8&1+#!7&t5f+d&)&th92$,"# 2010, vol. 1, no. 1, 133-141 burgess-wilkerson, benson & frankforter 141 advances in business research thorndike, r., & stein s. 1937. an evaluation of the attempts to measure social intelligence. psychological bulletin, 0x7&.a>@.sx(& vandervoort, d. 2006. the importance of emotional intelligence in higher education. $9<<(,3) db>7'/5/6>:) h(i(5/e2(,3+5j)@(+<,4,6j)d(<b/,+543>j)%/74+5%&.>7&x@a( "̀^^%&w(&.//=(&̀ 9n&"f+,5+d:6&5d,"665i"dh"&$9+26g&f:,,"#&,+&f:d:i"f"d,7& &$2#m"n&+k&,9"&65,"#:,2#"(&sam advanced management journal%&ax7&0.@x<( k+<.+<+) k9<6(bbla450(<b/, is an assistant professor of management and director of student professional development at winthrop university. she received her ph.d. in higher education administration from the university of pittsburgh. her current research interests include emotional intelligence as a career development strategy, business h+ff2d5h:,5+d$%& :dg& $,2g"d,& r#+k"$$5+d:6& g"m"6+rf"d,(& t9"& 9:$& r2^65$9"g& 5d& ,9"& b2$5d"$$& y+ff2d5h:,5+d$& quarterly. keith benson is an associate professor in health care management at winthrop university. he received his ph.d. from penn state university. his research interests include emotional intelligence in the classroom and the use of social media in the classroom. steven frankforter is a professor of management at winthrop university. he earned his phd at the university of washington. he has taught business policy, business & society, entrepreneurship, and accounting. his research 5d,"#"$,$&:#"&5d&$,"8:#g$95r&,9"+#n%&$,:!"9+6g"#&f:d:i"f"d,%&f"#i"#$&:dg&:hl25$5,5+d$%&"f+,5+d:6&5d,"665i"dh"%&:dg& diversity management. 2010, vol. 1, no. 1, 133-141 burgess-wilkerson, benson & frankforter advances in business research 2011 volume 2.pdf lifland advances in business research 2011, vol. 2, no. 1, 57-70 57 the impact of working capital efficiencies on the enterprise value option: empirical analysis from the energy sector steven lifland, high point university this paper, looking within the energy sector, empirically tests the hypotheses that individual and/or net working capital efficiencies impact a company’s enterprise value (ev). the ev metric is unique for it allows an equity investor to assess the firm on the same basis as an acquirer in a merger-acquisition transaction. it represents an option or ‘right’ to buy a firm’s core cash flow or the value of claims on that cash flow. the results show there are significant negative associations between the net working capital efficiencies and enterprise value for large and mid-cap firms. from the perspective of the investoracquirer, the acquisition cost of a company is directly impacted and it shows why they need to pay attention as to how well firms simultaneously turn over their inventories, collect on trade receivables, and service their trade creditors. there is a trend in business where firms are starting to switch their focus from the uncertainty of the profit and loss statement onto the balance sheet. this reluctance from moving away from the proverbial ‘bottom-line’ may be due to companies underestimating the role of the firm’s working capital. working capital is considered to be the excess of current assets over current liabilities and as such is a financial metric measuring operating liquidity. management should be looking at working capital that ‘nets’ out cash, allowing them to focus on the operating assets of the firm. the intuition is to determine how cash has changed over the period based upon changes in inventory, accounts receivable, and accounts payable. this paper posits that by effectively managing the components of net working capital, companies can enjoy financial flexibility and influence a company’s enterprise value (ev) through a reduction in capital employed and subsequent asset productivity. as discussed later, this approach is reinforced by the fact that the calculation of the enterprise value is dependent upon including the value of all the non-operating assets that have been netted against cash. the determination of the enterprise value (ev) metric allows investors to assess the firm on the same basis as an acquirer. it can be viewed as a theoretical takeover price where the acquirer accepts the debt of the firm but is also entitled to its cash. this paper argues that in an attempt to place a value on a company, the buyer or seller has to reconcile the purchase price (i.e., enterprise value) to the periodic fluctuations in the working capital investment that is needed to support the operations of the company. generally, the goal is to minimize the capital earmarked to a company’s turnover process by reducing accounts receivable and inventory, while extending accounts payable (rafuse,1996). as stated previously, working capital can be seen as a means for evaluating the operating liquidity of a corporation. however, it also can signal its operational efficiency. a positive working capital position implies the ability of the firm to cover its current obligations while an increase in the levels of the working capital accounts can mean that too much money is tied up in the business. an effective management of working capital centers on operational asset positions in inventory, accounts receivable, and accounts payable. excess cash and non-operational items are excluded. this paper posits that the enterprise value metric for an investment opportunity acts as a real option. it represents the cost of buying the right to a company’s core cash flows or the value of the claims on those cash flows. when a buyer assesses a firm on the same basis as that of an acquirer, the enterprise value (ev) is analogous to a call option on the total value of the firm’s operations that is measured by taking the market capitalization of the firm and adjusting it for debt, minority interests, preferred stock, and other provisions deemed debt and reducing it by the excess cash of the firm. in other words, it represents an option to buy the debt and other liabilities of a firm after cash flow considerations. major determinants of this excess cash are the components of the working capital cycle. cash flows improve when companies utilize the right level of working capital that tends to release funds that are bound up in operating accounts. it is ‘found’ capital. lifland advances in business research 2011, vol. 2, no. 1, 57-70 58 the observation of the working capital habits of firms will tell us how well they are approaching this subject and if they are efficiently managing the process. with the latter found capital, companies can invest in future growth, pay down debt, or pay dividends. this would be expected to impact the enterprise value in a positive manner. literature review the existence and maintenance of working capital is the lifeblood of a corporation. it is the cash flow that revitalizes operations or slows it down to inoperable levels. regardless of the size of the company, the management of working capital accounts should influence its financial health. kargar and blumenthal, (1994) found that small businesses were significantly impacted by management’s ability to successfully plan the cash requirements of the firm. managers need to monitor the ratio of total working capital to total company assets, as a relatively high figure can signal future strains on the operational financial health of the firm. filbeck and krueger (2004) report the ordinal rankings of industries across working capital management variables for the period of 1996-1999 as reported by cfo magazine survey. the working capital measures were not static but the specific ratios for different industries were stable over time. the majority of the empirical studies on the management of working capital has centered on the possible link to profitability. jose et al., (1996) found evidence that u.s. firms following an aggressive working capital policy saw their profits enhanced. there was a significant negative relationship between the cash conversion cycle of a firm and its profitability. looking at us firms during the period of 19741994, shin and soenen (1998) found evidence that the reduction of net trade credit increases profitability. when they focused on individual industries, that connection was not that strong. deloof (2003) studied a sample of large belgian public firms between 1992-1996 and found their profits improved as they reduced their days of receivables and inventories. in a sample of 58 small manufacturing firms in mauritius, over the period of 1998-2003, padachi (2006), found that the companies with aggressive working capital policies were met with lower profitability. ganesan (2007) studied a sample of firms from the telecommunication equipment industry and while he found a negative relationship between working capital efficiency and profit margins, the results were not significant for that industry. in a more general study, raheman and nasr (2007) analyzed 94 pakistani public firms from 1999-2004 and found a significant negative relationship between a high investment in liquid assets and profitability. ramachandran and janakiraman (2007) found that the operating profit of the firm had a negative relationship with the days of accounts payable. they felt it implied that the less profitable firms waited longer to pay their bills. in a current work, mohamad and saad (2010) obtained a sample of 172 firms listed on the bursa malaysia exchange over the time period of 2003-2007 and found significant negative associations between working capital variables and a firm’s return on assets and return on invested capital. in a study of the aggregate cash conversion cycle, moss and stine (1993) found that a negative relationship existed between the size of the firm and the length of the cycle. larger firms tend to have shorter conversion cycles. taking a survey of 78 domestic firms and 58 foreign firms, maxwell et al., (1998) found that the majority of the sample took advantage of float to control their disbursements and collections but only the foreign firms had significant usage. some firms took no advantage of float in handling their working capital needs. looking at a sample of merchandising and manufacturing firms, uyar (2009) found that the latter group had longer conversion cycles and that there was a negative relationship between the size of the firm and the length of the cycle. the determinants of working capital management were explored by chiou and cheng (2006) where factors such as an industry effect, firm performance, and firm size did not provide consistent conclusions. two factors that did prove to be consistent were operating cash flow and leverage. padachi (2006) found that there was an increasing trend in the short-term component of working capital financing. in another test of the components of working capital management, nazir and talet (2008) looked at the operating cycle, operating cash flow, size, roa, and leverage and found that the operating cycle, roa, and leverage were significant. charitou et al., (2010) empirically investigated the effect of working capital management on the performance of firms lifland advances in business research 2011, vol. 2, no. 1, 57-70 59 in emerging markets. they find a negative relationship between the cash conversion cycle and profitability. in a study of how efficiently working capital is being managed, lifland (2011) found that during the six-year period of 2004-2009, three out of five industry samples reported statistically significant declines in their days of the working capital cycle. these firms were able to reduce the number of days that cash had to be earmarked for the support of the firm’s working capital. additionally, within this time frame, all the industries in the study reflected positive changes in their estimated external financing as it related to working capital. the net effect was that as some asset turnovers decreased, the days of working capital increased, placing a burden on the need for external financing. smith (1987) echoes the importance of looking at the relationship between working capital management and profitability but also stresses its consequence on value. a critical factor in assessing the success of the management of working capital is the use of the cash conversion cycle (gitman, 1974). shin and soenen (1998) found a strong negative association between a firm’s net trade cycle (ntc) and its profitability. they conjectured that by decreasing the ntc to a reasonable minimum, it would result in creating shareholder value. looking at working capital management routines in small uk firms, howorth and westhead (2003) concluded that more research was needed to determine if the working capital routines lead to any superior levels of performance. teruel and solano (2007) studied the effects of working capital management on small and medium enterprises (smes) between 1996 and 2002 and found that shortening the cash conversion cycle improved the firm’s profitability and could also create value (their dependent variable was the return on assets with which they acknowledged endogeneity concerns). charitou et al., (2010) claim that if the components of the cash conversion cycle are managed efficiently, it should add value to the firm because it increased the profitability of the firm. mohammed and saad (2010) perform an empirical study trying to link working capital management to market valuation and profitability. reviewing 172 firms over the period of 2003 to 2007 in bursa malaysia, the cash conversion cycle had a significant negative relationship with tobin’s q, their proxy for the firm’s market value, and profitability. tobin’s q is the ratio of the firm’s market value over the book value of its assets. market value is defined as just the market capitalization. an increasing conversion cycle led to a reduction in firm value. they also state their findings imply that most of the profitable firms are characterized as having relative shorter cash conversion cycles. this paper extends the literature on the relationship between working capital management efficiencies and firm value by introducing a more robust proxy for firm value, the enterprise value (ev). the ev is a relatively more comprehensive alternative to market capitalization as it measures the entire cost of the firm as if someone were to acquire it. it’s a more accurate estimate of the value of a company viewed as a going concern than market capitalization. enterprise value incorporates critical factors such as debt, preferred stock, minority interests, and cash reserves. it tends to be less impacted by changes in a firm’s capital structure because it is the unlevered value of the firm that is being measured. sample data in order to analyze a company using the enterprise value variable, there are two critical things to consider. first, the variable must be constructed in a consistent manner. the market capitalization, total debt, and preferred stock values must be based on the same underlying assets. second, an appropriate peer group must be chosen. where the enterprise value (ev) variable is being considered, it is most useful when there are generally small differences in accounting treatment of depreciation among the comparable companies. choosing a group of industry peers and refining that group to reflect similar views about long-term growth and returns on invested debt and equity is critical. this paper looks at the energy sector where the sample is created through the global industry classification standard (gics) system developed by standard & poor’s and morgan stanley. bhojraj, lee, and oler (2003) found that gics classifications were better than the standard industrial code (sic) in explaining cross-sectional variations in valuation multiples, realized growth rates, expenditures in research and development (r&d), and common financial ratios. even though peers within an industry may trade at similar evs, they still can show variation over time. even as peers are likely to have similar risk profiles, cost structures, and tax lifland advances in business research 2011, vol. 2, no. 1, 57-70 60 rates, the growth rate in earnings and value can vary within an industry. this data set is further defined according to market capitalization. firms with market capitalizations greater than $5 billion are deemed to be large–cap stocks, those with markets caps between $1 and $5 billion are termed mid-cap stocks, and companies having market caps below $1 billion are small-cap securities. covering the time period of 2004 through 2009 for the energy sector, 504 firms were initially collected from compustat. through a filtering process, looking for missing values, the final sample data set resulted in 222 firms. specifically, the sample contains 72 large-cap, 65 mid-cap, and 85 small-cap companies. the largest attrition of firms occurred in small caps as 304 firms were filtered down to 85 firms. there were 219 companies that either did not report an enterprise value or an inventory figure. this paper, building on the formation of three unique peer groups, tests the enterprise value (ev) as an option on the assets of the firm and its relationship with the management of net working capital efficiencies. measures of performance the enterprise value option in the area of real options literature, early works looked at how choices of controlled opportunities (i.e., firm shut downs, new constructions) were a significant part of investment decisions (mcdonald and siegel, 1986; majd and pindyck, 1987). these latter works were theoretical developments of real optionpricing models; examples of works that examined the empirical implications of these models were paddick et al., (1988) and quigg (1993). the area of real options dealing with the relation between balance sheet items and stock prices has received less attention. foster (1986) stated that a critical area of research needed to be focused on the valuation effects of balance sheet items. berger et al., (1995) assessed the extent that balance sheet information impacts firm value given the expected cash flows of the firm. while it is beyond the scope of this paper to empirically test an enterprise value option model, this study still contributes to the real options literature. when a firm encounters an investment opportunity, it’s analogous to a call option as the company has the right, but not the obligation, to acquire the operating assets of another company. the enterprise value metric allows an equity investor to assess the firm on the same basis as an acquirer in a mergeracquisition transaction. the ideal situation would be to find a call option that is similar to the investment so that the value of the option would tell the investor something about the value of the opportunity at hand (luehrman, 1998). the enterprise value can be viewed as a takeover price where the acquirer accepts the debt obligations of the firm but is also entitled to its cash inflows; the net balance of debt or the value of claims on the firm’s cash flow becomes the strike price of the ev option. the mapping of the investment opportunity on the call option leads to the following call option value rule. let s be the value of the firm’s assets and x represent the entire cost of the company, the enterprise value (ev). the call option value = (s – x, 0). when the investment opportunity decision can no longer be deferred, the call option value is (s – x) or 0 whichever is greater. the enterprise value represents the ‘right’ to buy a firm’s core cash flow; it’s the acquisition cost of the firm. as such, it must incorporate not just the market capitalization but also the net debt and all claims pertaining to preferred stock and non-controlling minority interests as well. the non-operating assets (i.e., net cash balances) that do not contribute to the day-to-day-operations of the firm need to be deducted. one method of predicting the ev is based upon the projection of expected future after-tax cash flows, after taking into account investments in capital assets and net working capital. it’s treated as a perpetuity that grows at a constant growth rate and is discounted at a weighted average cost of capital. however, this paper utilizes a linear operational model that can be expressed as: enterprise value (ev) = market capitalization (mc) + debt (d) + non-controlling minority interest (mi) + preferred shares (ps) – excess cash (ec) these components are examined below: lifland advances in business research 2011, vol. 2, no. 1, 57-70 61 the market capitalization (mc) is the number of common diluted shares outstanding multiplied by the share price. the diluted shares reflect any changes from the exercise or conversion of options, warrants, and convertible securities. the debt (d) comprises all long-term debt and the current portion of long-term debt. capital leases are also included. once a business is acquired, its debt has also been acquired. the non-controlling (minority) interest (mi) represents the interest of non-controlling shareholders in the net assets of a company. a parent company has a 70% controlling interest in a consolidated subsidiary, while the remaining 30% non-controlling interest is owned by another company. the non-controlling interest is excluded from the enterprise value. the preferred stock (ps) that is not convertible into common stock must be redeemed at a certain date and price and is treated as debt. its existence represents a claim on the business, a financial liability, and is included in net debt. the excess cash (ec) reflects the cash remaining after the firm has met all of its short-term liabilities. it generally is cash and marketable securities. it serves to reduce the debt and hence the acquisition cost. it is not likely that you would buy an asset without considering the total amount that you have to pay to acquire that asset. this paper considers the enterprise value as a call option on the firm’s equity value with the strike price being the core cash flows or the value of claims on that cash flow. the handling of the components of market capitalization, debt, minority interest, preferred stock, and excess cash imply that in maximizing the value of the business, it in turn achieves the overall financial goal of maximizing stockholders’ wealth. working capital efficiencies the accounting definition of working capital is the difference between current assets and current liabilities. typical current assets are cash, receivables, inventory, and prepaid expenses while accounts such as trade payables and accrued operating expenses make up current liabilities. for the purposes of valuation, however, working capital excludes cash and interest bearing debt (i.e., short-term portion of long-term debt and line of credit outstanding balances). the reason being is that these items are associated with the firm’s capital structure and not the company’s normal cash cycle. in order to optimize working capital analysis, current turnover ratios are converted into a measurement of the number of days that (1) inventory is on hand, (2) it takes to receive payment on trade receivables, and (3) a firm waits until it pays its trade obligations. the net effect of these ratios is an important indicator and measurement parameter (richards and laughlin, 1980). how long is cash tied-up in support of working capital needs? what is the time between cash outlay and cash recovery? following the works of farris and hutchison (2003) and soenen (1993) a measure for effective working capital management is applied here. it is an operational metric definition where the cash conversion cycle reflects the net days it takes a firm to recover a dollar spent in operations. this net position (translated into days outstanding) shows the number of days that cash is bound in receivables and inventory or financed through payables. this paper extends the works of lazaridis and tryfonidis (2005), padachi (2006), and truel and solano (2007), by creating metrics that are all expressed as a percentage of sales. this brings about a balanced comparison across each element of the model, provides true comparisons between industries, and indicates the number of “days sales” the firm has to finance its working capital (shin and soenen, 1998). the model used to measure working capital asset efficiency is as follows: dwc = (din) + (dar) (dap) the formulas, definitions and expected directional effects of these variables on enterprise value (ev) are presented below: lifland advances in business research 2011, vol. 2, no. 1, 57-70 62 (din) days of inventory = inv/(net sales/365). this ratio is calculated by dividing the year-end inventories by net daily sales. it reflects the average number of days that inventories are held by the company. there is an expected negative directional effect on the enterprise value. when it increases, monies tied up in inventory are not being recycled adequately during the operating period. this constraint on cash flows impacts the firm’s ability to manage debt and other nonoperational items. a decrease in (din) is an improvement in the time that inventory is held and helps to curb stale or obsolete levels of inventory. the improvement in cash inflow from the timely sale of inventory can be used to reduce the net debt position and enhance the enterprise value. (dar) days of receivables = a/r/(net sales/365). it’s the year-end accounts receivables net of allowance for doubtful accounts divided by average daily sales. in other words, the average number of days that it takes a firm to collect payments from its customers on its credit sales. the expected directional effect on enterprise value is negative. if the days of receivables increase, it represents a lost opportunity of utilizing cash to help reduce the debt burden of a corporation, making it more costly from an enterprise value perspective. increasing days signal an inefficient use of receivables and related credit policies. a decrease in (dar) signals acceleration in cash collection that can be put against debt obligations of the firm, improving ev. (dap) days of payables = a/p/(net sales/365). this ratio is calculated by dividing average accounts payables by average daily sales. it reflects the average time that it takes for companies to pay their suppliers and vendors. there is an expected positive directional effect on the enterprise value. as (dap) increases, it means that the firm takes a relative longer time period to settle their payment commitments. it’s interpreted as an improvement as the firm is using the money of others to devote to non-operational obligations. the expectation is that firms will increase this ratio up to a level that reflects that the incentives of purchase discounts are beneficial. (dwc) days of working capital = din + dar – dap. this variable represents the net effect of adding the din and dar and subtracting the dap. this net figure allows for better benchmarking of operating efficiency for peer firms within and outside a given industry. the directional effect is expected to be negative with respect to enterprise value. simultaneously optimizing the three components of the operative (dwc) (a net decrease in the total days of the working capital cycle) frees up capital that can subsequently reduce the debt obligation and other non-operational concerns of the investor-acquirer that will improve the enterprise value. the efficient management of these working capital assets includes maintaining adequate product levels and appropriate credit/payment terms. it involves mitigating any situation where the servicing of the working capital results in cash constraints that would negatively impact the enterprise value. methodology prior works are extended as this paper examines the impact of the working capital cycle and its components over a six-year period. it relates these components to a ‘going concern’ value, the enterprise value is its proxy, versus market capitalization. the majority of the literature centers on the relationship between working capital and profitability. the examination by this paper follows a similar empirical framework as used by deloof (2003), lazaridis and tryfonidis (2006), truel and solano (2007), charitou et al (2010) and mohammad and saad (2010). in order to determine if there were significant associations between the working capital efficiencies and the enterprise value of firms over the years of 2004 through 2009, this paper creates a pearson correlation table and conducts a panel data regression methodology. the hypotheses state that there is an association between the enterprise value of the firm and each of the components of the working capital cycle as well as the net days of the working capital cycle. h1: there is an association between enterprise value and days of inventory. h2: there is an association between enterprise value and days of receivables. lifland advances in business research 2011, vol. 2, no. 1, 57-70 63 h3: there is an association between enterprise value and days of payables. h4: there is an association between enterprise value and net working capital cycle. in order to test the propositions of the associations between enterprise value and the working capital efficiencies, this paper employs a regression analysis using a panel data methodology (deloof, 2003), (padachi, 2006), (teruel and solano, 2007). the use of the panel methodology provides more informative data, less collinearity among variables, more degrees of freedom and more efficiency (baltagi et al., 2003). the following models will be tested: !"#$%#&#'0 (#'1)*+,#(#'2)-.,#(##'3)-/0,#(#1 2"#$%#&#'0 (#'1)*+,#(#'2)-.,#(##'3)-.3,#(#1 4"#$%#&#'0 (#'1)*+,#(#'2)-.,#(###'3)-.5,#(#1 6"#$%#&#'0 (#'1)*+,#(#'2)-.,#(###'3)-78,##(#1 the dependent variable, ev, measures the firm’s enterprise value; it’s the net of the market capitalization, debt, minority interests, preferred shares and excess cash. din represents the number of days that inventory is held while dar is the number of days it takes to collect on accounts receivable. the directional effect of both are expected to be negative as an increase will extend the number of days that cash is tied-up in working capital. dap measures the average number of days a firm takes to pay its trade payables. its hypothesized sign is positive as firms that can further delay their payments to suppliers-creditors can enhance enterprise value. the days of the working capital cycle (dwc) presents the net number of days that capital is constrained in the working capital process. it’s calculated as the sum of din and dar less dap. the expected effect is negative as an increase in the total net days that management has to devote to servicing their working capital needs, will divert funds that could have gone to reducing non-operational accounts and enhancing the enterprise value. two control variables are introduced into the model (lazaridis and tryfonidis, 2006), (teruel and solano, 2007), (charitou et al., 2010). sg is the sales growth and is calculated as the differential between current year sales and prior year sales divided by prior year sales [(s1 s0)/s0]. the expected direction of this variable is negative in that given an increase in the growth of sales, while a good thing, also puts pressure on a firm to have the appropriate mix of working capital accounts to support it. da is the ratio of debt to total assets. the expected directional effect is negative as an increase can make a firm more costly and can weaken the enterprise value. empirical results the first step before performing a regression analysis on the four panel data models is to determine if there exists a correlation between the unobservable heterogeneity of each firm and the independent variables of the model. to accomplish this, the pearson correlation test (shin and soenen, 1998), (deloof, 2003), (padachi, 2006), (charitou et al., 2010) for the variables that will be included in the regression model is presented in exhibit 1 below. the energy sector data sample is broken out into three groups based upon market capitalization. these are the large-cap firms, mid-cap firms, and small-cap firms. exhibit 1: pearson correlation coefficients energy sector (time period of 2004 through 2009) panel a: 72 large-cap corporations and 360 firm year observations ev sg da din dar dap dwc ev 1.000 -0.097 -0.275 -0.030 0.022 0.025 -0.055 sg 1.000 -0.020 0.035 0.145 0.144 -0.139 da 1.000 -0.162 -0.061 -0.058 -0.068 din 1.000 0.318 0.302 -0.142 dar 1.000 0.997 -0.892 dap 1.000 -0.906 dwc 1.000 lifland advances in business research 2011, vol. 2, no. 1, 57-70 64 panel b: 65 mid-cap corporations and 315 firm year observations ev sg da din dar dap dwc ev 1.000 -0.075 0.156 -0.054 -0.044 0.109 -0.170 sg 1.000 0.071 -0.070 -0.122 0.016 -0.051 da 1.000 -0.166 -0.179 0.125 -0.246 din 1.000 0.190 -0.069 0.441 dar 1.000 0.204 0.329 dap 1.000 -0.157 dwc 1.000 panel c: 85 small-cap corporations and 425 firm year observations ev sg da din dar dap dwc ev 1.000 -0.032 0.076 -0.049 0.107 -0.073 0.214 sg 1.000 0.025 -0.080 -0.004 0.036 -0.005 da 1.000 0.015 0.029 0.071 -0.023 din 1.000 0.187 0.918 -0.750 dar 1.000 0.169 0.679 dap 1.000 0.104 dwc 1.000 where: ev = the enterprise value of the firm. sg = the yearly sales growth for each firm. da = the annual debt to total assets ratio. din = average days that inventory is held. dar = average days that takes to collect on trade receivables. dap = average days that it takes to pay trade payables. dwc = average annual days of working capital; it is din + dar – dap. the large cap companies (panel a) in the energy sector show a negative relation between the days of inventory and enterprise value that is consistent with the hypothesized directional effect. an increase in the days of inventory held would decrease cash flow and that would impede the covering of nonoperational accounts. the average days-to-collect on trade receivables has a positive sign that is not consistent with the expected direction. it’s possible that less profitable firms (deloof, 2003) seek to increase their credit sales even if the days’ sales outstanding are extended. the average number of days that the large caps take to pay their trade payables has the expected positive sign. the ability to extend their payments to supplier-creditors generates capital to improve the enterprise value. the days of the working capital cycle, the net of the latter three variables, displays the expected hypothesized negative sign. an overall increase in the number of days that capital must be tied up in maintaining working capital does not strengthen the enterprise value. the negative value of sales growth reflects the fact that growing sales place an increasing burden on the working capital of the firm. maintaining efficiencies become more difficult. the negative sign of the debt control variable is expected because an increase in debt makes the firm more costly to acquire. the mid-cap stocks of panel b reflect results as hypothesized; enterprise value has an inverse relationship with two of the components of the days of working capital cycle (dwc): the days of inventory (din) and the days of receivables (dar). it has the expected positive relationship with the days of payables (dap). the net days of the working capital cycle (dwc) has the expected negative directional effect as well. this result is consistent with the notion that an increase in the net number of days that a corporation must commit its cash to working capital needs hinders its ability to cover nonoperational accounts in the enterprise value. the negative value of sales growth has the expected negative direction while the debt ratio shows an unanticipated positive relation. the small-cap stocks of panel c have mixed results. the days of inventory (din) and the control variable of sales growth (sg) both have the expected hypothesized negative sign. the dar, dap, and da variables reflect positive directions with the enterprise value. the dwc has a positive sign, too. there are possible reasons for this result, however, and they are addressed in the regression analysis that follows. lifland advances in business research 2011, vol. 2, no. 1, 57-70 65 regression analysis this paper has presented a literature background and data analysis in examining the impact of working capital efficiencies on enterprise value. in order to test the related hypotheses, a panel data regression methodology is used (padachi, 2006), (teruel and solano, 2007), (charitou et al., 2010) and (mohammad and saad, 2010). a scatter plot revealed that the residuals were fairly straight with no extreme values. this allows an assumption of normality. when fitting the line to the data, the estimates of the coefficients were determined using the operating least squares method (ols). the independent variables are din, dar, dap, dwc, sg, and da. the dependent variable is enterprise value (ev). specifically, the hypotheses state that the components of the working capital cycle and the net cycle itself affect a firm’s enterprise value. the total number of observations is 1,100, which represented stacked data for the period 2004 – 2009 for 222 firms in the energy sector. the sample is segmented into three categories: largecap, mid-cap, and small-cap firms. the results are presented in exhibit 2 below. exhibit 2: regression table energy sector firms dependent variable: enterprise value time period 2004 2009 panel a: 72 large-cap corporations and 360 firm year observations [1] [2] [3] [4] din -198.7 (0.1514) dar 3.82 (0.6846) dap 3.71 (0.6354) dwc -35.43 (0.0789)*** sg -16,003 (0.0492)** -16,859 (0.0408)** -16,939 (0,0398)** -18,405 (0.0249)** da -139446 (<0.0001)* -133,142 (<0.0001)* -133,083 (<0.001)* -136,810 (<0.001)* adjusted r-square 8.39% 7.90% 7.92% 8.65% panel b: 65 mid-cap corporations and 315 firm year observations [1] [2] [3] [4] din -2.32 (0.5472) dar -1.43 (0.6430) dap 6.27 (0.1017) dwc -2.94 (0.0124)** sg -201.6 (0.1123) -203.6 (0.1104) -198.5 (0.1160) -208.14 (0.0977)*** da 1,530.3 (0.005)* 1,539.8 (0.0056)* 1,472.4 (0.0073)* 1,244.8 (0.0246)** adjusted r-square 2.38% 2.33% 3.10% 4.20% panel c: 85 small-cap corporations and 425 firm year observations [1] [2] [3] [4] din -0.772 (0.2146) dar -0.306 (0.1818) dap -0.324 (0.0063)* dwc 0.016 (0.4796) sg -1.16 (0.5472) -1.08 (0.5744) -1.06 (0.5787) -1.08 (0.5762) da 23.38 (0.6458) 22.32 (0.6610) 41.38 (0.4150) 34.97 (0.5033) adjusted r-square .50% .56% 1.18% .26% lifland advances in business research 2011, vol. 2, no. 1, 57-70 66 notes to regression table: the industry is categorized according to the global industry classification standard (gics) for the energy sector. p-values (robust for heteroscedasticity) in parentheses. (*) = significant at the 99% confidence level (**) = significant at the 95% confidence level (***) = significant at the 90% confidence level ols regression includes the following variables: number of days inventories (din) is (inventories x 365)/sales. number of days of accounts receivable (dar) is (accounts receivable x 365)/sales. number of days accounts payable (dap) is (accounts payable x 365)/sales. days of working capital (dwc) is (dar + din – dap). sales growth (sg) is (current revenues – last year’s revenues)/last year’s revenues. debt to total assets (da) is (financial debt/total assets). within panel a, the large cap firms show a negative relationship between the days of inventory (din) and enterprise value (ev) that is consistent with the hypothesized directional effect. an increase in the days of inventory held reduces cash in-flows that would impede the covering of non-operational accounts. the coefficient is not significant, however. the average days-to-collect on trade receivables (dar) has a statistically insignificant positive sign that is not consistent with the expected direction. it is possible that the less profitable firms seek to increase their credit sales even if it extends the days’ sales outstanding (deloof, 2003). the average number of days that the large caps take to pay their trade payables (dap) has the expected positive sign. the ability to extend their payments to supplier-creditors generates capital to improve the enterprise value. it was not statistically significant. the days of the working capital cycle, the net of din, dar, and dap, displays the expected hypothesized negative direction and is significant at the 10% level. a net increase in the number of days that funds must be committed to maintaining working capital will cause the core cash flows within the enterprise value to decline. it does not strengthen the enterprise value as there is less cash to apply towards the reduction of debt and other nonoperating accounts. the control variable, sales growth, reveals a negative value that is significant at a 5% level. agreeing with the model expectations, the implication is that growing sales place an increasing burden on the working capital of the firm. maintaining efficiencies become more difficult and require a redirection of funds. the negative sign of the debt control variable agrees with the hypothesized direction as an increase in debt makes the firm more costly to acquire. it is significant at a 1% level. within panel b, the mid cap companies reflect the hypothesized directional effect for each of the components of the working capital cycle and the net cycle itself. there is a negative relationship between the average days that inventory is held (din) and enterprise value (ev) as an increase in this independent variable reduces cash inflows that would impede the covering of non-operational accounts. the coefficient is not significant. the average days-to-collect on trade receivables (dar) has a statistically insignificant negative sign. this negative direction is consistent with the idea that increasing the number of days that a company allows others to use their money puts a drain on a firm’s funds available to cover non-operational items such as debt. the average number of days that the mid-caps take to pay their trade payables (dap) has the expected positive sign but it is not statistically significant. their ability to extend their payments to supplier-creditors generates capital to improve the enterprise value. consistent with the large-cap results, the days of the net working capital cycle (dwc) for the mid-cap firms carries the expected hypothesized negative sign and is significant at a 5% level of confidence. the implication is that firms that allow their working capital cycle to increase, face a situation of having to earmark more of their cash to maintain their working capital needs and that will ultimately reduce their excess cash. similar to the results for large-cap companies, an increase in the net number of days that a corporation must commit its cash to working capital requirements hinders its ability to cover non-operational accounts in the enterprise value. the sales-growth control variable was negative and statistically significant at the 1% level. as a firm experiences growing sales, it must be accompanied by increasing working capital needs. lifland advances in business research 2011, vol. 2, no. 1, 57-70 67 this situation puts additional demands on excess cash that could have been part of the enterprise value. the debt control variable has an insignificant positive value. the expected sign was negative. the regression results for the small-cap companies of the energy sector, found in panel c, reported none of the components within the four regression models as having any statistical significance. the independent variables of din and dar reported anticipated negative directional effects while the sg control variable had an expected negative sign. the adjusted r-square figures are substantially lower than those found for large-cap and mid-cap firms. this data sample started out with 304 companies and filtered down to 85. the majority of lost firms were due to their lack of inventory and/or an enterprise value. small-cap firms tend to have limited access to long-term capital markets and experience relatively poor working capital management (padachi 2006). internal factors such as skills of management, the workforce, and financial management practices may cause differences within an industry group and are likely to have led to the results seen here (shin and soenen, 1998; deloof, 2003). howorth and westhead (2003) looked at a sample of small companies in the uk and divided it into four types of companies based on their attention to the process of managing their working capital needs. the fourth type were firms that did not follow any working capital management routines. the small-cap firms tend to focus only on the management of working capital that is expected to improve marginal returns. conclusion much of financial literature on working capital management has centered on its relationship with the profitability of the firm. the majority of research finds that there exists a significant negative relationship between the two variables as increases in the components of the working capital cycle reduce the cash flows available to the company and subsequently lead to a reduction in profits. teruel and solano (2007) argue that profits are enhanced when firms pay suppliers on time, collect receivables early, and keep inventory in stock for shorter periods of time. the finding of a negative relationship has been consistent given various definitions of profitability. lazaridis and tryfonidis (2006) and deloof (2003) and shin and soenen (1998) measured it through gross operating profit. uyar (2009) and padachi (2006) chose the return on assets to test for the correlation with the cash conversion cycle. missing from the literature is the focus on whether the efficient management of working capital impacts market value in a significant manner. mohammed and saad (2010) proxy firm value with tobin’s q and found a significant negative relationship with a firm’s cash conversion cycle. this paper supports and extends the financial literature by incorporating the components of the net working capital cycle as proxies for working capital efficiencies and interjects the more robust enterprise value (ev) as the market value proxy. while it is beyond the scope of this paper to empirically test an enterprise value option model, this study still contributes to the real options literature. when a firm encounters an investment opportunity, it’s analogous to a call option as the company has the right, but not the obligation, to acquire the operating assets of another company. the enterprise value (ev) metric allows an equity investor to assess the firm on the same basis as an acquirer in a merger-acquisition transaction. unlike the tobin’s q used by mohammed and saad (2010), the enterprise value represents the ‘right’ to buy a firm’s core cash flow. it actually represents the acquisition cost of the firm. as such, it incorporates not just the market capitalization but also the net debt and all claims pertaining to preferred stock and non-controlling minority interests as well. this paper finds a significant negative relationship between the net working capital cycle and the enterprise value for both large-cap and mid-cap firms within the energy sector. an increase in the length of time that funds are committed to maintaining the net working capital position (cash outlay and cash recovery) can lead to the erosion of the firm’s core cash flow and enterprise value. many companies still underestimate the importance of improving the handling of their working capital accounts as a way to free-up cash. upon finding optimum efficiencies of working capital, the cash flows improve and result in releasing capital from the balance sheet. reducing the funds employed in working capital leads to asset productivity. having this financial flexibility, allows a company to pare down non-operational items such as debt that make a firm more costly and in turn impact a company’s enterprise value. lifland advances in business research 2011, vol. 2, no. 1, 57-70 68 the results of this paper highlight the importance for the management of a company to maintain working capital efficiencies to insure improvement in an enterprise’s core cash flow. from the perspective of the investor-acquirer, the acquisition cost of a company is directly impacted and it shows why they need to pay attention as to how well firms simultaneously turn over their inventories, collect on trade receivables, and service their trade creditors. here, the enterprise value represents an option on the assets of the firm where the value of the claims on a firm’s excess cash flows act as the strike price. an investor infers either that the enterprise value option is becoming expensive (out-of-the-money) or the enterprise value option is becoming less expensive (in-the-money) and acts upon this through a short sale or purchase, respectively. references baltagi, b., seng, s., & koh, w. 2003. testing panel data regression models with spatial error correlation. journal of econometrica, 17: 123-150. berger, p., ofek, e., & swary, i. 1995. investor valuation of the abandonment option. journal of financial economics, 42: 257-287. bhojraj, s., lee, c., & oler, d. 2003. what’s my line? a comparison of industry classification schemes for capital market research. working paper, ithaca ny: cornell university. charitou, m., elfani, m., & lois, p. 2010. the effect of working capital management on firm’s profitability: empirical evidence from an emerging market. journal of business & economics research, 8: 63-68. chiou, j., & cheng, l. 2006. the determinants of working capital management. 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transitions, 7: 61-74. lifland advances in business research 2011, vol. 2, no. 1, 57-70 70 smith, j. 1987. trade credit and informational asymmetry. journal of finance, 42: 863-872. soenen, l. 1993. cash conversion cycle and corporate profitability. journal of cash management, 13: 53-58. shin, h., & soenen, l. 1998. efficiency of working capital management and corporate profitability. financial practice and education, 8: 37-45. uyar, a. 2009. the relationship of cash conversion cycle with firm size and profitability: an empirical investigation in turkey. international research journal of finance and economics, 24: 186-193. steven lifland is an associate professor of finance at high point university. he received his ph.d. in finance from old dominion university. his current research interests include working capital management, real estate valuation, corporate innovation: r&d and patents, etfs, reits, and financial education. he has published in journal of managerial finance, journal of academy of business and economics, advances in business research, journal of accounting and finance, and review of business. microsoft word editorial.docx http://journals.sfu.ca/abr advances in business research 2014, volume 4, page 16 i call for business research amelia a. baldwin university of arkansas – fort smith advances in business research is published by the college of business at the university of arkansas fort smith. we aim to further the research boundaries of business and business education in all of the related disciplines. advances in business research is a research journal that provides a forum for current thoughts, techniques, theories, issues, trends, and innovations in all of the business fields, including accounting, economics, finance, international business, management, marketing, entrepreneurship, leadership, and other related fields. keywords: business, research, publishing, learning, education, peer review editorial research on business and business education 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from virginia tech, and m.ac. and b.s. degrees in accounting from auburn university. she researches technology in accounting and business education, the impacts of technology on the accounting profession and business, and issues of diversity in accounting and business academia. she has published dozens of peer-reviewed articles and has taught accounting on three continents. advances in business research 2011 volume 2.pdf stunda advances in business research 2011, vol. 2, no. 1, 203-209 203 further evidence of the effect of stock splits on the securities market, does a “wal-mart effect” exist? ronald stunda, valdosta state university recent research has investigated whether or not there is a distinct “wal-mart effect” in the securities market. that is, does wal-mart possess an advantage over its competitors in analyzing security prices? a factor associated with this notion centers around the numerous stock splits by wal-mart during its corporate life. this study compares wal-mart to all other firms in the retail trade industry that have had multiple stock splits. results of this study show that wal-mart still maintains an advantage over its competitors with respect to information content of a wealth measure. when comparing firms with multiple stock splits to all other firms in the same industry, firms with multiple stock splits have a similar advantage. these findings establish a basis for concluding that, on whole, firms that have multiple stock splits over their corporate life are more likely to possess more significant information content of wealth when linked to security prices than firms with fewer or no multiple stock splits. as far back as the original ball and brown (1968) study, there have been a multitude of studies that empirically link unexpected earnings with security prices. what makes it difficult to apply this standard to a firm such as wal-mart is the fact that since 1972, the firm has had eleven 100% stock splits, more than any u.s. firm in history. although in the past 10 years, wal-mart has noticed maturity of their market and there have been no stock splits. most experts attribute this to the stock price being mired in the $40-$50 range. that being said, wal-mart stock has risen to the upper $50 range recently and most analysts believe that when the stock hits the $60-$70 range it will split once again. to assess unexpected earnings accurately to wal-mart stock prices, one would have to control for the effect of earnings and associated stock splits throughout its history. for instance, wal-mart stock price has ranged from less than $30 to greater than $80 per share, many of the swings, stock split induced. to date, no practical attempt has been made to control for this factor. recent research on equity valuation has focused on ratios. nissim and penman (2001) find crosssectional correlation between financial ratios and equity prices. penman and zhang (2005) find that price/earnings and book value ratios provide greater persistence than earnings when correlating to equity prices, while nissim and penman (2005) indicate that financial ratios may be viewed as a building block to analyze future equity payoffs. stunda (2008) proxies “wealth” for unexpected earnings and then links that measure to security prices in an attempt to ascertain if there is any correlation between a wealth measure and security prices, and if wal-mart has any advantage when this measure is assessed. while unexpected earnings are time specific (i.e., quarterly or annual), they are less adaptable to such things as stock splits. ratios are more elastic and are better adapted to measuring such swings. therefore, the wealth measure used was book value per share (defined as total common equity divided by number of common shares outstanding). results of this study found that wal-mart possessed a distinct advantage over its competitors when it comes to the information content of wealth generation and its linkage to security prices. the questions that remained unanswered by the stunda study were; do firms that have multiple stock splits over their life possess any advantage over firms that do not, and do firms that have multiple stock splits possess any significant advantage/disadvantage when compared with wal-mart? any advantage would be assessed by significant information content effects on the security prices of the firms. research design this study focuses on an analysis of wal-mart and other firms in the retail trade industry, specifically; those that fall into sic code 5311. a study period of 1973-2010 is utilized. many previous studies have used longer event studies. desai and jain (1997) use a 17 year event study of stock splits and their stunda advances in business research 2011, vol. 2, no. 1, 203-209 204 findings are as robust as shorter time frames. lakonishok and vermaelen (1990) examine security prices over a 24 year period and find results comparable with shorter 3-5 year studies. fama (1998) conducts an evaluation of longer term event studies and does not find anomalies between those of longer versus shorter duration. using the study period 1973-2010, these firms were broken down as follows: total firms with less than two stock splits (and excluding wal-mart), total firms with two or more stock splits, and wal-mart. table 1 provides a summary of firms and firm quarters to be used in this study. table 1: study sample summary study period total firms firms total qtrs. total firm split total >1 stock qtrs. wal-mart total wal-mart qtrs. 1973-2010 125 18,500 1 2 59 8,732 1 1 148 1excludes wal-mart 2excludes firms with >1 stock split hypothesis development wal-mart in comparison to the rest of the industry the information content of book value per share, the proxy for wealth, is assessed for significance to security prices for wal-mart. similarly, information content of the same wealth measure is assessed for significance to security prices for the rest of the firms in the retail trade industry. if the wealth measure is not perceived to have greater influence on wal-mart stock prices than the same wealth measure would have on stock prices for the rest of the firms in the industry, then there should be no significant difference between the two groups. if, on the other hand, there is significant difference, it may be inferred that walmart’s wealth measure is more/less influential in determining future stock prices. these alternative notions suggest the following null hypothesis: h1: the information content of book value per share (wealth measure) for wal-mart is not significantly different from the information content of the book value per share for all other retail trade firms. test of hypothesis the purpose of this test is to assess the relative information content of the firm’s book value (wealth) to security prices of the firm. quarterly financial data, which would also contain information for determining book value, is typically released by each publicly held firm within two weeks following the close of the quarter. based on this information, stock traders respond along with the stock price itself. heretofore, the prime belief was that earnings, more specifically, “unexpected earnings” was causing the stock price to move. but what if there are influences that go beyond unexpected earnings, such as a firm with a history of unprecedented number of stock splits? might a wealth measure, such as book value per share, be able to capture any correlation with future stock price? the dow jones news retrieval service (djnrs) was used to identify the date that each firm released quarterly financial data for the study periods. this date of data release is known as the event date. the following model is established for determining information content: carit = a + b1wit + b2(dmwit) + b3ueit + b4bit + b5mvit + eit where: carit = cumulative abnormal return firm i, time t a = intercept term wit = wealth measure proxied by book value per share for firm i, time t dm = dummy variable equal to 1 if wal-mart, 0 otherwise ueit = unexpected earnings for firm i, time t bit = market model slope coefficient as proxy for systematic risk mvit = market value of equity as proxy for firm size eit = error term for firm i, time t stunda advances in business research 2011, vol. 2, no. 1, 203-209 205 the coefficient “a” measures the intercept. the coefficient b1 is the response coefficient for measuring the effect of book value (wealth) on security prices for all firms in the industry (excluding wal-mart). the coefficient b2 is the response coefficient measuring book value (wealth) on security prices for walmart. the coefficient b3 is the traditional earnings response coefficient (erc), found to have correlation with security prices in traditional market based studies. the coefficients b4 and b5 are potential contributions to the erc. to investigate the effect of information content on security prices, there must be some control for variables found in prior studies to be determinants of information content. for this reason, variables b3, representing systematic risk, and b4, representing firm size are included as controls in the study. unexpected earnings (uei) is measured as the difference between the management earnings forecast (mfi) and security market participants’ expectations for earnings proxied by consensus analyst following as per investment brokers estimate service (ibes) (exi). the unexpected earnings are scaled by the firm’s stock price (pi) 180 days prior to the forecast: uei = (mfi) – (exi) pi for each firm sample, an abnormal return (arit) is generated around the event dates of -1, 0, +1 (day 0 representing the day that the firm’s financials were available per djnrs). the market model is utilized along with the crsp equally-weighted market index and regression parameters are established between 180 and -91. abnormal returns are then summed to calculate a cross-sectional cumulative abnormal return (carit). table 2: test of hypothesis 1 sample period 1973-2010 model: carit = a + b1wit + b2(dmwit) + b3ueit + b4bit + b5mvit + eit a b1 b2 b3 b4 b5 adj. r2 .25 .12 .19 .15 .03 .04 .112 (.92) (.80) (2.49)c (2.11)b (.22) (.41) n = 148 firm quarters for wal-mart (b2 coefficient) n = 27,232 firm quarters for all other firms in the industry (b1 coefficient) n = 27,380 firm quarters for all firms in industry (b3 coefficient) a significant at the .10 level b significant at the .05 level c significant at the .01 level carit = cumulative abnormal return firm i, time t a = intercept term wit = wealth measure proxied by book value per share for firm i, time t dm = dummy variable equal to 1 if wal-mart, 0 otherwise ueit = unexpected earnings for firm i, time t bit = market model slope coefficient as proxy for systematic risk mvit = market value of equity as proxy for firm size eit = error term for firm i, time t results as indicated in table 2, the coefficient representing the proxy for wealth for wal-mart, b2, is significant. this variable has a value of .19 with a p-value of .01. the coefficient representing the proxy for wealth for all other firms in the retail trade industry, b1, does not show significance at traditional levels with a value of .12. table 2 also shows that the unexpected earnings variable, b3, has a value of.15 and is significant with a p-value of .05. this result supports most past studies that link unexpected earnings to security prices. no other variables in the model were found to contain significance at traditional levels. the results from this regression analysis do not support the hypothesis that information content of the wealth measure for wal-mart is not significantly different from the information content of the wealth measure for all other firms in the industry, and therefore, h1 is rejected. stunda advances in business research 2011, vol. 2, no. 1, 203-209 206 in addition, whenever a set of multiple regression variables are employed, there is a probability of the presence of multicollinearity within the set of independent variables which may be problematic from an interpretive perspective. to assess the presence of multicollinearity, the variance inflation factor (vip) was utilized. values of vip exceeding 10 are often regarded as indicating multicollinearity. in the test of hypothesis 1, a vip of 2.1 was observed, thus indicating a non-presence of significant multicollinearity. firms with multiple stock splits in comparison to the rest of the industry if the wal-mart wealth proxy exerts greater influence on security prices than the wealth proxy of all other firms in the retail trade industry, as seen in hypothesis 1, it is possible that the multiple stock splits of wal-mart may have played a factor in the results. if, however, multiple stock splits are unrelated to wealth and security prices, it could be conjectured that the results of hypothesis 1 are spurious or only related to wal-mart and any specific effects it exerts. if multiple stock splits, in general, have little or no impact on wealth and security prices, then we should see insignificant differences between firms with multiple stock splits and the rest of the industry when assessing wealth to security prices. this notion suggests the following hypothesis: h2: the information content of book value per share (wealth measure) for all firms in the retail trade industry with multiple stock splits is not significantly different from the information content of book value per share for all other retail trade firms. test of hypothesis a similar regression as was used for hypothesis 1 is used again for hypothesis 2: carit = a + b1wit + b2(dmwit) + b3ueit + b4bit + b5mvit + eit where: carit = cumulative abnormal return firm i, time t a = intercept term wit = wealth measure proxied by book value per share for firm i, time t dm = dummy variable equal to 1 if firms with multiple stock splits, 0 otherwise ueit = unexpected earnings for firm i, time t bit = market model slope coefficient as proxy for systematic risk mvit = market value of equity as proxy for firm size eit = error term for firm i, time t the coefficient “a” measures the intercept. the coefficient b1 is the response coefficient for measuring the effect of book value (wealth) on security prices for all firms in the industry with fewer than 2 stock splits. the coefficient b2 is the response coefficient measuring book value (wealth) on security prices for industry firms with multiple stock splits. the coefficient b3 is the traditional earnings response coefficient (erc). the coefficients b4 and b5 are potential contributions to the erc. results as indicated in table 3, the coefficient representing the proxy for wealth for firms with multiple stock splits, b2, is significant. this variable has a value of .23 with a p-value of .01. the coefficient representing the proxy for wealth for firms with fewer than 2 stock splits in the retail trade industry, b1, does not show significance at traditional levels with a value of .10. table 3 also shows that the unexpected earnings variable, b3, has a value of.15 and is significant with a p-value of .05. results of this variable are the same as hypothesis 1. no other variables in the model were found to contain significance at traditional levels. the results from this regression analysis do not support the hypothesis that information content of the wealth measure for firms with multiple stock splits is not significantly different than the information content of the wealth measure for firms with fewer than 2 stock splits, and therefore, h2 is rejected. stunda advances in business research 2011, vol. 2, no. 1, 203-209 207 in addition, an assessment of vip for multicollinearityin the hypothesis resulted in a vip value of 2.0, indicating non-presence of any significant multicollinearity. table 3: test of hypothesis 2 sample period 1973-2010 model: carit = a + b1wit + b2(dmwit) + b3ueit + b4bit + b5mvit + eit a b1 b2 b3 b4 b5 adj. r2 .20 .10 .23 .15 .05 .08 .122 (.87) (.67) (2.64)c (2.11)b (.27) (.39) n = 18,500 firm quarters for firms with fewer than 2 stock splits (b1 coefficient) n = 8,880 firm quarters for firms with multiple stock splits (b2 coefficient) n = 27,380 firm quarters for all firms in industry (b3 coefficient) a significant at the .10 level b significant at the .05 level c significant at the .01 level carit = cumulative abnormal return firm i, time t a = intercept term wit = wealth measure proxied by book value per share for firm i, time t dm = dummy variable equal to 1 if firms with multiple stock splits, 0 otherwise ueit = unexpected earnings for firm i, time t bit = market model slope coefficient as proxy for systematic risk mvit = market value of equity as proxy for firm size eit = error term for firm i, time t firms with multiple stock splits in comparison to wal-mart if the wal-mart wealth proxy exerts greater influence on security prices than the wealth proxy of all other firms in the retail trade industry, as seen in hypothesis 1, it is possible that the multiple stock splits of wal-mart may have played a factor in the results. accordingly, if multiple stock split firms’ wealth proxy exerts greater influence on security prices than the wealth proxy of all other firms in the retail trade industry, as seen in hypothesis 2, one may again conclude that the multiple stock splits may have played a factor. the final comparison is that between wal-mart and other firms with multiple stock splits. if multiple stock splits, in general, are associated with security prices, and if wal-mart and other firms in the retail trade industry with multiple stock splits have a greater influence on security prices than do firms without multiple stock prices, one might conclude that there is no significant difference between walmart and associated firms with multiple stock splits. this notion suggests the following hypothesis: h3: the information content of book value per share (wealth measure) for wal-mart is not significantly different from the book value per share of all other firms in the retail trade industry with multiple stock splits. test of hypothesis the following regression is used to test hypothesis 3: carit = a + b1wit + b2(dswit) + b3(dmwit) + b4ueit + b5bit + b6mvit + eit where: carit = cumulative abnormal return firm i, time t a = intercept term wit = wealth measure proxied by book value per share for firm i, time t ds = dummy variable equal to 1 if any firm with multiple stock splits, 0 otherwise dm = dummy variable equal to 1 if wal-mart, 0 otherwise ueit = unexpected earnings for firm i, time t bit = market model slope coefficient as proxy for systematic risk mvit = market value of equity as proxy for firm size eit = error term for firm i, time t stunda advances in business research 2011, vol. 2, no. 1, 203-209 208 the coefficient “a” measures the intercept. the coefficient b1 is the response coefficient for measuring the effect of book value (wealth) on security prices for all firms in the industry with fewer than 2 stock splits. the coefficient b2 is the response coefficient measuring book value (wealth) on security prices for industry firms with multiple stock splits. the coefficient b3 is the response coefficient measuring book value (wealth) on security prices for wal-mart. the coefficient b4 is the traditional earnings response coefficient (erc). the coefficients b5 and b6 are potential contributions to the erc. results as indicated in table 4, the coefficient representing the proxy for wealth for all firms with fewer than two stock splits, b1, is not significant at traditional levels. this variable has a value of .24. the coefficient representing the proxy for wealth for firms with multiple stock splits, b2, has a value of .20 and a p-value of.10. the coefficient representing the proxy for wealth for wal-mart, b3, has a value of .27 and a p-value of .01. table 4 also shows that the unexpected earnings variable, b4, has a value of.15 and is significant with a p-value of .05. results of this variable are the same as hypothesis 1 and 2. no other variables in the model were found to contain significance at traditional levels. the results from this regression analysis do support the hypothesis that information content of the wealth measure for firms with multiple stock splits is not significantly different than the information content of the wealth measure for wal-mart, and therefore, h3 cannot be rejected. in relating wal-mart to other multi-stock-split firms, this hypothesis captures a unique effect that the wealth measure for wal-mart may have on stock prices, namely, because wal-mart has been so consistent about splitting its stock relative to other firms that also have split more than once, wal-mart’s wealth measure may be sending a stronger signal to the securities market than those of other firms. thus there may indeed exist a unique “wal-mart effect.” the vip multicollinearity factor was found to be 2.4 among the independent variables, indicating a non-presence of any significant multicollinearity. table 4: test of hypothesis 3 sample period 1973-2010 model: carit = a + b1wit + b2(dswit) + b3(dmwit) + b4ueit + b5bit + b6mvit + eit a b1 b2 b3 b4 b5 b6 adj. r2 .08 .24 .20 .27 .15 .08 .11 .122 (.62) (.76) (1.63)c (2.79)b (2.11)b (.27) (.39) n = 18,500 firm quarters for firms with fewer than 2 stock splits (b1 coefficient) n = 8,880 firm quarters for firms with multiple stock splits (b2 coefficient) n = 148 firm quarters for wal-mart (b3 coefficient) n = 27,380 firm quarters for all firms in industry (b4 coefficient) a significant at the .10 level b significant at the .05 level c significant at the .01 level carit = cumulative abnormal return firm i, time t a = intercept term wit = wealth measure proxied by book value per share for firm i, time t ds = dummy variable equal to firms with multiple stock splits, 0 otherwise dm = dummy variable equal to 1 if wal-mart, 0 otherwise ueit = unexpected earnings for firm i, time t bit = market model slope coefficient as proxy for systematic risk mvit = market value of equity as proxy for firm size eit = error term for firm i, time t conclusions recent penman et al studies have shown ratios to have increasing importance in relation to security prices. past research (stunda) has used this ratio analysis concept and singled out one firm in retail trade, wal-mart, as being exceptional among all other firms with respect to the number of stock splits that it has had during its corporate life. findings showed that wal-mart’s book value (proxy for wealth) possesses information content relative to security prices beyond the traditional measure of unexpected earnings, stunda advances in business research 2011, vol. 2, no. 1, 203-209 209 possibly influenced by the number of stock splits. this current study extends prior research and extends the comparison of wal-mart to other firms in the retail trade industry to a greater time period, 1973-2010. when the time period is extended, results show that wal-mart still seems to possess an advantage, with respect to information content, over industry competitors when associating a wealth measure to security prices. wal-mart’s wealth measure is found to possess significance relative to security prices while the other firms do not display significance at traditional levels. this study also evaluated firms in the retail trade industry with multiple stock splits (i.e., greater than 1) relative to firms in the same industry with 0 or 1 stock split over the same study period. results indicate that, from a perspective similar to wal-mart, multiple stock split firms’ wealth measure contains significant information content relative to security prices while firms with 0 or 1 stock split do not contain significant information content at traditional levels. in addition, when multiple stock split firms were compared to wal-mart, both groups’ wealth measure exhibited significant information content relative to security prices. it may be concluded that from the perspective of firms with multiple stock splits, information content of wealth generation plays a significant role relative to security prices. in addition, wal-mart continues to exhibit an effect of its own to the securities market. these findings have potential implication to security traders and corporate managers, namely, firms with multiple stock splits have a greater influence on their security prices than firms with one or no stock splits. references ball, r., & brown, p. 1968. an empirical evaluation of accounting income numbers. journal of accounting research, 6: 159-178. desai, h., & jain, p. 1997. long run common stock returns and splits. journal of business, 70: 409-433. fama, e. 1998. market efficiency and longer term studies. journal of financial economics, 49: 283-306. lakonishok, j., & vermaelen, t. 1990. price behavior around repurchase tender offers. journal of finance, 45: 455-477. nissim, d., & penman, s. 2001. ratio analysis and equity valuation: from research to practice. review of accounting studies, 6: 109-154. nissim, d., & penman, s. 2005. ratio analysis and equity valuation. columbia school of business. penman, s., & zhang, x. 2005. modeling sustainable earnings and p/e ratios using financial information. columbia business school. stunda r. 2008. the wal-mart effect on the securities market, academy of accounting and financial studies, 13: 69-74. ronald stunda is assistant professor of accounting at valdosta state university in valdosta, georgia. he received his ph.d. in accounting from florida state university. his research interest includes financial accounting with emphasis on capital markets. he has published in academy of business journal, journal of accounting and finance, journal of accounting, and other publications. advances in business research 2011 volume 2.pdf kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 86 exploration-exploitation motivations: an investigation of biotechnology firms’ participation in academic consulting dorothy kirkman, university of houston clear lake t. nichole phillips, virginia tech we employ the exploration-exploitation framework to examine how firm-level motivations influence a biotechnology firm’s participation in consulting agreements with university scientists. this study presents hypotheses that explore whether biotechnology firms use consulting agreements as vehicles to explore new knowledge to develop their absorptive capacity and initiate a relationship with a scientist’s university or to exploit their entrepreneurial orientation or formal technology transfer experience. assessing survey data collected from biotechnology firms, our analysis revealed significant and positive associations for exploration motives; however, the findings were mixed for exploitation motives. the discussion offers theoretical and managerial implications and future research areas. organizational research on academic consulting has primarily focused on university faculties’ motivation for working with industry participants (d’este and perkmann, 2011), creating unique classifications of consulting agreements (perkmann and walsh, 2008), or establishing links between consulting agreements and license development (agrawal, 2006; shane, 2004). this emerging research stream highlights university scientists, whose research underlies university entrepreneurial activities involving patenting, technology transfer, and new firm formation. although these studies have expanded our knowledge of scientist-industry relationships, a review of the literature reveals two potential areas of improvement. first, link et al., (2007) lamented the under-development of academic consulting research when compared to the vast literature involving licensing, a formal mode of technology transfer. second, bercovitz and feldmann (2006) noted that scientists’ under-reporting of their industry relations has led to a paucity of research examining firm-level motivations for participating in academic consulting. the current study bridges these gaps by investigating how firm-level motivations influence a firm’s engagement of university scientists in a consulting capacity. academic consulting occurs when external organizations pay university scientists a fee for providing advice, resolving problems, and generating or testing new ideas (perkmann and walsh, 2008). our study addresses the gap proposed by link et al., (2007) by reconnecting technology and knowledge to the scientists who create the inventions. scientists, along with their inventions, and knowledge represent three interconnected parts of a system. research (cohen et al., 2002; agrawal, 2006) supports the notion that firms will seek to reestablish the connection between scientists and their inventions via consulting relationships when universities, as sellers, license technology without the support of the inventor. reestablishing the scientist as a critical part of the system is important to the transfer diffusion of knowledge from academia to industry. the scientist-inventors’ knowledge is often difficult to articulate because it contains a high level of ambiguity the pieces of the system work together, but it is difficult for those involved to articulate a reason (simonin, 1999). zucker and darby noted, “it is misleading to think of scientific breakthroughs as disembodied information which, once discovered, is transmitted by a contagion-like process in which the identities of the people involved are largely irrelevant” (1996: 12709). our study draws attention to the critical role that scientists play in the transfer process. we also seek to fuse the gap proposed by bercovitz and feldmann (2006) by adopting a firm-based perspective to investigate consulting agreements. many biotechnology firms emerged to commercialize scientists’ inventions (zucker and darby, 1996). although a firm’s history influences the options available to that firm (penrose, 1959), managers can and do make strategic choices that influence how the firm will find a fit with its environment to achieve its goals and objectives (child, 1972). finding a fit between resource and need is important to most firms; however, it can be especially significant to biotechnology firms. these firms have both limited resources and numerous investment needs, and the allocation of their limited resources is a critical managerial decision (deeds, 2001). kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 87 march’s (1991) exploration-exploitation framework describes how firms adapt to or attempt to find a fit with the environment by making strategic choices to explore or exploit opportunities. academic consulting infuses biotechnology firms with a wide array of knowledge flows that can be used to explore new or exploit existing opportunities. firms use consulting relationships to develop licensed inventions (shane, 2004; agrawal, 2006), solve problems involving existing scientific knowledge (cohen et al., 2002), or access graduate students as potential new hires (perkmann and walsh, 2007). since knowledge acquired via consulting agreements can have multiple applications, managers must resolve the tension between exploring new knowledge and exploiting existing knowledge to judiciously use the firm’s resources. using march’s (1991) framework, the current study presents exploration-exploitation hypotheses to delve into a biotechnology firm’s motivation for securing university faculty as consultants. our first set of hypotheses describes how biotechnology firms participate in consulting agreements to support their absorptive capacity and development relational capital. as small and resource-constrained firms, many biotechnology firms lack the routines to develop an absorptive capacity and instead rely on university scientists to identify and transform external knowledge. from a relational perspective, social networks are important because university transfer professionals can acquire information about a potential licensing partner. when a biotechnology firm initiates a relationship with university scientists, it establishes legitimacy by demonstrating commitment and trustworthiness critical qualities in the development of a formal relationship (ring and van de ven, 1994) with the scientist’s home institution. our second set of hypotheses examines academic consulting as an exploration vehicle. this study explores how firms exploit their entrepreneurial orientation (hereafter eo) and formal university technology-transfer experience by participating in consulting agreements. knowledge is a key component of entrepreneurial activities (schumpeter, 1934; kirzner, 1979). entrepreneurial firms exploit their innovative capabilities by using scientists’ knowledge as inputs into the innovation process or by acquiring inventions directly from scientists. (markman et al., 2005). in fact, knowledge is also important to firms that possess significant experience licensing university inventions or sponsoring contract research. these firms possess insight into the challenges involved in working with uncertain and complex university inventions (rothaermel and deeds, 2004) and use consulting agreements to leverage inventors’ knowledge of the technical system (jensen and thursby, 2001; agrawal, 2006). the purpose of our research is to expand our understanding of a biotechnology firm’s participation in consulting agreements. a firm’s strategic choice to establish an inter-organizational relationship may emerge from managers’ motivation to leverage existing or explore new capabilities (rothaermel and deeds, 2004). university scientists possess a diverse stock of knowledge as well as flows from different scientific networks that can support biotechnology firms’ adaptation to a rapidly changing environment. the structure of the paper proceeds as follows. the next section provides a deeper examination of consulting agreements and march’s (1991) exploration-exploitation framework. this summary provides a platform that will be used in the third section to present the hypotheses. the fourth section puts forward the research methodology and the hypotheses testing results. in the final section, we summarize the relevance of the findings, draw attention to future research areas, and identify study limitations. literature review consulting agreements the consulting agreement is one in which a faculty member accepts an engagement, on a private basis, with a company needing expert advice (tornatzky et al., 1999: 20). university scientists draw on various sources of knowledge when offering expert advice. researchers possess tacit technical knowledge or “know-how” that relates to a specific scientific area (kachra and white, 2008) and accumulate latent knowledge that provides valuable intuition about the inner workings of a technical system (agrawal, 2006). in addition, many are members of scientific communities that share and build on existing science kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 88 (gittleman and kogut, 2003). in these communities, academic scientists’ understanding of basic scientific principles is edified by exchanging ideas and research with other members. consulting agreements allow university scientists to share their knowledge with biotechnology firms in several ways. first, scientists solve problems using their existing expertise. cohen et al., (2002) survey of 1,478 research and development (r&d) managers revealed that consulting agreements significantly contributed to the initiation of new and completion of existing projects. second, scientist-inventors work with licensing firms to help develop their inventions (jensen and thursby, 2001). most licensees acquire inventions at the embryonic stage of development. agrawal (2006) found that the odds of successful license commercialization improve by 23% when a licensee increases its engagement of the scientistinventor by 100 hours. academics also participate in consulting relationships to understand industry challenges or gain access to research materials (perkmann and walsh, 2008: 1886). university scientists can use industry knowledge to inform their research and leverage the materials when training graduate students. as the university scientist gains insight into a firm’s r&d activities, there is an increasing chance for the firm to outsource research into academic labs staffed by graduate or post-doc students (stephan and everhart, 1998), who then become attractive employment candidates because they are familiar with the firm’s research. in summary, consulting agreements offer firms an opportunity to access a university scientist’s knowledge capital. we propose firms are motivated to access this knowledge to develop or leverage their existing skills. exploration-exploitation framework exploration and exploitation are learning activities that enable a firm to acquire and leverage resources in order to survive (march, 1991). exploration activities involve the search for new knowledge or technologies and the creation of products with uncertain demand (greve, 2007). when engaging in exploration activities, firms acquire new knowledge and develop new capabilities that can be leveraged in the future. since biotechnology is a knowledge-intensive industry, firms need scientists, suppliers, capital, and other resources to develop innovative capabilities. by working closely with a university scientist, a biotechnology firm has an opportunity to explore new scientific areas (george et al., 2002), develop new capabilities, and build new knowledge stocks that serve as a source of innovative inputs (ahuja and katila, 2001). while exploration activities have a future orientation, they are oriented toward gaining a current advantage. exploitation activities allow an organization to use routines and knowledge and involve less managerial attention and resources (hoang and rothaermel, 2010). in exploitation activities, a biotechnology firm seeks to leverage existing research by licensing it to other firms in order to earn cash flows that are critical to their survival and competitiveness. bishop et al., (2011) examined how firms benefit from collaborating with universities. the survey found that 30 percent of respondents indicated that university links, such as consulting agreements, contribute to activities such as successful market introduction of new products and r&d project completion time. exploration and exploitation activities are critical to biotechnology firms. since exploration and exploitation activities involve different routines and expertise, managers must make strategic choices to determine how to allocate scarce organizational resources between them to ensure survival. the following hypotheses examine the exploration-exploitation trade-off by examining the internal conditions that may lead managers to use consulting agreements to explore or exploit new knowledge. hypotheses george et al., (2001) conceptualized university-biotechnology linkages as generative because they involve joint r&d with universities and involve the frequent exchange of knowledge. the following hypothesis describes how biotechnology firms use consulting agreements to gain technical knowledge to enhance their absorptive capacity. kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 89 absorptive capacity absorptive capacity describes an organization’s ability to recognize opportunities and exploit new knowledge (cohen and levinthal, 1990: 142). a critical component of absorptive capacity is that firms must possess prior related knowledge to be able to recognize and absorb external knowledge. technological development is path dependent, in that specific solutions are developed into a firm’s infrastructure over time (håkansson and waluszewski, 2002). firms that possess a strong overlap between prior and new knowledge may constrain their ability to uncover new possibilities (zahra and george, 2002). investing in r&d and experimenting with new knowledge and technology supports the development of new skills and routines to redirect scientific discovery and technology development (deeds, 2001). the ability to acquire external knowledge resides with the knowledge and skills of a firm’s employees (minbeava et al., 2003). firms use consulting agreements to establish relationships with university scientists to gain access to their graduate students as potential employees (bishop et al., 2011). graduate students possess knowledge of key scientific disciplines (lim, 2009) and gain membership in academic communities by presenting their research at conferences and co-authoring papers with university scientists (cockburn and henderson, 1998; perkmann et al., 2011). by participating in a consulting agreement, a firm gains access to graduate students whose membership in scientific academies affords them opportunities to identify valuable external knowledge. however, when seeking to assimilate external knowledge, firms turn to university scientists. assimilation involves domain-specific knowledge, which provides solutions to specific technical problems (lim, 2009). university scientists possess a predisposition for research and publication and can use the skills needed for these activities to apply basic research in industrial settings (gittleman and kogut, 2003). after acquiring and integrating external knowledge, a firm must transform and exploit it. for biotechnology firms, exploiting externally sourced knowledge involves reducing the technical uncertainty by developing a reproducible prototype (rothaermel and deeds, 2004). as consultants, university scientists perform development work (mansfield, 1995) by assisting a firm’s scientists in completing projects (rothaermel and deeds, 2004; cohen et al., 2002). in summary, biotechnology firms use scientists’ knowledge as a substitute for a lack of absorptive capacity. therefore, hypothesis 1: biotechnology firms with low levels of absorptive capacity will possess a high number of consulting agreements. exploration activities may extend beyond technical knowledge to encompass relational knowledge as well. universities possess significant resources that can enhance a biotechnology firm’s survival (rothaermel and thursby, 2005). to access a university’s resources, a biotechnology firm must gain an introduction into the university’s social network. consulting agreements are an opportunity for firms to demonstrate their legitimacy as potential partners. university-specific experience firms accumulate specific knowledge when they engage in repeated interactions with a specific partner. when collaborating with a university, firms develop routines that promote knowledge transfer and conflict resolution (hoang and rothaermel, 2005) and managers acquire insight on navigating the university’s bureaucracy. through repeated interactions, partners demonstrate their capabilities and their commitment to the relationship and show themselves as trustworthy, and trust emerges as partners rely on one another’s capabilities and through their commitment to engage in agreed-upon activities (ring and van de ven, 1994). once trust is established, a firm can rely on its social capital with a partner to acquire important resources (ireland et al., 2002). the presence of social capital among partners improves the quality and diversity of knowledge that partners commit to the relationship (yli-renko et al., 2001). when exchanging valuable r&d assets, a university is vulnerable to opportunism that emerges from a partner’s misrepresentation of intent and ability (das and teng, 1998). to reduce their vulnerability, kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 90 universities conduct economic activity within a network of embedded actors (perkmann and walsh, 2007). a firm seeking to establish a foothold in a university’s network may benefit from participating in a consulting relationship with a university scientist, many of whom are accessible at scientific conferences and other community events (perkmann and walsh, 2008). firms do not need to navigate university rules to gain access to a scientist. a firm establishes its legitimacy to participate in the university’s network by committing resources and demonstrating a commitment (kale and singh, 2009) to the consulting relationship. although universities are not directly involved in consulting agreements, personal connections with a scientist can lead a firm to alliance opportunities by enhancing status and legitimacy (larson, 1992). hypothesis 2: there will be an inverse relationship between a firm’s previous experience with a university and consulting agreements, such that firms without previous experience will participate in a high number of consulting agreements. exploration activities involve creating knowledge while exploitation activities involve leveraging knowledge or completing projects that already exist. although knowledge and capabilities creation is an important part of drug development, securing returns from previous exploration investments support a firm’s ongoing operations. consulting opportunities offer biotechnology firms the ability to acquire knowledge to exploit their entrepreneurial disposition and formal technology transfer experience. entrepreneurial orientation entrepreneurial orientation (eo) indicates how the entrepreneurial choices made by the firm reflect its entrepreneurial posture, which is demonstrated by the extent to which top managers favor risk taking, innovation by supporting creativity and new product development, and an aggressive approach to becoming a first mover by identifying and exploiting opportunities. eo resides in a firm’s culture and routines (lumpkin and dess, 1996), and encourages learning (wang, 2008) and innovation (pérez-luño et al., 2010). there is consensus that eo contains three core dimensions, each of which may motivate managers to participate in consulting agreements. first, innovation involves a firm’s experimentation and propensity to engage in new idea generation (lumpkin and dess, 1996). from a schumpeterian (1934) perspective, innovation emerges from a recombination of previously existing inputs. working closely with university faculty, biotechnology firms can acquire valuable scientific and technical knowledge inputs (george et al., 2002) that can be recombined with their existing knowledge to create new products. second, proactiveness describes a firm’s willingness to leverage opportunities to obtain first-mover advantages (lumpkin and dess, 1996). university scientists establish bridging ties to other scholarly networks while conducting and disseminating their research. proactive management teams recognize that developing close ties with university scientists enhances their firms’ capacity to generate new ideas (tiwana, 2008) by accessing other scientific communities. third, risk taking involves managers’ willingness to commit resources under uncertain conditions (miller, 1983). in close working arrangements with university scientists, managers can discover information about their competitors’ research projects. firms can use this competitive information to determine whether to support or terminate a project. thus, hypothesis 3: an entrepreneurial orientation will be positively associated with a biotechnology firm’s number of consulting arrangements with university scientists. formal university technology transfer experience prior empirical research has found that once firms begin to enter into alliances, they develop a tacit proficiency in managing alliances more effectively (kale et al., 2000). as a firm accumulates experience participating in certain organizational forms, it develops superior capabilities at managing them (kale et al., 2002: 747). an alliance capability emerges as a firm solves problems that arise during specific interorganizational relationships. these solutions are articulated, codified, and stored in a firm’s routines, kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 91 people, and processes and can be retrieved to ensure successful outcomes (kale and singh, 2007). in this study, we draw attention to a firm’s experience participating in formal university technology transfer that involves exchange of a legal instrument, such as licensing and sponsored contract research (link et al., 2007). formal technology transfer is often associated with acquisitive learning a form of learning associated with the acquisition and integration of knowledge from external sources (dess et al., 2003). the intent is for firms to enhance their innovative capabilities by creating new knowledge combinations (li et al., 2010). however, developing the new technologies is problematic because an acquiring firm’s scientists often lack expertise working with cutting-edge science (rothaermel and deeds, 2004). firms experienced in technology transfer develop routines that often involve hiring the scientist-inventor in a consulting agreement. working closely with the scientist-inventor, a biotechnology firm’s scientists develop an understanding of the novel science used to develop the technology and learn how to integrate this technology into the firm’s r&d practices (li et al., 2010). given these insights, hypothesis 4: as a firm’s cumulative formal university technology transfer experience increases, so will its participation in the number of consulting arrangements. methodology sample the biotechnology industry was selected to test the hypotheses relating to a firm’s use of academic consultants. by definition, biotech is knowledge intensive, meaning that the complementary processes of discovery and innovation necessitate the union of assets that characterize different types of organizations both public and private (feldman, 2003). given the complexity and uncertainty of new drug development, these firms use academic consultants to gain access to new knowledge as well as to exploit existing capabilities. we created a methodology to identify a representative sample of u.s. biotechnology firms engaged in the development of human health therapies. firms focused on developing human health therapies encounter specific resource and regulatory challenges when commercializing new products (rothaermel and deeds, 2006). the firms identified for this study have north american industry classification scheme (naics) codes that emphasize human health r&d. these include naics 325411: medicinal and botanical manufacturing; and naics 541710: physical, engineering and biological research. a sample of 1,000 potential respondents was obtained from reviewing member directories of the biotechnology industry organization state associations and hoover’s business database. next, reference usa, a library business database, was used to verify the key information such as address, and verify key information such as naics codes. our final sample included 838 firms: 300 public and 538 private. survey administration a questionnaire was used to collect data for the variables examined in this study. secondary data were also obtained from metropolitan statistical analysis from the u.s. census bureau to determine cluster, a control variable. in smalland medium-sized firm (sme) research, mail surveys are the most commonly used because archival data are unreliable on small and private firms (bartholomew and smith, 2006). since top executives are typically the only knowledgeable source regarding their firm’s transfer activities (norbun, 1989), we mailed the questionnaire to executives familiar with a firm’s technology strategy; their titles included ceo, vp of r&d, and chief scientific officer. the questionnaire was administered using dillman’s (1978) method of mail survey response and design. this method proposes that researchers send three follow-up mailings after the initial mailing: a post card, a replacement survey, and another replacement survey sent by certified mail. three industry professionals, each possessing at least 10 years of industry experience, reviewed the questionnaire to establish face validity. in addition, the questionnaire was pretested, via email, with pharmaceutical kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 92 professionals to improve the administration of the survey. no material issues emerged. during the data collection phase, three mailings were conducted six weeks apart to allow for updating the mailing list. the cumulative number of 960 questionnaires produced 204 responses a response rate of 21%. this response rate is typical of those produced from past survey studies; for example, wang (2008) reported a rate of 15.4% and bierly et al., (2009) achieved a response rate of 14.4%. studies of small firms often yield low survey response rates because top executives must personally respond to the survey because these firms have few slack resources who are knowledgeable enough to assume the task (bartholomew and smith 2006). supporting this premise, baruch's (2008) meta-analysis of management studies' response rates revealed that studies conducted at the organizational level, which solicited top executives as respondents achieved an average response rate that was 17 points lower than the average response rate produced by studies that used individuals as respondents: 52.7 (individual) vs. 35.7 (top executives). thus, we believe our response rate is acceptable for this sme and top executive-focused research. low response rates may be an indication of the existence of material differences between respondents and non-respondents. to assess non-response bias, an independent-sample t-test was used to compare the size and r&d spending of responding public firms to non-responding public firms and anova were used to assess non-response biases across the three mailings. our results revealed no significant differences between responding and non-responding firms or across mailings; therefore, we believe sampling bias should not materially influence our analysis. measures dependent variables consulting agreements (ca) constitute an arrangement in which a faculty member accepts an engagement, on a private basis, with a company that needs expert advice (tornatzky et al., 1999: 20). this measure is calculated by counting the number (n) of consulting agreements that a firm has with a university’s faculty. independent variables absorptive capacity (ac) reflects a firm’s ability to acquire, assimilate, transform, and leverage externally generated knowledge and is a by-product of the firm’s r&d activities. previous studies (bierly et al., 2009) used two measures to assess absorptive capacity in order to capture the bi-dimensional nature of the construct. the potential component of absorptive capacity reflects a firm’s ability to value knowledge, which is a by-product of a firm’s r&d spending. the realized component describes whether a firm can leverage external knowledge. we use the following measures: r&d intensity (ac-value) is computed by taking the ratio of r&d expenditure to the number of employees (tsai, 2001). traditionally, the measure is calculated by dividing the r&d investment by sales (cohen and levinthal, 1990); however, many biotechnology firms do not have any sales (deeds and hill, 1996). to capture the scale effects, we use the number of employees. respondents listed their firm’s r&d spending for 2006, the year the survey was completed. patents (ac-exploit) represent a firm’s ability to apply or exploit knowledge. patents represent a firm’s ability to identify previous knowledge and transform it into a novel combination (schumpeter, 1934). respondents were asked to list their firm’s number of patents and patent applications over a 5-year period. since the patent approval process takes between 2 and 3 years, the 5-year window was used to capture patents during the time frame of this study. entrepreneurial orientation (eo) is defined as “the entrepreneurial choices made by the firm reflecting its entrepreneurial posture, which is demonstrated by the extent to which top managers are inclined to take business-related risks, to favor change and innovation in order to obtain a competitive advantage for their firm” (covin and slevin, 1989: 77). we used covin and slevin’s 9-item scale to assess top kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 93 management’s posture on new product development, aggressive posture, and willingness to commit resources to activities where the outcomes were uncertain. the questions used a 5-point likert-type response scale ranging from 5 (strongly agree) to 1 (strongly disagree). firms with a higher score are !"# $% &'%(#%)'*#% #+&*#,*#+#-*!. /%01#%2*'+(.3145% . ,1.% 678% 9'*% &1#% 53. #% !5% /:;</%0.( #%=% 3'+&.!+5% &1#% scaled items for this measure. table 1: eo survey scale variables survey items entrepreneurial orientation 1. top executives exhibit a strong emphasis on r&d 2. top executives promote a diversified product pipeline 3. top executives favor dramatic change to pipeline 4. top executives favor high-risk projects 5. top executives favor bold acts to achieve firm goals 6. top executives adopt a wait-and-see attitude 7. top executives initiate actions and competitors respond 8. top executives favor being the first business to introduce products, administrative techniques, and technologies 9. top executives favor a strong tendency to be ahead of others formal university technology transfer experience (formal utt) reflects a biotechnology firm’s experience in participating in formal technology transfer as revealed in university-industry links that result in a legal instrumentality (link et al., 2007: 6) such as a new invention or patent. in this study, licenses and sponsored research contracts reflect a firm’s formal technology transfer experience (stuart, ozdemir, and ding, 2007). licenses involve selling a company the rights to use a university’s inventions in return for upfront fees and royalty payments depending on the commercialization of the technology (feldman et al., 2002: 107). sponsored contract research occurs when an industry participant commissions a university scientist to explore specific, previously unresolved aspects of a problem (perkmann and walsh, 2007). this contract specifies ownership of resulting intellectual property, provisions for licensing of future patents, and divisions of royalties (bercovitz and feldmann, 2006). the measure for formal technology transfer mechanism is the sum of the number of licensing and sponsored contract research agreements the responding firm participated in over the last 5 years. university-specific experience (use) captures the degree to which prior involvement with a specific partner predicts current involvement (belderbos et al., 2011). this variable assesses whether the biotechnology firm had a previous relationship with the scientist’s university prior to the consulting agreement. partner-specific alliance experience leads to the development of routines between partners that promote knowledge transfer (hoang and rothaermel, 2005). previous experience with a partner facilitates the development of social capital and the acquisition of resources (yli-renko et al., 2001) and the potential partnership opportunities (ahuja, 2000). belderbos et al., (2011) assessed alliance persistence using an indicator variable that reflected the length of an alliance equal to or greater than 2 years. some university-industry links may last only one week (agrawal, 2006); therefore, we relaxed the time constraint to capture all of a firm’s prior university interactions. respondents were asked whether they had a previous relationship with their current university partner(s): 1 reflects a prior relationship and 0 indicates no prior relationship. control variables cluster refers to the geographical location of the biotechnology firm. location is critical when transferring new technology between partners (bishop et al., 2011). to compute this variable, we compared each firm’s zip code with the biotechnology clusters listed in ernst & young’s (2005) annual biotechnology report. we acquired the zip codes for the clusters listed in ernst & young’s report from the u.s. census bureau’s metropolitan statistical analysis for 2005. if a biotechnology firm was located in a biotechnology cluster the variable was coded as (1); otherwise, it was coded as (0). size is included as a control variable because university faculty may prefer to establish relationships with large firms that offer greater research and teaching benefits than do small firms (shane and stuart, kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 94 2002). respondents were asked to indicate the number of individuals employed by their firms. origin indicates whether a venture is sponsored by an entrepreneur-scientist (i.e., independent venture) or by a corporation (i.e., corporate venture). origin influences a firm’s technological strategy and its available resources (zahra, 1996). this construct is a dummy variable that is coded 1 (independent) or 0 (corporate sponsored). results table 2 lists the correlation coefficients and the descriptive statistics for the measures and scale used in this study. the highest correlation reflects the proposed relationship in hypothesis 2, formal technology transfer experience and consulting arrangements (0.48). this relationship suggests that as firms accumulate novel technologies via formal technology transfer, they require complementary knowledge from university scientists to exploit the technology. table 2: descriptive statistics and correlations variables mean std. dev 1 2 3 4 5 6 7 8 9 1. size 58.72 72.77 1 2. origin# n/a n/a .16* 1 3. cluster n/a n/a -.03 -.03 1 4. ac-value $10.2m $19.1m .38** -.03 -.04 1 5. ac-exploit 12.51 48.70 .17** -.12 .17* 25** 1 6. eo 3.35 1.47 .09 -.07 .07 .19* .33** 1 7. formal utt 6.73 11.33 -.12 -.23 .02 -.03* -.03 -03 1 8. use* 5.16 8.21 .10 9. ca 4.14 6.16 -.18* -.19* .28** -.16* -.04 .10 .48** .21** 1 note. n = 198. **p < .01; *p < .05. # frequencies: prior experience: yes “1” – 34.4%; no “0” – 52.0%; n/a 13.6% (no university links) origin: yes “1” – 83.3%; no “0” 16.7% in this study, the dependent variable is a count of the number of consulting agreements. the hypotheses were assessed using a negative binomial regression model with a maximum likelihood procedure, which treats the dependent variable as a count while estimating heterogeneity (rothaermel and deeds, 2004). similar inter-organizational relationship studies (pérez-luño et al., 2010; rothaermel and deeds, 2004) have employed this procedure for hypotheses testing when the variable of interest is a count. table 3 contains the results of our hypotheses testing using the negative binomial regression model with a maximum likelihood procedure. model 1 includes the control variables where cluster (b = .342, p < .001) and scientist (b = .440, p < .001) have significant influence on the dependent variable. biotechnology clusters are anchored by universities (feldman, 2003) that provide opportunities to access knowledge spillovers via consulting agreements. model 2 supports our assertion made in hypothesis 1 that describes an inverse relationship between a firm’s absorptive capacity, r&d intensity (b = -.200, p < .001) and patents (b = -.005, p < .10), and a firm’s participation in consulting agreements. table 3: results of glm negative binomial regression model predicting participation in consulting agreements model 1 model 2 model 3 model 4 model 5 intercept 1.219*** (0.117) 1.670*** (0.378) 1.114*** (0.124) 1.112*** (0.232) 1.136*** (0.115) size 0.026 (0.119) -0.183 (0.248) -0.187+ (0.124) 0.033 (0.119) -0.169+ (0.121) cluster 0.342*** (0.078) 0.518*** (0.084) 0.415*** (0.082) 0.346*** (0.079) 0.337*** (0.078) origin 0.440*** (0.080) 0.613*** (0.086) 0.539*** (0.081) 0.439*** (0.080) 0.054 (0.089) r&d intensity (ac-value) -0.200*** (0.060) patents (ac-exploit) -0.005+ (0.000) use -0.180* (0.077) eo 0.003 (0.006) formal utt 0.047*** (0.003) log likelihood -775.01 -621.28 -730.80 -775.86 -696.39 chi-square (x2) 44.14*** 101.12*** 62.97*** 44.43*** 221.38*** change over base ( x2) 66.98 18.83 0.29 177.24 standard errors in parentheses. ***p < 0.001; **p < 0.01; * p < 0.05; +p < 0.1 kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 95 the analysis reveals support in model 3 for hypothesis 2, which proposes that firms use consulting agreements to establish links with a specific university partner ( != -.180, p < .10). however, contrary to our prior contention, model 4 does not offer support for hypothesis 3. firms that possess an entrepreneurial orientation ( = .003, p = n.s.) do not have a high number of consulting agreements. the regression coefficients in model 5 indicate a strong positive relationship between a firm’s formal technology transfer experience and the number of times a firm hired university faculty as consultants; this finding supports hypothesis 4. post-hoc analysis given the large standard deviation on the size control variable, we conducted additional regression analyses using three stratified samples. table 4 lists the results. in the first stratified sample, we used the mean of size (m = 59) to segment our sample (n = 198) into subsamples—those firms that employed more than 60 employees and those firms that had fewer than 59 employees. retesting the hypotheses only revealed a significant difference in the entrepreneurial orientation independent variable. for those firms that employed fewer than 59 employees, the results revealed a non-significant relationship between eo and a firm’s participation in consulting agreements (b = .005, p = n.s.), which was similar to the finding in our initial analysis listed in table 3, model 4( != .003, p = n.s.). however, in those firms that employed more than 59 employees, the results were positive (b = .030, p < .05). biotechnology firms with 50-501 employees are more likely to accumulate funds from ipos than do those firms with fewer than 50 employees (u.s. department of commerce, 2003). issuing an ipo is a rigorous process where investors analyze the firm’s management team and organizational capabilities (laurent-ottomane and weimer, 2010). since entrepreneurial activity is a resource-intensive endeavor, large entrepreneurial firms may possess the resources that are necessary to develop and leverage an eo. table 4: stratified samples of age to examine the eo-consulting agreements relationship stratified sample firm size std. error significance means m < 59 .005 .008 .505 m >59 .030 .014 .021 middle distribution q2 (22-48) .007 .012 .194 q3 (49-86) .041 .018 .018 tail-end of distribution q1 (3-21) .002 .008 .427 q4 (87-325) -.006 .020 .531 *quartile percentage: q1 (size < 25%), q2 (26-50%), q3 (51-75%), q4 (size >76%) we conducted a second stratified sample that segmented the firms into quartiles. this analysis focused on the second and third quartiles (q2 & q3) because the middle half of the distribution will be less affected by extreme observations (nachimas and nachmias, 1987). the findings revealed a nonsignificant result for those firms located in q2 (b = .007, p = n.s.) and a positive and significant relationship for those firms located in q3 (b = .041, p < .05). the existence of slack resources is a possible explanation for the difference between those firms located in q2 and q3. penrose (1995) argued that slack resources are critical to firm growth. firms located in q3 may possess a sufficient number of employees who can conduct operational activities, which provides managers and scientists with time to identify entrepreneurial opportunities by acquiring knowledge in one domain and applying it in another (tushman and scanlan, 1981). research reveals that biotechnology firms gain access to resources to enhance their innovative capacity when their scientists participate in boundary spanning activities such as presenting conference or co-authoring papers (cockburn and henderson, 1998). our final stratified sample tested those firms located in the two extremes: q1 and q4. the findings were non-significant for firms that fell within q1 as well as q4. in summary, the findings support our exploration hypotheses but results were mixed for our exploitation hypotheses. the following discussion elaborates on these findings. kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 96 discussion in this study, we sought to use march’s (1991) exploration-exploitation framework to examine firmlevel motivation for a firm’s participation in consulting agreements. development of routines and capabilities plays a critical role in the actualization of cohen and levinthal’s (1990) absorptive capacity and march’s (1991) exploration-exploitation framework. many new and small firms may not possess the resources and managers may not have the experience to create exploration and exploitation routines (geroski et al., 2010). the current study’s findings confirm existing empirical research (george et al., 2001; rothaermel and deeds, 2004; hoang and rothaermel, 2005) that positions university-industry linkages at the explorative end of march’s (1991) learning dichotomy. exploration results in hypothesis 1, we proposed that biotechnology firms with low absorptive capacity would have significant participation in consulting agreements. absorptive capacity is based on the premise that an organization needs prior knowledge to assimilate and use new knowledge (cohen and levinthal, 1990: 130). some scholars (minbaeva et al., 2003; liao et al., 2007) proposed that prior learning resides in the prior knowledge and expertise of a firm’s employees. given their resource constraints, biotechnology firms leverage university scientists’ knowledge to substitute for their lack of absorptive capacity. by participating in consulting agreements, firms gain access to skilled and trained staff (perkmann et al., 2011), acquire scientific knowledge to complement existing r&d activities, use scientists to conduct these activities (etkowitz, 1998), and identify external knowledge through university and laboratory contacts (slowinski et al., 2000: 31). hypothesis 2 also proposed an inverse relationship between a firm’s previous links with a university and its willingness to participate in consulting agreements. we argued that biotechnology firms use consulting agreements to establish legitimacy and trust, and to demonstrate their commitment in order to gain access to other university resources. however, strategic management literature offers an alternate explanation for using consulting relationships as entrée into a university’s network. university scientists are accessible ambassadors of the university’s research expertise. establishing a relationship with university scientists is a probing mechanism that firms use to determine whether engaging in more costly relationships such as sponsored research or licensing meets their strategic needs. exploitation results contrary to our initial assertion, the findings did not support hypothesis 3: a direct, positive relationship between eo and a firm’s consulting agreements. our post hoc analysis found a positive relationship between eo and participation in consulting agreements in those firms that employ more than 59 employees. speculatively, larger firms may have the financial and human resources to allow employees to pursue entrepreneurial opportunities. small firms may have the desire to use consulting agreements as a vehicle to leverage their eo; however, they may lack the resources to do so. interestingly, our post-hoc analysis revealed a negative relationship between large firms' with eo and their participation in consulting agreements. although this relationship was non-significant, the change in signs of eo variable requires additional attention. very large entrepreneurial firms may possess the internal resources needed to solve specific problems. we speculate that managers in large entrepreneurially oriented biotechnology firms may trust their scientists’ abilities to solve problems thereby decreasing their need to participate in academic consulting. although our data is limited to sufficiently explain this result, future researchers may explore whether seeking advice and support from a university scientist may impede the creative problem solving and learning associated with the entrepreneurial process (wang, 2008) in large biotechnology firms. hypothesis 4 linked formal technology transfer experience and securing university faculty as consultants. bringing new technologies into the firm often involves problems that are unrelated to a firm’s existing expertise (thomke and kuemmerle, 2002). firms that engage in a high level of formal kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 97 technology transfer have accumulated knowledge and intuition regarding the disruptions that can occur in their r&d activities (ahuja and katilia, 2001) when their scientists attempt to make sense of the novel scientific knowledge embodied in the acquired technologies. they engage the scientist-inventors to minimize potential disruptions, assisting the firm’s scientists to make sense of and integrate the new knowledge into existing r&d activities. given that consulting agreements play an important role in the development of biotechnology firms, the results have several implications for managerial practice and future research. implications and future research several theoretical and practical implications emerge from our study. first, an implicit assumption is that firms learn during consulting agreements, which involve a university scientist working closely with a firm’s scientists. the frequency and closeness of these working arrangements foster an environment conducive to learning that occurs through a social process of converting knowledge between tacit and explicit categories (nonaka and takeuchi, 1995). learning is critical to biotechnology firms located in environments where knowledge spillovers create entrepreneurial opportunities (acs et al., 2009). lacking the requisite routines to create an absorptive capacity, these firms will be unable to capitalize on the munificence of their environment. in the future, researchers may seek to explore whether the different uses of consulting support organizational learning. there is a positive bias associated with firm-level benefits associated with consulting. the second implication highlights the adequacy of advice offered by a university scientist. implementing a consultant’s recommendations may be problematic for two reasons: length of time and adequacy of the solution. problem-solving consulting engagements tend to be of short duration (perkmann and walsh, 2011). the length of these engagements is not conducive to the developing of relationships that are required to transfer tacit knowledge (williams, 2008). in a short-term consulting engagement, a faculty consultant may solve the problem, leaving the firm’s scientists to make sense of and apply the solution. second, prior research indicates that second-tier and medium-sized universities may be more willing to work with local r&d firms than are their larger peers (mansfield and lee, 1996; laursen et al., 2008). at lower ranked universities, scientists may lack familiarity with the biotechnology firm’s r&d processes to identify the problem and develop the correct solution. a future area of scholarly inquiry may examine (1) whether managerial perceptions of the quality of consulting advice differs among scientists based on their institutions’ research classification from the carnegie institute, and (2) factors that influence whether managers are willing to implement consultants’ advice. the final theoretical implication of our findings draws attention to the university-industry relationship lifecycle. prior research has depicted the importance of university-industry relationships; however, research illustrating the lifecycle and progression of the relationship from scientist to institution is largely lacking. different economic implications emerge if a consulting agreement progresses to contract research or yields a licensing agreement. in the former, the scientist is the direct beneficiary. in the latter, the university captures a licensing fee and future royalties. future researchers may explore whether the scientist and the university may possess competing agendas regarding the evolution of the universityindustry relationship. finally, a practical implication of these findings suggests firms may benefit by managing their university relationships. since biotechnology firms often rely on their links with universities to source knowledge (stuart et al., 2007), managing the development and evolution of these links can enhance a firm’s ability to access novel knowledge to support their innovative activity. kale et al., (2002) found that firms that possess a dedicated alliance function participate in more successful alliances than do firms without an alliance role. limitations one limitation of this study involved the conceptualization of consulting agreements, which prevented a more robust exploration of scientist-industry interactions. in addition, small-firm studies generally use kirkman and phillips advances in business research 2011, vol. 2, no. 1, 86-103 98 surveys to collect data from single organizational informants (bartholomew and smith, 2006). this 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biotechnology industry. proceedings of the national academy of sciences, 93: 12709-12716. dorothy kirkman is an assistant professor of management at university of houston–clear lake. she received her ph.d. in organizational management from rutgers university. her current research interests include technology strategy, academic technology transfer, and social entrepreneurship. she has published in administrative issues journal. t. nichole phillips is an assistant professor of management at virginia tech. she received her ph.d. in management from university of central florida. her current research interests include knowledge creation, workplace diversity, and recruitment and retention of employees in public education. she has published in journal of applied social psychology and human resource management review. advances in business research 2010 volume 1.pdf 45 advances in business research !"#$"%&'!#()*&+,-#.//"012#3"**#4)'!#(,'!,5,!6#78-#9):#;&<<8= pan yatrakis, nova southeastern university albert williams, nova southeastern university !"#$%&%'($")*'#+",&+'#$+!'$*&-"."+/$01$+!'$0-.$2&--$3+(''+$&.&,'4$53'--$60#!$7&#!&)&!4$89/$:0;$<"%%9(=>$ !'$&9+!0(#$ '?&;")'$.&"-/$('+9()#$01$+!'$@0a$b0)'#$c).9#+("&-$d*'(&,'$e@bcdf$8'+a'')$ghij$&).$kiil$&).$'*&-9&+'$&$#+(&+',/4$ 8&#'.$0)$+!"#$!'9("#+"m4$01$#'--"),$#!0(+$8'10('$60#!$7&#!&)&!$&).$m0*'("),$&1+'($:0;$<"%%9(=$ !'/$n).$+!&+$#9m!$&$ #+(&+',/$a09-.$!&*'$%(0.9m'.$#+&+"#+"m&--/$&).$'m0)0;"m&--/$#",)"nm&)+$('+9()#= on september 19, 1915, the new york times published one of the earliest stories on the effect of the jewish high !"#$%&#'$!($')!*+$,&-+.)$)-&/0(12$3($&($&-)0*".$)0)"./4$567.$8!(/!($9&-+.)$:;0.)$<$=.>0'7$ !"0/&#$?&;'.'$@,&""$ attendance on the exchange”, the newspaper reported that money and discount rates on the london stock exchange were “easy today” and attendance at the exchange was low due to the jewish holiday of rosh hashanah (new york 60,.'4$abacd2$e($september 27, 1935, the altoona, pennsylvania mirror referred to a wall street adage, “sell before f!'7$ &'7&(&7g$h;#$h.i!-.$j!,$k0ll;-m$no!l0+4$pqqrd2$e($@.l).,h.-$as4$abtu4$)7.$?7.').-4$o.(('#"v&(0&$60,.'$ stated that some of the previous session’s selling on the new york stock exchange came from jewish traders who >&()./$)!$1.)$!;)$!i$)7.$,&-+.)$h.i!-.$)7.$f!'7$ &'7&(&7$7!"0/&#$no!l0+4$pqqrd2$$ the belief that some jewish religious holidays impact stock market trading has persisted among wall street l-&*)0)0!(.-'4$/.'l0).$)7.$i&*)$)7&)$';*7$.ii.*)'$>!;"/$'..,$)!$v0!"&).$)7.$w.&+$x!-,$!i$)7.$yiz*0.()$9&-+.)$ #l!)7.'0'$ ny9 d2$$x!-$.[&,l".4$@*7&)\$npqaqd$(!)./$0($67.$].>$ &v.($f.10').-$)7&)$5)7.$,&-+.)$).(/'$)!$h.$!($)7.$>.&+$'0/.m$ during the period between the two religious holidays. the almanac investor discussed on august 29, 2006 the “old '&#0(1$!($ )7.$@)-..)4$@.""$f!'7$ &'7&(&74$^;#$j!,$k0ll;-m$ n 0-'*7$&(/$^-!>(4$pqqud2$_$@.l).,h.-$ar4$pqqu$ article on the street.com attempted to explain the rationale behind the sell rosh hashanah, buy yom kippur adage, ')&)0(1$)7&)$)7.$/&#'$')&-)0(1$>0)7$f!'7$ &'7&(&7$&(/$.(/0(1$>0)7$j!,$k0ll;-$&-.$&$5l.-0!/$!i$0().('.$-.`.*)0!(m4$ /;-0(1$>70*7$l-!,0(.()$=.>0'7$z(&(*0.-'$';*7$&'$ )7.$8!.h'$>!;"/$ "0a;0/&).$ )7.0-$ 0(v.'),.()$l!-)i!"0!'$'!$&'$ )!$ *!(*.()-&).$0(').&/$!($)7.0-$l-&#.-'$nb-..(h.-14$pqqud2$_$h0!1-&l7.-$!i$^.-(&-/$^&-;*7$(!).'$)7&)4$!($!(.$!**&'0!(4$ he refrained for religious reasons from covering a short sale on yom kippur, despite news which he thought would *&;'.$)7.$'7!-)./$')!*+$)!$-0'.2$ !>.v.-4$)7.$')!*+$0(').&/$i.""$l-.*0l0)!;'"#$/;-0(1$)7.$7!"0/&#4$&(/$>7.($7.$z(&""#$ *!v.-./$!($)7.$i!""!>0(1$/&#4$7.$7&/$h.*!,.$&$,0""0!(&0-.$n@,0)74$abcsd2$ the explanation of religious holiday observance as the reason behind the wall street adage was expanded in the september 14, 2007 edition of the street.com, which added that the absence of jewish investors could be perceived (.1&)0v."#$!;)'0/.$ )7.$ =.>0'7$*!,,;(0)#4$ '0(*.$ 0)$>!;"/$ -./;*.$ )7.$(;,h.-$!i$l!).()0&"$h;#.-'$ n@*70"".-4$ pqqsd2$ finally, the september 11, 2007 edition of the wall street journal discussed the conventional explanation that traders close out positions prior to rosh hashanah “in advance of spending the holidays with family”, but noted that !)7.-$i!-*.'$,017)$&"'!$h.$&)$>!-+4$';*7$&'$)7.$.(/<!i<a;&-).-$-.')-;*);-0(1$!i$i;(/$l!-)i!"0!'4$)7.$h.10((0(1$!i$(.>$ z'*&"$#.&-'$i!-$'!,.$h;'0(.''.'4$&(/$)7.$-.);-($!i$)-&/.-'$i-!,$';,,.-$v&*&)0!('$nb&ii.(4$pqqsd2$ in contrast to the plethora of writings by wall street practitioners on the supposed jewish holiday effect, there 7&'$h..($'*&()$)-.&),.()$!i$)70'$';hd.*)$h#$&*&/.,0*$-.'.&-*7.-'2$67.-.$0'4$7!>.v.-4$.v0/.(*.$)!$';ll!-)$)7.$0(`;.(*.$ !i$7!"0/&#'$!($)7.$h.7&v0!-$!i$')!*+$-.);-('2$x!-$.[&,l".4$8&+!(0'7!+$&(/$@,0/)$nabrcd4$_-0."$nabbqd4$&(/$?.-v.-&$ &(/$k.0,$npqqqd$i!;(/$7017.-$-.);-('$!($/&#'$l-.*./0(1$,&-+.)$7!"0/&#'2$67.#$&))-0h;)./$)70'$.ii.*)$)!$l-.<7!"0/&#$ '7!-)<*!v.-0(14$&'$>.""$&'$l!'0)0v.$)-&/.-$'.()0,.()$l-.*./0(1$d!#i;"$!**&'0!('2$k0,$&(/$o&-+$nabbcd$.[).(/./$)7.'.$ z(/0(1'$)!$,&-+.)'$ 0($)7.$e(0)./$k0(1/!,$&(/$=&l&(g$e1;\'!#$&(/$b;v.($npqqcd$/0'*!v.-./$'0,0"&-$.ii.*)'$i!-$ 9;'"0,$7!"0/&#'$!($)7.$3')&(h;"$@)!*+$y[*7&(1.g$>70".$?&/'h#$&(/$f&)(.-$nabbpd4$^-!*+,&($&(/$90*7&#";+$nabbrd4$ 9.(.;$&(/$o&-/!$npqqcd4$&(/$8;*.#$npqqcd$i!;(/$.v0/.(*.$!i$)70'$.ii.*)$!($!)7.-$0().-(&)0!(&"$,&-+.)'2 3($!(.$!i$!("#$)>!$&*&/.,0*$');/0.'$!i$)-&/0(1$!($=.>0'7$-."010!;'$7!"0/&#'4$8!;17-&($&(/$@*7;")\$npqqcd$.[&,0(./$ "!*&"0\./$ )-&/0(1$h.7&v0!-$ 0($]&'/&a<"0')./$z-,'$7.&/a;&-).-./$ 0($.&*7$!i$pc$e2@2$*0)0.'4$&(/$i!;(/$.v0/.(*.$ )!$ support the hypothesis of reduced participation by jewish traders on the most solemn holy day, yom kippur. using data from the years 1984-1997, they examined trading volumes on days when yom kippur fell on a weekday. the &;)7!-'$i!;(/$)7&)$!($';*7$!**&'0!('$)-&/0(1$0($)7.$'.*;-0)0.'$!i$5z-,'$"!*&)./$0($*0)0.'$>0)7$7017$=.>0'7$l!l;"&)0!($ *!(*.()-&)0!('m$.[l.-0.(*./$&$'01(0z*&()"#$1-.&).-$/.*"0(.$)7&($/0/$)-&/0(1$0($)7.$'7&-.'$!i$*!,l&(0.'$7.&/a;&-).-./$ in cities with smaller jewish populations. loughran and schulz saw evidence in these results of reduced market activity by jewish investors during yom kippur as well as evidence of investors’ tendency to hold securities of local 2010, vol. 1, no. 1, 45-52 yatrakis and williams 46 advances in business research z-,'$>0)7$>70*7$)7.#$,&#$h.$,!-.$i&,0"0&-$n'..4$i!-$.[&,l".4$?!v&"$&(/$9!'+!>0)\$npqqadg$b-0(h"&))$&(/$k."!7&-d;$ npqqadg$ ;h.-,&($npqqadg$f7;$npqqtdg$&(/$^&-+.-$&(/$8!;17-&($npqqsdd2 in what is perhaps the most comprehensive study to date of market behavior around religious holidays on which e2@2$')!*+$.[*7&(1.'$-.,&0($!l.(4$x-0./.-$&(/$@;h-&7,&(#&,$npqqcd$');/0./$,&-+.)$v!";,.$&(/$/&0"#$-.);-('$i!-$ )7.$@)&(/&-/$&(/$o!!-g'$cqq$@)!*+$3(/.[$n@ho$cqqd$!($)7-..$';*7$!**&'0!('4$@)2$o&)-0*+g'$%&#4$f!'7$ &'7&(&74$&(/$ yom kippur. using data from the years 1946-2000, they examined returns for the s&p 500 on the day of the religious holiday itself, and on each of the two preceding and following days. their results corroborate those of loughran and schulz with respect to the decline in trading volume on yom kippur. they found similar declines for rosh hashanah as well, but not for st. patrick’s day. the authors attribute the declines on the jewish high holy days to traders .[0)0(1$)7.$,&-+.)$i!-$-."010!;'$!h'.-v&(*.4$&(/$*!(*";/.$)7&)$)7.0-$(!(z(&(*0&"$!ll!-);(0)#$*!')$!i$)-&/0(1$/;-0(1$ )7!'.$!**&'0!('$!;)>.017'$)7.$l!''0h0"0)#$!i$z(&(*0&"$1&0('2$ in examining the daily returns of the s&p 500 during the three religious occasions, frieder and subrahmanyam found that median returns on rosh hashanah and st. patrick’s day were persistently higher than the median returns during other days in the sample period, while returns on yom kippur were persistently lower. the authors attribute these results to investor sentiment, which they view as being upbeat on the festive occasions of rosh hashanah and st. patrick’s day, but more subdued on the somber occasion of yom kippur. they also discern investor optimism in )7.$/&#'$".&/0(1$;l$)!$)7.$)>!$i.')0v.$-."010!;'$7!"0/&#'i$-.);-('$!($)7.$)>!$/&#'$l-0!-$)!$@)2$o&)-0*+g'$%&#$&(/$f!'7$ &'7&(&7$>.-.$i!;(/$)!$h.$l!'0)0v.$&(/$'01(0z*&()g$0($*!()-&')4$-.);-('$!($)7.$)>!$/&#'$l-0!-$)!$j!,$k0ll;-$>.-.$ (.1&)0v.$h;)$0('01(0z*&()2$67.-.$0'$.v0/.(*.$0($x-0./.-$&(/$@;h-&7,&(#&,g'$z(/0(1'$)7&)$)-&/.-$'.()0,.()$l.-'0')'$ on the days following the religious holidays, as well. positive returns were recorded on the two days following st. patrick’s day and rosh hashanah, and negative ones on the two days following yom kippur, although all these were '01(0z*&()$&)$!("#$)7.$aqj$".v."2 the authors also disaggregated their sample into two subperiods, 1946-1972 and 1973-2000, but found that results in these subperiods were similar to those obtained with the full data set. they also examined returns for the israeli @7&-.$&(/$?!(v.-)0h".$ 3(/.[$n@?3d4$&(/$i!;(/$l!'0)0v.$ -.);-('$!($ )7.$ )-&/0(1$/&#$i!""!>0(1$f!'7$ &'7&(&7$&(/$ (.1&)0v.$!(.'$!($)7.$/&#$&i).-$j!,$k0ll;-$n')!*+$,&-+.)'$0($3'-&."$&-.$*"!'./$!($h!)7$!i$)7.$ 017$ !"#$%&#'d2$_'$,017)$ h.$.[l.*)./4$)7.$-.);-('$>.-.$1-.&).-$0($h!)7$/0-.*)0!('$i!-$)7.$@?3$)7&($i!-$)7.$@ho$cqq2$x-0./.-$&(/$@;h-&7,&(#&,$ also tested for a possible “autumn effect” in the data, but found their results to be robust to regressions that included proxies for return seasonalities. they concluded that the behavior of investors around festive religious holidays ';11.')'$!l)0,0',4$0(*-.&'./$*!(z/.(*.4$&(/$/.*-.&'./$-0'+$&v.-'0!(4$>70".$)7.$!ll!'0).$!**;-'$/;-0(1$&(/$&i).-$ ,!-.$'!,h.-$&(/$-.`.*)0v.$!**&'0!('$"0+.$j!,$k0ll;-2 analysis %&0"#$*"!'0(1$v&";.'$i!-$)7.$%!>$=!(.'$3(/;')-0&"$_v.-&1.$n%=3_d$>.-.$!h)&0(./$i!-$)7.$)7-..$)-&/0(1$/&#'$h.i!-.$ rosh hashanah and the three trading days after yom kippur during the 102-year period between 1907 and 2008. the djia is the oldest stock index compiled in the united states, and was made up of 12 large-capitalization stocks until 1928, when its components were increased to 30, the same number that the index includes today. during this l.-0!/4$)7.$0(/.[$>&'$&/d;')./$!($(;,.-!;'$!**&'0!('$)!$/.".).$,.-1./$!-$&*a;0-./$*!,l&(0.'$&(/$';h')0);).$!)7.-'$ in their place. since jewish religious holidays begin and end at sundown, the last trading day before rosh hashanah was *!('0/.-./$)!$h.$)7.$/&#$!i$)7.$';(/!>($,&-+0(1$)7.$')&-)$!i$)7&)$7!"0/&#2$80+.>0'.4$)7.$z-')$)-&/0(1$/&#$&i).-$j!,$ kippur is that which follows the sundown marking the holiday’s end. when any of the three days preceding rosh hashanah fell on a weekend or on labor day, the preceding friday was considered to be the prior trading day. an analogous process was applied to observations following yom kippur. in 1918, after the united states entered world war i, markets were closed on thursday, september 12, to facilitate registration for the military draft. since this market holiday was announced well in advance, it was treated similarly to a weekend or labor day. no observations exist for 1914, since markets were closed between july 31 and november 28 of that year, following the outbreak of world war i in europe. likewise, markets were closed for four days in 2001 following the attack on the twin towers. since the 2001 closings fell during the jewish religious holiday period and were unforeseen, the 2001 data were removed from the series so as to avoid a possible distortion of the results due to this extraneous event. the lack of data for 1914 and the removal of the 2001 data reduced the series to 100 observations. returns were calculated based on short-selling the djia index on one of the three trading days before rosh hashanah and then covering on one of the three trading days following yom kippur. since there are 10 days from )7.$')&-)$!i$)7.$z-')$ !"#$%&#$)!$)7.$.(/$!i$)7.$'.*!(/4$)7.$7!"/0(1$l.-0!/'$i!-$)7.'.$0(v.'),.()'$-&(1./$i-!,$ap$)!$ 16 days. nine scenarios were considered, covering the entire range of possibilities of selling short between one and 2010, vol. 1, no. 1, 45-52 yatrakis and williams 47 advances in business research three days before rosh hashanah and covering the short sales between one and three days following yom kippur. the nine scenarios are listed in table 1, below. ,>*"#?2# =,+&5@#30"5,=&)'#/)=#3!)=1&5@#7"/)="#4)'!#(,'!,5,!#,5+#a)b"=&5@#c/1"=#9):#;&<<8= %.'*-0l)0v.$')&)0')0*'$>.-.$*&"*;"&)./$!($)7.$-.);-('$i!-$.&*7$)-&/0(1$'*.(&-0!$n6&h".$pd2$67.$,.&($-.);-('$!v.-$ the 100 years were positive for all nine scenarios, and ranged from 0.47% for scenario 2, representing shorting three days before rosh hashanah and covering two days after yom kippur; to 1.01% for scenario 4, representing shorting two days before rosh hashanah and covering one day after yom kippur. ,>*"#d2#e"'0=&<1&b"#31,1&'1&0'#)/#4"18=5'2#c**# =,+&5@#30"5,=&)'6#c**#e,1, 67.$-.);-('$!i$)7.$(0(.$'*.(&-0!'$7&/$-&(1.'$!i$h.)>..($tp2aj$n@*.(&-0!$sd$&(/$csj$n@*.(&-0!$ad4$>0)7$&$,0(0,;,$ -.);-($!i$<pc2cj$i!-$&(#$!(.$#.&-$n@*.(&-0!'$r$&(/$bd4$&(/$&$,&[0,;,$-.);-($!i$ta2bj$n@*.(&-0!$cd2$67.$/0')-0h;)0!('$ !i$)7.$aqq$!h'.-v&)0!('$>.-.$i!;(/$)!$h.$l!'0)0v."#$'+.>./$i!-$)7-..$!i$)7.$'*.(&-0!'4$>70".$(!$')&)0')0*&""#$'01(0z*&()$ '+.>(.''$>&'$.v0/.()$0($)7.$!)7.-$'0[2$ !>.v.-4$&""$(0(.$/0')-0h;)0!('$>.-.$".l)!+;-)0*$ni&)$)&0"./d$&)$7017"#$'01(0z*&()$ ".v."'4$0,l"#0(1$(!(<(!-,&"0)#$n6&h".$td2 # ,>*"#f2#c++&1&)5,*#e"'0=&<1&b"#31,1&'1&0'2#c**# =,+&5@#30"5,=&)'6#c**#e,1, starting with the complete data set of 100 years, one-tailed t-tests were performed to test for the existence of '01(0z*&()$l!'0)0v.$-.);-('$ i!-$')-&).10.'$!i$'7!-)0(1$h.i!-.$f!'7$ &'7&(&7$&(/$*!v.-0(1$&i).-$j!,$k0ll;-2$67.$ *!.iz*0.()'$!i$&""$(0(.$'*.(&-0!'$ 0(/0*&)./$',&""$h;)$l!'0)0v.$.[*.''$ -.);-('2$67-..$!i$ )7.$(0(.$ )-&/0(1$'*.(&-0!'$ '7!>./$l!'0)0v.$-.);-('$)7&)$>.-.$')&)0')0*&""#$'01(0z*&()$&)$)7.$bqj$*!(z/.(*.$".v."4$>70".$)7.$-.);-('$!i$&(!)7.-$ )>!$>.-.$'01(0z*&()$&)$)7.$bcj$".v."$n6&h".$cd2$ scenario day of short before rosh hashanah (r = 0) day of cover after yom kippur (y =0) 1 r-3 y+1 2 r-3 y+2 3 r-3 y+3 4 r-2 y+1 5 r-2 y+2 6 r-2 y+3 7 r-1 y+1 8 r-1 y+2 9 r-1 y+3 scenario strategy n mean std. deviation std. error mean range minimum maximum skewness kurtosis scenario statistic statistic statistic statistic statistic std. error statistic std. error scenario strategy n mean std. deviation std. error mean 1 r-3, y+1 100 0.0082 0.0540 0.0054 2 r-3, y+2 100 0.0047 0.0559 0.0056 3 r-3, y+3 100 0.0064 0.0554 0.0055 4 r-2, y+1 100 0.0101 0.0496 0.0050 5 r-2, y+2 100 0.0066 0.0521 0.0052 6 r-2, y+3 100 0.0083 0.0518 0.0052 7 r-1, y+1 100 0.0088 0.0438 0.0044 8 r-1, y+2 100 0.0054 0.0488 0.0049 9 r-1, y+3 100 0.0071 0.0483 0.0048 range minimum maximum skewness kurtosis scenario statistic statistic statistic statistic statistic std. error statistic std. error n range minimum maximum skewness kurtosis scenario statistic statistic statistic statistic statistic std. error statistic std. error 1 100 0.470 -0.166 0.304 2.102 0.241 10.752 0.478 2 100 0.466 -0.235 0.230 0.415 0.241 7.184 0.478 3 100 0.442 -0.235 0.207 0.052 0.241 6.146 0.478 4 100 0.391 -0.073 0.319 3.077 0.241 15.634 0.478 5 100 0.439 -0.242 0.197 0.206 0.241 8.125 0.478 6 100 0.438 -0.241 0.197 -0.009 0.241 7.657 0.478 7 100 0.321 -0.095 0.227 2.129 0.241 8.213 0.478 8 100 0.442 -0.244 0.197 -0.301 0.241 9.877 0.478 9 100 0.449 -0.244 0.206 -0.598 0.241 9.278 0.478 2010, vol. 1, no. 1, 45-52 yatrakis and williams 48 advances in business research !"#$%&'% ()$*)%+$*,#)*%-./%+$),/0*%.-% /!1203%45$0!/2.*6%7*203%8##%9!)! because statistical tests pointed to the possible distortion of results by outliers, the entire data set was sorted and all values outside three standard deviations from the mean return were discarded. on average, four data points were removed from each scenario’s results, and the analysis was repeated with the truncated data sets. descriptive !"!# !#$ %&'('%")"#*%$"+$,+"!'-%./(%('!,(* %/0!"#*'-%&#!1%!1'%*#*'%!("-#*)% $'*"(#/ %23"0+'%456%31'%7'"*%('!,(* %./(% the different strategies ranged from 0.12% for scenario 2 to 0.76% for scenario 9. as expected, the mean returns and standard deviations of the truncated data sets were lower than those calculated for the entire series. !"#$%:'%9$*5/2;)2<$%4)!)2*)25*%.-%+$),/0*'%8##% /!1203%45$0!/2.*6% /,05!)$1%9!)! 31'%('!,(* %/.%!1'%*#*'% $'*"(#/ %0" '-%/*%!1'%!(,*$"!'-%-"!"%1"-%("*)' %/.%0'!&''*%896:;%2<$'*"(#/%85%"*-%=86>;% 2<$'*"(#/%?5@%&#!1%"%7#*#7,7%('!,(*%/.%a8>68;%./(%"*b%/*'%b'"(%"*-%"%7"c#7,7%('!,(*%/.%8464;@%0/!1%./(%<$'*"(#/% d6%31'%!(,*$"!'-%-# !(#0,!#/* % 1/&'-%*/% !"!# !#$"++b% #)*#e$"*!% f'&*' %/(%f,(!/ # g%!1'%('7/h"+%/.%!1'%/,!+#'( % ('*-'('-%!1'%!(,*$"!'-% '(#' %"ii(/c#7"!'+b%*/(7"+%23"0+'%>56 % !"#$%='%8112)2.0!#%9$*5/2;)2<$%4)!)2*)25*'%8##% /!1203%45$0!/2.*6% /,05!)$1%9!)! 31(''% $'*"(#/ %0" '-%/*%!1'%!(,*$"!'-%-"!"% 1/&'-%('!,(* % #)*#e$"*!%"!%!1'%94;%$/*e-'*$'%+'h'+%23"0+'%j56%% scenario 3, with a trading strategy of shorting three days before rosh hashanah and covering three days after yom kippur, had a mean return of 0.68%; scenario 6, with a trading strategy of shorting two days before rosh hashanah and covering three days after yom kippur, had a mean return of 0.70%; and scenario 9, with a trading strategy of shorting one day before rosh hashanah and buying three days after yom kippur, had a mean return of 0.76%. test value = 0 scenario strategy t df sig. (1-tailed) mean difference 1 r-3, y+1 1.5236 99 0.0654* 0.0082 2 r-3, y+2 0.8369 99 0.2023 0.0047 3 r-3, y+3 1.1575 99 0.1249 0.0064 4 r-2, y+1 2.0321 99 0.0224** 0.0101 5 r-2, y+2 1.2620 99 0.1050 0.0066 6 r-2, y+3 1.6053 99 0.0558* 0.0083 7 r-1, y+1 2.0071 99 0.0237** 0.0088 8 r-1, y+2 1.0980 99 0.1374 0.0054 9 r-1, y+3 1.4673 99 0.0727* 0.0071 scenario strategy n mean std. deviation std. error mean range minimum maximum skewness kurtosis scenario strategy n mean std. deviation std. error mean 1 r-3, y+1 96 0.0033 0.0336 0.0034 2 r-3, y+2 96 0.0012 0.0384 0.0039 3 r-3, y+3 96 0.0068 0.0390 0.0040 4 r-2, y+1 97 0.0038 0.0321 0.0033 5 r-2 y+2 96 0.0036 0.0341 0.0035 6 r-2 y+3 97 0.0070 0.0371 0.0038 7 r-1, y+1 97 0.0033 0.0306 0.0031 8 r-1, y+2 97 0.0042 0.0333 0.0034 9 r-1, y+3 98 0.0076 0.0365 0.0037 range minimum maximum skewness kurtosis n range minimum maximum skewness kurtosis scenario statistic statistic statistic statistic statistic std. error statistic std. error 1 96 0.1981 -0.0657 0.1324 0.6470 0.2462 1.4568 0.4877 2 96 0.3161 -0.1611 0.1550 0.1212 0.2462 5.4542 0.4877 3 96 0.2324 -0.0808 0.1516 1.1125 0.2462 2.8595 0.4877 4 97 0.2097 -0.0726 0.1371 0.6604 0.2450 2.1332 0.4853 5 96 0.2443 -0.1140 0.1303 0.5548 0.2462 3.6709 0.4877 6 97 0.2294 -0.1047 0.1247 0.5345 0.2450 1.6964 0.4853 7 97 0.2130 -0.0947 0.1183 0.2573 0.2450 1.8223 0.4853 8 97 0.2384 -0.1268 0.1116 0.0964 0.2450 3.2693 0.4853 9 98 0.2386 -0.1176 0.1209 0.2652 0.2438 1.7080 0.4830 2010, vol. 1, no. 1, 45-52 yatrakis and williams 49 advances in business research !"#$% &' !()%*) +%*,$)* -./ +%),/0* .!/"1203 45%0"/2.*6 7*203 !/,05")%1 8")" ! "#$"#%#&'% () $#"*#&' *+&,-#&*# .#/#.0 !! "#$"#%#&'% (1 $#"*#&' *+&,-#&*# .#/#.0 in summary, a strategy of selling short before rosh hashanah and covering the short sale after yom kippur was %2+3& '+ $"+-4*# %'5'6%'6*5..7 %68&6,*5&' "#'4"&% 9+" ,/# '"5-6&8 %*#&5"6+% 32#& '2# 94.. -5'5 %#' 35% 4%#6& '2# 5&5.7%6%: 5&9+" '2"## %*#&5"6+% 4%6&8 '2# '"4&*5'#-5'5 ;<5=.# >?0 <2# "#'4"&% +9 5.. &6&# '"5-6&8 %'"5'#86#% 3#"# highly correlated, suggesting that a shorting strategy with positive returns could have been implemented on any of the days preceding rosh hashanah, with the covering of the short sale being executed on any of the three days following yom kippur. !"#$% 9' 4,::"/; .+%),/0 +%*,$)* -./ )<% =20% !/"1203 4)/")%32%* @--6'6+&5. 5&5.7%6% 35% $#"9+"a#'+ '#%' 9+" 5 3##b#&#99#*' '25' a682' =# 6&c4#&*6&8 '2# "#%4.'%0 d# '#%'# 32#'2#" "#'4"&% a682' =# %68&6,*5&'.7 -699#"#&' 69 #6'2#" +9 '2# e+.7 f57% +**4"% +& 5 3##b#&5% *+a$5"#'+ 5 weekday. regression analysis was performed on the returns for the nine trading strategies, using a dummy variable '+ '#%' 9+" 5 3##b#&#99#*'0 g+ 3##b#&-4aa6#% 3#"# 9+4&'+ =# %68&6,*5&' 6& 5&7 +9 '2# &6&# %*#&5"6+%: 6a$.76&8 that the results are robust to a possible weekend effect. to test for robustness over time, a dummy variable was used '+ "#$"#%#&' '2# .5%' 1) 7#5"% +9 '2# -5'5 ;h(1ijk))>?0 <26% -4aa7 35% 5.%+ 6&%68&6,*5&': 6a$.76&8 '25' "#'4"&% 5"# &+' %68&6,*5&'.7 -699#"#&' +/#" '2# '3+ '6a# $#"6+-%0 >?=>@74a?= this study utilized 100 years of data covering the period between 1907 and 2008 and evaluated trading strategies of selling short the djia index before rosh hashanah and covering the short sale after yom kippur. mean returns for the nine strategies considered ranged from 0.47 percent for shorting three days before rosh hashanah and covering two days after yom kippur, to 1.01 for shorting two days before rosh hashanah and covering one day after yom kippur. l& '#%'% -+&# 36'2 '2# *+a$.#'# -5'5 %#': ,/# +9 '2# &6&# %*#&5"6+% 76#.-#%'5'6%'6*5..7 %68&6,*5&' "#%4.'%0 l& '#%'% 4%6&8 '2# '"4&*5'#-5'5 %#': '2"## +9 '2# &6&# '"5-6&8 %'"5'#86#% 3#"# %68&6,*5&'0 <2# "#%4.'% +9 '26% %'4-7 5"# 6& .6&# 36'2 '2# *+&*.4%6+&% +9 m"6#-#" 5&n4="52a5&75a ;k))o? 6&5%a4*2 as they substantiate the comparatively stronger performance of markets prior to the joyous religious holiday of rosh hashanah, and their weakness following the somber occasion of yom kippur. they also tend to support the ,&-6&8% +9 p+482"5& 5&n*24.'q ;k))o?: 32+ +=%#"/#5 "#-4*'6+& +9 '"5-#" $5"'6*6$5'6+& -4"6&8 '2# e682 e+.7 f57%0 m6&5..7: '2#7 *+&,"a '2# #r6%'#&*# +9 5 s#36%2 e+.6-57 t99#*' 5&'2# 5**4"5*7 +9 '2# d5.. n'"##' 5-58#: un#.. rosh hashanah, buy yom kippur.” test value =0 scenario strategy t df sig. (2-tailed) mean difference 1 r-3, y+1 0.9665 95 0.1681 0.0033 2 r-3, y+2 0.3168 95 0.3761 0.0012 3 r-3, y+3 1.7028 95 0.0459** 0.0068 4 r-2, y+1 1.1594 96 0.1246 0.0038 5 r-2, y+2 1.0341 95 0.1519 0.0036 6 r-2, y+3 1.8591 96 0.0330** 0.0070 7 r-1, y+1 1.0617 96 0.1455 0.0033 8 r-1, y+2 1.2341 96 0.1101 0.0042 9 r-1, y+3 2.0712 97 0.0205** 0.0076 scenario before buying after scenario shorting before rosh hashanah buying after yom kippur results with complete data set results with truncated data set 1 3 days before 1 day after significant 2 3 days before 2 days after 3 3 days before 3 days after significant 4 2 days before 1 day after significant 5 2 days before 2 days after 6 2 days before 3 days after significant significant 7 1 day before 1 day after significant 8 1 day before 2 days after 9 1 day before 3 days after significant significant 2010, vol. 1, no. 1, 45-52 yatrakis and williams 50 advances in business research !"#$%"&'(#"#$)%%"*%+'*%(,")%(%')+$%)("$'-%".*%!#./%*"'"!012%)"34"5'!31'&.%(6".!"#$%"74/+.%!#"8')9%#":;<3#$%(.(," (.1.&')"#3"#$%"3!%"*%(+).2%*".!"#$.("<'<%)=":3>%-%),"'("?'1'"@abcde"'!*"8'&9.%&"@fddge"<3.!#"30#,">$.&%"(0+$"(.#0'#.3!(" 1';"2%"(#'#.(#.+'&&;"(.h!./+'!#,"-%);"4%>"$'-%"<)3-%!"#3"2%"%+3!31.+'&&;"(.h!./+'!#"'(">%&&,"(.!+%"#)'!('+#.3!"+3(#(" usually negate the returns of trading strategies based on these anomalies. the jewish holiday effect seems, however, #3">.#$(#'!*"(0+$"+).#.+.(1="?3)"%i'1<&%,"#$%"(#)3!h%(#"(#)'#%h;".*%!#./%*".!"#$.("(#0*;,"#$'#"34"($3)#.!h"#$%"jk l" two days before rosh hashanah and covering the day after yom kippur, yields a mean return of 1.01% for a holding period of just 13 days. before the establishment of discount brokerage, a strategy of shorting the djia based on the jewish holiday effect would probably not have been economically viable. a trader wishing to take advantage of this anomaly >30&*"$'-%"$'*"#3"#'9%"<3(.#.3!(".!"'&&"gd"34"#$%"jk l"+31<3!%!#(,"'!*"#$%"#)'!('+#.3!"+3(#("1';"$'-%"%m0'&%*"3)" exceeded the trading returns. however, the development of discount brokerage over the last several decades reduced transaction costs substantially. for example, one of the more popular discount brokers, scottradetm charges a fee of $7 irrespective of the value or volume of a trade, so the total transaction cost of short selling and then covering each of the 30 component stocks of the djia would have been $420. given a mean return of 1.01%, it would have taken an investment of about $41,600 to cover transaction costs; however, an investment of $1 million would have produced '")%#0)!"34"nad,dbo".!"p0(#"ag"*';(="q$%"+)%'#.3!"34"#$%"j.'13!*("q)0(#"7i+$'!h%"q)'*%*"?0!*"@7q?,"(#3+9"(;123&r" j le".!"abbc"1'*%".#"<3((.2&%"#3")%*0+%"#)'!('+#.3!"+3(#("%-%!"40)#$%)="s;"#)'*.!h"p0(#"#$.("3!%"(%+0).#;".!"<&'+%"34" the index’s 30 components, a trader would have reduced transaction costs at a discount broker from $420 to $14. an investment of $1386 would have covered transaction costs, and one of $1 million would, on average, have yielded a return of $10,086 for a holding period of under two weeks. other, newer discount brokers are now offering even lower transaction fees. 8'&9.%&"@fddge"$'("<3(.#%*"#$'#"')2.#)'h%"#%!*("#3"1'9%"#)'*.!h"<)3/#("4)31"'!31'&.%(".!"#$%"78:"*.('<<%')" once these become known and tradable. to test whether the jewish holiday effect has persisted into the age of etfs '!*"*.(+30!#"2)39%)'h%,"#$%"#)0!+'#%*"*'#'">'("*.('hh)%h'#%*".!#3"#>3"<%).3*(r"abdt"#3"abbt,"#$%"<%).3*"2%43)%"#$%" creation of the diamonds etf, and 1998 to 2008, when the etf and discount brokers were in existence. a t-test for *.44%)%!+%(".!"1%'!")%#0)!("($3>%*"#$'#"(.h!./+'!#,"<3(.#.-%")%#0)!("+3!#.!0%*"#3"2%")%+3)*%*"43)"#$%"<%).3*"abbc"#3" fddcu"#$%(%">%)%".!"4'+#"$.h$%)"#$'!"#$3(%")%+3)*%*"43)"#$%"abdtvabcc"<%).3*"43)"(.i"34"#$%"!.!%"(+%!').3("@q'2&%"be="" for example, the mean return for scenario 1 between 1998 and 2008 was 4.21 percent, while the mean return for 1907 to 1997 was 0.45 percent. the standard deviations for all nine scenarios were also higher in the 1998-2008 periods than those for 1907 to 1997, possibly due to the stock market boom during the latter years. !"#$%&'% (%)$*)*%+,-%./++$-$01$*%/0%2$!0%3$)4-0*5%6&78(6&&8%9*:%6&&;(<77; w")%<)%(%!#("bd"<%)+%!#"+3!/*%!+%"&%-%&= ww")%<)%(%!#("bo"<%)+%!#"+3!/*%!+%"&%-%&= q$%")%(0&#("34"#$.("(#0*;")'.(%"m0%(#.3!("'("#3"#$%"<3((.2&%")%'(3!@(e"43)"#$%"32(%)-%*"k%>.($":3&.*';"744%+#="l!" examination of the academic literature, as well as the writings of practitioners, reveals several plausible explanations. q$%"(.1<&%(#"34"#$%(%".("#$'#"#$%")%(0&#("')%"(.1<&;"<.+9.!h"0<"3#$%),"'&)%'*;v.*%!#./%*"'!31'&.%(,"(0+$"'(">%%9%!*," (%'(3!'&,"3)"%!*v34v13!#$"%44%+#(=":3>%-%),"#%(#("43)"#$%(%"4'+#3)("*%13!(#)'#%"#$'#"#$%;"')%"!3#"(.h!./+'!#"'!*"#$'#" #$%")%(0&#("')%")320(#"#3"'!;".!x0%!+%">$.+$"#$%;"1';"%i%)#="l!3#$%)"<&'0(.2&%"%i<&'!'#.3!".("#$'#"#$%"/!*.!h("')%" 0!*0&;"'44%+#%*"2;"'"4%>"30#&.%)(,"(0+$"'("#$%"+'(+'*.!h"+)'($"34"fddc="s0#"#)0!+'#.!h"#$%"*'#'"(3"'("#3"/&#%)"30#"#$%(%" outliers fails to change the conclusion. nor is the jewish holiday effect an artifact of selective data mining, since the analysis uses 100 years of data for the djia index. moreover, disaggregation of the 100-year series into the two periods described above shows that the “sell rosh hashanah, buy yom kippur” heuristic remained valid during both periods. 1-tailed test scenarios t-statistic p-value mean 1998 2008 std. deviation mean 1907 1997 std. deviation 1 2.1266 0.0180** 0.0421 0.0974 0.0045 0.0463 2 1.3344 0.0926* 0.0270 0.0598 0.0022 0.0552 3 1.8132 0.0364** 0.0362 0.0666 0.0031 0.0535 4 2.0834 0.0199** 0.0406 0.1017 0.0067 0.0397 5 1.2078 0.1150 0.0254 0.0639 0.0045 0.0506 6 1.7109 0.0451** 0.0346 0.0706 0.0054 0.0489 7 1.6328 0.0529* 0.0301 0.0744 0.0064 0.0390 8 0.7110 0.2394 0.0158 0.0422 0.0042 0.0495 9 1.2370 0.1095 0.0250 0.0518 0.0051 0.0478 * represents 90 percent confidence level. 2010, vol. 1, no. 1, 45-52 yatrakis and williams 51 advances in business research y!%"<&'0(.2&%"%i<&'!'#.3!".("<%)$'<("#$'#"34"!3!/!'!+.'&"3<<3)#0!.#;"+3(#"+.#%*"2;"?).%*%)"'!*"z02)'$1'!;'1" @fdd[eu" '!3#$%)" .(" $3&.*';" (%!#.1%!#," *.(+0((%*"2;"\'93!.($39" '!*"z1.*#" @abc[e" '!*"]%)-%)'" '!*"^%.1" @fddde. l++3)*.!h" #3" #$%" /)(#" %i<&'!'#.3!," #)'*%)(" 32(%)-.!h" #$%" :.h$":3&;" j';(" >30&*" %i.#" #$%"1')9%#" <).3)" #3" _3($" hashanah so as to focus on spiritual matters; their departure would in turn exert selling pressure on securities. l!"'&#%)!'#.-%"%i<&'!'#.3!"1';"2%"430!*".!"_.##%) (̀"@abcce"(0hh%(#.3!"#$'#".!-%(#3)"*%+.(.3!("34#%!"+&0(#%)"')30!*" holidays. since the high holy days mark the beginning of the jewish new year, observant investors might execute previously contemplated sales at yearend, during the days before rosh hashanah. an astute trader could sell short in advance of the anticipated decline and cover the short position after yom kippur, when the mood of observant traders >30&*")%1'.!")%x%+#.-%"'!*"+'0#.30(,"%i%)#.!h"'"!%h'#.-%".!x0%!+%"3!"(#3+9"<).+%(=" q$%(%"p0(#./+'#.3!(,"$3>%-%),"')%"2'(%*"3!"#$%"<)%(01%*"'+#.3!("34"32(%)-'!#"k%>.($"#)'*%)(,">$3".!"'!;"%-%!#" comprise a minority of all market participants. one would also probably have to postulate a momentum effect caused by noise traders who were not observing the holidays, but were simply piling on to take advantage of short#%)1"13-%1%!#("(<')9%*"2;"#)'*%)(".!x0%!+%*"2;")%&.h.30("+3!(.*%)'#.3!(="q$%"'+#.3!("34"#$%"13)%"!01%)30("!3.(%" traders would, in turn, amplify the impact of the observant traders’ behavior. finally, the absence of even a minority of traders and the resulting reduction in volume, which has been documented by both \30h$)'!" '!*"z+$0&#a" @fdd[e" '!*"?).%*%)" '!*"z02)'$1'!;'1" @fdd[e,">30&*" #%!*" #3"1'9%" 1')9%#("#$.!!%),"13)%"-3&'#.&%"'!*"<)%(01'2&;"&%(("%4/+.%!#="_.(9v'-%)(%"#)'*%)(">30&*">'!#"#3"'-3.*"<')#.+.<'#.!h".!" those markets and might also exit in advance of the holidays, magnifying further the impact of the observant traders’ departure. the perception that these factors cause markets to decline during the holiday period might thus become a (%&4v40&/&&.!h"<)3<$%+;,"'("#)'*%)("+&3(%"#$%.)"<3(.#.3!("#3"'-3.*"&3((%(= 3=>=3=?@=a l).%&,"_="abbd=":.h$"(#3+9")%#0)!("2%43)%"$3&.*';(r"7i.(#%!+%"'!*"%-.*%!+%"3!"<3((.2&%"+'0(%(="k30)!'&"34"?.!'!+%," [or"abaavabfb= s')9%),"j=,"c"\30h$)'!,"q="fddt="q$%"h%3h)'<$;"34"zcd"odd")%#0)!(="k30)!'&"34"s%$'-.3)'&"?.!'!+%,"cr"attvabd= s)3+91'!,"d=,"c"8.+$';&09,"j="abbc="q$%"<%)(.(#%!#"$3&.*';"%44%+#r"l**.#.3!'&"%-.*%!+%="l<<&.%*"7+3!31.+("\%##%)(," or"fdovfdb= ]'*(2;,"]=,"c"_'#!%),"8="abbf="q0)!v34v13!#$"'!*"<)%v$3&.*';"%44%+#("3!"(#3+9")%#0)!(r"z31%".!#%)!'#.3!'&"%-.*%!+%=" k30)!'&"34"s'!9.!h"'!*"?.!'!+%,"abr"[btvodb= ]%)-%)',"l=,"c"^%.1,"j="fddd="q$%".!#%)!'#.3!'&"%-.*%!+%"3!"#$%"$3&.*';"%44%+#=" !"j="^%.1,"c"e="f.%12',"@7*(=e,"" 1<%)4%+#.3!(".!">3)&*>.*%"%m0.#;"1')9%#(="]'12).*h%,"g^r"]'12).*h%"g!.-%)(.#;"d)%((= ]3-'&," k=,"c"83(93>.#a,"q="abbb=":31%"2.'("'#"$31%r"\3+'&"%m0.#;"<)%4%)%!+%" .!"*31%(#.+"<3)#43&.3(=" k30)!'&"34" finance, 54, 2045-2073. ?'1',"7="abcd="74/+.%!#"+'<.#'&"1')9%#(r"l")%-.%>"34"#$%3);"'!*"%1<.).+'&">3)9="k30)!'&"34"?.!'!+%,"for"gcgh[at= frieder, t., & subrahmanyam, a. 2004. nonsecular regularities in returns and volume. financial analysts journal, bdr"fbvg[= gaffen, d. september 11, 2007. days of awe, but not for stocks. the wall street journal. i)%%!2%)h,"i="z%<#%12%)"ac,"fddb="l(9"#$%"(#)%%#r"_3($":'($'!'$"(%&&.!h="_%#).%-%*"3!"j3-%12%)"af,"fddc"4)31"#$%" z#)%%#=+31="$##<rkk>>>=#$%(#)%%#=+31= i).!2&'##,"8=,"c"^%&3$')p0,"8="fdda=":3>"*.(#'!+%,"&'!h0'h%"'!*"+0&#0)%".!x0%!+%"(#3+9$3&*.!h("'!*"#)'*%(="k30)!'&" 34"?.!'!+%,"o[r"adogvadtg= hirsch, j., & brown, j. august 29, 2006. september vital statistics report. retrieved on november 12, 2008 from the l&1'!'+" !-%(#3)="$##<rkk>>>=#)'*%)v#'&9=+31 :02%)1'!,"i="fdda="?'1.&.').#;"2)%%*(".!-%(#1%!#="_%-.%>"34"?.!'!+.'&"z#0*.%(,"a[r"bobhbcd= 2010, vol. 1, no. 1, 45-52 yatrakis and williams 52 advances in business research ^.1,"]=,"c"d')9,"k="abb[=":3&.*';"%44%+#("'!*"(#3+9")%#0)!(r"?0)#$%)"%-.*%!+%="k30)!'&"34"?.!'!+.'&"'!*"l0'!#.#'#.-%" l!'&;(.(,"fbr"a[ovaot= \'93!.($39,"k=,"c"z1.*#,"z="abc[="m3&01%"'!*"#0)!v34v#$%";%')"2%$'-.3)="k30)!'&"34"?.!'!+.'&"7+3!31.+(,"agr"[gov[oo= loughran, t., & scuhlz, p. 2004. weather, stock returns and the impact of localized trading behavior. journal of ?.!'!+.'&"'!*"l0'!#.#'#.-%"l!'&;(.(,"gbr"g[gvgb[= \0+%;,"s=" fddo="l)%" &3+'&" 3)" .!#%)!'#.3!'&" .!x0%!+%(" )%(<3!(.2&%" 43)" #$%" <)%v$3&.*';" 2%$'-.30)" 34" ).($" %m0.#.%(n" l<<&.%*"?.!'!+.'&"7+3!31.+(,"aor"gcavgcb= 8'&9.%&,"s="fddg="q$%"%4/+.%!#"1')9%#"$;<3#$%(.("'!*".#("+).#.+(="k30)!'&"34"7+3!31.+"d%)(<%+#.-%(,"atr"obvcf= meneu, v., & pardo, a. 2004. pre-holiday effect, large trades and small investor behaviour. journal of empirical ?.!'!+%,"aar"fgavf[b= yh0a(3;,"]=,"c"i0-%!,"z="fdd[=":3&;"*';("%44%+#"3!" (#'!20&"(#3+9"%i+$'!h%="k30)!'&"34"71%)h.!h"8')9%#"?.!'!+%," gr"bghto= popik, b. september 30, 2008. sell on rosh hashanah, buy on yom kippur wall street adage. retrieved on j3-%12%)"af,"fddc"4)31"#$%"s.h"l<<&%="$##<rkk>>>=2'));<3<.9=+31 _.##%),"k="abcc="q$%"20;.!h"'!*"(%&&.!h"2%$'-.3)"34".!*.-.*0'&".!-%(#3)("'#"#$%"#0)!"34"#$%";%')="k30)!'&"34"?.!'!+%,"[gr" 710-717. schatz, p. september 10, 2010. sell rosh hashanah … buy yom kippur. the new haven register. z+$.&&%),":="z%<#%12%)"a[,"fddt="q.1%"#3"(%&&"'("&'(#">%%9`("h'<("')%"/&&%*="_%#).%-%*"3!"j3-%12%)"f,"fddt"4)31"#$%" z#)%%#=+31="$##<rkk>>>=#$%(#)%%#=+31= z1.#$,"s="ab[t="d.!+$$.##%)"43)"<)%(.*%!#(="_%#).%-%*"3!"y+#32%)"gd,"fdad"4)31"#$%"k%>.($"-.)#0'&"&.2)');="$##<rkk>>>= jewishvirtuallibrary.org. g!9!3>!="z%<#%12%)"ab,"abao="q$%"\3!*3!"1')9%#"m0.%#"v"k%>.($"$3&.*';"+'0(%("(1'&&"'##%!*'!+%"3!"#$%"%i+$'!h%=" the new york times. f$0,"j="fddg="q$%"&3+'&"2.'("34".!*.-.*0'&".!-%(#3)(="e3)9.!h"d'<%),"g!.-%)(.#;"34"]'&.43)!.'"v"j'-.(="_%#).%-%*"3!" y+#32%)"gd,"fdad"4)31"z+.%!#./+"]3113!(="$##<rkk%!=(+.%!#./++3113!(=3)hkg[ggffbb= b!0%c!)-!d/* is a <)34%((3)" 34" /!'!+%" '!*" %+3!31.+(" '#" j3-'" z30#$%'(#%)!"g!.-%)(.#;. he received his ph.d. .!" .!#%)!'#.3!'&" %+3!31.+(" 4)31"j%>"o3)9"g!.-%)(.#;=":.("+0))%!#" )%(%')+$" .!#%)%(#(" .!+&0*%"2%$'-.3)'&"/!'!+%," %&%+#)3!.+"/!'!+%," '!*" .!#%)!'#.3!'&"/!'!+.'&"1')9%#(=":%"$'("<02&.($%*" .!" #$%" k30)!'&"34"?3)%+'(#.!h,"s0(.!%((" 7+3!31.+(,"?.!'!+.'&"j%+.(.3!(,"#$%"k30)!'&"34"]0))%!#"_%(%')+$".!"i&32'&"s0(.!%((,"#$%" !#%)!'#.3!'&"k30)!'&"34" electronic finance, and others. e#"$-)%f/##/!g*".("'!"'((.(#'!#"<)34%((3)"34"/!'!+%"'!*"%+3!31.+("'#"j3-'"z30#$%'(#%)!"g!.-%)(.#;=":%")%+%.-%*" $.("d$=j=".!"'<<&.%*"%+3!31.+("4)31"#$%"g!.-%)(.#;"34"i%3)h.'=":.(")%(%')+$".!#%)%(#(".!+&0*%"2%$'-.3)'&"/!'!+%," 40#0)%("'!*"3<#.3!(,"/!'!+.'&"&.#%)'+;,"'!*"*%-%&3<1%!#"%+3!31.+(=":%"$'("<02&.($%*".!"#$%" !#%)!'#.3!'&"k30)!'&"34" business and economics perspectives, the international journal of education research, business quest, and others. 2010, vol. 1, no. 1, 45-52 yatrakis and williams uafs advances in business research 2012 lowrez (2).pdf gatzke and wollscheid advances in business research 2012, vol. 3, no. 1, 72-78 72 are we as rational as we think? bringing rationality versus equality preferences into the classroom shayna gatzke, university of arkansas-fort smith jim wollscheid, university of arkansas-fort smith the ultimatum game examines the relationship between profit maximization and fairness in our decision making process. the setup: two players, a proposer and a responder divide an amount of money between them. the predicted outcome is a result where the proposer offers $1 to the responder and keeps the rest with the responder accepting the offer. the game introduces that monetary gain may not be the only force behind people’s decision making process while introducing the ideas of fairness and equality. the game results seem to disprove the theory that people behave rationally, or economically speaking in their own self-interest. from childhood, the principle of fairness to others has been instilled in us through learning to share our toys or wait our turn in line. however, economics assumes that individuals are homo economicus (self-interested and rational) and frequently overlook the role of fairness in market transactions. for example: suppose that two friends find a $100 dollar bill on the street. how will the friends divide that money? friend 1 picks the bill up (and therefore is in possession of it), and he wants to play “finders keepers” with a split of $99 to $1. friend 2 has the option of accepting friend 1’s offer of $1 or taking the bill to the police station to report it as found and receive $0. the homo economicus suggests that friend 2 should accept the $1 because rejecting it leads to a zero payoff. however, we find that this game is unlikely to play out in the manner described. this raises the question, why doesn’t friend 2 accept a smaller payoff compared to turning the bill in for a zero payoff. the above game is a bargaining game called the ultimatum game. the game was introduced by guth, schmittberger, & schwarze (1982) to discuss the proposed division of a pool of money that is received by one individual to divide between the two players. one individual receives the pool of money and proposes payoffs by demanding the largest portion of the pie that will result in acceptance by the respondent. the respondent maximizes payoffs by accepting any proposer demand that results in a payoff above zero for the respondent. therefore, economists predict that proposer will keep all but just $1, which will go to the responder, and the responder will accept. the nash equilibrium is the ultimate rational decision, but in practice, players rarely reach the nash. more formally defined, the nash equilibrium is an outcome where each participant makes the best decision possible based on the decisions made by the other participants. the nash equilibrium incorporates not only the choices made by the individual but also the strategic choices made by another rational player. the question then is what motivates players to play the game in an irrational manner? one possibility is that players are motivated by preferences for equality. falk, fehr, & fischbacher (2008) found that players respond not just to the distributive results, but also to the degree of equality underlying the proposer’s intentions. this leads to different acceptance rates of identical offers; dependent upon both the proposer’s and receiver’s perceived level of fairness. guth, huck, & muller (2001) examined whether fair offers were accepted less often when the splits were near equal than when they were exactly equal. bohnet and zeckhauser (2004) examined ultimatum game experiments testing the influence of social comparisons on behavior. they found that when players compared their lot to that of others, the distance between the offer and the norm (the equitable split) decreased. more specifically, the social comparison caused players to focus on the norm. when viewed in the context of the morality of equality, the ultimatum game becomes one in which people may not always behave rationally. this assumption examines only the monetary payoffs from the exercise. various other studies (fehr & gachter, 2000; zamir, 2001; sobel, 2005; fehr & schmidt, 2006) found that money maximization may not be the sole motivating factor in the game, but other social payoffs such as a fairer outcome may provide a benefit to the participants. therefore, the solution may still hold that the participants are maximizing utility but not solely through conventional monetary payoffs. as such, rational behavior would still be that which maximizes payoffs, but payoffs may be measured in terms of both monetary values and the utility derived from maximizing the payoffs to all players. equality preferences allow us to begin the discussion of whether playing the game repeatedly with the same opponent alters player behavior. if players play based on a preference toward equality, then having a fixed opponent should increase the likelihood of reaching a more equitable split because through the course of the treatment, proposers learn what responders will accept and adjust their offers accordingly. nowak, page, & sigmund (2000) gatzke and wollscheid advances in business research 2012, vol. 3, no. 1, 72-78 73 found that when proposers were given information about the offers accepted by the respondents, the result was a gradual move away from nash and toward equitable splits. this paper provides an outline for professors to introduce the game into their classroom and the results that should be obtained from the exercise. the four remaining sections are as follows: the next section details the design of the classroom exercise and how aspects of fairness can be incorporated. the following section details the results from the classroom exercise and discussion on the concept of fairness. the final section summarizes our findings. classroom design the ultimatum game (along with other classroom exercises) has been provided to instructors by the veconlab from the university of virginia through a nsf grant (veconlab, 2005). the website allows instructors to create a free account to design their exercise. we have conducted the exercise using a variety of common setups from multiple classes to provide you with examples that may best fit your classroom. each exercise was conducted using three ten-round sections that allow the instructor to illustrate various topics for discussion (see table 1 for a breakdown of the exercises). for the first exercise, we began the first ten-round section with a slight variation of the ultimatum game, the dictator game. the dictator game differs from the ultimatum game in that the responder has no decision to accept or reject the proposal. therefore, it allows discussion on how participants will behave with no checks on their behavior. the second ten-round section was the standard ultimatum treatment with the pool of money (pie) fixed at $10. the pairing of opponents was random. in the third section, we expanded the pie size to $20 with all parameters being equivalent. in the second exercise, all three treatments were the standard ultimatum design. we differed these ten-round treatments by varying the pie size and the method of pairing the participants from random to fixed. table 1: exercise set-ups game setup pie size matching exercise 1 first ten rounds dictator game $10 random second ten rounds ultimatum game $10 random third ten rounds ultimatum game $20 random exercise 2 first ten rounds ultimatum game $10 random second ten rounds ultimatum game $20 random third ten rounds ultimatum game $20 fixed the issue of how to mimic actual behavior by the students to reflect “accurate” outcomes is a controversial one. researchers have found that students behave differently when using “hypothetical” payoffs than when there is some tangible benefit to the students. these hypothetical earnings may cause students to be disinterested or create a “noisy” set of data, which may not be useful for discussion (dickinson, 2002). therefore, instructors typically use one of two methods to encourage “cleaner” results. first, instructors may convert dollars from the exercise into classroom or extra-credit points. second, instructors can pay either the entire amount of the earnings or a portion of the earnings in cash. there is a variety of ways to accomplish this payment setup. the instructor may pay all students or randomly select one student from the class. each payment option has costs that each instructor must weigh in deciding the payoff from the exercise. with the use of the website, the process is streamlined from the old system of physically writing the offers out and redistributing through the class to the respondents and then back. the website allows for easy access for the students to see a history of their offers and the acceptance/rejection of those offers. the entire process (30 rounds) of the exercise can be done in a 50-minute class period. after the exercise is over, the average offers and rejection percentage are calculated for each round. the results provide discussion on how students view fairness and equality. discussion a variety of topics can be introduced through this game. from a principles of microeconomics class, we have provided an example of results, typical to other experiments done using this game. topic 1: will proposers capture more monetary payoffs in the dictator games than in the standard ultimatum game? in the dictator game, proposers are not constrained by the lack of fairness shown to the respondents. the discussion revolves around proposers being torn between rationality and equality. the results show students that people in the role of dictators may utilize that power to extract from helpless respondents. the nash equilibrium for how the proposer should behave in a dictator game is to keep all the pie, while in the ultimatum gatzke and wollscheid advances in business research 2012, vol. 3, no. 1, 72-78 74 game the proposer should keep all but $1. the dictator does not have the possibility of zero payout due to rejection, therefore proposers should be motivated by maximizing payoffs, but social norms still may alter their preferences. from the first exercise, table 2 details the number of offers for each proposer demand in the exercise. it also provides the rejection rates. table 2: proposer demands and rejections in the dictator/ultimatum game for exercise 1 amount of the proposer demand dictator offers ultimatum offers rejections 0 3 1 0/1(0%) 5 47 105 2/105 (1.9%) 6 1 5 2/5 (40%) 7 1 6 2/6 (33%) 8 12 4 3/4 (75%) 9 9 3 3/3 (100%) 10 57 6 6/6(100%) from table 2, we can see the various demands made by the proposers for their portion of the pie. table 2 shows distinct differences in the frequency distribution of proposer demands between the dictator and ultimatum rounds. in the dictator treatment, 44% of proposers demanded the nash equilibrium offer, compared to 36% who demanded the equitable split. contrast that with the ultimatum treatment in which only 2% demanded the respective nash equilibrium offer of 9 compared with 81% who demanded the equitable split. a look at the rejection rates for the ultimatum treatment provides insight into why proposers behaved so differently between the two treatments. when respondents were able to influence proposer behavior in the ultimatum treatment, which they did at a rejection rate of 75-100% for unfair and near unfair offers, proposers’ sense of fairness took over, and the result was a less than 2% rejection rate for fair offers. so, when players faced the possibility of zero payoffs resulting from rejection of inequitable demands, their behavior may have been based much more on equality than on rationality. table 3 shows the mean proposer demand in the dictator game was higher than that of the small pie ultimatum game and was significant at the 1% level. table 3: mean payoffs for the dictator and small pie ultimatum games mean proposer demand dictator game mean proposer demand small pie ultimatum game t-value observations 7.65 5.51 11.90 260 an interesting finding in this exercise was that only 4 times did the proposers in 20 rounds offer to take no part of the pie. in the dictator game, the same person in rounds 9 and 10 offered to take $0 of the $10 and give it to their partner. the individual who did not take any part of the pie in rounds 9 and 10 had taken $10 in the previous eight rounds. thus, this finding leaves to interpretation the motive for such a drastic change in behavior, which may have been caused by emotions such as shame or guilt. in addition, the dictator game did not consistently produce the nash equilibrium of $10. this provides an opportunity to discuss why dictators may not extract the entire pie but leave some for the powerless responders. with about a quarter of the countries in the world considered “not free” by the freedom house (2011), it provides the students a glimpse of how different economies and businesses may not operate with the freedoms seen in the western countries. topic 2: how much will the participant accept when given the choice? the homo economicus student will always accept any offer that includes at least one dollar. however, we can see from table 4 below that students will reject $1 (100% of the time) in favor of receiving nothing. table 4: offers in the small pie size settings amount of the proposer demand ultimatum offers in exercise 1 rejection rates ultimatum offers in exercise 2 rejection rate 0 1 0/1(0%) 0 n/a 2 0 n/a 1 0/1 (0%) 3 0 n/a 2 0/2 (0%) 4 0 n/a 3 0/3 (0%) 5 105 2/105 (1.9%) 86 0/86 (0%) 6 5 2/5 (40%) 22 8/22 (36%) 7 6 2/6 (33%) 10 8/10 (80%) 8 4 3/4 (75%) 3 1/2 (50%) 9 3 3/3 (100%) 2 2/2 (1005) 10 6 6/6(100%) 1 1/1 (100%) total offers 130 18/130 130 20/130 gatzke and wollscheid advances in business research 2012, vol. 3, no. 1, 72-78 75 the above table falls nicely into the following observations from experimental results (see güth, schmittberger, & schwarze,1982; kahneman, knetsch, & thaler, 1986; güth, 1995; camerer & thaler,1995; roth, 1995; falk & fischbacher, 2006). summarizing these studies, we see that using the small pie size set-up: 1. very few offers are below $5 2. the modal offer is between $5 and $6 3. offers above $8 are extremely rare 4. rejection rates near $5 are close to 0% 5. rejection rates above $8 are close to 100% the results lead into a discussion of fairness and perception of various types of offers made by the proposer. forysthe, et al. (1994) discussed how offers may contain both fairness and strategic considerations. why do proposers offer more than $1 originally? is it because they believe (correctly) that $1 offers are summarily rejected and that the responder will only accept fair offers? or do the proposers believe that the money should be split? rabin (1993) found that positive altruism (helping classmates) and negative envy (punishing the intentions of others) allows a focus on a “fairness equilibrium” that is closer to a 50/50 split than the nash equilibrium. with a “fairness equilibrium,” we can add “attributions” into the economic analysis. this leads to a discussion concerning an extension to the game, not performed in the exercises, involving effort by the proposer to determine the size of the pie. if the proposer has to work for the pie, then how do the proposer and responder react to an “earned” pie compared to a “found” pie? (see hoffman & spitzer,1982; hoffman & spitzer,1985; keasy & moon, 1996). topic 3: in the ultimatum game, does pie size matter? often, we face the issue of discussing different behaviors based on the wealth of businesses, individuals or countries. do people with greater monetary resources (wealth) have different behavior? if we alter the wealth available for the proposer to split, does that have an impact on their distribution? if you have more to give, then are you more likely to give a greater percentage than if you have less to give? these questions allow us to investigate the decision making process for how people donate to charities, how countries allocate foreign aid, etc. in our exercise, we compared proposer demands when faced with a small pie and with those when faced with a larger pie. figure 1 illustrates the percentage of the proposer demands of the pie for each exercise in the small and large pie rounds. figure 1: percentage of pie demanded by the proposer from figure 1 and table 5, we can see small pie and large pie proposer demands were approximately equal. using a two tailed t-test, we found that the differences were not significantly different from each other at the 10% level. we observe that the offers were slightly greater than the 50/50 split. some students may point out, like early ultimatum game critics, that the pie size is too small and does not reflect the decision made if the pie size was increased. hoffman, mccabe & smith (1997) found similar results to the stylized facts and outcomes in table 5 that increasing the pie size does not affect the responder’s decision to reject or accept an offer. table 5: percentage of small and large pie demanded by proposer in exercise 2 small pie percentage large pie percentage difference t –value exercise 1 55.08% 53.61% 1.46% 1.37 exercise 2 54.15% 53.85% 0.03% 0.40 total 54.62% 53.73% 0.88% 1.34 topic 4: does a relationship between the players impact the offer? to begin the discussion, we look at the relationship between proposers and responders. in the second exercise, we allowed different pairings of students. in the first 10 rounds, students were randomly matched while in the next ten rounds they had fixed opponents. the students had a causal relationship during the fixed part of the exercise. they had the same partners but they were not able to actively collude because their opponent’s identity was not revealed to them. the question is then, if a 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% exercise 1 exercise 2m e a n p ro p o se r d e m a n d s percentage proposed with small pie percentage proposed with large pie gatzke and wollscheid advances in business research 2012, vol. 3, no. 1, 72-78 76 relationship exists between the players, are they more likely to play fairly, and if so, why? in other words, when playing against the same partner repeatedly, did proposers offer more equitable splits? if so, was it because responders could efficiently influence proposer’s demands by rejecting lower offers? figure 2 illustrates the difference that even a very casual relationship had on proposer demands. it graphs proposer demands for large pie treatments by method of opponent pairing either random or fixed pairings. the line shows each proposers average offers based on either the random or the fixed effect. figure 2: proposer demand for large pie treatments by method of opponent pairing from table 6, the overall mean proposer demand for the random and fixed pairings was 10.77 and 10.09 respectively. the difference between the random and fixed pairing was $0.63 or 3.15% of the pie and was significant at the 1% level. this finding supports the idea that a longer-term interaction or relationship, regardless of how loosely it is defined, may increase the level of fair play engaged in by the players. table 6: proposer demands for random and fixed treatments in exercise 2 mean proposer demand random treatment mean proposer demand fixed treatment t-value observations 10.77 10.09 5.44 130 research has focused on how the question is framed and how the perceived relationship between the proposer and respondent impacts the level of fairness. hoffman, et al. (1994) and hoffman, mccabe & smith (1997) found that participants may expect future interactions with their partners, which may affect their decisions. while students in the classroom had no idea which classmate they were playing against, they may have expected future interactions with the pool of students as a whole, which may have influenced their decisions. this brings up the topic of how pricing decisions may differ in repeated situations (long-time customers) versus one-time transactions that occur in situations such as tourist destinations, which can easily fit into marketing discussions. in addition, cultural differences may enter into the discussion with different countries having different views and behaviors in various settings. roth & erev (1995) ran the ultimatum game across four different countries, usa, japan, israel and slovenia, and found little difference in the modal accepted offers. the offers typically ranged from $4 to $5 with participants of israel closer to $6. the discussion following the game causes student to often wonder if there are moderating variables such as gender, age and/or socioeconomic conditions that may explain the outcomes. the benefit of this exercise is that those variables have been eliminated as possible explanatory variables (hoffman, mccabe & smith, 1996). this allows the instructor to focus on the outcomes from the various treatments. conclusion for instructors in all fields of business, not just economics, the ultimatum game is an easy-to-use tool to explore the topic of fairness in the classroom. the basics of the game are simple for students to understand, yet the game allows for complex discussion of how fairness plays a role that may move results away from the homo economicus assumptions. this paper provides a guideline to an exercise that most students find rewarding and engaging in the discovery of not only economic principles, but also human behavior in a variety of business settings. the ultimatum game illustrates that rationality is not always the motivation for behavior. hoffman, et al. (1994) and hoffman, mccabe & smith (1996) found that people do not always act simply to maximize their own payoffs, but have behavior that follows a manifestation of rules of reciprocity that have been learned over in the course of 0 5 10 15 1 2 3 4 5 6 7 8 9 10111213 m e a n p ro p o se r d e m a n d s proposer number random treatment fixed treatment gatzke and wollscheid advances in business research 2012, vol. 3, no. 1, 72-78 77 everyday life. however, that is not to say that people do not behave in their own self interests. it simply means that purely rational behavior may not be the only factor influencing self-interest. as experiential learning plays a greater role in the classroom, an exercise like the ultimatum game gives instructors another technique to introduce and encourage discussion in the classroom. it allows exploration on the weights that individuals assign to fairness and equality. we all play the ultimatum game every day, whether we realize it or not. each time we leave a restaurant, we play the dictator treatment of the game when deciding how to tip the servers. we may have even played the standard ultimatum treatment when deciding how to split the bill among our dinner companions. thus, utilizing the tools of bargaining games like the ultimatum game will give students a view of the world that may be more memorable and a means of applying an understanding of decision making processes in their everyday lives. references bohnet, i., & zeckhauser, r. 2004. social comparisons in ultimatum bargaining. scandinavian journal of economics, 106(3), 495-510. camerer, c., & thaler, r. 1995. anomalies, ultimatums, dictators and manners. journal of economic perspectives, 9(2), 209-219. dickinson, d. 2002. a bargaining experiment to motivate discussion in fairness. journal of economic education, 33(2), 136-51. falk, a., & fischbacher, u. 2006. a theory of reciprocity. games and economic behavior, 54(2), 293-315. falk, a., fehr, e., & fischbacher, u. 2003. on the nature of fair behavior. economic inqiry, 41(1), 20-26. falk, a., fehr, e., & fischbacher, u. 2008. testing theories of fairness intentions matter. games and economic behavior, 62(1), 286-303. fehr, e., & gachter, s. (2000). fairness and retaliation: the economics of reciprocity. journal of economic prespecive, 14(3), 159-181. fehr, e., & schmidt, k. 2006. the economics of fairness, reciprocity and altruism:experimental evidence. in s. kolm, & j. ythier (eds.), handbook of the economics of giving, altruism and reciprocity (vol. 1, pp. 615691). amsterdam: elsevier. forsythe, r., horowitz, j., savin, n., & sefton, m. 1994. fairness and simple bargaining experiments. games and economic behavior, 6(3), 347-369. güth, w. 1995. on ultimatum bargaining experiments a personal review. journal of economic behavior & organization, 27(3), 329-344. guth, w., huck, s., & muller, w. 2001. the relevance of equal splits in ultimatum games. games and economic behavior, 37(1), 161-169. guth, w., schmittberger, r., & schwarze, b. 1982. an experimental analysis of ultimatum bargaining. journal of economic behavior and organization, 3(4), 367-388. hoffman, e., & spitzer, m. 1982. the coase theorem: some experimental tests. journal of law and economics, 25(1), 73-98. hoffman, e., & spitzer, m. 1985. entitlements, right and fairness: an experimental examination of subjects' concept of distributive justice. journal of legal studies, 14(2), 259-297. hoffman, e., mccabe, k., & smith, v. 1996. social distance and other-regarding behavior in dictator games. amercian economic review, 86(3), 653-660. hoffman, e., mccabe, k., shachat, k., & smith, v. 1994. preferences, property rights and anonymity in bargaining games. games and economic behavior, 7(3), 346-380. fehr, e., & gachter, s. (2000). fairness and retaliation: the economics of reciprocity. journal of economic prespecive, 14(3), 159-181. camerer, c., & perspectives, 9 gachter, s. (2000). ecive, 14(3), 159-181. gatzke and wollscheid advances in business research 2012, vol. 3, no. 1, 72-78 78 house, f. 2011. freedom in the world 2011. retrieved decemeber 15, 2011, from http://www.freedomhouse.org/ report/freedom-world/freedom-world-2011. kahneman, d., knetsch, j., & thaler, r. 1986. fairness and the assumptions of economics. journal of business, 59(4), 285-300. keasy, k., & moon, p. 1996. gambling with the house money in capital expenditure decisions. economics letters, 50(1), 105-110. kritikos, a., & bolle, f. 2000. distributional concerns: equity-or efficiency oriented. athens laboratory of economic policy studies, economics, athens. nowak, m., page, k., & sigmund, k. 2000. fairness versus reason in the ultimatum game. science, 289(5485), 1773-1775. nowak, m., page, k., & sigmund, k. (2000, september 8). fairness versus reason in the ultimatum game. retrieved february 7, 2012, from science magazine: http://www.sciencemag.org. rabin, m. 1993. incorporating fairness into game theory and economics. american economic review, 83(5), 1281-1302. roth, a. 1995. bargaining experments. in j. kagel, & a. roth (eds.), handbook of experimental economics (pp. 253-348). princeton: princeton university pres. roth, a., & erev, i. 1995. learning in extensive-form games: experimental data and simple dynamic models in the intermediate term. games and economic behavior, 8(1), 164-212. sobel, j. 2005. interdependent preferences and reciprocity. journal of economic literature, 43(2), 392-436. veconlab. 2005. veconlab: experimental economics laboratory. retrieved january 15, 2012, from http:// veconlab.econ.virginia.edu/. zamir, s. (2000, june 19). rationality and emotions in ultimatum bargaining. retrieved february 23, 2012, from einstein institute of mathematics: http://www.ma.huji.ac.il/~zamir/dp222.pdf. zamir, s. 2001. rationality and emotions in ultimatum bargaining. annals of economics and statistics, 61(1), 131. shayna gatzke is an undergraduate student in the college of business. shayna will graduate with a degree in business administration. her research interests include topics related to savings rates, gdp growth, currency stability, and international trade. after graduation, she plans to pursue a graduate degree in economics and teach economics at a post-secondary level. jim wollscheid is an associate professor of economics at university of arkansasfort smith. he received his ph.d. in economics from southern methodist university. his current research interests include teaching of economics, environmental policy and sports economics. he has published in scandinavian journal of economics, public choice, and behavioral research in accounting among others. advances in business research 2011 volume 2-231-237-holt 2.pdf holt advances in business research 2011, vol. 2, no. 1, 231-237 231 estimation of temporal characteristics of accounts for empirical research paul holt, texas a&m university, kingsville there is a massive foreign currency translation literature, but virtually no empirical research exists that describes the results of applying alternative translation methodologies or which tests such methodologies against normative criteria. empirical price level research and other areas of research are also restricted by the inability of researchers to estimate the temporal characteristics of the accounts of sample companies. this paper presents a method for achieving this estimation and tests its validity. all foreign currency translation methodologies require that certain accounts be translated at the historical rate, the exchange rate that was in effect at the point in time an asset was acquired, a liability was incurred, a revenue or expense was recognized, or an element of owners’ equity was recorded. such a point in time is referred to in the present study as a temporal reference. since some account balances (such as fixed assets and long-term debt) are the result of numerous transactions over a considerable period of time, such account balances are made up of components, each consisting of a currency amount and a temporal reference. the set of all such components is referred to in the present study as the temporal characteristics of a specific account balance. this set thus represents and describes a distribution of ages and related currency amounts of the account balance. purpose of the study thirty years ago, (patz, 1981) stated that the previous fifty years saw many opinions about foreign currency translation accounting, but virtually no empirical research to support those opinions. it is not correct to state that no empirical research in foreign currency translation has been done during the pasts eighty years. but research that translates a sample of actual companies’ accounts from one currency to another, using actual exchange rates, to describe what happens when different translation methodologies are used or to test methodologies against normative criteria is essentially nonexistent. there are several reasons for this void in the literature, each of which can be overcome with the results of the present paper. companies use one translation method at a time, some methods have not been used for many years, some plausible methods have never been used and, except for the cumulative translation gains or losses, the effects of translation are buried in the consolidated accounts. moreover, obtaining the further temporally referenced item by item data required to construct comparable results under alternative methods would task the patience of the most cooperative of firms. for these reasons, no broadly comparative and temporally sustained study, involving reasonably large samples of real firm data, appears to be available. this study provides an essential tool, the estimation of temporal characteristics of subsidiaries’ accounts, that researchers need to begin to fill this vacuum of empirical insight into the reporting consequences of alternative translation methodologies, and ultimately to a determination of which methodology is best under various normative criteria. it should be noted that the estimation method described herein can be applied to other areas of inquiry, such as alternative methods of accounting for price changes. literature review the foreign currency translation literature, spanning eighty years, is enormous. this review will therefore concentrate on two parts of the literature, early studies which relate directly to the present study and studies which represent some of the advances during the past decade. three early studies, relevant to the estimation of temporal characteristics, are (petersen, 1971), (davidson et al., 1976), and (parker, 1977). the purpose of these models is to generate estimated general price level data, a process which requires estimation of the temporal characteristics of financial statement numbers. (parker, 1977), representative of the three studies, reported the results of applying general holt advances in business research 2011, vol. 2, no. 1, 231-237 232 price-level accounting techniques, as described in the financial accounting standards board’s (fasb’s) december 1974 exposure draft. the general price-level techniques were applied to each of 1,050 u.s. companies over a period of three years. the relevance to the present study is that its methodology involves construction of computer programs intended to produce approximations of the ages (temporal references) of accounts. (ketz, 1978) tested the validity of these three models and concluded that there is no significant difference in results among the three models and that each of the three models is sufficiently accurate for research purposes. the three models tested by ketz are limited in that they estimate only the average ages of assets and liabilities so that the temporal characteristics of these account balances are assumed to consist of a single component. the following studies are notable and representative of studies done in the most recent decade. (pinto, 2002) applied game theory to the issue of currency translation method choice. a model of decision-making under uncertainty was developed based on the positive accounting theory assumption that managers will act opportunistically in their own self-interest when adopting reporting methods. the choice between the temporal rate method and the current rate method depends on the identification of the functional currency of a foreign subsidiary. this choice is made by managers based on six gaap criteria. managers can generally manipulate the functional currency choice, and thereby determine whether the temporal rate method or the current rate method will be used for translation. in the game model, a manager could decide where to locate investments and which translation method to use. they could pick a low growth environment (a developed country) or a high growth environment (a developing country). there were four actual outcomes, unknown to the manager when the investment and accounting choice was made: large or small appreciation of currency and large or small depreciation of currency. the study concludes that managers would opportunistically adopt the current rate method when manager compensation is a function of reported earnings, and the temporal rate method when manager compensation takes the form of stock options. (louis, 2003) empirically examined the association between change in firm value and the foreign translation adjustment for manufacturing firms. the research design was based on a regression of two independent variables, reported net income and the changed in the change in translation adjustment against fiscal year return as the dependent variable. the sample consisted of multinational manufacturing firms that had a nonzero cumulative translation adjustment, a total of 4,972 observations over the study period 1985-2001. for firms in the manufacturing sector, accounting rules for currency translation usually result in financial statement numbers opposite to the economic effects of exchange rate variations. thus, the translation adjustment was found to be associated with a loss of value instead of an increase in value. in another empirical study, (pinto, 2005) tested the value relevance of foreign currency translation adjustments in an earnings and book value model. an equity evaluation model was used in which the market value of equity is the dependent variable with book value of equity and net income as the independent variables. the study observed that foreign currency translation adjustments are significantly value relevant when their parameter estimates are allowed to vary in the cross-section. (kwon, 2005) tested whether local investors price foreign exchange risk differently than foreign investors. american depositary receipts (adrs) were used to differentiate between the two investor groups. the key was to observe the rate of return of an adr and compare it with the expected rate of return, using a model in which the expected rate of return equals the observed rate of return minus the sum of the rate of return on the underlying share and the exchange rate in us dollars per foreign currency unit. the study showed that foreign investors generally price exchange risk differently from local investors, and that the source and magnitude of differences in exchange risk pricing vary significantly across countries. (iatridis et al., 2005a) studied the motives of managements of u.k. firms in early adoption or deferment of ssap 20 “foreign currency translation.” the study used the empirical and theoretical findings of other studies to form a conceptual framework which, in part, observed that the timing of the adoption was a matter related to the objectives of the managers in consideration of market and economic conditions. further, income smoothing was possible because of the flexibility in financial reporting, but could be mitigated by appropriate standardization of accounting practice. holt advances in business research 2011, vol. 2, no. 1, 231-237 233 (iatridis, 2005b) empirically studied the u.k. stock market response to the implementation of the 1983 u.k. statement of standard accounting practice (ssap) no. 20. the stock market appeared to have anticipated the implementation of ssap 20. there was a positive stock market response in the official year of adoption, resulting from the income-stabilizing effects of the standard. the study also observed a significant relationship between stock returns and the accounting measures in the actual adoption period of the aggregate set of adopters. (iatridis et al., 2006) found that early adopters of the u.k. statement of standard accounting practice no. 20 were generally larger firms. managements tended to adopt when the adverse economic consequences of adoption were likely to be minimal. they deferred adoption of the standard to influence their financial performance. (liu, 2006) used an accounting-based equity valuation model for multinational firms to examine the forecasting and valuation properties of foreign currency translation gains and losses. it found that translation gains and losses could be subdivided into a core component and a transitory component. the combined effect was that translation gains and losses were more transitory than transitory earnings. (chambers et al, 2007) is an empirical study which investigated the relationship between the components of other comprehensive income and stock market returns. if the transparency required by sfas #130 made it easier for stock investors to process relevant information, the other comprehensive income components should be more associated with stock market returns after sfas #130 than before. the s&p 500 index was used as a sample and regressions were performed (with components of the other comprehensive income as independent variables and stock market returns as the dependent variable) over ten years, four years before sfas 130 and six years after. the study provided evidence that other comprehensive income is priced by investors on a dollar-for-dollar basis. two components of other comprehensive income, foreign currency translation adjustment and unrealized gains and losses on available-for-sale securities, were found to be priced by investors. but the study suggests that investors pay greater attention to other comprehensive information reported in the statement of changes in equity, rather than in a statement of financial performance. estimation of temporal characteristics inventory the method of estimating the temporal characteristics of inventory depends on the cost flow assumption adopted by the individual firm. the current year’s purchases (cost of goods sold minus the beginning inventory plus the ending inventory) were assumed to have occurred at mid-year. for those firms using fifo or lifo, the cost of goods sold were subtracted from the goods available for sale in either fifo fashion or lifo fashion to determine the temporal characteristics of the ending inventory. the dates of acquisition of components of inventory are not relevant to the weighted average inventory valuation method, so the temporal references were assumed to be the middle of the particular year for those firms using the weighted average method. fixed assets the information needed to determine the temporal characteristics of fixed assets includes: (1) the ending total balance reported each year on the balance sheet for fixed assets, (2) the cost of acquisitions each year, (3) the temporal references of acquisitions in each year, (4) the cost of retirements each year, (5) the temporal references of the retirements each year, and (6) the temporal characteristics of the fixed assets at the end of the base year. factors (1), (2) and (4) are readily available from various sources, and factor (3) is available to the nearest year from various sources, but factors (5) and (6) are not known and have to be estimated. to estimate factors (5) and (6), the assumption is made that plant assets are retired on a fifo basis. the account balance in the base year is assumed to be made up of twenty equal-sized components with temporal holt advances in business research 2011, vol. 2, no. 1, 231-237 234 references distributed over the previous twenty years. generating ten years of data prior to the study period minimizes the impact of this assumption. in each subsequent year, additions are assumed to have occurred at the middle of the current year, an assumption that allows a maximum of only a six-month error in the temporal reference of any given addition. retirements are assumed to occur in fifo fashion. although it seems reasonable that companies are more likely to retire older assets than newer ones, this does not always occur, and errors in the estimation of the temporal references are possible. the significance of such potential errors was tested as indicated in the validation section below. financial statements usually divide fixed assets into categories such as land, buildings, and machinery and equipment. the estimation method described above is applied to each of these categories to achieve greater overall accuracy. however, since additions and retirements are often disclosed for total fixed assets only, rather than for the categories, allocation among the categories is necessary. an increase in the balance of a given category between balance sheet dates represents the minimum amount of additions to that category during the current period, and a decrease represents the minimum amount of retirements from the category. the amount of additions allocated among categories is therefore aa = ta – ma1 – ma2 . . . mai where aa = allocable additions, ta = total additions for fixed assets, and ma = minimum additions for categories 1 through i. aa is allocated among the categories proportional to the relative balances in the various categories on the current balance sheet date. the amount of retirement for each category is calculated as follows: ri = bi + mai + ai – ei where ri = the retirements for category i, bi = the beginning balance of category i, mai = the minimum addition to category i, ai = the allocated addition to category i, and ei = the ending balance of category i. long-term debt footnotes to financial statements divide long-term debt into categories, such as various bond issues, term notes, lease obligations, and miscellaneous. to estimate the temporal characteristics of long-term debt, the following information is necessary: (1) the amount of debt by category, (2) the date(s) debt was incurred (3), the temporal reference(s) of new debt, and (4) the temporal reference(s) of debt retired. for some categories of long-term debt, notably bond issues, factors (1) and (2) are nearly always provided in financial statement footnotes, so that the temporal characteristics of these categories are usually known. fortunately, bonds often comprise a major part of long-term debt. for categories other than bonds, factor (2), temporal references, are often not given in footnotes. to determine these temporal references, it is necessary to know factors (3) and (4). factor (3) is estimated by assuming that new debt (when the exact date is not given) was incurred at mid-year. to estimate factor (4), it is assumed that the oldest debt is retired first. since it is not necessarily true that the oldest debt is retired first, there is a potential for error in the estimation of temporal characteristics and therefore of the translated balance. the significance of such potential errors was tested and validated as indicated below. current assets and current liabilities the temporal characteristic of current assets and current liabilities can be assumed to be the balance sheet date. by definition, these assets and liabilities will be eliminated within the operating cycle of the company, which nearly always is considerably less than a year. holt advances in business research 2011, vol. 2, no. 1, 231-237 235 other long-term assets the information provided in the footnotes to financial statements varies considerably among companies in regard to other long-term assets. to the extent that the temporal references of other long-term assets are disclosed, they should be used. however, when the temporal characteristics of long-term assets are not disclosed, the following heuristic can be used: if the total of the components of other long-term assets for which temporal references are not known increases between balance sheet dates, a new component equal to the increase is added. this new component is assumed to have been added at mid-year and therefore has a temporal reference of six months prior to the balance sheet date. if the total of the components of other long-term assets for which temporal references are not known decreases between balance sheet dates, this amount is subtracted from the component(s) with the oldest temporal reference(s) in fifo fashion. paid-in capital the temporal characteristics of common and preferred stock, paid-in capital in excess of par, and treasury stock are often available in financial statement footnotes. if not, it is necessary to rely on the current and previous balance sheet figures to determine either a net increase or decrease for the period. increases are assumed to have occurred at the middle of the current year. decreases are assumed to have occurred in fifo style. this lack of more precise information could lead to less accuracy in the estimation of the temporal characteristics of these accounts than in the estimation of the temporal characteristics of fixed assets, as some capital stock may have been issued many years in the past. retained earnings retained earnings is a residual, balancing figure, and therefore no temporal characteristics need be estimated. validation as indicated above, (ketz, 1978) tested the validity of three early systems for estimating temporal characteristics: (petersen, 1971), (davidson and weil, 1976), and (parker, 1977). ketz concluded that each of the three models is sufficiently accurate for research purposes. the estimation system described herein adds precision to these three systems, and it is therefore highly unlikely that its use would be less exact. however, an elaborate test was devised and executed as shown below. it was not possible to test the estimation system described herein against the actual temporal characteristics of real companies. specifically tested was whether unknown random variations in temporal references could result in significant errors in the translated numbers. the test focused on fixed assets and long-term debt, the elements of financial statements which are relatively large and which are therefore most liked to be distorted by random variations in temporal references. fixed assets the six factors needed to determine the temporal characteristics of fixed assets were listed above. of these six, factors (5) and (6), the temporal characteristics of retirements and of the fixed assets at the end of the base year were not known. three companies were selected at random from moody’s industrial manuals (general dynamics, hershey foods, and ingersoll-rand). factors (1) through (4) were noted for each company for each of twenty consecutive fiscal years (1990 to 2009). the temporal characteristics of the plant assets were estimated using the proposed method, then the reported plant assets numbers were translated from british pounds to u.s. dollars, using the temporal principle of currency translation. for each of the three actual companies, forty “hypothetical” companies’ financial statements were generated, using the same factors (1) through (4), but randomizing factors (5) and (6). although the method for estimating the temporal characteristics of fixed assets in the herein proposed estimating method assumes holt advances in business research 2011, vol. 2, no. 1, 231-237 236 that the oldest assets are retired first, the hypothetical companies disposed of fixed assets randomly. further, the estimated method described in this paper assumed (arbitrarily) that the temporal characteristics of the plant assets in the base year consisted of twenty equal-sized components whose temporal references were the twenty fiscal year ends preceding the base year. the original distribution for the hypothetical companies, however, was determined by dividing the base year figure into one hundred equal parts which were spread randomly over thirty years. translations were performed, using actual exchange rates and the resulting temporally-referenced data for the latter ten years (2000-2009). factors (5) and (6) were randomized 120 times (forty times for each of the three actual companies) to provide 120 hypothetical companies and a total of 1,200 comparisons (120 hypothetical companies over ten years). the results of the comparisons were as follows: maximum single error (%) average error (%) general dynamics 10.94 2.99 hershey foods 4.98 2.04 ingersoll-rand 6.36 3.40 overall 10.94 2.81 seventeen percent of the estimates resulted in a translation error of less than 1%, 74% in errors of less than 5%, 99% in errors of less than 10%, and none of the estimates results in translation errors of more than 10.94%. all of the companies for which the larger observed translation errors occurred were hypothetical companies in which the hypothetical management usually retired fixed assets which had been acquired within the last one or two years, leaving the older assets in service, in effect a worst-case scenario. since it is intuitive that the oldest plant assets are more likely to be retired than newer ones, it can be concluded that the method of estimating the temporal characteristics proposed in this paper would result in less overall error than observed for these 1,200 hypothetical firms. it is also intuitive that the effect of the original (1990) distribution on the 2000 and subsequent years’ distributions is minimal. in fact, the purpose of the first ten years of unused data is to minimize this effect. long-term debt the temporal characteristics of the hypothetical companies’ long-term debt consisted of: (1) those temporal characteristics reported in the three real companies’ financial statements and (2) randomized temporal characteristics for the long-term debt amounts for which temporal characteristics were not disclosed. for the hypothetical companies, it was assumed that the long-term debt for which the temporal characteristics could not be determined from footnotes could have been issued at any time over a twenty-year period ending with the balance sheet date. the results of these comparisons were as follows: maximum single error (%) average error (%) general dynamics 7.34 2.15 hershey foods 16.01 5.75 ingersoll-rand 8.29 2.17 overall 16.01 3.36 three percent of the estimations resulted in less than a 1% error, 26% in less than 5% error, 94% in less than 15% error, and no errors greater than 16.01% occurred. the hypothetical companies for which the greater estimation errors occurred were companies whose hypothetical managements consistently preferred to liquidate new debt instead of old debt, the worst case scenario. such action may be reasonable if newer debt carries higher interest rates, but old debt eventually matures and must be either paid or refinanced with new debt. for these reasons, it can be concluded that the overall error resulting from the application of the method of estimation used in the estimation method herein described is somewhat less than observed in this test. holt advances in business research 2011, vol. 2, no. 1, 231-237 237 conclusion the temporal characteristics estimation method described in this paper opens up the possibility for empirical as well as sophisticated simulation research in certain fields where such research was not possible in the past. the use of this method is not a trivial exercise, particularly when a large sample size of actual companies is needed. but computer programs can be written, in various languages, to facilitate the details of the process. references chambers, d., linsmeier, t., shakespeare, c., & sougiannis, t. 2007. an evaluation of sfas no. 130 comprehensive income disclosures. review of accounting studies, 12: 557-593. davidson, s., stickney, c., & weil, r. 1976. inflation accounting. a guide for the accountant and the financial analyst. new york: mcgraw-hill. iatridis, g., & joseph, n. 2005a. a conceptual framework of accounting policy choice under ssap 20. managerial auditing journal, 20: 763-778. iatridis, g. 2005b. an empirical investigation of the u.k. stock market response to the implementation of ssap 20 ‘foreign currency translation’. investment management & financial innovations, 2: 108-126. iatridis, g., & joseph, n. 2006. characteristics of u.k. firms related to timing of adoption of statement of standard accounting practice no. 20. accounting & finance, 46: 429-455. ketz, j. 1978. the validation of some general price level estimating models. accounting review. 53: 952-960. kwon, t., bae, s., & chung, j. 2005. do foreign investors price foreign exchange risk differently? journal of financial research, 28: 555-573. liu, j. 2006. on international accounting valuation. journal of international accounting research. 5: 67-87. louis, h. 2003. the value relevance of the foreign translation adjustment. accounting review, 78: 1027-1047. parker, j. 1977. impact of price-level accounting. accounting review, 52: 69-96. patz, d. 1981. price parity translation: methodology and implementation. accounting and business research, 21: 207-216. petersen, r. 1971. an examination of the effects of changes in the general price level. unpublished ph.d. dissertation, university of washington. pinto, j. 2002. foreign currency translation method choice: insights from game theory. journal of applied business research, 18: 25-34. pinto, j. 2005. how comprehensive is comprehensive income? the value relevance of foreign currency translation adjustments. journal of international financial management & accounting, 16: 97-122. paul holt is professor of accounting at texas a&m university, kingsville. he received his in accounting from oklahoma state university. his dissertation was in foreign currency translation, and most of his research has been in international accounting. advances in business research 2011 volume 2.pdf buchko advances in business research 2011, vol. 2, no. 1, 27-45 27 institutionalization, coercive isomorphism, and the homogeneity of strategy aaron buchko, bradley university traditional research on strategy has emphasized heterogeneity in strategy through such concepts as competitive advantage and distinctive competence. yet firms often demonstrate homogeneity in strategy. this paper suggests that institutional forces inherent in interorganizational networks generate isomorphic process that can cause firms to pursue similar strategies. a study of firms that supply component parts and systems to auto manufacturers was performed to determine if dependence and coercive isomorphism can lead to homogeneity of strategy. results indicated that greater firm dependence did seem to cause firms to exhibit greater homogeneity in strategy. implications for research and practice are discussed. for the past few decades, strategy research (like most organization research) has focused on understanding the differences that make a difference that is, to identify those variables that differ between firms, and how the differences in those variables might lead to differences in firms’ performance. certainly this is a worthwhile pursuit for research activity, and these efforts have led to the development of theories and concepts that have contributed to the success of numerous companies. strategy researchers have produced volumes of empirical studies that have led to the creation of a wealth of constructs that have benefitted managerial decision making in the processes of formulating, implementing, and executing strategies. the underlying assumption in virtually all of the extant strategy research has been the heterogeneity of strategy; that is, that the strategies of firms are dissimilar in various (meaningful) ways. as a result, the research that has developed over the years has been intended to either explain why such heterogeneity occurs, how such heterogeneity influences on strategic management and organization processes, and/or the effects of the heterogeneity on firm performance. the heterogeneity assumption can be found in the classic early writings on strategy, which emphasized the variance in organizations’ strategic activities due to the idiosyncratic set of environmental forces with which firms must contend (e.g., beard and dess, 1981; hofer and schendel, 1978; rumelt, 1974). the heterogeneity assumption underlies many of the standard concepts used in the field. for example, consider the concept of distinctive competence. firms possessing a distinctive competence are presumed to have skills, expertise, knowledge, or technology which is superior to (and therefore different from) competitors (selznick, 1957). these differences among organizations are seen as crucial to firms’ success (hitt and ireland, 1985; snow and hrebiniak, 1980). as distinctive competencies are developed over time, these can become part of the collective learning and knowledge base of the enterprise, which is viewed as the core competence of the corporation (prahalad, 1990). likewise, the concept of competitive advantage a significant concept in much strategy research and writing by its very nature presumes heterogeneity. competitive advantage has been defined as the characteristic, unique opportunities of a firm that results from the firm’s product-market position and the direction relative to that position (ansoff, 1965). a competitive advantage means that a firm is in a superior strategic position relative to competitors and therefore can achieve superior performance through the proper strategic actions (porter, 1980, 1985). a competitive advantage may arise from a distinctive competence (hayden, 1986), but the essential point is that competitive advantage asserts that firm strategies are different from those of other organizations. if differences in performance can be linked to differences among firms in strategic position, resources, processes, or activities, it is possible to offer prescriptions and suggestions to managers that will lead to improved organization results. but if heterogeneity is at the core of the overwhelming volume of strategy research, if the essence of strategy is choosing to do things differently than rivals (porter, 1985), why then can it be observed that many firms pursue the same strategies? why is there frequently great similarity among firms’ strategies even within the same competitive market? if managers are encouraged to develop distinctive buchko advances in business research 2011, vol. 2, no. 1, 27-45 28 competencies or competitive advantages, how come so many firms do the same things as others including rivals? the purpose of this paper is to examine this issue of strategic homogeneity the similarity among firms in strategy. the essential suggestion is that the institutional environment within which firms operate can and often does lead firms to pursue common strategies. specifically, one such aspect of such institutional environments, the issue of dependence and coercive pressure, will be examined to determine if firms subject to such institutional pressures are more likely to pursue similar strategies. an analysis of firms in the auto supplier industry will be performed to determine if strategic homogeneity can be identified and linked to the presence of institutional forces. strategic heterogeneity, homogeneity, and isomorphism strategic heterogeneity as has been noted, the dominant perspective in strategy research emphasizes the heterogeneity or differences in firms’ strategy. four dominant themes or frameworks can be identified that examine the heterogeneity in strategy. the first is the resource based view of the firm, which emphasizes differences due to firms’ differential access to scarce strategic resources. the resource based view (rbv) suggests that firms obtain and sustain competitive advantage through the deployment of scarce resources and capabilities that are unique, scarce, and inelastic in supply (barney, 1991; peteraf, 1991; wernerfelt, 1984). according to the rbv, the heterogeneity of strategy arises from the differences among firms in the access to and deployment of scarce, finite strategic resources. since these resources are unique, firms that have access to or control over these resources are able to charge higher levels of economic “rent,” and thereby produce superior outcomes and performance. the presumption is that these resources are in fact unique, scarce, and finite, and that firms who control these assets do so explicitly to prevent rivals from using similar assets in a specific product-market. research performed within the rbv has tended to support the theory (barney and arikan, 2001; ray et al., 2004). but firms require more than scarce, limited resources. firms also operate in environments in which the “resources” are not necessarily finite, but may include such things as legitimacy, knowledge, and organizational networks. to the extent that these issues can affect firm performance, strategies that are based on the utilization of these elements are available to all firms equally and might cause firms to pursue similar strategies. the second, the industry structure framework, examines differences in strategy due to firms’ differential positions within industry structures. firms seek to develop a sustainable competitive advantage by identifying and occupying a unique position within a specific industry (porter, 1980, 1985). by analyzing the structure of the industry, firms can determine the appropriate strategic position and then engage in a process of strategic analysis to secure that position by developing or employing unique competitive advantages. research has found general support for the model (dess and davis, 1984; o'farrell et al., 1992; parnell, 1997). however, firms are embedded in more than mere industry structures. the environments of organizations include political and legal forces, social forces, macroeconomic forces, and technological forces as well as the 5 forces that porter emphasizes in his work on strategy. to the extent that these “non-industry” level forces affect firm performance and affect firms in a similar fashion, the influence of these forces on strategy might cause firms to pursue similar strategies. the third framework, the competitive markets view, examines differences in strategy due to the competitive behaviors of firms within a specific product-market. three dominant research streams can be identified. the first, the product life cycle framework, suggests that strategies are contingent upon (and therefore differ) based upon the stage of the life cycle (hofer, 1975; levitt, 1965; wasson, 1974). the second framework might be termed the market share/market growth model, in which strategy is contingent upon a firm’s unique position in a market in terms of market share and the growth rate of the market, perhaps most represented by the boston consulting group matrix model (henderson, 1970) (along with its relative the ge portfolio model, c.f. hax and majluf, 1983) and the profit impact of market strategy (pims) database. (buzzell and gale, 1987). the central premise of these models is that heterogeneity in strategy occurs because the position of any firm within a given market that is, the firm’s buchko advances in business research 2011, vol. 2, no. 1, 27-45 29 market share and the growth characteristics of a given market are unique to each organization. but markets are embedded within larger societal, economic, and political structures; and to the extent that these “extra-market” forces are similar among all firms within a given market, such structures might result in similar strategies. the fourth theme can be termed the managerial characteristics perspective and examines heterogeneity in strategy arising from differences in individual managers, managerial decision making, or the composition of top management teams (child, 1972). strategies assume a human agent and are influenced by executives exercising a measure of “free will” in making strategic decisions (bourgeois, 1984). various empirical studies have examined the nature of the strategy decision process (e.g., barnes, 1984; schwenk, 1984) as well as individual characteristics of senior managers or top management teams (e.g., hambrick, 1981; hambrick et al., 1996; thomas and mcdaniel, 1990). while the preceding perspectives emphasize the impact of external forces, the management characteristics framework examines the impact of internal organization factors on decision making and the resulting strategies. to the extent that managers are indeed independent actors exerting free choice in the decision making process, the resulting differences in firm strategies would be expected. but managers operate within organization environments in which decisions may be constrained by both external forces as well as internal organization elements. if these forces are common among organizations within a given market or industry, managerial choice may be restricted or influenced in such a way as to lead to similarities in the strategies of organizations. limitations of strategic heterogeneity models. any review of the theoretical and empirical literature on organization strategy will indicate that a majority of the research views strategy as a heterogeneous variable. organizations will pursue different strategies due to differences in the organizations, top managers or management teams, availability and control of resources, market dynamics, and industry structures. the unique configurations of the various elements within the environment of organizations combine to create a distinctive set of elements and forces that confront a firm. variation in these factors will result in heterogeneity in the strategies that firms pursue. underlying these research perspectives is the view, drawn from work in the field of organization theory, that firms respond or adapt to the environments of organizations (aldrich, 1979; chakravarthy, 1984; pfeffer and salancki, 1978). however, by assuming that the purpose of strategy is to enable a more efficacious response to factors in the external or internal environments of organizations, researchers are limited to strategy as a reactive process. this constrains the models by making it difficult to examine those truly breakthrough strategies that in fact change the nature of the available resources or the control of resources, alter the industry structure or market dynamics, and that are outside of individual managers’ cognitive frames. similarly, by emphasizing strategic heterogeneity at the resource, industry, market, organizational, or managerial levels of analysis, such research overlooks the impact of forces in the broader societal and institutional context of organizations. since these forces are assumed to be felt equally by all organizations, the effects are largely written off as immaterial to the research question at hand, which is biased toward identification of differences in strategy and the resulting differences in outcomes and firm performance. yet it is clear that firms are embedded in environments that include more than resources, industries, and markets. strategic homogeneity despite the bias toward understanding the heterogeneity of strategy, there is research within the discipline that suggests that strategies among firms are often homogeneous. such research can be viewed as falling within two distinct areas: the content of firms’ strategies, and the strategic processes of organizations. research on homogeneity in strategy content is largely found in the work examining strategic groups. strategic processes concern the homogeneity in the implementation and execution of strategy. homogeneity in strategy content: strategic groups. strategic groups have been defined as “groups of firms within an industry which follow similar (but not identical) strategies” (hatten et al., 1978: 592) and buchko advances in business research 2011, vol. 2, no. 1, 27-45 30 was further refined as “a grouping of organizations which pursue similar strategies with similar resources” (hatten and hatten, 1987: 329). later researchers identified strategic groups as “similarities in strategic actions intended to alter competitive advantage” (cool and schendel, 1988). note that, by definition, the presence of strategic groups is predicated upon the similarity in firm strategy. this is in contrast to the prevailing view of strategic heterogeneity that is fundamental so the majority of the empirical research in the strategy discipline. there have been numerous studies that have supported the presence of strategic groups within markets as diverse as manufacturing, retail, transportation, distribution, and health care (mcgee and thomas, 1986). while strategic groups are primarily viewed as an analytic tool or convenience for researchers (mcgee and thomas, 1986), some researchers have even suggested that one strategic choice a firm might make is the choice of which strategic group to participate in within a given industry (dess and davis, 1984). although the causes and effects of strategic groups remain under investigation (e.g., barney and hoskisson, 1990; peteraf and shanley, 1998; reger and huff, 1993), the presence of strategic groups is well accepted within the strategy literature (dranove et al., 1998). the prevalence of such strategic groups across diverse industries suggests that there is in fact often homogeneity of strategies among firms. homogeneity in strategy processes: organization structure and strategic behavior. ever since alfred chandler’s book, “strategy and structure: chapters in the history of industrial enterprise” was published (chandler, 1963), researchers have demonstrated the linkage between organization structure and firm strategy (e.g., burgelman, 1983; hill and hoskisson, 1987; rumelt, 1974; teece, 1981). but in addition to noting the relationships between strategy and structure, several authors have also noted the increasing similarity in organization structures within industries (armour and teece, 1978; hoskisson, 1987; palmer et al., 1987). to the extent that structure represents a strategic choice about the alignment of organization resources, the increased similarity in the structural form of corporations suggests that there may in fact be homogeneity in the strategic decision making processes within organizations. there is also evidence that suggests firms consciously choose to adopt strategies that are similar to those of other organizations. in a follow-up to the discussion of strategic groups in the u.s. pharmaceutical industry, cool and schendel noted that firms in the u.s. pharmaceutical industry tended to imitate the strategic commitments of rivals (cool and schendel, 1988). a study of the japanese securities industry found that so-called “second tier” securities firms tended to emulate the “big four” of nomura, daiwa, nikko, and yamaichi as a response to the challenge of internationalization of financial markets (horvat, 1987). in a study of the shake-out of the u.s. color television industry, it was determined that, while there were differences in strategies between firms which survived and those that failed, there were similarities in strategic behavior among surviving firms. likewise, there were similarities in strategy among those firms that failed; but these differed from those of the surviving firms, suggesting that choosing to emulate rivals can affect firm performance (willard, 1985). the results of these studies suggest that firms may consciously choose to imitate the strategies of others within an industry. isomorphism: competitive and institutional the concept that might best account for the observed homogeneity of strategy is the process of isomorphism. isomorphism has been described as a constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions (hawley, 1968). that is, units subject to or operating within similar environmental arrangements will develop similar forms of structure and action. in the organizational sciences, isomorphism occurs as firms modify their characteristics in a direction of increasing compatibility with the environment (aldrich, 1979). consistent with prior work (dimaggio and powell, 1983; fennell, 1980), this paper suggests that there are two types of isomorphism: competitive and institutional. competitive isomorphism. dominant perspectives on strategy assert that isomorphism among organizations is due to the effects of forces within the organization’s competitive environment. competitive markets, industry structures, and organizational characteristics all presume variation occurs buchko advances in business research 2011, vol. 2, no. 1, 27-45 31 among firms due to differences in structure and strategic behavior (carroll, 1984). the environment changes independently of the organization, and forces in the competitive environment determine the structural forms that will survive. in capitalistic economies, the market is the primary selection mechanism (dimaggio and powell, 1983). as organizations seek to gain control over scarce resources leads to competition among firms (barney, 1991), and in turn competitive forces lead to isomorphism as the market selects those firms which possess the requisite characteristics for survival, and likewise selects out those firms that lack the necessary qualities (mckelvey and aldrich, 1983). over time, there is a tendency for similar types of firms to survive, resulting in strategies and structural forms that appear homogeneous. competitive isomorphism assumes a rational system that emphasizes market competition and fitness measures (dimaggio and powell, 1983); as a result, this approach is adequate for those environments in which there is free and open competition among firms. however, it is not wholly appropriate for those environments in which competition is limited (such as oligopolistic markets) or heavily regulated by law (e.g., public utilities). in addition, as williamson argued, modern markets are subject to various forms of imperfections in competitive relations (williamson, 1975). these market imperfections can limit the effectiveness of competition as an environmental selection mechanism, as non-competitive forces can shape strategic behaviors. the assumptions that underlie the competitive isomorphic model are frequently violated by the environments of organizations. forces beyond those in the competitive environment are present and influence the strategic choices of firms. in addition to scarce resources, firms also require political power and institutional legitimacy (carroll and delacroix, 1982), and for social as well as economic fitness (aldrich, 1979). suppliers, governments and other regulatory groups, and other societal groups such as consumer interest organizations, environmental groups, ethnic and religious groups, etc., are legitimate concerns for organizational strategists in developing strategies. the presence of such entities within the environments of organizations can give rise to institutional structures and forces, including isomorphic forcers for homogeneity in strategy (dimaggio and powell, 1983). institutional isomorphism. there are two elements that define institutional perspectives on organizations (zucker, 1987). the first are rule-like social fact qualities of organized patterns of interaction, and the second is embedding of these interactions in formal structures that are not tied to particular actors or situations. institutional theories of organizations suggest that organizations are influenced by normative pressures which may arise from the government or state; from other organizations; or from within the organization. these pressures can cause organizations to be directed by elements which are seen as in some way legitimate, such as standardized operating procedures, professional certifications, legislative requirements, etc. the adoption of these legitimated elements leads to isomorphism with the institutional environment and may increase an organization’s chances of survival (zucker, 1987). institutional forces arise through a process of structuration (giddens, 1979). as organizations interact over time, the structuration process can lead to formalized patters of interaction that are independent of individual firms and structures of interrelationships that become embedded within and among the firms. in this way firms become participants in institutional arrangements (zucker, 1987). organizations may try constantly to change or alter firm strategies, but at some point in the structuration process, the aggregate of these individual changes may be to lessen the strategic diversity of these organizations (dimaggio and powell, 1983). in effect, organizations in highly structured relationships are responding to an environment which consists of other organizations responding to their environment, leading to a situation in which organizations are responding to an environment of organizations’ responses. in these circumstances, strategists construct for themselves an environment in which choice behavior is constrained by the relationships among organizations, and such constraints increase the likelihood that firms will pursue similar strategies by limiting the strategic alternatives available to strategic decision makers. in highly structured networks of interorganizational relationships, as may be found in many industries and markets, strategic activities may be driven less by competition for scarce resources or the need for efficiency than by the structure of the interorganizational network. relationships among organizations are buchko advances in business research 2011, vol. 2, no. 1, 27-45 32 understood, innovations are quickly diffused throughout the network, production methods are standardized or generally known by all firms, and strategies are discernable. as strategies are developed within these highly structured institutional arrangements, homogenization of strategy may result. such homogenization is due to three isomorphic processes present in these institutional arrangements: coercive isomorphism, mimetic isomorphism, and normative isomorphism. coercive isomorphism. coercive isomorphism results from both direct and indirect pressures exerted on firms by other organizations upon which firms are dependent, and by the expectations of the societies in which firms operate (dimaggio and powell, 1983). these pressures are viewed by firms as forces for action or persuasion. one such coercive force would include the government. through such mechanisms as regulation and legislation; purchasing of goods and services; control of resources; and fiscal policy. for example, the recent u.s. government bailouts of the financial services industry in late 2008 and the similar bailout of general motors in 2009 demonstrate the ability of the government to influence the environments of organizations. likewise, the presence of powerful customers or suppliers can constrain the strategic choices of managers, leading to similarity in firm strategies. consider the effect of a large retailer such as wal-mart on its suppliers; wal-mart is able to demand certain behaviors from suppliers that restrict these firms’ latitude in decision making. when managers are faced with the requirement to respond to very powerful constituents, they may have little choice in developing strategy but to acquiesce to these demands and adopt strategies that are consistent with the expectations of these powerful actors. the nature of asymmetrical dependencies among organizations in highly institutionalized interorganizational networks can subject firms to pressures to conform strategic behaviors to the demands of powerful constituents, with the result that the strategies of the firms become homogeneous. mimetic isomorphism. a second force for homogeneity in strategy arises from uncertainty. when an organization’s goals are ambiguous or poorly understood, or when the environmental turbulence or dynamism create uncertainty, organizations may seek to model their strategies after those of other organizations. this process is referred to as mimetic isomorphism, as firms seek to “mimic” the strategies of other organizations (dimaggio and powell, 1983). such modeling provides a rationale for action and can establish premises for decision making and strategy formulation. in effect, managers who may feel overwhelmed by the turbulence, dynamism, and complexity of their situation may opt to copy what other firms are doing out of a sense of “well, hopefully they have figured out what to do, so we’ll just copy them.” such strategic models may be diffused indirectly and unintentionally through such mechanisms employee transfers among organizations, or explicitly through consultants, trade associations, (dimaggio and powell, 1983) and such tools as “benchmarking” or “best practices.” several studies have noted the effects of such mimicry in firm strategy (han, 1994; haveman, 1993; tingling and parent, 2002), suggesting that imitation may not only be the sincerest form of flattery, but may prove to be a sincere form of strategy as well. normative isomorphism. normative isomorphism is the third and final of the institutional isomorphic processes. normative isomorphism is largely thought to be due to professionalization, defined as “the collective struggle of members of an occupation to define the conditions and methods of their work, to control the ‘production of producers,’ and to establish a cognitive base and legitimation for their occupational autonomy (dimaggio and powell, 1983: 152). two aspects of professionalization are important sources of isomorphism. the first is the use of formal education requirements. in this manner, business schools and business education serves as a source of isomorphism. as more organizations hire managers from business schools, or as more individuals in organizations pursue business degrees like the mba, there is a tendency for common norms of behavior, analytic models, and frameworks for strategic decision making to be diffused throughout organizations. the second source of professionalization is the growth of professional networks which span organizations and which allow information and models to be diffused quickly. these would include interorganizational transfers of personnel, trade associations, the use of common consultants, and the interlocks among boards of directors, to name a few. through these and other similar mechanisms, norms for firm strategies and strategic behaviors are spread among organizations (lawrence, 1999; mizruchi and fein, 1999; st. john et al., 2001). the result is that managers are operating from similar frames of understanding, use similar analytic tools, and employ buchko advances in business research 2011, vol. 2, no. 1, 27-45 33 similar processes in the development of firm strategies; and thus the strategies that results often bear a remarkable similarity to those of other organizations within the network. each of these three institutional isomorphic processes can and will occur, even in the absence of any evidence that these increase internal organizational efficiency (dimaggio and powell, 1983). such strategic similarities can make it easier for firms to transact with one another, and to be acknowledged as legitimate and respectable. it is possible that access to such “institutional capital” could enable firms to improve performance (bresser and millonig, 2003). there also may be risk in pursuing strategies that are seen as deviant from prevailing expectations, as such organizations could be seen by investors, customers, suppliers, and employees as “too risky” due to the concern for legitimacy. while each of the three institutional forces for isomorphism derive from separate sources coercive from dependence, mimetic from uncertainty, and normative from professionalization in practice these are often intertwined and difficult to separate. each is conceptually distinct, yet in complex interorganizational networks these may interact in numerous ways. the effects of any single mechanism on the isomorphic process and strategic homogeneity may not be readily apparent from observation (dimaggio and powell, 1983). yet, it would be useful to determine if the effects of these institutional forces for isomorphism can in fact be found to be related to strategic homogeneity. the following section reports on an empirical test of institutional isomorphism and the homogeneity of strategy. coercive isomorphism and strategic homogeneity: an empirical test research hypothesis based upon the theoretical review and development of institutional isomorphic forces, i decided to focus on one particular process, coercive isomorphism. recall that coercive isomorphism results from the dependence of firms on other organizations for valued resources. as noted by pfeffer and salancik, organizations will adopt structure and practices as a response to such dependence (pfeffer and salancik, 1978). powerful organizations can exert pressure on the dependent firms to conform plans and practices to the demands of the more powerful organizations, with the result that the strategic choices and hence the strategies of the dependent firms will appear more homogeneous. since strategy is focused on the market and customers, i focused this research on the institutional relationships that result from the interactions between relatively more powerful customer organizations and suppliers who may be more or less dependent on the customers for the critical resource of sales revenues. based upon the discussion of institutional theory and coercive isomorphism (dimaggio and powell, 1983), the following research hypothesis was derived: hypothesis: supplier organizations that have relatively greater dependence on common customers will exhibit greater homogeneity of business strategy than organizations that are relatively less dependent on the same customers. customers are an important source of sales revenue for firms, and firms must make efforts to meet customer demands and serve the customers’ needs to compete successfully in a market. firms will therefore adjust strategies and strategic behaviors to meet customer requirements. this is particularly true for those markets in which there are relatively many firms trying to sell to very few customers; in such cases, customers have a high amount of power or leverage (porter, 1980). the presence of a limited array of customers upon whom firms are dependent means firms may have few options from which to choose when making strategic decisions. by limiting the range of strategic options through the stipulation of required behaviors via contracts, product design specifications, and similar mechanisms it is more likely that firms will choose similar strategies. research methodology sample. for this study, i examined firms that were suppliers to u.s. automobile manufacturers. auto suppliers were selected for several reasons. the industry is very large, both in terms of economic impact buchko advances in business research 2011, vol. 2, no. 1, 27-45 34 and scale. transportation expenditures generally account for a significant percentage of the annual outlays of u.s. households, and the annual revenues of the industry are substantial. within the industry, there are numerous supplier organizations (over 20,000 globally), yet relatively few manufacturers of original equipment, or oems, to whom these suppliers can sell parts and services. as a result, there is a high degree of asymmetry in the relationships between oems and suppliers, with the oems generally having substantial leverage due to the volume of oem purchases and the relatively greater number of suppliers and potential suppliers available from which to purchase. the supplier base is very diverse, allowing for information to be gathered from firms that produce a wide array of parts and components, form springs and seats to electronics, tires, screws and bolts, automotive systems, paints and finishes, and many other components and services, which assists in generalizing results of the research, since findings are not limited to a particular product group or production process. in contrast to the large number of suppliers, customers for these products are relatively few. the oem automobile companies consist of general motors, ford, and chrysler among u.s.-based companies, and foreign firms such as daimler-benz, bmw, nissan, mazda, honda, toyota, hyundai, and kia. while there are thousands of suppliers, there are only a few buyers of automotive component parts and assemblies. this does tend to give the oem buyers significant leverage and power within the industry, as the number of buyers is very few relative to the potential sellers (porter, 1980). a sample of suppliers was taken from the elm guide to automotive sourcing (elm international, 2010). as part of a larger study on the dynamics of the automotive supplier industry, the ceos of the supplier firms listed were contacted and asked if they were willing to participate in a survey regarding the auto supplier industry. three hundred and twenty eight ceos indicated a willingness to participate in the research; of these 111 firms (33.84%) provided complete responses, and 168 (51.22%) provided partial data reports for a total of 279 responses; 49 firms (14.94%) declined to participate in the research. suppliers were selected at random from the elm guide listings in order to provide a reasonable sample of the diversity of firms in the automotive supplier industry. data collection. a fairly lengthy and detailed survey was developed, inquiring about several aspects of the auto supplier firm’s activities, performance, and operations. included were questions on basic firm data such as number of years in business and number of employees; sales data by customer and industry; operating data, including information on financial and capital expenditures; competitive assessment; projected future business and operating activity; information on the strategic planning process used by the firm; interorganizational relationships; and perceptions of the firm’s environment. the survey was over 7 pages in length with numerous items within each category. (a copy of the full survey is available from the author upon request.) the survey was mailed to each respondent who had agreed to participate in the survey along with a stamped return envelope. as replies were received, the data were entered into the spss-pc program for statistical analysis. independent variable: firm dependence. research on supply chain management has frequently defined dependence as a function of firm sales (el-ansary and stern, 1972; frazier, 1983; mentzer et al., 2001; scott and westbrook, 1993). for any individual firm, dependence is the degree to which a firm must maintain a relationship with another firm in order to achieve desired goals (frazier et al., 1989). based on these definitions, one way of measuring dependence is the percentage of a firm’s total sales generated from sales to a particular customer or group of customers. for the auto suppliers in this study, the extent of current dependence was measured as the percentage of total firm sales that come from direct sales to an automotive oem, represented as a ratio: !""#$% &!''()#" *#'#$+#$,# = -./0 12345 67 8967076.:4 ;<= >7623 -./0 12345 (1) researchers have also suggested that dependence is not only a function of current sales but also of projected future sales levels as well (frazier, 1983; frazier et al., 1989). that is, if a firm anticipates increasing sales to a particular customer or group of customers in the future, the firm is relatively more dependent that is sales were expected to decline. this would be particularly true when considering issues of firms’ strategy, which is often based on projections and forecasts regarding future conditions. buchko advances in business research 2011, vol. 2, no. 1, 27-45 35 consistent with prior research on dependence, the second measure of dependence in this study was the firm’s projected sales to automotive oems in the next five years. this was measured on a nine point scale from -4 (sales will decrease significantly) to + 4 (sales will increase significantly). dependent variable: firm strategy. over the years there have been numerous approaches and methods to the measurement of strategy. for this study, i chose to focus on 2 aspects of firm strategy: resource deployments and market positioning. patterns of resource deployments have long been viewed as a crucial element of a firm’s strategy (hofer and schendel, 1978). the resource deployments represent a strategic choice by managers which helps firm achieve goals and can provide a competitive advantage over rivals. market positioning is the positioning of a firm’s products and/or services with respect to customers. major issues are the price and quality of the products and/or services offered as compared with rivals (hofer and schendel, 1978; porter, 1980). measuring strategy requires multivariate measurement; firms do not have a single strategy, but rather invest resources across multiple areas of business activity in a strategic manner (hambrick, 1980), and measures of strategy should reflect the multidimensionality of the construct (snow and hambrick, 1980). one such multivariate method of measuring strategy is used in the profit impact of market strategies (pims) database (buzzell and gale, 1987). the use of measures from the pims database has been well documented in the strategy discipline and appears to have general acceptance in the literature (driver et al., 1996; ramanujam and venkatraman, 1984; roberts, 2003) and has been used in studies of buyer/supplier relationships (cowley, 1988; kekre, murthi, & srinivasan, 1995). for this research, information was obtained for ten strategy variables. these variables were divided into 4 categories: product competition variables (measuring positioning), production/investment variables, efficiency variables, and marketing variables (measuring strategic resource deployments). these categories and the associated measures are shown in table 1. these categories and variables have been used often in strategy research and appear to represent an acceptable framework for analyzing strategic behavior (e.g., anderson and zeithaml, 1984; buzzell and wiersma, 1981; hambrick, 1983). subgroup partitioning. to properly test of the hypothesis presented in this study, it was necessary to partition the auto supplier firms into groups based upon the level of dependence. recall that the hypothesis asserts that firms with greater levels of dependence will exhibit greater homogeneity in strategy; hence it is necessary to partition firms into those that are relatively “high” in dependence from those that are relatively “low” in dependence. since the hypothesis suggests that there will be greater homogeneity among highly dependent firms when compared to firms with low levels of dependence. it is essential to look at groups of firms rather than comparing across individual organizations. there are several methods available to perform such partitioning, but in this study it is essential to partition firms based on two variables (current and intended levels of dependence) that are measured with very different scales; hence simple partitioning based on means and standard deviations would not be adequate. to accomplish this partitioning, i used cluster analysis. cluster analysis is a statistical technique that attempts to identify similar groups of objects or subjects based on a set of attributes (aldenderfer and blashfield, 1984). the researcher can specify the variables to be used in creating the clusters and the clustering algorithm computes distances between subjects based on variables of interest. this allows for identification of groups of subjects with similar features which are distinct from other groups within the study. cluster analysis has been used in strategy research to identify strategic groups (mcgee and thomas, 1986; hatten and schendel, 1977) as well as in research on institutional structures (oliver, 1988). the cluster procedure in spss-pc was used to generate clusters of firms based upon current and intended dependence. ward’s minimum variance method of clustering was used, which has been reported to have superior accuracy as compared to other methods (aldenderfer and blashfield, 1984). in this procedure, the distance between firms is based on the squared euclidean distance, which is the sum of the squared differences for each variable. actual formation of clusters was based on an agglomerative hierarchical procedure, in which clusters are formed by grouping cases together until all cases are members of a single cluster. at each stage of the process, a coefficient is displayed corresponding to the buchko advances in business research 2011, vol. 2, no. 1, 27-45 36 distance measure used which can be used to determine how many clusters should be created from the data. the cluster analysis of the firms in this study indicated the presence of three distinct groups; the difference between the 2 and 3 group solution was 91.73, while the difference between the 3 and 4 group solution was 22.51. applying mojena’s rule one (aldenderfer and blashfield, 1984) to the process to the fusion coefficients from the cluster analysis suggested that the 3 group solution was optimal. a series of t-tests was performed on the three groups to determine if there were meaningful differences in the mean scores for current sales and intended future sales measures. the results indicated significant differences between group 1 (called the high dependence group) and group 3 (the low dependence group), but no significant differences between groups 1 and 2 or between groups 2 and 3 were found on the variables of interest. therefore, for analytic purposes a comparison was made of the firms in group 1, the high dependence group, with those of group 3, the low dependence group. table 1: description and measurement of the strategy variables in the study strategy variable: description formula/scale product competition variables – 1. product quality average: percent of products superior to competitors products from the customers’ perspective minus the percent of products inferior to competitors products from the customers’ perspective. % perceived superior % perceived inferior 2. relative price: the average level of selling prices of the firm’s products and services relative to the average price of the three largest competitors. 5-point scale from 1 (prices more than 10 percent lower) to 5 (prices more than 10 percent higher) 3. market share: sales of the business as a percentage of sales in the served market (firm’s estimation). firm sales total industry sales production/investment variables – 4. inventory/revenue average: the total average inventory of the firm divided by the firm’s total revenues. inventory firm sales 5. plant & equipment newness average: the net book value of plant and equipment divided by gross book value of plant and equipment. net book value, pp&! gross book value, pp&! 6. investment/revenue average: the net book value of plant and equipment divided by firm sales. net book value, pp&! firm sales efficiency variables – 7. sales/employee average total firm sales divided by the number of employees. firm sales number of employees 8. profit/employee average net profit divided by the number of employees net profit number of employees marketing variables – 9. sales force expenses/revenue average – sales force expenses divided by total firm sales sales force expense firm sales 10. media advertising & sales promotion/revenue average – expenditures for media advertising, catalogs, exhibits, displays, and temporary price reductions for promotional purposes divided by total firm sales. advertising & !"#"$%"& '()*&+* firm sales control for exogenous variables: firm size, product category, and production method. given the nature of the research, it was important to try and control for any exogenous variables that might influence the results. three were viewed as particularly germane to this study: firm size, the product category, and the production method used. size was important because larger firms may be less susceptible to influences from customers than smaller firms who lack the resources necessary to survive a loss of revenue from a dominant customer. the product category was likewise important, as firms that provide more “commodity” type products such as screws, bolts, and springs might be more dependent on oem customers than firms providing highly specialized products such as electronics. finally, the production method employed could also influence dependence, since firms with specialized production methods would face less threat of backward integration and pressure from oems than would firms with standardized machinery and processes. for each of these variables, the 2 groups in the study were analyzed using a chi-square test for categorical variables (product type and production method) and a t-test for firm size, a continuous ratio variable. in all cases, the results were not significant, suggesting no meaningful differences existed between the groups for these 3 variables. buchko advances in business research 2011, vol. 2, no. 1, 27-45 37 test statistic: hartley’s fmax. since the research hypothesis suggested that there would be greater homogeneity of strategy among highly dependent firms, the test statistic for this research is the variance in the strategies pursued by the two groups. the lesser the variance in strategies, the greater the homogeneity; and the higher the variance, the greater the heterogeneity. hence it is the variance in strategies among the test groups that is the meaningful basis for comparison and test of the research hypothesis. for the hypothesis to be supported, the variance of the strategy variables for the “high” dependence group must be lower than and significant different from the variance of these same variables for the “low” dependence group. whether the variance between the groups is higher or lower can be observed from inspection of the data. the issue is whether the difference is significant; to determine this, it is necessary to test for the homogeneity of variance. generally such tests have been used to determine if the variance among experimental groups is homogenous, as is required for many statistical procedures such as analysis of variance (anova). for this research, though, the issue is one of differences in variance between groups, and the use of the test for homogeneity of variance is the primary analytic method. though relatively infrequent in the organization sciences, there are studies that have employed such methods (games et al., 1972). there are several tests available for homogeneity of variance, one of the more prevalent being hartley’s fmax statistic, which is recommended for use when sample sizes are approximately equal. the fmax is seen as sufficiently sensitive for analytic purposes (winer, 1971) and has been found to be quite robust to assumptions of non-normality as well as having high statistical power (games et al., 1972). since the results of the cluster analysis in this instance indicated that this condition was met by the data, the fmax was the test statistic employed. table 2: homogeneity of strategy: variance in strategy as a function of firm’s dependence high low hartley's hypothesis mean variance n mean variance n fmax supported? independent variables: o current dependence 0.58 0.88 49 0.36 0.10 46 o projected dependence 3.31 0.22 49 0.43 2.34 46 dependent variables: product competition variables o product quality average 94.83 67.57 46 95.80 106.63 44 1.578 (n.s.) no o relative price 3.35 0.44 49 3.28 0.92 46 2.091* yes o market share 10.83 119.67 36 15.62 242.71 34 2.028* yes production/investment variables o inventory/revenue average 5.43 23.61 40 8.33 58.80 41 2.490** yes o p&e newness average 0.57 0.03 34 0.06 0.03 36 1.000 (n.s.) no o investment/revenue average 21.84 101.76 35 28.03 310.78 39 3.054** yes efficiency variables o sales/employee average 100.27 2262.78 49 105.84 1628.80 46 1.389 (n.s.) no o profit/employee average 3.73 15.39 31 4.41 52.10 36 3.385** yes marketing variables o sales force expenses/revenue average 2.99 3.50 43 3.47 9.96 44 2.846** yes o media advertising & sales promo./revenue 0.41 1.77 41 0.35 0.19 43 9.316** no * = p<.05 ** = p<.01 results. the results of this study are displayed in table 2 above. there were 49 firms identified as having high dependence on oem customers, with an average of 58% of firm revenues coming from sales to automobile oems and a projected increase in dependence in coming years of 3.31, or a slight intention to increase revenues (a score of 3 indicating a neutral position or no change in dependence). forty six firms were found in the low dependence group, with an average of 36% of revenues from sales to automobile oems and a projected decrease in dependence in coming years (a mean score of 2.58, with a score of less than 3 indicating a decrease in dependence). note that there was some variance in the sample size when comparing individual measures, as some firms did not fully report the data. the results for the product competition variables indicated general support for the hypothesis. although there was no difference in the variance in product quality (fmax = 1.578, n.s.), firms with high buchko advances in business research 2011, vol. 2, no. 1, 27-45 38 levels of dependence had significantly less variance in the relative price measure (fmax = 2.091, p < .05) and the market share measures (fmax = 2.028, p < .05). this indicates greater homogeneity in strategy for these market positioning strategy variables. the production/investment variables also provided general support for the hypothesis. inventory/revenue average and investment/revenue average both indicated less variance for the high dependence group when compared to the low dependence firms (fmax of 2.490 and 3.054 respectively, p < .01). however, the difference in variance for the p&e newness average was not significant (fmax of 1.00, n.s.). efficiency variables and marketing variables had mixed results. the sales/employee average showed no significant difference in the variance between the high and low dependence groups (fmax = 1.389, n.s.), but the profit/employee average was significant and in the predicted direction, with greater homogeneity in the high dependence group (fmax = 3.385, p < .01). this was also true for the marketing variable of sales force expenses/revenue average (fmax = 2.846, p < .01); however, the variance in media advertising and sales promotion expense/revenue was significant but in the opposite direction from that predicted by the hypothesis, with the low dependence group indicating less variance in strategic resource deployment (fmax = 9.316, p < .01). overall, though, the results give general support to the research hypothesis. six of the ten measures of firm strategy showed significantly less variance among auto supplier firms that were highly dependent on the automobile oems. three of the measures were not significant, and only one was significant but in the opposite direction from that predicted by hypothesis. in general, firms with high levels of dependence tended to exhibit greater homogeneity in the strategies pursued than firms with low levels of dependence. discussion the purpose of this study was to determine if institutional forces for isomorphism found in interorganizational patterns of relationships might cause firms to pursue similar strategies. dominant perspectives on strategy urge managers to seek strategies that are heterogeneous by emphasizing such constructs as competitive advantage, distinctive competence, and differentiation. despite these urgings, it can be observed that firms frequently pursue similar strategies and strategic behaviors (e.g., cool and schendel, 1988; hatten and hatten, 1987; hatten and schendel,1977). while the bias in research is toward identification of differences in variables, understanding the forces that lead firms toward similarity might also be a worthwhile research agenda. the results from this study indicate that institutional arrangements, found within the interorganizational relationships that characterize the environments of most organizations, may in fact cause firms to choose similar strategies. in particular, this research suggests that coercive isomorphism arising from common dependence upon a limited group of customers may have a role in affecting the strategic decisions of managers in market positioning and in strategic resource deployments. auto suppliers with high levels of dependence on automobile oem customers for sales revenues showed a tendency toward greater homogeneity (that is, less variance) in key measures of firm strategy. with respect to product competition variables (i.e., market positioning), greater homogeneity was found in firm pricing strategies and in market share. in general, firms facing greater coercive pressure tended to price at or above market average, while pricing strategies of firms with less coercive pressure were much more heterogeneous. highly dependent firms also had greater homogeneity in market share. while there was less variance in product quality, the difference was not significant; this might be attributable to the fact that the quality standards for the industry are well established and documented, and suppliers unable to meet the minimum standards are not allowed to participated in the industry. for example, requiring firms to meet iso certification standards or other quality metrics would tend to lead to similarity across all firms, as these standards are the “table stakes” necessary to participate in the industry and therefore are common to all firms. note that this does not detract from the concept of institutional isomorphism and homogeneity of strategy; it may in fact support other forms of institutional isomorphism, specifically normative isomorphism in this particular case. however, it does suggest that buchko advances in business research 2011, vol. 2, no. 1, 27-45 39 coercive pressures and firm dependence does not affect product quality strategy within the auto supplier industry. production/investment strategy variables gave somewhat stronger support to the research hypothesis. both the inventory/revenue average and the investment/revenue average measures of strategy had greater homogeneity in highly dependent firms than for firms with lower levels of dependence. auto supplier firms tended to behave similar with respect to working capital management strategy (in the case of inventory levels) and capital investment strategy (in the case of investment in plant and equipment). the plant and equipment newness average measure was not significant; but this might be due to the measure, which is defined as net book value divided by gross book value. for both groups, the variance in strategy was identical. however, it might be noted that the p&e newness average was much higher for the highly dependent firms that for the firms with low dependence. perhaps coercive pressures in this case tend to drive firms to continuously invest in new capital. efficiency strategy variables gave mixed results. while sales per employee were not significantly different between the two groups, there was much less variance (and therefore greater homogeneity) in profit per employee. since supplier firms that are highly dependent on the auto oems face considerable pressure from the customers to maintain or reduce costs, operating efficiencies (which would be more reflected in the profit measure than in the sales measure) may be much more of an issue for these firms and thus there is more strategic emphasis placed on this behavior. marketing strategy variables likewise exhibited mixed results with respect to the research hypothesis. sales force expenses as a percentage of firm revenue showed much less variance for highly dependent firms than for firms with low dependence. this may be due to the fact that firms with relatively fewer customers (in the case of the auto oems) do not have the need to market products and services as broadly as do firms with low levels of dependence. as a result, firms that are involved in a wide array of industries may require a larger sales force to address the marketing needs. conversely, media advertising and sales promotion expenses as a percentage of firm revenues showed far greater heterogeneity among the highly dependent firms. taken as a whole, however, these results suggest that institutional isomorphic processes may in fact be a powerful force for homogeneity of strategy. coercive pressures on supplier firms in highly dependent relationships with the auto oems appears to lead to greater similarities in these firms’ strategies. market positioning and a variety of strategic resource deployments are more homogeneous or firms in high dependence relationships. these results are subject to several limitations. this study was conducted within a single industry group (auto suppliers), and until these efforts are conducted in other firms in other industries, caution must be exercised in generalizing from the results of this preliminary inquiry. there are certainly features of this industry that are unique in terms of the supply base (for example, the extensive use of supplier certification programs) that would tend to lead firms toward similar strategic decisions. although the study did capture a wide array of supplier firms in size, products manufactured, and manufacturing processes, these firms still were all competing within a single industry. it would be productive to see if these results would hold in other industry groups. in addition, this study only measured 10 dimensions of firm strategies. as noted, strategy is a highly multidimensional construct (hambrick, 1980; snow and hambrick,1980). there are many more aspects of firm strategies that might be examined. in this study, the strategy variables tended to be business-level strategies; this was done because it was already determine that the study would examine firms in a single industry, and hence corporate-level strategies were not relevant. however, this research needs to examine other levels of organization strategy as well as additional measures of the strategy construct in order to develop a more thorough and comprehensive understanding of strategic homogeneity. then, too, these results are limited by the nature of the survey, which was done at a specific point in time and required participants to indicate certain perceptions of firm strategy. while the “hard” measures based on financial data are somewhat more reliable (e.g., profit per employee; inventory/revenue average; sales force expense/revenue average) other measures (e.g., relative price; market share) are more perceptual in nature and may subject to bias in interpretation by the respondents. surveying ceos is buchko advances in business research 2011, vol. 2, no. 1, 27-45 intended to limit the effects of such bias (particularly at the strategy level), but such biases may be present nonetheless. of course, these limitations also provide potential for further study to address these issues. this is only an initial investigation of this particular research issue; there is considerably much more research need and opportunity. future research might expand the research to include other institutional process for isomorphism, such as uncertainty and mimetic isomorphism, and the study of interorganizational relationships, industry environment, and normative isomorphism. then, too, there is a need to expand this research beyond a single industry and determine if these results would be found in other industries and markets. furthermore, it would be useful to expand the measures of strategy to determine which elements of firm strategy are most susceptible to institutional pressures and under which conditions. clearly, this is a rich area for additional research and exploration for the strategy field. also, research might address the conditions in which strategic homogeneity is advantageous and those in which heterogeneity is more effective. by assuming that the focus of strategy is on differences, the field has long neglected those potential effects of strategic similarity. there is a need to establish boundaries for competitive advantage and distinctive competency and to determine when firms might be rewarded for being strategically similar to others. a potential area for future research might be to establish the conditions for strategic homogeneity and to determine how such homogeneity might contribute to enhanced firm performance. for strategists and for organization managers, this research has additional implications. maximizing firm performance may require firms to be similar in strategy to others in key areas of strategic activity, while maintaining a competitive advantage in others. which areas are most conducive to strategic homogeneity? when should managers copy other firms or play “follow the strategy leader” in order to enhance effectiveness and efficiency? are there conditions under which firms should in fact pursue common strategies, and if so, how does this affect overall industry profitability? these and many other questions are raised as a result of this preliminary study. the bias in strategy research has been toward heterogeneity, understanding the differences in strategy that lead to differences in organization performance. this study suggests that it may prove equally important to examine strategic homogeneity and to understand why so many firms behave similarly with respect to strategy. the question of strategic homogeneity is literally in the nascent stages and offers a potentially rich avenue for future research and theoretical development. it is hoped that the results of this initial inquiry will encourage researchers and practitioners to continue to 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yao tian san jose state university analyst earnings forecasts are an important input to the residual income valuation model; however, these forecasts are increasingly subject to management guidance. this study examines the impact of management forecast guidance on the usefulness of analyst earnings forecasts in firm valuation. it finds that valuation models estimated using guided forecasts have less ability to explain stock price and predict future returns through value-to-price ratios than valuation models estimated using non-guided forecasts. these results provide evidence that management forecast guidance reduces the usefulness of analyst forecasts in firm valuation and impairs the performance of forecast-based valuation models to predict firm value. keywords: firm valuation; analyst forecast; expectations management introduction ohlson (1995) provides a conceptual framework for relating accounting earnings to firm value. analyst earnings forecasts are important inputs to the empirical implementation of ohlson’s (1995) residual income valuation model (rim). in particular, dechow et al. (1999) and frankel and lee (1998) show that intrinsic value metrics (v) estimated using analyst forecasts are better than other value metrics at explaining contemporaneous stock price (p) and predicting future returns through intrinsic value-to-price (v/p) ratios. this establishes the usefulness of analyst forecasts in firm valuation. while analyst earnings forecasts have gained popularity among researchers and investors, analyst forecasts are increasingly subject to management guidance. according to the surveys by niri, around 79% of firms provide some form of earnings guidance. the ability of valuation models to estimate firm value is affected by the quality of model inputs. gaio and raposo (2014) report that earnings quality affects firm valuation. however, existing valuation studies have not considered the impact of forecast quality on the performance of forecast-based valuation models. kasznik and mcnichols (2002) call for future studies to investigate the consequences of management manipulation on firm valuation. in response, this paper examines the impact of management forecast guidance on the usefulness of analyst forecasts in firm valuation. whether management forecast guidance improves or impairs the usefulness of analyst forecasts in firm valuation depends on the purpose of management forecast guidance. most studies in the expectations management literature, notably bartov et al. (2002) and richardson et al. (2004), take the view that management issues earnings guidance for the purpose of dampening analyst earnings expectations to produce beatable forecasts upon earnings release. this view is supported by subsequent studies. for instance, graham et al. (2005) document in a survey study that cfos admit that they would guide analyst forecasts down to artificially low levels in order to meet or beat analyst earnings expectations (hereafter, mbe); burgstahler and eames (2006) and koh et al. (2008) document that firms manage analyst forecasts downward to just meet analyst expectations; and kross et al. (2011) find that firms that consistently mbe are more likely to issue bad-news management http://journals.sfu.ca/abr usefulness of analyst forecasts in firm valuation 2 forecasts to guide down analysts' expectations and produce beatable forecasts. similar findings are reported in the uk context (e.g., brown and higgins, 2005; athanasakou et al., 2009). however, not all forecast guidance is issued for the purpose of manipulating analysts' earnings expectations. several studies in the voluntary disclosure literature document that sometimes firms issue earnings guidance to truthfully communicate inside information and abate analyst overoptimism. in particular, kasznik and lev (1995), coller and yohn (1997), and hutton, miller, and skinner (2003) document that firms issue earnings guidance to reduce information asymmetry between the firm and the market. lansford, lev and tucker (2013) document that firms’ voluntary earnings guidance assists analysts and investors in predicting future operating performance. such earnings guidance reduces information asymmetry and improves forecast accuracy (lang and lundholm 1996). whether management forecast guidance improves or impairs the usefulness of analyst forecasts in firm valuation depends on the relative mix of these two types of guidance. that is, if firms issue earnings guidance mainly for the purpose of walking down analyst expectations to produce beatable forecasts at earnings release, then forecast guidance will reduce the ability of analyst forecasts to convey information about firms’ future performance and therefore impair the usefulness of analyst forecasts in firm valuation. this hypothesis is formally stated as follows: h: management forecast guidance impairs the usefulness of analyst earnings forecasts in forecast-based valuation models. however, if firms issue earnings guidance mainly for the purpose of communicating inside information and correcting analyst optimism, then such guidance will improve the usefulness of analyst forecasts in firm valuation. the alternative hypothesis is stated as follows: h(a): management forecast guidance improves the usefulness of analyst earnings forecasts in forecastbased valuation models. research design this section describes the research design including estimating value metrics, the forecast guidance measure, the intrinsic value measure, and the empirical analyses. estimating intrinsic value metrics (v) following dechow et al. (1999), this study uses ohlson’s (1995) rim as the valuation framework to estimate v. specifically, at the end of each forecast year t, v is constructed for each firm using earnings in year t-1, book value at the beginning of year t, and the consensus forecast for year t’s earnings measured at the end of year t (prior to the earnings announcement). better v metrics have greater ability to explain contemporary stock price and predict future returns through v/p ratios (frankel and lee, 1998; lee et al., 1999; dechow et al., 1999; sohn, 2012). in particular, lee et al. (1999) argue that although accounting regulators are more concerned with the value relevance of accounting-based measures and portfolio managers are more interested in v’s predictive power, both stock tracking ability and return prediction power are desirable properties of the v metrics; they find that better v performs better in both dimensions. therefore, this study employs both analyses—it investigates the impact of forecast guidance on the usefulness of analyst forecasts by comparing the performance of v estimated using guided versus non-guided forecasts to explain stock price and predict future returns through v/p ratios. tian 3 forecast guidance measure firms can use different channels to guide analyst expectations. in particular, they can issue management forecasts or host conference calls, or guide analyst expectations via private conversations with analysts in informal settings. this study constructs a measure of management forecast guidance that captures management guidance through different channels. prior research has developed two main approaches to capture both the explicit and implicit forecast guidance. in the first approach, developed by bartov et al. (2002) and later adopted by brown and pinello (2007), bartov and cohen (2009), etc., forecast guidance is suspected when analyst forecasts are optimistic at the beginning of a period and pessimistic at the end of the period. this approach identifies both management’s motive to guide (in the form of initial optimism) and the result of management forecast guidance (in the form of a downward forecast revision). however, analysts may voluntarily revise down their forecasts to incorporate firm-level, industry-level or even market-level bad news occurring during the year such downward revision is not driven by management forecast guidance. this approach does not distinguish news-driven revision from guidance-driven revisions. in the second approach, developed by matsumoto (2002) and subsequently adopted by brown and higgins (2005), koh et al. (2008), etc., forecast manipulators are defined to be the firms whose last consensus forecasts are lower than the expected forecasts. matsumoto (2002) constructs the expected forecast by modeling the seasonal changes in earnings as a function of prior seasonal changes in earnings and the cumulative returns during the year. the strength of this approach is that it takes into account the effect of economy-wide and/or firm-specific bad news on analyst forecasts. however, this approach does not consider whether there are guidance-driven downward revisions in analyst forecasts throughout the year. the above discussion suggests that while each approach has its strengths, neither provides a desirable measure of forecast guidance in the context of this study. therefore, this study builds on these two approaches to develop a measure that attempts to capture the notion of management forecast guidance as defined in this study. figure 1 illustrates the timeline for the forecast-related measures. forecast year t starts 360 days prior to the announcement of year t’s earnings and ends one day prior to the earnings announcement. a forecast year consists of 12 forecast months, each month represents a 30-day period. to avoid the staleness problem1 often associated with the consensus forecasts published by the institutional brokers’ estimate system (ibes), the last forecast issued by each analyst within each time interval is used to compute the consensus forecast for that time interval. in particular, this study defines the consensus forecast at the beginning of the year for firm i in year t ( early itaf ) as the median of the latest forecast issued by each analyst in the first three months of year t, and the “late consensus forecast” for firm i in year t ( late itaf ) as the median of the latest forecast issued by each analyst in the last three months of year t. this study then uses the early and late consensus forecasts to identify expectations manipulators in the following two steps. step 1: establish the motive to guide following bartov et al. (2002), this study identifies a firm’s motive to guide analyst expectations by the initial optimism in analyst forecasts at the beginning of the year. specifically, previous year’s reported earnings ( 1itx ) is used as a proxy for the manager’s earnings expectation at the beginning of the year; this study then compares the consensus forecast at the beginning of the year ( early itaf ) with the previous year’s earnings and classify firm-years with 1 it early it xaf as possible forecast guiders. 1 abarbanell and bernard (1991) note that the staleness problem arises because the ibes consensus forecast includes forecasts that are made in prior months and are not yet updated. usefulness of analyst forecasts in firm valuation 4 figure 1. timeline – forecast year, forecast month, and consensus analyst forecast construction step 2: identify the evidence of management forecast guidance prior studies use downward revisions in analyst forecasts as evidence for forecast guidance. however, downward revisions can also be caused by unexpected bad news that arises throughout the forecast year. in particular, analysts may revise their earnings forecasts downward to incorporate any unexpected firm-specific or economy-wide bad news that occurs during the year. this study uses the following regression model to isolate management guidance-induced forecast revisions from forecast revisions driven by economic or firm-specific news occurring during the year. ititit cretbbrev  10 (1) in this model,  rev it is the change in analyst consensus forecasts from the beginning to the end of the year (i.e., ), and  cretit is the cumulative return during the year. the accumulation period starts from the first day of the forecast year and ends 20 days before the current year’s earnings announcement. the cumulative return term (  cretit ) captures the impact of economywide and/or firm-specific news on analyst forecast revisions. this regression is estimated for each 2digit sic-code industry group in each year and the residuals (i.e., the estimate of it ) from this regression are used as the measure for the unexpected forecast revision ( itunexprev ). this study classifies firm-years with unexpected downward revisions ( itunexprev < 0) as possible forecast guiders. combining these two steps, forecast guiders are defined as the firm-years that are classified as possible guiders in both step 1 and step 2. this study creates a matched non-guider sample based on industry, year, and forecast error to minimize sample differences in these aspects. prior studies, such as frankel and lee (1998) and easton and sommers (2007), suggest that errors in analyst earnings forecasts reduce the accuracy of forecastbased estimates. matching on forecast errors ensures that the observed difference in the accuracy of v between the guider and non-guider samples is not driven by differences in forecast errors. to construct the non-guider sample, for each guider, all firms that are in the same industry and year are selected from the group of firms that are not in the guider sample. among these selected observations, the one with the closest forecast error to the guider is defined as the matched non-guider. early it late itit afafrev  forecast year t 360 days af 2 , a af1,b af early = af3,a median { af3,a ,af2,b ,af1,c} af1,a af1,c aflate mth 10 mth 11 mth 12 30 days 30 days mth 1 mth 2 mth 3 tian 5 intrinsic value measure ohlson (1995) develops the rim to express firm value as a linear function of accounting book value, abnormal earnings and the other information about future abnormal earnings: t a ttt vxb =v 21   (2) in this model, tb is the accounting book value of shareholders’ equity at time t, tx is the earnings for the period from t-1 to t, and a tx is abnormal earnings ( 1 tt a t rbxx ). tv is the other information variable, defined as the difference between the expectation of future abnormal earnings based on all information and the expectation of future abnormal earnings based only on the current abnormal earnings ( tv = ][ 1 a tt xe  a tx ). the parameters 1 and 2 are computed as )1/(1 tt r   and )1(2 r )1)(1/( tt rr   , where t and t are the first-order autoregressive coefficients for abnormal earnings and other information, estimated using the following pooled time-series crosssectional regressions: 1,11   tt a t a t uvxx  (3) 1,21   ttt uvv  (4) in these regressions, 1,1 tu and 1,2 tu are the mean zero disturbance terms. this study uses the consensus analyst earnings forecast at the end of the year ( late taf ) to estimate the expectation of future abnormal earnings: t late t a tt rbafxe  ][ 1 . (5) it then expresses the other information variable as a ttt late tt xrbafv  )( . (6) the forecast-based intrinsic value metric v is constructed for each firm at the end of each forecast year as follows: )(21 a tt late t a ttt xrbafxb =v   . (7) empirical analyses the empirical analysis include explanation of contemporaneous stock prices as well as prediction of future returns through v/p ratios. these are explained below. explanation of contemporaneous stock prices. prior studies (e.g., frankel and lee, 1998; lee et al., 1999) examine the cross-sectional correlations between v and p to assess the ability of v to explain stock price. these studies find that analyst forecast-based v has higher correlations with stock price than other value metrics. following prior studies, this study also employs a correlation analysis to assess the ability of v to explain stock price. if forecast guidance impairs the ability of v to predict firm value as hypothesized, v estimated using guided forecasts would have lower correlations with stock price than those estimated using non-guided forecasts. usefulness of analyst forecasts in firm valuation 6 to carry out the correlations test, for the guider and non-guider samples separately, this study calculates the cross-sectional spearman correlation coefficients between v and p at the end of each year. this study then compares these annual correlation statistics between the two samples, expecting the correlations to be lower for the guiders than the non-guiders. to ensure that the correlation difference between the guiders and non-guiders is not due to sample differences in aspects other than forecast guidance, this study examines the conditional correlations between v and p, controlling for firm size, earnings performance, book-to-market ratio, and analyst forecast error. specifically, for the guider and non-guider samples separately, this study computes the conditional correlations for each sample in the following steps. first, it estimates the following regressions: ittititititi efecmbcepscbvcp  ,4,3,2,1, / (8) ittititititi vfecmbcepscbvcv  ,4,3,2,1, / (9) in these regressions, itbv is the accounting book value of shareholders’ equity per share at the beginning of year t. iteps is earnings per share for year t-1. itfe is analysts’ consensus forecast for year t’s earnings measured at the end of year t prior to the earnings announcement; the residual itê ( itv̂ ) represents the part of tip , ( tiv , ) that cannot be explained by these control variables for firm size, earnings performance, b/m ratio, and forecast accuracy. the residuals itê and itv̂ are then used to estimate the following regression: ititit uvbae  ˆˆ (10) in this model, b̂ captures the strength of the relation between v and p that is left unexplained after factoring out the effect of the control variables. this study then calculates the sample standard deviations of itê and itv̂ and denote these standard deviations as ê̂ and v̂̂ respectively. finally, the conditional correlation between v and p is calculated as          e v ve b ˆ ˆ ˆˆ ˆ ˆˆˆ    (11) this study compares the conditional correlations for the guider and non-guider samples, expecting the conditional correlations for the guiders to be lower than the conditional correlations for the nonguiders. prediction of future returns through v/p ratios. better v estimates have greater ability to predict future returns through v/p ratios. frankel and lee (1998) and dechow et al. (1999) find the 12-month cumulative returns to the v/p ratio portfolio strategy of buying high v/p ratio (under-valued) stocks and selling low v/p ratio (over-valued) stocks to be positive and significant. the returns prediction analysis compares the v/p ratio portfolio returns for forecast guiders and non-guiders over the 12 months following forecast guidance, expecting the portfolio returns to be greater for the non-guiders than for the guiders. firms report earnings in different months. to align the sample in calendar time, this study uses firms that report earnings in february as the sample in the returns analysis. at the end of each forecast year, the v/p ratio for each firm-year observation is computed using stock price at the end of the month. for the guiders and non-guiders separately, this study ranks firms by v/p ratios and assign these firms to quintiles. it then calculates the cumulative return for each quintile portfolio over the subsequent 12 months. the hedge portfolio return is computed as the difference in returns tian 7 between the top and bottom v/p quintiles. this study compares the hedge portfolio returns for the guider and non-guider samples, expecting a higher return for the non-guider sample than for the guider sample. one remaining concern is that the difference in the hedge portfolio returns for the guider and non-guider samples might be caused by their different risk profiles. to address this concern, this study uses the fama and french (1993) three-factor model to control for risks and examine the risk-adjusted returns. to implement the test, for the guider and non-guider samples separately, firms are ranked by v/p ratios and partitioned into quintiles. this study then computes the average monthly return for each v/p quintile and calculates the monthly hedge portfolio return as the difference in returns between the top and bottom v/p quintiles (i.e., g thret = q1g, t q5g, t retret  , and n thret = q1n, t q5n, t retret  ). this study then regresses the monthly hedge portfolio returns on the three monthly fama and french risk factors and the momentum factor as follows: g ttttt g t g t umdhmlsmbmktrfhret   4321 (12) n ttttt n t n t umdhmlsmbmktrfhret   4321 (13) in these regressions, g t and n t represent the risk-adjusted returns to the v/p ratio portfolio strategy for the guider and non-guider samples respectively. to examine the significance of the difference in the risk-adjusted returns between the two samples, this study takes the difference in the monthly hedge portfolio returns between the guider and non-guider samples ( g t n t gn t hrethrethret  ) and regresses these monthly return differences on the monthly fama and french (1993) risk factors and the momentum factor as follows: gn ttttt gn t gn t umdhmlsmbmktrfhret    4321 (14) the estimated intercept ( ng t  ) summarizes the difference in returns to the v/p ratio portfolio strategy for the non-guider and guider samples after controlling for risk differences between the two samples. empirical results this section describes the data collection and sample statistics. then, descriptive statistics are presented, follow by the empirical analyses. data collection and sample statistics the sample consists of non-regulated and non-financial u.s. firms for the time period from 1986 to 2007. following richardson et al. (2004) and matsumoto (2002), firms in the regulated and financial industries are excluded because their accounting rules differ from the accounting rules for firms in other industries. thus, firms in the regulated and financial industries may therefore have different motives with respect to forecast guidance. the final sample consists of 8,324 guiders and 8,324 matched non-guiders2. 2 to construct the sample, this study first obtains the forecasted and actual earnings-per-share (eps) data from ibes history u.s. edition tape (actual file) through the wharton research data system (wrds). this study then matches the resulting sample to the center for research in security prices (crsp) database and compustat database, resulting in an initial sample of 11,494 firms and 80,570 firm-years. firms in the financial and regulated industries, and firms without usefulness of analyst forecasts in firm valuation 8 descriptive statistics table 1 reports the summary statistics on the variables used to construct the v metrics in each year of the sample period from 1986 to 2007. the control variables itbv , iteps , itmb / , and itfe are as defined earlier. t and t are the first-order autoregressive coefficients for abnormal earnings and other information in year t. v is the intrinsic value metric estimated at the end of each year using bvps, eps, af,  , and  . these annual statistics illustrate the stability of the key input variables over the sample period. table 1. summary statistics of model input variables year obs. bvps esp af omega gamma v 1986 456 12.05 0.45 0.49 0.65 0.49 13.03 1987 624 11.74 0.59 0.68 0.64 0.39 12.52 1988 592 10.66 0.73 0.81 0.65 0.46 11.12 1989 624 9.63 0.60 0.65 0.65 0.46 9.65 1990 720 10.22 0.54 0.61 0.65 0.49 10.35 1991 476 9.45 0.30 0.40 0.63 0.50 9.71 1992 632 9.89 0.46 0.51 0.60 0.53 10.62 1993 746 8.89 0.45 0.48 0.61 0.49 9.16 1994 900 8.49 0.52 0.55 0.63 0.51 8.72 1995 968 8.50 0.57 0.60 0.63 0.46 8.49 1996 1076 8.61 0.58 0.60 0.67 0.46 8.48 1997 1030 8.33 0.52 0.53 0.68 0.44 8.56 1998 970 8.12 0.62 0.64 0.72 0.43 8.59 1999 804 8.55 0.65 0.65 0.73 0.39 8.56 2000 944 9.29 0.79 0.80 0.74 0.35 9.10 2001 668 8.47 0.47 0.48 0.75 0.32 8.39 2002 662 8.23 0.51 0.52 0.74 0.26 8.78 2003 720 8.83 0.46 0.46 0.71 0.17 8.39 2004 910 10.81 0.96 0.94 0.72 0.15 10.48 2005 1154 9.34 0.93 0.91 0.73 0.18 9.57 2006 904 9.64 1.08 1.08 0.74 0.14 9.85 2007 68 10.37 1.23 1.21 0.79 0.21 11.07 all years 16,648 9.46 0.64 0.66 0.68 0.38 9.69 explanation of contemporaneous stock prices the correlation test examines the unconditional and conditional correlations between v and p at the end of each year. table 2 reports the annual unconditional correlation coefficients for the guiders and non-guiders and the difference in these statistics between the two samples. the last row of this panel reports the time-series means of the annual correlation statistics. as shown in the panel, the necessary data are removed, reducing the sample to 5,548 firms and 31,763 firm-year observations. out of these 31,736 firm years, 8,324 are classified as forecast guiders and these guiders are matched with 8,324 non-guiders. tian 9 correlation between stock price and intrinsic value metrics estimated using guided forecasts is 0.47 on average. it is lower than the correlation between stock price and intrinsic value metrics estimated using non-guided forecasts (0.58). this correlation difference of 0.11 is statistically significant at the 1% level (t=2.81). table 2 annual cross-sectional spearman correlations between v and p year ),( pvcorr n t ),( pvcorrg t difference 1986 0.72 0.59 0.13 1987 0.65 0.51 0.13 1988 0.70 0.68 0.01 1989 0.60 0.56 0.04 1990 0.61 0.52 0.09 1991 0.54 0.32 0.22 1992 0.64 0.58 0.07 1993 0.72 0.50 0.22 1994 0.62 0.38 0.24 1995 0.61 0.40 0.21 1996 0.62 0.54 0.08 1997 0.67 0.53 0.14 1998 0.58 0.21 0.38 1999 0.22 0.13 0.09 2000 0.38 0.32 0.07 2001 0.49 0.41 0.09 2002 0.46 0.46 0.00 2003 0.49 0.54 -0.05 2004 0.63 0.60 0.03 2005 0.61 0.60 0.01 2006 0.66 0.58 0.08 2007 0.50 0.43 0.07 all years 0.58 0.47 0.11*** (t=2.81) table 3 reports the conditional correlation statistics between v and p, controlling for the effects of firm size (book value of equity), earnings performance (esp), book-to-market (b/m) ratio, and forecast errors, one factor at a time. the last row of the panel reports the conditional correlation between v and p after controlling for these factors together. all statistics reported are the time-series means of the annual statistics. results in table 3 show that the conditional correlations for the guider sample are significantly lower than the conditional correlations for the non-guider sample. this suggests that the difference in correlations between the two samples cannot be explained by their differences in firm size, earnings performance, b/m ratio, or forecast accuracy. table 3 usefulness of analyst forecasts in firm valuation 10 conditional correlations conditional correlation (v, p) n g n-g t value control for firm size (bv) 0.50 0.39 0.11*** 2.48 control for earnings performance (eps) 0.42 0.31 0.11*** 2.23 control for book-to-market (b/m) ratio 0.64 0.53 0.11*** 2.82 control for forecast accuracy (fe) 0.58 0.47 0.11*** 2.82 control for size, eps, b/m, fe 0.44 0.35 0.09*** 2.06 *significant at the 10% level. **significant at the 5% level. ***significant at the 1% level. in summary, results from the correlation analyses provide consistent evidence that v estimated using guided forecasts have less ability to explain contemporaneous stock price than v estimated using non-guided forecasts. prediction of future returns through v/p ratios the returns prediction analysis examines the returns to the v/p ratio portfolio strategy for forecast guiders and non-guiders. table 4 reports, for the guiders and non-guiders separately, the 12month cumulative return to each v/p quintile portfolio and the hedge portfolio. in february of each year, for the guiders and non-guiders separately, observations are ranked by v/p ratios and partitioned into quintiles. returns are accumulated for each quintile portfolio for the subsequent 12 months. table 4 reports, for the guider and non-guider samples separately, the cumulative return to each v/p quintile portfolio (q1 to q5) and the hedged portfolio. the hedge portfolio return ( thret ) is computed as the difference in returns between the top and bottom v/p quintiles (retq5-retq1). the last row of the table reports the difference in hedge portfolio returns between the non-guider and guider samples. t-statistics are based on the time-series standard errors of the annual portfolio returns. table 4: buy-and-hold returns to the v/p-ratio portfolio strategies (g vs. n) v/p quintile portfolio returns q1 (low v/p) q2 q3 q4 q5 (high v/p) q5-q1 ( thret ) non-guider (n) 0.10 0.14 0.11 0.14 0.21 0.12* (t=1.89) guider (g) 0.21 0.12 0.14 0.13 0.15 -0.06 (t=-0.98) difference (g-n) 0.18*** (t=3.01) *significant at the 10% level. **significant at the 5% level. ***significant at the 1% level. as shown in table 4, over a 12-month interval, the average hedge portfolio return for the non-guider sample is 12%. with a t-statistic of 1.89, this return is significant at the 7% level.3 this 3 the v/p ratio portfolio returns to the non-guider sample is larger in magnitude (11.7% versus 7.1%), and slighter higher in statistical significance (t=1.89 versus t=1.77) than results reported in dechow et al. following frankel and lee (1998), tian 11 result provides some evidence that, in the absence of forecast guidance, the forecast-based v is a superior measure for firm value than stock price and can therefore predict future returns through v/p ratios. in contrast, the average hedge portfolio return for the guider sample is -6.0%, statistically insignificant (t=-0.98). this result suggests that when v is estimated using guided forecasts, v becomes a less accurate measure for firm value and can no longer predict future returns through v/p ratios. the difference in the hedge portfolio returns between the non-guider and guider samples is 18%. with a t-statistic of 3.01, this return difference is statistically significant at the 1% level. this suggests that v estimated using guided forecasts have less power to predict future returns through v/p ratios than those estimated using non-guided forecasts. as a robustness check, this study uses the fama and french three-factor model to control for risks and examine the risk-adjusted returns. table 5 panel a reports the risk-adjusted returns to the v/p ratio portfolio strategy for the guider and non-guider samples separately. for each sample (i.e., guiders and non-guiders), firms are ranked by v/p ratios and partitioned into quintiles. the average monthly return is computed for each v/p quintile. the monthly hedge portfolio return is defined to be the difference in the monthly returns between the top and bottom v/p quintiles. these monthly hedge portfolio returns are regressed on the three fama and french risk factors and the momentum factor to obtain the risk adjusted returns. to examine the risk-adjusted return differences between the guider and non-guider samples, this study takes the difference in the monthly hedge returns between the two samples and regress these monthly return differences on the monthly fama and french risk factors and the momentum factor. the estimated intercept term from the following regression model captures the risk-adjusted return differences between the guiders and non-guiders. table 5 panel b reports the difference in risk-adjusted returns between guiders and non-guiders. as shown in panel a, the risk-adjusted return for the non-guider sample ( n tm, ) is 1.0%, statistically significant at the 1% level. in contrast, the risk-adjusted return to the guider sample ( g tm, ) is -0.6%, statistically significant at the 10% level. the difference in the risk-adjusted returns between the two samples, as shown in panel b, is 1.6%, statistically significant at the 1% level. these results suggest that, after controlling for risks, the v/p ratio portfolio strategy for the non-guider sample is still able to earn a significantly higher return than that for the guider sample. overall, the returns prediction results suggest that management forecast guidance tends to reduce the ability of forecastbased v to predict future returns through v/p ratios. this study also assesses the statistical significance of the returns using monte carlo simulations; results from this analysis show that the v/p ratio portfolio returns to the non-guider sample are statistically significant at the 1% level. usefulness of analyst forecasts in firm valuation 12 table 5 risk-adjusted returns to the v/p ratio portfolio strategies (g vs. n) panel a: risk-adjusted returns to the v/p ratio portfolio strategy for g and n separately non-guider (n) variable parameter estimate standard deviation t value intercept ( n tm, ) 0.010*** 0.004 2.59 market – risk free rate 0.989*** 0.096 10.31 small – big 0.992*** 0.113 8.77 high – low 0.451*** 0.138 3.26 momentum -0.744*** 0.081 -9.17 guider (g) variable parameter estimate standard deviation t value intercept ( g tm, ) -0.006* 0.004 -1.66 market – risk free rate ree 0.092 0.093 0.99 small – big 0.240** 0.109 2.19 high – low 1.384*** 0.134 10.37 momentum -0.509*** 0.078 -6.49 panel b: risk-adjusted return difference between guiders and non-guiders gn itttt gn t g t n t umdhmlsmbmktrfhrethret    4321 variable parameter estimate standard deviation t value intercept ( gn tm  , ) 0.016*** 0.006 2.90 market – risk free -0.290** 0.145 -2.00 small – big -0.388*** 0.171 -2.27 high – low -0.585*** 0.209 -2.80 momentum -0.189 0.122 -1.55 tian 13 conclusion prior valuation studies provide consistent evidence for the usefulness of analyst forecasts and the superior ability of forecast-based valuation models to predict firm value. this study shows that analyst forecasts are less useful than previously documented because of the increased management forecast guidance. in particular, this study examines the impact of management forecast guidance on the usefulness of analyst forecasts in firm valuation by empirically comparing the performance of intrinsic value metrics estimated using guided versus non-guided forecasts to explain stock price and predicting future returns through v/p ratios. the results show that v estimated using guided forecasts have significantly lower correlations with p than those estimated using non-guided forecasts. the lower correlations cannot be explained by factors such as firm size, earnings performance, b/m ratio, or forecast accuracy. in addition, the returns to the v/p ratio portfolio strategy for the guider sample are significantly lower than those for the non-guider sample, and this return difference cannot be explained by the risk differences between the two samples. together, these results suggest that management forecast guidance tends to reduce the ability of forecast-based v to track stock price and predict future returns through v/p ratios. this study therefore concludes that forecast guidance reduces the usefulness of analyst forecasts in firm valuation. this study contributes to the financial analyst and expectations management literature by documenting the impact of management forecast guidance on the usefulness of analyst forecast in firm valuation. it extends the valuation literature by conditioning model performance on the quality of model inputs and documenting the adverse impact of management forecast guidance on valuation model performance. results from this study raise awareness among researchers, practitioners, and investors about the pitfalls of taking analyst forecasts at face value and using them directly in firm valuation. this study has one major limitation. in particular, this study examines only one input to the rim valuation model (i.e., analyst earnings forecast), while holding 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(2011). the market effects of breaking a string of meeting or beating analysts' expectations: downward revision of future cash flows or increase in cost of equity capital? journal of business finance and accounting 38 (1)&(2), 95-11. tian 15 yao tian is an assistant professor at san jose state university. dr. tian obtained her ph.d. degree in accounting at the university of waterloo in 2008. she served as an assistant professor at the university of alberta from 2008-2011. dr. tian has published seven research papers in leading accounting and finance journals, including the accounting review and journal of business, finance, and accounting. uafs advances in business research 2012 lowrez (2).pdf hayes, tanner, and schmidt advances in business research 2012, vol. 3, no. 1, 107-112 107 computer security threats: small business professionals’ confidence in their knowledge of common computer threats thomas hayes, university of arkansas fort smith margaret tanner, university of arkansas fort smith george schmidt, university of arkansas fort smith this paper investigates the possible existence of overconfidence by small business professionals in their knowledge of different types of computer security threats. specifically, this article focuses on the ability of small business owners and managers to understand and identify four main types: viruses, trojans, spyware, and phishing attacks. contrary to our expectations, subjects did not exhibit overconfidence in their knowledge of computer security threats. implications for education and practice are discussed. computer usage in everyday life and in business is on the rise. e-mail, the internet, and numerous other computer programs allow small businesses to focus on the conduct of their business, rather than on recordkeeping and communication processes. with the increased usage of computer technology, however, comes the increased exposure to data security threats. indeed, cybercrime is on the rise, and company losses are mounting. in their 2012 data breach investigations report (dbir), verizon reports 855 incidents of cyber-attacks, involving 174 million compromised records. further, the report states that 98% of these attacks came from an outside agent (i.e., as opposed to an employee), and 69% incorporated some form of malware (e.g., viruses). further exacerbating the problem is the proliferation of new strains of malware every year. panda labs, a computer security vendor, reported that more than 25 million new strains of malware were created in 2009 (skinner, 2010). with such malware, cybercriminals can steal vital company information. for example, hackers can plant malicious software on business computers to capture online banking credentials such as logins and passwords (gorman & perez, 2009). small businesses are particularly susceptible to cybercrime attacks because they frequently lack sophisticated security capabilities and the financial resources to safeguard their computer systems. cybercriminals are getting smarter, and small businesses are not always equipped to thwart attacks. compounding this problem is the misperception by business owners of the likelihood of an attack. in a recent survey, deloitte and touche, llp, found that only 41% of roughly 1400 respondents believed that a cyber-attack was highly likely, while 38 % believed that attacks were unlikely or extremely unlikely (investment weekly news, 2010). given that cyber-attacks are more organized than ever and are increasingly prevalent, it is important to gauge the knowledge of small business professionals to prevent and detect such attacks. results from an earlier study suggest that students are overconfident in their knowledge of various malware (e.g., viruses) and the potential damage from such malware (schmidt, hayes, & tanner, 2007). we wish to extend that research by testing the knowledge and confidence levels of small business professionals regarding various forms of malware, including viruses, trojans, spyware, and phishing attacks. specifically, the purpose of this study is to examine whether or not small business professionals are overconfident with respect to their knowledge of various computer security threats (e.g., viruses). if these individuals are overconfident and/or uninformed with respect to the aforementioned knowledge, they are less likely to be prepared to face such threats in their own businesses. further, their overconfidence may exacerbate customers’ misconceptions regarding the business’ preparedness to fight privacy theft and other forms of cyber-attacks. malware remarkable advances in computer technology have occurred over the past two decades, influencing virtually every aspect of our lives. computer technology has especially affected many facets of business. for example, e-mail has replaced the office memo as a means of communication in the workplace. as such, computer proficiency is fundamental to success in today’s businesses. this proficiency should also include a working knowledge of malware. several types of malware are considered in the current study, namely, viruses, trojans, spyware, and phishing attacks. computer viruses are programs that attach themselves to other computer programs, generally without the user’s knowledge. specifically, crume (2000) defines viruses using the following two criteria: hayes, tanner, and schmidt advances in business research 2012, vol. 3, no. 1, 107-112 108 the computer virus executes itself when the host program is run, and the computer virus replicates by attaching a copy of itself to other programs when it is executed of course, the key issue with viruses is the damage, sometimes irreparable, they can cause to a business’ computer systems. while some viruses do minimal damage (e.g., taking up disk space), others can cause significant damage. boot sector viruses, for example, can quickly spread, and ultimately will prevent a computer’s operating system from working correctly (maximum security, 2001). some viruses, such as the cih virus, are especially dangerous because they can wipe out the bios on a user’s system, rendering the computer useless (crume, 2000). trojans are similar to viruses, containing code that can create significant damage. however, they cannot spread on their own or replicate themselves (crume, 2000). rather, trojans often spread under the guise of something harmless, such as an e-mail attachment, hence their name. in recent years, trojans have been used effectively by cybercriminals to steal confidential information (e.g., bank account numbers). clampi, zeus and urlzone are just a few of the more sophisticated trojans that install themselves on windows computers and hijack username and password information for use in remote thefts (vamosi, 2010). banking information is consistently targeted by these trojans. for example, citibank's systems were hacked, resulting in a loss of personally identifiable information (pii) (mcgrane & smith, 2011). specifically, citibank reported that data for 1% of their cardholders was accessed through this breach. some of the information that may have been compromised includes customers' names, account numbers, contact details and email addresses. similar to trojans, spyware programs have the ability to collect personal information and even monitor web pages accessed by the user without their knowledge (walters & matulich 2011; carvey, 2005). users inadvertently load these programs on their computer when they install free downloadable software (e.g., shareware) (mensch & wilkie, 2011; kucera, plaisent, bernard, & maguiraga, 2005). while spyware programs may not result in data or hardware loss like viruses or trojans, they can still be problematic for users, especially small business users. because of their ability to gather potentially confidential information (e.g., social security numbers), spyware programs can be very costly to these businesses in terms of customer litigation, damaged reputation, etc. finally, phishing attacks, although not considered malware per se, also pose serious threats to computer security. in a phishing attack, the cybercriminal usually sends the victim a fraudulent email in order to trick the victim into sharing sensitive information or installing malware on their computer (hong, 2012). again, the obvious danger is that once the victim shares sensitive information such as bank account numbers, losses can be severe, particularly for small businesses. not only do businesses face direct losses (e.g., theft) from such an attack, but companies may face indirect losses (e.g., loss of reputation) as well. overconfidence overconfidence in one’s abilities is a common phenomenon; it can be found in a wide range of settings, from capital markets (e.g., chen, kim, nofsinger, & rui 2007; ko & huang, 2007) to the classroom (e.g., clayson, 2005). indeed, the research suggests that overconfidence is a strong human tendency that persists even in light of proven faulty judgments. for example, arkes, dawes, & christiansen (1986) found that individuals rely on their own judgments, even when those judgments proved inaccurate. research also finds that entrepreneurs tend to exhibit overconfidence in their decision to start a business (koellinger, minniti, & schade, 2007). in addition, brixy, sternberg, & stüber (2013), suggest that overconfidence among entrepreneurs contributes to their reluctance to utilize publicly available assistance for their businesses. overconfidence among business people is very concerning, particularly given that overconfidence may attribute to high failure rates among new business owners (koellinger et al., 2007). in the present study, we look at overconfidence by business people in their knowledge of various malware, including viruses, trojans, spyware and phishing attacks. if business people are overconfident in their knowledge of malware attacks, they may underestimate the likelihood of losses due to such attacks or they may fail to take appropriate steps to protect business assets and data. as cybercrime statistics soar, this overconfidence, if it exists, could lead to greater losses. thus, it is important to understand whether or not business people are overconfident in their knowledge of such threats. hence, we test the following proposition: business people will be overconfident in their knowledge of computer security threats, specifically, viruses, trojans, spyware, and phishing attacks. methodology small business professionals from the fort smith, arkansas region participated in the study, which was conducted in two parts. first, the forty-eight participants completed a survey that asked them to report how confident hayes, tanner, and schmidt advances in business research 2012, vol. 3, no. 1, 107-112 109 they were in their knowledge of various computer security threats. using a 5-point likert scale, participants indicated the level of agreement with several statements that assessed confidence in their knowledge of viruses, trojans, spyware, and phishing attacks. the survey also asked participants about their level of computer usage as well as measures they’ve taken to address computer security threats in their businesses. in the second part of the study, these same business professionals took a test to assess their actual knowledge of the aforementioned security threats. the test consisted of several multiple-choice questions related to viruses, trojan horse programs, spyware and phishing attacks. the purpose of the test was to determine if these individuals could correctly recognize the malware types and identify the potential damages caused by each. for example, each subject indicated their agreement with three statements that assessed the level of confidence in their knowledge of viruses (e.g., “i am confident in my understanding of computer viruses.”). based on their responses, we created a summated score (virus_conf), which we could then compare with their score on the portion of the test that assessed knowledge of viruses (virus_score). various demographic variables were also gathered to more fully understand the environment within which these business professionals operate. the results of both instruments are compiled and discussed in the next section of the paper. results as mentioned previously, forty-eight small business professionals participated in the study. of those participants, twenty-eight (58%) were male. thirty-six (75%) participants were also regular users of e-mail and the internet, reporting that they used both more than twice a day, on average. moreover, an overwhelming majority of subjects reported using software to mitigate computer security threats, including anti-virus software (94%), firewalls (83%), and spyware removal software (73%). these results suggest that subjects are at least aware of computer security threats and rely on software solutions to minimize them. to test our proposition regarding whether small business professionals were overconfident in their knowledge of computer security threats, we examined the relationship between their test score in each of the aforementioned areas with their confidence scores. for example, we tested whether a subject’s virus test score is a function of their confidence score as stated in the following equation: virus_score = f(virus_conf). table 1 reports the regression results from our study. the average test score in each area was low (e.g., a 34.7% average test score on the virus portion of the test). table 1: panel a: regression results average confidence average test score adjusted r2 f t virus_score=f(virus_conf) 2.60 34.7% 13.6% 8.391* 2.897*** trojan_score=f(trojan_conf) 2.34 20.1% 27.9% 19.204* 4.382*** spy_score = f(spy_conf) 2.83 29.9% 28.6% 19.811* 4.451*** phish_score = f(phish_conf) 2.38 46.5% 32.8% 23.942* 4.893*** panel b: confidence item analysis average knowledge (self) (2 questions) average security measure (1 question) t viruses 2.51 2.77 2.047** trojans 2.19 2.65 2.072** spyware 2.81 2.88 .36 phishing 2.28 2.56 1.93* * p < 0.10, ** p < 0.05, *** p < 0.01 the results, however, do show a significant correlation between subjects’ confidence scores and their respective test scores for each security threat tested. in other words, subjects that were more confident in their knowledge of viruses scored better on those test questions, and vice versa. the same was true for the other security threats. if subjects were overconfident in their knowledge of malware, we would not expect to see a significant positive relationship between the two variables. therefore, subjects in this study do not appear to exhibit overconfidence. this result is contrary to our expectations, since we expected small business professionals to be overconfident in their knowledge of computer security threats similar to the students in schmidt et al. (2007). discussion and implications as the above results suggest and contrary to our expectations, small business professionals do not exhibit overconfidence with respect to their knowledge of several computer threats, namely, viruses, trojans, spyware, and hayes, tanner, and schmidt advances in business research 2012, vol. 3, no. 1, 107-112 110 phishing attacks. moreover, these results run contrary to prior research that finds individuals tend to be overconfident in many contexts. a possible explanation for these results is that small business professionals have more at stake, since these types of security issues can threaten their very livelihood. this explanation is just one possible scenario and seems reasonable, since one would expect a small business owner to be conservative with respect to business practices that affect their profitability and success. it should be noted that the confidence scores were relatively low. for example, subjects’ average level of confidence about viruses was 2.6, where a 1 indicates low confidence and a 5 indicates high confidence. participants, on average, were not comfortable with any of these malware issues. another possibility for the lack of overconfidence is that confidence or knowledge of computer malware threats is not an easy thing to measure. in this study, we asked three questions related to confidence about the various malware threats. two of the questions asked about the participants own knowledge or confidence in the phenomenon. the third question asked participants to record their level of agreement with the phrase “my computer system is safe from (viruses, trojans, spyware, phishing attacks).” the average ratings of these questions are provided in panel b of table 1. from that data you can see that the average ratings in the security of their business systems (e.g., “my computer system is safe from viruses.”) were significantly higher for three of the four types of malware threats utilized in this study. we also retested the original hypothesis using subjects’ answers to this one question (e.g., “my computer system is safe from viruses.”) to see if the results were different. we found that the confidence in the computer system itself was still positively related to the test scores, but the relationships were not as strong. as before, there does not appear to be evidence of overconfidence. it is important to note that the test scores in each area were very low, indicating that subjects, on average, were unable to correctly recognize the malware types and the threats they pose. subjects’ average test scores for each security threat were below 50% and well below a “passing grade.” this result would suggest that while subjects did not necessarily exhibit overconfidence, their deficiency with respect to computer security threats might still put their businesses at risk. finally, we should mention that larger companies typically have the resources to help safeguard their computer systems. smaller businesses lack these resources, instead relying upon employees’ knowledge and readily available tools such as antivirus software. these solutions may not be sufficient, however. employees may not have the requisite knowledge of various computer security threats. moreover, the business’ software tools may not be regularly updated or are otherwise ineffective at detecting security threats. in either case, there is the potential that companies can face significant losses from security breaches. limitations and future research while care was taken to address all methodological issues, there are a couple limitations that warrant discussion. first, it is important to note that the results may not be generalizable due to the limitations inherent in a convenience sample. subjects for the study came from the fort smith region, thus the sample may not be representative of all small business professionals. to further validate the results, future research should replicate this study using small business professionals across a more diverse range of demographics, including different regions of the country, different industries, small towns versus large metropolitan areas, etc. second, the results of the study run counter to our expectations about overconfidence. specifically, we expected subjects to exhibit overconfidence in their knowledge of computer security threats, and this was not the case. while we offer a plausible explanation for this result, future research should investigate the reasons that small business professionals do not exhibit the same overconfidence found in other settings. finally, it worth mentioning that while subjects did not exhibit overconfidence, their knowledge of computer security threats is still very lacking. as noted in the previous section, subjects’ average scores were below 50% across all four security threats. kruger & dunning (1999) argue that this poor performance may be overcome by improving the skill level of participants. thus, in future research, this proposition can be tested by conducting pre and post-tests of subjects’ knowledge of computer security issues. the answer to this question could have important implications for the content used in training programs. despite these limitations, the present study does contribute to our understanding of small business professionals’ knowledge of computer security issues. specifically, it tells us that small business professionals may not exhibit overconfidence in their knowledge of said security issues. the results also remind us, however, that these individuals may still be ill-prepared to protect their business assets from computer security threats. currently, there is no one piece of software that can detect or prevent all cyber-attacks. accordingly, data and system security will continue to be a concern. business owners should consider taking additional precautions to safeguard their systems. for example, hiring individuals or firms to conduct security reviews would be a wise practice. companies of all hayes, tanner, and schmidt advances in business research 2012, vol. 3, no. 1, 107-112 111 sizes must learn to take the necessary steps to safeguard their assets and their computer data in order to thwart computer hackers. references arkes, h., dawes, r., & christensen, c. 1986. factors influencing the use of a decision rule in a probabilistic task. organizational behavior and. human decision processes, 37(1), 93-110. brixy, u., sternberg, r., & stüber, h. 2013. why some nascent entrepreneurs do not seek professional assistance. applied economic letters, 20(2), 157-161. carvey, h. 2005. windows forensics and incident recovery. boston, ma: addison-wesley. chen, g., kim, k., nofsinger, j., & rui, o. 2007. trading performance, disposition effect, overconfidence, representativeness bias, and experience of emerging market investors. journal of behavioral decision making, 20(4), 425-451. clayson, d. 2005. performance overconfidence: metacognitive effects or misplaced student expectations? journal of marketing education, 27(2), 122-129. crume, j. 2000. inside internet security. london: addison-wesley. data breach investigations report. 2012. verizon corporation. deloitte poll: respondents lack confidence in ability of private enterprises to reduce the occurrence of cyber crime. (2010, september 25). investment weekly news, p. 193 gorman, s., & perez, e. (2009, november 11). hackers indicted in widespread. atm heist. wall street journal, p. a.10. hong, j. 2012. the state of phishing attacks. association for computing machinery. communications of the acm, 55(1), 74. kruger, j. & d. dunning. (1999). unskillled and unaware of it: how difficulties in recognizing one’s own incompetence lead to inflated self-assessments. journal of personality and social psychology, 77, 1121-1134. ko, k., & huang, z. 2007. arrogance can be a virtue: overconfidence, information acquisition, and market efficiency. journal of financial economics, 84, 529-560. koellinger, p., minniti, m., & schade, c. 2007. i think i can, i think i can: overconfidence and entrepreneurial behavior. journal of economic psychology, 28(4), 502-527. kucera, k., plaisent, m., bernard, p., & maguiraga, l. 2005. an empirical investigation of the prevalence of spyware in internet shareware and freeware distributions. journal of enterprise information management, 18(6), 697-708. maximum security. 2001. indianapolis, in: sams publishing. mcgrane, v., & smith, r. (2011, june 9). hacking at citi is latest data scare. wall street journal, p. c.1. mensch, s., & wilkie, l. 2011. information security activities of college students: an exploratory study. academy of information and management sciences journal, 14(2), 91-116. schmidt, g., tanner, m., & hayes, t. 2007. computer security threats: student confidence in their knowledge of common threats. journal of business and leadership: research, practice, and teaching, 3(1), 211-215. skinner, c. 2010. 25 million new malware strains found in 2009. pc world, 28(3), 44. vamosi, r. 2010. new banking trojan horses gain polish. pc world, 28(1), 41. hayes, tanner, and schmidt advances in business research 2012, vol. 3, no. 1, 107-112 112 walters, m., & matulich, e. 2011. assessing password threats: implications for formulating university password policies. journal of technology research, 2: 1-9. thomas hayes is an associate professor of accounting at the university of arkansas fort smith. he received his ph.d. in accounting from university of north texas. his current research interests include auditing, information systems, and accounting pedagogy. he has published in academy of information and management sciences journal, international journal of business, accounting, and finance, international journal of education research, and others. margaret tanner is an associate professor of accounting and head of the department of accounting, economics and finance at university of arkansas fort smith. she received her ph.d. in accounting from university of north texas. her current research interests include pedagogical issues, financial reporting, and curriculum development and assessment. she has published in international journal for educational integrity, international journal of education research, journal of business and leadership, and others. george schmidt is an associate professor of accounting at university of arkansas fort smith. he received his ph.d. in accounting from university of north texas. his current research interests include financial accounting and information systems. he has published in international journal of business, accounting, and finance, journal of business and leadership, and others. advances in business research 2010 volume 1.pdf 176 advances in business research !!"#$%&'(#) %*+) ,*-&$./#*&%0) 1&%2#3!0+#$) 4#&5!$2-6) 7) %-#) 7*%08-'-) !9) :5!) ;$<%*) 4#'=3<!$3!!+vanessa hill, university of louisiana, lafayette steven frankforter, winthrop university drawing on scholarship from resource dependency, social network analysis, trust, and institutional theories, we present a model that describes the factors that shape relationships among organizations and their stakeholders. we propose that networks comprised by companies and their stakeholders can be primarily cooperative or opportunistic in character. the qualities of the organizations in the network as well as the relationships and structure of those relationships determine whether or not the resulting network can be characterized as cooperative or opportunistic. we illustrate the model by comparing and contrasting the stakeholder networks of two neighborhood development projects. !" #$%"&%'()" *+,,+-.!/"0(%%1'!2)" 345678"/(+9!:;(%'<.!/"-+(<=" )#'<%$+,:%(" #$%+(&":%>%,+?%:" ('?.:,&="1'<.!/" )./!.@a'!#" )#(.:%)" .!" +9(" 9!:%()#'!:.!/" +*" !+(1'#.>%" '!:" .!)#(91%!#'," 9)%)" +*" %#$.a)" .!" 1'!'/.!/" )#'<%$+,:%(" (%,'#.+!)" 3b+!%)=" 455cd"e9.!!"f" b+!%)=" 455c8g" h%)%'(a$" :9(.!/" #$.)" #.1%" )9//%)#%:" #$'#" a+1?%#.#.>%" ':>'!#'/%)" may arise out of successfully recognizing stakeholder traits and adapting strategically to them (jones, 1995; wicks, i%(1'!="f"b+!%)="45558="'!:"a(%'#%"#&?+,+/.%)"#$'#":.)#.!/9.)$";%#-%%!")#'<%$+,:%()"?9()9.!/"+??+(#9!.)#.a"%!:)" '!:"#$+)%")%%<.!/">',9%j;')%:"/+',)"3k.#a$%,,="l/,%="f"m++:="455nd"o$.,,.?)="45568g"p$%"?'a%"+*"':>'!a%1%!#".!" stakeholder research has been remarkable, but in spite of these advances, considerable opportunity to further the power and usefulness of stakeholder theory remains. q++?%('#.>%"'??(+'a$%)"#+")#'<%$+,:%(" #$%+(&"+(" #$+)%"#$'#"%>',9'#%"19,#.?,%"?%()?%a#.>%)"+*"@(1j)#'<%$+,:%(" relations are emerging. while prominent research in stakeholder theory has focused attention on examination of #$%".!)#(91%!#',").:%"+*")#'<%$+,:%("(%,'#.+!)$.?)"30(%%1'!="4567d"b+!%)="455cd"k.#a$%,,"%#"',g="455n8=".!>%)#./'#.+!" of cooperative relationships are being explored as researchers investigate factors that encourage stakeholders to *+(1"',,.'!a%)"#+".!r9%!a%"+(/'!.s'#.+!)"3h+-,%&"f"k+,:+>%'!9="tuuvd"w%>.,,%"f"k%!/9a="tuux8g"l!+#$%("*+a9)" +*" )#'<%$+,:%(" (%)%'(a$"$')";%%!" #$%":%>%,+?1%!#"+*" #&?+,+/.%)" #+" .:%!#.*&"-$+"'"@(12)" )#'<%$+,:%()" '(%" '!:" #+" :%#%(1.!%"#$%"#&?%)"+*".!r9%!a%)"#$'#"#$%&"$'>%"+>%("'"@(1"3k.#a$%,,"%#"',g="455nd"o$.,,.?)="4556="y(.)a+,,"f"z#'(.<=" tuu78g"m$.,%" #$%&" '(%" .1?+(#'!#" '>%!9%)" +*" (%)%'(a$=" a++?%('#.>%" '(('!/%1%!#)" '1+!/" )#'<%$+,:%()" ?(%)%!#" '!" opportunity to advance our understanding of stakeholder relationships further. a network approach to studying stakeholder relations allows us to consider cooperation among stakeholders as well as opportunistic behavior. social network analysis is a useful theoretical framework for further understanding the other constituents in society. the actors in the network are individual organizations. each pair of actors in the network is potentially .!>+,>%:".!")+1%"#&?%"+*"(%,'#.+!)$.?"3k'(<+>)<&="m.,,%(="f"o'##+!="45668g"l"!%#-+(<"'??(+'a$"#+")#'<%$+,:%("#$%+(&" .)"9,#.1'#%,&"';+9#"$+-"#$%";9).!%))":%>%,+?)"'!:"1'.!#'.!)"(%,'#.+!)$.?)"-.#$".#)")#'<%$+,:%()g"h+-,%&"3455n8"-')" #$%"@()#"#+"1%,:"'"!%#-+(<"'??(+'a$"#+")#'<%$+,:%("#$%+(&=")9//%)#.!/"#$'#")#'<%$+,:%("#.%)"!%%:"#+";%"%>',9'#%:"+!" more than a dyadic basis. he also argued that an organization’s stakeholders interact bilaterally. stakeholders know of, and interact with one another. some networks will be characterized by cooperative relationships, other networks by instrumental relationships. organizations in cooperative networks have multilateral stakeholder relationships. instead of positioning the organization as a member of a network that is solely instrumental thriving only in the short-term, the cooperative !%#-+(<".)"'">',9%j@,,%:"a+119!.#&"#$'#"1'&"?%(?%#9'#%".!:%@!.#%,&g"o'(#.a.?'!#"+(/'!.s'#.+!)"19)#"?(+1+#%"a9,#9('," >',9%)"#$'#"/.>%".#",+!/j#%(1":.(%a#.+!"'!:"?9(?+)%"*+("#$%"a++?%('#.>%"!%#-+(<"#+"%!:9(%g"m.#$")9a$"'!".:%+,+/.a',"@#=" contracting stakeholders may develop trust in one another. eventually, the parties could reduce transaction costs that would otherwise be associated with an opportunistic approach incentives and monitoring costs (jones, 1995; wicks %#"',g="45558g"p$%"(%)9,#".)"'"1+(%"%*@a.%!#"(%,'#.+!)$.?"#$'#"',,+-)"#$%"(%#%!#.+!"+*"/(%'#%(",%>%,)"+*"'>'.,';,%"(%)+9(a%)" for maintaining unavoidable instrumental stakeholder relationships. while participants in the networks have dyads +*"%[a$'!/%="#$%(%"'(%"(%?%(a9)).+!)"*+("#$%"+#$%("!%#-+(<"1%1;%()"#$(+9/$"#('!).#.>.#&"3w%>.,,%"f"k%!/9a="tuux8g" members in a cooperative network are either directly linked through each other or through a relationship that they $'>%".!"a+11+!"-.#$"'!+#$%("+(/'!.s'#.+!"3h+-,%&"f"k+,:+>%'!9="tuuv8g"\??+(#9!.)#.a";%$'>.+(".!")9a$"'"!%#-+(<" not only damages the relationship with the stakeholder that is harmed, but any other networked stakeholder the 2010, vol. 1, no. 1, 176-187 hill and frankforter 177 advances in business research injured stakeholder interacts with. the creation of cooperative networks leads to investments embodying long-term commitments which cannot be achieved through remote ties that are based on immediate gain. instrumental networks on the other hand, are characterized by arm’s length transactional arrangements ;%#-%%!",++)%,&"'*@,.'#%:"+??+(#9!.)#.a"?'(#.%)"3]ss.="455n8g"p$%"?(.1'(&"a$'('a#%(.)#.a)"+*"#$%"?'(#.a.?'!#)".!"#$.)" '(('!/%1%!#"'(%^"(%1+#%"#('!)'a#.+!)="'!"%1?$').)"+!")%,*j.!#%(%)#="'!"';)%!a%"+*",+&',#&="'"*+a9)"+!"a+1?%#.#.+!"*+(" limited resources, and impersonal relationships. the potential competitive advantages of remote approaches are the ';.,.#&"#+"('?.:,&")$.*#"#+"!%-"a+!:.#.+!)="+??+(#9!.#.%)="'!:"(%,'#.+!)$.?)"')"#$%&"%1%(/%"3]ss.="455n8g"l1+!/"#$%" disadvantages of participating instrumental networks are transaction, monitoring, and inducement costs. instrumental networks are characterized by remote or loosely joined, short-term relationships, among stakeholders who do not trust each other and who engage in">'(.+9)"#%a$!._9%)"#+"1+!.#+(";%$'>.+("+*"+#$%("'a#+()"#+"'>+.:"%[?,+.#'#.+!g in this paper, we propose a synthesis of social network analysis with stakeholder theory. we present cooperative and instrumental stakeholder models based on actor characteristics, relationships, and position in a stakeholder network. our model distinguishes between stakeholder networks that are primarily cooperative or opportunistic by $+-"#$%)%"!%#-+(<)">'(&"+!")#'<%$+,:%("'##(.;9#%)="#&?%)"+*"(%,'#.+!)$.?)="'!:"#$%")#(9a#9(',"_9',.#.%)"+*"#$%"!%#-+(<)g" we illustrate the models with a case study of the redevelopment efforts of two urban neighborhoods. 1&%2#3!0+#$)4#&5!$2this model describes when relationships among stakeholder groups are characterized by either cooperative +("+??+(#9!.)#.a"_9',.#.%)g"0+(" #$%")'<%"+*"a,'(.#&="-%".,,9)#('#%" #$%"1+:%,"a+!).:%(.!/"'"!%#-+(<"#$'#" .)"?(.1'(.,&" a++?%('#.>%" 3i'((.+" `+/'!" (%?(%)%!#%:" .!" 0./9(%" 48=" '!:" '" !%#-+(<" #$'#" .)" ?(.1'(.,&" +??+(#9!.)#.a" 3h+[;9(&" (%?(%)%!#%:".!"0./9(%"t8g" #".)"_9.#%"?+)).;,%"#$'#"a++?%('#.>%"!%#-+(<)"-.,,"$'>%"'a#+()"#$'#";%$'>%"+??+(#9!.)#.a',,&=" as well as actors in opportunistic networks that behave cooperatively. our model describes the mechanisms that allow stakeholders to work together in each network situation. >'=.$#)?6)@%$$'!)a!=%*)1&%2#3!0+#$)4#&5!$2 the nodes, represent the actors, or organizations, involved in the stakeholder network. the lines between the actors represent that a relationship exists between two organizations. the direction of the arrows illustrates the direction of the relationship. for example, in figure 1, all of the relationships among actors in the network are bidirectional. this means that each organization in the network has a relationship with every other organization in #$%"!%#-+(<g"0./9(%"t" .)"a$'('a#%(.s%:";&";+#$"9!.j:.(%a#.+!',"'!:";.j:.(%a#.+!'," (%,'#.+!)$.?)g" !" #$.)"@/9(%=" #$%" 1'&+(2)"+*@a%".)"!+#%:"')"$'>.!/"'"(%,'#.+!)$.?"-.#$"a+119!.#&":%>%,+?1%!#=";9#"a+119!.#&":%>%,+?1%!#":+%)"!+#" reciprocate this relationship. finally the placement of the nodes in relation to each other represents a stakeholder’s position in the network relative to other actors. the distinction does not matter when considering barrio logan. actors in this network are connected to each other in exactly the same way. however, in roxbury we see that #$%"!%#-+(<".)"?'(#.#.+!%:".!#+"#-+"/(+9?)="-.#$"#$%"\>%().#%"q+11.##%%="#$%"o(+a%a#"h%>.%-"q+11.##%%="'!:"#$%" 2010, vol. 1, no. 1, 176-187 hill and frankforter city planner sandag mtdb navy port property owner community college social service agency rep industry business caltrans developer arts rep housing rep community rep north of evans school south of evans homeowners environmental rep project area rep 178 advances in business research h+[;9(&"w%./$;+($++:"q+9!a.,"3hwq8"')"?'(#)"+*";+#$"/(+9?)g"p$.)".)"(%?(%)%!#%:";&"#$%"!+:%)"*+("#$%)%"'a#+()" being placed in the center of the network graph between two groups of actors. the placement of the nodes indicates that these actors may serve as intermediaries between groups. this discussion has used broad examples to illustrate the interpretation of the nodes, lines, and position of the lines. the nature of these relationships which provide the a+!#%[#"*+("#$%"!%#-+(<)".)":.)a9))%:"1+(%"%[#%!).>%,&".!")9;)%_9%!#")%a#.+!)g >'=.$#)b6)c!d<.$8)1&%2#3!0+#$)4#&5!$2 1/%$&)e$!5&36)7*),00.-&$%&'!*)!9)1&%2#3!0+#$)4#&5!$2smart growth is an emerging paradigm and social movement in the discussion of urban development and redevelopment. smart growth emerged of a concern that key stakeholders were excluded from decisions and policy 1'<.!/"(%/'(:.!/"a+119!.#&"%a+!+1.a":%>%,+?1%!#g"q(.#._9%)"+*"#(':.#.+!',"'??(+'a$%)"#+"%a+!+1.a":%>%,+?1%!#" charge that emphasis is put on creating a business friendly environment limited in its focus to creating favorable corporate tax and zoning policies. an imbalanced emphasis on creating business incentives resulted in harmful %[#%(!',.#.%)" '**%a#.!/" #$%" %!>.(+!1%!#=" ?9;,.a" $%',#$=" '!:" a+119!.#&" >.#',.#&" 3bol=" tuu68g" p%!" z1'(#" c(+-#$" principles are widely accepted as benchmarks behavior for community development plans. table 1 shows those ten principles. :%<0#)?6)1/%$&)e$!5&3)f$'*g'"0#smart growth is based on relationships among key stakeholder groups, which can be either cooperative or +??+(#9!.)#.ag"m%"%['1.!%"#$%":%>%,+?1%!#"+*"#-+"9(;'!"!%./$;+($++:)d"i'((.+"`+/'!".!"z'!"y.%/+"q',.*+(!.'="'!:" roxbury, in boston, massachusetts. !"#$#%&'()*$+,#-+.#%,' merchants /!,+,.()*$+,#-+.#%,' human services 0!#$12%*1%%3()*$+,#-+.#%,' community-at-large community development project review committee mayor corporations boston redevelopment authority oversite committee roxbury neighborhood council principle 1 mixed land uses principle 2 take advantage of compact building design principle 3 create a range of housing opportunities and choices principle 4 create walkable neighborhoods principle 5 foster distinctive attractive communities with a strong sense of place principle 6 preserve open space farmland natural beauty and critical environmental areas principle 7 strengthen and direct development towards existing communities principle 8 provide a variety of transportation choices principle 9 make development decisions predictable fair and cost effective principle 10 encourage community and stakeholder collaboration in development decisions 2010, vol. 1, no. 1, 176-187 hill and frankforter 179 advances in business research @%$$'!)a!=%*) %-# barrio logan was recognized by the environmental protection agency as a redevelopment project that :%1+!)#('#%:"z1'(#"c(+-#$" ?(.!a.?,%)" 3bol=" tuu68g"i'((.+"`+/'!2)" ,'(/%)#" a+!)#.#9%!a.%)" '(%" #$%" (%).:%!#)=" #$%" u.s. navy, and industry. the residents are primarily latino and earn modest incomes. barrio logan’s proximity to the port of san diego attracted the interest of the u.s. navy. in the 1940’s the u.s. navy appropriated land to bring .!":%*%!)%".!:9)#(.%)="a$'!/.!/"i'((.+"`+/'!"#+"'!".!:9)#(.',"('#$%("#$'!"(%).:%!#.',"a+119!.#&g"p$%"q.#&"+*"z'!" diego supported this industrialization by passing mixed zoning laws that allow the navy and business to develop residential areas. business owners took advantage of the favorable zoning laws to build junkyards next to schools and (%).:%!a%)="#('!)*+(1.!/"#$%"!%./$;+($++:".!#+"'!".!:9)#(.',"('#$%("#$'!"(%).:%!#.',"a%!#%("3y%,/':+="45568g" !r9%!a%:";&"#$%"q.>.,"h./$#)"'!:"'/(.a9,#9(',"-+(<%()"1+>%1%!#)="i'((.+"`+/'!"(%).:%!#)"+(/'!.s%:"#+",+;;&" for development plans and services to revitalize the community. the residents successfully petitioned the city of z'!"y.%/+" #+";9.,:"'"?'(<"9!:%(" #$%"q+(+!':+"i'&"i(.:/%g"p$.)"-')" #$%"@()#" #.1%" #$'#" (%).:%!#)"$':" *+9/$#" *+(" )+1%#$.!/"'!:"-+!"3i'((.+"`+/'!".!"z'!"y.%/+="tuuu8g"d+-%>%(=")9;)%_9%!#"%>%!#)"%>%!#9',,&",%:"#+"#$%"a(%'#.+!"+*" cooperative relationships among barrio logan’s stakeholder groups. !"45x6"#$%"q.#&"+*"z'!"y.%/+"%!#%()"#$%"k+:%,"q.#.%)"o(+/('1g"b!#%(.!/"#$%"?(+/('1="#$%"a.#&"?%(*+(1%:"'!" extensive study of barrio logan. barrio logan was designated as a redevelopment area and the residents were *+(1',,&"(%a+/!.s%:";&"#$%"a.#&"/+>%(!1%!#"')"'")#'<%$+,:%("/(+9?g" !"45n7"#$%"q.#&"(%a+/!.s%:"#$%"q+119!.#&" planning association comprised of barrio logan property owners, businesses, small industry, and large industry stakeholders. this association contracted consultants who provided recommendations for the redevelopment of i'((.+"`+/'!g"p$.)"?,'!"-')"'!".1?+(#'!#"@()#")#%?".!"#$%":%>%,+?1%!#"+*"'"a++?%('#.>%")#'<%$+,:%("!%#-+(<g"0+("#$%" @()#"#.1%"'"?,'!".!a,9:.!/".!?9#"*(+1"',,"<%&")#'<%$+,:%()"-')"?(+?+)%:"*+(".1?,%1%!#'#.+!g"p$%"?,'!"'(#.a9,'#%:"'" set of guiding principles that the key stakeholders contributed to developing. this went a long way toward healing hard feelings, and developing trust resulting in the current realization of the smart growth principle of stakeholder .!a,9).+!g"q+!)%_9%!#,&="-%"9)%"i'((.+"`+/'!2)"'??(+'a$"#+":%>%,+?1%!#"#+".,,9)#('#%"#$%"a++?%('#.>%")#'<%$+,:%(" !%#-+(<g"p';,%"t":%@!%)"#$%"<%&"'a#+()"(%?(%)%!#%:";&"#$%"!+:%)".!"#$%"!%#-+(<g :%<0#)b6)h#8)7g&!$-)'*)&3#)@%$$'!)a!=%*)1&%2#3!0+#$)4#&5!$2 roxbury case l#"@()#"/,'!a%=".#"-+9,:"'??%'("#$'#"z1'(#"c(+-#$":%>%,+?1%!#"?(+a%a#)"-+9,:"*'>+("'"a++?%('#.>%")#'<%$+,:%(" !%#-+(<g"b%!!.!/)2"3tuu78"a')%")#9:&"+*"#$%"h+[;9(&"k')#%("o,'!"shows that adherence to smart growth principles %1?$').s.!/"?'(#.a.?'#.+!"+*"',,")#'<%$+,:%("/(+9?)".)"!+#"',-'&)"?'(#"+*"z1'(#"c(+-#$".!.#.'#.>%)^"el!+#$%("(%')+!" #$'#"#$%"h+[;9(&"k')#%("o,'!".)".1?+(#'!#".!"#$%"@%,:"+*"9(;'!":%>%,+?1%!#".)"#$'#".#")%(>%)"')"'",%!)";&"-$.a$"#+" a(.#._9%"?,'!!.!/"#$%+(.%)"#$'#"a',,"*+("a+119!.#&"?'(#.a.?'#.+!";9#"./!+(%")+a.',"'!:"a,'))"+;)#'a,%)"#+"?'(#.a.?'#+(&" democracy at the local level. in fact smart growth and new urbanism can be a cover for perpetuating structured .!%_9',.#.%)"'#"#$%",+a',",%>%,f"3b%!!.!/)="tuu7^"478g" actor corresponding abbreviation residential property owners homeowners residential tenants north of evans, south of evans non-residential property owners property owner business owners/representatives business industrial owners industry environmental representative environmental rep community representative community rep arts representative arts rep project area committee representative project area rep housing representative housing rep san diego unified school district school san diego unified port district port center city development corp developer united states navy navy southeaster san diego planning committee city planner san diego association of governments/metropolitan transit development board sandag mtdb california department of transportation caltrans san diego community college district community college 2010, vol. 1, no. 1, 176-187 hill and frankforter 180 advances in business research roxbury is one of seventeen neighborhoods in boston. it is predominantly black neighborhood located in close proximity to downtown and is characterized by a high concentration of poverty. the neighborhood reports the highest proportion of families living on public assistance in massachusetts. this is in stark contrast to redevelopment efforts that focus on building luxury homes to attract high income professionals, escalating property taxes that push current !"#$%&'(!)#%$#*&+#',*%!-,%!.%,/#&$%/!)#*%01#''&'2*3%455678%9): %;-*&'#**#*%&'%,/#%'#&2/;!$/!!+%: *!%*,$-22 #3%:*% ,/#<%:$#% #**%:; #%,!%:..!$+%/&2/#$% #:*#*%.!$%,/#&$%$#,:& ="!$>%*?:(#8%@*%&'%,/#%(:*#%!.%a:$$&!%b!2:'3%,/#%$#*&+#',*%!.% c!d;-$<%/:+% &,, #%?! &,&(: %&'e-#'(#%:*%,/#<%:$#%?!!$ <%$#?$#*#',#+%:)!'2%# #(,#+%!.f(&: *%&'%?$!?!$,&!'%,!%,/#&$% ?!?:,&!'%01#''&'2*3%455678%b&>#%a:$$&!%b!2:'3%,/#%$#*&+#',*%!.%c!d;-$<%!$2:'&g#+%:'+% !;;&#+%.!$%?:$,&(&?:,&!'%&'% the planning process for the redevelopment of roxbury. unlike barrio logan, recognition of roxbury residents as a stakeholder constituency is involuntary and as a result of contractual obligations. the roxbury development process &*%(/:$:(,#$&g#+%;<%+&*,$-*,%:'+% &)&,#+%?:$,&(&?:,&!'%;<%>#<%*,:>#/! +#$*%01#''&'2*3%455678%9,:>#/! +#$%$# :,&!'*/&?*% :$#%):':2#+%;<%$#*%:'+% :<#$*%!.%!h#$*&2/,%0c!d;-$<%9,$:,#2&(%i:*,#$%j :'3%455k78%l/-*3%,/#%c!d;-$<%? :''&'2% ?$!(#**%:*%:'%& -*,$:,&h#%!.%:'%&'*,$-)#',: =!$%!??!$,-'&*,&(%'#,"!$>8%l:; #%m%+#f'#*%,/#%>#<%:(,!$*%#);!+&#+%;<%,/#% '!+#*%&'%,/#%'#,"!$>%0:*%*/!"'%&'%n&2-$#%o78 !"#$%&'%($)%*+,-./%01%,2$%3-4"5.)%6,!7$2-#8$.%9$,:-.7 9$,:-.7%*+,-.%;5!#0,0$/ % p#% ?$!?!*#% ,/:,% h:$&:,&!'% !'% ,"!% '#,"!$>% :(,!$% q-: &,&#*% +#*($&;#% ,/#% )#);#$*% !.% (!!?#$:,&h#% :'+% opportunistic stakeholder networks. first, legitimacy motivates stakeholders to forge and maintain relationships with other members of a stakeholder network. second, reputation is perceptual and is attributed to organizations the stakeholders interact with. legitimacy and reputation are important because they encourage relationships to develop and endure among network actors. b#2&,&):(<r%legitimacy is an important consideration in any relationship between organizations and stakeholders. i:-$#$%0ostormuo7%+#f'#+% #2&,&):(<%:*%v,/#%?$!(#**%"/#$#;<%:'%!$2:'&g:,&!'%w-*,&f#*%,!%:%?##$%!$%*-?#$!$+&':,#% system its right to exist.” legitimacy is essential to an organization’s survival because stakeholders are most likely ,!%*-?? <%$#*!-$(#*%,!%!$2:'&g:,&!'*3%"/!*#%h: -#*%:$#%(!'2$-#',%"&,/%,/#&$%!"'%0j:$*!'*3%osu57%!$%"/&(/%.f %:'% &)?!$,:',%&'*,$-)#',: %'##+%0j.#..#$%x%9: :'(&>3%ostk78 9-(/):'3% 0ossy7% +&*,&'2-&*/#*% ;#,"##'% ,"!% ,<?#*% !.% !$2:'&g:,&!': % #2&,&):(<z% &'*,&,-,&!': % :'+% *,$:,#2&(8% ['*,&,-,&!': % #2&,&):(<%&*%:%*#,%!.%(!'*,&,-,&h#%;# &#.*3%(,-$: %+#f'&,&!'*%,/:,%+#,#$)&'#%/!"%,/#%!$2:'&g:,&!'%"& % act. institutional legitimacy is an essential component of the cooperative network. this form of legitimacy helps to assure the participating stakeholders that the cooperative network has an existence that extends beyond the attainment of any particular task. strategic legitimacy is accomplished partly through the organization’s espousing goals that :$#%(!'*&*,#',%"&,/%2-&+&'2%?$&'(&? #*%:'+%?:$, <%,/$!-2/%&,*%!"'%h: -#%*<*,#)%0j.#..#$%x%9: :'(&>3%ostk78%9,$:,#2&(% legitimacy is externally focused as an operating resource to attain some desired outcome. in this respect, strategic #2&,&):(<% &*% ?-$?!*&h#3% (: (:,#+% :'+% .$#q-#', <% !??!*&,&!': 8% ['% ,/&*% &2/,3% h: -#% *&)& :$&,<% ;#,"##'% ,/#% .!(: % organization and stakeholders is not very important because the relationships are inherently low-trust and remote. accordingly, parties protect their interests through contracts, monitoring and the pursuit of legal remedies. \!'*&+#$&'2%a:$$&!%b!2:'3% ,/#%h: -#%(!'2$-#'(<%'#(#**:$<% .!$% &'*,&,-,&!': % #2&,&):(<% &*%#*,:; &*/#+% ,/$!-2/% *#h#$: %)#(/:'&*)*8%n&$*, <3%(!))!'%h: -#*%.!$%,/#%a:$$&!%b!2:'%?$!w#(,%#):':,#+%,/$!-2/%,/#%osuk%i!+# %\&,&#*% j$!2$:)%"/&(/%!h#$%,/#%<#:$*%#h! h#+%&',!%,/#%\&,<%!.%9:'%]&#2! *̂%_#'#$: %j :'8%p/& #%#h#$<%'#&2/;!$/!!+%/:*%,/#% e#d&;& &,<% ,!% &+#',&.<%:'+%+#f'#%:%+#h# !?)#',%? :'%,!%:++$#**% ,/#%-'&q-#%(!'(#$'*%!.%#:(/%'#&2/;!$/!!+3%#h#$<% '#&2/;!$/!!+% +#h# !?)#',% ?$!w#(,% &'% 9:'% ]&#2!% &*% 2-&+#+% ;<% ,/#% 9,$:,#2&(% n$:)#"!$>% \!$#% :̀ -#*% +#f'#+% &'% actors corresponding abbreviation boston redevelopment authority boston redevelopment authority mayor mayor oversite committee oversite committee project review committee project review committee roxbury neighborhood council roxbury neighborhood council merchant association merchants tenant organizations tenants religious organizations religious organizations human service organizations human services neighborhood organizations neighborhood organizations corporations corporations 2010, vol. 1, no. 1, 176-187 hill and frankforter 181 advances in business research 9:'%]&#2! *̂%2#'#$: %? :'8%9#(!'+ <3%*,:,#% :"%$#q-&$#*%,/:,%: %(&,&#*%&'%\: &.!$'&:%:+!?,%:%2#'#$: %plan to guide its future development. finally, value congruency among key stakeholders in barrio logan was further strengthened ;<% ,/#%#*,:; &*/)#',%!.%:%\!))-'&,<%j :''&'2%@**!(&:,&!'% &'%ost68%l/#%\!))-'&,<%j :''&'2%@**!(&:,&!'%"/!% created the development plan for barrio logan represents a broad cross section of residents and businesses in barrio logan. these stakeholders commissioned studies that were used to inform the development plan adopted in 1978. \!'*#q-#', <3% ,/#%>#<%*,:>#/! +#$%2$!-?*%"#$#% &'h! h#+% &'%+#f'&'2% ,/#%2!: *%:'+%?$&'(&? #*%:**!(&:,#+%"&,/% ,/#% current plan. key stakeholders in barrio logan community planning network perceive that key stakeholders have the same goals and principles. the key stakeholders in the roxbury network are united by common strategic goals, to redevelop the neighborhood providing housing and business opportunities. however, the criteria for success among key stakeholders varied *&2'&f(:', <8% a:*#+% !'% ?:*,% /&*,!$<3% ,/#% $#*&+#',*% !.% c!d;-$<% ;# &#h#+% ,/:,% (&,<% 2!h#$')#',% :'+% :$2#% ;-*&'#**% &',#$#*,*%+#*&$#+%,!%+&*? :(#%,/#)%,!%:(q-&$#%(/#:?% :'+%?$!d&): <% !(:,#+%,!%+!"',!"'8%l/#%(&,<%2!h#$')#',%:'+% large businesses worked together to create policies that addressed their interests to the exclusion of residents. mixed zoning laws encouraged apartment conversions to condominiums and construction of expensive homes. the residents of roxbury were interested in redevelopment; however, they wanted plans that emphasized affordable housing, building public schools, improved transportation, and economic development. this is an example of stakeholders having the same strategic goal, redevelopment, but different interpretations and values regarding its attainment. j$!?!*&,&!'%or%@(,!$*%&'%(!!?#$:,&h#%'#,"!$>*%"& %,#'+%,!%#d/&;&,%&'*,&,-,&!': %.!$)*%!.% #2&,&):(<%,!%!,/#$%:(,!$*% in their stakeholder network while actors in instrumental networks will tend to exhibit strategic forms of legitimacy to other actors in their stakeholder network. c#?-,:,&!'r%reputation is not an attribute, but a perception of the focal organization by other stakeholders in the '#,"!$>8%c#?-,:,&!'%&*%+#$&h#+%.$!)%&'.!$):,&!'%:((#**#+%,/$!-2/%!,/#$%$# :,&!'*/&?*8%c#?-,:,&!'%&*%+#f'#+%:*%,/#% summation of other actor’s perceptions and beliefs about the characteristics and behaviors of the focal organization 0a'!>#3%ossk78%c#?-,:,&!'%&*%,/#!$#,&(: <%&)?!$,:',%,!%:%*,:>#/! +#$%'#,"!$>%;#(:-*#%&,%?$!h&+#*%&'.!$):,&!'%:;!-,% a potential stakeholder partner in lieu of actual past experience with that organization. on an organizational level, $#?-,:,&!'%#'/:'(#*%,/#%2!!+"& %!.%!,/#$%!$2:'&g:,&!'*%,!":$+%,/#%.!(: %!$2:'&g:,&!'%&'%$!-2/%,&)#*8%b:$*#'%0oss47% !;*#$h#+% ,/#% "& &'2'#**% !.% !,/#$% !$2:'&g:,&!'*% ,!% :**&*,% :% ;-*&'#**% "/!*#% ?$!?#$,<% ":*% +#*,$!<#+% ;<% f$#8% l/#% business’ reputation assured the assisting organizations it would not be opportunistic, and would someday be in a position to reciprocate the favor. without past experience to go on, organizations in this network used reputation to predict risk associated with assisting the ailing focal organization. c#?-,:,&!'%/:*%),&? #%+&)#'*&!'*8%@((!$+&'2%,!%a'!>#%0ossk7%$#?-,:,&!'%(:'%;#%,/!-2/,%!.%&'%,#$)*%!.%&'e-#'(#3% the extent to which the actor is perceived as having the ability to get things done or to shape outcomes. reputation can also be conceptualized as the degree of ethical behavior exhibited by the organization during interaction with !,/#$*%&'%,/#%'#,"!$>8%l/-*3%$#?-,:,&!'%&*%:%*-$$!2:,#%.!$%q-: &,<%(!',$! 8%['%,#$)*%!.%#h: -:,&'2%?$!*?#(,*%.!$%'#"% membership, reputation is an effective screen for inappropriate members. for actors within barrio logan and roxbury stakeholder networks, past experience and sullied reputations were obstacles to overcome. actors in the barrio logan stakeholder network came to an understanding that cooperation ":*%,!%#h#$<!'# *̂%;#'#f,8%p/#'%&,%":*%:((#?,#+%,/:,%,/#%#d( -*&!'%:'+%)&*,$#:,)#',%!.%>#<%*,:>#/! +#$*%$#*,#+% in failed redevelopment, it led to a revised governance which was transparent, representative, and inclusive (barrio b!2:'%b:$;!$%o5or%\!))-'&,<%j :'3%ostk78%l/&*%&*%'!,%)#:',%,!%&)? <%:%-,!?&:8%]&*:2$##)#',%$#2:$+&'2%?$&!$&,&#*% and implementation still existed. however, unlike before, the disagreements were acknowledged and documented even if they are not acted on, maintaining the voice and contribution of all stakeholders. these norms enhance good reputations of actors in this network. instead of repairing reputations, actors in the roxbury stakeholder network accepted poor reputations as an unavoidable reality. interactions among actors in this stakeholder network were mediated by rules and procedures to keep other actors at arm’s length so that unethical treatment persisted. past injuries and injustices were not reconciled. instead, stakeholders remained vigilant, informed by the reputations of other stakeholder network actors. j$!?!*&,&!'%4r%@(,!$*% &'% (!!?#$:,&h#%'#,"!$>*%"& % ,#'+% ,!% :,,$&;-,#% 2!!+% $#?-,:,&!'*% ,!% !,/#$% :(,!$*% &'% ,/#&$% stakeholder network while actors in instrumental networks will tend to attribute poor reputations to other actors in their stakeholder network. 3$#!,0-1/20</%*=-1>%9$,:-.7%*+,-./ \!!?#$:,&h#% :'+% &'*,$-)#',: % *,:>#/! +#$% '#,"!$>*% h:$<% &'% ,$-*,% :'+% ?!"#$% $# :,&!'*/&?*8% c# :,&!'*/&?*% :)!'2% *,:>#/! +#$%'#,"!$>%)#);#$*%"& %&'e-#'(#%,/#%):''#$%&'%"/&(/%:'<%*&'2 #%!$2:'&g:,&!'%.-'(,&!'*%&'%,/#%'#,"!$>8%l/#% ':,-$#%!.%,/#%$# :,&!'*/&?*%&'e-#'(#*%,/#%.$#q-#'(<%:'+%,/#%q-: &,<%!.%&',#$:(,&!'*%;#,"##'%:(,!$*%&'%:%*,:>#/! +#$%'#,"!$>8% 2010, vol. 1, no. 1, 176-187 hill and frankforter 182 advances in business research l$-*,r% organizations must be careful to avoid relationships that will leave it vulnerable to opportunistic behavior. trust determines how stakeholder network members will respond to mitigate the risk involved in exposing vulnerabilities in the process of interacting with other stakeholder network members. we enter this discussion ;<%:(>'!" #+2&'2% ,/:,% ,/#%+#f'&,&!'%:'+%(!'(#?,-: &g:,&!'%!.% ,/#% ,$-*,% (!'*,$-(,%/:*%;##'%:'%# -*&h#% ,:*>% 0_& 3% a!&#*3%n&'#2:'3%x%i(c: <3%455yz%i:<#$3%]:h&*3%x%9(/!!$):'3%ossy78%l/#$#.!$#3%"#%;#2&'%,/#%#d:)&':,&!'%!.%,/#% &'e-#'(#%!.%,$-*,%$# :,&!'*/&?*%&'%(!!?#$:,&h#%:'+%&'*,$-)#',: %*,:>#/! +#$%'#,"!$>*%;<%+#f'&'2%,/#%,$-*,%(!'(#?,% and identifying the components of trust that are relevant to our model. ['%!-$%)!+# 3%"#%-*#%i:<#$%#,%: 8%0ossyrto47%+#f'&,&!'%!.%,$-*,%:*r%vd,/#%"& &'2'#**%!.%:%?:$,<%,!%;#%h'#$:; #% to another party based on the expectation that the other will perform a particular action important to the trustor &$$#*?#(,&h#%!.%,/#%:;& &,<%,!%)!'&,!$%!$%(!',$! %,/#%!,/#$%?:$,<8e%l/&*%+#f'&,&!'%: !"*%-*%,!%.!(-*%!'%,/#%$# :,&!': % :*?#(,*%!.%,$-*,%*#?:$:,#%.$!)%,/#%(!'(#?,%:*%:%q-: &,:,&h#%:,,$&;-,&!'8%@((!$+&'2 <%,/#%:,,$&;-,#*%!.%:;& &,<3%;#'#h! #'(#3% and integrity increase the likelihood of trust. however mayer and his colleagues very clearly point out that these attributes do not constitute trust. the behavioral manifestation of trust is the assumption of risk. factors that promote trust facilitate the behavioral manifestation of trust realized in risk-taking behavior. in *&,-:,&!'*%(/:$:(,#$&g#+%;<%,$-*,3%,/#$#%&*%:%/&2/% #h# %!.%(!'f+#'(#%,/:,%,/#%!,/#$%?:$,<%&'h! h#+%"& %;#/:h#%&'%:% (!!?#$:,&h#%):''#$8%l/#%:**-)?,&!'%!.% $&*>% &*%#:*&#$% &'% ,/&*%*&,-:,&!'8%\!'h#$*# <3% &'%*&,-:,&!'*%(/:$:(,#$&g#+%;<% +&*,$-*,3%,/#$#%&*%:%/&2/% #h# %!.%(!'f+#'(#%,/:,%,/#%!,/#$%?:$,<%"& %;#/:h#%!??!$,-'&*,&(: <3%#d? !&,&'2%h'#$:;& &,&#*% ,!%!'# *̂%+&*:+h:',:2#%0b#"&(>&3%i(@ &*,#$3%x%a&#*3%ossk78%l$-*,%?$!h&+#*%,/#%2 -#%,/:,%/! +*%$# :,&!'*/&?*%,!2#,/#$% in cooperative stakeholder networks. high levels of trust are demonstrated by stakeholder network members making themselves vulnerable to other members. this results in an absence of contracts and other monitoring processes. in instrumental stakeholder networks, low levels of trust necessitate interactions that function with the use of contracts and monitoring. \!)?:$&'2%:'+%(!',$:*,&'2%,/#%2!h#$':'(#%*,$-(,-$#%!.%,/#%a:$$&!%b!2:'%:'+%,/#%c!d;-$<%*,:>#/! +#$%'#,"!$>*% & -*,$:,#*%,/#%&)?:(,%!.%,$-*,%!'%$# :,&!'*/&?*%:)!'2%*,:>#/! +#$%:(,!$*8%a:$$&!%b!2:' *̂%\!))-'&,<%j :'%&*%2!h#$'#+% ;<% :% 9,:>#/! +#$% \!))&,,##8% l/#% *,:>#/! +#$% (!))&,,##% (!'*&*,*% !.% 4y% h!,&'2% )#);#$*% :'+% #&2/,% '!'fh!,&'2% )#);#$*% $#?$#*#',&'2%fh#% *,:>#/! +#$% 2$!-?*8%l/#% 4y% h!,&'2%)#);#$*% :$#% (/!*#'% ;<% :% ?!?:$% h!,#8%gh#$<!'#% eligible to vote is eligible to run for a seat on the stakeholder committee. the eight non-voting members are appointed to the committee by their organization. leadership and representation is accessible to all stakeholders involved in barrio logan. the process is simple, easy to understand, and few rules. the high level of trust that this process of popular vote indicates is represented by lines linking every actor of the barrio logan stakeholder network to each other in figure 1. there are risks involved with this approach to governance. if there is an imbalance of power, or unethical behavior, the integrity of the popular vote could be compromised. this could result in electing committee members that represent the interest of other stakeholder groups to the detriment of others. in order for this process to work, actors in the network have to be willing to take a risk and a leap of faith trusting that other actors will support the process, participating in good faith and acting with integrity. @ ,#$':,&h# <3%*,:>#/! +#$%'#,"!$>*%,/:,%:$#%(/:$:(,#$&g#+%;<% !"% #h# *%!.%,$-*,%$#q-&$#%.!$): &g#+%?$!(#**#*%:'+% oversight structures to facilitate actor’s willingness to interact with others in the network. roxbury’s governance structure and selection of representatives is more complex than barrio logan’s. residents of roxbury are less willing to be vulnerable to other stakeholders in their network. many community residents, however, believed that while !.,<3% ,/#% &+#: %? :''&'2%(!'(#?,*%+&+%'!,%:'*"#$% &?*!% .:(,!3% ,"!%;:*&(%q-#*,&!'*% .:(&'2%c!d;-$<% $#*&+#',*r%p/!% "!+%;#'#f,h%@'+%"/!%"!+%(!',$! %+#(&*&!'%):>&'2%$#2:$+&'2%,/#%:?? &(:,&!'%!.%,/#*#%&+#:*8 2010, vol. 1, no. 1, 176-187 hill and frankforter 183 advances in business research ?0>5.$%&'%?-.=!,0-1%@.-+$//%a-.%3-4"5.)%b!/,$.%@#!1%cd$./0>2,%e-==0,,$$ instead of a popular vote, various groups are asked to nominate candidates. these candidates are then screened by the neighborhood council. the neighborhood council advances 30 or more nominations to the mayor. the mayor appoints 15 members and a chair. from individual to committee there are three degrees of separation. in the barrio logan process, members of the community vote for representatives on the stakeholder committee directly. according ,!%1#''&'2*%045567%,/#%?$!,!(! %.!$%,/&*%?$!(#**%":*%/:$+%.!-2/,8%l/#%):<!$%:'+% !(: %2!h#$')#',%"#$#%:((-*,!)#+% to appointing their candidates to leadership positions in the planning process. a formalized structure like the one described was an attempt to ensure that the composition of the oversight committee represented the broadest crosssection of affected stakeholders as much as possible. high levels of distrust among actors in the roxbury stakeholder network made these procedures necessary to ensure cooperation. the lines drawn among actors in figure 2 represent both trust and power relationships. the position of the actors is important to note here. while in the barrio logan network actors are drawn in a circle and are connected to each other, in the roxbury stakeholder network, the proximity of actors to each other indicate the level of trust and the relative power of the organizations. the pockets of trust are indicated by the pockets of actors on opposing sides of the network. the voting procedures seem to indicate that members of groups1 and 2 would be inclined to trust each other and trust the oversight committee, the project $#h&#"%(!))&,,##%:'+%,/#%cc\8%i'%,/#%!,/#$%/:'+%,/#%a!*,!'%c#+#h# !?)#',%@-,/!$&,<3%\!$?!$:,&!'*3%:'+%,/#% !(: % 2!h#$')#',% ,/$!-2/%,/#%):<!$ *̂%!.f(#%"!+% ,$-*,%#:(/%!,/#$%:'+% ,/#%ih#$*&2/,%\!))&,,##3% ,/#%j$!w#(,%c#h&#"% (!))&,,##%:'+%,/#%cc\8%% trust is essential for stakeholders to maintain their position in a cooperative network. absent trust, stakeholder cooperation in any context will be short-lived and transitory. trust connects actors together in a cooperative network, while resource dependence is essential to the instrumental network. j$!?!*&,&!'%mr%b&2/% #h# *%!.%,$-*,%"& %,#'+%,!%;#%#d/&;&,#+%&'%(!!?#$:,&h#%*,:>#/! +#$%'#,"!$>*%:'+% !"%,$-*,%"& % tend to be exhibited in instrumental stakeholder networks. j!"#$r% %j!+! '<%x%j:2#% 0ossk7% *-22#*,% ,/:,% ,/#%?$&):$<% $#:*!'%!$2:'&g:,&!'*%)-*,% #',#$% &',!%: &:'(#*% &*% ,!% :(q-&$#%:((#**%,!%:%$#*!-$(#%,/:,%&*%#**#',&: %,!%&,*%*-((#**8%a:*#+%!'%$#*!-$(#%+#?#'+#'(#%,/#!$<%0j.#..#$%x%9: :'(&>3% ostk73%?!"#$% &'% ,/#%(!',#d,%!.% ,/#% *,:>#/! +#$%'#,"!$>% &*%+#,#$)&'#+%;<% ,/#%#d,#',% ,!%"/&(/%:'%:(,!$% (!',$! *% :% resource that other actors’ desire or need. powerful stakeholders can set the terms of the relationship with other *,:>#/! +#$*8%l/#<%:$#% :; #% ,!%+#f'#%:2#'+:*% :'+% *#,%?$&!$&,&#*% ,!% :++$#**% ,/#&$%'##+*% :'+%(!'(#$'*8%l$:+&,&!': % approaches to economic and community growth emerged from networks where power is concentrated or centralized among a few stakeholders. these approaches to economic development focused on the concerns of large business and industrial stakeholders to control labor costs, provide tax breaks and subsidies and to de-regulate. local governments in doing so act on a belief that the large and industrial business sector possesses the resources (job creation, tax $#h#'-#3%&'h#*,)#',7%,/:,%):>#%-$;:'%(#',#$*%,/$&h#%01#''&'2*3%455678%]#*?&,#%2!h#$':'(#%?$!(#**#*%,/:,%*##>%,!%;#% inclusive, power in roxbury’s stakeholder network is still concentrated in the local government who gets to make ,/#% f': % *# #(,&!'% !.% )#);#$*% ,!% *#$h#% !'% ,/#% !h#$*&2/,% (!))&,,##8% j!"#$% (!'(#',$:,&!'% &*% (/:$:(,#$&*,&(% !.% :'% instrumental stakeholder network. from the roxbury strategic master plan: building a 21st century community group 1 tenant organizations merchant associations neighborhood associations religious organizations human service organizations community development corporations corporate group 2 community at large and other stakeholders unlimited nominations at least 2 nominations from each category roxbury neighborhood council (rnc) & elected officials at least 30 nominations mayor appoints 15 members and chair roxbury strategic plan oversight committee 2010, vol. 1, no. 1, 176-187 hill and frankforter 184 advances in business research the smart growth paradigm seeks to diffuse power among network actors. planners for the barrio logan project recognized that centralization of decision making to the exclusion of other stakeholder groups resulted in failed attempts at redevelopment. in the community plan, planners state that the concentration of decision making to a few key stakeholders resulted in “…a lack of coordination between key government agencies that often work at cross !" #$%$&'()*#"(*)'%+%",-.(*)'#!-$(/%'#0'-.%("'-%""(-#"(12'2(3(-$4'561""(#'7#)1*'81"9#"':;:<'=#33!*(-,'>21*&':?@a<' ?bc'>1$-'01(2!"%$'3#-(+1-%/'-.%'/%d%*-"12(e1-(#*'#0' #f%"'(*'-f#'$()*(gd1*-'f1,$c'h.%'g"$-<'1*'1--%3 -'f#!2/'9%'31/%' -#')(+%'+#(d%'-#'122'100%d-%/'$-1i%.#2/%"')"#! $'(*' 21**(*)'/%d($(#*$c'h.%'$%d#*/<'"% "%$%*-1-(#*'#*'-.%'$-1i%.#2/%"' committee represented the proportion of that constituency in barrio logan. for example, barrio logan residents had -.%'3#$-'+#-(*)'3%39%"$'#*'-.%'j-1i%.#2/%"'=#33(--%%'0#22#f%/'9,'k#*l>"#g-$'1*/'=#33!*(-,'m")1*(e1-(#*$&' 1*/'6!$(*%$$'1*/'n*/!$-",&'f(-.'k#*lo%$(/%*-'>"# %"-,'mf*%"$'.1+(*)'-.%'0%f%$-'+#-%$'561""(#'7#)1*'=#33!*(-,' >21*'p /1-%&'q;;?bc'n*'-.($'31**%"&'-.%'(*r!%*d%'(*'/%d($(#*$'f1$'*#-' "(31"(2,'/%d(/%/'9,'-.%'13#!*-'#0'31-%"(12' resources that a stakeholder could bring to the table. the decentralization of power in the barrio logan stakeholder network is represented by the circular structure of the network and the bi-directional lines emanating from each node to the other. in the roxbury network, power is centralized in the oversight committee, project review committee and -.%'o#s9!",'k%().9#".##/'=#!*d(2c'h.($'($'/%3#*$-"1-%/'9,'-.%' #$(-(#*'#0'-.%$%'1d-#"$'"%21-(+%'-#'-.%'#-.%"$c'h.%$%' actors are a bridge from the community stakeholder groups to the government and corporate stakeholder groups. in -.($'d1 1d(-,'-.%'#+%"$().-'d#33(--%%&' "#t%d-'"%+(%f'd#33(--%%'1*/'-.%'ok='.1+%'(*r!%*d%'#*'122'#0'-.%'*%-f#"i' 1d-#"$'1$'1'd2%1"(*).#!$%'0#"'(/%1$&'g*12'/%d($(#*$&'1*/'(3 2%3%*-1-(#*'#0'$-"1-%),c' >"# #$(-(#*'u<'>#f%"'-%*/$'-#'9%'/%d%*-"12(e%/'(*'d## %"1-(+%'$-1i%.#2/%"'*%-f#"i$&'1*/'d%*-"12(e%/'(*'(*$-"!3%*-12' stakeholder networks. !"#$!#"%&'(&)%!*'"+&,%-.!/'012/31 v%' "# #$%' -.1-' -.%' (*-%*$(-,'#0' -.%' "%21-(#*$.( $'13#*)'*%-f#"i'1d-#"$' (*r!%*d%'9%.1+(#"$'#0'#")1*(e1-(#*$' embedded in the network. intensity of relationship among network actors is a product of the number of relationships between dyads of actors and the degree to which actors in the network interact with each other. multiplexity occurs when actors have two or more relationships with other network actors. there may be more than economic reasons for 1'g"3'-#'%*-%"'1' 1"-*%"$.( c'h.%'3#"%'-, %$'#0'"%21-(#*$.( $'1d-#"$'1"%'(*+#2+%/'(*&'-.%'.().%"'-.%'d#$-'#0'9%.1+(*)' !*%-.(d122,'56"1$$&'6!--%"g%2/&'w'ji1))$&':??abc'x!"-.%"3#"%&'.1+(*)'3!2-( 2%'"%21-(#*$.( $'"%(*0#"d%$'-.%'$-"%*)-.' #0'-(%$'13#*)'#-.%"'$-1i%.#2/%"' 1"-*%"$'58!$-%/&':??ubc' y!2-( 2%s(-,<'actors in the barrio logan stakeholder network interact with each for reasons other than the realization of the redevelopment plan. business owners interact with residents as customers and employees as well as 3%39%"$'#0'-.%' 21**(*)'d#33(--%%c'k#*l "#g-'#")1*(e1-(#*$'(*-%"1d-'f(-.'9!$(*%$$%$'1$' 1-"#*$'1*/'d2(%*-$'1$'f%22' as members of the planning committee. multiple relationships with stakeholder actors increases the importance of that relationship, as harm to the relationship in one context the planning project could harm the relationship in other contexts, as customers, employees, or clients. the increased complexity of the relationships discourages unethical -"%1-3%*-' #0' #-.%"' *%-f#"i' 1d-#"$c'zdd#"/(*)' -#' [%**(*)$' 5q;;ub' 1' #(*-' #0' d#*-%*-(#*'f1$' -.%' #*%'/(3%*$(#*12' \!12(-,'#0'"%21-(#*$.( $'13#*)'1d-#"$'(*'-.%'o#s9!",'$-1i%.#2/%"'*%-f#"ic'x#"'%s13 2%&'"%$(/%*-$'d#3 21(*%/'-.1-'-.%' city provided incentives to encourage large businesses to move in that did not offer jobs that residents could compete for with their current level of education and skills. as a result large business stakeholders saw the relationship with "%$(/%*-$'1$'1'3%1*$'5#"' #$$(92,&'#9$-1d2%b'-#'-.%("'/%+%2# 3%*-'%*/$'(*$-%1/'#0'1$'1'"(d.'(*-%"1d-(#*'-.1-' "#+(/%/' a context for multiple relationships. lack of interest on the part of large business was noted by their absence in d#33!*(-,'1*/'*%().9#".##/'3%%-(*)$'5[%**(*)$&'q;;ubc'o%12'%$-1-%'/%+%2# %"$' !$.%/' "#t%d-$'0#"'.#!$(*)'-.1-' current residents could not afford and commercial projects that would push leases to rents that current small business owners could not afford. in this manner roxbury relationships with roxbury residents and small business owners were only sought as it related to redevelopment. >"# #$(-(#*']<'o%21-(#*$.( $'(*'d## %"1-(+%'*%-f#"i$'1"%'3#"%'2(i%2,'-#'9%'3!2-(l/(3%*$(#*12'-.1*'"%21-(#*$.( $' in instrumental networks. ^%*$(-,<''^%*$(-,'($'1'$#d(12'*%-f#"i'3%1$!"%'-.1-'(/%*-(g%$'-.%'/%)"%%'-#'f.(d.'3%39%"$'#0'1'*%-f#"i'(*-%"1d-' with each other. a dense network is characterized by strong ties among all its members. a network is dense to the degree that all actors have relationships with each other. a network is sparse if actors are not well connected with each other. high levels of interconnectedness among stakeholder partners reduce the need for costly legal forms of network governance. instead the high level of density in the stakeholder network creates a macro-culture where stakeholder partners have similar values, norms, and thus experience a relationship characterized by high levels #0'-"!$-'5[#*%$&'8%$-%"2,&'w'6#")1--(&':??@bc'^%*$(-,'(*d"%1$%$'-.%'2%+%2'#0'-"!$-'1$'i*#f2%/)%'#0'#-.%"'$-1i%.#2/%"' partners which comes through interactions with them, increases the amount of information, and reduces the amount 2010, vol. 1, no. 1, 176-187 hill and frankforter 185 advances in business research #0'139()!(-,'"%)1"/(*)'-.%'$-1i%.#2/%"' 1"-*%"_$'9%.1+(#"'56!"-'w'`*%e&':??]bc'p*%-.(d12'9%.1+(#"'($'3#$-'2(i%2,'-#' #dd!"'f.%"%'"%21-(#*$.( $'1"%'19$%*-'13#*)'3%39%"$'56"1$$'%-'12c&':??abc' density ensures monitoring because members are passively informed about the activity of other members -."#!).'-.%("'"#!-(*%'(*-%"1d-(#*$c'n*'-.%'%+%*-'#0'!*%-.(d12'9%.1+(#"'#*'-.%' 1"-'#0'1'3%39%"&'#-.%"'3%39%"$'\!(di2,' 2%1"*'19#!-' -.%'9"%1d.'9%d1!$%'#0' 0"%\!%*-' (*-%"1d-(#*$c'^%*$%'*%-f#"i$' "#/!d%' $-"#*)'d#*$-"1(*-$'#*' -.%' 0#d12' #")1*(e1-(#*_$' 1d-(#*$' 9%d1!$%' 1$' 2(*i1)%$' 3!2-( 2,&' d#33!*(d1-(#*' d"#$$' -.%' *%-f#"i' 9%d#3%$' 3#"%' %0gd(%*-' 5o#f2%,&':??@bc'z'd#*$%\!%*d%'#0' -.($' ($' -.%'-"1*$0%"'#0'g*%l)"1(*%/'(*0#"31-(#*c'z$'1'"%$!2-&' -.%'*%%/'0#"'#+%"-' monitoring to ensure compliance with agreed-upon actions ebbs away. while information about stakeholder partners is increased through higher density, high levels of interconnectedness 12$#' "%$%*-' "#92%3$'0#"'-.%'r#f'1*/'1dd!"1d,'#0'(*0#"31-(#*'13#*)'$-1i%.#2/%"' 1"-*%"$c'6!"-'w'`*%e'5:??]b' contend that information about a network member is attenuated by the other members of the network. that is, a $-1i%.#2/%"_$' %"d% -(#*'#0'1*#-.%"'$-1i%.#2/%"' 1"-*%"'($'(*r!%*d%/'9,'-.%' %"d% -(#*'#0'#-.%"'$-1i%.#2/%"'*%-f#"i' 3%39%"$c'a#$$( ' #$(-(+%2,'#"'*%)1-(+%2,'(*r!%*d%$'-.%'1$$%$$3%*-'#0'1'$-1i%.#2/%"'*%-f#"i'3%39%"c'8().'2%+%2$' #0'/%*$(-,'31i%'-.%'9%.1+(#"'#0'$-1i%.#2/%"' 1"-*%"$'3#"%'-"1*$ 1"%*-&'31i(*)'(-'3#"%'/(0gd!2-'-#'d#*d%12'!*%-.(d12' behavior. unethical behavior in a dense network leads to strict sanctions, loss of legitimacy among other stakeholder network members, and even expulsion from the network. density is important in the stakeholder network because it provides information about the behavior of partnered stakeholders, decreasing the probability of opportunistic behavior. n*' /%*$%' $-"!d-!"%$&' *#"3$' 1"%' /(00!$%/' 1d"#$$' -.%' *%-f#"i' 5y%,%"' w' o#f1*&' :?@@b' m2(+%"&' :??:bc' ^%*$(-,' (*d"%1$%$'d#*$-"1(*-$c'n-'12$#'31i%$'(-'/(0gd!2-'0#"'#")1*(e1-(#*$'-#'d#*d%12'(*0#"31-(#*c'n*d"%1$(*)'/%*$(-,'2%1/$'-#' 1*'(*d"%1$%'(*'-.%'*!39%"'#0'(*-%"l#")1*(e1-(#*12'2(*i1)%$&'2%1/(*)'-#')"%1-%"'d#33!*(d1-(#*'%0gd(%*d,c' >"# #$(-(#*'c<'=## %"1-(+%'$-1i%.#2/%"'*%-f#"i$'1"%'d.1"1d-%"(e%/'9,'.().'/%*$(-,'#0'"%21-(#*$.( $'13#*)'1d-#"$&' instrumental stakeholder networks are characterized by low density of relationships among actors. 45)467 85) =!""%*-' d#*d% -!12(e1-(#*$' #0' 31*1)(*)' "%21-(#*$.( $' 13#*)' $-1i%.#2/%"$' /#' *#-' 0!22,' (*-%)"1-%' -.%#"%-(d12' insights regarding the importance of social context in driving socially responsible behavior. an application of network theory to the stakeholder model advances current thinking by providing a dynamic framework explaining 01d-#"$' -.1-'d#*-"(9!-%' -#'.#f'#")1*(e1-(#*_$'/%g*%'1'$-"1-%),'-#'1--%*/(*)'-#'$-1i%.#2/%"'*%%/$c'h.($'1 2(d1-(#*' of network theory to the stakeholder model incorporates insight from the rich body of research conducted in both literatures. building from this rich tradition, we have provided a framework that describes the process of forging 1*/'31(*-1(*(*)'"%21-(#*$.( $'-.1-'(*r!%*d%'f.%-.%"'#"'*#-'$-1i%.#2/%"$'f(22'f#"i'-#)%-.%"'-#'3%%-'-.%("'(*/(+(/!12' *%%/$c' h.%' $-1i%.#2/%"' *%-f#"i' 1//"%$$%$' -.%#"%-(d12' ($$!%$' #0' .#f' $-1i%.#2/%"' 1"-*%"$' 1"%' (/%*-(g%/&' f.1-' "%21-(#*$.( $'1d-#"$'%*)1)%'(*'1*/'.#f'-.%'$-"!d-!"%'#0'-.#$%'"%21-(#*$.( $'(*r!%*d%$'-.%'$-"1-%)(%$'-.1-'1"%'!$%/'-#' address stakeholder concerns as well as the likelihood that stakeholder partners will behave opportunistically. =## %"1-(+%'*%-f#"i$'%*t#,'1//%/'%0gd(%*d,'1*/'%00%d-(+%*%$$c'[#*%$'5:??]b'1")!%$'-.1-'2#*)l-%"3'"%21-(#*$.( $' with stakeholders will outperform competitive arrangements. the examples of urban redevelopment projects presented in this paper demonstrate that mutual adjustment occurs as stakeholders develop complex multi/(3%*$(#*12'"%21-(#*$.( $'-.1-'%*d#!"1)%'9121*d%'#0' #f%"&'-"!$-&'+12!%'d#*)"!%*d,&'1*/'0"%\!%*-'(*-%"1d-(#*$c'm!"' model attempts to describe how organization’s behavior is shaped under conditions of cooperation in the cooperative stakeholder network and opportunism in instrumental stakeholder networks. additionally, it examines the impacts of stakeholder attributes, relationships and network structure simultaneously. the primary limitation of this model is that it is limited to description of boundary conditions, networks that are primarily cooperative and those that are primarily instrumental. many networks will be hybrids exhibiting elements of both. within a network that is "(31"(2,'(*$-"!3%*-12&'-.%"%'31,'9%' #di%-$'#0'd## %"1-(#*'13#*)'1d-#"$'f.#'-"!$-'%1d.'#-.%"&'1"%'%\!12'(*' #f%"&' $.1"%' "(*d( 2%$&' "%)1"/' %1d.' #-.%"'f%22&' 1*/' (*-%"1d-'f(-.' %1d.' #-.%"' 0"%\!%*-2,c'=#*+%"$%2,'f(-.(*' d## %"1-(+%' *%-f#"i$'-.%"%'31,'9%' #di%-$'#0'# #"-!*($3'13#*)'1d-#"$'f.#'/#*_-'-"!$-'%1d.'#-.%"&'!*%\!12'(*' #f%"&'/#*_-' $.1"%'#"'1di*#f2%/)%' "(*d( 2%$&'-.(*i' ##"2,'#0'%1d.'#-.%"'1*/'(*-%"1d-'f(-.'%1d.'#-.%"'(*0"%\!%*-2,c'm!"'3#/%2'($' less helpful in describing how organizations behave under these conditions. we suggest four areas for future research. first, to test the propositions proposed in this paper, a case study of two urban development projects should be used to illustrate the propositions proposed here. an empirical test of the propositions would yield more insight. second, to continue to advance stakeholder typologies that offer predictive +12!%c' h.("/&' -#' d#*-(*!%' -.%' /%+%2# 3%*-' #0' 3#/%2$' -.1-' 0!"-.%"' "%g*%$' 1*' 1*12,$($' #0' "%21-(#*$.( $' 9%-f%%*' corporation and stakeholders. and last, to undertake the ambitious task of formulating a workable stakeholder theory #0'-.%'g"3c' 2010, vol. 1, no. 1, 176-187 hill and frankforter 186 advances in business research ,9:9,9)49 61""(#'7#)1*'81"9#"':;:<'community planc':?@ac'n*'>c'^% 1"-3%*-'5d/cb&'=(-,'#0'j1*'^(%)#<'=zc ;.""/'& 6'<.0& 4'==#0/!>& ?-.0& 73@.!%a& b!!.$2=%0!& bc' y1"d.&' q;;?c' .-<eefffc$1*/(%)#c)#+e 21**(*)e' 91""(#2#)1*! /1-%e'$-1i%.#2/%"e /0e$-1i%.#2/%"$d#3 #$(-(#*g*12c /0 ;.""/'&6'<.0&/0& .0&c/%<'c'q;;;c'.-<ee.($-#",c$1*/(%)#c%/!eadke "#t%d-$e:@ae91""(#2#)1*;;c.-3 6"1$$&'^c&'6!--%"g%2/&'`c&'w'ji1))$&'6c':??ac'o%21-(#*$.( $'1*/'!*%-.(d12'9%.1+(#"<'z'$#d(12'*%-f#"i' %"$ %d-(+%c' academy of management review&'qf<':ulf:c burt, r., & knez, m. 1995. kinds of third-party effects on trust. rationality and society&'@<'q]]lq?qc ^%2)1/#&'`c':??ac'z'h!"*(*)' #(*-<'h.%'d#*d% -(#*'1*/' "%12(e1-(#*'#0'=.(d1*#'>1"ic'd2%&e'#"0.-&'(& .0&c/%<'& f/1!'">&'uu<':qc ^"($d#22&'=c&'w'j-1"(i&'yc'q;;uc'h.%' "(3#"/(12'$-1i%.#2/%"<'z/+1*d(*)'-.%'d#*d% -!12'd#*$(/%"1-(#*'#0'$-1i%.#2/%"' status for the natural environment. e'#"0.-&'(&;#1/0%11&9!2/$1&'u?<']]l@fc 9?bc'k#+%39%"':?&'q;;ac'61""(#'7#)1*&'j1*'^(%)#&'=zc'j31"-'a"#f-.'n22!$-"1-%/c freeman, r. 1984. !".!%</$&=.0.<%=%0!a&b&1!.+%2'-@%"&.33"'.$2c'd*)2%f##/'=2(00$<'>"%*-(d%l8122c a(22&'8c&'6#(%$&'`c&'x(*%)1*&'[c&'w'ydk122,&'[c'q;;]c'z*-%d%/%*-$'#0'-"!$-<'d$-192($.(*)'1'9#!*/1",'d#*/(-(#*'0#"'-.%' relation between propensity to trust and intention to trust. journal of business and psychology&':?<'qa@lf;qc 8!$-%/&'6c' :??uc'h"1*$1d-(#*' d#$-$&' *#"3$&' 1*/' $#d(12' *%-f#"i$<'z' "%2(3(*1",' $-!/,'#0' d## %"1-(#*' (*' (*/!$-"(12' buyer-seller relationships in the united states and mexico. ;#1/0%11&g& '$/%!>&'ff<'f;l]ac jennings, j. 2004. urban planning, community participation, and the roxbury master plan in boston. the annuls of the american academy of political and social sciencec']?u<':qlffc [#*%$&'=c&'8%$-%"2,&'vc&'w'6#")1--(&'jc':??@c'z')%*%"12'-.%#",'#0'*%-f#"i')#+%"*1*d%<'dsd.1*)%'d#*/(-(#*$'1*/'$#d(12' mechanisms. academy of management review&'qq<'?::l?ucc [#*%$&'hc':??]c' n*$-"!3%*-12'$-1i%.#2/%"' -.%#",<'z'$,*-.%$($'#0'%-.(d$'1*/'%d#*#3(d$c'academy of management review&'q;<'u;uluf@c `*#i%&'^c':??ac'v.#'$-%12$'3,' !"$%'$-%12$'-"1$.<'h.%'$-"!d-!"%'#0'#")1*(e1-(#*12'(*r!%*d%'"% !-1-(#*c'journal of theoretical politics&':;<'];@l]f;c 71"$%*&' zc' :??qc' k%-f#"i' /,1/$' (*' %*-"% "%*%!"(12' $%--(*)$<' z' $-!/,' #0' )#+%"*1*d%' %sd.1*)%' "%21-(#*$.( $c' administrative science quarterly&'ff<'fu]lfc?c 7%f(di(&' oc&' ydz22($-%"&' ^c&' w' 6(%$&' oc' :??ac' h"!$-' 1*/' /($-"!$-<' k%f' "%21-(#*$.( $' 1*/' "%12(-(%$c'academy of management review&'qf<'ufalu]@c markovsky, b., willer, d., & patton, t. 1988. power relations in exchange networks. american sociological review, ]f<'qq;lqfcc maurer, j. 1971. ,%.@/0<1&/0&'"<.0/h.!/'0.-&!2%'">a&53%0&1>1!%=&.33"'.$2%1c'k%f'g#"i<'o1*/#3'8#!$%c mayer, r., davis, j., & schoorman, f. 1995. an integrative model of organizational trust. academy of management review&'q;<'@;?l@fuc y%,%"&'[c&'w'o#f1*&'6c':?@@c'n*$-(-!-(#*12(e%/'#")1*(e1-(#*$<'x#"312'$-"!d-!"%'1$'3,-.'1*/'d%"%3#*,c'american journal of sociology&'af<'fu;lfcfc 2010, vol. 1, no. 1, 176-187 hill and frankforter 187 advances in business research y(-d.%22&'oc&'z)2%&'6c&'w'v##/&'^c':??@c'h#f1"/'1'-.%#",'#0'$-1i%.#2/%"'(/%*-(gd1-(#*'1*/'$12(%*d%<'^%g*(*)'-.%' principle of who and what really counts. academy of management review&'qq<'a]flaacc k%+(22%&'6c&'w'y%*)!d&'6c' q;;cc' j-1i%.#2/%"'y!2-( 2(d(-,<'h#f1"/' 1*' !*/%"$-1*/(*)' #0' -.%' (*-%"1d-(#*$' 9%-f%%*' stakeholders. e'#"0.-&'(&;#1/0%11&9!2/$1&'cc<'f@@lf?:c' m2(+%"&'=c':??:c'j-"1-%)(d'"%$ #*$%$'-#'(*$-(-!-(#*12' "#d%$$%$c'academy of management review&':c<':u]l:@?c parsons, t. 1960. structure and processes in modern societiesc'k%f'g#"i<'v(2%,c pfeffer, j., & salancik, g. 1978. d2%&%i!%"0.-&$'0!"'-&'(&'"<.0/h.!/'01a&b&"%1'#"$%&@%3%0@%0$%&3%"13%$!/j%. new g#"i<'81" %"'w'o#fc >.(22( $&' oc' :??ac' k#"31-(+%' $-1i%.#2/%"' -.%#",<' h#f1"/' 1' d#*d% -(#*' #0' $-1i%.#2/%"' 2%)(-(31d,c' academy of management proceedings, d1-d6. podolny, j., & page, k. 1998. network forms of organization. annual review of sociology&'qu<']@l@@c quinn, d., & jones, t. 1995. an agent morality view of business policy. academy of management review, q;<'qqluqc o#f2%,&'hc':??@c'y#+(*)'9%,#*/'/,1/(d'-(%$<'z'*%-f#"i'-.%#",'#0'$-1i%.#2/%"'(*r!%*d%$c'academy of management review&'qq<'aa@l?:;c o#f2%,&'hc&'w'y#2/#+%1*!&'yc'q;;fc'v.%*'f(22'$-1i%.#2/%"')"#! $'1d-h'z*'(*-%"%$-l'1*/'(/%*-(-,l91$%/'3#/%2'#0' stakeholder group mobilization. academy of management review&'qa<'q;ulq:?c j!d.31*&'yc':??]c'y1*1)(*)'2%)(-(31d,<'j-"1-%)(d'1*/'(*$-(-!-(#*12'1 "#1d.%$c'academy of management review, q;<']@:lc:;c pee(&'6c':??@c'j#d(12'$-"!d-!"%'1*/'d#3 %-(-(#*'(*'(*-%"g"3'*%-f#"i$<'-.%' 1"1/#s'#0'%39%//%/*%$$c'administrative science quarterly&'uq<'f]lcac v(di$&'zc&'6%"31*&'jc&'w'[#*%$&'hc':???c'h.%'$-"!d-!"%'#0'# -(312'-"!$-<'y#"12'1*/'$-"1-%)(d'(3 2(d1-(#*$c'academy of management review&'qu<'??l::cc' k.0%11.&f/--&is an assistant professor of management at the university of louisiana, lafayette. she holds the j.j. 6!"/(*&'yc^c'w'8%2%*'6c'6!"/(*'56mojxb' "#0%$$#"$.( '#0' "#0%$$(#*12'%-.(d$c'j.%'"%d%(+%/'.%"'>.c^c'0"#3'=1"*%)(%' mellon university. her research interests include corporate social responsibility, ethical leadership, organizational culture, and workplace diversity. steven frankforter is a professor of management at winthrop university. he received his phd at the university of washington. he has taught business policy, business & society, entrepreneurship, and accounting. his research (*-%"%$-$'1"%'(*'$-%f1"/$.( '-.%#",&'$-1i%.#2/%"'31*1)%3%*-&'3%")%"$'1*/'1d\!($(-(#*$&'%3#-(#*12'(*-%22()%*d%&'1*/' diversity management. 2010, vol. 1, no. 1, 176-187 hill and frankforter uafs abr journal vol 4 no 1 2013.pdf 24 karim, jiang, and suh advances in business research 2013, vol. 4, no. 1, 24-42 corporate social responsibility in the oil industry: a comparison of the csr disclosure behavior in bp and cnpc khondkar karim, university of massachusetts lowell yu jiang, university of glasgow sanghyun suh, university of massachusetts lowell in this paper, we discuss the corporate social responsibility (csr) activities in uk and china by exploring the main differences of the csr disclosure behavior between british petroleum (bp) and china national petroleum corporation (cnpc). we find that the csr disclosure reporting of cnpc needs to be improved in many aspects such as the disclosure form, the disclosure content quality, and the negative information disclosure, compared to that of bp. the lack of cnpc’s csr disclosure could be attributed to poor csr awareness of the public and companies in china, the inexperienced csr development in china, and the defective legislation of chinese laws and regulations on csr reporting. introduction and background corporate social responsibility (csr) is an idea that can be traced back to a long time ago, but is just beginning to gain the attention of the public. according to the world business council for sustainable development (2000), csr is defined as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce.” european commission (2001) regarded csr as an option for a company to voluntarily contribute to a better society and cleaner environment. the main direct incentive for the development of csr and environmental accounting was the global environmental degradation phenomena (dierkes and preston, 1977). it is issues such as global warming, climate change, and marine pollution that have contributed to social attention being paid on the quality of air and water. jones (2010) states that it is the behavior of human beings, particularly in an industrial setting, that have had a significant impact on the environment. although all employees should be aware of their corporate social responsibility, it is especially important that individuals in the oil industry are aware of their responsibility due to the fact that the oil industry is one of the most representative industries having close relations with these environmental issues (korte and boedefeld, 1978). as bp determined (bp plc., 2011b) oil and gas are the main sources of energy, and both play a significant role in meeting the global growing energy demand. based on imf forecast a 50% rise of oil prices would reduce global output by 1.25% (international energy agency, 2012). however, in spite of the importance of oil industry, the disastrous accidents that happened within this industry in recent years should also be emphasized. these incidents include the deepwater horizon accident in gulf of mexico in 2010, and the recent nigeria oil spill in 2011. considering the baneful results of these environmental crises (jones, 2010), leaders in the oil industry like british petroleum (bp) and china national petroleum corporation (cnpc), have an obligation to address the environmental and social damage. based on their highly representative roles in the oil industry, bp and cnpc’s csr disclosure behavior could have a profound guiding influence on the whole industry. bp expresses its desire to diversify into sustainable, greener energy. but the scale of the spill and the seeming inability of the government to staunch the flow without bp's aid have provided a stark reminder of the power that big oil still holds over national politics and the fate of entire communities that live in its shadow. cases on bp’s csr are rare in academic literature. gulbrandsen and moe (2007) have studied the company’s csr activities in azerbaijan, noting that the state has taken steps to bring in oil revenue transparency. they conclude that bp’s laudable effort to bring in holistic development may be undermined by the host government’s policies and ‘lack of commitment to developing democratic and accountable political institutions. thus there is a gap in the literature for research on csr by oil and mining companies. cnpc is one of the world’s largest oil companies and currently has about 130 23 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 appendix a: university dashboards: rockport university & whitmore university (ay 2011-2012) entering freshman class rockport university whitmore university sector private not-for profit; coed public; coed carnegie classification master's colleges and universities (larger programs) master's colleges and universities (larger programs) campus setting urban; large city: midwest east religious affiliation roman catholic na ug & graduate degrees 50 67 class size 24 24 on campus housing yes yes bus school accreditation aacsb aacsb ftes 2291 6170 ug fte 1740 5029 gr fte 551 1141 % male 39% 33% % female 61% 57% fte faculty 132 286 student-faculty ratio 12 :1 14:1 ug tuition $27,700 $13,026 in state $24,276 out of state room & board $8060 $7258 % 1st time students receiving grants 99% average $21,000 96% average $9,018 average age 18-24 18-24 22 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 her ph.d. in higher education administration from university of pittsburgh in pittsburgh. her research interests include student professional development, business communications, and emotional intelligence. anna lampe is an executive professor of management at rockhurst university in kansas city, mo. she received her ph.d. in urban leadership & policy studies and education. her research interests include psychological type, corporate culture, and organizational behavior. steven frankforter is a professor of management and associate dean for winthrop university’s college of business administration. he received his ph.d. in management from university of washington in seattle. his research interests include corporate governance, agency theory, stewardship theory, and emotional intelligence. 21 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 horn, j. 1965. fluid and crystallized intelligence: a factor analytic study of the structure among primary mental abilities. dissertation, (no. 65-7113). ann arbor, mi: university microfilms international. judge, t., colbert, a., & ilies, r. 2004. intelligence and leadership: a quantitative review and test of theoretical propositions. journal of applied psychology, 89(3): 54-552. lam, l., & kirby, s. 2002. is emotional intelligence an advantage? an exploration of the impact of emotional and general intelligence on individual performance. journal of social psychology, 142(1): 133-143. leeper, r. 1948. a motivational theory of emotion to replace emotion as disorganized response. psychological review, 55(1): 5-21. low, g., lomax, a., jackson, m., & nelson, d. 2004. emotional intelligence: a new student model. a paper presented at the national conference of the american college personnel association. philadelphia, pennsylvania. matthews, g., zeidner, m., & roberts, r. 2002. emotional intelligence: science and myth. cambridge, ma: mit press. mayer, j., & salovey, p. 1997. what is emotional intelligence: in p. salovey, & d. sluyter (eds.), emotional development and emotional intelligence: implications for educators. (pp. 3-31). new york, ny: basic books. mayer, j., caruso, d., & salovey, p. 2000a. selecting a measure of emotional intelligence: the case for ability scales. in r. bar-on & j. d. a. parker (eds.), the handbook of emotional intelligence: theory, development, assessment, and application at home, school, and in the workplace. (pp. 320-342). san francisco, ca: jossey-bass. mayer, j., salovey, p. caruso, d., & sitarenios, g. 2003. measuring emotional intelligence with the msceit v2.0. emotion, 3(1): 97-105. paek, e. 2006. religiosity and perceived emotional intelligence among christians. personality and individual differences, 41 (3): 479–490. salovey, p., & mayer, j. 1990. emotional intelligence. imagination, cognition and personality, 9(3): 185-211. shivpuri, s., & kim b. 2004. do employers and colleges see eye-to-eye? college student development and assessment. nace journal, 65(1): 37-44. thorndike, r., & stein s. 1937. an evaluation of the attempts to measure social intelligence. psychological bulletin, 34: 275-284. tischler, l, biberman, j., & mckeage, r. 2002. linking emotional intelligence, spirituality and workplace performance: definitions, models and ideas for research. journal of managerial psychology, 17(3): 203. wilding, c. 2007. emotional intelligence. london: mcgrawhill. barbara burgess-wilkerson is an associate professor of management and director of student professional development for winthrop university’s college of business administration. she received 20 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 antonakis, j. 2003. why “emotional intelligence” does not predict leadership effectiveness: a comment on prati, douglas, ferris, ammeter, and buckley. international journal of organizational analysis, 11(4): 355-361. bar-on, r. 1997. the bar-on emotional quotient inventory (eq-i): a test of emotional intelligence. toronto, canada: multi-health systems. bar-on, r. 2002. the bar-on emotional quotient inventory short technical manual. toronto, canada: multi-health systems. bar-on, r. 2005. the impact of emotional intelligence on subjective well-being. perspectives in education, 23(2): 4-61. bay, d., & mckeage, k. 2006. emotional intelligence in undergraduate accounting students: preliminary assessment. accounting education: an international journal, 15(4): 439-454. boyatzis, r., stubbs, e., & taylor, s. 2002. learning cognitive and emotional intelligence competencies through graduate management education. academy of management learning and education, 1(2): 150-162. burgess-wilkerson, b., benson, k., & frankforter, s. 2010. does feedback increase students' emotional intelligence? advances in business research, 1(1): 133-141. carroll, j. 1993. human cognitive abilities: a survey of factor analytic studies. new york: cambridge university press. cattell, r. 1963. theory of fluid and crystallized intelligence: a critical experiment. journal of educational psychology, 54(1): 1-22. cherniss, c. 2000. social and emotional competence in the workplace. in r. bar-on & j. parker (eds.), the handbook of emotional intelligence (pp 433-458). california: jossey-bass. cherniss, c., & adler, m. 2000. promoting emotional intelligence in organizations. alexandria, va: astd press.2. chickering, a. 1969. education and identity. san francisco: jossey-bass. gardner, h. 1983. frames of mind: the theory of multiple intelligences. new york: basic books. gerdes, h., & mallinckrodt, b. 1994. emotional, social, and academic adjustment of college students: a longitudinal study of retention. journal of counseling & development, 72(3): 281-288. goleman, d. 2007. destructive emotions. new york: bantam books. goleman, d. 2006. social intelligence. new york: bantam books. goleman, d. 1998. working with emotional intelligence. new york: bantam books. goleman, d. 1995. emotional intelligence. new york: bantam books. goleman, d., boyatzis, r., & mckee, a. 2002. primal leadership: realizing the power of emotional intelligence. new york: bantam books. harris education research council. 1991. an assessment of american education. new york: committee for economic development. 19 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 table 4: comparison of mean ei scores for undergraduate students from both schools variable mean rockport mean whitmore difference t-statistic p-value social awareness 7.68 7.44 0.24 1.08 0.14 self-regulation 6.14 6.01 0.13 0.49 0.31 motivation 7.59 7.44 0.15 0.73 0.23 empathy 7.34 7.21 0.13 0.57 0.29 social skills 7.41 7.17 0.24 0.96 0.17 intrapersonal eq 7.15 6.95 0.20 1.14 0.13 interpersonal eq 7.38 7.20 0.18 0.91 0.18 total eq 7.24 7.04 0.20 1.22 0.11 n 64 61 df 123 table 5 displays the comparison of mean ei scores for graduate students from both schools. h2 and h4 addressed the differences for total and interpersonal ei, predicting that graduate rockport students would have higher scores for total and interpersonal ei than whitmore students. neither h2 nor h4 were statistically significant, with difference scores of just -0.02 (p < .45) and -0.08 (p < .39) and the direction for the differences was not correctly predicted. table 5: comparison of mean ei scores for graduate students from both schools variable mean rockport mean whitmore difference t-statistic p-value social awareness 7.80 7.55 0.25 0.93 0.18 self-regulation 6.39 6.69 -0.30 -0.87 0.19 motivation 7.99 8.09 -0.10 -0.46 0.32 empathy 7.52 7.63 -0.11 -0.42 0.34 social skills 7.39 7.41 -0.02 -0.06 0.48 intrapersonal eq 7.46 7.44 0.02 0.07 0.47 interpersonal eq 7.45 7.53 -0.08 -0.28 0.39 total eq 7.45 7.47 -0.02 -0.12 0.45 n 36 39 df 73 our overall results suggest that, in spite of the differences between the universities, the ei abilities of the student populations were remarkably similar. conclusions despite the many differences between rockport and whitmore universities (see appendix a), those differences had no apparent effect on the ei abilities of the undergraduate and graduate students of those schools. this provides evidence that the ei abilities of students may be very similar despite apparent differences in their universities. while we found a surprising homogenous population of students, our findings support earlier work of bar-on, salovey, mayer and others who have found that age cohorts typically have similar ei scores. the fact that students at both universities are for the most part traditional (ages 18-24) seems to have more of a bearing on the results than does the divergent vision, mission, location or culture of the population at both universities. while some ei studies have shown that culture does impact ei test results, our findings indicate that the culture although quite different, was less impactful than age when taking ei tests. further research interests are the extent to which universities can impact overall ei through on-going classroom interventions and the extent to which ei continues to improve long-term as a result of the classroom interventions. references akers, m., & porter, g. 2003. your eq skills: got what it takes? journal of accountancy, 195(3): 6570. 18 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 table 2: reliability of the instrum data collection a total of 100 rockport cba students were invited to complete the tti inventory. the invitation was distributed to students in any major within the cba program. out of the 127 who were invited to participate, 100 did so. this gives a response rate of 78%. the response rate for this study is favorable, and 100 inventories were used for the analysis. likewise, a total of 100 whitmore students were also invited to participate in the study as part of a course activity. of the 100 invited to participate 100 agreed. irb protocol was followed for students at both institutions, and each student signed informed consent documents. method we calculated means for each ei score for the students from each university. data analysis was conducted using a two-sample t-test assuming equal variances. we used one-tailed tests because our hypotheses predicted direction. results table 3 displays the comparison of mean ei scores for all students from both schools. while our hypotheses did not address such a comparison, we believed that this disclosure was important. while rockport students scored higher than whitmore students, no statistically significant differences were present. the greatest difference we found was that rockport students scored higher than whitmore students on the social awareness component (p < .08) which is still not very significant. table 3: comparison of mean ei scores for all students from both schools variable mean rockport mean whitmore difference t-statistic p-value social awareness 7.72 7.48 0.24 1.41 0.08 self-regulation 6.23 6.27 -0.04 -0.22 0.41 motivation 7.74 7.69 0.05 0.26 0.40 empathy 7.40 7.38 0.02 0.15 0.44 social skills 7.40 7.27 0.13 0.71 0.24 intrapersonal eq 7.26 7.14 0.12 0.89 0.19 interpersonal eq 7.41 7.33 0.08 0.51 0.31 total eq 7.32 7.21 0.11 0.86 0.20 n 100 100 df 198 table 4 displays the comparison of mean ei scores for undergraduate students from both schools. h1 and h3 addressed the differences for total and interpersonal ei, predicting that undergraduate rockport students would have higher scores for total and interpersonal ei than whitmore students. neither h1 nor h3 were statistically significant, with difference scores of just 0.20 (p < .11) and 0.18 (p < .18). 17 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 whitmore’s successes and supported its development. like rockport, its baccalaureate in business administration and master of business administration degree programs are accredited by the association to advance collegiate schools of business (aacsb-international). less than one-third of u.s. business school programs and less than 5% of programs worldwide hold this accreditation. a total of 42 undergraduate and 26 graduate degree programs are available to over 6,000 students in the college of arts and sciences, the college of business administration, the college of education, and the college of visual and performing arts. a liberal arts core provides the foundation for all degree programs. whitmore has a 14:1 student to faculty ratio, has an average size of 24 for undergraduate lecture classes, and all classes are taught by faculty. tti emotional quotient (tti) the assessment used for this research was the tti emotional quotient report, a self-report personality based approach that allows students to understand their own eq in order to avoid making high-risk decisions without understanding how their emotions are influencing their choice. the tti emotional quotient is a multidimensional perspective of emotional intelligence. the emotional intelligence item bank builds upon the goleman (1995) model of emotional intelligence. since its inception the test has been administered to individuals in several countries globally. several analyses were conducted using a sample of working professionals ages 20-75: the mean age was 48; 44% were male and 52% female, and the professionals lived in the u.s. england, greece, canada, new zealand, and australia. the demographic composition includes 77% caucasian, 16.9% black/african american, 1% hispanic/latino, and 2.8% from two or more races (eq mentor, 2008, pg. 4). the tti assessment provides an overall emotional intelligence quotient (eq) score, an intrapersonal intelligence score, an interpersonal intelligence score, scores on five components of eq, and five personality factors as described below in table 2. the tti has 57 questions and requires approximately 10 minutes for completion of the online self-assessment. it has two components and five subcomponents. the questions use a five-point likert scale. the first component, interpersonal, includes self-awareness, self-regulation, and motivation. the second component, intrapersonal, includes social skills and empathy. the five subcomponents combine to form a total score. table 2 displays the components, subcomponents, and definitions for the tti. respondents rate each item using a likert scale with the options: “very inaccurate, somewhat accurate, neither accurate nor inaccurate, somewhat accurate, and very accurate.” there are 31 reverse scored items on the instrument. the tti emotional quotient is normed based upon the standard bell curve resulting in 16% low scores, 68% average scores, and 16% high scores (eq mentor, 2008, pg. 2). table 1: components, subcomponents & definitions – tti emotional quotient components subcomponents definition total score a general indication of a respondent’s level of emotional intelligence. includes all five subcomponents. intrapersonal the ability to understand yourself, form an accurate concept of yourself, and apply that concept to operate effectively. self-awareness the ability to recognize and understand your moods, emotions, and drives, as well as their effect on others. self-regulation the ability to control or re-direct disruptive impulses and moods and the propensity to suspend judgment and think before acting. motivation a passion to work for reasons that go beyond money and status and a propensity to pursue goals with energy and persistence. interpersonal the ability to identify and understand how to effectively relate to, work with, and motivate others. this is made up to two key competencies: social skills a proficiency in managing relationships and building networks. empathy the ability to understand the emotional makeup of other people. 16 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 ‘competence, conscience and compassion,’ are infused in multiple touch points of rockport’s curriculum. with rockport’s emphasis on compassion and community service, both of which foster emotional intelligence, we predict that cba undergraduate students at rockport will score higher than cba undergraduate students at whitmore overall in ei. we predict that cba graduate students at rockport will score higher overall than cba graduate students at whitmore. we predict that cba graduate students at rockport and whitmore will score higher than undergraduate students at rockport and whitmore. we predict that cba undergraduate students at rockport will score higher in empathy and social skills than cba undergraduates at whitmore; we predict that graduate cba students at rockport will score higher in empathy and social skills than graduates at whitmore. accordingly, we offer the following hypotheses: h1: ei test scores among undergraduate students at rockport will be higher than ei test scores among undergraduate students at whitmore. h2: ei test scores among graduate students at rockport will be higher than ei test scores among graduate students at whitmore. h3: ei scores among undergraduate students at rockport will be higher in interpersonal skills (empathy and social skills) than undergraduate students at whitmore. h4: ei scores among graduate level students at rockport will be higher in interpersonal skills (empathy and social skills) than graduate students at whitmore. design of the study participants the population consists of students at two divergent universities in both undergraduate and graduate level cba aacsb accredited programs in the u.s. rockport university founded by a jesuit priest, rockport university is one of 196 jesuit colleges and universities that exist throughout the world 28 of those in the united states. the university serves approximately 3,000 students at its campus offering 50 undergraduate and graduate programs. rockport has a 12:1 student to faculty ratio, has an average size of 24 for undergraduate lecture classes, and all classes are taught by faculty; 92% of the full-time faculty hold the highest degree in their field. the jesuits’ shared goal is to provide an excellent education that develops competent, compassionate, and committed leaders through a value-centered education. together, jesuits and professors embrace the contributions of other religious and ethical traditions because they complement the catholic intellectual tradition of social thought and service. the jesuit tradition building individual dignity is infused throughout the curriculum, which is based on the seven classical modes of inquiry: artistic, historical, literary, philosophical, theological, scientific relational and scientific causal. graduates from rockport university receive two transcripts: one for academics and another for community service. rockport’s college of business school is comprised of approximately 300 undergraduate students and 350 graduate students. rockport is accredited by the association to advance collegiate schools of business (aacsb), the gold standard in business education. fewer than 5% of the world’s business schools have achieved this distinction. whitmore university, a public, coeducational, liberal arts university located in the southeastern part of the united states, has been an educational leader for more than a century. the school was founded by a superintendent of schools initially as a teacher’s training school for women. over time, whitmore became one of the premier women’s colleges in the region and expanded its mission to become a comprehensive institution offering degrees in a growing variety of disciplines. the institution diversified its class ranks by extending its educational offerings to minorities in 1964 and becoming fully coeducational 1974. the university was also recognized by a national foundation as a university that "encourages character development." the values of service, excellence, diversity, community, and leadership have shaped 15 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 ei is known to impact career outcomes. a survey of employers conducted by the national association of colleges and employers found that employers rated interpersonal skills as the most desired skill of recent graduates (shivpuri & kim, 2004). in a study of accounting students, bay and mckeage (2006) found that average accounting students did not have high levels of emotional intelligence, and given the critical role of emotional intelligence in career success, those students were ill-prepared for their futures. they argue that emotional intelligence has relevance for accountants in the areas of decision-making and also suggests that emotional intelligence is a variable that may explain the gap between ethical understanding and ethical behavior in the workplace. while graduates of business programs may be technically prepared for their disciplines, they are not necessarily prepared for the emotional aspects of their work. measures of emotional intelligence many theorists have operationalized their theories of emotional intelligence with evaluative measures for use with populations (mayer & salovey, 1997; bar-on, 2002; goleman, 1995). each construct of ei can be distinguished according to the definition of emotional intelligence and the measurement approach employed (mayer, caruso, & salovey, 2000a). mayer, et al. explained that “there are two general models of emotional intelligence: a mental ability model and a mixed model that includes various personality dispositions” (p. 416). two of the three models of emotional intelligence (bar-on, 2002; goleman 1995) are categorized by mayer, salovey, and caruso (2000b) as mixed models or trait models, while the other (mayer & salovey, 1997) is considered a mental ability model. the assessment of emotional intelligence is continuing to expand in both definition and research. currently, more self-assessment, trait emotional intelligence instruments exist than ability measures of ei, and considerable controversy exists regarding which measure is most reliable and valid (antonakis, 2003; judge, colbert, & ilies, 2004; and salovey, mayer, caruso, & sitarenios, 2003). various business schools are embracing emotional intelligence as part of a program requirement either as part of an integrated curriculum or as a program activity. in one instance, emotional intelligence theory was infused into a school’s business communication curriculum as a strategy for developing interpersonal and intrapersonal communications more effectively (myers & tucker, 2005). vandervoort (2006) advocated improving student emotional intelligence because those with higher self-knowledge tend to make better career choices, have less behavioral/emotional problems, and have higher scores on standardized achievement tests. some colleges view ei as a vital part of academic life, particularly in the colleges of business administration (cba). a small 2004 study by ellen paek empirically examined the extent to which religiosity, operationalized as religious orientation and religious behavior is related to emotional intelligence. the study examined the extent to which religious orientation and behavior were related to self-reported (ei) in 148 church attending adult christians. the study found that the individuals' self-reported religious orientation was positively correlated with their perceiving themselves to have greater ei. significant positive correlations were also found between level of religious commitment and perceived ei. in their 2002 article entitled “linking emotional intelligence, spirituality and workplace performance: definitions, models and ideas for research,” tischler, biberman and mckeage reviewed literature on both ei and various aspect of spirituality. they found that both ei and spirituality appear to lead to similar attitudes, behaviors and skills. purpose of the study comparative studies of two universities are of interest when exploring emotional intelligence particularly as it relates to divergent cba programs with contrasting missions and visions as well as the population of attendees. the purpose of this study is to investigate the extent to which emotional intelligence test scores will vary among undergraduate and graduate cba students from two divergent universities and to determine the extent to which scores on certain ei sub-scales will vary among undergraduate and graduate cba students of the two universities. the three ‘c’s’ of jesuit education. i.e., 14 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 literature review emotional intelligence is a construct that has to do with the awareness and expression of emotions experienced by oneself and others, as well as the ability to understand and regulate such emotions. thorndike (1937) first reported the concept of “social intelligence.” wechsler (1940) fought for the addition of “non-intellective aspects” as a measure of general intelligence. likewise, leeper (1948) purported that “emotional thought” should be considered when reviewing the concept of “logical thought.” however, it was not until the 1980s that the current concepts related to emotional intelligence started to emerge. gardner (1983) shared a theory of multiple intelligences that encouraged researchers to step outside the notion that human beings are confined to a singular or plural view of intelligence. gardner also explained that there were other areas of human intelligence that were traditionally ignored or overlooked by academic institutions. gardner (1983) explained that there are two types of intelligence that have held the focus and emphasis of traditional academic thought in institutions of higher education: language intelligence and logical-mathematical intelligence. nevertheless, gardner purported that there were five more intelligences that were equally important to collective human intelligence: musical intelligence, spatial intelligence, bodily-kinesthetic intelligence, interpersonal intelligence, and intrapersonal intelligence. out of the research on social intelligence emerged the concept of personal intelligence (gardner,1983), which consists of two constructs: interpersonal and intrapersonal intelligence. interpersonal intelligence is purported to focus on external events and involves the recognition and evaluation of feelings in others. intrapersonal intelligence, on the other hand, focuses on the self and one’s ability to recognize and evaluate his or her own feelings. within these multiple levels of intelligences, a movement evolved that expanded two particular areas of gardner’s approach (i.e., interpersonal and intrapersonal intelligences). salovey and mayer (1990) coined the term “emotional quotient” and later defined it as “a type of social intelligence that involves the ability to monitor one’s own and others’ emotions, to discriminate among them, and to use that information to guide one’s thinking and actions (1993).” both intrapersonal and interpersonal intelligence are theorized to be a large portion of what mayer et al. (2000a) define as emotional intelligence. according to bar-on (2002), several researchers expanded gardner’s interpersonal and intrapersonal intelligences into six primary components of emotional intelligence: emotional self-awareness, assertiveness, empathy, interpersonal relationship, stress tolerance, and impulse control. several definitions of ei emerged through the advanced study of the six components. bar-on (2005) explained that the multiplicity of definitions that came out of gardner’s approach has added layers of confusion and complexity as to the best approach, definition, and measure of emotional and social intelligence. since that point of advancement and divergence, from gardner’s view of the construct, some researchers, (goleman, 1998; mayer & salovey, 1997), named this construct "emotional intelligence" while in 1997 bar-on chose the term “emotional and social intelligence” and formalized the concept of emotionalsocial intelligence (esi) in 2005. for the purpose of this study, the authors ask you to accept all of these labels and definitions under the term emotional quotient (ei). the american college personnel association asked institutions of higher learning to position themselves to advocate and promote the development of ei in all aspects of academic life (low, lomax, jackson & nelson, 2004). much interest in ei exists and its impact in both academic and professional settings. research indicates a positive correlation between emotional intelligence and cognitive-based performance among college students. lam and kirby (2002) ascertained the level to which emotional intelligence accounts for increases in individual cognitive-based performance in an academic setting. they found a positive correlation existed in three of the four emotional intelligence subscales: overall ei, perceiving emotions, and regulating emotions. in a study of mba students, boyatzis, stubbs, and taylor (2002) concluded that mba programs should put forth a concerted effort to integrate emotional intelligence training into the curriculum using approaches that include self-assessment and self-development. these programs in return would result in positive employment outcomes. 13 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 emotional intelligence: a comparative analysis of two college business administration programs barbara burgess-wilkerson, winthrop university anna lampe, rockhurst university steve frankforter, winthrop university a comparative study of two universities explores the emotional intelligence (ei) of students in two college of business administration (cba) programs with contrasting missions, visions, and populations. this study investigates the extent to which ei test scores and sub-scales varied among two cba student populations. despite the differences between the two universities, no differences were evident in the ei abilities among the two cba student populations. further research will explore the extent to which universities can impact ei short and long-term through classroom interventions. the american college personnel association called for a response to the compelling evidence regarding the relevance of emotional intelligence (ei) in academic and workforce settings advocating the creation of a learning models incorporating emotional intelligence competencies, through engagement in practical research efforts to promote active learning through integrated learning communities (low, lomax, jackson & nelson, 2004). the transition to college is characterized by a period of social, emotional, and academic adjustment (chickering, 1969), important indicators of academic and career success (gerdes & mallinckrodt, 1994; robbins, oh, le, & button, 2009). empirical evidence indicates that emotional control impacts academic outcomes early in the learning process diverting critical attention away from task learning leading to worry, rumination, and upset (kanfer, ackerman & heggestad, 1996). salovey and mayer’s (1990) study of social (non-cognitive) intelligence presented a framework for emotional intelligence (ei), which was based on the ability to regulate one’s emotion and accurately monitoring others’ emotions. according to salovey and mayer (1990) emotional intelligence is “a form of social intelligence that involves the ability to monitor one’s own and other’s feelings and emotions, to discriminate among them, and to use this information to guide one’s thinking and action” (1990:185). goleman (1995) examined the relationship between traditional cognitive iq tests and success in the workplace, finding that iq by itself was not a good predictor of job performance. goleman found that emotional intelligence is a more important determinant of management success than technical expertise or cognitive ability. cherniss and adler (2000) found that ei was critical for effective work performance. a national survey found four in ten workers were not able to work cooperatively with fellow-employees and only 19% of entry-level applicants have sufficient self-discipline in work habits (harris education research council, 1991). recognition exists among researchers and practitioners that emotions play a large role in organizational life. for example, emotional intelligence is a key area to help accountants perform better (akers & porter, 2003). additionally, goleman, boyatzis, and mckee (2002) found that partners in a large public accounting firm with strong self-management and social skills achieved a 390% percent incremental annual profit. several studies indicate a positive correlation between ei and academic success among college students. lam and kirby (2002) found that ei accounts for increases in individual cognitive-based performance above the level attributed to general intelligence in three of the four emotional intelligence subscales; overall ei, perceiving emotions, and regulating emotions. burgess-wilkerson, benson, and frankforter (2012) conducted an analysis of ei in an academic setting and found that ei scores can improve as a result of classroom interventions. 12 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 gundars (gundy) kaupins is a department chair and professor at boise state university. he is certified as a senior professional in human resources (sphr). he teaches human resource management. his publications include over 200 articles in training and development, baltic studies, and human resource ethics. malcolm coco is a professor of human resource management at abilene christian university and directs the college of business administration’s internship program. he is certified as a professional in human resource management (phr). dr. coco is the author of over 50 survey-based articles on management, human resources, and international human resource management. http://journals.sfu.ca/abr advances in business research 2014, volume 5, pages 50-62 50 the functions of management as mechanisms for fostering interpersonal trust mike schraeder dennis r. self troy university mark h. jordan university of north georgia ron portis troy university the central purpose of this article is to draw attention to ways that interpersonal trust between supervisors and employees can be fostered through activities associated with the four functions of management. interpersonal trust has received increasing attention as an important variable for effective management and the success of organizations. further, managers serve a critical role in promoting organizational success. practical insights regarding activities that promote interpersonal trust within each of the four functions of management is briefly discussed. these insights are offered with the intent of encouraging a more deliberate focus on trust within the functions of management. keywords: management; functions of management, management education introduction history has marked numerous shifts in the nature of organizational environments that have necessitated simultaneous adjustments in the way organizations are managed. as a matter of practicality, managers serve a number of important purposes in organizations and are recognized as having a substantial impact on the overall climate of the workplace (lennox, 2013). further, the successful leadership of organizations embodies a complex set of skills and abilities. within this complex and dynamic nature of management remains the critical element of trust which must be fostered on an ongoing basis since it is regarded as a crucial component of organizations (sonnenberg. 1994). the purpose of this article is to initiate a practical dialogue regarding the question of how the four core functions of management (i.e., planning, organizing, leading, and controlling) can be used to foster interpersonal trust between supervisors and employees. justification for framing the dialogue within the context of the four functions of management is based on the use of these functions as the foundation or core of most management education curricula and courses. for many, the exposure to managerial concepts in entry-level courses serve a formative role in influencing future management philosophies, values, and behavior. surprisingly, however, the topic of trust is not covered consistently in management texts. management and leadership training programs also serve as potential catalysts influencing individual’s perceptions, philosophies and approach to management. nevertheless, a review of the management development and leadership development literature over the past several decades, suggests that while an understanding of trust may be a desired outcome of many management or http://journals.sfu.ca/abr schraeder, self, jordan, & portis 51 leadership development programs, it is not clearly listed as a specific goal of the training or development process (c.f., alexander, 1987; cohn, 1988; eddy, 2005; lahote, simonetti, & longenecker, 1999; shaffer, 1991; shaw & patterson, 1995; tarley, 2002). of the articles selected, the only one in which trust was specifically mentioned as a goal was that of broderick and pearce (2001), which was grounded in an adventure training approach which has its roots in the outward bound movement. interestingly, the much-written-about management development program general electric requires for future managers did not specifically address trust as an integral key to success (tarley, 2002). most training programs appear to be focused on knowledge content specific to the organization, as well as providing training or at least an understanding of issues such as communication, dealing with conflict, problem solving, teamwork, and leading change. trust is, of course, a desired outcome. indeed, it is likely that the training programs and practices noted above?) should have or did result in a development of, or increase of trust between supervisors and employees. but that result is achieved only if those going through the training actually attempt to apply the training once they return to the workplace. but, when the training does not emphasize trust, the concern is whether the trainees will perceive both the need for and/or the opportunities to act in ways that enhanced interpersonal trust within the work place. consequently, a discussion that emphasizes trust at this fundamental level has the potential to diffuse to other management practices, theories, and strategies predicated on the four functions of management. overview of trust from an applied or practical perspective, sonnenberg (1994) described trust as something that must be a central component of organizations. tzafrir (2005) provides additional support, stating that “trust is a key component of organizational relationships, and management’s approach to the issue of trust is of academic and practical significance” (p. 1600). furthermore, trust is regarded as fundamental to the notion of the multiple social exchanges that occur within organizations (cole, schaninger, & harris, 2002). the implicit value of supervisor-employee interpersonal trust within the framework of the functions of management is important to recognize (at least in a general sense), since trust is known to be a salient factor in organizations (mccauley & kuhnert, 1992). more specifically, the recognition that the behavior of managers is a relevant factor in the trust that develops within the managementemployee dyad (whitener, brodt, korsgaard, & werner, 1998). this importance is further reinforced through the observation that gaining the trust of individuals in the workplace is crucial to the success of contemporary organizations (caldwell, hayes, & long, 2010). mcdonald (2010) further emphasizes the significance of relationships by offering a compelling definition of management as, “a trusting work relationship with other human beings that produces sustainable, escalating value” (p. 629). the concept of trust researchers acknowledge a growing interest in literature related to trust (e.g., dirks & ferrin, 2002; sendjaya & pekerti, 2010). trust is regarded as a dynamic, multifaceted phenomenon (mccauley & kuhnert, 1992; rousseau, sitken, burt, & camerer, 1998) including, but not limited to essential components such as truth (duignan & bhindi, 1997), integrity (tan & tan, 2000; whitener et al., 1998), and communication (zeffane, tipu, & ryan, 2011). trust is also recognized as something that must be earned (mills & ungson, 2003), representing an essential element in relational capital (lennox, 2013), as well as social exchange (mahajan, bishop, & scott, 2012). in an effort to promote conceptual clarity this article will adopt the definition of trust provided by rousseau et al. (1998) who described the concept as, “… a psychological state comprising the intention to accept vulnerability based on positive expectations of the intentions or behavior of another” (p.395). fostering interpersonal trust 52 importance of supervisor-employee interpersonal trust high quality relationships between supervisors and employees, in the form of leader-memberexchange, are recognized as important determinants of desirable organizational outcomes (graen & uhl-bien, 1995). in their review of literature related to lmx over the preceding 25 years, graen and uhl-bien (1995) included studies linking the quality of the supervisor-employee relationship (i.e., lmx) with outcomes including, but not limited to performance, organizational citizenship behavior, and organizational commitment. there is considerable interest in understanding factors associated with effective management (e.g., page, wilson, meyer, & inkson, 2003), as well as the quality of the dyadic relationship between managers and employees (graen & uhl-bien, 1995). according to pirson and lawrence (2010, p. 553), “management theory and practice are facing unprecedented challenges.” admittedly, there are a variety of characteristics associated with effective management, with trust increasingly being recognized as an essential concept in management (e.g., colquitt, scott, & lepine, 2007; mcallister, 1995; mcdonald, 2010). employee trust in supervisors is acutely needed (simons, 1999). according to covey (1989, p. 178), “trust is the highest form of human motivation. it brings out the very best in people.” this perspective is mirrored by others who have described trust as a fundamental need for organizations, contributing to commitment (zeffane et al., 2011), enhancing innovative efforts (tan & tan, 2000), and promoting cohesion within the workplace (duignan & bhindi, 1997). the integrity, benevolent behavior, and ability of the manager are among the factors related to worker trust that have been identified (knoll & gill, 2011; tan & tan, 2000). a number of valuable outcomes are associated with employee trust. for example, a meta-analysis of trust in leaders conducted by dirks and ferrin (2002) listed a number of important outcomes associated with this referent form of trust including job related attitudes (i.e., job satisfaction and organizational commitment), organizational citizenship behavior (ocb) and better performance of the employee’s job. interpersonal trust in the context of management functions college courses on management are often grounded in the four functions of management that evolved from fayol’s (1916, trans. by storr, as cited in wren & bedeian, 2009) writings on management theory and the practice of management. the essential content of these functions are intended to serve as a prescriptive overview of managerial responsibilities, and to provide a framework for what students (as future managers) should do in the practice of management. fayol (1916, trans. by storr, as cited in wren & bedeian, 2009) proposed five basic functions (planning, organizing, commanding, coordinating and controlling) with commanding and coordinating subsequently merged into the function of leading. he also proposed fourteen principles of management (1916, trans. by storr, as cited in wren & bedeian, 2009). a review of these principles reveals no regard for the importance of employees’ trust in supervisors. fayol’s writings were translated to english in the early 1900s and came at a time when taylor’s scientific management held sway (it, too, provided little room for a recognition of trust). arguably, fayol’s theories, combined with principles embodied within taylor’s scientific management shaped the future of the study of management. in some respects, the mental models that evolved from their work remains firmly entrenched today: this sentiment is reflected in the philosophy, still present in some organizations today, that management’s responsibility is to plan, organize, lead (within a framework of commanding), and control the organization. similarly, for employees it may also be argued: follow the plan, within the framework of designed policies and procedures, do what you are told to do. interestingly, this fits within mcgregor’s theory x model. mcgregor (1967) viewed this type of thinking as mechanistic. mcgregor (1967, p.8) observed that “managerial practice appears to reflect at least a tacit belief that motivating people to schraeder, self, jordan, & portis 53 work is a ‘mechanical’ problem…[that] it requires the application of external forces to…motivate him to work.” mcgregor described this approach as theory x ( for him, theory x reflected a belief about the nature of man that suggested employees could not function unless told what to do.). such a belief would not be conducive to an orientation toward building interpersonal trust in the organization (heil, bennis, & stephens, 2000). mcgregor proposed a counter-belief called theory y which held a more organic view of man in that employees are oriented to work, to seek responsibility, to be creative in the workplace. mcgregor (1967), referring to maslow’s need for self-actualization, argued that people have the capacity to grow and develop throughout life, and that management strategies can hinder or support growth. for mcgregor, the self-actualized person is emergent in an organization grounded in a theory y belief. this emergence relies on mutual agreement, open communications, mutual trust, and mutual support (mcgregor, 1967). thus, for mcgregor, the practice of effective management clearly requires the development of trust. indeed, according to this theory, managers with a theory y perspective tend to trust employees (smothers, 2011). having established a historical foundation, the focus shifts to more specific insights and dialogue regarding the implicit value of supervisor-employee interpersonal trust within the context of the functions of management. functions of management the four common functions of management include planning, organizing, leading and controlling (mcdonald, 2010). leung and kleiner (2004) suggest that these four functions are necessary, but not sufficient in promulgating successful management, with strong emphasis placed on adopting practices that include a focus on employees within organizations. while not immediately obvious, critical reflection on the nuances of these four functions of management highlights potential areas where trust may be enhanced through inclusion of intentional activities within each function (see figure 1). moreover, recognizing the implicit value of supervisor-employee interpersonal trust that permeates each function may serve an integrative role in helping to facilitate more fluid and effective deployment of the respective functions. planning. planning is typically where the direction of the organization is established through a variety of activities including the development of goals. as such, the planning function of management embodies various levels of decision making. allowing employees to participate in making these decisions may generate additional ideas that offer valuable insights (leung & kleiner, 2004). these new ideas could, in turn, have a positive impact on the quality of the plan since employees have a variety of different experiences and skills. of particular interest in the context of the current article are findings that employee involvement is linked to higher levels of trust (mahajan et al., 2012). whitener et al. (1998) also note that involving employees in decisions has symbolic value in conveying a sentiment of trust to employees, while dirks and ferrin (2002) discuss the implicit confidence associated with allowing employees to participate in decision making. indeed, managerial trust is associated with increased levels of employee involvement in decision making (tzafrir, 2004). two important elements of decision making are gathering and analyzing information. employees offer valuable insights and assistance in regard to both of these elements. first, employees often engage directly with customers, suppliers and other stakeholders. as a result, they have firsthand knowledge of key information that can be useful in guiding the planning process. asking employees to assist in gathering information may serve to validate their perceptions and add perceived credibility to the value of their observations/interactions with key stakeholders. this, in turn, fosters increased levels of trust. likewise, allowing employees to participate in analyzing information sends the message to employees that they have valuable insights that offer unique perspectives on specific nuances of the information. a logical progression from collecting and analyzing information might fostering interpersonal trust 54 figure 1. interpersonal trust and the four functions of management planning 1. employee involvement decision making 2. employee involvement in gathering information 3. employee involvement in analyzing information 4. employee involvement in establishing and prioritizing goals organizing 5. transparent and effective employment practices 6. job design (create enriched jobs) 7. decentralized authority 8. teams leading 9. communication 10. motivation 11. job attitudes 12. effective change management controlling 13. use control as a tool for employee development and continuous improvement 14. psychological empowerment 15. involve employees in developing and managing control related activities 16. provide timely, accurate, and informative performance data used for control purposes employee’s perceptions of trust or distrust citizenship behaviors employee engagement organizational commitment planning controlling organizing positive expectations of others and the organization leading 14 1 3 4 2 6 8 7 5 101 4 122 11 9 16 15 13 schraeder, self, jordan, & portis 55 be to include employees in developing and prioritizing goals resulting from this analysis. this involvement would then enhance employee buy-in related to the goals, as well as contribute to increased levels of employee trust in supervisors. organizing. the organizing function of management is comprised of numerous activities directly or indirectly related to the allocation of resources in ways that support the achievement of goals and plans that were developed in the planning function (leung & kleiner, 2004). included within the organizing framework are numerous human resource management (hrm) related activities such as job design and the assignment of job duties. since hrm practices serve such a critical role, it is important, first and foremost, that the organization develop transparent and effective employment practices. transparency is needed to help employees gain a sense of being fully aware of how the organization promulgates employment practices. effectiveness of these practices is necessary for employees to have confidence in the utility of these activities. in combination, employee perceptions of full awareness and confidence in practices/policies that impact employment decisions within the organization serve as powerful mechanisms fostering employee trust. a study by vanhala and ahteela (2011) examining posited relationships between six common (hrm) practices and organizational trust provides compelling evidence that employee trust in organizations is, indeed, influenced by common hrm practices. additionally, human resource management highlights the attractiveness of companies to potential employees in part due to human resource practices that focus on tangibles (e.g., pay, benefits, etc.) and intangibles such as trust-based work climate (daft & marcic, 2011). in regard to effective hrm practices, employee trust may also be promoted through the specific structure of their work assignments (job design). for example, the creation of enriched jobs may be interpreted by employees as an indication that the organization trusts the employees enough to give them some degree of authority, autonomy, or flexibility in performing their job assignments. having received this, employees, then, may be inclined to reciprocate through increased levels of trust. another example of organizing and assigning work by a manger that fosters trust is through the structure of authority. a structure that relies on decentralized authority, as well as empowerment, allows employees to become more responsible for their jobs and decisions related to their jobs, contributing to heightened employee trust. another example of a common method for assigning organizational tasks is the use of teams. the importance and prevalence of teams in organizations is increasing as more organizations become global and technology allows for the use of virtual teams. trust is considered one of the team characteristics that differentiate an effective team from a dysfunctional team (daft & marcic, 2011). trust has also been linked to team performance. de jong and elfring (2010), found that intra-team trust had a positive impact on team performance and suggest that “…to promote team performance, team supervisors need to actively engage in managing interpersonal relationships and fostering trust among team members” (p. 545). trust has also been determined to provide a sense of psychological safety for team-members, one in which members are at ease with criticisms of their work, or discussing their mistakes (edmondson, 1999). leading. dirks and ferrin (2002) acknowledge that trust is embedded within a variety of leadership theories. the value and importance of trust cannot be overstated, regardless of the leadership style or philosophy of the leader. leadership theories, such as consultative and transformational (gillespie & mann, 2004); authentic (zhu, may, & avolio, 2004); servant (sendjaya & pekerti, 2010); and lmx (brower, schoorman, & tan, 2000; graen & uhl-bien, 1995) provide support for trust as an essential management concept for leaders. leadership is a multi-dimensional process that includes motivation and influence of employees (howell & costley, 2006). as a part of this process of motivation and influence, exceptional leaders are typically skilled communicators (blazey, 1997). communication, in turn, is positively associated with trust (zeffane et al., 2011). more importantly, the quality of supervisor communication has been fostering interpersonal trust 56 linked to trust (graen & uhl-bien, 1995). unfortunately, however, the opposite may also be true with ineffective communication resulting in an erosion of trust (spangenburg, 2012). in the context of leadership, trust plays a valuable role in the job attitudes displayed by employees in the work environment. recent research indicates different aspects of trust are related to higher levels of many of these job attitudes, to include perceived organizational support and affective organizational commitment (ferres, connell, & travaglione, 2004); organizational citizenship behaviors and job satisfaction (lester & brower, 2003); and employee satisfaction and loyalty (matzler & renzl, 2006). the leading function of management can also include organizational change (leung & kleiner, 2004). this is important to consider since trust is of paramount importance in the context of major change (chawla & kelloway, 2004). change is ubiquitous in the current business environment, often accompanied by undesirable implications for employees (yu, 2009). the level of employees’ trust in their supervisors impacts their concomitant attitudes toward change (devos, buelens, & bouckenooghe, 2007). for instance, lines, selart, espedal, and johansen (2005) found that the way in which changes are implemented either diminishes trust in management or increases trust in management. in an effort to tie this back to prior assertions that employee involvement and leadership communication contribute to employee trust, consider beer’s (1987) discussion of the change process in which the importance of open communication and employee participation in promoting trust is acknowledged. in reality, the functions of management do not, necessarily, operate in a discrete manner. instead, operationalizing the functions within the context of organizations often entails considerable overlap and fluidity between these dynamic functions. for example, leadership is commonly associated with creating a shared vision. developing this shared vision, in turn, is considered important in framing the boundaries and direction of organizational efforts enacted by employees. while vision is indeed an important element of leadership, activities associated with this vision are also prevalent within the other three management functions. specifically, the function of planning would be framed, to a large extent, by the vision of the organization. if employees are afforded an opportunity to contribute to the formulation of the vision and subsequent decision making within the planning function, interpersonal trust may be enhanced, thus creating the potential for improved deployment of the management functions. controlling. the fourth function of management, control, includes managerial efforts directed toward monitoring both organizational and employee performance and progress toward goals (costa & bijlsma-frankema, 2007). organizations and managers utilize a variety of strategies or methods related to control. these methodologies range from overt, highly restrictive, and assertive forms of control to more implicit, decentralized, indirect forms of control. the methodology may include the use of various management information systems, but has been manifested, in the past, by managers directing employees, telling them how to do their jobs, and by close monitoring of the employees’ performance (miles & creed, 1995). this control strategy (use of systems, exercising of authority) has been deployed by managers attempting to reduce risk or uncertainty within an organization. while this approach may have been deemed adequate in the past, the complete reliance on formal controls is not sufficient in the contemporary business environment. specifically, organizations face increased competition, not just locally, but globally; the pace of doing business has increased in speed requiring faster response time to change. to react to this new environment, one of the actions taken by top management has been to flatten organization structures, leading to wider spans of control, simultaneously adopting the use of teams in both in geographic and virtual environments. in a practical sense, the traditional forms of control may still have some value, but are no longer sufficient. the fundamental problem for managers is how they can give up control without schraeder, self, jordan, & portis 57 losing control (spreitzer & mishra, 1999). management must necessarily rely on trusting its employees not to act opportunistically, but to make the right decisions and perform in a way to fulfill organizational goals (jagd, 2010). at times, trust and control seem to be considered as opposite ends of a continuum or at least inversely related (dekker, 2004; knights, noble, vurdbakia, & willmott, 2001; sitkin & roth, 1993). costa and bijlsma-frankema (2007), argue that trust and control are alternative strategies to be used within the organization. the reality is that the relationship between control and trust is much more complex. coletti, sedatole, and towry (2005) present evidence that rather than control and trust being an either-or dilemma for managers, control actually builds trust between parties, perhaps because control regulates a set of expectations, so that either party is comfortable that the other will not take advantage of them. over time, the control systems can reinforce non-opportunistic behaviors, contributing to trust. as a result, controls may later be reduced because trust remains. indeed, there is evidence that trust and control may complement each other (bijlsma & van de bunt, 2003; knights et al., 2001 further reinforcing the potential value of trust related to effective management. mcdonald (2010) notes the central importance of coordination to the practice of management, emphasizing that coordination is not synonymous with the control. if the traditional form of command-and-control style of management is eroding as a result of emerging organizational trends, then a greater need for collaboration is apparent, as well as the use of teams to enable the organization to successfully compete in an environment of changing technology, increased globalization, and increased competition. drucker (1999) noted that given the current business trends that organizations would need employees who were not only skilled but who possessed the ability to learn and adapt quickly to turbulent business environments. this seems consistent with increasing the active participation of employees in decision-making processes, as discussed earlier in the planning function of management. ideally, in this type of environment, managers would believe that employees will not be opportunistic in their behaviors, and that employees would strive to make good decisions consistent with pursuing the vision, as well as goals of the organization. thus, viewing trust and control not as opposites, but as complementary in nature, may be enlightening with both the manager and employee using the control systems in a collaborative fashion to achieve both the goals of the organization and the individual, trusting that each has the other’s best interest at heart. other possible strategies for enhancing employee trust through activities within the controlling function of management may be worth considering. for example, control activities could be structured in ways that guide employee development and promote continuous improvement. as such, data gained through control activities would highlight employee areas that were strengths available to be leveraged by the organization for competitive advantage, while areas identified as needing improvement could be used for guidance in training and employee development programs. used in this context, control measures may be viewed more positively by employees. the potential efficacy of control activities to foster increased trust can also be enhanced by ensuring that managers provide timely, accurate and information employee performance data to employees for feedback purposes. emerging theories. quite often, emerging theories related to management incorporate elements from the four functions of management, while also encapsulating dynamics associated with interpersonal trust. for example, sendjaya and pekerti (2010) identified dynamics enacted through servant leadership theory (i.e, placing the needs of employees and others above those of the leader) as an antecedent of worker trust. in addition, key factors reflected in the theory of authentic leadership, such as effective communication, are recognized as an important component in worker trust (wong & cummings, 2009). finally, trust has been found to be both an outcome of transformational leadership (jung & avolio, (2000) and as a mediator of the relationship between transformational leadership and outcomes such as organizational citizenship behavior, performance, and affective commitment (goodwin, whittington, murray, & nichols, 2011). in cases where trust is a component fostering interpersonal trust 58 in emerging theories, efforts to emphasize this might contribute to a better understanding the enduring importance of interpersonal trust within the context of management. conclusion organizations will continue to evolve and new management theories will continue to emerge. from a pedagogical perspective, fulfilling their role in preparing business students for successful careers in this dynamic environment will require that business schools remain vigilant in adapting curricula to meet these ever-changing needs. for traditional-aged students, exposure to management concepts is the first opportunity for many to develop an understanding of what it means to be an employee or manager and what one should strive to do to be successful. on the other hand, many non-traditional, older students may be employed, but not managers or supervisors. for them, exposure to management principles (either through college courses or management training programs) provides the opportunity for them to compare their own organizational experiences of how it is (what they experience) with how it could be (the ideal, if delivered effectively by the instructor and applied in the workplace). for both types of students, gaining this understanding of management, with an emphasis on trust, can lead to a transformed workplace if they have the opportunity to successfully apply what they have learned. viewed from a practical perspective, organizations endeavoring to facilitate the development of their managers can benefit by helping these managers understand the fundamental implications that trust has on employees within the organization through their actions embodied with the functions they perform. managers typically perform the four overarching functions of planning, organizing, leading, and controlling. this article has discussed ways in which that these four functions can be performed that will increase employee trust in their supervisors, which will, in turn, have positive implications for the organizations. by allowing employees to participate in the planning process, organizations can leverage new ideas, while also indicating, through this action, that employee input is valued. this, then, will have positive implications on employee trust levels. similar benefits may ensue from allowing employees to get more fully engaged in the organizing function by allowing them to participate in planning tasks and activities related to their specific jobs. specific hrm practices undertaken during the organizing function can also contribute to increased trust. in deploying the leadership function, managers can enhance employee trust by focusing on quality communication and the open exchange of information. the final function, controlling, can enhance employee trust in a number of ways including the fact the employees will receive more timely feedback if they are directly engaged in the control process. in summary, management is an important concept to organizations and business schools. since trust is espoused as a vital factor in organizations and management, college management courses, as well as management/leadership training programs might be improved through more intentional efforts to emphasize the implicit value of supervisor-employee interpersonal trust within the context of the management functions of planning, organizing, leading, and controlling. similarly, the overall performance of organizations might be improved if managers are more mindful of how their enactment of the four functions of management can be promulgated in ways that will have a positive impact on employee trust. references alexander, g.p. 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(2004). the impact of ethical leadership behavior on employee outcomes: the roles of psychological empowerment and authenticity. journal of leadership and organizational studies, 11(1), 17-26. mike schraeder is a professor of management in the sorrell college of business at troy universitymontgomery. he earned his ph.d. in management from auburn university. his research interests include a variety of topics related to organizational change, as well as employee attitudes. he has published in numerous journals including management decision, leadership and organization development journal, and public personnel management. dennis self is professor of management and chair, department of human resource management and business law in the sorrell college of business of troy university. he holds a phd in management from auburn university, specializing in organizational change with additional interest in leadership and human resource management. he has published in various journals such as leadership and organization development journal, management decision, journal of occupational and organizational psychology, and international journal of law and management. mark jordan is a professor of management in the mike cottrell college of business at the university of north georgia. he earned his ph.d. in management from auburn university. his research interests include teams, leadership, individual differences, and organizational culture. he has published in various journals including small group research, journal of applied psychology, personnel psychology, and public personnel management. ron portis is an instructor of management and the graduate advisor in the sorrell college of business at troy university-montgomery. he earned his in mba-management from grambling state university 1997. his research interests include organizational learning, self-monitoring, employee commitment and motivation, and the psychological contract. uafs abr journal vol 4 no 1 2013.pdf 107 heller advances in business research 2013, vol. 4, no. 1, 107-113 supply chain management perspectives in the public and private sectors jacob heller, tarleton state university based on a recent survey of public and private procurement professionals in the southwest united states, this study reports perspectives on supply chain management and perceptions regarding job-related importance of key supply chain management elements between procurement professionals in the public and private sectors. a survey structured around thirty key supply chain management elements and four unique perspectives of the relation between supply chain management and purchasing was used (larson, 2009). as this exploratory study incorporated a convenience sample, the generalizability of the study findings is limited. however, despite this limitation, important findings emerged. procurement professionals in the public and private sectors have different perspectives on organizational approach to supply chain management. further, differences exist in the rating of job-related importance for the thirty key supply chain management elements between public and private sector participants. in today's globally competitive private sector environment and shrinking budgets in the public sector, supply chain management is becoming increasingly important. supply chain management is a competitive strategy for integrating the supplier/customer relationship to efficiently manage the procurement and delivery of goods and services in a cost effective manner with the specific objective of improving responsiveness and flexibility in organizations (gunasekaran, 2004; mccue and pitzer, 2005). in the private sector, the acquisition of products and services accounts for more than 60% of the total operating costs for most organizations (degrave, roodhooft & van doveren, 2005). financial activity in the public sector may account for up to 30% of the gnp in the us and as much as 14-20% of the gdp in europe (callendar & matthews; mori & doni, 2010). consequently, effective supply chain management can lead to significant cost savings. the trend of looking to the private sector for supply chain management strategy and key supply chain elements for implementation in the public sector is gaining popularity in the current literature. however, a number of authors have argued that despite the interest in cross sector implementation of supply chain management, meaningful differences in the application of supply chain management between public and private procurement professionals are not identified. specifically, research that identifies similarities and differences in organizational approaches to procurement and supply chain management between public and private sector organizations is absent from the current literature (hawkin, gravier & powley, 2011; johnson, leenders & mccue, 2003; mccue & prier, 2008 muller, 1991; zhang, viswanathan & henke, 2010). a number of authors have examined organizational issues and factors tied to supply chain management in the private sector to gauge their potential for implementation in the public sector (cavinator, 1991; fearon, 1988; johnson, leenders & mccue, 2003; murray, 2007). pooley and dunn (1994) found that the job duties and skills of purchasing professionals experienced statistically significant change from 1960 to 1989. other contributions include studies that examined a range of organizational factors related to supply chain management in private sector organizations (harland, gibbs and sutton, 2000; johnson, leenders and fearon 1998a, 1998b; larson, 2009; leenders and johnson, 2000, telgen, zomer and de boer, 1996). cross sector differences in procurement fundamental differences exist between the public and private sector in reporting structure, regulating bodies, funding sources and operating motives (larson, 2009). public procurement differs from private procurement in scope. in the private sector, procurement strategy is driven and aligned with corporate revenue and profits goals the bottom line. government is frequently viewed as a market regulator, sometimes encouraging markets through competition law, or restraining them through minimum wage 108 heller advances in business research 2013, vol. 4, no. 1, 107-113 laws. however, government plays an increasingly important role as an active participant in the market itself (mccrudden, 2004). in the public sector, procurement has been utilized as an important tool for achieving economic, social and other goals and objectives (arrowsmith, 1998). including provision of no or low cost public goods and services, the development of local contractors and manufacturers, and advance legislation and conceptions of social justice through market regulation. finally, public sector procurement serves a broader range of stakeholders, places greater emphasis on accountability and transparency, and allows little or no flexibility for negotiation. the effect of the layers of additional scope and limited ability to negotiate sometimes yields procurement inefficiencies. these inefficiencies often lead to increased spending through increased administrative demands, additional oversight, the decentralization of work across multiple suppliers, and time delays given legislative and legal requirements. all of which contribute to delays in the delivery of goods and services. notwithstanding these issues, the mission of the procurement function, in public and private sector organizations, is to efficiently manage the forecast, procurement and delivery of goods and services through the supply chain in a cost effective manner. notwithstanding the great potential that the incorporation of supply chain management elements holds for public procurement, a careful exploration of the differences between public and private sector procurement is essential before cross sector implementation (reed, bowman & knipper, 2005). research this research pulled from the supply chain management and public procurement literature and examined the differences in supply chain management perspectives as well as differences in the rating of job-related importance for thirty key elements of supply chain management. data collection was completed via an online survey that incorporated original and previously published questions (larson, 2009) participants included procurement professionals from a fortune 500 company, and procurement professionals from a large metropolitan city in the southwest united states. invitations to participate in the survey were emailed, with a link to the survey, to respondents within each of the organizations. given the exploratory nature of the study, combined with funding limitations, a non-probability sample was selected. thus, study findings are limited to the study population or similar group and should be approached with caution given the potential for sampling bias. not-with-standing this limitation, the findings of this exploratory study are important as they yield new information regarding differences in supply chain management perspectives and importance of key supply chain management elements between the public and private sector that can be used as the foundation for future research with larger more representative samples this study explored the following research questions: rq1: do public and private procurement professionals have different perceptions of their organizations’ approach to scm? rq2: are there differences in the perceptions of the importance of key supply chain management elements between public and private procurement professionals? survey and analysis the first section of the survey consisted of a series of questions that required the participants to report their perceptions of their organizations’ perspective on supply chain management. based on work by larson (2009) the survey included the following descriptions about participants’ perception of their organizations’ approach to supply chain management. see figure 1 below (larson, 2009). traditionalist: supply chain management is positioned as a function within purchasing. supply chain analysts report to the head of purchasing. re-labeling: entails a name change; purchasing is now scm. “purchasing managers” are re-titled to become “supply chain managers” with little or no change in job description supply chain. 109 heller advances in business research 2013, vol. 4, no. 1, 107-113 unionist: purchasing is a function within or a part of supply chain management. intersectionalist: supply chain management consists of strategic, integrative elements across several functional areas, including purchasing. scm coordinates cross-functional efforts involving multiple organizations. figure 1: purchasing vs. scm perspectives the second section of the survey was comprised of a list of 30 key elements related to supply chain management (larson, 2009). participants were asked to rate the importance of each of these items based on their assessment of the importance of each element in the context of their current professional position using a likert scale with response choices from 1 to 5. findings a convenience sample of 124 public and private procurement professionals from a fortune 500 company and from a large metropolitan city in the southwest united states completed the survey. the private sector corporation has annual revenue of more than $40b and is rated as among the top 25 supply chain companies over the last 3 years. the public municipality is a large metropolitan city with an annual operating budget of $3.5b. overall, study participants were relatively new to supply chain management activities and had 5 or less years of experience with their current organization. approximately half of the participants (n = 60, 48%) reported a bachelor’s degree as their highest level of formal education. the number of participants from the public sector (n = 66) was slightly larger than the number of participants from the private sector (n = 58). the first research question addressed participants’ perceptions about their organizations’ approach to supply chain management. statistically significant differences between the public and private sectors were found across three of the four perspectives. confidence intervals revealed statistically significant differences between the public and private sector in the intersectionist, traditionalist, and unionist perspectives (p = .05). only the re-labeling perspective did not reveal statistically significant differences between the public and private sectors p = .05, 95% ci [.03, .16], and [.009, .011] respectively. this nonsignificant may due be attributable to the low number of respondents who selected this perspective across the public (n = 5) and private (n = 2) sectors. confidence intervals for the intersectionist perspective indicated statistically significant differences between the public p = .05, 95% ci [.25-.28] and private sectors [.71-.90]. similarly, confidence intervals indicated statistically significant differences between the public sector p = .05, 95% ci [.13, .32] and the private sector [.003, .09] for the traditionalist perspective. statistically significant results for the unionist perspective were also found between the public p = .05, 95% ci [.24, .46] and the private [.05, .22] sectors. based on these data, the null hypothesis, that there is no difference in the perception of organizational approach to supply chain management between sectors, is rejected as the data indicate with 95% confidence that the real value for each is not included in the calculated interval for the other. the second research question was concerned with public and private sector participants’ perceptions of importance for thirty different supply chain management key elements. based on average importance 110 heller advances in business research 2013, vol. 4, no. 1, 107-113 ratings, table 1 reports public and private sector top ten lists of key supply chain management elements. the following eight items are on both top ten lists: ethical issues, legal considerations, purchasing and supply management, risk management, contract management, relationship building, price and cost analysis, and supply chain mapping. though there was significant overlap in the top ten, as was expected, statistically significant differences were detected. appendix a reports mean ratings by group, and t-test results, for all 30 supply chain elements on the questionnaire. to test for possible sector differences in respondents’ ratings, independent sample t-tests were conducted on all 30 elements, with public versus private sector as the grouping variable. the items are arranged in descending order of the critical p-values obtained from the t-test. while a positive tstatistic implies an item is perceived more important by public sector professionals, a negative t-statistic implies an item is more important for the private sector. a higher absolute value of t-statistic implies a greater difference between public and private sector perceptions. a p-value less than .05 (the alpha level) implies a significant difference between the public and private sector average ratings on an item. the first six items in appendix a were rated significantly more important by the public procurement professionals, compared to their private sector counterparts. the item with greatest significant difference was procurement cards. on average, public sector participants rated this item 3.36 (out of 5), and private sector respondents rated the item 1.95. group differences on the next eighteen items (from conflict management to logistics and transportation) were not significant. rather, public and private participants rated these key elements as equally important. while the remaining nine items appendix a were rated significantly more important by private sector participants, compared to their public sector counterparts. as expected, this finding could lead to the conclusion that supply chain management in theory, strategy and application is more highly developed and installed in the private sector than in the public sector. certainly, it confirms that supply chain management is more important in the private sector as a governing strategy for purchasing activities. further, it affirms the claims in the current literature that supply chain management has emerged as the discipline that guides procurement strategy in the private sector and that public procurement professionals have different perceptions on the importance of various topics, tools and techniques for scm, compared to their counterparts in the private sector (larson, 2009). table 1: top ten lists of supply chain management topic tools and techniques by sector private sector public sector topic, tools & techniques mean topic, tools & techniques mean ethical issues 4.48 ethical issues 4.41 legal considerations 4.47 legal considerations 4.26 supplier selection / evaluation 4.33 price and cost analysis 4.22 purchasing & supply management 4.29 relationship building 4.11 risk management 4.24 contract management 4.03 contract management 4.21 transparency 4.00 relationship building 4.16 risk management 3.98 price and cost analysis 4.03 purchasing and supply management 3.98 supply chain mapping 4.00 supply chain mapping 3.98 cycle time reduction 3.98 request for quote 3.88 conclusions and importance consistent with the literature, this study found statistically significant differences between public and private sector participants’ perceptions of their organizations’ approach to supply chain management. further, differences were also detected in the ratings of importance on the 30 key elements of supply chain management between public and private sector procurement professionals (larson, 2009). results indicate that participants in the private sector place greater importance on supply chain management elements than their public sector counterparts. this exploratory study is important for several reasons. public administrators are facing increased calls for procurement reform (thai 2004). as public procurement is “big business” with significant impact to local, state, and national economies; efficiency in public procurement has been a policy and management concern as well as a challenge for public procurement professionals (thai, 2005). greater emphasis is 111 heller advances in business research 2013, vol. 4, no. 1, 107-113 being placed on ‘how’ in addition to ‘how much’ money is being spent and public procurement professionals are beginning to adopt best known methods from the private sector including key supply chain management elements to manage procurement activities. this research could help to identify the supply chain elements for public procurement professionals to achieve greater efficiency in public procurement. supply chain management has emerged as the discipline that guides procurement strategy in the private sector. some have suggested that public sector procurement would benefit through the adoption of best known methods and strategies as implemented in private sector supply chain management (larson, 2009). however, notwithstanding the great potential that private sector strategy and practices hold for public procurement, the factors examined herein must be addressed in the creation and successful implementation of public procurement strategy. references arrowsmith, s. 1998. towards a multilateral agreement on transparency in government procurement. international and comparative law quarterly, 47(4): 793-816. callendar, g., & mathews, d. 2000. government purchasing: an evolving profession? journal of public budgeting, accounting & financial management, 12(2): 272-290. cavinato, j. 1991. evolving procurement organizations: logistics implications. journal of business logistics, 13(1): 27-45. degraeve, z., roodhooft, f., & van doveren, b. 2005. the use of total cost of ownership for strategic procurement: a company-wide management information system. journal of the operational research society, 56(1): 51-59. dyer, j. 2000. collaborative advantage: winning through extended enterprise supplier networks. oxford university press, new york, ny. fearon, h. 1988. purchasing organizational relationships. tempe, az: center for advanced purchasing studies. gunasekaran, a. 2004. supply chain management, theory and applications. european journal of operational research, 159(2): 265-268. hawkin, t., gravier, m., & powley, e. 2011. public versus private sector procurement ethics and strategy: what each sector can learn from the other. journal of business ethics, 103(4): 567-586. harland, c., gibbs, j., & sutton, r. 2000. supply strategy for the public sector: framing the issues. in conference 2000 proceedings (pp. 342-351). london, ontario, canada: richard ivey school of business. johnson, p., leenders, m., & fearon, h. 1998a. evolving roles and responsibilities of purchasing organizations. international journal of purchasing and materials management, 34(4): 2-11. johnson, p., leenders, m., & fearon, h. 1998. the influence of organizational factors on purchasing activities. international journal of purchasing and materials management, 34(2): 10-19. johnson, p., f., leenders, m., r., & mccue, c. 2003. a comparison of purchasing's organizational roles and responsibilities in the public and private sector. journal of public procurement, 3(1): 57-74. larson, p. 2009. public versus private sector perspectives on supply chain management. journal of public procurement, 9(2): 222-247. 112 heller advances in business research 2013, vol. 4, no. 1, 107-113 leenders, m., & johnson, p. 2000. major structural changes in supply organizations. tempe, az: center for advanced purchasing studies. mccrudden, c. 2004. using public procurement to achieve social outcomes. natural resources forum, 28(4): 257-267. mccue, c., & pitzer, j. 2005. fundamentals of leadership and management in public procurement. herndon, va: national institute of governmental purchasing. mccue, c., & prier, e. 2008. using agency theory to model cooperative public purchasing. journal of public procurement, 8(1): 1-35. mori, p., & doni, n. 2010. the economics of procurement contract awarding: problems and solutions in theory and practice. journal of public procurement, 10(1): 93-120. muller, e. 1991. an analysis of the purchasing manager’s position in private, public and nonprofit settings. international journal of purchasing and materials management, 27(4): 16-23. murray, j. 2007. improving the validity of public procurement research. international journal of public sector management, 22(2): 91-103. pooley, j., & dunn, s. 1994. a longitudinal study of purchasing positions: 1960-1989. journal of business logistics, 15(1): 193-213. reed, t., bowman, d., & knipper, m. 2005. the challenge of bringing industry best practices to public procurement: strategic sourcing and commodity councils. international public procurement conference, may 2011, http://www.ippa.ws/ippc1/book/ chapter_14.pdf. telgen, j., zomer, g., & de boer, l. 1997. the efficiency and effectiveness of government purchasing in the netherlands. ipsera conference proceedings, naples, italy: t8/2 1-8 zhang, c., viswanathan, s., & henke, j. 2010. the boundary spanning capabilities of purchasing agents in buyer-supplier trust development. journal of operations management, 29(4): 318-328. jake heller is currently a purchasing account manager for intel corporation. he received in ph.d. in public administration from arizona state university. his current research interests include supply chain management, public procurement efficacy, and procurement ethics. 113 heller advances in business research 2013, vol. 4, no. 1, 107-113 appendix a: independent sample t-tests: public vs. private sector mean pr pu t p procurement cards 1.95 3.36 7.733 < .0001* price and cost analysis 4.03 4.22 1.168 0.8775 vendor certification 3.63 3.51 0.657 0.2562 outsourcing 2.76 2.89 0.624 0.7332 partnerships / alliances 3.50 3.62 0.598 0.7247 transparency 3.96 4.00 0.213 0.5842 conflict management 3.88 3.86 -0.083 0.4669 social responsibility 3.78 3.76 -0.100 0.4603 supply chain mapping 4.00 3.98 -0.145 0.4424 relationship building 4.16 4.11 -0.290 0.3816 request for quote 3.93 3.88 -0.307 0.3795 ecommerce 3.18 3.11 -0.320 0.3749 activity-based costing 2.67 2.59 -0.413 0.3402 sustainability 3.90 3.82 -0.428 0.3346 ethical issues 4.48 4.41 -0.470 0.3195 inventory management 3.62 3.50 -0.596 0.2761 total cost of ownership 2.09 1.95 -0.627 0.266 third-party logistics 3.12 2.98 -0.670 0.2522 total quality management 3.78 3.61 -0.846 0.1997 contract management 4.21 4.03 -1.055 0.1467 just in time 3.54 3.30 -1.234 0.1096 enterprise resource planning 3.28 3.02 -1.295 0.0988 legal considerations 4.47 4.26 -1.308 0.0965 logistics and transportation 2.72 2.42 -1.504 0.0676 risk management 4.24 3.98 -1.702 .0457* purchasing and supply management 4.29 3.98 -1.846 .0336* supplier development 3.91 3.49 -2.050 .0212* cycle time reduction 3.98 3.61 -2.075 .0201* single v. multiple supplier sourcing 2.90 2.42 -2.128 .0177* forecasting 3.48 2.62 -4.076 < .0001* supplier selection and evaluation 4.33 3.11 -6.380 < .0001* supply chain management 3.74 2.50 -6.960 < .0001* negotiation 3.52 1.97 -7.452 < .0001* advances in business research 2011 volume 2.pdf rittle and diehl advances in business research 2011, vol. 2, no. 1, 149-155 149 autonomous learning in a virtual environment dennis rittle, brown mackie college salina linda diehl, brown mackie college salina the educational community is seizing the opportunity to link interdependent members from distant locations. universities, colleges, and other adult education media are supplementing traditional classroom settings with virtual classrooms thereby broadening their local and regional markets. the authors argue a virtual learning paradigm can satisfy efficacious autonomous learning more effectively when social support and affective management conditions are available. based on a qualitative analysis of data from a group of doctoral students required to engage in learning through asynchronous communications, the authors recommend conditions that are most conducive to efficacious autonomous learning. the advent of the technological era has enabled industries to tap global markets because of the ability to transmit voluminous information in rapid fashion. because of this capability, organizations have the ability to achieve organizational goals by placing personnel in geographically diverse locales while maintaining the effective communications necessary to synergize work efforts. one market that is unequivocally seizing the opportunity to link interdependent members from distant locations is the educational industry. universities, colleges, and other adult educational media are augmenting traditional classroom settings with virtual classrooms allowing these institutions to reach a global market. the global span requires a virtual forum that enables students to interact in ways which stimulate learning. this endeavor can be achieved in a format which draws upon the strengths of both the individualistic and collectivistic learning paradigms. studies on learning in a virtual environment have largely overlooked the autonomous learning process. this oversight is unequivocally paramount because of the explosion of corporations integrating organizational structures in diverse locations. these organizational designs necessitate human resource development professionals train and equip employees through a virtual medium. the authors argue a virtual learning paradigm can be advantageous to satisfy efficacious autonomous learning but is most effective when social support and affective management conditions are present. these prescribed conditions originate from the qualitative analysis of data collected from two groups of doctoral students who matriculated through a rigorous online ph.d. program, which ubiquitously solicited the students to engage in learning through asynchronous communications. literatur review learning is a process that unites three influences: (a) cognitive, (b) emotional, and (c) environmental (merriam et al., 2007). the aim of learning is to integrate or change the learner’s skills, attitudes, values, knowledge, and perspectives (illeris, 2000; ormrod, 1995). learning focuses on the process rather than the outcome such as the right answer (merriam et al; railton and watson, 2005). accordingly, variables contributing to initiate and to sustain learning serve as important indicators to construct a viable learning theory. an additional approach for analyzing the learning process is by differentiating learners as either surface or deep learners. important to this discussion is recognizing that surface and deep learning are not attributes of learners (atherton, 2005); rather, these descriptors explicate the process of learning so that learners can participate in either learning approach. in general, deep learning occurs because of intrinsic motivation such as the need to learn; in contrast, surface learning occurs because of extrinsic motivation such as the need to complete a task. deep learning produces feeling of satisfaction and excitement as the learner engages in activities of interest. surface learning produces feelings of fatigue and frustration as the rittle and diehl advances in business research 2011, vol. 2, no. 1, 149-155 150 learner engages in activities of necessity (atherton). accordingly, stimulating a learner to engage in deep learning is efficacious to perseverance. derrick (2002) argues persistence, which is comprised of three intrinsic factors, is a crucial component to successful learning because it delineates why some learners are successful and why some learners are unsuccessful in their learning endeavors. ponton et al., (2000) posit that persistence is one of the three primal traits to learning in an autonomous environment. derrick (2001) constructed an instrument to measure persistence. three subscales are present under persistence: (a) goal directedness, (b) selfregulation, and (c) volition. each of these subscales has undergone scholarly scrutiny and revisions. the central focus of persistence resides within the individual learner and does not seem to account for environmental forces, which may contribute to the learner’s persistence. specifically, autonomous learning is “a manifestation of the learner’s autonomy” (ponton et al., 2005, p. 117). thus, autonomous learning is the physical attribute of internalized intentions. these intentions refer to learner autonomy. learner autonomy is “the characteristic of the person who independently exhibits agency in learning activities” (ponton, 1999, p. 13-14). railton and watson (2005) further assert that autonomous learning implies the learners engage in independent study without interjections from others. the attributes of learner autonomy function as a subset to self-directed learning (ponton), which is central to the exploration of autonomous learning. self-directed learning refers to “the degree of choice that learners have within an instructional situation” (grow, 1991, p. 128). self-directed learners decide what areas of study warrant exploration. this philosophical approach to learning is largely humanistic (merriam et al., 2007) and accentuates personal growth as the primal goal of education. the implication of this goal ostensibly infers an exclusively individualistic perspective, which long (1989) advocates when defining learning as an endeavor primarily self-initiated, self-directed, and self-sustained. however, some self-directed learning scholars reject the notion that self-directed learning is exclusively an individualized endeavor (brookfield, 1986; mezirow, 1985). instead, a principal goal of self-directed learning is to stimulate transformational learning, which embraces the interaction of others (mezirow). the aim of this form of learning is to critically reflect on experiences and then to engage in critical debate with other learners so that new understandings emerge (mezirow, 1996). therefore, is autonomous learning an activity largely driven by cognitive, social, or a blend of cognitive and social motivators? motivational theorists argue learners engage in learning experiences for various reasons (houle, 1961; morstain and smart, 1977). these reasons explicate both cognitive and affective learner needs, which agree with classical theories of motivation (alderfer, 1972; herzberg et al., 1959; maslow, 1954). these motivational theories emphasize an intersection of cognitive and affective domains. because the autonomous learner is responsible to decide which course of action to take in the learning endeavor (railton and watson, 2005), the decision-making process serves a vital role in initiating and sustaining the learning venture. decision-making seeks to satisfy both the cognitive and affective concerns of the decision-maker (beach and connolly, (2005). much of the literature pertaining to the decision-making process within autonomous learning has centered on the cognitive considerations. during the matriculation of two groups of doctoral students studying in a rigorous online program, one group of learners demonstrated an unusually high “success” rate, success meaning completion of coursework and passing the comprehensive examinations at the earliest possible opportunity, compared to the other group. accordingly, the research question emerged, what factor or factors contributed to this difference? the following exploratory study of the group exhibiting the high level of success suggests the possible role of affective and collective considerations in the autonomous learning process operating within a virtual environment. data collection and analysis researchers in the field of qualitative studies propose they can excavate the perspectives of the participant through detailed interviewing techniques more effectively than utilizing quantitative methods because quantitative methods utilize more remote and inferential techniques to collect the perspectives of rittle and diehl advances in business research 2011, vol. 2, no. 1, 149-155 151 the participants (denzin and lincoln, 2000). therefore, the primary means of collecting data is using an interviewing technique (morse, 2003; van manen, 1990). accordingly, the eight students in the high success group were asked to describe their learning experiences and, in particular, address why the group was unusually successful. this type of questioning is categorized as theorizing questions. the goal of theorizing questions is to encourage the participants to create balance from their discourses (flick, 2006). participants seek to reduce “the ‘meaning’ of the whole to its common denominator” (hermanns, 1995, p. 184). typically, these questions are rather abstract and pursue answering how and why aspects of the narrative account. in order to reduce researcher bias, the students responded to the questions by providing one and a half to three pages of textual description/explanation in an environment free from distraction or distress. bryman (1988) encouraged freedom be given to participants to explain their perspectives with minimal interference and encouraged the use of open-ended questions so the participants can pursue their own agendas. furthermore utilizing a written account increased the reliability and accuracy of the narrative accounts and equally broadened and deepened the precision of the subsequent analysis because of the ease to assess the data on multiple occasions (heritage, 1984). following the collection and analysis of the data, the participants were requested to review their comments to ensure proper interpretation of their comments (flick, 2006). in order to identify common themes, the texts were collectively subjected to a content analysis. analyzing qualitative data requires the data to be reduced into significant statements and themes, and then these statements and themes are structured through a textual description to explicate the phenomenon (cresswell et al., 2007). the reduction of themes is captioned in key quotations and is the shared thoughts of the participants (peräkylä, 2004). oftentimes, the statements of the participants are sifted through to identify the descriptive accounts, which are non-judgmental and non-deceptive, so that the actual experience and the motives of the participants are explored rather than exploring the descriptions of the motives of other individuals whom the participants are describing (churchill, 2000). two experienced researchers in the field of qualitative students completed the content analysis and compared their findings with near identical outcomes. upon eliminating superfluous words such as prepositions, conjunctions, articles, and verbs of being, the content analysis yielded 336 words with a combined frequency of 1501 words. these words were then organized into themes. table 1 shows these themes and total frequencies of the words comprising the themes. table 1: collective themes theme frequency percent students as a collective group (e.g. we, us, team) 375 25 positive affective aspects of group 223 15 building virtual community/intragroup communication 149 10 specific mention of profs/other students 75 5 without exception, the students identified their peers, both collectively and individually, as the single most important aspect to their success. an important aspect of the group experience was not just the quantity of communication activities, but the affective aspects of those communications. many were focused on relationship building words like support, supportive, encourage, encouraging, and help. one student summarized his experience in the themes calling, proximity, and intentionality. he saw his classmates as sharing a relationship with god and a sense of purpose that created an immediate group identity. the cohort model provided virtual proximity. this same student who offices from home said that over the 2½ years of course work he interacted with members of his cohort more than anyone at work or his place of worship. multiple individuals “facilitated actions that led to relationships and support. we had multiple team phone calls, instant messaging, shared calendars and other support documents, and google spreadsheets to track progress. there were at least four subgroups that i know of within the group. the subgroups were study groups, support groups, mentoring groups, prayer groups, etc. two of them were based on homophily (i.e. a women's support and mentoring group and a group who shared work experiences), but the others were cross-boundary groups.” rittle and diehl advances in business research 2011, vol. 2, no. 1, 149-155 152 several students credited a leave no one behind attitude. one student expressed this as an attitude of one for all, all for one and we all rise and sink together. “there was a supportive, encouraging culture from very early on. i think it helped that people were humble, willing to share their fears and failures as fast as their successes…. we genuinely cared for each other, and there was a sense that collectively we could do more than we could individually.” yet another commented, “whenever anyone was "absent" for a period of time, someone always noted and initiated contact, be it via email or phone…. an overall sense of care prevailed. that cohesive spirit prompted me to do my best.” students credited group cohesiveness with their learning successes. “i think group cohesiveness had a tremendous impact on learning…. i felt more comfortable to let my guard down and to ask for help. in prior learning environments, i sensed a more competitive climate. in a competitive environment, one is not willing to share resources or to be vulnerable. because we were so close, the opposite happened we shared resources and tips and felt comfortable to be ourselves, weaknesses included.” students credited the same group cohesiveness with contributing to motivation. “motivation-there is something about knowing someone is in the barrel with you to keep you going. as we are online, we sometimes post the weather where we are at or what we are working on.” others noted that the same sense of care and community was lacking in the other group. “in discussion with those outside [our group] it became apparent that such a relationship with other students was lacking and left individuals feeling alone in the program.” discussion the results of the content analysis support the findings of the linear causal model proposed by ponton et al., (2005). in particular, the data support the fourth stage of the model arguing that autonomous learners engage in solving problems that interfere with learning. the comments from the autonomous learners in this study reveal a need for addressing affective concerns, which may function as barriers to persisting in their learning activities. this need suggests the inclusion of an affective management and collective-efficacy component within the autonomous learning process (figure 1). ponton et al., (2005) surmise that learners persist in a learning activity because of their initiative and resourcefulness. specifically, learner resourcefulness includes four subscales: (a) anticipate future reward, (b) prioritize learning over nonlearning, (c) chooselearning over nonlearning, and (d) solve problems that interfere. learner resourcefulness, initiative, and persistence are dynamically interactive in the learning process to enter and sustain the learning activity. a learner’s need for affectivity serves to enhance learner resourcefulness, initiative, and persistence. this study suggests that as learners identified affective needs initiative persistence resourcefulness autonomous learning management of affective needs collective-efficacy persisting in online learning model modified from the work of ponton, derrick, and carr, 2005 figure 1 rittle and diehl advances in business research 2011, vol. 2, no. 1, 149-155 153 they sought to fulfill those needs through relationships and communications outside of the immediate learning endeavor. furthermore, by fulfilling their affective needs they were able to enter and sustain in their learning activities. a second contribution of this study is the efficacious role of collective efficacy in sustaining and enhancing autonomous learning in a virtual environment. bandura (1997) defines perceived collective efficacy as the ability of a group to believe in its collective capabilities to organize and implement courses of action to reach specific levels of attainment. “collective efficacy involves interactive, coordinative, and synergetic social dynamics” (fernandez-ballesteros et al., 2002, p. 108). the level of collective efficacy crystallizes from the personal judgments of higher status members within the group rather than low status members (earley, 1999). fernandez-ballesteros et al. suggest the actual number of members within the group may influence the level of collective efficacy, which corresponds to greater confidence in the group’s capability to achieve targeted ends. the frequency of plural verbiage in the individual learners’ responses in this study suggests a high level of collective efficacy was a motivating factor of the autonomous learning experience in a virtual environment. a final contribution of this study suggests that the virtual environment may create a heightened need for learner interdependence compared to the need for learner interdependence in face-to-face learning environments. research pertaining to the influence of collective efficacy on group performance supports that collective efficacy influences group performance when group members are dependent upon other members for achieving success (katz-navon and erez, 2005). however, in situations where learners are not interdependent, levels of collective efficacy are minimal. thus, the autonomous learning in a virtual environment may stimulate learners to seek out the support and the conjoining efforts of other learners to increase collective efficacy and the desire to engage and sustain in the learning activity. in short, this study suggests that managing the affective needs of the learner may be a contributing factor to sustaining autonomous learning in a virtual environment. in addition, the presence of collective efficacy may surface as an outcome because of the virtual environment and may assist in enhancing autonomous learning activities. limitations and further research the chief limitation of this study is the characteristics of the participants. the students were doctoral students in the final stages of their matriculating process and functioned within a cohort model. therefore, these findings may not be generalizeable to other levels of education and at other stages within education. however, the findings do suggest that developing strategies to foster collective efficacy may be advantageous to efficacious learning outcomes such as fostering deep learning tendencies. this primal limitation suggests that researchers build upon this explorative study to verify or dispute the importance of addressing the affective needs of autonomous learners in a virtual environment and in other learning environments. in addition, this study suggests the role of collective efficacy is significant in initiating and sustaining autonomous learning in a virtual environment. additional research studying autonomous learning with learners who are not members of a cohort may substantiate or contradict the importance of collective efficacy to motivating learner success in autonomous learning activities. references alderfer, c. 1972. existence, relatedness, and growth: human needs in organizational settings. new york: free press. atherton, j. 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(pp. 65-82). schaumburg, il: motorola university press. railton, d. & watson, p. 2005. teaching autonomy: reading groups and the development of autonomous learning practices. active learning in higher education, 6: 182-193. van manen, m. 1990. researching lived experience: human science for an action sensitive pedagogy. new york: state university of new york. dennis rittle is the dean of academic affairs at brown mackie college salina. he received his ph.d. in organizational leadership with a major in human resource development from regent university. his current research interests include leadership, managing conflict, and adult learning. he has published in journal of business and leadership, effective executive, hrm review, and global ceo. linda diehl is an adjunct professor of business and general education at brown mackie college salina. she received her mba in business administration from kansas wesleyan university. her current research interests include the development of student self-efficacy and online learning success. advances in business research 2010 volume 1.pdf 224 advances in business research !"#$"%&'(&)*+,#+-#)!"#.,*)"/#0)&)"1#$+''&23#4&(1"1#&,/#4+,1"5(",6"1 !"#$%&'()*$+&,-./-)$0"#"($1'!2(3)!"4 5(($567)"(893&:'*$+&,-./-)$0"#"($1'!2(3)!"4 !"#$ %&%'($ ")'*+",'#$ -&*.$ /0$ +!'$ 1!&22'*3'#$ +!&+$ +!'$ 4565$ )/22&($ 0&1')$ 7'+8''*$ 9::9$ &*)$ 9::;<$ &*)$ &2#/$ +!'$ consequences americans are facing because of the dollar’s free fall in value. implications of the united state’s current &1+"="+"'#<$7/+!$"*>$&*)$/?+#")'$/0$"+#$7/()'(#<$&('$'@&-"*')$"*$/()'($+/$)'+'(-"*'$+!'$1&?#'#$/0$+!'$)'12"*'$/0$+!'$4565$ dollar. in addition, a potential remedy is presented and includes the formation of a coalition with other countries to 7'3"*$&22/8"*3$&22$1?(('*1"'#$+/$a/&+$0(''2.$"*$+!'$'@1!&*3'#<$+!'('7.$2'++"*3$+!'$-&(b'+$)"1+&+'$1?(('*1.$%("1'#5$c0$ course, the likelihood of this is small. another remedy that is within the power of the u. s., but also unlikely to take %2&1'<$"#$+/$(')?1'$3/='(*-'*+$#%'*)"*3$&#$8'22$&#$+!'$'='(>"*1('&#"*3$)',1"+#5$d0$)(&#+"1$&1+"/*#$#?1!$&#$+!'#'$&('$*/+$ "*#+"+?+')<$0?(+!'($)'12"*'#$"*$+!'$)/22&(e#$=&2?'$8"22$+&b'$%2&1'<$&*)$+!'$(&-",1&+"/*#$8"22$7'$#'='('5 ;<($/(=!''!'=$&>$"<($;:('"4$?!3)"$+('"-34$<#)$)(('$#$"-./,($&>$"<($1'!"(@$0"#"()$a-33('a4$"<#"*$!>$!"$a&'"!'-()*$ threatens to knock the dollar out of its position as the primary currency of the world. from a high in 2002 to the recent low in the summer of 2008, the u.s. dollar has taken a dramatic dive, one that may continue for the foreseeable >-"-3($!>$"<($a#-)()$#aa3(@!"(@$:!"<$!")$@(a,!'($#3($'&"$3(a"!b(@c$;<($@(a,!'($&>$"<($1c0c$@&,,#3$!)$#,3(#@4$#>>(a"!'=$ the prosperity of millions of americans. the rapid rise in oil prices that has taken place in 2008 is probably the most notable effect of the currency decline. in addition to losing its title as the bloodline of global commerce and security of the world, the american dream is at stake, and action must be taken to strengthen the value of the u.s. dollar. ;<!)$d#d(3$)<&:)$"<($a#-)()$"<#"$<#2($/()!(=(@$"<($1c0c$@&,,#3$/(":(('$effe$#'@$effg*$#'@$#,)&$"<($a&')(h-('a()$ americans are facing because of such a free fall. the implications of the current activities both inand outside of the united states must be examined in order to determine the causes of the decline of the u.s. dollar. remedies must be !')"!"-"(@$&3$(,)($>-3"<(3$@(a,!'()$!'$!")$2#,-($:!,,$"#i($d,#a(*$#'@$"<($3#.!ba#"!&')$:!,,$/($)(2(3(c$$j3#)"!a$#a"!&'$.-)"$ be taken to strengthen the u.s. dollar. ;<!)$d#d(3$ !)$ @!2!@(@$ !'"&$ "<3(($.#!'$ )(a"!&')c$;<($d#d(3$:!,,$b3)"$ @()a3!/($ "<($ a#-)()$ "<#"$ <#2($ ,(@$ "&*$ #'@$ continue to foster, the deterioration of the u.s. currency in the world markets. this includes america’s appetite for !.d&3"(@$=&&@)*$"<($>(@(3#,$=&2(3'.('"6)$b)a#,$d&,!a!()*$"<($(.(3=('a($&>$"<($k-3&d(#'$1'!&'$#'@$+<!'#*$#'@$"<($ =('(3#,$ =,&/#,!l#"!&'$&>$ "<($:&3,@$.#3i("c$m(n"*$ "<($d#d(3$:!,,$ @()a3!/($ "<($ a&')(h-('a()$ "<#"$ <#2($ a&.($#/&-"$ because of the sharp drop of the u.s. dollar and its low value in comparison to other currencies of the world. the a&')(h-('a()$a&')!)"$&>$<!=<$!.d&3"$d3!a()*$!'a,-@!'=$a&..&@!"!()*$@!2(3)!ba#"!&'$&>$a-33('a4$/(a#-)($&>$a-33('"$ globalization and perceived risk of the dollar, and an increase in exports by u.s. manufacturers. the paper will then conclude with suggested, and common-sense, remedies which will combat the decline of the u.s. dollar and help it 3(#>b3.$!")$"!",($#)$"<($@&.!'#'"$a-33('a4$&>$"<($:&3,@c$ 4!&2)#73#8&9+2#4(22",6*"1#:,/"; federal reserve statistical release 2010, vol. 1, no. 1, 224-231 jones & l’oste-brown !"# !$# !%# !&# !'## !''# !'(# )* + ( # # ( , . ( # # ( )/ 0 ( # # ( 1 23 ( # # ( )* + ( # # 4 , . ( # # 4 )/ 0 ( # # 4 1 23 ( # # 4 )* + ( # # 5 , . ( # # 5 )/ 0 ( # # 5 1 23 ( # # 5 )* + ( # # 6 , . ( # # 6 )/ 0 ( # # 6 1 23 ( # # 6 )* + ( # # " , . ( # # " )/ 0 ( # # " 1 23 ( # # " )* + ( # # $ , . ( # # $ )/ 0 ( # # $ 1 23 ( # # $ )* + ( # # % , . ( # # % )/ 0 ( # # % 225 advances in business research <2*"-#=*1)+2> according to the federal reserve statistical release, during the current decade, the u.s. dollar has seen one of the most severe and drastic devaluations in its history. in six short years its weighted average value in the world market, represented by the major currencies index, has declined from an average high of $112 in february 2002 to a ,&:$&>$opf$!'$%-,4$effg$#)$)<&:'$!'$+<#3"$q$#/&2(c$7'($1c0c$@&,,#3$!)$'&:$:&3"<$rgs$,())$"<#'$!"$:#)$!'$effe$:<('$ ,&&i!'=$#"$"<($/3&#@$)d(a"3-.$&>$.#t&3$:&3,@$a-33('a!()$"<#"$.#i($-d$"<($u#t&3$+-33('a!()$v'@(n$wu+vxc$;<($u+v$!)$ !))-(@$/4$"<($?(@(3#,$ ()(32($0"#"!)"!a#,$ (,(#)(*$#'@$!'a,-@()$+#'#@#*$%#d#'*$#'@$.#'4$&>$"<($a&-'"3!()$!'$"<($k-3&$ area such as the united kingdom, switzerland, australia, and sweden, with the addition of other major currencies in developed countries. when looking at the currency exchange rate between the u.s. dollar and the european union w"<($k-3&x*$"<($@(a,!'($!)$)"#==(3!'=$w+<#3"$exc$$y)$)(('$>3&.$+<#3"$e$/(,&:*$"<($@&,,#3$<!"$#$<!=<$!'$effe*$:<(3($&'($ dollar was worth over 1.1 euros. since then, the dollar has been on a steep decline, shedding over 45% of its value, to the low reached in july 2008 of less than 0.6 euros. only recently has the dollar rebounded against world currencies, not due to a change in the fundamentals described below, but due to a change in the global market. investors are z&ai!'=$"&$"<($1c0c$/(a#-)(*$a-33('",4*$"<(4$@((.$-)$"&$/($&'($&>$"<($/()"$&>$"<($:&3)"$!'$"<($a-33('"$b'#'a!#,$a3!)!)c$ y>"(3$"<($a-33('"$b'#'a!#,$a3!)!)$<#)$d#))(@$"<&-=<*$"<(3($!)$'&"<!'=$"&$i((d$"<($@&,,#3$>3&.$a&'"!'-!'=$!")$@&:':#3@$ trend against the world’s major currencies as demand for the dollar dissipates. 4!&2)#?3#@&'("#+-#7#.0$#)+#a(2+ federal reserve statistical release 4b.0a0#cd# =a#$aefa4:b :cg#cd# =a#.h0h#$ciibf !"#.h0h# 2&/"#$"j6*) there are many factors that can be attributed to the relentless devaluation of the u.s. dollar, but the one that is <#2!'=$#$d3&>&-'@$(>>(a"$!)$ "<($"3#@($@(ba!"$ "<#"$a&'"!'-()$"&$d,#=-($"<($1c0c$(a&'&.4c$v'$"<($a-33('"$@(a#@($"<($ value of the trade-weighted dollar has continued to fall as “the united states has continued to rack up historically -'d3(a(@('"(@$"3#@($@(ba!")[$w &=&>>$effgxc$y)$+<#3"$r$@(d!a")*$"<($@(ba!"$<#)$.&3($"<#'$@&-/,(@$)!'a($"<($(#3,4$ efff6)*$(2('$#)$"<($2#,-($&>$(nd&3")$<#)$/(('$!'a3(#)!'=$w?&3(!='$;3#@($0"#"!)"!a)xc$;<($1c0c$"3#@($@(ba!"$!)$a-33('",4$ 3-''!'=$/(":(('$\$#'@$]$d(3a('"$&>$^3&))$j&.()"!a$_3&@-a"$w^j_xc$`!"<$"<($y.(3!a#'$a&')-.(36)$#@@!a"!&'$"&$ cheap goods and services and their current ability to spend as they please through endless amounts of debt, the !./#,#'a($/(":(('$"<($"3#@($@(ba!"$#'@$^j_$:!,,$&',4$=("$:&3)(c$;<!)$!./#,#'a($<#)$"<($(>>(a"$&>$d&-3!'=$.#))!2($ amounts of u.s. dollars into the world, which in turn, pushes down the value of the dollar. since the products or )(32!a()$(nd&3"(@$/4$"<($1c0c$#3($'&"$(h-!2#,('"$"&$"<($'("$=&&@)$#'@$)(32!a()$!.d&3"(@*$a&-'"3!()$#3($,(>"$<&,@!'=$ @&,,#3)$:<!a<$"<(4$.#4$(!"<(3$-)($"&$3#ai$-d$a-33('a4$3()(32()$&3$"&$d-3a<#)($1c0c$j(/"c$+&-'"3!()*$)-a<$#)$"<&)($!'$ "<($_(3)!#'$^-,>*$#3($b'@!'=$"<(.)(,2()$:!"<$<-=($)"&aid!,()$&>$1c0c$@&,,#3)$@-($"&$&!,$)#,()c$;<()($a&-'"3!()$.-)"$ (!"<(3$)"&aid!,($('@,())$3()(32()$&>$@&,,#3)$&3$!'2()"$"<(.$/#ai$!'"&$"<($1c0c$"<3&-=<$"3#@(*$@(/"*$&3$(h-!"4$d-3a<#)()c$ `!"<$ ,#3=($h-#'"!"!()$&>$ "<($@&,,#3$/(!'=$ !'t(a"(@$ !'"&$ "<($:&3,@$.#3i("$/(a#-)($&>$ "3#@($@!)a3(d#'a!()*$ !'2()"&3)$ >3&.$ >&3(!='$ a&-'"3!()$ #3($ @(.#'@!'=$ !'a3(#)(@$ 3("-3')$ &'$ "<(!3$ !'2()".('")c$ ;<(4$ @&$ "<!)$ /4$ (!"<(3$ 3(h-!3!'=$ higher interest rates or through additional purchasing power with their native currency. with the federal government #3"!ba!#,,4$i((d!'=$!'"(3()"$3#"()$,&:$w@!)a-))(@$,#"(3x*$!'2()"&3)$#3($,(>"$"&$d-)<$@&:'$"<($2#,-($&>$"<($@&,,#3c$;<!)$ pushing down of the value of the dollar increases their purchasing power when investing in the u.s. or purchasing 2010, vol. 1, no. 1, 224-231 jones & l’oste-brown !"#$ !"#% !"#& !"#' !"#( !)#" !)#) !)#* +, * " " * . / 0 * " " * +1 2 * " " * 3 45 * " " * +, * " " 6 . / 0 * " " 6 +1 2 * " " 6 3 45 * " " 6 +, * " " 7 . / 0 * " " 7 +1 2 * " " 7 3 45 * " " 7 +, * " " $ . / 0 * " " $ +1 2 * " " $ 3 45 * " " $ +, * " " % . / 0 * " " % +1 2 * " " % 3 45 * " " % +, * " " & . / 0 * " " & +1 2 * " " & 3 45 * " " & +, * " " ' . / 0 * " " ' +1 2 * " " ' 226 advances in business research =&&@)$>3&.$"<($1c0c$y'$!')->ba!('"$!'z&:$&>$@&,,#3)$/#ai$!'"&$"<($1c0c$,(#@)$"&$#$>-3"<(3$@(d3(a!#"!&'$&>$"<($@&,,#3c$ this depreciation gives foreigners an incentive to purchase goods or services, invest in government or corporate @(/"*$&3$"#i($(h-!"4$)"#i()$!'$1c0c$a&3d&3#"!&')c$;<($@&,,#3$:!,,$a&'"!'-($"<!)$d3&a())$-'"!,$!")$2#,-($!)$,&:$('&-=<$"&$ #""3#a"$'((@(@$/-4(3)$&3$!'2()"&3)$:<&$#3($:!,,!'=$"&$d-3a<#)($@&,,#3)c$;<!)$:!,,$=('(3#"($!'z&:)$&>$@&,,#3)$/#ai$!'"&$ "<($1c0c$(a&'&.4$wu&-<#..(@$effgxc 4!&2)#k3#.h0h#:lm+2)1#n#a;m+2)1#o*,#8*''*+,1p !"#$%&'(%)(*+"&%,#)%$-.(/#0(#&%)(1&%2"&'% &'(%#(()%3-/% &'(%$4-1,4%+-005#"&!% &-%(01/,+(% &'(%)-44,/6%7-#,4)% 8+9"##-#%:;<<=>%2/"&(?@ a '(%?5?&,"#,1"4"&!%-3%&'(%'5$(%bcdc%+5//(#&%,++-5#&%)(*+"&%)(e(#)?%-#%&'(%+-#&"#5,#+(%-3%&'(%)-44,/%,?%&'(%2-/4)% standard. if the united states as center country maintains a stable price level, countries with trade surpluses are loathe letting their currencies appreciate against the dollar for fear of losing mercantile competitiveness in the short /5#%2'"4(%/"?f"#$%)(g,&"-#%"#%&'(%4-#$%/5#c%h3%e/".,&(%"#g-2?%,/(%"#?53*+"(#&%&-%35#)%&'(%bcdc%+5//(#&%,++-5#&6%&'(#% 3-/("$#%+(#&/,4%1,#f?%?&(e%"#%&-%15!%)-44,/%,??(&?%&-%e/(.(#&%&'("/%+5//(#+"(?%3/-0%,ee/(+",&"#$c% '5?6%&'(%)(*+"&% +-54)%+-#&"#5(%"#)(*#"&(4!%2"&'%#-%2(44i)(*#()%5ee(/%1-5#)%-#%j0(/"+,k?%#(&%"#&(/#,&"-#,4%"#)(1&()#(??cl j?%8+9"##-#%e-"#&?%-5&6%&'(%)-44,/?k%/(4",#+(%-#%3-/("$#%+,e"&,4%e-5/"#$%"#&-%&'(%bcdc%&-%35#)%"&?%,++-5#&%)(*+"&%"?% helping the dollar value in the short run, but in the long run, it is setting the dollar up for a huge downward correction. once countries lose faith in the dollar, they may be less willing to invest their funds in the u.s. economy. this point ',?%1((#%e/-.(#%"#%&'(%*/?&%e,/&%-3%;<<=%2'(#%0-?&%1(4"(.()%&',&%&'(%*#,#+",4%+/"?"?%2,?%+-#&,"#()%-#4!%&-%&'(%bcdc% during this period alone, the dollar fell almost 15% against major currencies. foreign investors around the world 2(/(%)50e"#$%)-44,/?%3-/%3(,/%-3%,%?"$#"*+,#&%+-//(+&"-#%)5(%&-%&'(%*#,#+",4%+/"?"?c% '(!%2(/(%,4?-%'()$"#$%&'("/% dollar holdings against commodities that generally move in the opposite direction of the dollar. this is a contributing factor to the commodities bubble that grew at the beginning of 2008 and one of the main reasons the american public was paying over four dollars per gallon for gasoline at that time. !"#$%&'(')&#*+&') the federal governments’ deliberate intervention to keep interest rates low in addition to injecting funds into the money supply in the u.s. is also compounding the problem of the devaluation of the dollar. at a time when interest rates should be rising, because foreign investors are in need of additional returns due to of the decline in the value of &'(%)-44,/6%&'(%3()(/,4%$-.(/#0(#&%"?%f((e"#$%/,&(?%,&%,/&"*+",44!%4-2%4(.(4?c%m"&'%"#&(/(?&%/,&(?%4-26%&'(%/,&(%-3%/(&5/#% /(n5"/()%1!%3-/("$#%"#.(?&-/?%"?%#-&%1("#$%?,&"?*()c%o-/("$#%"#.(?&-/?%&'(#%4--f%&-%-&'(/%0,/f(&?%?5+'%,?%&'(%p5/-e(,#% union, where interest rates are much higher, and as a result, demand for their currency goes up while the u.s. dollar $-(?%)-2#c% '"?%"01,4,#+(%"?%+,5?"#$%3-/("$#%"#.(?&-/?%&-%("&'(/%g-+f%&-%p5/-e(,#%+-5#&/"(?%3-/%?5e(/"-/%/(&5/#?%-/% drive down the dollar to get additional value out of their native currency. ,-%+%.-+/#0/!1+/-2+&-!% financial globalization is also a key ingredient that continues to promote the devaluation of the dollar. many economists argue that the dollar is destined to lose its value and its position as a key currency in the world economy :q,#,"4-.,i /,"#-/%;<<r>c% '(!%1(4"(.(%&',&% &'(%bcdc%+,##-&%+-#&"#5(%&-%0,"#&,"#%&'(%)(0,#)%#(()()%1!%&'(%/(?&% of the world to keep new foreign investment pouring into the u.s. economists argue that the reliance on the u.s. 2010, vol. 1, no. 1, 224-231 jones & l’oste-brown 227 advances in business research for their own well being is being eroded, because of the emergence of other markets such as the european union ,#)%s'"#,c% '(!%,4?-%1(4"(.(%&',&%,?%,%/(?54&%-3%&'(%3-/("$#%"#.(?&0(#&%"#%&'(%bcdc6%,#!%e(/+(".()%&'/(,&%-#%&'(%bcdc% (+-#-0!6%,#)%&'5?%)(e/(+",&"-#%-3%&'(%bcdc%)-44,/6% "?%+-0e-5#)()%1(+,5?(%3-/("$#%"#.(?&-/?%,/(%4"f(4!%&-%n5"+f4!% 2"&')/,2%&'("/%0-#(!c%j44(#%t/((#?e,#6%3-/0(/%o()(/,4%7(?(/.(%s',"/0,#6%,/$5(?%&',&6%a3-/("$#%,++5054,&"-#%-3% u.s. assets will slow as dollar-denominated assets occupy a larger share of the world’s store of value. as investors /(35?(%&-%15!%bcdc%,??(&?6%"#&(/(?&%/,&(?%2"44%/"?(%-/%&'(%)-44,/%2"44%)(e/(+",&(l%:q,#,"4-.,i /,"#-/%;<<r>c% '"?%?+(#,/"-% 0,!%,4/(,)!%1(%e4,!"#$%-5&c%u(+,5?(%-3%&'(%'"$'%&/,)(%)(*+"&%,#)%&'(%bcdc%15)$(&%)(*+"&6%&'(%$4-1,4%0,/f(&%"?%1("#$% saturated with u.s. dollars. foreign investors are feeling pressure to diversify their positions. new global markets, ?5+'%,?%s'"#,%,#)%p5/-e(6%',.(%$".(#%&'(%)-44,/%,%/(,4%/".,4%3-/%&'(%*/?&%&"0(%"#%-.(/%,%+(#&5/!6%,#)%&'5?%3-/("$#% "#.(?&-/?%',.(%,#%,4&(/#,&".(%&-%&'(%)-44,/%:u(/$?&("#%;<<=>c% the china syndrome '(%(0(/$(#+(%-3%s'"#,%,?%&'(%#501(/%-#(%(ve-/&(/%-3%0,#53,+&5/()%$--)?%"#%&'(%2-/4)%',?%,4?-%+-#&/"15&()% &-%&'(%)(+/(,?()%.,45(%-3%&'(%bcdc%)-44,/c%q5/"#$%&'(%?'-/&%e(/"-)%-3%&'(%("$'&%!(,/?%1(&2((#%;<<<%,#)%;<<=6%s'"#,% ',?%?5/e,??()%&'(%b#"&()%d&,&(?%,?%&'(%#501(/%-#(%(ve-/&(/%-3%&'(%2-/4)c%s'"#,%',?%&5/#()%"#&-%,%0,#53,+&5/"#$% “juggernaut,” taking a huge global market share away from the u.s. and leaving the u.s. manufacturing base in /5"#?c% '(%a8,)(%"#%s'"#,l%0,/f%-#%$--)?%',?%/(e4,+()%&'(%a8,)(%"#%j0(/"+,l%0,/f%,#)%+,#%1(%3-5#)%,40-?&% (.(/!2'(/(%&',&%+-#?50(/?%?e(#)%&'("/%0-#(!c% '"?%&/,#?3(/%&-%s'"#,%',?%35#),0(#&,44!%+',#$()%&'(%2,!%)-44,/?% ,/(%',#)4()%"#%&'(%2-/4)c%u(3-/(%s'"#,6%bcdc%)-44,/?%2(/(%#(()()%,#)%)(0,#)()%1(+,5?(%&'(%b#"&()%d&,&(?%2,?%&'(% e/"0,/!%(ve-/&(/%-3%&'(%2-/4)c%q-44,/?%f(e&%g-2"#$%1,+f%"#&-%&'(%bcdc%1!%&'(%e5/+',?(%-3%$--)?%,#)%?(/."+(?%1!%&'(% +-#?50(/?%"#%3-/("$#%+-5#&/"(?c% '"?%"#g-2%',?%#-2%?4-2()c%s'"#,%',?%#-2%1(+-0(%&'(%e/"0,/!%(ve-/&(/%"#%&'(% 2-/4)6%,#)%&'(%bcdc%',?%&5/#()%"#&-%,%'5$(%"0e-/&(/%-3%$--)?%,#)%?(/."+(?%3/-0%s'"#,6%-#4!%?(+-#)%&-%p5/-e(%:w/(($% ;<<=>c% '"?%',?%?"$#"*+,#&4!%/()5+()%&'(%"#g-2%-3%&/,)(%)-44,/?%1,+f%"#&-%&'(%bcdc%(+-#-0!c% '"?%',?%,4?-%(#,14()% s'"#,%&-%,++5054,&(%.,?&%,0-5#&?%-3%bcdc%)(1&6%,#)%s'"#,%"?%#-2%#501(/%&2-6%1('"#)%x,e,#6%,?%&'(%4,/$(?&%'-4)(/%-3% u.s. treasury securities. '(%s'"#,%(33(+&%',?%,4?-%1((#%+-0e-5#)()%1!%s'"#,%1!%#-&%4(&&"#$%&'("/%+5//(#+!6%&'(%!5,#6%g-,&%3/((4!%,$,"#?&% &'(%bcdc%)-44,/c%y(&&"#$%&'(%!5,#%g-,&%2-54)%0,f(%s'"#(?(%e/-)5+&?%,#)%?(/."+(?%0-/(%(ve(#?".(%&-%&'(%bcdc%,#)%&-% -&'(/%3-/("$#%+-#?50(/?%:8--)!%;<<z>c%j4&'-5$'%4(&&"#$%&'(%!5,#%g-,&%3/((4!%"#%&'(%+5//(#+!%0,/f(&?%2-54)%35/&'(/% pull down the u.s. dollar in the short run, it would also enable the u.s. to gain back some of its competitive edge by 1("#$%,14(%&-%+-0e(&(%2"&'%s'"#,%-#%&'(%e/"+(%-3%(ve-/&()%,#)%)-0(?&"+,44!%e/-)5+()%$--)?c%m"&'%&'(%!5,#%,14(%&-% ,ee/(+",&(%"#%/(4,&"-#%&-%&'(%bcdc%)-44,/6%&'(%e/"+(?%3-/%s'"#(?(%e/-)5+&?%,#)%?(/."+(?%2-54)%"#+/(,?(%,#)%&'(%e/"+(?% 3-/%bcdc%$--)?%2-54)%)(+/(,?(c% '"?%2-54)%+,5?(%(ve-/&?%&-%$,"#%?"$#"*+,#&%?&/(#$&'%"#%&'(%bcdc6%1/"#$"#$%)-44,/?% g-2"#$%1,+f%"#&-%&'(%bcdc%(+-#-0!c%j4&'-5$'%s'"#,%',?%/(+(#&4!%4(&%&'("/%+5//(#+!%,ee/(+",&(%,$,"#?&%&'(%)-44,/%1!%,% small increment, the yuan still has a considerable amount to appreciate to put the yuan and dollar in a correct relative e-?"&"-#%&',&%0,&+'(?%&'("/%/(?e(+&".(%"0e-/&?%,#)%(ve-/&?%:u(/$?&("#%;<<=>c 34'#56'(7'%.'#!8#&4'#59(!:'+%#;%-!% j#-&'(/%?"$#"*+,#&%3,+&-/%&',&%"?%+-#&/"15&"#$%&-%&'(%)(+4"#(%-3%&'(%)-44,/%"?%&'(%(0(/$(#+(%-3%&'(%p5/-e(,#%b#"-#c% the integration of countries in europe has created an economy that is now bigger than that of the u.s., and it has given the world an alternative currency than that of the u.s. dollar. the european union has also taken demand away from the u.s. in the form of foreign investments and exports, and it has overtaken the u.s. in currency holdings of the world. up until now, the euro has provided greater returns than the u.s. dollar when higher interest rates and +5//(#+!%,ee/(+",&"-#%"?%3,+&-/()%"#c%h#%,#%,/&"+4(%1!%o/()%u(/$?&("#%:;<<=>6%'(%2,/#?%&',&@ a[2(%?'-54)%(ve(+&%,%?&(,)!%,#)%?"\,14(%e-/&3-4"-%)".(/?"*+,&"-#%3/-0%)-44,/?%"#&-%(5/-k?%,?%e/".,&(%"#.(?&-/?6% central banks, and sovereign wealth funds seek to align the currency composition of their assets with the new ?&/5+&5/(%-3%&'(%2-/4)%(+-#-0!%,#)%$4-1,4%*#,#+(c%]#(%/(?54&%2"44%1(%?&(,)!%5e2,/)%e/(??5/(%-#%&'(%(5/-%,#)% downward pressure on the dollar...” the move to euro’s from dollars has already started and is a continuing cause for the decline in the value of the u.s. dollar. in 2006, the “global foreign exchange reserves totaled $4.35 trillion, of which 66.3% were held in u.s. dollars; but, as recently as 2002, the u.s. dollar accounted for over 70% of total foreign exchange reserves. the euro’s "#+/(,?"#$%?&,&5/(%',?%e/-.")()%3-/("$#%+(#&/,4%1,#f?%^"#.(?&-/?_%2"&'%,#%,4&(/#,&".(6%,#)%&'(%)".(/?"*+,&"-#%&/(#)%"?% 4"f(4!%&-%+-#&"#5(l%:8--)!%;<<z>c 2010, vol. 1, no. 1, 224-231 jones & l’oste-brown 228 advances in business research 34'#;<=<#5.!%!6> recent perceived instability in the u.s. economy is also contributing to the depreciation of the dollar. the u.s. dollar has historically been viewed as a “safe” currency in that the risk of default or wild swings in its economy are low, and returns are almost guaranteed. recently however, the housing crisis, along with huge trade and budget )(*+"&?6% ',.(% ?-5/()% &'(% +-#*)(#+(% &',&% 3-/("$#% "#.(?&-/?%',.(% "#% &'(%bcdc% (+-#-0!c% h#% &'(%e,?&6% "#.(?&-/?%2(/(% 2"44"#$%&-%?,+/"*+(%?-0(%-3%&'("/%/(&5/#?%1!%"#.(?&"#$%"#%&'(%bcdc%1(+,5?(%-3%"&?%/(4",1"4"&!%,#)%?(+5/"&!c%%7(+(#&4!% &'-5$'6%2"&'%+-#*)(#+(%(/-)()%"#.(?&-/?%,/(%)(0,#)"#$%'"$'(/%/(&5/#?%1!%0(,#?%-3%'"$'(/%"#&(/(?&%/,&(?%-/%0-/(% purchasing power of their native currency. ?@a=5b;5a?5=#@,#3c5#d5ef ;f3$@a#@,#3c5#;<=<#d@ f* 34'#d96:-%7#!8#;<=<#d!//+() 8,#!%+-#?(n5(#+(?%,/"?(%1(+,5?(%-3%&'(%"0e,+&%-3%&'(%)(e/(+",&"-#%-3%&'(%bcdc%)-44,/c%p,+'%',?%&'(%e-&(#&",4%&-% deliver a severe shock to the economy of the united states and the world. one such shock would be the dumping of u.s. dollars by foreign investors. the imbalance of dollars pouring out of the u.s. with dollars pouring back in, whether through debt issues or exports, is only minor in comparison to what could happen if foreigners jettisoned &'("/%)-44,/%'-4)"#$?c%7-#,4)%8+9"##-#%:;<<=>%,))?%&-%'"?%e/(."-5?%/(0,/f?%/($,/)"#$%&'"?%"01,4,#+(@ a[6%&'"?%5#(,?!%(n5"4"1/"50%+-54)%1(%5e?(&%"3%&'(%o()(/,4%7(?(/.(%4-?(?%0-#(&,/!%+-#&/-4%1!%?-0(%`,++")(#&,4k% )-0(?&"+%(.(#&6%?,!6%e50e"#$%&--%05+'%4"n5")"&!%"#&-%&'(%(+-#-0!%&-%,.-")%,%+!+4"+,4%)-2#&5/#i,?%0"$'&%1(%&'(% +,?(%2"&'%+5//(#&%?51e/"0(%0-/&$,$(%+/"?"?c%%j4&(/#,&".(4!6%"3%bcdc%e/-&(+&"-#"?&?%?5++(()%2"&'%1,?'"#$%s'"#,%-/% x,e,#%&-%3-/+(%&'(%)-44,/%)-2#6%&'(#%3-/("$#%'-4)(/?%-3%4"n5")%)-44,/%,??(&?%2-54)%,$,"#%1(+-0(%#(/.-5?c%% '(/(% could be a tipping point where investors in asia or the persian gulf so fear the loss of the dollar’s international purchasing power that they jettison their dollar holdings-despite the short-run pain of letting their own currencies ,ee/(+",&(c% %d5+'%)((e%,#)%$(#(/,4%)-44,/%)(.,45,&"-#%2-54)% &'(#%+,5?(%0,??".(% "#g,&"-#% "#% &'(%b#"&()%d&,&(?% itself.” j?%7-#,4)%8+9"##-#%:;<<=>%?5$$(?&?6%&'(/(%+-54)%1(%,%&"ee"#$%e-"#&%2'(/(%3-/("$#%"#.(?&-/?%3((4%&'(%)-44,/%"?% destined to continue to depreciate, and rather than continuing to take loses, they may decide to dump their dollar '-4)"#$?%&-%"#.(?&%"#%0-/(%?(+5/(%,#)%?&,14(%+5//(#+"(?c%j4?-6%a',."#$%,++5054,&()%?5+'%.,?&%n5,#&"&"(?6%3-/("$#(/?% 0,!6%,&%?-0(%e-"#&6%4-?(%&'("/%,ee(&"&(ie,/&"+54,/4!%3-/%bcdc%$-.(/#0(#&%)(1&l%:8--)!%;<<z>c%m"&'-5&%,%e5/+',?"#$% 1,?(%3-/%)(1&%-3%&'(%bcdc6%&'(%e"e(4"#(%-3%)-44,/?%g-2"#$%1,+f%"#&-%&'(%bcdc%(+-#-0!%2-54)%1(%+5&%-336%,#)%&'(%35#)?% needed to run the government would not be available. ?9(('%.>#d-g'()-h.+&-!% the euro has already surpassed the dollar as the primary reserve currency in the world. the drop in value and the 5#+(/&,"#&!%"#%/"?f%',?%?&"g()%&'(%)-44,/k?%,1"4"&!%&-%e/-.")(%&'(%/(&5/#?%/(n5"/()%1!%e-&(#&",4%"#.(?&-/?c%h#.(?&-/?%',.(% been forced to diversify their holdings among other currencies of the world. as discussed earlier, foreigners have 1((#%2"44"#$%&-%*#,#+(%&'(%bcdc%&/,)(%"01,4,#+(%1!%,+n5"/"#$%,#)%,++5054,&"#$%4,/$(%n5,#&"&"(?%-3%bcdc%$-.(/#0(#&% )(1&6%,#)%?&-+fe"4"#$%.,?&%n5,#&"&"(?%-3%bcdc%/(?(/.(?a%'-2(.(/6%2"&'%?&/-#$%/".,4?%&-%&'(%)-44,/6%?5+'%,?%&'(%(5/-%,#)% the yuan, the dollar now has competition, and investors have an alternative for investment. foreign investors can, and are, diversifying their holdings among various currencies. as investors further diversify their holdings, the demand for dollars will further depreciate, and the cycle will keep replicating itself, thus putting the dollar in a steep, )-2#2,/)%?e"/,4%:u(/$?&("#%;<<=>c the rise in commodities ]#(%-3% &'(%0-?&%."?"14(% ?"$#?%-3% &'(%)(e/(+",&"-#%-3% &'(%)-44,/6% ,#)% &'(% +-#?(n5(#+(% "&% "?% ',."#$%-#% &'(%bcdc% consumer, is the rapid rise in the prices of commodities that has taken place during the past few years. when the exchange rate for the dollar falls, commodities, such as oil which is traded in dollars, rise. the sellers of commodities in foreign countries refuse to let their revenues decline because the value to the dollar has gone down, so they demand 2010, vol. 1, no. 1, 224-231 jones & l’oste-brown 229 advances in business research more dollars. the recent rise in commodity prices has been fed by fear that the u.s. dollar will continue to drop, and investors will take huge losses. investors started to hedge their positions by purchasing commodities, thus fueling the bubble that recently burst. even though commodity values have recently come back down to a manageable level, the upward trend continues, and higher prices are still likely in the near future as long as the dollar continues its decline :8-5',00()%;<<=>c increased import prices s'(,e%"0e-/&?%-3%$--)?%,#)%?(/."+(?6%2'"+'%bcdc%+-#?50(/?%',.(%+-0(%&-%(ve(+&6%,/(%,4?-%1("#$%'5/&%1!%&'(% devaluation of the u.s. dollar. with the dollar losing its value to currencies all across the world, dollars paid for goods ,#)%?(/."+(?%05?&%1(%"#+/(,?()%?-%&',&%/(.(#5(?%2"44%#-&%1(%?,+/"*+()%-#+(%&'(!%',.(%1((#%+-#.(/&()%&-%&'(%"0e-/&(/k?% native currency. this is especially true for goods and services coming out of europe. u.s. consumers will eventually see prices rise in the u.s. for foreign goods. $%i+&-!% h#g,&"-#%2"44%,4?-%"#+/(,?(c% '(%)-2#2,/)%?e"/,4%-3%&'(%)-44,/%"?%"#+/(,?"#$%&'(%+-?&%-3%3-/("$#%(ve-/&?%(#&(/"#$% &'(%bcdc%,#)%+-#&/"15&"#$%&-%&'(%-.(/,44%"#g,&"-#%-3%&'(%bcdc%(+-#-0!c%j?%?((#%"#%s',/&%b%1(4-26%+-0e"4()%1!% "0-&'!% 8+8,'-#%:;<<=>6%"#g,&"-#%',?%1((#%-#%,%?"v%!(,/%5e2,/)%&/(#)6%?"#+(%;<<;%2'(#%&'(%)-44,/%e(,f()c%j&%&'(%?,0(%&"0(6% the u.s. dollar has been on a six year downward trend. this shows a correlation between the decline in the value of &'(%bcdc%)-44,/%,#)%&'(%/"?(%-3%"#g,&"-#%"#%&'(%bcdc%(+-#-0!c%o-/("$#%"#.(?&-/?%,/(%/(n5"/"#$%'"$'(/%,#)%'"$'(/%e/"+(?% in terms of dollars for the goods and services they export to the u.s. this pushes up the costs of goods and services (#&(/"#$% &'(%bcdc6%2'"+'% 4(,)?% &-% ,% /"?(% "#% "#g,&"-#c%j0")% &'(%)(e/(+",&"-#%-3% &'(%)-44,/6% "#g,&"-#%2"44% +-#&"#5(c% s-#?50(/?%',.(%,4/(,)!%?&,/&()%&-%+5/&,"4%&'("/%?e(#)"#$%2'"+'%"?%4(,)"#$%&-%,%?4-2)-2#%-3%&'(%bcdc%(+-#-0!c % %%%%%%%%%%% "0-&'!%8+8,'-#%:;<<=> ?4'+:#;<=<#0!!j) with the help of the weak u.s. dollar, u.s.-made products have become more competitive in the world arena, leading to a short term increase in u.s. exports. in addition, u.s. goods and services are essentially on sale to the /(?&%-3%&'(%2-/4)c% '"?%(33(+&%+,#%1(%?((#%-#%s',/&%c6%e/(?(#&()%(,/4"(/%"#%&'"?%e,e(/6%2'(/(%&'(%,++-5#&%)(*+"&%',?% taken a breather from its rapid increase and has leveled off for 2007. but the increased exports by the u.s. and the strengthening of foreign currencies, in contrast to the u.s. dollar, are also hurting foreign countries who rely heavily -#%&'("/%(ve-/&?%,?%,%?"$#"*+,#&%e-/&"-#%-3%&'("/%tqwc%d5+'%+-5#&/"(?%,?%t(/0,#!6%x,e,#%,#)%d-5&'%9-/(,%,/(%*#)"#$% their completive edge evaporate as the u.s. dollar declines and their goods and services are becoming more expensive &-%&'("/%+/5+",4%+5?&-0(/?%"#%&'(%bcdc%:7-51"#"%;<<=>c%% '"?%"#+/(,?(?%&'(%e-??"1"4"&!%-3%e-&(#&",4%)"?e5&(%1(&2((#%&'(% united states and some european countries. seeing their currencies appreciating against the dollar, along with their ?4+(&#kl##f%%9+/#$%i+&-!%#*+&' 2010, vol. 1, no. 1, 224-231 jones & l’oste-brown 230 advances in business research higher rates of interest, many of the countries’ economies will be affected. this will lead to a contraction of export "#)5?&/"(?6%+,5?"#$%&'("/%5#(0e4-!0(#&%&-%/"?(6%,#)%&'("/%tqw%&-%3,44c%h#%&'"?%/($,/)6%8-5',00()%:;<<=>%-33(/?%&'(% example that, “airbus received a $40 billion contract from the u.s. air force in order to grease its economic wheels [of european countries] at the expense of the american workers.” conclusions with the prosperity of the u.s. at stake, action must be taken to strengthen the u.s. dollar and reverse the direction it has taken over the past six years. action must be implemented to combat the depreciation of the dollar. one such ,+&"-#%2-54)%1(%&-%/(?&-/(%&'(%&/,)(%1,4,#+(%"#%&'(%2-/4)%1!%4(&&"#$%,44%+5//(#+"(?%g-,&%3/((4!%"#%&'(%(v+',#$(?6%&'(/(1!% letting the market dictate the price of currencies. although this would hurt the u.s. dollar in the short run, in the long run the u.s. would gain back some of its competitive edge and be better able to compete in the global market place. pve-/&?6%"#%,))"&"-#%&-%&'(%g-2%-3%)-44,/?%1,+f%"#&-%&'(%bcdc6%2-54)%"#+/(,?(c% '"?%,+&"-#%2-54)%/(n5"/(%,%2"44"#$#(??% 1!%-&'(/%+-5#&/"(?6%?5+'%,?%s'"#,6%#-&%&-%,/&"*+",44!%0,#"e54,&(%&'("/%+5//(#+"(?c d(+-#)4!6%&'(%bcdc%$-.(/#0(#&%05?&%/()5+(%"&?%?e(#)"#$%,#)%$(&%/")%-3%&'(%15)$(&%)(*+"&?%"&%',?%1((#%e4,$5()% with. by reducing excess government spending, the need to increase the money supply in the u.s. would be reduced. this would cause interest rates to rise and lead to a strengthening of the dollar. this would also correct the imbalance -3%"#&(/(?&%/,&(?%1!%,44-2"#$%&'(0%&-%/"?(%&-%,%/(,4"?&"+%4(.(4%&',&%2"44%e/(.(#&%?"$#"*+,#&%"#g,&"-#%,#)%"#+/(,?(%&'(% return on capital needed by foreign investors. to do this, the u.s. government would need to be willing to curb spending and refrain from capping interest rates at very low levels. implications for future research implications for further research include presenting the global needs of the u.s. as a world consumer of goods and services. additional research could also be devoted to the implications to foreign countries which refuse to give “credit” to the u.s. further research could also be done concerning the belief that the dollar has recently been over-valued, and its recent downward trend is simply a correction to a more realistic value in comparison to other currencies of the world. *5,5*5a?5= bergstein, f. 2008. a call for an “asian plaza. 34'#$%&'(%+&-!%+/#5.!%!6>6%;;@%d;idrc% danailova-trainor, g. 2007. the exhaustion of the dollar and its implications for global prosperity. 5+)&'(%#5.!%!6-.# journal6%d@%debiderc% federal reserve statistical release. foreign exchange ratesc% '(%o()(/,4%7(?(/.(c%'&&e@ff222c3()(/,4/(?(/.(c$-.f% /(4(,?(?f'd<fd500,/!fc foreign trade statistics. c-)&!(-.+/# )'(-')<# ;<=<# ?'%)9)# m9('+9c% '&&e@ff222c+(#?5?c$-.f3-/("$#i&/,)(f?&,&"?&"+?f% '"?&-/"+,4f"#)(vc'&04c mckinnon, r. 2008. the dollar problem. 34'#$%&'(%+&-!%+/#5.!%!6>6%;;@%ecc%juhfh#3-/0%s-0e4(&(6%.",%t,4"4(-6% '&&e@ff222c$,4"4(-c5?$c()5c mcmahon, t. 2008. f%%9+/#-%i+&-!%#(+&'c%h#g,&"-#%q,&,6%222ch#g,&"-#q,&,c+-0c 8--)!6%7c%;<<zc%q-44,/%)".(/?"*+,&"-#@% '/(,&%&-%&'(%bcdcg%j0(/"+,#%u,#f(/?%j??-+",&"-#c%aba banking journal, h=@%rzc% mouhammed, a. 2008. mitchell’s general theory of the business cycle and the recent crisis in the u.s. economy. the n!9(%+/#!8#f::/-'j#m9)-%'))#+%j#5.!%!6-.)6%=@%c<ie<c% preeg, e. 2008. the shifting sands of american competitiveness. 34'#$%&'(%+&-!%+/#5.!%!6>6%;;@%zcizzc% 2010, vol. 1, no. 1, 224-231 jones & l’oste-brown 231 advances in business research 7-$-336%9c%;<<=c%t--)1!(%&-%&'(%q-44,/g%34'#-%&'(%+&-!%+/#5.!%!6>6%;;@%edie;c% 7-51"#"6%ic%;<<=c% '(%+-0"#$%*#,#+",4%e,#)(0"+c%foreign policy6%dze@%bbibhc rita jones is an a??-+",&(% e/-3(??-/% -3% ,++-5#&"#$% ,&%s-45015?%d&,&(%b#".(/?"&!c% dhe received his doctorate in accounting from mississippi state university. her current research interests include ethical issues in accounting ,#)%()5+,&"-#6%*#,#+",4%?&/(??%"#%'(,4&'+,/(6%,#)%&(,+'"#$%e(),$-$!%"#%15?"#(??c%d'(%',?%e514"?'()%"#%x-5/#,4%-3% u5?"#(??6%h#)5?&/!%,#)%p+-#-0"+?a%x-5/#,4%-3%j++-5#&"#$%,#)%o"#,#+(%7(?(,/+'6%x-5/#,4%-3%u5?"#(??%,#)%y(,)(/?'"e@%% research, practice, and teaching; decision sciences journal of innovative education, and others. ''# o@)&'pm(!"%%"?%*#,#+",4%-3*+(/%3-/%q(#"0%i-/&'%j0(/"+,%ycycsc%y((%"?%0(01(/%-3%&'(%&-e%0,#,$(0(#&%&(,0% 3-/%i,&"-#,4%d(+5/"&!%j??-+",&(?%h#+c%y((%'-4)?%,%0,?&(/%-3%15?"#(??%,)0"#"?&/,&"-#%3/-0%s-45015?%d&,&(%b#".(/?"&!c 2010, vol. 1, no. 1, 224-231 jones & l’oste-brown advances in business research 2011 volume 2.pdf kaupins and johnson advances in business research 2011, vol. 2, no. 1, 238-246 238 problems in negotiation gambit research and practice gundars kaupins, boise state university mark johnson, idaho state university this paper provides a review of the relevant literature pertaining to the use of gambits (tactics) in negotiations. the review reveals some problems in the literature as discussed within the framework of goldstein’s model of selection, implementation, evaluation, and feedback. key problems in the gambit literature include the lack of empirical research on the choice of gambits and the difficulty of measurement of the effectiveness of gambits due to multivariate problems. implications for future research follow. a gambit is a chess term referring to the moves used to gain an advantage (dawson, 1987). in negotiations, gambits refer to the specific tactics that help achieve negotiation objectives. for example, some gambits include the compromise, walking away from negotiations, trading off, setting aside hard issues first, accepting the first offer, automatically rejecting the first offer, and acting kind while not giving an inch. another gambit may be a “flinch,” which is a strong negative physical reaction to a proposal by the opponent that is implemented with the intent to obtain a more favorable outcome from the other party. negotiators have many of gambits at their disposal. they may implement many of them or only a few in order to achieve their negotiation objectives. negotiators have to decide what gambits are most likely to result in the most favorable outcomes in a given negotiation situation. purpose unfortunately, existing research is not clear why certain gambits should be used in certain negotiation situations. furthermore, research is not clear how to evaluate if a gambit or set of gambits that have been used achieved negotiation objectives. according to coburn (2010), prior to the 1980's, many researchers focused their research on the use of specific gambits. a variety of gambits were defined and negotiators were told to choose whatever gambits they saw fit. more recent negotiation research has considered contextual variables of negotiation situations such as short-term versus long-term negotiation relationships and the search for win-win versus win-lose relationships in selecting gambits. there needs to be a greater rationale for negotiators to use various gambits in negotiations. supposedly, if negotiators had a more systematic basis for selection of gambits in negotiations, they would be more successful in achieving their objectives. accordingly, this study describes how existing research has grown in analyzing gambits and continues to be deficient in describing what gambits to use when and how to evaluate gambits. it also will provide suggestions for future research to begin to tackle difficult problems for researchers and practitioners. figure 1: gambit model gambit gambit gambit assessment phase !!!! use phase !!!!!!!! !!!!!! !!!!!!! evaluation phase conduct a negotiation identify appropriate gambits evaluate degree to " needs assessment negotiate using these gambits which negotiation set negotiation objectives are met objectives evaluate degree to " #!! which gambits met negotiation # objectives " $!!!!!!$!!!!!!!$!!!!!!$!!!!!feedback loop $!!!!!!!$!!!!!!!$!!!!!!!!$!!!!!!!$!!!!!!!!!$!!!!!!!$!!!!!!$!! keep records of negotiations and gambits used for future retrieval kaupins and johnson advances in business research 2011, vol. 2, no. 1, 238-246 239 framework for the literature review to help describe the strengths and deficiencies in the literature, this study provides a framework for the literature review through an adaptation of goldstein’s training model (goldstein, 1993). the adaptation is shown in figure 1 above. in the gambit assessment phase, a negotiation needs assessment is followed by the setting of negotiation objectives. in the gambit use phase, appropriate gambits are selected for negotiations and are used. in the evaluation phase, overall negotiation objectives and individual gambits are evaluated. the feedback loop involves keeping records of negotiations and gambits used for future retrieval in later negotiations. the model has several characteristics. first, it is simple and contains only four steps. second, some variation of it can be found in chapters on training in human resource management texts (i.e., dessler, 2011, mathis and jackson, 2011) and research articles on health and other areas (i.e., wang, et. al., 2008). third, the model has been used in some form in a variety of training programs (mathis and jackson, 2011). related models in the literature include the addie model that involves analysis, design, development, implementation, and evaluation of training methods (learning-theories.com, 2010). prominent other instructional system development (isd) methodologies similar to goldstein (1993) include gagné and briggs (1974), and mager (1962), context, input, process, product (cipp) model (worthen and sanders, 1987); training validation system (tvs) approach (fitz-enz, 1994); and input, process, output, outcome (ipo) model (bushnell, 1990). for the purposes of this study, the model is useful as a structure for discussion of the literature review in negotiation gambits. based on the literature review, a more detailed analysis of what is needed in future gambit research is discussed. literature review gambit assessment phase the negotiation process begins with the gambit assessment phase. negotiators assess the need for negotiations and setting negotiation objectives. the need for negotiations might be established in required talks at the end of a contract, formal grievances, or other dispute situations between parties. negotiations might not be needed where initial proposals are considered acceptable. according to robbins and judge (2011), negotiators should set a target point that is the ultimate realistic goal. a resistance point might also be set that is the point in which the negotiator would not compromise any further. ideal objectives should be specific, measurable, achievable, realistic, and timely using the smart acronym (learnmarketing.net, 2011). gambit selection and use phase in the gambit selection and use phase, a negotiator would select gambits and then actually use them when negotiating. the goldstein model allows for a wide variety of considerations in selecting appropriate gambits in this case. gambits could be selected based on the type of negotiation, knowledge of the other party’s negotiation approaches, the time frame of negotiations, the importance of the outcomes, negotiators’ experiences, the history of negotiations with the other party, possible future negotiations with the other party, the influence of constituents (i.e., higher management, unions, customers, employees, vendors), and time and cost constraints. once the considerations have been made, the negotiator(s) would select the gambit or gambits that would be most appropriate in the beginning, middle, and end of negotiations. though the research literature identifies and discusses many gambits and recommends which gambits are generally the most effective, it has provided little guidance in terms of systematic ways of choosing them for a particular negotiation setting. most of the recommendations provided in the literature merely show which gambits should generally be used during negotiations. this basically equates to the kaupins and johnson advances in business research 2011, vol. 2, no. 1, 238-246 240 traditional “one best way” approach to the use of gambits. little information in the literature has examined situational variables that would impact the effectiveness of different gambits. it certainly seems reasonable that the effectiveness of different gambits would vary depending on the type of negotiations taking place. for instance, certain gambits are likely to be effective for single negotiation settings but could prove detrimental to multiple event negotiations in the future. the following three pages summarize the literature regarding gambit recommendations. win-win gambits. one group of studies recommends that negotiators focus on win-win style negotiations. this approach uses gambits with the goal to satisfy both of the parties’ needs, where both sides believe and feel they have accomplished the outcome they wanted. win-win negotiations also are commonly referred to using a number of other terms including integrative bargaining (walton and mckersie, 1965), both-win management (karrass and glasser, 1980), mutual gains enterprise (kochan and osterman, 1994), nonzero-sum games (katz and kochan, 2004), and soft positions (fisher and ury, 1981). as an example, assume two sisters both want the single orange left in their family fruit basket (robbins and judge, 2012). the sisters could negotiate using a number of negotiation styles. they could compete, where one party forces or persuades the other to give up the orange. alternatively, they could compromise, each getting part of what they wanted, by cutting the orange in half. another alternative is they could use the win-win gambit (integrative bargaining), by talking things through and gaining an appreciation of the others needs and demonstrating an interest in satisfying both sides’ concerns with both getting what they want. is this possible? it is if during their negotiations, the sisters have open and honest discussions and thus discover that one sister only wants the peels of the orange to use to make a cake, while her sister only wants the pulp and juice to make orange juice. the win-win approach can always be use although the win-win outcome won’t always be possible. nonetheless, when both parties in a negation are interested in making a fair deal and recognize that the competing approach is not likely to result in such an outcome, a satisfactory outcome for both parties is more likely to be achieved. however, the approach used will depend on a number of contextual variables. ethical and unethical gambits. another group of studies focuses on the perceived degree of ethicalness of using different gambits. kaupins and johnson (2003) identified seventeen negotiation gambits and had upper-division, non-traditions students, who were enrolled in courses involving labor negotiations, rate each gambit on their ethicalness. using a likert-type scale where 1 = very unethical, 2 = ethical, 3 = neutral, 4 = somewhat ethical, and 5 = very unethical, none of the mean ratings for any of the negotiation gambits were in the very ethical range (4.5 or above). only three gambits were in the range (3.50 to 4.49) that the researchers considered to be “somewhat ethical.” these gambits were hiring an expert negotiator (4.15), the reluctance of the negotiator to sign the first offer, even if satisfied with it (3.76), and asking for specifics regarding what it would take to close the deal (3.68). eight of the seventeen gambits were rated in the “neutral” range (2.50 to 3.49), while the remaining six gambits were rated in the “somewhat unethical” range (1.50 to 2.49). kaupins and johnson (2003) concluded that only three gambits could be considered somewhat ethical, while eight others should be considered neutral on ethicalness. thus 11 of the gambits could be recommended while the use of the six falling into the “somewhat unethical” group should be discouraged. robinson et al., (2000) analyzed the ethicalness of gambits based on the ratings of undergraduate students. these researchers factor analyzed sixteen gambits and found that the larger set of gambits could be reduced to five factor groups. the highest rated factor was labeled “traditional competitive bargaining” with a mean ethical rating of 5.50 (where 1 = not at all appropriate to 7 = very appropriate scale). the four other factors had substantially lower mean ratings for ethicalness; each averaging around approximately 3.00 and below. they included the factors labeled “attacking opponent’s network,” “false promises,” “misrepresentation,” and “inappropriate information gathering.” an example of the traditional bargaining gambit is when a negotiator makes an opening demand that is far greater than what he/she really hoped to get. a false promises gambit occurs when one party guarantees that his/her constituency will uphold the settlement agreed upon, although the party has little or no believe that that will occur. a misrepresentation gambit occurs when one party intentionally misrepresent information to her opponent. kaupins and johnson advances in business research 2011, vol. 2, no. 1, 238-246 241 the attacking ones opponent’s network tactic involves the attempt to embarrass or get an opponent removed from his position. lastly, the inappropriate information gathering gambit involves efforts to illicitly gain information about an opponent’s negotiating position by paying money to, or providing gifts to “someone-in-the-know” from the other party’s camp in exchange for information fallacy gambits. another group of studies focuses on gambits that are considered “fallacies.” fallacies are statements that can be used in negotiations to influence the other party and therefore are gambits. the use of these negotiation gambits are discouraged because of their deceptive nature. according to engel (1994) major categories of fallacies include ambiguity, presumption, and relevance. an example of ambiguity is a “double meaning.” a negotiator might state “i dispense with accuracy.” does this mean he or she is always truthful or always deceptive? an example of presumption is “begging the question.” a negotiator might say “i believe in dental benefits because everybody believes in dental benefits.” does everybody really believe in dental benefits? an example of relevance is the genetic fallacy in which a conclusion is “proved” false by considering its source. a negotiator might state that “our workers provide lousy proposals because they don’t have a college education.” such unsupported arguments are made despite the reality that not all workers who have only a high school education provide bad proposals. jacobs (1994) groups inappropriate gambits into persuasive words, fallacies, and intent signals. persuasive words include the double-bind which gives the listener an illusory freedom of choice between only two choices. fallacies include the false cause. for example, a negotiator may make the statement that “workers have failed us and that is why we have layoffs.” this assertion may ignore factors outside of the workers’ control such as a poor product design, competition, shifts in demand, and a recessionary economy. intent signals involve the intention of the speaker affecting the accuracy of the information. an example is “us” versus “them” in which everything done by the other side is considered wrong. information economics. information economics investigate how information affects an economy and economic decisions (allen, 1990). there are several subfields in the area related to gambits. one of them is associated with signaling. in negotiations, a signal is designed to reduce or eliminate asymmetry of information between two or more parties. negotiations can go awry if one or more parties have an imbalance in information (spence, 1973). accordingly, gambits related to signaling would provide greater information to the other side. an example would be the background of the negotiators (whether they had negotiation experience or not). in another subfield called screening, the under-informed party induces the other party to reveal their information (stiglitz, 1975). accordingly, gambits related to screening would provide greater information about the other side. an example would be inquiring about the background about the people you are negotiating with (the amount of negotiating experience). decision tree. wall (1985) collected over a hundred negotiation tactics (gambits) and organized them into five categories: (1) irrational tactics (tactics that appear illogical such as illogical arguing and failing to consider costly opponent threats), (2) debate tactics such as structural (center upon personal relationships and the issues), joint-problem solving, and competitive, (3) aggressive tactics involving threat and coercive, (4) nonaggressive bargaining tactics such as conciliatory and reward, and (5) posturing tactics such as tough, soft, and neutral. a sixth higher order category of gambits, rational tactics, is identified by wall (1985) and includes debate, aggressive, nonaggressive, and posturing tactics but excludes irrational tactics. wall (1985) developed a four stage decision tree that leads to recommended negotiation tactics based on the yes or no answers to four questions. the yes or no answers to each of the four decision tree questions will lead to different branches and therefore a different recommended gambit or gambits. questions include: (1) is opponent engaging in inappropriate behavior? (2) is opponent contingently cooperative? (3) are future negotiations important? and (4) does your opponent have limited alternatives? (p. 78). for example, if the answer is “yes” to each of the questions and (1) an opponent is engaging in appropriate behavior, (2) is contingently cooperative, (3) future negotiations are important, and (4) the opponent has limited alternatives, the resulting decision tree branch leads one to the recommended gambit, reward. reward gambits include tactics such as making concession, making straw kaupins and johnson advances in business research 2011, vol. 2, no. 1, 238-246 242 issues in order to lose them, making concessions early in negotiations, using open communications, and conferring status upon the opponent (wall, 1985, p. 56). at the other extreme on the decision tree, if the answer to each of the four questions is “no”, then the resulting branches leads one to the recommendation to use the gambits of debate and/or soft or neutral posturing (wall, 1985, p. 56). other gambit recommendations. many other gambits can be found in coburn (2010), farrington (2010), bisineer (2009) and at web sites such as negotiationtactics.net (2010) and syque.com (2009). these sources provide short lists of gambits with accompanying definitions of the gambits. some of these sources also provide discussions pertaining to the ethicalness or the effectiveness of the gambits. coburn (2010), in particular, discusses the ways negotiators can counter gambits that are used on them. many labor relations texts also have lists of recommended gambits, e.g., sloan and witney (2004); holley, jennings, and wolters (2008); carrell and heavrin (2010). some popular books including recommended gambits are mccormack (1995), bazerman and lewicki 1983), urey (1993), hindle (1998), dewdney (1993), lakhani (2005), reardon (2004), bazerman (2007), and thompson (1998). negotiators also can consider using gambits they have used during previous negotiations whether bargaining with a salesperson for a car, with a boss for a pay raise, with a spouse for a family budget, or a teen age child about his or her curfew. negotiations abound, and so do the use of gambits. each contact can provide examples of good or poor negotiations that the negotiators might remember and be able to retrieve on demand. another source for negotiation gambits are professional negotiators, mediators, fact finders, and arbitrators. they can provide specific strategies that have worked for them in organizations such as the american arbitration association, national academy of arbitrators, industrial relations research association, national mediation board, and the federal mediation and conciliation service. negotiation classes such as labor relations (businessschools.com, 2009), sales, law enforcement, real estate and other professions (wisegeek.com, 2010) can list some gambits that have worked. gambit evaluation phase after negotiations are completed, the evaluation phase involves having negotiators evaluate how well they have achieved their negotiation objectives and how well the gambits have contributed to their negotiation objectives. here are some aspects of the gambits that need to be evaluated: 1. did the opponent react negatively or not at all with one of the gambits? 2. did a gambit or combination of gambits lead to breaking a negotiation logjam and leading negotiations in a positive direction? 3. did the employment of a gambit or gambits damage the working relationship between your organization and the other party who has been an important long-term vendor of your firm? there are several approaches negotiators can use to answer the questions just listed. kirkpatrick’s model (kirkpatrick, 1959; kirkpatrick and kirkpatrick, 2006) follows the goal-based evaluation approach that has been integrated into goldstein’s evaluation phase. it identifies levels of evaluation which include (1) reaction, (2) learning, (3) behavior, and (4) results. the four levels will be applied to negotiation evaluation below: 1. reaction. negotiators can evaluate gambits by first simply asking fellow negotiators (through questionnaire, individual interview, or group interview) about what they think of each gambit. this is the easiest information to collect about each gambit. 2. learning. negotiators can evaluate gambits by asking if the use of gambits allowed them to gain any knowledge about the other side. does use of a gambit lead to information such as target points or resistance points? 3. behavior. negotiators can evaluate gambits by analyzing if an individual gambit affected the behavior of the other side. this may be difficult to evaluate. for some gambits such as the flinch, the other side might immediately react with a response. with other gambits such as a compromise, the kaupins and johnson advances in business research 2011, vol. 2, no. 1, 238-246 243 other side might take days or months to react. furthermore, the compromise gambit might be combined with several other gambits so the influence of one gambit might not be totally clear. 4. results. lastly, what were the results or outcomes from the negotiation? were the negotiation objectives achieved? if so, to what extent? if not, why not? how did the gambits as a whole lead to the negotiation results? feedback loop according to the association to advance collegiate schools of business (2010) eligibility procedures and accreditation standards, the feedback loop back to the assessment phase is also known as closing the loop. the feedback loop is one of the most important aspects of goldstein’s model. when negotiations have been completed, successful and unsuccessful aspects of those negotiations are often forgotten for future negotiations. this feedback loop phase ensures that lessons learned from the past are not forgotten. records of prior negotiations and gambits should be kept in this phase so they can be retrieved for the assessment phase of future negotiations. individuals should be clearly assigned to keep the records and remember what worked and what did not work in past negotiations. future research goldstein’s model provides a general framework for assessing negotiation objectives, selecting and using gambits, evaluating negotiations and gambits, and providing a feedback loop. this general framework leaves many details for some useful future research papers. the gambit assessment phase requires future research involving the intent to use gambits at all based on negotiation objectives set. should gambits be used to achieve objectives or are there some other means of achieving objectives by simply agreeing with the proposal? the gambit selection phase requires significant future research on why negotiators should pick one gambit over the next one. this phase is rooted on the assessment phase that sets basic negotiation objectives and target points. some of the variables that may be considered for future decision tree frameworks and studied through surveys and experiments may include the following: 1. is the opponent engaging in inappropriate behavior? 2. is the opponent contingently cooperative? 3. is future negotiation important? 4. does the opponent have limited alternatives? 5. what is the time frame of negotiations? 6. what is the importance of the outcomes? 7. how experienced are the negotiators? 8. what are the negotiator’s demographics such as age, race, gender, etc.? 9. has there been past success in negotiations? the gambit evaluation phase requires significant research concerning when certain gambits are effective in negotiations. for example, the flinch gambit is a strong negative reaction to a proposal that is often used at the beginning of negotiations. it might be very effective in front of people who are very inexperienced in negotiating and are unaware of this particular tactic. but this same negotiation tactic might be very counterproductive with experienced negotiators who are quite aware that this tactic can be done. just to do research on the flinch gambit, many research questions come up such as the following: 1. is the flinch more appropriate in formal or informal settings? 2. with what demographic groups would the flinch be most effective in terms of gender, age, race, and religion? 3. at what time of negotiations would the flinch be most effective? 4. how strong should the flinch be (mild, moderate, very strong)? kaupins and johnson advances in business research 2011, vol. 2, no. 1, 238-246 244 5. should a flinch involve verbal only or be combined with physical gestures such as hand, and eyebrows? 6. how often should a flinch be repeated in a negotiation? 7. can there be variations in a flinch in a negotiation? 8. what type of personality would use the flinch more effectively? type a or type b? as shown by the list, a problem with gambit research is that there are many variables that need be covered on each particular gambit. furthermore, isolation of the effectiveness of one gambit would be difficult because many gambits might be used on a particular negotiation. finally, the feedback loop is an ignored topic in negotiation research. future research needs to analyze what negotiation records (gambits, strategies, various offers) are kept from prior negotiations that are needed to set goals for the assessment phase in the next negotiations. future research also needs to analyze who is typically in charge of retrieving records of past negotiation gambit use. conclusion goldstein provides a model that can be adapted to the negotiation setting. in the assessment phase, the need for negotiations should be established and negotiation objectives should be set. in the gambit use phase, gambits must be selected and used. existing literature on negotiation gambits focus on win-win gambits, ethical and unethical gambits, fallacy gambits, and other gambit recommendations based on decision trees and short lists of recommended gambits. there are very few systematic approaches to modeling what would be the best gambits for what situations. sources of gambits include personal experience, other negotiation professionals, and the literature. in the evaluation phase, the reactions and behaviors of the other party can be evaluated as well as the results of the negotiations. these can help determine whether the gambits have been successful. there is a feedback loop where records of the results of the evaluation phase go back to the assessment phase to facilitate organization learning to improve the appropriate use of gambits in future negotiations. future research should investigate the effectiveness of various gambits through surveys and experiments references allen, b. 1990. information as an economic commodity. american economic review, 80: 268-273. association to advance collegiate schools of business. 2010. eligibility procedures and accreditation standards. retrieved may 25, 2010 from http://www.aacsb.edu/accreditation/aacsb-standards-2010tracking.pdf. bazerman, d. 2007. negotiation genius. new york: bantam. bazerman, m., & lewicki, r. 1983. negotiating in organizations. 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(video). chicago, il: nightingale-conant. dewdney, a. 1993. 200% of nothing. new york: john wiley. dessler, g. 2011. human resource management. upper saddle river: prentice-hall. engel, s. 1994. with good reason: an introduction to informal fallacies. new york: st. martin’s press. experiment-resources.com. 2010. experimental research. retrieved on may 25, 2010 from http://www. experiment-resources.com/experimental-research.html. farrington, j. 2010. negotiation: tactics, tricks, and threats. retrieved on may 21, 2010 from http:// ezinearticles.com/?negotiation---tactics,-tricks-and-threats&id=431340. fisher, r., & ury, w. 1981. getting to yes: negotiating agreement without giving in. boston: houghtonmifflin. fitz-enz, j. 1994. yes…you can weigh training’s value. training, 31: 54-58. gagné, r., & briggs, l. 1974. principles of instructional design. new york: holton, rinehart & winston. goldstein, i. 1993. training in organizations: needs assessment, development, & evaluation. monterey, 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organizational behavior. upper saddle river, nj: prentice hall. robinson, r., lweicki, r., & donahue, e. 2000. extending and testing a five factor model of ethical and unethical bargaining tactics: introducing the sins scale. journal of organizational behavior, 21: 649664. spence, m. 1973. job market signalling. quarterly journal for economics, 83: 355-377. stiglitz, j. 1975. the theory of screening, education and the distribution of income. quarterly journal of economics review, 65: 283-300. syque. 2009. negotiation tactics. retrieved on february 5, 2009 from http://changingminds.org/ disciplines/negotiation/tactics/tactics.htm. thompson, l. 1998. the mind and heart of the negotiator. upper saddle river, n. j.: prentice hall. ury, w. 1993. getting past no: negotiating your way from confrontation to cooperation. new york: bantam books. wall, j. 1985. negotiation: theory and practice. glenview, il: scott, foresman. wang, c., wei, s., xiang, h., wu, j., xu, y., liu, l., & nie, s. 2008. development and evaluation of a leadership training program for public health emergency response: results from a chinese study. public health, 8: 377-387. wisegeek.com. 2010. how do i get negotiation training? retrieved on may 26, 2010 from http://www. wisegeek.com/how-do-i-get-negotiation-training.htm. wexley, k., & latham, g. developing and training human resources. glenview, il: scott, foresman. worthen, b., & sanders, j. 1987. educational evaluation. new york: longman. gundars kaupins is department chair and professor of management at boise state university. he received his ph.d. in human resource management from university of iowa and is certified as a senior professional in human resources (sphr). his publications include over 300 articles in job evaluation, training and development, baltic studies, and human resource ethics in journals such as the academy of management perspectives and international journal of technology and human interaction. mark johnson is a professor of management at idaho state university. he received his ph.d. in industrial relations and human resources management from university of iowa. he has published journal articles dealing with compensation, performance appraisal, personnel interviewing and testing, training, downsizing, total quality management, negotiations and contract administration. dr. johnson has been certified by the human resources certification institute and the society of human resource managers as a senior professional in human resources (sphr). uafs abr journal vol 4 no 1 2013.pdf 77 morgan and ihrke advances in business research 2013, vol. 4, no. 1, 77-86 for-profit higher education and cpa exam success rates: comparing for-profit institutions with public (state) institutions and private not-for-profit institutions of higher education john morgan, winona state university frederic ihrke, winona state university public perceptions about the quality of business education received at commercial (for-profit) universities, relative to the quality of business education received at publicly supported state universities and private not-for-profit universities are mixed and somewhat controversial (verschoor, 2011). relatively little information exists concerning the quality of education received with a bachelor’s degree from a commercial university (u. s. government accountability office, 2011). this research compares average cpa exam pass rates of graduates from three types of higher education institutions: for-profit universities, state sponsored public universities, and private not-for profit universities. comparing average cpa exam pass rates of graduates of each type of university is one means to assess the quality of accounting education provided by each type of university. our findings indicate the average cpa exam pass rates of candidates completing their accounting educations at commercial for-profit universities are strikingly lower than those of candidates completing their accounting educations at either publicly supported state schools or at private not-for-profit universities. in addition we find that a much lower fraction of graduates from commercial universities sit for the cpa exam compared to publicly supported state universities and private not-for-profit universities. together these empirical data suggest if passing the cpa exam is a goal, then the educational path of commercial for-profit accounting education may not be optimal. an increasingly visible and fast growing segment of the u.s. higher education market is private forprofit higher education. in recent years a growing fraction of the total higher education market is being served by large publicly owned commercial organizations (corporations) that actively advertise various business and other professional degree programs on television, the internet, and elsewhere. because these entities are commercial concerns, a key motivating factor in their administration is to earn profits for corporate investors. and to promote the larger enrollments that lead to larger profits, commercial educational institutions are known to be aggressive in assisting entering students to obtain federal student grants and federal student loans in order to finance their commercial educations (bennett, lucchesi, and vedder, 2010). the u.s. department of education has for three decades collected and reported data on higher education characteristics in america. the department of education tracks the relative proportions of students receiving higher education degrees from publicly supported state institutions, private not-forprofit institutions, and privately owned for-profit commercial organizations. furthermore department of education data distinguishes between commercial “for-profit chain education” and commercial “for-profit independent education”. commercial chain education is defined by the department of education as forprofit education offered by an institution at multiple geographic locations. for-profit independent education is defined as for-profit education offered by an institution at a single geographic location or in a narrow geographic region. deming, golden, and katz (2012) analyzed aspects of u. s. department of education data and have identified several major trends in for-profit higher education. these include: 1) enrollments at for-profit educational institutions are 100 times larger than they were in the 1970’s; 2) enrollments at for-profit educational institutions now account for approximately 11.5 percent of all higher education enrollments in the u.s.; 3) for-profit educational institutions grant approximately 5 percent of all bachelor’s degrees in the u.s, but they grant almost 12 percent of all business degrees in the u.s.; and 4) nearly 90 percent of 78 morgan and ihrke advances in business research 2013, vol. 4, no. 1, 77-86 the increases in enrollment at for-profit institutions over the past decade come from expansion at forprofit chain institutions. the release of a 2010 u.s. government accountability office (gao) report entitled “for-profit colleges: undercover testing finds colleges encouraged fraud and engaged in deceptive and questionable marketing practices” brought for-profit higher education industry under the scrutiny of the public and congress. the gao in a 2010 report (u.s. government accountability office, 2010) alleged widespread abuse by chain commercial education universities. it criticized the larger chain institutions for practices such as paying commissions to its admission officers based on number of students recruited, using unethical marketing practices that either failed or deceptively represented total tuition costs to prospective students before asking them to sign long-term contracts, providing misleading information about the institution’s accreditation status, encouraging students to engage in what constituted fraud when applying for federal financial aid, and for failing to disclose graduation rates before asking students to sign long-term contracts (verschoor, 2011). another controversy in commercial higher education has been the markedly higher usage of federal student aid by students at these institutions, and also the much higher student loan default rates by students attending these institutions. deming, goldin, and katz (2012) note that federal student financial aid under title iv (pell grants and stafford loans) makes up approximately 75 percent of all revenues received by for-profit institutions of higher education. in 2008-2009 fourteen of the largest for-profit chain institutions received 87 percent of their total revenue directly from the federal government (verschoor, 2011). and although enrollees at for-profit institutions utilize approximately 24 percent of all pell grant distributions and 26 percent of all federal student loan disbursements, they comprise only 11.5 percent of total higher education population (deming, goldin, and katz, 2012). in 2012, the u.s. department of education reported student loan default rates by students who had attended for-profit institutions were nearly 23 percent. this is more than double the default rate of students attending public institutions and nearly three times the default rate of students attending private not-for-profit institutions (u.s. department of education, ed.gov., 2012). higher student loan default rates by those who attended for-profit institutions are thought to occur for several reasons. historically there is a lower graduation rate at for-profit institutions averaging only 22 percent compared to graduation rates averaging 55 percent at public universities (hechinger, 2011). evidence suggests that students who do not graduate are generally more likely to default on student loans after leaving school (hechinger, 2011). in addition, student borrowers default more often when they have been promised high paying jobs after graduation upon entering school that never materialize at graduation (clark, 2011). the gao (u.s. government accountability office, 2010) criticized for-profit chain institutions for many of these very practices. yet another reason for higher student loan default rates by students at for-profit higher education is believed to be that the total dollars borrowed per capita by enrollees at for-profit institutions tends to be higher than at either public or private not-for-profit universities. this in turn makes it harder to repay those loans (clark, 2011). graduates (and also those who do not graduate) leave commercial institutions with higher overall debt burdens and find them hard to pay especially when jobs have not materialized as expected. the average borrowing of students attending for-profit institutions (and earning a bachelor’s degree) is $33,050 at graduation, nearly 50 percent more than the average borrowing by students graduating from either publicly supported or private not-for-profit institutions (clark, 2011). finally, enrollees at for-profit chain schools are disproportionately made up of students considered under various metrics as economically disadvantaged. government data show students attending forprofit educational institutions on average have lower family incomes, include proportionally more single parents, and include a larger proportion of students holding only general education diplomas (geds) rather than high school diplomas, than do public and private not-forprofit institutions (cellini, 2012). all together these factors lead to less ability to draw upon stored or pre-existing family resources to repay large educational loans (cellini, 2012). 79 morgan and ihrke advances in business research 2013, vol. 4, no. 1, 77-86 in a december 2011, a gao report to congress entitled “postsecondary education—student outcomes vary at for-profit, nonprofit, and public schools” (u. s. government accountability office, 2011) data were gathered on educational outcomes of those attending publicly supported, private not-forprofit, and commercial for-profit educational institutions. the data included comparisons of graduation rates, employment outcomes, student debts at graduation, loan default rates, and success of graduates on ten professional licensure exams completed shortly after graduation. the 2011 gao report (u. s. government accountability office, 2011) confirmed many of the findings in u.s. department of education data. conclusions in the 2011 gao report include: 1) on average only 3 percent of entering low-income students ultimately complete a bachelor’s degree if they attend a for-profit institution whereas a full 49 percent of entering low-income students complete a bachelor’s degree if they attend a public institution; 2) graduates of for-profit schools, when able to find work in their field of study after graduation, generally have similar annual earnings to those from public and private not-for-profit schools, but they are less likely to find a job in their field; 3) a higher proportion of students at for-profit institutions take out student loans, and the total amount of those loans at graduation is higher relative to students attending public and private not-for-profit institutions; 4) student loan default rates are higher for those who attended for-profit institutions; and 5) on nine of ten licensing exams, recent graduates of forprofit schools had significantly lower pass rates. the single exception was the licensure exam for funeral directors. lower pass rates on professional exams were found on registered nursing exams, licensed practical nursing exams, radiographers’ exams, emergency medical technician exams, paramedics’ exams, surgical technologist exams, massage therapist exams, legal associate exams, and cosmetologist exams. of note to this research is that the uniform cpa exam was not one of the exams included in the gao study. in response to growing public concerns about both the costs and outcomes of commercial higher education especially to economically disadvantaged students, the u.s. department of education recently decided to implement new regulations over higher education. these new regulations were published in the 2011 federal register under the title, “program integrity: gainful employment-debt measures” (the federal register, 2011). the regulations were intended to impose sanctions on postsecondary educational institutions whose graduates, on average, failed either of two metrics. the first metric is that at least 35 percent of former students must be current in repaying their student loans (not be in default). the second metric is either that the average annual loan payments of former students do not exceed 30 percent of the average graduate’s discretionary income, or the total annual loan payments of the average graduate do not exceed 12 percent of their total income on average. these new regulations were intended to limit future access to federal student aid (title iv payments and loans) to institutions whose graduates could not meet both metrics. however, less than a month after the regulations were released, a u.s. district judge in washington, d.c. struck them down on the basis of inadequate support for the 35 percent loan repayment metric (equal justice works, 2012). as a result the new regulations are not being enforced until such time as the u.s. department of education reworks its loan default metric to the satisfaction of federal courts. motivation the motivation for this research is to determine whether cpa exam pass rates of graduates from three different types of higher education institutions---publicly supported state universities, private not-forprofit universities, and private for-profit commercial universities differ systematically. we pose several questions. first, are there systematic differences in the average cpa exam pass rates of students completing a bachelor’s degree in from each of the three types of institutions? and if so, how large are these differences and in what direction? we believe answers to these questions will be important to students (and also to their parents) who are looking for universities that will provide the type of education needed for passing the cpa examination and for entering the profession of public accounting. we have found no other published (or unpublished) research reporting these comparisons. 80 morgan and ihrke advances in business research 2013, vol. 4, no. 1, 77-86 cpa exam pass rates: an available operational measure of accounting education the cpa exam is a long-standing and highly respected licensure examination whose passage is required prior to the granting of professional licensure as a certified public accountant (cpa) in all 51 u.s. jurisdictions. surprisingly, the cpa exam was not included on the list of the 10 professional licensure exam outcomes evaluated by the gao in the december 2011 gao report to congress entitled “postsecondary education student outcomes vary at for-profit, nonprofit, and public schools” (u. s. government accountability office, 2011). the research results reported here are intended to rectify this omission. cpa exam pass rates are published each year by the national association of state boards of accountancy (nasba). nasba data includes the pass rates of nearly all accounting programs in america. nasba data however does not separately identify the pass rates of “very small programs” which are defined as those accounting programs whose graduates take fewer than 5 total sections of the cpa exam during a reporting (calendar) year. since nasba data do not include the data of “very small programs”, our research sample could not either. nevertheless, our data include the well over 95% of all cpa exam sections taken during 2011. topics tested on the cpa exam are determined by the american institute of certified public accountants (aicpa). the aicpa carefully designs and updates the cpa exam, an exam whose purpose is to evaluate the accounting as well as general business knowledge (and application skills) of accountants wishing the cpa designation. the cpa exam itself is a total fourteen hours in length. it covers topics in accounting, auditing, income tax, wealth transfer tax, business law, accounting systems, economics, management, and finance. the exam has been carefully and professionally developed based on state-ofthe-art testing and psychometric principles to ensure construct and test validities much in the way sat and act tests are developed. according to the aicpa: “the content of the uniform cpa examination is developed through an extensive and integrated process. at each step in the process expertise in various disciplines is applied to ensure that the test materials are accurate and appropriate for use on the cpa exam. the process incorporates expertise in a number of key areas. the first key area of expertise is in accounting. individuals who draft, review, and finalize test materials are experienced cpas. a second area of expertise is in the science of testing, called psychometrics. at each stage in the test development process, psychometricians are involved in the design, development, and implementation of test materials. these include test specifications, test questions, and data analysis. a third area of expertise is in test development. experts in the design and development of test questions are involved in the process.” (aicpa, 2011i). passing the cpa exam after graduation is a goal of many accounting students. pass rates on each of the four parts of the cpa exam for students whose highest degree earned is a bachelor’s degree have averaged just below 50% over the past decade. these low pass rates occur in spite of the fact that only educationally qualified individuals are permitted to sit for the cpa exam. in all 51 u.s. jurisdictions minimum requirements include substantial university level accounting and general business coursework be completed prior to sitting for the cpa exam. for example, in the state of minnesota regulation requires candidates possess (or be within 90 days of possessing) a bachelor’s degree that includes at a minimum 24 semester hours of accounting coursework (beyond the principles level), and a minimum of 24 semester hours of general business coursework before sitting for the exam. other jurisdictions have comparable educational requirements to sit for the exam. the cpa examination itself is uniformly graded under the auspices of the national association of state boards of accountancy (nasba) and thus provides a uniform and unbiased operational measure of the knowledge and skills of graduates from accounting programs from across the nation who take the exam. according to the official website of the american institute of certified public accountants, the central purpose of the cpa examination is “to admit individuals into the accounting profession only after they have demonstrated the entry-level knowledge and skills necessary to protect the public interest in a rapidly changing business and financial environment.” (aicpa, 2011ii). additionally, nasba says this about the cpa exam: “since 1917, the uniform cpa examination has proven to be a highly valid and 81 morgan and ihrke advances in business research 2013, vol. 4, no. 1, 77-86 reliable measure of candidate abilities. this focus on quality has made it possible for all united states jurisdictions to rely on the results in determining who is competent to practice public accounting in order to protect the public.” (nasba, aicpa, and thomson prometric, 2007: p. i). we have chosen average cpa exam pass rates of each institution’s graduates as the operational measure in this research as our dependent variable. tens of thousands of college graduates from accounting programs at many hundreds of institutions of higher education take the uniform cpa exam annually. using cpa pass rates as our dependent variable (and as a proxy for the quality of accounting education received before taking the exam), we are able to compare the cpa exam pass rates of recent accounting graduates from three types of institutions, namely publicly supported state schools, private not-for-profit universities, and privately owned commercial institutions (our three independent variables). comparisons are made to determine if there are statistically significant differences among the three groups in terms of their cpa exam pass rates, and if so, how large the differences are, and in what direction. data schools selected for analyses include all schools intersecting two separate databases. the first database is the institute of education sciences, national center for education statistics (nces, 2011) an online database maintained by the u.s. department of education listing information about all four year colleges and universities located in the united states and the district of columbia. this database was also our source of data on each institution’s undergraduate enrollment (size) and school type (see table 1). the second database, whose intersection with the first, determined our final research sample, is nasba 2011 uniform cpa examination candidate performance (nasba, 2012). as explained above, cpa exam pass-rate data are collected and reported annually by nasba. these data include all but the very smallest accounting programs in the u.s.; accounting programs whose graduates take fewer than 5 total cpa exam sections during a calendar year are not separately identified in nasba data. our resulting research sample contained all 905 four year u.s. colleges and universities identified in u.s. department of education data and also listed by nasba as having graduates who took at least 5 or more sections of the cpa exam during calendar 2011. to get a better sense of the 905 schools included in our sample, we sorted the institutions by enrollment size, by institution-type, and by the number of cpa exam sections completed by graduates of each type of school during calendar 2011. keep in mind that institution-type refers to categorizing institutions into one of three categories: publicly supported state schools, private not-for-profit universities, and for-profit commercial universities. school size refers to the number of undergraduate students enrolled at each institution during the 2011-2012 school year per department of education statistics. see tables 1, 2, and 3 below. table 1: number of institutions by institution type undergraduate enrollment number of institutions all institutions public private not-for-profit private for-profit > 15,000 155 138 13 4 10,001 – 15,000 97 83 12 2 5,001 – 10,000 199 129 67 3 0 – 5,000 454 69 373 12 totals 905 100.0% 419 46.3% 465 51.4% 21 2.3% the source of this data is “nasba 2011 uniform cpa examination candidate performance, appendix d”(nasba, 2012) and u.s. department of education, institute for education sciences, national center for education statistics (ncbs, 2011). 82 morgan and ihrke advances in business research 2013, vol. 4, no. 1, 77-86 table 2: total undergraduate enrollment by institution type school size total undergraduate enrollment all institutions public private not-for-profit private for-profit > 15,000 3,949,289 3,302,257 285,536 361,496 10,001 – 15,000 1,182,219 1,008,442 148,942 24,835 5,001 – 10,000 1,412,970 943,456 450,666 18,848 0 – 5,000 1,148,374 236,771 877,958 33,645 totals 7,692,852 100% 5,490,926 71.4% 1,763,102 22.9% 438,824 5.7% the source of this data is “nasba 2011 uniform cpa examination candidate performance, appendix d”(nasba, 2012) and u.s. department of education, institute for education sciences, national center for education statistics (ncbs, 2011). table 3: total number of cpa exam sections completed by graduates of each institution type school size total number of cpa exam sections completed all institutions public private not-for-profit private for-profit > 15,000 39,260 35,734 2,996 530 10,001 – 15,000 11,041 9,905 1,077 59 5,001 – 10,000 13,017 6,402 6,569 46 0 – 5,000 14,571 1,551 12,665 355 totals 77,889 100% 53,592 68.8% 23,307 29.9%) 990 1.3% the source of this data is “nasba 2011 uniform cpa examination candidate performance, appendix d”(nasba, 2012) and u.s. department of education, institute for education sciences, national center for education statistics (ncbs, 2011). table 1 indicates that only 21 schools in the sample of 905 universities (2.3%) were commercial forprofit universities. these 21 schools included many of the larger commercial chain institutions such as kaplan university, strayer college, university of phoenix, grand canyon university, devry university, liberty university, and excelsior college. we had expected a larger number of for-profit institutions to be in our sample. however after reviewing department of education statistics and nasba data separately, we discovered that while approximately 600 commercial for-profit schools are listed in department of education statistics, only 21 of the 600 had graduates who completed the requisite 5 or more sections of the cpa exam in 2011 and therefor merited separate identification in nasba data. because the majority of commercial for-profit universities (most offering accounting degrees) had too few or zero graduates taking the cpa exam in 2011, these institutions could not separately identified in nasba data and could not be included in our sample. here are several examples of this phenomenon. itt institute of technology is a large commercial forprofit university having campuses in 38 states and having undergraduate enrollment totaling more than 80,000. itt institute of technology offers bachelor’s degree in accounting at nearly all of its campuses. itt institute of technology did not have graduates sitting for 5 sections of the cpa exam during 2011 per nasba data. ashford university has undergraduate enrollments in excess of 67,000, offers many different business degrees including bachelor’s degrees in accounting, but also did not meet the 5 section threshold for separate listing in nasba data. this pattern of large commercial universities having very few or zero graduates sitting for the cpa exam is the main reason only 21 of approximately 600 commercial for-profit universities ended up in our final sample. from tables 2 and 3 it can be seen that while private for-profit institutions account for 5.7% of the total undergraduate enrollment at the 905 schools, these students accounted for only 1.3% of total cpa exam sections taken in 2011. this is another way of measuring the smaller fraction of for-profit school graduates taking the cpa exam when compared to graduates of public and private not-for-profit schools. graduates of publicly supported state schools took 68.8% of all cpa sections taken in 2011. graduates of private not-for-profit universities took 29.9% of all cpa sections taken in 2011. graduates of for-profit 83 morgan and ihrke advances in business research 2013, vol. 4, no. 1, 77-86 schools took only 1.3% of all cpa exam sections taken in 2011, this in spite of the fact that graduates of commercial universities account for approximately 12% of all business school graduates in the u.s. (deming, golden, and katz, 2012). methods statistical tests were undertaken for the purpose of determining whether average cpa exam pass rates of graduates of three types of schools publicly supported state schools, private not-for-profit universities, and for-profit commercial universities were significantly different from each other. all statistical comparisons were conducted using one-way analysis of variance (anova). anova is a commonly used test statistic when comparing the means of two or more groups for the purpose of rejecting the null hypothesis that no significant statistical differences exist among groups. in the present situation, the dependent variable in our anova was defined as the average cpa exam pass rates of candidates from each group. the independent variables were the three types of universities publicly supported state schools, private not-for-profit universities, and for-profit commercial universities. in short, anova was our method of comparing the average 2011 cpa exam pass rates on 77,889 cpa exam sections taken by graduates from 905 universities classified into one of three school types, publicly supported state schools, private not-for-profit universities, and for-profit commercial universities. results table 4 shows the results of the overall one-way anova. the null hypothesis is rejected in the sample of 905 schools (p. < .001). average cpa exam pass rates of graduates of schools in the three groups were found not to be statistically the same. table 5 presents the mean pass rates and standard deviations for each of the three groups. table 6 presents group-to-group post hoc comparisons comparing each group separately to the other two groups and noting the size and statistical significance of these differences in each comparison made. table 4: anova rejecting the null hypothesis that no significant differences exist among groups (n = 77,889 total testing events) dependent variable (percentage passing) sum of squares df mean square f sig. between groups 678504.432 2 339252.216 1590.440 .000* within groups 16613645.375 77886 213.307 total 17292149.807 77888 * -statistically significant differences exist among groups; p. < .001 table 5: mean percentage pass rates by group (with standard deviations) institution type n percentage pass rates of candidates std. deviation std. error public (state schools) 53592 50.4 13.63929 .05892 private (not-for-profit) 23307 48.4 16.72198 .10953 commercial (for-profit) 990 24.8 11.33981 .36040 total 77889 49.5 14.90010 .05339 table 6: post hoc comparisons: group-to-group least significant difference tests mean pass rate differences std. error sig. public (state schools) to: private (not-for-profit) commercial (for-profit) 2.00 25.66 .11460 .46845 .000 * .000 * private (not-for-profit): public (state schools) commercial (for-profit) 2.00 23.66 .11460 .47393 .000 * .000* commercial (for-profit): public (state schools) private (not-for-profit) 26.58 24.59 .46845 .47393 .000 * .000* *-statistically significant differences exist between groups; p. < .001 84 morgan and ihrke advances in business research 2013, vol. 4, no. 1, 77-86 table 5 indicates that candidates from public universities (state schools) have the highest overall average cpa exam pass rates at 50.4% followed closely by private not-for profit universities with average pass rates of 48.4%. commercial (for-profit) universities have notably lower pass rates than either of the other two groups averaging only 24.8%. this is approximately half the pass rate of the other two groups. differences of this size are not only statistically significant (in the sense of anova), but are also important in the real-world sense with implications for tens of thousands of future college students/ cpa exam takers. conclusions and limitations we draw two major conclusions from these data. first, similar to 2011 gao findings that show lower pass rates by students educated at commercial for-profit universities on 9 of 10 professional examinations (u.s. gao 2011), we find the same phenomenon regarding the pass rates on the uniform cpa exam. students who complete their accounting educations at commercial for-profit universities have strikingly lower pass rates on the uniform cpa exam than do others. pass rates are roughly half those of students who complete their educations at public universities or private not-for-profit universities. our second major conclusion is that a much smaller fraction of students who attempt an accounting education at commercial institutions actually complete it, and a much smaller fraction of those who do complete their accounting educations at commercial for-profit universities appear to take the cpa exam. based on department of education statistics commercial universities now grant a full 12% of all business bachelor’s degrees in the u.s. (deming, golden, and katz, 2012). these same graduates account for only 1.3% of all cpa sections taken during 2011 (see table 3 above). further, inferring from differential pass rates, commercial universities apparently graduate only about six tenths of one percent of all those passing the cpa exam each year. together our conclusions suggest that education at commercial universities may be a poor choice for students who someday hope to take the cpa exam and enter the field of public accounting. factors such as higher average debt at graduation, lower overall graduation rates, and much lower pass rates on the uniform cpa exam are all factors of commercial education that suggest this conclusion. nothing in our data are intended to be used for inferring unambiguously why lower cpa exam pass rates occur at commercial universities. since our research design is not an experimental design (i.e. random selection, random assignment of subjects to groups, and independent variable manipulation), causal inference about the reasons for discovered systematic relationships in not possible (bryman and cramer, 2005). causal inference requires a fully randomized experimental design in which researchers manipulate a single research variable differentially among groups. (all other systematic differences among groups are presumed nonexistent due to random selection and assignment of subjects to groups.) in the present case such a design is not feasible or possible. in our society, one cannot reasonably randomly assign students to public universities, to private not-for-profit universities, and to commercial for-profit universities for a research in order to be certain groups do not differ systematically at the outset. therefore, due to the limitation of our research design, the particular reason or reasons graduates of commercial universities have lower average pass rates on the uniform cpa exam cannot be reasonably inferred from the data. lower cpa exam pass rates by the graduates of commercial universities could result from any number of factors or combination of factors. for example, one might speculate our findings result solely from selection bias commercial universities attract, on average, a lower quality student than do traditional universities, and thus these lower quality students, regardless of the quality of education they have received, score lower on the uniform cpa exam due to their lower abilities. one might just as reasonably speculate that commercial education itself is of low quality, and therefore is the main determinative factor in lower cpa exam pass rates of graduates of commercial universities. or one might also speculate that a combination of factors, some that may not have even been imagined, together are the determinative factors of the lower cpa exam pass rates by the commercially educated. the point is there is no logical way to unambiguously draw causal inferences based on a correlational research design. 85 morgan and ihrke advances in business research 2013, vol. 4, no. 1, 77-86 nevertheless, we have shown a systematic association between commercial education and much lower cpa exam pass rates even if unable to state precisely why this relationship exists. knowing the relationship exists has value in and of itself, and becomes the basis for other research that attempts to clarify the causes of this relationship. finally to summarize and repeat, the purpose of our research has not been to develop or explicate a general theoretical model describing the causative factors in a discovered negative relationship between commercial education and cpa exam pass rates. rather, our purpose has been to discover whether a systematic relationship exists between commercial for-profit education and cpa pass rates, and if so, to understand its magnitude and direction. this we have successfully been able to do. graduates of commercial for-profit universities clearly have cpa exam pass rates markedly lower than those of graduates of public universities and private not-for-profit universities. this result has implications for incoming students and their parents as they seek to identify universities that will most likely maximize the chances of the student someday passing the uniform cpa exam. references aicpa. 2011i. the uniform cpa examination: development, delivery, and administration. http:// www.aicpa.org/becomeacpa/cpaexam/examinationcontent/contentdevelopm ent/pages/default.aspx aicpa. 2011ii. become a cpa/cpa exam/for candidates/faq. http://www.aicpa.org/becomeacpa/ cpaexam/forcandidates/faq/pages/computer_faqs_1.aspx bennett, d., lucchesi, a., & vedder, r. 2010. for-profit higher education: growth, innovation and regulation. center for college affordability and productivity (policy paper), http://heartland.org/sites/ all/modules/custom/heartland_migration/files/pdfs/29010.pdf. bryman, a., & cramer, d. 2005. quantitative data analysis with spss 12 and 13, a guide for social scientists. routledge. new york: taylor, and francis group. cellini, s. 2012. for-profit higher education: an assessment of costs and benefits. national tax journal, 65(1), 153-180. clark, j. 2011. the real deal on for-profit colleges. kiplinger’s personal finance, 65(5) 64-68. deming, d., goldin, c., & katz, l. 2012. the for-profit postsecondary school sector: nimble critters or agile predators? journal of economic perspectives, 26(1), 139-164. equal justice works. 2012. gainful employment regulations put on hold. u.s. news, co., retrieved from: http://www.usnews.com/education/blogs/student-loan-ranger/2012/07/11/gainful-employmentregulation-put-on-hold hechinger, j. 2011. for-profit college grads also earn a life of debt. bloomberg businessweek, 4212, 1819. nasba. 2012 & 2011. nasba uniform cpa exam candidate performance. nashville, tn. nasba, aicpa, & thomsonprometric. 2007. candidate bulletin: information for applicants, i. nces. 2011. institute of education sciences, national center for education statistics. bachelor’s institutions, four year (data file). retrieved from: http://nces.ed.gov/collegenavigator/?s= all&l=5&ic=1 the federal register. 2012. program integrity: gainful employment-debt measures. http://www.ifap. ed.gov/fregisters/fr061311gedebtmeasures.html. 86 morgan and ihrke advances in business research 2013, vol. 4, no. 1, 77-86 u.s. department of education. 2012. default rates rise for federal student loans (news release). http://www.ed.gov/news/press-releases/default-rates-rise-federal-student-loans u. s. government accountability office. 2011. postsecondary education student outcomes vary at for-profit, nonprofit, and public schools. http://www.gao.gov/products/gao-12-143 u. s. government accountability office. 2010. for-profit colleges: undercover testing finds colleges encouraged fraud and engaged in deceptive and questionable marketing practices. http://www. gao.gov/products/gao-10-948t. verschoor, c. 2011. do for-profit colleges deserve taxpayer support? strategic finance, 92(10), 17-25. john morgan is a professor in the department of accounting at winona state university. he received his ph.d. in accountancy from the university of nebraska-lincoln. his current research interests include the financial reporting issues related to intellectual capital, business school accreditation issues, cpa exam success factors, and measuring teacher effectiveness. he has published in the journal of 21 st century accounting, the journal of business and leadership, the clarion business and economic review, and in learning and teaching in higher education-gulf perspectives. frederic ihrke is a professor and chair in the department of accounting at winona state university. he received his mbt from the university of minnesota and his j.d. from william and mitchell college of law. his current research interests include income tax policy, income tax law, and accounting for intangible assets. he has published in the journal of business and leadership. uafs advances in business research 2012 lowrez (2).pdf riedy, yu, and zhou advances in business research 2012, vol. 3, no. 1, 141-146 141 effect of teaching method on students’ perceptions of instructor attributes marian riedy, emporia state university jun yu, emporia state university joyce zhou, emporia state university a long-standing and substantial body of research indicates that an active and/or cooperative teaching method may be more effective in terms of instructional outcomes than a traditional lecture approach. a separate body of research demonstrates that effective instructors have similar personality traits and professional attributes, at least insofar as students perceive those traits and attributes. this article describes a study that merges these two areas of inquiry to explore whether the use of different teaching methods by one instructor affects student perceptions of that instructor’s traits and attributes. no college instructor today could be unfamiliar with the term “active learning,” or a related pedagogical concept such as “cooperative” or team-based learning. the literature is rife with reports of the effectiveness of active learning. professional development courses and seminars emphasize the need to include meaningful, engaging, and realistic or “active” exercises in course work. yet by most reports the majority of college instructors still use primarily a lecture-based approach to teaching face-to-face classes (paulson & faust, 2008). notwithstanding the research suggesting an alternative approach, this reluctance to jettisoning the traditional lecture may be justified: lecture may just be more effective for some subjects, students, or instructors. lecture may be most effective for instructors who lecture well, and active learning or cooperative learning best for those who are or become adept with that method (covill, 2011), and there may be other good reasons for relying largely on lecture. given this uncertainty, instructors seeking to enhance their teaching effectiveness face a quandary. one obvious solution is to include at least some active and cooperative learning exercises within a lecture-based class (paulson & faust, 2008). but this begs the fundamental question of what method should take priority. the answer may be found by reference to a different measure of teaching effectiveness: instructor traits and attributes, as perceived by students. almost everyone cherishes the memory of a favorite teacher. that memory probably rests more on who that teacher was than how he or she taught. this common phenomenon is corroborated by research summarized in part ii below demonstrating that students rate instructor effectiveness, in part, based on who that instructor is: a combination of personality traits and attributes, such as enthusiasm and fairness, and acquired skills, such as knowledge of the subject matter and professional experience. if students’ perceptions of the instructor’s traits and attributes are affected positively or negatively by that instructor’s choice of teaching method, that result should assist the instructor in choosing the more effective method. for the purpose of assessing the potential impact of instructor choice of teaching method on students’ perceptions of the instructor, we compared students’ perceptions of the instructor of two sections of the same semester-long course, one section taught primarily with lecture and the other with an active, cooperative method. in the next section, we provide a review of the relevant literature, followed by an introduction of the research method. we then present the results of data analysis and conclude with a discussion of the results and their implications. literature review and hypotheses active learning may be defined as anything that students do in a classroom other than merely passively listening to an instructor's lecture (paulson & faust, 2008). cooperative learning is commonly defined as the use of student groups working together to maximize each other’s learning (johnson, johnson, & smith, 1991). defined as such, active and cooperative learning are conceptually distinct: students could be engaged individually in active learning activities in the classroom and cooperative learning exercises outside the classroom, for example. the actual and perceived efficacy of these two teaching methods could also differ for many reasons, including, for example, the potential detrimental effect on cooperative learning outcomes resulting from the creation of a “dysfunctional” group (michaelsen & black, 1994). but for purposes of this article, cooperative learning will be considered a subset of active learning (paulson & faust, 2008), because the main objective of the reported study is to compare students’ perceptions of a lecture-based teaching method to an active and cooperative method. although the research is not entirely consistent (lancaster & strand, 2001; struyven, dochy, & janssens, 2008), the weight of authority holds that active learning produces better outcomes than lecture (new horizons, 2005) in riedy, yu, and zhou advances in business research 2012, vol. 3, no. 1, 141-146 142 terms of, inter alia, measured achievement (williams, 2007) and retention (berry, 2008). it is not so clear whether students’ perceptions of teaching effectiveness are consistent with actual outcomes. instead, the research is mixed (machemer & crawford, 2007). marbach-ad, seal, and sokolove (2001); caldwell, weishar, and glezen (1996); and johnson et al. (1991), among others, report greater student satisfaction with instruction that includes at least some aspects of an active learning approach. other studies indicate that students rate the lecture method more highly because they believe they learn a great deal from and will retain the material presented in lectures (covill, 2011), perceive it to be more organized and a better preparation for tests (mckeachie, 1997), or because they expect to be taught, not to teach themselves (felder & brent, 1996). explanations for students’ preference for the lecture method in the face of substantial evidence indicating that an active method of learning achieves better outcomes include habit students are simply more familiar with the lecture method and the possibility that students’ perceptions of the benefits of the lecture method simply do not correspond with reality (covill, 2011). students may in fact have no preference for teaching method, per se: in a study comparing active and passive teaching methodologies, drafke, schoenbachler, and gordon (1996) found no difference in knowledge or attitudes between students in two sections of the same class, one taught with the traditional lecture method and the other active teaching methodologies. the authors suggested that other factors besides teaching method may be more important in influencing student learning and interest. to some extent, of course, the variations in reported student perceptions of teaching method may actually spring from the variations among instructors. student perceptions of an effective instructor appear to be fairly consistently correlated with specific personal and professional traits and attributes of the instructor. as reported by faranda and clarke (2004), tootoonchi, lyons, and hagen (2002), and centra (1977), communication skills (clarity and speaking ability) and knowledge of the subject matter rank highest. also commonly included in the attributes correlated with perceived high effectiveness are preparation for class (tang, 1997), fairness (centra, 1977; simendinger, galperin, leclair & malliaris, 2009), enthusiasm for the subject matter (centra, 1977), encouragement of student thought (centra, 1977), and currency with the subject matter (simendinger et al., 2009). the relative significance ascribed to these traits and attributes may vary depending on the students’ culture (alshare & miller, 2009), and gender (or other) stereotypes may play an independent role in student evaluations (whitworth, price, & randall, 2002). nonetheless, certain instructor traits are consistently reported as positively affecting students’ perceptions of teacher effectiveness. fewer studies focus on the effect of teaching method on students’ perception of effective instructor traits and attributes. alshare and miller (2009) reported that the significance of some instructor traits and attributes depended on whether the class was taught on-line or face to face. lancaster and strand (2001) compared students’ perceptions of one instructor’s traits and attributes teaching multiple sections of one class, two lecture-based and two using a cooperative learning method. all sections were taught face-to-face. in their study lancaster and strand (2001) found no statistically significant differences, although they note that the results may have been affected by the facts that the classes shared pedagogical features (e.g., team performance) and the six survey questions used to rank traits and attributes did not specifically address the potential benefits of a cooperative learning environment, instead focusing on a lecture method it seems plausible that students have different perception of instructors based solely on whether the class is conducted with a lecture or active learning method. students may perceive the instructor to be more organized or structured with the lecture method. because active learning involves interaction with the instructor in a less formal manner, students may rate the instructor to more highly on interactive traits. in addition, there should be no difference in the perception of instructor attributes that simply cannot vary according to the method of instruction. based on the above-referenced literature, the following hypotheses were proposed: hypothesis 1: regardless of the teaching method, students’ perceptions of instructor attributes that are objectively invariable (e.g., relevant work experience) will be the same. hypothesis 2: students’ perceptions of instructor attributes related to student/instructor interaction (e.g., “friendliness,” “open to questions,”) will rank higher when a cooperative learning method of instruction is used. hypothesis 3: students’ perceptions of teacher attributes related to class structure (e.g., “organization” and “clarity”) will rank higher when a lecture-based method of instruction is used. riedy, yu, and zhou advances in business research 2012, vol. 3, no. 1, 141-146 143 research methodology the research is based on a one-semester business law course taught by one of the coauthors. the students are upper-level (juniors or seniors). the course is a requirement for all business majors, and with a few exceptions all the students in the class were business majors. the course was taught to two sections. both sections used the same textbook. the instructor used a lecture-based method for the control section. each class period was comprised of at least 50% lecture; approximately one-quarter of the class periods were comprised entirely of lecture. the instructor regularly posed hypothetical questions to the class, and encouraged questions and comments from students. but student participation during the lectures was limited. all students were also required to make two presentations during the semester describing a legal topic in the news, followed by questions and comments from the instructor and the class. aside from the presenter, student participation in these exercises was limited. additional assignments for this section included two team projects: (a) writing and presenting a paper on business ethics and (b) negotiating a business contract. scores for the team assignments comprised 36% of the total grade. the students took four examinations during the semester. each student took the examinations individually; use of the textbook and notes was allowed during the exam. examination results comprised 57% of the total grade for the class, and the remainder from presentations on legal topics in the news. the treatment section was taught using a cooperative learning method. the course was constructed to include aspects of each of the “five pillars” of effective cooperative learning as defined by johnson et al. (1991): positive interdependence, individual accountability, interpersonal skills, face-to-face promotive interaction, and processing out. the students were randomly assigned to six teams (three or four per team) on the first day of class. each team was responsible for presenting the material from the textbook and leading the class discussion for three chapters of the textbook. the instructor sat in the classroom, with the students, and asked questions of the presenters and the students in the audience, and made comments, as necessary, to ensure that the material was presented accurately and thoroughly. the quantity of instructor intervention varied, depending on the skills and preparedness of the team, and the relative difficulty of the material presented. presentations were scored, as a team, by the instructor (90%) and by the class (10%). after the first round of presentations, the class voted on whether (1) to change the teams and (2) alter the requirements of the presentations. the vote was solidly against changing the teams, and for imposing additional requirements (team to present in the front of the classroom, use some graphical aid, and pose three “thinking” questions for the class). each student in the treatment section was individually responsible for writing five case analyses, using the standard “irac” (issue, rules, analysis, and conclusion) formula. on the date each paper was due, the teams would meet during the class period to discuss their separate analysis and conclusion. each team then voted on the “right” outcome (as determined by the court’s decision in the actual case). if a team voted correctly regardless of the outcome on each individual paper it received 10 additional points. following the vote, the class as a group discussed the legal principles presented by the case and the rationale for the court’s decision. the treatment class took six quizzes, which they were allowed to answer together, as a team. they were not allowed to use the textbook or notes during the quizzes. the quizzes contained the same questions as the examinations given the control section. however, the order of the questions differed, because the material in the textbook was presented in a slightly different order in the two sections. the final assignment for the treatment section was a “moot court” competition, in which each team drafted a brief and presented an oral argument on behalf of its “client.” the briefs were scored by the instructor. the class, sitting as the “jury,” voted for the plaintiff/defendant, and the successful team advocate received an additional 20 points. team scores for the treatment section comprised 69% of the total grade, with the remainder from the case analyses. although the examination/quiz scores for the two sections could not reliably be compared because of the differing procedures employed for taking the tests, the difference between the students’ total scores for the two sections was not statistically significant. data used for the purpose of this study research is based on students’ responses to a questionnaire at the end of the semester. twenty-one students from the control group responded to the survey and eighteen students from the treatment section. students completed the questionnaire anonymously. the questions are related to students’ perceptions of the instructor on a number of attributes that are often discussed in the literature (simendinger et al., 2009; jackson, teal, raines, nanssel, force, & burdsel, 1999). one set of questions asks students to rate instructor attributes on which perceptions should not differ between the two sections, including knowledge of subject matter, fairness to students, personality, relevant work experience, riedy, yu, and zhou advances in business research 2012, vol. 3, no. 1, 141-146 144 professional appearance, and course preparation. another set of questions concerns attributes on which the treatment class should rate the instructor higher, including communication skills, willingness to assist outside of class, sense of humor, ability to motivate, enthusiasm, friendliness, challenging students to think, open to questions, and making it comfortable to participate. the third set asks for ratings on class organization and clarity, on which instructor attributes students in the control class are expected to rate the instructor higher. findings the results of the data analysis are shown in table 1. we selected .10 rather than .05 as the test significance level (lavovitz, 1968). table 1: means and test results variable lecture method active-learning method two-group t test attributes not expected to vary knowledge 4.95 4.89 not sig. fairness 4.48 4.56 not sig. personality 4.57 4.50 not sig. relevant work experience 4.71 4.78 not sig. professional appearance 4.46 4.78 not sig. class preparation 4.33 4.56 not sig. attributes expected to be rated higher by active learning class communication skills 4.43 4.56 not sig. willingness to assist 4.38 4.50 not sig. sense of humor 4.10 4.28 not sig. ability to motivate 4.24 4.22 not sig. enthusiasm 4.62 4.78 not sig. friendliness 4.71 4.83 not sig. challenging students to think 4.43 4.83 p <0.03 open to questions 4.67 4.89 p<0.09 making it comfortable to participate 4.67 4.67 not sig. attributes expected to be rated higher by lecture class class organization 4.24 4.78 p<0.02 clarity 4.05 4.50 p<0.07 the first hypothesis students in the control and treatment sections will rate instructor attributes that are objectively invariable statistically the same is supported. no statistically different results were found for the control and treatment sections. the second hypothesis students in the treatment section will rate instructor attributes related to student/instructor interaction higher than the control section is only partially supported. except for the attribute of “open to questions,” no statistically significant differences were found between the two sections. we did found significant differences in students’ perceptions of the instructor regarding class organization and clarity. however, the findings are opposite to what was suggested in the third hypothesis students in the treatment section would rate instructor attributes related to class management lower than the control section. on the contrary: students in the active learning section rated the instructor higher on these attributes, as indicated in table 1. discussion the simplest explanation for the unexpected results of this study is that the hypotheses were poorly reasoned. for example, the second hypothesis may have been based on an erroneous presumption regarding the desire for instructor/student interaction on the part of the students. it may well be that students simply have no preference for a particular degree or type of interaction with the instructor. that is, so long as the instructor is perceived as “fair” and “knowledgeable,” whether or not the instructor interacts in a meaningful way with the student is simply not that important. another explanation is that the instructor traits and attributes intended to measure the relative potential benefits of the cooperative and the lecture-based method did not accomplish that objective. but to the extent the results are sound, they may serve as good guidance to instructors seeking to improve their perceived teaching effectiveness. most importantly, for all the significant findings, the section taught using the cooperative method scored the instructor more highly. that the students in the cooperative learning section found the instructor to be more challenging could be due as much to the nature of the assignments as the nature of the teaching method, and some of those same assignments were used in the lecture-based section. but the higher ranking for “open to questions” surely follows from the more open and informal style of the cooperative learning riedy, yu, and zhou advances in business research 2012, vol. 3, no. 1, 141-146 145 environment. the high ranking for “organization” and “clarity” from the treatment section suggests that when students are required to participate actively in their own learning, they actually learn the material better, and therefore perceive the instructor as providing the clarity and organization that they have actually achieved on their own. given past research that indicates that active-learning is often more effective (berry, 2008; williams, 2007; new horizons, 2005), this explanation certainly has merits. it is also conceivable that, given the substantial evidence that students typically prefer to have some active learning activities in a given course (new horizons, 2005; marbach-ad et al., 2001; caldwell et al., 1996; johnson et al,1991), there might be some halo effect as a result of that attitude. that is, students might have a more positive perception of certain instructor characteristics just because the instructor adopted a teaching method that is activelearning oriented, which is the method they prefer. future research can help explore why this is the case for some instructor characteristics but not for others. the findings of this preliminary study by no means settle the debate about the relative advantages of lecturebased teaching versus active-learning-based teaching. however, because the four instructor characteristics as to which there was a statistically different rating by the two sections were all rated higher by the treatment section, from the perspectives of the students active learning is likely preferred. of course, more research will be needed to address issues raised in this study, and it is certainly not advisable to abandon the lecture-based method because, as discussed above, it may be the more effective and the preference of the students, depending on the particular situation. references alshare, k., & miller, d. 2009. student perceptions of the importance of instructor traits: a cross-cultural study. academy of educational 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learning environment, student learning and performance. european journal of psychology of education, 23(3), 295-317. tang, t. 1997. teaching effectiveness at a public institution of higher education: factors related to the overall teaching effectiveness. public personnel management, 26(3), 379-387. tootoonchi, a., lyons, p., & hagen, a. 2002. mba students’ perceptions of effective teaching methodologies and instructor characteristics. international journal of commerce and management, 12(1), 79-93. whitworth, j., price, b., & randall, c. 2002. factors that affect college of business student opinion of teaching and learning. journal of education for business, 77(5), 282-289. williams, r. 2007. cooperative learning: a standard for high achievement. thousand oaks, ca: corwin press. marian riedy, esq., has practiced as a litigator since graduating from harvard law school in 1981. she earned an mba from georgetown university, and teaches business law in the school of business, emporia state university. jun yu is an associate professor of marketing at emporia state university. he research interests include consumer behavior, marketing strategy, e-commerce, and entrepreneurship. he has published in journal of business research, journal of consumer marketing, international journal of management theory and practice, and others. joyce zhou is an assistant professor of marketing at emporia state university. she received her ph.d. in marketing from saint louis university. her research interests include consumer behavior, advertising, and international marketing. she has published in academy of marketing science, journal of business research, international journal of management theory and practice, and others. advances in business research 2012 volume 3.pdf advances in business research volume 3 number 1 2012 mohamed zainuba, editor review board members rebecca abraham, nova southeastern university lynn adams, utah valley university g. stoney alder, university of nevada, las vegas lorraine anderson, marshall university mary askim-lovseth, university of north dakota amelia baldwin, university of arkansas fort smith jim beard, university of arkansas-fort smith wayne buchanan, defiance college aaron buchko, bradley university barbara burgess-wilkerson, winthrop university david dearman, university of arkansas at little rock william donoher, missouri state university larry faulk, university of arkansas fort smith martha fowler, northeast missouri state university steve frankforter, winthrop university yoshi fukasawa, midwestern state university susan gaffney, governors state university jeff grover, dynamics research corporation tom hayes, university of arkansas fort smith nathan heller, tarleton state university lewis hershey, fayetteville state university larry hughes, central washington university joel jolayemi, tennessee state university gundars kaupins, boise state university dorothy kirkman, university of houston clear lake robert kitahara, troy 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articles. manuscripts submitted for possible publication in advances in business research should be electronically submitted to the editor. please comply with the call for manuscripts guidelines. to order advances in business research, please contact dr. mohamed zainuba, editor, advances in business research, college of business, university of arkansas fort smith, fort hays state university, 5210 grand avenue, fort smith, arkansas 72913, 479-788-7774, mohamed.zainuba@uafs.edu copyright 2012, college of business, university of arkansas fort smith uafs advances in business research 2012 lowrez (2).pdf kaupins, suciu, and buchanan advances in business research 2012, vol. 3, no. 1, 43-52 43 legal and ethical implications of newspaper web privacy policies gundars kaupins, boise state university christy suciu, boise state university mark buchanan, boise state university this study summarizes the legal and ethical implications of the privacy policies of the top ten newspapers in the united states. the papers have created policies using language that is more complicated than a typical reader would read. they have allowed themselves to collect data from a wide variety of sources and send the information to third parties can use the information for a variety of purposes. these policies exist in the context of the fourth amendment, electronic monitoring communications act, wiretap statutes, and other laws and court cases. this study analyses privacy policies of the top ten newspapers in the context of massive data collection efforts by the newspapers about their readers. for example, registration requires readers to supply certain personally identifiable information (pii) including e-mail, zip code, age, sex, household income, job and industry to register on the website. purchases may require name, address, phone, e-mail, credit card number, and other billing information. third parties who perform tasks required to complete purchase transactions may be needed. some examples would be fulfilling orders and processing credit card claims (mckenzie, 2009). user generated content and public activity includes comments, blogs, discussion forums, social networking areas, or other community postings. any personally identifiable information submitted can be read, collected and used by other users in this area. the networks help newspapers collect stories, keep readers interested in the paper, and connect with other readers. the newspaper assumes no responsibility to publish, take down, remove, or edit any readers’ activities. with contests, sweepstakes and special offers, the newspapers collect information from readers in terms of these optional activities. if any information is shared with third parties, the papers may or may not notify the reader. if the reader does not want to share personal identifiable information, the reader may decline to join, but may lose rights to see various pages. the newspapers may collect information in connection with voluntary reader surveys, panels, and market research. data may be collected on websites, the phone or through the mail. the papers may send text messages upon readers’ request through text messaging services. the newspapers can use the information to track access to websites and mobile applications. all of these methods of interaction allow newspapers to record pii about the readers through a wide variety of methods. cookies recognize readers and help the paper understand where they are going and how much time they spend there. analytic technologies help the paper provide information about browsing patterns of readers for marketing and information flow purposes. ip addresses log the location of readers’ computers on the internet for systems administration. inappropriate data such as reader location based on photographs can be obtained. when a reader completes a transaction with a third party such as a company that advertises with the newspaper, that third party can provide detailed information about the reader to the newspaper. third parties can use credit card data obtained from newspapers for various unauthorized purposes. crime on the internet is a continuing problem. for example, in 2011, the internet crime complaint center (2011) found that for three years in a row it received over 300,000 complaints about internet transactions, a 3.4percent increase over the previous year. the adjusted dollar loss of these complaints was $485.3 million. purpose with the many ways to interact with online newspaper readers, serious questions emerge concerning privacy protection of readers. this study summarizes the legal and ethical implications of privacy policies focusing on the privacy policies of the top ten newspaper websites in the united states. current research literature does not address the comparison of privacy policies in any significant way. privacy comparison research existing research comparing privacy policies of various organizations has been slim. according to coldewey (2012), a 2011 study of the top 100 u. s. websites as ranked by alexa in september in 2011 found that 97% of the kaupins, suciu, and buchanan advances in business research 2012, vol. 3, no. 1, 43-52 44 sites had a privacy policy. only 2% of sites had a mobile-optimized privacy policy. for example, user location data may not be protected when the user is on a cell phone when looking at a mobile website. only 7% of sites showed how long they store user data (and presumably what data is stored), and 32% explained how users can forever delete account data from the website. much of the information might be available upon request. about 31% of privacy policies stated they share user data with third parties for commercial purposes, 36% collected user location data, and 72% allowed third parties to track users on their site. the average privacy policy was 2464 words long and took about ten minutes to read. the average privacy policy reading level was college sophomore whereas the average american reading level was the 8 th grade. a study by kaupins and reed (2012) compared the privacy policies of the top twelve newspaper sites in latvia, lithuania, and estonia. they found that estonian newspaper websites had the largest number of privacy protections that included limits to reader speech, a disclaimer of responsibility of reader-provided content, policies related to the privacy of personal information received, and the right to edit reader-provided content. there were few privacy protections. a comparison of five social networking apps indicate that privacy is not protected as well as discussed in their privacy policies though the privacy policies might state that cookies and individual ip addresses are used for internal purposes. however, users’ data may be used for third parties to help advertise products across each of the privacy policies (privacycast.com, 2012). legal research the united states constitution, federal laws, and major court cases combine to provide limited guidance for organizations as they seek to develop privacy policies associated with their websites (marcus, et. al., 2007). the supreme court has found a basis for a constitutional right to privacy in the 1 st , 3 rd , 4 th , 9 th and 14 th amendments. while the constitution applies only to government action, its principles often form the basis for legislation that does bind private parties, including business entities such as the top ten newspapers in the united states. the fourth amendment to the constitution states that people have the right “to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.” according to harlan (2012), the 18 th century framers of the constitution did not have the complications of the internet in mind. related to a 4 th amendment case involving a secret attachment of a gps device to a drug dealer's vehicle, justice sonia sotomayor wrote in dicta, "[m]ore fundamentally, it may be necessary to reconsider the premise that an individual has no reasonable expectation of privacy in information voluntarily disclosed to third parties. this approach is ill suited to the digital age, in which people reveal a great deal of information about themselves to third parties in the course of carrying out mundane tasks" (united states v. jones, 2012: 19). note, again, that constitutional constraints only apply directly to government activity and that statutory enactments are necessary to bind private conduct. however, expectations that arise from constitutionally protected rights can easily lead to greater expectations in the private sphere that can in turn affect the development of new public policy. gatherers, storers, and users of personally identifiable information need to be aware of growing expectations of privacy and that failure to take measures to address those expectations can and likely will lead to expanded legal constraints. justice sotomayor’s comments relate to this very point. the legal landscape of privacy rights that apply to newspapers is still relatively undeveloped. relevant federal statues associated with the right to privacy include the children’s online privacy protection act (coppa) (1998), the electronic communications privacy act (ecpa) (1986), the computer fraud and abuse act and the can_spam act (2003). the ecpa also encompasses the stored communications act (1986) and the wiretap act (1986). with the children’s online privacy protection act (coppa) (1998), websites need verifiable parental consent before collecting personal information about children under 13. much of the act is extremely relevant to newspaper websites as the potential information collected from children could include e-mail, accounts, chats, bulletin boards, and new media in general. newspapers and other organizations are required to have their websites post notices of online data collection to kids and parents and allow parents to review personal information collected about children. the ecpa restricts access to selected computerized records without the consent of the customer. the stored communications act, title ii of the ecpa, restricts the voluntary or knowing disclosure to any person of the content of electronic communications (such as emails) by providers of electronic communications services or remote computing services to the public. it also provides for criminal liability for persons who intentionally access without permission a facility through which an electronic communication service is provided; or intentionally exceeds the permission to access that facility. the wiretap act, title i of the ecpa, provides for civil and criminal liability for any person who intentionally intercepts, uses or discloses the contents of electronic communications. the kaupins, suciu, and buchanan advances in business research 2012, vol. 3, no. 1, 43-52 45 interception must be during transmission, as opposed to while in storage (konop v. hawaiian airlines, 9th cir. 2002), and certain exceptions, such as consent by a party (either the originator or any addressee) to the communication, apply. in konop, the airlines accessed the plaintiff’s website by posing as other pilots, with their consent. however, as those pilots had not yet registered on the site, they were not users and therefore could not give consent to the airlines, rendering its access unauthorized. the ecpa would not apply to interception by or disclosure to any governmental agency that has acquired the appropriate warrant. in re toys ‘r’ us, inc., privacy litig. (n.d. cal. 2001), the court held the wiretap act does not provide a cause of action against mere aiders and abetters. the computer fraud and abuse act (1986) provides a cause of action against one who, “intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains ... information from any protected computer”. criminal penalties are provided as well as civil actions for compensatory damages and injunctive relief. the term protected computer extends to the full jurisdiction of the federal government and includes that which is used in or affecting interstate or foreign commerce or communication. access to the computer must be obtained knowingly and with intent to defraud, without authorization with the result of obtaining anything of value worth more than $5,000 in any 1-year period. interestingly, a couple of cases have indicated that providers may resolve some issues with an appropriate web site privacy policy and disclosure. in ef cultural travel bv v. zefer corp. (1st cir. 2003), the court stated that “lack of authorization [setting up potential liability under the cfaa] could be established by an explicit statement on the website restricting access” to certain portions of information. in supnick v. amazon.com, inc., (w.d. wash. 2000), alexa collected the surfing habits of customers and relayed that information to third parties such as amazon. under the terms of a court approved settlement agreement, alexa was required to add privacy policy information to its web site and implement a feature requiring customers to opt-in to having their personal data collected before they could download alexa software. the can_spam act (2003) governs commercial electronic mail messages. such messages must clearly and conspicuously identify the message as an advertisement or solicitation and provide a valid physical postal address of the sender. they must also include a functioning return electronic mail address or other internet-based mechanism and contain a clear and conspicuous notice of the opportunity to decline to receive further commercial electronic mail messages from the sender. it is unlawful for any person (company) to sell, lease, exchange or otherwise transfer a person’s email address for commercial purposes after that person has made a request not to receive some or all messages from the sending company. the gramm-leach-bliley act (1999) requires financial institutions to provide their customers with a privacy notice at the time the consumer relationship is established and annually thereafter. the notice must include the customer’s right to opt out of any information sharing with unaffiliated parties pursuant to the provisions of the fair credit reporting act. such institutions must also have reasonable policies and procedures in place to ensure the security and confidentiality of customer information. these financial institutions may be third parties to newspapers. the equal employment opportunity act (1972) restricts the collection and use of information associated with gender, religion, national origin, race, and color that could result in employment discrimination. discriminatory use of newspaper information may be prohibited. state laws may also create privacy rights that apply to newspapers. under the california “shine the light” law (2003), customers who are california residents are allowed to request companies, whether located in california or not, to disclose the companies (names and addresses) with which they have shared the individual's personal information for marketing purposes within the last twelve months as well as the nature of the personal information shared. companies are allowed to preclude such requests by providing customers with notice of their privacy policies containing opt-in or opt-out options. california “shine the light” would be explicitly mentioned. there appear to be common themes among the laws and court cases related to privacy policies. related to newspaper websites, major actions either prohibited or questionable include: 1. disclosure of personal data without permission. 2. collection of selected personal information such as gender, race, religion, national origin and color for certain purposes. 3. disclosure of financial (public and nonpublic) records for certain purposes. 4. disclosure of electronic funds transfers for certain purposes. 5. disclosure of customer information for certain purposes. 6. unannounced monitoring. kaupins, suciu, and buchanan advances in business research 2012, vol. 3, no. 1, 43-52 46 also, related to newspaper websites, some common actions that are allowed and sometimes required include the following: 1. development of privacy policies. 2. compliance with warrants or subpoenas for data. 3. providing the right to challenge the accuracy of the data. 4. training record keepers as to sufficient safeguards. 5. use of data only for business-related purposes. 6. monitoring disclosures. 7. disclosure to customers about the use of personal data. 8. protection of children’s data. 9. prevention of children from entering data. finally, even where not constrained by law, newspapers need to be aware of the expectations of their customers, just as with any stakeholders, and address legitimate interests. ethics research new media such as forums, social networks, blogs, and alerts allow newspapers to share information to the public and have the public share information to the newspapers. to do so, privacy and freedom of speech have to be balanced. privacy policies are part of the effort to create this balance through appropriate surveillance of what is going on online. various internet surveillance tools are useful for organizations to help protect them against inappropriate blogs, forums, and other ways website users can submit information. inappropriate communication might involve lies about individuals, discrimination against groups, and other illegal activities (kidwell and sprague, 2009; riedy and wen, 2010). surveillance also can help internet services research customers and thereby create a more efficient design of the website to meet customer preferences and needs (gage, 2008; riedy and wen, 2010). unfortunately, surveillance can lead to people discovering significant amounts of information about others that may be inappropriate. pictures posted to a newspaper showing others in compromising positions that are published on a newspaper site can lead to legal difficulties for the victim, perpetrator and the paper (timm and duven, 2008; hodge, 2006; duboff, 2007). personal information may come out that unfairly damages reputations of employees. sensitive financial and strategic corporate information may be divulged by anyone (buckley, 2010). sometimes individuals voice false opinions to foster fallacies within newspaper blogs. sometimes newspaper users get stalked by anonymous readers of their blog postings. sometimes online shopping websites connected to newspapers are doubted because a clerk working for that website uses credit card information in an unauthorized way (buzzle.com, 2012). according to reidy and wen (2010), the surveillance policies within privacy policies must be consistently applied and enforced with secure recordkeeping. methods should be developed for determining how the data obtained from surveillance is going to be analyzed and how and by whom an appropriate response is determined and implemented. ultimately, the privacy policies must protect privacy, insure accuracy, protect data and property, and still maintain access of various content providers and readers (parrish, 2010; mason, 1986). methodology newspaper websites in the united states were used in the comparison of websites. one reason newspapers were used was because there is clear data concerning the rankings of various newspapers from 4imn.com (2012). the original aim of 4imn’s ranking of newspapers is to promote web publication and electronic access to national and world information. the rankings use web indicators to compare newspaper sites. newspapers are sorted by the 4imn web ranking. the ranking is based upon an algorithm including three unbiased and independent web metrics extracted from three search engines: google page rank, yahoo inbound links, and alexa traffic rank. the aim of 4imn is to provide a popularity ranking of worldwide newspaper websites. based on 4imn rankings, the top ten newspaper websites in the united states were chosen for web search comparisons. the privacy policy sites in the top ten list (in order from most popular) include new york times (2011), wall street journal (2011), washington post (2011), usa today (2011), los angeles times (2011), examiner (2010), new york daily news (2012), chicago tribune (2011), new york post (2011), and philadelphia inquirer (2007). one way of measuring whether a privacy policy is legal and ethical is to measure its readability. difficult words may protect the newspapers because readers may be less inclined to sue the papers if they don’t understand the kaupins, suciu, and buchanan advances in business research 2012, vol. 3, no. 1, 43-52 47 newspaper privacy policies. the privacy policies are first compared based on reading ease through a variety of measures. according to truste (2012), privacy policy reading level might be a proxy for policy clarity even though the relationship is not perfect. measures of reading level include the following: 1. flesch-kincaid reading ease is a formula that is a function of total words, syllables and sentences that roughly leads to scores from 0 to 100. the lower the score the harder the reading material. about 0-30 is for university graduates, 60-70 is for 13-15 year olds and 90-100 is for 11 year olds (kincaid, et. al., 1975). 2. flesch-kincaid grade level is a formula that translates the flesch-kincaid reading ease formula into approximate grade levels. a score of 9 would indicate that the reading would be understood by a student in the 9 th grade. (reliabilityformulas.com, 2012). 3. gunning-fog score is a function of complex words (three syllabus or more), words, and sentences. a score of 12 translates to a reading for a high school senior (gunning, 1952). 4. coleman-liau index is a function of the average number of letters per 100 words and the average number of sentences per 100 words. a fourteen would be equivalent to a college sophomore reading level (coleman and liau, 1975). 5. smog index is a function of the number of sentences and number of words with three or more syllables. it leads to a grade level of reading (hedman, 2008). 6. automated readability index is a function of characters (number of letters, numbers, and punctuation marks), words (number of spaces), and the number of sentences. all lead to approximate reading grade levels (senter and smith, 1967). 7. average grade level averages the grades of the flesch-kincaid grade level, gunning-fog score, colemanliau index, smog index, and automated reliability index. another way to compare privacy policies is to analyze how data is collected from readers. through a content analysis of the privacy policies the authors found which newspapers collected personally identifiable information and non-personally identifiable information through a variety of sources such as blogs, chats, forums, letters to the editor, and e-mails. in a manner similar to truste (2012), the authors compare how privacy policies claim to use reader data. do third parties receive the data? does the newspaper use the data to provide services requested, statistical analysis, a customizing experience, and e-mail newsletters? how long is the data stored? can the reader opt out of having data stored? results results from table 1 compare the readability scores of the various online newspapers. even though the new york times privacy policy has almost doubled the number of words as the other nine online newspapers, its readability was significantly the easiest among the group. the average grade level (11.2) places the privacy policy reading level at the high school junior level. the next lowest paper was the philadelphia inquirer with a 12.1 average grade level (high school senior). the highest average score was 15.1 which places the los angeles times (2011) and chicago tribune (2011) privacy policy reading levels at the college junior level. table 1: comparison of privacy policy readability characteristics privacy policy readability characteristics n y t im es w s j o u rn al w as h . p o st u s a t o d ay l a t im es s f e x am in er n y d ai ly n ew s c h ic ag o t ri b u n e n y p o st p h il . in q u ir er number of words 5103 4188 2147 2354 2225 1992 2680 2225 2326 2372 flesch-kinkaid reading ease 53.6 43.6 40.9 36.3 36.7 36.9 45.4 36.7 43.2 43.0 grade level indices 1. flesch-kinkaid grade level 10.4 11.7 11.4 14.9 14.8 13.9 11.9 14.8 12.1 11.3 2. gunning-fog score 12.5 13.3 14.5 17.3 17.3 15.1 14.0 17.3 14.0 13.2 3. coleman-lian index 12.8 14.7 14.5 13.7 14.3 14.0 13.4 14.3 14.1 14.3 4. smog index 9.8 11.1 10.7 13.1 12.9 13.1 10.9 12.9 11.4 10.7 5. annotated readability index 10.6 12.1 10.6 15.6 16.1 14.0 11.9 16.1 12.3 10.8 average grade level (indices 1-5 averaged) 11.2 12.6 12.3 14.9 15.1 14.0 12.4 15.1 12.8 12.1 kaupins, suciu, and buchanan advances in business research 2012, vol. 3, no. 1, 43-52 48 table 2 shows results of a comparison of privacy policy information collection claims. the first part of the table reveals sources of user information in which the newspapers can receive personally identifiable information (pii). all newspapers indicate they can receive pii from billing and credit cards, and third party advertisers. though all of the newspapers are associated with social networks, only half of them mention social networks in their privacy policies. blogs, messages, chats, bulletin boards, posts, contest, and sweepstakes are mentioned by a majority of the websites whereas surveys, voting, and polling are mentioned by a minority. the second part of the table features non-personally identifiable information the newspapers claim they receive from various sources. all of the websites affirm that they use cookies to track reader preferences and ip addresses to report reader information to its various advertisers. half of the websites affirmed that they could use global position system (gps) data to monitor customer location for those who use mobile devices. chicago tribune (2012) affirms that location monitoring is used to target ads that are associated with the location of the reader. table 2: comparison of privacy policy information collection claims sources of user information collected n y t im es w s j o u rn al w as h . p o st u s a t o d ay l a t im es s f e x am in er n y d ai ly n ew s c h ic ag o t ri b u n e n y p o st p h il . in q u ir er personally identifiable information (pii) registration x x x x x x x x x credit card x x x x x x x x x x social networks x x x x x blogs, chats, bulletin boards, posts x x x x x x x x contests/sweepstakes x x x x x x x x surveys/voting/polling x x x x third parties (advertisers) x x x x x x x x x x nonpersonally identifiable information (nonpii) cookies x x x x x x x x x x ip addresses x x x x x x x x x x gps data x x x x table 3: comparison of privacy policy information use claims reader data use n y t im es w s j o u rn al w as h . p o st u s a t o d ay l a t im es e x am in er n y d ai ly n ew s c h ic ag o t ri b u n e n y p o st p h il . in q u ir er respond to customer inquiries x x x x x x x x x x send news alerts x x x x notify about new features x x x x x administer sweepstakes and contests x x x x contact customers about interesting content x x x x x analyze the accuracy, effectiveness, usability, and popularity of the web pages x x x x x x x x x target web pages and advertising x x x x x x x protect the legal rights of the newspaper and its users x x share user data with 3rd parties for commercial purposes with notice x x x x x x x x x x disclose how long data is stored incorporate the california “shine the light” law x x x x x x incorporate the children’s online privacy protection act x x x x x x x do not guarantee the security of the data received from users x x x x x x x x explain how to delete user accounts x x x x x table 3 shows a comparison of privacy policy information use claims. all papers process and respond to customer inquiries of questions or services requested. they also share user data with third parties for commercial purposes with notice. however, they are inconsistent in reporting various other uses of reader information. the majority mention analyzing the accuracy and effectiveness of their web pages, compliance with the california ‘shine the light law”, compliance with the children’s online privacy protection act, disclaimers of any guarantee of the security of data received from users, and customizing the content of the web for the customer. half mention notifying readers about new features of their services and contacting readers about information the paper believes kaupins, suciu, and buchanan advances in business research 2012, vol. 3, no. 1, 43-52 49 would be of interest. the minority mention sending news alerts, completing a merger or sale of assets of the paper, and protecting the legal rights of the newspaper and its users. no paper disclosed how long the data about readers is secured. only half explain how to opt out and almost none explain how long they keep customer data. discussion as anticipated, the privacy policies of the top ten online newspapers reveal that the reading level is much higher than the 8 th grade level. the new york times clearly came out best on the readability measures in spite of the fact that the length is twice of other policies. whether this is intentional or not, newspapers might be able to protect themselves with more difficult language by reducing the chance that readers might sue because they do not understand what is in privacy policies. readability can be significantly improved by reducing complicated, byzantine, obfuscated, and convoluted discussions and increasing the use of short words. this does not happen in the privacy policies as shown by the very high grade levels of especially the chicago tribune (15.1), los angeles times (15.1), and usa today (14.9). their reading levels hover around the college junior level. as an example of the difficulty of reading privacy policies, the following example is classic. this prose is extremely difficult to read that makes understanding the right to share user information challenging. “we reserve the right to share this information with other tribune company business units and affiliates, including for example their affiliated web sites, and with any entities which tribune company subsidiary (collectively, “affiliates”) with agents who may provide services or communicate with you on our behalf; and with third party advertisers and/or contractors with which chicagotribune.com or an affiliate have a relationship. this policy does not apply to any affiliate’s, third-party advertiser’, or third party contractors’ use of such information” (chicago tribune, 2012: 1). table 2 shows what privacy policies say about how pii and non-pii information is received from users. information can be obtained in a great variety of ways such as blogs, chats, credit card information, contests, sweepstakes, and special offers across all papers. the chicago tribune (2012) appears to have the most interesting statement with the following quote about collecting user information: “certain third-parties who provide technical support for the operation of our site (our web hosting service or ad serving services, for example), or who provide email management, third-party content, billing, processing, shipping, promotions management or other services also may access such information web hosting service ad serving services email management third party content billing shipping promotions management or other services” (chicago tribune, 2012: 1). it is unknown what “other services” are. this may mean that the chicago tribune is open to receive information about its readers from almost any other source. table 3 shows that information from readers can be used in a wide variety of ways. the newspapers perform a considerable amount of marketing research on their readers and provide data to advertisers. customization of web content is common for the reader. privacy and freedom of speech have to be balanced. privacy policies of newspapers are part of the effort to create this balance. according to kirkpatrick (2010), who wrote the facebook effect, facebook leaders think that freedom of speech is an opportunity for organizations and individuals to share relevant information to other organizations and individuals. everyone should be given the opportunity to have their fifteen minutes of fame by sharing their life experiences, personal opinions, mutual friends, and great discoveries with others. the problem with freedom of speech is that ethical issues are severely tested. organizations should ensure that they collect, use, retain and disclose personal information in a confidential manner. according to tapscott and williams (2011: 1), “unfortunately, the loss of privacy may lead to job losses for individuals because employers check their inappropriate online behavior. identity theft is growing. personal information involving biography, biology, genealogy, history, financial transactions, locations, and relationships of each individual can be revealed. ultimately, in order to properly protect privacy, all of us will need to be vigilant about our own online behavior.” future research future research on privacy policies can be taken many directions. the easiest direction is to continue analyzing websites for their readability and their privacy features just like the current paper has done. while the current study has investigated the top ten newspapers in the united states, future studies can investigate more regional papers. kaupins, suciu, and buchanan advances in business research 2012, vol. 3, no. 1, 43-52 50 privacy policies in these papers would probably not be as comprehensive as the top ten papers. only the new york times might be considered comprehensive in its privacy policy among the top ten papers. it is the only privacy policy to receive the truste (2012) award for quality among the top ten papers. future research also can investigate the privacy policies of international papers just as the kaupins and reed (2012) study started. that study investigated the top twelve papers in latvia, lithuania, and estonia and found that in some of the papers, there were no privacy policies, especially in the regional editions. limiting privacy policy research to newspapers is not necessary when there are many industries to investigate. examples include websites associated with magazines, universities, retail stores, manufacturers, and others actively engaged in consumer communications. further research also can investigate people’s opinions of the privacy of various websites based on their experiences with the websites. there could be major differences between actual policies and peoples’ perceptions of what is going on with the websites. conclusion the top ten newspapers have created policies that have language that is more complicated than a typical reader would read. they have allowed themselves to collect data from a wide variety of sources and send the information to third parties who in turn can use the information for a wide array of purposes. a majority of third parties use these newspapers sites to collect pii. the use of your pi and pii collected by third parties are protected under the third party’s privacy policy, not the newspapers. newspapers state they may share some or all of your pii with their divisions, affiliates, vendors providing contractual services, sponsors of promotions, advertisers on their web sites, and third parties. also, newspaper privacy policies state if you do not accept their terms and conditions of their newspapers privacy policy, you will not be able to access their site. regarding cookies, you may disable these on the newspaper’s site, but this may result in a less complete experience while using their sites. newspapers state that the reason for gathering your pii is to provide you, the user, with a customized experience on our network of sites. protection of personal information should be made stronger and easier to understand to the normal person, in order to insure that privacy laws such as the electronic communications privacy act, wiretap act, stored communications act, and related acts are obeyed. beyond that, meeting the legitimate expectations of customers as regarding their privacy, including reasonable policies that are clearly communicated, is simply good business. it may the take collective effort of customers and ultimately 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(1986). 18 usc 1510-2522. gundars kaupins is department chair and professor at boise state. he received his ph.d. in human resource management from university of iowa and is certified as a senior professional in human resources (sphr). his publications include over 300 articles in job evaluation, training and development, baltic studies, and human resource ethics. christy suciu is a special lecturer at boise state. she has an mba from webster university. she teaches leadership skills and strategic perspectives and has research interests in design thinking. mark buchanan is a professor at boise state. he has an llm in international law from university of illinois, urbana-champaign and a jd from university of nebraska lincoln. he teaches international trade and investment law and business in society: ethics, responsibility, and sustainability. his publications include articles in stakeholder analysis, corporate social responsibility, and international business transactions. senter, r., smith, e. (november, 1967). amrl-tr-6620. advances in business research 2011 volume 2.pdf wyrostek and haefner advances in business research 2011, vol. 2, no. 1, 210-221 210 evaluating visual/verbal online finance students frank wyrostek, university of st. francis james haefner, university of st. francis this study attempted to determine to what extent audio, video, or some combination of audio/video portions of lecture presentations were helpful in addressing issues related to anxiety, mastering the material presented, and making the class more personal. for several different finance courses, course content with both text and audiovisual material was loaded onto a server using the adobe breeze and adobe captivate 2 screen capture programs on a blackboard platform. results based on multiple regression models showed that the new visual and audio portions of the lectures allowed respondents to master the material more effectively, which lead to lower levels of anxiety. results also showed that making the class more personal through the visual and audio material improved students’ sense that they were mastering the material. gibson (1998) challenged distance education instructors to “know the learner” (p. 140). she noted that distance learners are a heterogeneous group and that instructors should design learning activities to capitalize on this diversity (p. 141). because the dynamic nature of the distance population precludes any sort of typical student profile (thompson 1998, p. 9), instructors that provide online content should be continually aware of the diversity among their students. inherent in this diversity is the visual/verbal style present in many learners. addressing the needs of different learning styles is consistent with the challenge to understand the diverse nature of online learners. learning styles jester (2000) conceptualized four distinct learning styles, and proposed that combinations of the four distinct styles are often present in learners. the first style is the visual-verbal learning style. although some experts in this field see visual and verbal learning as opposite ends of a continuum, jester accepted that these styles might co-occur within a particular individual. visual-verbal learners prefer pictures and diagrams, but learn even more effectively when they write out explanations for the material they are studying. jester’s (2000) second style, the visual-nonverbal, occurs when learners benefit from pictures and diagrams, but not as much from verbal material. he posited that visual learners can be either visual only or visual and verbal in nature. these two groups have a common foundation, namely the need for visual enhancements to support their learning. the tactile-kinesthetic learning style is jester’s (2000) defined third style. these learners prefer physically active, hands-on activities. finally, jester’s auditory-verbal learning style describes learners who benefit from verbal material, learning more when they can listen to spoken words than when they just read material for themselves. although it may be difficult to agree upon a common definition of learning style, most learning style models assume that students’ learning styles are measurable and that mismatching styles with instructional techniques has a major effect on learning. grasha and yangarberhicks (2000) noted that learning styles are more analogous to colors on an artist’s palette than to boxes into which we can categorize learners matching learning and teaching strategies online learning styles give instructors information about how individual students prefer to learn and can guide those instructors in what instructional designs will support their students’ learning preferences (akdemir and koszalka, 2008). learning theory literature has suggested that learning styles and preferences influence the effectiveness with which individuals learn. if instructors can gather firsthand knowledge of students’ learning styles and preferences, therefore, this information can help instructors wyrostek and haefner advances in business research 2011, vol. 2, no. 1, 210-221 211 choose the methods of instruction that will help their students learn the material most effectively (smith and dalton, 2005). fendler, ruff, and shrikhandle (2009) suggested that matching teaching and learning styles is not considered carefully enough when instructors design their coursework. sarasin (1998), however, noted that professors should be willing to modify their teaching strategies and techniques based on appreciating the variety of student learning styles. he noted, teachers “should try to ensure that their methods, materials, and resources fit the ways in which their students learn and maximize the learning potential of each student” (p. 34). in their study, fendler et al., (2009) specifically contended that matching teaching methods with learning styles is particularly relevant to online finance coursework. it follows, therefore, that designing and incorporating specific audio/visual presentations into an online finance curriculum should be effective in meeting the needs of students’ learning styles, even in the online environment. by doing so, we can appeal directly to the verbal/visual learning style of a student and thus enhance their learning experience. the literature has recognized, therefore, that instructors must appeal to a continuum of possible combinations of learners’ verbal and visual preferences. this study examines if using pedagogical techniques that feature audio and visual assistance can positively affect learning satisfaction and potential outcomes. connecting learning styles and instructional strategies holds great promise for enhancing learners’ perceptions of their own learning (claxton and murrell, 1987). akkoyunlu and soylu (2008) emphasized the importance of knowing students’ learning styles to design and manage different online environments or other learning materials in various subject areas. several prior studies have shown that matching learning styles with teaching methods benefits academic achievement (chou and wang, 1999; lipsky, 1989; smith and dalton, 2005). hallock et al., (2003) suggested that particular learning styles might be better suited for online courses and that educators should be able to design online curricula that enhance learning based on online students’ preferred learning style. furthermore, particular preferences for learning style have been shown to correlate with academic performance in an online environment (beadles and lowery, 2004). by first identifying learning preferences and then appealing to those preferences, instructors can create a more effective online learning environment. if significant numbers students in online classes can self-categorize themselves as visual, verbal, or visual-verbal learners, matching instructional teaching techniques to the students’ styles will then benefit the educational process. an audio-visual presentation can appeal to any or all of these learning style preferences. in other words, by its nature, an audio-visual methodology inherently encompasses both verbal and visual components. gender issues men and women may not differ in terms of cognitive ability related to academic performance, but differences exist in their ways of knowing (belensky et al., 1986; gallos, 1993), and learning style (gallos, 1993). gilligan (1982) offered interview research supporting the idea that gender differences in attitude toward formal learning experiences are the result of intrinsic psychological differences between men and women, describing men as being driven more by issues of separation and women as being more driven by issues of connection. in their study, peng and chiou (2010) showed through analysis of variance and structural equation modeling that two contingent variables, gender and job status, significantly influenced the perceptions of predictors and students’ satisfaction with e-learning systems. their study focused specifically on the issue of gender differences. ong and lai (2006) also found empirical evidence that supported gender differences in perceptions and the relationships among the dominant predictors of e-learning. garland and martin (2005) argued that both learning styles and student gender must be considered when designing online courses. marin found empirical evidence that gender was indeed a factor in the relationship between learning style and student engagement. wyrostek and haefner advances in business research 2011, vol. 2, no. 1, 210-221 212 sullivan (2001) analyzed male and female college students’ experiences in the online environment. significant differences were found between the way male and female students identified the strengths and weaknesses of the online environment regarding flexibility, face-to-face interaction, shy and quiet students, self-discipline, and self-motivation. taplin and jegede (2001) investigated gender differences in factors that contribute to success in online education, including how the course material is organized and the use of study materials, confidence about studies, and independent versus collaborative studies. learning styles differ by gender. belenky et al., (1986) and mackeracher’s (1994) found that there were separate and connected learning style models. these studies indicated that adult students who prefer to learn in a separate mode are generally male while those who prefer a more connected style are often female. another study by price (2006) found that online female students were confident, independent learners who were engaged academically and may outperform their male counterparts online. female students tend to place greater value on the pastoral aspect of tutoring and have different interaction styles compared with men. similarly, chyung (2007) stated that younger male students’ exam scores and younger female students’ exam scores differed significantly, with. in addition, gunn et al., (2003) mentioned that gender differences exist in styles of participation and contribution in computer-mediated communication. they found that women posted and read more messages than their male counterparts on the course bulletin board. research hypotheses adult students will benefit from material that is presented in both a visual and verbal form rather than just a visual or verbal format female online students will be more anxious and feel they have not mastered the material as well as males as the delivery mode is more separate than connected in nature objectives this study focuses specifically on the use of audio-visual presentations and attempts to determine if they appeal to either verbal, visual, or both verbal-visual learning styles in the online context of a finance class. the study examined the extent to which the audio and visual portions of the lecture presentations were helpful in addressing issues related to anxiety, mastering the material presented, and making the class more personal. methodology project description the first author has previously delivered a managerial finance course using blackboard courseware. this environment facilitates discussions, assignment submissions via the web, quiz and test management, and email communication with the faculty member. all course material is online, with the particular course delivered 100% online within the blackboard environment. the course content area contained weekly chapter sequences with both text and audiovisual lecture material loaded onto a server using the adobe breeze and adobe captivate 2 screen capture programs. the links to the audiovisual breeze powerpoint presentations were embedded as a link in a text lecture or as a clickable link in the course content area. the lectures were sequenced as outlined in both the syllabus and textbook. the authors specifically used this technology to replicate a face-to-face lecture in an online environment. audio, coupled with a step-by-step animated process was found to reproduce a life-like, chalkboard-type of presentation. the purpose of this study, therefore, was to measure whether this online method of delivery improves students’ ability to follow steps involved in solving problems and whether the method has potential to better explain the steps exposition by appealing to students’ different learning styles. wyrostek and haefner advances in business research 2011, vol. 2, no. 1, 210-221 213 questionnaire the survey consisted of 27 questions divided into four sections. questions 1-21 used a 7-point balanced likert scale anchored by 7 = very strongly agree and 1 = very strongly disagree. the last six questions gathered demographic information about age, income, gender, profession, and what degree program in which the respondent was enrolled. the first section (questions 1-6) were designed to gather information pertaining to whether the student preferred auditory, visual, or both auditory and visual methods in learning. the questions in this section also measured pre-course anxiety levels. the second section (questions 7-11) attempted to determine to what extent the audio portions of the lecture presentations were helpful in addressing issues related to anxiety, mastering the material presented, and making the class more personal. anxiety, mastering the material, and making the class more personal were the key dependent variables. the third section (questions 12-16) was concerned with the visual aspects of the presentations, assessed separately from the audio portions. again, we attempted to extract to what extent the visual aspects were helpful to the student in dealing with his or her anxiety, mastering the material, and making the class more personal. the fourth section (questions 17-21) centered on the combination of the audio and visual aspects of the presentations. again, the goal was to measure to what extent audiovisual material taken together addressed issues relating to anxiety, mastering of material, and personalizing the class. data collection surveys were sent to students who had taken one of four courses graduate or undergraduate business courses from fall 2007 through fall 2010. these courses were managerial finance (graduates), investments (undergraduates), capital budgeting (undergraduates) and principles of finance (undergraduates) at a private university in the midwest united states. these courses were taught using adobe breeze, an add-on feature to microsoft powerpoint and adobe captivate 2, a screen-capture program that allows the user (in this case, the instructor) to display his or her screen to the student who is viewing the presentation. total number of students surveyed was 271 students completed the survey, this resulted in an effective response rate of 92%.students were strongly encouraged to complete the survey, although no incentive related to their grade was used. they were told their input would be used to help improve the design of the online curriculum and in a research study. table 1: respondent demographics results respondent demographics are displayed in table 1. among the 271 respondents, 49.8% were female with 50.2% being male. academic program indicated that 36.8% were undergraduate business majors, 56.2% were pursuing a graduate business degree, and 6.9% were undergraduate non-business majors. their mean income after taxes was $54,877, with income ranging from $80 to $180,000. age ranged from 18 years to 60 years, with the average being 32.7 years. demographic percentage (mean) frequency gender: male female 50.2 49.8 129 128 academic program: undergraduate business major perusing graduate business degree undergraduate non-business major 36.8 56.2 6.9 95 145 18 income (mean) $54,877 age (mean) 32.7 years wyrostek and haefner advances in business research 2011, vol. 2, no. 1, 210-221 214 when reviewing the data concerning learning styles, audio, visual, or a combination of audio and visual (see table 2), the only significant mean differences were found between the following items: “i prefer to listen to music than view a piece of art work” (5.2) and “when doing something new at home or work, i like to see demonstrations, drawing, slides, or posters” (6.0), as well as “i often would rather listen to a lecture than read material in a book” (5.5) and “when doing something new at home or work, i like to see demonstrations, drawing, slides, or posters.” (6.0). these results indicate that the students surveyed demonstrated some preference toward visual learning styles. some respondents, however, combined both visual and auditory learning tendencies. this is evidenced by no statistical difference found between the items: “i often would rather listen to a lecture than read material in a book” (5.5) and “when learning a new computer application, i prefer diagrams or pictures” (5.6). a simple one-way anova conducted on the four questions dealing with learning style indicated gender differences in the following items: “when doing something new at home or work, i like to see demonstrations, drawing, slides, or posters” (f = 7.6, p !"#$%"&'(!)*"+,%-'.'!/0.'!123'14!50!67.''!-258! this statement than women (5.79). for the other significant statement, “when learning a new computer application, i prefer diagrams or pictures” (f = 5.4, p !"02), men (5.94) were more likely to agree than women (5.53). this indicates that men are more likely to be visual learners. table 2: learning styles learning style items mean 1. i prefer to listen to music than view a piece of art work. 5.2 2. when doing something new at home or work, 3. i like to see demonstrations, drawing, slides, or posters. 6.0 4. i often would rather listen to a lecture than read material in a book. 5.5 5. when learning a new computer application, i prefer diagrams or pictures. 5.6 note. items were rated on a 7-point balanced likert scale with anchors of 1 = very strongly disagree and 7 = very strongly agree. based on tukey kramer multiple comparisons, difference between means greater than .44 were significant at p !"#9" items 1 and 2 attempted to obtain pre-course anxiety levels (see table 3). item 1 revealed a mean of 4.3 concerning taking a required finance course, while item 2 showed that the mean for taking that same course delivered partially or totally online was statistically the same at 4.0.this indicates taking finance courses online did not provoke a particularly high level of anxiety. this may well be due in part to the fact that most of the participants had already taken online courses successfully. reviewing items 3 (mean = 5.7), 4 (mean = 5.4), and 5 (mean = 6.1), the means were in the mid-5 to low-6 range. while no statistical differences were found between these means, they were statistically different from the pre-measures. if one were to view these three anxiety ratings as pseudo postmeasurements, it indicates that the course presentation techniques tended to reduce feelings of anxiety from the initial pre-measurement. table 3: respondents’ anxiety levels anxiety items mean 1. my level of anxiety in anticipation of taking the required finance course was high for various reasons. 4.3 2. i was somewhat apprehensive about taking a finance course partially or totally delivered online. 4.0 3. listening to the audio portions of the presentation reduced my anxiety as it relates to taking this course. 5.7 4. viewing the visual portions of the presentation reduced my anxiety as it relates to taking an online course. 5.4 5. both the audio and visual portions of the presentations reduced my anxiety as it relates to taking an online course. 6.1 note. items were rated on a 7-point balanced likert scale with anchors of 1 = very strongly disagree and 7 = very strongly agree. based on tukey kramer multiple comparisons, difference between means greater than .69 were significant at p !"#9"! for the questions dealing with explanations of processes, making the class more personal, and mastering the material, the means were all in the high 5 to low 6 range. respondents preferred the wyrostek and haefner advances in business research 2011, vol. 2, no. 1, 210-221 215 combination of audio and visual course delivery compared to just the audio or visual methods alone (see table 4). table 4: means of audio and visual aspects of the presentations item means i prefer audio methods of course delivery to written material only 5.45 the audio portions of the presentations assisted me in the explanation of processes which involve multiple steps and formula explanations 6.19 listening to the audio portion of the class made the class more personal in nature 5.98 listening to the audio portions assisted me in mastering the material 5.97 i prefer visual methods of course delivery to written material only 5.79 the visual portions of the presentations assisted me in the explanation of processes which involve multiple steps and formula explanations 6.12 viewing the visual portions of the class made the class more personal in nature 5.78 viewing to the visual portions assisted me in mastering the material 5.99 i prefer audio and visual methods of course delivery to written material only 5.95 the audio and visual portions of the presentations assisted me in the explanation of processes which involve multiple steps and formula explanations 6.14 listening to the audio and viewing the visual portions of the class made the class more personal in nature 5.96 listening to the audio and viewing the visual portions assisted me in mastering the material 6.07 note. based on tukey kramer multiple comparisons, difference between means greater than .39 were significant at !"!#$%#! gender differences were found related to both the measured anxiety levels and audio and visual aspects of the presentations. in all instances for anxiety, men indicated a stronger level of agreement when it came to anxiety; that is, they indicated they felt less anxiety than women. (see table 5) regarding the 12 questions related to the audio and visual aspects of the presentations, men indicated greater agreement than did women for 11 of the 12 questions. table 5: anxiety levels and audio and visual aspects of the presentations, gender differences anxiety items means male female my level of anxiety in anticipation of taking the required finance course was high for various reasons1 4.76 4.06 listening to the audio portions of the presentation reduced my anxiety as it relates to taking this course2 6.15 5.25 viewing the visual portions of the presentation reduced my anxiety as it relates to taking an online course3 6.06 5.37 both the audio and visual portions of the presentations reduced my anxiety as it relates to taking an online course4 6.30 5.53 audio and visual aspects of the presentations means male female i prefer audio methods of course delivery to written material only5 5.77 5.17 the audio portions of the presentations assisted me in the explanation of processes which involve multiple steps and formula explanations6 6.49 5.89 listening to the audio portion of the class made the class more personal in nature7 6.27 5.66 listening to the audio portions assisted me in mastering the material8 6.32 5.63 the visual portions of the presentations assisted me in the explanation of processes which involve multiple steps and formula explanations9 6.41 5.84 viewing the visual portions of the class made the class more personal in nature10 6.11 5.45 viewing the visual portions assisted me in mastering the material11 6.29 5.72 i prefer audio and visual methods of course delivery to written material only12 6.16 5.76 the audio and visual portions of the presentations assisted me in the explanation of processes which involve multiple steps and formula explanations13 6.46 5.81 listening to the audio and viewing the visual portions of the class made the class more personal in nature14 6.26 5.66 listening to the audio and viewing the visual portions assisted me in mastering the material15 6.35 5.79 note. items were rated on a 7-point balanced likert scale with anchors of 1 = very strongly disagree and 7 = very strongly agree.” 1 f = 7.9, p "!#$& 2 f = 25.7, p "!#$& 3 f = 20.6, p "!#$& 4 f = 25.5, p "!#$& 5 f = 10.2, p "!#$&! 6 f = 17.3, p "!#$&! 7 f = 12.9, p "!#$&! 8 f = 19.0, p "!#$&! 9 f = 18.7, p "!#$&! 10 f = 17.1, p "! .01 11 f = 17.2, p "!#$&! 12 f = 5.7, p "!#$&! 13 f = 20.4, p "!#$&! 14 f = 14.5, p "!#$& 15 f = 14.4, p "!#$&. wyrostek and haefner advances in business research 2011, vol. 2, no. 1, 210-221 216 multiple regressions were used to determine the relationships between the three anxiety questions and the seven independent variables. the dependent variables were: 1. audio portions of the presentation reduced my anxiety (audio model) 2. visual portions of the presentation reduced my anxiety (visual model) 3. audio and visual portion of the presentation reduced my anxiety (audio/visual model) the 8 independent variables were: 1. i prefer audio methods of course delivery to written material (prefer audio) 2. the audio portions of the presentations assisted me in the explanation of processes which involved multiple steps and formula explanations. 3. the audio portions of the presentations assisted me in the explanation of processes which involved multiple steps and formula explanations (explanation of process) 4. listening to the audio portions of the class made the class more personal in nature (more personal) 5. listening to the audio portions assisted me in mastering the material (master material) 6. gender as a dummy variable 7. income 8. age for the independent variables related to visual learning, the items were phrased the same, except the term “visual” was substituted for the term “audio.” likewise, for the audiovisual independent variable, the dependent questions were the same; except that the term “audiovisual” was substituted for the term “audio” (see table 6). table 6: regressions against anxiety levels model summary coefficients (standardized betas) model f significance r adjusted r2 variables t significance weight vif audio 117.5 .00 .855 .724 master material prefer audio age 12.8 3.3 3.2 .00 .00 .00 .689 .173 .158 1.3 1.2 1.1 visual 51.4 .00 .663 .431 explanation of process master material 4.0 3.9 .00 .00 .363 .359 1.8 1.8 audiovisual 105.2 .00 .786 .612 master material more personal 7.1 2.4 .00 .01 .613 .208 2.5 2.5 the audio model had a significant adjusted r 2 of .724; the visual model’s adjusted r 2 was .431; and the audio-visual model’s adjusted r 2 was .612. all the models were robust in terms of explanatory power. the vif numbers all indicated no issues with multicollinearity. for the audio model, the items asking the following were all significant predictors of anxiety levels: “i prefer audio methods of course delivery to written material”; “listening to the audio potions assisted me mastering the material”; and age. for age, the older the respondent, the more they expressed reduced anxiety levels or higher levels of agreement with the anxiety statements. for the visual model, the statements of “viewing the visual potions assisted me mastering the material” and “the visual portion of the presentation assisted me in the explanation of processes which involved multiple steps and formula explanations” emerged as the two significant standardized beta weights. finally, for the audiovisual model, the statements of “listening to the audiovisual portions assisted me mastering the material” and “listening to the audio and viewing the visual portions of the class made the class more personal” were the two significant beta weights. mastering the material was common to all three models. to determine which elements lead to a sense of being able to master the material, a series of regressions were conducted with “mastering the material” now designated as the dependent variable and wyrostek and haefner advances in business research 2011, vol. 2, no. 1, 210-221 217 the other variables remaining independent. the independent variables included age, gender, and income (see table 7). table 7: regressions against mastering material model summary coefficients (standardized betas) model f significance r adjusted r2 variables t significance weight vif audio 123.6 .00 .807 .647 more personal explanation of process 8.3 4.4 .00 .00 .574 .303 1.7 1.7 visual 146.8 .00 .831 .685 explanation of process more personal 9.1 6.8 .00 .00 .537 .401 1.4 1.4 audio visual 238.5 .00 .884 .779 explanation of process more personal 10.2 4.7 .00 .00 .636 .298 2.3 2.3 for mastering the material, the audio model had a significant adjusted r 2 of .647; the visual model’s adjusted r 2 was .685; and the audiovisual model’s adjusted r 2 was .779.all the models were robust in terms of explanatory power. the vif numbers all indicated no issues with multicollinearity. the most important predictors for all models included making the class more personal and assisting the respondents in explaining and understanding the processes that involved multiple steps and formulas. discussion among this survey’s respondents, taking finance courses online did not provoke a particularly initial high level of anxiety. this may well be due in part to the fact that most of the participants had already taken online courses successfully. for generic learning styles, some preference among the respondents emerged toward the visual, but many of the respondents used both audio and visual approaches. this generic finding was confirmed when the regression models indicated that students used audio, visual, and a combination of audio and visual approaches to understanding processes and master the course material. mastering the material was an important independent variable for the audio, visual, and audiovisual regression models that used anxiety levels as the dependent variable. this raises an interesting speculation that the effect of adding new visual, audio, and audiovisual components provided respondents with a sense of confidence that allowed them to either grasp the material more effectively or at least gave them the sense that they had a better grasp of the material. regression models helped decipher what lead students to feel they were able to master class material. making the class more personal and assisting in explaining processes that involved multiple steps and formula explanations were in all included in the models that gauged audio, visual, and audiovisual learning styles. certainly, it is intuitive that if formulas and processes are perceived to be well explained a sense of mastering the class material should follow. adding new visual, audio, and audiovisual components can make the course feel more personal. this begs speculation as to whether this provides a greater degree of intimacy between the instructor and the student leading to a greater feeling/sense of being able to master the course material. a class that feels more personal might be one that allows the student to believe that help will be available or that another understandable explanation of the material will be provided. such feelings could thus lead to a sense that mastering the material is always possible. as noted, gilligan (1982) described men as being more driven by issues of separation and women as being more driven by issues of connection. one might consider that women view online classes as lacking of sense of connectiveness, which might have led to their lower scores concerning anxiety levels, mastering the material, making the class more personal, and understanding processes. thus hypothesis two is confirmed. women, at the broadest cultural level, have been taught to be more relational than men. they have also been taught to judge success or failure based on the judgments of others. online classes, regardless of how the material is presented, cannot replace the personal interactions in a classroom setting between instructors and 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232-235. wilson, c. 2001. faculty attitudes about distance learning. education quarterly, 24: 70-71. wiley, d., & edwards, e. 2002. online self-organizing social systems: the decentralized future of online learning. quarterly review of distance education, 3: 33-46. frank wyrostek is a professor of business administration at university of st. francis. he received his ph.d. from loyola university chicago. his current research has included the areas of developing online pedagogy for the finance field. specifically his interest include how to use new technologies and software programs in producing effective interactive presentations online demonstrating financial concepts and processes. he has published recently in the journal of business and leadership jim haefner is a professor of business administration at university of st. francis. he received his ph.d. from the university of minnesota. research interests include global branding, healthcare with an emphasis on the branding of organizations, and online learning. he has published in journal of applied psychology, journal of advertising, journal of advertising research, journal of global business advancement, and others. wyrostek and haefner advances in business research 2011, vol. 2, no. 1, 210-221 221 appendix: survey items 1. i prefer to listen to music than view a piece of art work. 2. when doing something new at home or work i like to see demonstrations, drawings, slides or posters. 3. i often would rather listen to a lecture than read the material in a book. 4. when learning a new computer application i prefer diagrams or pictures. 5. my level of anxiety in anticipation of taking the required finance course was high for various reasons. 6. i was somewhat apprehensive about taking a finance course partially or totally delivered online. 7. listening to the audio portions of the presentation reduced my anxiety as it relates to taking this course. 8. i prefer audio methods of course delivery to written material only. 9. the audio portions of the presentations assisted me in the explanation of processes which involved multiple steps and formula explanations. 10. listening to the audio portions of the class made the class more personal in nature. 11. listening to the audio portions assisted me in mastering the material. 12. viewing the visual portions of the presentation reduced my anxiety as it relates to taking an online course. 13. i prefer visual methods of course delivery to written material only. 14. the visual portion of the presentations assisted me in the explanation of processes which involved multiple steps and formula explanations. 15. viewing the visual portions of the class made the class more personal in nature. 16. viewing the visual portions assisted me in mastering the material. 17. both the audio and visual portions of the presentations reduced my anxiety as it relates to taking an online course. 18. i prefer audio and visual methods of course delivery to written material only. 19. the audio and visual portions of the presentations assisted me in the explanation of processes which involved multiple steps and formula explanations. 20. listening to the audio and viewing the visual portions of the class made the class more personal in nature. 21. listening to the audio and viewing the visual portions assisted me in mastering the material. 22. how anxious were you about taking this course? 23. age on your last birthday. 24. income after taxes (2006). 25. gender. 26. i am a student in the following academic program. 27. professional career or field. microsoft word 73-final-i-hope.docx http://journals.sfu.ca/abr advances in business research 2015, volume 6, pages 46-64 46 optimal incentive-based compensation contracts for ceos: the impacts of ceo age and tenure dr. joshua aaron middle tennessee state university dr. amy mcmillan east carolina university dr. timothy dunne middle tennessee state university this study examines the relationship between ceo compensation packages and firm performance. we suggest the optimal compensation contract is partially dependent on the ceo’s age and tenure. our results indicate that firms with younger ceos and firms with newly minted ceos perform better with greater proportions of incentive-based compensation while firms with older ceos and firms with longer tenured ceos perform better when offering greater proportions of guaranteed pay. these findings suggest firms should evaluate the characteristics and preferences of their ceos prior to designing the compensation package. keywords: executive compensation, agency theory introduction the relationship between ceo compensation and firm performance has been extensively studied (jensen & meckling, 1976; jensen & murphy, 1990; sundaramurthy, rhoades, & rechner, 2005; wright, ferris, sarin, & awasthi, 1996). research has been largely grounded in agency theory, which suggests that executives should be given equity stakes in their companies in order to properly align their interests with the interests of shareholders (jensen & meckling, 1976; fama, 1980; jensen & murphy, 1990). this perspective assumes that ceos and shareholders often have conflicting goals and interests. accordingly, to ensure that ceos pursue strategies in the best interest of the shareholders, executive compensation plans often include a large portion of stock options, hoping to assure that ceo decisions are focused on firm performance and value. the idea of tying ceo pay to firm performance has received some empirical support in the literature. the impact of compensation packages on firm performance, however, is not clear. for example, aupperle, figler, & lutz, (1991), jensen & murphy, (1990), and murthy & salter, (1975) found little to no relationship between ceo compensation and firm performance. other studies, however, have found a significant relationship between ceo compensation and firm performance (veliyath & bishop; 1995). crumley (2008) found a weak relationship between ceo compensation and return on equity and a strong relationship between sales and ceo compensation. mehran (1995) and finkelstein and hambrick (1990) found a direct and positive relationship between executive ownership through ceo compensation and firm performance. these inconsistent results suggest additional research is necessary to better understand the relationship. some of the inconsistent findings of research on ceo compensation are likely due to the reliance on agency theory alone. a more complex relationship seems to be present, calling for research aaron, et al. 47 to examine other factors to help better understand application of optimal executive compensation. aaron, harris, mcdowell, and cline, (2014) provide evidence that a moderate amount of incentivebased compensation leads to optimal firm performance, suggesting executive compensation is one of many applications of the pierce and aquinis (2011) too-much-of-a-good-thing effect (tmgt effect). firms receive benefit from using incentive-based compensation but there exists an inflection point beyond which firm performance is hindered by additional incentive compensation. since there are individual characteristics that impact how successful managers are at improving firm performance (howell & avolio, 1993) and their preferences for different decisions (sitkin & weingart, 1995), we suggest that individual characteristics will also impact what executive compensation structure is optimal for achieving performance. research on motivation has found that the use of different kinds of rewards has varying impacts on individual motivation (pappas & flaherty, 2006). the same holds true of ceos. hence, we believe that the ceo compensation to firm performance relationship will be stronger if the ceo is more highly motivated by the compensation structure. thus, the ability to negotiate a package that meets the individual needs of the ceo should correspond with better firm performance. accordingly, managerial power theory suggests that powerful ceos work to and are able to structure their compensation in a manner consistent with their interests (sanders, davis-blake, & fredickson, 1995). continuing that reasoning, we suggest that ceos may differ in motivation needs based on individual characteristics, which will consequently affect the type of compensation they prefer. expectancy theory (vroom, 1964) helps to explain how different incentive structures will have varying effects on ceo motivation. according to the theory, individuals are motivated when a goal is desirable, and when they perceive a high likelihood that effort exerted will lead to the attainment of the goal. in the context of ceo incentive based compensation, motivation would be present if an executive both believes their efforts put forth are likely to result in receiving incentives, and that those incentives are valuable enough to warrant increased effort (lawler, 1981). according to this perspective, the motivating mechanism of incentive compensation can be influenced by considering how likely a ceo perceives incentives to be attainable, and the economic value they place on the specific compensation. total compensation for a ceo is comprised of performance-based compensation and fixed compensation. performance-based compensation plans typically include equity interest such as stock purchase programs and stock options. fixed compensation plans are primarily composed of annual salary and bonuses. fixed compensation represents a guaranteed amount of money and therefore represents a lower risk for ceos than performance-based plans which depend on firm performance and market value for their worth. we expect that, as ceos age and their tenure with a firm increases, they will prefer and perform better when paid more fixed compensation relative to total compensation. this study examines the role of ceo age and tenure on optimal incentive contracts. specifically, we argue that firm performance will be stronger when ceo compensation is incentivized in line with ceo preferences. those preferences are likely to change over time, with firms employing younger and newly minted ceos performing better with greater proportions of incentive-based compensation than firms with older and longer tenured counterparts. to develop our arguments, this paper will begin with a brief description of both agency and managerial power perspectives on ceo compensation, focusing on some major advantages and disadvantages of each. then, we examine characteristics of executives that are likely to influence the favorableness of incentive-based compensation systems making predictions about optimal amounts of incentive pay. finally, we will discuss the findings of our study and the implications they have on structuring executive pay. optimal incentive-based compensation contracts 48 literature review the decisions made by chief executives are some of instrumental importance (armstrong, 1982; dean & sharfman, 1996). many of their decisions are accompanied with consequences, both for the organization and the ceo. sometimes the consequences for organizations are different than those for the ceo, creating a situation where the interests of executives are not necessarily aligned with what is best for the organization. accordingly, agency theory (eisenhardt, 1989) describes how principals of organizations implement mechanisms to control ceo decisions so that they serve the long-term interests of the organization. this need presents itself because agents (e.g. ceos) and principals are known to have different goals (boyd, 1995) as well as different perspectives about risk (kim & lu, 2011). however, simply monitoring the actions and behaviors of executives proves difficult, as the incomplete information available to shareholders makes it challenging to detect and make sense of ceo actions (chaudri, 2003). efforts to avoid the agency issues raised above, commonly rely on linking ceo compensation with factors of firm performance that are desired by shareholders – mainly stock price (rappaport, 1999). those incentive-based systems are meant to highlight shareholder interests and avoid selfinterested decisions on the part of the ceo. linking firm performance to executive pay is not foolproof however, as ceos often have influence on how pay structures are determined. managerial power theory suggests “compensation arrangements approved by boards often deviate from optimal contracting because directors are captured or subject to influence by management, sympathetic to management, or simply ineffectual in overseeing compensation” (bebcuk, fried, & walker, 2002; pg. 754). therefore, ceos may have influence over the board in determining the type of compensation package offered; influence which is commonly used to meet the ceos’ personal needs and preferences. for example, some ceos may prefer a compensation package that is variable and includes a large portion of stock options, while other ceos may prefer a compensation package that is fixed with fewer stock options and higher amounts of salary. we propose that the preference for a particular compensation package is influenced by the ceos age and tenure. as such, it is logical to assume a ceo’s preferred mix of compensation will change over time. specifically, we suggest that older ceos and longer tenured ceos prefer more fixed packages while younger ceos and newly minted ceos prefer compensation packaged with less guaranteed pay but more upside potential (incentive-based compensation). we believe the effect of age and tenure on the compensation-firm performance relationship is influenced by preferences for risk. risk propensity is defined as an individual’s general tendency toward taking or avoiding risk (sitkin & pablo, 1992). while definitions of risk, risk preferences, and risk taking propensity vary, they mainly agree that risk involves the “unspecified possibility of an undesirable outcome and includes some element of choice for the decision maker” (williams & narendran, 1999; 104). studies have examined a range of risk preference and behavior determinants including culture, personality, and demographic variables. williams and narendran (1999) found that need for achievement, type a behavior, age and nationality were significant predictors of risk behavior. they did not however find a significant relationship between education, managerial level, tenure, or length of employment and risk behavior. yet, maccrimmon and wehrung, (1990), found that maturity characteristics (age, seniority, and dependents) were significantly and negatively related to risk factors. in other words, the more “mature” a manager was, the less likely he/she was to take risk. another factor likely to impact the effectiveness of a compensation package is whether it is successful at motivating the ceo. in order for incentive-based pay to motivate, the incentive offered must be something desired by the ceo as well as something perceived to be attainable (flaherty & pappas, 2002). we expect various factors will impact how incentive-based compensation effectively aaron, et al. 49 motivates a ceo to achieve competitive advantage. we now turn to discuss individual characteristics likely to influence that motivation. individual ceo characteristics the ceo’s preferred compensation contract structure is likely a function of their individual circumstances and characteristics. we believe those influential characteristics include, but are not limited to, the ceo’s age and tenure. ceo age. to properly motivate a ceo, an accurate understanding of the individuals’ needs is necessary. motivation is a psychological process that arouses action toward fulfillment of organizational or individual needs (robbins, 1993). when a need remains unsatisfied, attention is stimulated, driving the exertion of efforts toward satisfying that unmet need. many motivation theories exist which assert that different needs influence motivation. organizational research has found that managers’ motivation can be affected by their needs to achieve, be affiliated with others, control a situation (mcclelland, 1961), achieve fair social exchange relationships (adams, 1965), and participate in exciting and meaningful work activities (herzberg, mausner, & snyderman, 1959). these grand theories of motivation describe well the things that motivate individual behavior, and prescribe how to use them to motivate others. at the same time, research has found that individuals’ needs – and their accompanying motivation – change with age (cook & wall, 1980). thus, we see ceo age as an important determinant of the motivational component of compensation systems. considering the impact of age on ceo motivation, we have learned that the motivation to pursue risk-taking behaviors decreases as retirement approaches (harris & weiss, 1984). older ceos have proven themselves to be successful and are likely becoming focused on their future after retirement. on average, older ceos are expected to prefer a large portion of their compensation to be guaranteed. since variable pay structures create more uncertain future income, a fixed compensation package is more likely to satisfy the needs of an older ceo. therefore, it may be prudent for firms to design compensation packages that meet ceo preferences. additionally, the firm should be willing to guarantee more of the older ceos’ compensation because they are receiving the proven track record in return. younger ceos on the other hand have yet to establish this track record. they are likely more energetic, confident, and willing to assume more uncertain future income for the potential upside of performance-based pay. they may even prefer less guaranteed compensation if it meant the ceiling for incentive pay was higher. more incentive-based compensation is advantageous for the firm as well because it can “test out” the new ceo with a smaller guaranteed investment and reap the mutual monetary benefits if indeed the young ceo is successful. thus, firms may do well to design compensation contracts for younger ceos that include more performance-based pay. hypothesis 1: firms with older ceos will perform better when offering a greater proportion of fixed compensation relative to performance-based compensation. hypothesis 2: firms with young ceos will perform better when offering more performance-based compensation relative to fixed compensation. ceo tenure. previous research regarding the effect of ceo tenure on the compensation to firm performance relationship suggests the connection between ceo compensation and firm performance weakens as ceo tenure increases because the board of directors learns more about the ceo and does not need to use firm performance as a proxy for ceo performance (murphy, 1996). in addition, hill and phan (1991) suggest that the relationship weakens as ceo tenure increases, because of a ceos increase in power and influence over his/her compensation package. we believe the relationship between ceo compensation and firm performance can be further explained by examining the ceo’s preference for performance-based or fixed compensation optimal incentive-based compensation contracts 50 packages. in particular, as ceo tenure increases the percentage of performance based compensation should decrease (bebchuk et al., 2002). this is because ceos with longer tenure have accumulated a large portion of their wealth through stock options and they now desire a more fixed compensation package due to changes in personal needs and preferences (natarajan, 1999). as such, newly minted ceos and experienced ceos are likely to have different desires and preferences. new ceos lack a proven history of service with their current firm. therefore, even if a short-tenured ceo has been successful at another firm, it remains to be seen whether that success can be duplicated in a new setting. experienced ceos are likely older and feel a greater sense of commitment to the firm. a long tenure for a ceo is a signal for adequate past success. therefore, firms that have long tenured ceos are likely satisfied with the performance results of that ceo and should be prepared to offer more guaranteed pay in return for the reduced agency costs of monitoring the experienced ceo. hypothesis 3: firms with longer tenured ceos will perform better when offering more fixed compensation relative to performance-based compensation. hypothesis 4: firms with short tenured ceos will perform better when offering more performancebased compensation related to fixed compensation. methodology hypotheses are tested on more than 4,000 ceo observations (for ceo age) and 15,000 ceo observations (for ceo tenure) from execucomp covering 1992-2004. performance-based compensation (perf comp) pay was operationalized as the percent of performance-based compensation (i.e., black-scholes option value plus the value of the restricted stock grants) relative to the overall compensation (i.e., includes performance-based compensation plus salary and bonus) for the ceo. performance was measured as the equally weighted mean cumulative abnormal return (car) as derived from crsp (center for research in security prices). the model was assessed using the eventus software to conduct an event study that ties groups of ceos (young, old, shorttenured, long-tenured) to their performance as measured by car. the use of the crsp models to estimate abnormal performance allow us to handle multiple and overlapping option grants for ceos, aggregating them to one date. the fiscal year end for a firm serves as the focal date because we did not have the option grant date and some ceos have several grants in one year. we used mean cumulative abnormal returns to examine the performance around that date. cumulative abnormal returns are the returns for a specific firm for one year, two years, etc. following the event over and above the return for the market as a whole. thus, we have implicitly controlled for market returns and fluctuations. previous research has used car as a common measure of performance with event studies (mcwilliams & siegel, 1997). the primary reason for using car as the performance indicator in this study is because of its connection to the other focal variable in our study – performance-based compensation. since we are interested in how performance-based pay serves to influence firm performance, and this performance-based pay is often highly reliant on stock options granted to the ceo, we see car as the best proxy for firm performance. we utilize a two-step methodology to test the impact of ceo compensation package on firm performance for each subset of ceos. the first step is to split the ceo dataset (originally containing 24,000 observations) into groups (younger, older, short-tenured, long-tenured) in order to run an event study to determine the cars associated with various compensation packages, allowing us to observe the pattern of the data. in order to identify the younger and older ceos, we sort the data based on age. the youngest one-third of the ceos are included in the “younger” subset and the oldest onethird are included in the “older” dataset. in order to identify the short-tenured and long-tenured ceos, we sort the data based on tenure. the lowest one-third in years of tenure are included in the aaron, et al. 51 “short-tenured” subset and the highest one-third in years of tenure are included in the “long-tenured” subset. for each group, we then sort the data on the focal variable (perf comp) to create quintiles. for example, in terms of short-tenure ceos, q1 represents the smallest proportion of perf comp in the shortest tenured third while for longer-tenured ceos, q1 represents the smallest proportion of perf comp for the longest tenured third. this was done to examine the firm performance associated with the various ceo compensation packages. in essence, we can see where firms are performing best in terms of offering more or less incentive-based compensation. the second step in the methodology is to conduct listwise regressions for each of the subsets of ceos in order to determine whether the compensation package-firm performance relationship is linear or curvilinear as well as the magnitude and significance of the observed relationship. the regressions follow a three model sequence and use the same primary independent and dependent variables: perf comp and cumulative abnormal returns. the equations for those models are as follows. model 1: car = sales + number of employees + total pay model 2: car = sales + number of employees + total pay + perf comp model 3: car = sales + number of employees + total pay + perf comp + perf comp2 in model 1, we controlled for firm size by including net sales and number of employees. we also controlled for the total amount of compensation of the ceo in order to alleviate concerns that the relative amount of perf comp will not matter for ceos with large amounts of total compensation. in model 2, we enter the focal variable of perf comp to obtain an r-square assuming a linear relationship. in model 3, we enter the squared term of perf comp to determine whether the curvilinear assumption added any explanatory power and is a more appropriate fit for the data. results the results of our two step methodology are presented below. we discuss hypotheses 1 and 2 together (younger and older ceos) and hypotheses 3 and 4 together (short and long-tenured ceos). for each dyad of hypotheses, we first discuss the event study results revealing the underlying pattern of the data. then, we discuss the results of listwise regressions to determine the importance of the focal variable. ceo age in order to test hypotheses 1 and 2, the observations were sorted by the age of the ceo. ceo ages in the dataset range from 37 – 91 years. there was a great deal of missing data for ceo age, producing only 4,156 usable observations. we discarded the middle one-third of the data (1,386 observations) and examined the younger ceos (1,385 observations) and older ceos (1,385 observations). for the purposes of this test, young ceos were those age 37 – 55, the discarded group were ceos age 56 – 61, and the old ceos were age 62 – 91. next, the observations in each dataset were sorted on the focal variable (perf comp) and then divided into five equal segments. the purpose of dividing the younger and older ceos in to quintiles was to observe the pattern of the firm performance data based on perf comp. therefore, quintile 1 represents the bottom 20% of firms in terms of the percentage of perf comp they offer and quintile 5 represents the top 20% of firms. each quintile in the younger ceo dataset and the older ceo dataset contains 277 observations. then, the event study was performed in eventus to match the firms in each quintile with their abnormal return. the results are displayed in table 1 below. the highlighted observations represent the peak quintile for each year (representing the optimal perf comp package for each year). optimal incentive-based compensation contracts 52 table 1 cumulative abnormal returns (car) by ceo age. older ceos 1 year 2 year 3 year 4 year 5 year q 1 3.63 6.44 11.58 11.54 12.68 q 2 2.08 4.23 4.02 6.68 5.55 q 3 2.62 5.91 4.86 4.99 6.41 q 4 1.51 -1.78 -2.20 -3.22 -2.71 q 5 3.80 6.21 1.96 -1.81 -2.24 younger ceos 1 year 2 year 3 year 4 year 5 year q 1 3.65 5.77 8.08 11.24 12.92 q 2 3.55 8.21 9.98 11.29 11.65 q 3 4.25 3.46 4.08 4.55 5.19 q 4 1.75 -1.16 -1.54 -2.09 -1.51 q 5 0.30 -4.08 -9.69 -13.10 -14.44 note: q1 represents the lowest 20% of observations and q5 the highest 20% in terms of perf comp. highlighted values indicate highest car within each time period. hypothesis 1 stated that firms with older ceos will perform better when offering a greater proportion of fixed compensation related to performance-based compensation. table 1 lends support to the hypothesis given the peak in quintile 1 for older ceos in 4 of the 5 time periods observed. hypothesis 2 stated firms with young ceos will perform better when offering more performance-based compensation relative to fixed compensation. while, there is some support for the notion that younger ceos perform better with more perf comp than do older ceos (peak in q2 versus q1), the hypothesis is not supported. we hypothesized a positive, linear relationship between younger ceo perf comp and firm performance. we found a nonlinear, concave relationship, meaning firms with younger ceos perform optimally with a moderate amount of ceo perf comp. the poorer performance in q4 and q5 suggests that beyond the inflection point (primarily q2), additional perf comp will be detrimental to firm performance. while table 1 shows the underlying pattern of the data, we need to determine the importance of our focal variable (perf comp) for each subset of ceos. recall that we examined the regression results for 3 models. model 1 represents the control variables related to company size and the total compensation of the ceo. model 2 introduces our focal variable (perf comp) to determine if this variable is meaningful in terms of explaining subsequent firm performance. model 3 includes the squared term of our focal variable to assess whether underlying nature of the relationship is best described as linear or nonlinear (concave). table 2 below displays the regression results for older ceos for 1 year, 3 years and 5 years respectively. overall regression models for older ceos were not significant. there is no significance at all for the 1 year return. there are significant r-squared values for year 3 and year 5 returns, however, all of the explanatory power is coming from the control model (model 1). the perf comp variable is not significant for older ceos. aaron, et al. 53 table 2 regression analysis for older ceos 1 year car 3 year car 5 year car model 1 model 2 model 3 model 1 model 2 model 3 model 1 model 2 model 3 constant .005 (.052) -.010 (-.117) -.006 (.068) .064 (.380) .089 (.520) .064 (.371) .078 (.334) .137 (.578) .059 (.246) control variables net sales -.004 (-.074) -.003 (.068) -.002 (.037) .004 (.075) .003 (.069) -.001 (.024) .016 (.332) .016 (.323) .005 (.109) number of employees .018 (.378) .015 (.315) .014 (.299) .036 (.768) .039 (.820) .041 (.865) .037 (.803) .042 (.893) .047 (.999) total compensation -.049 (-1.568) -.058† (-1.77) -.060† (-1.782) -.08* (-2.596) -.073* (-2.244) -.065* (-1.93) -.115*** (-3.737) -.102** (-3.17) -.084* (-2.528) compensation variables percent perf comp .027 (.920) .003 (.036) -.023 (.798) .048 (.555) -.040 (1.361) .123 (1.419) percent perf comp2 .026 (.290) -.078 (.873) -.178* (-1.993) model significance r-squared .006 .007 .007 .018*** .019*** .019** .029*** .031*** .034*** adjusted r-squared -.001 -.001 -.002 .011*** .011*** .010** .022*** .023*** .025 *** change in r-squared .001 .000 .000 .001 .001 .003* note: values in parentheses are t-statistics † p < .10 *p < .05 **p < .01 ***p < .001 optimal incentive-based compensation contracts 54 table 3 regression analysis for younger ceos 1 year car 3 year car 5 year car model 1 model 2 model 3 model 1 model 2 model 3 model 1 model 2 model 3 constant -.089 (-.627) -.021 (-.144) -.061 (-.429) -.409 (-1.504) -.234 (.859) -.342 (1.258) -.724 (1.910) -.411 (-1.082) -.587 (-1.559) control variables net sales .020 (.449) .017 (.378) .018 (.408) .051 (1.142) .046 (1.052) .048 (1.102) .044 (.990) .038 (.875) .040 (.933) number of employees .040 (.890) .047 (1.061) .042 (.935) .045 (1.032) .055 (1.264) .047 (1.093) .052 (1.176) .064 (1.479) .055 (1.283) total compensation -.089 (3.261) -.068 (-2.441) -.043 (-1.519) -.130*** (-4.869) -.103*** (-3.772) -.070* (2.501) -.123 (4.583) -.088 (-3.225) -.049 (-1.761) compensation variables percent perf comp -.086 (-3.085) .232 (2.592) -.113*** (-4.125) .318*** (3.643) -.145 (-5.322) .358 (4.140) percent perf comp2 -.341 (-3.737) -.463*** (-5.190) -.540 (-6.114) model significance r-squared .019** .026*** .036*** .050*** .062*** .080*** .053*** .072*** .097*** adjusted r-squared .011** .017*** .026*** .043*** .054*** .072*** .045*** .064*** .088*** change in r-squared .007** .010*** .012*** .018*** .019*** .025*** note: values in parentheses are t-statistics † p < .10 *p < .05 **p < .01 ***p < .001 aaron, et al. 55 table 3 tells a much different story. all overall regression models were significant for young ceos. additionally, the change in r-square is significant for all models. taken together with results illustrated in table 1, the interpretation of this finding is that perf comp is significant and the relationship follows an inverse u-shaped curve for young ceos. the magnitude of the r-square values is striking for young ceos. the curvilinear model accounts for 3.6% of the variance in firm performance for the 1 year return, 8.0% of the 3 year return and 9.7% of the 5 year return (see table 3 above). thus, perf comp is clearly much more influential for younger ceos than for older ceos. while hypothesis 2 is not supported, (due to the nonlinear relationship), we do find the optimal contracts for young ceos have more perf comp than their older counterparts and the perf comp is a much more influential determinant of organizational performance for young ceos. ceo tenure in order to test hypotheses 3 and 4, the observations were sorted by the tenure of the ceo. again, we discarded the middle one-third of the data (4,897 observations) and examined the shorttenured ceos (5,222 observations) and long-tenured ceos (5,102 observations). for the purposes of this test, short-tenured ceos were those with 0-3 years of tenure, the discarded group was ceos with 4 – 7 years of tenure and the long-tenured ceos were those with 8 – 54 years of tenure. next, the observations in the each dataset were sorted on the focal variable (perf comp) and then divided into five equal segments. quintile 1 represents the bottom 20% of firms in terms of perf comp they offer and quintile 5 represents the top 20% of firms. each quintile in the short-tenured ceo dataset contains 1,044 observations while the long-tenured ceo dataset has 1,020 in each quintile. then, the event study was performed in eventus to match the firms in each quintile with their abnormal return. the results are displayed in table 4 below. the highlighted observations represent the peak quintile for each year (representing the optimal perf comp for each year). table 4 cumulative abnormal returns (car) by ceo tenure. long-tenured ceos 1 year 2 year 3 year 4 year 5 year q 1 2.14 4.05 4.46 3.71 2.23 q 2 -0.05 -1.52 -2.56 -3.01 -2.94 q 3 -0.90 -3.66 -8.39 -8.98 -10.06 q 4 -7.12 -9.60 -11.54 -12.68 -12.82 q 5 1.72 -2.15 -6.02 -6.37 -8.78 short-tenured ceos 1 year 2 year 3 year 4 year 5 year q 1 2.44 4.79 7.28 7.77 9.96 q 2 1.72 5.62 7.00 7.91 6.20 q 3 3.75 6.8 10.09 12.84 14.95 q 4 2.70 7.04 9.44 12.23 11.58 q 5 2.41 3.98 0.25 -1.30 -1.30 optimal incentive-based compensation contracts 56 note: q1 represents the lowest 20% of observations and q5 the highest 20% in terms of perf comp. highlighted values indicate highest car within each time period. hypothesis 3 stated firms with longer-tenured ceos will perform better when offering a greater proportion of fixed compensation relative to performance-based compensation. data from table 4 lends support to the hypothesis given the peak in quintile 1 for longer-tenured ceos in all 5 time periods observed. hypothesis 4 stated firms with shorter-tenured ceos will perform better when offering more perf comp relative to fixed compensation. table 4 lends support to the hypothesis given the peaks occur in q3 and q4. similar to younger ceos, we hypothesized a positive, linear relationship between shorter-tenured ceo perf comp and firm performance. again, we found a nonlinear, concave relationship, meaning firms with shorter-tenured ceos perform optimally with a moderate amount of ceo perf comp. the poorer performance in q5 suggests that beyond the inflection point (primarily q3), additional perf comp will be detrimental to firm performance. while table 4 above shows the underlying pattern of the data, we need to determine the importance of our focal variable (perf comp) for each subset of ceos. recall that we examined the regression results for 3 models. model 1 represents the control variables related to company size and the total compensation of the ceo. model 2 introduces our focal variable (perf comp) to determine if this variable is meaningful in terms of explaining subsequent firm performance. model 3 includes the squared term of our focal variable to assess whether underlying nature of the relationship is best described as linear or nonlinear (concave). table 5 below displays the regression results for longer-tenured ceos for 1 year, 3 years and 5 years respectively. all regression models for longer-tenured ceo were significant. additionally, the change in r-square is significant for all models. taken together with results illustrated in table 4, the interpretation of this finding is that perf comp is significant and the relationship is negative for longer-tenured ceos. the curvilinear model actually fits the data best, primarily due to a slight increase in performance from q4 to q5. the curvilinear model accounts for 2.1% of the variance in firm performance for the 1 year return, 4.9% of the 3 year return and 6.0% of the 5 year return. overall, hypothesis 3 is supported. the optimal contracts for longer-tenured ceos have very little perf comp relative to guaranteed pay. aaron, et al. 57 table 5 regression analysis for long-tenured ceos 1 year car 3 year car 5 year car model 1 model 2 model 3 model 1 model 2 model 3 model 1 model 2 model 3 constant -.033 (.382) -.006 (.071) -.034 (.398) -.091 (.520) .002 (.012) -.085 (.488) -.104 (.434) .033 (.139) -.100 (.425) control variables net sales .002 (.096) .004 (.197) .002 (.107) .011 (.541) .014 (.716) .012 (.583) .004 (.208) .008 (.395) .005 (.243) number of employees .024 (1.186) .026 (1.282) .024 (1.201) .030 (1.493) .033† (1.661) .031 (1.543) .021 (1.041) .024 (1.220) .021 (1.085) total compensation -.082*** (-5.719) -.067*** (-4.553) .047** (-3.068) -.114*** (-8.047) -.089*** (-6.123) -.058*** (-3.897) -.123*** (-8.718) -.097*** (-6.650) -.062*** (-4.157) compensation variables percent perf comp -.054*** (-3.704) .196*** (4.221) -.092*** (-6.123) .285*** (6.241) -.099*** (-6.854) .324*** (7.139) percent perf comp2 -.268*** (-5.673) -.405*** (-8.692) -.455*** (-9.804) model significance r-squared .013*** .015*** .021*** .027*** .035*** .049*** .034*** .043*** .060*** adjusted r-squared .010*** .013*** .019*** .025*** .032*** .046*** .032*** .040*** .058*** change in r-squared .003*** .006*** .008*** .014*** .009*** .018*** note: values in parentheses are t-statistics † p < .10 *p < .05 **p < .01 ***p < .001 optimal incentive-based compensation contracts 58 table 6 regression analysis for short-tenured ceos 1 year car 3 year car 5 year car model 1 model 2 model 3 model 1 model 2 model 3 model 1 model 2 model 3 constant -.004 (.058) .021 (.267) -.020 (.257) .069 (.440) .144 (.913) .031 (.195) .174 (.813) .304 (1.410) .132 (.609) control variables net sales .022 (.918) .024 (1.002) .019 (.788) .025 (1.063) .028 (1.187) .021 (.896) .017 (.735) .021 (.891) .013 (.568) number of employees -.007 (.291) -.006 (.251) -.004 (.149) .000 (.013) .001 (.046) .004 (.186) .001 (.046) .003 (.121) .006 (.276) total compensation -.095*** (-7.013) -.084*** (-5.994) -.070*** (-4.887) -.129*** (-9.649) -.114*** (-8.188) -.095*** (-6.685) -.125*** (-9.329) -.105*** (-7.593) -.085*** (-5.964) compensation variables percent perf comp -.040** (2.837) .131** (2.930) -.057*** (-4.153) .174*** (3.914) -.073*** (-5.249) .184*** (4.160) percent perf comp2 -.183*** (-4.887) -.248*** (-5.483) -.276*** (-6.103) model significance r-squared .011*** .012*** .015*** .024*** .027*** .032*** .023*** .028*** .034*** adjusted r-squared .009*** .012*** .015*** .022*** .024*** .029*** .021*** .026*** .032*** change in r-squared .001** .003*** .003*** .005*** .005*** .006*** note: values in parentheses are t-statistics † p < .10 *p < .05 **p < .01 ***p < .001 aaron et al. 59 table 6 above displays the regression results for shorter-tenured ceos for 1 year, 3 years and 5 years respectively. all overall regression models were significant for shorter-tenured ceos. additionally, the change in r-square is significant for all models. taken together with results illustrated in table 4, the interpretation of this finding is that perf comp is significant and the relationship follows an inverse u-shaped curve for shorter-tenured ceos. here, the curvilinear model accounts for 1.5% of the variance in firm performance for the 1 year return, 3.2% of the 3 year return and 3.4% of the 5 year return. overall, hypothesis 4 is partially supported. the optimal contracts for shorter-tenured ceos have more perf comp than their longer-tenured counterparts (peak in q3 for shorter-tenured and q1 for longer-tenured). it should be noted that, while all regression models were significant for both short-tenured and long-tenured ceos, the magnitude of the r-square values is greater for longtenured ceos (max of 6.0%) than short-tenured ceos (max of 3.4%). discussion in this study, we sought to contribute to our understanding of the link between ceo compensation and performance. the abundant empirical research examining that relationship is surprisingly inconsistent, and at times even contradictory. we have learned that many organizations attempt to influence firm performance by fixing ceo compensation to future achievement (jensen & meckling, 1976). separately, there is ample evidence that ceos leverage their individual power and control over information to influence a compensation package that is personally favorable (grinstein & hribar, 2004; bebchuk et al., 2002). by integrating an agency approach with a managerial power perspective, this study was able to advance literature on optimal ceo compensation structure. specifically, we leveraged those two theories and investigated the important role of ceo age and tenure on the relationship between compensation structure and performance. this section begins with a brief discussion about the findings of our hypotheses, highlighting the most interesting findings. each hypothesis received some support through the event studies and regressions, but there was a substantial range in the level of support for each one. next, we detail the theoretical contributions derived from these results. we then discuss practical applications, suggesting how these data can influence more optimal ceo pay. we close with the limitations of this paper and the study conclusions. hypothesis 1 proposed that firms with older ceos would perform better when offering a greater proportion of fixed compensation relative to performance-based compensation. we find the pattern of the data to be consistent with the prediction (table 1) but the predictive power of the perf comp variable to be minimal (table 2). as such, we have evidence that says older ceos do seem to prefer, and their firms perform optimally, when offered more guaranteed pay. despite the insignificance of the variable in the regressions, we argue for ceos to be given more guaranteed pay as they age and have proven themselves worthy of the additional certainty of their compensation package. hypothesis 2 stated firms with young ceos will perform better when offering more performance-based compensation relative to fixed compensation. as stated in the results section, we found a nonlinear concave relationship rather than a positive, linear relationship (table 1). additionally, we find the predictive power of the perf comp variable to be quite high (table 3). while not precisely what we hypothesized, we believe this finding to be of particular importance. firms with younger ceos perform better in the lower levels of performance-based compensation (q1 – q3) than in the higher levels (q4 – q5). but, the firms with younger ceos peak most often in q2 suggesting the optimal amount of perf comp is somewhere in the 20% – 40% range. additionally, aaron et al. 60 the regressions show the perf comp variable is highly significant and an important predictor for firms with younger ceos. taken together, hypotheses 1 and 2 suggest there is, indeed, a difference in optimal compensation contracts for ceos based on age. firms with younger ceos flourish more with more performance-based compensation than the firms with older ceos. hypothesis 3 stated firms with longer-tenured older ceos will perform better when offering a greater proportion of fixed compensation relative to performance-based compensation. we find the pattern of the data to be consistent with the prediction (table 4) and the predictive power of the perf comp variable significant (table 5). this finding is similar to but stronger than the findings for older ceos. in essence, firms with both older and longer-tenured ceos perform best with higher levels of guaranteed pay, but the perf comp variable is more significant for longer-tenured ceos. this finding has face validity. the longer a ceo stay on the job and proves themselves, the more guaranteed pay is warranted. hypothesis 4 stated firms with short tenured ceos will perform better when offering more performance-based compensation related to fixed compensation. as stated in the results section, we found a nonlinear concave relationship rather than a positive, linear relationship (table 4). additionally, we find the predictive power of the perf comp variable to be quite high (table 6). while not precisely what we hypothesized, we believe this finding to be quite interesting. firms with shorttenured ceos perform better with moderate amounts of perf comp (q3 – q4) than with low levels (q1 – q2) or with high levels (q5). additionally, the regressions show the perf comp variable is highly significant and an important predictor for firms with short-tenured ceos. taken together, hypotheses 3 and 4 suggest there is, indeed, a difference in optimal compensation contracts for ceos based on tenure. firms with short-tenured ceos (peak in q3) flourish more with more perf comp than the firms with long-tenured ceos (peak in q1). additionally, the perf comp variable is significant for both longer and shorter-tenured ceos. this suggests tenure is even more of an important determinant of the optimal compensation contract than age. it is important for firms to take the tenure of the ceo in to account when designing their compensation package. theoretical contributions the expansive literature regarding ceo compensation generally takes one of several theoretical directions. the principal-agent relationship that exists in many organizations guides much of that literature to apply agency theory for predicting the impact of ceo pay on firm performance. indeed, some empirical research has demonstrated that aligning executive compensation with shareholder interests may predict performance (hambrick, 1995). however, some challenges have been presented for the effectiveness of the agency perspective, with mixed results across numerous empirical studies (boyd, 1994). because ceos have considerable power and control much information, managerial power theory has been applied in some research to investigate the ceo compensation – performance relationship. in the current paper, we sought to contribute to the overall literature on optimal ceo compensation. specifically, we advanced empirical findings regarding the relationship between executive compensation and performance, by testing the supplementary role of ceo age and tenure. the results of our study suggested that the relationship between performance-based ceo pay and firm performance is different depending on a ceo’s age and organizational tenure. practical implications there are several important implications provided by this study. the first is not to assume that controlling ceo behavior through performance-based compensation mechanisms will necessarily result in superior firm performance. rather, the results cited above show that performance-based optimal incentive-based compensation contracts 61 compensation is a significant predictor of firm performance for some ceos, but not for others. specifically, tying executive compensation to performance is more efficacious for young ceos and more short-tenured ceos than for older and longer-tenured executives. this finding suggests that corporate governance structures give consideration to individual differences when establishing compensation packages for executives. the entire purpose of using stock options and other performance-based compensation is to properly align individual interests with those of the firm. however, individuals differ in their risk-preferences and those differences will play an instrumental role in properly aligning principal and agent interests. firms should thus evaluate the factors that are likely to influence risk preferences of their ceos prior to designing compensation packages. our results also suggest that the impact of age and tenure on the compensation-performance relationship is not as straightforward as assigning more (less) performance-based compensation to younger (older) ceos. rather, our analysis found that these relationships are not linear. of course, this finding is not completely surprising given that age and tenure are not static characteristics. additionally, while not developed in our hypotheses, there is some evidence that might provide insight into this dissonant finding. according to several lines of research, we see that the positive impact of a given variable diminishes at excessive levels. for example, increases in individuals’ conscientiousness leads to higher task performance initially; however, that relationship eventually disappears at higher levels of conscientiousness (le, oh, robbins, ilies, holland, & westrick, 2011). in fact, numerous such inverted u-shaped relationships, which pierce and aquinis (2011) refer to as the too-much-of-agood-thing effect (tmgt effect), have been found throughout the management literature. applying the tmgt effect to further interpretation of our findings, it appears that increases in performance-based pay for younger and shorter-tenured executives enhance firm performance initially, but at some level cease to have a positive effect. stated differently, we think the inflection point at which the positive relationship between performance-based pay and firm performance weakens is determined by ceo age and tenure. thus, compensation committees should realize that optimal compensation contracts too should not be static, but rather should adapt with characteristics of individual ceos as well as other contextual changes. limitations and future directions while the methodologies used in this study provide confidence in interpreting our findings, we also note a few limitations. first, we are examining groups of ceos (i.e. young, old) to determine the optimal compensation packages. we do this by aggregating individual ceos into groups given shared characteristics. we believe this to be a useful first step in understanding the individual differences among ceos, but does not provide a comprehensive analysis of preferences at the individual level. one implication of our results is that the individual ceo should have a voice in designing what is truly optimal for them. future research should examine this relationship further with insights from ceos themselves. second, by examining cumulative abnormal returns (through the eventus software), we are limited to large publicly traded firms and incentive-based pay for executives is primarily comprised of stock options. we understand the need to establish optimal compensation contracts includes smaller publicly traded firms and privately held firms as well. third, we are making a logical leap from performance-based pay to subsequent firm performance. wright et al. (1996) argue the amount of equity ownership influences more directly the amount of risk executives take. we do not have a way to gather and test the risk propensity of the firm in light of the “appropriate” amount of risk they “should” take. the relationship between compensation package and firm performance may be moderated (mediated) by risk-taking behaviors. future research should examine this relationship. aaron et al. 62 finally, we believe there will be other factors that will influence the performance-based compensation to firm performance relationship. we know firm size and firm age have an impact in that performance-based compensation is a much more influential variable for ceos in young and small firms (aaron, mcdowell, harris, & cline, 2013). other factors we are interested in that may influence the relationship include the industry in which the firm participates and ceo duality. we also are interested in whether the sarbanes-oxley act of 2002 had a role in reshaping this relationship. our study is limited to the 1992-2004 time frame which may or may not be generalizable to a post sarbanes-oxley business landscape. conclusion encouraging individuals to achieve superior performance is of paramount importance across all organizations. those organizations apply numerous mechanisms aimed at improving productivity and performance. while the sources of organization productivity and performance are many, the activity of an organization’s chief executive is a principal factor. however, the interests of executives are not always aligned with those of shareholders, which results in the need of owners to control ceo behavior. because of this dynamic, the topic of ceo compensation has garnered a considerable amount of attention from researchers. despite this great deal of interest, our understanding of the most effective use of compensation to motivate a ceo is incomplete. in this research, we attempted to advance the topic of ceo compensation by investigating the variability in performance-based compensation influenced by individual characteristics of the ceo. our results suggest that younger ceos and those with shorter-tenure will perform better as compared to older ceos and those who are longer-tenured, when a greater percentage of compensation is tied to performance. these results help explain some of the mixed results in the literature, and suggest that it might be prudent for corporate boards to consider ceo differences when designing optimal compensation packages. references aaron, j., harris, m., mcdowell, w., & cline, b. 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(1993). organizational behavior (6th edition). englewood cliffs: prentice hall. sanders, w. g., davis-blake, a., & fredrickson, j. w. (1995). prizes with strings attached: determinants of the structure of ceo compensation. academy of management journal 41(2), 266-270. sitkin, s. b., & pablo, a. l. (1992). reconceptualizing the determinants of risk behavior. academy of management review 17(1), 9-38. sitkin, s., & weingart, l. (1995). determinants of risky decision-making behavior: a test of the mediating role of risk perceptions and propensity. academy of management journal, 38 (6), 15731592. sundaramurthy, c., rhoades, d., & rechner, p. (2005). a meta-analysis of the effects of executive and industrial ownership on firm performance. journal of managerial issues, 17 (4), 494-510. veliyath, r., & bishop, j. w. (1995). relationship between ceo compensation and firm performance: empirical evidence of labor market norms. international journal of organizational analysis 3(3), 268-283. vroom, v. (1964) work and motivation. new york, ny: wiley williams, s., & narendran, s. (1999). determinants of managerial risk: exploring personality and cultural influences. the journal of social psychology 139(1), 102-125. wright, p., ferris, s., sarin, a., & awasthi, v. (1996). impact of corporate insider, blockholder, and institutional equity ownership on firm risk taking. academy of management journal, 39 (2), 441463. dr. joshua aaron is assistant professor of management at middle tennessee state university. his research interests include executive compensation for large and small firms, strategic issues facing small and medium enterprises and corporate reputation. dr. aaron has published in a variety of journals such as journal of management education, journal of education for business, international journal of organizational analysis, nonprofit voluntary sector quarterly, journal of business strategies, and corporate reputation review. dr. amy mcmillan is associate professor of management at east carolina university. her research interests include organizational diversity, climate, person-organization fit, and corporate social responsibility. dr. mcmillan has published in a variety of journals such as journal of business and psychology, group and organization management, and journal of business research. dr. timothy dunne is assistant professor of management at middle tennessee state university. his current research focuses on leadership processes, motivation, conflict management, and team dynamics. advances in business research 2011 volume 2.pdf kaupins and bodie advances in business research 2011, vol. 2, no. 1, 46-56 46 administrative challenges of the service learning lab option with non-profits gundars kaupins, boise state university dusty bodie, boise state university service learning provides professors an opportunity to allow students to serve nonprofit organizations and share their experiences through reflection sessions and reports. based on a literature review, administrators such as deans, department chairs, and service learning managers have many challenges and potential opportunities associated with service learning in coordinating professors, students, and clients. to further demonstrate the challenges, a case study of the service learning lab option from a western university highlights administrative issues and points to gaps in present service learning research. suggestions for future research follow. service learning involves “an educational methodology that combines community service with explicit academic learning objectives, preparation for community work, and deliberate reflection” (gelmon et al., 2001). service learning provides the nonprofit sector of the economy with services ranging from market analysis, volunteer management, advocacy, fundraising, human resource management, and financial analysis. the nonprofit sector comprises more than 1.9 million registered organizations, employs more than 13 million people, and generates annual revenues exceeding $1.1 trillion dollars (worth, 2012). this often overlooked sector offers many opportunities for experiential learning and for future internship and employment opportunities for students. purpose of paper there are several ways service learning can be completed. first, a nonprofit client comes to class, presents a problem, and students provide a report dealing with the problem. the client may visit the class several times. students also may visit the client but they do not work for the client. second, students provide significant community service for a non profit client as part of a class requirement. students work at the non profit in an area related to their class and also attend lectures at school. the work and the lectures cover the same topic area but are not fully integrated. third, the student works part or full-time at the nonprofit’s location to get credit for a full university service learning course. this approach appears somewhat similar to an internship. a final example, and focus of this paper, is the lab option that is a formal supplement to an existing course on a university campus. students register for an existing course say human resource management for three credits. they have an option of taking a fourth credit service learning option associated with that course. if they do so, they would be doing special projects for a nonprofit while requiring reflection sessions (described later) and reports that directly relate to the human resource management course. this paper describes a service learning lab option, briefly shows its immediate rewards, and then states some of the practical challenges that administrators face in coordinating professors, students and clients associated with that lab option. the main contributions of the study include a case study of the service learning lab option from a western university that highlights administrative issues and points to gaps leading to future research. literature review most service learning literature seems to focus on the significant advantages of service learning assignment for university students and the communities at large through empirical studies. examples are provided below. advantages service learning assignments in general do provide significant advantages for the university students kaupins and bodie advances in business research 2011, vol. 2, no. 1, 46-56 47 based on adult learning (andragogy) theory. in this theory, adult learners should not just hear lectures but have a rich variety of learning experiences to enhance learning (knowles, 1984). service learning assignments provide those experiences with interviews with organization managers, visits to organization sites, working together in groups, and writing reports. adult learners also can apply their vast knowledge in these wide settings to help nonprofits. university students who volunteer for service learning assignments tend to have greater leadership ability, social self confidence and critical thinking and conflict resolution skills (astin and sax, 1998; astin et al., 1999). they may use their volunteer experiences to enhance career prospects to get better jobs and higher salaries (freeman, 1997; prouteau and wolff, 2006; katz and rosenberg, 2005). expanded volunteering is also associated with the effort to build resumes (handy et al., 2010). concerning their personality, they have broadened self-efficacy (tucker and mccarthy, 2001), confidence (konwerski and nashman, 2002), personal satisfaction and fulfillment (rehling, 2000), and a sense of social responsibility (kolenko et al., 1996). nonprofit organizations also can benefit from service learning. organizations benefit through access to university resources, positive relationship opportunities with the university, awareness building of community issues, opportunities to contribute to the educational process, affordable access to professional development, and shortand long-term solutions to important community needs (institute for learning and teaching, 2007). studies associated with the university of pittsburgh’s graduate school of public and international affairs student projects (bright et al., 2007), new york university’s robert f. wagner graduate school of public service capstone projects (schachter and scwartz, 2009), and several nonprofit graduate degree programs (mirabella and wish, 1999) showed general high satisfaction of student performance on projects as rated by nonprofit organizations receiving the services. major issues covered through service learning include k-12 education, hunger, tutoring, poverty, environment/ sustainability issues, housing/homelessness, mentoring, health care, reading/writing, and senior/elder care services (campus compact, 2011). faculty report gains from service learning. within their classrooms, there are more lively class discussions, greater participant retention of course material, greater student awareness of community and real world issues, and more innovative approaches to classroom instruction. outside of class, there are enhanced opportunities for research and publication and greater faculty awareness of community issues (the institute for learning and teaching, 2007). in a study of service learning faculty practitioners, o’meara and niehaus (2009) found that the four dominant reasons for faculty participation in service learning were as a model for teaching and learning (strategy to learn the discipline, exposure to diversity), as an expression of personal identity (personal commitment, religious experience), as an expression of institutional context and mission, embedded in a specific community partnership. according to campus compact (2011) faculty can also use service learning in some institutions to contribute to their promotion and tenure, obtain grants related to service learning, attend service learning conferences, give awards to faculty, allow sabbaticals for service learning research, scholarship, and program development, and publish research about service learning that in turn further enhances their promotion and tenure chances. according to campus compact (2011), administrators benefit from service learning because service learning can enhance the organizational mission once it becomes a widespread institutional priority. furthermore, major successes in service learning can be publicized to enhance the reputation of the educational institution and to make further connections with the nonprofit community. challenges though the literature tends to have glowing reports about the efficacy about service learning for students, nonprofit communities, professors, and administrators, the literature does not discuss as much the many practical problems they have in maintaining and enhancing service learning experiences. for example, petkus (2000) mentions that clients sometimes fail to participate fully. they may start with high interest levels but as time goes on their interest falls short of full involvement. careful screening of clients may be needed to ensure that they are able to follow through on projects. kaupins and bodie advances in business research 2011, vol. 2, no. 1, 46-56 48 when compared to other training methods, service learning is more time consuming for the professor. this is especially true in terms of its initial design and facilitation (madsen and turnbull, 2006). in addition, professors might not be comfortable with this particular method of training because this is untried territory for some (clark et al., 1997). for students, service learning can be messy and unpredictable. they face ambiguity and uncertainty in assignments (bush-bacelis, 1998). students face problems when some contacts do not answer phone calls (madsen and turnbull, 2006). students often receive truncated understandings of the nature of social problems and strategies of social change (eby, 1998). administrators include service learning coordinators, university/college presidents, deans, associate/assistant deans, and department chairs. their role is to help the educational institution relate its mission and objectives to service learning in order to help service learning programs become an active part of the curriculum for professors, students, and the non-profit community. a major challenge for administrators is to collect the integrity of interests and cultures of all stakeholders. students, clients, service learning coordinators, local governments and professors have to be coordinated in a way that makes sense for the school and for the client. it is too often that conversations and planning are done in pairs rather than representatives from all the groups involved. (eby, 1998; krisnawati, 2009). administrators need to carefully organize the feedback provided to professors associated with service learning in order to make service learning effective (chang, 2011). lingnan university provides a model for the administration of service learning. the article describes the processes and strategies of incorporating service learning into courses and evaluating the experiences of students throughout the curriculum (chan et al., 2009). what the article does not provide is how to document instructor’s efforts for promotion and tenure purposes and how to document how service learning fits in the scheme of the university. at california state university, the governing board gave service learning its strongest endorsement. then a service learning coordinator was appointed. workshops were offered, grants written, meetings held, and campus subgrants awarded. by 2000, more than 1000 service learning courses were in the california state university system. unfortunately, it was not a complete system wide revolution but a series of mini innovations of committed individual faculty members who used service learning (eckart et al., 2006). at portland state university in the 1990s, the school was in the middle of a financial crisis. community-based learning became one of the central pedagogies of the new general education curriculum known as university studies. this type of learning spread to other majors in the institution. portland state’s center of academic excellence “tries to integrate assessment and community engagement strategies into teaching and research activities and ultimately into the core of university life” (kecskes and spring, 2006, p. 223). at chandler gilbert community college, service learning was introduced by the university by an orientation to faculty in all departments. a ten minute video defined service learning, illustrated the various models with footage from campus events, and included various testimonials from students, faculty and staff from a variety of community agencies. the service learning program in the english department in particular has continued because there has been continued commitment from the various department chairs who have rotated into the position (mason and davenport, 2006) efforts to institutionalize service learning across higher education institutions have been a difficult task. service learning is not already a part of the institutional practices and norms of many higher education bodies (butin, 2006; o’meara and niehaus, 2009). departmental reward structures might not appropriately support service learning in terms of tenure and promotion (eckardt et al., 2006). in a survey of nine research campuses, the most cited problem in the development of service learning is the lack of faculty incentive and the absence of promotion and tenure rewards for engaged scholarship in the area. moreover, faculty often think of service learning as somewhat anti-intellectual and related to vocational training (hollander, 2009). the most comprehensive research study on administrative issues on service learning involves campus compact’s (2011) survey of campus engagement efforts. in its survey of higher education institutions, kaupins and bodie advances in business research 2011, vol. 2, no. 1, 46-56 49 efforts for faculty engagement include 70% of campuses providing faculty development workshops, 67% providing materials for reflection and assessment, 64% providing curriculum models and syllabi, 61% offering financial support to attend service learning conferences, 44% offering grants to support curriculum redesign, 44% giving awards to faculty, 41% including service learning and community orientation in faculty orientation, and 24% allowing sabbaticals for service learning research. also in the campus compact (2011) survey, efforts for institutional support of student service include the following: 75% public dialogs on current issues, 71% awards for students for service, 63% considering service in awarding scholarships, 61% providing funding for student service learning, 60% defining and identifying service learning courses, 59% managing liability associated with service placements, 57% coordinating transportation to and from community sites, 50% giving extra credit for community service participation, 35% designating service learning course in the course guide, 24% offering students mini-grants for service related initiatives, and 12% requiring service for graduation. methodology to study administrator implications of service learning lab option, this study focuses on one state university in the western united states. one of the authors is a department chair and the other is a professor. both teach a human resource management course offered to junior and senior level business students. both have about fifty students in each human resource class. about half of the students are general business majors, a quarter are human resource management majors, and the rest are a mix of entrepreneurship, construction management, and health management majors. all general business, human resource management, and entrepreneurship students must take the class. for the other students, the class is one of several options they may take. the service learning component of the class is completely optional for everyone and is one extra credit. usually about five to ten students choose the service learning option per class. students who register for the service learning option receive their assignments within the first week of class. since individual students (rather than the entire class) volunteer to take the option of a one-credit service learning lab in addition to the base course, it’s less appropriate for the community sponsors to visit the classroom. the service learning students, however, spend generally 30-40 hours over the semester, serving at the nonprofit site. administrative steps to implement service learning labs, several administrative steps were established: first, on the administrative side, the university committed to doing service learning in its overall objectives and college by college objectives. there is a commitment to interact with the community through service projects. in the college of business and economics, similar wording involving community engagement is used. however, community engagement is not considered as important as research and teaching. for faculty, a standard workload would involve 40% research, 40% teaching, 10% internal service, and 10% community engagement. community engagement could not only include service learning but could also include internships, guest speaking, memberships and attendance at local professional organizations, and consulting. the bulk of faculty work would involve research (at least two refereed journal articles every five years), teaching (2-3 courses per semester), and committee assignments (2-4 depending on committee intensity). the loads would correspond to accreditation standards of the association to advance collegiate schools of business (aacsb) in which the university desires to continue. second, a clear commitment to service learning was set by the university in hiring a full-time service learning manager and staff and by setting the mission of the service learning program. the service learning program exists to foster active citizenship and enhance learning through academically-based community service. the program provides logistical support by prescreening agencies who are oriented to work with college students, providing sample forms, agreements, timelines, and checklists, providing teaching assistants for monitoring, record keeping, and trouble shooting, organizing evaluations for students agencies, and faculty, and establishing online student project registration and partnership kaupins and bodie advances in business research 2011, vol. 2, no. 1, 46-56 50 coordination. course planning support includes one-on-one planning consultation, sample syllabi, workshops and roundtables with other faculty, and a supportive network with other faculty on campus participating in service learning. there is grant support of $300 planning grant for first time service learning faculty. online liability policies include safety policies for students and risk and liability coverage. the service learning program has several resources that showcase faculty for their promotion and tenure portfolio. on the service learning website, various service-learning publishing outlets, tips and other resources are presented. many of these resources come from the national service learning clearing house. to document service learning in a promotion and tenure portfolio, the service learning department suggests various actions and strategies. the department also outlines various ways faculty can gain recognition through participation in service learning in the university and the community. recognition can come in the form of letters to the provost for new service learning faculty, letters of appreciation from the service learning director to the dean, news bites to the local media about service learning accomplishments, service learning faculty of the year awards, civic engagement exhibitions, certificates for completing a service learning faculty fellows seminar, and exemplar syllabi posted on the service learning website. third, the university committed to establishing service learning by authorizing one credit lab additions to existing three credit courses. professors could voluntarily choose to add service learning credit by contacting their department chair about six months before the new semester started. the course, such as human resource management would not only have an hrm 305 listing for three credits but would also have an hrm 305sl (service learning) listing for one credit. that one credit listing would be optional for students if they were to choose hrm 305. fourth, community partner relationships are developed and found through the help of the service learning staff and other parts of the university such as small business development centers, prior students, prior nonprofits, or articles in the local or university newspaper. advertising in the newspaper should highlight that the service is free and several students would be providing consulting for free. the service learning center sponsors a semi-annual service learning volunteer expo in which professors with potential nonprofits could get together to provide potential linkages for future classes. fifth, individual colleges incorporated service learning by encouraging professors to voluntarily participate. in the statement of objectives in the college of business and economics, participation in community activities is encouraged. community engagement is one of the four prongs of faculty activity that are to be recorded electronically in a database called digital measures that all faculty share. that database is used by department chairs to help determine faculty pay raises and promotion and tenure. professor, student, and client steps once the administrative portion is completed and the students have registered for the service learning section, it is up to the professor, student and client to finish the job of the service learning. several steps must be completed among them: first, the professor and students must identify the need for service. service assignments vary based on the organization’s needs and the experience level of the student. the human resource management course (hrm) typically has a specific hrm related project, such as developing a policy manual, collecting and analyzing data for a records retention system, updating client and volunteer files, assisting refugees in identifying and applying for jobs, and helping design and administer training programs. the specific project related assignment gives a focused, in depth view of one hrm practice, or may address several hrm areas. second, the client, student, and professor must be coordinated during the semester. reflection sessions with the students enrolled in the lab and the instructor are held bi-weekly to apply course principles to their experiences. student selection of different agencies adds richness to the discussion. in addition to the 30-40 hours of hrm service, each student conducts a one-hour interview with a manager, volunteer coordinator, or executive director close to the end of the semester. this is another opportunity for the kaupins and bodie advances in business research 2011, vol. 2, no. 1, 46-56 51 students to reflect on their live experience and ask course content-related (both structured and semistructured) questions of the manager. this one-hour interview allows in depth interchange between the student and community sponsor and prepares the student for a required analytical report of the student’s learning experiences and applications to course principles. often student recommendations and observations are sought by the nonprofit manager to aid in strategic planning. with most nonprofits in the community, attendance at a group orientation is also required. in addition to being a way to solidify the obligations of the community partner and student, this is another worthwhile experience shared with other volunteers, service learners, and trainers. in order to expose many students to the uniqueness of service learning, and the nonprofit sector, the lab students are required to present a short report to the larger class and answer questions about their service learning experience and its application to the course curriculum. in addition to sharing the real life experiences with the larger audience, this presentation is usually one of the best received presentations of the semester. for some curious students, this is the first informational encounter with the nonprofit sector seen through a peer’s experience. for others, it is a compelling invitation to enlist in other experiential learning activities such as civic engagement, volunteerism, internships, or even employment. the immediate positive benefits and especially weaknesses of the service learning module are based on a combination of author perceptions and service learning evaluations by students over the last year and a half since the beginning of 2010. administrative benefits in service learning service learning fits the college of business and economics objectives of having more contact with the outside community. while a career opportunity may arise in many cases, the primary objective of the service learning experience is application of course concepts while meeting a community need. as this happens, students also reflect upon themselves personally and professionally and consider their responsibilities to the larger community. according to one of the human resource management lab students, “it has changed my perception of the value of social services and the important role that they play in society and in our communities. i further recognize the importance of valuing people for who they are and the affect that each person has on everyone else.” another echoed this sentiment, adding, “…helping people in need is much more gratifying than receiving any type of paycheck. paychecks end up getting spent on something that ends up getting thrown away while the memories you get from watching a kid smile at a christmas party because they are opening a present that some stranger got them is without a doubt something that will make anyone smile.” service learning provides both direct (to the service-learner) and indirect (other members of the class not involved in the service requirement) benefits. for example, one member of the class audience was so curious about the highlighted community organization, that after class she went directly to the computer lab to learn more about it. subsequently, she enrolled for and completed a major fundraising marathon race. in doing so, she found that she had a distinct interest in employment in the nonprofit sector, something that she had not considered before. she has recently been offered and accepted a part-time position with this social service agency recruiting volunteers. most students involved with the program state there is self-gratification at being able to personally contribute assistance to nonprofit social service agencies and especially the clients. they often declare that they will continue their service with this or other agencies. many students also express satisfaction in learning about the nonprofit sector and applying classroom topics with an actual real-world nonprofit organization, something they had not had the opportunity to do with this sector, in other classes. service learning has helped the college of business and economics compete with other business schools in the area. there are a plethora of for-profit on-line programs that do not have service learning or even internships. these programs in our university provide a competitive advantage to the seven schools that have entered the region. we have been able to advertise service learning on our website showing the variety of nonprofit organization opportunities students can receive. kaupins and bodie advances in business research 2011, vol. 2, no. 1, 46-56 52 with the service learning contacts, there is potential for making excellent money raising contacts for student scholarships and further enhancements to the service learning program. the money could be coming from the nonprofits themselves or board members who see the advantages of continued relationships with the college or university. administrative challenges in service learning a major challenge for deans, department chairs, and the service learning manager at the university is to make sure that the service learning lab option fits in the strategic plan of the university, colleges, and departments. it has to make sense for professors to be encouraged to add the lab option not only to enhance the program but also to enhance their careers. at the university, service learning is encouraged but is not a top priority. because of the lack of prioritization in service learning, getting faculty to add one credit to their teaching load with service learning is like pulling teeth. it is at the goodness of their heart that they do it because it takes time away from research which is the top priority. faculty must publish two to three major refereed journal articles in five years to be academically qualified according to our accreditation goals. service learning adds one extra credit to a professor’s teaching load. this one extra credit might not make sense for a new assistant professor in a major university whose major mission should be to publish in journals rather than focus on teaching. service learning with all of its reflection sessions, search for new clients, and extra grading would simply take away time from the research without getting much credit in return for the extra work involved to do the service learning. obtaining clients can be challenging each semester whether it is done by the administration or by the professor. though a service learning department on campus holds a mixer each semester matching professors with potential nonprofits, it is not guaranteed that nonprofits will be available. other sources of nonprofits can be small business development centers, visiting local charities, prior service learning clients, personal contacts, and local organizations. sometimes clients disappear in the middle of the semester, leaving the students with no client to work with. it occasionally happens because the client may run out of funding or may move out of state. the priorities of the business or community partner might be to respond to recipients of social services. for example, finding safe harbor for an abused spouse and her children, for the women’s and children’s alliance, far outweighs in priority an appointment with a student, or any constituent for that matter. furthermore, some clients may be unavailable during the middle of the semester because they are taking a vacation, have some personal problems, or show a lack of interest in the project. service learning managers and professors may or may not have back up clients just in case clients disappear. students sometimes express frustration at another weakness of the service learning lab option such as a mismatch of the project or assignments as promised by the community partner and the actual assignment(s). when assignments are clerical and general in nature, and not related specifically to the main human resource management class they are taking, students are disappointed. one of the key concepts in service learning lab option is the application of course concepts to academically based community service. it is difficult to tie human resource management course concepts directly to a general assignment. as well, students who expected and are prepared to provide thirty to forty hours of quality service on a specific human resource deliverable project are less likely to be able to use the general or clerical assignments, as evidence of an accomplishment, on a resume, in an interview, or simply for professional enrichment. service learning coordinators and professors would need to know if there is a problem with a client in order to help provide a back up client if one were available. students might drop out of service learning for personal reasons. a client might feel jilted when he or she loses students in valuable service learning roles. it is important for the client to have backup plans in case student projects do not pan out especially due to the volunteer nature of the projects. this is an administrative public relations problem. kaupins and bodie advances in business research 2011, vol. 2, no. 1, 46-56 53 some solutions to practical challenges administrator and professor challenges clear organizational strategies and administrative commitment to those strategies are two of the most effective ways to solve many key organizational problems. without administrative buy-in, nothing much can happen (worth, 2012; holland & ritvo, 2008). in this light, many of the problems of the service learning lab option just listed can be reduced if there is a clear understanding of the role of service learning in the university. the university must have a clear commitment to service learning in its strategic plan and it must place its commitment in its faculty in places where it counts specifically in its tenure and promotion and financial reward structures. if faculty chose the service learning lab option and that choice helped them obtain higher pay, promotion, and tenure that would indicate a significant commitment to service learning by university administration. student and client challenges the clear expectations that administrators should have for professors associated with the service learning lab option should correspond to the clear expectations between professors, students, and clients. in comparison with case studies and other assignments done in and out of class, service learning is messy and unpredictable (clark, 2000). although not a guaranteed problem prevention technique, written agreements that identify the main project, or types of assignments, and the learning outcomes, as well as the obligations of the student, community organization and instructor can reduce somewhat the “messiness” and “unpredictability.” even with this contractual agreement, product quality or the quality of the learning experience, is still unpredictable due to variations in student and client effort and background. research needs the present study summarized prior research into service learning and presented a summary of how one university administered its service learning program. however, there are many research questions that are left unanswered associated with the case and the literature review that should be subject to future research. for example, both the literature review and the case discuss the need for enhancing service learning’s connection to promotion and tenure decisions and pay increases for faculty. what is missing in the research is how to politically and culturally shift universities (faculty, administrators, staff, and students) into making service learning a key aspect of university objectives that are important in tenure and promotion and pay raise decisions. this political and cultural shift may have to start with top leadership being committed to service learning. how much influence does top leadership have in the enhancement of service learning in a university? what are the most effective techniques to get service learning to become a major objective within a university? how can service learning be most effectively linked to the tenure and promotion process? how can service learning be most effectively linked to the pay raise process for faculty? related to the linkage of service learning to the overall objectives of the university is the relationship of the university to accreditation. in the present study, the university was accredited by the association to advance collegiate schools of business (aacsb). various accreditation organizations such as aacsb, accreditation council for business schools and programs (acbsp), and the northwest accreditation commission allow freedom of programming to some extent. the aacsb however provides some limitations in terms of the definition of who is academically qualified by specifically requiring certain degree levels and publication expectations (association to advance collegiate schools of business, 2011). future research needs to investigate how accreditation bodies affect the amount of service learning that is done at universities because of some of the research constraints imposed by these bodies. kaupins and bodie advances in business research 2011, vol. 2, no. 1, 46-56 54 the present study focused on the service learning format in which students get one extra credit for doing service learning off of a regular class. is this service learning format more effective for learning than other service learning formats in which the service learning is actually part of the regular class? how much more effective is the service learning for students when it is optional than it is required for everyone in a class? the present study focused on a service learning format in which only a few students did service learning in a class. is this service learning format more effective for those learners rather than other formats in which the entire class is involved in service learning? the present study included a volunteer expo recruiting effort in which professors and potential nonprofit clients could gather in a party atmosphere to discuss potential connections in future classes. is this recruiting technique more effective than other techniques for getting nonprofit clients for professors e.g., former clients, newspapers, small business development centers, former students, or other sources? conclusion the service learning lab option allows students to service nonprofit organizations, gives them a chance to reflect on their experiences, and provides them an opportunity to report their experiences through a written paper. but there are major administrative challenges associated with the lab option. the additional credit takes faculty time. university administration might not recognize this time is important because their strategic plan focuses more on research, service, or some other teaching goals. to help reduce problems associated with the service learning lab option, the service learning lab option must fit in the university strategic plan. future research should investigate how individuals interested in enhancing service learning can politically and culturally shift the university in that direction. references association to advance collegiate schools of business. 2011. business accreditation standards. retrieved on november 11, 2011 from http://www.aacsb.edu/accreditation/business/standards/ participants. astin, a., & sax, l. 1998. how undergraduates are affected by service participation. journal of college student development, 39: 251-263. astin, a., sax, l., & avalos, j. 1999. long-term effects of volunteerism during the undergraduate years. review of higher education, 22: 187-202. ayers, l., gartin, t., lahoda, b., yeyon, s., rushford, m., & neidermeyer, p. 2010. service learning: bringing the business classroom to life. american journal of business education, 3: 55-59. bright, l., bright, c., & haley, l. 2007. nonprofit outreach services: using outreach to increase nonprofits’ capacity and to provide a quality educational experience for students. journal of public affairs education, 13: 335-343. bush-bacelis, j. 1998. innovative pedagogy: academic service-learning for business communication. business communication quarterly, 61: 20-34. 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association for higher education series on servicelearning in the disciplines. washington, dc. eby, j. 1998. why service-learning is bad. retrieved on august 10, 2011 from http://www. messiah. edu/external_programs/agape/servicelarning/articles/wrongsvc.pdf. eckardt, s., randall, e., & vogelgesang, l. 2006. a journey of system-wide engagement. in engaging departments: moving faculty culture from private to public, individual to collective focus for the common good. san francisco: anker publishing. freeman, r. 1997. working for nothing: the supply of volunteer labor. journal of labor economics, 15: s140-s166. gelmon, s., holland, b., driscoll, a., spring, a., & kerrigan, s. 2001. assessing service learning and civic engagement: principles and techniques. providence, ri: campus compact. giles, d., & eyler, j. 1994. the theoretical roots of service learning in john dewey: toward a theory of service learning. michigan journal of community service learning, 1: 77-85. handy, f., hustinx, l., kang, c., cnaan, r., brudney, j., haski-leventhal, d., holmes, k., meijs, l., pessi, a., ranade, b., yamauchi, n., & zrinscak, s. 2010. a cross-cultural examination of student volunteering: is it all about résumé building? nonprofit and voluntary sector quarterly, 39: 498-523. holland, t., & ritvo, r. 2008. nonprofit organizations: principles and practices. new york: columbia university press. hollander, e. 2009. civic education of undergraduates in united states research boston. tufts university. institute for learning and teaching. 2007. csu service-learning faculty manual. colorado state university. retrieved on november 10, 2011 from http:tilt.colostate.edu/guides/tilt_servicelearning/ index.cfm. katz, e., & rosenberg, j. 2005. an economic theory of volunteering. european journal of political economy, 21: 429-443. kecskes, k., & spring, a. 2006. continuums of engagement at portland state university: an institutionwide initiative to support departmental collaboration for the common good. in k. kecskes, (ed.), engaging departments: moving faculty culture from private to public, individual to collective focus for the common good. bolton, ma: anker. knowles, m. 1984. the adult learner: a neglected species. houston, tx: gulf publishing. kolenko, t., porter, g., wheatley, w., & colby, m. 1996. a critique of service learning projects in management education: pedagogical foundations, barriers, and guidelines. journal of business ethics, 15: 133-142. kaupins and bodie advances in business research 2011, vol. 2, no. 1, 46-56 56 konwerski, p., & nashman, h. 2002. who teaches whom: the varied voices and instructional roles of community service-learning partners. journal of nonprofit & public sector marketing, 10: 165-186. krisnawati, l. 2009. service learning in duta wacana christian university: past, present and future states. new horizons in education, 57: 74-81. madsen, s., & turnbull, o. 2006. academic service learning experiences of compensation and benefit course students. journal of management education, 30: 724-742. mason, m., & davenport, p. 2006. sustaining a service learning program: an english department’s commitment to service. in k. kecskes (ed.), engaging departments: moving faculty culture from private to public, individual to collective focus for the common good. bolton, ma: anker. mirabella, r., & wish, n. 1999. educational impact of graduate nonprofit degree programs: perspectives on multiple stakeholders. nonprofit management and leadership, 9: 329-340. munger, r., & gutowski, a. 2007. preparing future leaders: project management strategies for service learning. unpublished manuscript. o’meara, k., & niehaus, e. 2009. service learning is…how faculty explain their practice. michigan journal of community service learning, 15: 17-32. petkus, e. 2000. a theoretical and practical framework for service-learning in marketing: kolb’s experiential learning cycle. journal of marketing education, 22: 64-70. prouteau, l., & wolff, f. 2006. does volunteer work pay off in the labor market? journal of socioeconomics, 35: 992-1013. rehling, l. 2000. doing good while doing well: service learning internships. business communication quarterly, 63: 77-89. schacthter, d., & schwartz, d. 2009. the value of capstone projects on participating client agencies. journal of public affairs education, 15: 445-461. tucker, m., & mccarthy, a. 2001. presentation self-efficacy: increasing communication skills through service learning. journal of management issues, 13: 227-245. worth, m. 2012. nonprofit management: principles and practice. los angeles: sage. gundars kaupins is department chair and professor of management at boise state university. he received his ph.d. in human resource management from university of iowa and is certified as a senior professional in human resources (sphr). his publications include over 300 articles in job evaluation, training and development, baltic studies, and human resource ethics in journals such as academy of management perspectives and international journal of technology and human interaction. nancy bodie is an associate professor of management at boise state university. she received her ph.d. in educational psychology from university of illinois at chicago. her research interests include international ethics and corporate social responsibility, team management, service learning, and change management. she published in journal of business ethics; journal of management policy and practice; and journal of organizational culture, communications, and conflict. advances in business research 2011 volume 2.pdf cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 179 sarbanes-oxley and the need for audit committee independence: contrary evidence in the textile industry paula cardwell, elon university john sennetti, nova southeastern university linda poulson, elon university we investigate whether the appearance of audit committee independence, e.g., outside membership as defined by the sarbanes-oxley act of 2002 (soa), is necessarily related to effective independence, e.g., the audit committee’s support of an auditor’s going-concern opinion (carcello and neal 2003; 2000). the soa makes the agency theory assumption, generally supported by current research, that seemingly non-independent audit committee members reduce the reliability of the financial reporting. yet, prior to the soa, other rulings permitted non-independent audit committee members to serve when it was “in the best interests of the firm,” and even the carcello and neal (2000) findings point to a possible industry or company-size effect in measuring audit committee effectiveness. it seems that manager-owner committee members of smaller companies may also do the right thing. therefore, we reconsider this independence question for the textile industry, one severely stressed and possibly affected by firm size. we observe seventy-four companies during the years 2000 and 2001 when the soa was not in effect to determine whether their non-dependent-appearing audit committees also would effectively act independent, without the constraint of the soa. we do find at least two soa non-independent characteristics of audit committees, what would be two apparent soa violations in 2011, contrarily associated with two actions of effective independence. we do not find any one of the ten recommended soa requirements correlated with these actions of effective independence. these findings suggest that measures of effective independence may not necessarily be related to appearance, and may instead depend on company or industry size, adding to the growing body of research that argues for restricting government financial regulation (gao et al., 2009; hayes, 2009; hart, 2009; dodd–frank wall street reform and consumer protection act, 2010; orol, 2011). if a corporate audit committee of the board of directors, the one that chooses the company’s auditors, appears non-independent, e.g. has manager-owners as committee members, will this necessarily negatively affect the company’s long-term interests? by 2002, the united states congress. shaken by the accounting fraud by the enron, worldcom, adelphia, tyco, and their complicit board and audit committee members, created provisions of the sarbanes-oxley act (soa) requiring audit committees to be independent of management. by 2009 many regulations of the soa were reduced, but companies still tried to avoid the soa regulations by remaining “small,” by maintaining the soa $75million market cap (gao et al., 2009). orol (2011) reports that companies still try to stay within the size limit of the soa, but now to avoid the financial regulations of the dodd-frank act (2010). the soa idea of committee independence had been evolving since the establishment of the 1934 securities and exchange act (klein, 2003). in july 1, 1978, the new york stock exchange (nyse) became the first exchange required listed domestic corporations to have an audit committee “comprised solely of directors independent from management” (klein, 2003, 345). in response to soa, the nyse added two additional rules: audit committee members must (1) not have a material relationship with the listed company (nyse, 2002a and b) and (2) disclose membership on more than three audit committees of public companies (nyse, 2003a). yet, dezoort et al., (2002, 66) asks whether new requirements for audit committees “result in largely cosmetic changes or whether they appear to be associated with increased audit committee effectiveness,” and others questioned whether these were related to actions that “would follow in the best interests of the corporation (klein, 2002, citing nyse rule 303.01[b][3][b] and nasdaq rule 4310[c][26][b][ii]). recently, lawmakers and the sec have granted an exemption to smaller firms for one of the critical cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 180 components of soa, audits of internal controls (orol, 2011; wild and anderson, 2010), while still relying upon other provisions, such as audit committee independence, to encourage appropriate behavior and maintain investor confidence (hart 2009). gao et al., (2009) find that corporate governance in the exempt firms appears to exceed that of nonexempt firms, which supports the proposition that, in certain cases, management-owners may in fact do the right thing when government regulations are not in place. to date, the research on the soa’s appearance-of-independence guide seems to correlate with stronger financial controls. committees following the soa are less associated (1) with fraudulent activities (abbott et al., 2004; abbott et al., 2000; beasley et al., 2000) and (2) with financial restatements (abbott et al., 2004), but more associated with stressed corporations who receive going-concern opinions (carcello and neal, 2000 and 2003), a measure of committee effectiveness. chien et al., (2010) find independence related to reduced frequency of control problems and reduced financial stress for the largest government funded public hospitals. yet et al., (2006) find hospital audit committee independence may not limit control issues for those hospitals without government funding. therefore, some of these results may be fundingor industry-related, as suggested by carcello and neal (2000, 460). carcello and neal (2000) and beasley et al., (2000) consider only a few industries. this paper re-examines this question: in what way does appearance-of-independence characteristic relate to effective independence? we define effective independence in two ways: (1) does audit committee support the auditor’s going-concern opinion, as asked by carcello and neal, (2000; 2003) and abbott et al. (2003) and (2) does audit committee support filing for bankruptcy protection (morgenson, 2006). [the latter is more indicative of the broader, corporate board effectiveness (mckeown et al., 1991; mutchler et al.,1997)]. we examine seventy-four stressed textile-related companies from 2000-2001 that were under the brc audit committee rules prior to the passage of soa. we find these companies increased their level of soa appearance characteristics from 2000 to 2001, but these increases do not correlate with corresponding measures of effective independence. instead, violations of what would have been soa rules seem more agreeable to the effective measures of independence. these results add some evidence, if only partial, to whether the appearance of soa characteristics implies effective independence and whether such can be measured by the issuance of a modified audit opinion for a stressed company (carcello and neal, 2000, 2003; audit committee institute, 2004). this research may explain why geiger and rama (2003) and abbott et al., (2003) do not find strong support for the appearance characteristics. finally, these results also confirm the suspicion that the effectiveness of appearance characteristics is industry-dependent (carcello and neal, 2000, 460). the remainder of this paper is organized as follows. section ii states the research hypothesis and reviews the generally accepted audit committee characteristics of independence. section iii describes the application of these characteristics to the particularly financially stressed textile industry. section iv describes the research design and section v its results. finally, in section vi, the conclusions are drawn. audit committee independence variables: measures of appearance and of effectiveness hypothesis readers of the soa would hypothesize that appearance characteristics should predict accepted measures of effective independence for audit committees, consistent with previous research: h: effective measures of audit committee independence increase with appearance measures. we begin with accepted definitions. to be considered “appearing” independent prior to soa, an audit committee member should not: 1) be a current employee or have been one within the previous three years, 2) be an officer of another company where one of this company’s management serves on the committee member’s home company compensation committee (interlocking directorships), 3) have a business relationship, such as the company’s banker, accountant, or consultant, directly receiving non-director fees, and 4) be an immediate relative of an executive officer of the company or an affiliate. cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 181 the soa expands these requirements (see table 1). first, soa, requires that all audit committee members appear to be independent (by financial and other relationships), and eliminates case-by-case exemptions except in rare circumstances. second, the waiting period for former employees or interlocking directorships has expanded to five years. third, new requirements include disclosure for audit committee members serving on more than three audit committees of public companies or having a material relationship with a listed company. also, the compensation committee is required to be independent. table 1: blue ribbon, sarbanes-oxley, and inferred rules requirement blue ribbon committee nyse (1999) and sec sarbanes-oxley aicpa (2002) nyse (2003a) ; sec (2003) inferred rues member cannot be: *employee or relative w/in past 5 years (brc) yes (sec) 3 yr.++ yes, 5 yr. compensation > $100,000 yes, expanded *non-directorship fees (brc)yes+/ (sec) no (disclose) yes (no exceptions) ~ *partner, s/h or exe. officer of business making or receiving significant payments from the audit committee company w/in past 5 years. (brc) yes/ (sec) yes, current yr.++ yes, current yr., material** ~ *is or immediate family is an internal or external auditor within recent 5 years not addressed yes yes, expanded *interlocking directorships yes yes, 5 yr. ~ *simultaneously serves on more than 3 audit committees of public companies not addressed yes^^ ~ *has a material relationship with the listed company not addressed yes^^ yes, expanded *on more than 3 other boards of public companies not addressed not addressed yes *on the company's compensation committee not addressed not addressed yes *on more than 3 compensation committees of public companies not addressed not addressed yes minimum of 3 members, all financially literate yes yes ~ compensation committee composed entirely of independent directors. not addressed yes yes, expanded above + exemptions on case-by-case basis ++ only if board determines that relationship does not interfere w/ director's exercise of independent judgment (should be in exceptional and unusual circumstances). **both indirect and direct; only current period ^ general case-by-case exemptions are now not appropriate nor consistent with policies of the sarbanes-oxley act. ^^board must determine and disclose determinations. ~component of dependent variable. ten predictor variables of soa first six variables therefore, from table 1, we can summarize these first five violations of soa characteristics as predictors for the firm that would fail effective independence: ac members = 1 if number of audit committee members is less than 3 (soa not satisfied), else 0. interlock = 1 if company member has an interlocking directorship (soa not satisfied), else 0. other ac = 1 if any audit committee member is on 4 or more audit committees of public companies (soa not satisfied), else 0. affilpay = 1 if an audit committee member receives non-director fee compensation (soa not satisfied), else 0. affilprof = 1 if an audit committee member is employed by professional advisors receiving payment from the company (soa not satisfied), else 0. cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 182 “ac members” captures the brc requirement that listed companies maintain audit committees with at least three independent directors. the brc recommended this minimum number in recognition that the size of the committee is a balancing act: it should be small enough to allow all members to participate actively, yet large enough to represent a balance of views (turner 1999, 40). the brc also noted that independence is often impaired when there are interlocking directorships (interlock) where an audit committee member is an officer of another company whose compensation committee includes executives from the audit committee company (nyse, 1999). vicknair et al., (1993) found that the highest potential violation for 100 nyse firms was interlocking directorships. “other ac” measures the member’s service to other audit committees. the possibility of overextended directors can reduce independence (dicarlo, 2002). with too many directorships, an audit committee member may devote less time to their duties and become too reliant on corporate management (raghunandan et al., 2001; gulati and westphal, 1999). prior to soa, the number of public directorships for each board member was disclosed in annual proxy statements. in 2003, nyse required an additional disclosure of any audit committee member serving on more than three audit committees of public companies (nyse (amendment) 2003). affiliated audit committee members, those receiving consulting fees (affilpay) or having a business relationship with the company (affilprof), can result in conflicts of interest (felo, 2001). soa provides that in order to maintain independence, an audit committee member may not receive, “other than for service on the board, any consulting, advisory, or other compensatory fee from the issuer” (aicpa 2002, section 301). also, payments for, “services to law firms, accounting firms, consulting firms, investment banks or financial advisory firms in which audit committee members are partners, members, executive officers or hold similar position” are indirect fees that should disqualify the audit committee member (sec-final rule, 2003, ii (a) 2). we define one more variable: soa var = 1, if there is at least one violation in a sarbanes-oxley act appearance characteristic, and soa var = 0 if not. next four predictor variables in addition to these six soa variables, the effect of four other variables on audit committee independence can be inferred from table 1: otherdir = 1 if any audit committee member is on 4 or more boards of public companies, else 0. othercc = 1 if any audit committee member is on 4 or more compensation committees of public companies, else 0. compcom = 1 if any audit committee member is also on the company compensation committee, else 0. affilother = 1 if any audit committee member has an affiliated relationship not identified by soa, else 0. “other ac,” “otherdir,” and “othercc,” consider the over extension of directors, which can reduce independence (dicarlo, 2002) and increase reliance on corporate management (raghunandan et al., 2001; gulati and westphal, 1999). dual membership on the audit committee and the compensation committee (compcom) presents conflicts in evaluating the company’s financial statements and management performance (klein 2003; vafeas, 2001). although recent post-soa corporate governance rules (sec 2003b) address this variable by requiring a company’s compensation committee composition to include only independent directors, they do not require separate independent committees as recommended by klein (2003). the last inferred variable, affilother, encompasses additional affiliated relationships that are not covered by current sec and nyse rules, e.g., retired auditing partner-in-charge of current auditor or retired ceo of current servicing bank whose retirement occurred over three years before becoming a cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 183 member of the audit committee. these ten predictor variables define independence by appearance in much more detail than previous research (e.g. abbott et al., 2003). two other characteristics that may reduce the effective independence to the above ten, we add two measures of audit committee independence from prior research: (1) the committee’s percentage of board stock ownership and stock options (ac stock% of board) from carcello and neal (2003) and klein (2002) and (2) the company size defined by total assets (total assets, from abbott et al., 2003; carcello and neal, 2000; geiger and rama, 2003; palmrose, 1997). large stock ownership may reduce the incentive to file for bankruptcy. also, smaller companies are more likely to be financially stressed and have less leverage when filing for bankruptcy. so we define: ac stock% of board = audit committee directors’ stock ownership to total directors and executive management. total assets = natural log of total assets (in thousands). the adjusted altman’s measure, z-score (abbot et al., 2004), suggests a level of financial stress based on the company’s ability to meet cash demands, which could lead to filing for bankruptcy under chapter 11 (chapter 11 only) or whether a going-concern opinion, gco (carcello and neal, 2000), is appropriate. so we define: z-score = 1 if the altman’s z-score is less than 2.6 (technically bankrupt), else 0. two dependent variables first dependent variable we can also define two measures of effective independence. the first is the going-concern audit opinion (gco) given by the auditor (carcello and neal, 2000 and 2003; abbott et al., 2003). for financially stressed companies this opinion must be supported and then facilitated by the audit committee. although other measures of auditor (and hence audit committee) effectiveness have been suggested such as the quality of earnings or discretionary accruals, the use of the gco is most widely known (e.g., carcello and neal, 2000 and 2003; abbott et al., 2004).] so we can define: gco = 1 if the company has a going-concern opinion for the year under review, else 0. going-concern evaluation and disclosure in stressed industries currently, if there is substantial doubt that a company will continue as a going-concern for a reasonable period of time, aicpa statements on auditing standards 59 (sas 59) requires that the auditor must disclose this concern in the audit report (robertson and louwers, 2002). sas 59 does not require auditors to perform more procedures than they normally perform or expect the auditors to predict future events. also, it does not provide any new auditing procedures to discern going-concern problems. although not required, many auditors use business failure prediction models, such as edward altman’s discriminant z-score bankruptcy predictor (altman, 1968), to evaluate going-concern issues (robertson and louwers, 2002; abbott, 1994). another issue is whether or not the opinion actually anticipates or unnecessarily exacerbates the filing. palmrose (1997) found that of the 655 public companies declaring bankruptcy between 1972 and 1992, less than twenty percent involved auditor litigation. geiger and raghunandan, (2002) found that the lower threat of litigation in the past decade was associated with the issuance of fewer going-concern opinions to stressed companies. therefore, it is surprisingly likely that a company could be given a going-concern opinion after filing for bankruptcy rather than before. as explained by mutchler et al., (1997), this could occur since some clients have contrary and mitigating information correctly not taken into account for the going-concern cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 184 opinion. one study finds only one-fourth of the companies receiving going-concern disclosures failed within a year and on average survived for approximately four years (louwers et al., 1999). these trends support the issuance of going-concern opinions in distressed industries by independent auditors supported by effectively independent audit committees (carcello and neal, 2000; 2003). another measure of effective independence a second measure of effective independence for the board of directors, if not audit committees, could be the actual filing of bankruptcy (chapter 11 only). non-independent boards in fact would seek self interest and not file when a slow and prolonged recovery is the only option, because filing would imply that their stock is worthless immediately or in the least, that their stock is subordinated to the debt holders. since filing for bankruptcy would cause an immediate decline in board wealth, self interest seeking non-independent boards would not be expected to file. this would buy time to permit short-term stock price manipulation for more opportunist stock dumping (chenchuramaiah and ramesh, 1995; fama and jensen, 1983). self-interest seeking non-independent directors for financially stressed companies have other incentives to leave the company when it has not yet declared bankruptcy. to obtain a position as a director of another company, “one of the occurrences that will cause a director to be designate a ‘problem’ is to be associated with…a bankruptcy,” declares paul hodgson, senior research associate, corporate library, a research firm (morgenson, 2006). therefore, we define the second measure of effective audit committee independence as the filing for bankruptcy, given as: chapter 11 only = 1 if company has filed for bankruptcy under chapter 11, else 0. summary of variables statistically, for h to hold, the dependent variables gco and chapter 11 only (at level = 1) are expected to be associated with the ten predictor variables (each at level = 0), likely (but not necessarily) associated with the z score, and to be associated with lower values of acstock% board and higher values of total assets. in this case effective independence would be associated with appearance of independence and prior research. carcello and neal (2000), in finding the appearance of audit committee independence related to the effective characteristics of audit committee independence, consider heavy manufacturing and technologyrelated industries (sic codes 35, 37, and 87), which are more likely to receive a going-concern opinion. as suggested by a footnote in carcello and neal (2000, 460), their results could be industry dependent. this is likely because certain financially stressed industries would most likely have small companies (identified by total assets) with audit committee members (often original owners) possessing high the stock ownership (acstock%board). the textile industry serves as one example. application to a particularly stressed industry stressed u. s. textile industry the textile industry experienced record shipments, strong profits and many product innovations during the majority of the 1990s. yet, today the “u. s. textile industry is suffering from its worst economic crisis since the great depression” (american textile manufacturers institute, 2002). after the 1997 asian financial crisis, low-priced textile and apparel products resulted from devalued asian currencies, lower labor costs and various country subsidy programs. asian textile imports to the u. s. increased by 80% after 1996 causing major declines in u. s. textile company sales (american textile manufacturers institute, 2001). when soa was implemented, the u. s. textile industry suffered “from its worst economic crisis since the great depression” (american textile manufacturers institute, 2002). increasing losses forced many textile companies to reduce in size, eliminate jobs and facilities and, for some, to file for bankruptcy protection. the change in the industry is evident in the calculation of the industry’s relative earnings cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 185 growth as compared to stock price appreciation. the textile industry’s relative stock price strength, as compared to 90 other industries, was close to 100% of the broad index in 1998 versus slightly below 10% of the broad index in early 2002 (sirois, 2002) with more stock in the hands of fewer owners. since the financial markets reflect the distressed condition in textile publicly traded stocks, it should follow that concerns of a company’s future existence are addressed in the company’s financial reports. research design sample selection we investigate the relationship of the research variables, the listed soa, the extended soa, the stress and the prior research variables (i. e., the ten predictor variables, z score, acstock% board, and total assets), to the two effective measures of audit committee independence (gco and chapter 11 only) for all textile companies from 1999 to 2001 in sec schedule 14a (proxy statement) filings. first, copies of the auditor’s report and financial information used to calculate the altman z-score were obtained from the 2000 and 2001 company annual reports. initially, we included all the publicly-traded textile companies under the standard institute classification (sic) code 2211, which represents the cotton, woven fabric business. in addition, the top five publicly-traded companies of other sic codes summarized in textile manufacturing: industry breakdown 1997-2001 by harris infosource international, inc. (harris infosource international, 2002) were selected. also, a list of 263 textile and apparel companies was included from mergent online (mergent online, 2003). table 2: sample selection criteria initial sample of sic codes 22xx and 23xx 275 less: repeated companies in sic codes 26 less: proxy statements and/or form 10-k not available 12 less: companies with gcos before 1999 17 less: companies excluded from the harris infosource (because of low sale activity in the 22xx and 23xx code) 146 total sample 74 next, we deleted companies with missing proxy or financial statement data. table 2 shows that this resulted in a final sample of seventy-four companies with fifty-four having two years of observations and twenty with only one year of observations for a grand possible total of 128. companies with only one year of proxy information resulted from bankruptcy, privatization, or initial year of operation. for the seventy-four, there are thirty-one bankruptcies filed but only thirty companies received going-concern opinions. the proxy statement discloses each director by name, his or her age, principal occupation and business experience, other directorships, length of service on the board and committee assignments, equity ownership in the company, and the amount of director fees and non-director fees compensation to each director. this schedule also provides information about the total number of board and committee meetings held during the fiscal year. methodology using the data obtained on the seventeen variables identified in section ii we create two sets of analyses, one for the measure of independence by association with going-concern audit opinions and one by association with bankruptcy filings. each set presents a correlation matrix of related variables and a corresponding logistic regression analysis for those variables identified as related. results interrelationships of appearance characteristics table 3 below provides the pearson correlation matrix, and hence interrelationships, of the first nine variables, the first five soa and the next four non-soa characteristics to the two independent variables, cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 186 gco and chapter 11 only. there are statistical relationships (with two-tailed p-value less than 0.05) between only two soa variables, interlock and affilprof. interlock and two other soa variables are related to non-soa variables. the first correlation between interlock and affilprof (r = + 0.181, p-value = 0.041) suggests some companies have two forms of non-independence under soa. interlock means that audit committee membership for board a is compromised when a member of management for company a serves as a compensation committee member for board b, the home company of the audit committee member. the correlation between interlock and affilprof suggests when there is this interlocking there are also members of that audit committee for a which also serve in other capacities for a (affilprof). the second correlation (interlock with the non-soa characteristic, othercc, r = + 0.373, p-value = 0.00) suggests that given interlocking occurs an audit committee member also serves on four or more compensation committees of public companies. the third correlation (r = -0.198, p-value = 0.025) of the committee's membership (soa , ac members) with the position of having other directorships (non-soa otherdir) shows that those committees with memberships not violating the soa and having enough members also are likely to be serving on other boards. the fourth correlation (between the soa-other ac, and nonsoa othercc, r = + 0.328, p-value = 0.00) shows that serving on four or more compensation committees (othercc) is related to serving on four or more audit committees (other ac). this characteristic, other ac, is also found correlated as expected (p-value = 0.00), in those companies with members serving on four or more boards (otherdir). [the relationship of otherdir and othercc may be just due to the compensation committee membership.] table 3: the correlation of characteristics of non independence appearance versus effective measures of independence table 3 also presents the results of correlating these first nine (soa, non-soa) appearance-ofindependence characteristics with the other five financial variables of section ii used in previous research to demonstrate independence in fact as shown by the frequency of the auditor’s going-concern opinion (gco). for the variable gco, the first correlated variable is affilpay (p-value = 0.023). this suggests that if a member receives affiliated payments (affilpay = 1), the company is likely to receive a going-concern cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 187 opinion (gco = 1). this is evidence of a dependent audit committee associated with evidence of independence, and this is contrary to carcello and neal (2000) and expectations. the characteristics of dependence (e.g., affilpay = 1) should be negatively not, as it is, positively related (pearson r = + 0.202) to the measure of effective independence (gco). for gco, the next correlated variable is filing for bankruptcy (chapter 11 only, p-value = 0.00). the variable found predictive of the gco in prior research, total assets, is not related (two-tail p-value = 0.201), but the sign of the pearson correlation coefficient (r = -.114) is negative, in the correct direction, consistent with prior research and if held to a one-tail p-value standard, it would be close to being significant (with one-tailed p-value = 0.10). correlated in the direction opposite to expectations for the going-concern opinion the measure of audit committee independence, gco, is not related to the percent of stock ownership by the ac committee, ac stock% of board, (with two-tailed p-value, 0.11, one-tail, 0.06), but considering only the one-tailed p-value it could be. since ac stock % of board is also related to affilpay (p-value = 0.003), which is related to the gco, this suggests that those with larger shares of stock, i.e., those most likely to lose under bankruptcy or a given going-concern opinion, are also those who have affiliated payments (in stock) and may be from smaller companies (since this is negatively related to total assets, r = -0.26, p-value = 0.003). surprisingly, table 3 shows only two of the five soa “appearance-ofindependence” characteristics (the ac membership size (ac#) and belonging to other audit committees, other ac) as having the correct corresponding sign of the correlation coefficients (r = + 0.102, r = -0.039) as would be anticipated from their definitions with gco. in this regard, the appearance characteristics under the sarbanes-oxley act fail again and provide contrary support as in gao, et al., (2009). table 4: statistical tests-chi square or phi (normal z) test characteristics versus measures of effective independence effective variable effective variable independence affiliated pay no affil. pay total independence interlocking no interlock total gco 9 21 30 chapter 11 filed 5 26 31 no gco 12 85 97 no chap 11 filed 4 92 96 total 21 106 127 total 9 118 127 phi coef z test p value phi coef z test p-value 0.20156 2.27149 0.024 0.20025 2.25670 0.024 effective variable effective variable independence ac # < 3 !"#"$"% total independence ac # < 3 !"#"$"% total gco 7 23 30 chapter 11 filed 2 29 31 no gco 14 83 97 no chap 11 filed 19 77 96 total 21 106 127 total 21 106 127 phi coef z test p value phi coef z test p-value 0.10176 1.14681 0.250 -0.15425 -1.73825 0.082 effective combined variable effective combined variable independence var=1 var=0 total independence var=1 var=0 total gco 19 11 30 chapter 11 filed 20 11 31 no gco 55 42 97 no chap 11 filed 54 42 96 total 74 53 127 total 74 53 127 phi coef z test p-value phi coef z test p-value 0.05713 0.64381 0.520 0.07201 0.81146 0.420 because of these relationships and those from prior research, we consider in table 5 the correlation of effective independence (gco) with the four variables: affilpay, ac stock% of board, the z-score for determining chapter 11 only, and assets (from table 3, company size defined by the natural log of total assets). logit models are used for prediction purposes, and since we have already established affilpay as significant, its predictive purpose remains. in the logit model for predicting gco, affilpay becomes less predictive (two-tailed p-value = 0.174) in the presence of stock ownership and the size of the company, but affilpay still has the correct sign and is still the most predictive variable, even better cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 188 than the zscore (0.997) and company size (assets, has a p-value of 0.363 and a negative sign for its coefficient indicating smaller companies). the variable, ac stock% of board, while not significant (0.318) in predicting gco in this logit model, was shown in table 3 correlated with affilpay, and obviously is multicolinear. those with affilpay =1 also have a larger percentage of the stock. in table 5, this model of four variables does predict ten of the thirty gco companies, only one more than the nine that can be found just with affilpay =1. table 5: logistic regression results for going-concern opinions legend: __________________________________________________________________________________ number of observations 127 chi-square for model 37.551 p-value 00.0 therefore, adding these three other variables (ac stock% of board, the z-score, and assets) to affilpay does not greatly improve the prediction. this one characteristic of appearance of non independence, affilpay =1, predicts effective independence. members who are affiliated and have larger stock ownership tend to support the going-concern opinion. correlated in the direction opposite to expectations for filing for bankruptcy we find similar results in predicting bankruptcy. first, table 3 presents only two variables related to the filing of bankruptcy (chapter 11 only): (1) interlock (with p-value = 0.024), whether an audit committee member is on interlocking boards, an soa violation and (2) gco (with p-value = 0.00). another soa independence variable, the size of the audit committee required to be three or more (ac#), has a contrary correlation with bankruptcy (r = -0.154, p-value=0.083) and is almost significant. in table 4 we find these two soa characteristics again. first, for the ac#, as with the negative pearson correlation coefficient in table 3, the phi coefficient (-0.15) for the size of the audit committee (ac#) is negative, and this is consistent with the appearance of non-independence. its two-tailed p-value (0.082 as opposed to 0.083, the approximation) is not significant but close, and would be significant as a one-tailed test. as in table 3, the soa characteristic interlock is statistically significant, this time with exactly the same p-value (0.024). of the nine committees that had this interlock violation, five (more than half) were associated with those that filed for bankruptcy, contrary to the expectation that none would be so associated. in table 4 for bankruptcies (chapter 11 filed), the p-value (0.42) is not significant for the variable, having at least one violation, soa var. with this low p-value there is not enough evidence as to whether the soa variable can predict bankruptcy. still, contrary to expectations, this sample found that more non-independent boards (20) than independent boards (11) filed for bankruptcy. classification tablea 89 8 91.8 20 10 33.3 78.0 observed 0 1 gco overall percentage step 1 0 1 gco percentage correct predicted the cut value is .500a. variables in the equation .804 .591 1.851 1 .174 2.235 20.659 5768.654 .000 1 .997 9.4e+08 -.065 .108 .363 1 .547 .937 1.020 1.021 .997 1 .318 2.773 -20.699 5768.654 .000 1 .997 .000 affilpay zscore assets acstock constant step 1 a b s.e. wald df sig. exp(b) variable(s) entered on step 1: affilpay, zscore, assets, acstock.a. cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 189 next, when the same variables of table 5 are considered in table 6 for predicting bankruptcy (with affilpay substituted with interlock), interlock becomes less predictive (p-value = 0.263). because of this increased p-value we see that members who are on interlocking boards filing for bankruptcy are in those in the most distressed (low zscore, p-value = 0.002), perhaps larger (not smaller) companies (assets, p-value = 0.095, with a positive sign for the coefficient indicating the larger companies), and with higher stock ownership relative to board, acstock. again the coefficient of acstock has the correct positive sign and this time is less significant (p-value = 0.129, one-tail p-value = 0.07). notice that now, as before when predicting gco companies, we are able to predict one more bankruptcy: instead of the five bankruptcies with interlock =1, we now can predict six bankruptcies using the model of all four variables. also, it appears that for this small study the larger companies with board members owning perhaps the larger amount of stock (if only marginally statistically significant) are effective. still according to table 2, the smaller companies have audit committees with the larger percentage of stock ownership (with correlation coefficient, -0.026 and p-value, 0.003). table 6: logistic regression results for bankruptcy filings legend: _______________________________________________________________________________________ number of observations 127 chi-square for model 32.141 p-value 00.0 conclusions summary we reject the research hypothesis. we find (what would eventually become) required sarbanes-oxley appearance characteristics of independence not to be meaningful predictors of effective independence for this one industry. instead, we find evidence contrary to expectations. we find one measure of effective independence, the issuance of a going-concern audit opinion, related to the soa appearance measure of non-independence, in nineteen of thirty cases, when we would anticipate none. we find another measure of effective board independence, the declaration of bankruptcy, also related to what would be soa non independence in twenty out of thirty-one bankruptcies, also when we would expect none. more importantly, we find two appearance measures of soa non independence, whether an audit committee member receives affiliated payments, and whether a member is on interlocking boards, to be associated with filing for bankruptcy, a predictor of effective independence. these results suggest either a need for other appearance measures of effective independence or that theses measure of independence may be industry dependent, as carecllo and neal (2002) suggest. these results also support geiger and rama (2003) who find little evidence of a connection between effect and appearance. we find other interesting results that are statistically significant or nearly so. for example, in table 3 we see the percentage of ownership of stock by the audit committee (ac stock% of board), although not classification tablea 91 5 94.8 25 6 19.4 76.4 observed 0 1 chapter 11 only overall percentage step 1 0 1 chapter 11 only percentage correct predicted the cut value is .500a. variables in the equation .885 .791 1.252 1 .263 2.423 3.283 1.043 9.901 1 .002 26.657 .183 .109 2.788 1 .095 1.201 1.614 1.064 2.299 1 .129 5.022 -6.382 1.777 12.904 1 .000 .002 interloc zscore assets acstock constant step 1 a b s.e. wald df sig. exp(b) variable(s) entered on step 1: interloc, zscore, assets, acstock.a. cardwell, sennetti, and poulson advances in business research 2011, vol. 2, no. 1, 179-193 190 strongly related to the effective measures of independence (see gco, going-concern opinions, with the one tail p-value of 0.055), it is more strongly related to the significant variable, affiliated payments (affilpay-soa, p-value, 0.003), which is a stronger predictor of this effective measure, gco (with a p-value of 0.023). this larger stock ownership variable is associated with the smaller companies (see table 3, total assets with a negative correlation, -0.272, p-value 0.002). therefore it appears that smaller, stressed companies having audit committees with larger stock ownership, a seemingly dependent measure, may in fact do the right thing in permitting going-concern opinions, just as would independent and not affiliated audit committees for larger companies. similarly, boards with possibly larger stock ownership by the audit committee from larger companies may do the right thing and file for bankruptcy. these suggestions, consistent with the agency work of fama and jensen (1983), argue that more closerheld companies would have non appearing independent owner-managers-directors who act in their companies' best interest, as would directors (on audit committees) with a large percentage of ownership (shleifer and vishny, 1997). the interrelationships of non-soa appearance characteristics also seem to support these results as found in company board members serving other company boards, compensation committees, and other audit committees. changes to these relationships involving audit committees and corporate boards since the passage of the sarbanes-oxley act suggest that members are accepting fewer positions, and therefore the interlocking and other membership relationships are now fewer (holstein, 2004). limitations this is a relatively small sample study of seventy-four companies, with only thirty going-concern opinions (twenty-six that are not repeated) and thirty-one bankruptcies (nineteen that are not repeated), limited by design to one industry during two years before the soa rules were enacted, and conducted over two years as found in carcello and neal (2000). despite these limitations, tables 3, 4, and 6 still demonstrate statistically significant findings. although limited in size to seventy-four companies, this study does not support an association of soa appearance-of-independence characteristics with audit committee effectiveness for this specialized industry. rather, they are supportive of contrary expectations. explanations for this result are suggested by company size and percentage of committee stock ownership but this study is too small to show strong statistical evidence for these variables. larger studies of stressed but industry-limited companies with the soa characteristics may be possible since the act has been in effect since 2002, but may difficult, now that some of the soa rules recently changed even though these changes do not affect audit committees. further research could also continue with other measures of effectiveness such as the quality of earnings or a company’s discretionary accruals in determining whether the appearance 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final rule: standards relating to listed company audit committees: rel. no. 33-8220. retrieved on june 19, 2003 from http://www.sec.gov/rules/. sec. 2003b. nasd and nyse rulemaking: relating to corporate governance: rel. no. 34-48745. retrieved on september 15, 2004 from http://www.sec.gov/rules/sro/34-48745.htm. shleifer, a., & vishny, r. 1997. a survey of corporate governance. journal of finance, 52: 737-783. sirois, c. 2002. industry report: textile industry. the value line investment survey: ratings & reports, 57: 1666. turner, e. 1999. keeping audit committees effective. ca magazine, 132: 40-42. wild, r., & anderson, j. 2010. september 17. sec publishes final rule for dodd-frank permanent exemption of non-accelerated filers from sox 4049b) auditor attestation reports, corporate & financial weekly digest: corporate finance lawyers& attorneys for legal developments in business & financial services. retrieved september 29, 2011, from http://www.corporatefinancial weeklydigest.com/2010/09/articles/seccorporate-1/secpublishes-final-rule-for-doddfrank-permanentexemption-of-nonaccelerated-filers-from-sox-404b-auditor-attestation-reports/. vafeas, n. 2001. research notes on audit committee appointments. auditing: a journal of theory & practice, 20: 197-207. vicknair, d., hickman, k., & carnes, k. 1993. a note on audit committee independence: evidence from the nyse on "grey" area directors. accounting horizons, 7: 53-57. paula weller is a lecturer of accounting at elon university. she received her dba in accounting from nova southeastern university. her current research interests include design and implementation of assessment for accounting programs and evaluation and improvement of accounting students’ writingskills. she has published in national public accounting and international business and economic research journal. john sennetti is a professor of statistics and accounting at nova southeastern university. he received his ph.d. in mathematical statistics from virginia tech. he has published in communications in statistics, journal of finance, journal of accounting education, journal of business ethics, advances in accounting behavioral research, and others. linda poulson is an associate professor of accounting at elon university. she received her ph.d. in accounting from saint louis university. her current research interests include financial accounting and personal finance. she has published in journal of academy of business education and cpa journal. microsoft word 111-510-1-corrections near end.doc http://journals.sfu.ca/abr advances in business research 2015, volume 6, pages 65-78 65 a comparison of the characteristics of price parity constructs with exchange rates and the potential impact on foreign currency translation paul e. holt texas a&m university, kingsville characteristics of a constructed time series of price parity numbers were compared with the time series of exchange rates between twenty-two countries’ currencies and the united states dollar. these characteristics were analyzed to determine in which countries an accounting policy change from exchange rates to price parity for translation of foreign currency would result in greater information content of consolidated statements. the results of the study are consistent with the use of price parity for sixteen of the twenty-two countries studied, but not for translation of accounts between the japanese yen and the united states dollar. introduction reported earnings variability is an indicator of the degree of risk associated with the earnings series. material differences in variability of subsidiary earnings across translation methodologies do matter to assessment of earnings risk. managers can be expected to prefer that their companies be perceived as less risky rather than more risky. companies with significant foreign operations could therefore be expected to prefer translation methodologies that result in lower variability of translated subsidiary earnings which would result in lower variability of consolidated earnings. further, accounting policy makers and analysts might prefer less variability if that variability could be ascribed to noise. in 1974, the committee on international accounting suggested the possibility that purchasing power parity (ppp) constructs might be appropriate for foreign currency translation, indeed that such constructs might be superior to exchange rates for the purpose. at the time the committee raised this question, no empirical accounting research had been done to make the comparison between ppp constructs and exchange rates and suggest an answer. the committee was, in effect, calling for such research to be performed. a small number of early papers (described in the literature review) provided theoretical insights into the consequences of using ppp numbers instead of exchange rates for currency translation and even presented fully developed translation methodologies based on ppp. in more recent years, some empirical work has been done (also described in the literature review) to compare the consequences of using ppp instead of exchange rates and to bring accounting standard setting bodies and other accounting professionals closer to the answer to the committee’s original question. these studies were based on translations between the us dollar and the uk pound. no similar empirical studies exist to describe what happens when ppp numbers are used instead of exchange rates for currency translation between the us dollar and various currencies other than the uk pound. when foreign currency translation is required prior to consolidation of a parent and a foreign subsidiary, the current and historical exchange rates are assumed to represent the time-relevant comparison of price parity constructs with exchange rates 78 relationship between the two currencies. but actual exchange rates used for conversions of currencies are affected by numerous factors, some of which are transient. indeed, day-to-day market and political factors can have major impacts on the conversion exchange rate. ideally, accountants would use the equilibrium exchange rate for currency translation. as discussed in detail in the literature review, ppp is the main determinant of the equilibrium exchange rate because the value of a currency is basically determined by its domestic purchasing power (officer, 1982, page 93). very early work (cassel, 1916) demonstrates that the equilibrium exchange rate tends to equal the ppp. in fact, cassel (1926) equates the ppp time series with the equilibrium exchange rate series. since the numbers used to translate foreign currency significantly affect all the numbers consolidated financial statements, it is theoretically sound to allege that the usefulness of reported earnings per share and numerous other ratios and relationships would be enhanced by using ppp numbers which are closer to the equilibrium exchange rate. the transient noise factors in conversion exchange rates can be expected to reduce the information content of consolidated financial statements to users. motivation accordingly, the purpose of the present study is to examine the characteristics of ppp time series constructs compared with exchange rate time series. one of the assumptions of the present inquiry is that the relative variability of the ppp series and the exchange rate series results in relative variability of reported earnings. this study uses what may be referred to as “country pairings,” one of which is always the united states. for example, one pairing would be the united kingdom and the united states. another could be russia and the united states. no pairings are considered which do not involve the united states. for example, the purpose of the study does not encompass ppp and exchange rate comparisons between say, russia and the united kingdom. for convenience, the term “country pairings” will be used in this study. for example, a “germany pairing” will mean ppp time series and exchange rate comparisons between germany and the united states. to what extent the relative characteristics of ppp and exchange time series are the same for all currencies translated into the us dollar is not known. such knowledge has substantial implications for any proposal to use ppp numbers instead of exchange rates for translation. although the economics literature does suggest that a ppp time series for a given country (in a “country pairing” between that country and the united states) should have lower variability than an exchange rate time series, the extent to which this is true for all countries is not known. such knowledge is critical to ppp translation proposals; despite the theoretical economics literature and the theoretical accounting literature, it may be true that ppp translation methodologies might be highly meaningful and useful in some country pairings, but less useful, even harmful in terms of financial statement information content, in other country pairings. literature review does lower variability of reported earnings result in more useful information? that is, is lower variability of reported earnings a normative criterion against which to evaluate alternative accounting methods? there are numerous research articles in the accounting literature that indicate that managers and other users view high variability of earnings as undesirable and less accurate depictions of the holt 77 results of operations than lower variability of earnings. relevant and representative 20th century literature a number of foreign currency translation articles indicate that the requirements of sfas #8 were perceived by many financial statement users, especially managers, to result in greater variability of reported earnings than other possible translation methodologies (allan, 1976; biel, 1976; herschman, 1976; mattlin, 1976; merjos, 1977; aggarwal, 1978; porter, 1983; selling and sorter, 1983). collins and salatka (1993) concluded that including the translation adjustment in net income as required by sfas #8 generated noise that made reported earnings less meaningful. but the translation adjustment is determined by the net effect of all the translated subsidiary numbers. none of these studies contemplated the issue of ppp versus er to eliminate some of the noise in consolidated financial statement numbers. from the economics literature, the ppp theory of exchange rates is summarized in officer (1982) in three propositions: (1) ppp is the principal determinant of the long-run equilibrium exchange rate, (2) the short-run equilibrium exchange rate in any current period is a function of the long-run equilibrium exchange rate in the sense that the latter variable is the principal determinant of, and tends to be approached by, the former, and (3) the short-run equilibrium exchange rate in any current period is determined principally by the ppp, with the former variable tending to equal the latter. the equilibrium exchange rate is the rate at which the demand for a currency and supply of the same currency are equal. at the equilibrium exchange rate, the price for exchanging two currencies will remain stable (the free financial dictionary, 12/18/2014). actual exchange rates are not likely to be equilibrium. temporary factors affecting exchange rates are always in play, a condition that continually adds to the variability of exchange rates. under the ppp theory as described by officer, ppp would mitigate the effects of these temporary noise factors. this is a reasonable argument in favor of the use of ppp numbers instead of exchange rates for foreign currency translation, but the argument is theoretical and is not acceptable in accounting standard setting without supporting empirical and normative research. relevant and representative 21st century literature bazaz and senteney (2001) used an equity valuation model to investigate the extent to which sfas no. 52 unrealized foreign currency translation gains and losses are reflected in levels of equity security prices. it is a sound theoretical observation that using numbers closer to the equilibrium exchange rate would increase the studied relationship, although this has not yet been demonstrated with normative research. louis (2003) studied the association between change in firm value and the foreign translation adjustment. accounting rules for currency translation usually result in financial statement numbers opposite to the economic effects of exchange rate variations. thus, the translation adjustment could be associated with a loss of value instead of an increase in value. comments similar to those made above in relation to bazaz and senteney (2001) are appropriate here. holt (2004), a descriptive study, used a complex method of estimating the temporal characteristics of accounts and compared the information content of return on assets across translation methodologies, including ppp. the study provides a short step toward answering the committee on international accounting’s question regarding the viability of ppp for translation. but the study does not relate various returns on assets to any normative criterion, and because of its scope was unable to relate the findings to any implications of noise. kwon (2005) indicated that foreign investors generally price exchange risk differently from local investors, and that the source and magnitude of differences in exchange risk pricing varied comparison of price parity constructs with exchange rates 78 significantly across countries. it is not known, based on existing research, whether the use of ppp would mitigate the observed differences, or whether the differences are related to transient factors. in another empirical study, pinto (2005) tested foreign currency translation adjustment value relevance in an earnings and book value model and observed that foreign currency translation adjustments are significantly value relevant. but the study did not include a ppp methodology for testing against er. liu (2006) used an accounting-based equity valuation model for multinational firms to examine the forecasting and valuation properties of foreign currency translation gains and losses. it found that translation gains and losses could be subdivided into a core component and a transitory component. the combined effect was that translation gains and losses were more transitory than transitory earnings. current research does not answer the question as to how much of the transitory component is due to the use of er instead of ppp. wang et al (2006) suggested that currency-translation differences are at times incrementally relevant to returns. in remains to be determined which performs better, ppp or er in this regard. chambers et al (2007) provided evidence in the post-sfas #130 period that other comprehensive income is priced by investors on a dollar-for-dollar basis. two components of other comprehensive income, foreign currency translation adjustment and unrealized gains and losses on available-for-sale securities, were found to be priced by investors. but the study suggests that investors pay greater attention to other comprehensive information reported in the statement of changes in equity, rather than in a statement of financial performance. holt (2011) made a normative evaluation of translation methodologies based on firm valuation and found that ppp performed well against this criterion compared to exchange rates. holt (2006) suggested superiority of the use of ppp over exchange rates for variability of reported earnings. holt(2012) focused on two short-term liquidity ratios, the current ratio and inventory turnover and attempted to identify, in terms of empirical properties, if and in what ways foreign currency translation methodologies generate different results. analysis of meaningfully-paired observations indicated substantially different current ratio and inventory turnover numbers across translation methodologies. but the results were not consistent from year to year and the results of all the fifty sample companies, taken together, did not hold for all the individual companies. at the firm level, the results were highly firm specific. holt (2013) tested alternative translation methodologies against the fischer black method of evaluating accounting alternatives with a conclusion favorable to ppp. holt (2014a) tested alternative translation methodologies against the normative criterion of present values of future cash flows to investors and concluded a favorable result for ppp. holt (2014b) tested methodologies against the predictability of reported earnings with similar favorable results for ppp. methodology the countries used to form the “country pairs” were taken from the top twenty-five countries according to gross domestic product as indicated in international monetary fund 2013 and augmented by treasury direct 2005 and united states census 2014. as noted above, all country pairs include the united states leaving twenty-four countries for pairing. for various economic reasons, iraq and turkey were excluded, resulting in twenty-two country pairings. month-end exchange rates between each of the twenty-two countries and the united states were obtained from january 1999 through december 2013. in order to construct the ppp monthly time series for the same period, the united states monthly consumer price indexes and the corresponding consumer price indexes for the twenty-two countries were obtained. holt 77 purchasing power parity (ppp) time series construction the use of exchanges rates in translation has no rigorous defense, and exchange rates are not related in any clear way to accounting measures. none of the exchange-rate based translation methodologies has been shown theoretically or empirically to be superior to the others under all circumstances. patz (1978) suggests this may result from the use of exchange rates themselves. the price parity method of translation is described in full in patz (1981). for an analysis of the state of the art of currency translation theory and the lack of definitive research of the ppp alternative, see patz (2006). using the price parity methodology, foreign accounts are translated into dollars using a temporal method approach, but using a time series of price parity relative purchasing power indices. the purpose is to reflect the command over goods and services in the economy in which the subsidiary operates. it is assumed that foreign subsidiaries do not exist solely for the purpose of generating dollar cash flows to the parent, but rather for the maximization of economic power which can be defined as the size of assets held (churchman, 1961). the price parity indices needed for translation from foreign currency to dollars under the price parity method were calculated as follows: ppt = ppb(cpitk/cpits) where ppt = the price parity index for point in time t, ppb = an exchange rate assumed to approximate purchase power parity at the point in time b (b = december 31, 1993, a base point.) cpitk = consumer price index in the foreign environment at time t, standardized to base period b = 100, and cpits = consumer price index for the u.s. at time t, standardized to base period b = 100. the foregoing is called the “constructed rate” approach for obtaining a price parity index time series. it is the method suggested by patz (1981) as the simplest and most practical. this calculation must be performed for each point of time need for translation, and the purpose of the calculation is to generate a time series of ppp numbers which are closer to the equilibrium exchange rate than observed conversion exchange rates. patz (1977) pointed out that foreign currency translation is a mathematical exercise in which measures scaled in a foreign currency are transformed into measures scaled in the domestic currency. it is a restatement process, not a remeasurement. the restatement should not introduce transient noise factors. the ppp theory of translation alleges that less noise is generated by the use of ppp numbers than by the use of conversion exchange rates. research questions the study addressed two research questions: (1) for how many of the twenty-two country pairings is the variability of ppp less than the variability of exchange rates, and which country pairings exhibit this characteristic? (2) do any of the twenty-two country pairings exhibit anomalous results that would affect the use of ppp for currency translation in lieu of exchange rates, and what are the causes of these anomalies? comparison of price parity constructs with exchange rates 78 results and conclusions the rank ordering of countries by gross domestic product according to the international monetary fund (2012) is as follows: 1. united states 2. china 3. japan 4. germany 5. france 6. united kingdom 7. brazil 8. russia 9. italy 10. india 11. canada 12. australia 13. spain 14. mexico 15. south korea 16. indonesia 17. turkey 18. netherlands 19. saudi arabia 20. switzerland 21. iran 22. sweden 23. norway 24. poland 25. belgium the purpose of consulting this list was to select countries which are active in international commerce. such countries contain businesses which are likely to have multi-national subsidiaries, and thus are affected by accounting principles relating to foreign currency translation. the list was used merely for selection for use the in present study. factors such as the precise rank ordering were not relevant. as indicated under methodology, for various economic reasons, iraq and turkey were excluded, resulting in twenty-two country pairings with the united states. several of these countries use the euro. although the time series of exchange rates between those countries’ currencies and the united states dollar is the same, the time series of the constructed ppp numbers is different. thus, the fact that several countries use the same currency does not eliminate the use of that country in the present study. an implication of officer (1982) was that the ppp construct’s variance is lower than that exchange rate variance. tables 1 and 2 make that comparison for the study period. countries are ordered by gross domestic product. table 1 was constructed with a united states parent and a foreign subsidiary in mind, translating foreign currency into dollars, whereas table 2 used the opposite scenario, a foreign parent and a united states subsidiary. to answer research question #1, in each table we observe sixteen of the country pairings with higher variances for exchange rates than for ppp and six country pairings with the opposite result. the six countries for which the results were contrary to officer (1982) arranged in order of gross domestic product are: japan, brazil, russia, india, south korea, and indonesia. a tentative and cautious implication is that the use of ppp instead of exchange rates for currency translation between these countries and the united states might not be advantageous from the viewpoint of the information content of consolidated financial statements. of special interest among these six countries is japan, as it is the fourth largest trading partner with the united states. it is important to understand why these results are observed for japan. a major factor in constructing the ppp series, as described in the methodology section of this paper, is the variability of the consumer price index. the following table shows the rank orderings of countries based on the lowest variances of the consumer price indexes. this result for japan is an anomalous result mentioned in research question #2. comparison of price parity constructs with exchange rates 78 table 1. variances of exchange rates compared to variances of ppp (dollars per foreign currency) country exchange rate variance ppp variance x = exchange rate variance > ppp variance china 0.0308 0.0298 x japan 0.0001 0.0028 germany 0.2528 0.0777 x france 0.2528 0.0739 x united kingdom 0.0075 0.0011 x brazil 0.0969 0.1671 russia 0.0031 0.0168 italy 0.2528 0.0207 x india 0.0048 0.0075 canada 0.1767 0.0273 x australia 0.1712 0.0364 x spain 0.2528 0.0301 x mexico 0.0200 0.0191 x south korea 0.00004 0.00004 indonesia 0.00004 0.00005 netherlands 0.2528 0.0258 x switzerland 0.3465 0.1210 x iran 0.0004 0.00034 x sweden 0.0296 0.0107 x norway 0.0270 0.0060 x poland 0.0616 0.0130 x belgium 0.2528 0.1809 x holt 77 table 2. variances of exchange rates compared to variances of ppp (foreign currency per dollar) country exchange rate variance ppp variance x = exchange rate variance > ppp variance china 1.5529 1.5226 x japan 1.4051 29.9925 germany 0.1822 0.0684 x france 0.1822 0.0654 x united kingdom 0.0028 0.0004 x brazil 0.4036 0.9102 russia 2.9367 44.7313 italy 0.1822 0.0196 x india 12.9564 26.1340 canada 0.2774 0.0549 x australia 0.2903 0.0945 x spain 0.1822 0.0307 x mexico 2.4754 2.3257 x south korea 52.2268 61.9771 indonesia 3,337 5,187 netherlands 0.1822 0.0248 x switzerland 0.4929 0.2391 x iran 16,273 7,213 x sweden 1.677 0.6954 x norway 1.3309 0.3599 x poland 0.7790 0.2386 x belgium 0.1822 0.1437 x comparison of price parity constructs with exchange rates 78 table 3. rank ordering of countries by lowest variances of consumer price indexes rank country variance of cpi 1 japan 0.0131 2 china 0.0193 3 switzerland 0.0631 4 belgium 0.0712 5 sweden 0.1567 6 germany 0.1772 7 france 0.1816 8 norway 0.2116 9 canada 0.2204 10 netherlands 0.2375 11 italy 0.2455 12 united kingdom 0.2692 13 united states 0.2735 14 spain 0.3167 15 south korea 0.3496 16 australia 0.3592 17 poland 0.3602 18 mexico 0.6194 19 brazil 0.9868 20 india 1.1083 21 indonesia 1.2881 22 russia 2.4444 23 iran 5.9975 pursuant to officer (1982) and the methodology of the ppp time series construction used in this paper, a preliminary observation is that the higher the variance of a country’s cpi, the less valuable would be the use of ppp for foreign currency translation compared to exchange rates. the striking result from table 3, compared with the results from tables 1 and 2, is that japan has the lowest variability among the countries included in this study. the other major factor in the construction of the ppp series is the cpi in the united states. hence, the coefficient of variation between the foreign country’s cpi series and the united states cpi series is highly relevant. intuitively, the coefficient of variation would be positive for all countries for which a constructed ppp series would be viable for currency translation. table 4 rank orders countries by the coefficient of variation between that country’s cpi series and the united states cpi series, showing the lowest coefficients first. holt 77 table 4. rank ordering of countries by lowest coefficient of variation between that country’s cpi series and the united states cpi series country coefficient of variation japan -0.5951 china 0.4737 india 0.8399 mexico 0.8546 iran 0.8952 switzerland 0.9573 united kingdom 0.9697 poland 0.9762 belgium 0.9772 netherlands 0.9825 norway 0.9836 sweden 0.9862 brazil 0.9876 russia 0.9896 south korea 0.9915 australia 0.9939 italy 0.9944 indonesia 0.9948 canada 0.9955 germany 0.9956 france 0.9969 spain 0.9971 table 4 reveals japan as a striking outlier; japan’s cpi series does not correlate with the united states series, an explanation for the anomalous result observed for the japan pairing. this evidence suggests that the use of ppp for translation of accounts between the japanese yen and the united states dollar for consolidation purpose is not likely to produce financial statements with information content superior to the use of exchange rates. limitations and suggestions for future research the present study drew on the implications of officer (1982) and thus assumed that the use of an equilibrium exchange rate series, represented by ppp, rather than a market-generated exchange rate series would result in consolidated financial statements with greater information content. the study did not actually perform the daunting task of translating a significantly large sample of actual companies from one currency to another. thus, no rank ordering of translation methodologies was done based on any normative criterion. comparison of price parity constructs with exchange rates 78 a number of papers reflect accounting normative criteria against which translation methodologies can be evaluated. for example, ohlson (2001) studied the relationship between earnings, book values, and dividends in equity valuation. ohlson (2005) examined accounting-based valuation formulae, and ohlson and juettner-nauroth (2005) studied the relationship between earnings per share and firm value. the explanation of the anomalous japan pairing was based on the lack of correlation between the japanese cpi series and the united states cpi series. this was a mathematical explanation, but the underlying business environment and cultural explanations for this phenomenon remain unknown. despite the results of this study related to japan, the author believes future research should perform currency translations between the japanese yen and the u.s. dollar for the purpose of comparing the results with a wide range of normative criteria. such research should also be performed for the other twenty-one country pairs. references aggarwal, raj. 1978. fasb no. 8 and 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surplus accounting flows in the netherlands. international journal of accounting, vol. 41 issue 4, 387-405. paul e. holt is professor of accounting at texas a&m university – kingsville. his research interests include foreign currency translation, price parity, and earnings quality. uafs advances in business research 2012 lowrez (2).pdf morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 25 three types of business school accreditation and their relationships to cpa exam scores of graduates john morgan, winona state university j. lawrence bergin, winona state university larry sallee, winona state university (rochester campus) this research explores relationships between “business school accreditation” and average cpa exam scores of graduates from each of several types of accredited business programs. our findings show graduates of aacsbinternational accredited programs have significantly higher cpa exam scores than do graduates from other types of accredited and unaccredited business programs. somewhat surprisingly, graduates from acbsp and iaceb accredited programs do not have average cpa exam scores higher than those of graduates of unaccredited business programs. more surprisingly, average cpa exam scores of graduates from acbsp accredited programs are actually lower than those of graduates from unaccredited business programs on average. business school accreditation in the u.s. the council for higher education accreditation (chea) is the organization in the united states that certifies and ensures quality in “higher education accrediting agencies”. chea certifies regional accrediting agencies such as middle states association of colleges and school and the higher learning commission (nca-hcl), and it also certifies programmatic accrediting agencies such as the accrediting council for pharmacy education, the national league for nursing accreditation commission, and the national council for accreditation of teacher education. chea has a comprehensive institutional membership including more than 3,000 degree granting colleges and universities as members (council for higher education accreditation, 2010). presently chea recognizes only three business school accrediting agencies, the association to advance collegiate schools of business-international (aacsb), the accreditation council for business schools and programs (acbsp), and the international assembly for collegiate business education (iacbe). association to advance collegiate schools in business international the association to advance collegiate schools of business-international (aacsb-international or aacsb) is the oldest and largest of the three business school accrediting agencies. founded in 1916, the aacsb established “quality” standards for use in business school accreditation in 1919 (aacsb-international, 2011). today, institutions accredited by the aacsb are expected to meet aacsb quality standards in three major areas: strategic management standards, participant standards, and assurance of learning standards. strategic management standards are concerned primarily with a business school’s mission statement and the resources available to accomplish its mission. the mission itself is expected to reflect input from students, alumni, parents, employers, administration, and other stakeholders. aacsb strategic management standards require accredited programs to include statements about how faculty research contributions are integral to the business school’s mission. the inclusion of this statement is unique to the aacsb. similar statements are not required in the quality standards of the other two accrediting agencies. other aspects of the strategic management standards include descriptions of intended student populations to be served and a statement validating that continuous improvement in business education through assessment is a high priority. finally, the strategic management standards also require the business school to present its financial plan for providing necessary resources to achieve its mission (aacsbinternational, 2007). aacsb participant standards are focused almost entirely on input factors that aacsb contends affects the quality of business education. these include such input factors as student admission policies, staff support sufficiency, and faculty sufficiency. faculty sufficiency standards are notably rigorous and require faculty be properly credentialed (with emphasis on large percentages of faculty having a doctoral degree in their primary teaching area). faculty sufficiency standards also require a significant percentage of faculty to be engaged in recent published research to maintain currency and relevancy in their teaching fields (aacsb-international, 2007). aacsb assurance of learning standards are focused primarily on assessment of student learning outcomes and making continual improvements to business education based on the results of those assessments. aacsb assurance morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 26 of learning standards require “closing the loop” in assessment. this means feedback from assessment must be used in implementing positive changes for future learning outcomes (aacsb-international, 2007). as the first business school accrediting agency in existence, the aacsb maintains a dominant presence in the world of business school accreditation, especially at our nation’s larger business schools. see table 1 below for a summarization of the number of aacsb accreditations relative to other types of business school accreditations and relative to the number of unaccredited business schools. table 1: accredited and unaccredited u.s. colleges and universities by size with at least 20+ first time cpa testing events* undergraduate enrollments* total number of schools number (%) aacsb accredited number (%) acpsb accredited number (%) iacbe accredited number (%) with no business accreditation > 15,000 147 (100%) 128 (87.1%) 3 (2%) 2 (1.4%) 14 (9.5%) 10,001 – 15,000 89 (100%) 76 (85.4%) 3 (3.4%) 2 (2.2%) 8 (9%) 5,001 – 10,000 184 (100%) 124 (67.4%) 14 (7.6%) 5 (2.7%) 41 (22.3%) 0 – 5,000 290 (100%) 82 (28.3%) 46 (15.9%) 28 (9.7%) 134 (46.1%) totals 710 (100%) 410 (57.8%) 66 (9.3%) 37 (5.2%) 197 (27.7%) *-a first-time testing event refers to one in which a candidate takes any one of the 4 parts of the cpa exam for the very first time. the source of data included in this table is the intersection of 2011 official website listings showing aacsb, acpsb, and iacbe accredited institutions, and nasba’s 2011 edition, candidate performance on the uniform cpa examination (appendix f). this table lists all u.s. colleges and universities with at least 20+ first-time testing events by its graduates in the most recent year. undergraduate enrollments are from institute for education sciences, national center for education statistics (2011). the following statements summarize the information presented in table 1. first, the aacsb has accredited more u.s. business schools than other two accrediting agencies combined almost eight times as many. second, at the nation’s larger schools (defined as 15,000 +), 128 of the 133 total accredited business schools have been accredited by the aacsb. only three of these larger schools have been accredited by the acpsb; only two have been accredited by the iacbe. clearly, in terms of accrediting large schools, the aacsb plays a dominant role. table 1 also makes evident that it is at smaller institutions (defined as having fewer than 5,000 undergraduates) that the acpsb and the iacbe have the bulk of their accreditations. even here, the aacsb has more total accreditations than do the other two accrediting agencies combined. accreditation council for business schools and programs (acbsp) the acbsp is the second oldest business school accrediting agency. it was founded in 1988 to fulfill a need for programmatic business program accreditation at institutions with resource constraints not found at many large public institutions. specifically, the acbsp was founded in order to provide accreditation that emphasized quality in teaching and learning over credentials and research productivity of faculty. (accreditation council for business schools and programs, 2011). acbsp accreditation differs from the aacsb accreditation in that it employs a primarily “process based” accreditation which is less dependent upon quantified measures of faculty sufficiency (i.e. reference to number of doctoral degrees in teaching fields and amounts of published faculty research). acbsp standards require accredited schools develop and implement processes that will promote the development of excellent faculty well matched to program objectives. no specific percentages of “academically qualified faculty” are specified in acbsp standards. an example from their web site suggests that as few as 40 percent of undergraduate credit hours in business need be taught by faculty having a ph.d. in their teaching field (accreditation council for business schools and programs, 2011). this is a much lower percentage than that required under aacsb standards. acbsp scholarship requirements for faculty can be met with any of four types of intellectual activity: (1) the scholarship of teaching, (2) the scholarship of discovery, (3) the scholarship of integration, and (4) the scholarship of application. no quantifiable amounts of these activities have been specified (accreditation council for business schools and programs, 2011). in addition the acbsp acknowledges the value of faculty having practical, real-world experience and believes the practical experience of professors can enhance the relevance of classroom instruction. at that time of its founding, many of the nation’s smaller institutions desired an alternative to aacsb accreditation which for them was too costly in terms of its stringent faculty sufficiency standards related to number of ph.d.’s in teaching field and faculty research productivity. many of these smaller institutions sought an morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 27 accrediting process that would emphasize effective teaching rather than faculty credentials (accreditation council for business schools and programs, 2011). acbsp’s standards for granting accreditation are based on the baldrige national quality program and its “criteria for educational performance excellence” (accreditation council for business schools and programs, 2011). six accreditation standards were developed by the acbsp using baldrige theory of educational excellence. they are: leadership, strategic planning, student and stakeholder focus, faculty and staff focus, and educational and business process management (accreditation council for business schools and programs, (2011). the acbsp leadership standard requires that administrators and faculty be active participants in creating and sustaining a student focus in business education, developing student performance expectations, and generating a system that promotes leadership excellence in students. the strategic planning standard establishes a protocol to ensure that business schools maintain a process for addressing key student and program performance requirements. the student and stakeholder focus standard requires that business schools systematically consider the needs of all current and future stakeholders including parents, employers, alumni, and donors when conducting strategic planning activities. the measurement and analysis of student learning and performance standard requires that assessment of student learning outcomes takes place on a continuing basis. furthermore, feedback from these assessments is to be used to create positive change. the faculty and staff focus standard relates to the importance of having a quality faculty whose primary focus is teaching excellence but who are also open to integrating scholarly activities into their classrooms as well. scholarly activities are broadly defined and quantitative criteria for scholarly activities are not included in the standards. specified minimum percentages of doctorates in teaching areas are not included. the final acbsp accreditation standard is educational and business process management. this standard is aimed at two things: ensuring proper business school curriculum content; and ensuring that adequate resources are available to achieve the school’s financial, facility, library, and computer resource goals (accreditation council for business schools and programs, 2011). another distinguishing characteristic of the acbsp is that it accredits mainly smaller institutions. of the sixtysix total institutions accredited by the acbsp included in our sample, forty-six have fewer than 5,000 students. international assembly for collegiate business education (iacbe) the newest of the three chea recognized business school accreditors is the international assembly for collegiate business education (iacbe). it was first established in 1997 in response to u.s. colleges and universities seeking an accreditation process fully mission-driven and outcomes-based (iacbe, 2011a). the iacbe’s approach to fostering excellence in business education has been somewhat different from either the aacsb or the acbsp. in its “philosophy of accreditation” the iacbe states that academic quality should be assessed based on results of the presence of characteristics that lead to positive educational outcomes rather than prescriptive input standards (iacbe, 2011b). iacbe accreditation relies on assessing educational outcomes directly and indirectly. as a result, smaller business schools having limited resources and only a few doctorates teaching in field on staff find these standards relatively attractive. the evidence of business school quality that the iacbe assesses and associates with excellence includes: 1. evidence of a clearly defined mission consistent with the institutional mission. 2. evidence of overall performance in achieving student learning outcomes. 3. evidence of strategic planning reflective of the realities of business education and marketplace. 4. evidence of assessment that leads to improvements in achieving student learning outcomes. 5. evidence of students that develop into well educated, ethical, and competent professionals. 6. evidence of a learning environment that promotes and encourages innovation and creativity. 7. evidence of meaningful connections between the classroom and practitioners. 8. evidence of internal and external cooperative relationships with other educational units and institutions. 9. evidence of a faculty that integrates ethical viewpoints and principles into teaching. 10. evidence of a faculty who are effective classroom teachers regularly evaluated. 11. evidence of a faculty possessing academic/professional credentials worthy of community respect. 12. evidence of curriculum consistent with current business practices and expectations of employers. 13. evidence of resources adequate to accomplish the mission and broad-based goals. (iacbe, 2011c) clearly these characteristics of business education are not directly dependent upon the quantities of doctoral degrees in teaching fields or the quantity of published research by faculty in the way that aacsb standards are. morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 28 most of iaceb accredited programs are at two-year institutions. table 1 indicates that only 37 u.s. four year institutions are presently accredited by the iacbe. most of the iacbe’s four year accredited colleges (28 out of 37) are relatively small institutions with undergraduate enrollments of less than 5,000 students. comparison of business school accrediting agencies the aacsb, the acbsp, and the iacbe do have some similarities in their accreditation processes standards. for example, all three groups contend that “continuous improvement” is the central goal of the accreditation process. and all three groups require this be accomplished through continuous assessment and the use of assessment results to produce positive change. all three groups refer to the importance of adequate physical and financial resources consistent with accomplishing stated missions and insist that business school mission statements be consistent with institutional goals. finally all three groups attempt to describe the characteristics of faculty which are consistent with “quality” business education (though with very different perspectives). key differences among the three accrediting agencies relate primarily to the fact that only the aacsb quantifies and enforces minimum levels of inputs for two expensive faculty inputs. these are faculty academic credentialing and faculty research productivity. only aacsb accreditation precludes accreditation unless a high percentage of faculty are “academically qualified” with ph.d.’s in their teaching fields. only the aacsb has quantified minimum research and publication standards based on mission. whether these two key differences are in fact important to quality of business education is a debatable point. the acbsp and the iacbe, when describing desirable faculty characteristics, place relatively more focus on effective classroom teaching than on academic credentials or research productivity. the acbsp mentions the desirability of scholarly activities but has a much broader definition of scholarly activities than does the aacsb and one that is easier to meet. the iacbe does not refer to scholarly research at all in its “characteristics of excellence in business education”. since the costs of meeting aacsb standards for faculty credentialing and research productivity are very high, it is not surprising that many of the nation’s smaller business schools (often having limited resources) choose either not to pursue business program accreditation or to seek business school accreditation from the acbsp or the iacbe rather than the aacsb. it remains unclear (in an empirical sense) what the relationship is between business school accreditation and business school quality. almost no empirical work examining these relationships presently exists. one impediment to conducting research of this type has been the lack of an appropriate operational measure of “quality” in business school education. in popular and lay journals the quality of business education is often assumed to result from high levels of educational inputs such as student/faculty ratios, endowment size, funding sources, ph.d.’s on staff, admission standards, and similar input issues. direct measures of quality of the business education provided based on educational outcomes have seldom been considered. measuring inputs to evaluate educational quality and to rank institutions remains highly controversial. many reject the measurement validity of these rankings. measurement based on inputs and arbitrary weightings of them are seen as unfounded and non-theoretical (webster, 1999). pascarella (2001) and hossler (2000) both suggest the input criteria used by u.s. news and world report for college rankings have little or nothing to do with the quality of education students actually receive. they argue it is logically invalid to assume institutions with more resource inputs automatically provide better education. pike, in a 2004 empirical study, shows u.s. news and world report rankings (based on input criteria) have very small correlation with results of national survey of student engagement (nsse) benchmarks of good practices in undergraduate education (pike, 2004). these benchmarks include level of academic challenge, active and collaborative learning, student interaction with faculty, enriching educational experiences, and supportive campus environment. as a result, pike has doubts about the validity of ranking institutions based on these inputs. in a letter to the editor of strategic finance, gene smith criticizes aacsb faculty credentialing standards and faculty research productivity standards as inappropriate. smith posits that most practicing accountants would argue faculty members credentialed with mba’s or macc, possessed of good teaching skills, having minimal basic research skills, and having 10-plus years of practical work experience in accounting would make more effective undergraduate instructors than the typical new ph.d. who has little if any relevant real world experience, and is trained primarily for research (smith, 2007). when evaluating the effectiveness of undergraduate professional education, this argument is plausible in our view. morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 29 cpa exam: a measure of quality in business education accounting programs often rightly attempt to employ multiple measures for assessing their students’ learning and evaluating the quality of education provided. average success rates of recent graduates on the uniform cpa exam are one measure often used by business schools as a key indicator of the quality of accounting education provided by that school. whether success of graduates on the cpa exam (by itself and alone) is an adequate measure of quality of accounting education is unlikely. nevertheless, we believe it is a good approximation. schick, a long time business school academic, makes the argument that cpa exam results are a key indicator of quality in accounting education being provided. he says: “since students and/or their parents are paying a significant amount of money for the education that students are receiving, you think of students and parents as customers for a university’s services. therefore, you think it appropriate for accounting departments to provide the education desired by their paying customers, students and parents. if students want to become cpas, then accounting departments should seek to help them do so. the success of accounting departments in satisfying their customers’ wants, as indicated by first-time candidates’ performance on cpa exams, should be information that is widely disseminated and easily obtainable.” (schick, 1998: p. 417). former price waterhouse partner, lawrence ponemon, expressed reservations about using the cpa exam as the sole indicator of quality in accounting programs for a number of reasons. first, he said the exam itself is not a complete measure of accounting knowledge, aptitude, or mastery. second, he pointed out that some high quality accounting programs in the united states do not focus on the public accounting career track for students. he also pointed out that a majority of today’s accounting graduates never work in public accounting and thus do not need the “cpa” designation for their job. even the big accounting firms have shifted some hiring away from trained cpas. lastly, he said that developing curriculums to meet cpa exam content specifications implicitly shifts the burden of curriculum design away from faculty to the aicpa and the state boards of accountancy which he believes is inappropriate. despite his many reservations, ponemon does admit the cpa exam is a reliable and valid measure of mastery of a large body of technical accounting, financial reporting and auditing topics that are indicative of a quality accounting program (ponemon, 1998). whether the cpa exam is appropriate as the only measure of accounting program quality, cpa exam success rates of graduates are clearly used by many institutions to justify claims of quality in accounting education. this is true both inside and outside of academe. the national association of state boards of accountancy (nasba) publishes aggregate data about candidate performance on each part of the 4 part cpa exam annually. nasba breaks this data down by institution. those colleges and universities having relatively high success rates on the cpa exam often publicize this information in student recruiting and promotional materials. additionally some state cpa societies use nasba’s reported cpa exam success rates to determine which colleges and universities within their jurisdictions will be awarded student scholarships. de facto, cpa exam success rates have been used by many institutions to assess quality in accounting education. according to the official website of the american institute of certified public accountants, the purpose of the cpa examination has been to admit individuals into the accounting profession only after they have demonstrated entry-level knowledge and skills necessary to protect the public interest in a rapidly changing environment (aicpa, 2011). passing the cpa exam is recognized by accounting graduates themselves as being prestigious and critical to their advancement within the accounting profession. this is true even for those having no intention of becoming licensed public auditors. the nasba says this about the cpa exam: “since 1917, the uniform cpa examination has proven to be a highly valid and reliable measure of candidate abilities. this focus on quality has made it possible for all united states jurisdictions to rely on the results in determining who is competent to practice public accounting in order to protect the public.” (aicpa, nasba, and thomson prometric, 2004: p. i). the prestige associated with passing the fourteen hour cpa exam is no doubt partially related to the difficulty in attaining a passing grade. only after successfully completing the equivalent of a four year business degree with a concentration in accounting courses, are candidates even permitted to sit for the exam. pass rates for first-time candidates averaged only 48.3% in 2010 nationwide (nasba, 2011). for the purposes of this research we use candidates’ average cpa exam scores as a proxy for the quality of accounting education they received prior to sitting for the cpa exam. cpa success rates are useful because large numbers of accounting majors from around the nation take the uniform cpa exam annually. of importance to our research is the fact that the cpa exam scores of candidates by institution are published annually by nasba each year (nasba, 2011). finally, the cpa exam itself is graded in a uniform way and from a central location for all candidates regardless of location or alma mater. scores on the cpa exam provide an objective and uniform dependent variable for comparing the quality of business school education prior to taking the exam. morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 30 previous studies we did not find any previous studies comparing cpa exam success rates of those schools accredited by each of the three accrediting agencies, the aacsb, acbsp, and iacbe. we did find two studies comparing aacsb and non-aacsb cpa exam success rates, both based on pre-april 2004 cpa exam outcomes (before the cpa exam was computerized) that investigated the relationship between aacsb accreditation and cpa exam success rates. the two studies reached differing conclusions. grant, ciccotello, and dicke (2001) reported a positive relationship between aacsb business school accreditation and cpa exam success rates. specifically, they reported on average, a 7.653% higher pass rate at aacsb accredited business schools for first time candidates passing at least two of the four parts of the cpa exam. a second study by boone, legoria, seifert, & stammerjohan, (2006) reached a differing conclusion with a smaller sample. boone et al. reported only a weak association between program-level pass rates and aacsb accreditation exists after eliminating the effects of selectivity when admitting students. in a more recent study, morgan, bergin, and sallee (2008) report empirical evidence indicating graduates of aacsb accredited business schools have significantly higher pass rates on all four sections of the new computerized cpa exam than do graduates of business schools not accredited by the aacsb. this same study also compared cpa examination scores of schools in three separate size categories (large schools, medium schools and small schools) comparing aacsb graduates to their unaccredited counterparts in the same size schools. results showed that graduates from aacsb accredited programs at large, medium, and small schools all performed better on all parts of the cpa exam than did their counterparts at non-aacsb institutions. in another related paper, morgan, bergin, and sallee (2009) compared cpa examination performance of graduates from aacsb accredited accounting programs to the cpa exam performance of graduates of aacsb accredited business schools not having separate accreditation for their accounting programs. results showed that graduates of aacsb accredited accounting programs had even higher cpa exam success rates than did graduates of aacsb accredited business schools not having separate accounting program accreditation. motivation for this research the motivation for this research is to compare the average cpa exam success rates of graduates of institutions from each of four accreditation categories (i.e. schools having one of three types of separate business school accreditation offered in the u.s., and completely unaccredited business schools making up the fourth group) noting whether graduates of any group have higher cpa exam scores on average than those of the other groups. our goal is simply to determine whether such differences, positive or negative, exist at all, and if so to describe them. institutions that advertise business school accreditation through their promotional materials clearly are implying higher quality is associated with accreditation. whether or not this is actually true, on average, is an interesting research question. the intent of this research has not been to suggest a singular or even causal relationship between business school accreditation and cpa exam success. we recognize the likelihood of other factors being strongly and causally connected to the average cpa exam scores of an institution’s graduates. for example the average quality of entering students as measured through sat or act scores or through high school class rank, the average classroom effectiveness of teaching faculty at an institution, and the overall availability of resources at a business school that permit students to experience more accounting electives all seem as important to ultimate cpa exam success of graduates than does accreditation. the degree to which an institution’s graduates have been counseled while in school to enter and complete a formal cpa examination review course before attempting to sit for the exam is also likely to be an important factor in cpa examination success of an institution’s graduates. it would indeed be interesting to discover whether business school accreditation, in and of itself, makes any difference to cpa exam success rates after removing all the potentially confounding effects of other related factors. however, saying that it would be interesting to know does not also mean that it is practical to do so. in our view, inherent design and/or data availability limitations make this more interesting question unanswerable in any practical sense. to eliminate potential confounds one must either use an experimental design with random assignment of subjects to groups (not possible in this case) or eliminate suspected confounds such entering student aptitude using statistical techniques. using statistical techniques to eliminate confounds is impractical in this case due to data problems. the most likely confounds such as entering student aptitude and faculty teaching effectiveness cannot be statistically removed because data about these variables is not available. data about the average cpa exam scores of the graduates of the nation’s universities is readily available. data about the types of business school accreditation existing at the nation’s universities is readily available. data about the differential quality of the entering freshmen and the differential effectiveness of teaching faculties at the nation’s universities are not morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 31 available. only a few universities publish such information. thus using statistical methods to remove the effects of these variables is not possible. as a result our research question has been more limited. we ask: is business school accreditation of any type positively (or negatively) associated with success on the cpa exam? it seems clear when institutions advertise their business school accreditation in promotional literature they are implying there is higher quality associated with accreditation. is this really true? we have found no research to date that directly compares the cpa exam success rates of graduates from each of the three types of accredited business programs with each other or with graduates from unaccredited business programs. research design and data selection the business schools included in our analyses were selected from colleges and universities intersecting two databases. the first database was the u.s. department of education’s institute of education sciences, national center for education statistics (ies, 2011). from this u.s. department of education database we selected all fouryear colleges and universities located within the united states and district of columbia. this database was also the source of undergraduate enrollment statistics by institution. we initially selected all colleges and universities in the database labeled as primarily “four-year undergraduate colleges and universities”. “two-year colleges” and “graduate universities” (i.e. universities having more total graduate students than undergraduate students) were not included. the exclusion of “graduate universities” does not mean we excluded universities offering both graduate and undergraduate degrees. many of the four-year undergraduate universities included in our study also had extensive graduate programs. rather we excluded only those universities classified by u.s department of education as having primarily graduate students with few undergraduate students. these schools which are labeled as “graduate universities” by department of education statistics have very small or nonexistent undergraduate accounting programs. and since our comparisons were all aimed at the relative cpa examination success of firsttime candidates with bachelor’s degree only, the exclusion of “graduate universities” in the sense used by the department of education had no impact whatsoever on the sample of schools selected. not one of the “graduate universities” had sufficient undergraduate accounting students to be separately identified in nasba reporting anyway. the second database, whose intersection with the first ultimately determined our final sample, was candidate performance on the uniform cpa exam, 2011 edition published by the national association of state boards of accountancy (nasba, 2011). this second database includes the average cpa exam scores of each institution having at least 20 or more of its graduates taking the cpa exam for the first-time during the calendar year reported. institutions with fewer than 20 total graduates sitting as first-time candidates for the cpa examination during the calendar year are not identified separately in the nasba database, and therefore could not be included in our sample. our final sample included only those schools intersecting both databases. that is to say our sample included all u.s. colleges and universities designated as primarily four-year undergraduate institutions in national center for education statistics, 2011 (though many had extensive graduate programs as well) intersecting with all institutions separately listed in candidate performance on the uniform cpa exam, 2011 edition, appendix f. this final sample consisted of 710 colleges and universities identified in nasba data with the average cpa exam scores of graduates from those 710 universities. the 710 selected schools were next classified both by number of undergraduates enrolled in them, and by one of four (mutually exclusive) accreditation statuses: 1) aacsb accredited business schools; 2) acbsp accredited business schools; 3) iacbe accredited business schools, and; 4) business programs not having any separate business program accreditation. classifications were determined by consulting the 2011 aacsb, acbsp, and iacbe on-line websites listing member institutions in june, 2011. a summary of the 710 schools according to accreditation status and undergraduate enrollment category is provided in table 1. all statistical analyses were conducted using one-way analysis of variance (anova). anova is a well-known test statistic for comparing the means of two or more groups for the purpose of rejecting a null hypothesis that there are no significant differences among the groups. in the present case we wished to reject the null hypothesis that average cpa exam scores were no different across the four groups of institutions tested. after rejecting the null hypothesis in our initial analysis, we then compared the average cpa scores for each group of the four groups of institutions relative to the other three in post hoc comparisons based on least significant differences (lsd) tests. the dependent variable in all comparisons was the average cpa exam score of the institutions in each of the four groups as reported in the 2011 edition of candidate performance on the uniform cpa exam (nasba, 2011). morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 32 results table 2 shows the results of our initial one-way anova that rejects the null hypothesis in our sample of 710 schools placed into four groupings; aacsb accredited, acbsp accredited, iacbe accredited, and unaccredited. the term “unaccredited” refers to business programs not accredited by any one of the three business program accrediting agencies, aacsb, acbsp, and iacbe. the null hypothesis is rejected (p < .001). average cpa exam scores of schools in the four groups are not identical. table 3 shows the means and standard deviations of the four groups. table 4 presents results of post hoc comparisons comparing each group to the other three separately. homogeneity of variance between groups (a required assumption for anova) has been tested using the levine statistic and found acceptable. table 2: anova to reject the null hypothesis (n = 710) dependent variable sum of squares df mean square f sig. between groups 2738.607 3 912.869 25.437 .000* within groups 25336.039 706 35.887 total 28074.645 709 *-statistically significant difference table 3: cpa exam average scores and standard deviation by condition (n = 710) accreditation type n mean cpa exam score std. deviation std. error aacsb accreditation 410 71.939 5.3271 .2631 acbsp accreditation 66 66.745 6.9636 .8572 iacbe accreditation 37 66.868 5.8814 .9669 unaccredited 197 68.931 6.9003 .4916 total 710 70.357 6.2927 .2362 table 4: post hocs multiple comparisons-least significant difference tests (n = 710) dependent variable (accreditation type) mean cpa exam score difference std. error sig. aacsb accreditation to: acbsp accreditation iacbe accreditation unaccredited 5.1938 5.0717 3.0085 .7945 1.0283 .5193 .000 * .000 * .000 * acbsp accreditation to: aacsb accreditation iacbe accreditation unaccredited -5.1938 -.1221 -2.1853 .7945 1.2303 .8520 .000 * .921 .011 * iacbe accreditation to: aacsb accreditation acbsp accreditation unaccredited -5.0717 .1221 -2.0632 1.0283 1.2303 1.0733 .000 * .921 .055 unaccredited to: aacsb accreditation acbsp accreditation iacbe accreditation -3.0085 2.1853 2.0632 .5193 .8520 1.0733 .000 * .011 * .055 *-statistically significant difference table 4 results show that candidates from aacsb accredited business schools have significantly higher average exam scores than do candidates from acbsp or iacbe accredited business schools. candidates from aacsb schools scored, on average, more than five points higher than did candidates from acbsb and iacbe schools. this is not only statistically significant, but significant in its real-world implications for tens of thousands of candidates. candidates from aacsb schools also scored, on average, significantly higher (on average three points higher) than did candidates from unaccredited business schools. surprisingly, candidates from acbsp and iacbe accredited business school graduates did not score significantly higher than candidates from unaccredited business schools. the acbsp and iacbe accredited schools did not have statistically significant higher scores than those at unaccredited schools. perhaps the most striking and seemingly inexplicable result is that candidates from acbsp accredited schools, on average, actually had lower scores than those of candidates from unaccredited business schools. this difference was statistically significant with the mean average score at acbsp accredited being about 2.2 points lower than the average at unaccredited business schools. our previous study, based on 2006 cpa exam morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 33 data, also found that acbsp accredited schools scored significantly lower cpa exam pass rates than business programs with no separate business accreditation (bergin, morgan, sallee, 2011). implications and conclusions our results show a significant positive association between aacsb accreditation status and higher average cpa exam scores. accounting graduates of aacsb accredited business programs clearly have the highest overall average cpa exam scores of the four groups. surprisingly, business schools with acbsp accreditation were found to have the lowest average pass rates of the four groups, even lower than those of unaccredited business schools. these findings bolster arguments of proponents of aacsb accreditation who believe aacsb accreditation is associated with business school quality at least within the specific context of cpa exam success rates. our evidence is not consistent with the belief of some that aacsb accreditation has a net negative effect on the quality of business education due to overemphasis placed on credentialing and research productivity. our findings also suggest acbsp business school accreditation is currently negatively associated with higher quality business education. we have no explanation for this negative acbsp result. the data do not reveal reasons for the discovered relationships reported. direct inferences cannot be drawn from this research design. because our research design was correlative, it does not provide a proper basis for causal inference (bryman and cramer, 2005). causal inference requires an experimental design in which researchers actively manipulate a research variable differently across randomly selected and assigned subjects. only through differential administration of a treatment variable to random groups, can one isolate and observe the systematic effects of the treatment (this assuming other systematic differences among groups do not exist because of the random assignment of sufficiently large numbers of subjects). our subjects were not randomly assigned nor could we actively manipulate our independent variable, accreditation status. in spite of not understanding why discovered differences exist, our data nevertheless do convey statistically significant differences and surprisingly large differences in the average cpa exam scores of the four groups. aacsb accredited business schools, on average, evidence considerably higher average scores than other groups. the size of difference is especially impressive in light of how significant the impact five points on a test score can make. the magnitude of difference found also adds some prestige to the reputation of aacsb schools relative to others. higher cpa exam scores by graduates of aacsb institutions enhance the reputation of the aacsb as an accrediting agency. systematic higher performances on the cpa exam by graduates of aacsb accredited institutions, once they become better understood by the public may increasingly affect students’ choices of which universities to attend. in turn this may better justify the high costs of seeking to achieve aacsb accreditation. accreditation type may also impact choices made by funding agencies, and choices made by recruiters about where to spend their limited resources when enlisting accounting talent. it can be anticipated that ambitious and forward looking institutions will continue to value aacsb accreditation for reasons of associations with cpa success alone. at the same time, we caution against over-generalizing from our result. in the un-aggregated data one sees many aacsb accredited schools with lower than average cpa exam scores, and acbsp and iaceb accredited business schools with higher than average cpa exam scores. accreditation (of any type) does not guarantee high or low average cpa exam scores of graduates. readers should keep in mind that large individual differences do exist within each group. the correct conclusion is, on average, the cpa exam scores of graduates from aacsb accredited business schools are currently higher than those of other groups. in summation, the purpose of this paper has not been to demonstrate a causal relationship between business school accreditation of any type and cpa exam scores. nor has the purpose been to develop and explicate a theoretical model showing factors important to this relationship. rather, the purpose has been to discover whether systematic relationships exist between type of business school accreditation and average cpa exam scores, and if they do exist, discover the magnitude and direction of differences. this we have done. to the extent higher than average cpa exam scores are an indicator of higher quality business education received, then aacsb business school accreditation is indeed associated with higher quality business education. iacbe business schools do not differ significantly from unaccredited programs and acbsp business school accreditation is associated with lower quality business education as measured by cpa exam success. references aacsb-international. 2007. eligibility procedures and accreditation standards for business accreditation. tampa fl. morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 34 aacsb-international. 2011. what is aacsb accreditation? retrieved from http://www.aacsb.edu/accreditation/ aacsb.asp. accreditation council for business schools and programs. 2011. about acbsp-history. retrieved from http:// www.acbsp.org/p/cm/ld/fid=11. aicpa. 2011. become a cpa/cpa exam/for candidates/faq. retrieved from http://www.aicpa.org/ becomeacpa/cpaexam/forcandidates/faq/pages/computer_faqs_1.aspx. aicpa, nasba, and thomson prometric. 2004. aicpa, nasba and thomson prometric launch computerbased cpa exam. new york: press release. bergin, j., morgan, j., & sallee, l. 2011. aacsb accreditation, acbsp accreditation and cpa exam success rates. midwestern business and economic review, 47, 7-15. boone, j., legoria, j., seifert, d., & stammerjohan, w. 2006. the associations among program attributes, 150-hour status and cpa exam pass rates. journal of accounting education, 24(4), 202-215. bryman, a., & cramer, d. 2005. quantitative data analysis with spss 12 and 13, a guide for social scientists. new york: routledge, taylor, and francis group. council for higher education accreditation. 2010. about chea-chea at a glance. retrieved from http://www. chea.org/pdf/chea_glance_2006.pdf. grant, c., ciccotello, c., & dickie, m. 2002. barriers to professional entry: how effective is the 150-hour rule? journal of accounting and public policy, 21(1), 71-93. hossler, d. 2000. the problem with college rankings. about campus, 5(1), 20-24. iacbe. 2011. about iacbe history. retrieved from http://iacbe.org/history.asp. iacbe. 2011. about the iacbe key distinctives of the iacbe/philosophy of accreditation. retrieved from http://iacbe.org/iacbe-distinctives.asp. iacbe. 2011. about iacbe excellence in business education. retrieved from http://iacbe.org/excellence-inbusiness-education.asp. institute of education sciences, national center for education statistics. 2011. bachelor’s institutions, four year. retrieved from http://nces.ed.gov/collegenavigator/?s=all&l=5&ic=1. morgan, j., bergin, j., & sallee, l. 2009. aacsb accounting program accreditation and cpa exam success rates. journal of 21 st century accounting, 9(1), 1-14. morgan, j., bergin, j., & sallee, l. 2008. an investigation of the relationship between aacsb business school accreditation and cpa exam success rates. journal of business and leadership, 4(1), 20-32. nasba. 2011. candidate performance on the uniform cpa examination. 2011 edition, nashville, tn. pascarella, e. 2001. identifying excellence in undergraduate education: are we even close? change, 33(3), 18-23. pike, g. 2004. measuring quality: a comparison of u.s. news rankings and nsse benchmarks. research in higher education, 45(2), 193-208. ponemon, l. 1998. arguments against the cpa exam to gauge accounting program success. issues in accounting education, 13(2), 421-424. schick, a. 1998. should undergraduate education in accounting be evaluated, in part, based on graduates’ performance on the cpa examination? issues in accounting education, 13(2), 417-421. smith, g. 2007. wake up, aacsb. strategic finance (august): 18. morgan, bergin, and sallee advances in business research 2012, vol. 3, no. 1, 25-35 35 webster, t. 1999. a principal component analysis of the u.s. news and world report tier rankings of colleges and universities. economics of education review, 20, 235-244. john morgan is a professor in the department of accounting at winona state university. he received his ph.d. in accountancy from the university of nebraska-lincoln. his current research interests include the financial reporting issues related to intellectual capital, accreditation standards at business schools, cpa exam success factors, and measuring teacher effectiveness. he has published in business education digest, midwestern business and economic review, advances in business research, journal of 21 st century accounting, journal of business and leadership, clarion business and economic review, and learning and teaching in higher education-gulf perspectives. j. lawrence bergin is a professor in the department of accounting at winona state university. he received his mba from northeastern university. his current research interests include business school quality and accreditation. he has published in aaa’s issues in accounting education, midwestern business and economic review, journal of 21 st century accounting, journal of business and leadership, and journal of the academy of marketing science. larry sallee is a professor in the department of accounting at winona state university. he received his dba from u.s. international university. his current research interests are related to business school accreditation. he has published in midwestern business and economic review, journal of 21 st century accounting, and journal of business and leadership. advances in business research 2012 volume 3.pdf advances in business research volume 3 number 1 2012 mohamed zainuba, editor review board members rebecca abraham, nova southeastern university lynn adams, utah valley university g. stoney alder, university of nevada, las vegas lorraine anderson, marshall university mary askim-lovseth, university of north dakota amelia baldwin, university of arkansas fort smith jim beard, university of arkansas-fort smith wayne buchanan, defiance college aaron buchko, bradley university barbara burgess-wilkerson, winthrop university david dearman, university of arkansas at little rock william donoher, missouri state university larry faulk, university of arkansas fort smith martha fowler, northeast missouri state university steve frankforter, winthrop university yoshi fukasawa, midwestern state university susan gaffney, governors state university jeff grover, dynamics research corporation tom hayes, university of arkansas fort smith nathan heller, tarleton state university lewis hershey, fayetteville state university larry hughes, central washington university joel jolayemi, tennessee state university gundars kaupins, boise state university dorothy kirkman, university of houston clear lake robert kitahara, troy university kermit kuehn, university of arkansas fort smith anna lampe, rockhurst university maria leach-lopez, auburn university montgomery jennifer leonard, montana state university, billings erika marsillac, old dominion university bobby medlin, university of arkansas fort smith melissa melancon, university of louisiana at monroe yasuo nishiyama, woodbury university lolita paff, penn state university – berks david palmer, university of nebraska at kearney susan park, boise state university zhuoming peng, university of arkansas fort smith ahmad rahal, university of arkansas fort smith masha rahnama, texas tech university beth richardson, saint joseph’s college of maine dennis rittle, kansas board of regents carlos rodriguez, delaware state university george schmidt, university of arkansas fort smith cliff scott, university of arkansas fort smith daniel settlage, university of arkansas fort smith latisha settlage, university of arkansas fort smith jon shapiro, northeastern state university larry stimpert, colorado college carolyn stumph, indiana university purdue university ronald stunda, valdosta state university aysar sussan, bethune-cookman university daniel talley, dakota state university margaret tanner, university of arkansas fort smith ruth taylor, texas state university andrew tiger, union university turner white, rockhurst university tom tworoger, nova southeastern university kenneth wiant, tennessee tech university steve williams, university of arkansas fort smith jim wollscheid, university of arkansas fort smith frank wyrostek, university of st. francis advances in business research is published annually by the college of business, university of arkansas fort smith, fort smith, arkansas 72913. views and opinions expressed in the journal are those of the authors and do not necessarily reflect the views of staff of college of business, or university of arkansas fort smith. the authors assume responsibility for the accuracy of facts published in the articles. manuscripts submitted for possible publication in advances in business research should be electronically submitted to the editor. please comply with the call for manuscripts guidelines. to order advances in business research, please contact dr. mohamed zainuba, editor, advances in business research, college of business, university of arkansas fort smith, fort hays state university, 5210 grand avenue, fort smith, arkansas 72913, 479-788-7774, 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manuscripts!should!be!submitted!online!here:!http://journals.sfu.ca/abr/!! • first!time!submitters!must!first!register!for!the!journal!(click!on!register).! uafs abr journal vol 4 no 1 2013.pdf 43 st. pierre and everard advances in business research 2013, vol. 4, no. 1, 43-48 accounting accreditation: value added or waste of resources? kent st. pierre, st. joseph’s university andrea everard, university of delaware in a forthcoming paper everard, edmonds, and st. pierre (2014) question whether the aacsb has achieved its mission of recognizing excellence in business education and whether it has shown continuous improvement in its efforts since the change to a mission driven focus. in this paper, the authors expand on this topic and address the value of accounting accreditation from the perspective of the market it serves, whether accounting accreditation has diminished in value because of the quality of the programs being accredited, and whether accounting accreditation is an idea that has run its course. we conclude that since the move to a mission driven focus, the aacsb has diminished its brand, has failed in its ability to differentiate quality accounting programs in the higher education market, and has not met its objective of continuous improvement for the organization itself. unless changes are made in the organization, its value in the higher education marketplace will diminish over time and the brand could become irrelevant. introduction the association to advance collegiate schools of business international (aacsb) is considered the gold standard in accreditation for business schools in the u.s. and around the world. founded in 1916, the organization dominates the business school accreditation landscape by its size with over 600 business schools in 38 countries achieving aacsb accreditation and an additional 175 schools achieving separate accounting accreditation. the primary mission of the organization is to recognize excellence in business education and signal excellence to the market. the rationale for the existence of the organization is that accreditation adds credibility to a school and the accreditation brand allows the market to differentiate between top tier and nontop tier programs. unfortunately, everard, edmonds, and st. pierre (2014) empirically demonstrate that the aacsb has fallen short in its mission and has failed to improve in this regard since the inception of the mission driven focus in 1993. this alleged failure with business accreditation leads to a question about whether the aacsb has achieved its mission with regards to accounting accreditation and whether it has provided market differentiation and market value to programs with accounting accreditation. if we find that this is not the case, then is it time to reconsider the value of accounting accreditation in terms of direct and indirect costs to the program and value added in the market place? background during the early 1990s the aacsb made a major change in the accreditation process by moving from a more objective evaluation approach for awarding and maintaining accreditation to a mission driven approach. it is not clear from the literature what drove this move, but one can hypothesize that the change was initiated because of competition from another accreditation body or a need to increase revenues by increasing the number of schools accredited, or from a desire to increase the power of the organization. regardless of the motivation, the change was approved and the first schools were accredited under the new approach in 1993. the mission driven approach is applied to accreditation at both the college and accounting program levels. bitter, stryker and jens (1999) addressed the issue of why more schools had not applied for and received separate accounting accreditation. they concluded that schools that had business but not accounting accreditation had not applied because the costs of accounting accreditation were too high compared to any benefits. the costs included faculty and administrative time spent on the process in addition to the monetary costs of maintaining accounting accreditation such as annual dues and the costs of attending conferences to remain current on aacsb rules and interpretations. bitter et al. (1999) also 44 st. pierre and everard advances in business research 2013, vol. 4, no. 1, 43-48 found that schools without accounting accreditation still valued accreditation and thought that it would enhance their reputation. trapnell (2007), representing the aacsb, provided impetus for the examination of the value of accounting accreditation to schools that have achieved this designation when he discussed the positive attributes of accreditation. he described the value of accreditation in phrases such as “schools are constantly seeking recognition and differentiation in order to effectively compete for top students and faculty aacsb accreditation is clearly a major recognition that contributes to the stature of a business school and assists with differentiation”“earning aacsb accreditation is an important statement to key constituencies of the quality of the business school” and “stands as an externally validated hallmark of excellence”. students can use the aacsb brand since “aacsb accreditation can be a decision criterion assisting students in narrowing the landscape of management education to schools that have earned this international recognition”. for employers, trapnell states “aacsb accreditation is an indicator of school quality”. in all of these comments the critical component is the ability of the accreditation process to help third parties differentiate high quality institutions and high quality programs from those of lesser quality. in this paper we specifically address whether the accreditation brand truly differentiates quality programs in the market and whether the aacsb meets the primary objective stated for its existence. research method in the forthcoming paper by everard et al., the authors argued that since the change in standards and policy to a mission driven approach, the aacsb has reduced its credibility and the credibility of the process itself by accrediting schools that would not have been accredited under the previous more objective standards. this result, in turn, could have an effect on both students and parents attempting to differentiate the quality of programs on the input side and on recruiters attempting to differentiate the quality of programs on the output side. we extend that study and focus on the separate accounting accreditation process. our contention is that the problems noted for the business school accreditation may also be present in the accounting accreditation process. we utilize the same methodology but focus only on accounting accreditation. in order to examine the quality of the 168 u.s. programs (we exclude the seven foreign programs due to a lack of ranking information) that have achieved accounting accreditation, we had to address a major evaluation issue. we were unable to find a publication that ranked or evaluated the entire population of accredited accounting programs, since most publications only emphasize the top 50 accounting programs around the country. as in the everard et al. study, we used a ranking that focused on the entire university rather than on the accounting program. we believe this is not unusual, however, since few disciplines have extensive program rankings available for third parties to evaluate a specific program, forcing third parties to use the quality of the university as a proxy for the quality of any specific program. we utilized the same u. s. news & world report (2012) rankings of universities because it offers more objective ranking criteria than the other published reports, is widely used by both faculty and administrators when discussing the ranking of universities, and is the most widely publicized and popular ranking publication. the criteria used by the u.s. news and world report ranking include graduation and retention rates, faculty resources, student selectivity, financial resources, graduation rates, undergraduate academic reputation, and peer assessment (other deans of admissions, presidents and provosts). the quantitative nature of this publication’s ranking helps to explain the minimal movement of universities in the rankings from year to year. the problem faced when using a ranking of a university versus a specific program concerns the possibility that a non-tier one university could have a tier one level accounting program. we tested this possibility by comparing a ranking of the top 50 accounting programs (u.s. news and world report, 2012) to the classification of their universities as tier one or non-tier one. every accounting program listed in the top 50 was part of a tier one institution. more importantly, we also addressed this concern by being extremely generous in our classification of tier one versus non-tier one universities, allowing a program that is ranked higher than its university to still be classified as a tier one program. 45 st. pierre and everard advances in business research 2013, vol. 4, no. 1, 43-48 the approach used to classify each accredited program was to determine where the university was ranked in the categories used by the u.s. news & world report 2012 edition of best colleges (2012). the categories that were used in the rankings were developed by the carnegie foundation for the advancement of teaching (2006). universities were classified as national universities, national liberal arts colleges, regional universities, and regional colleges. we decided to use the same number of schools in our tier one classification as had been included in both the tier one and tier two categories in previous editions of the u.s. news & world report (prior editions used a four tier classification scheme). this decision was made in order to remove any potential bias against the aacsb process that might be present if the tier one classification was too narrowly defined and to make certain that the aacsb was given the benefit of the doubt when discussing the quality of the mission driven schools. given this decision, our results may actually be understating the credibility problem, but we leave that possibility to the readers to determine. the 2011 edition of the u.s. news & world report ranked more schools than previous editions, which provided an opportunity to include the entire list of aacsb accredited accounting programs in our study. the list of schools with accounting accreditation and the dates of initially achieving this accreditation were gathered from aacsb data sources available to third parties. each school with accounting accreditation, both before and after the change in 1993, was categorized as tier one or non-tier one based on where it fell in the 2012 u.s. news ranking of the university. as noted, we used the carnegie classifications provided by u.s. news but expanded the definition of tier one schools to include both the tier one and tier two classifications used in previous u.s. news rankings. to reiterate, this removes any issues of bias against the aacsb and is generous to the point where our conclusions could actually be understated in their true effect. schools were considered to be tier one in each category as follows: national universities 128 schools were included in our classification of tier one programs from the 2012 u.s. news edition. prior to 2011, 50 schools were considered tier one, and tier one and tier two together included 119 schools. national liberal arts colleges 104 schools were included in our classification of tier one programs from the 2012 u.s. news edition. prior to 2011, 42 schools were considered tier one, and tier one and tier two together included 78 schools. regional universities 50 schools were included in our classification of tier one programs for each of the four regions (200 total); prior to the 2011 edition the tier one classification for each region was as follows: north 36 schools; south 29 schools; midwest 31 schools; west 23 schools (119 total). regional colleges 50 schools were included in our classification of tier one programs for each of the four regions (200 total); prior to the 2011 edition the tier one classification for each region was as follows: north 27 schools; south 33 schools; midwest 34 schools; west 16 schools (110 total). in summary, we included 632 universities in our tier one classification scheme versus a more stringent definition in prior u.s. news & world report rankings of tier one schools that included only 321 universities. this approach allowed for more schools to be considered tier one in this study, weighted any results in favor of the aacsb, and could potentially bias the results toward supporting the mission-driven focus of the aacsb. we assumed all four carnegie classification schemes were equal in the quality of their tier one programs since they are differentiated in the carnegie scheme not by quality but by focus of the programs. national universities have undergraduate, masters and doctoral programs; national liberal arts colleges are focused on the liberal arts rather than professional programs; and regional colleges and regional universities focus on masters or undergraduate degrees but still are well known, highly reputable schools. 46 st. pierre and everard advances in business research 2013, vol. 4, no. 1, 43-48 results our findings are presented for two time periods; from 1983 to 1993 (accounting accreditation began in 1983) and from 1993 to the current date. this approach allows us to examine accreditation both before and after the aacsb change to a mission driven focus. each program receiving accounting accreditation prior to 1993 was included in the first time period. we classified each of the 92 u.s. programs receiving accounting accreditation before the change to a mission driven focus by matching its university to either the tier one or non-tier one categories noted above. this first phase resulted in 65 programs being considered tier one and 27 programs classified as non tier one (71% tier one, 29% non tier one). it is surprising that the percentages are not higher for the tier one category given our generous classification scheme and the fact that accounting accreditation is perceived to be more rigorous in its implementation than accreditation at the college level (bitter, et.al. 1999). this rigor should have resulted in a higher rejection rate for accounting programs that did not meet the quality standards. it is possible that the pressure placed on the aacsb to accredit programs by the aaa and the aicpa (bitter, et. al. 1999) resulted in the aacsb granting accreditation to some non -tier one programs because of the need to show positive results to outside parties. there is also a possibility that the teams involved with the visitation process were not completely comfortable with the new accreditation standards for accounting programs and this on the job training resulted in non tier one schools receiving accreditation. however, as a counter point one might have predicted that the first schools receiving this accreditation would have been from the top schools in the country in order to set a positive tone and precedent for the new accreditation. as explained in the everard et al. paper, the expectations are that after the move to a less objective set of standards in 1993 with the mission driven focus, the number of tier one accredited accounting programs would decrease and the non tier one programs receiving accreditation would increase due to the change to less objective standards. this contention held true in the earlier paper by everard et al. and we did not expect any change in that finding here. after 1993 the percentage of tier one schools receiving initial accounting accreditation dropped to 68% with 32% non tier one schools achieving accounting accreditation from 1993 2012. to determine if the trend continued over the entire 1993-2012 time period, we examined the programs accredited for the last eleven years, 2002-2012. twenty four u.s. accounting programs received initial accounting accreditation over that period with 14 being classified as tier one and ten classified as non -tier one (58% tier one, 42% non -tier one). this result means that only 68% of the programs accredited since the change to a mission driven focus in 1993 were in the top 632 schools in the country, and over the last eleven years only 58% of the programs accredited were in the top 632 schools in the country. the percentage change itself is disturbing, and given the generosity of our classification this trend should be a major concern. the movement toward more non -tier one programs being accredited mirrors the findings of everard et al. and raises similar concerns about the quality and continuing improvement of the accounting accreditation process. discussion the number of accounting programs achieving separate accounting accreditation is approximately twenty five percent of the total business schools with accreditation. the lack of significant interest in separate accounting accreditation may be a cost issue, given the direct costs of the accreditation process and the costs of faculty and resources to maintain accreditation. the quality of the programs being accredited since the change to the mission driven focus, even with our doubling the number of tier one programs by expanding our definition of this group, may have damaged the reputation of the entire accounting accreditation process and reduced the credibility of accounting accreditation and the organization itself. as noted in everard et al., the easing of the implementation of the standards and acceptance of non -tier one programs may be driven by the revenue needs of the aacsb or the desire to dominate the accreditation landscape by increasing the number of aacsb accredited programs. regardless of the reason, the reduction in the quality of the programs receiving accounting accreditation drives the discussion toward the potential loss of benefits from a market perspective. it also raises a 47 st. pierre and everard advances in business research 2013, vol. 4, no. 1, 43-48 critical question concerning the validity of the aacsb argument that being accredited sends a signal to the market that the program is differentiated by its excellence. this market effect may also be evaluated from the perspective of recruiters for accounting students. based upon anecdotal recruiting information from the big 4 firms, whether a program has separate accounting accreditation does not drive the decision to recruit at a particular school nor does it create a situation where only accredited programs are considered prime sources of students. the fact that many of the non -tier one accredited programs do not have a big 4 recruiting presence should send a signal to the aacsb that the brand may not carry the significance it believes, especially in the “output” market noted by trapnell (2007). although the external benefits may not prove worth the costs involved, accounting accreditation may provide internal value to a program. given the rules in play to maintain accreditation, administrators are limited in what they can do with an accredited accounting program when it comes to staffing and resources allocated to the program. deans do not want to suffer the loss of accreditation, whether at the college or accounting program level, especially during their terms in office. this result could well be the major benefit of accreditation to the accounting program, especially in a time of reduced financial support for universities and a desire on the part of deans to minimize costs wherever possible. the possible replacement of full time phd level accounting faculty with less costly adjuncts or instructors with masters degrees and certification is more difficult to do if the program has separate accreditation versus simply being a part of the college accreditation structure, where the replacement effects can be offset by the rest of the business faculty. this is, however, an indirect benefit and not one publicized by the aacsb. the maintenance review process has not provided a check on initial accreditation decisions by the aacsb. our research indicates that no school has lost either business or separate accounting accreditation subsequent to the initial awarding of accreditation. this fact places even greater importance on the initial accreditation process since it appears that once a program is granted accreditation, it will remain accredited for as long as it desires. in essence every college that has received aacsb accreditation and every accounting program that has received separate aacsb accounting accreditation (over 675 business schools and 175 accounting programs worldwide) has according to the aacsb shown initial excellence and high quality and has continuously improved during subsequent maintenance reviews. this fact alone should raise questions about the accreditation process, the value of the continuous improvement objective, and the value added by the aacsb brand itself, especially given the number of non -tier one programs receiving accreditation. conclusion although the aacsb continues to promote its organization and the value of accreditation in terms of differentiating schools and programs in terms of excellence, the results of this study puts the claims into question. even with our generous definition of tier one versus non -tier one programs, it is clear that the quality of programs receiving accounting accreditation after the change to a mission driven focus in 1993 has decreased. the programs accredited over the last eleven years have magnified this trend and cause one to question the value of the brand and the organization itself. since no school or program has lost accreditation after the initial process, it is not evident that the aacsb will even acknowledge, let alone address, the concerns noted here or in the earlier paper by everard et al. the” market” will eventually reflect the issues presented in this paper and, unless changes are made in both the rigor of the standards and their implementation, the brand could well become irrelevant in a market where differentiation of quality programs is a necessity. references bitter, m., stryker, j., & jens, b. 1999. a preliminary investigation of the choice to obtain aacsb accounting accreditation. accounting educators journal, 11. 48 st. pierre and everard advances in business research 2013, vol. 4, no. 1, 43-48 carnegie foundation for the advancement of teaching. 2006. everard, a., edmonds, j., & st. pierre, k. 2014. a longitudinal study of the effects of the mission driven focus on the credibility of the aacsb. journal of management development, forthcoming. u.s. news online report. 2012. top 50 accounting programs. trapnell, j. 2007. aacsb international accreditation: the value proposition and a look to the future. journal of management development, 26(1): 67-72. u.s. news & world report. 2012 u.s. news colleges. kent st. pierre is the sutula chair and professor of accounting at st. joseph’s university in philadelphia. he received his phd in accounting from washington university st. louis. his current research interests include market value of accreditation, legal liability of public accountants, and problems with teaching non technical issues in accounting. he has published in accounting review, journal of accounting, auditing and finance, accounting horizons and others and has served as the editor of issues in accounting education and journal of accounting education. andrea everard is an assistant professor of management information systems at university of delaware. she earned her phd in management information systems from university of pittsburgh. her current research interests are human-computer interaction, open education and cross cultural issues in information technology. she has published in journal of management information systems, communications for the association of computing machinery, communications of the association for information systems, and journal of global information technology management. advances in business research 2013, vol. 4, no. 1, 43-48 http://journals.sfu.ca/abr advances in business research 2015, volume 6, pages 1-13 1 a complex adaptive systems perspective to appreciative inquiry: a theoretical analysis payam saadat george fox university appreciate inquiry is utilized to facilitate organizational change by encouraging stakeholders to explore positives and generative capacities within their organization. in the literature, analysis of the effectiveness of ai is confined to psychological and managerial explanations such as highlighting the promotion of positive mindset and collective organizational planning. this paper will discuss a complex adaptive systems (cas) perspective and present a new model for understanding the functionality of ai. the emphasis of this paper is placed on exploring the effects of ai on the behavior and interactions of agents/employees related to how they cope with change. an analysis of ai’s functionality through the lens of cas reveals two critical insights: a) ai enhances adaptability to change by strengthening communication among agents, which in turn fosters the emergence of effective team arrangements and a more rapid collective response to change and b) ai possesses the potential to generate a collective memory for social systems within an organization. furthermore, a systematic analysis of ai indicates a close connection between this method and cas-based styles of management. this paper concludes by suggesting that ai might represent a potential method with the capacity to place organizational teams at the edge of chaos. keywords: appreciative inquiry, organizational change, management, complex adaptive systems, edge of chaos introduction in today’s fast-paced world where the fluctuating preferences of consumers, the growth in the global web of interdependence, and technological advancements guide the co-evolving relationship between the dominant business environment and the social systems within its domain, an organization’s capacity to cope with change in a timely manner determines its survival (hesselbein & goldsmith, 2006; macready & meyer, 1999; senge, 2006). while in the last few decades companies have developed a wide range of methods and strategies to adapt to the dynamic requirements of the business landscape, facilitating organizational change remains a highly challenging effort (cawsey & deszca, 2007). the primary reason behind this continuing challenge is the human need for certainty, which fosters developing traditions of success (i.e., outdated mental models) and remaining within static intellectual comfort zones (thompson, 2003). in order to increase their degree of responsiveness and adaptability, companies can either design new organizational change methods or enhance the functionality of the existing approaches. a successful implementation of the latter option requires analyzing the functionality of the existing change method from multiple perspectives. however, most organizational methods and tools evolve slowly because individuals within companies use the same theoretical perspectives and descriptive models when they dissect the operating structure of these approaches (morgan, 2006; stavros, http://journals.sfu.ca/abr a complex adaptive systems perspective to appreciative inquiry 2 cooperrider, & kelley, 2003). as a result, studying management techniques will repeatedly produce insights with similar implications, embedding the development process of the subject of the study into a stationary cyclical mode. appreciate inquiry (ai) is an effective organizational change method that fits into the group of approaches with a slow rate of evolution. the analysis of the effectiveness of ai has been confined to psychological and managerial explanations such as highlighting the promotion of positive mindset and collective organizational planning. the examination of ai through a fresh analytical lens can enhance its effectiveness and lead to the emergence of new insights. in addition, an evolved description of ai can potentially present a reference model to managers for developing and advancing a wide range of organizational methods, tools, and techniques. the purpose of this paper is to analyze the functionality of ai using a complex adaptive system perspective (cas). according to watkins and mohr (2001), “appreciative inquiry is a collaborative and highly participative, system-wide approach to seeking, identifying, and enhancing the life-giving forces that are present when a system is performing optimally in human, economic, and organizational terms” (p. 14). in detail, this paper will first analyze technical and strategic dimensions of ai and discuss the existing views on the operating structure of this method. following an introduction to complex adaptive systems, the functionality of ai will be analyzed through the lens of cas and the emerging insights will be examined. the remainder of this paper will include an overview of ai criticism, implications of the study for managers, and suggestions for future research. finally, this paper will conclude by merging the highlights of each preceding section. appreciative inquiry through theoretical lenses of psychology and power the theoretical lenses of psychology and power place an emphasis on influential behaviorchanging and cognitive processes such as conflict, negotiation, and coalition building and recognize shifts in power of stakeholders as key drivers of change (morgan, 2006). these lenses primarily produce linear explanations of a phenomenon of interest and its dynamics (deluca, 1999). in this section, ai is analyzed using the lenses of psychology and power. the origins of ai firmly grounded in social constructionist theory, the concept of ai stemmed from david cooperrider’s research on physician leadership in 1980 (bushe, 2011). following a series of interviews with the participants of the study regarding their success and failure stories and a careful observation of the dynamics of the research site, cooperrider realized the generative outcomes and value of positive cooperation, innovation, and egalitarian governance (coghlan, preskill, & catsambas, 2003). as a result, cooperrider focused his subsequent research solely on a life-centric analysis of the factors contributing to the highly effective functioning of the social systems within the research site (watkins & mohr, 2001). cooperrider’s study led to the development of ai and its employment by the cleveland clinic as a method to facilitate organizational change (cooperrider, whitney, & stavros, 2003). cooperrider and srivastva (1987) officially publicized the concept of ai in their article, which marked the initiation of two critical currents on the evolutionary path of ai: a) the transformation of ai from an academic theory-building effort into a practical and powerful process for organizational change, and b) the shift in viewing organizations from problems to be solved to mysteries to be embraced. the process of ai in practice as one of the first post-lewinian organization development (od) methods, ai is utilized to facilitate organizational change by transitioning the focus of a firm’s stakeholders from seeking the negative aspects of their workplace into exploring the positives and hidden capacities of their saadat 3 organization (cooperrider & whitney, 2005). a review of the literature confirms that an ai-approach is implemented in various formats and settings; however, all the employed methods follow a general accepted procedure/model referred to as the 4-d cycle (bushe, 2012; fitzgerald, murrell, & newman, 2001). the steps involved in the 4-d cycle are as follows (cooperrider, whitney, & stavros, 2008): 1. discovery: the identification of organizational processes that work well; mobilizing a whole system inquiry into the positive change core. 2. dream: the envisioning of processes that might work well in the future; generating a resultsoriented vision in relation to discovered potentials and to questions of higher purpose. 3. design: planning and prioritizing processes that would work well; creating possibility propositions of the ideal organization. 4. delivery/destiny: the implementation of the proposed design; strengthening the affirmative capability of the whole system, building hope and momentum around a deep purpose, and creating processes for continuous organizational learning, adjustment, and improvisation. in its broadest format, the ai process is initiated by stakeholders from different levels of hierarchy interviewing one another (in a group setting) using questions that carry the potential of extracting the generative and life-giving events experienced in the workplace. a sample question includes, “describe a time in your organization that you consider a highpoint experience, a time when you were most engaged and felt alive” (cooperrider & whitney, 2005). in the next step, the workgroup in charge of facilitating the ai process locates common themes and topics that appeared in members’ dialogues during the interview session. instances of critical emerging topics/themes include commitment, effective communication, and collective decision-making. the identified themes become the focus of a more specific interview protocol. the second round of interviews produces information regarding four to six topics as the basis for constructing provocative propositions that describe the future image of the organization (signifying new building blocks for the organization’s vision and mission) (watkins & cooperrider, 2000). the process is completed by the implementation and practice of the proposed agendas. instances and results of ai in practice adequate implementation of ai has helped organizations produce sustained sources of collective capability, reduced employee resistance to change, strengthened relationships among team members, cultivated constructive behaviors, and promoted employee autonomy and organizational learning (cameron, dutton, & quinn, 2003). in an example, nutrimental foods of brazil, a manufacturer of healthy food products, engaged all its 750 employees in two ai summits and within one year absenteeism decreased 300%, sales increased 27%, productivity increased over 23%, and profits increased 200% (barros & cooperrider, 2000; bushe, 2011; powley, cooperrider, & fry, 2002). in another instance, roadway, a us-based unionized trucking firm, transformed its union‐ management relations and significantly improved performance following multiple ai summits at its various locations (bushe, 2011; ludema, whitney, mohr, & griffen, 2003). a 2004 internal audit indicated roadway’s sites that had engaged in ai summits achieved cost savings approximately seven times higher than sites not present at the summits (barrett & fry, 2005; bushe, 2011). as evidenced, ai represents a highly effective organizational method and a careful analysis of its successful cases can potentially broaden the exploitation of this approach in companies. a complex adaptive systems perspective to appreciative inquiry 4 existing perspectives on how ai facilitates organizational change subject matter experts including bushe (2011), cooperrider and whitney (2005), and watkins and mohr (2001) have each proposed an explanation for how ai facilitates organization-wide change. these authors’ analyses reflect a common set of dynamics and form a general explanatory model for ai’s functionality. the authors’ descriptions are informed significantly by an ideology referred to as the heliotropic hypothesis, which asserts that human social systems evolve towards the most positive image they hold and articulate about themselves (bushe, 2001; cooperrider, 1990). in detail, the general explanatory model initiates its analysis by linking resistance to change to uncertainty and fear of the unknown. this model further explains that the positive image of the future, generated through the engagement of stakeholders in the process of ai, reduces the degree of uncertainty by enforcing a mental transition, from focusing on problems to focusing on individual and collective strengths (boyd & bright, 2007). the reduction in uncertainty about the future and a motivation to explore new possibilities are two necessary conditions for the transformation of stakeholders’ mental models, which often become blinders to change (scull, 1999). the above descriptions underline a number of ai’s attributes that operate towards facilitating change. these attributes include:  energizing the system as a whole by developing a positive and transformational shared vision of the future;  the promotion of organizational learning and holistic thinking;  empowering stakeholders at all levels by engaging them in critical planning efforts (an emphasis on collective planning and generating the conditions that liberate power); and  most importantly, creating dissatisfaction with the status quo by evolving members’ mental models (sets of assumptions of how the world operates) and the organization’s strategic frame. a careful review of various descriptions of ai indicates that researchers including barrett and fry (2005), bushe (2011), and cooperrider et al. (2008) have analyzed the functionality of this method primarily through theoretical lenses of organizational psychology and power. this explains the reason behind the repeating appearance of terminologies, such as the promotion of positive psychology, collective planning, and employee empowerment in ai-focused literature. in order to move beyond the existing descriptive models and gain new insights, this study will analyze the functionality of ai through the theoretical lens of complex adaptive systems. the complex adaptive systems perspective true to its title, a complex adaptive system consists of a complex set of diverse and autonomous components referred to as agents, which are dynamically interrelated, interdependent, linked through many interconnections, and behave as a unified whole in learning from experience and in adjusting to environmental changes (self-organization) (clippinger, 1999; kauffman, 1993). the agents within a cas interact in random/nonlinear ways based on their local knowledge about their surrounding agents and their environment. the collective behavior of the system emerges from these nonlinear interactions among agents as they attempt to select and retain patterns of behavior that could secure their survival and satisfy the needs of the system as a whole (anderson, 1999). instances of cas include the immune system, human cells, stock markets, trees, a colony of termites, and various forms of human social systems such as a project team in which team members are the system’s agents (clippinger, 1999). saadat 5 the phenomenon of behavioral patterns arising from agents’ nonlinear interactions in the absence of a central control or a predefined plan signifies a critical property of cas referred to as emergence (eidelson, 1997). note that the macroor system-level behavior that emerges from the behaviors and interactions of the system’s components cannot be explained at the agent level alone (kaisler & madey, 2008). in other words, because each agent possesses a wide range of impacts given the high number of potential interconnections within the system, a descriptive model that predicts with precision the internal functioning of the system becomes impossible (emison, 1997). in addition to emergence, connectivity is also considered a vital property and structural feature of cas. the survival and evolution of the system highly depends upon how individual agents connect to one another at a given time (forming team arrangements). the agents’ connections (configuration) determine how effectively the system can respond to changes imposed by the dominant environment. considering the above points, a cas perspective directs attention to the interactions of a system’s agents and places great emphasis on their connections. from a cas perspective, evolution (i.e., organizational change) within an organization initiates by an alteration of its stakeholders’ existing connections or by a modification of its architecture; either case will stimulate the emergence of new behaviors (manson, 2001). those behaviors that satisfy the members’ needs at a given time are reinforced, and repeated behaviors are retained and transform into routines because they form an interlocking, mutually reinforcing structure and because agents learn and tend to develop habits (anderson, 1999). therefore, through a cas perspective the occurrence of change within organizations is viewed as a darwinian process through which agents select and retain behaviors that align strongly with their definition of success and survival. ai through a cas perspective a cas perspective regards the aggregation of social systems within an organization as complex adaptive systems. an analysis of ai’s functionality through the lens of cas reveals two critical insights: a) ai enhances adaptability to change by strengthening communication among agents, which in turn facilitates the emergence of effective team arrangements and a more rapid collective response to change, and b) ai possesses the potential to generate a collective memory for social systems within an organization, which dynamically informs agents of their existing capacities. facilitating the emergence of effective team arrangements at its most basic level, ai’s emphasis on positive psychology represents a case against negative thinking, which is a common behavior in organizations and results in disconnections within social systems by negatively influencing the flow of effective communication among members (baumeister, bratslavsky, finkenauer, & vohs, 2001). in addition, negative thinking possesses the capacity to isolate stakeholders from their environment by promoting the cultivation of a false reality (i.e., an unrealistic subjectivity) that causes individuals to misinterpret their surrounding events and organizational dynamics (damluji, sievert, & downey, 2005). the destruction of complex, diverse relationships within the network of stakeholders often leads to a lack of resilience and adaptability in the system (weakening the organization’s learning capacities). the ai process reverses the adverse side-effects of negative thinking by cultivating fresh perceptions and the acquisition of new schemas of stakeholders (barrett & cooperrider, 1990). as noted previously, in complex adaptive systems the interactions of agents that guide the behavior of the system as a whole, are influenced by each agent’s local knowledge and the system’s architecture (simple rules governing how agents interact). through a cas perspective, ai’s functionality is justified by emphasizing how positive inquiries enhance each stakeholder’s knowledge a complex adaptive systems perspective to appreciative inquiry 6 regarding other agents, the organization’s subsystems, and the environment. this acquisition of valuable intelligence fosters a dynamic exploration and formation of generative connections and proper group arrangements, which lead to a more rapid emergence of effective responses to change and an increase in social system’s flexibility. therefore, the dynamic and continuously unfolding process of ai enables an organization to frequently adjust to change by reconfiguring its networks/node structures (influencing agents’ connectivity) (anderson, 1999). the reconfiguration of networks and achieving new proper arrangements represents a process of adding or eliminating connections between organizational members (i.e., the network’s nodes) (scarborough & somers, 2006). inadequate connections can reduce the organization’s ability to coordinate adaptive responses to internal or external changes (eidelson, 1997). placing the point in more metaphoric term, ai’s facilitation of change from a cas perspective is similar to the role of continuous practice and exposure to individual tactics within sport teams. for instance, in a soccer team, the players who have played with one other for many years and are familiar with each others’ strengths, potentials, and game plans (local knowledge) can instantaneously alter their existing arrangement and form new effective ones in order to respond to their opponent’s tactics at a given time. a new configuration for these players will facilitate the emergence of a fresh team behavior that could secure their survival. in contrast, players who possess minimal knowledge regarding one another often fail to attain new arrangements and form interlocking behaviors in a timely manner to respond to their opponent’s tactical changes. generating a collective memory for social systems the dynamic and complex nature of business has increased the pace in organizations, causing firms and stakeholders to frequently suffer from memory loss (benkard, 2000; oberg, 2000). in detail, organizational learning has transformed into a phased short-term practice, which implies new intelligence, lessons, and insights that emerge during a project can easily vanish upon the initiation of a new project (trinh & mitchell, 2006). an analysis of the ai process using a cas perspective directs attention to an emergent phenomenon, which involves ai generating a collective memory for social systems within the organization. the organization-wide interviews that are held during the ai process bring back to life the success stories and hidden capacities of the company. focused exclusively on extracting genuine strengths and instances of functional relations, the generative inquiries gradually form a dynamic collective memory for the organization’s networks, one that is filled with realistic and reliable intelligence. this collective memory differs from the notion of organizational memory. walsh and ungson (1991) define organizational memory as “stored information from an organization’s history that the firm can bring to bear on present decisions” (p. 61). the primary difference between the collective memory formed through the ai process and organizational memory is that in the latter stored information exists in multiple forms (e.g., one-sided stories and biased reporting) and locations (walsh & ungson, 1991). the existence of information of various types stimulates subjective interpretations of organizational events, thereby placing the validity and practicality of the stored knowledge at risk. simultaneously, information stored in organizational memory might originate from a single person’s interpretation of events, which raises concerns regarding the accuracy of data. an example of this category of information is a project lessons learned report conducted by an executive who never visited the project site nor spoke directly to project team members to obtain an accurate depiction of work events. in addition, the scattering of information (location-wise) can generate significant problems related to granting access to all stakeholders for the use of records in a timely fashion. the collective nature of ai and involving people who are closest to reality of organizational events on a daily basis minimize the odds of data misinterpretation and extraction of inaccurate information. saadat 7 ai creates a collective memory that is similar to a human brain in terms of concurrently existing with its user throughout the lifetime of the organism and actively collecting information. from a cas perspective and informed by its emphasis on the evolution of systems through a darwinian (natural selection) process, the emergent phenomenon of the collective memory indicates the fact that ai establishes an indirect selection mechanism scientifically known as a vicarious selection system. in the framework of management, a vicarious selection system is a process for selecting desirable behaviors based on the learning experiences of others rather than placing self through an entire process of evolution (cohn, 2009; cox, 2008). hence, the employment of vicarious selection systems represents a transition from a risky trial-and-error learning into a low-risk, low-cost, and timely informed decision-making process. consistent with the operating structure of a vicarious selection system, the collective memory can accelerate the rate of evolution in organizations by replacing time with intelligence. a unique feature of the collective memory of social systems is its ability to only store what has worked previously for individuals and for the organization. the generative knowledge that is extracted through positive inquiries and is stored in the collective memory plays the role of retained behaviors (i.e., traits that can secure the survival of the system) in vicarious selection systems. the effectiveness of the collective memory depends highly upon how frequently and precisely the organization implements the ai process. criticism of ai according to bushe (2012) and makino (2013), criticism of ai in the literature has primarily focused on how this method’s excessive emphasis on positivity can invalidate and conceal the negative organizational experiences of participants and suppress potentially crucial and meaningful dialogues that need to occur to resolve conflicts (barge & oliver, 2003; egan & lancaster, 2005; fitzgerald, oliver, & hoaxey, 2010; pratt, 2002; reason, 2000). in her study, pratt (2002) discovered that an organization’s failure to provide proper conditions for surfacing and expressing unspoken resentments will cause members to find ai invalidating. in response to this wave of criticism, a number of solutions in terms of improving ai’s functionality have emerged over the last decade. these solutions include enhancing ai’s generative capacities rather than focusing exclusively on positivity, improving ai’s effectiveness using recent advances and discoveries in positive psychology, and re-emphasizing ai’s primary role, which is energizing social systems through the power of inquiry and establishment of a strong shared vision (bright & cameron, 2009; bushe, 2007; cooperrider & avital, 2004; miller, fitzgerald, murrell, preston, & ambekar, 2005). implications for managers by focusing on the generative dynamics of human organizing, ai provides an expanded understanding of how organizations can effectively respond to change and create sustained competitive advantage (cameron et al., 2003). a systematic analysis of ai reveals a close connection of this method to cas-based styles of management. this form of management is centered on creating proper conditions to guide the evolution of employees’ behaviors that emerge from the interaction of independent agents, towards fulfilling the objectives of the organization and securing its survival (anderson, 1999; clark, 1999). management methods that are informed by cas principles signify a minimal hierarchical control structure and a transition in the style of management from directive into facilitative. the primary objective of a cas-based management is that, by altering the firm’s network structures, managers help social systems self-organize (clark, 1999). self-organization refers to how, a complex adaptive systems perspective to appreciative inquiry 8 in the absence of a central control, stakeholders constantly re-organize their connections/configuration to find the optimal fit with the environment (i.e., respond to change) (davies, rieper, & tuszynski, 2013). a number of management approaches to guide (not control) the evolution of stakeholders’ behaviors include selecting the firm’s external environment, managing meaning (modifying the firm’s culture and subcultures), selecting well-qualified employees, reconfiguring the firm’s network structure, evolving vicarious selection systems, and energizing the system (anderson, 1999). according to watkins and cooperrider (2000), the work of the consultants who facilitate the process of ai is to help the organization explore its own path. accordingly, the engagement of all stakeholders in the process of ai confirms the employment of a facilitative style of management with an emphasis on fostering agents’ self-organization. the capacity of ai to influence the agents’ interactions and to guide the evolution of their behavior by enhancing each agent’s local knowledge signifies critical dimensions of a cas-based management. these dimensions include altering the firm’s architecture and shaping the outcomes of agents’ self-organizing behaviors. furthermore, the collective memory of social systems, a valuable product of ai, directly reflects the establishment of a vicarious selection system, which is a crucial cas-oriented management approach. from a general perspective, both ai and cas management methods operate based on the same organizing principle: guiding the behavior of individual agents such that the system as a whole is in an optimal regime. the difference is that the optimal regime in ai implies the possession of a better self-image (rooted in the heliotropic hypothesis) whereas in cas the optimal regime implies the possession of a better survivability (systems evolve towards survival). as yet, research has produced minimal guidance for managers in regards to designing practical cas-based management methods and techniques. the analysis of ai from a cas perspective suggests a transition of the principles of a cas-based management from theory into practice. the insights that emerged from this analysis can help managers identify the key ingredients for developing cascentered facilitative styles of management. in order to increase the effectiveness of ai and ensure its successful implementation, managers need to possess an in-depth understanding of organizational decision making and behavior considering that adapting to change represents a decision. cyert and march (1963), the founders of the behavior theory of the firm, described the organization as a coalition between various individuals/agents and social groups (e.g., managers, workers, stockholders, suppliers, customers, lawyers, tax collectors, and regulatory agencies) with limited rationality and decision making capacity, with each possessing a unique set of information (i.e., local knowledge), goals, needs, and aspirations. in this description, the firm is introduced as an information-processing and decision rendering system. influenced by this behavior-focused depiction of the firm, the authors (1963) defined organizational decisions (e.g., adapting to change) as cognitive products that emerge from the interaction of stakeholders with distinct/conflicting knowledge and perspectives in an attempt to generate a balance between internal aspirations and capacities and external demands. the presence of distinct values, beliefs, goals, and needs within a firm’s social systems and the importance of gaining acceptance of change on a collective level direct attention to two interdependent administrative elements that play a critical role in facilitating change: (1) employing unifying methods such as ai that possess the capacity to encourage the majority of employees to support change (i.e., engaging most members in a desirable collective behavior) and (2) meeting certain conditions to prepare the firm as a whole to break the status quo and adapt to change (i.e., creating readiness for organizational change) (armenakis, harris, & mossholder, 1993). the above elements are interdependent primarily because organizational readiness determines, to a great extent, the effectiveness and success of the unifying methods. for instance, the implementation of ai will be less challenging in a company where most employees trust their managers in terms of supporting them saadat 9 during transitions (a readiness factor) compared to a firm in which employees repeatedly received minimal managerial support for change efforts. accordingly, it is highly important that managers recognize the co-evolving relationship between the unifying methods and readiness factors. the following points reflect a number of influential readiness factors that could contribute significantly to the success of ai and other approaches to organizational change and development (garvin, edmondson, & gino, 2008; holt, armenakis, field, & harris, 2007; senge, 2006):  discrepancy: members realizing the necessity of a proposed change.  efficacy: members realizing that an internal capacity exists to implement the change.  organizational valence: members realizing that the proposed change will be beneficial on a collective level.  management support: ensuring that managers will be committed to the change and support their teams throughout the process.  personal valence: using systems thinking to help each member realize the benefits of the change.  organizational learning: helping members realize the constant interplay between certainty and uncertainty and the importance of questioning the status quo (i.e., certainty) as a key step towards exploring more effective solutions. future research a few simple computational experiments conducted by packard (1988) and langton (1990) suggested that systems poised at the edge of chaos, a region between ordered and chaotic behavioral regimes, possess the capacity for emergent computation (kaufman, 1993; miller & page, 2007). simply stated, a system at the edge of chaos is sufficiently structured and maximally responsive to changes imposed by the dominant environment (clippinger, 1999). as discussed previously, ai facilitates the formation of generative team arrangements by enhancing members’ knowledge related to the individual and collective capacities within the organization. agents’ enhanced level of intelligence in parallel with flexible network structures and team arrangements can guide social systems towards a highly adaptive and responsive state (manville, 1999). considering this knowledge, ai might represent a potential method with the capacity to place organizational teams at the edge of chaos. however, further research and analysis is required to quantify a team’s state of responsiveness prior and following its engagement in the ai process. conclusion this paper focused on analyzing the functionality of ai through the lens of cas. ai was operationalized as the art and practice of asking questions that strengthen a system’s capacity to comprehend, anticipate, and heighten positive potential; ai process, referred to as the 4-d cycle, represented a search for the elements that give life to a social system when it is most effective, alive, and constructively capable in economic, ecological, and human terms (barge & oliver, 2003; cooperrider & whitney, 2000). an overview of the descriptive models in current literature demonstrated that the effectiveness of ai is proven by linking its capacities to the promotion of positive mindset and collective organizational planning. a cas perspective was employed in this paper to move beyond the existing descriptions and gain new insights regarding the operating structure of ai. the analysis of ai using key principles of a complex adaptive systems perspective to appreciative inquiry 10 cas indicated that this method facilitates organizational change by: a) preparing the ground for the emergence of effective team arrangements, which play a critical role in producing collective timely responses to change, and b) generating a collective memory for social systems, which fosters agility and informed decision-making. moreover, ai and cas-based management approaches seemed highly comparable in terms of their shared emphasis on adopting a facilitative style of management and on guiding the evolution of social systems (self-organization). from a general perspective, this paper represented a practical instance of integrating and colliding different analytical perspectives, ideologies, and schools of thought following the objective of achieving a more holistic image of the subject of interest. the transition in theoretical lenses utilized to understand ai, from organizational psychology and power into cas, helped to reach a deeper level of analysis. this is primarily because the new emphasis 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(2001). appreciative inquiry: change at the speed of imagination. san francisco, ca: jossey-bass/pfeiffer. payam saadat is a doctoral student in business administration at george fox university, oregon, usa. he is also an associate faculty member in the school of management at city university of seattle. he can be reached by email at payam@cityu.edu. advances in business research 2011 volume 2.pdf lampe advances in business research 2011, vol. 2, no. 1, 104-114 104 temperament talk of “managers chosen as leaders” in a family owned corporation: from descriptors to dialogue anna carol lampe, rockhurst university a workshop built on temperament theory will not solve the financial woes of a company. nevertheless, a workshop designed and based solely on temperament theory or research can diminish its outcomes. if an organization wants to change its current ways of believing, knowing, and doing, replicating the workshop’s impersonal dialogue process can help facilitate the change. at celebration, inc. dialogue proved to be more powerful than descriptors especially when embedded in workshop content. celebration, inc. is a privately held american corporation that helps people celebrate every day and special occasions. the manufacturing company produces more than 12,000,000 million products a day in 20 major product lines and distributes them in nearly 100 countries. consumers buy its products in more than 40,000 different stores including stores that carry the name celebrate!, drug stores, superstores, and grocery stores. celebrations, inc. had failed to meet several of its financial targets. the ceo decided that the company needed a new management team and brought in the management succession team of the human resource division (hr) to facilitate the selection. this team believed that senior management had chosen the current management team based solely on performance and likeability and that a preponderance of the same personality temperament had contributed to groupthink, one-dimensional decision-making, and an unbalanced organizational leadership culture. research indicated that high performing organizations had cultures that included all four temperaments (demarest, 1995) and as many different personality types as possible. this time the management succession team deliberately ensured a more balanced team of personality temperaments. it identified 218 “managers chosen as leaders” who the members believed would do a superior job of leading the company through significant marketplace and organizational changes. these high performing individuals represented nearly all 16 personality types (see table 1). in less than two months, the management succession team had completed its assignment, and the learning and development team began to prepare the straw man for the workshop content that would ready the new management team. table 1: type representation in “managers chosen as leaders” vs. cpp sample vs. keirsey base population sample istj isfj infj intj study: 16.0% cpp: 17.0% base: 11.6% study: 3.0% cpp: 3.4% base: 13.8% study: 5.0% cpp: 1.9% base: 1.5% study: 6.0% cpp: 10.0% base: 2.1% istp isfp infp intp study: 4.0% cpp: 3.4% base: 5.4% study: 1.0% cpp: 1.2% base: 8.8% study: 6.9% cpp: 2.7% base: 4.4% study: 6.0% cpp: 6.6% base: 3.3% estp esfp enfp entp study: 3.0% cpp: 3.2% base: 4.3% study: 0.1% cpp: 1.4% base: 8.5% study: 7.0% cpp: 5.1% base: 8.1% study: 7.0% cpp: 8.1% base: 3.2% estj esfj enfj entj study: 15.0% cpp: 15.8% base: 8.7% study: 6.0% cpp: 3.6% base: 12.3% study: 4.0% cpp: 3.4% base: 2.5% study: 11.0% cpp: 13.1% base: 1.8% sources: business research manager; schaubhut, n. & thompson, r. 2008. mbti type tables for occupations. mountain view, ca: cpp; keirsey, d. & bates, m. 1978. please understand me: character and temperament types (3rd ed.). del mar, ca: prometheus nemesis books. lampe advances in business research 2011, vol. 2, no. 1, 104-114 105 on a monday morning, several members of the human resource division sat around a table to hear the learning and development (l&d) team’s vision of the workshop content. celebration, inc. had invested heavily in the myers-briggs type indicator ® (mbti®), and all of hr agreed that each of the four workshops would be comprised of people who shared the same temperament (keirsey, 1978). the l&d team members, who had administered and interpreted the mbti® sessions to over 2500 employees, were adamant they could develop content specific to each workshop simply by referencing the materials they used in their type and temperament workshops (myers and mccaulley, 1992; demarest, 1995; hirsch and kummerow, 1998), coupled with additional research and literature of consultants and theorists (keirsey and bates, 1978; garden, 1988; barr and barr, 1989; montgomery, 1989, 1990, 1993; isachsen and berens, 1995; keirsey, 1998; bridges, 2000; engler, 2003; michael 2003) that lined their library shelves. the organizational development team members, part of the human resource division who also sat at the table, were not so convinced. they did not believe that the literature and descriptors could adequately take into account either celebrations’ culture or the personal experiences of the members of the new management team. after a great deal of discussion, the meeting ended with agreement from the l&d team members to take a step back, ask the celebrations’ business research division to conduct some qualitative research, and validate whether the way the new leaders “talked” about change and leadership mirrored that of the descriptors in the research and literature that the team intended to use. literature review managers and leaders most scholars and researchers agree that managers and leaders are different. according to alan murray (2010), “the manager’s job is to plan, organize, and coordinate. the leader’s job is to inspire and motivate.” lee barr and norma barr (1989) differentiated leadership from management this way: “management affects work; leadership affect people.” warren bennis (1989) composed a list of the differences: “the manager administers; the leader innovates. the manager is a copy; the leader is an original. the manager maintains; the leader develops.” richard pascale (1990) defined the differences this way: “managers think incrementally, whilst leaders think radically. managers do things right, while leaders do the right things.” for the purpose of this research, the author used the words “managers” and “leaders” interchangeably. the ceo of celebrations, inc. made this determination when in a meeting he verbalized that the human resource division had chosen “managers who already or would assume the top leadership positions in the company.” type and temperament scholars and organizational theorists have advanced countless theories of leadership. two of the theories used to understand leadership are those of type and temperament. they allow others to understand leaders, leaders to understand others, and leaders to understand themselves. whereas much research has documented how type and temperament differ among leaders (keirsey and bates, 1978; barr and barr, 1989; keirsey, 1998; montgomery, 1989, 1990, 1993; keirsey and choiniere, 1992; stavrou et al., 2005; grant et al., 2011), little research exists as to how leaders “talk” about what they do and how they do it. sorting and classifying people according to their temperaments began thousands of years ago. a great many classificatory schemes for temperament based on human behavior have surfaced throughout history, dating back to such men as hippocrates, plato, and aristotle. one of the earliest methods of sorting and classifying was a theory devised by hippocrates. based on his own observations and logic, hippocrates suggested that the four bodily fluids were at the root of all health and personality (jones, 1931). nearly 1700 years later, the german philosopher immanuel kant popularized these ideas by organizing the constructs along the two axes of feelings and activity (engler, 2003). lampe advances in business research 2011, vol. 2, no. 1, 104-114 106 during the 1800s, the psychologist wilhelm wundt (blumenthal, 2001) proposed that the four temperaments fell along the axes of changeability and emotionality. the philosopher, friedrich wilhelm nietzsche, introduced his famous distinction between the apollonian (rational) element in human nature and the dionysian (passionate) element (nietzsche et al., 1872). another philosopher, erich adickes (1907), divided man into four worldviews: dogmatic, agnostic, traditional, and innovative. carl g. jung, a swiss psychiatrist, introduced the theory of psychological type in the 1920s. jung discussed the various aspects of consciousness and the attitudes that the mind might take toward the world in his book, psychological types (jung and baynes, 1921). shortly after the publication of the book, ernst kretschmer (1925) identified abnormal behaviors by temperaments: hyperesthetic, anesthetic, melancholic and hypomanic. three years later, eduard spränger (1928) identified six human values that set apart people: religious, theoretic, economic, social, political, and artistic. katharine briggs and isabel myers, mother and daughter, both astute observers of human behavior, put to practical use the preferences from carl jung’s typological theories. during the 1940s, they developed and published their instrument, the myers-briggs type indicator ® (mbti®) that identified 16 personality types (saunders, 1995). since then, the mbti® has evolved and been perfected through continued test research (myers and mccaulley, 1992; schaubhut and thompson, 2008). inspired by the work of kretschmer and spränger, the modern psychologist, david keirsey also noted the consistent tendency of human behavior to sort itself. keirsey combined kretschmer's temperament hypothesis with jung's behavior description and nietzsche's greek typology and identified four patterns: sensing perceiver (sp), sensing judger (sj), intuitive thinker (nt), and intuitive feeler (nf) (keirsey and bates, 1978). keirsey mapped patterns to the existing myers-briggs system and labeled the four basic temperaments as the artisan, the guardian, the rational, and the idealist (keirsey and bates, 1978). later, demarest (1995) further associated these temperaments with models of management: the scientific management model (sj), the contingency model (sp), the social man model (nf), and the strategic management model (nt). these four temperaments were not simply arbitrary collections of characteristics but the interaction of the two basic dimensions of human behavior: communication and action, i.e., what people said and did. type literature contains substantial research on how type preferences may be relevant to human behavior and activities, such as career choice (daub et al., 2000), job satisfaction (garden, 1988), and organizational development (fleenor et al., 1998; hirsch and kummerow, 1998). in reviewing research on the use of the mbti® in management and leadership, walck (1996) found attempts to predict managers’ behaviors from type. rousch and atwater (1992) used the mbti® to understand transformational and transactional leadership behaviors. stavrou et al., (2005) proposed a theoretical temperament framework for an exploration of the relationship among organizational culture, leader personality, and the success of hereditary transitions in family businesses. most recently, grant et al., (2011) discussed theoretical and practical implications for leadership and proactivity. a substantial body of leadership research also examined the associations between dimensions of the mbti® and leadership indices. mccaulley (1990) examined several comprehensive mbti® databases containing scores from more than 92,000 subjects, ranging from college students to managers from all organizational levels in numerous industries. zaccaro (2001) used the tables from mccaulley to compare successful executives with a sample of middle and lower-level managers and unsuccessful executives. organizational culture few concepts in organizational theory have as many different and competing definitions as does “organizational culture.” in exploring culture, selznick (1957) moved below the conscious level of organizations to capture a deeper, more powerful force in everyday life. meyerson (1991) noted that culture was “the code word for the subjective side of organizational life,” and its study represented an “ontological rebellion against the dominant scientific paradigm.” although the term “corporate culture” was initially the popular term used in the press (jordan, 1994), the term “organizational culture” settled into consulting and academia to describe a tool used in studying lampe advances in business research 2011, vol. 2, no. 1, 104-114 107 organizations. “organizational culture” became popular in both anthropology and management in the early 80s when pascale and athos (1981) published a book stating that japan’s economic success was due largely to its very strong “corporate cultures.” deal and kennedy (1982) and peters and waterman (1982) published books that advocated a strong “corporate culture” as the key to corporate success. the “organizational culture” literature followed many paths and has since “concentrated on defining the concept; prescribing methods of study, diagnosis, and measurement; discussing the possibility of culture change and often prescribing change methods; and recommending methods to evaluate the extent and success of change” (lewis, 1996). finally, william bridges (2000) argued that organizations differ in character just as much as individuals do. using the framework of mbti® and its personality types, bridges believed an organization's character shaped how managers made decisions, received ideas, and treated employees; how the organization accepted or rejected change; and how such factors affected company performance. research methods a celebrations, inc. business research manager conducted all the research, analyzed the data, reported the results, and made recommendations. she used multiple data sources including focus groups (merton and kendall, 1946; calori and sarnin, 1991); interviews (ouchi and johnson, 1974; merriam, 1988; bogdan and biklen, 1992); and conversations (atkinson and heritage, 1984). according to lincoln and guba (1985), using multiple data sources was advantageous because it allowed the researcher to deepen her understanding and provided the material that contributed to credible interpretation (eisner, 1991). survey instrument all of the “managers chosen as leaders” had taken the mbti® instrument, designed by katharine briggs and isabel myers and the most widely used personality assessment in the world (schaubhut and thompson, 2008). briggs and myers applied carl jung’s theory of psychological type and developed a psychometric questionnaire that measured psychological preferences in how people perceived the world and made decisions. “the essence of the theory is that much seemingly random variation in behavior is actually quite orderly and consistent” (myers and mccaulley, 1992). their theory suggested that people have opposite ways of: gaining energy: extraversion (e) or introversion (i) gathering information: sensing (s) or intuition (n) coming to a conclusion about that information: thinking (t) or feeling (f), and dealing with the world: judging (j) or perceiving (p) based on the results of the mbti® (see table 1) above, the business research manager further separated the participants by keirsey’s temperaments (see table 2). his framework narrowed the 16 types into four temperaments. myers-briggs’ type and keirsey’s temperament had two completely different theoretical bases; however, the same words used to describe type and temperament made for a common language (keirsey & bates, 1978). table 2: temperament representation in “managers chosen as leaders” vs. leaders in a cpp sample of leaders vs. keirsey’s base population sample temperament % in study % cpp sample % keirsey sj 39 42 45 sp 8 15 40 nf 23 15 10 nt 30 28 5 total 100% 100% 100% sources: research manager; schaubhut, n. & thompson, r. 2008. mbti type tables for occupations. mountain view, ca: cpp; keirsey, d. & bates, m. 1978. please understand me: character and temperament types (3rd ed.). del mar, ca: prometheus nemesis books. lampe advances in business research 2011, vol. 2, no. 1, 104-114 108 data collection the business research manager conducted eight 60-minute focus groups with 64 participants: two groups of eight each of nt, nf, sj, and sp temperaments; eight one-on-one interviews that included two each of nt, nf, sj, and sp temperaments; and 12 formal and 8 informal conversations with participants from the workshop. to ensure the validity of their temperaments, the business research manager ensured all participants had clear or very clear preference scores based on the recommendation of michael’s research (michael, 2003). she used the same statements for all research methods: describe your style of leadership; describe how your leadership style can effect change; and describe how the organizational culture may help or hinder you to lead. analysis in focus groups, conversations, and interviews segregated by temperaments, the 84 “managers chosen as leaders” talked openly and honestly about their perspectives, thoughts, and feelings about leadership, change, and the culture in which they led. these temperament groups included participants who represented the scientific management model (sj), the contingency model (sp), the social man model (nf), and the strategic management model (nt) (demarest, 1995). according to bridges (2000), celebrations, inc. represented the scientific management model (sj), and according to the corporate mbti® databases, nearly 60% of the people on the old management team had this temperament, as well. men like frederick taylor and henry gantt defined the scientific management model (sj) and developed approaches to management based on scientific analysis (demarest, 1995). they did not accept the belief that management skills were unique gifts acquired as an accident of birth and felt that people could learn management skills. the literature descriptors for this temperament included “efficiency,” a “one best way,” and “continuously looking for a better way of doing the job” (table 3). thirty nine percent of the “managers chosen as leaders” possessed the scientific management (sj) temperament. these “managers chosen as leaders” talked about the “systems and structures inherent in the company’s business model” and how it was much easier to “run business as usual” than try to change it. they talked about “larger-than-life systems,” and how they doubted “whether leaders have the ability to change very complex systems that have been in place for over half a century.” they talked about their frustration with “complex systems, policies, procedures, and practices” that perpetuated themselves and the business and the systems that made “risk-taking or innovation next to impossible.” one woman talked about the irony of being “chosen as a leader” since she felt some of her peers saw her as “part of the problem” and “probably standing in the way of change.” in addition, although these leaders said, “many things need to be changed,” some managers expressed fear of being set up for failure. another manager said, “unless the company is willing to blow up some of the systems and start from scratch, no amount of traditional tweaking is going to impact the way we currently do business. the systems that were the benchmark for innovation in the 60s are the dinosaurs that are standing on top of our feet today.” these managers supported the corporation’s “desire to change” and one man was “not sure that the people at the very top have any idea of what kind of change really needs to take place.” leaders like ken blanchard and peter drucker defined the contingency model (sp) (demarest, 1995). they believed that managers needed to be flexible in their management style, to analyze each new situation, and to come to a decision based on the facts presented rather than on some all-inclusive theoretical model of management. the literature descriptors for this temperament included “flexibility,” “quick handling of the unexpected,” “risk-taking,” and “being quick to see ‘what is’ and ‘what is needed next’” (table 3). only 8% of the “managers chosen as leaders” had the contingency model (sp) of temperament, and according to the corporate data bases, keeping any employee with this temperament at the company was difficult. although fewer in numbers, these animated and energized leaders talked about leadership and change somewhat differently that the sj temperament group. one woman talked about being “excited for the first time in a long time.” more than one leader said that “leaving the company for another” was always top of mind because celebrations was “boring” and “nothing exciting ever happens.” like the sj temperament, lampe advances in business research 2011, vol. 2, no. 1, 104-114 109 the sp temperament also felt that the company was “committed to doing the same things day in and day out” and that even if a leader had a great idea, it would go “unheard and unnoticed.” they talked about “the great ideas” that they “brought before senior leadership” only to be “shot down” because the ideas were not “aligned with how we do things around here.” table 3: leadership & management temperament descriptors temperament sj sp nf nt organizational focus hierarchy; continuously looking for a better way of doing the job. immediate needs growth vision leadership skills logistics, facilitation, operations-oriented tactics, performance opportunity-oriented diplomacy, relationshiporiented strategy, design, strategyoriented competencies supervise, provide, inspect, find facts promote, perform, tryout, compose teach, reveal, divine, predict, interpret marshall, invent, design, hypothesize contributions acknowledged timely output; quick handling of the unexpected something personal strategies & analysis assets best organized, the most grounded in reality, & the most realistic. meet immediate situational needs, respond quickly, handle emergencies well sensitive to people & their time; give people all the time they need; use time for finding the purpose think of time as conceptual, impersonal liabilities rigid about schedules, hooked on responsibility, and cannot relax. 0nly follow standard operating procedures, overlook interpersonal issues. scatter their effort, change direction often, act as if there’s always tomorrow can’t say no, feel guilty if don't give others time, neglect own needs, spend time with people first, & task later, struggle with deadlines feel no need to act after thinking through something, devoted to intellectual work with no play, have no time for others’ priorities, values efficiency: one best way. caution, accuracy, hard work, producing & maintaining life, preserving & keeping, regulating, avoiding harm, economy of energy & time, usefulness, comfort flexibility: risk-taking, experiencing & perceiving, altering form, respond to impulses, sensuous, self enjoyment, immediate feelings, beauty, expressing an experience, freedom of action potential: autonomy, harmony & cooperation, seeking highest value, unity, beyond the senses, ethics & morality, deep personal meaning, identity, interpreting, & values competency: intelligence, concepts & ideas, theories, logic, objective knowledge & truth, consistency in thought, solve the problem, general principles, studying setting direction able to recall & synthesize data & past experiences to provide base on which to build future generate options that will benefit individuals; be quick to see “what is” and what’s needed next create idealistic goals; brainstorm multiple visions & paths for realizing them. decide what they want & advocate for it; able to quickly weigh alternative & articulate pros & cons define clear roles & deadlines so that others know what to do and by when, track progress to motivate engagement. have a friendly, outgoing style & an optimistic outlook; create rapport & inspire followers; values input from others inspire others toward a vision; appreciates others & includes their input; spends time understanding values & needs of employees possess competence & confidence; can attract others who want to be seen as winners; effective at gaining political support for plans. these “managers chosen as leaders” emphasized “how boring” it was to come to work and how there was “nothing to lead” because the company ran by itself. another leader said many of her “friends left the company after only a couple of years because “they were so bored.” she was “sorry to see them leave because they were smart and had a lot to contribute to helping the company meet its financial goals.” overall, these leaders said they were “excited” about “the possibility of real change” and were “anxious to get things going.” they were confident that they could “make an immediate impact” if given a chance. they believed they brought “a sense of excitement and real energy to the company” that could be exponentially greater “if given something worthwhile to change.” one manager reflected on a time he was most excited about coming to work, “a ‘special project’ provided my team an opportunity to try new and different ways of testing products in the marketplace.” he ended by saying, “those assignments are rare.” leaders like elton mayo, who carried out the hawthorne studies, and abraham maslow, creator of maslow’s hierarchy of needs, defined the social man model (nf) (demarest, 1995). they believed that employees had needs and aspirations that extended beyond the workplace and that these needs were an lampe advances in business research 2011, vol. 2, no. 1, 104-114 110 integral part of the management process. the literature descriptors for this temperament included “deep personal meaning,” “sensitive to people and their time,” and “harmony and cooperation” (see table 3). about 23% of the “managers chosen as leaders” possessed this temperament. “managers chosen as leaders” with the social man temperament (nf) talked about “leading through caring and sharing.” they talked about the “wonderful caring products” they designed, manufactured, and sold to consumers and talked about the products as if they possessed more human characteristics than inanimate ones. they talked about the “caring and sharing” that were “embedded in the culture” and that played out in different “rituals and traditions celebrated in the company.” they believed that their style of leading was critical for the future success of the company because it supported employees who created the products that helped consumers share their feelings and sentiments. according to them, their leadership style, like the products they created, “represented the goodness in human beings.” these leaders also used the word “nice” in the context of their “caring and sharing” style of leadership. when one manager said, “being nice and getting along with others has always been requirements of employment,” everyone else nodded their heads. one 35-year manager said, “the founder always hired people who he believed were walking greeting cards.” when asked if anything in the culture impeded the ability to lead, one leader said that the same “niceness” that made the company a good place to work also “made it easy for those in power to create systems which exploited and oppressed some leaders and not others.” others agreed that this lack of open and honest feedback “fostered a culture in which leaders continued in their ways of doing things the same old way.” whereas these leaders’ temperament reflected the culture of “niceness,” the culture frustrated them because it did not allow them to “question or talk about what was really going on” and may have contributed to the failure to meet the company’s financial goals. these leaders hungered for “honest communication and authenticity.” because they did not believe they had permission to discuss certain subjects, they used “large amounts of unproductive energy trying to figure out how to talk about things” instead of using that energy on the business. lastly, men like jay forester with his pioneer work in simulation and alvin toffler with his work in the digital and communication revolution insisted that managers must be willing to take great leaps of faith beyond the demands of daily operations (demarest, 1995). their strategic management model (nt) supported the notion that managers must build organizations to support new, yet to be developed ideas. the effect of dynamic change on organizations supported their approach to the vision of management and leadership. the literature descriptors for this temperament included “competency,” “vision,” “strategies and analysis,” and “objective truth” (see table 3). whereas less than 10% of the united states possessed this temperament, nearly 30% of the “managers chosen as leaders” had it. these leaders, predominantly men, talked about their “goals and visions” and how they led by getting a lot of “political support.” they were full of fresh perspectives on how to achieve celebrations’ vision and had a plethora of “ideas where change could occur.” they talked about how they were “energized by change” and how excited they were that the company was supporting a “long overdue change initiative.” they were excited about all the changes that they could make “to the current systems” and how those changes could “turn around the company.” they talked about “creating new strategies and new ways of doing business” that would address “the needs of the marketplace.” these leaders talked about “high performing companies” whose long-term success was tied to their ability “to be innovative and take risks.” they talked about celebrations’ “inability to assess risk” and “its fear of cannibalization” i.e., taking away sales from existing core products. they talked about the company’s “culture of conservatism,” where “predictability always wins out over uncertainly.” one outspoken leader articulated it this way: “our conservative cultural ways fuel predictability. it [they] ensures [ensure] that what has worked in the past continues to get reproduced.” another leader added, “risk-taking and innovation demand dealing with uncertainty--the opposite of predictability. predictability reduces the possibility of failure by ensuring success, and the company only knows how to deal with success.” another leader, as passionate as the other two, added, “any failures, no matter how lampe advances in business research 2011, vol. 2, no. 1, 104-114 111 small, have been looked upon as something to be ashamed of. how can we innovate if we are afraid to fail?” the additional interviews and conversations confirmed the views expressed in the focus groups and contributed to the 200+ pages of transcripts. to compare the way the “managers chosen as leaders” talked about leadership and change as compared to the words used in the research and literature, the business research manager searched the pages for the descriptors that the l&d team members provided (table 3). although she found the descriptors sprinkled throughout the transcripts, she noted that the “managers chosen as leaders” talked about leadership and change with far more breadth and depth than the descriptors could provide. participants in all of the groups and interviews openly shared their perspectives and experiences, but they talked about them quite differently than did many consultants and theorists in their literature and research (keirsey and bates, 1978; garden, 1988; barr and barr, 1989; montgomery, 1989, 1990, 1993; myers and mccaulley, 1992; demarest, 1995; isachsen and berens, 1995; keirsey, 1998; hirsch and kummerow, 1998; bridges, 2000; engler, 2003; michael 2003). she recommended that the l&d team members accept the contested nature of the limitations of relying solely on the language of literature and reach beyond the scope of the descriptors to create more robust workshop content. to accomplish this, the business research manager acknowledged the opportunities that type and temperament provided in understanding organizational dynamics and the importance of leveraging them in changing the organization. she suggested creating content that shared each group’s dialogue or “talk” as it related to discovering and interpreting cultural meaning. more so than the descriptors allowed, many of the “managers chosen as leaders,” although strangers in temperament, appeared to share a great deal of common ground in how the culture impacted their ability to lead, their sincere desire for the company to change, and a belief that they could personally make a difference. using this common ground as a starting place, she believed the different temperaments could see that they shared many of the same deeply rooted cultural assumptions about the organization and shared more similarities than differences. clearly, the l&d team members needed to acknowledge the complexity of individual personality and the inability of the descriptors to explain, clarify, or predict adequately the feelings and behaviors of the “managers chosen as leaders.” conclusion the l&d team members proceeded with the recommendations and developed workshop content that incorporated the dialogue from the transcripts. not unlike the verbal "dialoguing" process advocated by senge (1990), the workshop participants began conversations by citing quotes or perspectives from the transcripts. using the anonymous content provided the participants a safe way to discuss the “talk” rather than the “people doing the talking.” this impersonal process also eliminated the need for those temperaments in the minority to verbalize their unpopular or unacceptable ways of doing and knowing in the workshop. knowingly, or unknowingly, the largest temperament group (sj) mirrored the organization’s temperament (sj) (bridges, 2000), and, historically, this temperament had supported and perpetuated the current culture based solely on their numbers and their preference to keep business as usual. by focusing on the dialogue, rather than the people who created it, all temperaments communicated more openly and surfaced the kinds of potentially threatening information they had only previously discussed behind closed doors. they also began to deconstruct the old individual models of believing, knowing, and doing and began to co-create a new collective thought and voice that resonated with all temperaments. a workshop built on temperament theory will not solve the financial woes of a company. nevertheless, a workshop designed and based solely on 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baglione advances in business research 2013, vol. 4, no. 1, 68-76 online classes: an evaluation by traditional-aged students stephen baglione, saint leo university our sample of traditional-age undergraduate students offers self-reported perceptions on online and traditional face-to-face classes. the results reveal that traditional classes are preferred and evaluated superior for learning (including high-order levels on bloom’s taxonomy), participation, and creating a sense of community. students also spend more time studying and doing homework in traditional classes. grades are perceived comparable across delivery methods, but students with higher grade point averages prefer traditional classes, as do introverts, and males. online classes do have advocates, with about a quarter of students preferring them to traditional classes because of convenience and flexibility. convenience is the most cited reason for taking online classes (watson & rutledge, 2005; wuensch et al., 2008). for non-traditional students, it allows them the flexibility to maintain full-time jobs and personal commitments while pursuing an education. for this segment, online courses remove time and space barriers to provide a viable alternative to traditional face-to-face courses (tanner et al., 2006). lapsley et al., (2008) found both delivery methods provided equivalent learning opportunities. convenience attracts students, but they demand more: quality, meaningful assignments, and highquality feedback (tricker et al., 2001), which is timely (gallien & oomen-early, 2008; shea et al. 2002). structure, as defined by objectives, assignments, and deadlines, also has been shown to influence student satisfaction (stein, 2004). student-to-student interaction strongly influences satisfaction (jung et al., 2002). a lack of collaboration led to negative emotions about an online class (nummenmaa & nummenmaa, 2008). faculty interaction with students directly affects student satisfaction (chickering & gamson, 1987). effective online faculty have strong written communication skills, promote discussion, provide timely feedback, and encourage student collaboration and interaction (spangle et al., 2002). with online courses, a strong predictor of student satisfaction and learning is creating a sense of community (woods & ebersole, 2003). when compared to traditional classes, almost a third of respondents felt less connected (watson & rutledge, 2005). overall faculty should be actively engaged in the class (jones, 2012). studies comparing online and traditional classes have found online superior or equal: i) student selfreports indicate greater or equal learning in online (arbaugh & stelzer, 2003; fjermestad et al., 2005; hannay & newvine, 2006); ii) student self-reports indicate more time spent in online (hannay & newvine, 2006); iii) more active participants (hiltz & shea, 2005; shea et al., 2002); iv) similar or better grades in online (daymont & blau, 2008; friday et al., 2006; mclaren, 2004); and v) similar levels of satisfaction (allen et al., 2002; kelly et al., 2007). student withdrawals from online classes and students’ perceptions that online classes would be easier are related (nash, 2005). a meta-analysis conducted by the department of education of 1,000 studies since 1996 found online education marginally better than the traditional classroom on learning outcomes (department of education, 2010). “the proportion of students taking at least one online course has increased from fewer than 1 in 10 in 2002 to nearly one-third by 2010, with the number of online students growing from 1.6 million to over 6.1 million over the same period an 18.3% compound annual growth rate” (allen & seaman, 2012: 3). this trend will only continue. the chronicle of higher education examined data trends and polled experts, including admissions officials, to predict education in 2020. more than a third of respondents predicted 60% of students will be taking only online classes (2009). much of this increase is attributable to the success of for-profit institutions such as the university of phoenix, “a disruptive innovator” (burnsed, 2011). there are concerns about online classes. “there is no face-to-face contact, no context clues, and no opportunity for immediate dyadic communication” (tanner et al., 2009: 32). students believe physical separation of students and of students and faculty make online classes inferior to traditional classes in 69 baglione advances in business research 2013, vol. 4, no. 1, 68-76 communication (student/student and student/faculty), understanding course material, especially complex material, and less community and connectedness (ritter et al., 2010; wuensch et al., 2008). concerns also occur on the delivery side. in a survey of almost 5,000 faculty members, two-thirds “believe that the learning outcomes for an online course are inferior or somewhat inferior to those for a comparable face-to-face course,” although “faculty members with a greater exposure to online education have a less pessimistic view than their peers (allen & seaman, 2012: 3). “fewer than 6% of all instructors consider online to be either superior or somewhat superior to face-to-face instruction” (allen & seaman, 2012: 9). online learning is perceived more favorably by students than faculty (tanner et al., 2009; wilkes et al., 2006). a recent study of human resource professionals undertaken by the society for human resources found “44% agreed or strongly agreed that online learning was of lower quality than face-to-face, whereas only 3% thought the same of traditional learning” and 60% “agreed or strongly agreed with the statement that job applicants with traditional degrees are preferred by my organization to applicants with online degrees, presuming work experiences are similar” (society for human resources, 2010). gender differences may also exist. women have done better in both online and traditional classes (friday, 2006). arbaugh (2005) found the opposite: perceived learning was lower for females than males, while daymont and blau (2008) found them equal. methods the survey was developed through a literature review and multiple iterations among undergraduate students; a pre-test using protocol analysis with 31 undergraduates was employed. it was administered at a southeastern non-secular university to traditional-age undergraduate students. the university has been providing online classes since the late 1990s. a convenience sample was used. (note: freshmen were excluded because they cannot take online classes at the university). the data were analyzed in spss version 20. data were recorded by one person and reviewed for mistakes by another. frequencies were then examined to ensure no data were outside the range of feasible answers. individual questions were tested against the scale midpoint of four in a one-sample t-test (seven-point scale). hypotheses were tested at the .05 level. a two-sample t-test was used when comparing across groups, again at the .05 level. pairwise deletion was used (i.e., deleted by individual by question). logistic regression is used to compare respondents based on preferences (i.e., online or traditional) by online classes taken; personality (introvert-extrovert), grade point average (gpa), hours spent studying, and gender. the personality scale, from introversion to extroversion, is an eight-item scale bounded by strongly agree to strongly disagree (five points) (john & srivastava, 1999). logistic regression does not require assumptions about the independent variables (i.e., normality, linearly related, or equal variances with groups). multicollinearity is a potential problem. outliers are detected through examination of the standardized residuals (values greater than three). the -2 log likelihood (perfect model equal zero, where each cases predicted and actual probabilities are compared and summed) and goodness of fit indicates model fit (low values better) is used to assess model fit. chi-squared is also used to assess the overall model by comparing the estimated with an intercept only model. cox & snell and nagelkerke r2 (bounded by zero and one) indicate the proportion of variability in the dependent variable accounted for by the equation’s predictor variables. the hosmer and lemeshow test with a p-value greater than .05 indicates good fit (hilbe, 2009). each predictor’s significance is tested through a wald statistic. for each predictor, we will examine the unstandardized regression coefficient (b), wald statistic, and odds ratio (exp (b)). the odds ratio represents the increase (decrease if less than one) in the odds of being classified in a category (dependent variable equals one). results the survey was completed by 117 students. three surveys were unusable because of incomplete data (n = 114). all students have taken at least one online class. no question had more than three missing values. respondents are predominately female (64%) (table 1). they are upper-class (82%) school-of70 baglione advances in business research 2013, vol. 4, no. 1, 68-76 business students (69%) who live in campus dormitories (52%) with an average gpa of 3.17. they study an average of 10 hours weekly (10.07), while working (including work-study and internships) almost 17 hours (16.55, with 15% not working). they pay for more than a third of their college expense (38%), while 17% pay nothing. they are primarily from suburban areas (39%), followed closely by rural (27%), and urban (34%). a third (37%) are not involved with student organizations (18.4% are on a sports team) among all the average number of organizations belonged to is 1.46. table 1: demographics (n=114) category percent category percent gender college major female 64%1 business 69% male 36% non-business 25% undecided 5% residence (home) residence (campus) urban 34% on-campus 52% rural 27% off-campus (family) 20% suburban 38% off-campus (non-family) 28% class rank freshman 5% sophomore 11% junior 34% senior 48% 1because of rounding error, totals may not sum to 100% they have taken an average of 2.8 online classes (six eight-week terms annually are available and students can take one class per term with faculty advisor and department chair approval). the major reason for taking online classes is flexible times (62%) followed by traditional classes are at inconvenient times (47%), easier workload than traditional classes (29%), save gas money (28%), traditional class unavailable (27%), and no travel involved (23%). respondents found online classes unexciting, predictable, challenging, not fun, and informative, but not simple (neutral) (table 2). they were found to have created synthesis and evaluation. (students were provided with a definition of two levels of bloom’s taxonomy to answer questions (bloom, 1956)). synthesis was defined as use of old ideas to create new ones; generalize from given facts; relate knowledge from several areas; and predict, draw conclusions. evaluation was defined as compare and discriminates between ideas; assess value of theories, presentation; make choices based on reasoned argument; and verify value of evidence.) (university of victoria, 2010). seventy percent of respondents were able to identify synthesis when presented with a definition. table 2: one-sample t-tests (online classes) questions t-stat. (mean) p-value 1) online classes are exciting.1 -5.42 (3.25) .000 2) online classes are predictable. 5.50 (4.81) .000 3) online classes are challenging. 3.53 (4.46) .001 4) online classes are simple. 0.77 (4.11) .444 5) online classes are fun. -6.13 (3.11) .000 6) online classes are informative. 4.70 (4.58) .000 7) online classes achieve synthesis. 4.72 (4.58) .000 8) online classes achieve evaluation. 5.90 (4.72) .000 1poor description (1) to perfect description (7) traditional classes were found to be predictable, challenging, fun, informative, and created synthesis and evaluation (table 3). they were neutral on whether they were exciting and indicated that simple was a poor description. 71 baglione advances in business research 2013, vol. 4, no. 1, 68-76 table 3: one-sample t-tests (traditional classes) questions t-stat. (mean) p-value 1) traditional classes are exciting.1 0.82 (4.12) .415 2) traditional classes are predictable. 2.61 (4.38) .000 3) traditional classes are challenging. 7.81 (4.95) .000 4) traditional classes are simple. -3.39 (3.50) .001 5) traditional classes are fun. 2.24 (4.34) .027 6) traditional classes are informative. 10.24 (5.23) .000 7) traditional classes achieve synthesis. 9.83 (5.22) .000 8) traditional classes achieve evaluation. 8.01 (5.04) .000 1poor description (1) to perfect description (7) traditional classes when compared to online are viewed as more exciting, challenging, fun, and informative, and achieving synthesis and evaluation better (table 4). online classes are viewed as more predictable and simpler. table 4: paired-samples t-tests (online and traditional classes compared) questions t-stat. (mean online) (mean traditional) p-value 1) traditional/online classes are exciting.1 -4.78 (3.25) (4.12) .000 2) traditional/online classes are predictable. 2.34 (4.81) (4.38) .021 3) traditional/online classes are challenging. -3.27 (4.46) (4.98) .001 4) traditional/online classes are simple. 2.97 (4.07) (3.50) .004 5) traditional/online classes are fun. -5.75 (3.13) (4.34) .000 6) traditional/online classes are informative. -3.94 (4.58) (5.25) .000 7) traditional/online classes achieve synthesis. -4.18 (4.57) (5.21) .000 8) traditional/online classes achieve evaluation. -2.33 (4.72) (5.07) .022 1poor description (1) to perfect description (7) more than half of the respondents (58%) prefer traditional classes (table 5). they spend more time studying and doing homework in them (67%) and participating (67%). surprisingly, grades are perceived equal between online and traditional. traditional provides a better sense of community (84%), learning environment (65%), synthesis (53%), and evaluation (54%). however, when comparing gpas by preference, those who prefer traditional have higher gpas (t (75) = -2.45; p = .017; m = 2.93 (online) and m = 3.21 (traditional)). they were neutral about whether they would take online classes in the future even if the same class is available in the traditional format (t (113) = -0.34; p = .732; m = 3.94) (strongly agree (1) to strongly disagree (7)), take more than one online class at a time (t (113) = -0.54; p = .593; m = 3.90), and, unequivocally, that they would not prefer to take all online classes during a semester (t (113) = 4.82; p = .000; m = 4.90). table 5: percentages (online and traditional classes compared) questions online traditional equally 1) i prefer: 20% 58% 23%1 2) i spend more time studying and doing homework in: 21% 67% 12% 3) i participate more in: 23% 65% 12% 4) i get better grades in: 34% 33% 33% 5) which provides a better sense of community? 6% 84% 10% 6) which provides a better learning environment? 11% 65% 25% 7) which provides greater “synthesis?” 12% 53% 35% 8) which provides greater “evaluation?” 6% 54% 40% 1because of rounding error, totals may not sum to 100% 72 baglione advances in business research 2013, vol. 4, no. 1, 68-76 comparing those that prefer online and traditional classes, we estimated a logistic regression. the -2 log likelihood value is 54.67, and the model is significantly different from the constant-only model (chisquared (5) = 22.60; p < .000) (table 6). forty-one percent of the variation in the model is accounted for in the predictor (nagelkerke r 2 = .41). the hosmer and lemeshow test is not statistically significant (5.96 (8), p < .652), indicating a good fit. the hit rate is 81.1%, with 93.1% of respondents who prefer traditional classes, and 37.5% who prefer online correctly identified. the wald statistic is significant for the grade point average, hours spent studying, and gender (table 6). the odds for males are about 538% higher than the odds for females for preferring traditional to online classes. a one-unit increase in the personality scale results in a 6% increase in the odds of preferring a traditional to online class (note: higher values on the personality scale indicate more extroversion.) taking one more online class increases the odds of preferring traditional to online by 21%. finally, a oneunit increase in gpa increases the odds of preferring a traditional class versus an online by 1,221%. table 6: logistical regression variable odds ratio se classes taken 1.21 .19 personality scale 1.06 .05 grade point average 12.21* 1.00 hours studying 1.28** .09 gender 5.38* .83 chi-squared 22.60 (.000) r2 (pseudo) .41 n 114 *p<.05 **p<.01 discussion our results are similar to other researchers: flexibility and convenience are important determinants to taking online classes (bocchi et al., 2004; hiltz & shea, 2005) and to a lesser extent, but still important: easier workload. online and traditional classes both provided a predictable, challenging, and informative environment that created synthesis and evaluation. traditional classes are fun, while online are unexciting and not fun. when compared together, the traditional class is superior in creating an exciting, challenging, fun, and informative environment that achieves synthesis and evaluation better, while creating a better sense of community and overall learning environment. this contradicts much of the research where learning outcomes are similar. it is similar to evaluations by faculty and hr professionals (allen & seaman 2012; society for human resources, 2010). online is clearly perceived inferior in generating a sense of community. learning and creating an online community have been linked (arbaugh, 2005; swan, 2003). for these reasons, traditional is the preferred delivered method. students in traditional classes also spent more time studying, doing homework, and participating, yet grades across delivery methods are perceived equal across the two. students unequivocally do not want to take all classes online. online does have advocates. almost a quarter prefer online, about the same number who prefer both, but on all important metrics, traditional is perceived superior. delivery modes are not perceived interchangeable. females appear to prefer online to males, probably because they are better students: higher gpas (t (101) = -2.45; p = .016; m = 3.10 (male) and m = 3.31 (female)) and more disciplined, although we did not measure that. this contradicts prior research which found no differences (daymont & blau, 2008). extroverts, not surprising, want the face-to-face platform, where it is easier to exhibit. taking additional online classes increases the preference for traditional classes. the better students, as measured by gpa, prefer traditional to online. online courses because of their flexibility and convenience will continue to flourish. the question becomes how to enhance the learning community and ensure comparability in learning. a seismic change for online education is massive open online courses (moocs). carnegie mellon university has offered moocs for a decade (perez-pena, 2012). coursera, a consortium of universities led by stanford, 73 baglione advances in business research 2013, vol. 4, no. 1, 68-76 princeton and duke, offers 100 courses free (lewin, 2012). edx, a joint venture of harvard and mit, and udacity also offers moocs. how this impacts profit-making online institutions, whether it will cannibalize participants’ enrollments, and if the marketplace will accept these non-credit courses is unclear? most students are in foreign countries, but that will change, especially if domestic institutions offer them for credit? will faculty be relegated to grading and supplementing free lecturers from a few academic stars online? benefits may include the creation of globally-blended classes where faculty can incorporate online material from an array of lecturers, breaking academic silos, and focusing more on difficult material in the classroom (brooks, 2012). udacity has “placed about half a dozen students into jobs” already (lytle, 2012). large introductory classes taught in lecture halls may be the first casualty for traditional schools (burnsed, 2011). limitations and future research we did not directly measure learning, nor confirm student grades. we did not control what types of courses these students took (i.e., subject matter and course level), and whether there was a relationship between learning, for example, and type of course. our sample was restricted to traditional-age students at one university, which is primarily teaching-oriented and the average class size is around 15. would similar results occur with a research-oriented institution that has large lecture hall introductory classes? future research should compare traditional-age and non-traditional age students. since our sample is traditional-age students, they may value face-to-face interaction and the structure of traditional classes more. learning’s impact can be statistically decomposed through regression analysis (friday, 2006; hanney & newvine, 2006). students did not record satisfaction levels, although we did measure components of it. we could gather perceptions from students and faculty about online courses. finally, course duration may impact satisfaction. during a five-week online course, student satisfaction with communication with the faculty diminishes but increases for student-to-student communication (fergeson, 2010). references allen, i., & seaman, j. 2012. conflicted: faculty and online education, 2012, babson survey research group and quahog research group, llc., massachusetts. allen, m., bourhis, j., burrell, n. & mabry e. 2002. comparing student satisfaction with distance education to traditional classrooms in higher education: a meta-analysis. american journal of distance education, 16(2): 83-97. arbaugh, j. 2005. is there an optimal design for online mba courses? 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perceptions of online courses and degree programs. journal of information systems education, 17(2): 131-140. woods, r., & ebersole, s. 2003. social networking in the online classroom: foundations of effective online learning. e-journal december. 12/13(1), http://www.ucalgary.ca/ejournal/archive/v12-13/v1213n1woods-browse.html retrieved october 18, 2012. wuensch, k., shahnaz, a., ozan, e., kishore, m., & tabrizi, m. 2008. pedagogical characteristics of online and face-to-face classes. international journal on e-learning, 7(3): 523-532. stephen baglione is professor of marketing and quantitative methods at saint leo university in florida. he received his ph.d. in marketing from the university of south carolina. he has published in british food journal, chinese management studies, electronic markets, journal of excellence in college teaching, journal of promotion management, quarterly review of distance education, and journal of applied management and entrepreneurship. he was a fulbright scholar at the university of ljubljana in slovenia. advances in business research 2011 volume 2.pdf stuart and parker advances in business research 2011, vol. 2, no. 1, 222-230 222 marketing place: the case of a city and a university business school elnora stuart, university of south carolina upstate darrell parker, university of south carolina upstate cities negatively impacted by de-industrialization are turning to marketing in order to ensure a financially secure future. as part of an economic development program for spartanburg south carolina, the johnson college of business of the university of south carolina upstate was asked to locate in downtown spartanburg, south carolina. made possible by financial support from the city and the business community, a new college of business building enhances the prospect of a new period of growth in the life cycle of the city, visibly supports the brand image and strengthens the “college town” positioning of the city. during recent decades, many cities have suffered from “de-industrialization, a falling tax base and declining public expenditures, factories closing and jobs disappearing (kavaratzis, 2005: 330).” with this changing economic environment, cities find they must compete for business relocation, foreign investment, residents, new jobs, and the economic benefits of tourism. as a result many are engaging in pro-active planned marketing strategies (hankinson, 2007). in fact, today, an increasing number of cities both large and small are finding that marketing their communities is essential to provide for a financially secure future for the city, its businesses and its residents. marketing is most closely associated with popular consumer goods and services such as coca-cola, nike, disney, and google. products that can and do benefit from marketing, however, also include people (think of the millions spent on advertising to get voters to choose one political candidate over another), ideas such as recycling and wearing seat belts, and places including cities, nations, and tourist attractions. kotler et al., (1993) have suggested that cities fall into one of four categories. they 1) are in chronic economic trouble; 2) are in acute economic trouble; 3) have already been transformed; or 4) are one of the favored few, like florence, paris, or san francisco, that are financially healthy and continue to attract business, tourists and new residents. the cure for cities that find themselves in trouble is “strategic place marketing” in which cities seek to deliver the “right mix of community features and services,” provide incentives to make the place attractive to businesses and families, deliver the benefits that the place offers in an efficient and accessible way, and promote the place’s image and values (kotler et al., 1993: 18). in other words, strategic place marketing for economic development must include the same elements of the marketing mix as other products from toothpaste to ipads product, price, place and promotion. while all marketing strategies used to market goods and services are relevant to marketing place, three concepts are especially important. the first of these is the product life cycle (plc) of a place. the plc concept, for example, has been frequently used in studies of tourism destinations. second, the development of a branding strategy that will distinguish an offering and create a positive image is critical to place marketing. finally, the concept of positioning in which marketers seek to “position” a product positively in the minds of consumers relative to the competition is also essential for successful place marketing strategies. in this study, we will first discuss these marketing concepts necessary for successful place marketing: the product life cycle, branding, and positioning. then we will present a case example of how one city is seeking to reposition itself with product enhancements and the role of a university business school in that process. plc the concept of the product life cycle (plc) has proven to be an important managerial tool used in the development and management of product offerings. the plc is a useful way to explain how the market’s response to a product and corresponding marketing activities change over the life of the product. a stuart and parker advances in business research 2011, vol. 2, no. 1, 222-230 223 product’s stage in the plc is often seen as the most useful variable for determining the appropriate business/marketing strategy. the traditional life cycle is divided into four parts: introduction, growth, maturity and decline. major changes are usually required during the introduction, maturity and decline stages (anderson and zeithaml, 1984). butler adapted this traditional plc model in developing his tourism area life cycle (talc) model (putra and hitchcock, 2006). the talc model that specifically addresses the problems of tourism destinations includes six stages: exploration, involvement, development, consolidation, stagnation, and rejuvenation or decline. while we will discuss the life cycle of cities in the context of the traditional model, it is noteworthy that this model of the plc applied to place marketing suggests that there is a need and an opportunity for rejuvenation of places through intervention that may be necessary for survival. many cities find themselves in the maturity stage of the plc in which growth has leveled off or even begun to decline. competition for new industry and new residents is intense and other cities are fighting hard for their share of a shrinking pie. this is especially true today as an increasing number of industries have moved away from the united states leaving communities with high levels of unemployment. while plc theory suggests that the four stages of the plc are predetermined, this is not the case for many goods and, hopefully, for cities. firms are often successful at repositioning their products through the addition of new features and benefits that create new excitement among consumers and thus return the products to a second, third, etc., growth stage (moon, 2005). in the same way, cities often seek to reinvigorate their communities by adding features and benefits which provide incentives enticing businesses to locate there and families to want to move there. this is the economic development goal of cities that find themselves in the maturity stage and respond with strategies such as elaborate redesigns of downtown shopping areas. branding while branding is most often understood in terms of visual elements logos, slogans, etc. branding is far more. brands provide the recognition factor products need to succeed. from a management perspective, however, branding is a complete and continuous process that includes all marketing activities used together to deliver a promise of quality and to increase the value of the brand, that is, the brand equity (kavaratzis, 2009). for example, nike is one of the world’s most recognized brands. nike is a name and it is the swoosh logo. but it is much more. it is a promise of quality athletic wear that has been carefully designed to meet the needs of all types of athletes and non-athletes, a promise nike delivers on time and time again. if nike were only the name and the swoosh, it would have disappeared long ago. like many brands, nike both makes and delivers a promise to customers through its total marketing strategy. branding a city is also more than mere advertising and promotional activities. developing a successfully branding strategy for a city means creating a unique brand image through careful design and development enhancements and promotion which effectively communicates that image to prospective businesses and families. cities have successfully marketed themselves with a variety of strategies from large events to large-scale improvements in the physical environment, often the result of public-private partnerships. new york not only created the “i ny” slogan but also cleaned up times square and then made sure tourists knew about it. vancouver, barcelona, and other cities have made significant improvements in their image through the olympics and other large global events. buildings and architecture can also be a strong factor in branding a city as seen in the opera house in sydney, australia, and in the large number of ambitious architectural projects in dubai including the world’s tallest building and the sail-shaped 7-star burj al-arab (arabian tower) hotel. for a city, however, branding presents some unique challenges. first, it is inherently more difficult than branding a good or service because a city has multiple stakeholders and the branding must be consistent with the needs and desires of all (kavaratzis, 2009). in addition, a city is far more complex stuart and parker advances in business research 2011, vol. 2, no. 1, 222-230 224 than a simple good or service with both tangible and intangible assets and the entities that seek to develop a branding strategy have little or no control over the assets of the city. trying to deliver a consistent brand image to diverse target markets creates additional challenges both in the development of a promise that meets the needs of all and in the delivery of that promise when target markets have conflicting goals. positioning closely tied to branding is the concept of positioning. successful positioning demands “designing an organization’s offering and image so that it occupies a distinct and valued place in the customer’s mind” relative to the competition (kerin and peterson, 2010: 45). positioning is about creating a promise of value that is important to the customer. positioning is also the driver for all other marketing activities. while firms may position a product in various ways, positioning by attribute or benefit is most frequently used. this strategy requires that marketers first identify which attributes are most important to the target market(s) and which are being emphasized by their competitors and then determine how their products can best be fitted into the product/target market environment. often this entails developing a product that contains the appropriate attributes or, if they already exist, stressing those attributes in marketing communication about the product. this process is complicated exponentially by the existence of multiple target markets. successful city marketing strategies require careful determination of the best positioning and they must also make sure the product delivers on the promise. a city that seeks to position itself based on benefits or attributes, for example, might develop a positioning based on the friendly neighborhoods and good schools while positioning on use or application might focus on the access to major means of transportation or the available labor force. a city that already has a number of high-tech industries might position itself by current and potential new users of the product as the ideal community “for high-tech industries.” for a city, a positioning strategy often means repositioning. companies (and cities) are most successful with repositioning strategies that build on existing product competitive advantages or comparative strengths, often promoting different facets of the product/city to different audiences. that is one reason that larger cities with more diverse economies may be more successful stimulating growth as they can promote different facets of their city to different target markets (warnaby et al., 2005). for example, some cities boast excellent retailing opportunities. retailing can be especially important in repositioning as it interacts with other “product” elements and can thus enhance a “holistic” place product. barcelona is an example of a city that has been recognized for its “best practice” in repositioning itself (hospers, 2009). starting with the 1992 olympic games, the city worked on a plan to restore the city’s architectural heritage through renovation of older structures and the creation of new “imageable” buildings. the case of spartanburg, south carolina, and the george dean johnson college of business and economics spartanburg, south carolina, located at the junction of interstate highway 26 and interstate highway 85, is a small city with a rich and vibrant history. established in 1831, spartanburg today has a population within the city of over 43,000 while the larger spartanburg county population is over a quarter of a million. history of the city a number of events in the history of spartanburg bear particular relevance to the city’s position today (spartanburg county public library, 2004). first, the development of railroads in the latter decades of the 19 th century placed spartanburg on the route to almost everywhere, causing spartanburg to be known as the “hub city.” next, between 1880 and 1910, nearly 40 textile mills were added to the small textile stuart and parker advances in business research 2011, vol. 2, no. 1, 222-230 225 industry that had existed since the early part of the century. the textile industry in spartanburg flourished through the end of world war ii after which it began to decline. similarly, being a railroad hub city lost importance as the use of railroads for transportation diminished. since its early years, spartanburg has been a “college town.” nationally recognized wofford college and converse college were begun in 1854 and 1889 respectively. today six colleges and universities are located within the city. toward the close of the 20th century, a number of global firms located in spartanburg county. today more than 100 international firms representing 20 countries give spartanburg the highest per capita international investment in the country. current economic development initiatives recent years have been devastating to the economies of many communities. in 2008 and 2009, as the national economy declined, real gdp in spartanburg declined 0.5 % and 6.4% respectively (bureau of economic analysis, 2011). the advance estimates for 2010 gdp indicate an increase of 3.7% from the 2009 low. this is still below the level of economic activity in 2007 before the downturn. today spartanburg, like many other former textile economies, is developing and implementing several initiatives aimed at reinvigorating the downtown area where some stores and other buildings stand empty and little or no recent private construction has occurred. the economic growth council, with members who are professional development practitioners from government, business, education and utilities, has initiated a plan for the economic growth of spartanburg county (economic futures group, 2007). implementation of the plan, titled the path to prosperity is tasked to the economic futures group. in addition, the upstate alliance is a public/private regional economic development organization supported by 10 counties, five cities and more than 170 individual companies and organizations in the upstate south carolina region. this region embraces the i-85 corridor in south carolina that connects the atlanta and charlotte metropolitan regions. the mission of the alliance includes marketing the upstate sc region to attract business investment and to support other economic development efforts for the 10county upstate region (upstate sc alliance, 2010). and much progress has been made. corporate headquarters have located downtown; a thirty-five million dollar cultural arts center serves the city residents; a four-star conference center, the marriott spartanburg, has opened; private dollars have been made available for downtown housing; and $34 million has been secured to replace public housing. the university of south carolina upstate the university of south carolina upstate, a four-year campus of the university of south carolina, is located on a 300-acre residential campus in spartanburg, s.c. the university is a comprehensive, metropolitan university and offers baccalaureate education and selected master’s degrees to citizens of the upstate region. usc upstate has distinguished itself with its mission: …the university of south carolina upstate aims to become one of the southeast’s leading “metropolitan” universities, a university that acknowledges as its fundamental reason for being its relationship to expanding populations along the i-85 corridor. …the university’s metropolitan mission rests upon a foundation of partnership with the education, corporate and service organizations of the upstate. to understand the focus of a “metropolitan” university, one might think of the land-grant universities that have unique obligations to their state’s engineering and agricultural environments. in the same way, metropolitan universities have special obligations to their urban corridors and might even be called “metro-grant universities.” usc upstate’s 300-acre residential campus in spartanburg county is the primary venue for delivery of its educational programs and offers classroom space, academic support facilities, housing, and athletic and recreational facilities. in addition, usc upstate offers courses in greenville, s.c. offering courses and programs in more than one location is not unusual as many metropolitan universities occupy a residential campus at some location within their corridors and support specialized locations in the core stuart and parker advances in business research 2011, vol. 2, no. 1, 222-230 226 cities along their corridors. while the school recruits students through state-wide and global recruiting efforts, the largest percentage of students come from spartanburg and the upstate region. most choose to remain in the region after graduation. usc upstate is “deeply engaged” in spartanburg. in line with its mission of being a metropolitan university, upstate has sought to partner with spartanburg and other cities along the i-85 corridor. university leaders have served on spartanburg’s commissions and boards, and have collaborated with chamber, economic development, and the “college town” initiatives. university students have given thousands of hours of volunteer service and faculty regularly undertake consultancies and research projects. relocation of the business school in 2007, the city of spartanburg invited usc upstate to locate the johnson college of business and economics downtown in the heart of an area known as “renaissance park.” the master plan for renaissance park includes the already completed marriott conference center and the chapman cultural arts center surrounded by a commercial village, galleries, corporate sites, parking facilities and residential developments. the new downtown home of the college is referred to as “the george” since the official name of the business school is the george dean johnson, jr., college of business and economics. construction on the building began in november, 2008, and was completed for occupancy in summer, 2010. funding for the project was made possible by the combined efforts of the university, the city and the business community. the project required an investment of over $32 million. this included approximately $15 million for parking and infrastructure from the city. the university move was also enthusiastically supported by the business community. over $10 million was pledged during the first month and over $14 million in private donations had been committed by the opening. the building design includes dedicated computer labs with business software, a stock market trading room for finance classes, and classrooms with computers to permit students to individually run educational software during class. in addition to classroom and office space, future plans for the building include shared space for executive and continuing education opportunities, allowing for expanded services for small businesses, and connecting the university and its students to the business community. for the university, the opportunity to move downtown meant using the investment in the new facility for the johnson college as an economic engine for the city. this decision goes beyond the institution’s “metropolitan engagement” and the provision of educational opportunities to regional residents and partnerships with regional enterprises to becoming a “principal ally and agent of change” in the reinvention of the city. such a move is, however, in strong agreement with the mission of usc upstate as a “metropolitan university.” the marketing perspective on the move a major part of the strategic marketing of a place, as discussed, is development of an effective product strategy. in the case of a product in the maturity stage of the plc, this often means adding new product features and customer benefits which have the potential for moving the product into a new stage of growth. it is posited that the move of the johnson college of business away from the larger university campus to a downtown spartanburg location has the potential to, along with other city initiatives, create a new period of growth for the city, provide benefits to the city, to businesses, and to the college and create new opportunities for branding and repositioning of the city. additional product benefits of a downtown business school the move of the johnson college of business to downtown spartanburg provides features and benefits for the city that along with other attributes can make the city more attractive to companies and individuals looking for a place to locate. but, in addition, there are benefits to the existing local businesses and to the stuart and parker advances in business research 2011, vol. 2, no. 1, 222-230 227 university and the college. because it offers significant benefits to all three entities, the move creates a synergism that provides for sustainable growth for all. benefits to the economic development of the city people and companies can select from a large number of cities, all seeking to attract new loyal members of their communities. cities that are able to attract growth will be successful in tomorrow’s economy while those which are not will find it more and more difficult to stimulate a turnaround in the future. furthermore, in a strong economy, jobs follow people instead of people following jobs. in other words, companies seek to locate in communities in which a quality workforce is available. indeed the two work together. a community must be able to attract both new residents and new businesses. the current recessionary economy has changed the expectations of many consumers. they no longer have confidence that prosperity and the accompanying monetary success for all is guaranteed. as a result, many feel that quality of life is just as important if not more important than simple monetary success. the prominent position of the johnson college in downtown spartanburg can supplement other initiatives in providing strong evidence to companies and individuals that spartanburg is not just another dying textile town hoping for better days but is a city actively moving toward becoming a more vibrant community offering the quality of life that is attractive to families. a number of factors contribute to this. first, a city’s ability to entice new business and investment is enhanced when a community addresses the educational attainment of the population. the george will enhance the city’s “college town” image. second, the move creates the potential for continuing education, outreach programs and certificate programs designed to meet the needs within the city. the downtown location of the johnson college provides a new and important visual feature to the city. the building was designed by the same architect that built the cultural arts center next door. from the beginning, as much attention was focused on the urban development opportunity as was focused on the function as an educational facility. two visual cues were integral to the design. first, an octagonal tower provides a classic university feature and is highly visible evidence of the city’s focus on education. second, the tower is wrapped with a 20 foot external stock ticker. this symbolizes the function of the business school and reinforces the downtown business district image of the city. while spartanburg has sought to enhance its image with the “college town” moniker for decades, the addition of this highly visible college of business is concrete evidence of the intent of the city to encourage and enhance the educational benefits of the city. in today’s economic environment, experts repeatedly remind us that it is small entrepreneurial businesses which are the creators of new jobs not large companies. therefore, any economic development program must enhance the environment for entrepreneurship. the downtown location of the college of business satisfies this need in several ways. first, the talent and programs of the business school can provide tremendous assistance to those who would like to begin small businesses. in addition, students in the business programs are a potential source of new entrepreneurs. another requirement for strong growth of entrepreneurship in a community is the availability of incubator facilities and preincubator services. the downtown college of business has the space and an interest in developing these facilities and services. economic development experts know that good jobs go to smart communities. executives who have the decision-making authority for where to locate or relocate a company do not wish to locate in communities with low levels of education and they certainly don’t wish to live there themselves. both community leaders and the business school recognize the need to increase the level of education in spartanburg and are dedicated to that goal. currently, only 19 percent of the population of spartanburg over the age of 25 has at least a bachelor’s degree. this is significantly below the state average of 23 percent and 28 percent in neighboring greenville county. the u.s. average is 27 percent. the opportunity to work with community leaders to develop innovative programs to improve these statistics is enhanced by the visibility provided by the downtown location. stuart and parker advances in business research 2011, vol. 2, no. 1, 222-230 228 of course, it is equally important to the economic health of a city to retain its existing businesses. the johnson college of business and economics is currently home to over 800 business majors, approximately half of which will have the majority of their courses in “the george.” thus 500 or more students, faculty and staff will be added to the downtown daytime population. this means a flow of 200 to 250 people through the downtown business district at regular intervals during the day. many of these will be eating and shopping, creating a boost to existing downtown businesses. in summary, the presence of the downtown business campus can help attract families seeking quality of life, provide a visual icon of the college town designation, assist in growing entrepreneurship, lead the way to a more highly educated population and boost downtown traffic. long-range benefits will accrue to the city including: stimulating innovation, supporting incubation, enabling continuing education and enhancing the downtown “cool” factor. this in turn can strengthen the city’s position in attracting investment, increasing its tax base, providing professional job opportunities and attracting talent. most importantly the downtown campus will be predisposing some graduating business majors by virtue of their experience, comfort levels, and internship connections to build careers and live in the city. benefits to current and future companies as noted, the johnson college move to downtown spartanburg enhances spartanburg by adding a new important feature that provides benefits to current and future companies. some of these are already in evidence whereas others remain in the development stage. while the residential usc upstate campus is only four miles from downtown spartanburg, the move downtown erases any distance barrier to cooperative business-university activities. businesses can more easily and more fully take advantage of opportunities for working with faculty and student groups. faculty and/or student groups may, either through consultancies or through class projects, provide assistance to businesses in crafting successful business strategies. a number of new college-wide initiatives also offer benefits to companies. the new facilities are currently offering opportunities for expanded open enrollment and custom executive education programs. as already noted, there are tentative plans for “the george” to house small-business incubator facilities and offer pre-incubator services. in addition, discussions are underway with local businesses regarding the development of a marketing research facility that would give students experience and provide important assistance for local businesses. benefits to the college and the university for the university, the downtown location of “the george” offers greater visibility among the leaders of the city and a “front door” to the business community, thus enhancing its ability to connect with and benefit from external business stakeholders. along with greater visibility, the university is enjoying increased esteem for the institution and its programs. excellence in business education requires experiential learning in which students interact with business leaders and prospective employers in a professional business learning environment. classes and students benefit from the increased engagement of business leaders in the classroom and with student organizations. for learning in such a business environment, a downtown facility allows students a better opportunity to transition into their first professional career role. internships and other experiential learning opportunities benefit both students and businesses. for students, internships provide real-world experience, often critical in finding employment after graduation. businesses benefit by having the opportunity to “try out” prospective employees without risk. although the building has only been in use a little more than a year, there is already evidence of synergistic benefit opportunities for the university, the community and the city. business leaders have enthusiastically accepted invitations to speak in classes and instructors have responded to requests from community organizations for student groups to assist in the development of business strategies through class projects. stuart and parker advances in business research 2011, vol. 2, no. 1, 222-230 229 enhancing the branding of spartanburg as discussed earlier, branding is not simply a logo or a name but is a continuous process that includes all marketing activities used together to deliver a promise of quality and to increase the value of the brand, that is, the brand equity. in a nation where economic growth appears to be consolidating in fewer communities, having a recognizable name and a positive image will play a huge role in a city’s future development. as people are placing more and more importance on the quality of life in a place where they live, an opportunity is created for spartanburg to craft a new brand image. the path to prosperity plan of the economic futures group states that one major objective is to “create a new image/brand which capitalizes on our desirability as a place to live and work.” but brands must be built on a community’s strengths. the focus on education as a branding element is not only attractive to prospective businesses and families but it is consistent with the history of the community. as a result, branding that includes a strong focus on colleges will have greater credibility. opportunities for higher education create both a product benefit of the city and an important part of the city’s branding. the high visibility of the johnson college of business and economics as part of the downtown landscape strongly enhances such branding efforts. positioning as discussed earlier, positioning is about how customers and prospective customers view the product in relation to competitors’ offerings. a product’s positioning strategy dictates not only communication about the product but how all marketing strategies are designed. positioning may be the most important part of marketing strategy in successfully competing against other product offerings. therefore, for a city, a winning positioning strategy must set the city apart in the minds of companies and individuals as a more desirable place to locate than competing cities. there are many competing cities that can be positioned similarly as small, friendly, seeking and welcoming of growth, and so forth. the downtown location of the johnson college allows the city to develop a unique positioning as a “small, friendly, college town with an engaged population that supports education and growth.” early results the move from its inception has generated great enthusiasm in the community. it seems that everyone in the city knows about “the george” and is excited about it. being able to include in a positioning strategy that spartanburg is a the city where good things are happening and where residents, businesses, and university students are excited about the movement forward can be enticing and even intoxicating to both companies and individuals looking to make their home in a new city. some downtown retail businesses have already opened and others are in the planning stage. university faculty and administrators and local business leaders are energized participants in new joint initiatives. while there are no guarantees about the future, for the time being it appears that spartanburg, with a strong focus on economic development that includes the johnson college of business, is moving into a second growth stage in the product life cycle of the city. references anderson, c., & zeithaml, c. 1984. stage of the product life cycle, business strategy, and business performance. academy of management journal, 27: 5-24. bureau of economic analysis. 2011. economic growth widespread across metropolitan areas in 2010. news release, u.s. dept of commerce, september 13, 2011. retrieved on september 16, 2011 from http://www.bea.gov/newsreleases/regional/gdp_metro/2011b/pdf/gdp_metro0211b.pdf. stuart and parker advances in business research 2011, vol. 2, no. 1, 222-230 230 economic futures group. 2007. path to prosperity: economic development plan for spartanburg county. retrieved on november 24, 2010 from http://www.economicfuturesgroup.com/documents/path_to_ prosperity.pdf. hankinson, g. 2007. the management of destination brands: five guiding principles based on recent developments in corporate branding theory. brand management, 15: 240-254. hospers, g. 2009. lynch, urry and city marketing: taking advantage of the city as a built and graphic image. place branding and public diplomacy, 5: 226-233. kavaratzis, m. 2009. cities and their brands: lessons from corporate branding. place branding and public diplomacy, 5: 26-37. kavaratzis, m. 2005. place branding: a review of trends and conceptual models. marketing review, 5: 329-342. kerin, r., & peterson, r. 2010. strategic marketing problems: cases and comments. upper saddle river, nj: pearson education inc. kotler, p., heider, d., & rein, i. 1993. marketing places. new york: free press. moon, y. 2005. break free from the product life cycle. harvard business review, may: 86-94. putra, i., darma, n., & hitchcock, m. 2006. the bali bombs and the tourism development cycle. progress in development studies, 6: 157-166. spartanburg county public library. 2010. history of spartanburg. retrieved on november 24, 2010 from http://www.infodepot.org/zabout/histories/hist/historyspt.htm. upstate sc alliance. 2010. about upstate sc alliance. retrieved on november 22, 2010 from http:// www.upstatescalliance.com/pages/index/about. warnaby, g., bennison, d., & davies, d. 2005. retailing and the marketing of urban places: a uk perspective. international review of retail, distribution and consumer research, 15: 191-215. elnora stuart is a professor of marketing at university of south carolina upstate. she received her ph.d. in marketing from university of south carolina. her current research interests include marketing in global environments, ethics in advertising and household decision making. she has published in journal of consumer research, journal of business research, journal of advertising, journal of education in marketing, and others. darrell parker is the dean of johnson college at university of south carolina upstate. he received his ph.d. in economics from purdue university. his areas of specialization include: general economics and business, regulatory economics, labor economics, public economics, and international business. microsoft word abr--first-time-online-submission-2016.docx advances)in)business)research! first!time!online!submission!instructions! ! ! go!to!the!journal!website:!http://journals.sfu.ca/abr/! ! click!on!register! ! fill!out!the!form.!!be!sure!to!complete!all!areas!of!the!forms!and!use!normal!capitalization!and! punctuation!for!names,!titles,!affiliations,!abstracts,!etc.! ! make!sure!you!check!the!register(as:!author:!able!to!submit!items!to!the!journal!tick!box!(and! others!as!applicable).! ! submit!the!form!(it!might!reject,!for!example,!if!you!mistype!the!validation!text,!just!try!again).! ! once!the!form!is!successfully!submitted,!you’ll!see!the!user(home!where!you!can!see!your!roles! such!as!author!or!reviewer.! ! click!on!author!and!it!will!take!you!to!the!active(submissions!page.! ! you’ll!see!this:! ! ! follow!the!five!steps!and!the!last!step!is!“confirm!submission.”!!! ! be!sure!to!complete!all!areas!of!the!forms!(including!colauthors,!added!with!the!add!author! 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you finish step five, you’ll be taken to your active submissions page. advances in business research 2011 volume 2.pdf burgess-wilkerson advances in business research 2011, vol. 2, no. 1, 247-255 247 sustainability in the nonprofit sector: communication strategies to increase the bottom line barbara burgess-wilkerson, winthrop university this paper explores the impact of communications management strategies in the sustainability of community-based organizations (cbos) and faith-based organizations (fbos). several communication challenges prevalent among nonprofits in southwestern pa are identified and communication strategies for improving the bottom line are provided as a viable solution. this paper will be of interest to consultants, academics and nonprofit leaders who seek to undertsand and address financial sustainability through effective communication management strategies. building nonprofit organizational capacity for sustainability is an important objective for communitybased organizations (cbos) and faith-based organizations (fbos). hansberry (2002) convened a panel of nonprofit experts who defined nonprofit capacity-building as, “a non-profit human service organization’s capacity is its long-term ability to achieve its mission effectively and efficiently through management, governance and persistent re-dedication to achieving results” (2002:14). while the first priority is service provision and mission fullfillment, outstanding performance as reflected by building a capacity to service the client is typically associated with sustainability. sustainability as it is used in this paper refers to the ability of an organization to build financial reserves; to develop and sustain viable funding support both long-term and short-term; and to engage in marketing, advertising and branding strategies to assist with these efforts through strategic communications management. many cbos and fbos occupy a special niche as service providers, addressing a host of social and economic problems that plague communities, families, and individuals in their serving areas. as providers of many of the services that hold neighborhoods together, they are among the local champions that mobilize and change the landscape of their respective communities through effective social service programming. cbos/fbos contribute to the overall economic performance and serve as a shock absorber during economic slowdowns by providing jobs to sustain a portion of the population and providing services to those in need (kearns et al., 2003; light, 2005; paytas and lagana, 2006). accordingly, it is imperative that the cbos/fbos remain viable as service providers and employers. the southwestern pa nonprofit community the researcher served as an independent organizational development (od) consultant in southwestern pa for over 15 years. during that time od services were rendered to over 100 cbos/fbos in an effort to increase revenue and to assist with capacity-building efforts for long-term sustainability. this paper draws upon those experiences and relies upon secondary data from the forbes fund to substantiate the challenges and opportunites in the nonprofit sector. while southwestern pa nonprofits are highlighted, i suspect similar patterns can be seen nationally. the paper seeks to increase awareness to assist with sustainability efforts among nonprofits. southwestern pa contained roughly 2,700 nonprofits with more than 1,800 in allegheny county alone. a survey conducted by the forbes fund ascertained that on average, nonprofits received 35 percent of their budgets from a combination of individual, foundation, and corporate donors; roughly 16 percent from individuals, 14 percent from foundations and 5 percent from corporations. the remaining portions came from fees for service, government contracts, endowments, the united way and religious sources (hansberry, 2002; kearns et al., 2003; light, 2005). despite ongoing efforts for sustainability, a significant portion of allegheny county cbos and fbos struggled to remain economically viable in an increasingly competitive funding environment. many were dependent on single sources of revenue, primarily the local government. however, funding became more difficult to secure due to a decreased availability of support from federal, state, and local governments. burgess-wilkerson advances in business research 2011, vol. 2, no. 1, 247-255 248 a signficant number of nonprofits operated at or near break-even, making them vulnerable to inconsistent funding sources. studies about the pittsburgh area’s nonprofit sector indicated that cbo/fbo’s operating margins tended to be the thinnest in organizations facing the first surges in demand for services from economic downturns. during those times only 61 percent of the organizations maintained positive operating margins. although the communnity remained generous in giving and volunteering, many nonprofits appeared to operate perilously close to the edge (kearns et al., 2003; light, 2005; paytas and lagana, 2006). in addition, the average reported deficit for nonprofits in the pittsburgh area was approximately $256,000 (paytas and lagana, 2006). if continued over the next decade, funding issues may result in an erosion of civic engagement in the midst of a rising demand for social services and an increased need for employment opportunities (kearns et al., 2003; light, 2005; paytas and lagana, 2006). as an od consultant, several executives and boards shared a belief that capacity-building for sustainability was a distraction from time and energy needed to operate existing programs. they appeared to minimize the notion that capacity-building was critical to building and sustaining long-term productivity and viability of essential programs and services. a significant number resorted to crisis management as an everyday survival strategy to meet increasing demands for limited resources (hansberry, 2002; kearns et al., 2003; light, 2005). a forbes fund study explored the funding capability of cbos/fbos to determine their organizational and management capacity and the ability of fbos to meet emerging needs. the study revealed that both cbos and fbos reported similar priorities with regard to needing assistance in fundraising; however, fbos were most interested in improving financial management (hansberry, 2002; kearns et al., 2003; light, 2005). less than half (and in some cases less than one third) of the fbo organizations report having a high capacity to engage in any of the selected sustainability activities. while 58% of the cbos and fbos say they have strategic plans, only 38.6% said their organization used objective data and analysis to make important decisions; 33% expressed an ability to secure financial resources to ensure uninterrupted services, and only 26% said the same about generating unrestricted revenue (kearns ey al., 2003; light, 2005). table 1 summarizes the sustainability efforts of fbos & cbos. table 1: sustainability efforts of fbos & cbos community-based organizations (cbo’s) capacity for sustainabiity efforts faith-based organizations (fbos) capacity for sustainabilty efforts high low high low use objective data and analysis to make important decisions 50.8 15.9 38.6 13.3 secure finanacial resources to ensure uninterrupted programs and services 29.8 21.6 33.1 29.7 use information technology to improve performance 44.2 19.0 45.9 18.3 generate unrestricted revenue to spend where most needed 15.8 44.9 26.4 44.9 manage legal and liability issues 45.1 27.9 16.3 48.6 respond quickly to unexpected needs for services in the community 37.9 22.9 32.9 23.1 develop and implement new programs to meet community needs 36.0 19.1 47.1 15.5 (source: kearns et al., 2003) pittsburgh is one of the most philantropic communities in the country with notable funders such as mellon, heinz, pittsburgh, scaife and others who generously provide millions of revenue dollars to worthy nonprofits annually. however, funding is becoming increasingly competitive, with more stringent guidelines and higher expectations for service delivery and outcomes. as a result, nonprofits must engage in sound business practices such as sustainability and capacity-building through strategic communications management in a manner that parallels for-profit enterprises. burgess-wilkerson advances in business research 2011, vol. 2, no. 1, 247-255 249 strategic communications management for sustainability sustainable cbo/fbos have a clearly defined mission that is relevant to community needs and is embraced at all organizational levels. they also have capable, motivated leadership and staff members, with well-defined accountability. such organization are results-oriented and offer services consistent with the mission and vision. also of importance is the ability to access information and resources to create reliable and diverse revenue streams. sustainable cbo/fbos must have the ability to improve programs and respond to change. in order for cbos and fbos to have the ability to adapt as new opportunities appear, and to sustain efforts over time, they must develop effective communication strategies. according to andrews and baird (2005), “communications is not merely an activity in an organization, it is the lifeblood that allows organizations to exist (2005:46).” without communications, relationships cannot be maintained, organizational goals and objectives cannot be achieved, and activities cannot be coordinated nor decisions made. in short, sustainability cannot occur without strategic organizational communication. in looking at organizational communications, barrett (2006) argues that the effectiveness of an organization with respect to the achievement of its’ goals is closely related to its’ effectiveness in handling information (2006: 368). organizational communication is the process by which messages are sent and includes: the monitoring of the types of messages sent, the selection of the appropriate channels, the values associated with those messages, the amount of information conveyed, the rules and norms under which messgaes are sent, and the organizational variables affecting the process like structure and outcomes measures (andrews and baird, 2005; dewine, 1994). capacity-building activities for sustainability cannot be successful without structured organizational communication. organizational communications provides a framework for building the internal and external communications capacity within cbos and fbos to improve financial viability. there are several steps that can assist in developing a communications management strategy, which will be discussed in some detail as follows. the first step is to clearly define the problem before a suitable intervention can be developed (barrett, 2006; gillis, 2006; smith and mounter, 2005). step one: problem identification identification of the depth and breadth of the problem with which one is dealing must come first. to the extent that there is a gap between where they are and where they want to go, a problem exists. the challenge is to create plans to close the gaps. thus, the first step is to describe the organization in its current state and then determine its’ immediate and long-term goals (french and bell, 1990). some critical questions to consider are: 1. is there a well-defined, widely communicated statement of the organizational mission or purpose? 2. do employess have job descriptions, job-related goals and objectives, and performance feedback? 3. is there an organizational structure that provides for an adequate span of control and balanced allocation of resources? 4. is there a process for commmunicating management information needed to achieve work objectives? 5. are program efforts consistent with the vision and mission; do program efforts meet funder expectations? for example, the harbor house is a cbo/fbo located in the poverty-stricken area of pittsburgh. the community is considered high-risk because of a high unemployment rate, drugs, violence, and a high school drop out rate. while the organization had a mission to essentially, “save the community,” it lacked the capacity for such efforts. instead of identifying a niche area in which to make an impact, the mission was too broad in scope to be effective. the staff, recruited from the adjacent church, lacked the requisite credentials to address the socio-psychological challenges they faced each day. the span of control was non-existent with a ceo that micro-managed the program directors, oftentimes overstepping boundaries during performance reviews. resources were shifted in a “rob-peter-to-pay-paul” manner, leaving burgess-wilkerson advances in business research 2011, vol. 2, no. 1, 247-255 250 accountants unable to complete a succesful audit for annual reporting. expenditures were justified with the “quality vs. quantity” argument to the dismay of funders. the cbo/fbo must be willing to take a candid look at their organizations to determine its current state of existence. while it would be all too easy to look at the successes, it is critical to explore strengths, weaknesses, opportunities, and threats through dialogue and discussion with key stakeholders such as the ceo and board members. this step is important to sustainability as it will provide a lens for exploring gaps in service delivery, structure, management, communications and operations which ultimaely impact the capacity of the organization to be sustainable over time. step two: needs assessments after these questions are addressed, the next step is to conduct a formal needs assessment. sometimes referred to as an organizational audit, a needs assessment is an effective strategy for identifying gaps in structure, service, operations, staff development and training needs, and to identify priority areas for long and short-term funding. there are several assessment techniques to gain insights from key stakeholders; however, sampling offers the most cost effective and time efficient manner to collect data in an organization. sampling. when working with a large organization (100+), it is unreasonable to expect everyone to be interviewed or included in the needs assessment. therefore a method for sampling the population is needed to ensure individuals are representative of the group. two methods of selecting subjects are with random and stratified sampling. random sampling means that every person in the organization has an equal chance of being selected. stratified sampling is conducted by selecting individuals from subgroups represented in the sample, dividing the population into subgroups and doing a random sampling in each group (babbie, 1990; dewine, 1994; hamilton, 1987). one effective strategy is to triangulate data by conducting focus groups and surveys via among both stratified and random groups. a good starting point for cbo/fbos is to consider assessing internal and external organizational communications by asking questions in the following areas: 1. strategic objectives to what extent is communications planning aligned with the cbo/fbo’s strategic goals? 2. processes to what extent is communications integrated into the yearly business planning process? 3. management to what extent does management accept responsibility for organizational communications? 4. messages to what extent are messages targeted, consistent, and strategic? 5. media/forums to what extent are multiple channels used to communicate, and are they appropriate for the message and culture? 6. communication staff to what extent are there communications staff, and are they strategically placed within the organization? 7. communication assessment to what extent is communications measured and included in performance outcomes and goals setting? (barrett, 2006; hamilton, 1987; smith and mounter, 2005). a significant number of cbo/fbos in southwestern pa failed to recognize the relevance of, and connection between, communications and sustainability as revealed during the assessment process. for instance, od consulting services were provided to develop critical documents such as strategic plans, mission and vision statements, as well as targeted messages and strategies for fundraising. unfortunately, many capacity-building efforts proved unproductive, due partially to limited communication strategies, and a lack of commitment to change, thereby appearing contrived for the sole purpose of generating revenue. data collection method. surveys and interviews are the most frequently used methods for collecting data about an organization. surveys are developed by identifying broad categories of concerns to be examined and then constructing questions within each of the categories (babbie 1990; dewine, 1994). burgess-wilkerson advances in business research 2011, vol. 2, no. 1, 247-255 251 these areas can be identified from past research and discussions with key stakeholders within the organization. there are several types of forced-choice questionnaires incuding the likert scale for responses from which respondents can indicate their opinions and beliefs. surveys are the easiest and least expensive way to collect large amounts of data that can be quantified (babbie, 1990; dewine, 1994; hamilton, 1987). interviews provide a rich source of data and can be most helpful for uncovering areas of concern. an interview guide can be constructed similar to the manner in which the content matrix is used for designing open-ended questions. the population is an important factor to consider when selecting the data collection method. for instance, when collecting data from children, teen or individuals with poor reading skills, interviews both individually, and collectively proved much more helpful in gaining rich qualitative data from the client perspective. surveys were at times viewed as intimidating or unimportant. organizational outcomes data can also be a source of information. organizational outcomes data includes all the publications produced by the organization as well as personnel files and client records. it can even include routine data. cbo/fbo’s in southwestern pa were mandated to report program outcomes as a funding requirement. however, many were incapable of establishing parameters for data collection and typically scrambled to report outcomes at the end of the funding cycle. structuring outcomes and data collection methods at the onset of funding and communicating the importance of timely data collection across the entire organzation is critical to accurate reporting, and subsequently for repeat funding. during the process of data collection, care must be used to maintain objectivity and openness to a variety of opinions and viewpoints. a wide variety of data should be used to arrive at the clearest picture of where the organization is, and where it wants to be in terms of how well it communicates and how communication efforts impact sustainability (babbie, 1990; dewine, 1994). step three: data analysis once data is collected, a careful analysis should take place so that hasty conclusions and premature solutions are not drawn. objectivity is critical to developing viable solutions. there should be a clear communications pattern that surfaces throughout the analysis or triangulation of many pieces of data and evidence. without careful data analysis, interventions may fail and leave the organzation worse off than before. assessing quantitative data can reveal patterns, trends and perspectives. this research is typically descriptive in nature which includes correlational and causal-comparative studies. descriptive research is used to estimate the nature and degree of existing conditions. for instance, descriptive statistics can reveal the drop out rate of teens, the number of single parent families, the number of unemployed adults and other “risk factors” in a program area that predispose families to require supportive services. to address relationships between these variables directly, correlational and causal-comparative studies may be used. for example, a correlation study of relationships between single parent families and high school drop out, between drug addiction and drop out have been carried out. this data is critical to establishing a need for funding to provide “remediation” services to mitigate against the risk of drop out (eichelberger, 1989). step four: intervention once the needs assessment has been completed, the next step is to plan an intervention. this must come from the data analysis itself rather than be preplanned or superimposed (babbie, 1990; dewine, 1994; eichelberger,1989). there are several intervention strategies that can be used: organizational development and organizational communications. organizational development (od) is a form of intervention that combines the aforementioned strategies to assist in reaching the full organizational potential. french and bell (1990) define organizational development as, “sets of structured activities in which selected organizational units engage in a task or a sequence of tasks where the task goals are related directly or indirectly to organizational improvement” (1990:113). burgess-wilkerson advances in business research 2011, vol. 2, no. 1, 247-255 252 to be most effective, organizational development should include strategies for organizational communications, which involves the development of those abilities needed to link to the broader community and are required to commuicate effectively both internally and externally. all effective communication requires strategic thinking, and as the organization grows in complexity, so should the strategy for communicating (barrett, 2006; bavelas,1951; smith and mounter, 2005). any od intervention for sustainablity should include strategies for internal and external communications techniques. for instance some cbo/fbos were required to bring in an outside od consultant to assist in providing a broader understanding of the inter-connectedness of activities across programs and departments and how each contribute to the organizational goals which in turn provide a rationale for sustainability. od consultants also assist in the identification of program areas from which to operate, rather than indiscriminately pursuing funds without a track-record of success. supportive management. ceos and program managers should assume responsibility for relaying important messages and expectations to direct reports, particularly those related to service delivery, program goals, rules and regulations, and funding guidelines. management in cbo/fbos need to shape core messages that are consistent with funding guidelines and expectations. managers should model the communication behavior they expect of their employees. (bell and nadler, 1985). expectations regarding program outcomes should be clearly communicated at the onset of the funding cycle and throughout the year to guarantee successful, accurate outcomes which in turn increases the likelihood of multi-year funding. cbo/fbos in southwestern pa quickly gained reputations among funders. once these reputations were established, they were quite difficult to change. targeted messages. the needs of the key stakeholders are analyzed to develop messages each group will understand. core messages are a necessity and should be communicated consistently to all internal and external stakeholders. individualized messages are shaped for key constituents and adapted for the specific audience. all messages should be consistent with the organizational vision, mission, goals, and objectives. cbos/fbos should also include in their messages language clearly describing how efforts meet funder requirements. effective media and forums. organizations may need to convey messages through a variety of channels to reach all clients, employees and other stakeholders. this requires looking critically at the media and deciding which is best for receiving the intended message. for instance, a message for male teens is unlikely to be read in the local newspaper. cbos/ fbos should pay particular attention to media richness and identify the targeted audiences as they are likely to have a diverse population in both funders, clients, and employees. recruiting new clients can be difficult. although service may be warranted, building trust is important. inclusive messages that demonstrate respect, compassion and dignity can assist. also during times of low revenue employee turnover can be high; core messages need to be conveyed to each employee to retain talent and staff commitment. well-positioned communications staff. a professional communications staff can ensure that communications is integrated into the organization’s operations. unlike a pr employee, the communications staff is an expert communicator who can help deliver strategic messages. the communications expert should be involved in the strategic planning of the cbo/fbos and should be included in the decsion-making process at the highest level in order to “get the word out” accurately in a timely, culturally-sensitive manner. while most cbos/fbos do not have the resources to hire such a person, these skill sets can be incorporated into an existing relevant postion, such as the human resources or public relations positions. delivering the right message is key to sustainability as funders are very connected to the community grapevine and are knowledgeable of the dominant messages (intentional/unintentional) of all cbo/fbos in the area. training and development. training and development needs to be provided to assist cbo/fbos in developing sound fundraising practices; to target new donor prospects, and to build capacity within their organizations to be more sophisticated and aggressive in their fundraising efforts, thereby helping nonprofits become more sustainable over time (barrett, 2006). training and development is also required to assist direct reports in learning “best practices” for service provision in accordance with funding guidelines. for instance, fbos were typically church-based programs and many were tempted to burgess-wilkerson advances in business research 2011, vol. 2, no. 1, 247-255 253 “convert” clients. however, funding guidelines clearly stated it is a violation of individual civil rights to indoctrinate clients into any religious beliefs. nonetheless, some staff felt compelled to do so and greatly jeopardized program funds in the process. the penalty for such a violation is severe, resulting in repayment of funds and possibly criminal charges. learning organization. through developing a “learning organization philosophy,” the cbo/fbo can make a commitment to objectively measure and evaluate the impact of communications through benchmarking against which to chart the future. there is evidence that some nonprofits are successfully using quality assurance methods to increase efficiency and performance. these organizations have been shown to: 1) better define their purpose; 2) evaluate and modify their programs; and 3) measure and communicate their impact. they also report marked improvement in a variety of management practices. some past uses of quality assurance methods include: using logical models, process mapping, designing implementation strategies, and re-drafting agreements with vendors and contractors. they were also more alert to changing circumstances that might reveal the need to adjust an established program, reframe a fundraising appeal, or seek confirmation of an emerging need” (barrett, 2006; light, 2005). social return on investments (sroi). cbo/fbos may also benefit from creative methods to measure the social return on investments (sroi). nonprofits can benefit from developing an array of measures based on financial, non-financial, community and management impacts. this information would greatly improve sustainablility and is most likely to get the attention of the funding community (light, 2005). change management. fbo/cbos could also benefit from developing the capacity to quickly respond to emerging trends or events. this will require training and responsiveness on the part of employees, board members, and volunteers as well as a degree of manueverability within the organization. in other words, they need to develop the capacity to respond in a funding crisis to adjust to spikes in demand, to adapt to unforeseen events, to take advantage of new opportunities like requests for proposals (rfps), and allow invitations to partner for new grant streams (light, 2005). several sfbo/cbos in southwestern pa have joined together to form collaboratives as a cost-savings strategy. wrap-around services are provided to families through a referral process among “networked” agencies. funds are distributed throughout the network so all agencies remain viable. step five: outcomes evaluation according to light (2005), an organization’s capacity is measured by alertness, agility, adaptability, and alignment. indicators of success includes improved and sustained performance, significant budgets, low executive and board turnover, diverse funding streams, access to resources for continuous improvement, mission driven activities, and on-going assessment of staff and programs. each of these areas should be included in the evaluation process and including in annual reports to funders as an indicator of program viability and accountability. if organizations measure the wrong thing, they will not get the result or effect they want to achieve. unclear wording on survey instruments may provide unclear answers as to why programming efforts are failing. likewise, a fear of taking an honest assessment can result in wasted resources, failed programs and ultimately funding cuts (weller and kimball, 1988). outcomes evaluations should include hard (quantitative) and soft (qualitative) assessments of the internal and external organizational efforts and be cumulative and summative to be most effective (babbie, 1990; herndon and kreps, 1995). outcomes assessments can be completed in a cost effective manner using focus groups, observations, surveys, and benchmarking. there needs to be a clear understanding of where the organization aims to be in reference to the outcomes. this information can be gained from funded proposals, government guidelines, strategic planning, business plan documents, and from the leadership. efforts at sustainability need to be quantifiable and data collected consistently at the onset of the effort or activity. the monthly, quarterly, or annual reports can provide feedback that can act as a catalyst to motivate and encourage future sustainability efforts when shared with key stakeholders. although these strategic communications efforts are important to achieving success, they should be part of an on-going process and not simply a “quick fix,” or means to an end (smith and mounter, 2005). burgess-wilkerson advances in business research 2011, vol. 2, no. 1, 247-255 254 on-going assessment. the cbo/fbo should evaluate communication effectiveness as part of individual performance appraisals and provide incentives for successful efforts. also of importance are assessments of the communication process, formally and informally throughout the organization. strategic communications can occur over time by consistent effort on the part of everyone in the organization. like their for-profit counterparts, cbo/fbos that communicate effectively internally and externally, typically are fiscally responsible and have impeccable reputations for high quality products and services. delphi method. of particular interest for the nonprofit are interventions to address message flow and decision-making using the delphi technique. delphi is a method for structuring a group communication process so that the process is effective in allowing a group of individuals as a whole, to deal with complex problems. the delphi technique is used for increasing stability and reducing uncertainty. delphi was originated at the rand corporation in 1948 and was initially developed to provide the air force with information on the targets for a soviet nuclear attack. since the 1960’s, delphi has been used in a variety of settings to help solve human communication problems (dewine, 1994; linestone, 1975). conclusions it is essential that cbos/fbos respond to the fiscal crisis by pursuing diverse and creative strategies that include improving organizational communication in an effort to secure funding, improve and expand grant-seeking efforts, and establish structural balance through a mix of sources and methods of increasing the bottom line (blake & mouton, 1978). it is important for any organization embarking on a path of sustainability to consider the following: 1. effective sustainabilty efforts take time and requires long-term comittment from everyone involved. 2. effective sustainabilty efforts do not simply try to correct an organization’s weaknesses, but builds upon its assets and strengths. 3. successful sustainabilty efforts generally require realistic goals that can be measured and celebrated. it is essential to avoid attempting to accomplish the impossible. 4. successful initiatives generally begin with a thorough and systematic organizational assessment (weller and kimball, 1988). 5. sustainabilty efforts are more likely to fail if they are not explicitly mission-driven. 6. sustainability is not the end, but a means to an end. if employees and other stakeholders don’t see the connection between sustainability and performance, the initiative will fail (smith, bucklin & associates, inc, 1994). thus, designing and implementing a strategy for sustainability through organizational communications will take time. the most difficult challenge will be encouraging individuals from diverse backgrounds and across disciplines to work together as a team. individuals will also need to be prepared for and educated about the changes that are most likely to occur. the internal communications expert will need to be keenly aware of how their people consume and interact with information in order to deliver new approaches that can be easily adapted. as internal communications moves forward, it will be more central to the organization’s sustainability efforts (bavelas, 1951). hence, any strategic planning should include resources and expertise for the on-going development of technical and organizational communications. a shift in the focus to communications as a sustainability strategy is a worthwhile investment best demonstrated by making a meaningful difference in the bottom line. references andrews, p., & baird, j. 2005. communication for business and the professions. long grove, il: waveland press. babbie, e. 1990. survey methods research. belmont, ca: wadsworth. burgess-wilkerson advances in business research 2011, vol. 2, no. 1, 247-255 255 barrett, d. 2006. leadership communication. new york: mcgraw hill. bavelas, a. 1951. an experimental approach to organizational communication. personnel, 27: 365-371. bell, c., & nadler, l. 1985. clients and consultants: meeting and exceeding expectations. houston, tx: gulf publishing. blake, r., & mouton, j. 1978. the new managerial grid. houston, tx: gulf publishing house. dewine, s. 1994. the consultant's craft: improving organizational communication. new york: st. martin's press. eichelberger, t. 1989. disciplined inquiry. new york: longman. french, w., & bell, c. 1990. organization development: behavioral science interventions for organization improvement. englewood cliffs, nj: prentice-hall. gillis, t. 2006. the iabc hanbook of organizational communication. san francisco: john wiley & sons. hamilton, s. 1987. a communication audit handbook. white plains, ny: longman. hansberry, j. 2002. capacity-building in the nonprofit sector: a comparison of resources and practices in pittsburgh and denver. 2002 tropman report. pittsburgh, pa: forbes fund. herndon, s., & kreps, g. 1995. qualitative research in business communications: a review and analysis. journal of business comunications, 32: 383-399. kearns, k., park, c., & yankowski, l. 2003. comparing faith-based and secular community service corporations in pittsburgh. in building the faith: strategies for building the capacity of faith-based organizations and congregations serving allegheny county pennsylvaina. pittsburgh, pa: forbes fund. light, p. 2005. facing the futures: building robust nonprofits in the pittsburgh region. pittsburgh, pa: forbes fund. linestone, h., & turloff, m. 1975. the delphi method: techniques and applications. london: addisonwesley. paytas, j., & lagana, g. 2006. built to last: our legacy and our future-nonprofits and the regional economy. 2006 tropman reports: applied research about the pittsburgh regions nonporfit sector. pittsburgh, pa: the forbes fund. smith, bucklin and associates, inc. 1994. the complete guide to nonprofit management. robert h. wilburn, editor. new york: john wiley and sons. smith, l., & mounter, p. 2005. effective internal communication. sterling, va: kogan page. weller, s., & kimball, a. 1988. systematic data collection. newbury park, ca: sage. barbara burgess-wilkerson is an assistant professor of management and director of student professional development at winthrop university. she received her ph.d. in higher education administration from university of pittsburgh. her current research interests include emotional intelligence, business communications, sustainability and communications among non-profits, concept mapping and student professional development. she has published in business communications quarterly, advances in business research, and journal of interdisciplinary social sciences. uafs advances in business research 2012 lowrez (2).pdf holt advances in business research 2012, vol. 3, no. 1, 113-119 113 the fischer black method of evaluating accounting alternatives applied to currency translation methods paul holt, texas a&m university, kingsville there is a massive foreign currency translation literature, but virtually no empirical research exists that tests alternative translation methods against normative criteria. this study compares three translation methods using the black method of evaluating accounting alternatives. the translation method that performed best in this normative test was a price parity method, a method that has never been required or allowed under u.s. gaap. black (1993) suggested that an important purpose of financial statements should be the maximization of the association between reported earnings and firm value. reported earnings should be smoothed, through selection from among accounting alternatives, so that the time series of reported earnings would approach permanent earnings. as a result, reported earnings, scaled on price, would generate a single summary figure that would have the same implication for value across firms. further, disclosures that could put a company at a competitive disadvantage would not be needed. to determine which of two accounting methods is better, black (1993) suggested the selection of the method that generates the more stable earnings/price ratio. he proposed a rank ordering of a sample of companies by earnings/price ratios. the first quartile average is divided by the third quarter average to give a measure of variation; the lower the variation, the greater the relationship between reported earnings and value. the current study applies this methodology to the unresolved problem of which foreign currency translation method, the remeasurement method, the current rate method, or the price parity method, best associates reported earnings and value. unsolved problem standard-setting bodies in the united states have required, at different times, four different translation methods. first, the current-noncurrent method was required; then the monetary-nonmonetary method in 1965; then a remeasurement method in 1975; and the current rate method in 1981. asc 830 now requires either the remeasurement method or the current rate method, depending on circumstances, as described below. many multinational companies, domiciled in various countries, use the remeasurement method for non-integrated subsidiaries and the current rate method for subsidiaries more closely integrated with the parent company (holt, 2003). in the united states, asc 830 requires either the current rate method or the remeasurement method. when the functional currency is the same as the currency of the subsidiary’s books and records, the current rate method is required. when the currency of the books and records of the subsidiary is not the same as the functional currency, the remeasurement method is required. the translation policy choices for generally accepted accounting principles (gaap) in the u.s., as well as in other countries, have always been made with virtually no empirical knowledge of just what happens to consolidated financial statements when foreign accounts are translated by different methods. houston (1986) observed that no translation method that has been used in the past has been demonstrated to be superior to other methods in any theoretical way. clearly there is no closure on the foreign currency translation and consolidation problem in the united states, let alone worldwide. obstacles to empirical research the lack of understanding of the effects of alternative translation methods on the relationship between reported earnings and value is not surprising. companies use one translation method at a time, some feasible methods have never been used, and the effects of translation are buried in consolidated accounts. unraveling these effects for a reasonable number of sample firms, for research purposes, would be a difficult project. moreover, the temporally referenced item-by-item data required to construct comparable results under alternative translation methods are not available. purpose of the study there are a number of possible normative criteria against which to compare accounting alternatives, but this study holt advances in business research 2012, vol. 3, no. 1, 113-119 114 focuses on the relationship between reported earnings and price to determine which translation method gives the more stable relationship between price and earnings, in accordance with the black model. the present study overcomes the obstacles to empirical research, described above, with a unique methodology. previous studies have made various examinations of translation methods that, at different times, have been required by standard-setting bodies. they do not consider methods that have never been used, but which may be viable, even superior to other methods. accordingly, the price parity method, a viable method which has never been required or allowed by standard setting bodies is included in the study. literature review the foreign currency translation literature is large and spans something like eight decades. much of that literature is comprised of theories and opinions, and there are hardly any empirical studies that describe what actually happens when different translation methods are used, and there are virtually no empirical studies which test different translation methods against any normative criterion. a small number of studies are relevant to the notion of using the relationship between reported earnings and price to determine the superiority of one accounting method over another. beaver and dukes (1972) used this approach with a focus on the issue of interperiod tax allocation. may and sundem (1973) applied similar tests of accounting policy decisions. also relevant were beaver and dukes (1973) and black (1993). during the past decade, a variety of foreign currency translation studies have appeared. representative of these are the following: pinto (2002) applied game theory to observe evidence of a degree of managerial opportunism in currency translation method preferences and suggested a lack of clarity in fasb’s classification scheme. louis (2003) empirically examined the association between changes in firm value and foreign translation adjustments for manufacturing companies. the study found that the translation adjustment is associated with a loss of value instead of an increase in value, because for firms in the manufacturing sector, gaap for foreign currency translation generally produces results opposite to the economic effects of exchange rate changes. pinto (2005) tested the value relevance of foreign currency translation adjustments in an earnings and book value model and observed that foreign currency translation adjustments are significantly value relevant when their parameter estimates are allowed to vary in the cross-section. iatridis et al (2006) found that early adopters of the u.k. statement of standard accounting practice no. 20 “foreign currency translation” were generally larger firms. managements tended to adopt when the adverse economic consequences of adoption were likely to be minimal. they deferred adoption of the standard to influence their financial performance. the timing of the adoption is a matter related to the objectives of the managers in association with the market and economic conditions (iatridis et al, 2005a). income smoothing could be mitigated by appropriate standardization of accounting practice. iatridis (2005b) empirically studied the u.k. stock market response to the implementation of the 1983 u.k. statement of standard accounting practice (ssap) no. 20. the stock market appeared to have anticipated the implementation of ssap 20. there was a positive stock market response in the official year of adoption, resulting from the income-stabilizing effects of the standard. the study also observed a significant relationship between stock returns and the accounting measures in the actual adoption period of the aggregate set of adopters. kwon (2005) showed that foreign investors generally price exchange risk differently from local investors, and that the source and magnitude of differences in exchange risk pricing vary significantly across countries. liu (2006) used an accounting-based equity valuation model for multinational firms to examine the forecasting and valuation properties of foreign currency translation gains and losses. the study found that translation gains and losses could be subdivided into a core component and a transitory component. the combined effect was that translation gains and losses were more transitory than transitory earnings. chambers et al. (2007) provided evidence that other comprehensive income is priced by investors on a dollar-for-dollar basis. two components of other comprehensive income, foreign currency translation adjustment and unrealized gains and losses on available-for-sale securities, were found to be priced by investors. but the study suggested that investors pay greater attention to other comprehensive information reported in the statement of changes in equity, rather than in a statement of financial performance. holt (2006) empirically compared the variability of reported earnings resulting from eight foreign currency translation methods. the current rate method with non-deferral of translation gains and losses resulted in the highest average variability of earnings, and price parity methods resulted in lower variability than exchange rate methods as reflected by the average coefficients of variation of the study companies. however, results were highly firm specific. holt advances in business research 2012, vol. 3, no. 1, 113-119 115 methodology the purposes of this study were achieved by taking the following steps: sixty u.s. companies were selected at random to build a data base of pre-translation financial statements. to be eligible for inclusion in the sample, a company must have had annual financial statements available for ten consecutive years ending in 2009. the financial statements of each of the sixty u.s. companies were translated from u.s. dollars to euros, using each of the three translation methods described below, for each of the five years 2005-2009, a total of 900 financial statement translations. pre-translation accounting numbers were needed for ten years (2000-2009) in order to generate the temporal characteristics of certain accounts, such as fixed assets. for each of the three translation methods, the translated numbers were used to calculate the reported earnings to price ratio for each of the five years, for each of the sixty companies. the market value per share was the end-of-the-year price per common share, translated into euros at the spot exchange rate. in each of the three translation methods studied, there is a translation gain or loss in each accounting period. this gain or loss was included in the reported earnings number for study purposes. during the sfas #8 and sfas #52 era, the issue was whether these gains and losses should be included in reported earnings or deferred by bypassing the income statement and reporting them on a separate line on the balance sheet. in more recent years, the translation gains and losses are shown in other comprehensive income on the income statement, following the net income number. the present study does not attempt to resolve the issue of where these translation gains and losses should be shown on the financial statements. but it is reasonable to suppose that an efficient market would see through the location of these numbers, as long as the amounts of the gains and losses are disclosed. including them in the reported earnings for study purposes provides appropriate numbers for comparing the three translation methods against the black normative criterion. for each year, and for each of the three translation methods, the reported earnings to price ratios were rank ordered and arranged into quartiles (fifteen companies in each quartile). the average of the first quartile numbers was divided by the average of the third quartile number, in accordance with the black methodology, for each of the three translation methods, for each of the five years in the study. determination of temporal characteristics all foreign currency translation methods require that certain accounts be translated at the historical rate, the exchange rate that was in effect at the point in time an asset was acquired, a liability was incurred, a revenue or expense was recognized, or an element of owners’ equity was recorded. such a point in time is referred to in the present study as a “temporal reference.” since some account balances (such as fixed assets and long-term debt) are the result of numerous transactions over a considerable period of time, such account balances are made up of “components,” each consisting of a dollar (or other currency) amount and a temporal reference. the set of all such components is referred to in the present study as the “temporal characteristics” of a specific account balance. this set thus represents and describes a distribution of ages and related currency amounts of the account balance. before translating these companies’ financial statements, it was necessary to determine these temporal characteristics of the pre-translation reported accounting numbers. obtaining this information directly from the companies selected for the sample, for all the years studied, was impractical. this data problem has always been a major barrier to empirical research in foreign currency translation. this study overcame this barrier by estimating the temporal characteristics with a specially developed and tested estimation method. three studies, relevant to the estimation of temporal characteristics, were petersen (1971), davidson et al. (1976), and parker (1977). the purpose of these models was to generate estimated general price level data. ketz (1977) provided detailed explanations of these three models, and ketz (1978) tested their validity. he concluded that each of the three models is sufficiently accurate for research purposes. but the three models tested by ketz are limited in that they estimate only the average ages of assets and liabilities. for the purposes of the present study, an estimation method that results in a distribution of ages for such accounts rather than merely an average age was desired. this estimation was most critical for fixed assets because of the relative size of fixed asset numbers. fixed assets are translated at historical exchange rates under the remeasurement method, but at the current rate under the current rate method. a sophisticated method of estimation of temporal characteristics was developed for this study based on the assumption that asset retirements occur in fifo fashion and using published purchase and retirement data. details of this estimation method are available in holt (2012). the method was tested against 1,200 theoretical companies with the following results: 18 percent of the estimates resulted in a translation error of less than 1 percent, 79 percent in holt advances in business research 2012, vol. 3, no. 1, 113-119 116 errors of less than 5 percent, 99 percent in errors of less than 10 percent, and none of the estimates resulted in translation errors of more than 11.37 percent (holt, 2012). translation methods this study examined two methods which encompass the history of gaap in the united states as well as a price parity method. these three methods were as follows: the remeasurement method of asc 830, the current rate method of asc 830, and the price parity method. the translations were made from u.s. dollars to euros to generate the post-translation numbers needed to calculate earnings per share under each of the three methods studied. these three translation methods were selected for the present study because they are viable methods, not specifically because two of them are required, under different circumstances, by u.s. gaap. many other, mechanically possible, methods could have been tested, but such methods (such as a current / noncurrent rate method) do not have a theoretical base. remeasurement method (rm): the remeasurement method is required by asc 830 when the currency of the books and records of a foreign subsidiary is different from the functional currency. monetary assets and liabilities are translated at the current exchange rate, whereas nonmonetary assets and liabilities and stockholders’ equity are translated at the historical exchange rate. income statement items that are related to nonmonetary assets and liabilities are translated at the same rate used for the related balance sheet translation. other revenue and expense accounts which occur evenly over the year may be translated at the weighted-average exchange rate. the objective of the method is to preserve the underlying accounting principles of historical cost so that consolidation is possible on a consistent basis (demirag, 1987). current rate method (cr): the current rate method is required by asc 830 when the subsidiary’s functional currency is different from the reporting currency of the consolidated entity. in this method, all balance sheet items, with the exception of owners’ equity, are translated at the current exchange rate. owners’ equity is translated at historical rates. income statement items are translated at the exchange rate that was in effect when the transactions occurred, although those that occur evenly over the year may be translated at the average exchange rate. price parity method (pp): each of the exchange-rate-based translation methods has its supporters and detractors, and none has been shown theoretically or empirically to be superior to the others under all circumstances. patz (1978) suggests this long-standing dilemma may result from the use of exchange rates themselves. there is no rigorous defense in existence for the use of exchange rates, and exchange rates are not related in any clear way to accounting measures. indeed, in 1974, the committee on international accounting called for an investigation of the purchasing power parity (ppp) theory approach as a possible alternative to exchange rate methods. such a ppp-based theory of translation is developed in patz (1977) and the resulting price parity method is described in full in patz (1981). briefly, the ppp theory of foreign currency translation assumes that the property to be measured is local command over goods and services as expressed by currency unit accounting measures. under the ppp system, foreign accounts are restated in the reporting currency, but using price parity relative purchasing power indices instead of exchange rates, under a temporal method approach, in an attempt to express command over goods and services with respect to the economy in which the entity functions. it is assumed that foreign subsidiaries do not exist solely for the purpose of generating cash flows to the parent, but rather for the maximization of economic power which can be defined as the size of assets held. the purpose of the existence of foreign subsidiaries is to maximize this command over goods and services in the foreign environment. the present study applies the price parity theory of exchange rates as summarized in officer (1982) in three propositions: (1) ppp is the principal determinant of the long-run equilibrium exchange rate, (2) the short-run equilibrium exchange rate in any current period is a function of the long-run equilibrium exchange rate in the sense that the latter variable is the principal determinate of, and tends to be approached by, the former, (3) the short-run equilibrium exchange rate in any current period is determined principally by ppp, with the former variable tending to equal the latter. parent companies’ domiciles obtaining a meaningfully large sample of the financial statements of foreign subsidiaries prior to their translation and consolidation with the accounts of their parent companies is not practical. in this study, u.s. companies were used holt advances in business research 2012, vol. 3, no. 1, 113-119 117 as hypothetical subsidiaries of a parent company in a country that uses the euro, under the notion that there is no reason to conclude that they could not become so. parent companies are not identified. the focus is on the subsidiary accounting numbers, resulting from three translation methods, prior to consolidation. but translation from dollars to euros would be necessary if the consolidated entity’s reporting currency was the euro. thus, the theoretical parent company could be domiciled in any of several countries which use the euro. several advantages attach to this approach beyond generating a sample sufficiently large to support generalization. the effects of transactions between parent and subsidiary which must be eliminated in translation and consolidation are not present. also, any effects the actual use of a specific translation method might have in real parent/foreign subsidiary settings on management financing and operating decisions are avoided. some of the u.s. companies selected as hypothetical subsidiaries may themselves have foreign subsidiaries. thus the accounts of these u.s. companies may already be affected by the currency translation of their own foreign subsidiaries. this factor is not considered a problem in the present study, inasmuch as in practice it is not at all unusual for a subsidiary to also be a parent. the current rate method and the remeasurement method use exchange rates for translation. however, the price parity method uses relative price level data which varies from country to country, despite a common reporting currency (the euro). accordingly, this study posits ten parent companies in each of six countries, finland, france, germany, italy, the netherlands, and spain, which results in the application six different time series of price parity numbers. these particular six countries were selected at random from the population of countries which use the euro, and are presumed to provide a fair representation. results and conclusions dividing the average of the first quartile’s earnings/price ratios by the third quartile’s earnings/price ratios, resulted in the following table, where cr is the current rate method, rm is the remeasurement method, and pp is the price parity method: table 1: division of the average of the first quartile earnings/price ratio by the average of the third quartile earnings/price ratio year cr rm pp 2005 h 2.203 2.196 l 1.928 2006 l 2.066 h 3.267 2.124 2007 2.120 h 2.208 l 1.818 2008 l 2.080 h 2.213 2.202 2009 2.119 h 2.169 l 2.110 average 2.118 h 2.411 l 2.096 h indicates the method with the highest first to third quartile ratio for the year. l indicates the method with the lowest first to third quartile ratio for the year. relevant to the analysis is the fact that the time series of price parity numbers, dollars to euros, is significantly less variable than the exchange rate from dollars to euros, as indicated by the following table: table 2: variances of time series exchange rates from us dollars to euros and time series of price parity numbers of six selected countries (monthly observations, january, 2001 october, 2009) exchange rate pp finland pp france pp germany pp italy pp netherlands pp spain variance .0221 .0009 .0010 .0021 .0029 .0028 .0069 rank by variance 1 7 6 5 3 4 2 the variance of the time series of exchanges rates, dollars to euros, is clearly greater than the variance of the time series of price parity numbers of each of these six selected countries. this pre-study observation led the author to anticipate that the present study would show that the price parity method of translation would clearly be preferable, based on the black normative criterion. this anticipated result was partially confirmed by the actual study results (table 1), as pp appears to be the best translation method choice for three of the five study years (three years in which the use of pp resulted in the lowest first to third quartile ratio). the remeasurement method, the translation method required in the u.s. by asc 830, and in a number of other countries, when the currency of the foreign subsidiary’s books and records differs from the functional currency, performed poorly compared to the current rate method and the price parity method. its use resulted in the highest (least desirable) first to third quartile ratios in four of the five study years. holt advances in business research 2012, vol. 3, no. 1, 113-119 118 limitations and suggestions for future research this study compared three translation methods, two of which are required in the u.s. by asc 830, under differing circumstances, and one viable method, which has never been required or allowed, against only one normative criterion. future studies should identify additional normative criteria and test translation methods against those criteria. upon the completion of several such empirical, normative studies, it may eventually be possible to observe if one translation method consistently out-performs other methods, or if different translation methods are superior for different normative criteria. further, because of the performance of the price parity method in the present study, price parity methods should be included in future empirical, normative studies. references beaver, w., & dukes, r. 1972. interperiod tax allocations, earnings expectations, and the behavior of security prices. accounting review, 47(april), 320-332. beaver, w., & dukes, r. 1973. interperiod tax allocation and depreciation methods: some empirical results. accounting review, 48(july), 549-559. black, f. 1993. choosing accounting rules. accounting horizons, december, 1-17. chambers, d., linsmeier, t., shakespeare, c., & sougiannis, t. 2007. an evaluation of sfas no. 130 comprehensive income disclosures. review of accounting studies, 12(4), 557-593. davidson, s., stickney, c., & weil, r. 1976. inflation accounting. a guide for the accountant and the financial analyst. new york: mcgraw-hall. demirag, i. 1987. a review of the objectives of foreign currency translation. international journal of accounting education and research, spring, 69-85. financial accounting standards board. 1975. accounting for the translation of foreign currency transactions and foreign currency financial statements. statement of financial accounting standards no. 8. stamford, connecticut: fasb. financial accounting standards board. 1981. foreign currency translation. statement of financial accounting standards no. 52. stamford, connecticut: fasb. holt, p. 2003. international accounting. cincinnati, ohio: thomson learning. holt, p. 2006. the variability of earnings across foreign currency translation methodologies: an empirical comparison. southwest business and economics journal, 67-81. holt, e. 2012. estimation of temporal characteristics of accounts for empirical research. advances in business research, 2(1), 231-237. houston, c. 1986. “u.s. management hedging practices subsequent to the adoption of sfas no. 52 ‘foreign currency translation’.” unpublished ph.d. dissertation. university of washington. iatridis, g., & joseph, n. 2005a. a conceptual framework of accounting policy choice under ssap 20. managerial auditing journal, 20(7), 763-778. iatridis, g. 2005b. an empirical investigation of the u.k. stock market response to the implementation of ssap 20 ‘foreign currency translation’. investment management & financial innovations, 2(1), 108-126. iatridis, g., & joseph, n. 2006. characteristics of u.k. firms related to timing of adoption of statement of standard accounting practice no. 20. accounting & finance, 46(3), 429-455. ketz, j. 1977. “a comparison of the predictability of business failure by the financial ratios of general price level statements with those of historical cost statements.” unpublished ph.d. dissertation. virginia polytechnic institute and state university. holt advances in business research 2012, vol. 3, no. 1, 113-119 119 ketz, j. 1978. the validation of some general price level estimating models. accounting review, liii(4), 952-960. taek h., bae, s., & chung, j. 2005. do foreign investors price foreign exchange risk differently? journal of financial research, 28(4), 555-573. liu, j. 2006. on international accounting valuation. journal of international accounting research, 5(1), 67-87. louis, h. 2003. the value relevance of the foreign translation adjustment. accounting review, 78(4), 1027-1047. may, r. & sundem, g. 1973. cost of information and security prices: market association tests for accounting policy decisions. accounting review, 48(january), 80-94. officer, l. 1982. purchasing power parity and exchange rates: theory, evidence and relevance. greenwich, connecticut: jai press. parker, j. 1977. impact of price-level accounting. accounting review, 52(1), 69-96. patz, d. 1977. the state of the art in translation theory. journal of business finance and accounting, 4(3), 311-325. patz, d. 1978. a price parity theory of translation: a reply. accounting and business research, 44(1), 66-72. patz, d. 1981. price parity translation: methodology and implementation. accounting and business research, 207-216. petersen, r. 1971. “an examination of the effects of changes in the general price level.” unpublished ph.d. dissertation, university of washington. pinto, j. 2002. foreign currency translation method choice: insights from game theory. journal of applied business research, 18(4), 25. pinto, j. 2005. how comprehensive is comprehensive income? the value relevance of foreign currency translation adjustments. journal of international financial management & accounting, 16(2), 97-122. paul holt is a professor of accounting at texas a&m university, kingsville. he received his ph.d. in international accounting from oklahoma state university. his current research focuses on descriptive and normative studies of foreign currency translation methodologies. he has published in advances in business research, american journal of economics and business administration, journal of theoretical accounting research, southwest business and economics journal, accounting forum, and journal of accounting and finance research. uafs advances in business research 2012 lowrez (2).pdf mcdermott and peterson advances in business research 2012, vol. 3, no. 1, 53-62 53 the illinois commerce commission’s pro forma adjustment rule: an event study of regulatory decision-making karl mcdermott, university of illinois springfield carl peterson, university of illinois springfield public utilities’ earnings are inherently linked to decisions of the regulatory body. when regulators make decisions that are unexpected or that cause additional risk to shareholders one expects that such decisions will have an effect on the price of the utility’s stock. in 2010 the illinois commerce commission, the regulatory body that sets electric utility rates in illinois, made a dramatic change in the manner in which it applied an accounting rule, the pro forma adjustment rule, causing the rates for ameren illinois utilities to be substantially less than otherwise would be the case. if this decision provided information to investors, we expect the ameren stock price to react to the decision. using a single-firm, single-event methodology we find limited evidence that this one event had an effect on daily abnormal returns to the ameren corporation’s stock. we also discuss possible reasons for these results. public utilities are a unique creature in the commercial environment of modern economies. while us law protects private property from confiscation by government, public utilities submit to a regulatory compact that generally provides shelter from competitive entry in return for truncating property rights by submitting to the regulation of its prices. (sidak and spulber, 1997). the utility also acquires an obligation to serve all customers within its jurisdiction and the investment obligation that is concomitant with the need to meet all demand forthcoming at the regulated price. the process of regulating rates, generally referred to as ratemaking, has multiple objectives with the main objective to balance customer and investor interests. (hope, p. 602). as part of that balancing act the regulatory process must provide an opportunity for utilities to earn a competitive return on invested capital and assure that customers pay only those costs that are reasonable and prudent. ratemaking exercises, implemented through a rate case, are complex administrative procedures in which a regulatory body attempts to ascertain the correct level of operating expenses and invested capital. regulators utilize the revenue requirement to calculate the total reasonable expenses, including taxes and depreciation expense, and the total return on invested capital for an annual test period, called a test year, meant to represent the utility’s expected costs when rates go into effect. the capital allowed in the revenue requirement is called the rate base which, in most cases, is measured as the original cost less accumulated depreciation up to the end of the test year. the rate base, therefore, is one critical factor in the utility’s financial health and its ability to return a competitive profit level. regulators have developed a set of rules to guide the ratemaking process. for example it is well-known that the test year data represent a snap shot of a utility’s costs at a particular point in time, yet the administrative procedure can take up to a year to complete. to recognize this administrative lag generally a pro forma adjustment is allowed to the revenue requirement to update cost categories for so-called known and measurable changes. this updating process is designed to recognize that the utility will continue to invest in its system during the pendency of the administrative procedure. the purpose of this paper is to examine the effect of a change in the interpretation of the pro forma adjustment rule (pfar) in illinois on the stock price of an electric utility operating in illinois. in particular, there was a natural experiment in illinois that occurred over short period between late 2008 and fall 2010. in 2008 the illinois commerce commission (icc or commission) interpreted the pfar to the favor of the utility’s investors. nineteen months later, the icc reversed course and interpreted the same rule to the detriment of investors. the implementation and interpretation of accounting rules can influence expected profitability of the utility and, as one would expect, market players closely monitor changes that regulators make that might influence earnings. we test the hypothesis that a change in the interpretation of the pro forma adjustment rule by the icc affected the stock price of the utility utilizing a single-firm, single event methodology. we find mixed evidence that the regulatory decision did influence the utility’s holding company stock price. the paper is organized as follows: section ii outlines the process by which regulators set utility prices. section iii examines the controversy surrounding the implementation of the pfar in illinois and the expected impact on utility stock prices. section iv presents our hypothesis and the data employed to test the hypothesis with results, and the last section is reserved for conclusions and a scope for further research. mcdermott and peterson advances in business research 2012, vol. 3, no. 1, 53-62 54 review of ratemaking process in illinois the focus of ratemaking is the determination of the total prudent cost of serving customers. the regulator is concerned with determining both a fair total cost and a fair price. in discharging their duties to meet the objectives for ratemaking, regulatory bodies generally utilize some version of the basic regulatory equation that often takes the form: rr = oe + ror × rb (1) where: rr = revenue requirement oe = operating expenses (including annual depreciation expense and taxes) ror = competitive rate of return for debt and equity holders rb = rate base or the prudently incurred capital investment less accumulated depreciation in implementing equation (1) a significant level of detailed accounting data must be obtained from the utility and audited by an outside accounting firm as well as the regulator. to set the proper level of allowed revenues, a time period, or test year, is chosen. a test year may be based on an historic year, the current year, or an estimate of a future year’s costs and the rules for test years vary by jurisdiction. in illinois utilities may choose the test year, although only a historic or future test year may be chosen. (83 il. ad. code part 287.20). for historic test years, the focus of this paper, the utility may choose “[a]ny consecutive 12 month period, beginning no more than 24 months prior to the date of the utility's filing…” (id). although in most cases the utility will wish to choose a date closest to the filing date for which the appropriate data is available, typically the twelve months ending the december prior to filing the case. the operating expenses for the test year are based on a normalization process used to smooth out any unusual costs. the normalization process avoids potential gaming by the parties wishing to choose a test year where the costs are most favorable to their position. for example, weather events often affect operating costs. a utility could propose basing its operating costs on a year in which weather caused the costs to be unusually high. alternatively, a regulator could investigate a utility’s rates in a year when the costs are unusually low. the normalization process removes these perverse incentives. the rate base represents the utility’s investment in capital. for an electric delivery utility, the majority of costs are associated with plant and equipment (e.g., poles, wires, transformers, substations) and, indeed, capital outlays tend to represent a large portion of the costs of any utility. (kahn 1988, pp. 35-36). the rate base also includes financial capital such as working capital needed to operate the utility on a day-to-day basis and may also include reductions for capital contributed by customers (e.g., deferred income taxes, customer advances, etc.). the ror or rate of return is a weighted average cost of capital that represents the costs of obtaining debt financing as well as equity financing. while calculating the ror, and in particular the cost of equity, is often one of the most controversial topics in litigation, this paper is confined to a discussion of the method of setting the rate base for a historic test year. (mcdermott et al., (2006) provide a more detailed review of the ratemaking process). while equation (1) may look mechanical, its implementation is far from mechanical. the us supreme court noted this in hope: it is not the theory but the impact of the rate order which counts. if the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the act is at an end. the fact that the method employed to reach that result may contain infirmities is not then important. moreover, [the regulator’s decision] does not become suspect by reason of the fact that it is challenged. it is the product of expert judgment which carries a presumption of validity (hope, p. 602). somewhat ironically, the hope end result doctrine led to a general consensus that equation (1) is a reasonable method of balancing the interests of customers and investors as long as only the prudent and reasonable costs are included in the calculation of the allowed level of rates. the hope court also made it clear that the regulator’s decision is presumed to be appropriate, that is, the court gives a great deal of deference to the expert body in these matters. this expert judgment is generally guided by both written rules and regulatory practice. in illinois, the determination of the rate base begins with an analysis of the capital costs in the test year. the rate base is determined on the basis of original depreciated costs. all accumulated depreciation as of the end of the test year is included as an offset to the original capital costs and the utility obtains a return on the net plant in service. figure 1illustrates the time line for the historic test year. the test year consists of twelve consecutive months of operating data and the rate case takes eleven months to complete. (83 illinois administrative code part 287.20 and 220 ilcs 5/9-201(b)) during the pendency of the rate case, however, the utility will continue to invest in its system. in illinois, the commission’s rules allow utilities to propose pro forma adjustment to the selected historical test year. in mcdermott and peterson advances in business research 2012, vol. 3, no. 1, 53-62 55 particular, 83 illinois administrative code part 287.40 contains the pro forma adjustment rule that states, in relevant part: a utility may propose pro forma adjustments…to the selected historical test year for all known and measurable changes in the operating results of the test year. these adjustments shall reflect changes affecting the ratepayers in plant investment, operating revenues, expenses, and cost of capital where such changes occurred during the selected historical test year or are reasonably certain to occur subsequent to the historical test year within 12 months after the filing date of the tariffs and where the amounts of the changes are determinable. attrition or inflation factors shall not be substituted for a specific study of individual capital, revenue, and expense components. any proposed known and measurable adjustment to the test year shall be individually identified and supported in the direct testimony of the utility. several items are important for the analysis. first, the rule allows, but does not require any particular pro forma adjustment (“[a] utility may…”). second, the pro forma adjustments may be made up to and including the twelfth month after the filing date, but must be known and measurable. this is a legal standard the icc applies to proposed pro forma adjustments which can only be met through sufficient sworn evidence provided by the utility and vetted through the normal litigation process. other parties have the right to challenge proposed pro forma adjustments or propose other pro forma adjustments and the commission determines which adjustments and in what time period should such adjustments be included in determining the revenue requirement in equation (1). third, the pfar addresses the problem of administrative lag. that is, some costs are incurred during the pendency of the case that would otherwise not be allowed in rates. as utilities are continually investing in their networks, absent this rule, capital invested during the pendency of the case would not be placed into rates until the next rate case. in illinois, at a minimum, that would take another eleven months to complete. in practical terms, it likely implies more than eleven months due to the data requirements for filing a rate case. (83 illinois administrative code part 285). yet unlike increased expenses that could be captured in the next rate case, at least on a going-forward basis, the depreciation that occurs for plant put into service, but not yet placed in rates (i.e., entered in equation (1)), can never be recovered in a future rate case. in a sense, the entire reason for the pfar is as an exception to the test year rule that only capital incurred in the test year may be included in the rb factor. finally, it is worth noting the terms the pfar uses. the rule states that adjustments are necessary for changes in “plant investment” among other items. the commission had interpreted that term to mean gross plant investment not net plant investment. (comed 2007 rate case, p.18). additionally, the pfar specifically rules out any pro forma adjustments that are based on “[a]ttrition or inflation.” that is, the rule is supposed to be applied only after careful review of the actual costs of an actual project and is not supposed to be applied mechanically. this avoids endless arguments over hypothetical projects and costs and, as the icc had previously interpreted, rules out accounting for depreciation on the non pro forma capital (i.e., the test year capital) noting that depreciation is an attrition factor (id.). all of these factors led the commission to conclude that the pfar does not require an adjustment to accumulated depreciation reserve not directly associated with the pro forma adjustments. that is not to say that such adjustments were not made as discussed below. this general interpretation and application of the rule, however, was challenged in 2008 and we turn to that challenge next. figure 1: timeline for historic test year and pro forma adjustments controversy over the illinois pro forma adjustment rule the pfar has been a part of the accounting practice in illinois for many years. (commonwealth edison company brief on exceptions to the administrative law judge’s proposed second notice order, in icc docket no. 02-0509, p. 6). in 2003, the icc revised its rules on the test year for public utilities as a result of structural, technological, and regulatory changes in the illinois utility environment. (icc staff report filed in icc docket no. mcdermott and peterson advances in business research 2012, vol. 3, no. 1, 53-62 56 02-0509). for example, in 1997 nearly all the electric utilities in illinois were vertically integrated with production and delivery functions regulated by the icc. as a result of restructuring legislation passed in 1997 the major utilities in illinois separated the production function from the delivery function creating a public utility in delivery of power and energy regulated by the icc and a generation company (or companies) not regulated by the icc. new issues such as customer switching to third party suppliers of energy, and new costs such as administration of procurement of energy for customers that did not switch as well as the costs of interacting with third party suppliers arose as a result of the 1997 changes. this, in part, caused the icc to recognize the need to revise and update its rate case rules of which the pfar was a major part. in the 2003 revisions to the pfar, the major concern of the parties was the word “may” in the first sentence. an earlier draft version of the pfar used the word “shall” suggesting that all changes to the test year costs that might have an influence on rates should be proposed by the utility via the pfar. (proposed second notice order in icc docket no. 02-0509, p. 31). the icc rejected this proposal in favor of the more permissive standard found in the pfar cited above finding that adjustments of all factors through a pro forma adjustment could be burdensome on utilities, and, if other parties found that a utility’s test year costs had materially changed, those parties could always propose their own pro forma adjustments to the utility’s test year. (second notice order in icc docket no. 020509, pp. 31-32). from 2002 to 2008, the pfar was largely uncontested, at least by the commission, although some parties claim that the commission applied the rule somewhat differently in different cases based on different facts. for example, some argued that the commission approved an adjustment to the accumulated depreciation reserve in the test year up to the date of the last pro forma addition and in other cases the commission did not approve such an adjustment. (ebrey, p. 9-11) other parties argued that the pfar was either not expressly litigated or, if contested by a utility, the icc rejected the adjustment to accumulated depreciation. (initial brief on rehearing of ameren illinois utilities in aiu 2009 rate case, p. 7-8). no matter how the icc had addressed the pfar in the past, a controversy over the pfar practice arose when the state’s largest electric utility, commonwealth edison (comed), filed a rate petition for a proposed increase in rates of nearly $360 million in 2007. in the comed 2007 rate case the commission approved $561 million in pro forma adjustments to comed’s rate base via the pfar without adjusting the historical test year accumulated depreciation reserve. (comed 2007 rate case, appendix a). this adjustment in capital costs resulted in an additional $78 million annual revenue collected by comed. (that is, the pro forma adjustments added $78 million in additional revenue through the ror*rb factor in equation (1)) two of the five commissioners, however, dissented from this approach and argued that the pfar must be interpreted to adjust the utility’s capital not only for the known and measurable changes and associated depreciation, but also for the accumulated depreciation on the capital costs included in the historic test year up to the time that the known and measurable changes occurred. (an associated adjustment for deferred income taxes would also have to be made). under this alternative approach, for example, if the commission determined that known and measureable changes supported by the evidence occurred through the sixth month after the filing date, the accumulated depreciation reserve for all capital included in the rate base would be adjusted to this new date. due to the lag between the historic test year and the date of the last pro forma adjustments, this approach reduces the rate base by a year, or more, of accumulated depreciation. that additional accumulated depreciation can never be placed into rates and is lost to the investors of the utility. although the commission did not accept the minority’s interpretation of the pfar in the comed 2007 rate case, the case was appealed to the illinois appellate court for review of this issue in november 2008. in june 2009, and prior to the time the illinois appellate court ruled on appeal of comed 2007 rate case, the ameren illinois utilities (aiu), the state’s second largest electric utility system, filed a rate case proposing the same interpretation of the pfar as in the comed 2007 rate case. the commission, however, determined, in opposite to its decision in the comed 2007 rate case, that aiu was required to adjust its historic test year capital for all accumulated depreciation up to the point where the pro forma additions were included. for the aiu this amounted to a $26 million reduction in its allowed annual revenues or about 15 percent of its allowed net income from electric operations. as utility earnings are inherently linked to the decisions of regulatory bodies, this reversal of the commission’s position between the comed 2007 rate case and the aiu 2009 rate case should affect ameren’s projected earnings and, in turn, its stock price. we next address the effect of this change in pfar implementation on ameren’s stock price. methodology and results according to the efficient market hypothesis, information concerning the value of a firm should be incorporated into the price of the firm’s stock. (muth, 1961; fama, 1970). this theory is consistent with the theory of competitive mcdermott and peterson advances in business research 2012, vol. 3, no. 1, 53-62 57 markets in which buyers and sellers of a security are price takers and have no opportunity to create economic profits by trading stocks that are mispriced. (schwert 1981, p. 124). in principle, stock prices should provide some evidence of the effect of new information, at least as it becomes widely known. event studies have been developed in an attempt to address this issue. a wealth of event studies have been used to evaluate the incorporation of information into stock prices, the effects of contract interference during a merger on the value of the firm, and even whether firms are violating international arms embargos. (fama et al., 1969; cutler and summers, 1988; dell vigna and la ferrara, 2010). event studies have also been used in securities and antitrust litigation and to study events such as stock splits, takeovers and mergers, switching state corporate charters, regulatory effects, and many other events that have informational value to investors. (see e.g., bhagat and romano, 2002b, schwert, 1981; mackinlay, 1997) the event studies in securities litigation have a direct connection to the outcome of the litigation due to recent court decisions requiring plaintiffs suing for fraud to determine that, among other items, there was an economic loss caused by the alleged fraud. (dura pharmaceuticals v. brovado, 544 u.s. 336, 341-342.) in public utility regulation, shareholder losses as a result of unfavorable regulatory decisions are not directly taken into account in the litigation concerning equation (1). yet the end results doctrine requires a balancing of the interests of both investors and customers. studying the effect of economic regulatory decisions on investors can help provide regulators with a more general understanding of the effects of direct regulation on the ability of utilities to raise capital. further, studying the direct regulation of public utilities would seem to be a natural extension of the current literature. the process requires three steps. first, a discrete event must be defined. second, a selection criterion must be developed for including firms. in this case we are focused on one firm, ameren. third, an analysis of abnormal returns can provide insight into the effect of the event. (mackinlay, 1997, pp. 14-15; bhagat and romano, 2002a). defining the event to define the event, table 1 provides the basic timeline for the decision on the pfar. there are six possible decision dates that might be considered events. the most critical is the april 29, 2010 icc order in the aiu case reversing its comed 2007 rate case decision on the pfar and lowering aiu’s electric rate increase by $30 million relative to the administrative law judge’s february 25, 2010 proposed order and over $85 million relative to aiu’s original request. (table 2). we provide an analysis of this single event below. it is also possible, however, that other events in the time line could be important. for example, on february 25, 2010 the administrative law judge (alj) issued a proposed order in aiu. while a proposed order is not a final decision by the commission, it does indicate the view of the presiding judge after all of the evidence and argument has been presented and would seem to provide some guidance to the market on the direction the commission may take. even though the alj’s proposed order on february 25, 2010 allowed only 54 percent of aiu’s request that result could potentially be consider this a positive result. (table 2). it is not uncommon for utilities to receive much less than requested. in its previous two cases aiu received an average of 62 percent of its request with one case less than 50 percent. comed, the other major electric utility in illinois, received an average of 47 percent of its request in three cases between 2005 and 2010 with two cases below 40 percent in one of those cases the icc allowed only three percent of comed’s initial request, although on rehearing that was increased to 26 percent. (illinois commerce commission, 2011). in addition, several parties in the aiu 2009 rate case proposed even lower allowed increases. moreover, at this time illinois’ regulatory environment was considered one of the least credit-supportive in the us. (standard & poor’s, 2008). under these circumstances a decision allowing 54 percent of a utility’s request might be viewed positively by investors, although it seems more likely that the market viewed this as neutral and, given that the alj’s proposed order is not legally binding, we choose to focus on the commission’s legally binding decision. later events, such as the june 2010 icc decision to rehear portions of its april 29, 2010 order, including the pfar might also conceivably affect the stock price. again, this decision alone does nothing to change the revenue level. finally, the illinois appellate court’s decision in the appeal of the comed 2007 rate case overturned the icc’s ruling on the pfar in that case making it consistent with the aiu 2009 rate case order thus ending the debate over the interpretation of the pfar and aiu’s hope for restoring some of the lost revenue from the april 29th decision. it is conceivable that all of these decisions could be interpreted by investors as having some predictive value, yet, the commission’s final order in the aiu 2009 rate case on april 29, 2010, which allowed only 27 percent of aiu’s proposed increase with the majority of the discrepancy between the two orders relating to the interpretation of the pfar, is the only event to actually change the revenue level of the utility. we interpret this as “bad news” for the value of aiu and in turn the stock price of ameren corporation. mcdermott and peterson advances in business research 2012, vol. 3, no. 1, 53-62 58 table 1: time line for pfar decision date event comments 10-sep-2008 icc issues order in comed 2007 rate case icc interpreted pfar in expected manner 3-nov-2008 comed 2007 rate case order appealed to court icc orders in major cases are normally appealed by one or more parties 7-nov-2008 dissent on pfar in comed 2007 rate case published dissenting opinions have no force of law 5-jun-2009 aiu files rate case expected result similar to comed 2009 rate case on pfar interpretation 4-jan-2010 illinois governor appoints new chair of icc new potential swing vote on pfar decision 25-feb-2010 alj proposed order in aiu 2009 rate case proposed order allowed 54% of aiu ask 29-apr-2010* icc issues order in aiu 2009 rate case order reverses decision on pfar from comed 2007 rate case allowing only 27% of aiu ask– expected negative effect on ameren corporation (aee) earnings 15-jun-2010 icc agrees to rehear aiu 2009 rate case aiu gets second chance to litigate pfar 30-sep-2010 illinois court overturns icc decision in comed 2007 rate case on pfar illinois court determines that icc erred in comed 2007 rate case, re-hearing of pfar in aiu effectively over. 4-nov-2010 icc issues order on re-hearing in aiu 2009 rate case (pfar interpretation consistent with 29-apr2010 decision) court decision of 30-sep-2010 controls pfar interpretation the april 29, 2010 order: (1) was passed late in the day on the 29th and almost certainly did not provide any information to the market until april 30; and (2) contained several calculation errors that were corrected on may 6, 2010. we use april 30, 2010 as the event day as we believe the order would not have been widely circulated until then and the corrections to the order that appeared on may 6, 2010 are not material to this study. table 2: ameren proposed and allowed revenue increases aiu alj proposed commission proposal* order** decision* 25-feb-10 29-apr-10 amerencilco $17,088,000 $2,239,000 $1,416,000 amerencips $38,034,000 $25,888,000 $16,611,000 amerenip $59,854,000 $34,316,000 $13,535,000 total aiu $114,976,000 $62,443,000 $31,562,000 percent of request 54% 27% * icc order in docket nos. 09-0306-09-0311 (cons.) dated april 29, 2010 ** alj proposed icc order in docket nos. 09-0306-09-0311 (cons.) dated february 25, 2010 analyzing abnormal returns to investigate the effect of the event on returns to the firm’s stock, the traditional approach first calculates the security’s daily return defined as: r = ln (p ) ! ln (p "#) (2) where: r = return on day t p = closing price on day t p "# = closing price on day t-1 the abnormal return is typically measured as follows: r $ = x $%$ + ar $ (3) where: r $ = return on day t for firm i (as we are interesting in one firm i=1) x $ = vector of market return for day i and potentially other control variables ar $ = (abnormal) return that cannot be explained by the vector of control variables of interest in an event study is the abnormal return, and dropping the firm index, we can write the abnormal return as: ar$ = &d$ + ar$ (4) mcdermott and peterson advances in business research 2012, vol. 3, no. 1, 53-62 59 where: d = dummy variable taking the value 1 during the event and 0 otherwise ! = the true effect during the event window ar" = the remaining part of the abnormal return that cannot be explained by the event ar" is considered a date-specific location shift of ar" with ! as the shift parameter. (gelbach et al., 2011, p. 10) we are interested in estimating !. by substitution of (4) into (3) we find that: r = x # + d ! + ar (5) if t = 1, 2 .., et, where et is the event day, when t $ et dt =0; for t = et dt =1. that is, the abnormal return to the event occurs only in the event day; otherwise ar" = ar" . to estimate (5) we used data from one hundred trading days prior to the event day. one problem with event studies is the definition of et. one might expect the event widow to be one day, or even one hour, yet often it is not clear exactly when the information alleged to influence the market becomes public. for example, the main negative event from table 1 is the april 29, 2010 icc order reversing course on the pfar. while the order is debated and passed at an open public meeting, the text of the order, and perhaps more importantly the effect of any changes at the public meeting on allowed net income, is typically not available until hours after the meeting. in this case the open meeting of the icc began at 12:30 pm us central time (1:30pm us eastern) and it is likely that the text of the order was not known to the public until late in the trading day or even after the market closed. we assume april 30, 2010 was the first trading day in the event window. yet discussion of potential positions of the commissioners would have occurred prior to this date. to address these issues we use three different event windows: a single day, one day on either side of the event (3 day event window) and five days on each side of the event window (11 day event window). we next need to define the variables in the vector x . the return to the market is often measured with respect to the s&p 500, the center for research in security prices (crsp) value weighted index or the crsp equal weighted index. (mackinlay 1997, p. 18) in this case, however, we consider the market effects to be less important than the effects related to other utility stocks. for the purposes of estimating abnormal returns it makes more sense to utilize a measure of the returns to utility stocks overall rather than the market. this approach captures the sectorspecific market effects which are likely to affect returns to utility stocks, at least over a short period of time, although we report results using both the daily returns to the dow jones utility average (djua) and the daily returns to the s&p 500 as the independent variable. in error! reference source not found. the dependent variable is the nominal daily return on ameren corporation’s (aee) common stock. the djua, the s&p 500, and the ameren stock prices were adjusted to remove the effects of dividends and splits. results table 3: ols results for equation (5) djua as market proxy s&p 500 as market proxy 1-day 3-day 11-day 1-day 3-day 11-day event event event event event event window window window window window window r2 0.6735 0.6588 0.6255 0.4460 0.4541 0.4722 adjusted r2 0.6668 0.6519 0.6182 0.4347 0.4431 0.4620 standard error 0.0060 0.0062 0.0065 0.0078 0.0077 0.0080 observations* 101 102 106 101 102 106 f-stat 101.05 95.56 86.00 39.44 41.17 46.08 coefficients market proxy 1.0067# 0.9929# 0.9169# 0.7923# 0.7782# 0.7462# standard error 0.0720 0.0731 0.0738 0.0916 0.0879 0.0836 event dummy (%) (0.0244) # (0.0164) # (0.0060) # (0.0015) (0.0108) # (0.0024) standard error 0.0060 0.0036 0.0021 0.0080 0.0045 0.0026 5th least residual** !"#$#% (0.0107) + (0.0106) + (0.0100) (0.0130) (0.0125) (0.0121) 10th least residual** !"#$&# (0.0079) + (0.0081) + (0.0089) (0.0104) (0.0102) + (0.0109) * data begins 100 trading days prior to april 30, 2010 and runs through the end of the event window. ** see discussion below. number of observations for these tests = 100. # reject h0: 'e = 0 versus h1: 'e < 0 using the standard t-test ( !"#$#%( + reject h0: 'e = 0 versus h1: 'e < 0 using the sq test in error! reference source not found. the coefficient on the event dummy is negative which is consistent with the event providing “bad news” to the market concerning future potential earnings for ameren. the magnitude of mcdermott and peterson advances in business research 2012, vol. 3, no. 1, 53-62 60 the effect, however, differs greatly ranging from roughly 0.2 percent to 2.4 percent. further, using the standard tratios the 1-day event window is significant and large when using the utility average as the market proxy, but small and insignificant when using the broader market proxy. the 3-day event, however, is significant for both proxy measures and over one percent in both cases. the 11-day window appears to have a small magnitude in both cases but is not significant when using the broader s&p 500 as a proxy for the market. it appears from this evidence that the event probably occurred over a number days including the day of the order, but was not sustained. unfortunately, these conclusions may be somewhat suspect as there is evidence that the t-ratios calculated by the ols regressions in error! reference source not found. may provide bias results because the abnormal returns may not be normally distributed, especially when studying only one firm. (brown and warner, 1985; gelbach et al. 2011, appendix a). the problem for the t-test occurs is testing the extreme values. if the abnormal returns are not from a normal distribution, one has trouble making sense of cut-off values from an unknown distribution. gelbach et al. (2011) suggest a surprisingly simple method to address this problem using a sample quantile (sq) approach. in concept, the sq approach is similar to the chow test for testing differences in the regression coefficients from one observation to the next. (id. p. 6) the intuition is straightforward. consider a single event study of one firm using one-hundred trading days of data and further assume that the type i error rate is set by the investigator at 5 percent. if one sorted the fitted residuals, the fifth smallest residual is the sample 0.05-qunatile which is a consistent estimator of the population quantile. (id., p. 2 citing walker, 1968). to run the sq test we found the fitted excess returns (residuals) from the non-event days, sorted by smallest to largest. next gelbach et al. (2011) suggest finding the fitted excess return and the sample -quantile of these realized values. for example, if we wish to limit the type i error, rejecting the null hypothesis when it is true, a typical might be 0.05. the -quantile then is n *! . in this case n=100, each equation has 100 trading days prior to the event day, and the -quantile = 5. gelbach et al. (2011 , p. 19) claim that finding the 5 th least value of the fitted values and comparing that to the estimated event parameter will provide a simple test of h0: "e = 0 versus h1: "e < 0 where "e is the estimated event parameter from error! reference source not found.. the 5 th least value of the fitted abnormal returns are reported in error! reference source not found.. (we also report values for = 0.10). the results are somewhat different compared to the standard approach. we can no longer reject the null hypothesis for any of the s&p 500 proxy equations, at least when = 0.05, nor can we reject the null for the 11-day window for the equations run with the djua as the proxy. we are left with some evidence that the 1and 3-day event windows using the djua as the proxy show some abnormal reaction to the icc’s change in pfar interpretation. it may not be surprising that we found such weak evidence for this particular event. first, as noted elsewhere, the regulatory environment was notably hostile for utilities during this time. investors were likely pessimistic of the outcome at the start of the case, though the pfar interpretation was probably not the object of that pessimism given that the icc had interpreted the pfar in the past to the benefit of investors. second, ameren is a holding company consisting of three distinct businesses: public utilities (natural gas and electric) in missouri and illinois and competitive electric generation in illinois. ameren’s public utilities are regulated by illinois and missouri as well as the federal government. as a result, the icc’s april 29, 2010 order affected less than 37 percent of ameren’s total revenue. (ameren 10k, 2011, note 18). this figure includes all ameren’s illinois regulated revenue, though a portion of ameren’s electric utility revenue is regulated by the federal government in illinois and its natural gas utility revenue was largely unaffected by the pfar decision. as the pfar does not affect the utilities in missouri or the generation company in illinois, the overall effect of the change in the pfar on net income of the holding company is likely muted somewhat, nevertheless the illinois electric utility properties contribute significantly to the overall ameren holding company earnings, and given the likelihood that over this short period of time other factors affecting ameren’s overall earnings are likely unchanged, to the extent that there is evidence of an effect on the daily earnings of ameren, it seems likely that this is due to the regulatory decision in illinois. conclusions regulatory bodies with ratemaking authority have a great deal of influence on the earnings of utilities. in this case the illinois commerce commission applied an accounting rule in a manner that may not have been expected by the market. we expected to find evidence that the commission’s decision was associated with a negative abnormal return for ameren corporation and utilizing a traditional approach we did find such evidence. however, a concern that the statistical properties of a single firm, single event analysis do not provide for valid inference from the traditional t-test caused us to utilize a relatively new sq approach to adjust for this bias. using this adjustment we found less evidence of an effect from the icc’s change in the pfar ruling, although we cannot reject that there was an effect around the time of the decision as we might expect. we think this muted response from the market may be, mcdermott and peterson advances in business research 2012, vol. 3, no. 1, 53-62 61 at least in part, a result of ameren’s well diversified portfolio of business operations that does not leave the company over exposed to one particular regulatory body. we caution, however, that this analysis should be interpreted to mean that regulatory decisions do not affect a utility’s finances or its cost of capital. in this paper we tested only one event as it was likely the most important event. as noted in table 1, it is possible that this case may have had multiple events, both positive and negative. further, it is also conceivable that other utilities in illinois may have been influenced by this decision. moreover, we cannot observe stock price data directly for the ameren illinois electric utilities as they are part of a larger holding company and it seems that some diversification benefits may exist for ameren corporation’s shareholders that might otherwise not exist for a less diversified utility. further research is necessary to address both the multiple events possibility as well as the effect of regulatory decisions on utility operating companies. references bhagat, s., & romano, r. 2002a. event studies and the law: part i: technique and corporate litigation. american law and economics review, 4(1), 141–68. bhagat, s., & romano, r. 2002b. event studies and the law: part ii: empirical studies of corporate law. american law and economics review, 4(2), 380-423. brown, s., & warner, j. 1985. using daily stock returns: the case of event studies. journal of financial economics, 14(1), 3-31. central illinois light company d/b/a amerencilco central illinois public service company d/b/a amerencips, and illinois power company d/b/a amerenip re: proposed general increase in electric and gas delivery service rates, icc docket nos. 09-0306 through 09-0311 (cons.) (aiu 2009 rate case). commonwealth edison company: proposed general increase in electric rates, icc docket no. 07-0566. (comed 2007 rate case). cutler, d., & summers, l. 1988. the costs of conflict resolution and financial distress: evidence from the texacopennzoil litigation. the rand journal of economics, 19(2), 157-172. dellavigna, s., & la ferrara, e. 2010. detecting illegal arms trade. american economic journal: economic policy, 2(4), 26-57. ebrey, t. 2010. revised direct testimony on rehearing. icc docket nos. 09-0306-09-0311 (cons.). fama, e. 1970. efficient capital markets: a review of theory and empirical work. journal of finance, 25(2), 383417. fama, e., fisher, l., jensen, m., & roll, r. 1969. the adjustment of stock prices to new information. international economic review, 10(1), 1-21. federal power commission v. hope natural gas company, (1944) 320 u.s. 591. (hope). gelbach, j., helland, e., & klick, j. 2011. valid inference in single-firm, single-event studies. (january 6, 2011) available at ssrn: http://ssrn.com/abstract=1442222 or http://dx.doi.org/10.2139/ssrn.1442222. illinois commerce commission on its own motion revision of 83 ill. adm. code 285 and adoption of 83 ill. adm. code 286 and 287, icc docket no. 02-0509. illinois commerce commission. 2011. rate case history. retrieved february 27, 2012 from http://www.icc.illinois. gov/reports/results.aspx?t=10. kahn, a. 1988. the economics of regulation: principles and institutions. cambridge: mit press. mackinlay, a. 1997. event studies in economics and finance. journal of economic literature, 35(1), 13-39. mcdermott and peterson advances in business research 2012, vol. 3, no. 1, 53-62 62 mcdermott, k., peterson, c., & hemphill, r. 2006. critical issues in the regulation of electric utilities in wisconsin. wisconsin policy research institute report, 19(3), 1-69. muth, j. 1961. rational expectations and the theory of price movements. econometrica, 29(3), 315-335. schwert, g. 1981. using financial data to measure effects of regulation. journal of law and economics, 24(1), 121-158. sidak, j., & spulber, d. 1997. deregulatory takings and the regulatory contract: the competitive transformation of network industries in the united states. cambridge: cambridge university press. standard and poor’s. 2008. assessing us utility regulatory environments. new york: s&p. walker, a. 1968. a note on the asymptotic distribution of sample quantiles. journal of the royal statistical society, series b (methodological) 30(3), 570-75. karl mcdermott is currently the ameren distinguished professor of business and government at the university of illinois, springfield and a special consultant to national economic research associates, inc. he received his ph.d. in economics from the university of illinois at urbana-champaign. dr. mcdermott has been working in the field of public utility regulation for thirty years with experience in nearly every facet of the regulation of public utilities. from 1999 through march 2008, he was a vice president at nera in its chicago office. prior to joining nera, dr. mcdermott served as a commissioner on the illinois commerce commission. he is currently on the faculty of the institute for public utilities at michigan state university where he is an invited lecturer at several of the institute’s regulatory studies programs. carl peterson is an instructor in the accountancy department at the university of illinois springfield. he received his ph.d. in economics from the university of illinois at chicago. his current research interests include regulatory institutions, transitioning markets for public utility services, and financial decision-making of electric utilities. he has published in the electricity journal and natural gas and electricity as well as several edited volumes. uafs abr journal vol 4 no 1 2013.pdf 87 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 instructor-created video supplements: a closer look patrick lach, eastern illinois university evan danner, eastern illinois university this study is the first to examine the demographics of students who utilize instructor -created video supplements. using a core-level finance course, we find that students who utilize these recordings tend to be students with lower act math scores and lower act composite scores. a student's act math score is a stronger predictor of recording utilization than the act composite score. this suggests instructorcreated video supplements can be especially valuable in quantitative courses. we also show that students prefer to have such supplements used in quantitative courses, as evidenced by their responses on surveys given at the end of the semester. instructor-created video supplements, such as podcasts, have exploded in popularity since 2003. while they are still a relatively new teaching tool, literature has started to emerge regarding the impact of these supplements. multiple studies have found that students have a positive reaction to these supplements (bongey, cizadlo, and kalnbach, 2006; gattis, 2008; reimers and singleton, 2008) while other studies have examined the impact of instructor-created video supplements on academic performance (abt and barry, 2007; mckinney, dyck, and luber, 2009; niles and o'neil, 2007) and attendance (bongey, cizadlo, and kalnbach, 2006; reimers and singleton, 2008). however, there are still several aspects of these supplements that have not been addressed in the literature. this paper takes a closer look at instructor-created video supplements by filling three distinct voids in the literature. first, to our knowledge, this study is the first to examine the characteristics of students who view instructor-created video supplements. this has significant implications regarding the way instructors use supplemental video presentations. for instance, understanding the characteristics of students who utilize instructor-created video supplements can alert instructors to situations where such tools would be especially beneficial. by the same token, understanding the characteristics of students who do not benefit from video supplements can make the instructor cognizant of instances where creating, editing, and posting video recordings may not be the most efficient use of the instructor’s time. our study finds that students who view the supplemental video recordings tend to be students with lower act math and act composite scores. however, we find that a student's act math score is a stronger predictor of video use than a student's act composite score, even when controlling for other factors, such as grade point average and effort. this suggests that instructor-created video supplements can be a powerful learning aid for students with weak quantitative skills who may struggle in a quantitative course. therefore, we believe that using instructor-created video supplements can have positive benefits in other core-level quantitative classes which have students of diverse quantitative backgrounds, such as introductory-level statistics, or calculus courses. secondly, this paper is the first to document the use of instructor-created video supplements in a faceto-face core-level quantitative course. while devaney (2009) uses video supplements in an online corelevel quantitative course, we believe that using them in a face-to-face course is a much more common application, since the majority of college classes are still taken in a traditional classroom setting. in addition, we also make the distinction between quantitative courses at the major level and quantitative courses at the core level. most students in a major-level quantitative course are those with strong quantitative skills. students in a core-level quantitative course are generally less homogenous in terms of quantitative abilities than those in a major-level course. teaching a core-level quantitative course presents a unique challenge to an instructor because the instructor must teach in a way that keeps the students with strong quantitative skills engaged while making sure that students without strong quantitative skills are able to keep up with the material. our findings not only have implications for those who teach core-level 88 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 quantitative courses in business, such as financial accounting and financial management, but also nonbusiness courses such as chemistry and physics. lastly, this is the first paper to survey business students regarding the areas in which they would like to see video supplements used. this study examines the results of end-of-semester surveys given to students regarding their use of the supplemental videos. over 72% of the students surveyed strongly agreed that the recordings were helpful and another 80% strongly agreed that they would recommend the recordings to a friend. interestingly, while only 45% of students strongly agreed that they would like to see recordings in all of their other courses, 85% strongly agreed that they would like to see recordings in all of their math-based courses. our results indicate that student demand for video supplements is highest in quantitative courses. furthermore, students were asked to list courses where they would like to see video supplements used. nearly all of the courses that students listed were core-level quantitative courses. in this study, we are careful to distinguish between instructor-created video supplements and those video supplements that are provided by textbook publishers because we believe that both are very different. students often complain about the lack of continuity between a textbook's homework questions, homework solutions, and video guides, since all three are usually created by different individuals. in addition, textbook video supplements are likely to teach a concept in a different manner than the course instructor, which can often augment student confusion. by using video supplements that are created by the course instructor, student confusion will be minimized due to the continuity between the in-class lectures given by the instructor and the video supplements. the remainder of this paper is organized as follows: section 2 presents a background and literature review of topics related to this study, section 3 describes the data used in this study, section 4 summarizes the univariate and multivariate results, and section 5 concludes the study. background and literature review video supplements in qualitative courses most of the literature regarding instructor-created video supplements, such as podcasts, examines their use in a campus-based qualitative course. generally, podcasts are used to record class lectures so that students can listen to, and view the lectures at their leisure. one instance of using podcasts in a traditional campus-based course is covered in abt and barry (2007) where the authors analyze the difference in student learning with podcasts versus written transcripts. the authors find that there is little added benefit to teaching using podcasts versus written text, based on student scores on a multiple-choice exam. contrary to abt and barry (2007), mckinney et al. (2009) find that podcasts can be beneficial to student exam scores. similar to abt and barry (2007), mckinney et al. used podcasts to record lectures for students in a campus-based qualitative course. they divided students into two groups: one group listened to recorded podcasts and the other group listened to a live lecture. the authors discovered that the students who listened to the podcast while taking notes scored higher than the students who were taught in person. while the results of the study from mckinney, et al. (2009) offers evidence that podcasts can improve student learning, many instructors are hesitant to record lectures and post them online out of fear that classroom attendance will decline. bongey, et al. (2006) analyze the impact of having podcasts available to students in a qualitative course. the authors find that student attendance did not decline when the podcasts were introduced. furthermore, the students indicated that they preferred the classroom lectures to the podcasts lectures and that they used the podcasts as a supplement to the classroom lectures rather than a substitute. video supplements in quantitative courses while many studies have been conducted regarding the effectiveness of instructor-created video supplements, most of the studies analyze their use in qualitative courses. a relatively smaller number of 89 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 studies have been performed regarding the effectiveness of instructor-created video supplements in quantitative courses. one study which examines the effectiveness of instructor-created video supplements in a quantitative course is devaney (2009). this study examines the impact of introducing video tutorials in an onlinebased graduate level statistics course. based on student survey results, it appears that the video tutorials were effective in aiding student learning. however, this study does not examine the characteristics of students who used tutorials versus those who do not. similar to abt and barry (2007), devaney (2009) finds that there is no difference in academic performance between students who used the tutorials versus those who did not. niles and o'neill (2007) used video tutorials for topics covered in multiple business courses, such as time value of money, and regression analysis. unlike devaney (2009), niles and o'neil (2007) found that students scored higher on quizzes taken after the tutorials relative to the scores on quizzes taken before the tutorials. while several studies examine the impact of integrating technology such as powerpoint or portfolio simulations in the finance classroom (abt, and barry, 2009; baker, kent, mukherjee, and obannes, 2009; cudd, tanner, and lipscomb, 2004; dolvin, morgan, and pyles, 2004; king and jennings, 2004), few studies have examined the role of instructor-created video supplements in the finance classroom. gattis (2008) analyzes the role of using podcasts as a supplement to a derivatives course. this study gauged the effectiveness of these podcasts using student surveys. similar to bongey, et al. (2006) and devaney (2009), gattis (2008) finds that students' reactions to the podcasts are very positive. our study differs from gattis (2008) in two important ways. first, our study examines the use of video supplements in a core-level finance course, whereas gattis (2008) explores the use of video supplements in a major-level finance course. this is an important distinction because students in an introductory level finance course tend to have a more diverse set of quantitative abilities. secondly, we examine the characteristics of students who utilize the supplemental videos while gattis (2008) does not. in addition to gattis (2008), reimers and singleton (2008) also examine the impact of video supplements in the finance classroom. reimers and singleton (2008) recorded class lectures for two different graduate-level finance courses. based on student survey results, the authors find that students had a positive reaction to the videos. similar to bongey, et al. (2006), reimers and singleton (2008) find that student attendance was unaffected by having the lectures available online. our research differs from the reimers and singleton (2008) study in that we use video recordings of problems, and not lectures. in addition, reimers and singleton (2008) do not examine the characteristics of students who utilize instructor-created video supplements. data the data for this study was collected from students enrolled in core-level business financial management course during the fall 2010 (two sections), spring 2011, and summer 2011 semesters. student-specific data, such as gender, major, act scores, and elluminate usage, were collected during the fall 2010 (two sections) and spring 2011 semesters while survey information was collected at the end of the semester during the spring 2011 and summer 2011 semesters. the instructor of the course created video solutions using elluminate software for 40 of the most difficult homework problems assigned during the semester. homework was assigned from the textbook used in class, which was the sixth edition of essentials of corporate finance. using this software allowed the instructor to first enter a problem on the screen (figure 1, panel a). next, the instructor could annotate the problem while verbally explaining to the student the important facts in the problem (figure 1, panel b). lastly, after the problem was typed and annotated, the instructor could write out the solution and explain the solution as it was being written (figure 1, panel c). essentially, these recordings allow an instructor to explain a problem the same way he or she would in a traditional classroom setting. these recordings were kept short, with the longest recording lasting only 12 minutes and 34 seconds. the average recording length was 4 minutes and 22 seconds while the median length was 3 minutes and 47 seconds. 90 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 figure 1: example of a problem typed in elluminate panel a is a print-screen showing how a problem can be typed in elluminate. panel b contains a printscreen showing how a problem that has been typed in elluminate can be annotated in order to get students in the habit of reading problems actively. panel c is a print-screen showing how a problem can be solved in elluminate after the problem has been typed and annotated. panel a panel b panel c similar to klassen and biktimirov (2007), webct was used to collect student data. a link to each elluminate recording was posted in webct, which allowed information regarding the frequency and duration of the recording views to be collected. in order to determine whether or not a student viewed an elluminate recording, the amount of time the student spent viewing the recording was compared to the 91 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 actual length of the recording. if the student viewed the recording for at least half of the recording’s duration, the activity was recorded as a view. students were shown one of the videos in class so that they could get an understanding of what the recordings contained and how to access the recordings. other data includes each student’s composite act score, math act score, and gpa which were obtained from the university, while each student’s major was obtained from the student at the beginning of the semester. students with missing data are excluded from our analysis. in order to measure a student’s effort, his or her homework score for the semester was collected. during the semester, there were 12 homework assignments worth five points each. the homework was graded on completeness, not accuracy. as a result, the students’ homework scores are used as a measure of effort in the course. results univariate results student perceptions at the end of the spring 2011 and summer 2011 semesters, students were given an optional survey on the last full day of class regarding their perceived usefulness of the elluminate recordings. each student who completed the survey was asked to answer the first two questions in panel a of table 1. as shown in panel a, approximately 49% of students indicated that they had a major in finance or accounting, while approximately 82% of students indicated that they viewed at least one of the elluminate links during the semester. the 82% (40 total students) who indicated that they viewed at least one link were asked to respond to the six statements in panel b. as shown in panel b, 90% of students agreed or strongly agreed with the statement "i would recommend using the elluminate links to other students." on a scale of one (strongly disagree) to five (strongly agree), the average student response for this question was 4.65. this suggests that the majority of students who viewed the links had a positive experience using them. this is also evident in the students' response to statement 2 of panel b. 92.5% of students indicated that they agreed or strongly agreed with the statement 2 in panel b, which was "i found the elluminate links helpful." the students' responses revealed that they believe using elluminate would be helpful in other class settings, but is best suited for quantitative-based classes. only 65% indicated that they agreed or strongly agreed with the statement "i would like to see other professors use video recordings similar to the elluminate links for all of my other classes." furthermore, 67.5% of the students agreed or strongly agreed with the statement "i would like to see other professors use video recordings similar to the elluminate links for all introductory courses." on the other hand, 92.5% of students indicated they agreed or strongly agreed with the statement "i would like to see other professors use video recordings similar to the elluminate links for all math-based courses." these results suggest that students value these recordings more in quantitative courses than they do in qualitative courses. students were also asked to respond to the statement "using the elluminate links improved my grade in this course." 70% of students agreed or strongly agreed with this statement. however, 27.5% of students provided a neutral response to this statement. thus, it only appears that there is moderate evidence that the elluminate links improved students’ perceived performance. one possible reason for the relatively weaker positive response rate to this statement is the students' frequency of using the links during the semester. for instance, if a student only viewed one or two links during the semester, then the student will only have increased their knowledge in one or two concepts. since there are so many different concepts covered a core-level business financial management course, only covering one or two of those concepts in more detail with elluminate would only marginally increase the student's grade over the course of the entire semester. therefore, it is possible that the relatively low positive response rate to the statement regarding a student's grade may be attributable to the low number of links a student viewed, and not necessarily a reflection of the ineffectiveness of the links themselves. students who viewed at least one elluminate recording during the semester were also asked to "please list other courses you would like to see video recordings similar to elluminate used to supplement the course." the responses are shown in panel c of table 1. the most frequent answer to this statement was accounting. it should be noted that managerial accounting and financial accounting were both grouped 92 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 together as accounting. the second most frequent response was math / calculus. nearly two-thirds of the responses to this statement were accounting, math, or calculus, while 7 students responded to the statement with statistics. the other student responses to the statement were economics, derivatives, and operations management. not every student who viewed the elluminate recordings provided a response to this statement, and some students provided multiple responses. therefore, the responses to this statement do not add up to 40, which is the number of students who viewed at least one elluminate link. students who did not view at least one elluminate recording during the semester were asked “if you did not view any of the links, why did you choose not to view the links?” of the nine students who indicated that they did not view any links during the semester, four students responded “i used the solutions manual.” the solutions to the homework problems were posted in webct to allow students to check their answers and also to allow students to see how to work each problem, but without the benefit of a verbal step-by-step explanation. two other students indicated that “i didn’t need them.” it is very likely that these students did not need the elluminate links because they were able to understand the explanation given in the solutions manual. based on the first two responses, it appears that the majority of students who did not use the elluminate links had stronger quantitative skills since they were able to solve the homework problems without the verbal and visual step-by-step explanation provided by the elluminate recordings. there were three other answers to the question “if you did not view any of the links, why did you choose not to view the links?” one student indicated “i went to si.” si is an abbreviation for supplemental instruction, which is a program where a graduate student holds review sessions twice per week and students can come and ask questions regarding the topics that they are learning in their courses. another student responded “friends help with questions;” while one self-aware student declared “i am lazy.” table 1: survey results this table displays the results of student surveys given at the end of the spring 2011 and summer 2011 semesters for a business financial management course. these optional surveys were given on the last full day of class. the questions in panel a were addressed to all students taking the survey. students who indicated that they had viewed at least one elluminate recording were asked to respond to the statements in panel b, and they were asked to respond to statement 2 in panel c. if a student indicated that he or she had not viewed any of the elluminate recordings, that student was asked to answer question 1 in panel c. the values in panels a and b reveal the percentage of students answering each question, while the values in panel c reveal the frequency of student response. panel a: q uestions for all students q uestions: (number of total students: 49) yes no 1. are you an accounting or finance major? 48.98% 51.02% 2. did you view any of the elluminate links this semester? 81.63% 18.37% panel b: q uestions for students who used elluminate 1 2 3 4 5 q uestions: strongly disagree strongly agree average (n = 40) 1. i would recommend using the elluminate links to other students. 2.50 0.00 7.50 10.00 80.00 4.65 2. i found the elluminate links helpful. 2.50 0.00 5.00 20.00 72.50 4.60 3. i would like to see other professors use video recordings similar to the elluminate links for all of my other classes. 0.00 2.50 32.50 20.00 45.00 4.08 4. i would like to see other professors use video recordings similar to the elluminate links for all math-based courses. 2.50 2.50 2.50 7.50 85.00 4.70 5. i would like to see other professors use video recordings similar to the elluminate links for all introductory courses. 0.00 7.50 25.00 35.00 32.50 3.93 6. using the elluminate links improved my grade in this course. 2.50 0.00 27.50 37.50 32.50 3.98 93 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 panel c: o pen response survey q uestions q uestions / statements: response frequency 1. if you did not view any of the links, i used the solutions manual 4 why did you choose not to view the links? i didn't need them 2 i went to si 1 friends help with questions 1 i am lazy 1 2. please list other courses you would like accounting 12 to see video recordings similar to elluminate math / calculus 11 used to supplement the course. statistics 7 economics 2 derivatives 1 operations management 1 univariate results student use of supplements panel a of table 2 presents summary statistics for the student data. as shown in panel a, approximately 26% of the 102 students analyzed are female, and roughly 49% of the students have a major in finance or accounting. the average act math (act composite) score is 22.95 (22.25), while the average gpa is 2.92. the average number of elluminate recordings viewed by a student is 7.73, while the median is 2.00. this suggests that there is a strong right-skew to the data. the maximum number of elluminate recordings viewed by a single student is 106. while there are only 40 different recordings produced for the course, there is no limit to the number of times a student can view each link. therefore, the student who viewed 106 total recordings likely viewed each recording multiple times. during the semester, there were eight quizzes, three in-class exams, and a final exam, which likely contributed to the high number of total views for this student. the student’s homework average score was 51.76 out of a possible 60 points. panel b of table 2 divides students into two groups based on whether or not the student viewed at least one of the elluminate recordings during the semester. while 32.4% of the students who viewed at least one link were female, only 14.7% of students who did not view any of the links were female. this difference is statistically significant at the 10% level. the proportion of accounting or finance majors was the exact same for both groups. in addition, students who did not view at least one elluminate link had an act math score 2.77 points higher than those students who did view at least one link. by the same token, students who did not view at least one link had an act composite score that was 1.43 points higher than those who viewed at least one link. there was no significant difference in gpa or effort between the two groups. based on the results in panel b, it appears that students who view these recordings are not necessarily weaker students (based on gpa), but rather, they tend to be students with a lower natural abilities (based on act math and composite scores). while the results in panel b show that both act math and act composite scores are significantly and inversely related, the difference in act math scores is much higher than the difference in act composite scores. in fact, the difference in act math scores is nearly twice as high as the difference in act composite scores. furthermore, the difference in act composite scores is significant at the five percent level, while the difference in act math scores is significant at the one percent level. these differences are explored further in the next section. table 2: student usage information panel a of this table displays the summary statistics for all student characteristics while panel b of this table displays student characteristics for students based on whether or not they viewed at least one elluminate video during the semester. the p-values reported in panel b are the p-values associated with the t-test to determine whether or not the means are different for students who viewed at least one elluminate link and those students who did not. for both panels, female is a binary variable equal to one if the student is a female, zero otherwise. quant is a binary variable equal to one if the student has 94 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 a major in accounting or finance at the beginning of the semester, zero otherwise. act_math (act_comp) represents a student’s act math (act composite) score. gpa represents a student’s grade point average at the beginning of the semester. total_views represents the number of total elluminate links viewed by a student during the semester. effort represents a student’s homework grade for the semester. all student usage information was gathered during the fall 2010 (two sections) and spring 2011 (one section) semesters for students enrolled in a business financial management course. webct. significance is noted by one (10%), two (5%), or three (1%) stars. panel a: summary statistics variable n median mean maximum minimum std.dev. sum female 102 0.00 0.26 1.00 0.00 27 quant 102 0.00 0.49 1.00 0.00 48 act_math 102 23.00 22.95 33.00 14.00 3.85 act_comp 102 22.00 22.25 30.00 15.00 2.89 gpa 102 2.89 2.92 3.90 1.27 0.49 total_views 102 2.00 7.73 106.00 0.00 15.08 effort 102 55.00 51.76 60.00 7.50 10.28 panel b: t-tests students who viewed at least one link and those who did not means differences in means viewed at least did not view one video one video variable (n = 68) (n = 34) difference p-value female 0.324 0.147 0.176 0.058* quant 0.471 0.471 0.000 1.000 act_math 22.029 24.794 –2.765 0.001*** act_comp 21.779 23.206 –1.427 0.043** gpa 2.945 2.856 0.089 0.392 effort 52.500 50.294 2.206 0.381 multivariate results while the univariate results of the previous section found that act math and act composite scores were negatively related to the probability a student will view an instructor-created video supplement, this section investigates factors which predict video supplement use in a multivariate setting. table 3 shows the results of a logistic regression where the dependent variable in each model is a binary variable equal to one if a student viewed at least one video, and zero otherwise. due to the high correlation between a student's act math score and act composite score, model 1 controls for a student's act math score while model 2 controls for a student's act composite score. in addition, similar to damianov, et al. (2009), terry (2002), and wilson (2003), both models 1 and 2 control for each student's major, gender, and grade point average. models 1 and 2 also control for effort, which has been shown by cheo (2003) to be a variable which can have an impact of student achievement. while panel b of table 2 show that a significantly greater portion of students who viewed the videos were female, this variable is not significant in either of the two models in table 3. furthermore, a student's major, effort, and grade point average are not significant predictors of video usage in either model. however, similar to panel b of table 2, both act math and act composite scores are significantly and inversely related to whether or not a student views at least one video. similar to panel b of table 2, table 3 shows that a student's act math score is a stronger predictor of video usage than act composite score. act math score has a coefficient of 0.216, which suggests that the probability that a student views at least one elluminate recording decreases by a factor of 0.81 for each one-point increase in a student's act math score. on the other hand, act composite has a coefficient of 0.179, which suggests that the odds that a student views at least one elluminate recording decreases by a factor of 0.84 for each one point increase in a student's act composite score. furthermore, the coefficient for act math is significant at the one percent level, while the coefficient for act composite is only significant at the five percent level. lastly, the pseudo r 2 for model 1 (12.7%) is higher than the pseudo r 2 for model 2 (7.7%), which suggests that a student's act math score does a 95 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 better job of predicting whether or not a student views at least one elluminate recording relative the act composite score. table 3: logistic regression results – student usage this table contains the results of logistic regressions used to explain the characteristics of students who viewed the elluminate videos during the semester. for both models, the dependent variable is a binary variable equal to one if a student viewed at least one elluminate video during the semester, zero otherwise. female is a binary variable equal to one if the student is a female, zero otherwise. quant is a binary variable equal to one if the student has a major in accounting or finance at the beginning of the semester, zero otherwise. act_math (act_comp) represents a student’s act math (act composite) score. gpa represents a student’s grade point average at the beginning of the semester. effort represents a student’s homework grade for the semester. all student usage information was gathered during the fall 2010 (two sections) and spring 2011 (one section) semesters for students enrolled in a business financial management course. significance is noted by one (10%), two (5%), or three (1%) stars. model variable 1 2 intercept 3.412 3.018 (0.108) (0.218) female 0.667 0.920 (0.265) (0.109) quant 0.004 –0.075 (0.993) (0.873) effort 0.004 –0.003 (0.864) (0.894) act_math –0.216*** (0.002) act_comp – 0.179** (0.034) gpa 0.683 0.582 (0.184) (0.242) observations 102 102 pseudo r2 0.127 0.077 conclusion while several studies have examined the impact of using instructor-created video supplements in the classroom, most of these studies focus on students’ attitudes towards podcasts of recorded class lectures. in addition, these studies examine podcasts used in qualitative courses. this study is the first to examine video supplements in a core-level quantitative course. in addition, to our knowledge, this is the first study to explore the characteristics of students who use instructor-created video supplements. based on the data examined in this study, it appears that the video supplements were used significantly more by students with weaker quantitative skills, as measured by their act math score. thus, it appears that using video recordings to explain mathematical problems step-by-step can serve as a tool to allow students with weaker quantitative skills to catch up to their peers who have stronger quantitative skills. this study also has important implications for other quantitative-based disciplines, especially those that are part of the general education curriculum, such as statistics, calculus, and accounting, where instructors must balance the needs of students with strong and weak quantitative skills. lastly, this is the first study to examine where students would like to see video supplements utilized. based on student survey results, our study finds that 45% of the students surveyed indicated that they strongly agree that they would like to see video recordings similar to the ones used in this study for all of their classes, while an astonishing 85% of students indicated that they strongly agreed that they would like to see the recordings in all of their math-based courses. furthermore, when students were asked to list other courses where they would like to see video recordings similar to the ones used in this study, nearly 96 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 all of the responses were quantitative courses. therefore, it appears that the demand for video recordings is highest in quantitative-based courses, even though it seems to be more common in qualitative courses. there are several limitations to this study. first, the instructor-created videos were explanations to homework questions and did not introduce any new concepts. stronger students who were able to complete with homework without any problems would have little need to view the videos online. secondly, the survey regarding the courses where students would like to see video supplements was given at the end of a quantitative course, which may have biased the survey results in favor of quantitative (math-based) courses relative to qualitative courses. lastly, this survey was conducted at one university, in one course, under one instructor, which limits the generalizability of results. references abt, g., & barry, t. 2007. the quantitative effect of students using podcasts in a first year undergraduate exercise physiology module. biosciences education, 10: 1-9. ali, a., derina, r., & zurbruegg, r. 2009. adaptation of online material for teaching financial economics courses. journal of financial education, 35: 96-113. baker, h., kent, t., mukherjee, k., & obannes, g. 2009. innovation in the classroom: adaptive learning software-based instruction. journal of the academy of business education, 10: 54-69. bongey, s., cizadlo, g., & kalnbach, l. 2006. explorations in course-casting: podcasts in higher education. campus-wide information systems, 23(5): 350-367. cheo, r. 2003. making the grade through class effort alone. economic papers, 22(2): 55-65. cudd, m., tanner, j., & lipscomb, t. 2004. a profile of classroom technology usage in finance instruction. journal of 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journal of the academy of business education, 8: 40-48. king, d., & jennings, w. 2004. the impact of augmenting traditional instruction with technology-based experiential exercise. journal of financial education, 30: 9-25. mckinney, d., dyck, j., & luber, e. 2009. itunes university and the classroom: can podcasts replace professors? computers and education, 52(3): 617-623. 97 lach and danner advances in business research 2013, vol. 4, no. 1, 87-97 niles, m., & o'neill, m. 2007. online tutorials: some tips for beginning developers. journal of the academy of business education, 8: 33-39. reimers, j., & singleton, j. 2008. podcasting finance classes: some early experience. journal of financial education, 34: 128-136. ross, s., westerfield, r., & jordan, b. 2008. essentials of corporate finance. new york: mcgraw hill/irwin. terry, a. 2002. student performance in the introductory corporate finance course. journal of financial education, 28: 28-41. wilson, a. 2003. evidence of the effectiveness of course management software and asynchronous communication in a first finance course. journal of financial education, 29: 40-43. patrick lach is an assistant professor of finance at eastern illinois university. he received his ph.d. in finance from mississippi state university. his current research interests include personal finance, business education, initial public offerings, corporate governance, and real estate investment trusts. he has published in applied financial economics. evan danner is an assistant property manager at cassidy turley. he received his mba from eastern illinois university. his research interests include business education, investments, and real estate investment trusts uafs advances in business research 2012 lowrez (2).pdf durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 79 audit evidence supporting the missing going concern opinions: bankrupt california public school districts s. joseph durden, cpa, pc john sennetti, nova southeastern university because of asymmetric payoffs to the auditor, bankrupt local governmental units are unlikely to receive going concern audit opinions (gcos). to increase this likelihood¸ we propose a framework to increase the evidence to support this opinion. we then apply this to 400 california school district reports, 54 of which were used to declare bankruptcy by 2008. typically, because of the impending bankruptcy, otherwise reliable state financial information becomes unreliable. we address this and then recommend a gco in 2008 for thirteen of nineteen districts which eventually went bankrupt. we confirm as available: 1) the missing evidence and provide, and 2) an improved information model demanded by auditing research and practice. local governments (cities and school districts) across the united states are failing to meet their cash obligations, but few are receiving going concern audit opinions (gcos). fifty-four (13.5 percent) of the over 400 possible school district reports in california from 2003 to 2008 actually received bankruptcy designations, and but few of these received gcos (california department of education, 2009). even though the state of california failed to pay its obligations when they came due, i.e., failed as a going concern, the state’s financial statements did not receive a going concern opinion (california state controller’s office, 2009; luhby, 2009). this audit opinion is not intended to predict economic failures, but is relied upon by vendors (teachers, parents and more) as a warning as to possible nonpayment to them when their payments become due. the official guidance for these audit opinions explicitly states the absence of gco does not imply a bankruptcy will not occur [american institute of certified public accountants (aicpa) statement on auditing standards (sas) no. 59, “the auditor’s consideration of an entity’s ability to continue as a going concern,” aicpa, 1988; see also gauthier 2005; and governmental accounting standards board (gasb) 2009, statement no. 56, “codification of accounting and financial reporting guidance contained in the aicpa statements on auditing standards”, gasb, 2009]. because these opinions report on the presentation of the recent year’s financial results, auditors must use currently available evidence, available at most a few months past the year end date of the financial statements, to determine whether the governmental unit will be able to meet short-term financial obligations as they become due. arguments for and against reporting the opinion the gasb statement no.56, instructs auditors to issue these opinions after observing threatening events, such as bond payment defaults, major debt and tax crisis events, noncompliance with statutory capital or reserve requirements, legal proceedings or regulatory proceedings. all this reduces the likelihood of a gco unless a declared bankruptcy has already occurred, particularly since the gco may ‘cause’ bankruptcy, signaling just the potential of a bankruptcy and frightening creditors, and hence the auditor has greater payoffs not to report this opinion, especially when this report may discontinue the relationship with this client. against this likelihood, the national financial crises affecting local governments should increase the evidence and demand by creditors, employees’ unions, taxpayers, and all other stakeholders for more going concern opinions. governments missing tax revenues from foreclosed and reduced tax-valued houses have closed police stations in california (sanchez, 2010), and states have assumed school district debts. going concern opinions for school districts alert employees to possible job losses, students to possible non accredited high school degrees, and taxpayers to abnormal salaries for officials, as in the cases of bell, california (gore, 2009; roger, 2010). this paper responds to this national stakeholder demand for more gcos. we consider the general monitoring process created by the states, one that permits variables to be modeled as part of the auditor’s an analytical work. with this we increase the evidence and hence the likelihood for the going concern opinion for governmental units. we then apply this process to the financially-distressed california school districts to find a sufficient framework to increase the going concern opinion evidence. the next section and corresponding sections discuss the relevant research, hypotheses, methodology, results and their summaries. durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 80 background and hypothesis general overview like non-governmental audits, governmental audits do not require an analysis to predict the future viability of the local governmental unit being audited. gasb 56 requires certain footnote and md&a disclosures, however these requirements are still ex-post in nature and not predictive of an event that has already occurred. because of this, there was no warning or cautionary communication, to vendors, employees, police, fire departments, insurers of homes, local utilities and other vendors of services and products from the local government bankruptcies of the city of prichard, al; city of vallejo, ca, city of dunmore, pa, emery unified school district, ca, west contra costa unified school district, ca, compton unified school district, ca, st louis school district, mo, and the richmond unified school district, ca, just to name a few. increasing the demand for predictive gcos began in the united states with the rising inflationary crises of the 1970’s, when costs exceeded revenues (and similar to recent deflationary crises with declining revenues). practicing auditors requested a going concern opinion for those units subject to governmental and public audits (belluomini, 1977). absent prior research of these governmental issues, the auditors adopted for-profit opinions (sas no. 59) and their predictive models, although predictive models for governmental units are now available (trussel and patrick, 2009). the for-profit research on these opinions consider the bankruptcy probability (hopwood, mckeown, and mutchler, 1994) from perceived variables from other stressed companies (mutchler, 1984), the predictability of future going concern issues based on prior financial distress (geiger et al., 2005), the influences of contrary information (mutchler, hopwood, and mckeown, 1997), publicly available information (mutchler, 1985), and user interpretation of the going concern opinions (ponemon and raghunandan, 1994). whether to report a going concern opinion: agency and other issues in addition to the available economic information, the auditor considers whether the effect of the opinion may increase the likelihood of these past negative conditions and bankruptcy, and thereby increasing the corresponding legal liability (mutchler, 1985; raghunandan and rama, 1995; akers. maher, and giacomino, 2003; carcello and neal, 2003; bellovary, giacomino, and akers, 2006). a lawsuit from or dismissal by the client may occur even in the presence of predictive evidence (akers et al., 2003; carcello and neal, 2003; raghunandan and rama, 1995; bellovary et al., 2006). in some cases, these conditions create opinion shopping (carcello and neal 2003; bellovary et al., 2006). type i and type ii decision errors two types of misclassifications or auditor errors may occur in reporting. a type 1 misclassification occurs when the client remains viable after the issuance of a going concern opinion. conversely, a type ii misclassification occurs when the client declares bankruptcy after the issuance an unqualified opinion for the period preceding the bankruptcy filing (geiger et al., 2005). type ii misclassifications are common while type i are not. less than half of businesses filing for bankruptcy received a going concern opinion for the preceding financial statements in the 1980’s (hopwood et al. 1989; raghunandan and rama, 1995; geiger et al., 2005). asymmetric payoffs for type i and type ii decision errors the auditor has a knowledge advantage over the principal (school district taxpayers) because of the “expertise, functional indispensability, and intrinsic ambiguity associated with the services they provide” (sharma, 1997, 768). the cost to the auditor of a type i decision is likely a loss of a client. the cost of a type ii decision to the auditor for government auditors, is likely minimal, since their lawsuits for these audits are rare, although the taxpayers may try to harm the auditors’ reputations. opportunism emerges as the auditors decide in their best interests to not issue a gco. when a gco is not given for bankrupt corporations, lawsuits from taxpayers, debt holders and more also arise, but sas no.59 argues that when one is given it does not mean that the corporation will be solvent, and in this case the auditor is less likely dismissed. when a gco is not given for bankrupt governmental units, even when subsequent challenges are made to the financial statements, the former city manager is more likely to be sued than the auditors (e.g. palmeri, 2010). also, since for the unit, the state may likely assume the debt, the client may continue (but not as the same going concern) so arguments for not giving a gco remain. next, because of the time delays due to state takeovers, creditors too are more likely to wait and less likely to sue the auditor. specifically for durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 81 california school districts, there exists an additional funding source (loan) from the state of california after the school district declares insolvency, thereby again reducing the likelihood of taxpayer lawsuits and reducing auditors’ concerns of client retention (state of california, 2009), and reducing the likelihood of a gco. next, given the unit’s poor financial condition, the collection of the audit fees themselves or even client retention may be in doubt, and since the fees themselves may be so low, or even not sufficiently budgeted, that the corresponding quality of audit itself may low and the gco evidence produced insufficient for this opinion, following low auditor-budgeted costs. finally, the first to feel the bankruptcy consequences are the unit’s employees, less likely as a individuals to sue, but more likely to sue as part of a union, if one is permitted. again these lawsuits are more likely first against management than the auditors, reducing once again the likelihood of the gco. public interest arguments for increasing the likelihood of the gco against this, the public interest stakeholders, too numerous to mention and unaware of the consequences of bankruptcy or extreme financial stress conditions, and as voters, do demand more warnings from the accountants. the consequences can be too severe: closed police stations and less protection for cities in california (sanchez, 2010), failed city water and fire systems and higher housing insurance in harrisburg, pennsylvania (mcnichol, 2010). in georgia, bankrupt school districts create non-accredited high school degrees and las vegas, nevada, closed city-supported cancer and kidney units for urgent care. these events argue for increasing the auditors’ evidence for the supply of gcos: the “hope is that issuing a going-concern opinion might promote timelier rescue activity” (venuti, 2004: 41). audit evidence for the bankruptcy of governmental units local governments are able to file for bankruptcy under the municipal bankruptcy act of 1937 and 579 municipalities have filed for bankruptcy since the passage of the legislation (landry and deal, 2008). park (2004) considers the causes of municipal cash shortages and bankruptcies. research on audit opinions associated with these begins with belluomini (1977) who provides the variables in table 1 to be considered before providing a going concern opinion for governmental units. table 1: going concern considerations for governmental units 1. significant interfund receivables or receivables from other governmental units may not be realizable in full; as a result, the unit will have significant cash flow problems. 2. taxable property values may be decreasing and/or delinquent taxes as a percentage of the total tax levy may be increasing and the current tax rate may be approaching the maximum legal limit. as a result, if there are no other revenue sources, the unit may not be able to provide adequate levels of service and meet debt obligations. 3. the unit's actual expenditures may have been in excess of budgeted expenditures for one or more years and/or actual revenues may have fallen short of budgeted revenues for a year of more. 4. on a per capita basis, bonded debt or expenditures may have increased at a rate in excess of inflation. 5. salaries and fringe benefits may have increased as a percentage of total expenditures without an offsetting increase in productivity. 6. substantial unfunded pension liabilities requiring significant funding in future years may exist. 7. the unit may use long term debt to finance current operations or to meet debt service requirements. 8. there may be increasing amounts of short term borrowings that are not liquidated on a timely basis. 9. the unit may be unable to issue long term debt to pay off bond anticipation notes. 10. enterprise fund activities may not be able to continue as a result of a lack of operating funds, because of continuing operating deficits and/or the failure to obtain grants-in-aid from other governmental units to subsidize operations. 11. the unit's bonds may be downgraded by a bond rating agency. 12. the governing body may fail to recognize the seriousness of the unit's financial difficulties and as a result may fail to provide appropriate remedies. examples from california school districts consider two “independent” school districts in california, the west coast costa and chico districts. west coast costa district received an unqualified opinion and chico a going concern opinion (a gco). both districts have almost identical financial characteristics and should have received a bankrupt rating by the state of california for the same year (june 30, 2008), given by the state and found in the auditor report each given in december 2008, and when the “preliminary negative certification,” one signal that bankruptcy was imminent but not yet official for both school districts. yet, west coast costa did not officially receive this final negative certification rating or a gco, even though the preliminary certification was mentioned in the west coast costa management and discussion durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 82 analysis footnote for that year (chico unified school district 2008; west costa contra unified school district 2008). apparently the available evidence was insufficient to sustain a gco. we hypothesize this evidence was available but the framework for finding it was not. table 1 begins a framework of signals under which the bankruptcy of governmental units should become more explicit. california adds to this framework by providing the information on the attributes listed in table 2 of two types of financially stressed districts, those listed as qualified (stressed) and as negative (bankrupt). from the latter we should be able to predict bankrupt districts in august, the time of the audit, for the past school year ending in june, before the list of officially bankrupt districts becomes available from the state of california. however, as the district becomes more stressed, the inputs to these variables may be changing, e.g. the state may be intervening into local districts and making efforts to prevent financial default, by adding resources or closing buildings and consolidating classes. also, the auditors are not supposed to predict defaults with future information but with current information, which for california schools may be constantly changing and therefore statistically not relevant. in question is whether the state will declare a school negative (bankrupt) after the auditor’s opinion has been rendered. so the question remains open as to whether the auditor may unknowingly have sufficient evidence for the gco, our hypothesis, h. h: california school district financial reports not given going concern opinions but associated with attributes of bankrupt district reports are likely to contain evidence sufficient to merit going concern opinions. methodology and results data table 2 presents the california department of education’s annual reports covering the fiscal years 2004 through 2008. these reports contained a listing of the school districts that received a (a) positive, (b) qualified, or (c) negative certification. a positive certification indicates a school district or county office of education that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. a qualified certification indicates the school district may not be able to meet its financial obligations during the year, but is not one of substantial doubt, and can be considered similar to the sas no. 59 condition where notes are given but no reference is made in the opinion, and one that is not a gco. a negative certification signifies the school district will not meet its financial obligations for the current fiscal year or subsequent fiscal year. we use this qualification as the basis for designating a school district bankrupt. design and framework using publicly held financial and non-financial information on variables suggested by for-profit and not-forprofit research, we create in-sample statistical models to identify from troubled school districts, those variables related to the changing conditions from fiscal stability to government intervention. this approach may require different models for different times periods as the conditions of the governmental unit changes from (1) fiscal stability to (2) fiscal instability and finally to (3) bankruptcy. in each case the auditor has an advantage of a preliminary certification (preliminary level 3) by the state of california, six months after the financial statements and about the time of the auditor’s report. often this announcement is designated as a subsequent event. variables first design: suggested predictive variables for the california school districts with nine independent (predictive) variables suggested by the cde, we are interested in predicting bankruptcy, classification 3 in table 2, the negative certification, our first dependent variable (as y = 1). [we add to the predictive variables the “other” category, and now identified as a “size” variable, as size is important to all previous research on organizations and in particular for the california school districts, bringing the total for table 4 to ten predictive variables]. the modeling is a two-step process. first in logistic regression model 1 we compare the dependent variable, classification 2 (y = 1), the qualified certification, table 2, to the positive certification, classification 1, table 2 (for y = 0), giving the 1-2 comparison, in order to determine which of the cde suggested variables serve to predict financial stress. we would like to identify predictive variables before a stable school district becomes unstable. in model 2, we then compare the negative certification or bankruptcy, classification 3 (y = 1), to the positive certification, classification 1, table 2 (again, as y = 0) for the 1-3 comparison, using only those variables of model durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 83 1 found useful in some way for predicting bankruptcy, 1-3. preliminary negative certifications do not become final until after the end of the school year and are available to auditors during the audit period and therefore an in-sample, same year sample analysis and the gco can be given before the declaration of bankruptcy is declared. second design: all available predictive variables we repeat the first design. we add one more available predictive variable suggested by prior for-profit going concern opinion research (geiger et al., 2005), the evidence of prior bankruptcy (1, 0), bringing the total number to eleven independent variables. in creating the variables for the logistic modeling process from table 2, all predictive variables are coded as 1 if present, 0 otherwise. for the final variables, the evidence of prior bankruptcy (the school district had a previous negative certification), is coded as 1, otherwise 0. for average daily enrollment variable, identified in the model as size avg, if the school district has an average enrollment greater than 7,916 (which represents the average daily enrollment for all school districts within the data set), the value is set to 1, otherwise 0. table 2: california school district variables these financial and non-financial indicators were utilized by the california state controller to determine financial distress experienced by a school district. fiscal years are july 1 to june 30. (california department of education july 2009, july, 2008, october 2007, october 2006, june 2005). fy 2007-2008 fy 2006-2007 fy 2005-2006 fy 2004-2005 declining enrollment1 declining enrollment declining enrollment declining enrollment deficit spending2 deficit spending deficit spending deficit spending revenue limit3 inadequate reserves inadequate reserves inadequate reserves other expenditures4 mid-year budget adj. encroachment issues special ed cont.5 salary and benefit issues salary and benefit issues salary and benefit issues reserves6 management turnover health welfare benefit issues prior audit adjustments other revenues7 negative fund balance forest reserve funds loss benefit related costs labor agreements8 charter school issues charter school issues other fund encroach. indept. position control9 other issues other issues district man. issues litigation/labor claims based on a review of these variables, the school district receives one of three following classifications from the california state controller: positive: a school district or county office of education that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. qualified: a school district or county office of education that may not meet its financial obligations for the current fiscal year or subsequent two fiscal years. negative: a school district or county office of education that will not be able to meet its financial obligations for the current fiscal year or subsequent fiscal year. 1declining enrollment: enrollment decreased in both the prior and current fiscal years. 2deficit spending: unrestricted deficit spending exceeded one-third of available reserves in any of the current or two subsequent fiscal years. 3revenue limit: projected revenue limit for any of the current or two subsequent fiscal years changed by more than 2% since budget adoption of first interim. 4other expenditures: projected operating expenditures (e.g., books and supplies) for the current and two subsequent fiscal years changed by more than 5% since budget adoption or first interim. 5contributions: contributions from unrestricted to restricted resources, or transfers to or from the general fund to cover operating deficits changed by more than $20,000 and more than 5% since budget adoption for any of the current or two subsequent fiscal years. 6reserves: available reserves (e.g., designated for economic uncertainties, undesignated amounts) did not meet minimum requirements for the current and two subsequent fiscal years. 7other revenues: projected operating revenues (e.g., federal, other state) for the current and two subsequent fiscal years changed by more than 5% since budget adoption or first interim. 8status of labor agreements: salaries and benefit negotiations are unsettled for certificated employees, classified employees, and/or management/supervisor/confidential employees as of budget adoption or second interim projections. 9independent position control: personnel position control is independent from the payroll system. durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 84 10 average daily attendance: the mean daily attendance was calculated for each year with daily attendance for each school district greater than the mean receives a 1 and less than the mean scores a 0. (size avg) 11 prior bankruptcy: a school district receiving a negative classification in a prior reporting period scores a 1 and no negative rating receives a 0. table 3: predictive variables of school district bankruptcy based upon the cde panel a: top three variables-begin with 2003 variables year dependent variablesi predictive variableii (wald z-value) pseudo-r2 2007-2008 1-2 declining enrollment (1.638)** 0.67485 deficit spending (0.592)* size avg (2.036)* 1-3 declining enrollment (1.662)** 0.62814 deficit spending (0.261)* size avg (0.084)* 2006-2007 1-2 declining enrollment (2.754)** 0.69749 deficit spending (1.495)* size avg (0.952)* 1-3 declining enrollment (2.092)** 0.65707 deficit spending (0.783)* size avg (0.058)* 2003-2004** 1-2 declining enrollment (1.453)** 0.48046 deficit spending (0.649)* size avg (0.151)* 1-3 declining enrollment (2.275)** 0.77779 deficit spending (0.158)* size avg (1.877)* panel b: based upon all available predictive variables, the top three in 2008 year dependent variablesi predictive variableii (wald z-value) pseudo-r2 2007-2008 1-2 prior bankruptcy (-1.082)** 0.87475 revenue limit (2.422)* size avg (1.592)* 1-3 prior bankruptcy (3.500)** 0.99267 revenue limit (-0.126)* size avg (1.112)* _________________________________ * statistically significant, z score exceeds 1.645 (one sided p-value<0.05) ** data insufficient for logistic modeling for years 2006-2005 and 2005-2004. i refer to table 4: positive certification (1), qualified certification (2), negative certification (3). ii refer to table 4: footnotes 1-11. table 4: successful predictions of classifications panel a. state of california classifications by type and year classification 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004 total positive (‘1’) 27 9 2 13 16 qualified (‘2’) 85 108 19 29 38 negative (bankrupt) (‘3’) 19 13 5 3 14 (13.5%)54 total 131 130 26 45 68 400 panel b: classification by most recent year: predictive model for (2007-2008) prediction of positive (1) v qualified (2) classification classification count probability exceeds % successfully predicted (count) positive (1) 27 22.222 (6) qualified (2) 85 0.50000 97.647 (84) total 112 0.50000 79.464 (90) durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 85 prediction of positive (1) v bankruptcy (3) classification classification count probability exceeds % successfully predicted (count) positive (1) 27 0.50000 96.296 (26) negative (bankruptcy declared) (3) 19 0.50000 68.421 (13) total 46 84.783 (39) school districts in california are required to file interim reports twice a year confirming their status to cde authorities. during the fiscal year 2007-2008, there were 131 school districts that filed either a qualified or negative certification during either the 1 st or 2 nd certification filing. if a school district filed either a qualified or negative certification for the 1 st certification filing, then if for the 2 nd certification the financial condition was improved they received a positive certification for that 2 nd certification period. the 131 school districts are thereby classified into three divisions (dependent variables) based on the 2 nd certification, there are 19 classified as negative, 85 classified as qualified and 27 classified as positive. the same classification procedure is utilized for the previous years under study. there is insufficient published data on bankrupt schools for the years 2004 to 2006, as the bankruptcies range from 68 in 2004 to 26 in 2006, suggesting improving u.s. and california economic school district conditions as shown in tables 3 and 4. results-necessary and sufficient conditions necessary conditions: tables 1 and 2 and local laws provide the necessary conditions for predicting (in-sample) bankruptcy for governmental units. tables 3 and 4 present the sufficient conditions following the unique modeling process described earlier. in the first design for the governmental variables given by california, we create a logistic regression model to predict bankruptcy for the year 2003. but we find no one set of variables to serve for every year. to resolve this issue, table 3 (panel a) presents the best (maximum likelihood, pseudo-r-square) three variable logistic model for predicting 2003 to 2004 bankruptcies (the 1-3 model). we find declining enrollment, size avg (the school district exceeds average enrollment) as statistically significant and deficit spending as the third variable found by the model predictive of bankruptcy (1-3) for the year 2003 to 2004. these two variables, although not statistically significant also appear in the three variable model found for the predictions of the at risk (qualified) condition (1-2) for the year 2003 to 2004. these two statistically significant variables also appear in 2007 to 2008 (1-2) predictions. although only one of the two (declining enrollment) is significant for predicting bankruptcy in that year, both are significant for predicting the qualified condition (1-2 model). therefore, only declining enrollment and the prior bankruptcy of the school districts should be considered (is necessary) in evaluating the bankruptcy of school districts. table 3 (panel b) presents the best (maximum likelihood, pseudo-r-square) three variable logistic model for predicting the most recent year, the 2007 to 2008 bankruptcies (the 1-3 model) with the most available data and adds one more variable found from adding the non-governmental bankruptcy research variable, prior bankruptcy (1,0). the best three variable model does confirm prior bankruptcy as a predictor, as one of three variables in the three variable (1-3) model. it is also statistically significant, but the variables from table 4 found in table 5(a) have changed. prior bankruptcy and revenue limit have replaced declining enrollment and deficit spending in the (12) model. only prior bankruptcy is significant in the bankruptcy (1-3 model). as shown in both table 3 (a), the partial model, and table 3 (b), the full model, different variables for different years are predictive of bankruptcy. this can be expected. as the state takes over school districts, it changes them and provides improved funding levels, causing different variables to be predictive each year. it also seems that schools which had prior bankruptcies and exceeded their revenue limits also had declining enrollments and deficit spending, as these variables are collinear. sufficient conditions table 4 demonstrates the ability of the full model of variables. in table 3b, the 1-2 model only agrees with the 1-3 model in the variable, prior bankruptcy, for the most recent year, 2007 to 2008. we see in table 4 that the 1-3 model has a success rate of around 85%, predicting 13 of the 19 bankruptcies and 26 of the 27 stable school districts, using the preliminary negative rating for the dependent variable. therefore 13 of the 19 bankruptcies could have been predicted using this full model, two-step approach, and the preliminary information available on bankruptcies from the state of california (california department of education, july 2009). the 19 bankrupt school districts for 2008 we identify as gco candidates as (see bold): chico unified, orange center elementary, el rancho unified, wilsona elementary, king city joint union high, king city union elementary, val verde unified, aromas-san juan unified, julian union high, la honda-pescadero unified, pajaro valley unified, santa cruz city schools, travis unified, vallejo city unified, healdsburg unified, piner-olivet durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 86 union elementary, chinese camp elementary, dixon unified and westwood unified. these school districts meet the definition of a going concern opinion under sas no. 59 and gasb no. 54. the two school districts, west coast costa and chico that seemed very similar, differed in their final certifications. west coast costa, although similar to chico in financial characteristics, was not identified as a bankrupt school by the state, and it also would not qualify in our process as sufficient for a gco since it has no prior negative certification before its preliminary negative certification. table 6 shows one other district (willows unified) is identified when the model is applied to 27 the positive certification districts, creating a type i error of 1/27 or 3.7%, and bringing the total to fourteen districts recommended for a gco. summary and conclusion this research presents a process to increase the evidence for the going concern opinion for local governmental units and applies it to the california school districts. this process first identifies relevant variables from a database constructed by the state of california, the stakeholder must likely to assume the district’s debt. it then adds relevant unique variables from general bankruptcy research. statistical analysis presents only one of these, whether or not a prior bankruptcy exists. these changing models are unique to local government bankruptcies because as stress occurs, changes in the values and in the importance of each variable follow as consequences. for example, the variable “revenue changes,” may be an important stress variable prior to bankruptcy, but is not a consistent predictor as is the variable, “prior bankruptcy.” we see in table 2 and in table 3 that the state of california predictor variables vary by year, and then must be confirmed by comparing the (1-2) analysis models with the (1-3) predictive models. contributions to practice we respond to a specific request: “additional research into the development and application of such financial predictor models for governments would enhance the models and, in the long run, serve the interests of the taxpayers.” (ghnay 2009, 40). under our process it is likely that some local governments now exist as undeclared going concern candidates. current economic downtown and numerous media reports of government financial distress (the closing of police stations, fire departments and schools) underscore the demand for more gcos. contributions to prior research this research adds to ghany (2009), landry and deal (2008), kloha et al. (2005), gauthier (2005), venuti (2004), brown (1993), belluomini (1977) and trussel and patrick (2009), by adding a framework to find predictive models, as no one model is or will ever be sufficient by itself, given changing a) state and local laws and regulations, b) economic conditions and c) forms of governmental units. limitations the generalization of our results and the extension of their external validity to all local governmental units is limited: 1) to sample analysis which in this case consists of only the school districts in california, 2) to the number of bankruptcies for any year, as only 19 were given for 2008 (and only 26 in kansas city (associated press, 2010), 3) to the state’s extensive database of variables which varies by state, and 4) to the availability of early and preliminary negative confirmations (potential bankruptcies, which although not certain give weight to the auditor who files a gco for that same year) and those states in similar financial conditions which do give preliminary signals, such as kansas city, (missouri) detroit (michigan), germantown (pennsylvania), harrisburg (pennsylvania) and st. mary parish (louisiana.), just to name a few (gundle-krieg 2009; kersey and van beek 2009; eisele-dyrli 2010; hepp 2010; hollingsworth, 2009). references akers, m., maher, m., & giacomino, d. 2003. going-concern opinions: broadening the expectations gap. cpa journal, 73(10), 38-42. american institute of certified public accountants (aicpa). 1981 . the auditor’s considerations when a question arises about an entity’s continued existence. statement on auditing standards no. 34. new york, ny: aicpa. durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 87 american institute of certified public accountants (aicpa). 1988. the auditor’s consideration of an entity’s ability to continue as a going concern. statement on auditing standards no. 59. new york, ny: aicpa. associated press. 2010. kansas city closing 26 public schools. http://www.cnbc.com/id/35812823/kansas_city_ closing_26_public_schools_updated. brown, k. 1993. the 10-point test of financial condition: toward an easy-to-use assessment tool for smaller cities. government finance review, 9(6), 21-26. bellovary, j., giacomino, d., & akers, m. 2006. weighing the public interest. cpa journal, 76(1), 16-21. belluomini, f. 1977. local governmental units: the going concern question. journal of accountancy, 143(6), 6064. california department of education. 2009. annual financial report of california k-12 schools, report to the superintendent of public instruction, for the period of july 1, 2007, through june 30, 2008. july. california state controller. http://www.sco.ca.gov/aud_pubs_auditrpt_k12.html. california department of education. 2008. annual financial report of california k-12 schools, report to the superintendent of public instruction, for the period of july 1, 2006, through june 30, 2007. july. california state controller. http://www.sco.ca.gov/aud_pubs_auditrpt_k12.html. california department of education. 2007. annual financial report of california k-12 schools, report to the superintendent of public instruction, for the period of july 1, 2005, through june 30, 2006. october. california state controller. http://www.sco.ca.gov/aud_pubs_auditrpt_k12.html. california department of education. 2006. annual financial report of california k-12 schools, report to the superintendent of public instruction, for the period of july 1, 2004, through june 30, 2005. october. california state controller. http://www.sco.ca.gov/aud_pubs_auditrpt_k12.html. california department of education. 2005. annual financial report of california k-12 schools, report to the superintendent of public instruction, for the period of july 1, 2003, through june 30, 2004. june. california state controller. http://www.sco.ca.gov/aud_pubs_auditrpt_k12.html. california state controller’s office. 2009. state of california comprehensive annual financial report for the fiscal year ended june 30, 2009. http://www.sco.ca.gov/ard_state_cafr.html. carcello, j., & neal, t. 2003. audit committee characteristics and auditor dismissals following "new" goingconcern reports. accounting review, 78(1), 95-117. chico unified school district. 2008. financial statements and supplementary information for the year ended june 30, 2008. author. http://www.chicousd.org/__documents/0708%20audit.pdf. eisele-dyrli, k. 2010, january. will pensions bankrupt your district? district administration: solutions for school district management (january). http://www.districtadministration.com/viewarticle.aspx?articleid=2253. governmental accounting standards board (gasb). 2009. statement no. 56: codification of accounting and financial reporting guidance contained in the aicpa statements on auditing standards. norwalk, ct: gasb. gauthier, s. 2005. governmental accounting, auditing, and financial reporting. chicago, il: government finance officers association. geiger, m., & rama, d. 2003. audit fees, nonaudit fees, and auditor reporting on stressed companies. auditing: a journal of practice & theory, 22(2), 53-69. geiger, m., raghunandan, k., & rama, d. 2005. recent changes in the association between bankruptcies and prior audit opinions. auditing: a journal of practice & theory, 24(1), 21-35. durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 88 ghany, k. 2009. measuring financial stress on state and local governments: a proposal for early detection. cpa journal, 79(10), 38-40. gore, a. 2009. why do cities hoard cash? determinants and implications of municipal cash holdings. accounting review, 84(1), 183-207. greenlee, j., & trussel, j. 2000. predicting the financial vulnerability in charitable organizations. nonprofit management & leadership, 11(2), 199-210. gundle-krieg, d. 2009. will detroit public schools declare bankruptcy? education examiner (july 7). http://www.examiner.com/education-in-national/will-detroit-public-schools-declare-bankruptcy. hepp, c. 2010. germantown settlement subsidiary going bankrupt. the philadelphia inquirer (april 1). http://www.philly.com/inquirer/business/20100401_germantown_settlement_subsidiary_going_bankrupt.html. hollingsworth, h. 2009. kansas city public schools: bankruptcy may force 50% of missouri city's schools to shut doors. huffington post (july 24). http://www.huffingtonpost.com/2010/03/07/kansas-city-public-school_n_ 489145.html. hopwood, w., mckeown, j., & mutchler, j. 1989. a test of the incremental explanatory power of opinions qualified for consistency and uncertainty. accounting review, 64(1), 28-48. hopwood, w., mckeown, j., & mutchler, j. 1994. a reexamination of auditor versus model accuracy within the context of the going-concern opinion decision. contemporary accounting research, 10(2), 409-430. jones, f. 1987. current techniques in bankruptcy prediction. journal of accounting literature, 6, 131-164. kersey, p., & van beek, m. 2009. detroit’s schools are going bankrupt, too: now’s the time to cast off collective bargaining agreements and introduce school choice. wall street journal, (july 24). kloha, p., weissert, c., & kleine, r. 2005. developing and testing a composite model to predict local fiscal distress. public administrative review, 65(3), 313-323. landry, r., & deal, k. 2008. more municipalities likely to face chapter 9: is a perfect storm brewing? american bankruptcy institute journal, 27(6), 18. luhby, t. 2009. cash-poor california turns to iou’s. cnnmoney. (july 2). mcnichol, d. 2010. pennsylvania state capital mulls bankruptcy as a budget option. bloomberg businessweek. (february 4). mutchler, j. 1984. auditors’ perceptions of the going-concern opinion decision. auditing: a journal of practice & theory, 3(2), 17-30. mutchler, j. 1985. a multivariate analysis of the auditor’s going-concern opinion decision. journal of accounting research, 23(2), 668-682. mutchler, j. 1986. empirical evidence regarding the auditor’s going-concern opinion decision. auditing: a journal of practice & theory, 6(1), 148-163. mutchler, j. hopwood, w., & mckeown, j. 1997. the influence of contrary information and mitigating factors on audit opinion decisions on bankrupt companies. journal of accounting research, 35(2), 295-310. park, k. 2004. to file or not to file: the causes of municipal bankruptcy in the united states. journal of public budgeting, accounting & financial management, 16(2), 228-256. ponemon, l., & raghunandan, k. 1994. what is “substantial doubt”? accounting horizons, 8(2), 44-54. raghunandan, k., & rama, d. 1995. audit reports for companies in financial distress: before and after sas no. 59. auditing, 14(1), 50-63. durden and sennetti advances in business research 2012, vol. 3, no. 1, 79-89 89 roger, j. 2010. mayor of california city to stop taking high salary. yahoo news. http://news.yahoo.com/s/ap/ 20100726/ap_on_re_us/us_bell_salaries. sanchez, r. 2010. american cities teeter on brink of bankruptcy. abc news / money (june 28). http:// abcnews.go.com/business/maywood-california-top-cities-overwhelmed-recession/story?id=11032953. sharma, a. 1997. professional as agent: knowledge asymmetry in agency exchange. academy of management review, 22(3), 758-798. state of california. 2009. education code. section 42122-42129, 41320-41322. http://www.leginfo.ca.gov/cgibin/calawquery?codesection=edc&codebody=&hits=20. trussel, j., & patrick, p. 2009. a predictive model of fiscal distress in local governments. journal of public budgeting, accounting & financial management, 21(4), 578-616. venuti, e. 2004. the going-concern assumption revisited: assessing a company's future viability. cpa journal, 74(5), 40-43. west contra costa unified school district. 2008. financial statements and supplementary information for the year ended june 30, 2008. http://www.wccusd.net. s. joseph durden is a cpa, pc. he has given going concern audit opinions to some governmental units. his publications include issues in accounting education of the american accounting association. john sennetti is a professor of graduate statistics and accounting at nova southeastern university. he received his ph.d. from virginia tech. he supports the research of his graduate students, and has also published in auditing: a journal of practice and theory, journal of finance, journal of business ethics, advances in accounting behavioral research, and other. advances in business research 2011 volume 2.pdf hasan advances in business research 2011, vol. 2, no. 1, 256-261 256 what research has to say about student ratings of university classroom instructional effectiveness jameel hasan, eastern washington university the paper provides the research findings about the relationship between research productivity and teaching effectiveness: are faculty with excellent publication records the only qualified to teach? the average college correlation between scholarly productivity and instructional effectiveness as perceived by students was .12 (feldman, 1987). feldman concluded that ‘in general for all practical purposes, the relationship between the two is essentially unrelated.” the last seventy years of extensive research and more than 2,000 articles on student ratings and university classroom instruction are hotly debated on many campuses. now there is little doubt that the procedure can provide valid and useful information for both faculty members and faculty managers. the paper answers the frequently voiced concerns about student ratings of faculty teaching effectiveness: are ratings based solely on professors’ popularity? are the forms valid and reliable? what course characteristics are relevant to student ratings of instruction? what characteristics of students, and what characteristics of professors are relevant to student ratings? professors are the “lone rangers” of education; they are sequestered in their classrooms, unable to share in what their colleagues are doing. professor hatch (2006) argues for making the classroom more public. is it practical given the faculty and faculty managers dynamics in a given public university? american association of university professors (aaup) statement of teaching evaluations states: “the kind of teaching that distinguishes itself in colleges and universities is integral with scholarship, has a way of getting outside classroom confines, and may exemplify the highest meaning of service. a judicious evaluation system would recognize the broad dimensions of teaching, be sensitive to different kinds and styles of instruction, and be as useful in distinguishing superior teaching from the merely competent as in identifying poor teaching.” (aaup: statement on teaching evaluation, april 1990). introduction and intent student ratings of college instruction are hotly debated on many campuses; uoa and ewu are no exceptions. there is far more research on student evaluation of teaching than any other form of evaluation; the use of student evaluation has increased dramatically, from 10-15% in the mid-sixties to over 85% in 1990’s; a fairly high level of agreement exists between student ratings and experts’ ratings of the same instructor (.70); validity is particularly high on aspects to which students can most appropriately respond, e.g., clarity of objectives, organization, interest in students, and comparison with other teachers; no matter how it is measured split-half, test-retest, parallel forms, etc. student ratings are highly reliable; a high correlation exists between end of term evaluation and 3-10 year subsequent evaluation; also, high correlation between current ratings and those of graduates. in other words, students are either victims or beneficiaries of our expertise in our subject matter and mode of communicating and designing the teaching-learning environment. aacsb-sponsored 3-year most extensive research project concluded that “across all respondent categories, teaching is perceived to be the most important function…. the standard on scholarly activities, while designed to improve the quality of graduate level teaching, may instead cause misallocation of resources by diverting teaching effort into research of dubious value. what is needed is scholarly activity which prepares the faculty member to do better teaching; this does not necessarily imply publication in academic journal” (pp. 158-159). the aacsb researchers further observed, “to use an analogy, is there enough superior baseball talent to double the number of major league teams…the school gains poor research and loses good teaching” (p. 175). hasan advances in business research 2011, vol. 2, no. 1, 256-261 257 unfortunately, these debates are often uninformed by the extensive research. the controversies over the last thirty five years [in 1920 students at the university of washington filled out what were arguably the first student ratings forms] caused student ratings to become the most extremely studied aspect of any other form of evaluation. now, more than seventy years of research and more than 2,000 articles, there is little reason to doubt that procedure can provide valid and useful information for both faculty members and faculty managers. the purpose of student ratings is to provide information that can be used by university managers to make program and personnel decisions. the current system of evaluation at universities is not implemented in a uniform manner across campus. some faculty, students, and managers find this lack of consistency quite problematic the need for a uniform student rating form (attached), utilizing commonly accepted principles and best practice of selecting or designing the form. the author is confident that the university task force on teaching effectiveness has surveyed: 1) the university of colorado, faculty course questionnaire, 2) the university of wisconsin, student assessment of learning gains, and 3) the university of washington, elements of cec, 4) the university of wisconsin, student assessment of learning gains, and 5) university of michigan’s highly respected professor wilbert mckeachie’s form given in his famous book, teaching tips; also, please see his seminal article in volume 52, no.11, 1218-1225, november, 1997 american psychologist on the subject of: “student ratings; the validity of use.” the following are frequently voiced concerns about student ratings of faculty teaching effectiveness: 1. are ratings based solely on popularity? easy teachers/easy graders get the highest ratings? the term popular is never defined; the assumption that popularity somehow implies a lack of substance, knowledge, or challenge is entirely without merit and there is no research to substantiate it. in fact, several empirical studies indicate students learn more in courses in which teachers demonstrate concern/interest for students and their learning and of course teachers also earn higher ratings. for the last 41 years at ewsc/ewu the author has continuously known the names and a brief background of all his students on the first/second day of the class, without any name tag or photographs, etc. a highly respected researcher aleamoni says: …the students are not easily fooled. in rating their instructors, students discriminate among various aspects of teaching ability: if a teacher tells great jokes and has the students in the palm of his or her hand in the classroom, he or she will receive high ratings in humor and classroom manner, but these ratings do not influence students’ assessment of other teaching skills (p. 27). faculty members who assign more work and more difficult work tend to be rated as most effective. some empirical studies show no effect of grading practices on overall student ratings, however; according to good professor mckeachie, if students learn more from a teacher one would expect their grades and their ratings to be higher. 2. are student rating forms reliable and valid? empirical research on student evaluation of teaching generally concludes that student ratings tend to be reliable, valid, relatively unbiased and useful. professors murray and felder are frequently referenced in literature review in terms of: a. evaluations are generally consistent across raters, rating forms, courses and time periods for a given semester; b. the correlate moderately to highly with evaluations made of the same instructor by independent observers; c. they correlate significantly with various objective indicators of student performance, such as performance on standardized exams; and d. there are low correlations with extraneous factors such as class size, severity of grading, etc. in short, the empirical studies show that student ratings agree with other measures of teaching effectiveness: learning measures, student comments, expert observations, and alumni ratings. one of the major problems is day-to-day practice; student ratings are often misused, misinterpreted, and not accompanied by other information (multiple-source and multiplemethod of teaching evaluation) that allows users to make good decisions. as a result, there is a suspicion, anxiety, and even dignified hostility toward student ratings. hasan advances in business research 2011, vol. 2, no. 1, 256-261 258 3. what course characteristics are relevant/irrelevant to student ratings of instruction? a. discipline: research has shown that highest ratings are given to courses in the arts and humanities, followed in descending order by biological and social sciences, business and computer science, mathematics, engineering, and physical sciences. b. reason for taking the course: students tend to give slightly higher ratings to courses in their major fields and/or to courses that are elective rather than required: it may be a good idea to include an item that assesses student interest in the course. c. course level and difficulty level of class: ratings in higher-level courses tend to be higher than in lower-level courses. within a discipline, the courses that are more difficult or have greater workloads tend to receive higher ratings from students. d. time of day class is taught: the time of the day the class is taught has no effect on ratings. 4. what student characteristics are relevant/irrelevant to student ratings of instruction? a. motivation: if students are motivated, instructors are more likely to receive higher ratings in those classes. b. gender: the research on the effect of students’ gender on the ratings they give has not been conclusive. but, overall, there was no significant difference in the ratings. the following four student characteristics are not related to the ratings they give instructors: i. academic ability, ii. age, iii. class level (freshman or senior), and iv. personality. 5. what instructor characteristics are relevant/irrelevant to student ratings of instruction? a. personality: research shows that students appreciate instructors who are knowledgeable, warm, outgoing, and enthusiastic. these same traits are likely to make the person more effective as a teacher, so that students are stimulated to greater achievement and learning. according to frequently quoted research studies conducted by professors braskamp and ory: “neither the ‘stand-up comic’ with no content expertise not the ‘cold-fish expert’ with only content expertise receives the highest ratings consistently.” b. faculty rank: regular faculty tend to receive higher ratings than teaching assistants. c. factors not related: i. age of instructor, ii. years of teaching experience, and iii. gender: analysis of classroom studies indicates no practical difference in the overall ratings of male and female instructors. in 28 studies conducted by world-renowned higher education researcher professor kenneth feldman, the correlation between gender and overall evaluation of the teacher was 0.2. relationship between research productivity and teaching effectiveness: are faculty with excellent publication records the only persons qualified to teach? first, let us take a look at the insights of seminal thinkers and philosophers about the relationship between research publication productivity as compared to teaching. second, take a look at the most exhaustive meta-analysis more than 40 studies of relation between faculty research publication productivity and teaching effectiveness-by world renowned higher education researcher our good old professor kenneth feldman. hasan advances in business research 2011, vol. 2, no. 1, 256-261 259 the president of the american council on education points out that “we have been inappropriately focused on research, ignoring the value of approaches that focus on teaching or applications.” professor peter drucker the winner of the u.s. medal of freedom, and probably the most famous and influential published author in business and management areas, observes: “academia defines knowledge as what gets printed. but surely this is not knowledge; it is raw data. knowledge is information that changes something or somebody either by becoming grounds for action, or by making an individual or an institution capable of different and more effective action. and this, little of the new “knowledge” accomplishes. we no longer accept the old axiom that it is the duty of the people of knowledge to make themselves understood. but until this has been done, no knowledge will have been produced.” (drucker, 1989, p. 251). soji shiba, a japanese management guru and a professor at japan’s university of tsukuba, and a former visiting professor at m.i.t., remarks that “western business schools put theory first, reality second. business is the reality. we have to learn from business. research and theory have a part play, but it is smaller than western schools think.” (the economist). professor shiba’s remarks were fully underscored by a business week cover story titled “is research in the ivory tower ‘fuzzy, irrelevant, pretentious’? the dean of new york university’s graduate school of business said, “they say nothing in these articles, and they say it in a pretentious way. if i wasn’t the dean of this school, i’d be writing a book on the bankruptcy of american management education.” over 80 years ago, alfred whitehead observed (1929): “mankind is as individual in its mode of output as in the substance of its output as in the substance of its thoughts…in every faculty you will find that some of the more brilliant teachers are not among those who publish. their originality requires for its expression direct intercourse with their pupils in the form of lectures, or of personal discussion…thus it would be the greatest mistake to estimate the value of each member of a faculty by the printed work signed with his name.” (pp. 148-149) porter and mckibbin write: “given the fact that our data show, that across all respondent categories, teaching is perceived to be the most important function…. market forces and the rapidly rising costs of education, both public and private, along with a generally rising public insistence on accountability of all institutions, will drive business/management school in general to give more serious attention to their teaching practices and commitments whether they want to or not than has been true in the past. this will occur, in our view, despite the countervailing pressures within the university across a wide spectrum of institutions for a greater emphasis on research.” professor k.a. feldman findings about faculty research publication productivity and instructional effectiveness-as perceived by students: the average correlation between scholarly productivity or accomplishment and instructional effectiveness was +.12; feldman concluded that “in general, the likelihood that research productivity actually benefits is extremely small or (alternatively) that the tow, for all practical purposes, are essentially unrelated.” (research in higher education, vol., 27, 1987, pp. 227-298). the author is pleased with ewu’s mission of primacy of teaching and learning excellence. professor trimble vs. wsu, washington state supreme court ruling, 2000. our state supreme court, in a case dealing with business professor trimble of washington state university (140 washington 2d 88, february 24, 2000) made some incisive observations, which underscores the inordinate emphasis on scholarship at the cost of class room teaching effectiveness: “due partially to his campus assignment in vancouver, trimble taught more video classes and had more preparations than average for a wsu pullman based faculty member. trimble claims this adversely affected student teaching evaluations, and required greater time by trimble to prepare, thus decreasing the amount of time available for research and publication. the college viewed this issue a purely speculative claim. however, viewing the facts in the light most favorable to trimble, it is reasonable that the more one devoted to scholarly activity the less time one can devote to being effective in the classroom. in fact, there has been recent scholarship devoted to this topic.” various law review articles have addressed the effect of an over emphasis of scholarship at the expense of classroom effectiveness. (patrick j. schiltz, legal ethics in decline: the elite law firm, the elite law school, and the moral formation of the novice attorney. (82 minn l. rev. 705, 1998). hasan advances in business research 2011, vol. 2, no. 1, 256-261 260 dean schiltz’s 94-page article recommended by our supreme court; dean schiltz observes the following about the teaching and scholarship dilemma: “scholarship, not teaching, is the be-all; and endall in academia. those doing this work ask questions like, ‘what clients may an ethical lawyer represent? which of a client’s ends may an ethical lawyer pursue?’ typically, the central concern of this scholarship is the good attorney who is asked to represent the bad client, or the good attorney who is asked to help a bad client achieve an immoral or unjust end. a person with a strong enough moral compass may very well resist the pressures of the legal profession on her won, but a mentor can help. this ‘conflict’ or ‘tension’ between teaching and scholarship confronts every law professor with a different dilemma. in any event, my concern here is not with the impact of the academization of the law school on scholarship, but its impact on mentoring. at bottom, professors are discouraged from teaching; both take time away from scholarship, and in today’s academy, scholarship is fast becoming the be-all and end-all.” (pp. 1-2). conclusions the literature clearly demonstrates that student ratings forms that are psychometrically sound are reliable, valid and relatively free from bias, and very useful in improving teaching. it is quite clear that student ratings are not only valid, but often the “only way to get much of the information needed for most evaluations.” professors marsh and roche conclude that “despite ill-founded fears on the part of the faculty, and claims based on research fraught with methodological weakness…the bulk of the research, however, has supported student ratings of instruction continued use as well as advocating further scrutiny.” what is the position of any university’s task force on teaching effectiveness concerning: 1) the publication of student rating information? 2) what are the fundamental principles that inspire the centrality of learning of student learning at a given university? and 3) what is the guiding perspective for determining and enhancing the quality of teaching at a given university? references aleamoni, l. 1989. typical faculty concerns about evaluation of teaching. in l. aleamoni, (ed.), techniques for evaluating and improving instruction. san francisco: jossey-bass. behrman, n., & levin, r. 1984. are business schools doing their job? harvard business review, januaryfebruary: 140-147. braskamp, l., brandonberg, d., & ory, j. 1984. evaluating teaching effectiveness: a practical guide. thousand oaks, ca: sage. braskamp, l., & ory, j. 1984. assessing faculty work: enhancing individual and institutional performance. san francisco: jossey-bass. byrne, j. 1990. is research in the ivory tower ‘fuzzy, irrelevant, and pretentious’? business week, october 29: 62-64. drucker, p. 1989. the new realities: in government and politics, in economics and business, in society and world view. new york: harper & row. feldman, k. 1987. research productivity and scholarly accomplishment of college teachers as related to their instructional effectiveness: a review and exploration. research in higher education, 26: 227298. feldman, k. 1992. college students’ view of male and female college teachers: part i evidence from the social laboratory and experiments. research in higher education, 33: 317-375. hasan advances in business research 2011, vol. 2, no. 1, 256-261 261 hatch, t. 2005. into the classroom: developing the scholarship of teaching and learning. san francisco: jossey-bass. haynes, p. 1991. management education: passport to prosperity. the economist, march 2: 3-26. marsh, h., & roche, l. 1997. making students’ evaluations of teaching effectiveness effective: the critical issues of validity, bias, and utility. american psychologist, 52: 1187-1197. mckeachie, w. 1997. student ratings: the validity of use. american psychologist, 52: 1218-1225. mckeachie, w. 1994. teaching tips: a guidebook for the beginning college teachers. lexington, ma: d. c. heath. porter, l., & mckibbin, l. 1988. management education and development: drift or thrust into the 21 st century? new york: mcgraw-hill. schlitz, p. 1998. legal ethics in decline: the elite law firm, the elite law school, and the moral formation of the novice attorney. minnesota law review, 82: 725-726. statement on teaching evaluation. 1990. american association of university professors. trimble v. washington state university, 140 wa 2d 88, 1-67409-4, (2000, february 24). whitehead, a. 1929. the aims of education and other essays. new york: macmillan. jameel hasan is a professor of management at eastern washington university. he has taught international business, multinational people management, organizational behavior, and business and society for the past 41 years. prior to his academic career, he was an industrial analyst for the u.s. department of state. uafs abr journal vol 4 no 1 2013.pdf 1 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 human resource manager perceptions of organizational culture factors that affect the incorporation of family-friendly benefits gundars kaupins, boise state university malcolm coco, abilene christian university this study investigates what the organization factors human resource managers perceive affect the incorporation of family-friendly benefits. based on a survey of 340 human resource managers from society for human resource management chapters in texas, seventeen (17) family-friendly benefits were studied. these included on-site child care, compressed work weeks, flextime, elder care, domestic partner coverage, lactation accommodation, and college reimbursement. corresponding to prior literature, organization size was highly associated with the existence of many of the benefits. the percent unionized, part-time employees, female employees, and under 30 years of age were not. beyond the literature, a high people orientation and more liberal organization environment also were associated with more of these benefits. production orientation, creativity, and organizational stress appeared to have little association with family-friendly benefit incorporation. many family-friendly benefits have become popular. for example, according to matos and galinsky (2012), 77 percent of companies surveyed have flextime, 36% compressed work weeks, 73% caregiving leaves, 87% personal time off, 7% child care at or near the worksite, 41% elder care referrals, 74% employee assistance programs, and 63 percent wellness programs. with family-friendly benefit popularity, several research studies have investigated what type of organizations tend to have such policies (e.g., roberts, gianakis, mccue, & wang, 2004; matos & galinsky, 2012). the research tends to focus on organizational demographic characteristics such as size, number of part-time workers, number of female workers, and union membership. the research is important because family-friendly benefit providers such as employee assistance programs (eaps) and health insurance providers need to see what kind of organizations they should target in their marketing efforts. employers can see what type of comparable organizations would tend to have such benefits in order to remain competitive in the recruiting marketplace. employees can see what family-friendly benefits certain types of employers should normally have. the research also tends to focus on whether management has positive attitudes toward family-friendly benefits (e.g., breaugh and frye, 2008; yuile, chang, gudmundsson, and sawang, 2012; villablanca, beckett, nettiksimmons, and howell, 2011). past research on the relationship between organizational characteristics and the existence of familyfriendly benefits has been beneficial for family-friendly benefit providers, employers, and employees. however, there are organizational characteristics that have not been adequately covered such as organizational culture. this culture refers to a shared history that evolves into group characteristics that are stable and have some emotional intensity. it is related to various values, behavioral patterns, rituals and traditions within the organization (shein, 2006). this study will investigate the association of select organization cultural characteristics such as organizational stress, concern for people, concern for production, conservatism/liberalism, and creativity on the perceived existence of family-friendly benefits in an organization. these five characteristics were selected on the basis of a connection between them and some measure of organizational change involving providing employee resources. literature review as stated in the introduction, existing research on the connection of organization characteristics to the prevalence of family-friendly benefits focuses on organization demographics. characteristics such as 2 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 organization size, percent of part-timers, percent of union members, and percent of women in the organization dominate. organizational demographics matos and galinsky (2012) sampled 1,126 employers to analyze what type of companies offer familyfriendly benefits. employers that tend to provide moderate to high flexibility in providing flexible work times are nonprofits, larger, have more women, fewer racial or ethnic minorities, fewer union members, fewer hourly employees, more part-timers, and more women and racial minorities in top positions. employers that tend to offer generous caregiving leaves are larger, have more hourly employees and have downsized in the last twelve months. employers that tend to provide child and elder care assistance are larger, nonprofits, are more in one place, have been longer in business, have more women, and have more women and minorities in top positions. employers most likely providing health care and economic security benefits are larger, nonprofits, have been longer in business, have more women and minorities in top positions, are doing better than competitors, and have experienced downsizing. gianakis, mccue, and wang (2004) sampled 427 local governments concerning which tended to provide family-friendly benefits such as on-site child care, compressed work weeks, flex-time, wellness programs, and college tuition reimbursement. a greater percentage of employees 31-50 years old was positively related (r = .174; p < .05) to such benefits coverage. part-timers (r = .182; p < .01), number of unions (r = .151; p < .05), organization size (r = .215; p < .05), and operating budget (r = .233; p < .01) also were positively related to such benefits coverage. the eby, et al. (2005) review of literature from 1980 to 2002 found that organizations supporting work-life benefits tended to be larger, have a greater percentage of female employees, and be in industries where female employment is higher such as healthcare and financial services. organizational culture leadership is perceived as one of the largest factors contributing to organizational culture and employee perceptions in the workplace (bass, avolio, jung & berson, 2003; buckingham & coffman). transformational leaders attend to follower’s needs, mentor or coach followers, listen to follower’s concerns, foster a supportive climate for individual growth (avolio, 1999; bass, 1998) and talk creatively about complex problems (shin and zhou, 2003). wang and walumbwa (2007) found that family-friendly benefits programs combined with supportive transformational leadership may have positive effects on employee commitment and reduced work withdrawal. some variables may be related to such transformational leadership based on descriptions of various research studies. for example, organizational creativity has been directly mentioned in the description of transformational leadership (shin & zhou, 2003; wang & walumbwa, 2007). creativity refers to developing new insights from inspirations that can come from anytime and anywhere (kaupins & napier, 2012). lambert (2000), goodstein (1994), and milliken, martins & morgan (1998) found a link between organizational responsiveness to submitted suggestions and family-friendly benefits. allen (2001) found a link between supervisors being willing to hear their employee’s needs for schedule flexibility and family-friendly benefit availability. wang and walumbwa (2007) found an association between transformational leadership that includes creativity in its definition with childcare benefits and flexibility benefits. transformational leadership tends to have a high focus on people and organizational commitment (wang & walumbwa, 2007). this sounds similar to managerial grid organizations that are “high on people and production” (9, 9) and tend to have supportive supervision of employees in a strongly, proorganizational manner (coghlan & mckee, 2000). allen (2001) found a correlation between supportive supervision and perceived benefit availability. breaugh and frye (2008) discovered a positive (r = .14) correlation between a family-supportive supervisor and telecommuting in the workplace. the correlation 3 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 3 was significant only at the p < .10 level. the result is limited in that only seven percent of their sample reported having telecommuted. they also found a significant (r = -.54) correlation between a familysupportive supervisor and work-family conflict at the p < .01 level. yuile, chang, gudmundsson, and sawang (2012) found significant positive associations between managerial support for family-friendly policies and work-life balance (r = .44; p < .01), offsite working (r = .17; p < .05), care givers arrangements (r = .13; p < .05), and a flexible work schedule (r = .15; p < .05). gray (2002) found a significant positive association between the use of a family-friendly practices and workplace performance. berg, kalleberg, and appelbaum (2003) showed that a high-commitment environment with high-performance work practices positively influences employees’ perceptions that the company is helping them achieve work-life balance. this article supports the view that helping workers balance work and family responsibilities is not just a matter of benefits and formal family-friendly policies. high organizational stress was associated with decreased organizational and people commitment and increased workload required of employees (vakola & nikolaou, 2005). employees whose supervisors supported a balanced work and family life tended to have less work stress and family conflict (thomas & ganster, 1995, thompson, beauvais, & lyness, 1999). managerial conservatism was associated with resistance to change, lower social responsibility, and fiscal prudence (sturdivant, ginter & sawyer, 1985; zwiebel, 1995). companies in the fiscally more liberal northeast and west coast tend to offer more flexible work options (milliken, martins, & morgan, 1998). widener (2007) states that more liberal western european political philosophy tends toward a welfare state model strongly in favor of more flexible work arrangements. european union directives tend to support national generously-paid maternity, paternity, child care (including early childhood education) and family leave policies. in contrast, about half of working americans have no paid leave. american social entitlements have been shaped by cultural beliefs such as individualism, free market, laissez-faire economics, volunteerism to help workers, and the concept that the state or companies should not interfere with the family as a private unit. widener (2007/2008) states that this has lead american companies to provide a patchwork of family-friendly benefits. hypotheses several hypotheses are developed regarding the organizational cultural variables. prior research has suggested that organizational stress is associated with family friendly policies (thomas & ganster, 1995, thompson, beauvais, & lyness, 1999). hypothesis 1: the more perceived organizational stress, the less likely the organization will provide various family-friendly benefits. if the organization is people friendly, there may be a greater focus on the needs of people outside of their regular job duties (allen, 2001; braugh & frye, 2008; yuile, chang, gudmundsson, & sawang, 2012). hypothesis 2: the more perceived people friendliness in an organization, the more likely the organization will have various family-friendly benefits. if the organization focuses on high production, it might do what it takes to enhance the work life of its employees (coghlan & mckee, 2000; gray, 2002; berg, kalleberg, & apelbaum, 2003). hypothesis 3: the more perceived production orientation in an organization, the more likely the organization will have various family-friendly benefits. conservatism tends to be more associated with fiscal constraint and liberalism with more fiscal spending (sturdivant, ginter & sawyer, 1985; zwiebel, 1995). more liberal areas tend to have more family-friendly benefits (milliken, martins, & morgan, 1998; widener, 2007). 4 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 hypothesis 4: the more liberal the organization is perceived, the more likely the organization will have various family-friendly benefits. creativity involves new insights from anytime and anywhere (kaupins & napier, 2012). lambert (2000), goodstein (1994), and milliken, martins & morgan (1998) found associations between organizational responsiveness to submitted suggestions and family-friendly benefits. hypothesis 5: the more creative the organization is perceived, the more likely the organization will have various family-friendly benefits. methodology data collection human resource managers, specialists, consultants, and other human resource professionals were the target sample. these professionals tend to have significant knowledge of organizational policies associated benefits (dessler, 2014). to obtain the target sample, one co-author attended ten society for human resource management (shrm) monthly meetings and asked attendees to complete a two page questionnaire covering the key issues associated with the hypotheses. at these meetings, 340 respondents completed the survey between february and may of 2013. questionnaires were distributed in abilene, amarillo, fort worth, grand prairie, lubbock, midland/odessa, san angelo, san antonio, san marcos, stephenville, and wichita falls, texas. the chapters were from large cities such as san antonio (population 1,327,407) and fort worth (1,197, 816) and smaller towns such as stephenville (17,123) (texas state library and archives commission, 2010). sample as shown on table 1, most respondents were human resource managers involved in hiring. sixty-five (65) percent work in companies that have 500 or fewer employees. about fifty-five (55) percent are with companies that are in multiple locations. data analyses multiple regression analyses were used to test the hypotheses. seventeen different regression equations were run as there are seventeen different dependent variables. each dependent variable represents a different family-friendly policy. the main independent variables were organizational stress (1 = not stressed to 10 = stressed), conservatism/liberalism (1 = conservative to 10 = liberal), people orientation (1 = low concern for people to 10 = high concern for people), production orientation (1 = low concern for production to 10 = high concern for production), and creativity (1 = not creative to 10 = creative). in addition to the main independent variable, various demographic independent variables were included in each regression equation based on the literature. these are: single organization location (0 = no, 1 = yes), number of employees (1 = 1-100 employees, 2 = 101-500 employees, 3 = 501-1000 employees, 4 = 1001-2000 employees, 5 = 2001+ employees), and the percentage of part-timers, percentage unionized, percentage under the age of 30, and percentage female (for the last four variables 1 = 0-19%, 2 = 20-39%, 3 = 40-59%, 4 = 60-79%, 5 = 80-100%). results 5 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 multidimensional scaling of the seventeen family-friendly benefits helps provide patterns among the dependent variables. the patterns could lead to insights into relationships with the independent variables in this study. table 2 shows the results of multidimensional scaling of the family-friendly benefits. interpretations of the two dimensional results are not clean but dimension 1 appears to be related to physical commitment to family-friendly benefits. benefits high on this dimension tend to be more expensive and onsite activities such as onsite daycare and lactation accommodation. benefits at the lower end of the scale might involve less physical commitment on the part of the organization such as job sharing, college tuition reimbursement, and off-site child care assistance. dimension 2 appears to be a more age-related dimension. benefits scoring low on this dimension tend to focus on established employees covering elder benefits, elder referrals, and onsite medical care. at the other end of the dimension, age dependency appears not as important with cafeteria programs, flextime, and flexplace. table 3 correlations between the independent variables showed several significant associations. the most significant one was between people orientation and creativity (r = .553; p < .01). people orientation also was highly related to production orientation (r = .284; p < .01). liberal orientation was positively correlated with creativity (r = .278; p < .01) and the percent of part-time workers in the organization (r = .237; p < .01). organization size’s only significant positive association was with union membership (r = .185; p < .05). stress level was negatively associated with creativity (r = -.164; p < .01) and people orientation (r = -.191; p < .01). results in table 4 indicate that only eight of seventeen regression equations were significant. the main independent variable causing significance was organization size. when it was significant, t values were always positive. significance was with compressed work weeks, job sharing, wellness programs, college tuition reimbursement, lactation accommodation, and onsite medical care. almost all other t values were positive. the other demographic-related independent variables such as percentage of union members, percentage of part-time workers, percentage of employees under 30, and percentage of females had almost no significant t values related to the family-friendly benefits. the second most significant independent variable was people orientation. this variable showed significant (p < .01 or < .05) associations with offsite child care, compressed work weeks, flexplace, and elder care referrals. many other t values were positive. hypothesis 2 concerning people orientation was supported with significant results with four of the seventeen regression equations. the third most significant independent variable was liberal orientation. organizations perceived to be more liberal tended to provide offsite child care, child care referrals, job sharing, and domestic partner benefits more. many other t values were positive. hypothesis 4 concerning conservatism/liberalism was supported for four of the seventeen regression equations. organization stress, creativity, and production orientation had few significant associations. many of the non-significant associations were a mix of positive and negative t values in the regression equation. hypothesis 1 with stress was not supported by any regression equation. all of the regression equations were not significant and roughly half of the t-values were positive and half negative. production orientation was positively associated with cafeteria programs. hypothesis 3 with production orientation was supported by only one regression equation. cafeteria programs were significantly (p < .01) associated with production orientation. the rest of the t values were a near 50/50 mix of positive and negative values. hypothesis 5 with creativity was supported by two of seventeen regression equations. elder-care benefits (p < .05) and lactation accommodation (p < .01) had significant positive associations with creativity. however, there was a significant strong negative association with job sharing (p < .01). most of the rest of the t values were negative. 6 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 table 1: demographic characteristics demographics n % type of organization single location !" #$%& multiple locations '!! $$%( division of a national entity () '*%* public sector $( '$%& private sector, for profit +" #!%$ private sector, not for profit &' '"%+ number of people employed at primary location 1-100 employees ''( ((%# 101-500 employees '*! ('%! 501-1000 employees )' '#%' 1001-2000 employees (# +%) 2001+ employees )( '#%& job title of respondent human resource manager/director '#& ("%' human resource specialist "# #'%# other ')' )'%$ who contributes to family-friendly benefit decisions? human resource manager ##& &&%$ chief executive officer '!& $)%" president '$$ )$%& benefits manager '#( (&%# other ''$ ((%! percent part-time 0-19% ##( "+%) 20-39% )* ''%! 40-59% " #%' 50-79% '' (%# 80-100% * *%* percent unionized 0-19% #$& "$%( 20-39% '( (%! 40-59% ) '%# 50-79% ) '%# 80-100% * *%* percent under the age of 30 0-19% )+ ')%) 20-39% '(& )*%* 40-59% $& '&%$ 50-79% ## &%$ 80-100% * *%* percent female 0-19% #" "%+ 20-39% && '+%) 40-59% !& #$%( 50-79% "( #'%$ 80-100% ' *%( 7 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 table 2: family friendly benefit scales onsite=onsite child care eldben=elder-care benefits offsite=offsite child care eldref=elder-care referral emerg=emergency child care well=wellness programs child=child care referral dompar=domestic partner coverage compres=compressed work weeks empast=employee assistance programs jobshar=job sharing colltu=college tuition reimbursement flxpl=flexi-place lac=lactation accommodation flxti=flexi-time medcar=onsite medical care caf=cafeteria programs table 3: correlations between independent variables 1 2 3 4 5 6 7 8 9 10 11 1: % single -.277** -.116 -.071 -.102 -.080 .028 .044 .055 -.023 -.023 2: size .114 .185* .110 -.005 .111 .060 -.054 -.053 -.039 3: % part-time -.069 .283** .196* -.101 .149* .007 .237** .196** 4: % union -.065 -.180 .056 -.081 .041 -.008 -.041 5: % < 30 .134* .051 .000 .138* .036 .084 6: % female .030 .098 -.029 .103 .135* 7: stress level -.191** -.097 .113* -.164** 8: people orientation .284** .091 .553** 9: production orientation -.012 .278** 10: liberal .253** 11: creativity 1: % single = % of organizations in a single location; 2: size = number of employees; 3: % part-time = % of part-time employees; 4: % union = % unionized; 5: % < 30 = % of employees under 30 years old; 6: % female = % of female employees; 7: stress level = scale from 1 not stress to 10 stressed; 8: people orientation = scale from 1 low concern for people to 10 high concern for people; 9: production orientation = scale from 1 low concern for production to 10 high concern for production; 10: liberal = 1 conservative to 10 liberal; 11: creativity = 1 not creative to 10 creative. 8 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 table 4: regression analyses dependent variables r2 f sig. % single size % part-time % union % < 30 % female stress level people orient. product orient. liberal creativity onsite child care .089 1.621 .096 1.447 1.678 .615 .209 .153 1.186 -.161 1.940 -1.940 1.381 -.453 offsite child care .072 1.281 .239 -.431 -.519 -1.174 -.453 -.274 -1.082 1.154 2.169* .513 2.449** -1.001 emergency care .071 1.256 .253 1.226 -.001 -1.270 .258 1.740 -1.084 .493 1.928 -.010 1.920 -.982 child care referral .080 1.435 .161 1.877 1.759 -1.151 -1.490 .329 -1.060 -.301 .258 .555 2.716** -.156 compressed week .112 2.070 .025 .630 2.025* -2.661** 1.653 1.429 .269 -.549 .465 -.077 -1.327 1.632 job sharing .201 4.054 .001 3.510** 1.993* -.851 1.249 1.372 -.494 -.694 3.234** 1.715 3.376** -2.997** flex-place .081 1.424 .165 .886 .587 -1.479 -.465 .880 .242 -.944 2.608** .388 1.249 -.718 flex-time .117 2.137 .020 .902 1.132 -3.420 -.026 1.065 1.874 1.741 1.680 .493 .711 -.118 cafeteria program .086 1.536 .122 -.270 1.551 .342 -.529 -.178 2.114* -.760 .312 2.579* -.083 -.696 elder-care benefit .076 1.329 .212 -.227 1.319 -1.679 -.428 -.809 .267 -.742 .141 -.029 .748 2.117* elder-care referral .092 1.647 .089 -.038 .912 -1.181 -.945 .106 -1.753 .272 2.705** -.067 .560 .317 wellness program .153 3.013 .001 .424 4.129** -1.277 .537 -.824 -1.555 .316 .980 .392 1.909 1.124 domestic partner .139 2.605 .004 -2.359* 1.438 -1.263 -.038 2.459* -.085 -.850 1.449 -.576 2.001* .169 emp. asst. program .093 1.713 .073 -.998 2.333* -.129 -.519 .461 -.835 1.618 1.498 .746 .086 -.118 college tuition reimburse .135 2.589 .004 -.508 3.428** .732 .896 -1.391 -1.370 .121 .874 1.539 1.376 -.233 lactation accommodation .164 3.158 .001 -1.514 2.818** -.176 -.339 .411 1.786 .699 -1.585 -.305 -.699 2.955** onsite medical care .175 3.535 .001 1.631 4.972** -1.696 1.040 .203 1.584 -.664 .583 .529 .845 1.355 % single = % of organizations in a single location; size = number of employees; % part-time = % of part-time employees; % union = % unionized; % < 30 = % of employees under 30 years old; % female = % of female employees; stress level = scale from 1 not stress to 10 stressed; people orientation = scale from 1 low concern for people to 10 high concern for people; production orientation = scale from 1 low concern for production to 10 high concern for production; liberal = 1 conservative to 10 liberal; creativity = 1 not creative to 10 creative. discussion though the main purpose of the study was to examine select organizational cultural associations with family-friendly benefits, organizational size used in prior research cannot be ignored. this independent variable in the regression analyses was significantly associated with seven family-friendly benefits and positively associated with most others. organization size cannot be underestimated. intuitively, large organization may have more resources to provide such benefits. they also have a greater variety of people with more employees with children, domestic partner relationships, and elder care needs. among the primary study independent variables, people orientation had the most significant associations with family-friendly benefits. from the transformational leadership literature (e.g., avolio, 1999), it seems intuitively sensible that a greater focus on people’s needs would be associated with policies that center on people’s needs such as offsite child care, need to work at home while taking care of the family (flexplace), need to reduce work time to take care of family matters (job sharing), and the need for elder care referrals. many of the other family-friendly benefits were positively associated with peopleorientation. many of the significant family-friendly benefits seemed to be associated with the benefits requiring little overhead commitment (lower end of dimension 1 from table 2) such as job sharing, flexplace, and offsite child care. production-orientation focuses on getting things done. perhaps more can get done when employee take care of family matters. only one family-friendly benefit was significantly positively related to production orientation but most other benefits were slightly positively related. one almost significantly related negative association (onsite child care) is related to a major organizational physical and probably financial commitment. creativity did not appear to be related to many family-friendly benefits even though it is a key part of transformational leadership. there are several other possible moderating factors not measured in the present study that may have accounted for the lack of association. first, creative organizations might find 9 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 alternatives to family-friendly benefits that can help workers in need. alternatives could be higher pay, reduced workload, changing jobs, etc. second, creative organizations might not necessarily be peopleoriented. there was a significant negative correlation (-.164; p < .01) between creativity and peopleorientation in this study as shown in table 3. stress did not appear to be related to many family-friendly benefits. a possible moderating factor might be that organizational stress might be a function of how managers react to stress. some might clamp down and tighten all benefits while others might loosen the budget a bit to get more work out of employees. liberalism had four significant positive associations with family-friendly benefits. liberalism is linked to higher benefit spending for poor and discriminated individuals (sturdivant, ginter & sawyer, 1985; zwiebel, 1995) and this may contribute to the positive associations. future research the people-oriented and liberal independent variables showed significant positive associations with select family-friendly benefits. future research needs to analyze why those few benefits (and not others) have those associations. for example, liberal organizations tend to have significantly more offsite child care and child care referrals and slightly more onsite child care. however, they tend to have slightly less compressed workweeks. from personal experience of one author, compressed work weeks might not be so family-friendly because it causes significant amount of managerial work stress during extended ten hour days and the working spouse is gone those entire days. are compressed work weeks more of a convenience for the organization rather than the employee because the organization has the employee for almost the entire days he or she is at work? conclusion people-friendliness and liberalism seemed to be the dependent variables most associated with the existence of various family-friendly benefits in organizations. organizational stress, creativity, and production seemed to not have as many positive associations with family-friendly benefits. a major demographic factor that may be more important than the organizational cultural variables just mentioned is organizational size. size may matter because there may be greater financial ability to provide such benefits and there may be a greater diversity of employees. references allen, t. 2001. family-supportive work environments: the role of organizational perceptions. journal of vocational behavior, 58, 414-435. avolio, b. 1999. full leadership development: building the vital forces in organizations. thousand oaks, ca: sage. bagraim, j. & sader, r. 2007. family-friendly human resource practices and organizational commitment. management dynamics, 16(4): 2-10. bass, b. 1998. transformational leadership: industry, military, and educational impact. mahwah, n. j.: erlbaum. bass, b., avolio, b., jung, d., & berson, y. 2003. predicting unit performance by assessing transformational and transactional leadership. journal of applied psychology, 88(1): 217-218. baughman, r., dinardi, d., & holtz-eakin, d. 2003. productivity and wage effects of “family-friendly” fringe benefits. international journal of manpower, 24(3): 247-259. 10 kaupins and coco advances in business research 2013, vol. 4, no. 1, 1-12 baxter, j., & chesters, j. 2011. perceptions of work-family balance: how effective are family-friendly policies? australian journal of labour economics, 14(2): 139-151. berg, p., kalleberg, a., & appelbaum, e. 2003. balancing work and family: the role of high commitment environments. industrial relations: a journal of economy and society, 42(2): 168188. breaugh, j., & frye, n. 2008. work-family conflict: the importance of family-friendly employment practices and family-supportive supervisors. journal of business psychology, 22(4): 345-353. buckingham, m., & coffman, c. 1999. first, break all the rules: what the world’s greatest managers do differently. new york: simon & schuster. coghlan, d., & mckee, r. 2000. aligning grid organization development and interlevel dynamics for systematic change. organization development journal, 18(3): 37-48. dessler, g. 2014. fundamentals of human resource management. upper saddle river, new jersey, pearson. eby, l., casper, w., lockwood, a., bordeaux, a., & brinley, a. 2005. work and family research in io/ob: content analysis and review of the literature (1980-2002). journal of vocational behavior, 66(1): 124-197. ellin, a. 2103. work-life balance off kilter, research finds. retrieved september 3, 2013 from http://abcnews.go. com/blogs/business/2013/04/work-life-balance-off-kilter-research-finds/. goodstein, j. 1994. institutional pressures and strategic responsiveness: employer involvement in workfamily issues. academy of management journal, 37(2): 350-382. gray, h. 2002. family-friendly working: what a performance! an analysis of the relationship between the availability of family-friendly policies and establishment performance. london, england: centre for economic performance, london school of economics and political science. grossman, r. 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! 14 ! the effect of espoused culture on acceptance of online tax filing services in an emerging economy gaurav gupta pacific lutheran university syed k. zaidi midwestern state university godwin j. udo university of texas at el paso kallol k. bagchi university of texas at el paso this paper investigates the impact of espoused national culture on the individuals’ acceptance of online tax filing services in an emerging economy. this study integrates the theory of planned behavior and incorporates the impact of taxpayers’ trust and skepticism on their intentions to adopt online tax filing. this paper studies the moderating effect of espoused national culture on taxpayers’ intentions to e-file taxes using either government or private vendor tax filing portals. the results indicate that higher subjective norm, positive attitude, higher perceived behavioral control, and higher perceived trust are linked to higher intentions of adopting online tax filing. keywords: online tax filing; theory of planned behavior; espoused culture; skepticism; intentions; taxpayers. introduction the purpose of this research is to examine the influence of espoused national culture on the acceptance of e-services (i.e., online tax filing) in a developing country. udo and bagchi (2011) argue that acceptance of technologies in developing countries cannot be simply assumed. they suggest that the cultural reasons behind the acceptance of online services need to be understood. the current research aims to explore the behavioral intentions of taxpayers1 to use government and other private vendor tax filing websites to file their taxes online. wang (2002) argues that the use of online tax filing systems is limited regardless of the efforts spent to make these systems work better; therefore, it is important to understand the adoption of online tax filing systems in a country. straub, karahanna, evaristo, and srite (2002) state that india has strong internal cultural differences owing to the fact that it has over 14 official languages and hundreds of dialects. moreover, india is made of not only several ethnic and religious subgroups but also possesses diverse cultural and racial characteristics (walsham, 2002). therefore, the existing cultural diversity in india may create significant differences in the mode of filing taxes in the country. culture dimensions (hofstede, 1980) have been extensively used to study cross-cultural differences among nations. these cultural dimensions (individualism-collectivism, power distance, masculinity-femininity, and uncertainty avoidance) at the individual level of analysis are termed as !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 taxpayers, in this study, include tax-filers (i.e., individuals) who have filed other taxpayers’ taxes electronically. ! ! gupta et al. 15 ! espoused culture (srite & karahanna, 2006). srite and karahanna (2006, p. 681) define espoused culture as “the degree to which an individual embraces the values of his or her national culture.” given the varied sub cultural groups in india, this research focuses on india. moreover, india is one of the fastest developing emerging nations in the world. it is forecasted that india’s gdp will become the world’s second largest gdp by 2050 (o’neill, 2007). given the multi-cultural socioeconomic environment in india, it would be very interesting to understand factors that influence the adoption of online tax filing services. this research integrates the theory of planned behavior (ajzen, 1991) and incorporates the impact of taxpayers’ trust (gefen, karahanna, & straub, 2003) in the tax web vendors and skepticism (hurtt, 2010) on their intentions to adopt online tax filing. this research also contributes to the literature by examining the influence of espoused national culture on acceptance of an accounting e-service, i.e. online tax filing in an emerging nation. one goal of this research is to understand how different sub-cultural groups in a multicultural country such as india would adopt online tax filing services. in addition to enhancing knowledge on adoption of electronic tax filing technology in a multicultural nation, this research may also have important policy implications for government of india in making technology diffusion decisions. the findings from this research will assist policymakers in making technology diffusion decisions in countries with multiple sub cultural groups. for successful diffusion of an online technology, it is imperative that the users willingly adopt such online technology. fallan (1999) finds a positive correlation between increased tax knowledge of individuals and tax law compliance. therefore, enhancing taxpayers’ knowledge is the antecedent of successful adoption of online tax filing. the remainder of the paper is structured as follows. section 2 provides literature review and hypotheses development. section 3 discusses research method. section 4 analyzes the results. section 5 provides discussion on findings. section six provides conclusion. literature review and hypotheses development online tax filing (i.e., e-filing) is relatively new in india. indian federal government is making continuous efforts to improve the delivery of public services in cost effective ways. in 2006, the indian government unveiled the national e-governance plan (negp) to make government services available to common people in india (ojha, sahu, & gupta, 2008). with this in mind, the income tax department of india introduced the adoption of online tax filing. currently, online tax filing is mandatory2 for a set of taxpayers. a large number of web vendors in india are currently offering e-filing tax services to indian taxpayers. although some studies (wang, 2002) tried to capture factors that can explain individuals’ intentions to file taxes online, they were limited in scope. this study develops a comprehensive model to evaluate factors that can explain taxpayers’ intentions to file taxes electronically. theory of planned behavior (tpb) this study uses a comprehensive model based on prior accounting and information systems (is) literature to examine factors that have an impact on taxpayers’ intentions to file taxes online. pioneered by ajzen (1991), the theory of planned behavior (tpb) is one of the most cited models used to explain behavioral intentions. tpb models individuals’ intentions to engage in specific !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2for more details about mandatory e-filing requirements, please check the following website: https://incometaxindiaefiling.gov.in/! acceptance of online tax filing services in an emerging economy! 16 ! behavior as a function of the following three factors: subjective norms, attitude towards behavior, and perceived behavioral control. behavioral intentions are defined as “the strength of conscious plans to perform the target behavior” (harrison, mykytyn & riemenschneider, 1997, p. 176). subjective norms refer to an individual’s beliefs about whether their friends, family members, colleagues, superiors or significant others approve or disapprove a particular behavior (ajzen, 1991). attitude is defined as “an individual’s evaluation of the favorableness or unfavorableness of an attitude object” (bobek & hatfield, 2003, p. 17). perceived behavioral control is defined as “people’s perception of the ease or difficulty of performing the behavior of interest” (ajzen, 1991, p. 183). culture culture is a very broad construct. scholars have used different approaches to measure it. culture has been measured at different levels, i.e., individual level, organizational level, and national level. schein (1992, p. 9) defines culture as “a pattern of basic assumptions-invented, discovered or developed by a given group…in relation to those problems.” hofstede (1980, p. 25) defines culture as “the collective programming of the mind which distinguishes the members of one human group from another.” based on a study of ibm employees, hofstede (1980) identify four major dimensions of national culture: individualism-collectivism (ic), power distance (pd), uncertainty avoidance (ua), and masculinity-femininity (mf). these cultural dimensions are given unique cultural scores for different countries, which have been widely used by researchers to determine how nations differ from each other. at the individual level, srite and karahanna (2006) state that these dimensions can be labelled as espoused cultural dimensions3 (udo & bagchi, 2011). many researchers (bochner & hesketh, 1994; gomez, kirkman, & shapiro, 2000; srite & karahanna 2006; udo & bagchi, 2011; yoon, 2009; zhang & maruping, 2008) have used espoused cultural values in their research. in a study of acceptance of online services in nigeria, udo and bagchi (2011) conclude that some national espoused cultural values have moderated the relationships between predictors and outcome variables. in accounting literature, the impact of culture on accounting systems has been deeply studied. the framework for explaining the impact of culture on accounting systems was first proposed by gray (1988). the author posits that shared cultural (or societal) values lead to shared accounting values (professionalism vs. statutory control; uniformity vs. flexibility; conservatism vs. optimism; secrecy vs. transparency) in a country and these accounting values explain the usage of different accounting systems in different countries.4 thus, culture has been given prime importance in the accounting research. the concept of espoused national culture is relatively new in accounting filed. therefore, it is imperative to explore how espoused national culture values can moderate the relationship between the predictor and outcome variables. hypotheses development in this section, several hypotheses are developed to explain the relationships identified in current study. specifically, this study examines the direct influence of attitude, subjective norm, perceived behavioral control, trust, and skepticism on behavioral intentions to adopt online tax filing. in addition, hofstede’s (1980) cultural dimensions are utilized to hypothesize the moderating effects of individualism-collectivism, power distance, masculinity-femininity, and uncertainty avoidance on the direct relationships identified in this study. the following sub-sections discuss the development of hypotheses. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3!for more discussion on espoused cultural dimensions, review srite and karahanna (2006).! 4!for more discussion, review gray (1988).! ! ! gupta et al. 17 ! skepticism. the level of skepticism is more likely to influence individuals’ intentions to use the online tax payment system for filing taxes. skepticism is relatively a newer construct, but is gaining popularity in accounting research. in marketing literature, skepticism is “a trait that predisposes individuals to doubt the veracity of various forms of marketing communication, including advertising and public relations” (forehand & grier, 2003, p. 349). skepticism, a characteristic of an individual, can also influence an individual’s intentions to use online tax payment system for making tax payments. massey, khatri, and montoya-weiss (2007, p. 282) argue that “skeptics tend to be dispassionate about technology, but also have a few inhibitions; thus, they need to be convinced of benefits.” the definition suggest that skeptical taxpayers are less likely to utilize online tax filing services. hence, the following hypothesis is proposed: h1: high (low) skepticism leads to lower (higher) intentions of using online tax payment system for filing current year or future year income taxes. trust. trust has an impact on the adoption of online services. online consumers are different from traditional consumers, who had opportunity to interact with seller and inspect the quality of a product before buying it. pavlou and chai (2002, p. 240) state that the “the spatial and temporal separation between consumers and web vendors increase fears of seller opportunism due to product and identity uncertainty.” online consumers perceive greater risk in online shopping since they cannot observe actions or behaviors of online vendors (reichheld & schefter, 2000). gefen et al. (2003) argue that trust is an important factor in influencing repeat consumers’ intentions to engage in an online activity. therefore, there exist a positive relationship between consumers’ perceived trust in web vendors and behavioral intentions to engage in online activity. this suggests that an increased trust in online tax payment systems positively impact taxpayers’ intentions to adopt electronic tax filing systems. hence, the following hypothesis is proposed: h2: high perceived trust in online tax vendors leads to higher behavioral intentions of filing taxes online. theory of planned behavior. tpb, an extension of the theory of reasoned action, has been successfully tested in prior research. harrison et al. (1997) find that tpb model can be used in understanding small businesses executives’ intentions to make it adoption decisions. pavlou and fygenson (2006) and dowling (2009) also utilize tpb. the pavlou and fygenson (2006) propose a business-to-commerce (b2c) e-commerce adoption model based on the extended tpb and find considerable support for this theory. therefore, the following hypotheses are developed: h3: higher subjective norms lead to higher intentions of using online tax payment system for filing current year or future year income taxes. h4: positive attitude towards behavior leads to higher intentions of using online tax payment system for filing current year or future year income taxes. h5: higher perceived behavioral control leads to higher intentions of using online tax payment system for filing current year or future year income taxes. culture. national culture has been a topic of research across nations. hofstede (1980, p. 25) defines culture as “the collective programming of the mind which distinguishes the members of one human group from another.” the pioneer work of cultural influence on accounting systems was conducted by gray (1988). doupnik and tsakumis (2004) present a thorough review of papers (salter & niswander, 1995) that test gray’s model of cultural influence on accounting systems. acceptance of online tax filing services in an emerging economy! 18 ! doupnik and tsakumis (2004, p. 1) state that “culture is a powerful environmental factor that affects the accounting systems of a country as well as how individuals perceive and use accounting information.” however, accounting literature has largely ignored the impact of the presence of subcultures within a country on the outcome variables. this study examines the moderating effects of hofstede’s (1980) cultural dimensions (pd, ic, ua, and mf) on intentions to adopt online tax filing. power distance: power distance is an important cultural factor for india (house, hanges, javidan, dorfman, & gupta, 2004). the government of india realizes the power distance among different classes. in order to lift the socio-economic status of the lower classes, the government has reserved a fixed percentage of seats in the country’s higher education institutions for students applying from lower classes (desai & kulkarni, 2008). desai & kulkarni (2008) further provide that similar reservations have been made for them in government jobs and politics. therefore, studying the impact of espoused power distance among various groups in india is well justified. at the individual level, high espoused power distance means that individuals perceive status gap between superiors and subordinates, and try to follow orders of their superiors (udo & bagchi, 2011). moreover, the subjective norm of the tpb in context of present research shows the impact which an individual taxpayer’s friends, colleagues, superiors, and family members have on influencing his/her intentions to adopt online tax filing system. therefore, it is expected that espoused power distance to moderate the relationship between the subjective norm and intentions to adopt e-filing of taxes. therefore, the following hypothesis is proposed: h6a: espoused power distance moderates the relationship between subjective norm and intentions to adopt electronic tax filing. yoon (2009) states that in low power distance countries, superiors and subordinates are interdependent because they are more likely to consider each other equal. given this interdependence, superiors and subordinates will exhibit more interpersonal trust. thus, it is hypothesized that the relationship between trust and behavioral intentions of taxpayers is moderated by espoused power distance. the following hypothesis is proposed: h6b: espoused power distance moderates the relationship between trust and intentions to adopt electronic tax filing. individualism-collectivism: in-group collectivism refers to “the degree to which individuals express pride, loyalty, and cohesiveness in their organizations or families” (house et al., 2004, p. 30). thus, individuals with high espoused collectivism (or low espoused individualism) are more likely to be concerned about what group members have to say about their actions. thus, espoused collectivism may moderate the relationship between subjective norm and behavioral intentions to adopt online tax filing. hence, the following hypothesis is developed: h7: espoused collectivism moderates the relationship between subjective norm and intentions to adopt electronic tax filing. uncertainty avoidance: the globe study defines uncertainty avoidance as “the extent to which members of collectives seek orderliness, consistency, structure, formalized procedures, and laws to cover situations in their daily lives” (house et al., 2004, p. 603). the globe study (house et al., 2004) states less resistance to change as one of the characteristics of weak uncertainty avoidance orientation. hofstede (2001) posits that high uncertainty avoidance individuals are more ! ! gupta et al. 19 ! uncomfortable in dealing with unpredictable and unstable situations. also, online consumers perceive greater risk in online shopping as they cannot observe the actions or behaviors of online vendors (reichheld & schefter, 2000). it is hypothesized that taxpayers with higher espoused uncertainty avoidance will be more uncomfortable in unpredictable situations and are more likely to perceive risk in online tax filing as compared to taxpayers with lower espoused uncertainty avoidance. thus, espoused uncertainty avoidance is expected to moderate the relationship between trust in online tax vendor and behavioral intentions to adopt online tax filing. therefore, the following hypothesis is developed: h8: espoused uncertainty avoidance moderates the relationship between trust in online tax vendor and behavioral intentions to adopt electronic tax filing. masculinity-femininity: udo and bagchi (2011) state that masculinity refers to the extent to which a society or a group encourages masculine characteristics such as assertiveness, ambition, and competitiveness, against feminine characteristics such as caring, relationships, etc. further, udo and bagchi (2011, p. 32) posit that “individuals with feminine-type of traits are likely to assign much importance to an online service system that is perceived to be easy to use than individuals with masculine-type traits, as it is a quality-of-work life issue.” therefore, it is argued that the higher the espoused masculinity, the smaller the effect of attitude on behavioral intentions to adopt e-filing for taxes. hence, the following hypothesis is developed: h9: espoused masculinity moderates the relationship between attitude and intentions to adopt electronic tax filing. research method this is a survey study. the study uses warppls 4.0 to perform partial least square structural equation modeling (pls sem). several independent variables are used to examine taxpayers’ intentions to file taxes electronically. the following sections provide description of variables, model, and sample. variables the dependent variable is taxpayers’ intentions to file taxes online. independent variables include skepticism, trust, subjective norms, attitude, and perceived behavioral control. this study adapts the instruments from ajzen (1991), pavlou and fygenson (2006), and hurtt (2010) to measure the constructs for subjective norm, trust, attitude, perceived behavioral control (pbc), and skepticism. the moderating variables include power distance (pd), individualism-collectivism (ic), uncertainty avoidance (ua), and masculinity-femininity (mf). the constructs for moderating variable are adapted from hofstede (1980). model based on extant accounting and information systems literature, this study develops a comprehensive model to explain taxpayers’ intentions to file taxes online (figure 1). the model shows the impact of trust, subjective norms, attitude, skepticism, and perceived behavioral control on taxpayers’ intentions to file taxes online. in addition, the figure also shows moderating variables: pd, ic, ua, and mf. acceptance of online tax filing services in an emerging economy! 20 ! sample this is a survey study. snowball sampling technique is used for data collection purpose. this research uses two main criteria to select participants. first, participants should be earning income. second, participants should be filing tax returns. the final sample includes 201 participants from various organizations in india. a majority of participants were male. table 1 provides detailed demographic information about the respondents. figure 1: taxpayers’ model the questionnaire5 consists of several parts. most parts in the survey were based on 5-point likert scale, where respondents were asked to rate between 1 (low, strongly disagree, bad idea, or very foolish) and 5 (high, strongly agree, good idea, or wise). one part of the survey was based on 6point likert scale, where respondents were asked to rate between 1 (strongly disagree) and 6 (strongly agree). the variation in this scale is due to the fact that the instruments from different sources were adapted. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5!the items for perceived behavioral control (pbc) were adapted from pavlou and fygenson (2006). the authors state that “pbc has two distinct dimensions: self-efficacy and controllability” (pavlou & fygenson (2006, p. 119). this research combines the items of self-efficacy and controllability to measure pbc.! ! ! gupta et al. 21 ! table 1: background of respondents total responses 201 surveys gender female 43 respondents (21.4%) male 156 respondents (77.6%) no response 2 respondents (1%) age less than 18 years 0 respondents 18-24 years 51 respondents 25-35 years 95 respondents 36-50 years 51 respondents over 50 years 4 respondents internet experience 6.98 years (average) work experience average number of years 7.65 years (161 respondents) (accounting related field) no response/other 40 respondents work experience average number of years 4.85 years (163 respondents) (non-accounting field) no response 38 respondents online tax filing personal 108 respondents experience corporate (business) 13 respondents other 11 respondents personal and corporate (business) 44 respondents personal and other 2 respondents corporate (business) and other 2 respondents personal, corporate (business), and other 19 respondents no response 2 respondents current employment accounting related field 145 respondents non-accounting related field 55 respondents no response 1 respondent annual income less than inr200 000 31 respondents inr200 000-1 000 000 132 respondents more than inr1 000 000 33 respondents no response 5 respondents language english 66 respondents hindi 57 respondents other 3 respondents english and hindi 69 respondents english and other 2 respondents english, hindi, & other 3 respondents no response 1 respondent analysis and results table 2 shows model fit indices. average path coefficient (apc), average r-squared (ars), and average adjusted r-squared (aars) are all significant at 1% level which suggests a good model fit. average block variance inflation factor (avif) and average full collinearity variance inflation factor (afvif) are 1.468 and 1.494, respectively. the both are in the ideal range (<=3.3), which shows model’s overall predictive and explanatory quality. the tenenhaus goodness of fit (gof) is 0.523 which is greater than the large cut-off point of 0.36. therefore, the model has a higher acceptance of online tax filing services in an emerging economy! 22 ! explanatory power. simpson’s paradox ratio (spr) of 1.000 is in the ideal range (>=0.7) suggesting that 100.0% of the paths in the model are free from simpson’s paradox or causality problem6. the rsquared contribution ratio (rscr) is very close to ideal range. statistical suppression ratio (ssr) and nonlinear bivariate causality direction ratio (nlbcdr) are in the acceptable range. table 2: model fit and quality indices model fit indices average path coefficient (apc) average r-squared (ars) average adjusted r-squared (aars) average block variance inflation factor (avif) average full collinearity variance inflation factor (afvif) tenenhaus goodness of fit (gof) simpson's paradox ratio (spr) r-squared contribution ratio (rscr) statistical suppression ratio (ssr) nonlinear bivariate causality direction ratio (nlbcdr) 0.136*** 0.542*** 0.518*** 1.468 1.494 0.523 1.000 1.000 1.000 0.800 ***p<0.01 in addition, all indicator and cross loadings for both latent and interaction variables are significant which suggests that they are passing confirmatory factor analysis (cfa). block variance inflation factors (vif) are also below the threshold of 3.3 which suggests that there is no vertical multicollinearity in a block of latent variables (kock & lynn, 2012). a few questions were failed to load at the acceptable levels and therefore, were dropped from further analysis. table 3 reports factor loadings and cronbach’s alphas of the constructs used in this study. the cronbach’s alphas for all of the constructs are greater than 0.60. nunnally (1967) suggests that the reliability of 0.50 to 0.60 is sufficient. table 3: factor loadings construct and indicators loadings cronbach’s alpha masculinity-femininity • it is preferable to have a man in high level position rather than a woman. • there are some jobs in which a man can always do better than a woman. • it is more important for men to have a professional career than it is for women to have a professional career. • solving organizational problems requires the active forcible approach which is typical of men. • women do not value recognition and promotion in their work as much as men do. 0.795 0.703 0.871 0.808 0.705 0.836 !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 6!simpson’s paradox is a situation that “occurs when a path coefficient and a correlation associated with a pair of linked variables have different signs” (kock, 2013, p. 49). it is the indication of a causality problem. it suggests that “a hypothesized path is either implausible or reversed” (kock, 2013, p. 49). ! ! gupta et al. 23 ! construct and indicators loadings cronbach’s alpha individualism-collectivism • being accepted as a member of a group is more important than having autonomy and independence. • being accepted as a member of a group is more important than being independent. • group success is more important than individual success. • being loyal to a group is more important than individual gain. • individual rewards are not as important as group welfare. • it is more important for a manager to encourage loyalty and a sense of duty in subordinates than it is to encourage individual initiative. 0.769 0.675 0.708 0.682 0.538 0.565 0.738 power distance • managers should make most decisions without consulting subordinates. • managers should not ask subordinates for advice, because they might appear less powerful. • decision making power should stay with top management in the organization and not be delegated to lower level employees. • employees should not question their manager’s decisions. • a manager should perform work which is difficult and important and delegate tasks which are repetitive and mundane to subordinates. • higher level managers should receive more benefits and privileges than lower level managers and professional staff. • managers should be careful not to ask the opinions of subordinates too frequently, otherwise the manager might appear to be weak and incompetent. 0.802 0.759 0.561 0.721 0.529 0.659 0.582 0.785 uncertainty avoidance • rules and regulations are important because they inform workers what the organization expects of them. • order and structure are very important in a work environment. • it is important to have job requirements and instructions spelled out in detail so that people always know what they are expected to do. • providing opportunities to be innovative is more important than requiring standardized work procedures. 0.745 0.732 0.786 0.625 0.695 trust • the tax website vendor would continue to be honest in its dealings in future. • for me, it is important for tax website vendors to be honest in their dealings with their customers. • for me, it is important for tax website vendors not to take advantage of their customers. • this tax website vendor would not seek to take advantage of me if i continue to file taxes using it. 0.623 0.814 0.696 0.630 0.637 subjective norm • most people who are important to me think it is a good idea to file taxes online. 0.913 0.799 acceptance of online tax filing services in an emerging economy! 24 ! construct and indicators loadings cronbach’s alpha • most people who are important to me would file taxes online. 0.913 attitude • filing taxes online would be (a bad idea/a good idea). • filing taxes online would be (very foolish/wise). 0.899 0.899 0.762 skepticism • i wait to decide on issues until i can get more information. • the prospect of learning excites me. • i am interested in what causes people to behave the way they do. • i often reject statements unless i have proof that they are true. • i am confident about my abilities. • discovering new information is fun. • i take my time making decisions. • i like to understand the reason for other people’s behavior. • i think that learning is exciting. • i have confidence in myself. • i do not like to decide until i’ve looked at all of the readily available information. • i like searching for knowledge. • i like to ensure that i have considered most available information before making a decision. • i enjoy trying to determine if what i read or hear is true. • i enjoy learning. • the actions people take and the reasons for those actions are fascinating. 0.600 0.788 0.559 0.545 0.524 0.559 0.738 0.632 0.800 0.530 0.608 0.714 0.693 0.672 0.757 0.557 0.905 perceived behavioral control • all necessary resources for filing taxes online are accessible to me. • filing taxes online is completely under my control. • if i wanted to, i would be able to file taxes online. • if i wanted to, i am confident i could file taxes online. 0.783 0.635 0.780 0.845 0.759 behavioral intentions • given both the options to file taxes online and manually (paperbased), i intend to use online tax filing frequently. • given both the options to file taxes online and manually (paperbased), i intend to recommend online tax filing to other people. • given both the options to file taxes online and manually (paperbased), i intend to use online tax filing service whenever i have a need. 0.855 0.817 0.847 0.791 this study examines construct validity using convergent and discriminant validity. table 4 reports the correlations among latent variables with square roots of average variance extracted (ave). udo, bagchi, and kirs (2010) suggest that a construct demonstrates the convergent validity when ave is at least 0.50. table 4 shows the ave values in the diagonal. all values are greater than the cut-off point of 0.50. therefore, the constructs displays convergent validity. this research also ! ! gupta et al. 25 ! evaluates combined loadings with cross-loadings and structure loadings with cross-loadings to assess convergent validity. all loadings are greater than 0.5 and their associated p-values are lower than 0.05 (hair, anderson, & tatham, 1987; hair, black, babin, & anderson, 2009), which suggests that instrument has a good convergent validity. to assess discriminant validity of a latent variable, fornell & larcker (1981) suggest that all correlations of that latent variable should be less than the square root of the ave. the results show that the square root of the ave of any latent variable is greater than any of the correlations of that latent variable. thus the construct displays convergent and discriminant validity (table 4). this study uses partial least square structural equation modeling to test the hypotheses (figure 2). the results for h1, high (low) skepticism leads to lower (higher) intentions of using online tax payment system for filing current year or future year income taxes, are not found to be significant (p=0.21). therefore, h1 is not supported. however, this research finds support for h2, perceived trust is positively and significantly (p<0.01) associated with behavioral intentions to adopt online tax filing. consistent with h3, results suggest that subjective norm is positively and significantly (p<0.01) associated with behavioral intentions to adopt online tax filing system. consequently, h3 is supported. the results show a positive and significant (p<0.05) association between attitude and behavioral intentions to adopt online tax filing system. therefore, h4 is supported. in addition, the results show support for h5. the relationship between perceived behavioral control and behavioral intentions is positive and significant (p<0.01). overall, this study finds strong support for the hypotheses related to the theory of planned behavior. table 4: correlations among latent variables (diagonal represents square root of ave values) su bj n or m t ru st a tt it ud e in te nt p d ic u a m f sk ep t c on tr ol subjnorm 0.913 trust 0.186*** 0.695 attitude 0.464*** 0.214*** 0.899 intent 0.543*** 0.376*** 0.438*** 0.840 pd 0.051 -0.099 -0.126* -0.194*** 0.666 ic 0.276*** 0.229*** 0.213*** 0.126* 0.071 0.661 ua -0.052 0.245*** 0.106 0.017 0.043 0.248*** 0.724 mf 0.080 -0.054 -0.038 -0.062 0.331*** 0.074 -0.024 0.779 skept 0.127* 0.342*** 0.205*** 0.220*** -0.188*** 0.266*** 0.282*** 0.015 0.649 control 0.606*** 0.342*** 0.489*** 0.551*** 0.122* 0.233*** 0.108 -0.028 0.203*** 0.765 *** significance at p < 0.01; ** significant at p < 0.05; * significant at p < 0.10 acceptance of online tax filing services in an emerging economy! 26 ! figure 2: confirmatory analysis model with results contrary to h6a, the results show significant (p<0.01) but negative relationship between subjective norm and intentions to adopt electronic tax filing moderated by espoused power distance. therefore, h6a is not supported. similarly, no support is found for hypothesis 6b. the results show significant (p<0.01) but positive relationship between trust and behavioral intentions moderated by power distance. the relationship between subjective norm and intentions to adopt electronic tax filing moderated by espoused collectivism is not found to be significant (p<0.13). therefore, h7 is not supported. furthermore, the results show no support for h8. the results show significant (p<0.10) but positive relationship between trust and behavioral intentions moderated by uncertainty avoidance. hypothesis 9 in the area of cultural dimensions is related to masculinity-femininity. the results show significant (p<0.10) but positive relationship between attitude and behavioral intentions to adopt online tax filing moderated by masculinity. overall, the results (table 5) show that perceived trust, subjective norm, attitude, and perceived behavioral control are positively and significantly associated with behavioral intentions to adopt online tax filing. however, the association between professional skepticism and behavioral intentions of filing taxes online is not statistically significant. no support for hypotheses in the area of espoused cultural dimensions is found. discussion this study examines the influence of espoused national culture on the acceptance of eservices (i.e., online tax filing) in a developing country. udo and bagchi (2011) suggest that cultural reasons behind the acceptance of online services need to be understood. this study aims to explore ! ! gupta et al. 27 ! behavioral intentions of taxpayers to use government and other private vendor tax filing websites to e-file their taxes. this research uses hofstede (1980) cultural dimensions, integrates the theory of planned behavior (ajzen, 1991), and incorporates the impact of trust (gefen et al., 2003) in tax web vendors on tax filers’ skepticism (hurtt, 2010) towards accepting online tax filing. the study contributes to literature by examining the influence of espoused national culture on acceptance of an accounting e-service, i.e. online tax filing in an emerging nation. table 5: results hypotheses supported h1: high (low) skepticism leads to lower (higher) intentions of using online tax payment system for filing current year or future year income taxes. no h2: high perceived trust in online tax vendor leads to higher behavioral intentions of filing taxes online. yes h3: higher subjective norms lead to higher intentions of using online tax payment system for filing current year or future year income taxes. yes h4: positive attitude towards behavior leads to higher intentions of using online tax payment system for filing current year or future year income taxes. yes h5: higher perceived behavioral control leads to higher intentions of using online tax payment system for filing current year or future year income taxes. yes h6a: espoused power distance moderates the relationship between subjective norm and intentions to adopt electronic tax filing. no h6b: espoused power distance moderates the relationship between trust and intentions to adopt electronic tax filing. no h7: espoused collectivism moderates the relationship between subjective norm and intentions to adopt electronic tax filing. no h8: espoused uncertainty avoidance moderates the relationship between trust in online tax vendor and behavioral intentions to adopt electronic tax filing. no h9: espoused masculinity moderates the relationship between attitude and intentions to adopt electronic tax filing. no the level of individual’s skepticism has an influence on individual’s intentions to adopt online tax filing system. it is hypothesized (h1) that higher (lower) skepticism leads to lower (higher) intentions of using online tax payment system for filing current and future year income taxes. this study expects to find a negative relationship between skepticism and behavioral intentions to adopt online tax filing system. however, no support is found for this hypothesis. a reduced number of items to measure the skepticism scale could be a possible cause for this. skepticism is a 30-item scale. however, a number of items are unable to load on the scale, and therefore, are dropped from further analysis. the final skepticism scale consists of only 16 items. trust can influence repeat consumers’ intentions to engage in online activities (gefen et al., 2003). therefore, the study expects to find a positive relationship between the consumers’ perceived trust in the web vendor and the behavioral intentions to engage in online activity. consistent with h2, the results show that increased trust in online tax payment system is positively associated with taxpayers’ intentions to adopt online tax payment system. the next three hypotheses (h3, h4, and h5) are related to the theory of planned behavior (tpb). harrison et al. (1997) use tpb model to understand executives’ intentions to make it adoption decisions. pavlou and fygenson (2006) also use tpb model and find considerable support acceptance of online tax filing services in an emerging economy! 28 ! for this theory. the results suggest that higher subjective norms lead to higher intentions of using online tax payment system (h3). the results also show that positive attitude towards behavior leads to higher intentions of using online tax payment system for filing current year or future year income taxes (h4). hypothesis h5, which suggests that there is a positive relationship between perceived behavioral control and behavioral intentions to adopt online tax filing system, is also supported. overall, the results suggest that higher subjective norms, positive attitude, and higher perceived behavioral control lead to higher behavioral intentions to adopt e-filing system. therefore, h3, h4, and h5 are supported. furthermore, it is hypothesized (h6a) that espoused power distance moderates the relationship between subjective norm and taxpayers’ intentions to adopt electronic tax filing. the study expects to find that the higher the espoused power distance, the larger the effect of subjective norm on taxpayers’ behavioral intentions to adopt online tax filing. however, contrary to h6a, significant but negative relationship is found. furthermore, yoon (2009) states that in low power distance countries, superiors and subordinates are interdependent because they are more likely to consider each other equal. given this interdependence, superiors and subordinates will exhibit more interpersonal trust. due to the increased trust, this study posits that the higher the espoused power distance, the smaller the effect of trust on taxpayers’ behavioral intentions to adopt online tax filing. however, contrary to h6b, significant but positive relationship between trust and behavioral intentions moderated by power distance is found. this suggests that the higher the espoused power distance, the larger the effect of trust on taxpayers’ intentions to adopt online tax filing. hypothesis 6b is not supported. furthermore, individuals with high espoused collectivism are more likely to be concerned about what group members have to say about their actions. therefore, the study posits that the higher the espoused collectivism, the larger the effect of subjective norm on taxpayers’ behavioral intentions to adopt online tax filing. however, results show no support for h7. hypothesis 8 suggests that the higher the espoused uncertainty avoidance, the smaller the effect of trust on taxpayers’ behavioral intentions to adopt online tax filing. however, contrary to h7, the results show significant but positive relationship between trust and behavioral intentions to adopt online tax filing moderated by uncertainty avoidance. this suggests that the higher the espoused uncertainty avoidance, the larger the effect of trust on taxpayer’s behavioral intentions to adopt online tax filing. furthermore, the study hypothesize that espoused masculinity moderates the relationship between the attitude and intentions to adopt electronic tax filing. udo and bagchi (2011) propose that individuals with feminine characteristics are more likely to assign greater importance to online service system because of the quality of work-life issue. therefore, the higher the espoused masculinity, the smaller the effect of attitude on taxpayers’ behavioral intentions to adopt online tax filing. however, contrary to this hypothesis, the results show significant but positive association between attitude and behavioral intentions to adopt online tax filing moderated by espoused masculinity. this suggests the higher the espoused masculinity, the higher the effect of attitude on a taxpayers’ behavioral intentions to adopt online tax filing. conclusion this paper examines the impact of espoused national culture on the individuals’ acceptance of online tax filing services in india. the study integrates the theory of planned behavior (ajzen, 1991), trust (gefen et al., 2003), professional skepticism (hurtt, 2010), and cultural dimensions (hofstede, 1980) to evaluate their influence on taxpayers’ intentions to file taxes electronically. specifically, this study examines the moderating effect of espoused national culture on taxpayers’ ! ! gupta et al. 29 ! intentions to file taxes online using either government or private vendor tax filing portals. to test the impact of culture, trust, skepticism, attitude, perceived behavioral control and subjective norm on taxpayers’ behavioral intentions to adopt online tax filing, several hypotheses are developed. partial support is found for the proposed hypotheses (table 5). this research enhances knowledge on adoption of electronic tax filing technology in a multicultural nation. it also provides insights on important policy implications for government of india in making technology diffusion decisions. findings from this research will help policymakers in making technology diffusion decisions in countries with diverse subcultural groups. in addition, this study provides guidance about the increased need for government efforts to enhance taxpayers’ knowledge of tax laws. enhancing taxpayers’ knowledge may be required before successful adoption of online tax filing system. references ajzen, i. 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(2008). household technology adoption in a global marketplace: incorporating the role of espoused cultural values. information systems frontier, 10(4), 403-413. ! ! gupta et al. 31 ! dr. gaurav gupta is an assistant professor of business-accounting and teaches accounting courses in the bba, mba, and msf programs at pacific lutheran university. he earned his ph.d. from the university of texas at el paso, an m.b.a. from pepperdine university, and a b.com (honors) degree from the university of delhi, india. he also holds cma designation from the institute of management accountants [ima]. dr. syed k. zaidi is an assistant professor of accounting at midwestern state university, wichita falls, texas. he teaches cost and managerial accounting courses. his primary area of research is behavioral accounting. dr. zaidi holds a ph.d. in international business with a specialization in accounting from the university of texas at el paso, an m.b.a. from california state university san bernardino, a b.s. from california state university long beach, and a b.b.a. from the university of peshawar, pakistan. dr. zaidi also holds cfe and cma designations. dr. godwin j. udo is a professor of information systems in the college of business administration at the university of texas at el paso. he holds a ph.d. in industrial management from clemson university. he is the author of over 120 research articles in the areas of technology transfer, computer security, it adoption and management, and decision support systems. dr. kallol k. bagchi is a professor of information systems in the college of business administration at the university of texas at el paso. he received his ph.d. in information systems from the florida atlantic university. prior to pursuing his is doctorate, he had earned a ph.d. degree in computer science from india. he has published in a variety of journals. his current research interests include it adoption and diffusion, values, global it, software engineering. uafs advances in business research 2012 lowrez (2).pdf ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 12 telework: identifying a personal dimension to work-related socio-technical theory cynthia ruppel, nova southeastern university leslie tworoger, nova southeastern university thomas tworoger, nova southeastern university this qualitative study uses socio-technical theory, which posits the interdependence of the social and the technical subsystems of work to view both the work and lives of managers in a fortune 100 multinational corporation. the managers in the study were leading global virtual teams from their homes with no dedicated corporate office. we found that balancing across both the work and personal socio and technical systems, as well as across the systems in their integrated personal and professional lives, is very complex. the managers appeared to tolerate these difficulties for the flexibility they perceive teleworking provided. the complexity and competitiveness of the global business environment has led organizations to look for every advantage and to expect “anytime, anywhere” work from their employees. increasing this complexity is the fact that many organizations have relocated workers from offices located primarily in corporate edifices into home offices, thereby necessitating that the workers balance their life and work roles. telecommuting in this study will be defined as using technology to allow employees to achieve their work-related tasks while located away from the confines of the organization (cooper, 1996). even though this type of “remote office work” (olson, 1983: 182) has been studied since the mid-twentieth century it has been the confluence of the availability of sophisticated technology coupled with the global nature of the business environment that has led to an expansion of this trend. the pervasive nature of technology coupled with the demands of 24/7 work has led to many recent studies concerning the impact of this ubiquitous technology on individuals. when the worker lacks the defined boundary that is provided by an office setting and works from home, this impact may overflow into the personal life of the individual, causing family conflict and contributing to the feeling of impossible work demands (turel, serenko, & bontis, 2011). perlow (2012) states, “although these ubiquitous devices put the world at our fingertips, and seemingly free us from the shackles of the office, they also invade our lives and psyches” (2012, para. 1). she continues, “together, we perpetuate and amplify expectations of each other and ourselves, making our own and our colleagues' lives more intense, more overwhelming, more demanding, and less fulfilling than they need to be” (2012, para. 6). this qualitative study uses the lens of socio-technical theory, which posits the interdependence and balancing of the work social and the work technical subsystems within organizations (trist, higgin, murray, & pollock, 1963), to view the work and lives of managers in a fortune 100 multinational corporation (mnc). these managers were leading a global virtual team from their “domestic workplace” and had no dedicated corporate office. the domestic workplace will be defined as “their home offices or any location made necessary by their work and life roles” (tworoger, ruppel, gong, & pohlman, 2012: 4). this study responds to a call for research on the long term effects of telework (taskin & bridoux, 2010). it also makes a contribution by proposing to expand the scope of sociotechnical theory called for by pasmore, francis, haldeman and shani, who state that as new work arrangements evolve because of technology “new methods of analysis will be called for” (1982: 1199). pasmore and colleagues, further, call for researchers “to pay closer attention to the development of technology and to better understand its impact on behavior” (p.1200). theory and research question the use of the socio-technical system theory (sts) originated with a study of coal-mining methods by the tavistock institute researchers in the 1950’s and 1960’s in great britain. sts addressed the introduction of technology into the enterprise and recognized that both the human and the technical aspects of the enterprise needed to operate as interacting systems (trist et al., 1963). the enterprise is comprised of two subsystems; the technical subsystem is “concerned with the processes, tasks, and technology needed to transform inputs into outputs” (bostrom & heinen, 1977: 17) while the social system is “concerned with the attributes of people (e.g. attitudes, skills, values), the relationships among people, reward systems, and authority structures” (bostrom & heinen, 1977: 17). indeed, it is the interaction of these subsystems that results in the outcomes of the organization. a basic premise of sts thinking is that “organizations that ‘jointly optimize’ the two interdependent subsystems are more likely to obtain positive outcomes” (patnayakuni & ruppel, 2010: 220). pasmore and colleagues (1982), stated that much of ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 13 the early work on the development of socio-technical systems theory was completed using “blue-collar industrial settings”; however, future evolution of the theory would reflect the “ever shifting demands of the environment” (1189), “white-collar populations” and “innovation in large systems” (1199). more than three decades ago, alvin toffler, discussed the relationship between technology and humans and proposed the home-based workplace or the “electronic cottage” (1980: 10). feldman and gainey (1997) expanded the concept by developing dimensions of telecommuting which encompassed those who work either full-time or part time, either flexible or set schedules, by themselves at home or with others in an off-site location, and finally those who are telecommuting at the behest of the organization or at their own request. depending on which of these types of arrangements are implemented, telework has been heralded as advantageous both to the organization and to the employee. the organization frequently profits from an improved image, sees reduced costs for real estate, and benefits from a distributed workforce more able to respond to global demands. correspondingly, the employee is frequently grateful for more control, autonomy and flexibility (kurland & bailey, 1999; taskin & bridoux, 2010; pyoria, 2011). the effect on workers’ quality of life was explored by shamir and salomon, who viewed the “work-at-home arrangement with some suspicion” (1985: 462). they point to the possibility of certain issues arising that are related to task: increased hours, lack of feedback, and lack of the feeling of task significance. on the social relations side of the equation they proposed that “social isolation,” “impaired socialization,” “impaired social reference base” and “reduced consideration” from leadership could be problematic (1988: 456). a study by morganson, major, oborn, verive, and heelan found that teleworkers faced increased “social isolation” (2010: 589). taskin and bridoux (2010) echoed the earlier concerns of shamir and salomon (1985) concerning telework stating that even though the benefits of flexibility and autonomy are heralded, they fear it will constrain knowledge sharing and transfer, social relationships, and shared values and goals within the organization. similarly, de sousa, pellissier and monteiro (2012, 47) defined business collaboration as a “…means [of] connecting people ideas and resources that would not bump into one another normally.” thus, does a traditional office setting present more opportunities to interact and thus stimulate creativity and innovation through collaboration, knowledge sharing and transfer? additionally, jaakson and kallaste noted that telework alters the psychological contract between workers and their employers by shifting “responsibilities from employer to employee” and this shift is “somewhat asymmetrical” (2010: 205). bryant (2000) probed gender issues related to telework and found that while the workers studied were able to configure their telework tasks to their personal situations, there were indications that control over the tasks, feelings of isolation and fragmentation were all still problematic. similarly, whittle and mueller’s research subjects acknowledged the benefits of telework such as flexibility, they also spoke of “isolation, disconnection, disaffection and cynicism” (2009: 131). hill, miller, weiner, and colihan (1998) conducted qualitative and quantitative analysis of ibm employees, both teleworkers and office workers, to examine productivity, flexibility and work-life balance. even though the results were mixed, implications were that organizations should select technology carefully, that training should encompass both the social and technical aspects of telework, and that teleworkers should focus on shutting down their work activities. this inability of the teleworker to disengage from work was the subject of turel et al.’s (2011) study. they found that the very technology that was to free workers from the confines of the organization, may now be leading to perceived work overload, addiction to technology and family conflict. technology has facilitated this move to distributed work and by virtue of the remoteness of the workers renders technical tools vital, ever present, and ultimately ubiquitous. the popular press contains warnings of addiction (richtel, 2012: b1), the blurring of work life boundaries (turkle & coutu, 2003: 43), alienation (turkle, 2007), stress (perlow, 2012), and depression and anxiety (dokoupil, 2012). similarly, emerging academic research also carries a cautionary tale about workers who are succumbing to “technostress” (gendreau, 2007: 191), “addiction-driven use of organizational pervasive technologies” (turel et al., 2011: 94), and “problematic” or “pathological” internet use “associated with substantial distress and dysfunction” (aboujaoude, koran, gamel, large, & serpe, 2006: 754). socio-technical theory was originally designed to frame the introduction of technology into an organizational setting (trist et al., 1963). the two interactive subsystems of sts, technical and social, will provide a useful framework to explore this increased level of complexity as workers have moved from the organizational setting into the personal setting of the domestic workplace. the following research question will guide this inquiry: research question: how do global virtual managers balance the social and technical systems while teleworking in the domestic workplace? ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 14 methodology the managers that served as the focus of this study were part of a high performing team within a fortune 100 mnc. the managers were leading a global virtual team to initiate a project that subsequently led to a company-wide reorganization. not only did the team receive recognition for this project, but the senior leader was recognized as one of the top managers in the organization. this team was comprised of one executive level manager who had led teams of as many as 16,000 employees, two senior level managers, one who had direct responsibility for the project and two mid-level managers. one of the managers suggested that we contact his spouse, who works for the same mnc, for a perspective of a dual teleworker home and we subsequently conducted that interview. all of the subjects had at least 10 years of experience with the company and three had been with the mnc for more than 20 years. all had previously worked in offices but had now made the transition solely to the “domestic workplace”. data collection and analysis in compliance with the human subjects review board all notifications and protocols to protect the subjects and the organization were observed. the interviews were conducted using research procedures outlined by miles and huberman (1994) and using a discussion outline to guide the interviews. the recordings of the interviews with the managers were transcribed verbatim and reviewed by the researchers for accuracy. subsequently the interviews were summarized and returned to each manager to verify our interpretation of their comments (priest, 2002). their positive feedback indicated that we had correctly interpreted their responses. the data was then analyzed by the researchers and two trained research assistants using techniques suggested by creswell (2007) and miles and huberman (1994). coding schemes were developed from the frequency of key words and themes. the researchers agreed on categories to which over 545 passages were assigned by the researchers for further review. two trained research assistants independently reviewed the 545 passages and assigned them to categories which were then used to develop a frame for the data. in addition to the individual interviews with the managers, the research team observed the managers during meetings about their initiative at a regional headquarters office, attended an evening work-related dinner, and conducted subsequent follow-up emails regarding data and its analysis. two additional validation steps were undertaken. first, the senior level manager in the study reviewed an early version of a paper and felt it accurately presented the situation. second, two managers, one senior level and one executive level who worked for the mnc but external to this project, confirmed that our interpretation of the data accurately reflected their similar experiences working in the organization. secondary data from multiple sources was collected including the mnc’s website and articles in the popular and academic press about this organization and used to validate the researcher’s interpretations of working in the mnc. findings this mnc was among the early adopters of telecommuting at the corporate level. the organization decided to increase productivity by reducing real estate costs by over a period of time eliminating corporate offices and allowing workers to telework. we felt it was important to identify how these employees became global, virtual managers to contextualize their attitudes towards telework. they responded: i started working from home because i had a handicapped child, and it was too hard … it was just too stressful. so i asked them to allow me to move my office to my home. the others had a less defining moment but they told a story similar to this one: it morphed it really wasn’t a decision it just kind of happened. workload to examine the work system it is important to understand what the components of the current work system are and how they interact. the first one we examined is workload. the respondents felt the workload seemed to be never ending. there have been periods in my life where it’s thursday, and you’ve realized i haven’t even been outside since monday, and it’s very unhealthy. i mean, you’ve got to really watch it, or you just work straight through. ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 15 i think everyone has much more work than can possibly get done, and demands on requesting more of our time, or demands, or requests coming in to help with something else you know constantly so there’s always things that are going on there’s the one where you have more work than you can possibly handle. when i get back in [from client site and meetings] at ten o’clock at night, i’ve got 200 emails sitting there from they’ve collected all day. no way to get it done. so you just do what you can. you work for a couple hours (you may work from ten to one). you go to bed, and you start it all over again the next day. after a while you know, it’s tough. and everybody works on the weekends, so that is kind of tough. you can literally work from anywhere, and so the work’s always there at all the time. i could work 24 hours a day 7 days a week and i never would have caught up. the combination of an anytime, anywhere ability to work, when combined with endless tasks to accomplish, resulted in making balancing the socio system and the technical system difficult for the managers as well as making them susceptible to techno-stress. when interviewing the wife in the dual teleworking couple we inquired about the manager. she stated he had taken the day off. however, what she said next was illustrative: no, actually he took off today he went turkey hunting… but he called he actually pinged me because he brought his computer and was working from the car because it was raining so, he was checking mail. even when taking a “day off” he took his computer with him making his technology ubiquitous. another manager mentioned taking his computer on vacation with his family and getting up early to deal with email before the rest of the family awoke. this constant workload resulted in some manager’s exhibiting behavior similar to the manager identified by a respondent and described as follows: jimmy’s online all the time. jimmy never shuts down to say it’s think time. and you can tell by the way he manages. he manages in react mode. he doesn’t manage in a proactive way, and say, “let’s put a plan together, and what are we doing?” it’s, “i’m always there to be called upon,” and if you’re always there, you’re going to be called upon. clearly this makes it difficult if not impossible to maintain optimal systems balance. to avoid mimicking jimmy’s behavior, a majority of our respondents mentioned the importance of a conscious effort to prioritize tasks to deal with the constant workload, and thus lead to optimal balance of the work-related socio-technical system. you need to know which balls you have that you’re juggling that are rubber and which ones are glass which things you have to take care of now. you have to be really good at prioritization. i need to be able to be comfortable with what i’m getting done, and what’s not important to get done today. so my point is there’s always work to be done. when your office is 12 steps away from your kitchen, and i’m in the basement, it is extremely tempting and it took me a long time to get those boundaries defined that i’ll be done. you know, “debbie i’m going to run downstairs just to take care of something.” and then you get done (with) this, and while i’m here, i might as well do this, or i’ll do this. it really can lend itself to becoming a workaholic easily because it’s always there your files are there your computer is there. you make appointments with yourself … because you can work all the time from anywhere … there were times in my life where i just worked all the time. i would fill up every single hour of every single day because i could, and i still could, literally work from anywhere. and so the work’s always there all the time. one manager summed it up by asking: where does work begin and end? the 24 hour nature of managing job tasks carried out by global team members, and their information-related needs also appeared to contribute to the difficulty of finding not only the optimal work socio-technical balance but also the optimal personal socio-technical balance. one respondent stated: …i’ve had jobs where part of my responsibility was managing india. i could start a call at 4 o’clock in the morning, and you just do it. there’s a tremendous amount of conference calls in this lifestyle. ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 16 integration of work/life the need to multitask we found that as part of balancing all the activities that take place simultaneously in their lives, often 24/7, the global virtual managers reported engaging in a significant amount of multitasking across both roles. they appear to be integrating both work and life tasks. because people used to say, “there is no balance.” it’s infusion. so how do you essentially infuse work into life life into work. …right now i can drop them off at school, and i can be on a call before i drop them off or as soon as i leave the parking lot, and depending on my schedule, i can pick them up and bring them home. you have to struggle about balance. i mean, you need to get outside, you need to get some fresh air, and you need to get to the gym. i mean, quite honestly, last year i bought an elliptical, and i have it in my basement so while i’m on these long, boring conference calls, i just jump on there and workout while i’m listening because that’s one of the ways i cope. my wife and i just finished putting an addition on our house on any given day, she could find me in the closet or wherever it was quiet to do the call. so you do have those environmental things you have to take into consideration, as well as you know, you have a storm knocks down the telephone line. you’re disconnected you know, electricity goes out. but, most people, when they leave the office, they leave the job they come home their family life is completely separate. but, it is different when you work from home. the two are much more integrated. when interviewing the manager’s spouse over the phone, we found that the interviewee was providing us with an example of the extreme multitasking that takes place. while we were conducting the interview she excused herself to answer a call, answer the door and she subsequently told us she was on a conference call at the time we were conducting the interview. during the other interviews, which were face-to-face, no multitasking took place so this was an illustration of what occurs in their daily lives. 1) hold on i’ve got to tell i’m (pause), just one second i have to tell someone that i’m on a call. 2) …home (doorbell hold on just one second)… okay, i’m sorry. 3) i’m in a meeting right now with over 40 people at the daily chat that we have regarding some testing that’s going on and there are people on the chat room all around the world. balancing socio and technical systems despite the fact that we asked little about their personal lives and focused on working virtually/teleworking, since the managers had integrated/infused the two together, their responses made clear that they appear to link them tightly together, perhaps even unconsciously. we saw references in their answers to not only balancing the socio system and the technical system in their work lives, but also in balancing the socio and technical systems in their personal lives (see figure 1). figure 1: traditional socio-technical systems socio-system technical-system personal work socio-technical theory socio-technical theory ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 17 when analyzing the data we found it difficult to separate the personal systems from the technical systems due to the large amount of integration occurring. traditionally, the boundary between the personal socio and technical systems, as well as the work socio and technical systems, has been relatively solid due to time (set work hours) and space boundaries (corporate offices). however, when working virtually these boundaries appeared to be becoming more permeable while moving towards nonexistence (figure 2). workers are now trying to balance the personal socio-technical system and the work socio-technical system as well as to balance across the two since the boundaries between work and personal has become permeable (indicated by broken dashed lines) due to integration/infusion. this shift is supported by a respondent’s use of the term “work/life infusion” rather than integration. figure 2: socio-technical systems identified in virtual workers socio-system technical-system personal work socio system work issues …in person, not only do you speak words, but your body speaks language, your face shows expressions you lose all that when you’re working virtually. remotely, they can be in a terrible mood, and they can just say, “hey, i’m sorry, but i’ve got too much going on,” or whatever, but it’s different in person. …yesterday i was in atlanta teaching a group of people about what we do, and i met one gentleman for the first time face-to-face he’s worked with me for five years. one of my best friends, we didn’t meet for the first five years of our friendship, and she lives a town away from me yeah we became best friends over instant messaging. you know, we worked together every day we talked every day and before you knew it, five years had gone by, and i still had never met her in person. you still form, umm, the relationship, but you’re just i don’t think it takes you to the part where you’re friends outside of the office. you kind of don’t at least i haven’t experienced that. you might say, hey, let’s get together sometime, or whatever and i have this one guy that i work with too, and i’m like, you know, we keep saying, we’ve got to get together, you know umm, he loves dogs, and i’m like, you’ve got to meet my mudge mudge would love you and it just never happens. but we still, you know, i mean, i still consider him a friend just a work friend that we wouldn’t necessarily become personal friends. while patterns of interaction have changed, there is also a limiting effect on interactions resulting in a sense of isolation: cnbc, cnn, msnbc honestly, i think it’s my interaction now. it’s not so much with other [company employees] with the media what’s going on in the world. so, i may have a tv going on, you know, in the background at low levels, and i’m doing this, and if i’ve got some down town i’m, well, what’s going on in the world type of socialization. another agreed: i have a tv downstairs [where office is located], and i’ll just throw on cnn because it’s just another voice, or just some because it can get really lonely. working from home was very difficult for me for a lot of reasons. number one it’s very lonely i mean you feel very disconnected. socio-technical theory socio-technical theory ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 18 a sense of isolation is not the only reason for at least some amount of face-to-face contact. short timelines, increased synergy, increased collaboration and increased efficiency are also reasons to replace at least some amount of teleworking with face-to-face meetings. …none of us are distracted because we are in the room together, and we are just much more efficient that way, and there are times, and last year in some of the task forces that i was running, we insisted even if we had a travel freeze we had special permission to get together and just get it done – because we had to continue and we had so much to do, it was very difficult to do virtually. but that’s a tough one because the people i work with are all over the world, so the odds of us being able to get into an office we have to make it happen and travel to make it happen. if we were all in the same office with the group we’re working with, we could have just plugged through what we needed to get done. and now, we’re ending up scheduling additional calls and working more on it than i think we probably should but it’s more about getting buy in from some of the pricing team that doesn’t agree with things. i enjoy being around people. i get very energized being around people; it’s fun you know the give and take the brainstorming that can go on in a room and the energy i loved all that. i enjoy being around people. i missed the people and the energy being around them. technical system work issues to sit on a conference call for five hours, it’s deadly. and especially and then somebody invariably will start writing things on a board, and you’re going, “hello can’t see it you know,” or the phone’s down at that end, and you can’t hear them that’s challenging. i think executives especially are reluctant to use that tool [instant messaging] just because you can get so much going at one time so you lose control of your ability to manage your time. i know some people really like it. it’s just different styles. we all adapt to our different styles. i personally you know, most people know if i get on the system then i’ll soon get a note, “hey, surprised to see you on [instant messaging],” “yeah, (laughs) you’re right, and i’m not going to be on here long. that’s a big problem for with instant messaging and the phone right there and the cell phone, the land line, and instant messaging all these vehicles with which they can interrupt, and that’s where i do on my calendar is go in and block sections of a day. i go and block two or three hours, and i shut down, you know, communication with the world so i have some think time. …there’s no need to explain and no need to see the emotions on each other’s faces. it’s just so much easier. it does take a lot of the stresses out of the equation. i rather enjoy it. technical system life issues and we use all of it we even, you know, home numbers. every time i walk by the kitchen table because that’s where my pc sits (remember), there’s email always available. you end up just knowing that you’re never going to keep up with it. when you’re in an office, no one thinks anything of you taking a break, or going to get a cup of coffee and sitting in the cafeteria and chit-chatting those same things happen at home, and i don’t ever expect someone to be sitting at their desk every minute of every day. socio system life issues including family you know, an interesting point for me is my wife also works for [same company] and also works from home. so she’s in the kitchen i’m in the office. and honest to god folks, we do instant messaging do you want to have lunch? let’s meet in the kitchen for lunch type of thing (laughs). ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 19 mommy’s on the phone they don’t … recognize that i have a phone up to my ear and they just start talking to me, because it can be constant so i have to work hard to separate it when they’re there. i can’t always do that, but i try to just focus and not be online at dinner time ... so i think they just view it as …a natural part of what i do a natural part of their life. …the disadvantage i would say is, to be able to put the boundaries around and say, now i’m finished working, and now i’m going to go focus on my family. but that’s very important because i’ve seen what it’s [burnout] done to people. more importantly, i’ve seen what it’s done to families. for the people that can master it, they love it because you know, my wife can go out, and i can be home while the baby’s sleeping, it gives her more independence. or she can take a part-time job or whatever it is, i can be, and in fact, if you do it right, i can be more present. i can be more present to them in their life now. it also takes some guts because sometimes you have to say no to people who don’t want to hear it (like your manager), and say, “i can’t make that meeting.” if i get on a plane and go away for two or three days, you know, she gets some time alone i get some time alone, and we come back together for the better, so we had to do some adjustments in our marriage in our personal lives in our relationship because we’re on top of each other all the time. he went on to say: [it] developed into a these are my chores that are related to the personal life these are her chores every day, and we’ve kind of matured into that kind of evolved into that kind of relationship. i think first and foremost, having nothing to do with business, you need to know yourself. you need to know what’s important to you. for me, umm, i am very devoted to my family. they’ve [agreements] just emerged. and it’s not something we’ve ever really sat down and talked about. i mean, we do ask each during the day, “what does your day look like,” you know, if he’s got calls all day then i know he’s going to be in his office all day. but i don’t think of it that way. it’s really more of a question of, “what’s your day look like?” (pause) and then, there are times when i’m just swamped, and we will have to sometimes he’s got to go get our son from school if i can’t if i’ve got a call and i have to be at my desk, he’ll go get our son and vice versa. it’s just across the street, so it’s not a big deal. alternately a respondent, who is single, felt that while she did not have to balance family activities she had difficulties optimally balancing the systems by shifting activities to a partner. i’m single, and i don’t have another person that can go and do all that other stuff that still has to get done. when analyzing the data we found it difficult to separate the personal systems from the work systems due to the large degree of integration occurring. traditionally the line between the personal socio and technical systems and the work socio and technical systems has been relatively solid due to time (set work hours) and space (corporate offices) boundaries. however when working virtually, these boundaries appeared to be highly permeable (figure 2). organizational support another issue which impacts a teleworker’s ability to balance the socio and technical systems of work is the lack of support received relative to what is available on-site in an organization. this issue was mentioned by a majority of the subjects without prompting. it appears that the burdens of maintaining balance, including cost considerations, have been moved from the organization to the employee. a wide range of issues were mentioned: … there are some things in the office environment that – you know you don’t have to clean the office. … it doesn’t happen at home that way. … i’ve got to empty my own trash. when i worked from the office, you can get up and turn the air-conditioner down or way up so it wasn’t running all day long while you weren’t there, and you can turn the lights off so part of that cost [the company] pushed away, landed in my lap. ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 20 they were laggards … it’s only been in the last year and a half that they actually kind of, begrudgingly had help desk support you could call help desk numbers. … up until a year and a half, if you had wireless at home, we don’t support that … they were certainly organized to support the office -not necessarily to support the home. so if i‘m home now, and i am working on my printer (and i am not technical at all) and that printer breaks. for a lot of us that was tough. i mean, that was a real pain in the neck because like, where do you take it? … so even from the technical standpoint, it was a pain in the neck getting your phone line set up at home and making sure they go into a phone mailbox working with at&t it was all that “tactical” stuff i’ll call it. umm, eventually you start to find different ways to cope or to deal with it. optimized outcomes? perceptions of productivity since socio-technical theory is concerned with jointly balancing the socio and technical systems to produce the optimized outcomes, we examined the outcome of productivity since it is the one mentioned most frequently regarding telework. relative to an office setting, one respondent’s view of productivity was: i’m probably more productive because i’m much happier; while others suggested: i think that the company benefits greatly. i think they get more out of us than they would if we were sitting in an office because you know that time spent when you need to go take a break and sit in the cafeteria and chit-chat you know, either you stay late to make up that time or you leave, and most people would leave at the same time every day. so, you’ve lost that time. but there are still a handful of executives who still believe we lost a tremendous amount of productivity. i don’t think it’s a productivity issues as much as i think it’s a loyalty issue. i think it’s a connectivity [why do they think you’ve lost productivity?] because they’re the old school, and they think if you’re not sitting next door to me, i don’t know what you’re doing. [they have no no no actual quantitative proof] it’s gut, it’s all gut. one source of increased productivity, which is not the result of joint optimization, surfaced when we inquired concerning how the commuting time employees saved was allocated. we were told: yes, those three hours went back to [the company name]. flexibility despite the fact that the commuting time gained, the real estate cost savings and the cost of providing support services have all benefitted the organization rather than the teleworker, the managers do not wish to return to the office environment. if somebody said, “you can work from the office or you can work from home,” i wouldn’t go back to an office. it’s so second hand to me it’s just natural; it’s so natural for me now i can’t imagine doing anything else. i’m a big fan of working from home. another when asked about returning to a corporate office stated clearly: i would hate it. so, it would be very tough to have to go into an office, and that’s one of the things i think about if i were ever offered a job in industry to have to get up, get dressed and go to the office the same office every day, without having a lot more flexibility or just different types of things that i do every day or places i need to be it would be tough for me to do now. it appears that these teleworkers felt that working from home gives them greater flexibility both in balancing work life and personal life, as well as in balancing the work-related social and technical systems. we relate the flexibility described to the autonomy that pasmore et al. (1982) found often occurs in sociotechnical systems experiments. ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 21 so, working from home is interesting because it does offer you flexibility which is great, and i’m used to it now. actually, i prefer it now. and so, just by the fact that i’m home, i can, you know, at 11 o’clock, if i’m like oh my god, i’m running out of bread and milk you know, i can do a quick run. i can block my calendar from 12 to 1 because i’m going to my daughter’s kindergarten class and read a book to her class. … i can go to soccer at 3 o’clock, and i can do my work at night. so, that flexibility is phenomenal in terms of and that’s one of the best things about [working virtually]. but, i’m so used to the flexibility, and you know, you go wherever you need to go, but if you don’t need to go anywhere, i go five feet to my kitchen counter to work. discussion we found that the respondents were balancing their personal socio and technical systems as well as their work socio and technical systems from the same place and often at the same time. this integration of work life and personal life resulted in the managers also balancing across both the personal and work socio and technical systems results in a very complex set of interrelated systems to be balanced. the managers appeared to accept these difficulties in exchange for the perceived flexibility they believed teleworking provided. we propose that what is perceived as “flexibility” is actually the ability to balance across the personal socio technical systems and the work socio technical systems. this is achieved through the integration of activities in these systems by the managers. thus, the research question, “how do global virtual managers balance the social and technical systems while teleworking in the domestic workplace?” has a complex and somewhat person-specific answer represented in figure 2. for each person there is a personal comfort level of what “balance” and “joint optimization” entails. workers may now work along a continuum ranging from working only in an office setting, to rarely or never working in a traditional office, substituting other locations ranging from clients sites to homes. we have studied workers near the high endpoint of this virtuality continuum, those who work in the domestic workplace and have no formal corporate office. while some of our findings are common to other teleworkers depending upon their point along the continuum, these finding led us to develop a formal definition for the ‘domestic workplace” beyond simply a location that is not the organization’s formal office site. we can now define it as work locations where boundaries are permeable and work and personal activities are, or can, be integrated. this includes not only locations in their homes and client sites, but also locations such as a child’s school, sports fields, vacation locations, or hunting sites, all of which became ”work” locations as described by our respondents. in addition, the global nature of the teams our respondents managed meant that the work flow continued and often required the attention of the manager 24/7. this is difficult to accomplish in a corporate office setting. our results suggest that at this low endpoint of the virtuality continuum, attaining optimal balance is nearly impossible without integrating both personal and work activities. this integration of the systems, particularly when not balanced optimally, leads to the type of impacts cited in both the popular and academic literature previously discussed such as addiction. according to turkle, we need to “separate from our technology” and this “means turning off our devices, disengaging from our always-on culture. however, this is not a simple proposition, since our devices have become more closely coupled to our sense of our bodies and increasingly feel like extensions of our minds” (2007, para.10). these managers felt the need to have work technology ever present, even on hunting trips. given the respondents’ workloads, anything which encourages addictive behavior exacerbates the issue. our respondents were educated, high performing managers who would appear to be equipped to cope. yet, we wonder if these individuals, while appearing to cope, are achieving their full potential? alternatively, will they “burnout” over time, making them ultimately less productive and contribute to an organizational loss of intellectual capital? future research should attempt to predict whether these issues will be recognized and minimized. organizations need to recognize the issues, raise awareness and take proactive steps to avoid these outcomes. longitudinal studies of virtual workers and ways to support them should be a priority as this trend increases. at the time of data collection the majority of our respondents were positive inclined towards telework due to its perceived “flexibility”, without fully and consciously recognizing the impacts of teleworking from home. thus, they were not willing to return to the office. we heard “you know, umm, and that’s interesting” and “you know, an interesting point for me”, “you know, it’s interesting because”, and “that’s an interesting point” in some form 61 times across all respondents. this suggests that in their busy, integrated lives they had not reflected upon the reality of what was occurring as they juggled seemingly endless commitments. as researchers we had to ask ourselves ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 22 whether: when a manager has to be reminded that they should stop working while at the deathbed of a parent, when workers look up from work only to notice four days have gone by and they have not been outside, when they exercise while on conference calls, when they forget to shower because of work demands, and when they look to the tv for companionship, have their boundaries become too permeable and does the necessary socio-technical balance exist to facilitate optimum performance? it is time to revisit the assumptions that underlie socio-technical theory as suggested by pasmore et al (1982). no longer are workers in coal mines (trist et al., 1963) or office settings, where the organization can control the sociotechnical aspects of work. now it falls to the individual with appropriate organizational support to shape his/her integrated personal life and work life. our proposed model suggests that in highly virtual work the traditionally distinct dimensions of work and life are merging, yet both require their socio-technical systems be balanced to be optimized. due to the level of integration of life and work these managers experienced, it made it difficult for us to separate the data cleanly as belonging to the personal socio and technical systems and the work socio and technical systems. given the workload pressure and the comfort level the managers had developed for using technology, as well as multitasking constantly and not wanting others to know they are multitasking, several respondents indicated that using video conferencing was not desirable. they felt this would interfere with their ability to balance the systems to personally optimize them. will being forced to use technology for working virtually, and then integrating life at the same time, suggest that these work habits will become indistinguishable from personal habits? we have some anecdotal evidence suggesting this possibility requires further study. further, the impact of the reduced ability to easily collaborate on future creativity and innovation should be examined. we have identified socio-technical theory as an appropriate lens through which to view work/life balance, illustrating that when work and life are integrated the system as a whole becomes increasingly complex and more difficult to consciously balance and optimize. this new approach takes into account the reality of the increasing role technology plays in our personal and work lives today. implications for practice when organizations employ highly virtual workers, the organization no longer directly controls or facilitates optimal joint systems balance attainment and thus the system outcomes. our respondents indicated a lack of support and training being provided to them by the company. this included the additional managers from the same organization, who while not part of the team interviewed, were those who validated our findings. these managers substantiated the lack of support and training in their comments. a manager quoted her mentor who said, “each person’s definition of work/life balance is different, but it’s the right definition for them.” thus, it would be difficult for an organization to provide individuals with specific personal guidelines, despite their vested interest in the maximizing outcomes. virtual workers require support and training which should include increasing situational awareness and consciously making choices concerning a personal definition of balance. also included should be how to avoid pitfalls such as technostress and other adverse health effects. as discussed in perlow’s (2012) research, organizations and workers can first recognize the issue, and then begin facilitating discussions among teams and work groups to make it possible for workers to be “off” and to make conscious choices about how they work. further, organizations need to realize that mixed messages are given. despite espoused organizational calls for maintaining work-life balance, the 24/7 work demands are often greater than can reasonably be expected and ubiquitous technology provides an opportunity to overwork this makes optimally balancing the systems increasingly complex and reduces the chances of positive outcomes such as high productivity levels. references aboujaoude, e., koran, l., gamel, n., large, m., & serpe, r. 2006. potential markers for problematic internet use: a telephone survey of 2,513 adults. cns spectrums, 11(10), 750-755. bostrom, r., & heinen, j. 1977. mis problems and failures: a socio-technical perspective. part i: the causes. mis quarterly, 1(3), 17-32. bryant, s. 2000. at home on the electronic frontier: work, gender, and the information highway. new technology, work, and employment, 15(1), 19-33. ruppel, tworoger, and tworoger advances in business research 2012, vol. 3, no. 1, 12-24 23 cooper, r. 1996. telecommuting: the good, the bad, and the particulars. supervision, 57(2), 10-12. creswell, j. 2007. qualitative inquiry & research design: choosing among five approaches. thousand oaks, ca: sage publications. de sousa, f., pellissier, r., & monteiro, i. 2012. creativity, innovation and collaborative organizations. international journal of organizational innovation, 5(1), 26-64. dokoupil, t. 2012, july 9. is the web driving us mad? 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(2007, may 7). forbes. retrieved from http://www.forbes.com/free_ forbes/2007/0507/176.html. turkle, s., & coutu, d. 2003. technology and human vulnerability: a conversation with mit’s sherry turkle and diane l. coutu. harvard business review, 81(9), 43-50. tworoger, l., ruppel, c., gong, b., & pohlman, r. 2012. leadership constraints: leading global virtual teams through environmental complexity. in press. whittle, a., & mueller, f. 2009. ‘i could be dead for two weeks and my boss would never know’: telework and the politics of representation. new technology, work, and employment, 24(2), 131-143. cynthia ruppel is an associate professor at nova southeastern university. she received her ph.d. in mis from kent state university. her research interests include telecommuting, ecommerce, supply chains, and virtual teams as well as innovation adoption and diffusion. she has published in ieee transactions on professional communications, database, journal of the ais, information resource management journal, and information systems frontiers. leslie tworoger is an associate professor of management at nova southeastern university. she received her d.b.a. in business administration from nova southeastern university. her research interests include telecommuting and virtual teams as well as innovation and change. she has published in international journal of ecollaboration, journal of applied management and entrepreneurship and journal of organizational culture, communication and conflict. tom tworoger is an associate professor and chair of the entrepreneurship department at nova southeastern university. he received his dba from nova southeastern university. his current research interests include entrepreneurship, microfinance, and leadership. he has published in journal of leadership & organizational studies, journal of business and leadership, academy of information management sciences journal, and the academy of information and sciences journal. microsoft word 135-final.docx http://journals.sfu.ca/abr advances in business research 2016, volume 7, pages 91-103 91 testing the effect of lmx and hr system strength on employee and work unit outcomes brian martinson tarleton state university john deleon tarleton state university a single, large organization with a uniform set of hr practices, was used to test a model predicting that hr system strength (hrss) and leader-member exchange (lmx) variables will predict employee perceptions of hr practices (hrpp), which in turn predict employee job satisfaction and work unit performance. the study findings suggest that hrss and lmx are positively related to variance in job satisfaction and work unit performance, and that part of the variance is related to work unit supervisors charged with implementing hr practices. the proposed relationships were analyzed using structural equation modeling. keywords: lmx, hr system strength, job satisfaction, performance introduction in 1998 the gallup organization collected data from over 2,500 business units of 24 companies and gathered responses from 105,000 employees in an attempt to identify what a “strong workplace” looked like (buckingham & coffman, 1999). through their meta-analysis, they identified six questions having the strongest relationship with four separate measures of firm performance. all six questions were evaluations of the employees’ interactions with their supervisors, leading gallup to conclude that the single greatest differentiator of firm performance was the relationship between frontline employees and their first-line supervisors. a considerable amount of research has been conducted by strategic human resource management (shrm) scholars on the relationship between people management practices and firm performance, both before and after buckingham and coffman published their results in the new york times’ best seller , “first, break all the rules” (mcgregor, 2007). however, research related to the effect of variance in supervisor’s implementation of hr practices is fairly limited. another critical issue within the shrm research area has been the challenge put forth by research scholars to improve the methodological approach to measurements used in the practice-toperformance research stream. three of the most frequent and critical calls for improvement have been for the utilization of multiple sources of respondents to improve reliability, use of more proximal measures to improve validity, and the explication of what goes on in the “black box” between practice and performance to better understand how hr practices actually bring about increased performance (boselie, dietz, & boon, 2005; gerhart, wright, & mcmahan, 2000; gerhart, wright, mcmahan, & snell, 2000; huselid & becker, 2000, 2011; p. m. wright & boswell, 2002). lmx and hr system strength 92 this article seeks to contribute to the shrm research stream by presenting a model and testing it with a methodology addressing several of these critical issues. specifically, it is proposed that in order to measure the hr practices that actually influence employee behaviors, researchers need to measure the practices at the individual employee level. it is further proposed that hr practices are related to performance through job satisfaction, and a more proximal measure of the effect of hr practices is made by measuring employees’ perception of the practices as their awareness and evaluation is required in order for the practice to have its intended effect on employee behaviors. employee perceptions of, and experience with, hr practices comes primarily through their interactions with their supervisor. to test these proposals a model predicting a positive relationship between leader-member exchange (lmx) and employee perceptions of hr practices is presented that proposes a positive relationship between employee perceptions of hr practices and job satisfaction, and ultimately, a positive relationship between job satisfaction and work unit performance. to improve the reliability of the results, the model is tested with a single, large employer guided by a uniform set of hr policies and practices across 90 units and 40,992 nonsupervisory employees. following is a review of the literature, presentation of the model, description of the methodology, and the results of the analysis. this article ends by summarizing the results and discussing the limitations of the study and offering suggestions for future research. strategic human resource management and firm performance strategic human resource management studies are primarily concerned with understanding the relationship between firm strategies, human resource systems, and financial performance (becker & huselid, 2006; p. m. wright & mcmahan, 1992). the ultimate objective of shrm studies is to identify sources of competitive advantages brought about by the design and implementation of human resource systems (delery & doty, 1996; huselid, 1995; macduffie, 1995; mcmahan, virick, & wright, 1999; p. m. wright & mcmahan, 1992; p. m. wright, mcmahan, & mcwilliams, 1994). shrm studies generally take one of two paths: one considers the relationship between individual, unit, and firm level employee attributes that comprise human capital resources and various measures of individual, unit, and firm performance. the other investigates the relationship between the existence of human resource management practices and firm performance (boselie et al., 2005; p. m. wright & mcmahan, 2011). this study focuses on the practice to performance research stream of shrm. hr practices since huselid’s (1995) seminal study in which he hypothesized that aligning a system of high performance work practices (hpwps) with competitive strategies leads to reduced employee turnover and increased productivity and corporate financial performance, the practice-toperformance model has inspired well over 100 published empirical studies (boselie et al., 2005). huselid’s 1995 study used 13 practices identified by the us department of labor (1993) as contributing to successful employee management and identified two key factors associated with employee turnover and productivity. they were employee skills and organizational structures, and employee motivation. in addition, he found that a one-standard deviation increase in hpwps was associated with a 7.05% decrease in turnover and $27,044 more in sales and $18,641 and $3,814 more in market value and profits on a per employee basis, respectively. the impact of huselid’s (1995) findings suggesting that substantial financial benefits were associated with the use of hpwps had the twin effect of focusing the shrm research field on the practice-to-performance model almost exclusively, and stimulated ruminations on the methodology employed to measure hpwps. it also stimulated contemplations regarding the implied causality of martinson and deleon 93 hpwps leading to performance, which has yet to be solidly addressed with the exception of schneider, hanges, smith, and salvaggio (2003) who make a compelling case for firm performance leading to the use of some hr practices (cf. boselie et al., 2005; combs, liu, hall, & ketchen, 2006; gerhart, wright, mcmahan, et al., 2000; p. m. wright & boswell, 2002). as discussions over methodology and causality continued, scholars were busy searching for further support of the proposition that systems of hpwps could yield improved performance. combs, liu, hall and ketchen (2006) published a meta-analysis of 92 practice-to-performance studies in which they found an effect size of .20 suggesting that 20% of the ability to predict performance differences among separate organizations could be attributed to their use of hpwps. their study also suggested that a one standard deviation increase in the use of hpwps could translate into a 4.6% increase in roa and a 4.4% decrease in turnover. their meta-analysis focused on 13 most commonly studied practices including: incentive compensation, training, compensation level, participation, selectivity, internal promotion, hr planning, flexible work, performance appraisal, grievance procedures, teams, information sharing, and employment security. sustained competitive advantage and human resource systems the dominant theory supporting the majority of hr practice studies is the resource based view (rbv) of the firm (boselie et al., 2005). organizations seek to survive and thrive by attaining a sustained competitive advantage over their competitors though resources contained within the organization. shrm scholars have argued that both human capital and hr systems are resources that meet the rbv criteria for achieving a human resource based competitive advantage (cf. lado & wilson, 1994; mcmahan et al., 1999; p. m. wright, dunford, & snell, 2001; p. m. wright & mcmahan, 1992; p. m. wright et al., 1994; p. m. wright, smart, & mcmahan, 1995). rbv posits that four attributes of a resource (or capability) can provide a sustained competitive advantage given that all four are present in a particular resource. a resource must be valuable, rare, imperfectly imitable, and non-substitutable. furthermore, the introduction of the vrio framework (cf. barney, 1995; barney & wright, 1998) adds that to achieve a competitive advantage, an organization must be capable of exploiting its resources through systems and practices designed to enable the organization to maximize the utilization of their resources. the rbv provides a strong explanation for how one firm may create a strategic advantage over another firm through the acquisition and development of human capital and the design and implementation of hr practices to manage human capital. however, more is needed to fully understand the linkages between people, practices and outcomes. scholars have begun to develop theories addressing how hr practices are implemented, how they influence individual behaviors, and how practices interact with dimensions of individual attributes of human capital to yield performance improvements. the following is a review of two theories that guide this study: hrss and leader-member exchange (lmx). human resources system strength bowen and ostroff (2004) introduced a construct called hr system strength (hrss), a dimension of an hr system that signals to employees in a way that helps them to clearly understand desired and appropriate responses to given workplace situations. hrss helps organizational members form a collective understanding of the norms of behavior. based on the psychological principle of situational strength, it encompasses the extent to which workplace situations induce conformity (individuals interpret and react similarly), or are interpreted as ambiguous (individuals display a variety of interpretations and responses). hr system strength creates an organizational climate that is defined as a shared perception of organizational practices, policies, procedures, lmx and hr system strength 94 routines and rewards. ostroff and bowen define hrss as, “a strong hrm system contains process mechanisms that make the set of practices coherent, salient and distinctive, and visible and understandable, the result of which builds consensus among employees about the practices and allows for shared perceptions of climate to emerge.” (ostroff & bowen, 2015 p. 3). according to bowen and ostroff (2004), hr practices operate as communications from employers to the employees. hr practices are designed to help firms acquire and develop employees’ knowledge, skills, abilities and motivations in ways that support the implementation of organizational strategies. to create a strong situation the hrm system must be perceived as high in distinctiveness, consistency, and consensus. the characteristics of hrm associated with distinctiveness include: visibility, understandability, legitimacy of authority, and relevance. consistency is defined as establishing an effect over time through the use of different modalities. this is achieved through instrumentality (unambiguous perceived cause-effect relationships), validity (consistency between what they purport to do and what they actually do), and consistent hrm messages (compatibility and stability in the signals sent by the hr practices). the third characteristic of a strong situation, consensus, is the result of agreement among hrm decision makers (message senders), and perceptions of the overall fairness of the hrm system. fairness, according to their framework, is determined by the system being congruent with principles of distributive, procedural and interactional justice (bowen & ostroff, 2004). increased levels of hrm system strength leads to increased uniform interpretations of messages and events that transpire in the workplace, and in turn, leads to the development of shared understandings and mental models resulting in greater alignment between intended and perceived policies and practices. they also serve to create an “influence situation whereby individuals yield to the message and understand the appropriate ways of behaving.” (bowen & ostroff, 2004: 213). leader-member exchange (lmx) and employee perceptions lmx theory attempts to predict the dynamics associated with the relationship between supervisors and subordinates (graen & scandura, 1987). it ascribes to the same principles of interpersonal behavior found in social exchange theory: feelings of increased trust and gratitude, as wells as a sense of obligation as the frequency of interactions increases (blau, 1964; greguras & ford, 2006). purcell and hutchinson (2007) point out that, “hr practices perceived or experienced by employees will, to a growing extent, be those delivered or enacted by line managers, especially front-line managers (flms) with direct supervisory responsibility. it is often observed that there is a gap between what is formally required in hr policy and what is actually delivered by flms.” their study proposes and tests a model predicting that both front line managers’ (flms) behavior and employees’ perceptions of hr practices will affect organizational commitment and job satisfaction. they find support for their hypotheses suggesting employee perceptions of hr practices and lmx relationships are two important sources of variance in measures of organizational commitment and job satisfaction. this study seeks to add to their findings by testing the effect lmx behaviors have on employees’ perceptions of the use of hr practices and not their assessment of the value of, or satisfaction with, the practice as has been tested previously (cf.khilji & wang, 2006; purcell & hutchinson, 2007). this provides two significant contributions. the first contribution is to measure the variance between stated hr practices and the implementation of hr practices at the lowest level possible, the level at which they are designed to affect employee behavior. the second contribution is to measure the effect the primary implementer (the line level supervisor) of hr practices has on the perceptions of hr practices. additionally, it is proposed that these effects will also relate to job satisfaction and unit performance, both of which are intended outcomes of the design and application of hr practices. martinson and deleon 95 supervisor role in hr system strength this study proposes that the actions and cognitions of an employee’s supervisor will have a direct effect on the employee’s perceptions of the hr practices an organization uses to manage employee behavior toward the achievement of organization goals and objectives. this occurs through three dimensions. the first, and possibly the most direct, is through hr practices that are implemented at the supervisor’s discretion (purcell & hutchinson, 2007). practices such as flextime, performance evaluations, and compensation decisions are traditionally administered either by, or through consultation with, an employee's direct supervisor. hr practices used to manage employees implemented through a supervisor’s discretion are, by their very nature, subject to considerable amount of variance between stated and implemented practices, and the supervisor’s interpretation and application of a given policy will more directly influence employees’ behavior than the stated policy as intended by senior leadership. the variation in supervisors’ interpretation and application of policy is a reflection of hrss. this variation is addressed by wright and nishii (2011) as they suggest organization unit and organizational variance can be linked to individual outcomes. ostroff and bowen (2015) suggest that, “signals sent by the (supervisor implemented) hr practices will be interpreted idiosyncratically unless other hr process mechanisms reinforce and thus help to create a strong hrm system.”. the quality of the relationship between employees and supervisors also affects their perceptions and experience of hr practices. as theorized in the lmx relationship research, subordinates have access to better and more information and opportunities as a result of their relationships with their super-ordinates (harris & kacmar, 2005). to test these predicted relationships, the following hypotheses are presented: hypothesis 1 – hrss is positively related to employee perceptions of hr practices. hypothesis 2 – hrss is positively related to employee job satisfaction. in addition, it is proposed that the quality of the relationship between employees and supervisors will be related to levels of job satisfaction. based on social exchange theory (alfes, shantz, truss, & soane, 2013; blau, 1964; gilbert, de winne, & sels, 2011; gooty & yammarino, 2013), which suggests that higher quality exchange relationships yield increased access to resources, support, trust and consideration from and for the supervisor, the quality of the lmx relationship will be directly reflected in measures of employee job satisfaction. to test this relationships, the following hypotheses are presented: hypothesis 3 – lmx is positively related to employee perceptions of hr practices. hypothesis 4 – lmx is positively related to employee job satisfaction. organizational leaders are responsible for developing policies and procedures for managing a firm’s resources. as previously discussed, an organization’s human resources have the potential to provide an organization with a sustained competitive advantage. successful organizations attempt to select the top available talent and provide employees with opportunities for career development and advancement, flexible and satisfying working conditions, and allow them to participate in the decisions that affect their workplace. they also seek to recognize and reward employees with financial and other incentives for continuing the employer/employee relationship. it is proposed that intended hr practices are designed to create working environments and relationships that satisfy the needs and desires of employees and the degree to which employees are aware of these practices will be reflected in their level of satisfaction with the employee/employer relationship. to test this proposition, the following hypotheses are presented: lmx and hr system strength 96 hypothesis 5 – employee perceptions of hr practices are positively related to employee job satisfaction. the ultimate goal when designing a system of hr practices is to achieve the maximum level of operational performance. hr practices are designed to attract, develop and retain highly productive employees. hr practices affect performance by increasing the productivity per unit of cost per worker (huselid, 1995; ichniowski, shaw, & prennushi, 1997; macduffie, 1995). hr practices also are designed to facilitate the coordination, communication and cooperation among coworkers. creating an hr system that engenders job satisfaction is not mutually exclusive from a system that achieves performance. hr systems can, and should, do both. past research has shown a link between job satisfaction and performance (purcell & hutchinson, 2007). as an additional test of these relationships, the following hypotheses are proposed: hypothesis 6 – employee perceptions of hr practices is positively related to unit performance. hypothesis 7 – employee job satisfaction is positively related to unit performance. figure 1. model of predicted relationships method to test the hypotheses (shown in figure 1 above) a single large public sector organization with employees guided by a single set of formally documented hr practices was used. this helped to minimize extraneous variance and is consistent with current hr practice implementation research (khilji & wang, 2006; nishii, lepak, & schneider, 2008). the sample was randomly selected from available responses of the organization’s annual 85 item employee survey. it contained complete responses from 40,992 employees across 90 separate agencies. work unit size ranged from 12 employees to 2,294 with a mean size of 455 and median of 197. the demographic composition of the sample was 55.7% female, 80% white, 11.7% black or african american, 6.6% american or alaska native, 2.1% hispanic or latino, and 1% asian. the age of the respondents was distributed as follows: 42% were in the 50 to 59 year old range, 27.6% were 40 to 49, 15.4% were 30 to 39, 10% job satisfaction unit performance hr practice perceptions hrss lmx h2 + h4 + h6 + h3 + h5 + h1 + h7 + martinson and deleon 97 were 60 and older, and less than 5% were under the age of 30. the distribution of respondent’s unit tenure suggests that 36% have been employed in their unit 15 to 20 years, 26.5% from 11 to 14 years, 20.2% from 6 to 10 years, 6.1% from 4 to 5 years and 10.7% 3 years or less. measures survey items were measured on a 5-point scale with anchors such as “strongly agree” and “very good” assigned a value of 5 and “strongly disagree” and “very poor” assigned a value of 1. using factor analysis with principal axis factoring and varimax rotation, the factors designed to test the hypotheses were confirmed. they include: lmx measured with four items consistent with graen and uhl-bien’s (1995) lmx-7 scale (cronbach's α =.896); sample items include, “i have trust and confidence in my supervisor,” and “overall, how good a job do you feel is being done by your immediate supervisor/team leader?” hr practice perceptions (hrpp) was a composite factor comprised of 6 items (cronbach's α=.922) assessing the existence and use of the following hr practices: internal promotion, performance-based pay and rewards, training and needs assessment, employment security, and grievance procedure. sample items included, “promotions in my work unit are based on merit,” “pay raises depend on how well employees perform their jobs” and “employees have electronic access to learning and training programs readily available at their desk.” job satisfaction (4 items, cronbach's α=.805) included items such as, “i like the kind of work i do,” “i know how my work relates to the agency’s goals and priorities,” and “the work i do is important.” in an organization with high levels of hrss, it is expected that employees and supervisors will have similar evaluations of organizational goals, policies, and priorities as set by senior leadership. in order to calculate hrss first an evaluation of leadership (5 items, cronbach's α=.928) variable for every employee was calculated. the sample items included, “managers communicate the goals and priorities of the organization.” and “how satisfied are you with the policies and practices of your senior leaders?” increased distance between employees and their supervisors’ evaluations will reflect weak system strength, signaling the potential lack of consistency and consensus (bowen & ostroff, 2004). it is proposed that weak system strength will increase the variability of the implementation of stated hr practices such that an employees’ perceptions and experience of stated practice will be a reflection of the degree to which supervisors uniformly communicate and utilize the stated practices. while it was not possible to match individual supervisors and their direct reports, the variation between an individual employee’s perception of organizational policies and those of the unit’s supervisors was measured. to calculate the hrss variable, first the mean of the aggregated responses for all unit supervisors (n=8,965) by each unit for the evaluation of leadership factor was computed (cronbach's α=.928). next, the value was subtracted from each individual unit’s employees’ responses taking the absolute value as the difference between employee and supervisor perspective. this step captures the distance between employee and supervisor attitudes towards the goals, policies, and practices put in place by senior management. finally, the absolute value was multiplied by negative one in order to align the variable with the construct as defined and simplify interpretation, i.e., multiplying by negative one makes stronger hrss to be represented by larger values and weaker hrss to be represented by smaller values. for robustness, a simple subtraction operationalization was checked; the model differences were insignificant (p>.10). the unit performance variable was created using the mean of the aggregated unit managers’ (n=5,583) responses to the (4 item) factor measuring unit work quality (cronbach's α=.703). sample items include: “the people i work with cooperate to get the job done,” and “how would you rate the overall quality of work done by your work group?” lmx and hr system strength 98 analysis the hypotheses were tested using structural equation modeling within lisrel 8.80. the analysis began with a confirmatory factor analysis (cfa) to determine item loadings on the appropriate factor to determine how well the data fits the proposed five-factor structure model. model fit ranged from good to fair with ! !" ! = 24,325.76 ! < .01 , cfi=0.947, rmsea=0.08, and srmr=0.050. to further address concerns of dimensionality, several additional models were run to confirm the proposed factor structure. all tests for alternate forms of dimensionality using !! difference testing led to the conclusion that the five-factor structure model was most appropriate. in addition, the possibility of common method bias was investigated using a harmon’s onefactor test. model fit (!(!"#)! = 302,971.20,! < .01,!"# = 0.23,!"#$% = 0.26, !"#" = 0.16) dropped drastically with the fit indices indicating a poorly fitting model. further, a !! difference test between the five-factor structure model and a one-factor structure model confirmed the model was significantly worse (p<.01); leading to the conclusion that common method bias does not significantly affect the analysis. all hypotheses were tested using a full structural model with all factors included. model fit was acceptable with ! !" ! = 24,387.9 ! < .01 , cfi=0.94, rmsea=0.08, and srmr=0.050. note that, although the rmsea is above the more stringent .06 cut-off recommended by hu & bentler (1998), the rmsea is below .08 cut-off for reasonable model fit. the full structural model (figure 2) is shown with lisrel ml estimates. figure 2. path diagram and results results hypothesis 1 is strongly supported in the full structural model. the path is positive and significant (β=.15, p<.01), suggesting that hrss, measured as the separation between employee and supervisor evaluations of leadership’s communication of goals and priorities, has a positive effect on hr practice perceptions. stated another way, less dissimilarity between ratings of supervisors and employees predicts levels of higher hr practice perceptions. similarly, hypothesis 2 is strongly martinson and deleon 99 supported (β= .04, p<.01), suggesting that hrss is positively related to employee job satisfaction. standardized path coefficients suggest that the relationship between hrss and hr practice perceptions is stronger than the relationship between hrss and job satisfaction. hypothesis 3 is strongly supported (β=.65, p<.01), suggesting that lmx, measured as employee evaluations of supervisors, is positively related to hr practice perceptions. additionally, hypothesis 4 proposing that lmx is positively related to job satisfaction finds strong support (β=.32, p<.01). similar to hypotheses 1 and 2, a comparison of the standardized coefficients suggests that lmx is more strongly related to hr practice perceptions than to job satisfaction. hypothesis 5, suggesting that hr practice perceptions is positively related to job satisfaction, is strongly supported (β=.28, p<.01). while the effect size is modest, a relationship between perceptions of hr practices and job satisfaction is clearly identified. additionally, hypothesis 6, predicting a positive relationship between hr practice perceptions and unit performance also finds support (β=.03, p<.01). however, the effect size is small suggesting that the relationship while statistically significant it is of limited practical value. and lastly, hypothesis 7 finds support (β=.00, p<.05) with an extremely small effect size. again, the relationship while statistically significant is practically insignificant. a summary of the findings is included in table 1. table 1. summary of findings hypotheses results standardized coefficient h1 hrss is positively related to employee perceptions of hr practices. supported 0.15** h2 hrss is positively related to employee job satisfaction. supported 0.04** h3 leader/member exchange is positively related to employee perceptions of hr practices. supported 0.65** h4 leader/member exchange is positively related to employee job satisfaction. supported 0.32** h5 employee perceptions of hr practices is positively related to employee job satisfaction. supported 0.28** h6 employee perceptions of hr practices is positively related to unit performance. supported 0.03** h7 employee job satisfaction is positively related to unit performance. supported 0.00* **significant at p<.01, *significant at p<.05 limitations the results of this study using hr practice perceptions at the individual level with a large sample of employees managed under a single set of hr practices contributes to the shrm research area with a unique empirical test of the effects of hr system strength. however, there are some limitations affecting the study that need to be discussed. first, although the study’s sample size is large which helps to strengthen arguments of generalizability, because of the nature of the data set, a lmx and hr system strength 100 pooled cross-sectional analysis method was used. this limits the ability to make causal inferences. second, all data was gathered from a single large public sector firm, which may limit generalizability to other firms such as large for-profit corporations and small and medium private organizations. furthermore, because of data constraints, it was not possible to directly match each employee to each particular supervisor, which prevents a perfectly dyadic relationship when examining congruence between supervisor and employee evaluations of leadership. additionally, the research design was cross-sectional so no assentation about causality can be made. lastly, the study used secondary data not designed specifically for this study which was collected in environments outside of the control of the authors. this also may limit some of the inferences that can be made and supported by the study results. conclusion the objective with this study is to identify the influence supervisors have on employee perceptions of hr practices in order to contribute to the discussion on the methodological problems associated with the traditional manner in which hr practices-to-performance process research is conducted. in the typical hierarchical organizational structure designed to disseminate communications, address uncertainty, and manage individual employees (galbraith, 1973), the main source of information and responsibility for decisions affecting the employer/employee relationship is through an employee’s immediate supervisor. the analysis shows that positive relationships exist between lmx and hrss, and employees’ perceptions of hr policies and practices. this, in turn, is related to increased job satisfaction and work unit performance. these results suggest a confirming test of the effects of hrss in relation to the effectiveness of hr practices. hr policies and practices are designed and implemented by organizations to maximize desired employee behaviors such as job satisfaction and job performance. uniformly communicating and administering practices is essential to achieving the desired outcomes. supervisors are a critical link in the communication and implementation of policies and practices, and contribute to the varying degree to which the policies and practices achieve their intended effect. this study suggests that researchers and practitioners alike could benefit from further exploring the linkages between hr policies and practices designed to affect employee behaviors at the organization level and the actual implementation of policies and practices that the targets of the practices, the individual employees within an organization, actually experience. the study suggests that a greater difference between these two levels equates to a loss of potential performance. these results also support that the concerns raised by scholars regarding the reliability of using single, distal sources for identifying the use of hr practices across an organization is well placed. when a study uses the perceptions of a single top level manager as the source of an organization’s intended hr practices used to influence employee behaviors, it is a bit of a stretch to infer that the response is actually connected to measured behavior. a succinct example of the chasm that may exist between intended and realized practices may be best illustrated by this simple anecdote. one of the authors of this paper was attending a society of human resource management presentation given by scott cawood, who at the time was a vice president with the great places to work institute, producer of fortune´s "100 best companies to work for” list. at this meeting dr. cawood asked attendees to provide an example that differentiated a good place to work from a great place to work. lacking a response from the audience, he provided this succinct example, “a good place to work has a flextime policy; a great place to work lets you use it.” this unambiguous example illustrates that having a policy is not the same as utilizing a policy to achieve a desired behavioral outcome. a future research stream with the potential to improve shrm martinson and deleon 101 researchers’ understanding of practice to performance linkages might be measuring the effects on performance brought about by differences between espoused practices 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(1995). matches between human resources and strategy among ncaa basketball teams. academy of management journal, 38(4), 1052-1074. brian martinson is an assistant professor of management at tarleton state university. john deleon is an assistant professor of management at tarleton state university. microsoft word 127 final.docx http://journals.sfu.ca/abr advances in business research 2015, volume 6, pages 79-100 79 lean production systems and worker satisfaction: a field study khim l. sim western washington university anthony p. curatola avijit banerjee drexel university the toyota production system approaches leanness by relying on an important subsystem known as respect-for-humanity. in contrast, anecdotal evidence suggests that leanness in the western world is often an outcome of lean becomes mean. in this case study of a manufacturing plant in the united states, results from a structural equation model show that suggestion autonomy, a self-reported measure, is lower than the autonomy initially expected by the management team. yet, our results illustrate the positive motivational effects of suggestion autonomy tend to have on the workers’ wellbeing, which are manifested in the form of higher perceived employment security, lower effortreward unfairness, higher job satisfaction, and higher overall satisfaction. results of the second order effects yielded by the structural equation modeling technique employed support the extant theory that an integrated approach to organizational design is related to worker’s overall satisfaction. in other words, the signaling effect of overall satisfaction by the workers can be used to gauge a firm before it moves in the direction of excessive leanness, decreased employee satisfaction and suboptimal system performance.1 introduction the future of manufacturing in the united states and other advanced industrial countries depends on the ability to achieve dramatic improvements in productivity – output per employee – while continuously improving quality to meet rising customer expectations. in other words, survival in the competitive global economy requires skillful deployment of scarce resources. proponents of lean often regard this as one of the most crucial strategic directions for business firms, in order to achieve world class performance, by doing more with less (kennedy & brewer, 2007; womack, jones, & roos, 2003). even lean critics such as rinehart, huxley, and robertson (1997, p. 2) acknowledge that “if there is one non-debatable proposition in the early literature, it surely must be the claim that lean production will be the standard manufacturing mode of the 21st century.” anecdotal evidence, however, suggests that leanness often becomes excessive (adler, 1995; bruno & jordon, 1999; reinhart, huxley, & robertson, 1997) and experts agree that under such circumstances, improvements are not easy to sustain (schonberger, 2008; womack, 2007). lean production, in attempting to minimize waste, embodies an integrated manufacturing system that is intended to maximize capacity utilization and minimize buffer inventories by reducing system variability. as a result, such a system requires workers to assume responsibilities, far beyond what is typically expected in a traditional assembly line or mass production setting. hence, unless workers are competent, committed, willing and able to take action to solve problems on an ongoing 1 the authors gratefully acknowledge helpful comments from dr. srinivasan swaminathan and data collection assistance from howard wu and paul waterman. lean production systems and worker satisfaction 80 basis, the goal of minimizing wasted resources is jeopardized. therefore, a key element of the toyota production system in their use of lean manufacturing is the notion of respect-for-humanity, whereby workers’ suggestions are incorporated into operational decisions and, more importantly, management tangibly communicates its appreciation for the workers’ input (de treville & antonakis, 2006; fujimoto, 1999; kennedy & brewer, 2007; womack, jones, & roos, 1990; 2003). the respect-for-humanity concept is viewed as being generally overlooked in western companies. the omission of this concept is likely to be an impediment in the adoption of and realization of the resulting value added by lean in these organizations. to gain an appreciation for these issues, we conducted a field study in a manufacturing plant that had achieved some remarkable operational results and cost savings within the first few years after its implementation of a lean production system. first, we test and examine the underlying reasons for their success by drawing upon the existing organizational theory and motivational literature. secondly, we provide support to the extant theories that an integrated approach to organizational design is related to the workers’ overall satisfaction level, which in turn can be developed as a firm’s unique capability of sustainable competitiveness. the ability of a firm to learn about its environment and use this knowledge to guide its action appropriately may give it an edge to outperform its competitors. we find that in a lean manufacturing company, the signaling effect of worker’s overall satisfaction can be a gauge to judge whether the firm is heading toward excessive leanness, decreased satisfaction and suboptimal performance. literature review this section discusses literature relevant to this study including the areas of empowerment and lean practices and related concepts. empowerment and lean practices as mentioned before, lean production systems strive to maximize capacity utilization and minimize excess inventories by reducing system variability with the eventual goal of total eradication of waste (de treville & antonakis, 2006). keeping the plant clean and orderly is one practice that is seen to reduce variability, since dirt and disorder often lead to quality problems, which in turn hinder effective problem solving (hayes, 1981). for example, toyota requires workers to be committed to their tasks and the company, in order to attain the goals of high utilization and low buffer stocks. these workers are responsible for quality and nonmanufacturing tasks beyond what is typically expected in traditional mass production environments (fujimoto, 1999). reduced buffers are only effective if workers are competent, committed, and are allowed to take action immediately when problems arise. otherwise, workers become alienated and are unwilling or unable to respond to such problems. this appears to contradict the conventional wisdom of the association of high utilization with low inventory. in toyota’s case, the respect-for-humanity subsystem is structured to incorporate suggestions made by workers, which shows respect and appreciation on the part of the company’s management. in summary, the notion of respect-for-humanity aims at “leanness through inventory reduction, increased capacity utilization and variability reduction” (de treville & antonakis, 2006, p. 103). typically, lean production begins with competitive wages (see, graham, 1995; milkman, 1997) and reinforces the workers with the training and equipment needed to perform their job well (adler, 1995; womack et al., 1990). respect for workers also calls for employee empowerment by delegating certain authority and responsibility to the workers. by encouraging the workers to sim, et al. 81 participate in the development of standard operating procedures, these same workers gain a sense of ownership, which translates into an increased willingness to run the process as formally documented (adler, 1995; de treville, antonakis, & edelson, 2005; fujimoto, 1999). one way to increase utilization is to reduce the time allocated to an employee to accomplish a given task. this practice is intended to build upon the philosophy that scarcity results in an environment of creative tension, which tends to motivate workers towards finding creative solutions (womack et al., 1990). thus, lean production equips the production floor “well enough to get the job done while leaving resources scarce enough to encourage search behavior” (see, cyert & march, 1992).2 perceived organization support and lean practices some critics claim that the lack of a supportive and committed organizational environment continues to be an important barrier to the successful implementation of lean practices (see, bruno & jordon, 1999; kumar, 2000). organizational support theory further addresses the psychological processes underlying the consequences of perceived organization support (pos) (eisenberger, cummings, armeli, & lynch, 1997). first, pos, on the basis of reciprocity, tends to give rise to a felt obligation to care about the organization’s welfare and, therefore, help insure that the organization reaches its objectives. second, pos should satisfy the socio-emotional needs of the employees by showing care, approval, and respect, so that workers are encouraged to incorporate organizational membership and role status into their social identity. finally, pos should strengthen employees’ beliefs that the organization recognizes and rewards increased performance. these processes provide favorable outcomes for both employees by increasing job satisfaction, as well as heightening positive mood and the organization by reducing turnover, while enhancing employee commitment and performance (rhoades & eisenberger, 2002). effort-reward fairness and lean practices recent theory and research show that workplace fairness is a contextual factor that inhibits employee’s extra work behavior roles. consequently, the perceived inequity resulting from job effort-reward discrepancy provides an unpleasant emotional state and cognitive dissonance. to diminish this perceived inequity, a worker is likely to alter efforts or withdraw from the job, often resulting in substandard work behavior (konovsky & organ, 1996; niehoff & moorman, 1993). both are negative results for the employee, as well as the organization. in lean manufacturing, effort-spent vis-a-vis reward-received is increasingly becoming a major concern for practitioners as a result of work pace intensification, leading to the claim of lean becomes mean. janssen (2000) showed that employees respond more innovatively to higher levels of job demands, when they perceive that their efforts are fairly rewarded by the organization. understanding the issue of equity, in a setting that demands higher responsibility from the workers advances our understanding of respect-for-workers. accordingly, the following hypotheses are generated: h1: workers’ empowerment is negatively related to effort-reward unfairness. h2: perceived organizational support is negatively related to effort-reward unfairness. job security and lean practices 2 but, when ‘lean becomes mean’, the negative consequences have been observed, such as stress, on the job injury, decreased motivation, or quitting. more insight to this issue is provided by de treville and antonakis (2006). lean production systems and worker satisfaction 82 using a large european data set, ramsay, scholarios, and harley (2000) show that job security is positively related to labor productivity, financial performance, and product/service quality, but it is negatively related to turnover. one of the most widely accepted propositions about innovative work practices is that performance improvements are not sustainable over time if employees fear that increased productivity leads to a reduction in jobs (fiume, 2007; pfeffer, 1998). angelis, conti, cooper, and gill (2011) assert that employment stability further strengthens worker commitment; while womack et al. (1990) show the importance of management support and job security for building a high-commitment lean culture. accordingly, the following three hypotheses are generated: h3: workers’ training is positively related to perceived job security h4: workers’ empowerment is positively related to perceived job security h5: perceived organizational support is positively related to perceived job security job satisfaction, overall satisfaction and lean practices research on employee job-satisfaction shows that it is a potential determinant of absenteeism, performance, turnover, and retention. hackman and oldham (1980) show that human resource practices are often linked to job satisfaction while tomer (2001) report that employees who are given greater responsibilities, appear to develop skills and competencies over their job and tend to be more cooperative and creative. similarly, witt and nye (1992) and brockner and adsit (1986) show that fairness is an important component of job satisfaction. other research studies provide evidence that job attitudes, to a large extend, are within the ability of management to influence (eisenberger, et al., 1997; griffith, hom, & gaertner, 2000). these results support the importance of management’s role in nurturing the employee’s affective feeling toward the organization. taking these together, the following four hypotheses are developed: h6: effort-reward unfairness is negatively related to job satisfaction h7: workers’ training is positively related to job satisfaction h8: workers’ empowerment is positively related to job satisfaction h9: perceived organizational support is positively related to job satisfaction proponents of job enrichment argue that as more responsibilities and abilities are given to front line workers (hence, the notion of empowerment), job commitment and job satisfaction increase (see, applebaum, bailey, berg, & kalleberg, 2000; ichniowski, kochan, levine, olson, & strauss, 1996; macduffle, 1995a; 1995b). these authors explore the presence of an effective human resource (hr) bundle to enhance the firms’ performance. they do not simply argue that the supposed intrinsic motivations are sufficient stimuli to increase workers motivation and discretionary effort. macduffle (1995a), for example, argues that motivation is best increased by multiple incentives from integrated and overlapping bundles of hr and manufacturing practices. likewise, applebaum et al. (2000) argue that financial rewards and trust are important mechanisms to elicit discretionary effect. while prior research have linked an hr and manufacturing bundle to a firm’s performance, little systematic work has been done to link such a bundle to workers’ overall satisfaction. anecdotal evidence suggests leanness in the western world is often achieved as a result of lean becomes mean (adler, 1995; bruno & jordan, 1999). worst still, reinhart et al. (1997) claim that lean production will always result in excess leanness. in this case, the removal of excessive slack from the system would result in a diminishment of overall satisfaction, which, in turn, affects the workers’ overall performance. the implication drawn is that workers’ overall satisfaction (i.e., a lead indicator) can be an important indicator in lean implementation. specifically, it provides a gauge as sim, et al. 83 to whether a firm is heading toward excessive leanness, thereby leading to decreased satisfaction and suboptimal performance (lagging indicator). accordingly, our final hypothesis, stated below, examines the integrated effect of hr and manufacturing practices on worker’s overall satisfaction. h10: the integrated hr and manufacturing practices are positively related to overall satisfaction. the research model and hypothesized relationships are presented in figure 1a. the integrated effect of hr and manufacturing practices on worker’s overall satisfaction with second order structural equation modeling (sem) factors is presented in figure 1b. figure 1a: research model lean production systems and worker satisfaction 84 figure 1b: integrated research model with second order sem factor sim, et al. 85 methodology a manufacturing company, located in the eastern united states agreed to participate in our field study. the company was bought by a major multinational firm a few years prior to the study. the parent company notified the plant’s management team that unless they can achieve dramatic improvements in both productivity and quality, the plant would be shut down and relocated to a lower cost region. the closure would result in a loss of over 700 jobs in an area already suffering from the effects of extensive de-industrialization. the possibility of this bleak outcome energized the management team with a mission to save the plant. by may of 2005, they introduced a 100% employee involvement, continuous improvement training program. two years later, the entire team received an achievement award from the parent company. by the end of 2008, the firm was aiming to become a world class best practices manufacturer. among the key metrics standing behind this achievement were3: • customer returns decreased by 84% • production cycle time reduced from 21 to 5 days • finished goods inventory reduced by $10,000,000 • 33% of production space opened up as a direct result of lower wip • order lead times for custom products reduced by 44% • employee grievances reduced by 42% • accidents claims down 23.5% with a $400,000 savings in workers’ compensation • reduction in greenhouse gas emissions and solid waste with savings rising from $3,000,000 in 2006 to $9,300,000 in 2007. • average product cost reduced by 8% some of the lean and six sigma tools utilized by this company included, value stream mapping, visual pull system, standardized work for each process, manufacturing cell layout, problem solving, 5s (workplace organization), and visual control/management. being a certified six sigma expert, the new plant manager understood that being lean is all about people being engaged. as a result, all employees received at least 12 hours of training in lean concepts and methods. survey the authors visited the manufacturing plant and met with the quality manager, the plant manager and the vice president of manufacturing (hereafter, referred to as our research collaborators). the president of the union was informed of the proposed study and provided his total support. a random sample of 35 percent of the production employees received the survey instrument. our research collaborators from the company distributed the questionnaires, as evenly as possible, to the unionized hourly workers across the three shifts, spanning across multiple production departments. the workers completed the survey in the company’s meeting room and returned it on the same day. the data collection process stretched across a three week period. a total of 135 useable surveys of the 151 surveys distributed were received. sixteen surveys were dropped from the study due to incompleteness or failing to pass a validity check. 3 proprietary information shared by the research collaborators. lean production systems and worker satisfaction 86 constructs measures the effort-reward fairness construct was measured using a 7-point likert scale (1= totally disagree, 7= totally agree). all other constructs were measured using a 5-point likert scale (1= strongly disagree, 5= strongly agree). appendix a provides detailed information related to the questionnaires. lean practices. four questions assessed the climate of how receptive the employees are regarding the ‘quest for continuous improvement’. they include: the company is working hard (1) toward the goal of total customer satisfaction, (2) to eliminate waste in the processes, (3) to meet and exceed expectations in product quality, and (4) to reduce product cost. these questions are taken from womack et al. (1990). effort-reward fairness. perceived effort-reward fairness, adapted from van yperen (1996), consists of a 6-item scale, which has high internal consistency. as a result, they are used in numerous scholarly research papers (see, janssen, 2000; 2001; van yperen, 1996; 1998). all of these 6-item are reverse coded, indicating that a high score represents a high level of effort-reward unfairness. job satisfaction. job satisfaction as a result of the work philosophy change is determined from a three item scale, adapted from hackman and oldham (1975), who reported an internal consistency reliability of 0.76. perceived job security. a three item scale adapted from sim and roger (2009) measure the perceived job security construct. since lean practices are relatively new in this plant, a fourth item was included to provide relevant information to management about the overall success of the system, from the employees’ point of view. specifically, the fourth item is: “overall, my future in this company appears to be more promising compared to 2 to 3 years ago”. perceived organizational support. perceived organizational support (pos) is assessed by using the scale developed by eisenberger et al. (1997). one item, “if given the opportunity, the company would take advantage of me” was excluded because we felt that this statement is too negative. training. management recognized training as one of the critical elements to the successful implementation of lean. hence, we measured training by using a four item scale from sim and rogers (2009). since this scale is relatively new, it was tested in another pilot study where 83 production employees completed the questionnaire. cronbach’s alpha for the 4 items in the pilot study was 0.72. empowerment/ autonomy. to measure the extent of empowerment or autonomy on the part of the production employees, we selected the 4-item empowerment scale from powell (1995). these items measure production employees’ involvement, the importance given to their suggestions and their decision making autonomy. one item, however, is modified by replacing it (which reads “a more active employee suggestion system”) with two items. the newly added items are “the company does not value my idea/suggestions relative to continuous improvement” and “the company allows me through programs or forums to express my ideas and opinion about continuous improvement”. these two items have been tested in a pilot study using 83 plant workers. as a result, these five items are used to measure the construct of empowerment/autonomy. sim, et al. 87 results the results are presented in two parts. the first part presents the descriptive statistics based on the demographic information pertaining to the participants. the second part presents the results of the statistical analyses based on the participant’s responses. descriptive statistics the general demographics for the participants are fairly typical of a small plant. thirty-four percent of the respondents have spent 5 years or less with the company and approximately 41 percent of the respondents have 11 or more years of employment. the majority of the respondents (78%) have high school diplomas, one has a master’s degree, and the remaining employees have either an associate’s or a bachelor’s degree. seventy nine percent of the respondents are male and 21 percent are female. finally, the plant operates three shifts per day with 43%, 23%, and 32% of the employees assigned to shifts 1, 2 and 3, respectively. statistical analysis the data analysis begins with a latent variable sem (structural equation modeling) technique to test the hypothesized linkages of the research model. the sem technique tests the linkages in the structural model, taking into account measurement errors. the measurement model begins with a confirmatory factor analysis (hereafter referred to as cfa). the cfa assesses whether all items in a given scale represent the same latent factor. typically, a value greater than 0.9 for the comparative fit index (cfi) and a value of less than 0.10 for the standardized root mean square residual (rmsea) are considered a good fit (bagozzi, yi, & phillips, 1991; bentler, 1990; kline, 2005). results from principal component analyses are used in performing the cfa. table 1 reports the standardized loading, reliability and variance extracted from the cfa. lean practices, job security, reward-effort fairness and training loaded cleanly onto themselves as a factor.4 the first 2 items of pos did not load onto themselves; as a result, (pos) became a 5-item construct. with respect to the job satisfaction factor, one item (sat3) is dropped because of low loading in the principal component analysis, while (s2) from pos loaded onto job satisfaction. similarly, because of a low loading in principal component analysis, one item from empowerment is deleted. the remaining four items loaded onto two factors, i.e., suggestion autonomy and responsibility autonomy. in summary, all items loaded onto the original factors with the exception of one item from pos that loaded onto job satisfaction. the cronbach’s alpha ranges from a high of 0.87 to a low of 0.61. the variance extracted in most cases were good or moderate, with the exception of job satisfaction, job security and suggestion autonomy, which have values of 0.46, 0.43, and 0.35, respectively. the correlation matrix, along with its means and standard deviations are presented in table 2. most of the constructs are positively correlated at the one percent level of significance. this correlation results are not surprising since they represent the overlapping practices in a lean production system. also, these correlations are well below the suggested cutoff point of .90 (bagozzi et al., 1991). as a validity measure, the continuous improvement effort in lean practices has a mean score of 4.3 (out of 5) suggesting that, on average, the respondents agree that the company has kept up with the practice of continuous improvement. the mean score for both job satisfaction (3.63 out of 5) and training (3.61 out of 5) are relatively high and responsibility autonomy has the highest 4 one item each from training (loading of .44) and effort-reward fairness (loading of .48) were excluded in cfa due to low loading. lean production systems and worker satisfaction 88 table 1: standardized loading, reliability and variance extracted from the cfa construct and indicators standardized variance loading reliability extracted effort-reward unfairness .87 .56 e1 .655 e2 .783 e3 .785 e4 .807 e5 .691 job satisfaction .71 .46 sat1 .665 sat2 .597 s2 .774 job security .78 .43 j1 .673 j2 .596 j3 .755 j4 .626 perceived organizational support .80 .60 s3 .410 s4 .675 s5 .847 s6 .856 s7 .580 training .79 .58 t1 .669 t2 .803 t3 .805 suggestion autonomy .61 .36 a1 .506 a2 .537 a3 .734 responsibility autonomy n/a n/a lean practices l1 .72 .79 .48 l2 .77 l3 .71 l4 .56 note: please refer to appendix a for the itemized description. for lean practices, if l4 is deleted; lean practices will have variance extracted of 0.54. also note that lean practices is captured as a validity measure, it is not used in the research model. sim, et al. 89 table 2: construct means and correlations ___________________________________________________________________________________________________________ mean (s.d) x1 x2 x3 x4 x5 x6 x7 x8 x9 x1 tenure n/a x2 gender n/a .107 x3 pos 2.99 (.98) .103 -.060 x4 training 3.61 (.90) -.078 .103 .370** x5 suggestion autonomy 2.95 (.95) .054 .032 .630** .812** x6 responsibility autonomy 4.22 (.97) .097 -.081 .121 .228* .201* x7 job security 2.94 (.98) .147 .230* .561** .448** .715** .02 x8 eff. reward unfairness 4.2 (1.53) .115 -.07 -.507** -.367** -.533** -.139 -.429** x9 job satisfaction 3.63 (.95) .010 .137 .657** .597** .762** .196* .569** -.643** x10 continuous improve4.33 (.70) .075 .208* .408** .414** .402** .111 .391** -.381*** .621** ment effort ___________________________________________________________________________________________________________ n = 135; * significant at 5%; ** significant at 1%; lean production systems and worker satisfaction 90 table 3: results of the hypotheses testing ____________________________________________________________________________________________________________ hypothesis from to standardized hypothesis supported? coefficient h1a suggestion autonomy effort -reward unfairness -.256 -1.919*** yes h1b responsibility autonomy effort-reward unfairness -.072 --0.874 no h2 perceived organizational support effort-reward unfairness -.388 -2.888** yes h3 training job security -.281 -.902 no h4a suggestion autonomy job security .791 1.875* yes h4b responsibility autonomy job security -.084 -.924 no h5 perceived organizational support job security .213 1.155 no h6 effort-reward unfairness job satisfaction -.302 -2.628*** yes h7 training job satisfaction .152 .712 no h8a suggestion autonomy (indirect) job satisfaction .086 1.028# yes h8b responsibility autonomy job satisfaction .027 .341 no h95 organizational support (direct) job satisfaction .268 1.819* yes organizational support (indirect) job satisfaction .243 2.15** yes h10 hr & manufacturing practices overall satisfaction .988 4.242*** yes 5 total effect with standardized coefficient of .385 is significant at pv = 0.015. since both direct and indirect effects are statistically significant, both results are reported. # significant at .10; *significant at .05; ** significant at .01; *** significant at ≤ .001 sim, et al. 91 out of 5) and training (3.61 out of 5) are relatively high and responsibility autonomy has the highest mean score of 4.22 out of 5. in contrast, suggestion autonomy has a relatively low mean score of 2.95 out of 5. these results suggest that although a high level of responsibility has been delegated to the production workers, they do not feel (given the low suggestion autonomy) that their input, suggestions, or voices are valued sufficiently, in most part. perceived job security with a mean score of 2.94 out of 5, suggests that, on average, the respondents are not very optimistic about their job security. this result is consistent with a company recently acquired and potentially facing closure or relocation. finally, the mean score for effortreward fairness is 4.20 (out of 7, with 4 being neutral). since a higher score represents a higher level of perceived inequity or unfairness, these results imply that the workload may have increased in comparison to wages received. the managerial implications of these results are more fully discussed in the concluding section of the paper. table 3 provides the results of the hypotheses tests, obtained via the structural equation model. seven out of the thirteen hypotheses were supported. two control variables, tenure and gender, were included in the structural equation model (sem). tables 4a through 4e provide the detailed results of individual regression analyses within the sem. table 4a shows that perceived organizational support (p = 0.002) and having more autonomy (p = 0.003) are positively related to the perception of effort-reward fairness. in addition, production employees with longer tenure report a higher level of perceived effort-reward unfairness than those employees who are newer to this company (p = 0.016). all three variables have an indirect effect on job satisfaction via effort-reward fairness. table 4b shows that the length of employment is negatively related (indirect effect) to job satisfaction (p = 0.029) while both perceived organization support (p = 0.019) and suggestion autonomy (p = 0.07) are positively related to job satisfaction via effort-reward fairness. in addition, both effort-reward fairness (p =0.005) and perceived organizational support (p = 0.035) have a direct effect on job satisfaction. finally, table 4c shows that female production employees (p = 0.013) have a higher perceived job security than their male counterparts; while suggestion autonomy (p = 0.03) is positively related to perceived job security. table 4d shows that the hr & manufacturing practices are positively related to overall satisfaction (p = 0.001) and that female production workers (p = 0.036) show a higher overall satisfaction level.6 to test the consistency of the sem results, table 4e gives a breakdown of the individual hr & manufacturing practices on overall satisfaction. the perceived organizational support, suggestion autonomy and gender are all statistically significant. in addition, the statistical significance for the hr & manufacturing practices (or, the hr and manufacturing bundle) has a p value of 0.001, which is lower (i.e., of greater significance) than that of perceived organizational support (p =0.035) and suggestion autonomy (p =0.044). these results provide support for the bundle effect of the hr & manufacturing practices on overall satisfaction. 6 by and large, female production workers may not be the sole breadwinner in a family and workers are paid better in a lean manufacturing than in a non-lean setting (see, graham, 1995; milkman, 1997). thus, these inherent factors may have filtered through the findings of this study. lean production systems and worker satisfaction 92 table 4a: effort-reward unfairness, individual regression within the sem predicted predictor sign coeff s.e. c.r. p ____________________________________________________________________________ perceived organizational support (-) -.802 .278 -2.888 .002** suggestion autonomy (-) -.600 .313 -1.919 .003* responsibility autonomy (-) -.111 .127 -.874 .382 tenure ? .211 .088 2.402 .016* gender ? -.460 .303 -1.516 .130 __________________________________________________________________________ table 4b: job satisfaction, individual regression within the sem predicted predictor sign coeff s.e. c.r. p effort reward unfairness (-) -.160 .061 -2.628 .005** perceived organizational supporta (+) .294 .161 1.819 .035* training (+) .134 .188 .712 .477 suggestion autonomyb (+) .350 .341 1.028 .304 responsibility autonomy (+) .022 .064 .344 .731 tenurec ? .048 .048 1.010 .312 gender ? .189 .157 1.204 .229 a the coefficient of indirect effect via effort reward unfairness is .128 (p=0.019*) b the coefficient of indirect effect via effort reward unfairness is .096 (p=0.07#) c the coefficient of indirect effect via effort reward unfairness is .-034 (p=0.029*) table 4c: perceived job security, individual regression within the sem predicted predictor sign coeff s.e. c.r. p perceived organizational support (+) .290 .251 1.155 .248 training (+) -.308 .342 -.902 .367 suggestion autonomy (+) 1.218 .650 1.875 .030* responsibility autonomy (+) -.086 .093 -.924 .356 tenure ? .018 .067 .264 .792 gender ? .562 .225 2.493 .013* # significant at .10; *significant at .05; ** significant at .01; *** significant at ≤ .001 table 4d: overall satisfaction, individual regression within the sem predicted predictor sign coeff s.e. c.r. p hr & mfg practices + 1.085 .256 4.245 .001*** tenure ? .000 .035 -.004 .997 gender ? .269 .128 2.097 .036* # significant at .10; *significant at .05; ** significant at .01; *** significant at ≤ .001 sim, et al. 93 table 4e: overall satisfaction, individual regression within the sem predicted predictor sign coeff s.e. c.r. p perceived organizational support (+) .352 .193 1.818 .035* training (+) -.158 .272 -.590 .562 suggestion autonomy (+) .903 .527 1.713 .044* responsibility autonomy (+) .021 .061 .351 .730 tenure ? -.033 .046 -.714 .475 gender ? .372 .153 2.433 .015* # significant at .10; *significant at .05; ** significant at .01; *** significant at ≤ .001 finally, a parsimonious sem is generated by deleting the two practices (i.e., training and responsibility autonomy), which are not statistically significant in the model. the overall fit measures for the parsimonious sem declines significantly. as seen in table 5, gfi declines to 0.74, agfi declined to 0.67, tli declined to 0.71, and rmsea decreases to 0.10. these results suggest, although training and responsibility autonomy are not statistically significant individually; collectively, the four practices (i.e., perceived organizational support, suggestion autonomy, responsibility autonomy and training) affect worker’s overall satisfaction. in summary, a consistent pattern appears to emerge from the sem. in addition, the various analyses performed tend to reinforce one another. for example, the rmsea is 0.06 and the cfi is 0.90, which indicate a good fit. other values, such as gfi, agfi and tli are slightly lower, but still indicate a good fit. table 5: measures of fit for the structural model fit measure recommended cfa second order structural structural parsimoniousa value sem cfa model, fig 1a model, fig 1b model gfi > 0.90 0.81 0.82 0.82 0.80 0.74 agfi >0.85 0.75 0.77 0.76 0.76 0.67 cfi > 0.95 0.89 0.90 0.88 0.87 0.75 tli > 0.95 0.87 0.89 0.86 0.85 0.71 rmsea < 0.1 0.06 0.06 0.066 0.069 0.10 a the parsimonious model (i.e., deleting two variables, training and responsibility autonomy, which are not statistically significant) did not provide good fit measures. this result is consistent with the integrated model of keeping all exogenous variables. hence, detailed results for the parsimonious model were not reported. discussion and conclusion to gain a better understanding of the effects of organizational design on perceived job security, effort-reward fairness, job satisfaction and ultimately overall satisfaction in lean manufacturing systems, a field study is conducted on a company that recently changed to lean lean production systems and worker satisfaction 94 production. our results provide suggestions on how managers can rely on strategically linked performance measures as an effective competitive tool. specifically, our structural equation modeling procedure provide support for suggestion autonomy in all three of the postulated hypotheses, while it provided support for perceived organizational support in only two of the three hypotheses. on the other hand, the hypothesized relationships are not supported for responsibility autonomy and training. nevertheless, the collective practices, or the hr and manufacturing ‘bundle’, are positively related to overall satisfaction. these results have some important implications. vidal (2007, p. 248) wrote, “the increase in the responsibilities and abilities of front-line workers – labeled empowerment by many academics, business gurus and practitioners is argued to increase job satisfaction.” on the other hand, sim and carey (2003, p. 112) define empowerment as “ … a means of giving the authority to make decisions to that level or people in the organization, which by virtue of available knowledge and closeness to the activity concerned, is most able to make a correct, quick, and effective decision.” accordingly, most academic research treats empowerment as a single construct (see, anderson-connolly, grunberg, greenberg, & moore, 2002; kennedy & brewer, 2007). in contrast, de treville and antonakis (2006, p. 110) treated empowerment in lean production as two distinct constructs: (a) choice (or freedom) concerning procedures, and (b) an increase in accountability arising from decentralization of authority, power sharing, and participation in decision making. our confirmatory factor analysis for the empowerment construct is consistent with de treville and antonakis (2006) by our finding of two dimensions of empowerment; a higher ‘responsibility autonomy’ (mean score of 4.22 out of 5) and a lower ‘suggestion autonomy’ (mean score of 2.95 out of 5). parker, wall, and cordery (2001) and hackman and oldham (1980), in their job characteristics model, suggest that both responsibility autonomy and suggestion autonomy should invoke intrinsic motivation leading to favorable outcomes such as job satisfaction or lower absenteeism and turnover. our results, find evidence that suggestion autonomy affects effortreward fairness, which in turn affects job satisfaction indirectly. in addition, suggestion autonomy affects perceived job security, but we do not find support for responsibility autonomy from the sem. vidal (2007) suggests that employee involvement programs may result in substantial new responsibilities, which can create pressures and psychological tensions that are experienced as burdens rather than motivational challenges. presumably, high utilization (by limiting resources to workers) in lean practices provides challenging goals which can elicit ‘search behavior’ and is intended to expose workers to opportunities for utilizing, not only their motoric, but also their cognitive skills (see, cyert & march, 1992). nevertheless, work becomes stressful and any positive effects of ‘limiting resources’ tend to decline in magnitude and in some cases, may even become negative, if the process becomes excessively lean. hence, the above literature provides plausible explanations on the lack of evidence of motivational effect of responsibility autonomy in this study. although the motivational effect of empowerment has been well documented in prior literature, in our field study, we found that suggestion autonomy, a self-reported measure from the production employees, is lower than that expected by the management team. yet, the responses illustrate the positive motivational effects of suggestion autonomy on workers’ well-being, manifested in the form of higher perceived employment security, effort-reward fairness, job satisfaction, and overall satisfaction. thus, our results suggest that companies that embrace ‘true’ empowerment of workers, among others, can often reap the many advantages of lean practices. the counter-claim, made by some that, rather than empowering the workers, the new work systems leads to a loss of control and autonomy, while placing a wide range of increased demands on workers needs further examinations. lean production’s emphasis on respect for worker is consistent with worker’s perception of justice and how equity is distributed in the workplace. bruno and jordon (1999), for example, show sim, et al. 95 that deterioration in lean implementation occurs mainly due to unequal power sharing and management mistrust in their study of a mitsubishi plant in illinois. our findings show that a higher level of perceived organizational support is associated with a higher effort-reward fairness, which in turn affects job satisfaction directly and indirectly. consequently, when management nurtures the employees, they provide the support, which enhances the employees’ feeling of less effort-reward unfairness, leading to higher job satisfaction. this research joins others in supporting the notion that perceived support affects job satisfaction (eisenberger et al., 1997). with respect to effort-reward fairness, janssen (2000) has argued that if efforts are not fairly rewarded, the motivational effect may not be realized. hence, to the extent that both suggestion autonomy and perceived organizational support are associated with higher perceived effort-reward fairness, management can elicit positive worker behavior by increasing both the intrinsic and extrinsic rewards by providing support, autonomy, as well as an appropriate balance between ‘limiting resources’ and eliciting ‘cognitive’ skill. our findings further support the position that a manufacturing system that aims to maximizing capacity utilization and minimizing buffer inventories by reducing variability, can achieve these goals by emphasizing the notion of respect for workers. this emphasis is achieved by providing support, empowerment and fairness in effort-reward. these findings are consistent with those of earlier studies, suggesting that organizations which alienate workers through their practices will be less effective and efficient since satisfied employees tend to work harder and better than frustrated ones (gross & etzioni, 1985; ostroff, 1992). strategic management accounting has long suggested that the best performance measures are those linked to a business' strategy. moreover, an integrated system of scorecards should incorporate a complex set of cause-and-effect relationships among the capabilities or critical variables (see, atkinson & epstein, 2000; kaplan & norton, 2008). although lean accounting has been used in manufacturing companies for some time, there is still a lack of systematic accounting research linking strategic performance measures with lean practices. results from the sem employed here support the existing theory that an integrated approach to organizational design is related to workers’ overall satisfaction, which in turn can be developed as a firm’s unique capability of sustainable competitiveness. although causal effects of overall satisfaction on a company’s performance cannot be asserted from this field study, there are numerous research studies7 linking satisfaction with performance. this particular company achieved improvement in their operations and experienced significant cost savings in a few years after switching to a lean production environment. one final issue pertains to detecting the juncture when lean becomes excessively so, with detrimental effects. managers need to monitor worker’s overall satisfaction along with other strategically linked capabilities. thus, the signaling effect of ‘worker’s overall satisfaction’ is one gauge the firm can use to sense whether the firm is heading toward excessive leanness, decreased satisfaction and, ultimately, suboptimal performance. limitations several limitations exist in this study. the data is limited to a single manufacturing plant. just as with any case study, one cannot simply generalize the results obtained here to other companies. this research, nonetheless, does provide some insights into the possible effects of switching to lean production in the face of increased competition, or when confronting the stark choice between innovative adaptation or plant relocation, leading to loss of jobs. furthermore, we found that responsibility autonomy becomes a single item construct as a result of cfa loading. although results on suggestion autonomy are statistically significant, a more 7 see, bhagat, 1982; 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(2003). lean thinking: banish waste and create wealth in your corporation. new york: free press womack, j.,(2007, may 30). the problem of sustainability. jim womack’s e-letters. lean enterprise institute. retrieved april 2, 2008 from http://lean.org/community/registered/showemail.cfm?jimsemailid=72 khim l. sim is an associate professor of accounting at western washington university. she has published in international and regional journals, including journal of management accounting research, advances in management accounting, international journal of operations and production management, and international journal of services and operations management, among others. anthony p. curatola is the joseph f. ford professor of accounting & tax at drexel university, pennsylvania. tony is currently the editor of the tax column in strategic finance. he can be reached at curatola@drexel.edu. avijit banerjee is a professor of decision sciences at drexel university. he has published widely, including in european journal of operation research, omega, international journal of production economics, and international journal of production research, among others. his expertise includes supply chain management, interface with marketing, and revenue pricing management. sim, et al. 99 appendix a: hr & manufacturing practices and satisfaction scale please indicate the extent to which you agree or disagree with the following statements (1= totally disagree; 3=neutral; 5=totally agree) suggestion autonomy (a1-a3); source: powell (1995) responsibility autonomy source: powell (1995) perceived organizational support (s1-s7) source: eisenberger et al. (1997) training (t1-t4) source: sim and roger (2009) lean practices (l1-l4)8 source: womack et al. (1990) the company encourages employees to involve in design, planning, and problems solving. the company does not value my ideas/suggestions relative to continuous improvement (reversed coding). the company allows me through programs or forums to express my ideas and opinion about continuous improvement. i am able to act independently of my supervisor in performing my job function. over the years, interactions between employees with customers and suppliers have increased (dropped). help is available from the company when i have a problem (dropped). the company is willing to extend itself in order to help me perform my job to the best of my ability (loaded unto job satisfaction). even if i did the best job possible, the company would fail to notice (reversed coding) the company takes pride in my accomplishments at work. the company really cares about my well-being. the company cares about my general satisfaction at work. the company show very little concern for me (reversed coding). my knowledge of continuous improvement allows me to apply them at work. the company provides me adequate training to be productive during improvement events. continuous improvement training is provided in a clear concise manner with many practical examples on how to best use the tools. people leading improvement initiatives have the proper amount of training to effectively produce desired results (dropped). the company is working hard toward the goal of total customer satisfaction. the company is working hard to eliminate waste in processes. the company is working hard to meet and exceed expectation in product quality. the company is working hard to reduce product cost. individual outcome (satisfaction): indicate the extent to which you agree or disagree with the following statements (1= totally disagree; 3=neutral; 5=totally agree) effort-reward fairness9 (e1-e6) source: van ypreren (1996) i work too hard considering my outcome. i give a great deal of time and attention to the organization, but do not feel appreciated. i invest more in my job than i receive in return. the rewards i receive are not proportional to my investments. 8 continuous improvement effort was measured but it was not used in the structural model. instead it is used as a validity measure. 9 this is the only construct which has a scale of 1-7 (1=totally disagree; 4=neutral; 7=totally agree) lean production systems and worker satisfaction 100 perceived job security (j1-j4) source: sim and roger (2009) job satisfaction (sat1sat3) source: hackman and oldham (1975) i put more energy into my job than it is worth. i feel unfairly treated in my job (dropped). continuous improvement initiatives have increased our job security. utilizing continuous improvement tools, the company will focus on keeping local jobs. the company will try its best to reduce and/or eliminate layoffs. overall, my future in this company appears to be more promising compared to 2-3 years ago. generally speaking, i am very satisfied with this job. i frequently think of quitting this job (reversed coding). i am generally satisfied with the kind of work i do in this job (dropped). uafs abr journal vol 4 no 1 2013.pdf 49 research 2013, vol. 4, no. 1, 49-53 earnings quality as measured by predictability of reported earnings paul holt, texas a&m university, kingsville the study selected a single normative criterion related to earnings quality, that current and prior years’ earnings per share (eps) should be reasonable predictors of future eps. correlations between one year’s eps and the following year’s eps were sometimes much higher than expected. a surprise was that the second prior year’s eps was a slightly better predictor of the current year’s eps than the immediate prior year. performing multivariate regressions with an additional prior year dependent variable provides an improvement in the residual sum of squares (two independent variables predict better than three, etc). but with the addition of each additional prior year the percentage improvement in the residual sum of squares declines. further, starting with the sixth prior year, adding an additional dependent variable makes no noticeable impact on prediction. the quality of earnings is a concept that has received much attention in recent years by accountants and users of financial statements. it is clearly an important concept, yet there is no precise definition of the term. more precisely, there are many definitions, but none that is universally accepted. earnings quality can be reduced by errors and by management manipulation. aside from honest errors, reported earnings can be manipulated by recording revenues too early or too late, a violation of the recognition principle, and by recording expenses too early or too late, a violation of the matching principle. failing to record liabilities or receivables, or recording them in the wrong accounting period reduces earnings quality. purpose of the study this study tests the ability of reported earnings to predict future reported earnings. the results are intended to increase our understanding of the extent to which present accounting methods result in quality earnings. literature review earnings quality must reflect the hierarchy of qualitative characteristics of financial information (fasb, 2010), the overriding objective of which is decision usefulness. to achieve this, quality earnings must possess the fundamental characteristics of relevance and faithful representation. one of the components of relevance is predictive value, which is also a component of the present study. quality earnings can be defined as the ability of the earnings to predict future earnings and cash flows (financial education, 2008). earnings quality refers to the reasonableness of reported earnings (knechel et al., 2007). among the characteristics of earnings listed by mcclure (2008) is that the earnings be repeatable. the term used by revsine et al. (2005) is “sustainable.” income statement elements such as sales, cost of goods sold, and various operating expenses are repeatable (sustainable); they are highly likely to reoccur in the normal course of operations from period to period. other events, such as gains or losses from the sale of fixed asset and investments generally do not reoccur regularly from period to period, and are therefore not sustainable. extraordinary items clearly are not sustainable. income smoothing is highly relevant to earnings quality. it reduces earnings quality because it makes it more difficult, even impossible, for analysts to determine the permanent earnings of a company. but most managers prefer to see a reasonable, steady increase in sales and earnings from period to period, eliminating major increases and declines to the extent possible. the literature relating to income smoothing extends over at least half a century. the measurement of income smoothing is a challenge for researchers as, by its very nature, income smoothing is hidden by advances in business research 2013, vol. 4, no. 1, 43-48 holt 50 managers. that income smoothing does occur, and to a significant degree, is demonstrated by a number of articles, representative of which are fonseca and gonzalez (2008), kanagaretnam and lobo (2003), and lim and lustgarten (2002). zohreh (2012) found that managers could not produce value by engaging in income smoothing. sulistiyawati (2013) found that the value of the company, its dividend policy, and the reputation of the company’s auditors do not have any effect on income smoothing. chang et al. (2013) provided evidence that income smoothing reduces firm-specific exchange rate exposure. wang’s (2013) empirical study shows that investors’ perceptions of persistent earnings are inversely related to the level of income smoothing. further, investors can, through careful research, distinguish between persistent earnings and earnings that have been smoothed. methodology eighty us companies were selected at random for the test sample, forty from the fortune 1,000 list and forty with sales under $100 million. to be eligible, a company needed financial statements for the years 2003 through 2012, to be a corporation, and to have a fiscal year ending on december 31. correlation coefficients (r) and coefficients of determination (r 2) were calculated for eight regressions, as follows: yi = a + bx(i-1) where y is the eps of the eighty companies for year i, and x(i-1) is the eps for the previous year. the correlation coefficients and coefficients of determination represented measures of the predictability of one year’s eps by the previous year’s eps, and allowed a comparison of the measure from year to year over nine year-pairs. the regression was repeated using the forty fortune 1,000 companies and for the forty smaller companies to provide a measure of the difference in results between large companies and small companies. this set of regressions was repeated with one year lag, as follows: yi = a + bx(i-2) which resulted in seven regression year-pairs. the resulting correlation coefficients provided a measure of predictability of eps two years in the future. multivariate regression was done using two prior years, as follows: y1 = a + b1x(i-1) + b2x(i=2) to determine if two prior years predicted as well as one. additional multivariate regressions and residual sums of squares were calculated to determine if three prior years predict better than two, if four predict better than three, etc., with the final multivariate regression being the 2012 eps as the dependent variable and nine prior years as independent variables. results and conclusions the regressions described in the methodology above resulted in the following set of tables: table i: correlation of one year’s earnings per share with the prior year’s earnings per share. eighty companies dependent variable independent variable r r 2 2012 eps 2011 eps .2396 .0574 2011 eps 2010 eps .8465 .7165 2010 eps 2009 eps .7608 .5788 2009 eps 2008 eps .7188 .5167 2008 eps 2007 eps .9455 .8940 2007 eps 2006 eps .8182 .6695 2006 eps 2005 eps .9769 .9543 2005 eps 2004 eps .9607 .9230 2004 eps 2003 eps .9777 .9559 averages .8050 .6962 this first table demonstrates a variety of results from year to year, with no noticeable pattern. a surprise to the author is that the r numbers are generally quite high, over .9 in four of the year-pairs. an advances in business research 2013, vol. 4, no. 1, 43-48 holt 2013, vol. 4, no. 1, 49-53 51 untestable theory for explanation is that income smoothing has been employed by management in order to achieve precisely the effects observed. table ii: correlation of one year’s earnings per share with the prior year’s earnings per share. forty large companies dependent variable independent variable r r 2 2012 eps 2011 eps .8686 .7545 2011 eps 2010 eps .9058 .8205 2010 eps 2009 eps .1702 .0290 2009 eps 2008 eps -.7464 .5570 2008 eps 2007 eps .8443 .7129 2007 eps 2006 eps .3168 .1004 2006 eps 2005 eps .8680 .7535 2005 eps 2004 eps .7372 .5435 2004 eps 2003 eps .7696 .5923 averages .5260 .5404 this second table, focusing on forty large companies, also reveals a variety of results with no clear pattern. the interesting high negative r for the 2009/2008 pair indicates a strong negative relationship between the two years’ eps. table iii: correlation of one year’s earnings per share with the prior year’s earnings per share. forty small companies dependent variable independent variable r r 2 2012 eps 2011 eps .0308 .0010 2011 eps 2010 eps .1955 .0382 2010 eps 2009 eps .3800 .1444 2009 eps 2008 eps .9907 .9816 2008 eps 2007 eps .9698 .9405 2007 eps 2006 eps -.0806 .0065 2006 eps 2005 eps .2247 .0505 2005 eps 2004 eps .9765 .9536 2004 eps 2003 eps .9772 .9548 averages .5183 .4523 both table ii (large companies) and table iii (small companies) reveal a lack of pattern and some surprisingly high r numbers (four year-pairs with r numbers over .9 in table iii). the averages for tables ii and iii are similar, and the null hypothesis that the means of the two populations of averages are about the same cannot be rejected. the null hypothesis that the variances of the two populations are about the same also cannot be rejected. table iv shows the correlation of the eps of all eighty companies, but with one year additional lag (regressing the current year’s earnings against the company’s second prior year): table iv: correlation of one year’s earnings per share with the second prior year’s earnings per share. eighty companies dependent variable independent variable r r 2 2012 eps 2010 eps .6752 .4560 2011 eps 2009 eps .9540 .9101 2010 eps 2008 eps .7294 .5321 2009 eps 2007 eps .6484 .4205 2008 eps 2006 eps .8696 .7562 2007 eps 2005 eps .8780 .7709 2006 eps 2004 eps .9794 .9592 2005 eps 2003 eps .9192 .8450 * * averages .8317 .7063 a comparison of table i and table iv produces the surprise that the second prior year’s eps is a slightly better predictor of the current year’s eps than the immediate prior year. however, there is no advances in business research 2013, vol. 4, no. 1, 43-48 holt 2013, vol. 4, no. 1, 49-53 52 significant statistical difference between the two means or variances. table v lags an additional year: the current year’s eps is regressed against the third prior year: table v: correlation of one year’s earnings per share with the third prior year’s earnings per share. eighty companies dependent variable independent variable r r 2 2012 eps 2009 eps .1241 .0154 2011 eps 2008 eps .8460 .7157 2010 eps 2007 eps .7164 .5132 2009 eps 2006 eps .9185 .8436 2008 eps 2005 eps .9098 .8277 2007 eps 2004 eps .7674 .5889 2006 eps 2003 eps .9360 .8761 * * * * * * * * averages .7455 .6258 table v suggests that the third prior year’s eps has less effect on the current year’s eps than either the second prior year or the immediate prior year, but the statistical differences are slight. table vi suggests an answer to the question of how many prior years, in multivariate regression, are useful in predicting the current year’s eps. table vi: multivariate regressions results with eps 2012 as the dependent variable eighty companies dependent variable independent variables rss percent improvement in rss 2012 eps 2010 and 2011 311.59 83.54% (over 2011 as the only dependent variable) 2012 eps 2009 through 2011 296.24 4.93% 2012 eps 2008 through 2011 265.97 10.22% 2012 eps 2007 through 2011 246.10 7.47% 2012 eps 2006 through 2011 244.42 .68% 2012 eps 2005 through 2011 242.75 .68% 2012 eps 2004 through 2011 242.64 .05% 2012 eps 2003 through 2011 242.33 .13% rss = residual sum of squares. performing the multivariate regression with an additional prior year dependent variable always provides an improvement in the rss. but with the additional of each new prior year (with the exception of adding 2008 and, trivially, the addition of 2003) the percentage improvement in rss declines. further, starting with the sixth prior year (2006), adding an additional dependent variable makes no noticeable impact on the prediction of the 2012 eps. limitations and suggestions for future research although this study attempts to suggest how well prior years’ eps can be used to predict a future year’s eps, it does not suggest what accounting methods management might employ to improve this predictability, and thus the quality of earnings. nor does the study suggest any changes in accounting standards that might result in higher earnings quality. numerous factors, especially non-accounting factors such as macroeconomic differences across the ten years used, were disregarded. the study intentionally focused on only one financial statement element, eps, and statistically tested the normative criterion that current and previous earnings should be reasonable predictors of future earnings. other normative criteria were not tested, such as the predictability of future cash flows and the relationship between reported earnings and firm valuation. the study does not fully answer the question of how well accounting standards and managements’ use of those standards result in earnings quality based on eps predictability. the study can only provide a benchmark against which future studies may make comparisons. such future studies may test whether advances in business research 2013, vol. 4, no. 1, 43-48 holt 2013, vol. 4, no. 1, 49-53 53 alternative accounting choices and changes in standards may affect earnings quality. future studies may determine if there are major differences in predictability of eps across individual companies and across industries. finally, this study uses eps based on net income. because net income is impacted by non-reoccurring events, it may be that the use of eps based on operating income may have generated better predictive models. this question is left for future research. references chang, f., chin-wen, h., and shin-rong, s. 2013. a re-examination of exposure to exchange rate risk: the impact of earnings management and currency derivative usage. journal of banking and finance, march 26, 2013. financial accounting standards board. 2010. conceptual framework for financial reporting: chapter 3, qualitative characteristics of useful financial information. statement of financial accounting concepts no. 8. norwalk, ct: fasb. financial education. what is earnings quality? http://financial-education.com/2007/02/22/what is-earnings-quality. retrieved june 29, 2008. fonseca, a. & gonzalez, f. 2008. cross-country determinants of bank income smoothing by managing loan-loss provisions. journal of banking and finance, 32: 217-228. kanagaretnam, k., & lobo, g. 2003. managerial incentives for income smoothing through bank loan-loss provisions. review of quantitative finance and accounting, 20(1): 63-80. knechel, w., salterio, s., & ballou, b. 2007. auditing: assurance and risk. mason oh: thompson south-western. lim, s., & lustgarten, s. 2002. testing for income smoothing using the backing out method: a review of specification issues. review of quantitative finance and accounting, 19(3): 273-290. mcclure, b. 2008. earnings: quality means everything. http://financial-education.com/2007/ 02/22/what-is-earnings-quality. retrieved june 29, 2008. revsine, l., collins, d., & johnson, b. 2005. financial reporting and analysis, upper saddle river, nj: pearson-prentice hall. sulistiyawati, s. 2013. the effect of firm value, dividend policy and the auditor’s reputation on income smoothing. accounting analysis journal, north america, http://journal.unnes.ac.id/sju/index.php/aaj/ article/view/1175/1153. retrieved october 24, 2013. wang, z. 2013. measuring investors’ assessment of earnings persistence: do investors see through smoothed earnings? review of quantitative finance and accounting, forthcoming. zohreh, h., & maher, l. 2012. the investigation of intangible value created by companies in income smoothing and non-income smoothing firms. financial accounting and auditing records, winter: 113-136. paul holt is a professor of accounting at texas a&m university, kingsville. he received his ph.d. in accounting from oklahoma state university. his current research includes foreign currency translation and earnings quality. he has published in advances in business research, american journal of economics and business administration, journal of theoretical accounting research, southwest business and economics journal, accounting forum, and journal of accounting and finance research. advances in business research 2013, vol. 4, no. 1, 43-48 holt 2013, vol. 4, no. 1, 49-53 microsoft word 132-copyedit-final.docx http://journals.sfu.ca/abr advances in business research 2016, volume 7, pages 51-65 51 evaluating the role of income in national software piracy eric kyper lynchburg college gerald prante lynchburg college lee schimmoeller lynchburg college this study investigates the proper role of income in predicting national software piracy rates. we run regressions isolating various measures of income, including gdp per capita and median household income and variations thereof, to predict national software piracy rates. then we also run multivariate regressions incorporating gdp and other non-income predictors such as corruption in a manner consistent with previous studies. this topic is of importance due to the multi-billion dollar losses incurred globally each year due to pirating. the results show that a square root version of median household income is the best measure of national income and consistent with what economic theory predicts. keywords: software piracy; income; culture introduction software piracy is a well-studied topic with global losses in excess of $62 billion (bsa, 2014). however, the determinants of software piracy vary from study to study. one variable in common is some measure of national income, typically gdp per capita. economic theory dictates that, ceteris paribus, higher income leads to more discretionary spending. following that lead we conclude that wealthier nations should have lower national software piracy rates. indeed this is generally true, but does not eliminate variation in software piracy rates among wealthy nations. the proper role of income is of importance because virtually every study regarding national piracy includes income, and only a nuanced understanding of income will flush out real differences between countries with similar incomes. previous studies report conflicting results regarding income. for example, the statistical significance of gdp varies across studies and year of study. gdp is also sometimes used as a proxy for other data such as number of internet users. this study makes an important contribution to current literature by elucidating the role of gdp. we clarify that gdp is typically only significant in studies where more illuminating variables are not included. this amounts to gdp being used as a variable of convenience. while informative, if gdp is being used as a proxy for better variables, we should recognize this and work towards analyzing those variables. from this, we also ask the question whether or not a different income measure is superior to gdp per capita in predicting software piracy. income and national software piracy 52 in addition, a number of variables beyond income have been found to influence piracy. these include culture and intellectual property protection. this study aims to determine the exact role gdp plays in determining national software piracy rates first in isolation, then in concert with non-income variables. literature review software piracy is a huge and growing issue in the global economy. the bsa software alliance survey in 2013 estimated the commercial value of unlicensed software totaled $62.4 billion globally. furthermore, the global rate at which software was installed without proper licensing increased from 42% in 2011 to 43% in 2013 (bsa, 2014). this increase was attributed to the growth in emerging economies where unlicensed software is prevalent. there has been a large body of research concerning this topic. some of the earlier studies of national software piracy rates included economic, cultural, and temporal variables. table 1 below reviews a sample of studies from 1998 to 2014, summarizes the findings and identifies the variables included. particular attention is given to gdp as an independent variable (iv). this review of the literature indicates that some measure of economic performance is the most common determinant analyzed in the research of national software piracy rates. often, this economic indicator is not at the country level (gdp) but as some type of proxy for individual wealth. many such as goel and nelson (2012) use gdp per capita, while other such as marron and steel, (2000) use per capita income. a full list of variables used is illustrated in table 1 above. additionally, harbi, grolleau and bekir (2012) believe there is a kuznets curve in that as poor people acquire wealth and then technology, the piracy rates increase until the wealth is at a level where piracy rates begin to decrease. all of these nine studies used some type of economic indicator of either country or personal wealth, suggesting that income is a critical factor. in addition to income, many of the previous studies incorporate cultural factors in their models. hofstede’s (1980) cultural model is the most frequently referenced framework for describing national cultural differences. these five dimensions attempt to quantify the key factors that determine a country’s specific national culture and include power distance, individualism, masculinity, uncertainty avoidance, and long term orientation. much of this research (4 of 9) focused on individualism versus collectivism and often found individualism to be a statistically significant predictor of national software piracy. to clarify, hofstede defines individualism as a preference for a loosely knit social framework in which individuals take care of themselves and their immediate families only; they are not much concerned with the greater society. collectivism is a preference for a closely knit social framework in which individuals are emotionally integrated into an extended family, clan or other group which will protect them in exchange for loyalty. analysis has shown that members of a collective, while extremely loyal to the collective, are less likely to be concerned about others outside the collective, this includes being more likely to copy software from others outside their collective. a collective is associated with a nation in this study. collectivism data is included in the study. theoretical framework of national software piracy rates: cost-benefit analysis from an economic theory perspective, software piracy is a simple cost-benefit decision for individuals and firms. on the benefit side, pirating software instead of paying for it simply increases an individual’s disposable income. and economic theory would predict that higher individual incomes would reduce the need to engage in software piracy due to the concept of diminishing marginal utility of income. this concept states that the first dollar of income adds more to an kyper 53 individual's utility than the second dollar, which adds more to utility than the third dollar, and so forth. put simply, a poor person making $7,000 who currently has a low utility level saving $100 dollar by pirating a piece of software is adding more to his/her utility than a rich person making $100,000 doing so, ceteris paribus. table 1. summary of previous studies of software piracy rates (spr) where spr is dependent variable (dv) authors sample size ivs key findings method (chavarria & morrison, 2014) 42 countries gdp per capita, hofstede 5 cultural values cultural values of collectivism and performance orientation positively related to spr. log of gdp per capital also positively related to spr. ols regression (hamister & braunscheide, 2013) 105 countries gdp per capita, hofstede 5 cultural values & intellectual property rights protection gdp per capita and ippr are negatively correlated with spr. also, high power distance is positively associated with spr. other cultural dimensions were not significant, including collectivism. ols regression (goel & nelson, 2012) 100 countries gdp per capita shadow economy & internet diffusion underground economy has a positive relationship with spr. negative relationship with gdp per capita and internet diffusion. ols regression (harbi, grolleau, & bekir, 2012) 100 countries gdp per capita studied 100 countries over 15 years and showed piracy first increase with level of gdp per capita, reaches maximum, then decreases at higher income levels. ols regression (yang, sonmez, bosworth, & fryxell, 2009) 59 countries gni per capita, individualism & technology development all 3 iv’s are negatively correlated with spr. ols regression (gopal & sanders, sep 2000) 65 countries per capita gnp an inverse relationship between software piracy rates and per capita gnp with a break at $6,000 with those below the break being affected more. ols regression (marron & steel, april 2000) 77 countries, per capita income, individualism, r&d, education, strength of economicinstitutions the inverse relationships of individualism, per capita income and strength of economic institutions explain the greatest amount of variance in software piracy rates. ols regression (husted, 2000) 39 countries, per capita gnp, individualism, income inequality, masculinity, power distance, uncertainty avoidance included cultural variables finding that gnp per capita, income inequality, and individualism are significantly related to software piracy (all relationships are inverse). correlation (gopal & sanders, december 1998) 13 countries gdp per capita, domestic software industry size provides support for the proposition that a government’s incentive to enact and enforce copyright protection laws is closely related to the size of the domestic software industry. also presents a model for ethical intentions based on ethical predisposition and demographics. this information can be used to create better prevention and deterrent controls for software piracy. ols regression income and national software piracy 54 of course, utility is not directly observed or quantifiable. a standard form for writing a utility-income function is eq. 1: u = ciα where c is a constant, i is income and α is the key parameter that determines the marginal effect of more income on utility. this form is derived from the standard cobb-douglas utility function. mathematically, starting from the following cobb-douglas utility function, which expresses utility as a function of the quantities of goods x and y consumed, where a and b are preference parameters: eq. 2: ! = !!!! subject to the budget constraint (i = income, assuming all income is spent on x and y): eq. 3: ! = !!! + !!! we can derive the following utility-income function: eq. 4: ! = !(!!!) !!! (!!!!)! !!! (!! !!)! the denominator of this fraction, which consists of the prices of goods x and y and parameters, is a constant as it relates to income. if a+b < 1, then diminishing marginal utility of income holds because increasing income by a factor (a+b) would increase utility by less than that factor (a+b). the speed at which utility is increasing as income increases depends on the value of the factor (a+b). if a+b is close to 1, then utility is increasing as income increases at a rate that is relatively fast. if a+b is close to 0, then utility is increasing as income increases but at a relatively slow rate. for the purposes of this paper, we use a simple square root of income to approximate the utility-income function. specifically, we assume that the denominator of the utility-income function above is 1 and a+b = 0.5. (eq. 1: α = 0.5 and c = 1) the hypothesis is that using the square root of income instead of the simple dollar value is likely to be a better proxy for the current utility level of a country's average (or median) citizen. this works because the square root captures the effect of diminishing marginal utility on income. a square root is adopted as a parsimonious choice in deriving diminishing marginal utility. in addition to the question of whether or not to use simple income or a utility proxy that assumes diminishing marginal utility of income, there is also the question of which measure of central tendency for income in a country should be used to calculate the marginal utility from software piracy. because income tends to be highly skewed, median income is often used to better gauge the economic position of a country's typical citizen than is mean income. that is the hypothesis in this paper. however, it should be noted that it is technically possible that using mean income could serve to better represent the economic position of software users (weighted by the amount of software they use) as compared to median income. that is because in many low-income countries a large fraction of the population does not use software in the first place. therefore, as their inclusion at the low end of the distribution pushes down both the median and mean, it could lead to a situation where mean income for all citizens is actually closer to the median software user's income than is the median income of all citizens. unfortunately, country-by-country data does not exist on the incomes of software users only, which would be the ideal income metric. kyper 55 while the benefit of increasing disposable income (and thereby utility) from software piracy exists, engaging in software piracy is not costless, and the costs vary across countries. like any crime, there is always the possibility of getting caught and facing civil or criminal consequences. therefore, in those countries with greater enforcement of piracy laws and tougher penalties for piracy the expected cost of piracy is higher. in order to account for this, the study includes a measure of intellectual property protection across countries, as perceived by global business leaders. just like any type of theft, there are personal and social costs of piracy. regardless of whether or not an individual believes he/she will get caught by the authorities, an individual may simply feel personally guilty for stealing software. those who believe that piracy is the immoral stealing of another’s work are likely to place a higher value on the individual contribution of that person or firm. in terms of an individualist-collectivist spectrum, these people would lean towards the individualist side. on the other hand, those who place little emphasis on the past contributions of the original piracy designer and instead place a greater emphasis on the usefulness of that software to overall society would lean towards the collectivist side (this is represented by hofstede’s indices). even beyond the question of one’s own personal viewpoint on the ethics of software piracy, that person may also be influenced by the views of his/her peers on whether or not it is acceptable to engage in software piracy. therefore, he/she would be influenced by the overall country’s attitude towards individualism-collectivism. the existence of these personal moral and social peer-pressure costs of piracy is the theoretical justification for using hofstede’s individualismcollectivism index in the analysis. similar to the individualist-collectivist question, a country’s level of corruption may also influence a person’s cost-benefit analysis for whether or not to engage in software piracy. if a country is perceived by its citizens as having a culture of corruption, there is likely to be lower peerpressure costs from engaging in piracy. this is likely to be highly correlated with intellectual property protection (ipp), which is a legal issue, but it does add some information. suppose two countries have similar degrees of ipp but one is rated as more corrupt than the other. the individual in the corrupt country may feel as though engaging in illegal activity generally comes with less social backlash than the individual in the less corrupt country even if the expected legal costs are the same. even though both income and cultural variables theoretically impact software piracy rates directly, there is obviously a high degree of correlation between income and the cultural variables themselves. the causation likely goes both ways in some cases, such as with corruption and income. this issue is discussed in the results section with a collinearity matrix of all the variables used. research questions and accompanying hypotheses do alternative income measures better predict national software piracy rates than standard gdp per capita? (appendix b provides the regression models used to calculate r in the equations following h1-h3) ho1: mean gdp per capita and square root of mean gdp per capita have the same predictive power of national software piracy rates i.e. r (gdp per capita) – r (sq. root of mean gdp) = 0 ho2: mean gdp per capita and median household income have the same predictive power of national software piracy rates i.e. r (gdp per capita) – r (median household income) = 0 ho3: mean gdp per capita and square root of median household income have the same predictive power of national software piracy rates i.e. r (gdp per capita) – r (sq. root of median household income) = 0 income and national software piracy 56 how does the best alternative measure of income behave in the presence of standard software piracy predictors? ho4: square root of income does not predict software piracy ho5: corruption does not predict software piracy ho6: collectivism does not predict software piracy ho7: intellectual property protection does not predict software piracy hypotheses 4-7 are tested using the following regression model software piracy = b0 + b1 corruption index + b2 ipp competitiveness index + b3 collectivism index + b4 square root of median household income + ε data collection / analysis to examine the role of income in understanding national software piracy rates we collected data from 2006 to 2013 for the following variables: bsa’s national software piracy rate (dependent variable), world bank (gdp per capita by country ppp adjusted, hoefstede’s cultural indices (collectivism), transparency international’s corruption index, the world economic forum’s global competitiveness report (the intellectual property protection component), and median household income from gallup by country (surveyed between 2006 and 2012). there are 108 countries for which software piracy data from bsa exists for 2009, which is the year of reference. of those 108 countries, 98 (91%) have data for both median income and gdp per capita (ppp basis). complete data of all the explanatory variables exists for 61 countries (see appendix a). the 37 country reduction in full country coverage is primarily due to a lack of coverage in hoefstede’s cultural indexes. the dependent variable is national software piracy rate, collected from the bsa global software survey. this variable represents the percentage of pirated software installed out of total software installed. roughly this is calculated as the difference between total software installed (demand) and total legal software shipped (supply). the software alliance (bsa) is an advocacy group for software producers that seeks to promote the policy interests of software producers in governments throughout the world. one such area of public policy is their push to combat software piracy, which is why they commission this study on software piracy. the independent variables used in the study fall into two categories: economic (income) and cultural/legal (collectivism, corruption, and intellectual property protection). gdp per capita by country is derived using world bank data on gross domestic product, which is then converted to international dollars using purchasing power parity (ppp) rates also provided by the world bank. an international dollar has the same purchasing power over gdp as the u.s. dollar has in the united states; this controls for the difference of purchasing power among countries. gdp was the most commonly included economic variable in previous studies. median household income data comes from a gallup report of country-by-country median household incomes, the results of which were released in 2013. gallup surveyed the populations of 131 countries over a six-year period of 2006 through 2012. like the study does with gdp, gallup adjusted each country’s income measure using the purchasing power parity rates provided by the world bank. because the gallup figures are averages over a six year window from 2006 through 2012, we chose to use 2009 as the year of record in the analysis. our measure of intellectual property protection (ipp) comes from the world economic forum’s global competitiveness report, which it describes on its website as follows: the global competitiveness report 2014-2015 assesses the competitiveness landscape of 144 economies, providing insight into the drivers of their productivity and prosperity. the report kyper 57 remains the most comprehensive assessment of national competitiveness worldwide, providing a platform for dialogue between government, business and civil society about the actions required to improve economic prosperity. competitiveness is defined as the set of institutions, policies and factors that determine the level of productivity of a country. the level of productivity, in turn, sets the level of prosperity that can be earned by an economy. the ipp component of the global competitiveness report is part of the institutions sub index of the gcr and is derived based on responses of business leaders to the following question in the executive opinion survey: how would you rate intellectual property protection, including anti-counterfeiting measures, in your country? [1 = very weak; 7 = very strong] the two cultural variables used in this study were chosen based on the findings of previous researchers seeking to explain variation in piracy rates across countries. many of these appear in the literature review. the measure for collectivism comes from hofstede’s seminal study on cultures across nations. as explained by hofstede (1983): “individualism collectivism index: individualism, which stands for a preference for a loosely knit social framework in which individuals are supposed to take care of themselves and their immediate families only; as opposed to collectivism, which stands for a preference for a tightly knit social framework in which individuals are emotionally integrated into an extended family, clan, or other in-group which will protect them in exchange for unquestioning loyalty. the word collectivism in this sense carries no political connotations and does not assume any positions as to the role of the state; it operates at a much smaller scale of social integration (hofstede, 1983).” merritt (2000) has shown that hofstede’s cultural indices are replicable across different time periods and subject groups. in particular collectivism showed to be durable across time and subjects. this provides the current study with the necessary empirical and theoretical foundations to continue using hofstede’s cultural indices. finally, the measure of corruption comes from transparency international’s corruption perceptions index. the study rates countries on perception of public corruption on a scale of 0-10 where 0 is high corrupt countries and 10 is low corrupt countries. these ratings are based on surveys of surveys. that is, transparency international uses multiple surveys that been conducted by organizations such as the world bank, ihs global insight, freedom house, and others in order to come up with a rating for each country. the respondents of these surveys are typically international experts and business persons. we first address the question of what income measure best predicts software piracy by running bivariate ols regressions for each income measure with the dependent variable for the 98 countries that have coverage of both income measures and software piracy. after running the four bivariate regressions, we then run four additional regressions, each containing a different income measure along with all of the non-income explanatory variables for the 61 countries that have full coverage. all hypotheses are tested at the 95% significance level (α = 0.05). results in understanding the relationship between software piracy and income we examined 98 countries using correlation tests. (see table 2 below). we found that the difference between r for median income is statistically significant than r for mean income (alpha = 0.05), thus rejecting h2 (mean gdp vs. median household income). we find no statistically significant differences within means nor medians between standard values and square root values, thus not rejecting h1 (mean gdp vs. square root of mean gdp) and h3 (mean gdp vs. square root of median household income and national software piracy 58 income). however, model fit (r2) improves consistently as we move from mean gdp to the square root of median income. this suggests that capturing the diminishing marginal utility of income is an important step in understanding software piracy. although h1 and h3 were not rejected using conventional hypothesis testing assuming a sample size of 98, recall there are only 108 countries with data on software piracy rates from bsa. therefore, if one considers bsa countries to be the population of interest, we have near-population level coverage in this study. there are only 196 independent countries in the world. the 108 countries selected for inclusion in the bsa study is not a random sample from those 196. the bsa study focuses on the largest and richest countries given that bsa member companies would have the most at stake in those countries and given that those countries tend to have better data availability. together, the 98 countries included in the bivariate analysis account for over 94% of the world’s gdp. table 2. pearson correlation coefficients and r2 ( ) for different income measures with software piracy income measure all countries with data coverage of piracy and income (n = 98) countries with full data coverage of piracy, income, corruption, collectivism, and ipp (n = 61) mean gdp 0.674 (0.454) 0.825 (0.681) square root of mean gdp 0.764 (0.584) 0.851 (0.724) median household income 0.836 (0.699) 0.847 (0.717) square root of median household income 0.851 (0.724) 0.873 (0.762) table 3. regression results for square root of median household income independent variable coefficient p-value hypothesis tested constant 84.553 0.000* n/a corruption index -0.954 0.453 h5 ipp (competiveness index) -5.346 0.016* h7 collectivism index 0.213 0.000* h6 square root of median hh income -0.136 0.002* h4 sample size 61 adj. r2 0.856 f statistic 89.891 kyper 59 using the square root of median household income in table 3 below highlights the multiple regression findings which allow us to further reject hypotheses h4 (square root of income), h6 (collectivism), and h7 (intellectual property protection). it shows that when we use the square root of median household income as the income metric along with all other non-income explanatory variables, the r2 value is 0.856. note that the universe of countries included is smaller because of the lack of coverage for certain non-income variables. all of the variables are significant except for corruption. corruption (h5) is not significant largely because of collinearity with income as shown and discussed below in table 4. in table 4 we present results for four different regressions with each including a different income measure. the universe of countries included in these regressions is the 61 countries with full coverage of all the variables. these 61 countries make up 90% of world gdp. regressions #1 and #2 use mean gdp per capita and its square root respectively. regressions #3 and #4 use median household income and its square root respectively. regression #1 in the table shows that mean gdp per capita is not significant when the other explanatory variables are included. the other income variables are significant in their respective regressions. the relationship between mean gdp per capita and software piracy is simply not strong enough to overcome the effect of collinearity on statistical significance. that is not the case for the other income measures, which as we saw earlier have stronger relationships with software piracy than mean gdp per capita. we again find that in all regressions, corruption is not statistically significant. although intellectual property protection (ipp) and collectivism are also correlated with the other explanatory variables, both of these variables were significant in each regression at a 95% confidence level. table 4. coefficients and p-values ( ) from regressions predicting bsa piracy rates across countries in 2009, by income metric used independent variable regression #1 mean gdp regression #2 !"#$!"# regression #3 median income regression #4 !"#$%&!"#$%& constant 76.928 (0.000) 85.421 (0.000) 76.465 (0.000) 84.553 (0.000) corruption index -1.962 (0.137) -1.445 (0.255) -1.512 (0.255) -0.954 (0.453) ipp (competiveness index) -5.409 (0.025)* -5.177 (0.024)* -5.541 (0.018)* -5.346 (0.016)* collectivism index 0.2500 (0.000)* 0.231 (0.000)* 0.234 (0.000)* 0.213 (0.000)* gdp per capita ($1,000) -0.254 (0.087) square root of gdp per capita -0.117 (0.006)* median hh income ($1,000) -0.351 (0.027)* square root of median hh income -0.136 (0.002)* sample size 61 61 61 61 adj. r2 0.836 0.849 0.842 0.856 f statistic 77.334 85.241 80.675 89.891 income and national software piracy 60 while there is strong collinearity between each of the non-income explanatory variables and the four income measures, collinearity is strongest between corruption and the income measures. the correlation coefficients shown in table 5 explain why corruption is not a significant predictor of software piracy in the presence of an income variable. table 5 also explains why the r2 values only increase modestly when the non-income variables are included compared to the simple incomepiracy regression. one of the key takeaways from the analysis is that the high degree of statistical collinearity between the theoretical determinants of software piracy make it difficult to assess the individual magnitude of each determinant. for example, by itself, higher income leads to lower piracy. but the statistically strong relationship between income and piracy is, in part, masking the ability of corruption (and other variables) to explain piracy differentials across countries. table 5. correlation coefficients between income and other explanatory variables corruption ipp collectivism gdp per capita 0.856 0.844 -0.627 square root of gdp per capita 0.850 0.830 -0.647 median hh income 0.866 0.839 -0.659 square root of median hh income 0.866 0.835 -0.674 n = 61 (full coverage countries only) note: all correlation coefficients are statistically significant at 95% confidence level. sensitivity analysis our findings are robust under various alternative specifications. specifically, we ran regressions for years other than 2009 to verify that the research conclusions do not change based on the year chosen. in addition, we performed listwise regressions for year 2009 and concluded that are results do not change. the listwise regression included all 91 countries instead of just the 61 countries that have full coverage of all of the explanatory variables. under listwise, for those countries that are missing one of the explanatory variables, the regression ignores that variable but includes the information from the variables for which data is present. we do not replace the missing data with the variable’s mean value. we simply treated missing data as missing. results under these alternative specifications are available to readers upon request from the authors. conclusion the role of income in predicting national phenomena such as software piracy has been frequently studied. average per capita gdp is an understandably common measure of individual income. however, failure to recognize the diminishing marginal utility of income can be an egregious error when comparing countries with dramatically different income levels. this creates the potential for the misinterpretation of the role of income. furthermore, because income is highly skewed within countries, using median in place of the average has significant advantages. the kyper 61 findings show applying the square root of median income captures the diminishing role of income and provides the best income measure to use in software piracy studies. whatever income measure is chosen, the study shows that collinearity between income and other variables is a major issue in trying to assess the predictive power of non-income variables on software piracy rates. the problem stems from two competing realities: (1) income should theoretically be part of any software piracy model, and (2) income is highly correlated with other variables – such as intellectual property protection, corruption, and collectivism – that should theoretically be part of any software piracy model. ideally these findings will inform future studies using income to predict national phenomena. references bagchi, k., kirs, p., & cerveny, r. 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(2009). global software piracy: searching for further explanations. journal of business ethics, 87, 269-283. eric kyper, gerald prante, and lee schimmoeller work at lynchburg college. kyper 63 appendix a list of countries included in multiple regression analyses australia guatemala peru austria hong kong poland bangladesh hungary portugal belgium india romania brazil indonesia russia bulgaria ireland serbia canada israel singapore chile italy slovakia china japan slovenia colombia latvia south africa costa rica lithuania south korea croatia malaysia spain czech republic malta sweden denmark mexico thailand el salvador morocco turkey estonia netherlands united kingdom finland new zealand united states france norway uruguay germany pakistan venezuela greece panama vietnam additional countries included in the bivariate regressions of income and software piracy albania egypt nicaragua algeria georgia nigeria armenia honduras paraguay azerbaijan iraq qatar bahrain jordan saudi arabia belarus kazakhstan senegal bolivia kenya sri lanka bosnia and herzegovina kuwait tunisia botswana lebanon ukraine cameroon libya yemen cyprus luxembourg zambia dominican republic moldova ecuador montenegro income and national software piracy 64 the following 10 countries have bsa piracy rates but are lacking data for either gdp per capita or median household income: argentina mauritius taiwan brunei oman uae iceland puerto rico ivory coast switzerland kyper 65 appendix b do alternative income measures better predict national software piracy rates than standard gdp per capita? ho1: mean gdp per capita and square root of mean gdp per capita have the same predictive power of national software piracy rates (regression #1): software piracy = b0 + b1 corruption index + b2 ipp competitiveness index + b3 collectivism index + b4 gdp per capita + ε vs. (regression #2): software piracy = b0 + b1 corruption index + b2 ipp competitiveness index + b3 collectivism index + b4 square root of gdp per capita + ε ho2: mean gdp per capita and median household income have the same predictive power of national software piracy rates (regression #1): software piracy = b0 + b1 corruption index + b2 ipp competitiveness index + b3 collectivism index + b4 gdp per capita + ε vs. (regression #3): software piracy = b0 + b1 corruption index + b2 ipp competitiveness index + b3 collectivism index + b4 median household income + ε ho3: mean gdp per capita and square root of median household income have the same predictive power of national software piracy rates (regression #1): software piracy = b0 + b1 corruption index + b2 ipp competitiveness index + b3 collectivism index + b4 gdp per capita + ε vs. (regression #4): software piracy = b0 + b1 corruption index + b2 ipp competitiveness index + b3 collectivism index + b4 square root of median household income + ε microsoft word advances in business research 2015 board.docx advances)in)business)research) editorial)board)2015) ! ! ! ! g.!stoney!alder!! chase!parker!dehan!! larry!faulk!! gurram!gopal!! tom!hayes!! lewis!hershey!! maria!a.!leach@lópez!! bobby!medlin!! yasuo!nishiyama!! david!k.!palmer!! zhuoming!(joe)!peng!! masha!rahnama!! carlos!m.!rodriguez!! george!schmidt!! mike!schraeder!! latisha!settlage!! ronald!stunda!! margaret!m.!tanner!! yao!yao!tian!! syed!kashif!raza!zaidi! ! ! amelia!a.!baldwin,!editor! amelia.baldwin@uafs.edu! ! ! advances)in)business)research!is!supported!by!the! college!of!business!of!!university!of!arkansas!–!fort!smith! uafs abr journal vol 4 no 1 2013.pdf 98 huegel advances in business research 2013, vol. 4, no. 1, 98-106 gen y in public accounting: a conceptual model of retention benjamin huegel, st. ambrose university the incongruence between the characteristics of generation y employees and the nature of work and operating structure within the public accounting industry is analyzed. it is theorized that this incongruence will lead to increased turnover rates among generation y employees and create a tipping point in public accounting as baby boomers continue to retire. ultimately, this creates a deficit of midlevel employees that could potentially lead to decreased performance among public accounting firms. a conceptual model of improved retention emphasizing balance and flexibility, building a s ense of accomplishment, and fostering an environment of achievement and progression is proposed. as the baby boomer generation nears retirement, businesses in the united states prepare for a significant shift in the makeup of the labor force and the individuals who will inherit responsibility for the daily operations and strategic direction of those firms. while much of the concern regarding this shift has emphasized the magnitude of the potential shortage, top level managers of organizations are starting to place a greater emphasis on understanding the new generation of employees who have been entering the labor force throughout the last ten years. this group is commonly referred to as generation y, and they are considered to have characteristics that are noticeably different from the majority of employees who currently populate the labor force. as concerns regarding a pending labor shortage mount (eisner, 2005), managers have recognized the importance of investigating the aspects of retaining employees from generation y. although organizations are continually adapting their workplace environments and human resource practices to reflect the changing demographics of their employees, public accounting firms face a more substantial challenge. while it has not been uncommon for moderately experienced employees of public accounting firms to accept promising offers from former clients in private industry, the entrance of generation y into the world of public accounting has magnified an already challenging issue. as generation y begins to make up a larger portion of the work force in public accounting, concerns are beginning to emerge that there may be a potential incongruence between the characteristics of generation y and the nature of the public accounting industry. as we continue to develop a more accurate profile of generation y, it seems as though the type of work that will maintain their level of interest is in direct conflict with the type of work commonly experienced in the first few years in public accounting. similarly, the slow process of promotion within the firm structure can discourage generation y employees and lead them to consider other alternatives more quickly than previous generations of public accounting employees. these challenges in retaining the top talent of this new generation, coupled with the pending retirement of the baby boomers, has placed the public accounting industry on the verge of its own human resource tipping point. while some studies have investigated turnover in public accounting (sauber et al., 1991) and others have analyzed retention factors of generation y (eisner, 2005; lowe et al., 2008), this paper aims to provide a conceptual model of retention for generation y within the public accounting industry. first, i will identify the main differences between the generations represented in today’s labor force. then, the american institute of certified public accountants (aicpa) private companies practice section’s 2011 top talent study will be used to identify the human resource aspects that are considered to be important by those surveyed for retention. these human resource aspects will then be analyzed in conjunction with the general characteristics of generation y to help identify the potential sources of incongruence between generation y and the public accounting industry. ultimately, this will lead to a proposed model of improved retention in public accounting firms for generation y. finally, i will conclude by providing some implications for managers in public accounting firms and identify some potential areas for future research. 99 huegel advances in business research 2013, vol. 4, no. 1, 98-106 figure 1: model of improved retention for generation y employees generational differences in the workplace one common reason for generational differences is that individuals at different ages and stages of their lives will be affected by historical, social, political, and economic events differently. as subgroups of individuals experience these events at similar times of their lives, they allow these shared experiences to help shape their beliefs, attitudes, and values that ultimately form unique characteristics within each generation (kowske et al., 2010). similarly, kowske also pointed out that generations are socialized differently as they experience technological advances and social changes at different stages of their lives. because of this, it is important to analyze the differences between generations and how that could relate to challenges within the workplace. currently, four different generations are represented within the labor force. while identifying a change from one generation to the next is not an exact science, howe and strauss (2000) identified the following time periods for each of the generations: silent (pre-1943), baby boomers (1943-1960), generation x (1961-1981), and the millennials (post-1982); who are also known as generation y. a brief overview of the characteristics of each generation will be provided in this paper; however, the main focus will be on the group referred to alternatively as gen y, the millennials, echo boomers, and the boomerang generation (eisner, 2005). although each term has different connotations and slightly different interpretations, for the purposes of this paper generation y will be used to identify this group. kowske et al. (2010) found that there are differences in work attitudes that exist between each of the generations within the workplace setting. although they questioned the level of practical significance that can be drawn from their study, it was identified that some interesting differences did exist. given that minor differences can often times lead to significant issues, one can consider the potential for challenging human resource situations to occur given the subtle differences that may underlie conflicts within the workplace setting. eisner (2005), who referred to the silent generation as the traditionalists, described this segment of the workforce as valuing family, consistency, and a top-down managerial style. being shaped by the great depression and world war ii, this group features a strong sense of patriotism, loyalty, and self-sacrifice. they are dedicated, hard-working, and respectful of authority (sullivan, forret, carraher, & mainiero, 2009). many argue that generation y has many similar characteristics of the traditionalists and therefore they tend to get along well together in some ways (howe & strauss, 2000). the baby boomer generation grew up in a time of significant cultural and social unrest as they experienced the cold war, vietnam war, civil rights movement, and the assassinations of many great leaders. they also came of age in a period of strong economic growth which allowed them to achieve great success (siebert, 2008). because of this, the baby boomers are described as being self-absorbed, culturally wise, self-confident, and socially mature (strauss & howe, 1991). in the workplace, they tend to micro-manage employees and dislike laziness (lowe et al., 2008) while working long hours and enjoying material successes (eisner, 2005). eisner also identified that similar to the silent generation, this group values loyalty, although they can be somewhat ruthless due to their experiences working in an environment that was extremely competitive and often resulted in scenarios of corporate downsizing. 100 huegel advances in business research 2013, vol. 4, no. 1, 98-106 generation x is commonly described as being shaped by the experiences of growing up with baby boomer parents. they witnessed their parents losing jobs and struggling to balance their work and family roles, which often led to many marriages resulting in divorce. as a result of the experiences with their baby boomer parents, generation x tends to be skeptical of organizations (sullivan et al., 2009), values work-life balance, individualism, and has an entrepreneurial nature (eisner, 2005). strauss and howe (1991) describe them as being cynical, distrusting, pragmatic, self-reliant, and fatalistic. contrary to the previous two generations, generation x created the free-agent workforce where a sense of loyalty to the organization was diminished. reflective of spending most of their lives in homes with personal computers, this group features good technical skills and an appreciation for skill development as they believe that maintaining and improving skills that are current will lead to regular employment (eisner, 2005). although the earlier generations have characteristics that are generally agreed to be accurate, generation y is easily the least solidified in its generational makeup because many of them are still fairly young and have yet to be shaped by experiences such as entering college or the work force (kowske et al., 2010). however, as the first members of generation y were entering their late teenage years and beginning to make their way into colleges and universities, howe and strauss (2000) provided an overview of the general characteristics of generation y. in their book, millennials rising: the next greatest generation, they described generation y as being cooperative, optimistic, team players, smart, civic-minded, special, trusting, accepting of authority, sheltered, confident, and achieving. the major influences that have shaped their attitudes and beliefs are the columbine high school massacre and the terrorist attacks of 9/11. additionally, they have grown up in a technologically connected world and have been raised in an extremely protective environment (sullivan et al., 2009). similarly, they have been described as valuing morality and home and family while being technically literate, educated, and ethnically diverse (eisner, 2005). as time passed and more generation yers entered the workforce, a workplace profile began to develop. francis-smith (2004) used a managerial perspective to describe generation y as preferring an inclusive style of management, disliking slowness, and desiring immediate feedback about their work. additionally, as more research was gathered, ng et al., (2010) found that they expected to contribute to decisions within the organization while eisner (2005) identified job satisfaction for generation y as being characterized by a positive work climate, flexibility, and an opportunity to work and grow. although there are typically some similarities between each of the generations, it becomes easy to see some of the “interesting differences” that kowske and colleagues (2010) may have been referring to, in particular between the baby boomers and generation y. while baby boomers tend to be workaholics, generation y values their home and family life and generally adopts a mentality of working to live. where the baby boomers tend to micro-manage their employees through an authoritative style, generation y enjoys an inclusive style of management and wants to be involved. similarly, generation x’s individualism is contrasted by generation y’s cooperative, team player mentality. because of these differences and the potential strains that they may cause within the workplace, it is important to investigate generational differences from a human resource perspective. as generation y continues to make up a larger portion of the workforce, these differences have the potential to have a more significant impact on organizational performance. conceptual model of retention for generation y emphasize balance and flexibility the public accounting industry has long been characterized as having an extremely demanding work schedule. although most understand the challenges that can be posed during tax season at a small firm where work on saturdays is mandatory, this issue is also compounded by the number of hours logged by employees who perform audits for clients. as auditors spend time at a client’s location gathering evidence that will substantiate the findings of the audit, a significant amount of time is spent traveling to and from the client’s location. for larger national firms, this can mean out of town travel requiring regular trips 101 huegel advances in business research 2013, vol. 4, no. 1, 98-106 through airport terminals. for smaller local and regional firms, this can mean logging many miles of travel navigating rush hour traffic. in both scenarios, the amount of time spent working at a client’s location, coupled with the travel requirements can place a significant amount of physical and mental stress on even the most dedicated employees. over time, the demands of the work environment can lead people to question their chosen career path and whether or not it is allowing them to live a lifestyle that they enjoy. the profile of generation y creates a potential scenario for incongruence between the demands of the public accounting industry and the characteristics of this generation. while generation y has been described as valuing home and family and their own personal time (eisner, 2005), this can be commonly misinterpreted by the workaholic baby boomers as laziness and lacking commitment to the organization. however, as eisner points out, generation y can be a very dedicated and hard working population, but they also appreciate and take advantage of their time away from work. this fits with the description of the group being very sociable and on-the-go. because of this mentality, it is not surprising that the aicpa’s top talent study of 2011 revealed that “single high potentials”, described as including unmarried recent college graduates, indicated that paid time off received more consideration than salary, medical benefits, and retirement savings when evaluating compensation and benefits in deciding whether to accept or remain in a position at a firm. another challenge that faces the public accounting industry is the emphasis on face time, where employees are expected to spend their day working within the office when not on location with a client. this regularly appears to consume an employee’s personal time as well as the expectation to socialize with clients and coworkers after the completion of the workday is a common occurrence. this is in direct contrast to the lifestyle that is desired by generation y as they value flexibility which has been discussed as being an important element of job satisfaction for this group (eisner, 2005). further, generation y’s technological capabilities enable them to live a lifestyle that allows for them to be connected at all times. this creates the potential for conflict when the expectation is for them to be physically present in the office while they view themselves as having the ability to work anywhere. although firms have worked to incorporate flexible work arrangements and the number of virtual firms is increasing, a greater commitment to enabling flexible work arrangements is necessary. additionally, howe and strauss (2000) described generation y as being team players, civic-minded, trusting, and rule followers. while many firms may use the allure of flexible work arrangements as a way to recruit new employees, a significant amount of regularly occurring turnover may limit the firm’s ability to follow through on this promise. as the burden of the void left by the exit of more experienced employees falls on those remaining with the firm, additional responsibilities make it more difficult for firms to allow the flexibility that was promised in the recruitment process. this can lead to a violation of the unwritten agreement between firms and employees that provides a subjective framework on which the work arrangement is based. this is commonly referred to as the psychological contract (rousseau, 1995). while the violation of the psychological contract may be viewed by the employee as being an unavoidable situation, regularly occurring violations of this nature can gradually erode the employee’s affective commitment to the organization and eventually lead the employee to consider seeking alternative employment (rousseau, 1995). given the characteristics of generation y, it is becoming more important for public accounting firms to evaluate the structure of vacation time and flexible work arrangements in order to improve the level of job satisfaction among generation y employees. additionally, firms must make a more concerted effort to follow through with promises made to employees in the recruitment stage in order to preserve high levels of affective commitment within their employees. ultimately, increased job satisfaction and affective commitment can help to improve retention rates for generation y employees. therefore, it is proposed that: proposition 1: implementing a formal system that features increased flexibility in work schedules and utilization of vacation time will be positively related to improved retention rates among generation y employees. 102 huegel advances in business research 2013, vol. 4, no. 1, 98-106 build a sense of meaning and accomplishment hackman and oldham (1976) identified that the presence of task significance, task identity, skill variety, autonomy, and feedback within the design of a job would lead to three critical psychological states of experienced meaningfulness, responsibility, and knowledge of results. ultimately, this would be associated with higher levels of motivation, job satisfaction, and performance. further, they described task significance, task identity, and skill variety as being the characteristics needing to exist in order for employees to find their work worthwhile and valuable. this is a critically important concept for generation y as they are characterized as seeking to have meaningful work experiences and desiring to experience a sense of accomplishment. this is illustrated through the level of importance that generation y places on a firm’s corporate social responsibility reputation and the expectation that the firm has the ability to help them find meaning and purpose in their lives (ng et al., 2010). similarly, the link between job satisfaction and the opportunity to work, learn, and grow for generation y (eisner, 2005) further indicates the importance of providing these types of experiences through job enrichment and enlargement (paul jr et al., 1969). daily tasks in public accounting can provide limited opportunities to build a sense of meaning and accomplishment within entry level employees which has the potential to further widen the gap between the nature of public accounting and the expectations of generation y. for many firms, newly hired staff accountants are destined to spend a significant amount of time completing mundane tasks on minor elements of a larger job. this limited scope of performance inhibits the development of task identity where employees are given the ability to see the completion of a job from beginning to end (hackman & oldham, 1976). similarly, the providing of a service makes it more difficult for the employee to see what they have accomplished since a tangible, completed product at the completion of the task is lacking. additionally, this limited scope precludes the employee from having the opportunity to interact with clients and gain an ability to understand the importance of the role they perform and the positive impact that they might have on other people, albeit indirectly. without the ability to interact with their clients, generation y employees will experience low task significance that can potentially lead to lower levels of job satisfaction as they struggle to find the desired amount of meaningfulness within their work. finally, this structure has the potential for employees to feel as if they are not fully utilizing their capabilities and talents thus further diminishing the degree of skill variety utilized within the job. this is reflected in the aicpa’s top talent study where subjects identified that working for a firm where they are stretched and challenged with difficult client projects is an important part of why they stay at those firms. as previously discussed, the inability to design a job that is characterized by task significance, task identity, and skill variety can limit the value and meaning for the employee assigned the duties (hackman & oldham, 1976). for generation y, this creates a loss in job satisfaction which leads to an increased potential for voluntary job turnover. although some studies have found that there is not a significant difference between previous generations and generation y in their intentions to leave an organization (kowske et al., 2010), others have argued that generation y is more open to leaving an organization as compared to older generations due to lower levels of satisfaction with their jobs and employers (eisner, 2005). another line of thought states that generation y may even prefer to have more job security than the preceding generations (twenge, 2010). this may be reflective of the effects of the recent economic downturn and the impact that economic uncertainty has had on this group. although the research on generation y’s intentions to leave is inconsistent, some believe that generation y’s combination of higher levels of entitlement (twenge, 2010) and greater need for instant gratification (southard & lewis, 2004) could lead to the possibility of them leaving a firm more quickly than previous generations when a better opportunity is presented (twenge, 2010). given this possibility and the previously discussed characteristics regarding the design of jobs in public accounting and the negative effects on generation y’s job satisfaction, it is proposed that: 103 huegel advances in business research 2013, vol. 4, no. 1, 98-106 proposition 2: implementation of an enriched job design that emphasizes task significance, task identity, and skill variety will be positively related to improved retention rates among generation y employees. establish quicker career progression social environments are described to be one of the many different aspects of our experiences that can shape our attitudes, values, and beliefs. for generation y, it has been the social structures that have conditioned them to expect an environment of clarity and certainty, which in turn has severely limited their tolerance for ambiguity and unexpected changes to previously established criteria (hershatter & epstein, 2010). while it may seem advantageous to have employees who prefer to accept authority and the structure associated with it, this can be very challenging given that businesses operate in dynamic environments and managers often do not have the amount of time necessary to provide the structure and reassurance that is demanded by generation y. similarly, generation y has been conditioned by their support structures through their time spent with their families and in the school systems to develop close relationships and communicate openly with their superiors (myers & sadaghiani, 2010). while open communication is often identified as one of the main ingredients for success, it also consumes management’s most valuable commodity, time. however, there are many positive aspects that can emerge from this willingness to communicate as generation y is considered to be open-minded (myers & sadaghiani, 2010), wanting immediate feedback about work (francis-smith, 2004), and valuing the opportunity to learn and grow (eisner, 2005). in effect, this is reflective of their optimistic, team player approach (howe & strauss, 2000) where they view themselves as an equal partner with the organization where each party is working towards a mutual benefit. because of this, they prefer an inclusive style of management (francis-smith, 2004) and expect to contribute to organizational decisions (ng et al., 2010). therefore, it is not surprising that the aicpa’s top talent study (2011) indicated that unmarried, recent college graduates valued a positive work climate where their ideas are valued and they can approach their leaders. while the challenge of providing supporting structures for generation y employees is not unique to the public accounting industry, evidence suggests that mentoring and coaching programs may be underutilized as a method to help bridge the gap between the desired clarity and daily environmental uncertainty. the aicpa’s top talent study reported that only 53% of respondents indicated that their firm had instituted a formal mentoring program. additionally, only 37% of the respondents indicated participation in a formal mentoring program. although 41% indicated having an informal mentor, it could be suggested that the presentation and implementation of a formal mentoring program may provide a more explicit commitment by the organization to meeting the needs of its generation y employees as they begin to develop and grow in their partnership with the organization. a final area of concern for public accounting lies in generation y’s expectations for career advancement. generation y has been described as being achieving (howe & strauss, 2000) and achievement-oriented (eisner, 2005). this is also evidenced by their expectation for rapid advancement which has resulted in an impatience that ultimately leads to voluntary turnover if they do not see immediate rewards, such as raises and promotions, at their current organization (ng et al., 2010). for firms that provide the opportunity for development and advancement, generation y typically responds with loyalty (hershatter & epstein, 2010). the importance of career growth opportunity is further evidenced in that 93% of respondents in the aicpa’s top talent study identified it as an important retention factor. while career growth opportunities are most likely important in a majority of professions, public accounting is limited by the traditional structure of its firms. typically, firms are structured in a manner where there are limited levels within the organization and employees spend more time at each level relative to organizations within private industry. a typical public accounting firm would consist of the four levels of staff accountant, senior accountant, manager, and partner. additionally, it is not uncommon for an employee to be in a position for a minimum of two years before having an opportunity to be 104 huegel advances in business research 2013, vol. 4, no. 1, 98-106 promoted arises, in particular at larger firms. although some promotions may be held up by employees needing to pass the uniform cpa exam in order to perform managerial functions, many times the length of time between promotions can be attributed to the limited number of levels within a public accounting firm. this can be particularly frustrating for young accountants who may see their private industry counterparts receiving promotions and additional responsibilities. a potential solution to this issue is to add additional levels to the traditional structure of public accounting firms. firms that implement a promotion system that includes more levels will want to ensure that the system emphasizes opportunity for growth and development within the firm. those firms that implement a system lacking the opportunity for growth and development by granting promotions in title but not responsibility will run the risk of alienating its top employees. while turnover is inevitable at higher levels of the firm as some employees are eliminated from consideration for partner-level positions, those firms that are able to structure the levels of advancement around a process of developing employees will have a greater potential to retain its best employees longer thus improving their ability to reduce voluntary turnover at the lower levels of the firm. therefore, it is proposed that: proposition 3: creating quicker career progression through the development of formal mentoring and coaching programs and expansion of the levels available for employees to advance will be positively related to improved retention rates among generation y employees. implications for managers while voluntary turnover is not a new issue for public accounting, the pending retirement of the baby boomers and the differences between generation y and previous generations potentially pose a significant problem for those managing public accounting firms. additionally, the incongruences between the workplace preferences of generation y and the traditional organizational structure of the firms, the type of work involved, and the regular operating schedule creates many challenges for firms as they work to keep their best talent. although larger firms may have the human resource capacity and structures in place to handle a significant amount of turnover, they are also the type of firms that may be more challenged to provide the personal attention and job design that is craved by generation y. while it may be difficult for larger firms to structure the work in a manner that provides more task significance and task identity, these firms may have a greater ability to institute formal mentoring programs that can help to positively affect a young employee by placing them in contact with individuals who can help to provide a support structure as they navigate their way through the beginning of their careers. small firms have the greatest potential to be negatively affected by a significant amount of voluntary turnover among their newest employees as they may not have the recruiting systems in place or the access to a significant number of applicants. additionally, fluctuation in the number of clients may make it more difficult for managers of small firms to accurately predict how many new hires are needed. this problem is magnified when voluntary turnover is unexpected. however, while small firms may face the biggest challenge in combatting voluntary turnover, they may also have the greatest ability to positively affect the retention rate among their generation y employees as they have a greater opportunity to improve task significance, task identity, and skill variety in the jobs assigned to generation y employees. this can be done by providing more meaningful tasks earlier in their careers and creating opportunities for them to interact with the clients that they are serving in a more formal capacity. additionally, given the relative size of the small firms, there is a greater opportunity to cater to the needs of these employees by “providing individual attention and a supportive, family-like environment” (hershatter & epstein, 2010: 220-221). this allows generation y to work closely with their managers and develop friendships with coworkers that can potentially lead to a more engaged workforce (ng et al., 2010). considering the socialization process of generation y and the emphasis placed on an inclusive, team-oriented environment, a nurturing, positive work climate could provide a significant opportunity to reduce the rate of voluntary turnover within small public accounting firms. 105 huegel advances in business research 2013, vol. 4, no. 1, 98-106 directions for future research given that this paper proposes a conceptual model of retention for generation y employees, an important first step for future research would be to test the model empirically in order to determine whether or not the previously discussed propositions are valid. of particular importance will be the potential effects of firm size on the model given the potential for firms of different sizes having varying abilities to implement the proposed changes. similarly, an important consideration would be to analyze the ability of a firm to recruit new employees. although there are significant costs associated with turnover within organizations, a cost-benefit analysis could reveal that it is more cost-effective to replace employees than it is to invest in retention efforts. while this could still place a firm in a difficult position if an adequate number of employees are not retained to fulfill more significant duties requiring experience, it is an alternative that should be considered. another area for future research is the potential for subgroups to form within generation y. while each generation is molded by the events that occur during the impressionable periods of their lives, events do occur at different stages of life, even within the larger generational models. for example, members of generation y who were either employed or seeking employment during the economic downturn of 2008 will be influenced differently than members of generation y who were still in secondary school at that time. because of this, as more of generation y makes its way into the workforce, it will be important to investigate the potential for subtle differences between subgroups of generation y. a final suggestion for future research is to investigate the potential for relationship conflict between members of different generations. while there are some similarities shared by each of the generations, as previously discussed, there are certainly some significant differences. in particular, considering that many firms may adopt a team structure for the completion of audits, are there certain attitudinal differences that have the potential to create conflict and research should investigate whether there are strategies that can be used to minimize the impact of the conflict on team performance (siebert, 2008). additionally, training programs that help employees to identify generational differences that have the potential to create conflict could be investigated in order to proactively counteract the negative effects of those differences. conclusion although generational differences in the workplace have been around for generations, it is important for organizations to proactively identify differences in new generations of employees that could positively or negatively affect firm performance. this is particularly important when a new generation begins to establish itself and a new combination of four different generations is represented in the workforce. while some industries may have an ability to delay their recognition of these differences and force the newest generation to adapt, industries that operate in an environment that lacks an abundance of labor must pay particularly close attention to why employees choose to voluntarily leave the organization and work to adapt organizational policies and structures to help improve the retention rates of those employees. references eisner, s. 2005. managing generation y. sam advanced management journal, 70(4): 4-15. francis-smith, j. 2004. surviving and thriving in the multigenerational workplace. journal record, 1(1): 1. hackman, j., & oldham, g. 1976. motivation through the design of work: test of a theory. organizational behavior & human performance, 16(2): 250-279. hershatter, a., & epstein, m. 2010. millennials and the world of work: an organization and management perspective. journal of business and psychology, 25(2): 211-223. 106 huegel advances in business research 2013, vol. 4, no. 1, 98-106 howe, n., & strauss, w. 2000. millennials rising: the next great generation. new york: vintage. kowske, b., rasch, r., & wiley, j. 2010. millennials’ (lack of) attitude problem: an empirical examination of generational effects on work attitudes. journal of business & psychology, 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investigation of intergenerational workplace conflicts and managerial responses. 3306471 d.b.a., st. ambrose university, united states iowa. retrieved from http://search.proquest. com/docview/304836369?accountid=28567 dissertations & theses @ st. ambrose university database. southard, g., & lewis, j. 2004. building a workplace that recognizes generational diversity. public management, 86(3): 8-12. strauss, w., & howe, n. 1991. generations: the history of america's future, 1584 to 2069. new york: morrow. sullivan, s., forret, m., carraher, s., & mainiero, l. 2009. using the kaleidoscope career model to examine generational differences in work attitudes. career development international, 14(3): 284302. twenge, j. 2010. a review of the empirical evidence on generational differences in work attitudes. journal of business and psychology, 25(2): 201-210. benjamin huegel is an assistant professor of accounting at saint mary’s university of minnesota. he is currently on educational leave while completing his d.b.a. in management from st. ambrose university. his current research interests include human resource issues in public accounting, training and development, and technology in accounting education. uafs advances in business research 2012 lowrez (2).pdf henley and cotter advances in business research 2012, vol. 3, no. 1, 90-98 90 the german automobile paradox james henley, university of tennessee at chattanooga michael cotter, grand valley state university this study compares the performance and reliability of german vehicles sold in the us to those from the rest of the world. the examination uses consumer reports’ vehicle road-test performance and predicted reliability from 1994 through 2012. statistical analysis reveals a contradiction in the two automobile dimensions. the german automobiles had better road-test performance than automobiles from the rest of the world, but the german vehicles’ predicted reliability was much worse. products emanating from a particular country often take on the general image of that country’s products. in the marketing discipline literature, this is known as the country-of-origin (pharr, 2005). products from german companies generally have a positive quality reputation and german automobiles share in germany’s good reputation (sohail, 2005). when people are asked to describe german automobiles, comments of reliable automobiles, better performance, excellent engineering, and prestigious are common (lawrence & prendergast, 1992). the german automobile manufacturers stress this image with their product positioning. affordable german engineering is volkswagen’s position while audi, porsche, bmw, and mercedes stress performance, excellent engineering as well as luxury. this combination of engineering, performance, and luxury is a powerful marketing position on the world automobile market. for premium vehicles, bmw is the world’s number one automobile manufacturer in sales volume followed by audi and then mercedes (castonguay, 2012). in a close sales volume race in the united states, bmw beat out mercedes for the top position in 2011. both german brands exceeded the sales of the japanese automobile lexus, which was the number one premium brand for the previous decade (dolan, rauwald, & schmidt, 2012). although volkswagen is not a premium brand, it does stress german engineering. volkswagen has ambitions to increase its u.s. sales to 800,000 units by 2018 (findlay, 2009). this would be an almost four-fold increase from 2009 when it had sales of 213,454 (kurylko, 2010). automobile quality is also a strong marketing position for automobiles. automobile quality was the most important consideration for 86 percent of u.s. automobile consumers responding to a survey (cole & flynn, 2009). also, there is evidence that a quality product strategy leads to higher profits (jacobson & aaker, 1987). since german automobiles have an excellent reputation (lawrence & prendergast, 1992; sohail, 2005), this study examined how german vehicles compared to the rest of the world on two dimensions: automobile road-test performance and automobile reliability. the source for data on vehicle performance and reliability was consumer reports. every year, consumer reports surveys its readers and road tests purchased automobiles sold in the united states. they publish the results of their survey, road-test results, and make predictions on future performance quality. we used consumer reports’ data from 1994 to 2012 to examine road-test performance and predicted reliability of german automobiles compared to automobiles from other countries. literature review historically, automobile researchers have extensively researched many areas of the industry. these areas include market share (train & winston, 2007), reliability and age effects on used car prices (betts & taran, 2004), price/quality relationships (hogarty, 1975), product differentiation and price discrimination (mertens & ginsburgh, 1985), brand name influence (sullivan, 1998), and recall consequences (crafton, hoffer, & reilly, 1981; bates, holweg, lewis, & oliver, 2007). a product’s country-of-origin influences consumers’ product quality assessments and is another major area of analysis. since this study is focused on germany, the country-of-origin literature can be particularly useful. fortunately, country-of-origin pertaining to automobiles is extensively researched and the literature is reviewed in the next two sections. what constitutes a german vehicle? the first step of this study was to define what automobile manufacturers were german. at first blush, this seems a simple task. certainly, a german automobile is an automobile made in germany by a german automobile manufacturer. when the facts of modern manufacturing and company ownership are reviewed, however, the situation becomes far more complex. most people consider german manufacturers to be audi, bmw, mercedes, henley and cotter advances in business research 2012, vol. 3, no. 1, 90-98 91 porsche, and volkswagen. however, are the vehicles these manufacturers produce considered german even if they are made in another country? for example, bmw, mercedes, and volkswagen have vehicle assembly plants in the united states (global game, 2007; young, 2011). are these vehicles german or u.s.? in addition, chrysler was owned by daimler-benz (mercedes) from 1998 to 2007 (rutberg, 2007; white, 2009). during this period was chrysler a german or american automobile? the mini is historically considered british but is now owned by bmw (white, 2012). the country-of-origin literature offers a response to these questions. country-of-origin is the collective beliefs consumers have about a particular country. researchers found country-of-origin beliefs affect the evaluation of a product associated with a country (hong & wyer, 1989; pharr, 2005). pappu, quester, and cooksey (2007) found country-of-origin could influence brand equity. research on country-of-origin is extensive (nagashima, 1970; hong & wyer, 1990; al-sulaiti & baker, 1998; verlegh & steenkamp, 1999; gurhan-canli & maheswaran, 2000; beverland & lindgreen, 2002; dinnie, 2002; liefeld, 2004; liu & johnson, 2005; pharr, 2005; yasin, noor, & mohamad, 2007). country-of-origin is composed of several concepts such as brand origin (thakor, 1996), country-of-assembly (tse & lee, 1993; inch & mcbride, 1998; chao, 2001), country-of-manufacture (ulgado, 2002; thakor & lavack, 2003), country-of-parts (inch & mcbride, 1998; chao, 2001), and country-of-design (sauer, young, & unnava, 1991; chao, 1993; ahmed & d’astous, 1995; inch & mcbride, 1998; chao, 2001). many researchers found country-of-origin influences consumers’ evaluations of automobiles (han & terpstra, 1988; chao & gupta, 1995; haubl, 1996). loeffler (2002) discovered complex products, including automobiles, are influenced more by country-of-origin beliefs. since automobile evaluations are heavily swayed by their country-oforigin, this study uses country-of-origin as the means to classify a vehicle as german. since there are many countryof-origin concepts, the appropriate concept for this study was determined next. brand origin is a brand’s initial country of development, irrespective of where a product obtains parts, is designed, or is manufactured (thakor, 1996). it is also known as country-of-corporate-ownership (thakor & lavack, 2003), country-of-brand-origin, and country-of-brand-ownership (ulgado, 2002; chen, 2004). researchers found brand origin influences consumers’ brand perceptions (harris, garner-earl, sprick, & carroll, 1994; leclerc, schmitt, & dube, 1994; samiee, 1994; chao, 2001; thakor & lavack, 2003). it is also more influential than country-of-manufacture (ulgado, 2002; chen, 2004) and country-of-parts or country-of-assembly (thakor & lavack, 2003). since many studies results indicate brand origin was more influential than other country-of-origin concepts, brand origin was used to classify automobiles as german. consequently, the location of manufacturing, location of parts suppliers, and current brand ownership were not considered. for this study, the german automobile brands are audi, bmw, mercedes, porsche, and volkswagen. german country-of-origin reputation in general, producers from germany enjoy an excellent country-of-origin image. many studies document the quality reputation and customer preference of german products (darling & kraft, 1977; cattin, jolibert, & lohnes, 1982; leonidou, hadilmarcou, kaleka, & stamenova, 1999). hanzaee (2008) found iranian consumers perceived german product technology as advanced. sohail (2005) found german product quality highly rated among malaysian consumers. for vehicles in particular, germany has an excellent country-of-origin reputation. in the study of iranian consumers, hanzaee (2008) found german automobiles were their first preference. lawrence, marr, and prendergast (1992) researched new zealander consumers and found they perceived german cars to be high on performance, engineering, and service. new zealanders preferred country of origin for automobiles was germany. in another study, german automobile components ranked higher in quality than japanese automobile components (karunaratna, quester, & johnson, 2004). in addition to finding german product quality was rated highly by malaysian consumers, sohail (2005) also found german automobiles had the highest rating among german products. the excellent country-of-origin image for german vehicles has benefited german automobile manufacturers in their pricing. thanasuta, patoomsuwan, chaimahawong, and chiaravutthi (2009) studied price premiums thai consumers were willing to pay for automobiles from different countries, and german automobiles ranked first. roth and romeo (1992) studied american, irish, and mexican students and found they would pay more for german automobiles. in a study of the german automobile market, fetscherin and toncar (2009) found a significant positive correlation between engine quality and price. given the literature evidence, german products have an excellent country-of-origin reputation. german henley and cotter advances in business research 2012, vol. 3, no. 1, 90-98 92 automobiles, in particular, have an outstanding reputation for performance and quality. with knowledge of the german automobile reputation, the next step was the data and methodology for examining the performance and quality of german vehicles. data source considerations for the data on vehicle performance and quality, the study used the publication consumer reports. the consumer union annually surveys automobile owners about their experiences with their vehicles and publishes this information in consumer reports. in 2012, for example, the consumer union received about 1,300,000 automobile evaluations. consumer reports does not accept advertising funding from companies; consequently, there is no perception of bias in the ratings. because of the size of the survey and unbiased nature of the publication, consumer reports has proved to be a popular source of information for marketers researching many products (riesz, 1978, 1979; gerstner, 1985; bodell, kerton, & schuster, 1986; steenkamp, 1998; montgomery & wernerfelt, 1992; faulds, grunewald, & johnson, 1995). automobile industry researchers have also used consumer reports (uri, 1986; friedman, 1987; arguea, hsiao, & taylor, 1994; gupta & lord, 1995; yerger, 1996; nichols, 1998; sullivan, 1998; apelbaum, gerstner, & naik, 2003). table 1: consumer reports vehicle road-test scores (rts) year non-german pr number of non-german german pr number of german p-value signifinace 1994 3.57 112 3.25 4 0.562 1995 3.84 108 4.38 8 0.131 1996 3.69 131 4.29 7 0.132 1997 3.71 108 4.44 9 0.026 1998 3.70 109 4.71 7 0.006 1999 3.77 107 4.75 12 <.001 2000 3.88 115 4.79 14 <.001 2001 3.87 136 4.71 21 <.001 2002 3.85 134 4.79 19 <.001 2003 3.74 133 4.52 21 <.001 2004 3.91 160 4.75 28 <.001 2005 3.57 164 4.44 25 <.001 2006 3.57 191 4.42 19 <.001 2007 65.16 199 79.58 33 0.002 2008 66.08 222 80.09 34 <.001 2009 66.65 250 78.10 40 <.001 2010 69.25 241 77.35 46 <.001 2011 71.06 232 77.27 41 0.004 2012 72.31 230 78.40 43 <.001 table 2: consumer reports vehicle predicted-reliability scores (pr) year non-german pr number of non-german german pr number of german p-value signifinace 1994 3.24 132 3.75 4 0.429 1995 3.26 96 4.00 5 <.001 1996 2.51 146 2.57 7 0.852 1997 2.55 135 2.40 10 0.628 1998 2.36 130 2.56 9 0.549 1999 3.13 117 3.10 10 0.927 2000 3.07 117 3.31 13 0.385 2001 3.03 138 2.74 23 0.203 2002 3.02 152 2.56 25 0.114 2003 3.00 157 1.94 17 0.001 2004 3.08 159 1.86 21 <.001 2005 3.23 163 1.81 27 <.001 2006 3.16 177 1.95 20 <.001 2007 3.24 154 2.08 13 0.002 2008 3.32 168 2.14 21 <.001 2009 3.31 200 2.58 33 0.002 2010 3.33 208 2.81 36 0.017 2011 3.43 185 2.64 33 <.001 2012 3,34 190 2.59 32 <.001 henley and cotter advances in business research 2012, vol. 3, no. 1, 90-98 93 data for the study was gathered from consumer reports’ issues from 1994 through 2012. for the data on german car performance, the study used the consumer reports’ road-test results. the consumer reports’ scale was 1 to 5 with 1 being the worst rating and 5 being the best. in 2007, they changed the five point scale to a 100 point scale with a 1 being the worst rating and 100 being the best. consumer reports does not accept cars from manufacturers to test, and it buys the automobiles from dealerships just as a consumer would. it does this to prevent any perception of bias in their road test evaluations. for a measure of reliability, the study used consumer reports’ predicted reliability assessments which also used the 1 to 5 scale. the predictions are made on past reliability reported by the owners of the automobile brand in the consumer union survey. german and world automobile road test and predicted reliability comparisons to test for significant differences between non-german and german automobiles, a two-tailed t-test was used. the tested non-german and german automobile populations were much greater than 30 and normally distributed (pagano, 1990). the significant difference criterion was set at .05 for the p-value. table 1 above compares nongerman automobiles’ road-test results to german vehicles road-test results. table 2 above compares non-german vehicles’ predicted reliability results to german automobile predicted reliability results. discussion mindful of the german product and automobile positive country-of-origin reputation, the comparison of nongerman automobile road test and predicted reliability to german automobiles resulted in an unanticipated paradox. table 1 above reveals that for each year from 1997 through 2012 the german automobiles outperformed their nongerman counterparts on the road-test results at a significant level. given the engineering and performance countryof-origin automobile reputations and positions of the german companies, this result was expected. the paradox comes when the predicted reliability results are analyzed. for each year from 2003 through 2012, non-german automobiles had a significantly better predicted reliability than the german automobiles. given the positive countryof-origin view of german automobiles, this lower predicted reliability was not expected. the german automobiles did have a better predicted reliability in 1995; however, they have not been able to repeat that performance. consequently, the paradox is that german automobiles have better road-test performance but worse predicted reliability than non-german automobiles. management implications the study results show german vehicle manufacturers produce products that demonstrate a paradox of higher performance and lower reliability than the competition. the high performance is a valued asset for german automobiles and part of the marketing strategy for many of the german automobile brands. however, the lower german vehicle quality is a severe flaw for german automobile manufacturers and a major risk for their future success. the question facing the german automobile manufacturer is: does the performance/reliability incongruity matter to the consumers of german automobiles? an explanation for the performance/reliability inconsistency to consumers of german automobiles could be in the specific target markets for each german automobile manufacturer. there are different implications for each manufacturer depending on the manufacturer’s marketing strategy. the bigger mass-market consumers of automobiles may be more concerned with reliability than performance. as stated in the introduction, quality is the most important consideration for 86 percent of u.s. automobile buyers (cole & flynn, 2009). volkswagen wants to become a major company in the u.s. automobile mass market and has stated that it wants to increase sales in the u.s. to 800,000 units by 2018 (findlay, 2009). to accomplish this goal, volkswagen must appeal to the mass market’s desire for reliable automobiles. consequently, it needs to focus on producing quality automobiles. volkswagen is aware of their vehicles’ quality problems and is working on improving quality (dolan, rauwald, & schmidt, 2012). given the recent market share success of german premium/performance automobiles (dolan, rauwald, & schmidt, 2012), perhaps the performance/reliability paradox does not matter for their target segments. ramsey (2011) reported sales of premium brands that followed bmw and mercedes in technology, such as acura and infiniti, had fallen. buyers of german vehicles such as mercedes, bmw, audi, and porsche may be primarily motivated by the performance of the vehicle. these consumers may tolerate a temperamental automobile with periodic reliability problems to get a vehicle that performs at a high level. if this market segment wants performance first, for example, a technological innovation that improves the vehicle’s performance would be welcome. often an henley and cotter advances in business research 2012, vol. 3, no. 1, 90-98 94 innovation may show some problems after it is introduced that can be worked out over time to provide reliability. however, it could be the consumers motivated by superior performance would rather have the innovation immediately in spite of the problems that it may produce. for these manufacturers, a continued emphasis on the performance of their vehicles over reliability may be the key to their success. given the importance of vehicle quality, the overriding implication for management of german vehicle companies must be to bolster the reliability of their products. in the face of worldwide pursuit of quality vehicle manufacturing, the german vehicle manufacturers must capture higher reliability ratings while maintaining their lead in vehicle performance to expunge the paradox. study limitations one study limitation could be with the reliability predictions of consumer reports. consumer reports makes these recommendations based on the results of the automobile owner survey sent to subscribers of the magazine. consumer reports main focus is to evaluate and rate all types of products. this focus could lead to a heightened emphasis on automobile problem areas by the subscribers. the consumer reports’ subscribers may have a more critical focus on product flaws than the general population. another limitation is the time of the study. it covered the years of 1994 through 2012. although this period gives a current picture of reliability and performance, a longer period could give a deeper understanding of reliability and performance of german automobiles. although our study was concerned with the collective results of german automobile road-test performance and predicted reliability, it could be the individual german manufacturer’s results could vary from the collective german automobile results. consequently, a closer examination the road tests and predicted reliability of each of the german automobile brands could add a greater understanding of the german automobile market. future research one area of future investigation could be to research the reliability and performance of german vehicles based on specific variables included in reliability measures and performance instead of the merged data and interpretation based on the consumer reports editor perspective. some variables might be considered more important than others based on the reader’s viewpoint. another research possibility could be the use of another vehicle measurement from other organizations besides consumer reports. there are a number of organizations who show great interest in assessing vehicles in a variety of modes for their target markets. this data might offer further insights into the differences between german manufacturers products and the rest of the world‘s. another investigation would be to compare the individual german automobile manufacturer’s reliability and performance compared to the world’s 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2002. country-of-origin effects on e-commerce. journal of american academy of business, 2(1), 250253. uri, n. 1986. forecasting relative quality. journal of forecasting, 5(2), 105-115. verlegh, p., & steenkamp, j. 1999. a review and meta-analysis of country-of-origin research. journal of economic psychology, 20(5), 521-546. yasin, n., noor, m., & mohamad, o. 2007. does image of country-of-origin matter to brand equity? journal of product and brand management, 16(1), 38-48. yerger, d. 1996. used car markets: reliability does matter, but do consumer reports? applied economics letters, 3(2), 67-70. young, l. 2011. das auto delivers. chattanooga times free press, may 25, a1, a8. white, j. 2009. what is an american car? wall street journal, jan. 26, d6. white, j. 2012. luxury car makers think small. wall street journal, (jan. 12), retrieved from http://online.wsj. com/article/sb10001424052970204257504577154973108312272.html?keywords=luxury+car. james henley is the henry hart professor of marketing at university of tennessee at chattanooga. he received his d.b.a. in marketing from mississippi state university. his current research interests include country-of-origin effects, product quality, and negotiation. he has published in the journal of business to business marketing, journal of marketing theory and practice, and marketing management journal. michael cotter is an associate professor of marketing at grand valley state university. he received his d.b.a. in marketing from mississippi state university. his current research interests include automobile industry advertising changes, country-of-origin effects, product quality, and negotiation. he has published in the journal of business to business marketing, journal of marketing theory and practice, and marketing management journal. uafs advances in business research 2012 lowrez (2).pdf dawsey and taylor advances in business research 2012, vol. 3, no. 1, 63-71 63 empirical evidence of active engagement and active disengagement in an organizational setting joseph dawsey, piedmont college edward taylor, piedmont college this study provides empirical evidence supporting the notion that a continuum of behaviors range from one end point named active disengagement to another end point named active engagement. we utilized a previously analyzed data set and found support for the existence of the engagement continuum and in addition, we found support for the idea that the analytical lens of this continuum improves our understanding of the relationships between commonly used measures of citizenship behavior, organizational commitment, and psychological bonding. one final result of this analysis is the decoupling of the model from references to ocbs and extra-role behavior as articulated in the ocb research stream by recognizing that the theoretical grounding of the engagement model and the original ocb model was katz and kahn (1978). disengagement in an organizational setting interest in the phenomenon of employee engagement has gained in both attention and awareness since it was first introduced into the scholarly literature more than twenty years ago (e.g., kahn, 1990; 1992). what does it mean to be engaged or even fully engaged at work? what is employee engagement? over the years, researchers have produced a myriad of definitions and approaches (e.g., macey & schneider, 2008; pfeffer, 2007), and seemingly these definitions have only been matched in variety and intensity in the works of practitioners and the popular press (baron, 2005; gallup, 2001; krueger & killham, 2005, 2006). in many ways, it is perhaps the popularity of the concept of employee engagement that has contributed to its somewhat inconsistent lineage. the search for a definition of employee engagement might be likened to encountering a chimera for the first time. at once we are fascinated by the multifaceted and idiosyncratic nature of the constituent components of the beast, and yet, we are equally horrified, and perhaps underwhelmed, with the loosely configured overall result. instinctively, almost all managers know that they want to achieve a certain level of engagement with all employees but frequently find themselves baffled by inconsistent results. building upon this awareness, recent articles in the human resource development (hrd) literature have generated equally increasing interest in the concept of employee engagement in the workplace (e.g., fairlie, 2011; shuck, 2011; shuck & herd, 2012; shuck & wollard, 2010). at the same time, this burgeoning interest has also seemingly generated as many questions about employee engagement has have been answered in the scholarly literature. as a construct, employee engagement appears to have loosely coalesced from observations originating from practitioner articles (e.g., gallup, 2001) and the popular press with some growing interest among academic researchers. these parallel discussions have also created what might be thought of as two lines of thought about employee engagement. the popular discussion, based primarily on anecdotal observations, has focused on the economic effects of having engaged employees in the workplace. alongside the popular discussion, the academic literature has concentrated on aspects of what it means to be either engaged or disengaged. one of the most notable early efforts at conceptualizing employee engagement was kahn’s (1990) article describing personal engagement and personal disengagement. kahn’s (1990) definition of personal engagement highlighted the cognitive, emotional, and behavioral aspects of engagement as “the simultaneous employment and expression of a person’s ‘preferred self’ in task behaviors that promote connections to others personal presence (physical, cognitive, and emotional), and active full role performances” (p. 700). this definition is interesting because it incorporates the full extent of personal presence, (including physical, cognitive, and emotional qualities) along with the notion of full roll performance. the nature of role performance and role characteristics is not a new discussion in either the organizational behavior or the hrd literatures; the manner in which workers assume and perform various roles in the workplace has been explored for some time (e.g., blauner, 1964; graen, 1976; kahn, 1990, 1992; katz & kahn, 1978; macey & schneider, 2008; merton, 1968). by incorporating role performance into his definition of personal engagement, kahn (1990) was attempting to address what he perceived to be a lack of contextual considerations (e.g., brief & motowidlo, 1986; motowidlo, borman, & schmit, 1997) surrounding the discussions of employee engagement. a variety of research efforts have examined similar constructs including the motivational factors surrounding job involvement (hackman, 1969; herzberg, mausner, & snyderman, 1959; maslow, 1950; vroom, 1995), the dawsey and taylor advances in business research 2012, vol. 3, no. 1, 63-71 64 psychological elements (kahn, 1990, 1992; katz & kahn, 1978), the emotional elements (hochschild, 1979, 2003/1983; maslach, 2003; maslach, schaufeli & leiter, 2001) and the extended or srb elements (dalal, 2005; grant, 2007; lee & allen, 2000; organ, 1988; smith, organ & near, 1983). macey and schneider (2008), in one of the major conceptual reviews of emotional labor identified the general types of engagement that lead to the development of employee engagement: trait engagement; state engagement; and behavioral engagement. all of this points toward something of an evolving, yet still very unclear positioning of employee engagement. this lack of clarity is further highlighted in shuck and wollard’s (2010) summary of employee engagement definitions (p. 101): “personal engagement is the simultaneous employment and expression of a person’s ‘preferred self’ in task behaviors that promote connections to work and to others, personal presence, and active full role performances” (kahn, 1990, p. 700). “a persistent, positive affective-motivational state of fulfillment in employees that is characterized by high levels of activation and pleasure” (maslach et al., 2001, p. 417). “employee engagement refers to the individual’s involvement and satisfaction with as well as enthusiasm for work” (harter et al., 2002, p. 269). “a distinct and unique construct that consists of cognitive, emotional, and behavioral components that is associated with individual role performance” (saks, 2006, p. 602). “[engaged] employees are mentally and emotionally invested in their work and in contributing to their employer’s success” (czarnowsky, 2008, p. 6). trait engagement is defined as the “inclination or orientation to experience the work from a particular vantage point” (macey & schneider, 2008, p. 5). psychological state engagement is defined as an antecedent to behavioral engagement (encompassing the constructs of satisfaction, involvement, commitment, and empowerment; pp. 5-6). behavioral engagement is “define[d] in terms of discretionary effort” (p. 6). even though conversations addressing employee engagement have now been around for over twenty years, there has remained a persistent problem in the academic literature in terms of agreement as to what exactly constitutes employee engagement. what is employee engagement? what does it mean to be engaged at work? is engagement a behavioral element or a psychological state? these and many similar questions have been explored over the years, but the conceptual picture of what engagement might look like has yet to be fully realized and/or measured through empirical research. in addressing these questions of employee engagement, dawsey and taylor (2011) introduced a model of worker engagement built around an engagement continuum ranging from active disengagement to active disengagement (ae ade). it addresses articles in the popular press (e.g., gallup, 2001) and gaps in the twentyplus-year-old scholarly research stream (e.g., kahn, 1990; macey & scneider, 2008). one of the most cited definitions of engagement is drawn from kahn’s (1990) descriptions of personal engagement and personal disengagement (shuck & rieo, 2011). kahn (1990) defined personal engagement as “the simultaneous employment and expression of a person's 'preferred self' in task behaviors that promote connections to work and to others, personal presence (physical, cognitive, and emotional), and active full role performances” (p. 700). kahn (1990) further defined personal disengagement as the “simultaneous withdrawal and defense of a person's preferred self in behaviors that promote a lack of connections, physical, cognitive, and emotional absence, and passive, incomplete role performance” (p. 701). dawsey and taylor’s (2011) model builds on kahn’s definitions of personal engagement, but contrary to previous theory, the new model no longer views disengagement as simply the absence of engagement; instead dawsey and taylor’s (2011) research found observable behaviors all along an engagement continuum. the ae ade continuum (dawsey & taylor, 2011) describes workers who perform supra-role behaviors (srbs) (katz & kahn, 1978) and who are committed to their organizations as actively engaged; and workers who undermine their fellow workers and are not committed to the organization as actively disengaged. it is the behavioral element when coupled with the cognitive and emotional elements that accounts for the active forms of engagement and disengagement. figure 1 illustrates the four points along the engagement continuum that constitutes the general conceptual framework of the model: active engagement, engagement, disengagement, and active disengagement. dawsey and taylor (2011) defined active engagement as a psychological state of being bonded with the organization, and a cognitive state of expressed commitment to the organization (e.g., not planning to leave the organization); a further behavioral element of this psychological state (or attitude) would be consistent with behaviors typically associated with the early organizational citizenship behavior literature (e.g., organ, 1988) which we now term srbs given organ’s (1997) decoupling of ocbs from srb behavior. in summary, actively engaged dawsey and taylor advances in business research 2012, vol. 3, no. 1, 63-71 65 employees are bonded with the organization and self-directed in their work, making psychological measures more important than cognitive and with a distinct pro-organizational behavioral element. dawsey and taylor (2011) did not assert that general engagement (or what is often referred to in the literature as employee engagement) lacks a behavioral element, instead they asserted that general engagement and general disengagement are both attitudes that contain psychological and cognitive components but when the behavioral element manifests itself, it will be through supra-role behavior (katz & kahn, 1978) rather than through irb behaviors (irbs) (katz & kahn, 1978). macey and schneider (2008) also noted engagement concepts encompassing psychological states, traits, and behaviors, including elements of higher than normal effort and involvement. the current study applies dawsey and taylor’s model to an existing data set of supervisor and subordinate dyads with measures of irbs and srbs, perceptions, and performance. the purpose of the study is to see if behaviors and attitudes consistent with the engagement model shown below in figure 1 can be found in this existing dataset. figure 1: engagement continuum active engagement (ae) (21 items) engagement (e) (34 items) compliance (203 items) disengagement (de) (33 items) active disengagement (ade) (23 items) high irb high irb low irb low irb higher srb lower (aob) (higher pos. srb) outreaches to coworkers withdrawal from coworkers lower srb higher (aob) (higher neg. srb) no intent to quit (cognitive commitment) (higher cognitive commitment) compliance (lower cognitive commitment) intends to quit (no cognitive commitment) high psychological commitment (bonded) low psychological commitment (not bonded) method this study utilized a data set that initially was designed and deployed for a study published by tepper and taylor (2003) containing measures of mentorship, organizational citizenship behavior, justice, and other known covariates. the data set contains 314 dyads drawn from a survey of over 2,000 supervisors and their subordinates from 78 national guardsmen units in a midwestern state. tepper and taylor's (2003) research demonstrated that supervisory mentoring enhanced subordinate perceptions of organizational justice which in turn led to increased levels of ocb performance in their subordinates as predicted by a trickle-down model of organizational justice (masterson, 2001). measures in most research projects the following discussion would be found in the literature review but in this case, where an existing data set, created for another purpose is assessed for its usefulness as a study of dawsey and taylor’s (2011) engagement continuum, this problem has arisen in the measures section of the study. the original data set included a measure of ocbs as envisioned by organ (1988) and attacked by morrison (1994). the original presentation of the engagement continuum (dawsey & taylor, 2011) was explained using terminology commonly associated with ocbs (e.g., in-role and extra-role behavior). it now appears that any model conforming to katz & kahn’s (1978) theory of roles must use terminology that is not a part of the in-role / extra-role debate surrounding ocbs and contextual performance and therefore, we have adopted irb to designate in-role behavior as envisioned by katz & kahn (1978) and srb to designate supra-role behavior described in the theory of roles (katz & kahn, 1978). the 20-item survey measure of organizational citizenship behavior (organ 1988) was successfully challenged by morrison (1994) when she demonstrated that a majority of respondents to a survey containing the 20-item ocb measures viewed 18 of the 20 items as in-role behavior and morrison therefore concluded that ocbs did not exist if respondents were engaging in in-role behaviors. organ (1997) noted that this was a weakness of the measure and not of the construct; but he then removed the requirement that citizenship behaviors must be extra-role behavior and invoked motowidlo and van scotter’s (1994) contextual performance. organ’s elimination of the extra-role requirement for ocbs effectively decoupled ocb from its theoretical roots (i.e., one of katz and kahn’s (1978) theory of roles supra-role behavior which the extant literature now calls extra-role behavior and/or ocbs). dawsey and taylor’s engagement model rests directly on the theory of roles as articulated by katz and kahn (1978) and therefore tests of the engagement model requires measures of psychological commitment and the three dawsey and taylor advances in business research 2012, vol. 3, no. 1, 63-71 66 behavioral roles in katz and kahn’s (1978) theory of roles (i.e., in-role behavior (irb), supra-role behavior (srb), and commitment). the original 20-item ocb measure, with its significant variance as to whether the survey items were irb or srb (morrison, 1994) in the eyes of the worker, was found to be very useful for the planned analysis because it measured both irb and srb behavior and because the dataset also contained measures of irb / srb perception for both the supervisor and the subordinate for each of the 20 survey items. a further benefit of the measure is that it addresses the three forms of work conceptualized in today’s labor market: the physical tasks of a wall paper factory, plus emotional labor (hochschild, 2003/1983), and knowledge work (davenport & prusak, 1998; davenport, 2005). in other words, had morrison (1994) taken the tact that organ (1988) had an operationalization problem because the original ocb construct assumed that irbs were physical tasks and assumed that srbs were emotional labor and knowledge work then the debate over whether ocbs were necessarily srb behaviors would necessarily have taken a different course since morrison’s (1994) study of nurses in a hospital setting involved workers whose principle duties involved knowledge work and emotional labor. this could be explained in part by noting that the extant vocabulary of the day did not include emotional labor as a concept (i.e., hochchild gave us emotional labor in 1983, smith, organ, and near gave us ocbs in 1983). it is also worth noting that it was an objective of f. w. taylor’s classical scientific management was the division of labor in such a way that the physical task became the work of the subordinate and the knowledge work became the purview of the supervisor. contextual performance (motowidlo & van scotter, 1994) likewise is inadequate when applied to this analysis because contextual performance simply identifies whether or not a task is an irb thereby creating a dichotomy of “in-role” and “not in-role,” effectively ignoring the srbs of the theory of roles (e.g., not in-role isn’t the conceptual equivalent of supra-role. katz & kahn (1978) correctly assert that there are roles assumed by organization members that enhance the likelihood of organizational success or reduce the likelihood of organizational failure which are simply inor supra simply because of role perceptions. there are roles that remain supra-role even if the role incumbent declares it to be in-role. you cannot order a soldier to run in front of a machine gun, yet when one does, and saves lives, the leader of the organization will be glad that the soldier saw it as part of his job to do what the leader couldn’t actually order the soldier to do. or when school teachers run in front of a machine gun to save lives, we’re glad that the teacher saw it as part of their job when asked about what they did and why. brave souls perform heroic deeds (supra-role behavior), and those same brave souls will later explain, “i was just doing my job,” – this is supra-role behavior and not simply a matter of role perception. nine survey items were selected as the focus for analysis as a way to link this operationalization of ocbs to the extant research in the field (dierdorff, rubin, & bachrach, 2012) and concurrently account for a labor market economy where most jobs include more knowledge work and emotional labor than physical tasks. three survey items were used to construct a sub-scale termed helping coworkers (e.g., shares ideas with co-workers); these three items also focus on knowledge work. three additional survey items were selected that tapped into the subscale conscientious compliance or a quality focus (e.g., beats work deadlines); these items also address things surrounding the performance of physical tasks. the third set of survey items constitutes pro-organizational behavior or organizational dedication (e.g., welcomes newcomers to the organization); and concurrently focused on things typically thought of as emotional labor. these behaviors were reported by the supervisor of the worker performing the behavior by using a standard 5 point likert scale, with scale scores ranging from 1 – strongly disagree to 5 – strongly agree. the items were selected in a manner that addressed the nature of work in the modern economy by including tasks that address emotional labor, knowledge work, and physical tasks. anti-organizational behavior, the theoretical opposite of ocb, was measured with the following two item scale: “hinders the efforts of coworkers to be successful” and “gives misleading information to coworkers.” these behaviors were reported by the supervisor using a 5-point likert scale with scores ranging from 1 strongly disagree to 5 strongly agree. psychological bond is the mean score of 5 items, taken from a 10 item psychological contract scale (millward and hopkins, 1998; raja, johns, & ntalianis, 2004; rousseau, 1989). the likert type scale ranges from 1 to 5 where 1 represented the lowest level of bonding and 5 the highest. the five survey items were: “i feel a personal connection with this organization,” “being in this organization is a significant part of who i am as a person,” “i feel a strong emotional bond with the organization,” “i would experience significant regret if i stop being associated with the organization,” and “my role in the organization affects many aspects of my life.” organizational commitment, conceptualized by katz and kahn (1978) as a willingness of the individual to remain with the organization, was measured with three survey items that asked the respondents about their intention to quit the organization. a likert type scale was utilized where 1 reflected no intention to quit and 5 represented someone who fully intended to quit. dawsey and taylor advances in business research 2012, vol. 3, no. 1, 63-71 67 the engagement index is the product of the psychological bond and organizational commitment variables after reverse recoding commitment so that a 5 reflects a high degree of intent to remain with the organization. since commitment and psychological bond each have scale scores ranging from 1 to 5, then the range of values for this index is 1 to 25. after calculating the engagement index we sorted the 314 records in the data set on the engagement index. the engagement category was the last variable created. five engagement categories were created as originally presented in dawsey and taylor’s (2011) model (see figure 1). each item in the data set was assigned to one of the 5 categories based upon the engagement index score. those data records were placed, within plus or minus one standard deviation of the mean (11.75, sd = 6.97), into the compliant category. this turned out to be 65% of the observations or roughly two thirds of the data records and not inconsistent with a normal distribution. the remaining one third of the file was split in half with one sixth (55 records) representing the two engagement categories of the model, and the other sixth (56 records) representing the two disengagement categories. the values in the engagement index provided very natural break points as 21 items were assigned to the active engagement category and the remaining 34, with lower index scores, were assigned to the engagement category. similar break points were found within the disengagement items with the result that 23 items were assigned to the active disengagement category and the remaining 33 were assigned to the disengagement category. figure 1 includes a summary of the number of records placed in each category. alphas for all measures were well above nunnally’s (1978) .7 guideline; alpha scores are shown on the diagonal of the correlation matrix in table 1. table 1: means, standard deviations, intercorrelations, and coefficient alphas variable mean s.d. 1 2 3 4 5 6 7 1. psychological bond 3.43 1.01 (.88 ) 2. intent to quit (commitment) 3.27 1.56 .58 ** (.88 ) 3. engagement index 11.75 6.97 .84 ** .84 ** (na) 4. helping coworkers 3.61 .82 .23 ** .17 ** .23 ** (.88 ) 5. quality of work 3.63 .80 .21 ** .16 ** .22 ** .87 ** (.90 ) 6. pro-organizational behavior 3.59 .81 .27 ** .20 ** .27 ** .89 ** .84 ** (.89 ) 7. anti-organizational behavior 2.26 .97 -.11 .02 -.08 -.31 -.25 ** -.31 ** (.92 ) notes: * p<.05, ** p<.01. n = 314. coefficient alphas are shown on the diagonal in parenthesis findings on an item by item basis, each ocb survey item was classified according to whether the supervisor indicated a particular task as irb (“an integral part of the job”) or srb (“above and beyond the scope of the job”) and whether the subordinate indicated the task as irb or srb. each of the nine survey items are shown in table 2. table 2: leader and subordinate in-role behavior/supra-role behavior perceptions with performance levels leader says irb leader says srb task subordinate says irb subordinate says srb subordinate says irb subordinate says srb coworker helping share ideas – w/coworkers 3.60 50% 3.70 26% 3.60 16% 3.60 8% treats coworkers courteously 3.60 56% 3.90 24% 3.60 12% 3.80 8% encourages coworker innovations 3.50 46% 3.70 29% 3.20 15% 3.50 10% average 3.57 51% 3.77 26% 3.47 14% 3.63 9% quality of work works carefully 3.00 55% 3.60 25% 3.50 12% 4.00 8% works error free 3.70 57% 3.80 27% 3.50 12% 4.00 4% beats deadlines on work 3.55 41% 3.63 36% 3.30 16% 3.56 8% average 3.42 51% 3.68 29% 3.43 13% 3.84 7% pro-org-behavior welcomes newcomers to the organization (5) 3.60 56% 3.90 21% 3.50 12% 3.70 11% takes pride in the organization when talking about it (12) 3.55 48% 3.71 25% 3.48 16% 3.70 11% tells outsiders this is a good place to work (16) 3.56 35% 3.63 30% 3.20 16% 3.57 17% average 3.50 50% 3.69 25% 3.42 15% 3.69 10% note: n = 314 dyads. dawsey and taylor advances in business research 2012, vol. 3, no. 1, 63-71 68 our initial observation is inconsistent with the cross-sectional studies in the ocb literature. in every case, more of the task behavior was performed when the task was viewed as srb by the subordinate without regard to the supervisors’ perceptions. this is contrary to the morrison’s (1994) criticism that ocbs are simply an artifact of occasions when the subordinate views a task as irb and performs the task as part of the job; while at the same time the supervisor views it as srb (e.g., simply a difference of opinion). this is also contrary to the conventional bureaucratic wisdom that if you want a specific task to be performed, you should incorporate it into an employee’s job description (e.g., make it irb). this also suggests that management attempts to enhance performance by redefining srb tasks as irb results in the just the opposite. finally, this initial analysis suggests that the important role perception is the perception of the individual performing the task and not the perception to the supervisor. the previously mentioned analysis was repeated by selecting only the actively engaged and the actively disengaged and comparing the mean scores for each group with the results in tables 3, 4, and 5. as shown in table 3 the actively engaged performed more of these behaviors than did those who were actively disengaged without regard to role perception. the results of those nine one-way anovas support the ability of the engagement model cited to explain significant differences in behavior. in table 4, a series of one-way anovas comparing the subordinates who reported an irb role-perception 1 for each of the nine survey items are reported. although actively engaged workers performed more in each of the nine areas, only about half of the differences were significant. in table 5, a series of one-way anovas comparing the subordinates who reported an srb role-perception for each of the nine survey items are reported. although actively engaged workers performed more of it in each of the nine areas, only about half of the differences were significant. one little notable oddity is that if the difference is significant in table 4 it isn’t in table 5 and vice versa. table 3: one way anovas behavior ae mean (sd) ade mean (sd) degrees of freedom f statistic p-value coworker helping sharing ideas with coworkers 4.33(.66) 3.17(.98) (1, 42) 20.6 .000** treating coworkers courteously 4.19(.68) 3.13(.87) (1, 42) 20.0 .000** encourages coworker innovations 4.14(.99) 3.04(.88) (1, 42) 21.8 .000** conscientious compliance works carefully 4.24(.77) 3.13(.87) (1, 42) 19.9 .000** works error free 4.24(.70) 3.09(.90) (1, 42) 22.0 .000** beats deadlines 4.10(.70) 2.96(.77) (1, 42) 26.3 .000** organizational dedication takes pride in the organization when talking about it 4.14(.66) 3.26(.75) (1, 42) 17.1 .000** tells outsiders this is a good place to work 4.00(.78) 3.35(.65) (1, 42) 9.2 .004** welcomes newcomers to the organization 4.10(.78) 3.22(.85) (1, 42) 13.8 .001** ** p < .05. table 4: one way anovas comparing irbs behavior mean sd degrees of freedom f statistic p-value coworker helping sharing ideas with coworkers (ae) (ade) 3.77 3.50 1.17 .85 (1, 21) .37 .55 treating coworkers courteously (ae) (ade) 4.06 2.93 1.03 .99 (1, 29) 9.52 .00** encourages coworker innovations (ae) (ade) 3.60 2.75 1.27 .89 (1, 16) 2.58 .12 conscientious compliance works carefully (ae) (ade) 3.88 3.00 1.17 .93 (1, 30) 5.51 .03** works error free (ae) (ade) 3.75 3.00 1.13 .78 (1, 28) 4.36 .046** beats deadlines (ae) (ade) 3.60 3.00 1.27 .50 (1, 17) 1.77 .20 organizational dedication takes pride in the organization when talking about it (ae) (ade) 3.79 3.42 1.05 .67 (1, 24) 1.1 .31 tells outsiders that this is a good place to work (ae) (ade) 3.73 3.33 1.03 .82 (1, 19) .71 .41 welcomes newcomers to the organization (ae) (ade) 3.81 3.31 1.11 .75 (1, 27) 1.96 .17 * p < .1, ** p < .05. dawsey and taylor advances in business research 2012, vol. 3, no. 1, 63-71 69 table 5: one way anovas comparing srbs behavior mean sd degrees of freedom f statistic p-value coworker helping sharing ideas with coworkers (ae) (ade) 4.36 3.10 .81 .88 (1, 19) 11.82 .00** treating coworkers courteously (ae) (ade) 3.71 3.50 .76 .55 (1, 11) .33 .58 encourages coworker innovations (ae) (ade) 4.07 3.42 .73 .52 (1, 24) 6.75 .02** conscientious compliance works carefully (ae) (ade) 4.14 3.60 .90 .55 (1, 10) 1.42 .26 works error free (ae) (ade) 4.38 3.67 .74 .52 (1, 12) 3.96 .07* beats deadlines (ae) (ade) 4.00 3.00 .78 .78 (1, 23) 10.12 .00** organizational dedication takes pride in the organization when talking about it (ae) (ade) 4.10 3.25 .74 .46 (1, 16) 8.03 .01** tells outsiders that this is a good place to work (ae) (ade) 3.89 3.21 .93 .43 (1, 21) 5.66 .03** welcomes newcomers to the organization (ae) (ade) 3.88 3.29 .84 .76 (1, 13) 2.03 .18 .* p < .1, ** p < .05. conclusion this analysis found the existence of behaviors consistent with the model described in figure 1 thereby providing evidence supporting the model as articulated. further study can exclude the complexity of 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advances in developing human resource development, 13(4), 419-428. shuck, b. & wollard, k. 2010. employee engagement and hrd: a seminal review of the foundations. human resource development review, 9(1), 89-110. smith, a., organ, d., & near, j. 1983. organizational citizenship behavior: its nature and antecedents. journal of applied psychology, 68(4), 653-663. swanson, r., & holton, e. 2009. foundations of human resource development. san francisco: berrett-koehler publishers. tepper, b., & taylor, e. 2003. relationships among supervisors' and subordinates' procedural justice perceptions and organizational citizenship behaviors. academy of management journal, 46(1), 97-105. vroom, v. 1995. work and motivation. san francisco: jossey-bass. joseph dawsey is the instruction, outreach and asessment librarian at piedmont college. he is a ph.d. candidate in adult education and human resource and organizational development at university of georgia. his current research interests include employee engagement and disengagement, emotional labor, and emotions in the workplace. he has published in business studies journal. edward taylor is associate dean at walker school of business and professor of strategic management and leadership at piedmont college. he received his ph.d. in management from university of kentucky. his research interests include managerial citizenship behaviors, workplace and classroom engagement, competitive advantage status assessment, and the integration of quality management systems with the strategic management process. he has published in academy of management journal, academy of management review, journal of business research, international journal of conflict management, and business studies journal. shuck, b. 2011. integrative literature review: four emerging perspectives of employee engagement: an integrative literature review. human resource development review, 10(3), 304-328. shuck, b., & herd, a. 2012. employee engagement and leadership: exploring the convergence of two frameworks and implications for leadership development in hrd. human resource development review, 11(2), 156-181. shuck, b., & reio, t. 2011. the employee engagement landscape and hrd: how do we link theory and scholarship to current practice? advances in developing human resource development, 13(4), 419-428. shuck, b. & wollard, k. 2010. employee engagement and hrd: a seminal review of the foundations. human resource development review, 9(1), 89-110. uafs advances in business research 2012 lowrez (2).pdf alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 1 we get by with a little help from our friends: exploring the effects of perceived coworker support on employee burnout and job attitudes g. stoney alder, university of nevada, las vegas daniel mcallister, university of nevada, las vegas john chase, boulder city police department perceived organizational support is but one source of employee support; perceived coworker support is important as well. this study examined the effects of perceived coworker support on employees’ job satisfaction, burnout, deviance, and turnover. results indicate that perceived coworker support and perceived organizational support affect job satisfaction burnout and deviant behavior both directly and indirectly by moderating the effects of work pressure on these outcomes. additionally, perceived coworker supporter exerted a stronger influence on these variables than did perceived organizational support. implications for both research and practice are discussed. we live in difficult and stressful economic times. depending on where an individual lives, and perhaps which political party they pay attention to, there may be signs of recovery and improvement. however, the reality for many workers remains uncertain and therefore stressful. other changes in the nature of business and new organizational structures, including an increase in team-oriented work, may further magnify these feelings of stress among workers. increased tele-work arrangements, while offering convenience, may also isolate workers and create added stress and pressure. many firms are decentralizing their organizational structure, thereby flattening out their once hierarchal chain of command. employees from different departments and levels of authority are working side by side. new multiand cross-functional work teams are being formed to handle both long-term and short-term tasks. given that these work teams are often required to work closely together on various projects, inevitably this will involve some degree of stress. in short, in today’s economic and business climate, managing and coping with stress is critical for both individuals and organizations. research indicates that one critical factor in relations to work place stress and pressure is perceived organizational support (pos). a significant amount of research by eisenberger and colleagues (e.g., eisengerger et al., 2001; rhoades, eisenberger & armeli, 2001) indicates that pos is an influential determinant of a number of employee attitudes and behaviors. however, this paper argues that pos provides only a partial picture of support in the workplace. specifically, coworkers are also an important source of support. however, research has largely ignored this possibility. the objective of this study is to bridge this gap in the literature. specifically, we examine the dual role of both perceived organizational support (pos) and perceived coworker support (pcs) in determining employee attitudes and turnover intentions. below, we first review the existing research on perceived organizational support (pos). subsequently, we review research indicating that pcs may also be important. based on these literature reviews, we next draw several hypotheses proposing that both pcs and pos directly impact employees’ job attitudes. in addition, we predict that pcs and pos moderate the relationship between job-related stress and worker attitudes. the paper concludes with a discussion of the implications of our study’s findings for work organizations. literature review perceived organizational support over the past two decades, perceived organizational support (pos) has increasingly received a great deal of attention. pos has been shown to have a strong relationship with several aspects of employee behavior. organizational support theory (eisenberger, huntington, hutchison, & sowa, 1986) asserts that employees establish a common belief in regards to how much their organization cares about their socioemotional and overall well-being, and to what degree their performance and loyalty to the company is rewarded. reflected in this common belief is the assurance that aid will be available from the organization when it is needed to perform their job effectively and to deal with stressful situations (george, reed, ballard, colin, & fielding, 1993). in addition, rhodes, eisenberger and armeli (2001), point to pos as contributing to an emotional bond formed by the employee toward the organization. eisenberger et al. (1986) further asserts that employees attribute humanlike characteristics to their organization. for example, if an employee perceives the organization as treating them fairly, they translate this into the organization liking them on a personal level. conversely, if they feel they alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 2 have been unfairly treated, they view this as the organization disliking them. with these human-like characteristics assigned to the organization, it follows that employees would feel the need to reciprocate favorably or negatively to the organization (blau, 1964). pos is also credited with moderating the effect of employees’ intent to quit. rhoades et al. (2001) noted that increased pos leads to employees feeling committed and obligated to help the organization, which reduces turnover. furthermore, the findings of armeli et al. (1998) stated that “...the organization plays an important social role in employees' lives. satisfying socio-emotional needs by the communication of respect, caring, and approval, and has the potential of markedly increasing employees' performance”. it follows that when employees feel their needs are being met by the organization, job satisfaction increases resulting in an increase in their desire to stay with the organization and reducing their desire to quit. perceived coworker support although there have been two decades of empirical studies on perceived organizational support (armeli et al., 1998; aselage & eisenberger 2003; eisenberger et al., 1986; eisenberger et al., 1990; eisenberger et.al., 1997; and eisenberger et al., 1999), less attention has been paid to the effects of coworker support. perceived coworker support (pcs) is also an important moderator of work-related stress, employee conduct and outcomes. perceived coworker support is the degree to which employees feel they are supported and treated favorably by their coworkers; and provided aide when it is needed to carry out their job effectively and to deal with stressful situations. typically employees who feel a high degree of work pressure would be expected to experience higher rates of burnout. toppinen-tanner et. al. (2002) attributes burnout to prolonged work-related stress. employees experiencing burnout may use deviant behavior as a coping mechanism and/or as retaliation to stress they feel was brought on by work pressure. as a result, it is expected that they would not only engage in deviant acts, but also feel less committed to the organization, leading to higher rates of turnover. however, we predict that support from coworkers will reduce these relationships. specifically, if employees feel they receive sufficient support from coworkers, then work stress will not necessarily lead to burnout or negative behaviors and attitudes. for example, an employee who is feeling the pressure of an impending deadline may be relieved of some of this pressure by help offered from a coworker to meet said deadline. thus, the help from the coworker reduces the pressure which may have led to burnout and negative attitudes or behaviors. mohrman and cohen (1995) have asserted that coworker interaction influences both individual and group behavior. further, they suggest that individuals working in teams must possess certain social skills, among which is helpfulness. in addition, bishop et al. (2000) assert that an employee’s perception of team support affects his or her commitment to the team, thereby moderating individual job performance. if an employee feels that he or she is taking on more work than the rest of the team and/or receiving little or no support from fellow team members, then he or she may exhibit deviant behavior. deviance may take the form of such behaviors as absenteeism, tardiness, work slowdown, resigning and, in severe cases, theft or aggression. psychological contract theory psychological contract theory proposes that individuals negotiate their needs via psychological contracts. as numerous studies have shown in reference to pos, any lack of coworker support would be viewed as a psychological contract breach, which, as aselage and eisenberger (2003) states, “leads employees to decrease their level of commitment and production. when fulfilled, the psychological contract would be expected to have positive effects on employee performance. this is because the reciprocity norm would encourage employees to fulfill their contractual obligations.” employees who enjoy perceived support from coworkers will reciprocate by being helpful themselves, thus fostering a supportive work environment. in essence, favorable treatment generates more favorable treatment. this theory of an individual’s need or obligation to reciprocate favorable treatment is supported by eisenberger et al. (2001). they also noted that george and brief (1992), previously asserted that positive mood may prime employees to think about favorable characteristics of coworkers, leading to helpful behavior. social exchange theory social exchange theory denotes that reciprocity is a fundamental aspect of social life (deckop, cirka, andersson, 2003). reina and reina (2006) argue that reciprocity is fundamental to organizational effectiveness. they argue that trust is vital to organizational success in today's competitive global economy marked by difficult, even distressing changes. for them to be successful, trust is vital. after all, business is conducted via relationships, and trust is the alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 3 foundation to effective relationships. based on 15 years of research with thousands of people, reina and reina conclude that strong relationships involve three types of transactional trust. they use the term transactional trust because trust is reciprocal in nature. that is, you have to give it to get it. we argue that trust is important as both an antecedent and consequence of both pos and pcs. specifically, to the extent that employees trust the organizations, they will likely expect greater support. at the same time, the actual receipt of such support will likely reinforce that trust. reciprocity is thus is a critical component to workers’ relationship with the organization and may be important in the pos relationship. reciprocity may also be critical in terms of pcs. according to social exchange theory, consistent exposure, repeated reliance, trust and favorable treatment will result in a beneficial reciprocal relationship among coworkers. when one person treats another well, the reciprocity norm obliges the return of favorable treatment (gouldner, 1960). regarding the norm of reciprocity, gouldner (1960) asserts that a significant cause of an employee's helping behavior is how much organizational citizenship behavior (helping behavior) the employee has received from coworkers. applied to coworker relationships, the reciprocity norm dictates that each employee reciprocates favorable treatment. this behavior results in mutually advantageous outcomes. for instance, coworker a staying late to help coworker b with a work project, because coworker b had previously switched days off with coworker a, so that coworker a could attend their child’s school play; or an employee offering a ride home to a fellow employee who has in the past been supportive of their ideas, are examples of reciprocity. in these instances the employees feel a sense of gratitude and responsibility toward one another; further, they each reap the rewards of the favorable treatment shown them. this environment should enhance employees’ attitudes and behaviors directly. in addition, it should help them deal with work conditions and thus reduce the costly results of stress, namely, burnout, deviance and turnover. work pressure and burnout external pressure is derived from an outward source which weighs heavily on one’s mental or physical state causing stress. in the case of work pressure, an employee’s tasks, work environment, and work relationships are all sources of work pressure. for example, deadlines, difficult bosses, dissatisfied customers, or the conforming of a project to exacting specifications, can be difficult and draining aspects of a job. dealing with these pressures requires exerting energy, both mental and physical. if an individual is constantly facing these pressures alone this can lead to mental burnout and physical exhaustion. according to toppinen-tanner et al. (2002), the most often used definition of burnout, “is a severe syndrome which develops as a consequence of a prolonged stress situation at work [in addition] exhaustion is one dimension of burnout.” further, their study found that a lack of resources and high job demands, such as time pressure, was positively related to exhaustion. however, pos and pcs can provide resources that help employees deal with the pressure. when pos and pcs are high the employees does not have to face the pressure alone. figure 1: direct and moderating effects of pcs and pos work pressure antecedent moderators outcomes pcs po s burnout / exhaustion on turnover job satisfaction on production deviance ce alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 4 hypotheses figure 1 above depicts the relationships between work pressure, pcs, pos, and related outcomes. as shown in the figure, we expect both pcs and pos to affect employees’ experienced work pressure (h1), to directly affect the dependent variables of burnout, turnover, job satisfaction, and deviance (h2), and to moderate the relationship between work pressure and these dependent variables (h3). organizational and coworker can provide resources that help employees deal with the demands of their job. when support is high, employees do not have to tackle the demands of the job alone. as a result, they are likely to experience less work pressure and stress than employees who do not have such support. consequently, we predict: hypothesis 1a: perceived organizational support will be negatively related to employees’ experienced work pressure. hypothesis 1b: perceived coworker support will be negatively related to employees’ experienced work pressure. pcs and pos may also affect other important attitudinal and behavioral outcomes. it is human nature to want to fit in or feel that you belong. people feel the need for an affiliation (folger & cropanzano, 1998; mcclelland, 1961). for example, as teenagers we form social clicks. these relationships offer a supportive and safe environment in which to deal with issues and pressures that arise in high school. support during these formative years, in the social setting of a high school, moderates the effects of these pressures on our behavior in this same setting. in addition, we feel those who are supportive of us are in fact treating us fairly. this concept is continued into adulthood, where in the social settings provided by employers, workers gravitate toward those that offer them a supportive foundation on both an emotional and professional level. the relational model of tyler & lind (1992) suggests that social/psychological needs are likely to be satisfied when people interact with others who are procedurally fair. support from the individuals around us contributes to our sense of well-being and fairness. further, when others treat us favorably we feel the need to reciprocate (gouldner, 1960); thus, the norm of reciprocity takes effect. the continued effects of reciprocity offer security. workers feel secure in the knowledge that others will be there to help them with work-related needs. in addition to coworker relationships based on reciprocity and quid-pro-quo helping behavior, high pos and pcs may also satisfy employee needs for affiliation and belonging in more loosely defined organizational relationships. both mechanisms lead to the same results. specifically, we predict that pcs and pos directly affect the relationships between satisfaction, burnout, deviance, and turnover. thus, we predict: hypothesis 2a: perceived organizational support will be positively related to job satisfaction and negatively related to deviant behavior, burnout, and intentions to quit. hypothesis 2b: perceived coworker support will be positively related to job satisfaction and negatively related to deviant behavior, burnout, and intentions to quit. support from coworkers affects both individual and group performance, and is fueled by the norm of reciprocity. in addition, there is an established link between pos and how employees negotiate their relationship with the organization (eisenberger et al., 2001). thus, it can be said that there are two moderators: pos and pcs; each moderates the relationship between work pressure and attitudinal outcomes. essentially, we hypothesize that when pos and pcs are high the relationship between job stress/pressure and negative outcomes will be lower than when pos and pcs are low, indicating pos and pcs help employees deal with pressure, therefore we further predict: hypothesis 3a: perceived organizational support moderates the negative effects of work pressure such that high perceived organizational support reduces the relationship between a high degree of work pressure and job satisfaction, deviant behavior, burnout, and intentions to quit. hypothesis 3b: perceived coworker support moderates the negative effects of work pressure such that high perceived coworker support reduces the relationship between a high degree of work pressure and job satisfaction, deviant behavior, burnout, and intentions to quit. methods we examined surveys administered to 224 dispatchers in over forty law enforcement agencies throughout the united states. the surveys examined the employees’ relationships with coworkers, supervisors and their perception alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 5 of, and role in, the organization. this study focused primarily on the employee and coworker interactions. all participants were assured of anonymity. of the respondents, 76% were women. the average age was 40 years (sd = 10.75) and the average tenure with their agency was 8.36 years (sd = 7.38). measures the respondents were asked to measure the degree to which they agreed or disagreed with each statement as it was presented on the survey. a 7-point likert-type scale was used, with 1 = strongly agree and 7 = strongly disagree. appendix 1 illustrates the seven scales as they appeared on the survey. work pressure/stress. six statements assessed the extent to which respondents felt they were under a high degree of work!"#$!%&' !(() !&*+&,&-./0. perceived organizational support. seven statements adapted from eisenberger et al. (1986) evaluated !1'"23!!(4&'! 5!'$627(&28&$9!&()''2 $&$9!3& !5!6:!%&8 21&$9!6 &2 ;#76<#$627&*+&,&-==0. perceived coworker support. five-item measure that assessed respondents perceptions of coworker support *+&,&-=>0. burnout/exhaustion. four statements measured the degree to which the employees felt their jobs left them burned-2)$&#7%&!?9#)($!%&*+&,&-==0. job satisfaction. five items from brayfield & rother (1951) evaluated the degree to which the employees felt (#$6(8#5$627&@6$9&$9!6 &a2b(&*+&,&-.=0. production deviance. five items were adapted from bennett & robinson (2000) to assess the extent to which dispatchers engaged in production deviance. turnover intentions. four items from chalykoff & kochan (1989) assessed respondents intentions to leave their #;!753&*+&,&-=c0. results table 1: presents scale reliabilities, standard deviations and intercorrelations for all dependent and independent variables in the study table 1: means, standard deviations, and intercorrelations among variables variable mean s.d. 1 2 3 4 5 6 7 1. work pressure 3.23 1.24 (.79) 2. pos 3.98 1.24 -.26** (.88) 3. pcs 4.89 1.20 -.26** .44** (.82) 4. burnout 3.74 1.48 .58** -.36** -.35** (.88) 5. job satisfaction 5.49 1.13 -.33** .40** .54** -.37** (.78) 6. deviance 2.31 1.06 .16* -.16* -.21** .13 -.20** (.67) 7. turnover intentions 2.83 1.52 .23** -.48** -.39** .27** -.67** .19** (.83) note: scale reliabilities are shown in parentheses on the diagonal; **p<.01; *p<.05 we tested our hypotheses with a series of step-wise multiple regression analyses. in all analyses we controlled for respondents’ gender, tenure with the agency, and type of shift (standard 8 hour, compressed work week etc.) as these have been shown to be related to work pressure and burnout. for our test of hypothesis 1, we entered our control variables first. we then entered pcs and pos as a block. finally, we entered the pcs x work pressure and pos x work pressure interactions. in our analyses of hypotheses 2 and 3, we entered our control variables first followed by work pressure, pcs and pos as a block and then the pcs x stress and pcs x pos interactions. in testing our hypotheses we used one-tail tests for our hypothesized main effects and two-tailed tests for the interaction effects. table 2 below depicts the effects of pos and pcs on dispatchers’ experienced work pressure and stress. as predicted, both pcs and pos significantly affect the extent to which employees experience work pressure and stress. as a result, the data support our first hypothesis. alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 6 table 2 results of hierarchical regression analyses effects of pcs and pos on work pressure/stress dependent variable: work pressure/stress independent variables b beta step 1: controls type of shift -.07 -.062 gender .057 .02 tenure .027* .166* step 2: main effects pos -.156* -.158* pcs -.208** -.207** total r2 .125*** *** = p< .001 ** = p< .01 table 3 results of hierarchical regression analyses work pressure, pcs, pos, and deviance dependent variable: deviance independent variables b beta step 1: controls type of shift -.050 -.052 gender -.342+ -.143+ tenure .024* .167* step 2: main effects work pressure/stress .055 -.126 pos -.069 -.082 pcs -.161* -.188* step 3: interactions pressure/stress x pos pressure/stress x pcs .059 -.096+ .099 -.149+ total r2 .127** ** = p< .01 * = p< .05 + = p<.10 table 3 depicts the results for deviance. contrary to our expectations, job-related stress was not significantly associated with deviance in step 1. as shown in table 3, the results support hypotheses 2b and 3b. pcs exerts a significant direct effect on production deviation such that employees who believed they received more support from coworkers engaged in less deviance than did those who received less support. in addition, pcs also interacts with work pressure and stress to influence the extent to which respondents engage in production deviance. however, hypotheses 2a and 3a were not supported as there was no significant main effect or interaction effect for pos. table 4 presents our results for burnout. the results here support our first hypothesis, but not our second. as shown in the table, pcs added explanatory power above and beyond the effects of pos. both pcs and pos significantly influence the extent to which employees experience burnout. however, the results did not support our third hypothesis as related to burnout, as neither pcs nor pos interacted with work pressure/stress to affect burnout. table 5 depicts the results for job satisfaction. as related to satisfaction, the results supported hypothesis 2. as shown in the table, pcs added explanatory power above and beyond the effects of pos. however, hypothesis 3 was not supported in regards to satisfaction as there was no significant pcs or pos x work pressure interaction effect on satisfaction. table 6 below depicts the results for respondents’ intentions to leave their agency. our first hypothesis was not supported as related to turnover intentions as there was no direct relationship between work pressure and dispatchers’ intentions to quit. in contrast, both hypotheses 2 and 3 were supported in terms of turnover intentions. table 4 results of hierarchical regression analyses work pressure, pcs, pos, and burnout dependent variable: burnout independent variables b beta step 1: controls type of shift .081 .063 gender .273 .084 tenure .046** .248** step 2: main effects work pressure/stress .576*** -.499*** pos -.293*** -.257*** pcs -.11+ -.095+ step 3: interactions pressure/stress x pos pressure/stress x pcs -.001 -.013 -.001 -.015 total r2 .493*** *** = p< .001 ** = p< .01 + = p<.10 table 5 results of hierarchical regression analyses work pressure, pcs, pos and job satisfaction dependent variable: job satisfaction independent variables b beta step 1: controls type of shift .184** .188** gender .341+ .137+ tenure -.007 -.047 step 2: main effects work pressure/stress -.153** -.175** pos .178*** .208*** pcs .383*** .437*** step 3: interactions pressure/stress x pos pressure/stress x pcs .059 -.067 .097 -.102 total r2 .454*** *** = p< .001 ** = p< .01 + = p<.10 alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 7 as shown in the table, the direct effects for both pcs and pos were significant. in addition, both pcs and pos interacted with job-related pressure and stress to affect employees’ turnover intentions. table 6 results of hierarchical regression analyses work pressure, pcs, pos, and turnover intentions dependent variable: turnover intentions independent variables b beta step 1: controls type of shift -.194+ -.142+ gender0 -.482+ -140+ tenure -.014 -.071 step 2: main effects work pressure/stress .074 .061 pos -.494*** -.412*** pcs -.272** -.208** step 3: interactions pressure/stress x pos pressure/stress x pcs -.134* .153* -.158* .160* total r2 .369*** *** = p<.001 ** = p<.01 * = p< .05 + = p<.10 conclusion our research extended theory and research on pos to include pcs. we administered a survey to police dispatchers throughout the united states. as predicted by hypothesis 1, both pos and pcs are significantly related to respondents’ experienced work pressure. results further indicated that job-related stress directly affects burnout and job satisfaction. consistent with our second set of hypotheses, both pcs and pos were positively related to job satisfaction and negatively related to burnout and turnover intentions. pcs was also negatively related to production deviance. in contrast, the results indicate no significant direct effect for pos on deviance. in addition, as predicted in our third hypothesis, pcs moderated the relationship between job-related stress and deviance and turnover intentions while pos moderated the relationship between job-related stress and turnover intentions. however, our further predictions in hypothesis three were not supported. our research found that pcs and job-related stress did not interact to affect burnout or job satisfaction. our results indicate that both job-related stress and pcs influence burnout and job satisfaction. however, their effects on these outcomes are direct and not interdependent. although pcs significantly influences burnout and satisfaction, it does not appear to diminish the effects of job-related stress on burnout and satisfaction. research implications these results of this survey have important implications for both research and practice. for over twenty years perceived organizational support has received a great deal of attention, and has proven to be a concept worthy of study. our results indicate pos significantly and directly affects employees’ felt work pressure and stress, satisfaction, turnover intentions and experienced burnout. pos also interacts with work pressure to affect employees’ turnover intentions. in contrast, relatively little research attention has been paid to perceived coworker support. however, our results indicate that pcs is also of vital importance to organizations and thus should receive greater research attention. our results indicate that pcs significantly and directly affects the extent to which employees feel pressure and stress at work as well as their burnout, job satisfaction, deviance behavior, and turnover intentions. in addition, pcs blunted the effects of work pressure and stress on all four dependent variables. indeed, pcs may be a more important predictor than pos for some outcomes. in our study, the direct effects of pcs on employee work pressure and deviant behavior were stronger than the direct effects of pos on those same variables. in addition, pcs moderated the effects of stress on employee deviance whereas pos did not. the relationship between pcs and deviance is particular noteworthy. our results indicate that neither pos nor work pressure directly affects employee deviance. additionally, the data indicate no significant interaction of pos and work pressure on employee deviance. in contrast, the results indicate pcs directly affects deviance and interacts alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 8 with work pressure to influence employee deviant behavior. thus, it appears that pcs may be a central driver and determinant of the extent to which employees engage in deviant behavior. our research also suggests some avenues for future research. first, given the importance of pcs and pos, more research could examine the potential antecedents of pos and pcs. our survey methodology also does not permit us to determine causality. additional research could seek to confirm our proposed casual relationships. for example, pcs and pos may be highly correlated with workplace effectiveness. specifically, an ineffective worker may receive negative feedback and perceive that as a lack of organizational support. similarly, an employee who does not meet expectations may receive less coworker support. future research could also explore the parameters under which the relationships observed here generalize to other contexts and populations. for example, it is plausible that industries and businesses characterized by higher levels of pressure and stress enhance the determinants and consequences of pos and pcs relative to less stressful industries and businesses. similarly, the effects of pcs and pos might be amplified or diminished among different cultural groups. gender might also be an important determinant of the antecedents, consequences, and moderating effects of both pos and pcs. this may be particularly important because women tend to have more social connections at work and tend to be in jobs that are socially connected. this is an important consideration as 76% of our sample was female. organizational implications we live in difficult and stressful economic times. changes in the way of doing business are furthering increasing the pressure and stress workers face. our research shows a significant association between work-related stress and employee burnout, decreased job satisfaction, increased turnover intentions, and increased deviant behavior of employees. whether the deviant behavior is used as a coping mechanism or retaliation, it is counter-productive. however, our results indicate pos and pcs mitigate the effects of stress on employee attitudes and behaviors. specifically, pos moderated the relationships between stress and turnover and satisfaction while pcs moderated the relationship between stress and the outcomes of deviance and turnover. when pos and pcs are high, stress has less of an effect on turnover, satisfaction and deviant behavior. in addition, pos and pcs both directly affected deviance, turnover, satisfaction, and burnout. in short, in today’s uncertain and stressful economic environment, organizational effectiveness may hinge on providing workers organizational support and on creating an environment in which employees can get by with a little help from their coworkers. organizations can help to foster a supportive environment in several ways. first, they may provide training courses which include such topics as: interpersonal relationships, dealing with stress, and ways to assist your coworkers. second, they may wish to consider the implementation of work groups and teams. however, there may be a paradox here. on the one hand, based on our results, we suggest that perceived coworker support likely influences group effectiveness. at the same time, the formation of work teams may also enhance perceived coworker support. as such, this may become a self-reinforcing cycle. given these possibilities, the relationship between pcs and work groups and teams appears to be a promising avenue for future research. additionally, organizations may need to they can modify their reward system to give additional valuable rewards for supportive interpersonal behaviors. kerr’s classic article on the folly of rewarding a when organizations want b, indicates that organizations that wish to enhance perceived coworker support need to reward supportive and helpful behavior rather than competitive, individual oriented behaviors. finally, it may prove valuable to facilitate offsite bonding opportunities through company sponsored social events. in difficult economic times company social events are often among the first things cut. however, in the midst of difficulty and turmoil, it may be more important than ever for companies to provide these opportunities as a means of facilitating workplace cohesiveness which may then lead to greater coworker support. in turn, this support from coworkers may enable workers to avoid burnout and maintain job satisfaction despite the current stressful conditions of the economy generally and their organization specifically. as a result, such support may be what motivates employees to stick with the company and to refrain from organizational deviance behaviors. references armeli, s., eisenberger, r., fasolo, p., & lynch, p. 1998. perceived organizational support and police performance: the moderating influence of socioemotional needs. journal of applied psychology, 83(2), 288-297. aselage, j., & eisenberger, r. 2003. perceived organizational support and psychological contracts: a theoretical integration. journal of organizational behavior, 24(5), 491-509. alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 9 bennett, r., & robinson, s. 2000. development of a measure of workplace deviance. journal of applied psychology, 85(3), 349-360. bishop, j., scott, k., & burroughs, s. 2000. support, commitment, and employee outcomes in a team environment. journal of management, 26(6), 1113-1132. blau, p. 1964. exchange and power in social life. new york: wiley brayfield, a., & rothe, h. 1951. an index of job satisfaction. journal of applied psychology, 35(5), 307-311. chalykoff, j., & kochan, t. 1989. computer-aided 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(pp. 1-8). san francisco, ca: josseybass. hutchison, s., sowa, d., eisenberger, r., & huntington, r. 1986. perceived organizational support. journal of applied psychology, 71(3), 500-507. kerr, s. 1975. on the folly of rewarding a, while hoping for b. academy of management journal, 18(4), 769783. konovsky, m. 2000. understanding procedural justice and its impact on business organizations. journal of management, 26(2), 486-512. lynch, d., eisenberger, r., & armeli, s. 1999. perceived organizational support: inferior versus superior performance by wary employees. journal of applied psychology, 84(4), 467-483. alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 10 mcclelland, d. 1961. the achieving society. new york: macmillan company. rhoades, l., eisenberger, r., & armeli, s. 2001.affective commitment to the organization: the contribution of perceived organizational support. journal of applied psychology, 86(5), 825-836. rhoades, l., & eisenberger, r. 2002. perceived organizational support: a review of the literature. journal of applied psychology, 87(4), 698-714. toppinen-tanner, s., kalimo, r., & mutanen, p. 2002. the process of burnout in white-collar and blue-collar jobs: eight-year prospective study of exhaustion. journal of organizational behavior, 23(5), 555-570. tyler, t., & lind, e. 1992. a relational model of authority in groups. in m. zanna (ed.), advances in experimental social psychology, vol. 25: 115–191. new york: academic press. g. stoney alder is an associate professor of management at university of nevada, las vegas. he received his ph.d. in organization management from university of colorado at boulder. his current research interests include organizational justice, business ethics, and performance monitoring. he has published in organizational behavior and human decision processes, human resource management review, human resource management, journal of business ethics and others. daniel mcallister is an associate professor of management at university of nevada, las vegas. he received his ph.d. from university of washington in seattle. he was named a master teacher in 2012. his research interests include performance evaluation, team building and pedagogy. he has published in academy of management review and organizational behavior and human performance, (obhp), and others. john chase is 20 year veteran with the boulder city police department. he received his mba from university of nevada at las vegas. his current research interests include social exchange theory, police officer suicides and appropriate usage of levity and humor. he authors a monthly column for boulder city magazine where he discusses the police profession with his readers. alder, mcallister, and chase advances in business research 2012, vol. 3, no. 1, 1-11 11 appendix 1: questionnaire antecedent strongly strongly disagree agree work pressure i have no problems with my coworkers. 1 2 3 4 5 6 7 i have to work too fast 1 2 3 4 5 6 7 my agency provides adequate staffing levels. 1 2 3 4 5 6 7 i work under considerable time pressure. 1 2 3 4 5 6 7 i have problems with the pace of work. 1 2 3 4 5 6 7 i wish i could work at an easier pace. 1 2 3 4 5 6 7 moderators pcs my coworkers care about my well being. 1 2 3 4 5 6 7 if necessary, i can ask my coworkers for help. 1 2 3 4 5 6 7 my coworkers are a source of frustration for me. 1 2 3 4 5 6 7 i can rely on my coworkers when things get tough at work. 1 2 3 4 5 6 7 my coworkers show very little concern for me. 1 2 3 4 5 6 7 pos my agency strongly considers my goals and value. 1 2 3 4 5 6 7 my agency cares about my opinions. 1 2 3 4 5 6 7 my agency shows very little concern for me. 1 2 3 4 5 6 7 my agency really cares about my well being. 1 2 3 4 5 6 7 my agency would forgive an honest mistake on my part. 1 2 3 4 5 6 7 my agency is willing to help me when i need a special favor. 1 2 3 4 5 6 7 help is available from my company when i have a problem. 1 2 3 4 5 6 7 outcomes turnover i often follow up on job leads i have heard about. 1 2 3 4 5 6 7 i view this job as something i would like to continue doing for the foreseeable future. 1 2 3 4 5 6 7 before long i will be leaving this company. 1 2 3 4 5 6 7 i view this job as something to do until i can find a better job elsewhere. 1 2 3 4 5 6 7 burnout/exhaustion after a working day, i frequently feel too fatigued to engage in any other activity. at the end of a working day, i feel really fatigued. 1 2 3 4 5 6 7 due to my job, i feel rather exhausted at the end of a working day. 1 2 3 4 5 6 7 during the last stage of a working shift, i frequently feel too fatigued to perform well. 1 2 3 4 5 6 7 job satisfaction my job is pretty uninteresting. 1 2 3 4 5 6 7 i find real enjoyment in my work. 1 2 3 4 5 6 7 i consider my job rather unpleasant. 1 2 3 4 5 6 7 i am disappointed i ever took this job. 1 2 3 4 5 6 7 most days i am enthusiastic about my work. 1 2 3 4 5 6 7 production deviance i sometimes intentionally work slower than i am capable of working. 1 2 3 4 5 6 7 i occasionally take an additional or a longer break than is acceptable at my agency. 1 2 3 4 5 6 7 in the past year, i have violated formal call taking and subsequent dispatching procedures and guidelines at least once. 1 2 3 4 5 6 7 i sometimes go against my boss’s decisions. 1 2 3 4 5 6 7 microsoft word 67-506-1-ce-2--complete-upload-for-publication.docx http://journals.sfu.ca/abr advances in business research 2015, volume 6, pages 32-45 32 the contribution of workplace spirituality to organizational citizenship behavior peerayuth charoensukmongkol national institute of development administration, thailand jose-luis daniel saint xavier university ruth chatelain-jardon texas a&m university kingsville this study explores the role of workplace spirituality on organizational citizenship behaviors. all three aspects of workplace spirituality (sense of community, meaningful work, and inner life) were expected to positively associate with organizational citizenship behaviors towards individual and organization. undergraduate and graduate students from two public universities in south texas (n=179) were surveyed using a self-administered questionnaire survey. the results from partial least square regression analysis revealed that all three aspects of workplace spirituality positively and significantly associate with organizational citizenship behavior towards individual and organizational citizenship behavior towards organization. keywords: workplace spirituality, organizational citizenship behaviors, motivation, work climate, partial least square regression introduction in today’s business environment characterized by fierce competition, a strong commitment from employees is a critical factor that can significantly help an organization compete effectively visà-vis its competitors, as well as to achieve superior performance in the marketplace (meyer et al, 2004). among the various factors that motivate employees to make contributions to the organization, organizational citizenship behavior [ocb] is a concept that has been studied extensively in research. studies have found that ocb is linked positively to a variety of organizational outcomes (ozer, 2011; podsakoff et al, 2009). in particular, scholars have argued that ocb is a crucial factor during organizational change and uncertainty because when effectively planning organizational resource allocation in advance is very difficult (organ, 1988, 1990). taking into consideration the benefits that ocb could provide to the organization, this study proposes some workplace conditions (or a workplace condition) that lead to the development of ocb. in particular, the role of workplace spirituality is the focus of this research. in the literature, numerous scholars have written about the contributions and implications of workplace spirituality on individual outcomes (giacalone & jurkiewicz, 2003; sheep, 2006). although the relationship of workplace spirituality and ocb has been studied previously (kazemipour et al, 2012; tepper, 2003), the literature is incomplete. for example, tepper (2003) presented a model in which individual spirituality indirectly affects ocb through three psychological states: gratefulness, sensitivity to the needs, and tolerance for inequity. however, tepper (2003) focused mainly on how individual spirituality is related to ocb. charoensukmongkol et al. 33 this article describes an empirical research focusing on workplace spirituality [ws] as an element of the organizational culture. more specifically, we propose that inner life, sense of community, and meaningful work are elements presented in the organizational culture and may have an effect on ocb. therefore, this article aims to make a contribution to the research in workplace spirituality by providing some empirical evidence that would strengthen its importance. given the benefits that workplace spirituality could provide to a community at work, it is possible that the organization would significantly encourage the establishment of the former for the employees to perform ocb to their organization and other coworkers. the paper is organized as follows: first, the theoretical foundation, definitions, and linkage of both constructs are explained. the next section focused on this issue. then, information about the methodology, including the samples, measures, and estimation technique used for the analysis. then the results are presented. finally, results are discussed, and implications of the study are suggested. literature review this section reviews and synthesizes the literature and presents the numerous hypotheses for study. organizational citizenship behavior (ocb) organizational citizenship behavior (ocb) can be described as the employee behaviors that serve to promote the efficient and effective functioning of the organization, and these behaviors are not directly or explicitly stimulated by the formal organizational reward system (graham, 1991; organ & ryan, 1995). theoretically, the concept of ocb is based on the social exchange theory (blau, 1964). according to lavelle et al. (2009, p. 340), social exchange relationship can be described as “subjective, relationship-oriented contracts between employers and employees characterized by a mutual exchange of socio-emotional benefits.” in general, ocb reflects the willingness of the employees to devote themselves to the organization beyond their in-role duty (moorman & harland, 2002). unlike economic exchange, which is bounded by tangible and short-term rewards, social exchange is initiated based on the quality of trust and goodwill that two parties have toward each other (kacmar et al, 2012). research also shows that attitudinal factors such as affective commitment, perceived support, and fairness are key factors that would motivate employees to exert extra contribution (or effort) to the organization (restubog et al, 2008). in this regard, the positive relationship that the employees develop with their organization over a period of time is one of the main conditions for ocb (organ & ryan, 1995), and this relationship appears to be significant regardless of the length of time they have worked for the organization, as stated in the study of moorman and harland (2002), which found that the relationship is significant even for temporary employees who do not have a long working history with an organization. ocb has two main conceptualizations. the original conceptualization of ocb was proposed by organ (1988), who defined ocb as a five-factor model consisting of altruism, courtesy, conscientiousness, civic virtue, and sportsmanship. the model was later expanded by incorporating two additional dimensions: peacekeeping and cheerleading (organ, 1990). the second conceptualization, which is the model employed in this study, was proposed by williams and anderson (1991). this concept categorizes ocb based on the target of the behavior; in particular, behaviors aimed for the benefit of the organization are termed ocbo, whereas behaviors aimed for the benefit of other individuals are termed ocbi. williams and anderson’s (1991) conceptualization of ocb is also found to cover organ’s (1988) seven dimensions; specifically, whereas ocbi workplace spirituality & organizational citizenship behavior 34 captures the altruism, courtesy, peacekeeping, and cheerleading aspects of organ’s (1988) dimensions, ocbo captures the compliance, civic virtue, and sportsmanship dimensions. workplace spirituality the workplace spirituality movement can be understood as the result of a humanistic approach that was initiated many years ago (harrington et al, 2001; steele & bullock, 2009). motivation theories based on this humanistic approach have gained resonance in organizational behavioral research, starting with the hawthorne studies of mayo (1933) and maslow (1954), which gave importance to the needs and motivations of employees, up to the studies of melé (2003) and daniel (2010), who pointed out the incorporation of humanistic elements in the organizational theory field, as well as in the culture of the organization. workplace spirituality can be defined as “the recognition that employees have an inner life that nourishes and is nourished by meaningful work that takes place in the context of community” (ashmos & duchon, 2000, p. 137). ashmos and duchon (2000) highlighted that workplace spirituality encompasses three dimensions: sense of community, meaningful work, and inner life. they noted that the first dimension is as regards the connection that the employee has with other human beings in the workplace, the second dimension is about conducting activities at work that give meaning to the person’s life, and the third one is concerning the understanding of one’s power and its use in the workplace (ashmos & duchon, 2000). before proceeding, workplace spirituality and religion must be differentiated. in particular, duchon and plowman (2005) noted that religion is about an organized belief system, whereas workplace spirituality is more about finding meaning and community in the workplace. marques (2007) compared the characteristics of workplace spirituality with religion. one important aspect that was mentioned is that workplace spirituality is about having an experience of connectedness and being part of a work environment that promotes satisfaction and meaning. in addition, religion is more about established beliefs. following marques (2007), this article views workplace spirituality as an element of the organizational culture that affects employees and their behaviors. in research, workplace spirituality has been found to contribute positively to some individual outcomes. kolodinsky et al. (2003) noted that this contribution can be understood as a personorganization fit (p-o fit), which is defined as “judgments of congruence between an employee’s personal values and an organizational culture” (cable & durue, 2002, p. 875). kolodinsky et al. (2008) stated that when a strong fit exists between the employee’s values and the organization’s values, a positive relationship with individual outcomes will be seen. for instance, milliman et al. (2003) reported that workplace spirituality dimensions are not only positively related to organizational commitment but also negatively related to the intension to quit. in addition, robert et al. (2006) found a positive and significant relationship between workplace spirituality and job satisfaction. workplace spirituality and organizational citizenship behavior the first dimension of workplace spirituality, sense of community, could be considered a key factor that encourages employees to perform both ocbi and ocbo. as mentioned earlier, sense of community is about working in a place where employees can feel that there is a strong connection among the coworkers (ashmos & duchon, 2000). from this definition, employees with a high sense of community are more likely to demonstrate prosocial behavior, which is the willingness to help, protect, or promote the welfare of others (schwartz & bilsky, 1990). therefore, this prosocial behavior that employees have in their workplace can motivate them to make discretionary contributions to help their coworker and the organization beyond their regular responsibilities (li et al., 2010). also, manion and bartholomew (2004) noted that when a sense of community exists in a charoensukmongkol et al. 35 workplace, individuals and groups will be characterized by inclusivity, commitment of the members, the ability to form consensus, a sense of realism, a contemplative nature, and a sense of safety. according to them, these characteristics will help create the environment of mutual trust that encourages employees to devote themselves to help other employees and the organization. therefore: hypothesis 1a: sense of community will positively lead to higher ocbi. hypothesis 1b: sense of community will positively lead to higher ocbo. meaningful work, the second dimension of workplace spirituality, is a condition that motivates employees to perform both types of ocb. first, since ocb is driven by positive attitude that employees develop about their job (moorman & harland, 2002), employees who perceive that their job is meaningful to them are likely to be more willing to devote themselves to their work and organization. in particular, the meaning that people perceive about their job makes them feel connected to their work environment. when employees feel connected to their work, they will contribute more to their jobs because they tend to develop emotional attachment to them (van dyne & pierce, 2004). this view can be explained by the psychological ownership theory, which suggests that people tend to attach to any target when they identify strongly with it (pierce et al, 2003); the target, according to the theory, can be an object, an individual, a group, or an entire organization (avey et al, 2009). the more people invest in a relationship with a target, the stronger is the sense of obligation that they feel to protect and promote their welfare (weinstein & ryan, 2010). accordingly, employees who perceive their job as meaningful are more willing to devote themselves to help other people in their workplace organization. therefore: hypothesis 2a: meaningful work will positively lead to higher ocbi. hypothesis 2b: meaningful work will positively lead to higher ocbo. finally, the inner life aspect of workplace spirituality could also be considered a predictor of both ocbi and ocbo. inner life can be defined as “the feeling that individuals have about who they are, what they are doing, and what contributions they make (vaill, 1998, p.218). ashmos and duchon (2000) noted that when an employee has the opportunity to express his/her inner life, this could bring beneficial consequences to the workgroup and the organization. from a theoretical standpoint, the link between inner life and ocb can be supported by the self-concept theory (shamir, 1991), which suggests that a job tends to become a motivation for the employee when there is a congruence between the employee’s inner life and the work itself. specifically, shamir (1991) stated that when this match exists, employees will be more attached to the organization; the attachment that employees develop toward their workplace is, in turn, congruent with the psychological ownership theory. thus, employees who perceive a strong connection between their inner life and their workplace are possibly more likely to perform ocb. lastly, a study by konovsky and organ (1996) on the role of personality traits and the propensity for obc found that conscientiousness, one of the big five personality traits, appeared to be a good predictor of ocb. conscientiousness is a dispositional feature that reflects the level of self-discipline, thoroughness, vigilance, and deliberation. this dispositional characteristic is strongly related to the inner life aspect of workplace spirituality (vaill, 1998). therefore: hypothesis 3a: inner life will positively lead to higher ocbi. hypothesis 3b: inner life will positively lead to higher ocbo. workplace spirituality & organizational citizenship behavior 36 methodology this section describes the samples, measures, and estimating technique used in the study. samples the subjects of this study are undergraduate and graduate students from two public universities in south texas who have been working for an organization. participation in the study was optional; however, the students who agreed to participate were given extra class credit. in total, there were 178 students who agreed to participate. data were collected using a self-administered questionnaire. the sample’s statistics are as follows: regarding gender, there were 89 males and 89 females. the mean age was 27 years old (s.d.=9.81). on the subject of education, 71 of the participants had high school diploma (40%), 44 held an associate degree (25%), 45 held a bachelor’s degree (25%), and 18 held a graduate degree (10%). concerning marital status, 140 were single (79%) and 38 reported to be married (21%). on the topic of race, the majority of the participants were hispanic (76%), followed by caucasian/white (16.9%), black/african american (3.9%), and asian (2.8%). about job experience, the average job tenure was 3 years (s.d.=2.1), and the average duration that participants have worked for their current supervisor was 4 years (s.d.=2.62). measures this study employs the measure of workplace spirituality developed by ashmos and duchon (2000). this measure comprises three subscales corresponding to the three workplace spirituality dimensions: sense of community (9 items), meaningful work (7 items), and inner life (5 items). examples of the items for sense of community are “i feel part of a community in my immediate workplace” and “at work, we work together to resolve conflict in a positive way.” examples of the items for meaningful work are “my spirit is energized by my work” and “the work i do is connected to what i think is important in life.” examples of the items for inner life are “my spiritual values influence the choices i make” and “i consider myself a spiritual person.” the subscales use a 5-point likert-type scale (1 = strongly disagree, 5 = strongly agree). for the measure of ocb, the authors utilize the scale developed by williams and anderson (1991). the scale comprises 10 items: 7 items belong to ocbi, and 7 items belong to ocbo (either they are 14 items or which one has 3). these items use a 5-point likert-type scale (1 = strongly disagree, 5 = strongly agree). examples of the items for ocbi are “i help others who have been absent” and “i willingly give my time to help others who have work-related problems.” examples of the items for ocbo are “i defend the organization when other employees criticize it” and “i take action to protect the organization from potential problems.” in addition to the key independent variables, a set of control variables that might affect ocb were included. these control variables are age, gender, marital status, education, job tenure, and the duration that participants have worked for their current supervisor. since the majority of the participants are hispanic, a dummy variable for hispanic/non-hispanic was included to control for race (1=hispanic; 0=non-hispanic). estimating technique partial least square (pls) regression was the statistical technique employed to analyze the data. pls is a technique that combines principal component analysis, path analysis, and a set of regressions to generate estimates of standardized regression coefficients for the model’s paths and factor loadings for the measurement items (chin, 1998). pls offers more flexibility over variancebased structural equation modeling technique since it does not require data to be normally charoensukmongkol et al. 37 distributed (chin, 1998). furthermore, it requires smaller sample size for the analysis (kline, 2005). pls analysis was performed using warppls 3.0 (kock, 2012). results this section presents the results, including those related to model assessment, and hypothesis tests. model assessment before the pls model was estimated, the tests for reliability and validity of all latent variables were conducted. first, two types of construct validity were considered: convergent validity and discriminant validity. the objective of convergent validity is to ensure that all indicators belonging to the same construct share high variation with one another (chin, 1998); this type of validity was checked through factor loadings. hair et al. (2009) recommended a minimum of .5. as a consequence, indicators with factor loading below that level (1 item from sense of community, 2 items from meaningful work, and 1 item from inner life) were removed from the analysis. the results after the removal of the weak-loading indicators suggested that all the remaining indicators shared a high variation among themselves. next, discriminant validity test was performed to ensure that all indicators belonging to the same construct did not share high variation with other latent variables (chin, 1998); this kind of validity was assessed with the average variance extracted (ave). fornell and larcker (1981) suggested that the square root of the ave must be greater than any of the correlations involving the latent variable. overall, the ave for each construct met this requirement for all latent variables. second, construct reliability test was conducted to ensure that a scale consistently yielded the same response (nunnally, 1978). construct reliability was determined by cronbach’s alpha (α) coefficient and composite reliability coefficient. a minimum recommended value for cronbach’s alpha coefficient and composite reliability coefficient is .7 (chin, 1998; fornell & larcker, 1981). the results showed that all coefficients were above the recommended value. construct reliability indicators are reported in table 1. aves are reported in table 2. table 1: construct reliability indicators sense of community meaningful work inner life ocbi ocbo cronbach’s alpha (α) coefficient .888 .898 .868 .889 .916 composite reliability coefficient .911 .925 .910 .912 .933 note: ocbi = organizational citizenship behavior toward individual, ocbo = organizational citizenship behavior toward organization table 2 also reports the correlations among key variables. to ensure that multicollinearity is not a major concern for the analysis, the variance inflation factor (vif) was calculated. in particular, the full collinearity vif test, which allows a researcher to assess vertical and lateral collinearity simultaneously, was calculated in warppls 3.0. as suggested by petter et al. (2007), the full vif value should be lower than 3.3. in addition, kock and lynn (2012) argued that the full collinearity test can serve as a technique that captures the possibility of common method variance (lindell & workplace spirituality & organizational citizenship behavior 38 table 2: correlations among variables and average variance extracted (aves) sc mw il ocbi ocbo age gen mar edu hisp tenu syear sc (0.751) mw 0.743** (0.843) il 0.275** 0.393** (0.847) ocbi 0.493** 0.515** 0.471** (0.752) ocbo 0.642** 0.712** 0.370** 0.686** (0.799) age 0.078 0.016 -0.120 -0.026 -0.024 (1.000) gen -0.054 0.107 0.055 -0.023 0.011 -0.133 (1.000) mar 0.131 0.136 -0.025 0.039 0.101 -0.112 0.008 (1.000) edu 0.110 0.048 0.046 0.040 -0.032 -0.069 -0.326** 0.097 (1.000) hisp -0.083 -0.098 0.096 0.020 -0.040 0.074 0.005 -0.736** -0.082 (1.000) tenu -0.101 -0.041 -0.035 0.037 0.003 -0.136 0.246** -0.073 -0.368** 0.061 (1.000) syear -0.010 0.004 -0.040 -0.003 0.027 -0.039 0.141 0.027 -0.025 0.105 0.212** (1.000) notes: **, * indicates significant at 1% and 5% respectively aves are in parentheses sc=sense of community, mw=meaningful work, il=inner life, ocbi = organizational citizenship behavior toward individual, ocbo = organizational citizenship behavior toward organization, age=age, gen=gender, mar=married, edu=education, hisp=hispanic, tenu=job tenure, syear=number of years with current supervisor 39 whitney, 2001) in the pls model. according to them, the full collinearity vif test may be seen as a variance-based sem similar to the common method bias test used in covariance-based sem (kock & lynn, 2012). they suggested that common method bias can be a serious issue if the full vif value is higher than 3.3. in this study, the test result suggested that all of the full vif values ranged from 1.112 to 3.136, which are considerably lower than the critical value. test of hypotheses the results of the pls analysis are reported in figure 1. the standardized coefficients were calculated using bootstrapping resampling technique (efron, 1979). this study used a resampling procedure with 100 subsamples as recommended by efron et al. (2004). h3b .108* h2a .216** h1a .251** h1b .259*** h3a .320*** h2b .491*** il sc mw ocbi ocbo control variables: age, gender, education, marital status, race (hispanic), job tenure, number of years with current supervisor figure 1: pls results notes: ***, **, * indicate significant at 0.1%, 1%, and 5% respectively sc=sense of community, mw=meaningful work, il=inner life ocbi=organizational citizenship behavior toward individual, ocbo=organizational citizenship behavior toward organization, r 2 = .395 r 2 = .567 management theory’s impact on external financial reporting 40 for the contribution of sense of community on ocb, the results show that this aspect of workplace spirituality associates positively and strongly with ocbi (β=.251; p=0.007) and ocbo (β=.259; p<0.001). therefore, hypothesis 1a is supported at less than the 1% level, and hypothesis 1b is strongly supported at a level lower than 0.1%. for the contribution of meaningful work to ocb, the results indicate that this aspect of workplace spirituality positively and significantly relates to ocbi (β=.216; p=0.018) and ocbo (β=.491; p<0.001). thus, hypothesis 2a is supported at a level lower than 1%, and hypothesis 2b is strongly supported at less than the 0.1% level. finally, for the contribution of inner life on ocb, the results also show that this aspect of workplace spirituality associates positively and strongly with ocbi (β=.320; p<0.001) and ocbo (β=.108; p<0.035). thus, hypothesis 3a is strongly supported at less than the 0.1% level, whereas hypothesis 3b is supported at a level lower than 5%. for control variables, the results only show that gender and education are significantly associated with ocbo. specifically, male participants tend to develop lower ocbo (β=-.087; p=.05). the level of education was also associated negatively with ocbo (β=-.113; p=.015): the lower the educational level, the lower the likelihood that they would develop ocbo. discussion and conclusion this study proposed a contribution of the workplace spirituality dimensions to ocbi and ocbo. the results of the pls regression analysis revealed a positive effect that each dimension of workplace spirituality (sense of community, meaningful work, and inner life) has on both ocbi and ocbo. specifically, the authors found that all the three dimensions of workplace spirituality associated positively with both ocbo and ocbi. overall, these results supported the prior predictions about the linkages. the results of this study offer an extra contribution to the existing literature. first, the findings provide an additional insight about a workplace condition that can enhance employee ocb. discovering new antecedents of employee ocb is important since it helps researchers and practitioners identify key factors that can stimulate this positive behavior. previous studies on the determinants of ocb tend to focus on factors such as dispositional traits, job characteristics, and workplace environment (konovsky & organ, 1996; lavelle et al, 2009; restubog et al, 2008). on the other hand, in this study, workplace spirituality has been proven as another work condition that encourages employees to make extra contributions to the organization beyond their predefined responsibilities. consistent with research related to psychological ownership (avey et al, 2009; pierce et al, 2003), this study has confirmed that employees who are able to align their spiritual self with their work community and organization are more likely to develop emotional attachment to their workplace, thereby motivating them to express ocb to both their coworkers and the organization. furthermore, since workplace spirituality is a new concept that still needs more empirical support, this study also makes contribution to research in this area. the results of this research can provide guidance for organizations that would like to create or boost employees’ commitment to the firm and their coworkers. since ocb is considered a crucial behavior that contributes significantly to higher organizational performance (podsakoff et al, 2009), the ability of the organization to promote ocb can provide tremendous benefit to their performance, especially in today’s business environment characterized by fierce competition and high uncertainty. as a result, the results suggest that the creation or improvement of workplace spirituality within the company can be one solution to achieve this objective. charoensukmongkol et al. 41 several authors have suggested that organizational leaders are the key people who can create some workplace policies to enhance the sense of spirituality at work. for instance, marques (2005) proposed some organizational activities that include (1) helping employees connect with nature by bringing in natural features (such as plants) to the workplace, (2) holding outdoor meetings when possible, (3) allowing staff to take exercise breaks to promote physical and spiritual wellness, (4) holding frequent company celebrations to acknowledge milestones and achievements, (5) honoring creative expression by decorating the workplace with employee-made art, (6) holding meetings in the round, thereby creating feelings of egalitarianism, and (7) encouraging employees to get to know each other better. another possible way to establish spirituality in the workplace is through the mission statement of the company. the organization can create a mission statement that reflects positive values, that is friendly, and from which individuals can feel pride (konz & ryan, 1999; milliman et al., 1999). bartkus and glassman (2008) noted that mission statements can function as guidance to direct behaviors and decisions of employees. thus, the organizations has the responsibility to ensure that all employees adopt, breathe, and make the mission a daily life experience. bart (1999) stated that organizations can use several ways of disseminating the mission statement to their employees. he mentioned that annual reports, posters, plaques, employee manuals, newsletter, meetings, and training sessions can be used for this purpose. the other possible ways to create or improve workplace spirituality can be performed by giving more freedom to employees in personalizing their cubicles, painting walls in bright colors, displaying spiritual messages, and providing 30 minutes of meditation (finlayson, 2001). milliman et al. (1999) also pointed out that a celebration for new employees and humorous trainings are conducted for building a supportive and positive climate that can promote spirituality. in addition, caudron (2001) mentioned that flexible working hours and allowing employees to bring pets to work could be some of the other practices that promote this climate. this research has several implications. generally, as employees are expected by an organization to make extra contribution to their work, the organization should reciprocate by giving proper treatment or motivation. by incorporating or creating workplace spirituality, either by management practices or through their mission statement, employees will have an opportunity to work within an organizational climate characterized by positive values. this type of organizational climate can subsequently enhance the willingness of employees to make a strong commitment to their tasks and responsibilities (zhang & jia, 2010). research has demonstrated that organizations in which workplace spirituality is evident tend to possess high values such as integrity, justice, mutuality, responsibility, and trust (jurkiewicz & giacalone, 2004). in fact, promoting a sense of spirituality in the workplace not only benefits an organization but also promotes employees’ wellbeing. although the effect of workplace spirituality on employees’ well-being is not tested in this research, several studies have remarked the relationship of both constructs for example, kolodinsky et al (2008) found that workplace spirituality tends to lower employees’ frustration at work. in addition, if employees experience friendly, supportive, and respectful environment in their workplace, they are more likely to reciprocate by behaving in the same manner toward their colleagues. this will create a cooperative and warm working atmosphere, which is suggested in research as a factor that can lower stress and promote the psychological well-being of employees (lawrence & callan, 2011). despite the significant contributions that the study has provided, there are several limitations that need to be considered. first, the data was collected from participants from two universities in south texas; also, the majority of the participants are hispanic. these sampling issues can limit the generalized power of the results. therefore, future research should explore the benefits of workplace spirituality on ocb using participants from a different context. second, this study employed the self-reported data collection method, which could make some of the results affected by common management theory’s impact on external financial reporting 42 method bias problem. even though the full collinearly vif test, a technique recommended by kock and lynn (2012) to detect common method bias in pls analysis, revealed that the results were lower than the critical value, this may not completely rule out the possibility of the common method bias issue. in conclusion, the present study proposed that workplace spirituality could be considered a key antecedent to develop employee ocb. empirical results also support the positive effect of the three workplace spirituality dimensions on ocbi and ocbo. in general, the results highlight the importance of organizational leaders creating a work climate that enhances employee spirituality at work to encourage employees to perform ocb. references ashmos, d., & duchon, d. 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(2010). using social exchange theory to predict the effects of high-performance human resource practices on corporate entrepreneurship: evidence from china. human resource management, 49(4), 743-765. peerayuth charoensukmongkol is an instructor at the international college of national institute of development administration. he received his ph.d. in international usiness with a concentration in management from texas a&m international university. his research interests are organizational behaviors, managerial psychology, leadership, and strategic management. jose-luis daniel is an assistant professor of international business at the graham school of business, saint xavier university in chicago, il. he received his ph.d. in international business with a concentration in management from texas a&m international university. he has an m.b.a. in international business from texas a&m international university. he also has a bachelor’s of science in chemical engineering from monterrey institute of technology. his research interests are workplace spirituality, leadership, strategic management, subcultures, and foreign direct investment. ruth chatelain-jardon is an assistant professor in the department of management and marketing at texas a&m university kingsville. she holds degrees in international trade (b.b.a. & m.b.a.), international logistic (m.s.), management information systems (m.s.) and international business (ph.d.). her research interests include learning improvement, organizational behavior, knowledge transfer, e-collaboration, logistic and culture. uafs abr journal vol 4 no 1 2013.pdf 13 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 emotional intelligence: a comparative analysis of two college business administration programs barbara burgess-wilkerson, winthrop university anna lampe, rockhurst university steve frankforter, winthrop university a comparative study of two universities explores the emotional intelligence (ei) of students in two college of business administration (cba) programs with contrasting missions, visions, and populations. this study investigates the extent to which ei test scores and sub-scales varied among two cba student populations. despite the differences between the two universities, no differences were evident in the ei abilities among the two cba student populations. further research will explore the extent to which universities can impact ei short and long-term through classroom interventions. the american college personnel association called for a response to the compelling evidence regarding the relevance of emotional intelligence (ei) in academic and workforce settings advocating the creation of a learning models incorporating emotional intelligence competencies, through engagement in practical research efforts to promote active learning through integrated learning communities (low, lomax, jackson & nelson, 2004). the transition to college is characterized by a period of social, emotional, and academic adjustment (chickering, 1969), important indicators of academic and career success (gerdes & mallinckrodt, 1994; robbins, oh, le, & button, 2009). empirical evidence indicates that emotional control impacts academic outcomes early in the learning process diverting critical attention away from task learning leading to worry, rumination, and upset (kanfer, ackerman & heggestad, 1996). salovey and mayer’s (1990) study of social (non-cognitive) intelligence presented a framework for emotional intelligence (ei), which was based on the ability to regulate one’s emotion and accurately monitoring others’ emotions. according to salovey and mayer (1990) emotional intelligence is “a form of social intelligence that involves the ability to monitor one’s own and other’s feelings and emotions, to discriminate among them, and to use this information to guide one’s thinking and action” (1990:185). goleman (1995) examined the relationship between traditional cognitive iq tests and success in the workplace, finding that iq by itself was not a good predictor of job performance. goleman found that emotional intelligence is a more important determinant of management success than technical expertise or cognitive ability. cherniss and adler (2000) found that ei was critical for effective work performance. a national survey found four in ten workers were not able to work cooperatively with fellow-employees and only 19% of entry-level applicants have sufficient self-discipline in work habits (harris education research council, 1991). recognition exists among researchers and practitioners that emotions play a large role in organizational life. for example, emotional intelligence is a key area to help accountants perform better (akers & porter, 2003). additionally, goleman, boyatzis, and mckee (2002) found that partners in a large public accounting firm with strong self-management and social skills achieved a 390% percent incremental annual profit. several studies indicate a positive correlation between ei and academic success among college students. lam and kirby (2002) found that ei accounts for increases in individual cognitive-based performance above the level attributed to general intelligence in three of the four emotional intelligence subscales; overall ei, perceiving emotions, and regulating emotions. burgess-wilkerson, benson, and frankforter (2012) conducted an analysis of ei in an academic setting and found that ei scores can improve as a result of classroom interventions. 14 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 literature review emotional intelligence is a construct that has to do with the awareness and expression of emotions experienced by oneself and others, as well as the ability to understand and regulate such emotions. thorndike (1937) first reported the concept of “social intelligence.” wechsler (1940) fought for the addition of “non-intellective aspects” as a measure of general intelligence. likewise, leeper (1948) purported that “emotional thought” should be considered when reviewing the concept of “logical thought.” however, it was not until the 1980s that the current concepts related to emotional intelligence started to emerge. gardner (1983) shared a theory of multiple intelligences that encouraged researchers to step outside the notion that human beings are confined to a singular or plural view of intelligence. gardner also explained that there were other areas of human intelligence that were traditionally ignored or overlooked by academic institutions. gardner (1983) explained that there are two types of intelligence that have held the focus and emphasis of traditional academic thought in institutions of higher education: language intelligence and logical-mathematical intelligence. nevertheless, gardner purported that there were five more intelligences that were equally important to collective human intelligence: musical intelligence, spatial intelligence, bodily-kinesthetic intelligence, interpersonal intelligence, and intrapersonal intelligence. out of the research on social intelligence emerged the concept of personal intelligence (gardner,1983), which consists of two constructs: interpersonal and intrapersonal intelligence. interpersonal intelligence is purported to focus on external events and involves the recognition and evaluation of feelings in others. intrapersonal intelligence, on the other hand, focuses on the self and one’s ability to recognize and evaluate his or her own feelings. within these multiple levels of intelligences, a movement evolved that expanded two particular areas of gardner’s approach (i.e., interpersonal and intrapersonal intelligences). salovey and mayer (1990) coined the term “emotional quotient” and later defined it as “a type of social intelligence that involves the ability to monitor one’s own and others’ emotions, to discriminate among them, and to use that information to guide one’s thinking and actions (1993).” both intrapersonal and interpersonal intelligence are theorized to be a large portion of what mayer et al. (2000a) define as emotional intelligence. according to bar-on (2002), several researchers expanded gardner’s interpersonal and intrapersonal intelligences into six primary components of emotional intelligence: emotional self-awareness, assertiveness, empathy, interpersonal relationship, stress tolerance, and impulse control. several definitions of ei emerged through the advanced study of the six components. bar-on (2005) explained that the multiplicity of definitions that came out of gardner’s approach has added layers of confusion and complexity as to the best approach, definition, and measure of emotional and social intelligence. since that point of advancement and divergence, from gardner’s view of the construct, some researchers, (goleman, 1998; mayer & salovey, 1997), named this construct "emotional intelligence" while in 1997 bar-on chose the term “emotional and social intelligence” and formalized the concept of emotionalsocial intelligence (esi) in 2005. for the purpose of this study, the authors ask you to accept all of these labels and definitions under the term emotional quotient (ei). the american college personnel association asked institutions of higher learning to position themselves to advocate and promote the development of ei in all aspects of academic life (low, lomax, jackson & nelson, 2004). much interest in ei exists and its impact in both academic and professional settings. research indicates a positive correlation between emotional intelligence and cognitive-based performance among college students. lam and kirby (2002) ascertained the level to which emotional intelligence accounts for increases in individual cognitive-based performance in an academic setting. they found a positive correlation existed in three of the four emotional intelligence subscales: overall ei, perceiving emotions, and regulating emotions. in a study of mba students, boyatzis, stubbs, and taylor (2002) concluded that mba programs should put forth a concerted effort to integrate emotional intelligence training into the curriculum using approaches that include self-assessment and self-development. these programs in return would result in positive employment outcomes. 15 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 ei is known to impact career outcomes. a survey of employers conducted by the national association of colleges and employers found that employers rated interpersonal skills as the most desired skill of recent graduates (shivpuri & kim, 2004). in a study of accounting students, bay and mckeage (2006) found that average accounting students did not have high levels of emotional intelligence, and given the critical role of emotional intelligence in career success, those students were ill-prepared for their futures. they argue that emotional intelligence has relevance for accountants in the areas of decision-making and also suggests that emotional intelligence is a variable that may explain the gap between ethical understanding and ethical behavior in the workplace. while graduates of business programs may be technically prepared for their disciplines, they are not necessarily prepared for the emotional aspects of their work. measures of emotional intelligence many theorists have operationalized their theories of emotional intelligence with evaluative measures for use with populations (mayer & salovey, 1997; bar-on, 2002; goleman, 1995). each construct of ei can be distinguished according to the definition of emotional intelligence and the measurement approach employed (mayer, caruso, & salovey, 2000a). mayer, et al. explained that “there are two general models of emotional intelligence: a mental ability model and a mixed model that includes various personality dispositions” (p. 416). two of the three models of emotional intelligence (bar-on, 2002; goleman 1995) are categorized by mayer, salovey, and caruso (2000b) as mixed models or trait models, while the other (mayer & salovey, 1997) is considered a mental ability model. the assessment of emotional intelligence is continuing to expand in both definition and research. currently, more self-assessment, trait emotional intelligence instruments exist than ability measures of ei, and considerable controversy exists regarding which measure is most reliable and valid (antonakis, 2003; judge, colbert, & ilies, 2004; and salovey, mayer, caruso, & sitarenios, 2003). various business schools are embracing emotional intelligence as part of a program requirement either as part of an integrated curriculum or as a program activity. in one instance, emotional intelligence theory was infused into a school’s business communication curriculum as a strategy for developing interpersonal and intrapersonal communications more effectively (myers & tucker, 2005). vandervoort (2006) advocated improving student emotional intelligence because those with higher self-knowledge tend to make better career choices, have less behavioral/emotional problems, and have higher scores on standardized achievement tests. some colleges view ei as a vital part of academic life, particularly in the colleges of business administration (cba). a small 2004 study by ellen paek empirically examined the extent to which religiosity, operationalized as religious orientation and religious behavior is related to emotional intelligence. the study examined the extent to which religious orientation and behavior were related to self-reported (ei) in 148 church attending adult christians. the study found that the individuals' self-reported religious orientation was positively correlated with their perceiving themselves to have greater ei. significant positive correlations were also found between level of religious commitment and perceived ei. in their 2002 article entitled “linking emotional intelligence, spirituality and workplace performance: definitions, models and ideas for research,” tischler, biberman and mckeage reviewed literature on both ei and various aspect of spirituality. they found that both ei and spirituality appear to lead to similar attitudes, behaviors and skills. purpose of the study comparative studies of two universities are of interest when exploring emotional intelligence particularly as it relates to divergent cba programs with contrasting missions and visions as well as the population of attendees. the purpose of this study is to investigate the extent to which emotional intelligence test scores will vary among undergraduate and graduate cba students from two divergent universities and to determine the extent to which scores on certain ei sub-scales will vary among undergraduate and graduate cba students of the two universities. the three ‘c’s’ of jesuit education. i.e., 16 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 ‘competence, conscience and compassion,’ are infused in multiple touch points of rockport’s curriculum. with rockport’s emphasis on compassion and community service, both of which foster emotional intelligence, we predict that cba undergraduate students at rockport will score higher than cba undergraduate students at whitmore overall in ei. we predict that cba graduate students at rockport will score higher overall than cba graduate students at whitmore. we predict that cba graduate students at rockport and whitmore will score higher than undergraduate students at rockport and whitmore. we predict that cba undergraduate students at rockport will score higher in empathy and social skills than cba undergraduates at whitmore; we predict that graduate cba students at rockport will score higher in empathy and social skills than graduates at whitmore. accordingly, we offer the following hypotheses: h1: ei test scores among undergraduate students at rockport will be higher than ei test scores among undergraduate students at whitmore. h2: ei test scores among graduate students at rockport will be higher than ei test scores among graduate students at whitmore. h3: ei scores among undergraduate students at rockport will be higher in interpersonal skills (empathy and social skills) than undergraduate students at whitmore. h4: ei scores among graduate level students at rockport will be higher in interpersonal skills (empathy and social skills) than graduate students at whitmore. design of the study participants the population consists of students at two divergent universities in both undergraduate and graduate level cba aacsb accredited programs in the u.s. rockport university founded by a jesuit priest, rockport university is one of 196 jesuit colleges and universities that exist throughout the world 28 of those in the united states. the university serves approximately 3,000 students at its campus offering 50 undergraduate and graduate programs. rockport has a 12:1 student to faculty ratio, has an average size of 24 for undergraduate lecture classes, and all classes are taught by faculty; 92% of the full-time faculty hold the highest degree in their field. the jesuits’ shared goal is to provide an excellent education that develops competent, compassionate, and committed leaders through a value-centered education. together, jesuits and professors embrace the contributions of other religious and ethical traditions because they complement the catholic intellectual tradition of social thought and service. the jesuit tradition building individual dignity is infused throughout the curriculum, which is based on the seven classical modes of inquiry: artistic, historical, literary, philosophical, theological, scientific relational and scientific causal. graduates from rockport university receive two transcripts: one for academics and another for community service. rockport’s college of business school is comprised of approximately 300 undergraduate students and 350 graduate students. rockport is accredited by the association to advance collegiate schools of business (aacsb), the gold standard in business education. fewer than 5% of the world’s business schools have achieved this distinction. whitmore university, a public, coeducational, liberal arts university located in the southeastern part of the united states, has been an educational leader for more than a century. the school was founded by a superintendent of schools initially as a teacher’s training school for women. over time, whitmore became one of the premier women’s colleges in the region and expanded its mission to become a comprehensive institution offering degrees in a growing variety of disciplines. the institution diversified its class ranks by extending its educational offerings to minorities in 1964 and becoming fully coeducational 1974. the university was also recognized by a national foundation as a university that "encourages character development." the values of service, excellence, diversity, community, and leadership have shaped 17 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 whitmore’s successes and supported its development. like rockport, its baccalaureate in business administration and master of business administration degree programs are accredited by the association to advance collegiate schools of business (aacsb-international). less than one-third of u.s. business school programs and less than 5% of programs worldwide hold this accreditation. a total of 42 undergraduate and 26 graduate degree programs are available to over 6,000 students in the college of arts and sciences, the college of business administration, the college of education, and the college of visual and performing arts. a liberal arts core provides the foundation for all degree programs. whitmore has a 14:1 student to faculty ratio, has an average size of 24 for undergraduate lecture classes, and all classes are taught by faculty. tti emotional quotient (tti) the assessment used for this research was the tti emotional quotient report, a self-report personality based approach that allows students to understand their own eq in order to avoid making high-risk decisions without understanding how their emotions are influencing their choice. the tti emotional quotient is a multidimensional perspective of emotional intelligence. the emotional intelligence item bank builds upon the goleman (1995) model of emotional intelligence. since its inception the test has been administered to individuals in several countries globally. several analyses were conducted using a sample of working professionals ages 20-75: the mean age was 48; 44% were male and 52% female, and the professionals lived in the u.s. england, greece, canada, new zealand, and australia. the demographic composition includes 77% caucasian, 16.9% black/african american, 1% hispanic/latino, and 2.8% from two or more races (eq mentor, 2008, pg. 4). the tti assessment provides an overall emotional intelligence quotient (eq) score, an intrapersonal intelligence score, an interpersonal intelligence score, scores on five components of eq, and five personality factors as described below in table 2. the tti has 57 questions and requires approximately 10 minutes for completion of the online self-assessment. it has two components and five subcomponents. the questions use a five-point likert scale. the first component, interpersonal, includes self-awareness, self-regulation, and motivation. the second component, intrapersonal, includes social skills and empathy. the five subcomponents combine to form a total score. table 2 displays the components, subcomponents, and definitions for the tti. respondents rate each item using a likert scale with the options: “very inaccurate, somewhat accurate, neither accurate nor inaccurate, somewhat accurate, and very accurate.” there are 31 reverse scored items on the instrument. the tti emotional quotient is normed based upon the standard bell curve resulting in 16% low scores, 68% average scores, and 16% high scores (eq mentor, 2008, pg. 2). table 1: components, subcomponents & definitions – tti emotional quotient components subcomponents definition total score a general indication of a respondent’s level of emotional intelligence. includes all five subcomponents. intrapersonal the ability to understand yourself, form an accurate concept of yourself, and apply that concept to operate effectively. self-awareness the ability to recognize and understand your moods, emotions, and drives, as well as their effect on others. self-regulation the ability to control or re-direct disruptive impulses and moods and the propensity to suspend judgment and think before acting. motivation a passion to work for reasons that go beyond money and status and a propensity to pursue goals with energy and persistence. interpersonal the ability to identify and understand how to effectively relate to, work with, and motivate others. this is made up to two key competencies: social skills a proficiency in managing relationships and building networks. empathy the ability to understand the emotional makeup of other people. 18 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 table 2: reliability of the instrum data collection a total of 100 rockport cba students were invited to complete the tti inventory. the invitation was distributed to students in any major within the cba program. out of the 127 who were invited to participate, 100 did so. this gives a response rate of 78%. the response rate for this study is favorable, and 100 inventories were used for the analysis. likewise, a total of 100 whitmore students were also invited to participate in the study as part of a course activity. of the 100 invited to participate 100 agreed. irb protocol was followed for students at both institutions, and each student signed informed consent documents. method we calculated means for each ei score for the students from each university. data analysis was conducted using a two-sample t-test assuming equal variances. we used one-tailed tests because our hypotheses predicted direction. results table 3 displays the comparison of mean ei scores for all students from both schools. while our hypotheses did not address such a comparison, we believed that this disclosure was important. while rockport students scored higher than whitmore students, no statistically significant differences were present. the greatest difference we found was that rockport students scored higher than whitmore students on the social awareness component (p < .08) which is still not very significant. table 3: comparison of mean ei scores for all students from both schools variable mean rockport mean whitmore difference t-statistic p-value social awareness 7.72 7.48 0.24 1.41 0.08 self-regulation 6.23 6.27 -0.04 -0.22 0.41 motivation 7.74 7.69 0.05 0.26 0.40 empathy 7.40 7.38 0.02 0.15 0.44 social skills 7.40 7.27 0.13 0.71 0.24 intrapersonal eq 7.26 7.14 0.12 0.89 0.19 interpersonal eq 7.41 7.33 0.08 0.51 0.31 total eq 7.32 7.21 0.11 0.86 0.20 n 100 100 df 198 table 4 displays the comparison of mean ei scores for undergraduate students from both schools. h1 and h3 addressed the differences for total and interpersonal ei, predicting that undergraduate rockport students would have higher scores for total and interpersonal ei than whitmore students. neither h1 nor h3 were statistically significant, with difference scores of just 0.20 (p < .11) and 0.18 (p < .18). 19 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 table 4: comparison of mean ei scores for undergraduate students from both schools variable mean rockport mean whitmore difference t-statistic p-value social awareness 7.68 7.44 0.24 1.08 0.14 self-regulation 6.14 6.01 0.13 0.49 0.31 motivation 7.59 7.44 0.15 0.73 0.23 empathy 7.34 7.21 0.13 0.57 0.29 social skills 7.41 7.17 0.24 0.96 0.17 intrapersonal eq 7.15 6.95 0.20 1.14 0.13 interpersonal eq 7.38 7.20 0.18 0.91 0.18 total eq 7.24 7.04 0.20 1.22 0.11 n 64 61 df 123 table 5 displays the comparison of mean ei scores for graduate students from both schools. h2 and h4 addressed the differences for total and interpersonal ei, predicting that graduate rockport students would have higher scores for total and interpersonal ei than whitmore students. neither h2 nor h4 were statistically significant, with difference scores of just -0.02 (p < .45) and -0.08 (p < .39) and the direction for the differences was not correctly predicted. table 5: comparison of mean ei scores for graduate students from both schools variable mean rockport mean whitmore difference t-statistic p-value social awareness 7.80 7.55 0.25 0.93 0.18 self-regulation 6.39 6.69 -0.30 -0.87 0.19 motivation 7.99 8.09 -0.10 -0.46 0.32 empathy 7.52 7.63 -0.11 -0.42 0.34 social skills 7.39 7.41 -0.02 -0.06 0.48 intrapersonal eq 7.46 7.44 0.02 0.07 0.47 interpersonal eq 7.45 7.53 -0.08 -0.28 0.39 total eq 7.45 7.47 -0.02 -0.12 0.45 n 36 39 df 73 our overall results suggest that, in spite of the differences between the universities, the ei abilities of the student populations were remarkably similar. conclusions despite the many differences between rockport and whitmore universities (see appendix a), those differences had no apparent effect on the ei abilities of the undergraduate and graduate students of those schools. this provides evidence that the ei abilities of students may be very similar despite apparent differences in their universities. while we found a surprising homogenous population of students, our findings support earlier work of bar-on, salovey, mayer and others who have found that age cohorts typically have similar ei scores. the fact that students at both universities are for the most part traditional (ages 18-24) seems to have more of a bearing on the results than does the divergent vision, mission, location or culture of the population at both universities. while some ei studies have shown that culture does impact ei test results, our findings indicate that the culture although quite different, was less impactful than age when taking ei tests. further research interests are the extent to which universities can impact overall ei through on-going classroom interventions and the extent to which ei continues to improve long-term as a result of the classroom interventions. references akers, m., & porter, g. 2003. your eq skills: got what it takes? journal of accountancy, 195(3): 6570. 20 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 antonakis, j. 2003. why “emotional intelligence” does not predict leadership effectiveness: a comment on prati, douglas, ferris, ammeter, and buckley. international journal of organizational analysis, 11(4): 355-361. bar-on, r. 1997. the bar-on emotional quotient inventory (eq-i): a test of emotional intelligence. toronto, canada: multi-health systems. bar-on, r. 2002. the bar-on emotional 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burgess-wilkerson is an associate professor of management and director of student professional development for winthrop university’s college of business administration. she received 22 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 her ph.d. in higher education administration from university of pittsburgh in pittsburgh. her research interests include student professional development, business communications, and emotional intelligence. anna lampe is an executive professor of management at rockhurst university in kansas city, mo. she received her ph.d. in urban leadership & policy studies and education. her research interests include psychological type, corporate culture, and organizational behavior. steven frankforter is a professor of management and associate dean for winthrop university’s college of business administration. he received his ph.d. in management from university of washington in seattle. his research interests include corporate governance, agency theory, stewardship theory, and emotional intelligence. 23 burgess-wilkerson, lampe, and frankforter advances in business research 2013, vol. 4, no. 1, 13-23 appendix a: university dashboards: rockport university & whitmore university (ay 2011-2012) entering freshman class rockport university whitmore university sector private not-for profit; coed public; coed carnegie classification master's colleges and universities (larger programs) master's colleges and universities (larger programs) campus setting urban; large city: midwest east religious affiliation roman catholic na ug & graduate degrees 50 67 class size 24 24 on campus housing yes yes bus school accreditation aacsb aacsb ftes 2291 6170 ug fte 1740 5029 gr fte 551 1141 % male 39% 33% % female 61% 57% fte faculty 132 286 student-faculty ratio 12 :1 14:1 ug tuition $27,700 $13,026 in state $24,276 out of state room & board $8060 $7258 % 1st time students receiving grants 99% average $21,000 96% average $9,018 average age 18-24 18-24 microsoft word 154-final for publication.docx http://journals.sfu.ca/abr advances in business research 2016, volume 7, pages 103-119 103 an examination of façades of conformity as a social mobility strategy t. nichole phillips winston-salem state university felice williams louisiana state university at shreveport dorothy kirkman university of houston at clear lake this study examines the façade of conformity construct as a social mobility strategy employed by minority employees to enhance their social identity in organizations. results from a survey of 102 african americans employed in higher education indicate that demographic dissimilarity moderates the relationships between both perceived value of diversity and ethnic identity and facades of conformity. the creation of facades of conformity is positively related to work stress, and work stress is negatively related to job satisfaction. keywords: facades of conformity, relational demography, social identity, social mobility, african americans introduction the impact of employee demographics on organizational operations is an area of research that has garnered much attention. as the demographic composition of the labor force continues to evolve, organizations are forced to explore ways to properly manage this diversity, implementing systems and practices designed to facilitate an environment such that the potential for achieving the positive outcomes associated with diversity is maximized, and the possibility of the negative minimized (cox 1991; roberts 2005). properly managed diversity is believed to assist organizations in achieving advantages in the areas of cost, resource acquisition, marketing, creativity, problem solving, and flexibility (cox & blake 1991; konrad 2003; richard, barnett, dwyer, & chadwick 2004). although understanding the organization’s approach and outcomes is vital to the study of diversity management, it is equally essential for organizational leaders and researchers to explore the experiences of minority employees. many studies have highlighted how organizational outcomes differ between minority and majority employees (e.g., avery, mckay, wilson, & tonindandel 2007; chattopadhyay 1999; cox & blake 1991; stewart & garcia-prieto 2004); understanding those differences will increase the likelihood that minority employees will be highly committed to, perform highly for, and intend to remain with organizations (cox & blake 1991; jackson et al. 1991). for our purposes, minorities are defined as employees who have salient features such as age, sex or race as well as other characteristics (i.e., beliefs, values) that are different from the majority of the organization (ferris, frink & galang 1993; hewlin 2009; westphal & milton 2000). according to the similarity-attraction paradigm, people tend to be drawn and attracted to those who are similar to them in terms of demographic characteristics, activities or attitudes (byrne, clore & worchel 1966; tsui & o’reilly 1989). dissimilarity, particularly demographic dissimilarity, is often interpreted as a reflection of conflicting attitudes and goals, ultimately resulting in lower levels of attraction toward and expectations of negative interactions with dissimilar others (riordan 2000). therefore, employees may anticipate negative façades of conformity 104 encounters, experience undesirable outcomes, and voluntarily leave the organization when they are dissimilar to others or perceive there is not a fit between their norms and those of the organization. in this study, we draw upon the relational demography literature to assess the influence of demographic dissimilarity on employee behavior. introduced by tsui and o’reilly (1989), relational demography examines the comparative demographic composition of relevant others with whom the employee has significant and regular interaction, thus providing additional insight into the particular mechanisms through which demography influences behavior and outcomes (tsui & o’reilly 1989). commonly studied relevant others include supervisors, coworkers, and/or a work team (e.g., chattopadhyay 1999; liao, joshi & chuang 2004; tsui & o’reilly 1989). relational demography builds upon the similarityattraction paradigm (byrne 1971) and social identity and self-categorization theories (tajfel & turner 1986) to understand the motivations and processes behind employee responses to dissimilarity (riordan 2000; stewart & garcia-prieto 2008). social identity and self-categorization theories propose that individuals seek to build self-esteem and a positive image through a process of self-categorization, whereby they classify themselves and others into categories that are salient in a particular context and ascribe a value to each (chattopadhyay, tluchowska, & george 2004; turner 1987). the categories to which the individual belongs constitute his/her in-group. a positive social identity is achieved when he/she holds their group in high regard and perceives it to be socially desirable (stewart & garcia-prieto 2008; tajfel & turner 1986); however, they also recognize that others may not share that valuation. as minority employees have traditionally been relegated to a lower status in organizations (amott & mathaei 1991; chattopadhyay et al. 2004; konrad & gutek 1987; reskin, 1993; reskin & mcbrier 2000), employees in this category may seek to enhance their status by engaging in social mobility strategies in an attempt to pass from a low to high status group. for example, a female attempting to improve her status in a predominantly male organization may adopt the “norms, values, and attributes that characterize men” in order to receive positive organizational outcomes (reynolds & turner 2001, 166-167; chattopadhyay et al. 2004). an individual’s social identity plays a large role in the type of social mobility strategy he or she selects to employ. for example, a black person who has a low association with his black identity may engage in cultural inversion, choosing to accept that being black represents all that is not white, and therefore opt to idealize white culture and denigrate black culture in order to be accepted into white society (cross, parham, & helms 1998; chattopadhyay et al. 2004; davis & watson 1982; ibarra 1995). in contrast, a black person with a strong black identity may choose to adopt certain aspects of white identity only in particular contexts, such as the “relatively peripheral domain of work,” in an attempt to achieve positive outcomes (chattopadhyay et al. 2004 186). providing the illusion of similarity to others in the organization can possibly serve to counter negative stereotypes and reduce the likelihood that one is considered to be an out-group member, possibly leading to more positive employment-related benefits (major, quinton, mccoy, & schmader 2000; roberts 2005). however, denying certain personal attributes and engaging in behavior that is inconsistent with one’s self-concept can be emotionally demanding (bell 1990; hewlin 2009; meyerson 2001; meyerson & scully 1995) and may also lead to negative personal outcomes (hewlin 2003; kelman 2006; roberts 2005). the goal of this study is to identify some of the potential factors that may influence minority employees’ decisions to enhance their status in organizations by utilizing a social mobility strategy and the potential outcomes of such behavior. we do not propose that the antecedents or consequences presented represent an exhaustive list of the factors that influence employee decisions and behaviors, but rather aim to provide a contribution to the emerging work in this area and to provide a basis on which future empirical work can build. given the different facets of diversity (e.g., ethnic, religious, gender), all of which have the potential to influence employee and organizational outcomes, our analyses focus on racial and ethnic diversity. specifically, we propose that the focal employee’s ethnic identity, as well as his or her perception that the organization values diversity, will affect decisions to engage in facades of conformity, and that this effect will be moderated by the degree of racial similarity between the focal employee and his/her supervisor and coworkers. we further posit that work stress will mediate the relationship between facades of conformity and job satisfaction. a model of the hypothesized relationships is presented in figure 1 phillips et al. 105 figure 1. model of hypothesized relationships social mobility as social identity enhancement the fundamental tenet of social identity theory is the achievement of a positive social identity (chattopadhyay et al. 2004; jackson et al. 1996; tajfel & turner 1979). when members of lower status (chattopadhyay et al. 2004), or negatively distinctive (jackson et al. 1996) in-groups seek to enhance their social identity, they use one of three possible strategies: social mobility, social creativity, or social change (tajfel & turner 1979). social mobility refers to an individual’s attempt to dissociate themselves from a lower status group and gain membership into a higher status group. of the three, only social mobility specifically examines an individual’s efforts to enhance his or her social identity (chattopadhyay et al. 2004; jackson et al. 1996) and is therefore most appropriate for our analyses. as white and male employees have traditionally been afforded higher status in organizations, the categories of racial minority and female employees are often devalued (baron & newman 1990; chattopadhyay et al. 2004; konrad & gutek 1987; reskin 1993). in an attempt to enhance their status and achieve positive organizational outcomes, racial minority and female employees may adopt the norms, values and attributes that characterize higher status groups, altering their behavior to give the appearance that they are similar to the majority group in order to increase the likelihood of obtaining outcomes consistent with membership in the higher status group. façades of conformity facades of conformity (foc) are defined as “false representations created by employees to appear as if they embrace organizational values” (hewlin 2003). conceptually distinct from similar constructs such as impression management, compliance and emotional labor (hewlin 2003, 2009), foc represent employee suppression of personal values and behaviors believed to be in conflict with those of the organization, outwardly expressing support in an attempt to navigate their work environments (hewlin 2003). in her empirical assessment of the conceptual model, hewlin (2009) found that perceived nonparticipative work environments, minority status, self-monitoring, and collectivism were all significantly related to the creation of foc. she also found support for emotional exhaustion as a consequence, mediating the relationship between foc and employee intentions to turnover. this finding was consistent with her premise that employees who behave in a manner inconsistent with their true selves at work will experience negative personal outcomes (hewlin 2003). stormer and devine (2008) conducted an exploratory qualitative study designed to assess whether foc existed in organizations and to identify its characteristics and behavioral implications. the results of their textual data analysis revealed that foc can be described as either direct, i.e., employees conformed in both appearance and action, or indirect, i.e., they conformed in appearance but not in action (e.g., agreeing to façades of conformity 106 support but not following through behaviorally) (stormer & devine 2008). they further identified three thematic networks that provide more insight into the creation of foc: 1. presence of foc, 2. absence of foc, and 3. the dynamic nature of foc. respondents in their study (university faculty members) reported creating foc in response to the following issues: diversity, job demands, the market model of the profession and group membership. for example, some respondents reported creating foc as a result of the sensitivity of the topics of equity and equality or using foc to hide or exacerbate their enthusiasm for teaching given the demands of teaching, scholarship and service. the second theme reflects respondents who chose not to create foc, many citing the nature of academic freedom and the professoriate. the third theme reflects situations in which respondents moved from expressing their opinions to withholding them, or vice versa. the results of their study provide valuable insight into the creation of foc as well as support for the relationships originally proposed by hewlin (2003). as hewlin (2009) called for more detailed analyses on the relationships proposed in her model, and consistent with the salience of diversity outlined by stormer and devine (2008), the present study seeks to further explore hewlin’s (2009) assertion of the importance of minority status in the creation of foc by examining the experience of racial minorities. we chose to focus on racial minorities as previous research has indicated that racial minorities report high levels of work stress, often leading to heightened intentions to turnover (sanchez & brock 1996). as a result of their perceived minority status, employees may create foc to minimize the salience of their differences, emphasizing that although they may be different on a surface dimension, they are ultimately supporters of the organization’s values and norms, all in an attempt to gain acceptance in the workplace (hewlin 2009). demographic dissimilarity perceptions of a high level of distinctiveness can often lead individuals to experience isolation and stigmatization from majority group members and feelings of self-consciousness where they feel they are under intense scrutiny (brewer 1991; kanter 1977; kramer 1998). one factor which may reduce the negativity of these situations is the similarity of the employee with his/her supervisor and workgroup, as similarity may affect the type of relationships that develop (brouer, duke, treadway, & ferris 2009). although the empirical results have been mixed, researchers have found support for the argument that demographic similarity of subordinate and supervisor leads to higher quality exchanges (dienesch & liden 1986; tsui, xin & egan 1995; turban & jones 1988). demographic similarity refers to the “degree to which individuals in dyads or groups are similar in characteristics such as age, race, and gender (tsui & o’reilly 1989 403). these arguments state that by being demographically similar, there is an inherent assumption between parties that they also share similar beliefs and values, thus causing the managers and subordinates to feel comfortable, communicate easily with one another, view the other as more predictable and have more confidence in each other (pelled & xin 1997; tsui & o'reilly 1989; tsui, xin, & egan 1995). demographic dissimilarity has been found to predict negative attitudes towards supervisors, peers, workgroups, and organizations (chattopadhyay 1999; tsui et al. 1992). chattopadhyahy (1999) found that racial dissimilarity was negatively related to self-esteem and predicted employee engagement in citizenship behaviors. in work environments where there is demographic dissimilarity, employees are likely to be “acutely aware” of their differences and will have to work hard to overcome the unfavorability of the relationship likely to exist as a result of the dissimilarity (uhl-bien 2003). as subordinates who are racially dissimilar from their supervisors and coworkers will likely have a more difficult time communicating and building quality relationships with organizational agents (brouer et al. 2009; stewart & garcia-prieto 2008), some beneficial attributes to navigate such situations include self-presentation, communication (uhl-bien 2003) and political skill (brouer et al. 2009). those with political skill are able to adjust their behavior to various situational demands in a manner that appears sincere and genuine (ferris, davidson, & perrewe 2005). we argue that the creation of foc reflects such political skill and posit that the decision to engage is often a function of the degree of dissimilarity of the focal employee from those in his or her immediate work environment. phillips et al. 107 hypotheses antecedents the context under which employees make decisions to create foc is important to understanding the manner in which they navigate their professional environments. we explore ethnic identity and perceptions of the degree to which the organization values diversity, both influenced by demographic dissimilarity, as antecedents to the creation of facades of conformity. ethnic identity. consistent with previous research, we argue that identity plays an important role in the method of social mobility exercised by minority employees (chattopadhyay et al. 2004; cross 1991; cross, parham & helms 1998). an employee who does not strongly identify with their in-group will likely employ a social mobility strategy resulting in complete disassociation with the group, opting to adopt the behaviors of the aspirational outgroup in order to be accepted (chattopadhyay et al. 2004; ibarra 1995; phinney 1989). alternatively, an employee with a higher level of identity with the in-group will likely be more strategic in the approach taken to enhance their social identity. specifically, the focal employee may selectively display behaviors within certain contexts believed to enhance his or her status with those in the out-group and ultimately the organization, in order to achieve an organization related goal (chattopadhyay et al. 2004; cross 1991). ethnic identity refers to an enduring, fundamental aspect of the self that includes a sense of membership in a particular ethnic group. it is generally seen as embracing various aspects of one’s group, including self-identification, feelings of belongingness and commitment, and a sense of shared values and attitudes (phinney 1996; watts & carter 1991). as ethnic identity influences the manner in which individuals examine their environments and experiences (cox & finley-nickelson 1991; phinney & kohatsu 1997), it is likely that employees with higher levels of ethnic identity will be keenly aware of the lower status of their category and therefore strategically seek to improve their position. we predict that there will be a positive relationship between ethnic identity and engagement in facades of conformity. we further argue that the degree of racial dissimilarity from an employee’s supervisor and workers will influence this relationship such that the relationship will be stronger as the degree of dissimilarity increases. hypothesis 1: demographic dissimilarity will moderate the relationship between ethnic identity and facades of conformity such that the relationship will be stronger as demographic dissimilarity increases. perceived value of diversity. the degree to which an organization values diversity serves as an indicator of support to employees (avery, mckay, wilson, & tonindandel 2007), support that may be unavailable in work environments that are less diversity-friendly (avery et al. 2007; cox 1994). according to avery et al. (2007), employees develop perceptions of the degree to which their employing organization values diversity from “cues,” or efforts or practices engaged in by organizations to create, promote, or maximize diversity. in organizations that engage in such activities, minority employees are likely to develop positive workplace affect (avery et al. 2007; cox 1994). however, when minority employees perceive that their organization does not value diversity, the reactions and resulting behaviors are likely to be more negative. minority employees may perceive they have to create foc to display a consistency with the organization’s norms in order to be successful and receive positive organizational outcomes (e.g., positive performance appraisals, promotions, pay raises). we posit that demographic dissimilarity will strengthen the negative relationship between perceptions that the organization values diversity and the creation of facades of conformity. for employees who perceive greater dissimilarity from their supervisor and coworkers, the value placed on diversity in their workplace is likely to be salient and serve as a gauge of the need to engage in facades of conformity to be successful. hypothesis 2: demographic dissimilarity will moderate the relationship between perceived value of diversity and facades of conformity such that the relationship will be stronger as demographic dissimilarity increases. façades of conformity 108 outcomes: work stress and job satisfaction providing the illusion of similarity to others in the organization may serve to counter negative stereotypes and reduce the likelihood that one is considered to be an out-group member, possibly leading to more positive employment-related benefits (major, quinton, mccoy, & schmader 2000; roberts 2005). however, denying certain personal attributes and engaging in behavior that is inconsistent with one’s self concept may also lead to negative outcomes (hewlin 2003, 2009; kelman 2006; roberts 2005). in this study, we examine work stress and job satisfaction as consequences of the creation of foc. stress is an inescapable reality of most working environments and results in a variety of psychological, physiological, and behavioral consequences for employees. stress is defined as a state that results when individuals find themselves in a situation in which they perceive that they are unable to meet the demands facing them, and that the outcomes they will experience are a function of the degree to which they meet those demands (mcgrath 1976). we argue that engagement in facades of conformity represents an additional role behavior beyond that of the general job position, and will therefore lead employees to experience work stress. hypothesis 3: the degree of creating facades of conformity will be positively related to work stress. job satisfaction reflects the degree of fulfillment an individual derives from their work (spector 2000) and is considered to be one of the most influential variables informing behavior in organizations (whitman, van rooy, viswesvaran 2010). studies have reported that workers who are satisfied are more likely to produce a higher standard of work performance (judge, thoresen, bono, & patton 2001) and remain with the organization (tett & meyer 1993). saari and judge (2004) argued that among the many factors believed to affect job satisfaction, person-organization fit is the most influential. a recent study evaluated the relationship between perceptions of employee and organization value congruence and job satisfaction of african americans and reported that perceptions of fit explained variance in job satisfaction, accounting for 43% (lyons & o'brien 2006). research has reported that work stress and job satisfaction are interconnected, with the same characteristics influencing both outcomes (cordes & dougherty 1993; lee & ashforth 1996; schaufeli & enzmann 1998). the majority of research on these variables noted a negative relationship wherein employees who experienced higher levels of stress reported lower levels of job satisfaction (hollon & chesser 1976; kemery, mossholder, & bedeian 1987; miles 1976). as employees are likely to create facades of conformity as a result of a perceived lack of congruence between their norms and those of the organization (hewlin 2003), we predict that work stress will mediate the relationship between facades of conformity and job satisfaction. hypothesis 4a: the degree of creating facades of conformity will be negatively related to job satisfaction. hypothesis 4b: work stress will mediate the relationship between facades of conformity and job satisfaction. methods procedure and sample although this topic is of interest and applicable to other groups (i.e., other ethnic minority groups, women, religious groups), african americans were chosen for this study due to their unique experiences in organizations relative to conformity expectations and pressures (cox & nkomo 1986). also, the historical experiences of african americans, specifically related to the ability to maintain and practice aspects of their culture (domm & stafford 1972), renders this group a phillips et al. 109 relevant sample on which to test the relations in the model. the participants in this study were african americans employed in higher education. the final sample size was 102, 72.5% female with an average age of 41 (sd = 12). fifty-four percent held a bachelor’s degree or higher, and the average tenure with their current employer was 8 years (sd = 7.7). fifty-three percent were employed in professional positions, 27% in clerical, and 19% in administrative positions. measures survey data were collected to test the hypotheses in this study. all measures in this study utilized a 7point likert-type response format. with the exception of work stress, which had anchors of 1 – never to 7 – always, measures had anchors of 1 – strongly disagree to 7 – strongly agree. perceived value of diversity. perceptions of the degree to which the organization values diversity were assessed using avery et al.’s (2007) 5-item perceived value of diversity measure. a sample item is “i believe that my company is adequately striving for diversity in the workplace.” the cronbach alpha estimate for this measure was .84. demographic dissimilarity. for race similarity, a difference score was created, with 0 representing racial similarity to both supervisor and coworkers, 1 indicating difference from the supervisor or coworkers, and 2 indicating difference from both supervisor and coworkers (brouer et al. 2009). information on supervisor, coworkers, and participant race were reported by the participant on the survey. participant reports of the race of his or her supervisor and coworkers reflect his or her perception of similarity and therefore inform how they will react to their work environment (pelled & xin 1997; stewart & garcia-prieto 2008; turban & jones 1988). ethnic identity. ethnic identity was assessed using 14 items from phinney’s (1992) multigroup ethnic identity questionnaire. a sample item is “i have a strong sense of belonging to my ethnic group.” the cronbach alpha estimate for this measure was .85. facades of conformity. foc was assessed using hewlin’s (2009) 6-item facades of conformity measure. a sample item is “i withhold personal values that conflict with organizational values.” the cronbach alpha coefficient for this measure was .71. work stress. work stress was assessed using 15 items from the job-related tension index (kahn, wolfe, quinn, snoek, & rosenthal 1964) where participants were asked to rate how often they had certain experiences in their work roles. a sample item is “feeling that you have too little authority to carry out the responsibilities assigned to you.” the cronbach alpha coefficient for this measure was .88. job satisfaction. job satisfaction was assessed using hackman and oldman’s (1975) 6-item general satisfaction scale. a sample item is “generally speaking, i am very satisfied with this job.” the cronbach alpha estimate for this measure is .80. results means, standard deviations, scale reliabilities and correlations of the study variables are included in table 1. work stress and facades of conformity as well as work stress and job satisfaction were negatively and significantly related. similarly, perceived value of diversity and demographic dissimilarity were negatively and significantly related to each other. façades of conformity 110 table 1 means, standard deviations, scale reliabilities and correlations variable m sd 1 2 3 4 5 6 1. ethnic identity 85.18 10.10 (.85) 2. perceived value of diversity 24.96 6.60 -.118 (.84) 3. facades of conformity 18.43 6.27 .058 .153 (.71) 4. work stress 40.94 14.87 .005 -.122 -.320** (.88) 5. job satisfaction 34.43 6.15 .051 .142 -.072 -.392** (.80) 6. demographic dissimilarity 2.00 1.68 -.035 -.293** -.020 .110 -.120 note. n = 102. internal consistency reliability coefficients (alphas) appear in parentheses along the main diagonal. * p < .05. ** p < .01. perceived value of diversity and ethnic identity, which are proposed antecedents to facades of conformity, were not significantly related to the outcome. table 2 shows the relationships between perceived value of diversity and ethnic identity with facades of conformity. hypotheses 1 and 2 predicted that demographic dissimilarity would moderate the relationship between the antecedents of perceived value of diversity and ethnic identity with the facades of conformity. these hypothesized relationships were explored using two models of hierarchical multiple regressions with mean-centered variables (aiken & west 1996). in the first model, the main effect terms (demographic dissimilarity, perceived value of diversity, and ethnic identity) were entered into the regression equation. the second model included the main effect and interaction terms (demographic dissimilarity x perceived value of diversity and demographic dissimilarity x ethnic identity). in both models, the dependent variable was facades of conformity. table 3 shows that both demographic dissimilarity x perceived value of diversity and demographic dissimilarity x ethnic identity had a significant relationship with facades of conformity. hypotheses 1 and 2 were therefore supported by the results. phillips et al. 111 table 2 regression results for predicted antecedent variables of facades of conformity predictor β se ethnic identity .058 .062 perceived value of diversity .153 .094 !! .030 adjusted !! .001 f 1.018 note. n = 102. table 3 moderated regression results (hypotheses 1 and 2) variable and statistic facades of conformity model 1 β model 2 β perceived value of diversity (pvod) .172 -.001 demographic dissimilarity (dd) .033 -.180 ethnic identity (eid) .079 .141 pvod x dd .326* eid x dd -.244* f 1.018 2.968* !! .030* .134 adjusted !! .001 .089 δ !! .030 .104 note. p* < .05. façades of conformity 112 to further examine the effect of demographic dissimilarity on the creation of foc, we calculated the contributions of ethnic identity and perceived value of diversity at both high and low levels (schoonhoven 1981). figures 2 and 3 present the predicted values of facades of conformity at one standard deviation above and below the means for both independent variables. although support for demographic dissimilarity as a moderator of the relationship between ethnic identity and foc was significant and in the predicted direction for employees who perceived lower levels of dissimilarity, its effect for employees who perceived higher levels of dissimilarity was contrary to our prediction. employees who perceived they were more racially dissimilar from their workgroup and had higher levels of ethnic identity were less likely to engage in foc. figure 2. joint effect of ethnic identity and demographic dissimilarity on facades of conformity -4 -3 -2 -1 0 1 2 3 4 fa ca de s of c on fo rm ity (f o c ) ethnic identity (eid) dd high low phillips et al. 113 figure 3. joint effect of perceived value of diversity and demographic dissimilarity on facades of conformity similarly, the effect of demographic dissimilarity as a moderator for the perceived value of diversity and foc relationship was consistent with our prediction for employees who perceived lower levels of dissimilarity. employees who perceived that they were more similar to their workgroup were less likely to engage in facades of conformity as perceptions that the organization valued diversity increased. however, the relationship was opposite for employees who perceived higher levels of dissimilarity, as the likelihood of engaging in facades of conformity increased as perceptions that the organization valued diversity increased. hypothesis 3 proposed that the degree of creating facades of conformity would be positively related to work stress. ordinary least squares regression was used to test this relationship and support was found for the relationship where facades of conformity was significantly and negatively related to work stress, thus providing support for hypothesis 3. to examine the model of the outcome and mediated relationships as predicted by hypotheses 4a and 4b, shrout and bolger’s (2002) approach to test mediation was employed. to utilize their methodology, the relationship between the distal predictor (facades of conformity) and outcome (job satisfaction) must first be supported theoretically. second, the distal predictor (facades of conformity) must have a significant relationship with the mediator (work stress). third, the mediator (work stress) must have a significant relationship with the outcome (job satisfaction) after controlling for the distal predictor (facades of conformity). lastly, if the relationship between the distal predictor (facades of conformity) and the outcome (job satisfaction) is not significant in the presence of the mediator (work stress), the relationship is fully mediated. if both relationships are significant, then the relationship is partially mediated. as shown in the correlation table (see table 1), although the relationship is in the hypothesized direction, facades of conformity and job satisfaction are not significantly correlated. work stress and facades of conformity are significantly correlated. given that the initial relationship between the distal predictor and outcome was unsupported, hypotheses 4a and 4b are unsupported. the regression results for testing mediation are reported in table 4. -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 fa ca de s of c on fo rm ity (f o c ) perceived value of diversity (pvod) dd high low façades of conformity 114 table 4 mediation test – linking facades of conformity and job satisfaction via work stress factor job satisfaction β !! facades of conformity -.072 .005 work stress -.392*** .154 note. *** p < .001 discussion the present study contributes to the organizational management and workplace diversity literatures through the examination of facades of conformity as a means for minority employees to enhance their social identity. as the workplace becomes more diverse, a better understanding of employees’ ability to be authentic at work could provide insight into outcomes such as turnover rates, employee morale and citizenship behaviors. as our study focused on the experiences of african american professionals, additional research is needed to determine whether the relationships evaluated are generalizable to other identity groups. hewlin’s (2009) study focused on a primarily caucasian sample, for which minority status was significant in the creation of facades of conformity. as her study assessed perceived minority status on various dimensions as a direct effect, we chose to focus on racial dissimilarity as a specific type of minority status, as well as its role as a moderator, to further examine the decision to create foc. consistent with hewlin’s (2003, 2009) argument and finding that employees who display behaviors or values inconsistent with their own are likely to experience negative emotions and tensions, the present study found a significant positive relationship between foc and work stress. contrary to our predictions, a relationship was not found between foc and job satisfaction, thus negating the argument that work stress would mediate that relationship. these findings suggest that minority employees may consider foc as essential to overcoming the liability of being different in any organization and thus not sufficiently significant to impact the overall level of satisfaction. consistent with prior research, work stress was positively related to job satisfaction. of most interest is racial dissimilarity having differential effects on the creation of foc at the higher and lower levels of similarity. when evaluating the effects of both ethnic identity and perceived value of diversity on the creation of foc, the results were diametrically opposed to our predictions in the case of higher dissimilarity and these results are therefore the focus of our assessment. when levels of ethnic identity were higher, those who were more dissimilar were less likely to engage in foc. as employees with strong ethnic identities often have a desire to incorporate their ethnicity into their professional images and organizational roles (bell & nkomo 2001; chrobat-mason, button, & diclementi 2001; liujters et al. 2006), the inauthenticity associated with foc may be perceived as a threat to their identity, resulting in a resistance to engage in such behaviors. in contrast, employees who perceive more similarity and a lower value of diversity may use foc to help distinguish themselves from others in their workgroup. employees who perceive greater dissimilarity and report higher perceptions that their organization values diversity may use foc as a means to overcome the lower status and potential negative assertions associated with being different from the majority of their workgroup. although organizations that value diversity engage in practices to create, promote, or maximize diversity (avery et al. 2007), employees who perceive they are different from others in their workgroup may sense that they are under a microscope and scrutinized more than their counterparts (brewer 1991; kanter 1977) and may therefore engage in foc in an attempt to increase the appearance of similarity of others and alignment with the organization’s norms. phillips et al. 115 the nonsignificant main effects of ethnic identity and value of diversity lead us to infer that, given that these variables are very specific to the topic of diversity management and experiences of minority employees, the foc construct and measure may not accurately capture these occurrences. future research could focus on the role of cultural assimilation in assessing minorities’ creation of foc. further analyses can be conducted to determine whether the results vary significantly from the foc measure, thus warranting the examination of both in assessing the manner in which minority employees navigate their work environments. additionally, perceived minority status implies that an individual’s status on that dimension is salient to them, and thus their perception of their status is likely to influence the degree to which they create foc. for example, if a minority employee is familiar with and comfortable navigating in a white male-dominated corporate world, he or she may not see race as a salient challenge simply as a result of being in the numerical minority. therefore, future research in this area could examine the salience of the minority category in order to more accurately assess the role it plays in the creation of foc. similar to previous research which examined the role of political skill in overcoming minority status (brouer et al. 2009), future studies could also examine the power of social networks as another potential moderator. conclusion our goal in this paper was to 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(2010). satisfaction, citizenship behaviors, and performance in work units: a meta-analysis of collective construct relations. personnel psychology, 63, 41-81. t. nichole phillips is a visiting assistant professor in the department of management and marketing at winston-salem state university. she received her ph.d. in business management from the university of central florida. felice williams is an associate professor in the department of management and marketing at louisiana state university shreveport. she received her ph.d. in business management from virginia polytechnic institute and state university. dorothy m. kirkman is an associate professor of management at the university of houston– clear lake. she received her ph.d. in organizational management from rutgers -the state university of new jersey. uafs advances in business research 2012 lowrez (2).pdf dawsey and taylor advances in business research 2012, vol. 3, no. 1, 99-106 99 addressing today’s talent gap: an inductive investigation into balancing the demand and supply of 21 st century workforce talent ryan halley, george fox university tim rahschulte, george fox university jeff vandenhoek, george fox university seth sikkema, george fox university institutions of higher education are under immense pressure to become more aware of market demands and the role they play in offering the supply-side for the demand. this article highlights the disconnect between skills organizations need/demand and the supply of those skills, talent, and knowledge from university graduates. specifically, a deficiency in work ethic, passion, and drive (possibly termed “the right attitude”) was noted as a vital gap. additionally, and importantly, these personal attributes along with continuous learning, the ability to innovate, and communication skills emerged as key characteristics needed among the workforce today. over the past couple decades, much has been written about the shortcomings of higher education, with specific critique directed at business education. colleges and universities are under fire by corporations and accrediting boards for lack of practical application and relevance in curriculum today. warren bennis and henry mintzberg have been two of the more vocal critics of the current gap between marketplace demand and higher education supply of talent. in 2005, bennis and james o’toole (2005: 96) documented how business schools lost their way in the harvard business review noting, “for many years, mba programs enjoyed rising respectability in academia and growing prestige in the business world ... . today, however, mba programs face intense criticism for failing to impart useful skills, failing to prepare leaders, failing to instill norms of ethical behavior.” part of the bennis/o’toole (2005: 96) argument is the foundational model many business schools have adopted. many leading business schools today measure their success “solely by the rigor of their scientific research” rather than “the competence of their graduates, or by how well their faculties understand important drivers of business performance.” similar to bennis’ perspective on rigor, mintzberg’s work with jonathan gosling (2004) challenged foundational methodologies and traditional educational design suggesting they are not effective in preparing a student for practical business work. this is partly due to poorly designed curriculum and in some cases curriculum that is simply not relevant to the practical demands faced by managers in organizations today. others, too, have criticized academia’s approach to supply the demand of organizational management talent. walz’ (2006) meta-analysis of criticisms concurred with gosling and mintzberg (2004) regarding inappropriate educational methodologies and also noted that schools recruit the wrong students and teach the wrong things. pfeffer and fong (2002) urged schools to reorient their value proposition away from vocation and towards business as a subject matter. mark taylor (2009: a23) captured the issue in a n.y. times article titled end the university as we know it when he noted, “most graduate programs in american universities produce a product for which there is no market.” similarly, this reality was noted by martinelli, rahschulte, and waddell (2010: 35) as they concluded “skills and competencies have not kept pace with the more comprehensive set of capabilities necessary to be successful.” in short, institutions of higher education are under immense pressure to become more aware of market demands for talent and the resources, processes, and practices by which they provide the supply-side for the demand. unfortunately, many are still falling short. in a recent lecture at the stanford graduate school of business, jeff immelt (2010), chairman and ceo of general electric, informed the students and administrators that what is being taught and learned in school today is “irrelevant.” this has got to be fixed. gosling and mintzberg (2004) likely got it right when they noted companies and business schools must collaborate to reinvent management education. how to most effectively accomplish this task has yet to be determined. at the same time that universities are being subjected to outside critique, the marketplace is continuing to observe and reinforce the value of training individuals who are entering the workforce. it is a collaborative effort that is needed to supply the market with the appropriate mix of formal education, on-the-job training and practical experience. business schools and institutions of higher education need to listen to the corporate voice to ensure maximum relevancy and optimum output while. while the gap between workforce talent supply and demand exists in a broad cross section of disciplines, of which business would be included, business schools seem to be in the middle of this challenge. dawsey and taylor advances in business research 2012, vol. 3, no. 1, 99-106 100 limitation the respondents in this study were not asked to isolate their comments to only business school graduates. instead, survey participants were asked to direct their responses to new personnel who have been joining their teams. these individuals could have been business school graduates or they could have been from a variety of other backgrounds. the study did consist of only executives and senior-level management, so it can be anticipated that their hiring and work teams would be limited to professionals, many of which would be in management roles themselves. the purpose of this inductive research was not to isolate the findings to business school graduates, but to garner wider information that would help inform educators and practitioners about the current state of the literature-identified talent gap. because of the authors’ affiliation with business schools, the findings are used to develop recommendations for business educators and administrators to obtain greater alignment between formal education and workforce talent needs. data gathering and analysis method to understand the market demand situation in a bit more detail, this research study was designed to investigate the knowledge, skills, and abilities needed to address issues being managed in organizations today. specifically, the research asked participants to address (a) whether or not hiring managers were being supplied with the talent, skills, and knowledge necessary to address these challenges and (b) if not, what is missing. in an attempt to cover a cross section of industries, multiple data gatherers were used for this research as was a convenient sampling strategy (patton, 2002). the data gatherers were graduate students. these students were trained to conduct interviews with business professionals and their work was managed by graduate research faculty. data gathering occurred from 2010-2011 using semi-structured interviews. the sample comprised 90 professionals from 90 different organizations representing a cross section of industries. each participant was interviewed individually by phone, face-to-face, or (in a few instances) by email. the sample demographics are illustrated in table 1. table 1: sample demographics sample rank experience direct reports firm size 71 male (77%) 19 female (23%) 90 total 65 executives (72%) 25 managers (28%) mean 8 years median 5 years mean 8 median 4 max 220,000 mean 9,655 median 108 data were gathered by handwritten note and (in a few cases) by email response from participants. data were transcribed by three of the authors, put into msoffice tm tools (msword tm and msexcel tm ) for coding purposes. creswell’s (2009) protocols were followed for coding. in all instances, multiple rounds of coding were performed; a minimum of three rounds per topical area were necessary. the fourth author here served as reviewer of data analysis and process analysis thus helping to mitigate risk, especially researcher bias. pertinent findings are detailed hereto. findings the first research question asked participants, “as you look at your direct reports and other personnel who would be under your purview, which is more important if you could choose just one: having skill, having experience, or having a degree? why?” the useable responses (n = 70) to this question illustrated that, when prioritizing these against each other, having skill and experience were about equally important and much more important than having a degree. as shown in table 2, 33 (47.14%) respondents indicated that having experience was most important, 32 (45.71%) reported that having skills was most important. five (7.14%) respondents indicated that having a degree was most important, which is interesting since many employers require a degree as a minimum qualification for employment. it could be that some respondents saw the “degree” answer option as a given in their hiring process, however, as noted by one member of the sample, “in today’s society, the cost of an education [degree] is prohibitive for many and no longer indicates a person’s ability to contribute to an organization.” table 2: importance of skill vs. experience vs. degree n % n = 70 skill 32 45.71 experience 33 47.14 degree 5 7.14 dawsey and taylor advances in business research 2012, vol. 3, no. 1, 99-106 101 experience there are numerous explanations as to why experience might be seen as most important. the most commonly cited reasons in this study are summarized by the following: 1. there is so much that is learned that can only be learned by on-the-job experience and classroom knowledge is inadequate by itself. 2. experience allows an employee to work much more efficiently and reduces the learning curve by allowing employees to grasp concepts more quickly and handle a more varied set of situations and problems. 3. experience lowers the cost of training. skills and education can happen quickly. experience takes so much more time to acquire. 4. experience lowers the risk of hiring because it demonstrates that people know how to do the job and are able to work effectively in the respective positions. 5. employees with experience are able to share their experiences while knowledge transfer happens quite naturally when hiring someone with experience. 6. employees with experience are able to draw not only upon the tangible experiences but also on their previously established networks. the following direct quotes serve to elaborate on several of the above points. one executive said, “experience is most important. skill can be taught in training and a degree can be earned in college. you earn experience only from work.” another respondent added, “skills and degrees are important, but having experience is so important because those employees are able to grasp concepts much more quickly.” finally, a quote that summarizes many of the responses is, “you can gain experience in a lot of ways including through formal education. having skills does not necessarily mean that you are able to apply it well to given situations. experience pulls all other elements together.” skill having the necessary skills was deemed most important by a large portion of the survey respondents (45.71%). the most often cited explanation for the importance of skill is that skills are the foundation for everything else that is needed. in this sense, skills are analogous to atoms, as the basic building block for matter. skills provide the framework upon which to build. some of the other frequently mentioned reasons for the importance of skills include: 1. skills are transferable and can be applied to a variety of situations. 2. skills are what enable someone to gain valuable experience. with the proper skills, one can gain all of the experience that he/she needs. 3. having skills indicate that someone has what it takes to do the job. 4. skills indicate ultimate capability and potential. experience might lower the risk of hiring, but employers do not mind taking a risk if the potential upside is high as indicated by skills. 5. experience shortfalls can be made up and degrees can be acquired. skills are innate and are difficult if not impossible to cultivate and develop if not in place. it is the one area where training and development have the least amount of impact. respondents also pointed to the importance of having specific types of skills. some of the most desired skills mentioned by the respondents in this study include: communication problem solving customer orientation responsibility perseverance cross-cultural communication passion common sense analytical skills quick learner intelligence level adaptability dawsey and taylor advances in business research 2012, vol. 3, no. 1, 99-106 102 there were a few quotes provided by interviewees regarding the importance of skills worth noting here. one manager said, “skills are the most important. skills are attributes that can be leveraged to create new experiences.” another respondent added, “you have to be very practical when you enter the working world. skills might be the best because, through skills, you can gain experience. the people who are curious and accountable and have a sense of urgency and humor are the ones who are successful.” a final quote that provides some interesting insight into one perceived difference between skill and experience is, “i’ve had many experiences that do not correlate to my skills in a certain situation. this may trivialize it, but i fly a lot (two or three times a week, at times), but i can’t fly a plane or be a flight attendant. although i have the experience of flying, that’s not something that is valuable to most people. the skill though, and the understanding of the value of your skill set, is what i find most important.” while not specifically solicited on the data collection instrument, some executives/managers elected to comment outside the multiple choice options of “skill,” “experience” or “degree.” many of these were isolated responses and therefore were ignored for the purpose of this study. however, there were two attribute themes that emerged which received more responses than the “degree” category and are worth mentioning here. those two attributes were “attitude” and “ability to learn.” the primary justification for “attitude” was that companies can help employees get skills from training and experience over time, but attitude is difficult to train. having the right attitude also is the foremost predictor of how effective training will be. one interviewee said, “skill indicates that the person can do something, but attitude decides everything. if the person is willing to learn or has the motivation to learn, it does not matter what skill he or she has because everything else can be learned.” a second respondent point out that “i’ll take a good attitude over skill, experience, and degree. with a good attitude, one can overcome barriers.” closely related to attitude is the attribute of “ability/willingness to learn” or “being coachable.” some respondents indicated that being “open to learning” is the most important attribute in employees. the ideas of support that were presented involve the need to learn no matter what the level of skill or experience. one respondent said, “i do not care too much about the degree, as long as he/she is willing to learn.” another response was that in order to succeed in today’s organization, “you need the ability to learn and the inquisitiveness and curiosity to want to understand.” finally, an executive summarized this question by saying, “if personnel lack skill, they can learn it. if they lack experience, they can practice more. and a degree just represents people’s past. in my opinion, the spirit of continuous learning and a strong sense of responsibility are the most important. current advanced techniques will become outdated someday and focusing excessively on experience will make people stop innovating. but, a spirit of continuous learning will lead people to effective processes.” the second research question presented to the participants was, “within your company, are personnel joining the workforce with the necessary knowledge, skills, and abilities (ksas) to be valuable workers? if no, what is missing?” the useable responses (n = 58) to this question illustrated that most executives and managers interviewed feel that personnel joining the workforce do not have the necessary ksas needed to be valuable workers. as shown in table 3, 15 (25.86%) of the respondents indicated that incoming personnel do have the necessary ksas to be successful. twenty-three (39.66%) of the interviewees said that personnel were not joining the workforce with the necessary ksas. another 20 respondents did not directly answer “yes” or “no” but provided an answer indicating that some ksas were present while other ksas were missing. from looking through these responses and studying the wording of the question, it was deemed that these 20 (34.48%) responses should be separately grouped into a “some” response. in all, nearly 75% of sample respondents indicated new hires do not have enough of the needed ksas to address issues of the organization so that they could indicate “yes” during the interview. to be sure, these new hires could be seasoned professionals or recent graduates. however, it was implied at the start of each interview that the intent of the research was to uncover any skill gaps that need to be addressed in academic curricula. table 3: are personnel coming with the necessary ksas? n % n = 58 yes 15 25.86 some 20 34.48 no 23 39.66 of those answering “yes” to the second research question, most pointed to their hiring processes as an explanation as to how they were able to ensure adequate match between the personnel needs and supply of talent. some indicated rigorous screening systems while others pointed to higher than normal pay and great employment benefits that yield good talent. others pointed to the stagnant economy and high unemployment rate that has provided the environment for more selective personnel hiring procedures. dawsey and taylor advances in business research 2012, vol. 3, no. 1, 99-106 103 if answering “no” to the second research question, interviewees were encouraged to provide an answer as to what was missing. there were a variety of responses. table 4 illustrates the categories of responses to the question of what is missing. table 4: what is missing? n % work ethic / discipline /passion / drive 18 38.3 technical skills 6 12.8 communication skills 5 10.6 critical thinking / analytical skills 3 6.4 experience 3 6.4 positive attitude 2 4.3 right fit / values 2 4.3 ability to learn 1 2.1 entrepreneurial skills 1 2.1 honesty 1 2.1 loyalty 1 2.1 math skill 1 2.1 responsibility 1 2.1 teamwork 1 2.1 as displayed in table 4, the dominant answer (mentioned by 38.3% of respondents answering this question) as to what is missing with personnel joining the workforce is a strong work ethic and drive. this answer was followed by technical skills (12.8%) and communication skills (10.6%). the top three response categories accounted for 61.7% of all responses. the third research question asked, “pertaining to the issues listed above, as you look at your staff, what knowledge, skills, and abilities do you believe are the most important in order to address organizational issues today?” table 5 displays the frequency of responses for each of the categories as coded. table 5: ksas needed for most pressing issues n % personal attributes 33 25.8 ability to change & innovate and ability to learn 32 25.0 communication skills 25 19.5 task-related skill and knowledge 18 14.1 managing relationships & team work 12 9.4 leadership 8 6.3 four predominant themes emerged: 1. personal attributes, 2. ability to change and innovate and ability to learn, 3. communication skills, and 4. task-related skill and knowledge and ability to learn, and personal attributes were mentioned by 25.8% of the managers and executives polled. the theme of personal attributes was a bit wide-ranging, but each of the responses concerned some personal characteristic or virtue that added value to the work environment. two attributes rose above all others: 1. character, and 2. having a positive attitude. as a desired personal attribute, some respondents used that term “character” while others used words such as “trust,” “personal integrity,” “ethics,” and “morality.” those interviewed also wanted personnel with good attitudes and a positive outlook. while “character” and “positivity” were highly prized, there were other virtues that were mentioned by multiple respondents. a frequent response was “kindness” or “compassion.” closely related would be the virtues of “respect” for others and concern for “social justice.” another frequently-mentioned characteristic was described as “confidence” or “courage.” other personal attributes cited include being patient, being a good listener, exhibiting humility, and embodying hope. as one respondent commented, “hope is required to make the job fulfilling. the dawsey and taylor advances in business research 2012, vol. 3, no. 1, 99-106 104 best people are those who really see their work as a challenge and they see the value they bring to the company. each generation should build upon the previous generation and do better.” a similar number of participants, 32 (25.0%), felt that the most desirable knowledge, skills, and abilities needed were those that involved “change,” “innovation,” and willingness to “learn.” as noted by the sample, a solution to many organizational issues includes the need to be creative and approach situations differently with new ways of doing things. respondents said they were looking for “entrepreneurial spirits” and employees with “flexibility” and a “discerning eye” toward “continuous development.” closely related was the need for workers with the desire and willingness to learn new skills. phrases were used such as “open mind,” “continuous learning,” self-reflection,” “desire to improve,” and “personal growth.” these leaders felt like change is inevitable and that a future workforce needs to be willing to embrace change and become agents of change. almost 20% of the participants identified communication skills as the most needed knowledge, skill, and ability. many responded that interpersonal skills are crucial to facing the most pressing needs of the future. as one respondent noted, “it’s all about people and communication.” phrases that were used include: knowing how to “ask questions,” “listen,” “communicating with internal and external organizations,” and “cooperation.” one participant summarized the issue nicely, noting that communication, both verbal and written, is “necessary in order to enforce your vision and strategy.” task-related skill and knowledge and ability to learn were mentioned by 14.1% of the sample. there were a variety of skills that were mentioned within this theme, but the most frequently cited skill was quantitative abilities, largely applied to the accounting and finance functions. other skills listed were clearly secondary, but included sales skills and consumer knowledge, information technology knowledge, negotiation skills, and the ability to apply theory to practice. a lesser group of participants, 12 (9.4%), indicated the need for incoming personnel to have proficiency in working within teams and establishing and maintaining a strong “relationship network.” the focus on “teamwork” was clear and was probably best described by one respondent who said, “we need people who like working with other people and for other people.” another participant added, “we need personnel with the ability to collaborate outside of traditional boundaries, working with community businesses through strategic alliances.” it is implied that part of the creativity conversation mentioned above involves leveraging personal networks to a greater extent. finally, there was a small theme of responses, 8 (6.3%) that pointed to the need for “leadership” qualities. most of the comments fitting into this category were straight to the point and called out the need for people with strong abilities to “lead and manage people.” discussion the data from this research revealed several important findings and theoretical implications. the top three are specifically outlined below in detail: theoretical finding 1: there certainly seems to be a gap between organizational talent demands and the knowledge, skills, and abilities supply in recent graduates new hires. nearly 75% of sample respondents indicated new hires do not have enough of the needed ksas to address organizational issues today. this demand-supply gap implies that a degree alone is not sufficient for today’s organizations. the degree may be a minimum qualification for employment, but the value of the degree will only change if the work associated with earning the degree becomes more relevant to the current market needs of organizations and if the process of matriculation allows students to gather both skills and experience. theoretical finding 2: organizations are very interested in employees that possess moral and ethical attributes. higher education institutions have an opportunity to shape the inner lives of students in a way that benefits these organizations. while it is understood that many faculty members and administrators work to provide detailed case studies, global immersion studies, internships, and other simulations of “real” work, these approaches may, in fact, be teaching about subject matter, but missing the teaching on personal (student/employee) responsibility. these approaches need to be refined and improved. as such, faculty and administrators should indeed continue to work to provide “real” (relevant, practical, applicable) work in the classroom as well as extracurricular involvement, but importantly do so in way that the student also learns the importance of character, work ethic, and attitude. theoretical finding 3: faculty often structure curriculum to focus primarily on subject matter content and secondarily on tertiary matter such as critical thinking, communication, and teamwork. this research found that while this knowledge is important, the skills necessary to enact the know-how is lacking. the respondents noted dawsey and taylor advances in business research 2012, vol. 3, no. 1, 99-106 105 significant gaps in the ability to effectively communicate, problem solve, and lead change and as such, these should be in a rubric to assess curricular “readiness” for effectiveness. these research findings all point to the need to engage in closer alliances with hiring managers and corporate executives to understand their needs and modify curriculum accordingly. while some business schools do regularly survey the needs of their local business community as part of their strategic plans, largely, faculty and administrators must spend more time understanding how to scale curriculum. to scale means to differentiate the curriculum and expected outcomes for newly hired staff (undergraduates) as compared to middle managers (graduates/mba programs) and senior leaders (graduates/executive mba programs). these findings also point to the need to evaluate curriculum and programs on a more regular basis with increasing rigor and discipline to make changes. some changes will no doubt be difficult, but if the goal is to supply the market with knowledge, skills, and abilities to address pressing issues and challenges in corporations and communities, change is needed. these findings and implications point to a future-state education model in a direction with a bit of a different trajectory. the hope is that, from this research, some dialogue can be created among participants whereby we, as educators, can generate ideas about how to become proactive in the process of designing business education that is relevant, wrapped in good moral and ethical principles and that best prepares our students to make a marked difference on the world. references bennis, w., & o’toole, j. 2005. how business schools lost their way. harvard business review, 83(5), 96-104. blass, e., & weight, p. 2005. the mba is dead – part 1: god save the mba! on the horizon, 13(4), 229-240. creswell, j. 2009. research design: qualitative, quantitative, and mixed methods approaches. los angeles: sage publications, inc. gosling, j., & mintzberg, h. 2004. the education of practicing managers. mit sloan management review, 45(4), 19-22. immelt, j. 2010. jeff immelt of ge: leaders must drive change. retrieved november 27, 2011, from http://www. youtube.com/watch?v=phz9i5z8rqs. martinell, r., rahschulte, t., & waddell, j. 2010. leading global project teams: the new leadership challenge. oshawa, on: multi-media publications, inc. o’brien, j., drnevich, p., crook, t., & armstrong, c. 2010. does business school research add economic value for students? academy of management learning and education, 9(4), 638-651. parry, k. 1998. grounded theory and social process: a new direction for leadership research. leadership quarterly, 9(1), 85-105. patton, m. 2002. qualitative research & evaluation methods. thousand oaks, ca: sage. pfeffer, j., & fong, c. 2002. the end of business schools? less success than meets the eye. academy of management learning & education, 1(1), 78-95. taylor, m. 2009, april 26. end the university as we know it. the new york times, p. a23. utley, n. 1992. mbas: degrees of competence? executive development, 5(4), 4-6. walz, j. 2006. managers not mbas: a hard look at the soft practice of managing and management development. leadership & organization development journal, 27(2), 163–164. ryan halley is an associate professor of finance and chair of the undergraduate business and economics department at george fox university. he earned his doctorate in consumer economics and personal financial planning from dawsey and taylor advances in business research 2012, vol. 3, no. 1, 99-106 106 texas tech university and a mba from the ohio state university and publishes in the areas of financial counseling and teaching effectiveness. tim rahschulte is an associate professor of business at george fox university and executive director of program management academy. he is the co-author of leading global project teams, a contributing author in distributed team collaboration in organizations, has authored dozens of academic articles, and has been an invited lecturer outside the u.s. in oxford, shanghai, beijing, and athens. jeff vandenhoek is the director of business relations and adjunct professor for george fox school of business. his work involves directing an internship program, building business relationships with gfsb alumni, developing integrated, “real time” projects for undergraduate/graduate programs and building corporate business collaboration and partnership relationships. seth sikkema is an assistant professor of accounting at george fox university. seth specializes in financial reporting, having previously worked as an accounting supervisor for two publicly traded companies and as an external auditor for arthur andersen. seth earned an mba from boise state university and is currently pursuing a doctorate in accounting at anderson university. 1 the role of signaling when promoting diversity and inclusion at the firm level: a financial advisory professional case study kenneth white, ph.d. university of georgia kim love, ph.d. k.r. love quantitative consulting and collaboration erin bruce university of georgia megan mccoy, ph.d., lmft kansas state university eun jin kwak university of georgia john grable, ph.d., cfp® university of georgia based on signaling theory and visual perception theory, this study evaluated how financial advisory firms depict diversity through online platforms. signals sent by firms may impact outsiders’ understanding of race and gender inclusion at the firm level, which may explain why some struggle to recruit and retain a diverse workforce. to evaluate, 1,379 advisor biographies on 73 firm websites were analyzed. in this study, 29% of all client-facing advisors with known gender were women; only 0.5% of those with known race were black. this is much lower than what other studies, based on different industrial codes, have reported. the fact that white males featured predominantly in depictions of employees on firm websites may influence who applies for positions in financial advisory firms. this signaling pattern may also indicate hiring preferences among firm owners and managers. results have implications for firms that wish to recruit and retain a diverse workforce. keywords: diversity; inclusion; signaling; perception; hiring; black; women; financial planning introduction firms of all sizes and descriptions generally aim to hire the best available applicant for open positions regardless of race or gender (gilbert, alder, & mcallister, 2010). many firms hiring practices are also focused on increasing workforce diversity because the role of inclusion is an important human resource outcome. the financial advisory profession is one field that continues to face challenges related to diversity and inclusion in the workforce. as of december 2017, women accounted for over 50% of the general population but only 33.5% of all financial advisors. blacks accounted for 12.7% of the total population but only 5.0% of personal financial advisors (u.s. department of labor, bureau of labor statistics [bls], 2018; u.s. census bureau, 2017). the financial advisory profession http://journals.sfu.ca/abr advances in business research 2019, volume 9, pages 1-16 2 has cumulatively spent millions of dollars studying why women and blacks are reluctant to join the financial advisor workforce. to date, few comprehensive answers have been identified. this inclusion-gap is perplexing. personal financial advising is a helping profession known for high wages, fast job growth, and career satisfaction. financial advisors are inherently a “client-facing” profession, in which the advisor directly and consistently interfaces with the client. personal financial advisors earn median annual wages of $88,890, the highest median pay of all business and financial occupations tracked by the bls occupational outlook handbook (2017a). in addition to high wages, personal financial advisors are also one of the fastest growing business and financial occupations with a projected 10-year job growth rate of 15% (bls, 2017a). furthermore, professionals working in the field express a high level of career satisfaction. financial advisors often state that they obtain high intrinsic satisfaction using their financial knowledge to help individuals and families attain short-term and long-term financial and life goals (certified financial planner board of standards [cfp board], 2018a). despite being an occupation with high wages, job growth, and career satisfaction, the profession lacks diversity. a high proportion of professionals that work directly with clients (“clientfacing”) are white men. as noted above, historically, women and blacks have not often occupied client-facing advisory roles. diversity issues in the personal financial advising workforce appear to be at a crisis level. a recent study conducted by the certified financial planner board of standards, inc. (cfp board, 2018a) suggests that rates of client-facing participation for women and blacks are even lower than reported by the bureau of labor statistics, with only 23.4% of women and 3.5% of black (or latino) advisors serving in this role. the conclusion is a stark one: in a profession whose primary mission is to help a cross-section of the population achieve financial goals, the ranks of client-facing professionals are not reflective of the u.s. population. unfortunately, this is not a problem faced only by firms operating in the financial advisory space. even when women and blacks join the ranks of financial advisory firms, their compensation is not representative of universally equal treatment when compared to white males (lahey & quistnewins, 2011). among all other business and financial occupations, personal financial advisors exhibit the greatest percentage difference in median weekly earnings between men ($1,714) and women ($953) (bls, 2017b). the combination of disproportionate representation (cfp board, 2018a) and unbalanced wages (bls, 2017b) has led to white men dominating the practice of providing financial advice (bls, 2018), primarily because retention rates for women and black advisors tend to be quite low. the purpose of this study was to analyze information gathered from the websites of financial advisory firms to explore the rates of female and black financial advisors in client-facing positions (heo, park, henager, & grable, 2018). based on signaling and visual perception theories, it was hypothesized that the images used by financial advisory firms on public websites may be one explanation for the ongoing lack of representative diversity within the financial advisory field. while other studies of representation in financial advising have relied on self-reported data from questionnaires, this study is unique in that it used data collected by observing each firms’ online presence as a form of signaling to potential new hires. the remainder of this paper is structured as follows. the literature review provides more information about diversity within the financial advisory field. signaling theory and visual perception theory are then introduced. the research methodology is then presented. this is followed by study results and a discussion of findings. literature review although the problem of representative diversity has been identified as a universal human resource issue, diversity and inclusion research pertaining to the financial advisory and financial services profession is still in an infancy stage. there have been numerous studies conducted to learn 3 about women and blacks’ use of financial advisory services, but few of these studies have addressed the disparity in gender and race within the profession, especially among those in client-facing positions. even fewer studies have provided firm-specific or policy recommendations to help improve workforce inclusion. the primary source for workforce inclusion data and insights related to financial advisory services comes from the cfp board. cfp board released two comprehensive studies on the issue in 2014 and 2018. these reports made two observations: first, white men tend to be predominately involved in client-facing roles, and second, women and black financial advisors face challenges in the recruiting, hiring, and retention process due to perceived hiring and promotion biases at the firm level (zhang et al., 2017). whether these takeaways are an artifact associated with historical advisory recruitment practices, cultural awareness of financial advisory services as a profession, or a (the) result of systematic firm preferences in the hiring process is worthy of future study. the first step in addressing diversity questions is to determine the extent to which advisory firms are signaling, in the public domain, who has client interfacing responsibilities at the firm level. these signals are, either by serendipity or by design, intended to inform potential clients, and by default potential new hires, who will be providing advice and counsel on a day-to-day basis. the role of black financial advisors the united states has a diverse population that varies by race and ethnicity; however, the financial advisory profession does not reflect this racial diversity (macbride, 2015). research funded by the cfp board (2018a)1 indicates that there are three factors that contribute to the lack of racial diversity in the financial advisory profession. first, the face of the financial advisory profession has historically been white men. a majority (59%) of respondents in a 2018 cfp board study described the primary image of a financial advisor as a white man, whereas 3% of respondents described financial advisory work as being something done by black men (cfp board, 2018b). second, hiring preferences by firms has limited the number of blacks that work in advisory roles. a cfp board (2018b) study revealed that 56% of financial professionals agreed that whites are more likely to be hired than blacks, even though 78% of financial professionals thought no difference in skills exists between whites and blacks. the reasons for this, according to cfp board (2018a), are due to the fact that (a) predominantly white clientele prefer working with advisors with a similar cultural/ethnic background; (b) firms hire employees from existing social networks, which tend to be white; and (c) firms equate “fit” and “existing corporate culture” with being a white male. although the scarcity of minority financial advisors makes it difficult for clientele to engage the services of a non-white advisor (eisenberg, 2018), which itself is problematic, cfp board’s study hinted at the possibility that ongoing hiring biases reinforce racial discrimination (cfp board, 2018a). third, on-boarding and retaining practices in firms tend to be unfavorable for blacks due to lack of representation, opportunities for professional and career development, and subtle forms of racist biases at the office level (cfp board, 2018a).2 historic perceptions of financial advisor identity, hiring preferences, and unfavorable onboarding and retaining practices reinforce racial disparities in the field. when viewed holistically, blacks may not think of a career as a financial advisor primarily because the cultural signals sent by firms operating in the space have, intentionally or otherwise, presented a cultural image that is foreign 1 the 2018a cfp board study was based on an online survey of professionals at financial firms responsible for recruiting and hiring financial advisors, current black cfp® professionals, other cfp® professionals, consumers with investable assets or income of $100,000 or more who were working with a financial advisor at the time of the survey, black and latino business professionals, and students between the ages of 20 and 54. additional insights were based on qualitative interviews and focus groups with the same constituent groups. a sample of 2,276 adults from the united states participated in the study. 2 many of the diversity hiring initiatives undertaken within financial advisory firms have occurred at the corporate and non-client-facing level, with most client-facing hiring decisions being made at the local office level. 4 to non-whites. signaling and cultural factors are similar to those that inhibit women from entering the profession. these are reviewed below. the role of women financial advisors over the past decade, financial advisory regulatory and certification boards have taken notice of gender discrepancies in the financial advisory profession. in april 2017, for example, the cfp board launched the “i am a cfp pro” media campaign to encourage young people, women, and people of color to become financial advisors. moreover, cfp board’s women’s initiative (win) has operated since 2013 to support women in pursuing careers in the financial advisory profession. despite efforts by cfp board and other organizations, nearly all diversity studies, in the domain of the financial advisory profession, reveal aspects of gender discrimination. consider a 2014 study commissioned by cfp board.3 a large percentage of study participants (41%) believed that men were more likely to exhibit attributes of financial advisor success compared to women (blayney, 2016; cfp board, 2014). this misperception impacts hiring procedures. the financial advisory profession was built on creating and maintaining relationships with clients (kurlowicz, 2014). although women financial advisory professionals tend to demonstrate more strengths, compared to men, in relation to building and maintaining healthy relationships built on trust and commitment (i.e., women are more likely to act as caregivers) (domski, 2018; garmhausen, 2016; kurlowicz, 2014), 43% of male and 40% of female financial advisory professionals in the surveys believed that men were favored over women when it came to hiring (cfp board, 2014). some research has even suggested that firms are reluctant to hire women because of childbearing or family issues and that firms have not yet overcome organizational attitudes that favor men and minimize the career trajectory of female employees (bisco, gradisher, & mulholland, 2018; cfp board, 2018a). once hired, women often face a work culture that caters to male colleagues. more than half of the financial professionals in the 2014 cfp board study noted that lack of mentoring and role model programs designed for female financial advisory professionals, male-centered training systems, and production-based assets under management (aum) pay models contribute to a work culture more conducive to men (cfp board 2014; domski, 2018). these perceptions may be a legacy of a culture established by senior leaders who are older, white, men from similar socioeconomic backgrounds (jaekel & st-onge, 2016). explanations for a lack of diversity and inclusion while much of the literature on racial/ethnic and gender trends in the financial advisory profession point to systemic barriers that limit hiring and promotion opportunities for blacks and women, other explanations have been proffered to explain the relatively low numbers of non-whites and women serving in client-facing roles. one explanation stems from research conducted on the ways corporate leaders create and use social networks (james, 2000; murrell & james, 2001). a network is a “fabric of personal contacts who will provide support, feedback, insight, resources, and information” (ibarra & hunter, 2007) to one or more people. given that historically there have been relatively few blacks or women in positions of power in financial advisory firms, and concurrently few blacks or women in client-facing roles, there may be few social networks to help promote the financial 3 cfp board “conducted an extensive literature review, commissioned two original research projects, and included questions in a separate consumer research project on the issue of gender preference for advisors.” the purpose of the study was to (a) identify the reasons for the underrepresentation of women in the profession and (b) explore strategies to increase the number of women cfp® professionals. the first stage of research involved 1,792 qualitative interviews with firm executives, academics, and students. the second stage of research was based on analyzing data from online surveys that was designed to identify differences between male and female financial advisors. data were obtained in 2012 and 2013 from 1,100 u.s.-based financial advisors. cfp board also obtained data from a 2014 economics of loyalty survey. the survey was designed to identify (a) the role of gender in choosing a current advisor, (b) the role of gender in choosing an advisor to work with, (c) the perceived attributes that describe a financial advisor, and (d) the reasons for preference for one gender over another. the survey included 1,229 respondents. 5 advisory profession among underrepresented populations. closely linked within this concept is the issue of cultural awareness (rew, becker, cookston, khosropour, & martinez, 2003; smith‐miller, leak, harlan, dieckmann, & sherwood, 2010). without appropriate role models, those pursuing a college education, and those considering a career change, may overlook the financial advisory profession (almquist & angrist, 1971; flouri & buchanan, 2011; gibson, 2004; karunanayake & nauta, 2011; quimby & desantis, 2011; rivera, chen, flores, blumberg, & ponterotto, 2007). this can reinforce the perception that the profession is unfriendly towards people of color and women. it is also possible that young people—those contemplating attending college and those making degree and career choices— don’t view financial advisory work as a viable career option. this perception may have nothing to do with hiring and promotional biases, but rather, thoughts about the career in general. stated another way, the pipeline of new advisors may not be large enough to make an impact on hiring outcomes (ezzedeen, budworth, & baker, 2015). consider a typical large financial advisory firm. assume the firm needs to hire 1,000 people to fill open positions. to maintain representation with the u.s. population, the firm would need to hire approximately 150 black candidates. a key question is whether the firm could find this number of qualified candidates. when multiplied across the profession, there simply may not be enough people studying financial planning and advisory services at the college level to fill open positions. there is another explanation, one that may be at the root of diversity and inclusion issues facing the financial advisory profession. the profession may be inadvertently sending cues and signals to potential new hires (i.e., college graduates and career changers) that financial advisory services are primarily designed to meet the needs of a white male clientele, with limited opportunities for those who are black or female. this hypothesis is founded on the simple notion that people consider visual cues presented by firms operating in a sector of the marketplace when deciding to pursue a particular career. if the cues are skewed towards an image that creates cognitive dissonance, a potential new hire will shy away from the career option. this hypothesis is supported by two theories: signaling theory and visual perception theory. signaling theory describes how financial advisory firms (signalers) communicate information (signals) about operating procedures through one or more public platforms (e.g., an online presence) (spence, 1973). potential employees often check firm websites to collect information about work culture to determine if working for the firm will be a “good fit.” if a firm’s website(s) shows that the majority of current employees are a certain race and gender, this may signal the firm’s hiring criteria. potential employees may then believe that the firm’s culture—by design or by chance—is hostile to non-white male employees. the informational value of a website comes from the idea that potential employees believe a firm’s online presence is positively associated with the firm’s culture where non-whites and women will struggle to fit in. based on signaling theory, a firm’s online presence enables potential employees to obtain cues about a commitment to diversity and inclusion. visual perception theory also suggests that people form perceptions of a task, behavior, or entity by receiving information from the environment through the physical sense of sight (gibson, 1966; gregory, 1970, 1974). according to gibson (1972), perceptions are direct sensations that imply ‘what you see is what you get.’ in the context of the present study, what one sees on firm websites tends to be white men (both as advisors and clients). visual perception theory leads one to the following conclusion: based on what a firm presents, the firm should expect to receive exactly what is presented. in this case, by presenting images of white men, it is reasonable to expect white men to apply for positions in the profession. as noted by gibson (1966, 1972), perceptions influence reality. perceptions and reality can, therefore, be explained by means of the sensory environment. while there are numerous possible reasons why the financial advisory profession has historically experienced a lack of diversity and inclusion, moving forward, it is important to accumulate data on the reasonable explanations for diversity challenges. results from such studies can be used to help solve diversity and inclusion shortfalls in other professions as well. the current study was 6 designed to examine dominant signals and visual environments presented by and resulting from perceptions of financial advisory firms. if potential new hires and the general public (observers) see dominant images of white males as the primary client-facing professionals in a firm (environment), it is reasonable to hypothesize that this may create the perception that companies prefer to hire primarily white male applicants. once potential employees perceive a representative firm employee as white and male, they may come to believe this race and gender to be preferred regardless of ability. by evaluating the online cues sent by financial advisory firms it may be possible to provide one explanation as to why qualified minority applicants are often discouraged in seeking a career as a financial advisor. methods data collection and coding the data collected and analyzed for this research were obtained from the publicly available websites of the largest financial advisory firms in 2016 as listed in financial planning magazine. financial planning magazine is a widely distributed and read publication serving employees and managers of small, mid-size, and large financial advisory firms operating in the united states. the firms in the report were listed from largest to smallest based on assets under management (aum). the study used data from 73 of the largest firms. the choice of the firms was dictated by the availability of photographs and advisor biographical information on each firm’s website. each firm’s website was viewed to acquire preselected items of information about the firm’s advisory staff. data on support staff (i.e., human resources personnel, receptionists, etc.) were not collected. biographies of advisors were also reviewed for the following information: aum by advisor, home office location, advisor first and last name, advisor’s title at the firm, whether or not the advisor was client-facing, the advisor’s gender, whether or not the advisor was black (if photo available), the advisor’s academic degree and level of education, the advisor’s certifications and designations (e.g., cfp, cfa, cpa, etc.), and social networks (i.e., the type of volunteer work performed by the advisor). once advisor data were gathered from each firm’s website(s), each firm and advisor were assigned a unique identification number. personal identifiers were removed from the dataset. codes were assigned for each region of the country (northeast, south, west, midwest, and pacific) and for advisor education (no degree, bachelors, master’s, and terminal). each advisor’s information was then coded based on the region and education codes. firms with no websites, websites with no advisor photos, and advisors with no biographies were excluded from the dataset. though only advisors with biographies were included in the dataset, some biographies excluded desired information. when this occurred, the advisor was still included in the study, but omitted information was coded as missing. every advisor was assigned a region, but not every advisor was reported as having an academic degree. if no degree or school was listed in an advisor’s biography, it was assumed the advisor had no degree. race was determined by visual analysis (by the research team) of photos on each firm’s website; triangulation among the research team was a prerequisite prior to race coding. the final dataset included 1,379 advisors. dependent variable the dependent variable was whether or not an advisor was client-facing (1 if individual is client-facing; 0 otherwise). the determination of client-facing status was made primarily from the context of each financial advisor’s biography and secondarily by the advisor’s job title. independent variables gender (1 if individual is a female; 0 otherwise) and race (1 if individual is black; 0 otherwise) were the primary independent variables used in this study. differences between men and women, and blacks and non-blacks, were tested. gender was determined by triangulating each advisor’s biographical photograph, the advisor’s first name, and pronouns from the biography. race was 7 assumed to be black or non-black based on available photographs. black was the only race distinguished in the data. covariates included advisor region (northeast = 1, south = 2, midwest = 3, or west = 4, determined by the address of the firm’s home office), education (no degree = 0, bachelor’s = 1, master’s = 2, or doctoral = 3), certified financial planner (cfp) status (1 if individual is a cfp; 0 otherwise), chartered financial analysts (cfa) status (1 if individual is a cfa; 0 otherwise), certified public accountant (cpa) status (1 if individual is a cpa; 0 otherwise), number of other designations (0 to a maximum of 4), and volunteer status (1 if individual volunteers; 0 otherwise), determined by whether the advisor explicitly stated that they volunteer in their community or profession). it is important to note that education and professional designations were considered proxies for human capital, while volunteer status was considered a proxy for social capital (gonzález-romá, gamboa, & peiró, 2018). interaction terms between gender and each covariate were also estimated. method of analysis the statistical analysis was designed to achieve two research objectives. the first objective was to determine how gender is related to the covariates included in the data, as well as how gender is directly related to the probability of being in a client-facing position without accounting for covariates. this analysis used a series of chi-square tests and gamma statistics to measure those associations. the second objective was to determine how gender is related to the probability of being in a client-facing position in the context of the covariates. this analysis used a multivariate logistic regression model significant results were further examined using post-hoc pairwise comparisons, when appropriate. note that although descriptive statistics are provided for race as well as gender, statistical tests were not run for race due to the very small number of black advisors in the data set. results differences by gender and race table 1 summarizes the gender and race frequency distributions in the dataset. out of 1,379 advisors in the dataset, 29% with known gender were women, only seven advisors (0.5% of those with known race) were black, and only one individual was both a woman and black. note that statistical tests of race-related differences in advisors were hampered by the very small number and proportion of black advisors in the dataset, although this serves to highlight the paucity of black advisors visible to the public through website information. table 1. summary of advisor gender and race characteristics trait number in category number nonmissing percent female 395 1361 29.0% black 7 1356 0.5% female and black 1 1346 0.1% table 2 summarizes the distribution of other variables categorized by gender. table 2 includes chi-square tests and gamma test statistics. there were statistically significant differences at the p < 0.05 level of significance for client-facing roles (80.0% of men and 73.5% of women were in client-facing roles), firm region (men in the sample were more likely to work in the south compared to women, while women in the sample were more likely to work in all other regions), education (women were 8 more likely to be less educated), and cfa (men were more likely to hold the cfa certification). there were no statistically significant differences between cfp or cpa status, the number of other professional designations held, or volunteer status. table 2. distributions of study variables within gender gender male n (%) female n (%) χ2 df γ p client-facing yes 748 (80.0%) 277 (73.5%) 6.694 1 0.010 no 187 (20.0%) 100 (26.5%) firm region northeast 183 (18.9%) 87 (22.0%) 17.203 3 0.001 south 311 (32.2%) 84 (21.3%) midwest 275 (28.5%) 122 (30.9%) west 197 (20.4%) 102 (25.8%) education none 91 (12.2%) 56 (17.9%) -0.113 0.049 bachelor's 382 (51.1%) 154 (49.2%) master's 241 (32.3%) 92 (29.4%) doctoral 33 (4.4%) 11 (3.5%) cfp cfp 408 (42.3%) 173 (43.8%) 0.264 1 0.608 no cfp 557 (57.7%) 222 (56.2%) cfa cfa 172 (17.8%) 36 (9.1%) 16.358 1 < 0.001 no cfa 794 (82.2%) 359 (90.9%) cpa cpa 103 (10.7%) 38 (9.6%) 0.325 1 0.569 no cpa 861 (89.3%) 356 (90.4%) number of other designations 0 740 (76.6%) 310 (78.5%) -0.058 0.392 1 170 (17.6%) 68 (17.2%) 2 43 (4.5%) 14 (3.5%) 3 9 (0.9%) 0 (0.0%) 4 4 (0.4%) 3 (0.8%) volunteer yes 262 (27.1%) 91 (23.0%) 2.434 1 0.119 no 704 (72.9%) 304 (77.0%) 9 table 3 summarizes the distribution of other variables by race categories. table 3 does not include statistical tests due to the small number of black advisors in the dataset. from the percentages alone, it is possible to conclude that the majority of black (71.5%) and non-black (78.9%) financial advisors were client-facing. for both black and non-black advisors, slightly less than half were cfp certificants. no black advisors held a cfa or cpa or another professional designation. of the seven black advisors in the dataset, four (57.1%) worked in the south, as opposed to 29.0% of non-black advisors. table 3. distributions of study variables within race race black n (%) non-black n (%) client-facing yes 5 (71.5%) 1024 (78.8%) no 2 (28.6%) 276 (21.2%) firm region northeast 0 (0.0%) 269 (19.9%) south 4 (57.1%) 391 (29.0%) midwest 1 (14.3%) 394 (29.2%) west 2 (28.6%) 295 (21.9%) education none 0 (0.0%) 149 (14.2%) bachelor's 3 (75.0%) 527 (50.1%) master's 1 (25.0%) 333 (31.7%) doctoral 0 (0.0%) 42 (4.0%) cfp cfp 3 (42.9%) 575 (42.7%) no cfp 4 (57.1%) 773 (57.3%) cfa cfa 0 (0.0%) 207 (15.3%) no cfa 7 (100.0%) 1142 (84.7%) cpa cpa 0 (0.0%) 141 (10.5%) no cpa 7 (100.0%) 1205 (89.5%) number of other designations 0 7 (100.0%) 1041 (77.2%) 1 0 (0.0%) 238 (17.6%) 2 0 (0.0%) 54 (4.0%) 3 0 (0.0%) 9 (0.7%) 4 0 (0.0%) 7 (0.5%) volunteer yes 2 (28.6%) 346 (25.6%) no 5 (71.4%) 1003 (74.4%) 10 gender and client-facing roles a logistic regression to determine if an advisor occupied a client-facing role was conducted, with gender as the primary independent variable. the purpose of this test was to determine how women differ from men with respect to being placed in client-facing roles. covariates included firm region, education, cfp status, cfa status, cpa status, number of other professional designations, and volunteer status, as well as interactions of each covariate with gender (n = 1008). the results of the test are provided in table 4. table 4. overall results of logistic regression model estimating probability of client-facing role variable wald χ2 df p gender 2.234 1 0.135 firm region 40.51 3 < 0.001** education code 4.477 3 0.214 cfp 32.946 1 < 0.001** cfa 2.08 1 0.149 cpa 0.02 1 0.888 other designation 0.085 1 0.771 volunteer 3.52 1 0.061 gender * firm region 0.588 3 0.899 gender * education code 14.479 3 0.002** gender * cfp 0.837 1 0.360 gender * cfa 0.232 1 0.630 gender * cpa 0.027 1 0.870 gender * other designation 2.966 1 0.085 gender * volunteer 2.922 1 0.087 * = 0.05 level of significance, ** = 0.01 level of significance as shown in table 4, gender was not statistically significant in the model, but there was a statistically significant interaction between gender and education. post-hoc pairwise comparisons are provided in table 5. there was a statistically significant difference between men and women who did not have a degree, with 87% of men and 54% of women being in client-facing positions. there were no other significant differences between men and women. figure 1 shows the probabilities of men and women being in client-facing roles by education level. 11 table 5. post-hoc pairwise comparisons of males and females within education levels 95% confidence interval education gender est. prob. std. error lower upper wald χ2 df p no degree male 0.87 0.048 0.74 0.94 6.307 1 0.012 no degree female 0.54 0.120 0.32 0.75 bachelor’s male 0.76 0.038 0.68 0.83 0.274 1 0.601 bachelor’s female 0.80 0.059 0.66 0.89 master’s male 0.84 0.021 0.77 0.89 0.376 1 0.540 master’s female 0.80 0.058 0.66 0.89 doctoral male 0.83 0.066 0.66 0.93 2.541 1 0.111 doctoral female 0.54 0.174 0.23 0.82 figure 1. probability of client-facing role by education, men v. women (with 95% confidence intervals) there were also statistically significant effects associated with firm region and cfp status. table 6 provides the proportions of client-facing advisors in each region. advisors from the midwest were less likely to be client-facing when compared to all other regions (58% client-facing, while other regions were 78% to 84% client-facing). table 7 provides the proportion of client-facing advisors by cfp status. advisors with who held the cfp certification were more likely to be client-facing (85% versus 65%). 0. 0.25 0.5 0.75 1. no degree bachelor's master's doctoral p ro b ab ili ty o f c lie n tfa ci n g r o le education men women 12 table 6. model-estimated probability of client-facing role by firm region 95% confidence interval regions with same letter not significantly different (p < 0.05) firm region est. prob. std. error lower upper northeast 0.78 0.051 0.66 0.86 a south 0.80 0.041 0.71 0.87 a midwest 0.58 0.057 0.47 0.69 b west 0.84 0.037 0.76 0.90 a table 7. model-estimated probability of client-facing role by cfp status 95% confidence interval cfp est. prob. std. error lower upper cfp 0.85 0.032 0.77 0.90 non-cfp 0.65 0.048 0.55 0.74 discussion results from the analysis illustrate that the public image, presented by financial advisory firms through public online venues, of client-facing financial advisors tends to be primarily that of a white male. given the small percentages of women and blacks at firms, it is possible, that potential new hires form a perception that financial advisory firms—and the larger financial advisory profession— do not value or promote a culture of diversity and inclusion. regardless of perceptions, the results suggest certain messages or signals are being transmitted to the public. it is possible, as posited by signaling theory and visual perception theory, that blacks and women are internalizing these images and drawing conclusions about the cultural integrity of some financial advisory firms. the most overt signal presented to someone who casually glances at the websites of the firms included in this study would be that there are very few black advisors working in client-facing positions. it may be that blacks, in client-facing positions, are more prevalent in smaller firms (based on assets under management) or working as sole-practitioners. if the statistics presented by the bureau of labor statistics and cfp board are to be believed, this must be the case. the situation among the largest financial advisory firms appears better for women when compared to blacks. as shown in this study, there was a higher percentage of women working in client-facing positions among the firms included in the study. even so, the rate of women’s participation in the largest firms was still only around 29%, despite making up half of the general population (u.s. census bureau, 2017). in addition, the statistics related to education and gender are very telling. without higher education, it appears women face barriers to career growth, while their male counterparts somehow find a way to succeed with less education. before moving on to this study’s implications, it is important to note a few limitations associated with the study. data were gathered using website photos. the research team evaluated each 13 photograph. it was possible that classification of race was mis-coded in some instances due to inaccurate observations, although this was unlikely due to the coding procedure. even if this occurred frequently, the results remain robust. this study was not focused on discovering the exact or correct number of black financial advisors but rather what messages each firm’s website was transmitting to outsiders about the rate of black (and female) financial advisors working in client-facing positions at the firm. also, there may have been a confounding aspect that was unmeasurable in the study. specifically, firms with more resources may have devoted more funds to build a better online presence with greater opportunities to highlight black and female financial advisors. another limitation, in terms of statistical analyses, was that it was not possible to conduct a regression test due to the low number of black financial advisors in the sample. implications results from this study lead to one general conclusion: firms operating in the financial advisory space continue to exhibit a lack of diversity and inclusion messages in websites. firms should consider ways to improve the representation of minorities and women in client-facing positions if, as a profession, financial advisory firms wish to increase minority and female recruitment and retention. this is true both in terms of current employees and overall commitment to diversity and inclusion at the firm and profession level. actionable steps include highlighting diversity through feature stories or spotlights about financial advisors that are black and/or female. firms can also add a tab to their website titled “diversity” that expresses a commitment to creating a supportive and inclusive culture for all employees and clientele. firms can (and should) also take steps outside of online platforms to encourage black and/or female financial advisors to present at conferences, network in the name of the firm, and promote career opportunities available to those in client-facing roles. this goes back to the notion of creating networks and promoting a culture of inclusion. television is also an effective medium to help shift cultural norms (king & multon, 1996). for example, some large financial advisory firms have taken steps to include people of color as advisors and clients in advertisements. this visualization approach is one way to send cues that financial advisory work is something valuable regardless of socioeconomic status, cultural background, or previous financial experience. fostering heterogeneity in real-world contexts is critical as a step in changing perceptions of the financial advisory profession. the need to address diversity and inclusion is not unique to the work of financial advisors. when facing a lack of male teachers in k-12, marygrove college founded the griot program in 1998 to increase the number of african-american male teachers working in schools in the detroit area and nationwide. facing racial homogeneity in business management, the kpmg foundation, citi, aacsb, and gmac started the phd project in 1994. the vision was to create a significantly larger talent pipeline of african-americans, hispanic-americans, and native americans for business leadership by increasing the diversity of business school faculty who encourage, mentor, support, and enhance the preparation of tomorrow’s leaders. within ten years of the implementation of this program, the number of individuals studying for a doctorate increased from 294 to 746 (milano, 2005). to address similar issues in the actuarial profession, the society of actuaries provides waivers of exam fees for underrepresented students taking actuarial exams. a recent study has shown that this has not been as impactful in terms of increasing the diversity found in the actuary field (e.g., there are other obstacles that need to be addressed simultaneously), but the action still sent a message that actuaries were serious about moving towards inclusivity (mckeown, 2014). as these examples illustrate, small steps forward to increase diversity and inclusion can have long-term effects on recruiting, hiring, and retention. educational programs that train financial advisors can learn from other professions that have faced diversity issues in the past. one solution to help address the shortage of qualified women and blacks in the pipeline for positions in the financial advisory profession is to hire more women and 14 blacks as faculty in the education programs that train financial advisors. women and black faculty can play a critical role in attracting underrepresented students and creating an inclusive classroom environment (sánchez et al., 2017). in addition to changes within firms, more research on the topic of diversity and inclusion in the financial field is needed. specifically, research on the signals female and black financial advisory students receive during their education and throughout the hiring process, and how these signals either help or hinder feelings of inclusion, are needed. in addition, more studies on the differences in opportunities for women and blacks at large firms, compared to smaller firms, are needed. it is possible that some firms have achieved minority and female staff representation. models of inclusion should be shared broadly to improve diversity issues across the profession. conclusion while some steps have been taken to improve diversity and inclusion among those working as financial advisors, the low numbers of black and women client-facing advisors found in this study— and similar data (e.g., bls 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and so began the self-interest theory of accountancy, referred to as ‘positive accounting theory’ (pat), and more recently as ‘agency theory’ (watts and zimmerman, 1978; 1986; 1990). this theory argues that because the costs and benefits of accounting decisions (e.g., depreciation methods and other accruals) may apply to managers and not necessarily to the firm, managers make these decisions not necessarily based on providing the greatest accuracy or clarity to the financial statements, but on the benefits to the creators of these statements. for example, compensation interests may motivate managers to create the right accounting numbers (the bonus hypothesis); creditor interests limit may dividend payments (the debt-equity hypothesis); and costs of regulation on income and tax expenses may reduce manager benefits and thereby limit firm behavior (the political cost hypothesis) (watts and zimmerman, 1978). by challenging the statement on theory acceptance (aaa, 1977), which argues that accountants ought to choose the appropriate procedure to improve statement accuracy and clarity, this new positive theory of 1978 argued for an axiomatic intuition (everyone is assumed to follow self-interest) that could be observed in "empirical regularities" (watts and zimmerman, 1990, p. 152). we will show evidence against these “regularities” and conclude that this theory promotion process was more consistent with that used in promoting new scientific theories (latour, 1987), a form of methodology itself (mccloskey, 1983). we show that this larger persuasion is not limited to mccloskey’s rhetoric, although agency has been described as the “rhetoric of revolt” (mouck, 1992). instead, this persuasion established by latour (1987) requires a basis of agreement, a recognizable paradigm, and a common language for describing events, in order to establish, as first suggested by kuhn (1974), “a prelude to proof.” and in 2013, this is now explicitly mentioned by jensen, the author of agency theory himself (erhard and jensen, 2013). this paper begins with the necessity of rhetoric for any theory acceptance: the necessary appeal to the rationality of specific constituencies. rhetorical strategies used by scientists and described by latour (1987) are introduced as part of the internal rhetoric used to enroll followers and to frame, fortify, and then to stack the evidence for the promoted theory as ‘generally accepted.’ we then show that early agency advocates 'fortify' their descriptions with the familiar language of economics and appeals to authorities such as the social citation index used by the agency journal, the journal of accounting and economics (jae), the nobel prize, and the results obtained from scientific modeling. this ‘stacking of 55 sennetti and litt advances in business research 2013, vol. 4, no. 1, 54-67 the evidence’ then establishes the agency point of view that managers act out of self-interest. next, statistical empirical 'irregularities' are framed as approximate 'regularities' for this pre-established point of view. finally, agency advocates do not even bother to consider alternative hypotheses to those available under agency theory. from this point of view, since there are no financial economics critics, watts and zimmerman (1990) point to a 'non-engagement' of their own critics. this is consistent with the latour (1987) final procedure of ‘closing the argument.’ we begin with the rhetoric necessary for 'proof.’ rhetorical strategies rhetoric, the language used to persuade, or according to latour (1987), "the language used to mobilize resources" (p. 41), has been elevated from its supplementary or "unnecessary" role (whittington, 1987, p. 330) to a form of methodology (see simons, 1990; nelson et. al., 1987) necessary for the “conduct of [accounting] research" and for the "content and quality of its produce knowledge" (arrington and schweiker, 1992, p. 512). persuasion relies fundamentally on rhetoric (lavoie, 1987, p. 586). even empirical research begins with a reliance on rhetorical persuasion with statements such as: “in the absence of a persuasive theoretical structure on which to build a causal chain, the results cannot be used to make inferences about the effect of one variable on another” (abdel-khalik and ajinkya, 1979, p. 23). there are many broad classes of rhetorical strategies found in several research areas (see, for example, simons (1990). each may be divided into two categories: (1) an internal appeal to a specific constituency which requires the language of that constituency and many other strategies and devices, or (2) an external appeal to as many followers as possible: “[t]he ... sciences are becoming increasingly rhetorically self-conscious. they are beginning to recognize that their discursive practices, both internal and external, contain an unavoidable rhetorical component. internal here refers to those discursive practices that are internal to the specific scientific language community; external refers to the discursive practices of that scientific (or non-scientific) language communities and the society in general (gaonkar, d.p., in simons, 1990, p. 352). both internal and external rhetoric build a consensus of belief with an intersubjective appeal for a common understanding made by the writer. such an appeal is a result of the writers' ”having actually penetrated (or if you prefer, been penetrated by) another form of life, or having, one way or another truly "been there". and that, persuading us that this offstage miracle has occurred, is where the writing comes in” (geertz, 1988, p. 4). table 1: rhetoric as methodology subject reference i. the use of language to persuade ((rhetoric) 1. mccloskey (1983) 2. arrington and schweiker (1992) 3. mouck (1992) intersubjective agreement the rhetoric of economics rhetoric as methodology rhetorical strategies and devices; the rhetoric of economics, of science and of revolt in agency ii. the use of specific language for constituencies (latour, 1987) 1. preston et al. (1992) and bloomfield et al. (1992) 2. chua (1992) 3. watts and zimmerman (1986; 1990) rhetoric to reduce controversy; arguments to(1) fortify, (2) stack, (3) frame, and (4) close rhetorical persuasions, given language specific to a discipline. the enrolling of physicians and others for the establishment of a national health information system enrolling hospital administrators toward drg costing enrolling allies and reducing controversy for agency research in accounting table 1 attempts to illustrate the application of these two rhetorical strategies. the use of language to persuade (in part i) makes broad appeals to fairness, justice, and concepts of morality; it appeals to the generic everyman. for example, mccloskey (1983) with a broad external appeal claims that the internal rhetoric of economics is an "unofficial" methodology. generally speaking, both internal and external rhetoric use those conditions that would otherwise be considered "in context of discovery" (p. 511): 56 upbringing, politics, introspection, theology, history, case study, and devices such as metaphors, allegories, parables, and strategies such as simplicity, symmetry, fashion, and appeals to authority. the external and internal rhetorical strategies differ only in the subjects of their appeal. for example, presented next in table 1 is a reference to arrington and schweiker (1992) who, through a broad appeal, establish that an internal rhetoric is a necessary condition for accounting research. next in table 1, mouck (1992) establishes that the appeal of early agency theory is to a specific internal economics constituency and that it uses a rhetoric of science and economics described in part by mccloskey (1983). mouck presents the rhetoric of science agency as having both strategies and devices. the strategies include scientific positioning (objective, independent) and devices include appeals to authority, expertise, and the evolution of accounting theory. although mouck does consider the acceptance of agency theory as socio-historical, the rationality given by mouck for theory acceptance is more sociopolitical: “... to the extent that the story was successful it was due to the fact that it was read by an audience attuned to the rhetoric of science, on one hand, and to the reagan era rhetoric of revolt on the other hand, thus allowing the lack of scientific substance to be overlooked...” (mouck, 1992, p.55) contrary to mouck (1992), we propose that (1) the rhetoric of agency theory and the rationality for its acceptance (table 1, part 1) is more historic, hence (2) it will have continued social acceptance by its constituencies, but most importantly (3) the advocacy of agency theory (watts and zimmerman, 1986; 1990) is consistent with the rhetorical strategies used by successful scientists as described by latour (1987) and now used by erhard and jensen (2013). through latour's analysis, this paper attempts to answer questions raised by mouck (1992) and others on the acceptance of accounting research. latour (1987) presents a model of how scientists and technologists who "discover" facts actually enroll others into a particular scientific process of representing what has been observed. briefly, after observing events which are initially described by a weak rhetoric of indecision about what has been observed, scientists form opinions, perform laboratory tests, begin to take positions, and then seek to defend these positions with evidence that is said to be 'fabricated' and enhanced with rhetoric designed to enroll users and reduce controversy. whether to enroll new users or just to reduce controversy, this rhetoric includes arguments (1) to fortify a particular position taken, (2) to stack the evidence incrementally in favor of that position, (3) to frame its understanding, and (4) to close arguments against it (see latour, 1987, pp. 21-57; see applications in preston et al., 1992, pp.574-575, and also figure 1, later, adopted from p.566). in order to aid in a practical understanding, we provide an example of latour’s (1987) persuasive rhetoric strategy points. this process starts with the fortification of a basis of agreement, established by calling upon the familiar. for example, in the development of a hospital information system, it may be necessary to enroll users, such as physicians (see preston et. al., 1992 and bloomfield et. al., 1992 in table 1, part ii). physicians, not primarily interested in such a computer system, must be persuaded. the basis of agreement is patient care: their primary concern. quality patient care is framed as requiring the best possible diagnostic information, which can only be provided by the desired hospital information system. further, the system has “ease and efficiency” (as framed) for physicians. this framing can then establish the closing argument that, "to ignore such an information system is to ignore patient care." physicians are then "enrolled" and become part of a larger constituency of accountants, managers, auditors, and others at the hospital who "need" this system. similarly, chua (1992) uses latour's (1987) model to describe the enrolling of hospital administrators to a special costing system. latour's rhetorical strategies also can be used to defend positions taken with evidence properly framed (not falsified but 'fabricated'). one example describes how the dna molecule was first discovered (1987, sennetti and litt advances in business research 2013, vol. 4, no. 1, 54-67 sequence of acts descriptions framed by positions taken 57 sennetti and litt advances in business research 2013, vol. 4, no. 1, 54-67 p.14). first observed as a possible triple helix, the molecule's final description as a double helix resulted after the evidence had been properly examined under the many (fortified and stacked) reasons supporting the double helix. figure 1: creation of facts from scientific discoveries (based on latour, 1987, p.44; preston et al., 1992, p.566) sequence of acts act 1 events observed 2 weak descriptions recorded 3 descriptions framed by positions taken 4 positions fortified, evidence stacked 5 positions closed, objections isolated 6 facts accepted figure 1 presents a model of latour's description of how facts are 'fabricated' (latour, 1987, p.44, figure 1.6; preston et al., 1992, p.566). from the observance of events comes weak and hesitant possible descriptions when scientists begin to form theories, build convincing arguments, modify theory and form closing arguments, and finally reduce controversy to a point where 'facts' are created and objectors are silenced. along the way, networks of resolved controversies are formed through operational and rhetorical strategies. the focus of this essay is limited to the use of rhetorical strategies described by latour and is not intended to be comprehensive enough to cover all of latour's concepts, such as his rules of method or his principles used to describe scientific discoveries. nor can we do latour (1987) justice in the omission of all his descriptions of how scientists attempt to increase the number of allies, laboratories, and machines to increase the acceptance of their theories. we present a limited form of latour’s analysis here since watts and zimmerman (1990) use latour's rhetorical strategies mostly to defend positions taken. we begin with analysis of the first strategy, what latour calls the process of 'enrolling,' which actually is the process of fortifying accepted 'facts,’ found here in the economic language and paradigms of financial economics. enrolling and fortifying the basis of agreement the self-interest economic values, paradigms, and internal language necessary to accept agency theory are discussed by many authors, including tinker et al. (1982) and mouck (1992). accounting policy is said to serve the firm and management's interests if accounting procedures are chosen to minimize the contracting costs to the firm. a bonus plan, for example, is said to direct the self-interests of the manager to those of the firm, thereby reducing agency costs to the firm. since the manager's earnings depend on the firm's, ceteris paribus, earnings are less likely to be deferred. fortifying watts and zimmerman (1986), consistent with financial economics of their time (and now challenged by behavioral economics), take a cost-benefit approach to theory acceptance, arguing that although the predictions of agency may not be perfect, the theory's benefits, such as its "intuitive appeal," far exceed its costs of imperfect predictions (p. 12). following this school of thought, agency advocates had potentially many allies, starting with jensen’s first notable paper entitled ‘the contracting cost theory of the firm’ (jensen and meckling, 1976), and his journal of financial economics. stacking the evidence at that time, there were at least three more reasons beyond those mentioned by whitley (1988) for the continued acceptance of agency. first, having financial economics as a home provided these accounting researchers with the status of international acceptance and the attendant image of an academic discipline 58 sennetti and litt advances in business research 2013, vol. 4, no. 1, 54-67 deny agency theory is to deny the authority of well-grounded and accepted economic theory. finally, to refute agency theory is to refute the very authority of friedman's nobel prize in 1953, the beginning of the ‘positive theory of economics.’ as suggested by sterling (1990) with regard to the initial acceptance of friedman’s theory in the 1950’s, even if “a majority of economists” do not believe in 'positive economics,' the nobel prize still has a higher authority than a "majority of economists" (p. 122). indeed by 1978, the majority of financial economists from jensen’s journal of financial economics favored agency theory. accordingly, latour (1987) explains that "truths" are only verified when an overwhelming number of authorities claim acceptance, in this case, accounting research authorities (p. 61). with particular regard to accounting professors, the nobel prize may have a special allure. there are few occasions for north american accounting professors to be internationally recognized outside of the actions of public accountants, such as those from the aicpa or cica. accordingly, such actions may bring pride or tarnish upon the image of accounting professors. but the possibility that the nobel prize may be awarded to an accounting professor elevates the entire academic profession of accounting. other authorities were recruited. watts and zimmerman accrued a certain status when their journal of accounting and economics (jae) was ranked above both the university of chicago's journal of accounting research and the american accounting association's the accounting review by the citation index of outside references (editorial, 1992, pp.3-6). another authority, this one taken from science, was the practice of economic modeling, seen as more scientific than non-mathematical modeling. the self-interest economics theory is supported the 1992 nobel prize of another university of chicago economics professor, gary becker, for his research on the economic motivation of social choices (such as those made by women in the workforce). whitley (1988) chronicles this kind of modeling and the rise of mathematical sciences in social research, which began in the united states prior to friedman's 'positive economics' (1953): this belief in scientific knowledge as a crucial resource in maintaining and improving the social order has been particularly strong in the u.s.a. since the progressive era (bledstein, 1976, pp. 123-127, 324-331; wiebe, 1967, chapter 6) and received considerable reinforcement from its evident military utility in world war ii (kevles, 1977, pp. 367392, as given by whitley, 1988, p. 641). whitley (1988) adds that many other reasons existed for the acceptance of agency theory in north america, including (1) the prestige of the 1959 carnegie and ford foundations which supported scientific research in reports found in business education publications, (2) the dominance of universities in their contribution to professional training in this area, and (3) the related growth of legal interventions, which use the same objective functionalist approach in presenting scientific evidence as used in economics. the latour (1987) analysis would consider of all these aspects as comprising the fortifying process for theory acceptance. acknowledging controversy and creating acceptable forms of evidence consistent with latour's (1987) rules of rhetoric method, which require investigators to study the conditions and processes under which facts are created, we will now investigate the conditions under which agency theory was created in 1978, and the subsequent controversy and fabrication of research evidence. an earlier north american controversy in financial reporting that arose from the american accounting association’s committee on concepts and standards for external financial reports led to the statement that, "until consensus paradigm acceptance occurs, the utility of accounting theories in aiding policy decisions is partial" (aaa, 1977, p.51). further, because no one theory could satisfy all paradigms, "defenders of a particular paradigm are forced to rely on persuasion rather than logic and empirics in attempting to defend a proposal" (aaa, 1977, p.48). 59 sennetti and litt advances in business research 2013, vol. 4, no. 1, 54-67 in search of paradigms, professor robert r. sterling, a member of this committee, suggested that future theories for accounting come from established theories and paradigms in the behavioral and economic sciences (sterling, 1970). with perfect timing, agency theory was introduced by watts and zimmerman (1978), in part using the size hypothesis (a proxy for the political cost hypothesis), an economics paradigm solution for accounting procedure choice: the larger the firm, the larger the firm's exposure to the political costs of windfall profits taxes, labor strikes, government regulation, and the like; therefore, the firm will be more likely to defer earnings to later periods. ignoring the committee's appeal for 'persuasion,' the empirical evidence on this size hypothesis was presented and argued as probative (watts and zimmerman, 1978). later, a corresponding theory-driven persuasion was given in watts and zimmerman (1979), but this exacerbated rather than reduced the controversy (watts and zimmerman, 1990). table 2 presents some of the subsequent works that addresses this controversy, most of which are summarized in watts and zimmerman (1986) or by watts and zimmerman (1990). these studies directly correlate the size and other agency theory hypotheses with the choice of accounting procedures used to defer earnings, and these studies were offered in response to design, validity, and statistical questions that arose in the 1978 study. table 2: summary of results: size and choice of accounting procedures to defer earnings* topic author(s) statistically significant size variable (p-value<0.05)? comments general price level adjustments (gpla) watts and zimmerman (1978) yes 1. this was the original size hypothesis. no hold out sample is used in this or in any “confirming” study. 2. this study and its results were challenged by mckee et al. (1984). 3. model r2 is 0.20, for in-sample data only gpla mckee et al. (1984) no 1. not significant for a holdout sample and watts and zimmerman (1978). 2. the watts and zimmerman (1978) best model, properly stated, was not as successful as the naïve alternative. 3. model r2 for holdout data is only 0.09. depreciation hagerman and zmijewski (1979) yes the large firm strategy is not superior to the naive strategy (no holdout sample) and is not confirming. oil and gas dhaliwal (1980) no the d/e ratio is significant; size has a p-value of 0.10. depreciation, itc, inventory zmijewski and hagerman (1981) yes the poor r2 occurred despite the fact that there was no holdout sample and even then, the success rate was only 40% (r2 = .09). the result is not superior to naive alternative interest capitalization bowen, noreen and lacey (1981) no the size variable is significant, but only for oil industry depreciation dhaliwal et al. (1982) no the size variable is significant only at the 0.15 level. oil and gas lilien and pastena (1989) no significance level is 0.06. research and development daley and vigiland (1983) no results show that increasing earnings occur for smaller firms, but paradoxically, as the firms get larger, the importance of size diminishes rather than increases. income tax zimmerman (1983) yes 1. "size" limited to industry, limited in time. 2. smaller, not larger trade firms defer (opposite results). 3. size is considered a poor proxy for political cost. oil and gas deakin (1979; 1989) no since size is only significant for largest 24 firms, considered size not related/poor predictor. * taken in part from watts and zimmerman (1986, p. 258) the design and validity questions of ball and foster (1982) and later williams (1989) discredited the size hypothesis because of its weak construct validity. christenson (1983) and mckee et al. (1984) also 60 sennetti and litt advances in business research 2013, vol. 4, no. 1, 54-67 invalidated the research of watts and zimmerman (1978). christenson's analysis of watts and zimmerman made an appeal for better scientific research design (1983). mckee et al. (1984) responded with a better research design, first in replicating the in-sample discussion memorandum (dm) test of watts and zimmerman (1978), and then in providing additional evidence from another out-of-sample test on the 1974 exposure draft (ed). mckee et al. (1984) also challenged the methodology, model, and 'successful' predictions acclaimed by watts and zimmerman (1978): “the theory still fails to classify correctly a disturbingly large number of observations, particularly in the ed sample. moreover, the number of misclassified observations exceeds the expected misses from a maximum chance criterion, indicating that a model which predicts that all submissions will be unfavorable produces superior classificatory success” (mckee et. al., 1984, p. 650). the size hypothesis was not supported. the ignored naive hypotheses and other hypotheses of ball and foster (1982) still continue to serve as alternative hypotheses for the subsequent appeals by watts and zimmerman (1986; 1990). finally, it can be seen in table 2 that only 3 of the 9 studies on the agency hypotheses given by watts and zimmerman (1986) yield what is generally accepted as a statistically significant size hypothesis, even though these studies were given in response to critics, and were later acclaimed for their empirical 'regularities.' in order to fortify their position on their theory with at least the appearance of good science, watts and zimmerman (1986) seem to agree that the size hypothesis was probably better expressed as the original political cost hypothesis. after a discussion of size as a proxy, watts and zimmerman conclude that "the evidence is consistent with the political cost hypothesis. however the result only appears to hold for the largest firms" and "is driven by the oil and gas industry" (1990, p.140). it would appear that watts and zimmerman (1986; 1990) do establish some limitations of early agency models, and as editors of jae, they have reported some contrary findings for the size hypothesis in their journal. this reporting gives at least an appearance of fairness. yet, their evidence for the size hypothesis still serves as evidence for a pre-established point of view. for example, inconsistent with the size hypothesis, moyer (1990) finds that large commercial banks do not defer earnings. for banks, a political incentive to smooth earnings exists by the industry requirement to maintain regulatory capital. although the size hypothesis fails here, indirectly the bonus hypothesis (and agency) is promoted, since the board executive salaries are related to regulatory capital and more importantly, the "costs" of regulation can be minimized by maintaining regulatory capital (see scholes, wilson, and wolfson, 1990), and thus agency is again in part sustained. watts and zimmerman had to at least appear to be reducing controversy by seeking "alternative hypotheses." unfortunately, this seeking was done only in the contractual, firm-related, agency context and world view (1990, p. 145). non-agency variables were not considered. for example, in a non-jae publication, cahan (1992) points to a non-agency, non-firm-specific political cost variable and an alternative non-political cost hypothesis. but to seek non-agency variables is in part to deny 'positive economics,' to deny the nobel prize, and to deny generally accepted "truths." this type of behavior, seeking only allies and qualifying other evidence, is consistent with latour's (1987) description of successful scientists and their references. to deny that alternative hypotheses exist outside of the agency world view is to appeal to internal rhetoric, and to frame and close the controversy, perhaps unfairly. latour (1987) adds guidance to critics who ask why watts and zimmerman seem to limit conversation. use of latour's rhetoric to reduce controversy watts and zimmerman (1986; 1990) respond to the statistical controversy of their critics with the rhetorical fortifying, stacking, framing, and closing strategies described earlier. "when controversies flare up, the literature becomes technical" (latour, 1987, p.30). fortifying arguments require (1) "bringing friends in," (2) "referring to former texts," and (3) "being referred to by later texts." all nine of the supporting references for watts and zimmerman (1978) given in table 2 and taken from watts and 61 sennetti and litt advances in business research 2013, vol. 4, no. 1, 54-67 2013, vol. 4, no. 1, 54-67 zimmerman (1986) can be identified as "friends" of the 'rochester school' (see christenson, 1983). all but two references are from their own journal of accounting and economics. in watts and zimmerman (1990), there are references to wong (1988), sutton (1988), jones (1990), moyer (1990), and christie (1990), all of whom eventually were published in this journal. this assures that watts and zimmerman will be "referred to by later texts” (latour, 1987). also, fortifying requires going "from numbers of allies and resources to still greater numbers" that go beyond the need for the prestige of authorities such as the nobel prize (latour, 1987, p.49). for watts and zimmerman (1986), 'beyond authority,' means that agency theory has reached an "intuitive appeal" (p.12). this is a typical fortifying statement for establishing a generally accepted, beyond-authority 'fact.' more fortifying reasons are also given as part of the framing of tests, presented later. next, the stacking of the evidence is to be done incrementally: “first rule: never stack two layers exactly one on top of the other; ...second rule: never go straight from the first to the last layer ...third rule (and most important): prove as much as you can with as little as you can, considering the circumstances” (latour, 1987, p.51). an illustration of these rules can be found in watts and zimmerman (1986) where they stack the need for theory, chapter by chapter, beyond what could logically be expected from any text. following the ’second rule,’ the need for a positive theory different from any general economics theory is not presented in the first chapter, as we are to assume all economics theories are positive. after establishing a role for theories, the text simply introduces arguments for any economics-based accounting theory. the fact that this text is an advocate of only one of two agency theories, the one defined for firm-related, economics-based accounting theory, is not disclosed. the beginning of the text, to the uninformed reader, could simply be about the efficient market hypothesis and its relationship to accounting research. next, watts and zimmerman (1986) follow latour's 'third rule.' by establishing as much as they can with as little as necessary, they 'evolve' the information and transactional costs of the "costless" efficient market hypothesis to a knowledge state that requires a theory for such costs in the next chapters. these chapters then form a chronological history of the university of chicago economics-based financial accounting research. each of the chapters 3-6 summarize the related research questions and then pose some of the chicago answers available at some point in time. by posing both the questions and answers suggested by traditional neoclassical economic analysis, watts and zimmerman do not conclude with a need for an agency theory until chapter 8, where the 'last layer' of the stacking process is found. after certain market inefficiencies are questioned, "the contracting role of accounting and its relation to the role assumed in chapters 3-6" is finally investigated (p. 180). no mention is made of the "other" economics-based agency theory of the chicago school, or other economics-based solutions to these inefficiencies. no mention of the forthcoming contracting role is given earlier in the outlines provided in chapters 1 and 2. this layer was saved for last. other examples of stacking may be provided, but watts and zimmerman make more obvious the use of other devices. first, since their position is one of advocacy, watts and zimmerman respond to contrary evidence by framing the size hypothesis as one evolved from its "early progress" (1986, p. 265). hence, it can be framed that the size hypothesis was just a "demonstration," and that the correct test of agency theory was not performed. they continue to refer to the problems of their research as those problems of measurement, and those problems of correct modeling the-yet-to-be-recognized alternative, firm-related (agency) variables (1990). if an alternative frame exists, it is not given by watts and zimmerman (1990). it is interesting to compare their comments on the "early progress" of agency theory with those of lev (1989) on the early progress of a related but non-agency area, the financial accounting, market-based research on the relationship of earnings to price changes. with success similar to agency theory research (low power, low r2 models), lev proclaims that success had not been achieved in understanding the underlying earnings process. he instead requests new models and a new approach. in comparison, watts and zimmerman do none of this. alternatively, they continue to frame 'a pre-established point of view.' 62 sennetti and litt advances in business research 2013, vol. 4, no. 1, 54-67 61 second, the framing strategy is to admit no complete failures. although "poor models" of agency theory are admitted (watts and zimmerman, 1986; 1990), they are presented as providing new challenges to researchers, as the size hypothesis did in 1978, to find better firm-related agency theory variables. limited success is automatically assumed because of the continued "empirical regularities" found (p. 152). finally, the framing of the correct language and tests for agency theory also requires more fortifying, which latour calls "overwhelming" arguments. for example, in continuing their defense of the size hypothesis, watts and zimmerman (1990) refer to christie (1990) who aggregates tests where statistical significance for the size hypothesis has been found (ignoring low r2 levels and the non-statistically significant studies). by aggregating the results of these tests, christie creates the overwhelming bayesian posterior probability statement of 0.99 that size and other agency theory variables have explanatory power. just as any bayesian analysis requires a subjective prior distribution, this particular analysis is more subjective persuasion than recognized evidence. despite mckee et al. (1984) and much more evidence, the size hypothesis of watts and zimmerman (1978) continues to be 'confirmed' and framed by christie (1990), and now, because of the related controversy, it is framed as a pioneering effort (watts and zimmerman, 1990). to summarize these framing considerations, watts and zimmerman (1986; 1990) would have followers (a) consider statistical questions to be just imperfect modeling and measurement questions and not ones of validity (1990); (b) consider such irregular results to be somewhat regular given the statistical significance of the r2 and the absence of other established, non-agency theory alternative explanations (1990); (c) consider the "usefulness" of the prediction in terms of the users' welfare (which may be depend less on statistical success) (1986, p.14); and (d) consider that since size and other alternative agency theory-related variables may be proxies for political costs, agency costs, and other "contracting" costs, better ones soon will be found, and these new findings will yield research benefits to those who find them (1986, p.358-62; 1990, p.151-3). closing and summary persuasion for reducing controversy the framing of agency theory research is just part of the rhetorical persuasion needed. the reader may still disagree or have doubts, and “may still reach different conclusions” (latour, 1987, p.56). the solution is to lay out the text so that the reader has only one way to go. one does not truly engage the critics directly (latour, 1987). “the nature of the game is exactly like that of building a dam. it would be foolish for a dam engineer to suppose that water will always obey his wishes…any engineer should start with the principle that if water can leak away it will. similarly with readers, if you leave the smallest outlet open to them they will rush out...if the digging and damming is well set up, the reader, although taken in, will feel entirely free” (latour, 1987, p.57). all objectors' moves are to be controlled through closing (damming) arguments. doubters are to be made to feel alone and "without support and ally, alone in [his/her] profession, or, even worse, isolated from the [research] community or maybe, still more awful, sent to an asylum!" (latour, 1987, p.59). for watts and zimmerman, this persuasion also includes closing arguments for (a) the paradigm, (b) the forms of logic, (c) the evidence, and (d) the plausible demonstrations of success. for (a) the paradigm, they state that their paradigm is accepted, one that "has been successful in accounting", and if "the alleged errors [were] important...the referees would adopt the suggestions" (1990, pp. 149-150). that is, watts and zimmerman would have us believe that the objections are not important, not mainstream. since the objections are not important, they seem to rightfully have no responsibility for other (objector) paradigms. for (b) the forms of logic, to those who "place unreasonable demands" on their methodology (such as hines, 1988), watts and zimmerman defend the right of new ideas to evolve through "the evolutionary nature of accounting research" (1986, p. 362; 1990, p.149). that is, they would have us believe that objectors are unreasonable and have not 'evolved'. for (c) the evidence, watts and zimmerman (1990) 63 sennetti and litt advances in business research 2013, vol. 4, no. 1, 54-67 argue that their forms of evidence have been accepted and that "criticisms [of agency theory] have failed the market test" [i.e., the objectors have failed] (p. 149), even though "the fundamental questions of the relation between the observed empirical regularities and this theory remain unexamined" (leftwich, 1990, p. 37). conclusion we find latour’s (1987) rhetorical strategies to create a persuasion in the research and widespread acceptance of agency theory (watts and zimmermans, 1978; 1986; 1990; jensen and meckling, 1976). our findings add to the current growing body of literature now reinforced by erhard and jensen (2013) that recognizes rhetoric as methodology necessary for theory acceptance and ‘proof.’ the limited short-term interest component of agency theory is now rejected by erhard and jensen (2013) in a new attempt at a persuasion. the 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business research 2016, volume 7, pages 15-28 15 ipo firms’ voluntary compliance with sox 404 as evidence on the value relevance of internal control quality ivy huang queen’s college kimberly gleason university of pittsburgh leonard rosenthal bentley university deborah smith cleveland state university newly public firms are not required to comply with sox 404 for their initial public offerings. this provides a unique setting in which to investigate the benefits of voluntary disclosure with sox 404 and the value of information revealed as a consequence of compliance. we investigate whether voluntary compliance with sox 404, either fully or partially, impacts the perceived risk of firms conducting ipos on the first day of trading (reflected in underpricing) or following the ipo. our results indicate that neither full compliance with sox 404 at the time of the ipo, nor a managerial discussion of internal controls prior to the ipo, result in lower underpricing or higher post-ipo performance. this suggests that the costs incurred through the sox 404 compliance process may be unnecessary. indirectly, our results provide additional evidence that some of the requirements of sox extract costs from shareholders without supporting better quality information. introduction the passage of the sarbanes-oxley act of 2002 has been controversial mainly due to the debate over whether its compliance costs imposed on firms exceeds its perceived benefits. in particular, section 404 requires (a) management of the company to evaluate the effectiveness of internal controls over financial reporting and document any deficiencies and weakness; and (b) auditors attest to and report on management’s assessment of the adequacy of internal controls. regulators maintain the position that the internal control requirements under section 404 improve the quality and transparency of financial reporting. consequently, section 404 compliance should serve as a signal to investors for the quality of the firm’s financial reporting. on the other hand, critics allege that the costs of section 404 compliance far exceed its benefits. a recent survey by finance executives international (fei) shows that the average compliance costs were $2.9 million in 2007 for the 200 firms with average revenue of $6.8 billion that participated in the survey. 78% of the 200 firms agree that the costs exceed the benefits (russell 2007). another study by lord & benoit, llc estimates a much lower cost of compliance, approximately 0.8% of sales (benoit 2008). because smaller firms ipo firms and sox 404 compliance 16 are not required to comply, costs can only be estimated, and the cost of compliance may be disproportionally higher for smaller public firms (benoit 2008). in response to the costs-and-benefits concerns, the sec extended the 404 compliance dates for nonaccelerated filers several times. the amendment issued by the sec on september 2nd, 2008 allows “nonaccelerated filers to include in their annual reports, pursuant to rules implementing section 404(b) of the sarbanes-oxley act of 2002, an attestation report of their independent auditors on internal control over financial reporting for fiscal year ending on or after december 15, 2009.” this date has since been pushed back pending further sec study. non-accelerated filers are generally companies with less than $75 million in non-affiliated market capitalization. this extension also applies to newly public companies. ipo firms are not required to comply with section 404(a) and (b) until the second annual report (10k). the deferral of section 404 requirements for ipo firms (especially the extension for non-accelerated filers) provides us a unique setting to study the impact of voluntary compliance of section 404 at the time of ipos (e.g. first annual report filed under 10-k), and its effect of ipo underpricing. our study contributes to the ongoing debate regarding costs and benefits of section 404, and the voluntary disclosure and ipo underpricing literature in at least three ways. first, we examine the determinants of voluntary section 404 compliance for ipo firms. second, the findings of this study provide insight into the benefits of section 404 compliance in terms of reducing underpricing for ipo firms and the perceived benefit of 404 disclosures from the perspective of investors. third, the literature related to ipo underpricing suggests the level of underpricing is related to the various aspects of the “quality” (i.e., the transparency and corresponding riskiness) of the ipo. prior studies measure the quality of ipo firms in several ways such as the quality of accruals, the reputation of auditors and underwriters, and venture capital certification. we investigate whether voluntary compliance of section 404 is an additional signaling mechanism used by ipo firms to convey their quality to the market. the rest of the paper proceeds as follows. section 2 provides institutional background and reviews literature related to sox 404. section 3 discusses theoretical considerations relating ipo underpricing and voluntary compliance with sox 404. section 4 describes the sample and provides descriptive statistics. findings are reviewed in section 5 and section 6 concludes. review of literature section 404 of the sarbanes-oxley act requires u.s. public company to disclose in its annual report (form 10-k) and quarterly report (form 10-q), management’s assessment of the effectiveness of internal control structure and procedure. in addition, the company’s auditor is required to attest to management’s assessment. the objective of sox 404 is to inform investors about any weaknesses in the company’s internal control that potentially dampens the reliability of financial information provided by the company. auditing standards (as no.2) define three types of internal control weaknesses: control deficiencies, significant deficiencies, and material weakness. material weakness “is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected” (as no. 2 paragraph 10). material weaknesses in internal control can result in potential misstatements due to both unintentional errors and intentional misrepresentation of accounting numbers. empirical evidence provided by prior studies supports the link between internal control weakness and earnings quality. ashbaugh-skaife, collins, kinney and lafond (2008) investigate whether firms disclosing internal control deficiencies have lower quality accruals, and larger (in magnitude) abnormal accruals. they posit that when firms have weakness in their internal control, both unintentional errors and intentional misrepresentations of accounting numbers (e.g. earnings management) result in poor accruals quality. they find that (absolute) abnormal working capital accruals are larger for firms with internal control deficiencies than firms without deficiencies. the quality of accruals, as measured by the mapping of accruals to future cash flows, is lower for firms with internal control deficiencies. furthermore, in subsequent years, accrual quality increases as internal control improves (e.g. going from an adverse to an unqualified auditor opinion on section 404). doyle, ge and mcvay (2007a), using different measures of accruals quality, also document a relation between weak internal controls and lower accrual quality. they further show that this huang et al. 17 relationship is more concentrated in firms with company-level material weakness than in firms with accountspecific problems, which are more easily detected and corrected by auditors prior to issuing financial statements. doyle, ge, and mcvay (2007b) examine the determinants of different internal control problems: account-specific weakness and company-level weakness. they find that the group of firms reporting accountspecific weaknesses generally includes larger firms, older firms, and firms with good financial health, more complex operation, and growth. examining the internal control weakness disclosures provided by firms, ge and mcvay (2005) show that inadequate accounting resources are the primary causes for internal control weakness. moreover, most account-specific material weaknesses are related to accrual accounts (e.g. accounts receivable and inventory). from the firms’ perspective, one direct benefit of improved financial reporting, through disclosing managements’ and auditors’ assessment on internal control over financial reporting, is the potential reduction in cost of capital. that is, investors should demand a higher risk premium for firms with poor financial reporting quality (resulting from weakness in internal control). credit-rating agencies view internal control weakness as an important factor in their credit rating process (moody’s investor service 2004). empirical evidence however shows mixed evidence as to whether the effectiveness in internal control is linked to the cost of capital. ashbaugh-skaife et al. (2008) document a positive association between internal control weaknesses identified under section 302 and section 404 and cost of capital. however, ogneva, subramanyam and raghunandan (2007) show that this relationship disappears after controlling for firm characteristics and for analyst forecast bias. there are also market-based studies and voluntary disclosure studies that focus on the topic of internal control and financial reporting. market-based studies provide insight into whether managers’ and auditors’ assessments of internal controls are informative to the market. specifically, these studies attempt to answer the question of whether disclosures about internal control weakness cause investors to revise their price valuations. hammersley, myers and shakespeare (2008) examine the market reaction to three types of internal control weakness1. market reaction is strongest to disclosures about material weakness (-0.95%); the three-day size-adjusted return is -0.75% when firms disclose significant deficiencies; and there is significant market reaction to disclosures about control deficiencies by themselves. beneish, billing and hodder (2008) conduct a similar study but find no significant market reaction to section 404 disclosures, taking into account prior section 302 disclosures. one interpretation of this finding is that accelerated filers (under section 404) are larger firms with greater financial media and analyst coverage. therefore disclosure under section 404 does not provide incremental information to the market. another interpretation is that audited internal control disclosures as required by section 404b reflect a lower materiality threshold for disclosure (doyle et al. 2007b). in the voluntary disclosure literature, bronson, carcello, and raghunandan (2006) investigate the characteristic of firms that issue voluntary management reports on internal control prior to sox. these firms voluntarily disclosed management reports on internal controls to state explicitly management’s responsibility for internal control, the objectives of the internal control system, and management’s assessment of the effectiveness of internal controls (similar to the requirements under sox 302 and 404). the disclosures are meant to reduce information asymmetry and reduce uncertainty as to the quality of the firms’ financial information. bronson et al. (2006) also notes that there are costs associated with voluntarily disclosing information about firms’ internal controls. since the disclosure is included in annual reports, such information is subjected to the sec’s disclosure rules pertaining to the firm’s 10-k. thus, the management’s assessment on internal control over financial reporting can potentially expose the firm to additional legal obligations. ashbaughskaife et al. (2008) examine the characteristics of firms that disclose internal control deficiencies. their study differs from bronson et al. (2006) in that their focus is on firms that voluntarily disclose internal control deficiencies instead of a general assessment of internal controls over financial reporting. specifically, ashbaugh-skaife et al. (2008) suggest that the incentive to disclose internal control deficiency allows management “get in front of the issues” or to signal to the market that the deficiency has been acknowledged 1 defined as disclosure under sox 302 ipo firms and sox 404 compliance 18 before more serious problems, such as restatement occur. at the same time, disclosing internal control deficiency is not without costs. disclosing internal control deficiencies may damage management’s reputation and investors may also question the reliability of the firms’ financial statements. ipo underpricing and voluntary compliance with sox 404 models of asymmetric information by rock (1986) and welch (1996) indicate that the information asymmetry between issuers and investors is pronounced during the ipo process, and that this information asymmetry is “priced” by the market when it extracts a percentage of the issue value in the first day of trading (underpricing). the greater the ex-ante uncertainty regarding the issue, the greater the first day return to those who buy the issue at the ipo price. thus, ipo underpricing proxies for investors’ perception of the riskiness of an ipo. investors are more likely to pay a premium (thus less underpricing) for firms with higher ‘perceived’ quality, and lower risk. in the case of ipos, firms have incentives to (voluntarily) be complaint with sox404 only if the benefit exceeds the compliance cost. prior studies suggest that firms engaging in ipos use a range of signaling mechanisms (e.g. auditor and underwriter reputation, management ownership, direct disclosures related to governance and operations, and earnings guidance) to communicate private information to outside investors and reduce uncertainty about the firm’s value, in an attempt to reduce underpricing and leave less money on the table in the ipo process. signaling theory, as it pertains to ipos, indicates that “certifying agents” may provide information to the market that reduces perceived information asymmetry, and thus, risk, in the ipo process (booth and smith 1986; megginson and weiss 1991). underwriter and venture capital reputation may also signal the quality of ipo firms. higher quality investment banks are unwilling to risk reputational capital in the market by underwriting weaker issues (loughran and ritter 1997). barry, muscarella, peavy, and vetsuypens (1990) and megginson and weiss (1991) argue that venture capital firms similarly provide a “certification effect,” in that they will only take an equity stake in a firm whose cash flow prospects they view positively, thereby reducing perceived risk. however, gompers (1996) argues that venture capital firms may “grandstand” and bring firms to the market too early, and francis and hasan (2001) find that firms with venture capital backing experience greater underpricing than those without. the accounting literature investigates the role of the auditor as the “certifying agent.” auditor reputation (as a proxy for auditor quality) is often viewed as a means by which to signal the credibility of firms’ financial information. prior studies provide evidence showing that ipo firms are willing to employ reputable auditors in an attempt to signal the quality of the ipo, and reduce ipo underpricing. titman and trueman (1986) and michaely and shaw (1995) are among the first to suggest auditor reputation as a signaling mechanism for ipo firms. they suggest that high quality auditors are more likely to detect and disclose adverse financial information about issuing firms. thus, ipo firms with favorable information have an incentive to hire reputable auditors to convey this information to the market. beatty (1989) empirically tests the link between auditor reputation and ipo underpricing. using a big eight/non-big eight classification and audit fees as proxies for auditor reputation, he shows that hiring a reputable auditor reduces underpricing for ipo firms. menon and williams (1991) test the auditor credibility hypothesis, which suggests that investors are willing to pay a premium for ipo firms with credible auditors. they examine auditor changes prior to ipos, and the association between fees charged by underwriters and auditor credibility. they document auditor changes from small to large and more reputable auditors prior to ipos. firms with auditor changes prior to ipos are generally those with prestigious underwriters as well. fees charged by underwriters are lower for ipo firms with reputable auditors in the case of firm commitment ipos. copley and douthett (2002) examine how different signaling mechanisms (auditor choice, retained ownership, and earnings disclosure) are determined jointly and simultaneously by ipo firms. they show that firms with higher risk tend to choose higher quality auditors, consistent with datar, feltham and hughes (1991)’s prediction that high risk firms prefer to use auditor reputation rather than retained ownership as a signaling mechanism because retaining ownership is more costly. they also find that retained ownership is associated with firm risk, auditor choice and earnings disclosure. wang and iqbal (2006) extend copley and douthett (2002)’s study by relaxing the assumption that audit service is a normal good. they posit that audit huang et al. 19 quality differs in dimensions other than audit pricing. they also increase the sample by including the firms with one year of pre-ipo earnings. in contrast to the findings of copley and douthett (2002), wang and iqbal (2006) show that auditor choice and retained ownership are not substitutes. high risk firms are more likely to use retained ownership than auditor reputation as a signaling mechanism. hypothesis development collectively, the studies discussed above demonstrate that signaling can be useful in reducing the exante uncertainty surrounding an ipo, and correspondingly, the extent of ipo underpricing. we now examine whether managerial actions also provide a credible signal to the market which reduces ex-ante uncertainty as well. firms with no deficiencies or weaknesses in their internal controls have an incentive to comply with section 404 in order to convey information about their financial reporting quality to the market. on the other hand, firms with weak internal controls would not want to disclose their weakness. more importantly, if investors view section 404 compliance as a signal for ipo firm quality, then investors will reward this practice by paying a premium for these ipos. as a result, underpricing should be lower for firms that voluntarily comply with section 404. on the other hand, it is possible that ipo firms will voluntarily comply with 404 in an attempt to signal quality, but there may be little or no incremental benefit of compliance because the firm’s other signals for quality are considered to be sufficient, or, because external certification of internal controls is not considered by the market to be value relevant. in this case, investors may not view 404 compliance as providing incremental information about the quality of the ipo firm. additionally, because compliance costs are high, the benefit of section 404 compliance may not out weight the costs. in this case, we will not observe a significant relationship between the magnitude of underpricing and section 404 compliance. taken together, this leads to our first hypothesis: h1: voluntary compliance with section 404 reduces the magnitude of underpricing for ipo firms. our second research question examines the market performance of ipo firms in the post-issue period. prior studies generally show that ipo firms underperform their benchmark in subsequent years after the ipo. ritter (1991) documents an approximately 30% difference in post-issue period stock returns between ipo firms and their benchmark. jain and kini (1994) also document ipo firms’ underperformance in the post-issue period using measures such as the change in operating income and the change operating cash flow. however, other studies document variation in the extent of aftermarket underperformance across ipo firms. doukas and gonenc (2005) find that venture capital backed firms outperform other ipo firms; carter and manaster (1990) and carter, dark and singh (1998) document a positive relationship between underwriter reputation and aftermarket performance. if voluntary compliance of 404 is an indication of high quality of internal controls, and if high quality internal controls are important, then we should observe better market performance in the post-issue period for ipo firms which voluntarily comply with section 404 at the time of issue, ceteris paribus. h2: voluntary compliance of section 404 is positively related to market performance in post-issue period. sample selection and methodology our sample consists of a total of 493 firms that went public from 2002 to 2006. to determine whether a firm complies with section 404 during the issue year, we review the s-1 filed by each firm at the time of ipo. in our sample, 98 firms voluntarily complied with section 404 by providing information on management’s evaluation on the effectiveness of internal control and the auditor’s attestation on management’s assessment. 275 firms, which did not fully comply with section 404, provided some information about the effectiveness of internal control over financial reporting. the remaining 120 firms did not disclose any information about their internal control. as shown in table 1, the sample covers a total of 47 ipo firms and sox 404 compliance 20 table 1. descriptive statistics panel a. ipo firms distribution by year year # of ipo firms % of total sample 2002 13 2.97% 2003 42 9.61% 2004 139 31.81% 2005 119 27.23% 2006 124 28.38% total 437 100.00% panel b. ipo firms distribution by first 2 digit sic code two-digit sic industry # of obs. % of sample 01-09 agriculture 1 0.23 10-14 mining 19 4.35 15-19 construction 5 1.14 20-21 food and tobacco 4 0.92 22-23 textiles and apparel 1 0.23 24-27 lumber, furniture, paper, and print 10 2.29 28 chemical and pharmaceuticals 61 13.96 29-30 petroleum, rubber, and plastic 4 0.92 31-32 leather, stone, and glass 2 0.46 33-34 primary and fabricated metals 6 1.37 35-36 machinery 57 13.04 37 transport equipment 8 1.83 38-39 instruments and misc. manuf. 39 8.92 40-47 transport 26 5.95 48 communications 25 5.72 49 utilities 5 1.14 50-51 wholesale trade 12 2.75 52-59 retail trade 33 7.55 70-71 hotels and personal services 4 0.92 72-89 services 115 26.32 90-99 public administration and others 0 0.00 total 437 100.00 industries from 2002 to 20062. ipo firms are not concentrated in a few industries, suggesting our sample is not subject to an industry bias, although the majority of the firms in our sample went public post-2004. the empirical tests examine the effect of disclosure of internal control on ipo underpricing and ipo firms’ long-term performance. ipo firms in our sample are classified into three groups based on their compliance with sox 404 and disclosure of information about internal controls. the compliance group (soxcomp) consists of ipo firms that report both (a) management’s evaluation on the effectiveness of internal control over financial reporting, and (b) auditor’s attestation on management’s assessment of the adequacy of international controls. the second group of ipo firms (mcomp) includes firms that only disclose 2 of the full sample, 493 firms, 437 have complete underpricing data for the statistics in table 2, and are thus described in table 1. we lose one observation for the “underpricing” regression in table 3 (436 firms). for the bhar statistics and regression, which do not require underpricing data, we have 493 observations, and we lose 6 observations for the cross-sectional regression of bhar in table 4, bringing the sample down to 487. huang et al. 21 management’s assessment of internal control but do not provide opinions from their auditors. the last group of ipo firms does not disclose any information about their internal controls on form 10k. as an additional test of underpricing and long-term performance, we combine the soxcomp and the mcomp groups. the idea is that ipo firms are subjected to monitoring by internal and external parties such as auditors, boards, analysts, rating agencies, and the financial media. ipo firms are likely to provide higher quality financial information because of these monitoring mechanisms (ball and shivakumar 2006). thus, management’s assessment of internal control over financial reporting may be just as effective as additional auditor’s attestation on managements’ opinion. to examine the effect of section 404 compliance on underpricing, we estimate the following regression model: where: up is underpricing defined as (ipo-day closing price – ipo offer price) / ipo offer price, soxcomp is equal to 1 if the ipo firm provides management’s evaluation on the effectiveness of internal control and auditor’s attestation on management’s assessment; 0 otherwise, mcomp is equal to 1 if the ipo firm provides only management’s evaluation on the effectiveness of internal control; 0 otherwise, big4 is equal to 1 if the ipo firm is audited by one of the big 4 accounting firms; 0 otherwise, vc is equal to 1 for venture capitalbacked ipos; 0 otherwise, uwr is equal to 1 if the underwriter for the ipo firm has a rating above the mean using the carter et al. (1998) ratings; 0 otherwise, internet is equal to 1 if the ipo is issued by an internet firm, using the loughran and ritter (2004) classification; 0 otherwise, size is the natural log of total assets3. in an additional test, we combine the soxcomp and mcomp samples and use only one indicator variable (qcomp) in the model. qcomp is equal to 1 if the ipo firm provides at least management’s evaluation on the effectiveness of internal control; 0 otherwise. all other variables remain the same. we expect to find a negative relationship between underpricing and venture capital involvement as per lee and wahal (2004) and loughran and ritter (2004). we anticipate finding that firms with higher underwriter reputation will experience lower underpricing, as per carter et al. (1998). we next examine the effect of section 404 compliance on the long-term performance of the ipo firms. long-term performance is measured using long term abnormal stock returns over three time intervals of 6 months, 12 months, and 24 months after the issue4. we follow the standard measurement procedure utilized in the ipo and acquisition literature (see, e.g., brav and gompers 1997; field and karpoff 2002), where we calculate the issuer’s factor-adjusted abnormal return over each time horizon based on the fama and french (1992) three factor model. to prevent survivorship bias from confounding the returns estimation procedure, returns are calculated for the 24 month post-ipo period or until delisting. we estimate the regression model as follows: (2) where bhars is the long run abnormal returns over 6 months, 12 months, and 24 months respectively, eps is earnings per share (basic), leverage is total long term debt / total assets. all other variables are previously defined. results 3 we also use the log of market value with qualitatively similar results. 4 we also use industry adjusted roa as a performance measure, with qualitatively similar results. ipo firms and sox 404 compliance 22 we first provide the descriptive statistics regarding underpricing and post-ipo performance. these results are shown in table 2. table 2. underpricing and post-ipo performance: univariate tests panel a: full sample n mean median % of vc back 46% % of big4 auditor 87% underpricing 437 12.36 % 8.70% bhars 6 mos 493 -0.83% -5.67% bhars 12 mos 493 4.85% -4.47% bhars 24 mos 493 -0.90% -17.56% panel b: comparison between ipo firms comply with sox 404 and ipo firms do not comply sox 404 compliance no-compliance n mean media n n mean median underpricing 82 12.09% 7.91% 355 12.46% 9.00% bhars 6 mos 98 -3.07% -6.84% 395 -0.27% -5.41% bhars 12 mos 98 3.74% -7.45% 395 5.13% -3.01% bhars 24 mos 98 0.68% -6.84% 395 -1.30% -19.28% panel c: comparison among ipo firms compliant with sox 404, firms compliant with 404(a), and firms that are not compliant compliance manager only none n means media n n means median n means median underpricing 82 12.09% 7.91% 248 12.60% 9.40% 107 12.02% 7.43% bhars 6 mos 98 -3.07% -6.84% 275 -1.52% -8.00% 120 2.60% -1.96% bhars 12 mos 98 3.74% -7.45% 275 3.57% -3.00% 120 8.70% -1.33% bhars 24 mos 98 0.68% -6.84% 275 -0.21% -19.30% 120 -3.79% 19.22% panel a provides descriptive statistics for underpricing and post-ipo performance for the overall sample. sample ipo firms exhibit mean (median) underpricing of 12.36% (8.70%). mean (median) industryadjusted, buy and hold abnormal returns for sample firms overall are -0.83% (-5.67%) over the first 6 months following the ipo, consistent with research documenting underperformance. over the first 12 months following the ipo, mean (median) post-ipo performance is 4.85% (-4.47%), respectively. over the two years following the ipo, sample firms experience underperformance of -0.90 (17.56%) relative to the industry. panel b breaks down the sample by firms that are compliant with sox 404, in that they disclose internal control information at the time of the ipo, versus those that do not. firms that are compliant exhibit lower mean and median underpricing versus those that are not. for the 6 and 12 month horizon immediately following the ipo, compliant firms have inferior performance and underperform as compared to noncompliant firms. for the 24 month post-ipo horizon, compliant firms exhibit superior performance versus noncompliant firms according to the mean value of the returns, however the median value for returns of compliant firms is much lower than noncompliant firms. these results provide evidence that compliance huang et al. 23 with sox 404 is perceived by the market as providing a reduction in risk at the time of the ipo, as reflected in lower underpricing. however, firms that incur the costs of compliance do not appear to outperform those that do not comply. panel c provides descriptive statistics on underpricing and post-ipo performance for firms that are fully compliant with sox 404, those that provide only a managerial discussion of internal controls, and those that provide no information whatsoever at the time of the ipo. we find that firms that do not comply whatsoever exhibit the least underpricing, whereas those where the managers provide an assessment of internal controls exhibit the highest mean (median) levels of underpricing. further, firms that do not comply with sox 404 exhibit the highest levels of post-ipo performance over the six and twelve month performance assessment periods. over the 24 months following the ipo, firms that are fully compliant with sox at the time of the ipo exhibit the highest post-ipo buy and hold returns, followed by firms where management provides a discussion of internal controls, and, lastly, by firms that provide no information at the time of the ipo regarding internal controls. however, median buy and hold returns are substantially greater for the firms not complying with 404. taken together, the results do not provide unequivocal evidence regarding whether compliance with sox, or degrees of compliance, impacts perceived risk of firms at the time of the ipo, or post-ipo performance. overall, these results suggest that expending the managerial and financial resources to be fully compliant with sox 404 does not either signal superior future performance at the time of the ipo or result in better long term performance following the ipo. we next investigate whether compliance or levels of compliance with sox 404 impact underpricing in a multivariate framework. the results are shown in table 3. table 3. regression results: dependent variable is underpricing coeff. t coeff. t intercept 3.16729 0.68 3.09275 0.66 qcomp 0.14623 0.08 soxcomp -0.73990 -0.29 mcomp 0.44492 0.22 big4 3.15108 1.23 3.09477 1.2 vc 4.83904 2.69 *** 4.98378 2.73 *** uwr 1.15777 0.64 1.13938 0.63 internet 7.42846 2.55 ** 7.45885 2.56 ** size(log) 0.58211 0.84 0.59223 0.85 n 436 436 adj. r-sq 0.0295 *** 0.0278 *** variable description: qcomp equals 1 if the ipo firm provides management’s evaluation on the effectiveness of internal control over financial reporting, or auditor’s attestation on management’s assessment of the adequacy of international controls, or both; 0 otherwise. soxcomp equals 1 if the ipo firm complies with sox 404 (or provides assessment of internal control by both managers and auditors); 0 otherwise. mcomp equals 1 if the ipo firm provide only managers assessment of internal control; 0 otherwise. big4 equals 1 if the ipo firm was audited by one of the big 4 accounting firms; 0 otherwise. vc equals 1 if the firm is a venture capital-backed ipo; 0 otherwise. uwr equals 1 if the underwriter for the ipo is has a high rate; 0 otherwise. internet equals 1 if the ipo firm is an internet firm; 0 otherwise. size is the log of total assets. *, **, *** represent statistical significance at the 10, 5, and 1% levels, respectively. we provide two models, where the dependent variable is the percent underpricing. the first model uses a dependent variable proxy for compliance that is equal to 1 if the firm is fully compliant and 0 if it is not fully compliant with sox 404. the second model uses dummies for full compliance with sox 404 and managerial disclosure of internal control issues. the results of the first model indicate that underpricing is not affected by compliance with sox; the coefficient of qcomp is not significantly different from zero. in the second model, neither the coefficients of soxcomp nor mcomp are statistically significant either. in terms of the other control variables, the coefficient of big 4 auditor is also insignificantly different from zero, consistent with michaely and shaw (1995). the presence of venture capital participation at the time of the ipo firms and sox 404 compliance 24 ipo and membership to the “internet’’ industry classification are significantly and positively related to underpricing, consistent with prior research (see, e.g., gompers, 1996 and loughran and ritter (1997; 2004), while the size proxy is not. our regression results suggest that compliance with sox 404, either fully or partially (i.e., through managerial discussions of internal control quality) does not reduce the perceived risk of the firm on the first day of trading. it appears that the market does not view the external certification regarding internal controls disclosed during the compliance process as meaningful or relevant information. information regarding the operations of the firm and the structure of the board is already provided to the market during the ipo process itself, through the prospectus and registration statements, possibly reducing the value of the information from compliance, or making it redundant. for firms that do not comply with sox 404 at the time of the ipo, there is no information regarding internal controls whatsoever in the prospectus or registration statement. the implication of this result is that information provided regarding internal controls through the sox 404 certification process is not of particular interest to the market at the time of the ipo. perhaps additional monitoring beyond that provided by the underwriter is not viewed by the market as particularly valuable. additionally, the market may not perceive that the quality of information provided by managers of firms that comply with sox 404 (either implicitly or explicitly) is superior to that of firms that do not comply. to ensure that multicollinearity does not pose a concern for our test statistics, we also examine the vif factors for each regression, but do not document serious concerns with multicollinearity.5 we next examine whether compliance, or the extent to which compliance exists, with sox 404 at the time of the ipo is a determinant of post-ipo performance. the results are shown in table 4. panel a provides the results of regressions on 6, 12, and 24 month buy and hold abnormal returns of ipo firms using the qcomp dummy variable to proxy for sox 404 compliance. in all three models, the coefficient of qcomp is insignificantly different from zero. venture capital presence, size, eps volatility, and leverage control variables are all significantly related to performance. while vc firms and firms with higher levels of leverage appear to exhibit weaker post-ipo performance, size is positively related to long term aftermarket returns. panel b provides the results of our multivariate regressions using the soxcomp and mcomp proxies for sox 404 compliance. in none of the three regression models are either compliance variables significant. underwriter reputation, auditor quality, and internet industry membership are unrelated to performance proxies in both models. again, we do not document substantial issues with our test statistics based on the vif factors with multicollinearity. if sox 404 compliance resulted in better quality internal controls, we would anticipate finding that firms that voluntarily comply would exhibit superior post-ipo performance. however, taken together, the results in table 4 indicate that compliance with sox at the time of the ipo does not provide a signal regarding differential information provided to the market that results in meaningful outcomes for the aftermarket returns to ipo firms. one possibility is that internal controls at firms that are sox compliant are not better than those of firms that are not compliant just because they are evaluated externally. this implies that external certification of internal controls is redundant or irrelevant, or the kinds of internal controls required by sox do not impact long term performance in any economically or statistically significant sense. another possibility is that only firms with strong internal controls voluntarily comply, and these firms are already perceived by the market as having good internal controls. as with the results of the analysis of underpricing, it would appear that compliance with sox 404 is costly and time consuming, yet for newly public firms, it is not clear that it provides any benefits. our results suggest that compliance with sox 404 does not impact underpricing (i.e., the perceived riskiness of the ipo firm). additionally, we find that post-ipo long run returns are unrelated to compliance with sox 404 at the time of the ipo. this provides evidence that section 404 compliance does not benefit shareholders of firms at the time of the ipo in terms of reducing the money left on the table. thus, unlike analyst coverage, it appears that sox 404 compliance may not provide a particularly strong indicator to the market of the quality of internal control. it may also be the case that external certification of internal controls does not result in improved performance of ipo firms relative to their industry, size, and book-to-market controlled peers. 5 we thank an anonymous reviewer for this suggestion. huang et al. 25 table 4. regression results: dependent variable = buy-and-hold abnormal returns variable description: qcomp equals 1 if the ipo firm provides management’s evaluation on the effectiveness of internal control over financial reporting, or auditor’s attestation on management’s assessment of the adequacy of international controls, or both; 0 otherwise. soxcomp equals 1 if the ipo firm complies with sox 404 (or provides assessment of internal control by both managers and auditors); 0 otherwise. mcomp equals 1 if the ipo firm provide only managers assessment of internal control; 0 otherwise. big4 equals 1 if the ipo firm was audited by one of the big 4 accounting firms; 0 otherwise. vc equals 1 if the firm is a venture capital-backed ipo; 0 otherwise. uwr equals 1 if the underwriter for the ipo is has a high rate; 0 otherwise. internet equals 1 if the ipo firm is an internet firm; 0 otherwise. size is the log of total assets. eps is earnings per share (basic). lev is a measure of leverage calculated as total long-term debt / total assets. *, **, *** represent statistical significance at the 10, 5, and 1% levels, respectively. panel a. disclosure of internal control vs. no-disclosure of internal control 6 months bhars 12 months bhars 24 months bhars coeff. t coeff. t coeff. t intercept -0.1174 -1.32 -0.17722 -1.21 -0.40022 -2.19 ** qcomp -0.0367 -0.99 -0.04001 -0.65 0.04304 0.56 big4 0.04595 0.93 0.11488 1.41 0.16614 1.64 vc -0.07399 -1.98 ** -0.05111 -0.83 -0.09913 -1.29 uwr 0.00733 0.21 -0.05214 -0.89 -0.02635 -0.36 internet 0.00186 0.03 -0.00538 -0.06 -0.00984 -0.08 size(log) 0.02925 1.98 ** 0.04700 1.93 * 0.05900 1.94 * eps 0.01331 1.96 ** 0.01190 1.06 0.02589 1.86 ** leverage -0.13875 -1.60 * -0.31113 -2.17 ** -0.25818 -1.44 * n 487 487 487 adj. r-sq 0.0313 *** 0.0148 * 0.0252 *** panel b. 404 compliance vs. assessment by managers only vs. no-disclosure of internal control 6 months bhars 12 months bhars 24 months bhars coeff. t coeff. t coeff. t intercept -0.11742 -1.32 -0.17722 -1.21 -0.40022 -2.19 ** soxcomp -0.03468 -0.72 -0.02784 -0.35 0.06144 0.62 mcomp -0.03746 -0.97 -0.04443 -0.69 0.03637 0.46 big4 0.04608 0.93 0.11566 1.42 0.16731 1.65 vc -0.07429 -1.97 ** -0.05290 -0.85 -0.10183 -1.31 uwr 0.00740 0.21 -0.05169 -0.88 -0.02567 -0.35 internet 0.00187 0.03 -0.00530 -0.06 -0.00973 -0.08 size(log) 0.02925 1.98 ** 0.04703 1.93 * 0.05904 1.94 * eps 0.0133 1.96 ** 0.01183 1.06 0.02580 1.85 ** lev -0.13384 -1.60 * -0.31165 -2.17 ** -0.25897 -1.45 n 487 487 487 adj. r-sq 0.0293 *** 0.0128 * 0.0234 ** our results suggest that compliance with sox 404 does not impact underpricing (i.e., the perceived riskiness of the ipo firm). additionally, we find that post-ipo long run returns are unrelated to compliance with sox 404 at the time of the ipo. this provides evidence that section 404 compliance does not benefit ipo firms and sox 404 compliance 26 shareholders of firms at the time of the ipo in terms of reducing the money left on the table. thus, unlike analyst coverage, it appears that sox 404 compliance may not provide a particularly strong indicator to the market of the quality of internal control. it may also be the case that external certification of internal controls does not result in improved performance of ipo firms relative to their industry, size, and book-to-market controlled peers. conclusion newly public firms are not required to comply with sox 404 for three years following their initial public offerings, but at the same time, are likely to be characterized by high levels of information asymmetry regarding cash flow and risk prospects relative to firms with a history of mandated disclosures. accordingly, firms conducting ipos provide a unique sample with which to investigate the benefits of voluntary disclosure with sox 404 and the value of information revealed as a consequence of compliance. in this paper, we investigate whether voluntary compliance with sox 404, either formally or partially, impacts the perceived risk of firms conducting ipos on the first day of trading (reflected in underpricing) or following the ipo. we find no evidence that there is a statistically significant benefit to ipo firms from complying in any sense with sox 404. compliant firms do not experience lower underpricing, nor superior post-ipo performance over the 6, 12, and 24 months following the ipo. this result holds across compliance subgroups; fully compliant firms do not experience statistically lower underpricing or statistically higher post-ipo performance than firms where managers reveal information regarding internal controls. we cannot rule out the possibility that our findings are affected by a self-selection bias, as firms that have stronger internal controls are more willing to comply. however, the results of our study are consistent with a survey performed by alexander, bauguess, bernile, lee, and marietta (2013). the corporate insiders in their survey do not believe that 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wang, k., & iqbal, z. 2006. auditor choice, retained ownership, and earnings disclosure for ipo firms: further evidence. international journal of managerial finance 2(3): 220-240. welch, i. 1996. equity offerings following the ipo theory and evidence. journal of corporate finance 2(3): 227259. uafs advances in business research 2012 lowrez (2).pdf baldwin and brown advances in business research 2012, vol. 3, no. 1, 36-42 36 accounting doctoral placement: a geographic analysis amelia baldwin, university of arkansas fort smith carol brown, oregon state university accounting doctoral placement is described according to the geography of graduate employment. the results show that most u.s. programs provide graduates to schools in the state or the region. since many doctoral programs prefer to place their graduates in high ranking research programs or in other doctoral schools, geographic concentration suggests many of them are serving a regional need, rather than placing graduates at the highest (research ranked) schools. additionally, many programs have a relatively high level of foreign placements. whether these foreign placements add to the prestige of the program is unknown, but they do not help combat the u.s. accounting doctoral shortage. the geographic aspects of employment of accounting doctoral graduates has not been explored in previous studies. yet, some would argue the accounting professoriate already knows that some programs tend to provide graduates almost exclusively to employer schools within their state or geographic region. interestingly, no one has quantified which schools or how many schools tend to do this. research has been focused, rather, on the prestige of placements, without regard to other potentially intervening factors. given that the prestige or ranking of a doctoral program can be influenced by the placement of its graduates, the geographical placement tendencies may, in fact, reduce the potential ranking of a doctoral program, except, of course, if all the employer schools in the same geographic region are highly ranked, which seems unlikely. accounting doctoral programs are often evaluated and ranked based on the initial placement of graduates. while initial placement is particularly important, the long term employment situations of graduates may actually be more indicative of program quality since many doctoral graduates are mobile and do not stay in their initial job for their entire career or even beyond tenure. clearly, the variables that can give insight into a doctoral graduate placement are far more diverse than simply the initial placement of a program's graduates. because the choice to attend a phd program is complex and the means of evaluating doctoral programs are varied, a geographical analysis of doctoral graduate placement may be useful to both potential doctoral students and also to accreditors and institutions who may hire these graduates. this study describes and analyzes u.s. doctoral accounting program placement using a variety of demographic and geographic data about the programs and their most recent graduates. this information (including graduate gender and minority statues, placement, etc.) may be particularly useful to doctoral applicants as well as to doctoral program directors or search committees looking to differentiate or benchmark programs. this study addresses the following broad research questions: what are the drivers of doctoral graduate placement? what is the role of geography in the pattern of doctoral graduate placement, if any? to what extent do each program's graduates leave academia or leave the usa? prior research the literature describing accounting doctoral programs is mostly comprised of various studies ranking programs on publishing output of faculty and/or graduates or on initial placement of graduates. the publishing productivity studies that rank accounting doctoral programs have measured research activity of both faculty and graduates. these studies include brown and garner (1985), brown (1996), everett, klamm and stoltzfus (2004), and brown and laksmana (2007). similarly, mittermaier (1991) analyzed representation on editorial boards. fogarty and markarian (2007) combined two previous rankings (hasselback and reinstein, 1995b; fogarty, 1995) to create a prestige ranking of doctoral granting programs. urbancic (2008) used a multi-attribute approach to rank doctoral programs. studies of placement of doctoral accounting graduates include fogarty and saftner (1993a, 1993b), maranto and streuly (1994), fogarty and ruhl (1997), stammerjohan and hall (2002), and stammerjohan, seifert and guidry (2009). these are briefly described here. stammerjohan and hall (2002) ranked 80 accounting doctoral programs based on the initial placement of graduates using two measurement scales: us news and world report: america’s best colleges (1997) rankings and hasselback and reinstein (1995a) research productivity measures. the authors address placement of graduates at top-tier universities and at the most research productive accounting departments. baldwin and brown advances in business research 2012, vol. 3, no. 1, 36-42 37 fogarty and saftner (1993a) consider a primary market (initial placement) for doctoral graduates and a secondary market (later employment) for accounting professors who have already held full-time positions. the primary market is more dependent on institutional characteristics, whereas the secondary market is influenced more by personal, family and economic motives. the authors conclude that a fairly solid stratification hierarchy exists and that movement along this hierarchy is mostly downward. maranto and streuly (1994), fogarty and ruhl (1997) found strong correlations between the status of doctoral alma mater institutions and the status of initial employment institutions. stammerjohan, seifert and guidry (2009) further examine the prestige of doctoral granting programs and lifestyle choices in the initial placement of graduates. most of these studies have only addressed a subset of accounting doctoral programs. most of these studies consider only initial placement. none of these studies addresses the geographical of accounting doctoral graduate placement. both research output and placement information are important. just as stammerjohan and hall (2002) argue that potential doctoral students need to know if the programs to which they apply have a history of placing graduates at the type of institutions where they desire future employment, these applicants may also want to know more about programs with regard to many other factors, including further characteristics of graduates' employment and success. therefore, this study's purpose is to provide prospective doctoral students, search committees, doctoral program directors, and other interested parties with information that has not been previously available about doctoral graduate placement. research methodology this section describes the research methodology used to investigate the geographic patterns in doctoral graduate placement. the basic data consist of u.s. accounting doctoral graduates, 1987-2006. these graduates were initially identified through hasselback's (2007) online listing of doctoral graduates by school. this source contains information about each graduate such as academic rank, employer, administrative position, professorships, and professional certifications. then, each individual graduate was researched to update, correct, and add supplemental variables. extensive internet searches, phone calls and emails enabled the collection of corrections and additional information. variables describing graduates include current employment (2007), alma mater, degree year, minority status, country, and state (if usa). information on minority status was provided by the phd project (2007). the minority information was double checked through internet searches and emails. for the purposes of this research, minorities are identified as africanamerican, native american, and hispanic american. these are recognized as under-represented minorities and are those specifically encouraged by the phd project (2007) to pursue doctorates in business disciplines. the data were cross-checked to the extent possible through internet searches. the location (country or state) of each graduate was determined based on their place of employment or other information about their current activities found on the internet or through email and phone inquiries. note that information is unknown or inapplicable on some variables for some graduates. for example, 2007 employer is unknown for 9.8% of graduates. the state location of doctoral programs and current (2007) employment were used to determine how frequently graduates are employed in the same state as their doctoral program, or in bordering states. in addition, the employment locations of minority graduates was compared with census data on minorities. finally, foreign placements are discussed. the data were analyzed using basic descriptive statistics. the following sections discuss the results and their implications. results this section discusses the geography of doctoral graduate placement in current employment (2007), including dispersion of graduates across the u.s. and the percent of foreign placements. basic demographics are shown in the accompanying tables. geography of current placement of the graduates who are employed at u.s. academic institutions, about 20% (503) are employed in the same state in which they earned their doctoral degrees. table 1 describes this geographical phenomenon. of the 94 programs, 58 (62%) have more of their graduates in their home state than in any other state. an additional 16 programs (17%) have more of their graduates in a bordering state than in any other state. about 10% of programs (9) have too few graduates to analyze geographic patterns. only 11 programs (12%) appear to avoid an obvious geographical bias in the current employment of their graduates: arkansas, colorado, maryland, michigan, missouri, baldwin and brown advances in business research 2012, vol. 3, no. 1, 36-42 38 mit, northwestern, penn, purdue, stanford, and suny-buffalo. three of these (mit, purdue and suny-buffalo) have graduated less than one student per year for the study period. most of these programs have placed their graduates in states with larger populations and therefore more accounting programs, such as california, new york, virginia, and texas. table 1: geographical analysis of graduate employment panel a. largest homestate placement total state with largest almamater grads number of grads a ll all 2517 <home> 503 total state with largest total state with largest almamater grads number of grads almamater grads number of grads h o m es ta te h as m o re g ra d u at es t h an a n y o th er s ta te alabama 34 al 8 minnesota 14 mn 2 baruch 16 ny 8 nebraska 50 ne 8 berkeley 16 ca 4 northtx 50 tx 23 bostonu 25 ma 13 nyu 24 ny 8 carmellon 8 pa 2 oklahoma 21 ok 5 casewes 10 oh 5 oklast 40 ok 5 cenfla 12 fl 3 oregon 20 or 5 chicago 27 il 5 pennst 53 pa 9 cincinnati 13 oh 3 pittsburgh 28 pa 8 clevst 10 oh 3 scalif 26 ca 7 columbia 22 ny 6 sflorida 19 fl 8 cornell 24 ny 3 sillinois 20 il 3 drexel 25 pa 8 suny-bin 4 ny 2 flaatl 6 fl 3 syracuse 11 ny 5 florida 36 fl 8 temple 27 pa 6 gastate 34 ga 6 tennessee 40 tn 8 georgia 56 ga 8 txa&m 80 tx 24 harvard 14 ma 3 tx-arlin 19 tx 5 houston 47 tx 15 tx-austin 60 tx 15 illinois 51 il 15 txtech 39 tx 13 iowa 24 ia 4 ucla 3 ca 2 jacksonst 6 ms 4 union-ny 10 ny 6 kansas 16 ks 2 utah 22 ut 5 kentst 35 oh 8 vacomm 33 va 14 kentucky 58 ky 7 vanderbilt 1 tn 1 lsu 47 la 9 wa (u of) 36 wa 8 mass 15 ma 7 washst 21 wa 3 memphis 33 tn 5 washu 9 mo 2 michst 54 mi 8 wisconsin 50 wi 13 apparently, most programs are fulfilling a role, whether intentional or unintentional, of providing accounting doctoral graduates mostly to schools within their geographical area. this is true for most doctoral programs whether large or small, highly ranked or otherwise, and regardless of location. this could be caused by any number of factors, including graduates who do not want to leave the area for personal or family reasons, high demand in the region for the program's graduates, or the proximity of many doctoral programs to high concentrations of population and other accounting institutions. to the extent doctoral programs want to be distinguished by their good placement records, they may want to investigate this variable further. certainly, prospective doctoral students may use this data to help them determine whether the program is likely to result in placements that fit their needs. geography and minorities in the u.s. and puerto rico, 5.48% of placements are minority graduates. the 19 states (including puerto rico and the district of columbia) with above average minority employment are listed in table 2. thirteen of these locations can be described as southern (i.e. south of the mason-dixon line or geographically southern (puerto rico). two of these states are northeastern: rhode island and new jersey. four are mid-western or western: michigan, kansas, colorado and new mexico. note that some of the states that have relatively large populations of minorities (such as california) and relatively large numbers of universities employing accounting doctoral graduates (such as new york, pennsylvania, illinois, massachusetts, and ohio) do not show above average employment of minorities. baldwin and brown advances in business research 2012, vol. 3, no. 1, 36-42 39 note that table 2 only shows states with above average minority employment, not all states and all employed minorities or non-minorities. table 2: states with above average minority employment state none-minority minority total minority% puerto rico 0 2 2 100.00% delaware 5 2 7 28.57% d.c. 19 4 23 17.39% south carolina 32 5 37 13.51% kansas 20 3 23 13.04% mississippi 36 5 41 12.20% rhode island 15 2 17 11.76% florida 96 12 108 11.11% maryland 26 3 29 10.34% georgia 72 8 80 10.00% north carolina 103 11 114 9.65% kentucky 37 3 40 7.50% virginia 83 6 89 6.74% west virginia 14 1 15 6.67% texas 215 14 229 6.11% colorado 32 2 34 5.88% new mexico 16 1 17 5.88% michigan 67 4 71 5.63% new jersey 51 3 54 5.56% total (all) 2,398 139 2,537 5.48% table 3: graduate placement, programs with above average foreign placement program total foreign program total foreign georgia tech 3 67% wisconsin 66 21% ucla 10 60% northwestern 30 20% florida int'l 2 50% oregon 25 20% carnegie mellon 17 47% iowa 31 19% berkeley 32 47% boston u 32 19% purdue 28 43% maryland 32 19% case western 17 41% houston 60 18% tulane 8 38% florida 44 18% suny-buffalo 19 37% rutgers 39 18% minnesota 27 33% chicago 34 18% nyu 37 32% southern cal 34 18% syracuse 16 31% cornell 29 17% florida atlantic 10 30% arkansas 42 17% cuny baruch 22 27% drexel 30 17% kansas 22 27% duke 6 17% penn 26 27% st louis 19 16% southern illinois 27 26% texas-austin 70 16% illinois 66 24% temple 32 16% harvard 17 24% cleveland st 13 15% stanford 34 24% oklahoma 26 15% washington, u of 48 23% nebraska 59 15% colorado 35 23% ohio state 48 15% gwu 18 22% kent st 42 14% texas-dallas 9 22% foreign employment approximately 15% of the graduates whose location is known are employed outside of the usa (see table 3 above). four programs (of those with at least 20 in the subset) have placed over 30% of their graduates outside the usa. these include berkeley, purdue, minnesota and nyu. a further 11 programs (of those with at least 20 in the subset) have placed over 20% of their graduates outside the usa. these include kansas, pennsylvania, southern illinois, stanford, washington, colorado, illinois, wisconsin, baruch, iowa, and northwestern. since the whereabouts of some graduates are unknown and some of these unknowns are likely to be in foreign countries, these percentages may be understated. baldwin and brown advances in business research 2012, vol. 3, no. 1, 36-42 40 many of these programs may have high foreign placement because a higher percentage of foreign students are admitted. clearly, a significant portion of doctoral students are from outside the usa. for example, cho et al. (2008) report that the percentage of chinese students at the american accounting association doctoral consortium has been increasing in recent years and that over 25% of attendees during 2002-2004 received bachelor’s degrees from chinese universities. some accounting doctoral programs may be more attractive to foreign students due to location or rank or some other factor. the data do not include a variable for country of citizenship. clearly, however, a material percentage of u.s. accounting doctoral graduates are leaving the country, thus potentially aggravating the shortage situation. some of these graduates may be foreigners who never intended to stay in the u.s., of course. the market for doctoral students and doctoral graduates is complex. conclusion this study's purpose was to provide prospective doctoral students, doctoral program directors, search committees, and other interested parties with geographical information about doctoral placement that has not been previously available. hopefully, this information will assist potential applicants to doctoral programs in making decisions about where to apply and which program to attend. this information may also be useful for accounting doctoral programs desiring differentiation from other programs using objective data. in addition, this information may provide doctoral programs with some benchmarks against which progress over time can be compared. search committees, accreditation agencies, and other external parties may use this data to help in benchmarking and comparison of programs. prior research has shown that high placement by doctoral graduates vastly improves their ability to perform well in their academic career (fogarty et al. 2011). this study does have some limitations. some data are unknown, particularly, the employment situations of some graduates could not be determined (these were not used in the analysis). in addition, the employment information is analyzed at a point in time, 2007. this is both a weakness and a strength. it is a weakness because it is a snapshot in time and employment situations change, and a strength because it addresses employment situations for graduates at a range of 1 to 20 years post-graduation rather than just the initial employment of each graduate. future studies should consider initial placement of doctoral graduates. furthermore, while a longitudinal study is beyond the scope of this project, in the future such a study may provide more insight into the movement and employment of doctoral graduates. these results suggest most u.s. doctoral programs mainly provide graduates to schools in the state or the region. since many doctoral programs prefer to place their graduates in the highest ranking programs possible or in other accounting doctoral programs, the geographic concentration suggests that many of them are serving a regional need, rather than placing graduates at the best schools, regardless of location. in addition, many programs have a relatively high level of foreign placements. whether these foreign placements add to the prestige of the program is unknown. clearly these placements do not help combat the u.s. accounting doctoral shortage. while this study provides interesting data and analysis, it also highlights areas needing more investigation. for example: why do so many of the graduates of some programs leave the u.s.? do doctoral programs intentionally serve a geographical demand or is that an unintentional result? do doctoral programs with high state or regional placement tend to be ranked lower than doctoral programs with non-geographical patterns of placement? more research is necessary to shed light on these preliminary results, including comparisons of publishing productivity with geographic placement variables. references aacsb international. 2003. report of the doctoral faculty commission to aacsb international's board of directors. tampa, florida: aacsb. aacsb international. 2009. accreditation (website). available online: http://www.aacsb.edu/accreditation. brown, l. 1996. influential accounting articles, individuals, phd granting institutions and faculties: a citational analysis. accounting, organizations and society, 21(7/8), 723-754. brown, l., & garner, j. 1985. applying citation analysis to evaluate the research contributions of accounting faculty and doctoral programs. accounting review, 60(2), 262-277. baldwin and brown advances in business research 2012, vol. 3, no. 1, 36-42 41 brown, l., & laksmana, i. 2007. accounting ph.d. program graduates: affiliation performance and publication performance. review of quantitative finance and accounting, 29(3), 285-213. cho, c., roberts, r., & roberts, s. 2008. chinese students in us accounting and business phd programs: educational, political and social considerations. critical perspectives on accounting, 19(2), 199-216. everett, j., klamm, b., & stoltzfus, r. 2004. developing benchmarks for evaluating publication records at doctoral programs in accounting. journal of accounting education, 22(3), 229-252. fogarty, t. 1995. a ranking to end all rankings: a meta-analysis and critique of studies ranking academic accounting departments. accounting perspectives, 1, 1-22. fogarty, t., & markarian, g. 2007. an empirical assessment of the rise and fall of accounting as an academic discipline. issues in accounting education, 22(2), 137-161. fogarty, t., & ruhl, j. 1997. institutional antecedents of accounting faculty research productivity. issues in accounting education, (spring), 28-48. fogarty, t., & saftner, d. 1993a. down the up staircase: us academic accounting prestige and the placement of doctoral students. accounting education, 2(2), 93-100. fogarty, t., & saftner, d. 1993b. academic department prestige: a new measure based on the doctoral labor market. research in higher education, 34(4), 427-449. fogarty, t., saftner, d., & hasselback, j. 2011. knowing one’s place: the distribution of new accounting academics into a segmented labor market. journal of accounting education, 29 (2-3), 89-99. hasselback, j. 2007. listing of doctoral graduates by school. http://www.jrhasselback.com/atgdoct/xschdoct. pdf. hasselback, j., & reinstein, a. 1995a. a proposal for measuring scholarly productivity of accounting faculty. issues in accounting education, 10(2), 269-306. hasselback, j., & reinstein, a. 1995b. assessing accounting doctoral programs by their graduates’ research productivity. advances in accounting, 13(1), 61-86. maranto, c., & streuly, c. 1994. the determinants of accounting professors’ publishing productivity in the early career. contemporary accounting research, 10(2), 387-407. mittermaier, l. 1991. representation on the editorial boards of academic accounting journals: an analysis of accounting faculties and doctoral programs. issues in accounting education, 6 (2), 221-238. phdproject. 2007. (website). available online: http://www.phdproject.org. stammerjohan, w., seifert, d., & guidry, r. 2009. factors affecting initial placement of accounting ph.ds. advances in accounting education, 10, 103-118. stammerjohan, w., & hall, s. 2002. evaluation of doctoral programs in accounting: an examination of placement. journal of accounting education, 20 (1), 1-27. urbancic, f. 2008. a multiattributes approach for ranking phd programs. journal of education for business, 83 (6), 339 -346. amelia baldwin is the neal pendergraft professor of accounting at the university of arkansas fort smith. she received her ph.d. in accounting & information systems from virginia tech. her primary research areas are emerging technology impacts on accounting and accounting labor markets. she has published in british accounting review, european accounting review, journal of information systems, international journal of auditing, journal of emerging technologies in accounting, information systems management, international journal of accounting baldwin and brown advances in business research 2012, vol. 3, no. 1, 36-42 42 information systems, advances in public interest accounting, and advances in accounting education, among others. carol brown recently retired as associate dean for programs in oregon state university’s college of business. she received her ph.d. in computer science from oregon state. her primary research areas are emerging technologies and accounting labor markets. she has published in journal of information systems, journal of emerging technologies in accounting, expert systems with applications, financial counseling & planning, management accounting, journal of accountancy, accounting education, journal of education for business, advances in accounting education, and intelligent systems in accounting, finance & management, among many others. uafs advances in business research 2012 lowrez (2).pdf phillips, kern, jitendra, jones, and carden advances in business research 2012, vol. 3, no. 1, 120-129 120 self-leadership change project: an ongoing experiential program jim phillips, northeastern state university david kern, northeastern state university jitendra tewari, northeastern state university kenneth jones, northeastern state university-broken arrow nicole carden, northeastern state university-tahlequah self-leadership change project (slcp) is an ongoing program for senior level students at a regional university designed to provide hands-on experience in building self-management skills, which is considered a pre-requisite by many leaders and scholars (e.g., drucker, 1996; schaetti, ramsey and watanabe, 2008). a majority of students participating in the projects reported achieving change in targeted behavior, with intentions to continue to utilize the slcp approach for future “projects”. additionally, students who successfully completed a self-leadership change project reported that observers noted change in others as a result of the project. students who received positive feedback from observers reported that they were likely to engage in a self-leadership project in the future. this is relevant to the current business environment, in that shared leadership, empowerment, and participative management require business graduates to attain some level of leadership ability to function effectively in organizations. self-leadership is a beginning step in that process. “he that would govern others, first should be the master of himself” philip massinger the initial impetus for the self-leadership change project was to help students, in a classroom setting, develop selfleadership skills, and prepare them for leadership roles in their careers. although massinger’s quote is from a play, its message resonates with recent scholars and leaders who consider self-mastery a prerequisite for a broad range of team and leadership roles that are critical to success in the modern organization (e.g., lawrence and lorsch, 1967; whetten and cameron, 2011). as importantly, the self-leadership literature suggests an external benefit of self-leadership change in its positive influence on others. this article documents the initial results from the slcp “experiment”, which provide encouragement for continuing and improving the experiment. the modern business environment requires autonomy, initiative, and self-management from employees in many organizations. managers and executives are expected to enact an empowered, participative style of leadership to develop and support the self-managed worker (degraff and lawrence, 2002; drucker, 1988; lawrence and lorsch, 1967; quinn and spreitzer, 1997; whetten and cameron, 2011). leadership skills are required at virtually all levels of organizations, beginning with individuals managing themselves, and ultimately, acting as models for others. dwight eisenhower (lyon, 1974), heavily influenced by george marshal, recognized that effective leaders must themselves develop leaders and delegate responsibilities. peter drucker (1996) emphasized that executives must learn to manage themselves before they can successfully expect to manage others. john kotter, in “a force for change: how leadership differs from management” notes the need for recognizing and rewarding those who develop leaders in their businesses. empowered leaders are required at all levels of the organization (manz & sims, 1991; manz, 1992). "being responsible for ourselves ... is where formal leadership begins; it is the first step in being able to effectively lead others" (schaetti, ramsey and watanabe, 2008, p. 4). the foundation of the slcp is anchored in the self-leadership theory introduced by charles manz (1983, 1986), and supported by stream of research supporting the positive relationship between self-leadership behaviors/strategies and positive outcomes (stewart, courtright and manz, 2011). self-leadership has been defined as “a self-influence process through which people achieve the self-direction and self-motivation necessary to perform … consist(ing) of specific behavioral and cognitive strategies designed to positively influence personal effectiveness” (neck and houghton, 2006). the emphasis on personal responsibility inherent in self-leadership theory and strategies is particularly important to the slcp experiment. participants who take ownership of their personal project can be expected to realize stronger commitment to their goals, with the potential to realize lifelong learning and change skills. individuals self-select objectives designed to capitalize on the advantages of intrinsic motivation. the slcp structure also encouraged peer interaction between participants and those who observed (observers) the changes realized by participants. peer interaction provided the opportunity for participants to influence others (i.e., exerting external influence consistent with the managerial modeling role). according to manz and sims (1980), “if a leader reinforces self-management in one subordinate, a self-management model is available for other subordinates. … the leader’s own self-management behavior inevitably serves as a model to subordinates.” the phillips, kern, jitendra, jones, and carden advances in business research 2012, vol. 3, no. 1, 120-129 121 slcp experiment extends the concept of internal (self) leadership to incorporate influence with observers of the change. the slcp thus encourages two integrated concepts of leadership, both internal (self-leadership), and external (influence with others). additionally, this project provides the opportunity to explore the effect of peer influence on the participant through their observers. lock, latham and erez (1988), identified peer influence as a major component of goal commitment. early studies (mathewson, 1931; roethlisberger and dickson, 1939) focused on the negative aspects of peer pressure (e.g., restriction of output); however, there is also evidence in early studies of higher performance related to group commitment and peer influence (e.g., seashore 1954; zander & uhlberg, 1971). the importance of peer effects are also supported in organizational research on social influence, whereas individuals are influenced by “relational others, that is, people with whom an individual has direct interactions, and enjoys close social proximity” (ho and levesque, 2005). behavior is affected by input from friends and those important to the individual, as explored in network literature (e.g., kilduff, 1990). recently, peer intrinsic and extrinsic motivations were found to exert positive influence on players in an online game (kong, kwok and fang, 2012), and peer based control was found to contribute to group cohesion and affect performance by both individuals and teams (stewart, courtright and barrick, 2012). the slcp experiment contributes to the application and study of leadership concepts, and specifically, selfleadership in three ways. first, the theory is applied in a learning environment, providing hands-on experience for students in making structured changes in their behavior and lives. a number of self-leadership behavioral and cognitive strategies are incorporated into the structure of the project, focusing on autonomous decision-making, selfobservation, and intrinsic motivation. second, the study extends the measurement of self-leadership outcomes to levels of influence exerted by “self-managed” individuals on those who observed behavioral changes. this is an important test of the external leadership potential that resides in self-leadership outcomes. although external influence is suggested in the literature, it has received relatively little empirical attention. third, the study tests the effect of peer influence exerted by observers on participants in terms of participant’s intentions to start another selfleadership project in the near future. this is relevant to the two-way benefits associated with positive peer interaction. as importantly, the slcp is substantially driven, managed and monitored by participants, supplemented by feedback from peers. very little external leadership is exerted over participants other than that they are required to attempt a change project, keep a journal, and interact with peers. what they do and how they do it are fully selfmanaged. in this way, the slcp experiment relies primarily on self-motivation. this could have important, practical implications for employing self-leadership change processes in a wide variety of circumstances and with a variety of populations. relevant literature: self-leadership and influence with observers the critical importance of autonomy and self-actualization for individuals in organizations was recognized in the humanistic perspective of leadership advanced by argyris (1957) and mcgregor (1960). self-leadership theory further finds its roots in social cognitive theory and intrinsic motivation theory, while drawing heavily on the related research streams of self-regulation, self-management and self-control (manz, 1983; neck and houghton, 2006). social cognitive theory (bandura, 1986) places importance on the capacity of a person to manage or control oneself particularly when faced with difficult yet important tasks. social cognitive theory also recognizes the human ability to learn and experience tasks or events through vicarious and symbolic mechanisms (neck and manz, 2010). as such, it provides the theoretical foundation for all forms of self-direction, including self-leadership, and suggests the benefits of many of the strategies associated with self-leadership. intrinsic motivation theory (e.g., deci and ryan, 1980; steers, porter and bigley, 1996) emphasizes the importance of the ‘natural’ rewards emphasizing “the potential to harness motivational forces available in doing things that we can really enjoy" (neck and manz, 2010, p. 5), which is expected to have a positive effect on an individual as he or she observes the positive effect of change on another. intrinsic motivation theory is the reference point for a number of reward strategies integral to effective self-leadership. drawing on multiple self-regulation concepts developed prior to 1983 (e.g., manz and sims, 1980; neck and houghton, 2006), self-leadership theory provides a more comprehensive framework for the enactment and application of self-development (e.g., manz, 1983; neck and houghton, 2006; stewart, courtwright and manz, 2011), prescribing specific behavioral and cognitive strategies that contribute to successful self-leadership. these strategies, designed to positively enhance personal effectiveness, can be grouped into three primary categories – behavior-focused, natural reward and constructive thought pattern (manz and neck, 2004; manz and sims, 2001; prussia, anderson and manz, 1998). behavior-focused strategies include self-observation, self-goal setting, selfphillips, kern, jitendra, jones, and carden advances in business research 2012, vol. 3, no. 1, 120-129 122 reward, self-punishment and self-cueing; natural reward strategies involve designing the task itself to be naturally rewarding and enjoyable, and reducing focus on the unpleasant aspects of the task; constructive thought pattern strategies address mental imagery, positive self-talk, and dealing with dysfunctional beliefs (neck and houghton, 2006). of these categories, behavior-focused and reward strategies are most relevant in application of the slcp experiment. a comprehensive review of self-leadership research and theory can be found in a journal of managerial psychology article by neck and houghton (2006). building on the self-regulation orientation of self-leadership theory and research, social cognitive theory identifies the benefit of modeling (bandura, 1986) as a way in which individuals influence others to successfully engage in personal change. “if knowledge and skills could be acquired only through direct experience, the process of human development would be greatly retarded, not to mention exceedingly tedious, costly and hazardous. fortunately, people can expand their knowledge and skills on the basis of information conveyed by modeling influences (wood and bandura, 1989). consequently, social cognitive theory addresses both self-mastery and influence in terms of the individual who is involved in learning (bandura, 1986). the observer of the “model” (the individual engaging in self-leadership behavior) employs this knowledge gained through observation in practicing the observer’s own behavior, which ultimately contributes to the recipient’s selfmastery. although a great deal has been researched and studied relative to the negative aspects of peer pressure (e.g., janis, 1972), and the benefits of group pressure in a structured business setting or in formal teams (e.g., castilla, 2005; jones and kavanough, 1996; mas and moretti, 2008; pierce & snyder, 2008), few studies have addressed the positive effects of peer influence on behavior in an autonomous setting such as the slcp experiment. locke and latham, and erez’ (1988) work on goal commitment found support for a positive relationship between peer influence on goal commitment, which is encouraging considering the structure of the slcp (self-chosen and directed). work in network theory (e.g., kilduff, 1990) and peer motivation in online gaming (kong, kwok and fang, 2012) reinforce a general acceptance of the positive benefit of peer influence. yet, research of this type provides evidence of only a general effect of peer influence, while the slcp experiment specifically addresses the positive effect of peer influence on self-directed change outside of an organizational setting. self-leadership change project design the structure of the self-leadership change project (slcp) capitalizes on the participants’ self-direction. although students are exposed to the essentials of the self-leadership strategies described in this section, there is no formal study involved in the project preparation. accordingly, the slcp is substantially under the control of the participant, and relies in their self-motivation and self-direction. the only requirements for participation in the project are that participants choose a project that they really want to tackle, investigate external information that will help them in their project, keep a journal recording their actions and progress, and engage 3-5 observers. the structure itself incorporates four specific self-leadership strategies (self-goal setting, natural rewards, selfobservation, and self-cueing). the project is also structured to provide the opportunity for participants influencing observers and others, and to receive reinforcement from their peer observers. the first and most critical step in the slcp is to set a personal goal without direction from instructors. students are given ideas that other students have considered in the past as thought starters, and are asked to freely choose their project. students are encouraged to discuss ideas among themselves and with friends or family, but are strongly encouraged to embrace a project that they really want to do. in that the project is self-determined, it provides personal involvement and commitment. the research on goal setting (locke, latham, & erez, 1988; locke and latham, 1990) provides strong support for this as a critical element of effective self-leadership (boss and sims, 2008). this selection process also contributes to incorporating natural rewards by encouraging students to select a project that can be made to be inherently enjoyable and rewarding, that is well within their control, and that avoids difficult or negative elements. by making the project desirable and clearly achievable, actually performing the project tasks and making progress act as natural reward. self-observation is built into the journaling process. students are required to keep a journal of their activities associated with their change project, recording personal observations periodically. they record their actions on the project frequently (daily is recommended), and are encouraged to periodically evaluate their project structure and process. this not only contributes to self-observation, but acts as a self-cueing strategy, acting as a reminder to take action and follow-through. an additional feature of the slcp design, feedback from observers, may reinforce the participants’ self-observation and self-cueing. feedback encourages self-evaluation and acts as a reminder to stay on task. some students even involve their observers in the tasks, such as working out with the participant to improve their healthy living project. phillips, kern, jitendra, jones, and carden advances in business research 2012, vol. 3, no. 1, 120-129 123 although not a requirement of the project, participants are encouraged to develop self-rewards. if the natural reward of the project design is sufficiently strong, the participant may find the task in itself rewarding. students are also coached to select and structure projects that provide early successes, following weick’s (1984) notion of a “small wins” strategy. success becomes a reward in itself. participants are also encouraged to reward themselves with simple ideas a special treat or a time to do something that they enjoy, and are cautioned to avoid negative feedback and penalties. periodically, students are asked to reassess their progress and their project in a class discussion with peers, and encouraged to restructure projects to take advantage of natural and external rewards. external feedback: although not addressed specifically in self-leadership literature, feedback is integral to authors approach to learning and implementing this self-leadership project. observers provide feedback and encouragement that reinforces self-observation, self-evaluation, self-cueing combined with intrinsic rewards. students generally ask for periodic feedback from observers, who not only give them a sense of progress, but are often very positive about students’ changes and progress. slcp, in its current structure, does not include an emphasis on cognitive focused strategies (e.g., mental imagery, mental rehearsal, self-talk, and managing beliefs and assumptions). the circumstances involved do not permit sufficient time allocation to train and rehearse in these strategies; however, this is a potential opportunity for improving the effectiveness of self-leadership projects in the future. the incorporation of observers in the process acts as a vehicle for participants to influence others, while acting as positive feedback that encourages the participant in working on their slcp tasks. this allows for an evaluation of external influence as a by-product of an individual’s self-leadership behavior and results. it also provides a way to evaluate the impact that observer peers have on participants. hypotheses as noted in the introduction, the primary objectives of slcp are to provide students an experiential understanding of the self-leadership process and to develop capabilities in implementing those processes. students are encouraged to enlist observers who provide feedback during the life of the projects. this external interaction has multiple implications. the act of engaging observers has the potential to increase personal commitment, and selfawareness of the participant. hypothesis 1: changes in behavior associated with successful self-leadership change projects will be apparent to others who have observed the change project. an important contribution of this study is to gauge the level of influence self-leadership change has on others in order to test the proposition that self-leadership is a starting point for developing broader leadership capabilities. by developing skills in influencing others, individuals are building their own capacity for external leadership. individuals who exhibit self-leadership act as models for others and influence others (bandura, 1986). hypothesis 2: successful completion of self-leadership change projects will influence the actions and behavior of those observing the change process. hypotheses three addresses the learning value and motivation potential for slcp participants. students who successfully complete a slcp project develop a level of knowledge and discipline in the practice of self-leadership. two benefits can be realized. the first is learning and practicing effective techniques. the second reflects internal reinforcement generated by achieving the goal that the participant set, and gaining a sense of accomplishment. hypothesis 3: successful completion of self-leadership change projects will affect student intentions to employ the slcp approach in the future: a) continue existing project; b) start a new project. hypothesis 4 addresses the value of external feedback and reinforcement of positive responses by others during the slcp. the existing stream of self-leadership research emphasizes personal strategies and techniques that help keep a self-leader focused on the objective and actions necessary to achieve the objectives. our approach is to add external feedback as an important tool to reinforce the personal effort of the participant. in effect, we view the power of external influence as complementary. the self-leader influences the behavior and actions of observers, while the input and positive reinforcement of observers becomes a reciprocal benefit of the interactions. hypothesis 4: the level of positive feedback from observers will relate positively to student intentions to employ the slcp approach in the future. phillips, kern, jitendra, jones, and carden advances in business research 2012, vol. 3, no. 1, 120-129 124 methodology and results participants had from 10 to 16 weeks to complete their slcp project. this survey was provided as a voluntary option to participants who wished to report their slcp project results. a total of 141 participants used this survey in six different classes instructed by two different professors. this survey was first used in the fall of 2010. not all questions were completely answered throughout each survey by each participant. reported were 76 female students and 62 male students. their ages ranged from 19 years to 51 years with full-time work experience ranging from none to thirty years. it should be noted that classes had a mixture of traditional and non-traditional students. an underlying objective of the slcp project is to foster self-leadership skills and intentions in college students. in this study, the authors employed a survey that is completed by students at the end of the semester in which they participate in the project. the time period in which students participate varies from 10-15 weeks, which is adequate time to complete a self-leadership project that is self-selected and appropriate for the time frame. the survey includes two types of questions. a series of questions addressed the degree to which an outcome was realized or observed, using a likert scale: 1-none, 2-little, 3-somewhat, 4-much, 5-a great deal (hinkin, 1998). only one question had a yes or no answer and was coded as a categorical variable. this section of the paper provides an overview of the basic results for the questions of primary interest. regression was employed for the analysis of hypotheses 1 and 2. for hypotheses 3 and 4 a t-test of two samples assuming unequal variances, was used. the means of the variables were compared for those who are planning to start a new slcp project with the means of the students who do not plan a new slcp. table 1 summarizes hypotheses 1 and 2, the variables and methods involved, as well as the results for the test of these hypotheses. table 1: summary of methods and results: hypotheses 1 and 2 short statement of hypothesis method and basis of hypothesis test summary results hypothesis 1 changes in behavior associated with slcp projects will be apparent to others who have observed the project method: regression dependent variable: change in the respondent as a result of the respondent’s slcp independent variable: degree of goal achievement in the slcp observations: 139 r sq : 0.20 adj. r sq : 0.19 p value (i.v.): 3.1e-08 result: i.v. significant at 95% level intercept: 2.4 coefficient of i.v. 0.39 directionality of coefficient: positive, as predicted hypothesis 2 successful completion of slcp projects influences the behavior of those observing the change process test 1: method: regression dependent variable: change observed in others ‘by respondent’ who has adopted slcp independent variable: extent of goal achievement in slcp test 2: method: regression dependent variable: change observed in others ‘by observers’ independent variable: extent of goal achievement in slcp observations: 131 r sq : 0.11 adj. r sq : 0.10 p value (i.v.): 9.54 e-05 i.v. significant at 95% level intercept: 1.05 coefficient of i.v. 0.43 directionality of coefficient: positive as predicted observations: 131 r sq: 0.20 adj. r sq: 0.20 p value (i.v.): 3.8 e-08 i.v. significant at 95% level intercept: 0.67 coefficient of i.v. 0.59 directionality of coefficient: positive as predicted note: d.v. is dependent variable; i.v. is independent variable analysis of hypotheses 1 and 2 hypothesis 1 is supported at the 95% significance level. the greater the degree of success in the slcp the greater the changes in behavior reported (in the respondent who has undertaken the slcp) associated with the project. the importance of this finding is that it indicates that the change is apparent to those who are observing the student as they engage in self-change, and the greater the goal accomplishment the greater the change observed. this is critical in supporting the theory that self-leadership impacts more than just the participant. phillips, kern, jitendra, jones, and carden advances in business research 2012, vol. 3, no. 1, 120-129 125 hypothesis 2 postulates that successful completion of a slcp influences the actions and behavior of those observing the change process. this was tested through two independent regressions. the first treated the dependent variable as the change observed by the respondent in others, and the independent variable as the degree of goal achievement in the slcp. the second regression used the same independent variable, but for the dependent variable used the response to the question: ‘did your observers notice any change in others around you as a result of the slcp?’ the two dependent variables are highly correlated, and in fact measure the same concept and therefore the use of two regressions is confirmatory or a form of triangulation. the results confirm this and both regressions indicate the independent variable to be significant, acceptable at the 95% level. results show that influence is extended to observers of the change process as well as others not specifically selected as observers by the participant. this suggests that self-leadership plays an important role in the development of individuals’ “external leadership capabilities.” in the case of both hypotheses 1 and 2 regression is used not to postulate a ‘complete and causative model’ of all variables. therefore, it is not the values of r square or adjusted r square that are so relevant it is really an examination of the p value or significance of the explanatory variable that is critical. this in both cases indicates significance acceptable at the 95% level. table 2 summarizes hypotheses 3 and 4, the variables and methods involved, as well as the results for the test of these hypotheses. table 2: summary of methods and results: hypotheses 3 and 4 short statement of hypothesis method and basis of hypothesis test summary results hypothesis 3 successful completion of slcp projects affects the student intention to employ slcp approach in the future (positively) method: t test comparing means of the ‘degree of goal achievement’ for those intending to employ slcp approach in future versus those not planning to use slcp approach in future. the postulate is that those intending to employ slcp approach will have a higher degree of goal achievement in slcp project undertaken. observations: numbers in group a and group b are 80 and 58 means: 3.88 and 3.77 p(t< or = t) one-tail 0.107 t =1.24 t critical (one tail) =1.65 result: not significant at the 95% level hypothesis 4 positive feedback from observers relates positively to student intentions to employ slcp approach in the future method: t test comparing the means for the ‘degree to which observers see change in the respondent carrying out slcp’ for the two groups (a) those who intend to use slcp in the future (b) those no planning to use the slcp in the future . the postulate is that the group that intends to use slcp approach in the future will have a higher mean. observations: numbers in group a and group b are 80 and 58 means: 3.7 and 3.13 p(t< or = t) one-tail 0.00043 t = 3.41 t critical (one tail) =1.65 result: significant at the 95% level analysis of hypotheses 3 and 4 for the analysis of hypotheses 3 and 4 the categorical classification of the two groups (a) students who were planning to start on a new change project, and, (b) students who were not planning to start on a new change project was used. one tailed t tests, assuming unequal variances, comparing means were carried out. in the case of hypothesis 3 it was found that the mean degree of goal accomplishment for group a was greater than the mean degree of goal accomplishment for group b, hence the directionality of the results was consistent with the hypothesis. however the t test was not significant at the 95% level. the relevant p value was 0.107, which indicated that the hypothesis was acceptable (nearly) at the 90% level. the fact that the p value was just over the 0.10 level potentially indicates the need for an improvement in the survey/measurement process, and an additional exploration of this relationship. using a similar t test, hypothesis 4 is supported. here we compare the mean ‘degree to which observers see change in the respondent carrying out the slcp’ for group a and group b. in keeping with the hypothesis the mean for group a was 3.7 versus 3.13 for group b, confirming as postulated, that students of the group that experienced greater observer positivity would be more inclined to adopt a new slcp. one of the expected outcomes of the project was that participants would increase their knowledge of self-leadership and recognize its benefits for future self-development. the relationship between future intent and the participants’ reported recognition of the extent to which observers “noticed” appears to provide some level of positive feedback or monitoring mechanism. not only do participants influence observers positively but observers influence participants positively. phillips, kern, jitendra, jones, and carden advances in business research 2012, vol. 3, no. 1, 120-129 126 it’s notable in question five that a substantial majority of participants reported success in achieving their slcp project. this observation supports the practical objective of exposing students to self-leadership change through the project. the majority of students reported that they achieved their slcp goal (completing a change project successfully) and over 90% of the students reported some success. discussion the first objective of the self-leadership change project was to encourage students to develop skills in selfleadership through an experiential exercise. although our hypotheses did not measure this objective specifically, we found that 67% of the students reported “much” or “a great deal of” success in achieving their self-leadership goal. additionally, 58 % indicated that they intend to start a self-leadership change project in the future. these outcomes have important practical implications. first, achieving success in an early encounter with self-management may increase an individual’s confidence in their own capabilities, and could be expected to increase future success in self-leadership. second, the stated intention to continue with the slcp approach provides some evidence of a longer term impact, in a world where continuous learning is considered crucial to adaptation and success. the fact that a number of observers noticed the change (the change was apparent to others) provides some evidence of the significance of the change the second objective of the study was to evaluate the level of influence exerted by self-managed individuals on those who observed the behavior and the changes experienced by these individuals. the results fully supported the idea that self-leaders influence others, as represented in results associated with hypothesis two. this relationship has been suggested in the literature but there have been few studies covering this relationship. this study extends that research, providing support for the concept that external leadership begins with self-leadership. the implication of this finding is that successful self-leadership change not only prepares an individual for external leadership roles, but may also provide active external leadership by providing a model for others. furthermore, this study finds evidence of a two-way impact associated with self-leadership participants who engage observers in the self-change process. current theory suggests that the self-leadership participant will influence others, as noted above. our results show that this is not simply a one-way benefit. the self-leadership participants benefitted from positive feedback provided by their observers. this indicates an important role to be played by peer interaction during self-leadership change process. this finding was not considered in the initial stages of the slcp. the authors observed this phenomenon in the feedback students provided in discussing their journey during the project. this aspect of the experiment will receive increased attention as we continue to develop slcp approach. limitations due to the nature of this experiment, data used in our analysis is exclusively self-reported information. we recognize the limitations associated with self-reported data and future studies may want to explore alternative approaches to observer measurement. however, our results are compatible with the information that students provide in end of project reports, and comments provided by outside observers. to some extent this provides some support for the value of the self-reported information. for future studies, additional reporting techniques will be considered. a second criticism is that the survey and results do not tie to previous studies that measure individuals’ aptitude for self-leadership as an indicator of success and development of self-leadership capabilities. this could be a welcome addition to this research model in the near future of slcp literature and research. a final criticism may be that this study offers little in the way of acknowledging or determining the sustainability of changes desired. sustainability could bear a strong relationship to some future approach to measuring effectiveness of the slcp. for instance, does the slcp model impact the ability to maintain changes, once made? can goals be defined for the individual and collective slcp research that incorporate sustained, even lifelong, success in 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& uhlberg, c. 1971. the group level of aspiration and external social pressures. organization behavior and human performance, 6(3), 362-378. jim phillips is an associate professor of management at northeastern state university. he received his ph.d. in management from new mexico state university. he teaches selection and evaluation, compensation management, phillips, kern, jitendra, jones, and carden advances in business research 2012, vol. 3, no. 1, 120-129 129 labor relations, strategic human resource management, and strategic management. he conducts research in personal & organizational transformation, strategic planning and self-leadership change and has been actively involved helping organizations conduct and implement strategic and tactical planning. dave kern is an associate professor of management at northeastern state university. he received his ph.d. in management from oklahoma state university. his research interests include strategic decision-making, leadership and organizational change. he has published in journal of private equity, journal of higher education theory and practice, and others. jitendra tewari is an associate professor of marketing at northeastern state university. he received his ph.d. in marketing from florida atlantic university. his current research interests include international bidding practices, pricing, and supply chain management. kenneth jones is an assistant professor of information systems and supply-chain management at northeastern state university-broken arrow. he received his dba anderson university in anderson, in. his current research interests include logistic metrics for tl/ltl transportation, remote work performance, product-specific incentives, pre/post assessment in course-specific objectives, and change leadership. he has published in advances in business research, journal of the scholarship of teaching, and learning for christians in higher education. nicole carden is a student attending northeastern state university-tahlequah. 17 betweenness centrality and supplier performance: the missing link? dong-young kim university of north florida although researchers have paid increasing attention to network centrality in the literature of supply chain management, little is known about the role of betweenness centrality in enhancing supplier performance. this study reviews prior research that conceptualizes betweenness centrality. we take the social network perspective and investigate whether betweenness centrality can be a source of external information and competitive advantage. this study contributes to the literature of social network and supply chain management by synthesizing conceptual views of betweenness centrality and highlighting the way in which betweenness centrality can play a role as a knowledge broker between isolated firms. keywords: centrality; betweenness; social network; supplier; performance introduction scholars in supply chain management have become increasingly interested in how the central position occupied by a firm in supply networks influences performance outcomes (carnovale & yeniyurt, 2014; gokpinar et al., 2010; schilling, & phelps, 2007). as firms’ own knowledge base alone is not sufficient to obtain diversified knowledge, it is important for firms to capture, interpret, and implement knowledge resources from external networks (gao et al., 2015). a firm’s position is essential for achieving goals and succeeding in a competitive business environment (hanneman & riddle, 2005; hallikas et al., 2008; mazzola et al., 2015). position influences a firm’s decisions around investments, acquisition partners, and alliance formations (ranganathan & rosenkopf, 2014). extant research on network positions has focused on how network configurations enable the channeling of scarce and valuable resources through various network connections. researchers, for example, have discussed how to bridge ties in a web of relationships or how to build strong ties between network participants (peng & mu, 2011). however, establishing the network position also involves some costs to firms. perry-smith and shalley (2003) argue, for example, that a firm’s position is not always beneficial for creativity. it is also difficult for individual firms to identify appropriate partners and resources in a network because information about new market opportunities is dispersed in supply networks (soh & roberts, 2005). researchers have paid increasing attention to network centrality in the literature of supply chain management. organizational collaboration in supply chains leads to the development of social ties and partner-specific knowledge that influence the variance in firms’ performance (kim & zhu, 2018). however, the development of theories on network centrality is still at the early stages in the http://journals.sfu.ca/abr advances in business research 2019, volume 9, pages 17-25 18 field of operations and supply chain management (borgatti & li, 2009). limited attention has been directed to betweenness centrality. betweenness centrality indicates a firm’s ability to manage direct and indirect ties and to potentially gain access to expertise (cross & cummings, 2004). we will begin by considering the insights of indirect ties, because the indirect ties are a critical source of information and innovation and serve as information intermediaries that enhance the information base of companies, and thus strengthen their ability to absorb and utilize external knowledge (cross & cummings, 2004; lechner et al., 2010; mehra et al., 2001; sasovova et al., 2010). few studies have explicitly accounted for the effect of this dimension on supply chain performance (e.g., carnovale & yeniyurt, 2014; fox et al., 2013; schilling & phelps, 2007). researchers have therefore called for more research in order to better understand the nature of betweenness centrality (carnovale & yeniyurt, 2014; easton & rosenzweig, 2015; fox et al., 2013; wincent et al., 2010). the purpose of this study is to review prior research that has proposed definitions of betweenness centrality. this study will also discuss how and why a supplier firm’s betweenness centrality influences financial performance. we take the supplier perspective and explore whether betweenness centrality can be a source of external information and competitive advantage in supplier firms. social network theory suggests that we examine the impacts of both direct and indirect ties on performance because firms are interconnected with one another and are embedded in various external social networks (gao et al., 2015). our argument is that although the number of a firm’s direct ties indicates an opportunity to have access to external information, the firm also requires the capability to bridge unconnected ties and leverage the unique information that is available in supply chains. we draw on insights from social network theory to explain why betweenness centrality can lead to access to diverse information and knowledge. the remainder of the paper is organized as follows. first, definitions of betweenness centrality in the literature are reviewed. second, we discuss the measures of betweenness centrality. third, we introduce a proposition for how betweenness centrality influences supplier performance. finally, we summarize the key findings and contributions of this study. definition given the broad definitions of betweenness centrality that have been proposed, researchers have underlined one of the two dimensions: bridging structural holes and the number of shortest paths (see figure 1). figure 1: classification of definitions in terms of the bridging structural holes, researchers highlight that a firm’s position encourages them to bridge structural holes among unconnected partners (davis & mizruchi, 1999; fox et al., 2013; mehra et al., 2001; sasovova et al., 2010; van wijk et al., 2013; wincent et al., 2010; yan et al., 2015). 19 the structural hole refers to an absence of ties between a firm’s partners, that provides non-redundant information from various disconnected network clusters (andrevski et al., 2016). the structural hole also represents missing relationships that inhibit information flow between business partners (burt, 2007). in this dimension, betweenness centrality indicates the amount of brokerage each firm has between all other firms in a network (borgatti et al., 2013). high betweenness indicates that a central firm has the power to threaten a network with operational disruption (borgatti et al., 2013). for example, a firm (a) serves as a gatekeeper when the firm lies between two firms (b and c) that are not directly connected. the central firm (a) controls the flow of information and products by serving as a liaison between the isolated firms (wincent et al, 2010; carter et al., 2007). van wijk et al. (2013) and wincent et al. (2010) define betweenness centrality as the extent to which a firm is bridging structural holes by connecting two or more partners that are not directly connected with one another (wincent et al., 2010). sasovova et al. (2010) view a firm with betweenness centrality as a broker in a network where the broker directly connects other firms that are not directly connected. firms spanning many structural holes tend to be exposed to diverse information, which motivates the firms to discover new productive resource combinations and manage the pool of unused combinations of productive resources (andrevski et al., 2016). fox et al. (2013) describe betweenness centrality as the extent to which strategic suppliers or customers communicate with each other outside of a focal firm. mehra et al. (2001) suggest that betweenness centrality is the extent to which a firm occupies a structurally advantageous position, connecting otherwise unconnected others in networks (mehra et al., 2001). davis and mizruchi (1999) and yan et al. (2015) argue that a firm with betweenness centrality plays the role of a gatekeeper who evaluates and imports external information and resources. the second dimension of betweenness centrality is the number of shortest paths that a firm occupies in a network. according to this dimension, a central firm should manage the shortest paths in a network in a way that enables it to gain the benefits of its network position. researchers have attempted to quantify how a firm is positioned on the geodesic path connecting two other firms. easton and rosenzweig (2015), for instance, argue that betweenness centrality refers to the number of shortest paths that go through the node. carter et al. (2007) describe betweenness centrality as the number of paths that pass through a central firm on the shortest paths connecting two other firms. borgatti and li (2009) define betweenness centrality as the extent to which a firm lies along many of the shortest paths between pairs of others. carnovale and yeniyurt (2014) and schilling and phelps (2007) suggest that betweenness centrality describes the extent to which a firm is located on the shortest path between any two other firms in its supply networks. these definitions highlight the position of a firm on the geodesic path that may explain why and how firms interact with one another and facilitate or constrain interactions (cannella & mcfadyen, 2016). table 1 shows example definitions of betweenness centrality. table 1: example definitions of betweenness centrality category definition bridging holes • the extent to which partners partner and communicate with each other outside of a focal firm (fox et al., 2013) • the extent to which a firm is bridging structural holes by connecting two or more partners that are not directly connected with one another (wincent et al., 2010). • the extent to which each firm occupies a structurally advantageous position, connecting other firms that are unconnected in a network (mehra et al., 2001) • the extent to which a firm plays the role of a gatekeeper in a network (yan et al., 2015) 20 category definition • the extent to which a firm in a network is on the shortest path among many network partners (davis and mizruchi, 1999) • the extent to which a firm plays the role of a broker who bridges structural holes (van wijk et al., 2013) • a broker in a network that represents the frequency with which a node directly connects pairs of nodes that are not directly connected (sasovova et al., 2010) shortest paths • the number of these shortest paths that pass through the node (easton and rosenzweig, 2015). • the number of paths that go through a firm on the shortest paths connecting two other firms (carter et al., 2007) • the extent to which a firm lies along many shortest paths between pairs of other firms (borgatti and li, 2009) • the metric’s ability to assess the impact of ties beyond one remove from a person (cross and cummings, 2004) • the extent to which a firm is located on the shortest path between any two firms in its network (schilling and phelps, 2007) • the extent to which a network actor is located strictly between other actors (carnovale and yeniyurt, 2014) measurement betweenness centrality can be measured as the frequency with which company i is located along the shortest path between two other firms (freeman, 1979) in the network. the measure was calculated as follows: where gjkt is the shortest path between companies j and k in year t and gjikt is the shortest path between companies j and k that contains company i in year t, and n, if the total number of firms in the network. the network analysis software ucinet 6 can be used to calculate the level of betweenness centrality. role of betweenness centrality in improving supplier financial performance in this section, we draw on the social network theory to clarify the relationship between a supplier firm’s betweenness centrality and its financial performance. supplier financial performance refers to the extent to which a supplier firm improves financial performance, measured as return on investment and sales growth rate. social network theory suggests that a comprehensive understanding of supply networks requires a more complete consideration of network structure, network content, and the surrounding conditions (gao et al., 2015). betweenness centrality is likely to influence supplier financial performance for three reasons. 21 first, a supplier firm that acts as a bridge to new opportunities can connect other firms separated by structural holes, which may enable the firm to access novel information and improve firm performance (tiwana, 2008). it is important to consider the extent to which a supplier firm engages in boundary stretching practices (markóczy et al., 2013). this is because bridging a tie refers to a firm’s ability to span a structural hole (regans et al., 2004). the structural position serves as a basis for the exercise of power (brass and burkhardt, 1993). obstfeld (2005) argue that a firm’s effort to develop a relationship with disconnected partners is central to the combinative activity at the root of innovation. the structural characteristics are characterized by how the sources of information and knowledge are structurally connected in supply networks, and how effectively a firm can access the different sources of information and knowledge assets in the network (bellamy et al., 2014; brass and burkhardt, 1993). similarly, betweenness centrality as an intermediary role has been shown to enhance communication frequency in supply chains. carnovale and yeniyurt (2014), in an empirical study, found that a high level of betweenness centrality signals a supplier firm’s legitimacy and credibility, facilitating interaction and communication among network partners. ahuja et al. (2003) suggest that centrality enables a firm to actively communicate social norms and expectations, which helps to align the interests of each partner with a mutual goal. gokpinar et al. (2013) argue that the misalignment of communication patterns and product architecture is associated with a decrease in the quality of the final product. cross and cummings (2004) suggest that when a firm is positioned in the intermediary location, it can absorb knowledge and respond appropriately to a changing environment. thus, a supplier firm with betweenness centrality is likely to have an opportunity to gain access to valuable knowledge and to enhance financial performance. second, betweenness centrality offers a means of not only controlling opportunistic behaviors of supply partners but also collecting valuable knowledge (fox et al., 2013). management scholars have stressed the importance of network ties as a driver of a firm’s behavior (brass et al., 2004). uzzi (1996) argues that social ties and network structures influence economic behavior. acting as a knowledge broker allows a supplier firm to have decision-making authority and to identify non-redundant information concerning resources and opportunities (mehra et al., 2001). moreover, a supplier firm with a high betweenness centrality can determine who deserves to access valuable external knowledge resources (liu et al., 2005), which may influence firm performance. although a supplier firm needs to maintain a variety of ties and work closely with other firms, obtaining unique and non-redundant information is important to improving financial performance. betweenness centrality concerns the extent to which a firm serves as a bridge between two or more actors that are indirectly connected (burt, 1992). this kind of centrality indicates how effectively a supplier firm controls its unconnected firms and accesses a flow of nonredundant information (wincent et al., 2010; easton and rosenzweig, 2015). the more a supplier firm acts as a knowledge broker between isolated firms in supply chains, the greater will be the likelihood of financial performance improvement. third, a supplier firm’s structural hole position is the location of its brokerage between a firm and other disconnected firms in a network, representing an ability to monitor the flow of information and enhance performance (burt, 1992; lin et al., 2009). a broker that connects unknown partners can span distinct social circles where diverse information circulates (wong and boh, 2014). the structural position of a firm indicates different motivations for using knowledge and differential access to the knowledge circulated in a network (paruchuri and awate, 2017). this position functions as a signal of the prestige granted, indicating its prior performance and position in a social structure (jensen, 2008). a firm’s structural position in a network indicates that the firm can cooperate with other firms in transferring information and resources (peng et al., 2010). such a network structure is the pattern of connections between two firms and is associated with the impersonal configuration of linkages within supply networks (villena et al., 2011). the network structure is also related to a firm’s position relative to direct and indirect ties surrounding the firm (lechner et al., 2010). understanding the network structure is a process that requires identifying the position a supplier holds in an extended network, with the aim of evaluating the 22 informational values of that position (kim, 2014). the structure of a supply network also represents channels of information and consists of mechanisms to search and monitor network partners’ strategies and actions (lin et al., 2009). these arguments suggest the following hypothesis: proposition: the network centrality of a supplier firm who acts as a bridge between unconnected partners influences its financial performance. conclusion the goal of this study is to synthesize the definitions of betweenness centrality and discuss the effects of a supplier firm’s betweenness centrality on performance. drawing on social network theory, we develop a proposition as an interpretation of the key idea of the theory. according to social capital theory, firms whose network connections bridge across holes or gaps in supply chains tend to have a greater capacity for knowledge sharing and generate more innovations than other firms whose network relationships feed into dense networks (tortoriello, 2015). we synthesize insights from prior studies that proposed different definitions. our review shows that researchers have defined betweenness centrality from two perspectives: bridging structural holes and the number of shortest paths. we found that researchers argue that firms with betweenness centrality leverage their shortest paths in networks and bridge unconnected ties in order to leverage unique information available in supply chains. this research makes three theoretical contributions to the literature on social network and supply chain management. first, this study advances our understanding of the role of a supplier firm’s betweenness centrality in enhancing financial performance. we applied the insights of the supply chain theory to the network literature. researchers have mainly discussed the relationship between a focal firm’s degree centrality and performance (arya and lin, 2007; carnovale and yeniyurt, 2014; reinholt et al., 2011; tsai et al., 2011). second, this study highlights betweenness centrality as a way for supplier firms to act as knowledge brokers between isolated firms and thus improve their financial performance. from a theoretical perspective, this study suggests that a supplier firm that lies between other pairs of partners accrue advantages from their network position (fox et al., 2013; hanneman and riddle, 2005; yan et al., 2015). third, this study attempts to synthesize the conceptual views of betweenness centrality. although extant research has highlighted the importance of betweenness centrality, comparative analysis of existing definitions of centrality has rarely been provided in the literature. we hope our findings will stimulate new avenues of future research. references ahuja, m.k., galletta, d.f., & carley, k.m. 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(2015). a theory of the nexus supplier: a critical supplier from a network perspective. journal of supply chain management, 51(1), 52– 66. microsoft word 155-copyedit-final.docx http://journals.sfu.ca/abr advances in business research 2016, volume 7, pages 67-79 67 affect and choice: a case for the affect heuristic in image theory kermit w. kuehn university of arkansas – fort smith the decision literature has generally viewed an individual’s choice through the lens of cognitive psychology. this perspective has been a fruitful path in many ways, but not always satisfying in terms of results. some recent studies in the field of psychology have suggested that there are numerous conditions in which emotions play an important role in decision making. using image theory as a lens, this paper reviews these findings as they relate to judgment and choice, and discusses some of the theoretical and practical implications of this research on the field. keywords: image theory, affect heuristic, decision making introduction decisions, decisions, decisions. life is full of them. it has long been understood that humans make numerous decisions every day, and, for the most part, these decisions appear to consume very little time or effort on the part of the decision maker. from the earliest days of study in the organizational sciences, decision making has been a central area of concern. early on, the study of decision making in organizational life assumed the inherent rational character of the decision maker. cognitive schools of thought flourished as the field focused on mapping out how these rational decision makers reasoned their way along logical, evidenced-based paths to arrive at utility-optimized choices. as the rational model ran up against difficulties in explaining the judgments and choices people actually made, adaptations to the model were made. cognitive constraints of the decision maker were noted and explanations were incorporated into the revised model. concepts such as bounded rationality by simon (1956) and by extension, tversky and kahneman’s (1974) judgmental heuristics, helped explain deviations from the utility-maximizing world that was envisioned. in the past decade and a half, there has emerged an increased interest in the role of affect on judgment and choice (finucane, alhakami, slovic and johnson, 2000). it is not that affective factors were completely absent from decision making discussion to begin with, but they were clearly tangential to the focus and contributions made by the cognitive schools. this paper summarizes the current literature on the role of affect on judgment and choice, commonly referred to as the affect heuristic. next, using a recognized decision framework, image theory, we look at the potential interface between affect and cognition in decision making. image theory is a schema theory and as such, is firmly rooted in the cognitive school of decision making. finally, the paper concludes with a discussion of the theoretical and practical implications of this research on decision making. affect and choice 68 affect in judgment and decision making the affect literature is substantial and has a long history. the discussion will highlight key concepts and findings from research that will be used to outline potential integration points of the affective and cognitive models of judgment and choice. there are more extensive reviews of the field available (ie. slovic, finucane, peters, and macgregor, 2002; lowenstein and lerner, 2002). each of the following points and claims will be discussed in turn: 1) affect and cognition reflect parallel systems utilizing different modes of thinking; 2) images are viewed as central to the way humans process and store information and are affectively tagged, positively and/or negatively. repeated exposure to an image increases positive reactions to the image; 3) the affective impact of an image impression on judgment and decision making depends on the precision of the impression attribute (evaluability); 4) under uncertainty, information in the form of frequencies, proportions (or percentages) of something, or as probabilities, are weighted more heavily in judgment tasks than other information formats, such as quantities; there are limits to this effect; 5) judgments of risk and benefits are often inversely related. affect and cognition reflect parallel systems affective systems, often referred to as experiential systems, are defined as those that function automatically, usually unconsciously, rely on intuition or instinct, are nonverbal and are rooted in emotion, opinions or feelings related to experience embedded in memory. cognitive, or rational, systems are often described as those that rely on logic, reason, analysis, conscious effort and control. proponents of affective systems argue that each system depends on the other to guide judgment and choice. one of the early proponents of the role of affect in decision making was zajonc (1980). he argued that all perceptions were tinged by affect and this “coloring” of perception had a significant impact on guiding the direction of information processing and judgment. other studies have suggested that judgments are influenced across situations and time by affective states that are more dispositional (trait) in nature (lerner and keltner, 2001). lerner and keltner (2001), for example, found that fearful persons make relatively more negative assessments of risks and preferred more risk-averse options. trait emotions are examined extensively in research in moral judgment where anger or regret are found to be pervasive emotions associated with moral choices (ie. choe and min, 2011). damasio (1994), a neurologist, worked with patients who experienced damage to a part of the brain that regulates their ability to associate affective feelings and emotions with future consequences of actions. he noted that their basic intelligence, memory, and capacity for logical thought remained unimpaired. he noted (and his research revealed) that these patients appeared to have the necessary faculties to make a rational decision, but didn’t seem to learn from experience, to their detriment. damasio makes the case that thought is for the most part comprised of images and include a variety of sights, sounds, smells, impressions, words and such, which get “marked” over time by positive and negative feelings. he called these somatic markers. when a negative outcome marker is salient, a warning is sensed, while a positive marker motivates or incentivizes an action. he concluded that these markers were an essential part of accurate and efficient decision processes. his findings are in line with a growing literature that supports the notion of a parallel, even interdependent, relationship between cognitive and affective processes in judgment and choice. garner 69 affectively tagged images stored in memory for future information processing literally hundreds of studies from the late 1960s through the 1980s tested stimulus exposure primed by affect to assess the impact on subsequent reactions to varied stimuli. it was found that the initial affective priming persisted over time, even in the face of priming attempts to reverse the previous effect (see bornstein (1989) meta-analysis summarizing many of these studies). in a typical study, subjects were exposed to (primed by) either a smiling or frowning face, or neutral symbol, before being exposed to a stimulus (sound, visual, abstract, etc.). the priming was typically done subliminally. the results consistently revealed the impacts of the unreinforced priming on subsequent ratings or responses to the stimuli. attempts made to re-prime the stimulus to a different affective symbol failed – the original prime held sway. this stream of research revealed two outcomes of interest: 1) the attachment by subjects of affect to a stimulus was made quickly and persisted – the affective tag appears relatively fixed; and 2) the more exposure subjects had to a stimulus the more positive the response they had to it, regardless of the positive-negative nature of the prime. in sum, the affective manipulation of images impacted subsequent judgments, preferences and choices made by subjects across a wide-ranging set of experiments using differing stimuli. impact of an affective impression (image) on judgment depends on evaluability in order for a person to give meaning to something (a word, event, person, characteristic, etc.), he or she must be able to evaluate or rate on the attribute in question with some precision. the higher degree of precision of a rating attached to an image, the more weight that impression will carry in subsequent judgments. in essence, it has high evaluability and thus, meaning. the more imprecise (referred to as diffuse) the ratability, the weaker its meaning, value and weight in judgment – thus, low evaluability equals low value in judgment and choice. this is referred to as the evaluability hypothesis (hsee, 1996): “…the weight of a stimulus attribute in an evaluative judgment or choice is proportional to the ease or precision with which the value of that attribute (or a comparison on the attribute across alternatives) can be mapped into an affective impression. in other words, affect bestows meaning on information …. and the precision of the affective meaning influences our ability to use information in judgment and decision making.” (slovic et al, 2002, p. 406) the term used to describe these ratings of impressions and responses, such as a probability on a scale of 0-1, is affective mapping. an impression (image) is strongly or weakly tagged (mapped), whether positively or negatively, based on the evaluability of the impression. one example of attempts to capture a subject’s level of experience can be seen in the medical field where medical staff seek pain level markers from a patient in order to gauge the seriousness of a patient’s condition. staff will ask the patient to rate their pain level on a scale of 110. they continue to ask the patient this periodically during the diagnostic period to gauge pain levels and whether pain is increasing or decreasing. other methods to gather include using a series of icons reflecting levels of depression or happiness (ie. variations of a happy face to identify patient’s perceived level of happiness. while it is not expected that people quantify all affective tags in memory, the ability to do so when required seems possible. affect and choice 70 some information types are more valued than others in terms of evaluability the review by slovic et al (2002) observed that in situations involving uncertainty or ambiguity, the format of the information provided was valued differentially among subjects. specifically, under certain conditions, subjects valued proportion or probability information more than other types, such as quantity or amounts. in studies where subjects were tasked with evaluating gambles, subjects more strongly preferred the probabilities (or proportions)-of-winning attribute in determining attractiveness of a gamble rather than the actual winnings from the gamble. tversky, slovic and kahneman (1990) in a replay of earlier studies found that when subjects were asked to rate the attractiveness of a gamble with a 7/36 probability of a $9 payoff, they rated such a gamble as low in attractiveness (low probability), with groups apparently weighting the probability attribute more heavily than the payoff information. however, this result reversed when a high probability (29/36) of a small loss of 5 cents was added to the payoff scenario. these results were confirmed in other settings (fetherstonhaugh, slovic, johnson, and friedrich, 1997; hsee, 1998). what explains these reversals? information on probabilities is easier to map than an amount of money (ie $9) that could be won. while $9 may be rated as “good”, it is diffuse. it is difficult to judge or place on a scale of attractiveness. on the other hand, probabilities provide a relatively clear metric by which to judge the gamble. it has precision and thus is evaluable. but when the small loss with a high probability was added, the results changed. suddenly, the $9 has evaluability as the risk – benefit became immediately clear. judgments of risk and benefits are often inversely related from a rational perspective, risk is positively related to reward or benefit. that is, higher risk would be expected to present higher potential benefit. however, studies in risk perception frequently find that risk and benefit are inversely related in subject perceptions. examples include studies that show that smoking is viewed as high risk but low benefit, whereas vaccines are viewed as low risk but high benefit. in a study exploring the reason for this, alhakami and slovic (1994) found that the perceived risk and perceived benefit were related to the degree of positive or negative affect associated with the activity. that is, when a person is positive toward an activity, say smoking, they will rate the risk as low and the benefit as high, and vice-versa. finucane, alhakami, slovic, and johnson (2000) examined the above findings in a study in which they attempted to manipulate affect by providing information that either increased or decreased risk perception and measured the impact on impressions of benefits. they did the same with benefits to assess impressions of risk. as expected, as risk (and benefit) impressions were raised or lowered, the corresponding affective impression of benefits (and risk) moved inversely. finucane et al (2000) also found that adding time pressure to their study scenarios magnified the inverse-correlation effects. the interpretations of these findings support the case for the reduced use by subjects of cognitive processes and greater reliance on affective processes to rate risks and benefits, an outcome expected in the affective literature. the affect heuristic – pulling it together before moving onto a discussion of image theory, let’s summarize what has been learned so far about the role of affect on judgment and decision making. let’s start with a proponent’s view of the decision process: “the basic tenet … is that image, marked by positive and negative affective feelings, guide judgment and decision making. specifically, we propose that people use an affect heuristic to make judgments. that is, representations of objects and events in people’s minds are tagged garner 71 to varying degrees with affect. people consult or refer to an ‘affective pool’ (containing all the positive and negative tags associated with the representations consciously or unconsciously) in the process of making judgments.” (finucane et al, 2000, p. 3) in sum, cognitive processes used in judgment and decision making are not independent of the affective processes operating in parallel. from this perspective, the only question is to what degree affect will “guide” these processes. this is determined by factors such as the evaluability of the attributes being considered by the decision maker, the level of uncertainty and complexity involved in the decision, and the time available to analyze the options. to the degree that an attribute is evaluable with a high level of precision, the resulting impression, positive or negative, is mapped by the decision maker in the form of images and used in future situations of similar character. now let’s turn to our discussion of a cognitive perspective found in image theory in order to further our discussion of the interface of these affective and cognitive processes. image theory image theory states that individuals make decisions using stored ‘images’ from memory (beach, 1997). our discussion will first focus on these images, followed by the decision situations (decision frames) by which these images are selected and applied, and finally the kinds of decisions specified by the theory will be reviewed. images images are cognitive frameworks constructed from the individual’s experience, which are stored in memory. these images contain a person’s understanding as to what should happen in any given situation, as well as the how and why. each image is made up of three categories: value, trajectory and strategic images. each of these categories is comprised of a constituent membership of descriptors that are associated with a particular decision context. the value image is what the person stands for, thus the goals worthy of pursuit and how they are to be pursued. they are the decision maker’s values, morals and ‘first’ principles. beach (1997) collectively calls these a person’s “self-evident truths”. for example, one constituent in this image might be that any opportunity presented must be lawful. while not all descriptors are used for every decision context, the value image does form the boundary for what is possible or acceptable in the remaining two image categories – trajectory and strategic. the trajectory image determines the goals that are to be pursued. previously determined goals make up the constituents of this image and reflect what the decision maker seeks to be or to achieve. call it his or her vision of the future and ranges from the abstract to the specific. these images should not conflict with relevant value image constituents. finally, the strategic image contains the plans and selected strategies to achieve goals. the constituents are the strategies previously selected to achieve goals. as an example of these images working together, a man wishing to make a good and honest living (value image) so he can retire comfortably in bermuda at age 55 years (trajectory image) may choose to work for the same company his whole career with the hope of getting steady promotions, benefits and salary increases (strategic image). in image theory, decision makers pursue multiple goals at any given time and these goals are expected to be generally consistent with each other and not in conflict with the foundational values or principles of the person. plans are then made to achieve these goals and results from using such plans are forecast. affect and choice 72 decision framing image theory is a schema theory. as such, it argues that decision makers use scripts, prototypes, among other things, and images, to structure or frame their reality in a cognitively efficient manner. by tapping into these similar situations of the past, the decision maker can readily access the store of knowledge he or she has accumulated from previous decision scenarios. thus, a decision frame contains the relevant image constituents needed to address a particular situation which allows the person to structure it, make sense of it, and then act on it. in sum, the relevant constituents from the three images are pulled together which structures the new situation and provides the standards to be used in decisions related to the new situation. this frame is determined by matching salient information drawn from the new decision context with a matching or similar scenario pulled together from memory. thus, the current situation will be framed by past experience whenever possible. decision types and tests the decision to be made will determine the test used by the decision maker to address the new situation (beach, 1997). two decisions are specified in image theory: adoption and progress decisions. related to these two decision types are two tests, the compatibility and profitability tests. adoption decisions define those situations where new goals or plans are being proposed as additions to the existing image constituents (i.e. start a new venture). the decision to accept or reject the new proposal is a two-step process in image theory. first, new proposals must meet “the decision maker’s standards, as defined by the image constituents that make up the decision frame” (beach, 1997, p. 168). this pre-decision screening process compares the new proposal’s compatibility with the selected decision frame. this is referred to as the compatibility test. if the proposal violates the decision frame at some threshold level, it is rejected and will not be considered as a valid alternative in the final decision pool. a job offer with higher salary, but requiring a move to another city, has to get past the current how-to-make-a-living image and its supporting constituents of low risk, high certainty and knowledge of the work and employer, etc., all things less known in the new opportunity. the pool of proposals that meet the compatibility test will then be assessed by a second test, the profitability test. if only one alternative remains after the compatibility test, it will be accepted without further analysis. the compatibility and profitability tests differ considerably as to where they are used in the decision process and how they are used, cognitively speaking. the profitability test is argued to operate along the lines of an expected utility maximization model, consistent with normative decision theory. image theory’s unique contribution to cognitive decision theory, however, rests in the predecision compatibility test. the compatibility test screens out all alternatives that violate established thresholds of the existing decision frame. this rejection threshold is based solely on all the things ‘wrong’ with an alternative and how ‘wrong’ it is, with no consideration for what is ‘right’ or good about it. it uses a very conservative criterion that is an additive and non-compensatory process. unlike the expected utility model of the profitability test (maximize benefits relative to costs), the compatibility test removes alternatives that have unacceptably high negatives, ignoring any positives. the progress decision, the second decision type, relates to existing constituent goals and plans. as the name suggests, a compatibility test is used to assess congruence between the actual progress toward goal achievement relative to the forecasted progress. if progress toward a goal (trajectory image) is determined to be inconsistent with forecasts, the executed plan (strategic image) is garner 73 modified or discarded and a new one is put in place that is also consistent with relevant image constituents. a person’s plan to retire from the same company with a comfortable savings may be reevaluated if he is repeatedly passed over for a promotion and the sizable salary increases that come with it. image theory suggests that the person will reassess retirement plans and supporting strategies if progress is not being made. summary of research on image theory research to date has provided considerable support for the main claims of the theory. of particular interest to our discussion is the support found for the two-stage screening-choice model in the adoption decision proposed in image theory. adoption decisions. potter and beach (1994), in a series of studies, found that subjects used information differently depending on whether they were screening options or choosing a final option among a set of alternatives. consistent with image theory, subjects in the screening step used information in a non-compensatory, additive manner in order to eliminate unacceptable options. in the later choice step of the decision process subjects used a more compensatory, multiplicative model to arrive at the best choice. multiplicative is used in the sense that probabilities were used to weight the likelihood of the outcome of a decision, positive and negative. the additive model used in the screening stage treats probabilities as either violations or non-violations, adding up the violations relative to the decision frame. these results supported earlier studies on the screening process (beach and strom, 1989; van zee, paluchowski, and beach, 1992). these findings suggest that a 95% probability of an outcome is no more meaningful than a 50% probability, if both are above the individual’s acceptance threshold. potter and beach (1994) also demonstrated that the quality of information about options affected the screening process. missing information or weak information was generally treated as a violation, as was low probability options. subjects in these studies appeared to be more inclined to reject options which they knew less about as opposed to those in which they knew more. in further support of this two-stage model, van zee et al (1992) found evidence that information used in screening was not used in the subsequent selection decision to arrive at the best choice. as described by beach in his 1998 review of the literature, subjects seemed to consider the screening information as “used up” as if it had nothing more to contribute to the subsequent decision. to summarize, when making adoption decisions, research suggests that subjects treated information about alternatives for adoption differently depending on whether they were in a screening versus choice mode of the decision process. further, the screening process involved a non-compensatory violation model to filter options – what we called the compatibility test, whereas in the choice process, a more expected utility model was used to arrive at the best choice – what we’ve referred to as the profitability test. finally, information used in the screening process appeared to be disregarded in the choice stage when other or new information was available. progress decisions. as discussed earlier, progress decisions refer to previously determined goals and plans and was an assessment of the progress being made toward those goals. dunegan (1993) found that assessments of compatibility between trajectory images (goals) and actual performance were influenced by the framing of performance. performance framed in negative terms yielded ratings of higher incompatibility, resulting in a review of existing plans to achieve these goals. the opposite was true for the same information positively framed. dunegan (1995) found additional support for framing effects with subjects in positively framed scenarios indicating intent affect and choice 74 to continue with projects and more willing to commit additional resources to these projects, unlike their counterparts in negatively framed scenarios. regardless of framing, however, the larger the incompatibility between goals and perceived performance, theory and evidence indicate that the decision maker will become more engaged in reevaluating the plan by putting more effort into making existing plans either more effective, changing strategies or changing goals (beach, 1998; p. 29). however, research also suggests that there is a bias toward the ‘status quo’ in that subjects have a tendency to seek any evidence of progress toward existing goals so as to conclude compatibility (dunegan, 1995). that is, subjects were more sensitive to information that supported a current course than information that did not. this is consistent with sharpiro’s (1982) suggestion that inertia was the ruling principle in human behavior and as such, people would not normally change course without being forced by what he called ‘displacement’ events. to summarize the progress decision research, it can be seen at this point that current plans and strategies are favored over new ones. decision makers have a bias toward current commitments and seem anxious to find evidence to support current strategies for achievement. image theory: important points image theory presents decision making as a two-stage process, a unique contribution to the cognitive perspectives in the field. our review of research indicates support for key aspects of the model. there are several points we want to highlight from this review of image theory before examining the potential of affect in current judgment and choice literature. 1) images are central to the model’s function. 2) value images define limits of goals pursued and how they are pursued by individuals. 3) in this two-stage process, the screening mechanism is more powerful than the actual decision mechanism. it determines the pool of options considered. 4) not all information is equally valued by the decision maker, within stages and between stages. 5) the status quo is valued more than change. the next section will examine these five points through the lens of the affect heuristic. by doing so, the aim is to identify possible contact points between the cognitive and affective research literatures which could be tested. image theory and the affect heuristic image theory provides an opportunity to examine affective theory and results within a recognized framework rooted in cognitive decision making. schema theories, of which image theory is one, have long been used to conceptualize human decision processes, including memory (an early example is bartlett, 1932). that images are central to cognitive and affective schools should prove useful in this discussion. in this section, we will discuss research from the affect heuristic literature that speaks to core aspects of image theory. these discussions will be used to suggest research opportunities going garner 75 forward. we capsulize these ideas in the following three contrast statements, and discuss them in turn: 1) image theory describes how images are used and the constituents they contain, while affective research suggests why a template is chosen and the influence constituents of the template might have on the actual judgement or decision. 2) image theory observes that information characteristics (i.e. quality) will impact judgement, while affective research suggests which characteristics will evoke constituent inclusion in the decision frame and the degree of impact on the decision. 3) image theory illustrates how the status quo is the preferred state, while affective research suggests why change generally comes slowly. images are cognitively convenient mechanisms which allow an individual to process large amounts of information with a limited amount of effort. we might think of these mechanisms as frameworks, systems or templates which are automatically pulled into service when an individual is faced with evaluating any of life’s situations. image and constituent selection before an event, situation or choice can be evaluated a template must be pulled from memory, along with the requisite attributes. in image theory, these are referred to as image constituents. the potential constituent must be relevant to the situation at hand, of course, in order to become part of the decision frame used to judge the situation or option. but what triggers the relevant constituents? first, recall that affect, as used here, is a concept that includes feelings, emotions, attitudes, beliefs and opinions. they are arrived at over time based on experience and, perhaps, as argued by the dispositional proponents of affect, natural or cross-situational emotional responses or tags. thus, terms such as like-dislike, important-not important, right-wrong, good-bad, beautiful-ugly, or pleasant-painful, to name a few, are all viewed as affective in nature. affective theorists argue that affect guides the image selection process. it does this by steering the decision maker toward a suitable analytic framework (image) depending on the affective reaction to the situation. this reaction is the first processing action, which precedes any conscious reasoning processes. it’s a gut response or early warning system that alerts the person to a potential problem, or gives them warm fuzzies and positive vibes about a situation. how does affect guide image selection? via the tagging of images with specific affect. what determines the tagging in terms of sign and intensity? experiences and the resultant judgement of these experiences filed away in memory. in this case, judgement refers to the conclusion based on how it felt or was perceived. if a person went door-to-door as a child to sell magazines to raise money for some school project, rejection by prospects might result in a negative emotional tag associated with such an activity. if it was a particularly bad experience, then the intensity of the affective tag will make the memory particularly salient. future scenarios that cue this image will come loaded with this affect. research on the affect heuristic suggests that these constituents are not merely there because of relevance in any reason-based sense. they’re relevant because of their emotional markers which makes them salient and thus meaningful. meaning is central to this, thus the more precise the meaning of the attribute the more valuable it is in assessing the situation at hand. recall the discussion regarding subjects offered a relatively low probability of a $9 outcome of a gamble. while $9 is specific, it is unclear as to its meaning in terms of judging the specific riskaffect and choice 76 reward of this gamble. it is diffuse or ambiguous as opposed to precise. thus, it has low evaluability and cannot be easily mapped. and, as we saw, it was not valued in the ensuing gamble decision. the bottom line here is that images are argued to come loaded with affect, which defines the initial direction of the situation assessment. the alternative-screening stage seems most impacted by this process due to its subconscious and automatic nature. information characteristics image theory notes that not all information is treated the same in various stages of decision making nor under all conditions. beach and his colleagues observed that in the most important stage, the screening stage, an alternative’s negative or non-conforming attributes relative to the decision frame were valued more heavily than positive or frame-consistent ones. they explained this outcome as being the result of the conservative nature of the screening mechanism that resulted in focusing on what is wrong with new adoption options. wrong being defined in terms of the selected decision frame and its respective image constituents. why this is the case seems consistent with the affect heuristic, especially in the pre-decision screening stage, the stage of primary interest in this paper. first, the entire decision frame must conform to the value image. that is, trajectory (goals) and strategic (methods) images cannot stray far from the value image boundaries. thus, for us the first question is: how does the value image garner such preemptive power? it could be that the nature of value images is such that they reflect the most deeply held beliefs of the person, which defines who the person is. in affective terms then, these carry the most strongly marked attributes. second, new alternatives face the added challenge of being unfamiliar to the existing order and are therefore harder to assess accurately. this is exacerbated in those cases where there is a higher level of uncertainty or ambiguity in the available information, or information is missing, in the judgement situation. this lack of clarity is viewed as a mark against the proposal in image theory (potter and beach, 1994). kuehn (2009) points this out in his discussion of a hypothetical scenario in which a person is to choose between potential career options, a job offer or starting a new venture. while a job offer has its uncertainties, it would seem relatively clear on many points relative to starting a new business. pay, hours of work, work environment, etc. are relatively clear in the job offer, whereas most of these things are not in a new venture option. while neither alternative may pass the pre-decision screening process, the new venture option would have the more difficult time within this structure. research on affect notes a similar issue with information quality in that results have shown that in situations where attributes are hard to evaluate or map, these attributes are discounted or ignored in the decision process (slovic et al, 2002). for example, if a person is unable to determine whether an offer of $100 to do a task is fair or right or good, then the amount has little meaning in the decision to accept or reject the offer, at least relative to other information. bias toward status quo as the discussion has revealed to this point, decision frames emerge from existing images and the stored constituent pool. new members are admitted to the pool if they can pass muster with existing image structures – no minor accomplishment. typically, candidates for admission to the constituent pool will succeed to the degree they are similar to the existing constituents. the bias is toward the status quo, as noted from earlier research (beach, 2007; shapero and sokol, 1982; kuehn, 2009). this was viewed as the case in both adoption and progress decisions. research on the affect heuristic suggest a different way to understand this phenomenon. as noted in our review of the affective literature, subjects expressed more positive views of a stimulus garner 77 the more they were exposed to it, and regardless of the affective sign attached to the stimulus. further, the relative ease of mapping (understanding) the current course puts new alternatives at a disadvantage. finally, affective tags are not easily changed. the net result is that decision frames, cognitively and affectively, are collectively biased toward the status quo. research implications and conclusion this paper reviewed the theory and research of the cognitive and affective schools of decision making and judgement, focusing on image theory and the affective heuristic. until recently, the judgement and choice literature has been dominated by the cognitive approaches. our purpose in this study was to evaluate each literature and highlight core areas where there appears to be meaningful overlap. image theory provided a unique opportunity to make this comparison due to its two-stage process and emphasis on the pre-decision stage of the process. this fit well with the affective literatures which argued that in many cases affect influenced the decision process early (and later, though not the focus of our study in this study). this paper makes two important contributions to the decision literature. first, our conclusions from this review suggests that the two views are not merely parallel systems which operate like two ships passing in the night, but rather each contributes essential pieces that define the ultimate structure and outcome of a person’s decision process. as affect marks features of the experiential landscape of the decision maker, cognition codifies and files this information into an individual’s reference library of life. this interdependent relationship cannot be ignored. the second contribution of this paper centers around affect’s impact on the unique and specific process outlined in image theory. among cognitive perspectives, image theory views judgement and choice as a two-stage process, and as such, we’re better able to specify the differential role of affect on decision making. going forward, the development of the field of decision making will be enhanced to the degree the two streams address this potentially powerful integration of human cognition and emotion into a more comprehensive understanding of the decision process. three areas seem particularly relevant here going forward. first, in general, cognitive perspectives have assumed that alternative decision options exist from which decision makers judge, weigh and choose. image theory has challenged the nature of this decision pool by demonstrating that a powerful pre-decision stage operates to filter out unacceptable alternatives. the research in the affect heuristic suggest that this filtering mechanism is set by affect, which influences decision frame constituent selection. this potential needs to be better understood. second, while both schools of thought agree that images are defined early in life and tend to persist, little is understood as to their malleability or their specificity as to the images and their constituents. studies in language and meaning suggest that there can be considerable variation in meaning between similar words or phrases (hall, phillips, and townsend, 2015; richeson and trawalter, 2005), and thus affective reactions to these words. similarly, research in attitudes have demonstrated an affective component which predisposes a person to initial reactions to virtually any stimulus (ajzen, 1991). would changing the words used to label an alternative change the response to it? for example, do terms such as entrepreneur and business owner conjure up different emotional responses and thus, decision preferences? would using terms like “opportunity for independence” or “to be in control of your own destiny” or even “self-employment” change the response toward uncertain and ambiguous career options such as entrepreneurship? affect and choice 78 finally, the tendency of individuals toward the status quo is both rational and predictable, at least in terms of the main 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comprehensive survey of the rvtp revealed that lack of awareness, lack of knowledge, lack of guidance, financial concerns, and false perceptions as the main culprits to the lack of coordination among the rvtp in the river valley area. as a result, we propose the creation of a permanent local champion position “mobility manager” to build cooperation and trust among the rvtp and commit the time and energy needed to develop acceptable solutions to issues of concerns and assist in minimizing duplications, improving efficiencies, and expanding the range of both transportation services (traditional and non-traditional) for the transportation disadvantage. transportation is a key element to meeting life sustaining activities (rosenbloom, 1993) as it facilitates access to employment (anderson, 1998; blumenberg and ong, 2001; dasinger et al., 2000; holzer, 1991; lacombe, 1998), education (mcwhirter, 1997), and health care services (ahmad et al. 2001; mccray, 2000; straight, 1997). the bureau of transportation statistics’ (bts) 2009 national household travel survey (nhts) revealed that 8.7% of the us households do not own a vehicle. the survey also revealed that of those 50 or older, 7.7% do not own any vehicle with 17.5% of them having some kind of disability with a disproportional percentage for the oldest groups (22.6% disability for the 70-79, and 41.3% for the 80-older group). given the current state of many of the transportation systems in the united states, it is widely believed that the rapid growth of the older population in the united states (65 or older) will present various transportation challenges as the number of older american is expected to increase from a current of 13% of the u.s. population (about 40 million) to reach 20% by 2030 (or about 72 million) with about 8.8 million being 85 or older in 2030 increasing to about 19 million in 2050 as shown in the table 1. table 1: projections and distribution of the total population by age class for the united states 2010 to 2050 (numbers in thousands) source: u.s. census bureau, 2008. for the economically or the physically disadvantaged (individuals with lower incomes, the unemployed, older adults, people with disabilities), transportation represents a formidable mobility barrier to seeking life sustaining activities and independence in their communities as many are unable to provide or afford their own transportation services (rosenbloom, 2003) resulting in lower mobility than the general population (pusher and renne, 2003). for such groups, transportation, if and when available, is often provided by traditional transportation services such as public transit or by many independently operated nonprofit transportation organizations (social services) resulting in costly, duplicative, and overlapping services with high inefficiencies (u.s. government accounting office, 1999). the federal government has encouraged and required transportation coordination plans for eligibility for certain federally funded program such as sections 5310 (formula grants for special needs of elderly individuals and individuals with disabilities), 5316 (jarc-job access and reverse commute), and 5317 (new freedom provision for the disabled) of the 2005 safe, accountable, flexible, efficient transportation equity act: a legacy for users (safety-lu). furthermore, research undertaken by several federal agencies (the federal transit administration, u.s. department of transportation, u.s. department of housing, and the department of health and human services) have identified that coordination among local and regional transportation providers as the key to serving the transportation disadvantaged (schlossberg, 2004) and reduce federal transportation program cost. hence the 2010 % 2020 % 2030 % 2040 % 2050 % population………….. 310,233 341,387 373,504 405,655 439,010 under 20years…….. 84,150 27.12% 90,703 26.57% 97,682 26.15% 104,616 25.79% 112,940 25.73% 20 to 64 years……… 185,854 59.91% 195,880 57.38% 203,729 54.55% 219,601 54.13% 237,523 54.10% 65 years and over…. 40,229 12.97% 54,804 16.05% 72,092 19.30% 81,238 20.03% 88,547 20.17% 85 or over 5,751 1.85% 6,597 1.93% 8,745 2.34% 14,198 3.50% 19,041 4.34% rahal advances in business research 2012, vol. 3, no. 1, 130-140 131 executive order of human service transportation coordination (eo13330) signed by president bush in february 2004, called for facilitating the use and accessibility of the federally assisted transportation by requiring federal agencies to work together and coordinate the federal programs that fund transportation, and called for the development, implementation, and maintenance of responsive, coordinated community and transportation system to maximize benefits gleaned from federally supported transportation resources, and allow the full participation of the transportation disadvantaged and access to community services of in their communities. as a result, the concept of coordinated mobility or mobility management has grown to address and meet the specific needs of individual customer and provide a platform to improve and stimulate coordination among transportation agencies, minimize or eliminate duplication, and improve the use and efficiencies of available transportation resources. research objective this research will seek to identify the barriers to and strategies for transportation coordination among the river valley transportation/human service providers (rvtp) in western arkansas for the purpose of facilitating full community access and participation of the transportation disadvantaged as proposed by the executive order of human service transportation coordination regional description geography the planning region (figure 1) covers the counties of: crawford, franklin, logan, sebastian, scott and polk. this is referenced as the “west” district of the arkansas planning and development districts. this planning region includes the river valley which, for the purposes of this plan, encompasses the economic region of fort smith which extends outward approximately 50 miles. figure 1: river valley demographic area demographics except for sebastian county, the river valley area is rural with a below average population density. demographics listed in table 2 clearly show the following: table 2: river valley area demographic data source: us census bureau state & county quickfacts. rahal advances in business research 2012, vol. 3, no. 1, 130-140 132 i. persons 65 years or older in the river valley area, represent a bigger percentage of the population when compared to arkansas’ or the national percentages. ii. persons with disability ages 5+ in the river valley area far exceeds both arkansas’ and the national level sometimes by as much as 50%. iii. the median household income is a third (1/3) less than that of the national average, and almost consistently below that of arkansas. iv. the percentage of persons below poverty level is much higher than that of the national average where the difference can be as high as 50% in the case in the case of scott and polk counties. partners a mobility management partnership between the bi-state metro-planning organization (bs-mpo), the fort smith transit, and the university of arkansas-fort smith (uafs) initiated contact with the rvtp to determine those interested in becoming stakeholders in the transportation coordination process. introduction letters were sent and multiple individual meeting sessions were set up to explain the objective of the project, identify needs, and determine potential barriers to coordination. it is worth noting that many of the rvtp who initially expressed interest in this project anticipated an increase in funding and associated privileges as the mobility management project was mistakenly perceived to act as a proxy or an agent for the arkansas state highway and transportation department (ahtd). despite multiple meetings between the designated researchers and the rvtp over the duration of this research period, the coordination and cooperation among the rvtp proved to be very challenging. methodology a survey (see appendix) addressing the rvtp was developed to assist in identifying opportunities for and possible local barriers to coordination. the survey was hand-delivered to the rvtp who were asked to provide as much information as possible. unfortunately, the timing of this survey coincided with an ahtd survey (the 10 year financial plan hence creating confusion among the agencies causing a lower than expected return. a total of 10 completed and usable surveys were received from human service agencies (4), senior centers (4), and assisted living (2) with seven agencies (70%) being private non-profit, two federally supported (20%), and one that was privately held and supported. although only half of the respondents were aware of some coordination plan at the local or the regional level, 80% were not even aware or did not have any knowledge of whether their agency is involved in any coordination plan. furthermore, the respondents were evenly split on whether their elected officials or transit agencies are interested or committed in facilitating and maximizing the use of available resources for the transportation disadvantaged as proposed by the executive order of human service transportation coordination. the majority of the respondents found the public transit to be the most useful mobility option, but asked for expanded services to cover rural areas. when asked about the enhancements that are most needed to improve coordination among the rvtp, increased funding and improved traveler information were at the top of the list. as to the greatest barriers to coordination among the rvtp, funding issues, confusing regulations and policies, concerns over insurance, accounting and billing, lack of awareness or understanding of the available services, and lack of information on whom to coordinate with were the common answers. at the end, the respondents were asked about their level of interest in applying some coordination strategies (see attached survey) only half were possibly interested while the rest did not show any interest at all. survey results and discussion further analysis of the rvtp survey revealed many barriers that inhibit coordination which can be categorized as financial, operational, regulatory, informational, or attitudinal as summarized below: regulatory barriers the belief that certain federal and state regulations, or organizational policies that disallow cooperation, hence the reluctance on the part of the local representative (s) to devote time and resources to the coordination process. the belief that vehicle use is governed by funding or use restrictions, hence limiting coordination abilities. the perception that regulatory restrictions and client specialized needs make coordination for the purpose of sharing rides or services very challenging. rahal advances in business research 2012, vol. 3, no. 1, 130-140 133 informational barriers lack of awareness or ability of many of the rvtp to identify organizations to coordinate with. this is especially true for agencies where transportation is ancillary, rather than primary. financial barriers concerns about billing as many providers are uncertain about the real cost and allocations of funds among the participating agencies. lack of expertise and knowledge of coordination strategies which can be attributed to the high turnover rate of representatives who have previously been exposed to the concept of mobility management. operational barriers the need by the rvtp to protect transportation resources and facilities as they are not easily acquired. concerns about insurance coverage and liability issues, and accounting imposed by funding sources as a barrier to coordination. concerns about data confidentiality and incompatible client needs. concerns about protecting own service area and avoid turf squabbling. further analysis of the survey revealed a great need for the development of a process for disseminating information about the coordination efforts as many of the rvtp respondents either had inadequate information or were not aware of any coordination efforts or processes, or did not know where to find such information. when asked about the types of enhancements that are most needed to improve the coordination of public and human service agencies, improved marketing and traveler information were the most obvious answers by the rvtp. conclusion and recommendations the results of the survey clearly show that many of the coordination barriers may be attributed categorized as financial, operational, informational, regulatory, or attitudinal. as a conclusion we believe the dissemination of information about the coordination efforts is a necessary to but not sufficient to achieve the stated goal of the executive order of human service transportation coordination. hence it is recommended that building and sustaining trust and communications through the creation of a permanent mobility management position might be the key to mitigating the impact of the coordination barriers, and can assist in improving the rate of success of any coordination efforts, and the author strongly believes that time and money spent in developing support, resources, and a framework for coordination such as the creation of an office specifically focused on coordinating transportation will pay off over the long term. references ahmed, s., lemkau, j., nealeigh, n., & mann, b. 2001. barriers to healthcare access in a non-elderly urban poor american population. health & social care in the community, 9(6), 445-453. anderson j. 1998. welfare reform: transportation’s role in moving from welfare to work: rced-98-161. gao reports, 1. blumenberg, e., & ong, p. 2001. cars, buses, and jobs: welfare participants and employment access in los angeles. transportation research record: journal of the transportation research board, 1756(1), 22-31. danziger, s., corcoran, m., danziger, s., heflin, c., kalil, a., levine, j., rosen, d. et al. 2002. barriers to the employment of welfare recipients (no. report no. 02-508). psc research report (p. 45). gamm, l., hutchison, l., bellamy, g., & dabney, b. 2002. rural healthy people 2010: identifying rural health priorities and models for practice. journal of rural health: official journal of the american rural health association and the national rural health care association, 18(1), 9-14. holzer, h. 1991. the spatial mismatch hypothesis: what has the evidence shown? urban studies, 28(1), 105-122. lacombe, a. 1998. welfare reform and access to jobs in boston. bureau of transportation statistics. rahal advances in business research 2012, vol. 3, no. 1, 130-140 134 mccray, t. 2000. delivering healthy babies: transportation and healthcare access. planning practice & research, 15(1), 17-29. mcwhirter, e. 1997. perceived barriers to education and career: ethnic and gender differences. journal of vocational behavior, 50(1), 124-40. pucher, j., & renne, j. 2003. socioeconomics of urban travel: evidence from the 2001 nhts. transportation quarterly, 57(3), 49-77. rosenbloom, s. 1993. the impact of the americans with disabilities act transportation requirements on older americans: will older persons lose mobility? consumer affairs, program division, american association of retired persons. rosenbloom, s., & policy, b. i. c. on u. and m. 2003. the mobility needs of older americans: implications for transportation reauthorization. schlossberg, m. 2004. coordination as a strategy for serving the transportation disadvantaged. public works management & policy, 9(2), 132 -144. us census bureau. 2012. statistical abstract: elderly, racial and hispanic origin population profiles. retrieved january 23, 2012, from http://www.census.gov/compendia/statab/cats/population/elderly_racial_and_hispanic_ origin_population_profiles.html. u.s. department of transportation federal highway administration. 2011. 2009 national household travel survey. u.s. general accounting office. 1999. transportation coordination: benefits and barriers exist, and planning efforts progress slowly. gao/rced-00-1). wallace, r. 1997. paratransit customer: modeling elements of satisfaction with service. transportation research record, (1571). retrieved from http://trid.trb.org/view.aspx?id=577321. wallace, r., hughes-cromwick, p., mull, h., & khasnabis, s. access to health care and nonemergency medical transportation two missing links. retrieved from http://citeseerx.ist.psu.edu/viewdoc/summary?doi= 10.1.1. 114.4660. ahmad rahal is an associate professor of management at the university of arkansas-fort smith. he received his ph.d. from university of central florida. his current research interests include quality management, supply chain management, and innovation management. he has published in journal of management and engineering integration, journal of technology management & innovation, journal of engineering management, and others. rahal advances in business research 2012, vol. 3, no. 1, 130-140 135 appendix transportation stakeholder survey survey letter dear transportation colleague: to meet the planning requirements of the safe, accountable, flexible, and efficient transportation equity act: a legacy for users (safetea-lu), and the federal transportation administration (fta), the bi-state metro planning organization (bi-mpo), the fort smith transit, and the university of arkansas in fort smith (funding support provided by a grant from the arkansas highway and transportation department ahtd) have teamed up to identify barriers to and strategies for improving coordinated transportation services between public, private and non-profit transit and human service providers to facilitate improvements of transportation services for persons with disabilities, older adults, and individuals with limited incomes. your response to the enclosed survey will assist us in updating and compiling the inventory of the existing transportation services in the region, in identifying unmet transportation needs, and in identifying opportunities for and possible local barriers to coordination. please provide as much of the information as possible, and mail the survey back using the self-stamped and addressed envelope. if you have any questions about the survey, please contact ----------- sincerely, ------------------------- transit mobility manager fort smith transit 6821 jenny lind, p.o. box 1908 fort smith, ar 72902 rahal advances in business research 2012, vol. 3, no. 1, 130-140 136 i. organization characteristics 1. identification of organization: o name: _________________________________________________________________ o address: _______________________________________________________________ o telephone: ________________________ fax: _________________________________ o e-mail: _________________________________________________________________ o name of individual who can answer or respond to questions posed in the survey: o ________________________________________________________________________ o title: ___________________________________________________________________ o agency website: _________________________________________________________ 2. is your agency: o public o private non-profit o private for profit o other (please specify)________ 3. please check the box that best describes your organization. (check only one.) o elderly service provider (adult day care/ nursing home/ senior center) o education o faith based organization o health care provider (hospital/medical center) o publicly sponsored transit agency o private transportation company o sheltered workshop o social service agency(government) o social service agency – nonprofit o other (please specify) ______________________ 4. what are the major functions/services of your organization? (check all that apply.) o counseling o health care o social services o transportation o other (please specify) ______________________ 5. please list the counties and cities your agency serves? if you have a map of the service area, please attach a copy to the survey. _______________________________________________________________ _______________________________________________________________ 6. does your agency operate multiple sites? yes no if ”yes” can you please give locations? _______________________________________________________________ 7. does your organization purchase/contract transportation services on behalf of clients from other service providers? o yes o no rahal advances in business research 2012, vol. 3, no. 1, 130-140 137 8. is your organization involved in the direct operation of transportation services for clients? o yes o no (please skip to section iii-funding on page 7) 9. does your transportation program restrict/ limit services? (check all that apply.) o clients only o trip purpose o number of rides per month o advanced reservations o other (please specify) o noneno transportation restrictions (please go to question 15) 10. if your transportation program restricts/limits services, please let us know the reasons? o funding o federal regulations o state regulations o other (please specify)------------ 11. define the level of passenger assistance provided for users of your transportation service (check all that apply). o curb-to-curb (drivers will assist passengers in and out of vehicle only) o door-to door (drivers will assist passengers to the entrance of their origin or destination) o drivers are permitted to assist passengers with a limited number of packages o drivers are permitted to assist passengers with a unlimited number of packages o provide personal care assistants to those passengers who require such services o passengers are permitted to travel with personal care assistants 12. how do clients/customers access your transportation services? o there are no advanced reservation requirement (please go to question18) o clients/customers must make an advance reservation (e.g.’ by telephone, facsimile, internet, arrangement through a third party) 13. if advance reservations are required, what notice must be provided? o we use real-time reservation policy o customers/clients must call for a reservation the day before travel o customers/clients must call for a reservation two days before travel o other (please specify)-------------------------------------------------- 14. what is your agency’s transportation service strength? ______________________________________________________________ _______________________________________________________________ 15. thinking of your agency/organization, what transportation needs are not being met adequately? (please list all that apply) _______________________________________________________________ _______________________________________________________________ 16. what are the barriers/obstacles to meeting your transportation needs adequately? (please list all that apply) _______________________________________________________________ _______________________________________________________________ 17. thinking outside of your agency/organization, what coordinated transportation needs are you aware of that are not being met adequately? (could be at the federal, state, or the local level) _______________________________________________________________ rahal advances in business research 2012, vol. 3, no. 1, 130-140 138 ii. funding 18. by source, what percentage of your transportation budget comes from-------% federal, --------------% state, and ------------------% local funds (must equal 100%)? 19. please check all the funding sources that provide money for your transportation program a. federal o csbg (community service block grant program) o hhs (department of health & human services) o fta section 5310 (transportation for elderly person and persons with disabilities) o fta section 5311 (rural formula program) o fta section 5307 (urbanized area program) o fta section 5316 jarc o fta section 5317 new freedom act o title iiib (program targeted for older adults at risk for institutionalization o non emergency medicaid o title xx o other (please specify)------------------- b. state o bureau of public health o bureau of senior services o bureau of human resources for children and families o division of public transit o division of rehab services o lottery funds o state car rentals sales tax proceeds o other (please specify)----------- c. local o county commission o donation o fares o grants from charity organization o county/local tax o other (please specify)---------- iii. local coordination efforts 20. are you aware if an organization or committee that has been established in the river valley area to coordinate transportation? o no i am not aware of any transportation coordination or organization committee o yesi am aware of any transportation coordination or organization committee which operate at a regional level o yesi am aware of any transportation coordination or organization committee which operate at a local level 21. does your institution has or is involved in a transportation coordination plan? o no my institution does not have and/or is not involved in any coordination plan o yes my institution has and/or is involved in a coordination plan with clear missions and goals o yes my institution has a coordination plan, but the missions and goals are not clear o a coordination plan is still under discussion at my institution o i don’t know rahal advances in business research 2012, vol. 3, no. 1, 130-140 139 22. in your opinion, is there sustained support for coordinated transportation planning among elected officials, agency administrators, and other community leaders? o no support o yeslow level of support o yesmoderate level of support o yesgood level of support o yeshigh level of support 23. how do you rate the level of interest and commitment among local elected officials, transit agencies, and human service organizations to coordinating transportation services and maximizing the use of available resources? o no commitment o commitment at low level o commitment at moderate level o commitment at good level o commitment at high level 24. are you aware of an on-going process for identifying duplication of transportation services, underused assets, and service gaps? o yes i am aware (please explain the process) ---------------------------------------------------------- o no i am not aware 25. what issues or problems; if any; do you perceive to be a hinder to your transportation coordination efforts? please check all that apply: o none/ no issues o insurance issues o drivers issues o funding issues o billing/ eligibility issue o regulatory issues o volunteers issues o other (please specify)--------26. what elements of the existing transportation network provide the most useful mobility options for your clients? o public transit o medical transportation services o volunteer programs o other (please specify)-------- o i am not sure 27. what enhancements are most needed to improve the coordination of public and human service transportation in your service area? please choose three and rank them in order where “1” is the most important. o ------------improve transit (please specify how)------------------------------------------- o ------------increased funding o ------------improve traveler information o ------------improve coordination(please specify how)-------------------------------------- o ------------improve marketing (please specify how)---------------------------------------- o -----------other (please specify how)---------------------------------------------------------- o i am not sure rahal advances in business research 2012, vol. 3, no. 1, 130-140 140 28. what do you see as the greatest barriers to coordination and mobility in your service area? please choose three and rank them in order where “1” is the most important. o ----------insurance/ liability issues o ----------federal regulations o ----------state regulations o ----------funding issues o ----------scheduling issues (drivers/volunteers) o ----------turf battles o ----------not enough equipment o ----------reluctance of transportation providers to coordinate o ----------incompatible clients o ----------other (please specify)-------------------------------------------------------------- o satisfied with present transportation program; do not see need to coordinate below are a number of possible strategies for improving the coordination among transportation providers. please indicate your level of interest in each of these strategies by checking the appropriate box. intere sted possibly interested not interested not applicable 1providing transportation services, or more transportation services, under contract to another agency 2purchasing transportation services from another organization, assuming that the price and quality of service met your needs. 3coordinating schedules and vehicle operation with nearby transit providers so that riders can transfer from one service to another 4joining together with another municipality or agency to consolidate the operation of transportation services 5highlighting connections to other fixed-route or demand-responsive services on your schedules or other information materials 6adjusting hours or frequency of service 7coordinating activities such as procurement, training, vehicle maintenance, and public information with other providers 8participating in an organized area-wide transportation marketing program 40 boldly going where no aacsb standard has gone before: how aacsb business colleges are complying with the new standard 9 michael conklin texas a&m university central texas christopher houston angelo state university in july 2020, the association to advance collegiate schools of business (aacsb) released its 2020 guiding principles and standards for business accreditation, which consists of nine standards centered around the three pillars of engagement, innovation, and impact. to emphasize the importance of considering all business stakeholders, the updated standards included the new standard 9: engagement and societal impact, centered on business schools incorporating societal impact into their curriculum, scholarship, and activities. however, because many schools have not undertaken a continuous improvement review (cir) visit since this new adoption, many are struggling to meet standard 9. this first-of-its-kind study reports the findings of a survey sent to aacsb-accredited business schools to investigate their united nations sustainable development goals (sdg) selection and measurement rubrics. the findings as to which sdgs were chosen, why they were chosen, and how they will be measured elicit valuable discussions regarding accreditation compliance in general and societal impact more specifically. the results also illuminate potential issues such as refusals to align societal impact with the suggested sdgs, schools selecting too many sdgs, and measurement rubrics that are too broad to evaluate success. the results of this survey will help aacsb business schools comply with this new standard and hopefully produce a lasting impact in the business community beyond just the bottom line. keywords: aacsb, accreditation, business schools, sdgs, societal impact societal impact initiatives aacsb stands as one of the most prestigious business accreditations in the world, serving over 1,000 business schools and representing a high standard for quality business education. although there are a multitude of accreditation options, aacsb remains one of the most prominent http://journals.sfu.ca/ab 2024, volume 14, pages 40-51 http://journals.sfu.ca/abr http://journals.sfu.ca/abr 41 (avolio & benzaquen, 2020). a challenge for any accreditation agency is ensuring the relevance of requirements for changing needs in today’s global environment, where business needs are constantly evolving. business education is changing, with an increased demand that business schools serve as a force for good (jack, 2022). in conjunction with this demand, some of the criticisms and shortcomings of measuring the impact of business schools include the use of graduate salaries, publication rankings, and course content as quality measurements without connecting these measures to how they relate to positive impact (jack, 2022). although these metrics should not be ignored, they do not capture the importance placed on business schools to teach their students how to practice business from the standpoint of all stakeholders (aacsb, 2023b). to satisfy the increased focus and pressure placed on businesses and business schools to demonstrate how they create a positive impact in society, aacsb has included impact as one of its accreditation criteria in the newly revised standards. in july 2020, aacsb released its 2020 guiding principles and standards for business accreditation, which consists of nine standards centered around the three pillars of engagement, innovation, and impact. this was a revision and reworking of the previous 2013 standards, which consisted of fifteen standards. in a letter from aacsb ceo caryn beck-dudley released with the new standards, she stated that the new standards “serve as a higher calling to the purpose of business schools to make a difference in the world through positive societal impact” (aacsb, 2023a). in alignment with this statement, the updated standards consisted of the new standard 9: engagement and societal impact, centered on business schools incorporating societal impact into their curriculum, scholarship, and activities. aacsb further defines societal impact as “how a school makes a positive impact on the betterment of society, as identified in the school’s mission and strategic plan” (aacsb, 2023a). with this definition, societal impact is not meant to be a small piece of the accreditation puzzle but rather be incorporated into the fabric of the business school’s mission and initiatives. as aacsb requires business schools to incorporate societal impact into curriculum, scholarship, and activities, it is connected to each section used to categorize the standards, including strategic management and innovation, learner success, thought leadership, engagement, and societal impact. this is evidenced by the requirement to report on societal impact from the perspective of standard 1 (strategic planning), standard 4 (curriculum), standard 8 (impact of scholarship), and standard 9 (engagement and societal impact). societal impact on business schools as expectations of businesses and the schools that educate their future workforce evolve, there is more concern about the relevance of business education (redgrave et al., 2023). while there is a problem with a consistent understanding of relevance, redgrave et al. (2023) identify a consistent push for this concept in business schools as it relates to solving real problems and enhancing positive impacts on society. in alignment with these authors, lindgreen et al. (2021) also use the term relevance to describe the modern emphasis on higher education business schools. they provide context to some of the reasons for this shift, including increased accountability, globalization, and concerns research is not practical beyond publishing requirements placed on faculty. this last concern appears to be directed at the publish-or-perish mindset common in higher education due to tenure qualifications. while the idea of societal impact sounds promising, it is not as easily defined as measures such as citation counts, making it particularly difficult to demonstrate (lindgreen et al., 2021). additional problems are that impact often takes years to become measurable, the difficulty in the correlation of research to positive results, and disagreements about what impacts are more highly valued. although these concerns are valid, they also provide some basic guidelines for understanding 42 societal relevance and measuring this construct. this includes using measurements such as the use of research in curriculum and trade journals, serving as a consultant or on advisory boards, and acquiring funding from industry partners for projects. while these measures are not perfect or exhaustive, they highlight some easily identifiable ways to connect academic knowledge to societal value as knowledge is directed to practical applications. implementation of standard 9 with the adoption of the new standards, business schools immediately struggled with how to meet standard 9. measuring societal impact in research and practice is a difficult undertaking. there is no uniform definition of impact, a lack of clarity persists on how to measure impact without any generally accepted standard, and organizations struggle with practical operations (rawhouser et al., 2019). although aacsb schools have been impacting society for years, the new standard created challenges, as schools were not adept at measuring these activities and had no clarity on how to do so (kabadayi & jason-dibartolo, 2021). feedback from business schools to aacsb also made it clear that schools were struggling to define their societal impact focus (aacsb, 2023b). in response to these concerns and to assist business schools in their effort, aacsb published a document titled aacsb and societal impact: aligning with the aacsb 2020 business accreditation standards in spring 2023 to provide valuable guidance on standard 9. this document outlines the following process for societal impact, calling this process a “roadmap for kickstarting your school’s societal impact efforts” (aacsb, 2023b):  step 1: choose one or more focus areas.  step 2: identify the desired impact and measures of success.  step 3: identify initiatives in curriculum, scholarship, and activities.  step 4: create a tracking plan.  step 5: assess impact over time. choosing a focus area is an extremely important part of meeting standard 9. it is the starting point for a reason, as it is the foundation for all the other steps in the process and ties back into the school’s mission and strategic plan. to combat the problems business schools face with step 1, aacsb’s guidance document provides a way to categorize focus areas by using the united nations sustainable development goals (sdgs). the sdgs consist of 17 categories related to sustainability and were chosen by aacsb because of their convenient categorization, comprehensive use in business around the world, and goals and metrics that work as a valuable framework for business schools. in addition, aacsb highlighted how using consistent language regarding focus areas serves to better align efforts and impact across business schools and build more valuable partnerships. the 17 sdgs are as follows (united nations, n.d.): 1. no poverty 2. zero hunger 3. good health and well-being 4. quality education 5. gender equality 6. clean water and sanitization 7. affordable and clean energy 8. decent work and economic growth 9. industry, innovation, and infrastructure 10. reduced inequalities 11. sustainable cities and communities 12. responsible consumption and production 43 13. climate action 14. life below water 15. life on land 16. peace, justice, and strong institutions 17. partnerships for the goals while the sdgs are outlined into 17 items, a point of difficulty for higher education is recognizing the holistic intentions of the sdgs, as the success of one initiative overlaps with other initiatives (pálsdóttir & jóhannsdóttir, 2021). the author highlights how decent work is more than economics but links to other initiatives such as environmental actions, advocating for more interdisciplinary work in higher education to better fulfill the intentions of the sdgs. in addition, higher education is a prime place to implement sdgs as the students graduating go into the workforce with an understanding of sustainability concerns (pálsdóttir & jóhannsdóttir, 2021). because the business school curriculum is highly oriented towards financial performance and management, this interconnectedness warrants schools, at a minimum, to understand the need for curriculum to not teach one goal at the expense of others. while the intention is holistic and implementation involves recognizing how they interact, huaccho huatuco and ball (2019) also discuss the importance of understanding context as it is not possible for organizations to focus on all the goals based on their unique situation. this distinction is imperative as it helps provide clarity that aacsb’s advocation for choosing a focus area is not admitting ambivalence for the other sdgs and denying their interconnection, but rather helps a school focus its efforts on its primary mission. requiring implementation of all the sdgs for higher education institutions is unrealistic and neglects the different concerns of universities based on geography, local industry demands, and similar factors. the 17 sdgs are ideal for standard 9, as they are wide in breadth and cover many of the initiatives developed by business schools. upon utilization of the sdgs as focus area categories, aacsb also provides a valuable optional table schools can use to report on standard 9, demonstrating how the chosen sdg can be used in practice and documented across curriculum, scholarship, and activities (aacsb, 2023b, p. 13). it is important to mention that although aacsb encourages the use of sdgs as a categorization tool, they are not mandated: it is a misconception that aacsb requires schools to develop societal impact measures aligned with the sdgs. rather, we find the categories of classification provided in this framework comprehensive and compelling as a unifying nomenclature. adopting a common nomenclature will allow us to provide avenues of connection for those who want to work together and will enable us to report back regularly to our membership and accredited schools as to how our organization is collectively making a positive impact on society. (p. 5) with this guidance provided by aacsb, it is clear they allow room for schools to decide on their own focus area that meets their unique mission and context. however, the comprehensive nature of the sdgs and the convenience they provide in using a common language familiar to the peer-review team and other aacsb constituents make it likely many schools will take aacsb’s suggestion to use the sdgs as a foundation for their focus areas. methodology aacsb includes societal impact within its state of accreditation report, reporting by the categories of economic, environmental, and social impact. however, because many schools have not undertaken a continuous improvement review visit since the adoption of the new 2020 standards, this data does not include efforts from schools with upcoming continuous improvement review visits and those still attempting to determine how to meet standard 9. additionally, following the 44 guidance of aacsb to utilize sdgs, it is worth investigating how schools interact with the sdgs, the thought process involved in selecting sdgs, and how they plan on measuring these goals. after excluding 27 schools where either the current dean could not be identified or an email for the dean could not be found, 301 u.s. schools remained. an email was sent to the deans of these 301 aacsb-accredited colleges in the united states. after four weeks, a second email was sent to deans who had not yet responded to the first email. the survey included institutional review board consent language and listed the seventeen sdgs for reference. it then asked the following three questions verbatim: 1. which one of the united nations’ 17 sustainable development goals are you implementing for the new aacsb standard 9: societal impact focus area requirement? 2. briefly describe why you chose this goal to implement. 3. briefly explain how you will measure your institution’s progress on this goal. after four weeks following the second email, the data was then coded for analysis based on responses and institution demographics. institutional factors measured included public versus private schools, student enrollment size of the college of business, and geographical political affiliation. the measure of geographical political affiliation was arrived at after considering numerous alternatives. coding each institution based on the political affiliation of the state of location would be insufficient, as there are left-leaning colleges that happen to be in highly conservative states. for example, the university of texas in austin, the university of kansas in lawrence, the university of north carolina at chappel hill, and indiana university in bloomington are all located in conservative states but have a reputation as more liberal institutions. there do exist some studies involving the political ideologies of faculty, but the data in these studies is cumbersome to collect and therefore only includes a few select schools. additionally, the political ideology of the faculty in the college of business at a particular institution could be highly disparate from the other colleges at the institution. after considering the options, we decided to take the county where the institution is located and code for whether it went for joe biden or donald trump in the 2020 presidential election. this is an imperfect measure but serves as a rough proxy for the political affiliation of the institution and the community stakeholders it serves. the survey was left open for four weeks and was completed—at least in part—by 56 colleges. eighteen respondents provided an answer to the first, quantitative question without providing any response to the second and third qualitative questions. surveys with the first question (regarding their selection) completed but omitting the second and third questions are counted in this total and used for purposes of the study. public institutions were more likely to respond to the survey. the response rate from public institutions was 21.2% while the response rate from private institutions was only 10.9%. results the following table outlines the selection of sdgs overall, by public or private school, and by geographical political affiliation. sdgs that were not selected by any school are not included. the size of the institution’s college of business was not included in this chart, as there were no statistically significant differences based on that metric. table 1 sustainable development goal (sdg) selection overall and by school type sdg overall (n=56) public (n=40) private (n=16) conservative (n=23) liberal (n=33) 45 1 3.6% 5.0% 0% 8.7% 0% 2 0% 3 3.6% 0% 12.5% 0% 6.1% 4 33.9% 40.0% 18.8% 34.8% 33.4% 5 8.9% 5.0% 18.8% 4.4% 12.1% 6 0% 7 0% 8 51.8% 57.5% 37.5% 56.5% 48.5% 9 21.4% 22.5% 18.8% 26.1% 18.2% 10 16.1% 17.5% 6.3% 4.4% 21.2% 11 14.3% 7.5% 37.5% 17.4% 15.2% 12 5.4% 5.0% 6.3% 0% 9.1% 13 0% 14 0% 15 0% 16 5.4% 0% 18.8% 0% 9.1% 17 7.1% 7.5% 6.3% 8.7% 6.1% not used 16.1% 17.5% 12.5% 17.4% 15.2% note: 1=no poverty, 2=zero hunger, 3=good health and well-being, 4=quality education, 5=gender equality, 6=clean water and sanitization, 7=affordable and clean energy, 8=decent work and economic growth, 9=industry, innovation, and infrastructure, 10=reduced inequalities, 11=sustainable cities and communities, 12=responsible consumption and production, 13=climate action, 14=life below water, 15=life on land, 16=peace, justice, and strong institutions, 17=partnerships for the goals 46 table 2 total number of sustainable development goals chosen by schools count 0 16.1% 1 33.9% 2 25% 3 14.3% 4 7.1% 5 3.6% discussion the most popular societal impact sdgs selected are #8 “decent work and economic growth” (51.8%) and #4 “quality education” (33.9%). this result is consistent with what would be expected from business schools, as these are both very broad and easily aligned with the existing goals of many colleges of business. “quality education” naturally corresponds to the nature of how business schools create successful business leaders through education. one respondent succinctly explained, “we chose quality education because we are an educational institution.” another stated, “education is our primary mission and the linking pin connecting everything that we do.” “decent work and economic growth” is likewise a broad category that easily aligns with the general idea of training students to be successful in the business world. one respondent emphasized the convenience of selecting this sdg by explaining how it is “in alignment with what many faculty are already publishing on.” many others emphasized how this sdg was interpreted to focus on disadvantaged communities as demonstrated by the following explanations for choosing this sdg:  “we live in the poorest county in [state], and want to help our local area thrive in addition to preparing our graduates to promote economic development wherever they locate.”  “we chose economic growth because our students are primarily underprivileged and are first generation. the area that we serve in [state] is historically underfunded, underdeveloped, and economically depressed.”  “our university sits in an economically depressed area ….” reviewing the data from the vantage point of school type and political location resulted in a few notable results. for school type, public schools were significantly less likely to choose sdg #11 “sustainable cities and communities” (p = .01), or sdg #16 “peace, justice, and strong institutions” (p = .04). in addition, conservative locations were also less likely to choose sdg #10 “reduced inequalities” (p = .04). these results are not surprising considering the link between these characteristics and mission type. for example, a religious institution may be more likely to see peace and justice as central to its purpose. in addition, some components of these goals elicit politically divisive agendas that fit certain types of schools better than others. however, the small response rate and the fact that it is not possible to identify all factors related to a school’s decision out of a list of 17 goals makes it more applicable to use these results as a starting point for business schools to discuss their priorities rather than as a broad consensus. as mentioned previously, the goals are 47 meant to be understood holistically, so these results only point out some general directions business schools are using for identifying their top priority as connected to their mission and help provide a bird’ s-eye view of how business schools interact with the sdgs. it is also worth noting what sdgs received no selections: #2 “zero hunger,” #6 “clean water and sanitation,” #7 “affordable and clean energy,” #13 “climate action,” #14 “life below water,” and #15 “life on land.” while it is not surprising that “decent work and economic growth” and “quality education” were more popular, the complete lack of these six sdgs was unexpected. the skills taught in business schools could certainly be applied to addressing issues such as hunger, clean water, clean energy, and climate action. perhaps schools thought by selecting the “affordable and clean energy” sdg, they would be required to address the scientific side of inventing alternative energy solutions rather than just applying business principles to the problem. if this is the explanation, that is problematic, as such issues are not just for biology departments to work on. the principles taught in business colleges such as marketing/persuasion, the regulatory environment, social responsibility, consumer behavior, logistics, and manufacturing are vital to these efforts. perhaps the most surprising finding was how many colleges chose not to select any sdgs. almost 15% of respondents stated they are not selecting an sdg. we estimate that the actual number of aacsb business schools that are not choosing an sdg is higher since those schools were probably disproportionately less likely to respond to a survey asking which sdg they selected. as previously mentioned, aacsb does not mandate schools select an sdg but strongly advocates for their use due to their broad reach in impactful business practices and providing consistent language across different business schools (aacsb, 2023b). given the power dynamic between an accrediting body and the entity seeking to maintain accreditation, it is a peculiar strategy to reject the proscribed best practice, especially when there appears to be no real benefit to doing so. furthermore, all review tables and examples found in the aacsb published standards and interpretive guidance use sdgs (aacsb, 2022; aacsb, 2023b). therefore, schools are essentially going “off script” by not using the sdgs, foregoing aacsb guidance, and imposing potential difficulties on peer-review teams. aligning societal impact with an sdg is certainly not difficult. the sdgs are so broad that one would be hard-pressed to even imagine a scenario in which an institution’s goals would not align with an sdg.1 for some institutions, this convenience was viewed as a disadvantage, as demonstrated by the following four interactions with institutions that chose not to use sdgs. one respondent explained: in today’s world, the challenges we face, from climate change to poverty alleviation and social justice, are complex and interrelated …. [we] must avoid the allure of “cherrypicking” a few sdgs and instead advocate for a holistic approach that acknowledges the profound interdependence of these goals …. focusing solely on one or two sdgs can give the appearance of “greenwashing,” where an institution appears socially responsible without substantial, meaningful action. when another respondent was asked in a reply email why they chose not to select an sdg, they responded, “the sdgs are very broad. as an hsi with significant numbers of low-income students … our mission and vision focus on professional career development and economic mobility. so yes, this fits into quality education and economic development.” another respondent explained that they decided not to align their societal impact with an sdg because their goal is to “[r]educe inequalities among and within communities.” when asked 1 a potential exception to this would be a faith-based college whose mission might be to promote a specific religious ideology. 48 why they did not simply report that this goal is aligned with sdg #10 “reduced inequalities,” they replied, “aacsb does not require [united nations] sdgs. so i don’t need to relate to that but i could.” another respondent with an existing goal of “economic development and growth of the community” chose not to align with the obvious choice of sdg #8 “decent work and economic growth.” when asked why, they stated that doing so would require them to “reorient our efforts merely to fit them into the un’s global goals,” which would “distract” them. “sure, we could list our work under goal #8, but to what benefit? other than labeling it, what is the point?” perhaps institutions felt they were being forced into aligning their societal impact initiatives with the sdgs, and therefore the decision to not do so is a minor act of defiance meant to send a message. such an explanation would be in line with how important academic freedom is in higher education. another potential explanation is that the united nations may be viewed as a somewhat controversial organization; perhaps schools fear that certain donors would be concerned with a college becoming “aligned” with such an organization, thus potentially harming fundraising efforts. this study reveals some common themes regarding why schools chose their specific focus area. among these include the alignment with current initiatives, the sdg’s connection to its mission statement, faculty scholarship focus, and resources that already exist to pursue or further the school’s focus. these responses align with the spirit of aacsb (2023a) and the need for schools to take an inventory of what they already excel at and strategically center their efforts on those initiatives, rather than starting from scratch and attempting to build something new that might not be possible by their next review cycle. this allows schools to not feel as overwhelmed by the new standard but rather view it as a part of their current mission and rally behind their current impact strategies. an interesting finding related to the number of focus areas chosen by schools is that while 33.9% selected one sdg and 25% selected two, another 25% selected three to five sdgs. although schools focus on many different initiatives, it is advised to not stretch beyond resources and capabilities, carefully selecting a focus area based on the strategic mission of the school (aacsb, 2023b). aacsb further elaborates by discussing the importance of reviewing current initiatives and ensuring the focus area relates to realistic initiatives the school already has an interest in and ties into its strategic plan. as such, it is difficult to see how any school would want to pursue three, four, or even five sdgs, as the resources and capability to adequately meet standard 9’s requirement that the focus area be tied into the strategic mission, curriculum initiatives, scholarship, and internal and external activities seems unrealistic. rather, taking aacsb’s guidance that schools strategically focus efforts encourages schools to consider starting small, with initiatives they already participate in, selecting one or maybe two sdgs. given how broad the sdgs are, selecting five of them surely stretches the meaning of the word “focus”. it is important to note that selecting an sdg is not neglecting the others as unimportant or preventing adding their content to curriculum or research, but rather identifying the core focus of one’s business school context. understanding this helps business schools approach this standard more sustainably given their limited resources. sample responses to question 2 are located in appendix a for further discussion on how business schools understand their reasons for goal selection. survey responses to the third question regarding measuring progress demonstrate that schools are struggling with this aspect of the new standard. several responses stated metrics do not yet exist, while others provided broad generalizations that did not clearly define how this standard is being measured. a few schools mentioned specific metrics, such as curriculum enhancements related to their mission, or metrics related to economic initiatives in their area. although some schools appear to have a grasp of how they plan to measure their impact and how it ties into their strategic mission, the overall picture presented by responses makes it clear this is not the norm and 49 remains an ongoing challenge. appendix b provides some sample comments to ignite further discussion. related to metrics, another apparent struggle emerged based on aacsb’s outlining of the difference between outputs and outcomes. several schools mentioned metrics such as enrollment numbers in certain initiatives or scholarly publications. these represent good metrics to serve as a starting point but do not necessarily have a societal impact as described by aacsb. the example they provide related to scholarship emphasizes how publications in a focus area do represent an output but not an outcome; rather, an outcome looks at these outputs and answers questions related to how those outputs create a positive impact over time, such as policy change that occurs due to research (aacsb, 2023b). this guidance makes it clear that metrics such as enrollment in a program, publications, or the creation of a new program are important outputs a school needs to consider in their planning but that they are a starting point that needs to include an explanation of how those outputs result in outcomes and positive impact. based on survey responses, it appears there is some confusion on outputs against outcomes. it is important to mention this element of aacsb’s guidance to encourage schools to closely review their action plans and ensure they capture metrics aacsb is expecting during their next continuous improvement review. conclusion aacsb remains one of the primary accreditors for business schools worldwide and continues to represent the standard for business education. this study reviewed how aacsbaccredited schools in the united states are managing the new standard 9, requiring schools to demonstrate how their activities serve the greater good of society. some clear trends presented themselves regarding the selection of a focus area using the united nations sdgs, with a focus on sdg #8 “decent work and economic growth” and sdg #4 “quality education,” representing the majority of focus areas, regardless of school type or location. these results make it clear business schools exist for a similar purpose, even if that purpose is fleshed out in slightly different ways depending on different contexts and missions. although the study found most schools are utilizing the sdg classification system recommended by aacsb, it is also clear schools continue to struggle with narrowing down their initiatives and defining their metrics. it is recommended the schools that selected three or more focus areas reconsider their impact strategy and focus on what they do best. it is untenable to think of a school maintaining all the different requirements across curriculum, scholarship, and activities with too many competing focuses. a school might impact multiple areas, but it is recommended they decide what specific focus area they want to utilize for meeting this requirement to ensure they adequately meet aacsb impact requirements across the different standards. it is also recommended schools concentrate more on their metrics, as aacsb’s definitions of outputs, outcomes, and impact demonstrate it requires more explanation of impact than most schools responded regarding their metrics. although schools are on the right track regarding metrics, most are short-sighted and might create problems on a continuous improvement review visit if they do not tie in these short-term results with long-term impact. aacsb’s publications clearly outline these differences and provide clear examples, something worth reviewing for all business schools. as schools create an action plan with these elements, tracking will become easier over time and present a better picture of their impact. overall, this study provided an encouraging view of the new standard and the desire for business schools to create lasting impact. many schools already create impact, but the new standard helps schools communicate their impact and requires additional initiatives to enhance this impact. meeting a new accreditation requirement is always a challenge, and it is clear business schools across the country are putting great effort into providing a better education and lasting impact for their 50 university, their students, and the community in which they serve. as schools focus on making minor adjustments to better align with aacsb requirements, and more guidance and direction help them narrow their focus, the future is bright as to the impact aacsb schools will produce in their communities and beyond. appendix a: sample responses to question 2 they align with our existing institutes and centers. we chose it because it is a top concern in our community. we partnered with members of our local community to collaborate on events designed to improve financial literacy and inclusion. this goal was chosen because of our successful small business development center and its economic impact in our region. we have a [long] history of focusing on 4 and 5, so we chose another goal to challenge us. we live in the poorest county in new york state and want to help our local area thrive in addition to preparing our graduates to promote economic development wherever they are located. our faculty have conducted scholarship on topics addressing these sdgs. we also carry out these sdgs in our undergraduate and graduate programs. our university sits in an economically depressed area, and our mission is aligned with engaging that community to help improve the economic conditions of the city. we have a strong economic outreach unit. it is built into our dna. it makes sense that at the advent of the societal impact requirement, we start with a focus on where we have been successful. appendix b: sample responses to question 3 attendance at related events, money for related scholarships, number of related academic publications and policy papers, and number of related community partnerships. we are measuring success indirectly based on the number of community members served and their responses to a satisfaction survey. because our efforts are part of a broader community effort to reduce poverty, we believe this is the best way to track our impact. we measure business valuation growth through our [redacted] program—taking bipoc entrepreneurs through entrepreneurial mindset training and then identifying the growth in their business valuations over time. increase the number of student-faculty projects in the focus area presented in public venues, aiming for at least two projects every year. increase the number of peer-reviewed journal articles related to the focus area published by faculty and students. secure external funding, grants, or sponsorship to support research and dissemination efforts in this focus area. increase the number of students joining professional associations annually, targeting a 10% growth year-over-year. we measure our institution’s progress by student placement rates and the salaries they earn after graduation. these will be measured through kpis of curriculum changes, learner impact, scholarly activities, community connections, and community perception. student placements in national competitions, professional program rankings, faculty research awards, and economic development initiatives. number of engagements with small businesses, number of publications related to equity and inclusion, number of graduates working in the area, reduction in achievement gap in minoritized student groups, number of small business clients assisted – and impact of those engagements. 51 we use kpis like # of student volunteer hours in industry-related clinics, # of community members attending programs we run, # of internships, # of class projects working with local companies, and the like. recognition of our school for quality education by both external agencies and internal audiences (e.g., staff, students, and other constituents on campus). references association to advance collegiate schools of business. (2022). 2020 interpretive guidance for aacsb business accreditation. https://www.aacsb.edu/-/media/documents/accreditation/2020interpretive-guidance-july-1-2022.pdf association to advance collegiate schools of business. (2023a). 2020 guiding principles and standards for business accreditation. https://www.aacsb.edu/-/media/documents/accreditation/2020-aacsbbusiness-accreditation-standards-june-2023.pdf association to advance collegiate schools of business. (2023b). aacsb and societal impact: aligning with the aacsb 2020 business accreditation standards. https://www.aacsb.edu//media/documents/accreditation/aacsb-and-societal-impact.pdf avolio, b., & benzaquen, j. (2020). strategic drivers to approach business school’s accreditations. journal of education for business, 95(8), 519–526. https://doi.org/10.1080/08832323.2019.1707751 huaccho huatuco, l., & ball, p. d. (2019). the quest for achieving united nations sustainability development goals (sdgs): infrastructure and innovation for responsible production and consumption. rausp management journal, 54(3), 357-362. https://doi.org/10.1108/rausp04-2019-0068 jack, a. (2022). business school rankings: the financial times’ experience and evolutions. business & society, 61(4), 795–800. https://doi.org/10.1177/00076503211016783 kabadayi, s., & jason-dibartolo, g. (2022). an exploratory study of how business schools approach aacsb’s societal impact standards. journal of education for business, 97(8), 521–530. https://doi.org/10.1080/08832323.2021.1997885 lindgreen, a., di benedetto, c., clarke, a., evald, m., bjørn-andersen, n., & lambert, d. (2021). how to define, identify, and measure societal value. industrial marketing management, 97, a1a13. https://doi.org/10.1016/j.indmarman.2020.05.013 pálsdóttir, a., & jóhannsdóttir, l. (2021). signs of the united nations sdgs in university curriculum: the case of the university of iceland. sustainability, 13(16), 8958. https://doi.org/10.3390/su13168958 rawhouser, h., cummings, m., & newbert, s. l. (2019). social impact measurement: current approaches and future directions for social entrepreneurship research. entrepreneurship theory and practice, 43(1), 82–115. https://doi.org/10.1177/1042258717727718 redgrave, s. d. j., grinevich, v., & chao, d. (2023). the relevance and impact of business schools: in search of a holistic view. international journal of management reviews: ijmr, 25(2), 340362. https://doi.org/10.1111/ijmr.12312 united nations. (n.d.). the 17 goals. retrieved february 3, 2024, from https://sdgs.un.org/goals https://www.aacsb.edu/-/media/documents/accreditation/2020-interpretive-guidance-july-1-2022.pdf https://www.aacsb.edu/-/media/documents/accreditation/2020-interpretive-guidance-july-1-2022.pdf https://www.aacsb.edu/-/media/documents/accreditation/2020-aacsb-business-accreditation-standards-june-2023.pdf https://www.aacsb.edu/-/media/documents/accreditation/2020-aacsb-business-accreditation-standards-june-2023.pdf https://www.aacsb.edu/-/media/documents/accreditation/aacsb-and-societal-impact.pdf https://www.aacsb.edu/-/media/documents/accreditation/aacsb-and-societal-impact.pdf https://doi.org/10.1080/08832323.2019.1707751 https://doi.org/10.1108/rausp-04-2019-0068 https://doi.org/10.1108/rausp-04-2019-0068 https://doi.org/10.1177/00076503211016783 https://doi.org/10.1080/08832323.2021.1997885 https://doi.org/10.1016/j.indmarman.2020.05.013 https://doi.org/10.3390/su13168958 https://doi.org/10.1177/1042258717727718 https://doi.org/10.1111/ijmr.12312 https://sdgs.un.org/goals while the idea of societal impact sounds promising, it is not as easily defined as measures such as citation counts, making it particularly difficult to demonstrate (lindgreen et al., 2021). additional problems are that impact often takes years to bec... implementation of standard 9 methodology results discussion conclusion references 11 managing stakeholder demands: governance decisions and stakeholder standing daniel c. evans university of montana gerald evans university of montana michael v. harrington university of montana in an empirical study, this paper used john rawls’ idea (1971) of justice as fairness to rank competing stakeholder interests in governance decisions. undergraduate students were asked to rank the power or responsibility of six stakeholder groups on twelve governance decisions. the results indicate that the participants meaningfully ranked the various stakeholder groups on the governance decisions as evidenced by t-tests. these results indicate that using the rawlsian mind experiment of a veil of ignorance and an original position was an effective means of unraveling competing stakeholder interests in governance decisions. the implications of the results were discussed for stakeholder legitimacy and ethical decision-making. keywords: stakeholder ethics; stakeholder standing; stakeholder legitimacy; fairness; governance; social responsibility introduction stakeholder theory addresses the influence of and obligations owed to various internal and external constituencies of the organization (mitchell et al., 1997 and phillips, 1997). a broad definition of stakeholders is “any individual or group of individuals that is the legitimate object of managerial or organizational attention” (phillips, 2003, p. 25). this conception understands stakeholders as individuals or groups to which management must attend. the direction of interest in this conception is from the organization and its management toward the various stakeholder groups and focuses on the nature and degree of attention given to the stakeholders. the mendelow matrix (mendelow, 1991; olander & landin, 2005) is a tool used to determine the type of attention given to different stakeholders based on their power and interest. stakeholder legitimacy, as articulated by freeman (1984), is based on relative rather than absolute power: “do all stakeholders have an http://journals.sfu.ca/abr advan ce s in b u si n e ss r esear ch 2021, volume 11, pages 11-27 http://journals.sfu.ca/abr 12 equally ‘legitimate’ claim on the resources of the corporation?” (p. 45). while freeman (1984) sets aside this ranking of legitimacy, the problem this paper addresses is the ranking of stakeholder power in various governance decisions. it is theorized that the relative legitimacy of various stakeholder groups depends on the corporate or organizational issue under consideration. there has been a broad and protracted theoretical discussion in the literature on stakeholder legitimacy and stakeholder ranking from the perspective of several academic disciplines. this discussion has ensued in the stakeholder theory and governance literature as represented by klein et al. (2019). who suggest that formal governance structures should be adapted in response to the external social, political, and legal environments. this adaptation of governance structures can follow four pathways: continuity, architectural change, enfranchisement change, and redistribution. previously, sirgy (2002) articulated a contractual stakeholder model that included internal, external, and distal stakeholders. the relationships among these stakeholder groups were operationalized as internal service quality, external service quality, and company goodwill, respectively. in the economics literature, rajan and zingales (1998) proposed a model of stakeholder transactions based on access to resources rather than allocation of ownership interest. this model was posited as superior to contractual models because it contended that power is derived from making good investments in resources while ownership interest discourages specialization. another economic model, developed by grandori (2010), focused on how heuristic knowledge is acquired and applied to organizational decision-making. this heuristic or research-based model of decision making was posed as more adept than traditional rational choice and behavioral decision models in encouraging innovation in a knowledge-based economy. a model in organizational theory was developed by evans and evans (2014) for unraveling the competing interests of stakeholders when facing various situations in corporate governance. this conceptual framework examined the interests held by stakeholders of an enterprise and their relationships with other stakeholders also involved in the enterprise. phillips (1997) proposed a conception of “obligations of fairness”, which includes “mutual benefit” and “justice” as part of corporate governance. in an enterprise with multiple stakeholders, it is challenging to identify the appropriate relative ranking of stakeholder interests for any specific action (p, 30). phillips (1997) attributes this difficulty to “an approach [that] is based on the idea that all stakeholder groups are, to varying degrees, involved in the same economic cooperative scheme” (p. 52) and thus have equal voice and consideration in governance decisions. in this context, the term “stakeholder” is used to describe all the people interested in or contributing to a corporation’s success. freeman (1994) characterizes this relationship as the “stakeholder enabling principle”: “corporations shall be managed in the interests of its stakeholders, defined as employees, financiers, customers… and communities” (p. 417). this principle assumes there is congruence among the interests of the stakeholders because all want the firm to thrive and to share the results of that success with the respective stakeholders. however, stakeholders can also have interests that are in conflict with one another since the interests of some stakeholders can be adverse to the interests of other stakeholders. thus, while these groups are important to the corporation, they do not always have aligned interests on every issue. freeman (1994), using the idea of “director responsibility,” states: “directors of the corporation shall have a duty of care to use reasonable judgment to define and direct the affairs of the corporation in accordance with the stakeholder enabling principle” (p. 417). the principle of director responsibility attempt to establish rational and coherent behavior among the stakeholders. behavior that appears rational and coherent to one stakeholder may, however, seem exactly the opposite to others. the fact that stakeholders have congruent interests, as well as conflicting interests, prompted hendry (2001) to observe that normative stakeholder theory was in disarray. to clarify this issue, he suggested three kinds of normative stakeholder theories: 13 descriptive, instrumental, and normative. from the perspective of ethics, normative theories address “how should firms be governed, and to whom should managers be responsible?” (p. 162). given the potentially conflicting interests among various stakeholder groups, identifying the level of responsibility owed to each stakeholder group can be challenging for decision-makers. the current research proposes that different decisions in the governance process may place different weights on the interests of one group of stakeholders relative to the interests of other stakeholders. because the claim of a stakeholder can influence the degree of legitimacy that a stakeholder enjoys, the nature of the stakeholder’s connection to the enterprise and what is wanted from the enterprise are what determine the legitimacy of a claim. phillips (2003) introduced the concept of stakeholder legitimacy. normative and derivative stakeholders are different with different claims to legitimacy. according to phillips (2003, p. 26), normative stakeholders “are those stakeholders to whom the organization has a moral obligation, an obligation of stakeholder fairness, over and above that due other social actors simply by virtue of their humanity”. normative stakeholders have stronger ties to the organization and thus deserve greater consideration in governance decisions. identifying normative stakeholders answers the question: “for whose benefit should the firm be managed? “ (freeman, 1984, p. 30). although derivative stakeholders do not have normative interests, they should be treated like stakeholders because their actions could affect normative stakeholders and the organization. the impact of these derivative stakeholders can be positive or negative for the normative stakeholders or the organization, and these potential impacts must be considered. the media, competitors, and terrorists are considered derivative stakeholders since they can influence the organization, but they lack a compelling moral argument that the organization should be managed for their benefit. the conflict between normative and derivative stakeholders indicates that fairness requires some way to rank or weight stakeholder interests and that this “pecking order” will depend on the governance decisions (renouard, 2011). the stakeholders often make their claims from a perspective that focuses on their interests. this creates a complex web of claims that can be difficult to unravel. stockholders and management want increased profitability which tends to lead to higher dividends for stockholders and performance bonuses for management. employees want higher wages and benefits; the government wants to collect taxes owed and apply appropriate regulatory oversight; consumers want products that are safe and priced fairly; the community wants a clean environment and jobs; and everyone wants social responsibility. these stakeholder interests are often mutually exclusive (neville & menguc, 2006). because of these conflicting claims, enyinna (2013) questioned the adequacy of stakeholder theory to adjudicate such conflicts. stakeholder theory posits broad suggestions for ethical decisions because of its philosophical nature. specific guidance on practical decisions requires a theory to be prescriptive. normative theories cannot be merely hypothetical, they must guide specific actions. unraveling conflicting stakeholder interests requires a thorough and practical application of the concept of fairness. although several ways exist by which to rank the legitimacy of stakeholders, one way is to evaluate the various groups using a legitimacy metric. santana (2012) proposed three facets of stakeholder legitimacy: the legitimacy of the entity, the legitimacy of the stakeholder’s claim, and the legitimacy of the stakeholder’s behavior. santana (2012) applied this metric to eight situations to arrive at varying degrees of stakeholder legitimacy based on some combination of these three facets. this approach advanced the understanding of stakeholder legitimacy but it did not address the more difficult issue of fairness when equally legitimate stakeholders have competing interests. the idea of fairness (rawls,1964) has been used in the discussion of competing stakeholder interests (phillips, 2003; gilbert & rasche, 2008; jensen & sandström, 2013; jones & felps, 2013; mansell, 2013). justice as fairness (rawls, 1971) has generated considerable ethical discussion in modern philosophy. for example, when applying social contracts to a corporation, rawls postulated 14 a network of implicit and explicit agreements to which individuals must adhere in their relationships with one another. social contracts are so pervasive that they form the foundation of the modern republic, borrowing principles from smith (1776) and rousseau (1950). cragg (2000) built on this foundation using social contract theory to link together business ethics and human rights. as a foundational premise, rawls (1971) used “justice as fairness,” to describe a contract acceptable to society and its members. the rules and principles of a social contract must be universally agreed upon: “they are the principles that free and rational persons concerned to further their own interests would accept… as defining the fundamental terms of their association. these principles are to regulate all further agreements” (p. 10). this idea is referred to as “agreement” or a “meeting of the minds” in contract law. any compromise would require that all disagreeing parties feel an agreement was a “good deal” for their stakeholder group, gaining at least as much as what was sacrificed. the difficulty in using “justice as fairness” as a foundation for ethical reasoning is that “fair” is often viewed through the lens of one’s self-interest. to address this problem, rawls (1971) used a thought experiment to engender empathy between individuals, a “veil of ignorance” (p. 118) to eliminate inherent biases that may cloud decisions about ethical principles. the veil of ignorance allows individuals to make a judgment about an issue or decision without depending on their current position in society as the basis for their judgment. in this research, this veil of ignorance is adapted to unravel conflicting stakeholder interests for specific governance decisions. the corporation’s connection to various stakeholder groups creates interconnecting duties. but potential conflicts between groups remain for specific decisions and actions. stockholders have risked capital for the creation of the corporation and will care more about the initial revenue and profit. customers will have less influence in governance decisions since there are fewer of them in the beginning and they lack a voice in the decision process. the veil of ignorance allows each stakeholder group to empathize with the others and view the long-term fortunes of the company as important for all. rawls uses the veil of ignorance to promote fairness and social justice, but it is used and adapted here as a way for stakeholder groups to view an issue from the perspective of all the stakeholders. this empathy is a necessary step to understand and unravel the complex interests among many stakeholders. because any individual interest will often conflict with the interests of others, some ethical principles on which all stakeholders can agree must be established. all stakeholders are required to behave by the principles of society and sound governance. rawls attempts to resolve conflicts by placing individuals behind the veil of ignorance where they assume an “original position” of not knowing which place in society they will ultimately occupy. rawls’ framework is adapted here as the stakeholder's original position and will be used to resolve or unravel conflicting stakeholder interests for specific governance decisions and issues. the theoretical linkage progresses from stakeholder theory and legitimacy (phillips, 2003) to competing stakeholder interests in corporate governance (freeman, 1994) and then to rawls’ thought experiment to unravel the competing stakeholder interests (evans & evans, 2014). to provide some empirical evidence for the rawlsian approach to unraveling the competing stakeholder interests, participants were asked to go behind the veil of ignorance and rank various stakeholders in the context of specific corporate and organizational issues. rather than focusing on the legitimacy of specific stakeholder groups, equally legitimate stakeholders were ranked relative to different organizational issues. it is hypothesized that when self-interest is set aside in rawls’ original position, individuals will rank various stakeholder groups based on legitimacy in light of the issue at hand. if participants are successfully stepping behind the rawlsian veil to evaluate stakeholder rankings for each issue, two clear patterns are hypothesized to emerge in the results. the first hypothesis is that the rankings of stakeholder power and legitimacy will be different depending on the organizational issue being considered. in addressing this issue-focused stakeholder management 15 roloff (2008) stated, “multi-stakeholder networks are issues-driven…” (p 238). this concept was employed as an approach to manage competing stakeholder demands as stated by roloff (2008): “…or on an issue that affects their relationship with other societal groups and organizations (issuesfocused stakeholder management)” (p. 233). how issues are defined will vary with the organizational context, but different issues may require different rankings of stakeholder power or influence. the null hypothesis, in this case, would be that the rankings of stakeholders would be the same regardless of the corporate governance issue being considered. the second hypothesis concerns the rankings within each of the issues. it is hypothesized that the ranking of each of the six stakeholder groups will be statistically significant from each other within each of the twelve corporate governance issues. furthermore, it is hypothesized that these rankings within each corporate governance issue will be a rationally defensible ordering as dawkins (2014) proposed as an “altered power dynamic” (p. 283). stakeholder relative power changes depending on the issue at hand. thus, directional tests will reveal statistically significant differences among the stakeholder rankings. the null hypothesis is that the rankings within each issue will be random with little rational support for the ordering and no statistically significant difference among the ranked stakeholder groups. methodology participants the participants in this study were 193 undergraduates in a required business ethics and social responsibility class. the data were collected anonymously to facilitate participants assuming the “original position” as conceived by rawls so they could do the rankings ignorant of which stakeholder group they may eventually represent. there was an approximately equal number of males and females, and the students were traditionally aged college students, although some nontraditional students were also participants. as a required core class in an accredited business curriculum, the participants represented several business disciplines including accounting, finance, management, marketing, management information systems, entertainment management, and international business. some were business minors and thus represented majors outside the college of business. although the participants were college undergraduates, they represent a valid sample since they were consumers, members of the community, employees of businesses, and some were even stockholders and managers. procedures a survey instrument was constructed and identified twelve specific business decisions or issues. these were (1) the level of compensation of the ceo and other members of top management; (2) the number and extent of the health and safety features of the product and services offered by the business; (3) workplace health and safety; (4) environmental decisions, including air and water discharge and refuse disposal; (5) employee compensation, including wages and benefits; (6) work policies and procedures, including disciplinary practices and supervision procedures; (7) the amount and frequency of stock dividends; (8) property and income taxes; (9) what products and services to offer and at what price; (10) sell or ending the enterprise, including by declaring bankruptcy; (11) employee stock ownership; and (12) responding to sustainability issues and climate change. these issues were selected because they were broad enough to represent many governance issues for the validation of the model without becoming entangled in the minutia of more detailed decisions. these issues are also consistent with the definition of issues as outlined by roloff (2008). six equally legitimate stakeholders were identified. these were (1) stockholders, (2) management, (3) 16 employees, (4) government, (5) community, and (6) consumers. these would all be considered legitimate stakeholders by the standards of freeman (1994), phillips (2003), and santana (2012), and represent both internal and external stakeholders as defined by sirgy (2002). the instrument required students to weigh or rate each of the six stakeholder groups on each of the twelve decisions using a 7-point likert scale with end anchors. the anchors were 7maximum weight and 1-minimum weight. the survey instrument was placed into a learning management system (lms) and students were required to complete the survey anonymously as part of the requirement for the class. students were given course credit for completing the survey, but they were not evaluated on the quality or nature of their responses. the responses were recorded by the lms and downloaded as an excel file that was analyzed in ibm spss statistics. the general instructions were as follows: “think about stakeholder power regarding issues and decisions facing modern businesses. for this questionnaire, you do not know which stakeholder group you will belong to. you do not know if you will be a stockholder, an employee, a member of the management team, a consumer of their goods and services, a member of the community in which they operate (either as an individual or as a member of an advocacy group), or a government official levying a tax or regulating the business. for each of the decisions outlined below, rate the power each stakeholder group should have, the weight they should have in the decision, assuming you are ignorant of which stakeholder group you represent. groups that should have equal weight, high or low, should be rated equally. your answers will be anonymous, but you will receive credit for completing the survey.” in this manner, rawls’ mind experiment using an original position behind a veil of ignorance is operationalized for an empirical investigation. figure 1 provides an image showing how each question looked for the participants. each question provided the same format, instructions, and response options. the issue being addressed changed for each of the twelve questions. figure 1 survey instrument results table 1 shows the average rankings of the various stakeholder groups for decisions involving the compensation level of the ceo and top management. paired t-tests were performed on the means of each adjacent stakeholder group in the rankings to test if there were statistically significant differences among the ranking of the stakeholder groups. the results of the paired t-test are as follows: for the difference between stockholders and management t(192) = 2.727, p < .01; for the 17 difference between management and employees t(192) = 9.394, p < .01; for the difference between employees and the government t(192) = 4.189, p < .01; for the difference between the government and consumers t(192) = 1.887, p < .05; and for the difference between consumers and the community t(192) = .814, p > .05. all tests are statistically significant except for the difference between consumers and the community, which is ranked statistically equal. this indicates meaningful separation among the rankings of the stakeholder groups. table 1 – mean weighting on ceo compensation ceo compensation n mean std. deviation stockholders 193 5.10 1.597 management 193 4.63 1.618 employees 193 3.47 1.668 government 193 2.78 1.669 consumers 193 2.49 1.614 community 193 2.41 1.501 table 2 shows the average rankings of the various stakeholder groups for decisions involving product health and safety. the results of the paired t-test are as follows: for the difference between management and the government t(192) = .369, p > .05; for the difference between the government and consumers t(192) = 4.147, p < .01; for the difference between consumers and employees t(192) = 1.129, p > .05; for the difference between the employees and community t(192) = .665, p > .05; and for the difference between the community and stockholders t(192) = .317, p > .05. the paired t-tests indicate no significant difference in the average ranking of management and government, demonstrating both are considered equally responsible. a statistically significant difference exists between government and consumers. consumers, employees, and the community show no significant separation, but stockholders are ranked last by a statistically significant difference. comparing figures 2 and 3, it is apparent that the rankings of the stakeholder groups on these two issues are completely different as was hypothesized. table 2 – mean weighting on product health and safety product health & safety n mean std. deviation management 193 5.28 1.449 government 193 5.22 1.692 consumers 193 4.55 1.755 18 employees 193 4.39 1.759 community 193 4.29 1.814 stockholders 193 4.23 1.804 table 3 shows the average ranking of the various stakeholder groups for decisions involving employee health and safety. the results of the paired t-test are as follows: for the difference between management and employees t(192) = .902, p > .05; for the difference between employees and the government t(192) = 2.550, p < .01; for the difference between the government and stockholders t(192) = 8.861, p < .01; for the difference between the stockholders and the community t(192) = .986, p > .05; and for the difference between the community and consumers t(192) = 4.235, p < .01. the paired t-tests show a significant difference between management and employees and no significant difference between employees and government. all other groups show statistically significant separation. employee health and safety is considered the primary responsibility of management with an important role for employees and government. the other groups are ranked lower. table 3 also represents a different set of rankings compared to figures 2 and 3. table 3 – mean weighting on employee safety employee safety n mean std. deviation management 193 5.69 1.344 employees 193 5.60 1.448 government 193 5.24 1.576 stockholders 193 3.91 1.720 community 193 3.75 1.855 consumers 193 3.30 1.812 table 4 shows the average ranking of the various stakeholder groups for decisions involving environmental protection. the results of the paired t-test are as follows: for the difference between the government and the community t(192) = 1.713, p < .05; for the difference between the community and management t(192) = 3.593, p < .01; for the difference between the management and consumers t(192) = 2.961, p < .01; for the difference between consumers and the stockholders t(192) = 1.420, p > .05; and for the difference between the stockholders and employees t(192) = 1.455, p > .05. the government and community are ranked at the top with no statistically significant difference between them. management and consumers are weighted significantly below the first two, and stockholders and employees are ranked last and significantly separated from the higher groups but not significantly different from each other. the participants viewed the government and community as the two most important stakeholders in establishing environmental regulations. the rankings in table 4 are also distinct from the previous figures. 19 table 4 – mean weighting on environmental protection environmental protection n mean std. deviation government 193 5.70 1.518 community 193 5.47 1.617 management 193 4.78 1.713 consumers 193 4.28 1.898 stockholders 193 4.04 1.837 employees 193 3.83 1.730 table 5 shows the average ranking of the various stakeholder groups for decisions involving employee compensation. the results of the paired t-test are as follows: for the difference between management and employees t(192) = 10.606, p < .01; for the difference between employees and stockholders t(192) = .299, p > .05; for the difference between the stockholders and the government t(192) = 2.303, p < .05; for the difference between the government and the community t(192) = 9.607, p < .01; and for the difference between the community and consumers t(192) = 2.546, p < .01. table 5 displays yet another unique set of rankings of the stakeholder groups. table 5 – mean weighting on employee compensation employee compensation n mean std. deviation management 193 5.69 1.302 employees 193 4.48 1.531 stockholders 193 4.42 1.769 government 193 4.03 1.715 community 193 2.70 1.582 consumers 193 2.45 1.537 table 6 shows the average ranking of the various stakeholder groups for decisions involving work procedures. the results of the paired t-test are as follows: for the difference between the management and employees t(192) = 12.601, p < .01; for the difference between employees and stockholders t(192) = 6.771, p < .01; for the difference between the stockholders and the government t(192) = 1.694, p < .05; for the difference between the government and the community t(192) = 8.077, p < .01; and for the difference between the community and consumers t(192) = 2.400, p < .05. the differences between all the means are statistically significant. 20 table 6 – mean weighting on work procedures work procedures n mean std. deviation management 193 6.17 1.107 employees 193 4.66 1.597 stockholders 193 3.51 1.738 government 193 3.25 1.788 community 193 2.22 1.519 consumers 193 2.06 1.396 table 7 shows the average ranking of the various stakeholder groups for decisions involving stock dividends. the results of the paired t-test are as follows: for the difference between stockholders and management t(192) = .195, p >.05; for the difference between the management and the government t(192) = 7.196, p < .01; for the difference between the government and employees t(192) = 2.815, p < .01; for the difference between employees and consumers t(192) = 2.627, p < .01; and for the difference between consumers and the community t(192) = 2.144, p < .05. all the means are statistically different from each other except the difference between the top two groups: stockholders and management. table 7 displays another unique set of rankings. table 7 – mean weighting on stocks dividends stocks dividends n mean std. deviation stockholders 193 4.89 1.783 management 193 4.85 1.747 government 193 3.54 1.811 employees 193 3.09 1.626 consumers 193 2.72 1.688 community 193 2.52 1.555 table 8 shows the average ranking of the various stakeholder groups for decisions involving taxes. the results of the paired t-test are as follows: for the difference between the government and the community t(192) = 8.519, p < .01; for the difference between the community and management t(192) = 2.716, p < .01; for the difference between the management and stockholders t(192) = .943, p > .05; for the difference between stockholders and consumers t(192) = 3.376, p < .01; and for the difference between the consumers and employees t(192) = 1.379, p > .05. the rankings in table 8 are also different from those in the other figures. 21 table 8 – mean weighting on taxes taxes n mean std. deviation government 193 5.54 1.738 community 193 3.85 1.928 management 193 3.37 1.906 stockholders 193 3.27 1.936 consumers 193 2.77 1.803 employees 193 2.63 1.660 table 9 shows the average ranking of the various stakeholder groups for decisions involving product and service features and offerings. the results of the paired t-test are as follows: for the difference between the management and stockholders t(192) = 7.775, p < .01; for the difference between the stockholders and consumers t(192) = 1.116, p > .05; for the difference between consumers and employees t(192) = 4.110, p < .01; for the difference between employees and the community t(192) = 1.061, p > .05; and for the difference between the community and the government t(192) = 3.954, p < .01. table 9 shows another unique set of rankings of stakeholders. table 9 – mean weighting on product offerings product offerings n mean std. deviation management 193 5.51 1.335 stockholders 193 4.39 1.717 consumers 193 4.18 1.918 employees 193 3.58 1.543 community 193 3.42 1.790 government 193 2.82 1.611 table 10 shows the average ranking of the various stakeholder groups for decisions involving bankruptcy, sale, or closing of the enterprise. the results of the paired t-test were as follows: for the difference between stockholders and management t(192) = 2.686, p < .01; for the difference between management and the government t(192) = 10.672, p < .01; for the difference between the government and employees t(192) = 1.455, p > .05; for the difference between employee and the community t(192) = 5.530, p < .01; and for the difference between the community and consumers t(192) = 2.844, p < .01. the rankings in table 10 are also different from those in the other figures. 22 table 10 – mean weighting on bankruptcy, sale, or closing bankruptcy, sale, or closing n mean std. deviation stockholders 193 5.74 1.520 management 193 5.33 1.588 government 193 3.49 1.987 employees 193 3.25 1.683 community 193 2.56 1.654 consumers 193 2.34 1.550 table 11 shows the average ranking of the various stakeholder groups for decisions involving employee stock ownership. the results of the paired t-test are as follows: for the difference between stockholders and management t(192) = 2.289, p < .05; for the difference between management and employees t(192) = 6.741, p < .01; for the difference between the employees and the government t(192) = 7.269, p < .01; for the difference between the government and the community t(192) = 4.585, p < .01; and for the difference between the community and consumers t(192) = .777, p > .05. table 11 rankings are distinct from those in the other figures. table 11 – mean weighting on employee stock ownership employee stock ownership n mean std. deviation stockholders 193 5.47 1.479 management 193 5.17 1.512 employees 193 4.30 1.736 government 193 3.11 1.650 community 193 2.53 1.507 consumers 193 2.47 1.531 table 12 shows the average ranking of the various stakeholder groups for decisions involving sustainability and climate change. the results of the paired t-test are as follows: for the difference between the management and stockholders t(192) = 1.404, p > .05; for the difference between stockholders and the government t(192) = 1.389, p > .05; for the difference between the government and the community t(192) = .169, p > .05; for the difference between the community and employees t(192) = 4.534, p < .01; and for the difference between the employees and consumers t(192) = .476, p > .05. table 12 displays another distinct ranking of the stakeholders. 23 table 12 – mean weighting on sustainability and climate change sustainability and climate change n mean std. deviation management 193 5.24 1.536 stockholders 193 5.06 1.605 government 193 4.81 1.828 community 193 4.79 1.759 employees 193 4.18 1.705 consumers 193 4.12 1.854 conclusions several conclusions result from these data. one conclusion is that participants successfully stepped behind rawls’ veil of ignorance to make judgments about stakeholder legitimacy relative to different organizational issues. the effectiveness of this technique is demonstrated in three main ways. first, the rankings of the six stakeholder groups were in a different order, depending on the issue at hand. the rankings among the six stakeholder groups were vastly different when the issue was ceo compensation or product health and safety or environmental issues. the participants did not merely take the position of a single stakeholder group and rank the other stakeholders as less important in a self-interested manner. instead, they changed their rankings per the issue being addressed, thereby assigning different levels of power to stakeholders depending on the question or issue at hand. these results are consistent with the first hypothesis. second, within the ranking for each issue, there was a statistically significant separation between the rankings of the various stakeholders. the stakeholder groups that were ranked at the top, middle, or bottom were not placed randomly; there was a meaningful distinction among the various groups within each issue. when there was an absence of statistical separation between two stakeholder groups, it was a reasonable integration of the two sets of stakeholders. for example, the bottom two stakeholder groups for ceo compensation (table 1) were consumers and community. there was no statistical difference between these two groups simply because they are both external stakeholders who arguably should have little consideration in making decisions about ceo compensation. the same was true for environmental protection issues. the government and community were on top with no statistical difference between them as one would argue it should be. these results affirm the second hypothesis. finally, the usefulness of this approach and the resulting stakeholder rankings produced a rationally defensible scheme of ranking stakeholder legitimacy or power relative to specific organizational issues. for example, it makes sense that the top stakeholder group for ceo compensation (table 1) should be the stockholders, as they are the owners and hence are representative of the employer. the bottom stakeholder group for that issue, the community, should have no more of a say in how much the ceo is paid than some curious individual would have in determining how much a neighbor pays to have their house painted. the interested neighbor is a legitimate stakeholder in the neighborhood but with little legitimate power for that specific decision. 24 another example of rationally defensible ranking can be found in the results for employee health and safety (table 3). the top two stakeholder groups were management and employees. it is rationally defensible that employee health and safety is primarily the responsibility of management with considerable input from the employees who are doing the work. these data further show that stockholders are ranked on top for deciding stock dividends (table 7), while the government and community carry the most weight in establishing tax policy (table 8). for every issue, the rankings are rationally defensible and demonstrate the validity of this approach. with a larger sample that is demographically more representative of the population, this method can illuminate the issue of competing interests among legitimate stakeholder groups. one unexpected result was the significant responsibility placed on organizational leadership, the stockholders, ceo, and management team, for many of these issues. it could be argued that more weight should have been given to consumers and the community through markets and advocacy groups. however, these results indicate that most governance issues should be addressed through ethical leadership. although legitimate questions surround this issue that is worthy of exploration, given that this is a novel research approach, conclusions must wait for more data and a broader sample of participants. an additional unanticipated conclusion from this work is a greater understanding of legitimacy. as santana (2012) pointed out, the legitimacy of a stakeholder is determined by the legitimacy of the entity, the claim, and the stakeholder’s behavior. as demonstrated here, however, otherwise legitimate stakeholders may not have the same legitimacy for every issue the organization is facing. and thus, their claims, interests, and influence should hold differing weights relative to a specific issue in a good-faith manner (dawkins, 2014). this differing weight depending on the issue at hand is an elaboration on the idea of the legitimacy of a stakeholder’s claim. some stakeholder claims carry more weight, and some carry less weight, depending on the decision or issue contemplated by the organization, and hence merit greater or lesser consideration by management. these unexpected results indicate a more nuanced understanding of the legitimacy of a stakeholder claim. the concept of standing is adopted here as a possible explanation of the observed results. the idea of standing in the stakeholder literature is used primarily in the context of considerations of the natural environment and sustainability as a stakeholder of an organization (stead & stead, 2000; starik, 1995). the environment as a stakeholder is congruent with the idea of the emergence of profit-with-purpose corporations (levillain & segrestin, 2019) as well as the rawlsian principle of fairness. the definition of legal standing provides a foundation for stakeholder standing. in the law, standing is the term used for the ability of a party to demonstrate to the court sufficient connection to and harm from the law or action that allows the party to participate in a case (friedman, 2019). legal standing exists because the party is directly subject to harm or adverse effect by action, and that harm will continue unless the court intervenes. this is referred to as the “something to lose” or “injury in fact” doctrine because the party is directly impacted by the action (lee & ellis, 2012; winter, 1988). this definition goes beyond merely having an interest or curiosity concerning the issue as in mendelow (1991). some stakeholders who have both interest and power must be managed and cultivated carefully by management because of the potential impact they could exert on the organization through formal channels like the courts. but the results here indicate that individuals in rawls’ original state are reluctant to grant significant standing to individuals or groups who have no compelling interest or ability to interact for mutual benefit (phillips & reichart, 2000). using the legal definition as a foundation, stakeholders have standing when they have assets at risk, or as warren buffett popularized it: “skin in the game” in the specific decision or issue under consideration (buffett & cunningham, 2019). clearly, by this definition, standing can vary for a particular stakeholder depending on the issue. the data indicate that participants behind rawls’ veil 25 of ignorance understood that the assets at risk vary depending on the issue under consideration. for example, for ceo compensation (table 1), the stockholders have considerable assets at risk while the community, in general, has little skin in the game for that decision. this is exactly how these participants ranked the stockholders and the community. for consideration of taxes (table 8), the government has the greater assets at risk while the employees have considerably less at risk. likewise, for work procedures (table 6), management and employees have the most standing while the community and consumers have the least. as with the legal definition of standing, this definition is a higher bar than merely being interested, concerned, or curious about an issue. for a stakeholder to have standing in a particular decision or issue, the decision or resolution of the issue must directly impact the stakeholder’s assets at risk. it must be made clear that this conception of stakeholders and their standing in no way precludes a group from receiving interest and attention from management. indeed, groups such as competitors and the media often require significant attention from management as part of their fiduciary duties. and one does not need to be a stakeholder to deserve moral consideration as argued by phillips and reichart (2000). primarily, this research answers the question of what is ethically owed to each of the stakeholder groups and how much consideration should be given to each group in various governance issues. how much weight or credence is owed to the claims of each of these stakeholder groups? these data indicate that the ethical duty owed a stakeholder is dependent on the issue at hand and the assets of the stakeholder at risk in the decision. understanding this conception of stakeholder standing allows owners and managers to attend appropriately to the demands of various stakeholder groups and to rank their power and influence based on the issue being considered. future research will focus on expanding the sample to be more generalizable to the larger population so that more prescriptive applications can be made from the data. that will allow a more definitive explanation of the ethical duty owed to each stakeholder group. additionally, further validation of this approach will allow evaluation of the standing of stakeholder groups not explicitly represented in these data. what each stakeholder group owes the enterprise is an equally important question since the agency can go both directions (raelin & bondy, 2013). some light is shed on this question especially for the internal stakeholders, like the stockholders acting through the board of directors, management, and employees. not only do their interests carry weight in the decision process, but they also have responsibility. stockholders, acting through the board of directors, weigh in to determining the compensation of top management and they also have the responsibility to provide for effective managerial oversight. legal obligations 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(1988). the metaphor of standing and the problem of self-governance. stanford law review, 40(6), 1371-1516. https://doi.org/10.1016/j.ijproman.2005.02.002 https://doi.org/10.1177%2f0149206308324322 https://doi.org/10.2307/3857232 https://doi.org/10.1111/corg.12038 https://doi.org/10.1162/003355398555630 57 an investigation of the perceptions influencing the intention to major in information technology kenneth sousa bryant university talented and experienced personnel are essential to maintain an organization’s capacity to implement information technology initiatives. the demand for technology personnel relative to the supply of skilled personnel has formed a challenge with the recruiting and retention of technology personnel. this research study has compiled the perceptions and attitudes associated with information technology careers over five years. the study provides empirical insight into various factors which could influence the intention to select information technology as a higher education major. the results of this study found that aptitude and subjective norms are the most influential factors in the intention to major in technology. while resulting in a smaller influence, the regression model found two other significant factors including personal image and media. the personal image was the only negative influence on the intent to major. while this subject has been studied through various research studies, the outcomes reiterate the continuing disconnection related to career information and stereotypes associated with business technology professionals. the results of this research will offer employers and educational institutions (k-12 through higher education) various strategies to increase interest in business information technology careers. the challenges associated with increasing technology majors to fulfill market demand will continue without the implementation of new and refined strategies coupled with continuing assessment and published research. introduction it is rather impossible to identify any medium to large-scale business without considerable technology integration into their operations. the integration of customer-facing technologies such as web-based/mobile applications, social media, and hardware devices (iot) provide a sustainable value proposition for business stakeholders to gain or maintain a competitive market advantage. the availability, access, and popularity of technology applications are prevalent across all age groups. with the consistent appetite for technology among younger adults, it may be easy to believe that establishing a career in technology would be more appealing. for example, a student interested in athletics or finance would lead to a career in sports or as a stockbroker. however, the correlation between young adult technology engagement and technology careers is not as successful. studies have found that the attitude and interest in some stem careers (science, engineering, and technology) have decreased (johansson, 2009; lindahl, 2007). intrinsic motivators can provide a strong influence on a career selection. chipidza et al. (2019) found that interest and a satisfying experience as the strongest characteristics for choosing a technology career. the attitude of the student has also been identified as a strong predictor (chipidza et al., 2019; moore & burrus, 2019). wang et http://journals.sfu.ca/abr 2022, volume 12, pages 57-74 http://journals.sfu.ca/abr 58 al. (2017) asserted that experiences and interactions will expand to influence the development of cognitive ability and motivational beliefs (e.g., interest, value, ability self-concept), which in turn influence career decisions. these factors could provide the foundation for an increasingly negative trend associated with students deciding to change from a technology major. more than half of the stem students have changed majors within three years while 28% of computer and information sciences majors dropped (national center for educational statistics, 2017). other research studies have identified various factors affecting information technology majors including gender (ardies, de maeyer, & gijbels, 2015; ardies et al., 2015) and family factors (valentino et al., 2016). the selection of a college education major is analogous to purchasing a car. to change the dynamic of a consumer purchase or selection of a major, it is important to understand the factors which influence the decision. therefore, an exploration of the influences can provide a foundation to develop strategies that may reverse the decreasing number of entrants into technology careers. the demand for information technology professionals is clear. recent data from the u.s. bureau of labor statistics (2020) illustrates this demand. the employment projections for several computer occupations over the next ten years will increase between 6% – 21%, with an increase of over six hundred million jobs. to explore the reality of these statistics, it would be important to gather objective data on open technology positions. an analysis of the open technology positions of a large financial services firm was completed in august 2021 and february 2022. in six months, the number of open positions increased to 549, a 41% increase (from 389). anecdotally, there are many reasons for this trend: availability of new hires, normal (or early) retirements, and the “great resignation”. regardless of the cause, the demand for technology positions vs. the supply of personnel is not progressing in a positive trend for businesses to recruit and retain qualified personnel. the purpose of this research is to investigate the effect of various attitudes and perceptions of first-year undergraduate students on the intention to select an information technology major. furthermore, identify any changes or strategies to align with these perceptions to increase interest in technology careers and the availability of skilled labor. these strategies will assist high schools, colleges, and businesses to implement strategies that could increase the labor population of technology professionals. literature review factors for education major decision decisions are generally formed through the gathering of information, data, and conversations. saleem et al. (2014) indicate that there is a significant list of factors that influence an individual’s career selection such as parent’s profession, mass media, and personal choice. based on research exploration, a list of several factors has been compiled to explore the influence on the intent to major in technology. this study focused on nine factors that will be included in the research model. the factors identified in this research have also been explored in several published research studies as outlined in table 1 below. the table also outlines the statistical method utilized for the research outcomes. 59 table 1 – research studies and factor matrix factor (zhang, 2007) (kuechler et al., 2009) (heinze, 2009) (joshi & kuhn, 2011) (chipidza et al., 2019) (vainionpaa et al., 2019) aptitude to study information technology    interesting to use; complete work with technology      interest in information technology     availability of job positions      gaining a high starting salary    influence of media importance of self-image; image of information technology professionals      influence of family, friends, professors, advisors, and peers      work environment    theoretical framework theory of reasoned action theory of reasoned action theory of planned behavior / social cognitive career theory theory of reasoned action theory of reasoned action qualitative, interviews aptitude aptitude is an assessment of the human potential to be successful in specific occupations (mccloy et al., 2020). joshi and kuhn (2011) believed that, through self-efficacy, one’s ability to complete a behavior or task is created from the ability to organize and execute a given course of action. ultimately, confidence in the belief that someone has the skills to accomplish an outcome will influence the selection of a major and career. this belief was also explored by epsztajn (2019) specific to the self-confidence in their skills and abilities for a promotion or completing an exam. self-belief is a powerful influence in major and career selection as well as in life. h1. aptitude is a significant predictor of intention to major in information technology attitude perceived behavioral control (pbc) is influenced by various control beliefs (ajzen, 1991). these beliefs could either enable or hinder the behavior (or outcome). joshi and kuhn (2011) studied the individual feelings associated with selecting an is-related career. their research found that career attitude is a significant determinant of the intent (to major). the attitude was found a strong predictor for the stem major and career decisions (moore & burrus, 2019). 60 h2. attitude is a significant predictor of intention to major in information technology interest in is self-efficacy affects individual choices, either directly or indirectly, through interest (joshi & kuhn, 2011). chipidza et al. (2019) found that the “lack of interest” is both an attitude and a perceived obstacle that students believe is difficult to change. furthermore, this study believed that interest, as an intrinsic influence, has a strong impact on a student’s attitudes toward an mis career or major. the research by lent (1994) supports that efficacy is the central instrument of personal agency and fundamental to the decision on a career choice. a focus on the improvement associated with math skills should increase the prospect of a stem-based profession in a student’s future (wang et al., 2017). furthermore, their research found that when improving science interest and realigning stem with communal or altruistic goals may increase the likelihood of a future stem professional. walstrom et al. (2008) found that interest in the subject matter was the highest-ranking factor associated with career interest. unfortunately, particularly girls seem to have a very negative perception of it careers believing that it careers are not interesting and cannot fulfill their work values; even with the use of video games and social media which are used daily (vainionpää et al., 2019). h3. interest in it is a significant predictor of intention to major in information technology job opportunities chipidza et al. (2019) discussed the research of ajzen (1991) that some factors that are nonmotivational could have an impact on decision-making. one of these factors relates to the availability of positions within a major. chipidza et al. found that job availability and salaries would “make it easy or less costly” to major in mis. several research studies have included the job opportunities factor to determine its influence on mis majors and career choices (heinze & hu, 2009; joshi & kuhn, 2011; walstrom et al., 2008; young et al., 2018; zhang, 2007). h4. job availability is a significant predictor of intention to major in information technology job salary as previously discussed, chipidza et al.(2019) research included salary as one of the nonmotivational influences as defined by ajzen. joshi and kuhn (2011) believed that high income may influence to be attracted to a technology career and was proven to be accepted as a positive factor. the salary associated with technology-based jobs has been explored by (walstrom et al., 2008). kuechler et al. (2009) did not find job salary and security significantly affected student selection of an is major. moore and burrus (2019) asserted that a limitation of their research is that salary may be a factor to choose a stem career that affects males rather than the interest itself. career salary was found to be a high fourth highest importance in a career interest (walstrom et al., 2008). h5. job salary is a significant predictor of intention to major in information technology media influence the influence of media on consumers has been studied for decades in a variety of research studies. the selection of a higher education institution, major, and career is a form of consumer decision. over the last decade, the impact of media has expanded and transformed with the adoption of social media. additionally, the use of social media by young people has significantly reduced the 61 influence on traditional media (broadcast television, magazines, newspapers, etc.). the transformation of new and additional media influences coupled with societal dynamics has been affirmed by the research of apostol and nasi (2014). their research found that the depiction of various characters in media (such as commercials, movies, and series) can influence the perception of professions. in addition, bakshi and joshi (2014) state that “youth can only select an occupation from the range of occupations that they know about. their self-exploration and self-development vs. future careers are enhanced or limited depending on the range of occupations to which they are exposed” (p. 186). based on the research outlined, media influence was added to the research model to extend the research model and add value by exploring this new factor on the intent to major in a technology career. h6. media influence is a significant predictor of intention to major in information technology. personal image the image of technology majors being “nerdy” has a significant influence on the perceptions of undergraduate students. zhang (2007) related the perceptions of both accounting and is students. an accounting career may be considered too abstract or impersonal currently by high school and college students. information technology careers often tend to focus on characteristics associated with an accounting career coupled with the “geek” stereotype. other research studies investigated the influence of image on the attitude toward pursuing an is career (joshi & kuhn, 2011; kuechler et al., 2009). h7. personal image is a significant predictor of intention to major in information technology subjective norm a broad definition of a subjective norm is the perceived expectations of a user to perform a specific behavior (ajzen, 1991). finlay et al. (1999) further described a subjective norm as an individual's perception or "opinion about what important others believe the individual should do". saleem et al. (2014) stated that students’ choices can be prompted to perform behavior based on the influence of others including parents’ profession, mass media, and personal choice. several research studies have explored the influence of others on the selection of a college major and career choices. young people sometimes confine and limit their career exploration and knowledge gathering to the adults closest to them (parents, family, and extended family). the research of dasgupta & stout (2014) found that parents can motivate their children and subsequent selection of a major and career choice (dasgupta & stout, 2014). this influence could also limit their choices and exploration of other majors. other research studies support the parental influence on their children (joshi & kuhn, 2011; nugent et al., 2015). the research of bright et al. (2005) extended these studies to include the influence of teachers. the various sources of influence can develop a student’s stem identity as a result of their surroundings as well as whether or not they fit the in the stem community (dasgupta & stout, 2014; kim et al., 2018). h8. subjective norm is a significant predictor of intention to major in information technology work environment 62 joshi and kuhn (2011) believed that several areas are associated with work values including technological focus, leadership, high income, variety, security, flexibility, social responsibility, social interaction, and work-family balance. valentino et al. (2016) found that students that considered family flexibility important were less likely to select a stem major. in addition, their research found that students with these perceptions were more likely to leave a stem field for a non-stem field. joshi and kuhn (2011) found that work-life balance was not a significant influence on the attitude toward an is career. with the generational and societal changes over the last several years, this factor will be important to explore. h9. workload environment is a significant predictor of intention to major in information technology research methodology to complete the objective of this study, the research model includes ten factors: nine independent and one dependent variable. the listing of the factors, factor abbreviations, and the number of survey questions are outlined in table 2. table 2 – research factor summary factor name variable type number of questions aptitude (ap) iv 2 attitude (at) iv 2 interest in it (in) iv 5 job availability (ja) iv 2 job salary (js) iv 2 media influence (mi) iv 5 personal image (pi) iv 2 subjective norm (sn) iv 5 workload environment (we) iv 5 intent to major (im) dv 2 32 legend: iv = independent variable; dv = dependent variable the objective of this research is to investigate the influence of various factors on the intent to select information technology as a major. the independent variables and dependent variables representing the factors comprise the proposed regression formula: intent to major = β0 + β1*aptitude + β2*attitude + β3*interest + β4*job availability + β5*job salary + β6*media influence + β7*personal image + β8*subjective norm + β9*workload environment survey instrument a survey instrument was developed based on the compilation of research studies identified in the literature review in table 1. the survey consisted of 32 questions assigned to one of the ten factors outlined in table 2. to increase construct and response validity, each factor was designed to include at least two questions from the listed research that included the survey document. three questions 63 were added to the survey including gathering categorical data values including gender, class standing (first-year, sophomore, junior, senior), and grade point average. except for the media influence question, factor questions were separated to prevent the same factor question (reworded) to be displayed in sequential order. the media influence question was provided as one table to reduce the complexity of the question and responses. the response scale was defined using one of two likert scales: 1) strongly disagree vs. strongly agree (sd/sa) and 2) not important vs. extremely important (ni/ei). a numerical value of one (1) was assigned to the strongly disagree and not important responses. comparably, a value of seven (7) was assigned to the strongly agree and extremely important responses. the responses associated with the media influence questions were gathered using an extremely important vs. not important scale. all remaining question responses were gathered using a strongly agree vs. strongly disagree scale. higher education institutions accept students using several admission strategies. in general, institutions accept students using three categories: 1) directly into a specific college (architecture, business, engineering, arts & sciences, etc.), 2) assigned to a “university college” without a program or allow the selection or 3) allow the students to elect a major. in some cases, students also elect to be undecided in terms of a program of studies or major. one study found that between 20 – 50% of students are undecided (gordon, 2007). for those students that elected a specific major, some decide to change their original selection. within three years of entering the institution, 30% of two-year and four-year undergraduates changed their major at least once (national center for educational statistics, 2017). the number of stem majors that changed their majors was 35% compared to 29% for nonstem majors. this research study compiled the perceptions of first-year undergraduate students at one institution. this population was selected to explore attitudes and insights before they begin selecting courses associated with their major; generally, in the second or third year depending on the program of studies. survey responses were gathered during eight semesters between fall 2016 and fall 2021 at a four-year university. each survey was administered in a required course for all first-year students in the university. for the five years and eight semesters, a total of 1,139 valid responses were collected. assumptions independence of observations all administrations of the survey were administered in a specific course. therefore, no students would have been able to complete the survey more than once during the semester administration. all first-year and transfer students are required to complete this course. students were asked to complete a survey during a class session proctored by a faculty member. homogeneity of variance the population consisted of a particular group of first-year and transfer students in a required one-hundred-level core course. both categories of students would not be able to complete upper-level courses (those associated with major classes) until this foundation course was completed successfully. therefore, the evaluated population has similar characteristics throughout all survey administrations for this research study. 64 findings and results reliability analysis as outlined in table 2 above, the perceptions were compiled with 32 questions (observed variables) assigned to the ten factors based on the literature review. it is important to ensure that the observed variables can accurately calculate and measure the assigned factor. to complete this test, the most widely used measure for reliability and scale consistency is cronbach’s alpha (hair et al., 1998). the cronbach’s alpha test results are compiled in table 3. table 3 – cronbach’s alpha test of reliability factor number of items cronbach's alpha removed number of items adjusted cronbach's alpha aptitude 2 0.786 attitude 2 0.806 interest in it 5 0.724 job availability 2 0.830 job salary 2 0.803 media influence 5 0.777 personal image 2 0.804 subjective norm 5 0.702 sn3 4 0.819 workload environment 5 0.772 we1 4 0.796 intent to major in it 2 0.891 the initial reliability test resulted in all factors scores over 0.70. however, two of the factors provided increased alpha scores when one of the items was deleted. consequently, it is appropriate to continue with the statistical tests using the 30 items (after removing the two items noted above). with the successful completion of the cronbach’s alpha test, it was necessary to prepare for the regression analysis. at this point, each of the remaining items associated with the factor was averaged to provide one value for the ten factors for all 1,139 records. these composite averages would be used as the input to the regression model, and the analysis was performed in spss. correlation analysis a correlation analysis was completed as a component of the regression analysis. the results of this analysis are compiled in table 4. table 4 – correlation analysis of factor variables factor 1 2 3 4 5 6 7 8 9 10 1. intent major 1.00 0.70 0.37 0.42 0.37 0.29 0.11 -0.13 0.68 0.37 2. aptitude 1.00 0.55 0.55 0.43 0.38 0.06 -0.02 0.70 0.47 3. attitude 1.00 0.62 0.30 0.33 0.06 0.05 0.41 0.48 4. interest 1.00 0.24 0.26 0.14 0.04 0.42 0.40 5. job avail 1.00 0.58 0.01 0.01 0.47 0.48 6. job salary 1.00 0.06 0.09 0.36 0.56 7. media 1.00 -0.08 0.10 0.14 65 factor 1 2 3 4 5 6 7 8 9 10 8. pers image 1.00 -0.13 0.10 9. subj norm 1.00 0.41 10. work env 1.00 in reviewing the correlation values, the largest correlation value for all variables was 0.702. therefore, the analysis calculated scores that eliminated the possibility of correlation in the model. regression results the mean and standard deviation scores have been compiled in table 5. the mean values are based on scales discussed in table 3. the scales are identified as strongly agree or extremely important (value of 7) to strongly disagree/not important at all (value of 1). table 5 – mean scores summary results factor overall mean std. dev. avg aptitude 3.43 1.41 avg attitude 4.92 1.33 avg interest it 4.78 1.12 avg job avail 4.68 1.20 avg job salary 4.84 1.13 avg media influence 4.33 1.24 avg personal image 5.54 1.20 avg subjective norm 2.94 1.17 avg workload env 4.87 0.88 avg intent major 2.54 1.43 the regression analysis was completed using a stepwise logistic regression method. the nine independent variables and one dependent variable were used as the input to determine the influence on the intention to major in technology. the regression analysis was completed using spss. of the nine independent variables, four factors remained in the final regression model. the four models and the associated statistics are compiled in table 6. the total degree of freedom (df) is 1,134. for regression model #4, the regression model calculated a strong goodness of fit (r2 = .567). this measure indicates that 57% of the variance in the dependent variable was explained by the independent variables (factors). table 6 – regression overall model summary model r2 adjusted r2 std. error durbin-watson f sig 1 0.489 0.489 1.023 1086.35 .000 2 0.559 0.559 0.951 718.90 .000 3 0.565 0.564 0.945 489.88 .000 4 0.567 0.565 0.944 1.752 369.34 .000 66 it is important to validate the existence of any autocorrelation in a regression model by determining that there is no correlation between the consecutive residuals proving that the residuals are independent. the durbin-watson test detects the existence of autocorrelation issues (tabachnick & fidell, 1996). the output from the regression model calculated a durbin-watson value of 1.752. the generally accepted range for this test is between 1.50 and 2.50. therefore, no autocorrelation issues have been identified in the final model. the final stepwise regression model resulted in four independent variables remaining as significant. a summary of the hypotheses results associated with model #4 is compiled in table 7. table 7 – results of regression hypotheses testing hypotheses result h1: aptitude is a significant predictor of intention to major in information technology supported h2: attitude is a significant predictor of intention to major in information technology not supported h3: interest in it is a significant predictor of intention to major in information technology not supported h4: job availability is a significant predictor of intention to major in information technology not supported h5: job salary is a significant predictor of intention to major in information technology not supported h6: media influence is a significant predictor of intention to major in information technology supported h7: personal image is a significant predictor of intention to major in information technology supported h8: subjective norm is a significant predictor of intention to major in information technology supported h9: workload environment is a significant predictor of intention to major in information technology not supported the results of the regression statistical analysis calculated the coefficients, significance, t-score, and vif values for the four independent variables. the results supported by the final model are compiled in table 8 and figure 1. table 8 – regression model factor summary factor coefficient (b) std. error t-value sig. vif (constant) 0.008 0.188 0.040 0.968 avg aptitude 0.456 0.028 16.284 0.000 1.987 avg subjective norm 0.427 0.034 12.560 0.000 2.031 avg personal image -0.088 0.024 -3.691 0.000 1.029 avg media influence 0.045 0.023 1.980 0.048 1.016 67 figure 1 – research model results legend: *: p-value ≤ 0.05; **: p-value ≤ 0.01; ***: p-value ≤ 0.001 it is also important to evaluate the existence of any multicollinearity in the research model. multicollinearity represents the degree to which any variable’s effect can be predicted by other variables in an analysis (hair et al., 1998). to assess any multicollinearity in a model, it is important to calculate the variance inflation factor (vif). the vif value is an indicator of the effect that other independent variables have on the standard error of a regression coefficient (hair et al., 1998). an acceptable value for vif should be less than 5. as compiled in table 8, the current regression model does not include any effects of multicollinearity. the regression analysis also included the evaluation of mahalanobis distance (d2). this value will measure the uniqueness of each observation based on the differences between each observation’s values (factor average) and the mean values for all other cases for the independent variables (hair et al., 1998). ultimately, this measurement will determine whether the research data contains any outliers. the results of the mahalanobis distance are compiled in table 9. table 9 – mahalanobis distance results minimum value maximum value mean standard deviation 0.015 24.774 3.996 3.220 a maximum d2 larger than the critical value for four degrees of freedom is 18.47. after reviewing each of the individual record d2 values, only six records were over the critical value (0.53%). an additional regression analysis was completed with the removal of the six outlier responses (> 18.47). the regression model significance value remained at 0.000. the changes to the remaining model outcomes (tables 8 and 9) were small. therefore, the six records remained in the published model. to evaluate the accuracy of the dependent variable (average intent to major) between the observed and expected cumulative probabilities, a chart has been provided in figure 2. the plot line illustrates a nearly perfect linear and normal relationship between the observed and expected values. 68 figure 2 – plot of regression standardized residual – observed vs. expected therefore, the final regression equation is compiled as follows: intent to major = 0.008 + (0.456) *aptitude + (0.427)*subjective norm – (.088)*personal image + (0.045)*media influence discussion the overall model summary provided a strong goodness of fit predicting the proportion of the variance that can be explained (r2 = 0.567) as well as a statistically significant p-value (p <0.00). the results of the regression model indicate a moderate influence for both the aptitude and subjective norm (β = 0.427) factors. each of these factor coefficients was highly significant in the final regression model (p < 0.00). the remaining factor coefficient values were significantly less than the aptitude and subjective norm coefficients. personal image and media influence resulted in a significantly lower influence on the intent to major. aptitude is an assessment of the skills required for occupations and careers which can relate to a level of confidence. aptitude resulted in the highest influence on the intent to major (β = 0.456, p < 0.000) measuring the level of confidence and self-assurance associated with a career in technology. the mean value of the population (3.43) is below the benign likert scale value (4) and toward the “somewhat disagree” perception. the results of various research studies contradict the outcome of this research finding that aptitude was not statistically significant on the intent to major (joshi & kuhn, 2011; kuechler et al., 2009; rattan et al., 2018; zhang, 2007). this research study indicated a moderate influence of the subjective norm (β = 0.427, p < 0.000) on the intention to major. while lower than the influence of aptitude, the impact of people 69 around students is quite clear. the perceptions associated with this research were measured with four groups for the subjective norm factor (family, friends, professors, and advisors). vainionpää et al (2019) stated that parental support is important; fathers, male peers, and male siblings have a significant influence in motivating women to engage in tinkering activities. two research studies supported the results of this research with statistically significant influence on subjective norms (chipidza et al., 2019; kuechler et al., 2009; zhang, 2007). however, other studies resulted in finding any statistical significance for the subjective norm influence (heinze & hu, 2009; moore & burrus, 2019). the remaining two factors, personal image, and media influence remained in the final model, although the coefficient values were significantly lower than both the aptitude and subjective norm factors. not surprisingly, personal image perception resulted in the only negative influence (β = 0.088, p < 0.000) on the dependent variable. three research studies found that personal image had no significant effect on the intent to major (joshi & kuhn, 2011; kuechler et al., 2009; zhang, 2007). even though the value is small, the results do indicate some perceptions of anti-social, geeky, and nerdish individuals by majoring in a technology career. media influence was the smallest influence on the dependent variable (β = 0.045, p < 0.05). as shown in table 1, no research studies have integrated the influence of media on the decision to major in a technology career. however, similar research studies did not find an influence on the selection of accounting majors (ali & tinggi, 2013; rababah, 2016). while media influence did remain in the final regression model, the factor p-value was close to the threshold limit. it was disappointing that none of the remaining five factors did influence the intent to major in technology. anecdotally, it was unexpected that several factors (attitude, social image, and interest) did not result in any significant influence on the intent to major in a technology career. conversely, it was expected that the model’s results illustrated a moderate influence for both aptitude and subjective norm. theoretical and practical implications skills can be assessed through the attainment of certification as well as formal education coursework through final grades. however, for many students, the level of attained skills is sometimes based on perceptions, which may or not be accurate. formation of career interests in technology is formed through coursework in math and science coursework (green & sanderson, 2018; vela et al., 2020; wang et al., 2017). the formation of students’ abilities can be formed before their college experience. simpkins et al. (2006) believe that the crucial time is during junior high (grades 7 – 9) when fostering math and science self-efficacy will influence a student’s competency and career interest development. however, it could be argued that the students (from junior high through college) are radically different than in 2006. subsequent research found that science self-efficacy impacts the student’s selection of science-based activities which translates into increased interest (parker et al., 2014; richardson et al., 2012). akbulut-bailey (2012) contends that social support augments selfefficacy and outcome expectations which will increase student interest. therefore, to change the trajectory of increasing interest in technology-based positions, more intervention is required before students enter a higher education institution. co-curricular activities can provide support to connect and support academic activities. eccles (1994) asserts that career exploration and interests are formulated in adolescence and shape subsequent pathways to stem. junior and senior high schools have an infrastructure of activities (academic, social, and athletic) for students. college athletes develop their interests, skills, and talent from their high school experience. technology, as well as stem-based careers, require the same formation and self-confidence to ignite their interest as well as develop the necessary skills. 70 strategic partnerships and co-curricular activities can provide an influential foundation for career exploration and subjective norms. public and private schools need to promote and integrate business partnerships to offer advocacy, role models, and activities that will support this formation process. young et al. (2018) asserted that both career optimism and career planning ability are crucial factors in determining the strength of a student’s commitment to a technology career path. therefore, these activities may subtly form the support and factual narratives to increase the influence identified by this subjective norm factor associated with role models, advisors, and professors/teachers. the successful integration of these activities will support the advice and influence of the student’s teachers as well as family (rezayat & sheu, 2020). technology educators can compile and communicate various information directly to parents on technology careers including job growth, various position definitions, growth opportunities, salaries, and co-curricular activities to educate parents with important, accurate influence for their children (walstrom et al., 2008). these strategies will also counteract the various negative stereotypes formed by young people (xuefei et al., 2022). business and education partnerships can be formed to conduct stem camps. this influence of this type of strategy was found to improve the perception of stem careers through a one-week informal camp (baucum & capraro, 2021; vela et al., 2020). students do not fully understand the role of business technology professionals (vainionpää et al., 2019). the integration of industry professionals, through business partnerships, will provide a targeted, accurate narrative through role models dispelling the “geek” stereotype and reinforcing the business technology professional paradigm. akbulut-bailey (2012) suggested that self-efficacy leads to stronger outcome expectations to find the value rewards associated with a major in information systems. furthermore, this research contends that, with an increased emphasis on social support, a positive relationship connection between students’ interests and choice will occur, leading to a stronger possibility of selecting an information systems major. rezayat and sheu (2020) found that participating in playing games and stem clubs correlates with positive perceptions of stem careers among american students. the positive relationship connection from students needs to be recognized and targeted by employers (from strategic partnerships). in the post-covid period, mccloy et al. (2020) found that education needs to collaborate for a more long-term and inclusive view of talent development as the outcomes associated with proficiency from postsecondary education are questioned. it should be expressly noted that this discussion is not limited to the high school environment. these strategies can and must be replicated at the higher education level to continue the engagement on the influential factors recognized in this research along with the various strategies outlined. these initiatives will provide an impact by increasing self-belief and confidence (aptitude). the less influential factors identified in this research will be supported (or negated as it relates to the personal image) by social and activity support. the integration of business professionals into all education levels will provide a realistic view of a business technology career. hands-on activities to integrate technology concepts in the areas of mobile application design and business strategy will provide a definitive, accurate perspective of these technology careers. the interaction with these industry practitioner role models will add value to dispel the “computer science” and engineering stereotypes associated with business technology professionals. the continual (or maybe increasing) gap between supply and demand for it personnel coupled with the value-proposition ascribed to technology initiatives will only continue to challenge business leadership in the future. the continual need for increased and expanded organizational technology portfolios is not affected by the reduction in labor availability of staffing levels thereby overburdening personnel with additional responsibilities and workload. 71 limitations and further research the completion of this research uncovered several limitations. while the surveys were completed with a consistent population (first-year students), some semesters did not provide a consistent response rate over the research period. however, it is unknown whether the availability of additional survey submissions would alter the results. in retrospect, it may have been important to gather data on whether the first-year students have selected a major or remain undecided. additionally, if the student had selected a major, it would be important to gain a level of certainty about their decision. this data would have provided an important narrative to supplement the intention to major in a technology career qualitative data. the results of this five-year study have provided interesting thoughts and questions which affect the perception of the major, career, and activities of information technology majors. additional questions have been formulated for potential exploration. • do they view technology skills as a “trade school” mentality rather than a higher education model? • are students aware of business leaders who gained their leadership positions through a successful career in a technology position? • has the influence of the research factors changed over the research period by calendar year? • are there any differences between the perceptions of high school students versus college students? a comparison between high school students and first-year college students in the same period would be useful. this research confirmed the direct relationship between the confidence and perception of student’s aptitude as well as subjective norm influence on the intent to major. the lack of an accurate perspective could be erroneously deflecting students from a successful and enjoyable technology career. while the current group of high school and college students believe that they are experienced and skilled in the use of technology, there is also a clear disconnect with their perception associated with their technology aptitude. or it is a simple disconnect in the interest in the development of technology? students may view technology as an appliance. a simple view is an example that young people enjoy driving a car. however, they have no interest in understanding the design and mechanical operation of an automobile. that responsibility is aligned with an engineer that requires higher math and science aptitude and not with a business professional educated with a business technology curriculum. 72 references ajzen, i. 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(2007). why is: understanding undergraduate students' intentions to choose an information systems major. journal of information systems education, 18(4), 447-458. https://www.bls.gov/emp/tables/occupational-projections-and-characteristics.htm https://www.bls.gov/emp/tables/occupational-projections-and-characteristics.htm https://doi.org/10.1108/jrit-12-2019-0078 https://doi.org/http:/dx.doi.org/10.1007/s10964-016-0618-8 https://doi.org/http:/dx.doi.org/10.1080/08874417.2016.1235473 introduction literature review factors for education major decision research methodology survey instrument assumptions findings and results reliability analysis correlation analysis regression results discussion theoretical and practical implications limitations and further research references 78 franchising as a path to self-employment for women and minorities in retailing juliana white southeastern louisiana university aaron matthew gleiberman louisiana state university rebecca rast missouri state university franchise-based retailing plays a vital role in fulfilling the public policy goal of supporting inclusion for women and minorities in the economic mainstream, through employment and self-employment opportunities. using census bureau data, we compare franchising activity by two protected classes (women, minorities) with their comparison groups (men, non-minorities). results indicate that franchising is used disproportionately by the protected classes as a path to self-employment. we also compare franchising activity among these groups across various sectors and find evidence that women and minorities use franchising to enter hard-to-access business sectors, of which they may have otherwise been excluded. policy implications of these findings are discussed and directions for future research are offered. keywords: franchise, women, minorities, labor discrimination, entrepreneurship, self-employment introduction it has long been an important public policy goal in the united states to provide more opportunities for women and minorities to participate in the economic mainstream. franchising is one potential avenue to aid in this goal. franchising is undeniably a significant force in u.s. retailing (ayorinde and zubairu 2018; combs and ketchen, 2003), and is indeed one of the fastest-growing forms of retailing in the world, contributing $2.3tn annually to the global economy (alon et al., 2020; michael, 2003). in the united states alone, franchising is responsible for approximately 9 million jobs and contributed $541bn to the us gross domestic product (gdp) in 2016 (international trade administration, 2016). due to its economic impact and public policy implications, the investigation of franchising activities is an important avenue of study. at its core, franchising aims to replicate successful retail business models by giving franchisees turnkey training and support. consequently, it has been touted as a natural private sector means for providing self-employment opportunities to individuals who may not have acquired all of the skills and resources necessary to operate an independent business (williams, 1999). in this http://journals.sfu.ca/abr advances in business research 2021, volume 11, pages 78-101 79 business format, franchisees enjoy benefits from franchisors such as marketing support, training, and operations insight making the franchised business an attractive option for entrepreneurs with limited prior experience (nijmeijer et al., 2014; williams, 1999). moreover, because franchisees gain access to established brands and publicly recognized service concepts, franchising may help overcome consumer reluctance to patronize women and minority-run businesses (dyer and ross, 2000). this reluctance may be particularly true when the type of business is inconsistent with common industry stereotypes. for example, franchised female auto mechanics may face less resistance from consumers holding gender stereotypes than their independently operating counterparts. thus, to the extent that franchising solves problems of access to skills and resources, or problems of consumer rejection, that are unique to women and minorities, those groups should be particularly attracted to franchising as a vehicle for starting their businesses. we empirically evaluate the extent to which women and minorities have been attracted to franchising relative to males and non-minorities through longitudinal data analysis of the 1997 and 2012 survey of business owners (sbo) (u.s. census bureau 2001, 2016). the data reveal that (1) women and minorities are indeed represented in franchising in disproportionately higher numbers than men and non-minorities, and (2) that this representation is sector-specific. literature review the franchising business model can be traced back to the 1850s when the singer sewing company began marketing its products across the united states (ayorinde & zubairu 2018; olotu & awoseila 2011). franchising calls for the exchange of business knowledge, tools, and resources from a franchisor who in turn requires a franchisee to make an equity investment in the franchisor’s business firm (alon et al., 2017). since its inception, franchising has attracted both franchisors who seek to grow their business ventures (cumberland & githens 2012), and franchisees who benefit from the training, skills, and distribution networks that franchising provides (seo 2016; alon et al., 2017). additionally, franchising allows greater access to certain industries through the use of established brands (sanny et al., 2017). in the 1990s, franchising experienced huge expansion both domestically and abroad through imitation of franchised business firms in the united states as well as the internationalization of such firms (alon et al., 2020). franchising has had far-reaching effects on international trade, specifically in service-based industries. this is evidenced by the $3.4tn in world service exports traced directly to developing economies (franchisetimes top 200+, 2018). while the power of franchising can be seen globally, pronounced growth in franchising is also seen in the united states where the business model had its beginnings (alon et al., 2020). the topic of franchising saw a substantial increase in research interest from the years 2009 to 2019, with a particular focus on international franchising showing tremendous growth in both articles published and citations (alon et al., 2020). due to the steadily increasing interest in franchising both domestically and internationally and the current research paradigm of exploring this phenomenon further, we believe franchising to be a highly relevant avenue of study. it is the goal of this research to add to the current body of literature on franchising and further increase our understanding of this business model, particularly in its potential to benefit women and minorities. self-employment through franchising franchising is one of the most critical developments in retailing in the past century. by most estimates, it accounts for more than 40% of all retail dollars in the us economy (combs and ketchen, 2003). in particular, sectors, e.g., specialty food retailing, printing and copying, and tax preparations, it is the dominant form of retailing business organization (combs and ketchen, 2003). international growth is rapid and continuing, and franchised brands such as mcdonald's, pizza hut, 80 and kfc are among the most recognizable brands throughout the world. franchising has become so much a part of the marketing lexicon that it serves as the metaphor for the standardization of service offerings (chiou and droge, 2013; kaufmann & eroglu, 1999). its unique incentive and organizational properties create hybrid relationships between franchisor and franchisee that provide opportunities for individuals, "to be in business for yourself, not by yourself" (franchising world, 1998). because of its unique methods of training and operational and marketing support, franchising is viewed by many as an attractive alternative to the precariousness of independent selfemployment. entrepreneurs are drawn to this business format due to the shared positioning with an established brand name and defined business strategy that franchising provides (nijmeijer et al., 2015). more importantly, it has been suggested that franchising also provides unique opportunities for women and minorities to become self-employed in the retail sector (mcmillian and baker, 2008; williams, 1999). the training that a new franchisee gains in reputable systems is at least as significant as the training that a new employee might expect to receive within the same type of firm. in many instances, it far surpasses employee-type training designed to prepare the individual for the entrylevel tasks assigned. franchisee training often includes real hands-on training in the basic managerial processes necessary to run one's own business (nijmeijer et. al, 2014). when this training is accompanied by a business system that is time-tested and shown to have a significant likelihood of success, the prospective franchisee has access to a turnkey operation that makes self-employment available when it might not otherwise be possible. franchisees also bring necessary financial capital and management capabilities that can significantly grow a franchisor’s growth potential, making franchising mutually beneficial for both parties (gillis et al., 2020). franchisee training in management techniques is particularly important for women. there is evidence that women entrepreneurs enter into self-employment with significantly less human capital than male entrepreneurs. boden and nucci (2000) found that women business owners were less likely to have prior managerial experience and less likely to have ten years of business experience than their male counterparts p0f 1 p. women foreclosed from developing human capital through significant business experience may not have the necessary expertise to run their independent businesses. franchising provides an alternative route to human capital formation. entrepreneurship research has shown that franchisees and franchisors rely on extensive social support, necessitating a complex business framework and franchise network to obtain resources and achieve business success (nijmeijer et al., 2014; parker et al., 2018). acquaintance, recognition, and trust are critical aspects of an entrepreneur's social capital in facilitating transactions with suppliers (nahapiet & ghoshal, 1998). in a franchise system, franchisors play the role of "brokers" (aldrich, 1999) in connecting their franchisee-entrepreneurs to needed resource providers. ongoing business support systems are common to franchise operations, providing access to industry knowledge, suppliers, and other necessary inputs making the franchisee less dependent on their networks (combs et al., 2011; peterson and dant, 1991). for women and minorities who may lie outside traditional social and business networks, this brokerage removes another significant impediment to self-employment. traditionally, women and minorities have faced difficulties obtaining financing for entrepreneurial ventures (bardasi et al., 2011; blanchard et al., 2008; guzman and kacperczyk, 2019, yago et al., 2000). stösic panić (2017) found evidence of a pronounced gender gap in entrepreneurship financing strategies for male and female business owners in serbia. coleman (2000) found that although women had equal access to debt financing, they were more often asked to put up collateral and pay higher interest rates. blanchflower, levine, & zimmerman (2003) and 1 we did not find any studies that examined this same issue with respect to minorities. 81 cavalluzo and cavalluzo (1998) found that african americans were much more likely to be denied a business loan application and that hispanics were 22% more likely to withhold a loan application for fear of being denied credit. further, steil et al. (2018) showed that mortgage discrimination resulted in a disproportionate number of high-cost, high-risk mortgages for black and latino borrowers. the body of evidence that women and minorities often face substantial hurdles when securing loans and financing gives further credence to the franchise business model. a franchisor's established system or brand is a legitimizing factor in the acquisition of financial inputs for women and minorities and may even lower the amount of needed capital. the credibility that an established franchise system provides (compared with an independent start-up) often makes the difference in getting the necessary financing to start a business (shah, 1999). competition for franchisee borrowers has increased to the point that specialized franchise lenders are willing to lend far more than the franchisees need (larson, 1999). moreover, although there is an additional capital requirement related to the franchise fee, the actual capital needs of a franchisee are likely to be lower than for an independent start-up. many franchise systems either provide financing or arrange to finance prospective franchisees thus reducing the upfront cost of starting a franchise (shane et al., 2006). franchising may reduce internal, as well as external, impediments to self-employment for women and minorities. one reason for this relates to the perceived reduction in risk associated with becoming a franchisee. franchising is typically thought to be a less risky route to business ownership than opening an independent business (salar and salar, 2014). there is evidence that women tend to be more risk-averse than men in investment decisions (jianakoplos & bernasek, 1998) and business ownership goals (cliff, 1999) p1f 2 p. if franchising is perceived by women to be less risky, it will again be a relatively more attractive means for women to become self-employed than it will be for men. in addition to the willingness to accept the risk, one of the most critical characteristics associated with entrepreneurship is self-efficacy, i.e., the perception of one's readiness and ability to perform necessary tasks to achieve business success (newman et al., 2019). women score lower on entrepreneurial self-efficacy than men and are less confident in their ability to operate independently (scherer et al., 1990). wilson et al. (2015) also found that there were significant differences in perceptions of self-efficacy between minorities and non-minorities in the stem disciplines. because beliefs relating to self-efficacy are related to task choice (zeldin and pajares 2000) all else equal, we would expect women to be less willing than men to start their independent businesses. by creating a partnership between the franchisor and franchisee, and providing training and ongoing support, franchising allows women with doubts about their entrepreneurial self-efficacy to engage in a quasientrepreneurial activity, i.e., owning a franchise. sector-specific self-employment through franchising in addition to the greater access to training, financing, and other inputs, franchising may have a significant impact on resolving problems that minority entrepreneurs have on the demand side of their business. in a study of the clientele of ethnic businesses, dyer and ross (2000) found that not only did some whites resist patronizing ethnic establishments, but some ethnic consumers also did as well. one possible explanation is that industry segregation reflects continuing stereotypes that have their roots in strongly held prejudices. under this scenario, consumers do not frequent particular types of women or minority-owned businesses because those business owners are perceived as inherently incapable of conducting that business to the satisfaction of the consumer, or 2 we did not find any studies that directly examined the main effect of minority status on risk aversion. however, in the jianakoplos and bernasek (1998) study, race interacted with gender such that black women were particularly risk seeking. 82 because of discrimination (carter et al., 2015). stereotypes may also exist on the part of the prospective business owners themselves. in other words, evidence of industry segregation may reflect choices on the part of women and minorities that are due at least in part to questions that they have about their abilities. williams (1999) argued that franchising solves some of those issues because the brand masks the ownership of the outlet. consumers holding such stereotypes would not associate their patronage of the business with the local owner but instead with the corporate franchisor. franchisors typically prevent the identification of franchised units with the individual franchisee, ensuring that all outlets are seen as part of the overall system (chiou and droge 2013). this “masking” also provides benefits to obtaining capital. anna et al. (2000) found that women operating in non-traditional (i.e., male-dominated) sectors reported considerable frustration in obtaining loans or credit than those in traditionally female sectors. hypotheses franchising provides specific benefits and opportunities which are not present strictly with self-employment. past research suggests that franchising can provide an enhanced experience, growth prospects, training, and support which may be crucial elements for business success (seo 2016; alon et al., 2017). women and minorities have been shown to particularly benefit from the in-depth training and support provided by franchising (mcmillian and baker 2008; nijmeijer et al., 2014). since women and minorities tend to score lower in entrepreneurial self-efficacy versus their male, nonminority counterparts (scherer et al., 1990; wilson et al. 2015), they also may be less likely to take on the tremendous risks associated with independent business ownership (zeldin and pajares 2000). because franchising solves some of the problems associated with self-employment that are either unique to women and minorities or more prevalent among those groups, we would expect: hypothesis 1: the representation of women and minorities in franchising will be disproportionately higher than their representation in self-employment overall the knowledge that women and minorities disproportionately face difficulties securing financing for business loans (stösic panić 2017; steil et al. 2018) offers further evidence that franchising may be a particularly powerful means of business access for these groups. this inability to obtain loans or credit may be due to lenders themselves holding stereotypes or to their belief that consumers do. furthermore, carter et al. (2015) uncovered the unique challenges that women and minorities may endure with regard to industry segregation and discrimination, with such effects being particularly pronounced in male-dominated business sectors (anna et al. 2000). thus, just as franchising is proposed to solve general issues unique to prospective women and minority business owners, it should solve sector-specific issues as well. we would expect: hypothesis 2: women and minorities will be disproportionately over-represented as franchisees in sectors where they are disproportionately under-represented as business owners overall data analysis and results to examine the stated hypotheses, we utilized the survey of business owners (sbo)p2f 3 p developed by the u.s. department of commerce and published in 1997 and 2012 (u.s. census bureau 2001, 2016). 3 extensive details regarding the sampling procedures, response rates, and error estimates are contained in the introduction to the sbo report (u.s. census bureau 2001, 2016). 83 a look at the 1997 franchise data we first compare the overall incidence of franchising in the protected classes (e.g., all minorities together, minority women, and minority men) relative to the comparison groups (e.g., all white men and women together, white women, and white men) (table 1). recall that hypothesis 1 suggested that the protected classes would be represented in franchising to a greater extent than their comparison groups who may arguably enjoy better access to independent business opportunities. table 1 – comparison of overall incidence of franchising across groups (1997) groups compared total incidence (independents & franchisees) franchisee count franchisees as proportion of total incidence z valuep3f 4 p value uall women vs. all men all women all men 5,888,883 11,364,260 188,444 311,897 3.20% 2.74% 53.45 0.000 uall minority vs. all white all minority all white 1,999,046 15,254,097 68,314 432,028 3.42% 2.83% 46.36 0.000 uwhite women vs. white men white women white men 5,139,641 10,114,456 158,937 273,091 3.09% 2.70% 43.66 0.000 uminority women vs. minority men minority women minority men 749,242 1,249,804 29,507 38,807 3.94% 3.11% 31.39 0.000 uminority men vs. white men minority men white men 1,249,804 10,114,456 38,807 273,091 3.11% 2.70% 26.15 0.000 uminority women vs. white women minority women white women 749,242 5,139,641 29,507 158,937 3.94% 3.09% 38.87 0.000 in each of the above pairs, the name of the protected class is listed first, followed by the name of the comparison group. as the results in table 1 show, all six comparisons were statistically significant at p ≤ .001. the protected classes consistently demonstrated higher participation in franchising than their comparison groups. specifically, we find women participating in franchising in higher proportions than their male counterparts in all three female versus male comparisons (i.e., all 4 z-tests were used here since the sample size is large (ru et al. 2017; zakaria et al. 2016; afthanorhan et al. 2015; liang and pan 2011). while the population standard deviation is unknown, the law of large numbers and central limit theorem justify the use of z-tests because the large sample sizes tend to be more accurate estimations of the population, and the sample standard deviation can be used as a good estimate of the population standard deviation (stephan 2014; ozgur and strasser 2004). 84 women versus all men, white women versus white men, and minority women versus minority men). we also find minority groups consistently participating in franchising in higher proportions than their white counterparts in each of the three minority versus white comparisons (i.e., all minority versus all-white disregarding gender, minority males versus white males, and minority females versus white females). these findings support the first hypothesis and are consistent with the idea that franchising does solve problems associated with business ownership that are unique to these protected groups. hypothesis 2 suggests that the participation of protected groups in franchising will differ systematically from their participation in business ownership overall. we argued that franchising should increase the attraction of, or access to, particular sectors. we operationalize the relative penetration of franchising in a sector by computing the odds ratio of the protected class and its different groups. for example, we divide the percentage of women business owners in a sector who are franchisees by the percentage of men business owners in that sector who are franchisees. sectorby-sector odds ratios are computed for the same six comparisons (e.g., all women versus all men) and the results are presented in table 2. 85 table 2 – relative penetration by sectors (1997) utotal penetration as franchisees utotal penetration (independents & franchisees) utotal penetration percentage utotal penetration as franchisees utotal penetration (independents & franchisees) utotal penetration percentage uodds ratio urelative woman/ minority sector penetration women men all sectors 188,444 5,888,883 3.20% 311,897 11,364,260 2.74% 1.17 na agriculture 3,592 119,731 3.00% 1,003 463,522 0.22% 13.86 2.03% construction 1,470 183,695 0.80% 9,508 1,645,925 0.58% 1.38 3.12% manufacturing 2,895 152,346 1.90% 3,836 365,368 1.05% 1.81 2.59% transportation 4,674 141,623 3.30% 24,680 557,280 4.43% 0.75 2.40% wholesale trade 4,945 154,542 3.20% 12,820 383,797 3.34% 0.96 2.62% retail trade 67,787 1,093,342 6.20% 115,588 1,384,703 8.35% 0.74 18.57% finance, insurance, real estate 45,813 602,802 7.60% 78,413 1,338227 5.66% 1.30 10.24% services 44,218 3,158,444 1.40% 64,758 4,625,572 1.40% 1.00 53.63% not classified 9,600 282,358 3.40% 8,044 599,866 1.34% 2.54 4.79% mantel-haenszel chi square statistic = 20.45, p <.001; correlation (col 7 & 8)r r= -0.239, p = .54 minorities white all sectors 68,314 1,999,046 3.42% 432,028 15,254,097 2.83% 1.21 na agriculture 1,002 58,454 1.71% 3,665 524,799 0.70% 2.45 2.92% construction 2,385 169,152 1.41% 8,593 1,660,468 0.52% 2.72 8.46% manufacturing 1,057 47,906 2.21% 5,674 469,808 1.21% 1.83 2.40% transportation 7,016 121,254 5.79% 22,338 577,649 3.87% 1.50 6.07% wholesale trade 1,333 45,320 2.94% 16,432 493,019 3.33% 0.88 2.27% retail trade 23,247 327,169 7.11% 160,126 2,150,875 7.44% 0.95 16.37% finance, insurance, real estate 10,949 154,917 7.07% 113,277 1,766,112 6.34% 1.11 7.75% services 17,294 954,052 1.81% 91,683 6,829,964 1.34% 1.35 47.73 not classified 4,814 120,820 2.98% 12,831 761,404 1.69% 2.36 6.04% mantel-haenszel chi square statistic = 30.36, p <.001; correlation (col 7 & 8) = -0.250, p = .52 white women white men all sectors 158,937 5,139,641 3.09% 273,091 10,114,456 2.70% 1.15 na agriculture 3,664 111,882 3.27 0 412,917 0.00% 0.00 2.18% construction 1,112 164,412 0.68% 7,480 1,496,056 0.50% 1.35 3.20% 86 manufacturing 2,672 136,323 1.96% 3,001 333,485 0.90% 2.18 2.65% transportation 3,543 119,249 2.97% 18,794 458,400 4.10% 0.72 2.32% wholesale trade 4,793 140,298 3.42% 11,640 352,721 3.30% 1.04 2.73 retail trade 58,303 952,933 6.12% 101,825 1,197,943 8.50% 0.72 18.54% finance, insurance, real estate 41,322 545,518 7.57% 71,954 1,240,594 5.80% 1.31 10.61% services 38,353 2,727,670 1.41% 53,330 4,102,294 1.30% 1.08 53.07% not classified 7,630 241,358 3.16% 5,200 520,046 1.00% 3.16 4.70% mantel-haenszel chi square statistic = 24.22, p <.001; correlation (col 7 & 8) = -0.201, p = .60 minority women minority men all sectors 29,507 749,242 3.94% 38,807 1,249,804 3.11% 1.27 na agriculture 0 7,849 0.00% 1,002 50,605 1.96% 0.00 1.05% construction 357 19,283 1.85% 2,028 149,869 1.35% 1.37 2.57% manufacturing 222 16,023 1.39% 834 31,883 2.62% 0.53 2.14% transportation 1,130 22,374 5.05% 5,886 98,880 5.95% 0.85 2.99% wholesale trade 153 14,244 1.07% 1,180 31,076 3.80% 0.28 1.90% retail trade 9,484 140,409 6.75% 13,763 186,760 7.37% 0.92 18.74% finance, insurance, real estate 4,491 57,284 7.84% 6,458 97,633 6.62% 1.19 7.65% services 5,865 430,774 1.36% 11,428 523,278 2.18% 0.62 57.49% not classified 1,970 41,000 4.80% 2,844 79,820 3.56% 1.35 5.47% mantel-haenszel chi square statistic = 1.41, p > .05, ns; correlation (col 7 & 8)r r= -0.026, p = .95 minority men white men all sectors 38,807 1,249,804 3.11% 273,091 10,114,456 2.70% 1.15 na agriculture 1,002 50,605 1.98% 0 412,917 0.00% 0.00 4.05% construction 2,028 149,869 1.35% 7,480 1,496,056 0.50% 2.71 11.99% manufacturing 834 31,883 2.62% 3,001 333,485 0.90% 2.91 2.55% transportation 5,886 98,880 5.95% 18,794 458,400 4.10% 1.45 7.91% wholesale trade 1,180 31,076 3.80% 11,640 352,721 3.30% 1.15 2.49% retail trade 13,763 186,760 7.37% 101,825 1,197,943 8.50% 0.87 14.94% finance, insurance, real estate 6,458 97,633 6.62% 71,954 1,240,594 5.80% 1.14 7.81% services 11,428 523,278 2.18% 53,330 4,102,294 1.30% 1.68 41.87% not classified 2,844 79,820 3.56% 5,200 520,046 1.00% 3.56 6.39% mantel-haenszel chi square statistic = 13.91, p <.001; correlation (col 7 & 8)r r= -0.216, p = .58 minority women white women all sectors 29,507 749,242 3.94% 158,937 5,139,641 3.09% 1.27 na agriculture 0 7,849 0.00% 3,664 111,882 3.27% 0.00 1.05% construction 357 19,283 1.85% 1,112 164,412 0.68% 2.74 2.57% 87 manufacturing 222 16,023 1.39% 2,672 136,323 1.96% 0.71 2.14% transportation 1,130 22,374 5.05% 3,543 119,249 2.97% 1.70 2.99% wholesale trade 153 14,244 1.07% 4,793 140,298 3.42% 0.31 1.90% retail trade 9,484 140,409 6.75% 58,303 952,933 6.12% 1.10 18.74% finance, insurance, real estate 4,491 57,284 7.84% 41,322 545,518 7.57% 1.03 7.65% services 5,865 430,774 1.36% 38,353 2,727,670 1.41% 0.97 57.49% not classified 1,970 41,000 4.80% 7,630 241,358 3.16% 1.52 5.47% mantel-haenszel chi square statistic = 10.91, p <.001; correlation (col 7 & 8)r r= -0.045, p = .91 we analyze the odds ratios using the mantel-haenszel test for sector differences (mantel and haenszel 1959; fleiss 1981). a significant test statistic confirms systematic differences in the relative level of penetration by protected class franchisees across sectors. 88 as reported in table 2, sector differences were found in all comparisons except one (i.e., minority women versus minority men: mantel-haenszel chi square statistic = 1.41, p > .05). individual penetration differences are summarized in table 3. positive (negative) odds ratios indicate that the proportion of sector business owners that are franchisees is greater (smaller) for the protected class than for the comparison group. a faint pattern can be detected with construction, manufacturing, finance, insurance, and real estate, services, and not classified sectors showing generally positive odds ratios. this indicates that women and minorities participate in franchised business models (rather than self-ownership models) disproportionately in these particular sectors, lending support to hypothesis 2. table 3 – summary of penetration differences (1997) sectors all women vs. all men all minorities vs. all white white women vs. white men minority women vs. minority men minority men vs. white men minority women vs. white women agriculture + + construction + + + + + + manufacturing + + + + transportation + + + wholesale trade + + retail trade + finance, insurance, and real estate + + + + + + services na + + + not classified + + + + + + a plus (+) indicates that the more disadvantaged group shows a higher degree of penetration in the focal sector compared to the more advantaged group. the more disadvantaged group is shown above in bold for each comparison attempted. a minus (-) shows the opposite effect. the plus signs correspond to odds ratios greater than one in table 2; conversely, the minus signs correspond to odds ratios less than one. when the odds ratio in table 3 is exactly equal to one, the na notation is used to show no differences in penetration rates. the most reliable evidence of the expected relationship between franchising penetration and general levels of sector access or attractiveness would be a negative correlation between the access measure and the odds ratio measure across sectors. clearly, with only nine sectors, the likelihood of finding a significant correlation is minimal. nevertheless, as reported in table 2, correlations are consistently negative for all comparisons, and non-trivial for four of six comparisons (i.e., except for minority women and minority men, and minority women and white women comparisons). an example will help clarify. we see that women experience real or perceived difficulties in entering the construction industry (i.e., a relatively low sector access of 3.12%; table 2, last column), but that relative to men they appear to have found an alternative route to self-employment through franchising (positive odds ratio of 1.38). a look at the 2012 franchise data as with the first dataset, we utilized the 2012 sbo data ((u.s. census bureau 2016) to evaluate the overall incidence of franchising in the protected classes (e.g., women, minorities, minority women) relative to the comparison groups (e.g., men, non-minorities, nonminority women). in hypothesis 1, it was suggested that the protected classes would be represented in 89 franchising to a greater extent than groups with arguably greater access to independent business opportunities. table 4 – comparison of overall incidence of franchising across gender groups (2012) groups compared total incidence (independents & franchisees) franchisee count franchisees as proportion of total incidence z value p4f 5 p value uall women vs. all men all women all men 15,849,766 26,082,284 1,667,802 3,386,341 10.52% 12.98% -237.26 0.000 uall minority vs. all white all minority all white 6,616,666 35,315,384 840,764 4,213,379 12.71% 11.93% 56.55 0.000 uwhite women vs. white men white women white men 12,929,461 22,385,923 1,329,219 2,884,160 10.28% 12.88% -229.65 0.000 uminority women vs. minority men minority women minority men 2,920,305 3,696,361 338,583 502,181 11.59% 13.59% -76.70 0.000 uminority men vs. white men minority men white men 3,696,361 22,385,923 502,181 2,884,160 13.59% 12.88% 37.63 0.000 uminority women vs. white women minority women white women 2,920,305 12,929,461 338,583 1,329,219 11.59% 10.28% 65.90 0.000 the results in table 4 show that all six comparisons were statistically significant at p ≤ .001. the protected classes demonstrated higher participation in franchising than the comparison group only across three instances rather than all six, as was seen in the 1997 data. specifically, we find women participating in franchising in higher proportions than their male counterparts in just one of the comparison groups (i.e., minority women versus white women). additionally, we find minorities participating in franchising in higher proportions than their white counterparts in two comparison groups (i.e., all minority versus all-white disregarding gender, minority males versus white males). in the comparison groups of all women versus all men, white women versus white men, and minority women versus minority men, we did not uncover a higher degree of franchising activity as a proportion of the total incidence of businesses for the 2012 data. these recent findings still lend support to the first hypothesis and are consistent with the idea that franchising does solve problems 5 z-tests were used here since the sample size is large (ru et al. 2017; zakaria et al. 2016; afthanorhan et al. 2015; liang and pan 2011). while the population standard deviation is unknown, the law of large numbers and central limit theorem justify the use of z-tests because the large sample sizes tend to be more accurate estimations of the population, and the sample standard deviation can be used as a good estimate of the population standard deviation (stephan 2014; ozgur and strasser 2004). 90 associated with business ownership that are unique to the protected groups. changes in certain comparison groups from 1997 to 2012 may be due to a host of factors relating to higher independent business ownership among protected classes outside of franchising and a higher degree of franchising activity among men and non-minorities in general. recall that hypothesis 2 suggests that the participation of protected groups in franchising will differ systematically from their participation in business ownership overall. we assess this for the 2012 cbo study data by computing the odds ratio of the protected class and its contrasting group. results for the six comparison groups are displayed in table 5. as reported in table 5, sector differences were found in all comparisons. individual penetration differences are summarized in table 6. positive (negative) odds ratios indicate that the proportion of sector business owners that are franchisees is greater (smaller) for the protected class than for the comparison group. a faint pattern can be detected with agriculture, construction, retail trade, and services sectors showing generally positive odds ratios. again, much like the pattern seen with the 1997 data, we find evidence that women and minorities participate in franchised business models (rather than self-ownership models) to a higher degree in these particular sectors, lending support to hypothesis 2. 91 table 5 – relative penetration by sectors (2012) utotal penetration as franchisees utotal penetration (independents & franchisees) utotal penetration percentage utotal penetration as franchisees utotal penetration (independents & franchisees) utotal penetration percentage uodds ratio urelative woman/ minority sector penetration women men all sectors 1,667,802 15,849,766 10.52% 3,386,341 26,082,284 12.98% 0.81 na agriculture 23,917 141,063 16.95% 70,861 464,760 15.25% 1.11 0.89% construction 44,715 606,285 7.38% 196,020 3,396,949 5.77% 1.28 3.83% manufacturing 46,797 319,616 14.64% 157,413 728,664 21.60% 0.68 2.02% transportation 41,803 491,237 8.51% 176,710 1,604,556 11.01% 0.77 3.10% wholesale trade 49,212 325,058 15.14% 156,649 841,808 18.61% 0.81 2.05% retail trade 402,144 1,906,018 21.10% 455,223 2,083,562 21.85% 0.97 12.03% finance, insurance, real estate 309,822 2,325,634 13.32% 833,998 4,989,561 16.71% 0.80 14.67% services 749,299 9,733,111 7.70% 1,339,103 11,969,986 11.19% 0.69 61.41% not classified 93 1,744 5.33% 364 2,438 14.93% 0.36 0.01% mantel-haenszel chi square statistic = 56315.78, p <.001 correlation (col 7 & 8)r r= -.139, p=.721 minorities white all sectors 840,764 6,616,666 12.71% 4,213,379 35,315,384 11.93% 1.07 na agriculture 6,440 33,438 19.26% 88,338 572,385 15.43% 1.25 0.21% construction 18,000 408,834 4.40% 222,735 3,594,400 6.20% 0.71 2.58% manufacturing 14,305 105,525 13.56% 189,905 942,755 20.14% 0.67 0.67% transportation 51,751 436,121 11.87% 166,762 1,659,672 10.05% 1.18 2.75% wholesale trade 19,862 180,702 10.99% 185,999 986,164 18.86% 0.58 1.14% retail trade 158,754 644,680 24.63% 698,613 3,344,900 20.89% 1.18 4.07% finance, insurance, real estate 109,801 757,044 14.50% 1,034,019 6,558,151 15.77% 0.92 4.78% services 461,816 4,049,801 11.40% 1,626,586 17,653,296 9.21% 1.24 25.55% not classified 35 521 6.72% 422 3,661 11.53% 0.58 0.00% mantel-haenszel chi square statistic = 3165.90, p<.001 correlation (col 7 & 8)r r= .460, p=.213 white women white men all sectors 1,329,219 12,929,461 10.28% 2,884,160 22,385,923 12.88% 0.80 na agriculture 22,052 133,168 16.56% 66,286 439,217 15.09% 1.10 0.84% 92 construction 39,874 537,894 7.41% 182,861 3,056,506 5.98% 1.24 3.39% manufacturing 42,176 279,420 15.09% 147,729 663,335 22.27% 0.68 1.76% transportation 35,058 402,884 8.70% 131,704 1,256,788 10.48% 0.83 2.54% wholesale trade 41,844 265,112 15.78% 144,155 721,052 19.99% 0.79 1.67% retail trade 332,618 1,606,836 20.70% 365,995 1,738,064 21.06% 0.98 10.14% finance, insurance, real estate 269,096 2,016,485 13.34% 764,923 4,541,666 16.84% 0.79 12.72% services 546,431 7,686,157 7.11% 1,080,155 9,967,139 10.84% 0.66 48.49% not classified 70 1,505 4.65% 352 2,156 16.33% 0.28 0.01% mantel-haenszel chi square statistic = 52861.03, p<.001 correlation (col 7 & 8)r r= -.147, p=.707 minority women minority men all sectors 338,583 2,920,305 11.59% 502,181 3,696,361 13.59% 0.85 na agriculture 1,865 7,895 23.62% 4,575 25,543 17.91% 1.32 0.05% construction 4,841 68,391 7.08% 13,159 340,443 3.87% 1.83 0.43% manufacturing 4,621 40,196 11.50% 9,684 65,329 14.82% 0.78 0.25% transportation 6,745 88,353 7.63% 45,006 347,768 12.94% 0.59 0.56% wholesale trade 7,368 59,946 12.29% 12,494 120,756 10.35% 1.19 0.38% retail trade 69,526 299,182 23.24% 89,228 345,498 25.83% 0.90 1.89% finance, insurance, real estate 40,726 309,149 13.17% 69,075 447,895 15.42% 0.85 1.95% services 202,868 2,046,954 9.91% 258,948 2,002,847 12.93% 0.77 12.91% not classified 23 239 9.62% 12 282 4.26% 2.26 0.00% mantel-haenszel chi square statistic = 5838.35, p<.001 correlation (col 7 & 8)r r= -.367, p=.331 minority men white men all sectors 502,181 3,696,361 13.59% 2,884,160 22,385,923 12.88% 1.05 na agriculture 4,575 25,543 17.91% 66,286 439,217 15.09% 1.19 0.16% construction 13,159 340,443 3.87% 182,861 3,056,506 5.98% 0.65 2.15% manufacturing 9,684 65,329 14.82% 147,729 663,335 22.27% 0.67 0.41% transportation 45,006 347,768 12.94% 131,704 1,256,788 10.48% 1.23 2.19% wholesale trade 12,494 120,756 10.35% 144,155 721,052 19.99% 0.52 0.76% retail trade 89,228 345,498 25.83% 365,995 1,738,064 21.06% 1.23 2.18% finance, insurance, real estate 69,075 447,895 15.42% 764,923 4,541,666 16.84% 0.92 2.83% services 258,948 2,002,847 12.93% 1,080,155 9,967,139 10.84% 1.19 12.64% not classified 12 282 4.26% 352 2,156 16.33% 0.26 0.00% mantel-haenszel chi square statistic = 1383.83, p<.001 correlation (col 7 & 8)r r= .415, p=.267 minority women white women all sectors 338,583 2,920,305 11.59% 1,329,219 12,929,461 10.28% 1.13 na agriculture 1,865 7,895 23.62% 22,052 133,168 16.56% 1.43 0.05% 93 construction 4,841 68,391 7.08% 39,874 537,894 7.41% 0.95 0.43% manufacturing 4,621 40,196 11.50% 42,176 279,420 15.09% 0.76 0.25% transportation 6,745 88,353 7.63% 35,058 402,884 8.70% 0.88 0.56% wholesale trade 7,368 59,946 12.29% 41,844 265,112 15.78% 0.78 0.38% retail trade 69,526 299,182 23.24% 332,618 1,606,836 20.70% 1.12 1.89% finance, insurance, real estate 40,726 309,149 13.17% 269,096 2,016,485 13.34% 0.99 1.95% services 202,868 2,046,954 9.91% 546,431 7,686,157 7.11% 1.39 12.91% not classified 23 239 9.62% 70 1,505 4.65% 2.07 0.00% mantel-haenszel chi square statistic = 4365.48, p<.001 correlation (col 7 & 8)r r= .172, p=.659 we analyze the odds ratios using the mantel-haenszel test for sector differences (mantel and haenszel 1959; fleiss 1981). a significant test statistic confirms systematic differences in the relative level of penetration by protected class franchisees across sectors. 94 table 6 – summary of penetration differences (2012) sectors all women vs. all men all minorities vs. all white white women vs. white men minority women vs. minority men minority men vs.white men minority women vs. white women agriculture + + + + + + construction + + + manufacturing transportation + + wholesale trade + retail trade + + + finance, insurance, and real estate services + + + not classified + + a plus (+) indicates that the more disadvantaged group shows a higher degree of penetration in the focal sector compared to the more advantaged group. the more disadvantaged group is shown above in bold for each comparison attempted. a minus (-) shows the opposite effect. the plus signs correspond to odds ratios greater than one in table 5; conversely, the minus signs correspond to odds ratios less than one. when the odds ratio in table 5 is exactly equal to one, the na notation is used to show no differences in penetration rates. conclusion the results of this study indicate that women and minorities disproportionately use franchising as a route to self-employment in the retail sector across two periods of data collection. we do not know for sure whether these individuals would have become self-employed if the franchising option were not available to them. however, given the comparison with men and nonminorities, it does appear that franchising may have something unique to offer to groups who face systematic impediments to independent business ownership. the census bureau data from both 1997 and 2012 suggest that the overall level of participation of women and minorities in franchising is found to be higher than participation in independently-owned businesses. though this is an important insight for policymakers, the inroads made by women and minorities in these franchise business ventures remain relatively small when compared to the population statistics. it is important to remember that although the unique characteristics of the franchise relationship may help overcome some of the self-employment hurdles faced by women and minorities, its impact is entirely dependent on the willingness of franchisors to grant licenses to women and minorities franchisees. such inclusion makes good business sense and should be encouraged by policy makers and governmental agencies such as the office of entrepreneurial development (oed). nevertheless, discrimination claims have been rising in the franchising arena just as they have in business generally (carter et al., 2015). the claims of discrimination strike at the very essence of our collective sense of morality and fair play and the emergent societal consensus for inclusion (emerson, 1998; mcmillian and baker, 2008). in an industry where rapid growth and market preemption are critical, the inability to recruit qualified franchisees because of a reputation for discriminatory practices can be crippling for franchise systems. affirmative action campaigns launched by groups like naacp, push (people united to serve humanity), and sclc (southern christian leadership conference) have targeted specific franchise systems, and most large franchise systems have now adopted programs aimed at encouraging greater franchisee diversity (mcmillian and baker, 2008). for instance, gm, ford, and 95 chrysler each offer assistance to minorities through their dealer development programs offering loans, loan guarantees, and equity participation initiatives. all three have documented substantial gains towards their diversity goals. several large oil companies have similar development programs. diversity programs can also be found in many well-known business format franchise systems, including mcdonald's, burger king, kfc, hardee’s, shoney’s, day’s inn, and denny’s (see emerson 1998 for details on the automobile, oil, and fast-food industry initiatives). this trend is also reflected in the international franchise association’s (ifa) emerging markets program and its revised code of principles and standard of conduct (international franchise association, 1996) supporting private initiatives for affirmative action programs. thus, the structural characteristics of the franchise relationship, combined with internally and externally motivated diversity programs, helps to open doors to self-employment for women and minorities within the retail sector. limitations and future research continuing to expand research in the area of women and minority-owned businesses and franchises would be a valuable endeavor to provide more insights into the rationale behind attraction and avoidance to various types of business ownerships. research into the impediments faced by women entrepreneurs, such as the four primary barriers of (1) socio-political legitimacy barriers, (2) structural barriers; (3) social capital barriers, and (4) human capital barriers, would provide more background and insight into these issues. socio-political legitimacy, the process by which key stakeholders (e.g., consumers) accept a venture given existing norms and laws, would benefit from further study to determine if consumers are indeed more likely to patronize women and minority franchisees in non-stereotypical businesses than independent business owners (aldrich & fiol, 1994; cardella et al., 2020). structural barriers, such as overt discrimination and systematic barriers that result in differential access to business opportunities (carter et al., 2015), would benefit from a nuanced study on the circumstances under which women and minorities have equal access to sources such as financing as male business owners do. social capital, such as networks or relationships and norms warrants further study to better understand the social connections and benefits that stem from franchise opportunities (cumberland and litalien, 2019; nijmeijer et al., 2014). finally, looking at how human capital benefits from the education and work experience afforded from entrepreneurial success deserves further attention (marvel et al., 2016). though this research focuses on women and minorities as broad categorizations, the authors recognize that these groups are not entirely monolithic entities. future research might explore additional psychographic and demographic factors which further define different sub-segments of these groups (i.e., ethnicity, age, marital status, etc.) and in doing so may uncover valuable insights. while our evidence has shown that women and minorities gravitate towards the franchising format of retailing in disproportionately higher numbers and that there are sector-based differentials to this pattern, new research will significantly benefit from a more causal investigation of this complex topic. 96 references afthanorhan, a., ahmad, n., & sabri, a. 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(2000). against the odds: self-efficacy beliefs of women in mathematical, scientific, and technological careers. american educational research association, 37(1), 215-146. microsoft word submission guidelines 2016.docx advances)in)business)research! manuscript!submission!guidelines! ! advances)in)business)research)uses,!in!general,!the!style!of!the!american!psychological! association!(apa).!!these!following!style!preferences!should!also!be!followed.!manuscripts!not! prepared!following!these!guidelines!will!be!declined.! ! style! manuscripts!should!be!written!in!clear!and!concise!standard!english.!avoid!wordiness!and! stilted!academic!style.!the!writing!should!be!as!direct!and!readable!as!possible.!avoid!indirect! and!indefinite!language,!including!use!of!indefinite!pronoun!starters.!authors!should!focus!on! the!research,!not!themselves.!therefore,!except!in!cases!of!action!research!or!embedded! ethnography,!the!use!of!selfareferential!personal!pronouns!should!be!avoided.! ! format! • the!manuscript!must!use!microsoft!word,!a!12apoint!font,!double!spaced!(excluding! references,!appendixes,!tables,!and!figures).,!and!one!inch!margins.! • main!headings!should!be!centered!and!typed!in!all!capitals.!example:!methodology.! • secondary!headings!should!be!typed!flush!with!the!left!margin!and!in!small!letters,!with! major!words!beginning!with!capitals.!example:!strategic!models.! • tables,!figures,!and!graphs!should!be!included!where!they!are!discussed.!! • do!not!paginate!within!the!manuscript.!! • citations!in!the!text!use!the!authoradate!system.!example:!several!studies!(johnson! 2003,!smith!2006)!support!this!finding.!direct!quotations!must!give!a!page!number(s).! example:!johnson!claims!“the!method!is!overarated!and!too!complex!(2005!6).”! • periodical:!johnson,!c.!(2006).!the!art!of!writing.!academy)of)management)journal) 32(1),!112a125.! • book!reference:!johnson,!c.!(2006).!the)art)of)writing,!new!york:!macmillan.! • chapter!in!a!book::!green,!j.t.,!brown,!j.o.,!&!watson,!d.a.!(1999).!contemporary!issues! and!new!directions!in!higher!development.!in!l.w.!white!(ed.),!aging)in)america!(234a 278).!washington,!dc:!american!psychological!association.! • manuscripts!should!not!include!author!names!or!affiliation,!including!in!file!properties.! ! requirements! • work!must!be!original!and!accurate,!and!it!should!not!submitted!to!another!journal! simultaneously.! • accepted!ethical!standards!have!been!applied!in!the!research!and/or!preparation!of!the! manuscript!submitted!for!publication.! • the!publication!of!the!manuscript!will!not!violate!any!copyright!or!other!personal!or! proprietary!rights!of!others.! • publication!decisions!are!based!on!the!recommendations!of!the!journal's!editorial! board.!submissions!are!usually!assigned!to!two!reviewers.!weak!or!inappropriate! submissions!may!be!returned!to!authors!with!editor!comments!only.! • manuscripts!should!be!submitted!online!here:!http://journals.sfu.ca/abr/!! • first!time!submitters!must!first!register!for!the!journal!(click!on!register).! 46 earnings quality and investor reactions to restatement announcements robin n. romanus, ph.d. appalachian state university the purpose of this research is to help clarify the ambiguity surrounding market participants’ pricing of earnings quality using one clearly observable indicator of low-quality earnings -accounting restatements. this study examines the effect that pre-restatement earnings quality has on shortwindow returns following restatement announcements using a cross-section of 719 publicly traded firms that announced restatements between 1997 and 2004. accrual metrics are used to proxy for earnings quality. results indicate that the market reaction to restatement announcements is significantly influenced by pre-restatement earnings quality. specifically, the accrual measure of earnings quality is significantly and negatively related to the market reaction. this finding provides evidence that investors are attuned to the implications of poor earnings quality communicated by accruals quality and that this awareness is reflected in stock prices prior to the announcement of accounting restatements. keywords: restatements; market reaction; earnings quality introduction publicly reported accounting data have widespread capital market implications for a broad spectrum of users. misinterpreted or misleading accounting information may instigate inefficient resource allocation, obfuscate the standard setting process, and erode investor confidence (general accounting office, 2002; schipper & vincent, 2003; kalelkar & nwaeze, 2011). consequently, the quality of reported earnings has triggered substantial interest by regulators and accounting researchers, resulting in an emergent body of research that examines the market pricing of earnings quality (e.g. sloan, 1996; xie 2001; gao, 2002; aboody, hughes, & liu, 2005; francis et al., 2005; kalelkar & nwaeze, 2011; perotti & wagenhofer, 2014). rigorous efforts to expound on market participants’ aptitudes for discerning the intricacies associated with earnings quality have resulted in two distinct perspectives (dechow & schrand, 2004). the first perspective views market participants as naïve users of accounting information who fail to understand the differential persistence in accruals and cash flows resulting in temporary security mispricing (e.g. sloan, 1996; xie, 2001). conversely, the second perspective suggests that in the wake of accounting scandals, market participants scrutinize earnings reports carefully and subsequently discern and price the quality of earnings (balsam, bartov, & marquardt, 2002; francis et al., 2005; baber, chen, & kang, 2006; kalelkar & nwaeze, 2011; perotti & wagenhofer, 2014). the purpose of this research is to help clarify the ambiguity surrounding market participants’ pricing of earnings quality using one distinct indicator of low-quality earnings accounting restatements. accounting restatements provide a unique and innovative environment for investigating the pricing of earnings quality because they represent relatively direct evidence of low-quality earnings http://journals.sfu.ca/abr advances in business research 2019, volume 9, pages 46-63 47 (defond & francis, 2005). additionally, despite heightened awareness of financial reporting quality from regulators, auditors, market participants, and the popular press, the number of restatements escalated to an all-time high of 1,876 in 2006 (reilly, 2007). numerous studies have used restatements as an indicator of either low-quality earnings or earnings management (richardson, tuna, & wu, 2002; abbott, parker, & peters, 2004; hribar & jenkins, 2004; kinney, palmrose, & scholz, 2004; blankley, hurtt, & macgregor, 2012; francis et al., 2013) and provide clear evidence that firms suffer a substantial loss in market value following restatement announcements (dechow, sloan, & sweeney, 1996; anderson & yohn, 2002; gao, 2002; palmrose & scholz, 2004). despite the severe market repercussions associated with the negative signal communicated via earnings restatements, prior research has not empirically addressed to what extent the quality of pre-restatement earnings affects market participants’ reactions to these subsequent, more demonstrative indicators of low earnings quality. the present research fills this gap by examining the effect pre-restatement earnings quality has on market participants’ reactions to the more visible signal of low-quality earnings conveyed by the issuance of a restatement. palmrose et al. (2004) (hereinafter prs) provide evidence that numerous factors are associated with the market reaction to restatement announcements, including fraud, the number and type of account groups affected, and the directionality (income increasing vs. decreasing) of the restatement. this research extends their model to include an accrual proxy for earnings quality. in the framework of the model, and using a cross-section of publicly traded firms that announced restatements between 1997 and 2004, this study examines the effect that pre-restatement earnings quality has on shortwindow returns following restatement announcements. the results of this research indicate that pre-restatement earnings quality is significantly negatively related to the market reaction to restatement announcements. firms with better prerestatement earnings quality experience more negative returns in response to restatement announcements than firms with worse pre-restatement earnings quality. the identification of this relationship contributes to both the earnings quality and restatement literatures by providing support for the contention that earnings quality is, at least in part, understood and priced by market participants. this finding also provides additional insights into the factors associated with market participants’ extremely heterogeneous reactions to financial report restatements. the remainder of this paper is organized as follows: the next section reviews the restatement and earnings quality literature and develops the associated hypothesis. the third section describes the research design and method and section four presents the analyses and results. section five closes with a discussion of limitations and conclusions. literature review restatement research academic research, governmental reports, and the popular press have documented extensively the dramatic increases in the numbers of restatements over the past 20 years (gao, 2002 & 2006; huron consulting, 2003 & 2004; palmrose et al., 2004; reilly, 2007; scholz, 2014). restatements are required when previously issued financial reports are later discovered to not be in accordance with generally accepted accounting principles (gaap). although many restatements do not have immediate cash flow implications, they convey important information regarding firms’ potential for future earnings and the accuracy and reliability of financial data. as such, they send a potentially negative signal to market participants regarding earnings quality. the effect this signal has on capital markets is substantiated by the strong negative reaction that occurs when companies announce their intention to restate earnings (gao, 2002 & 2006; palmrose et al., 2004; he & chiang, 2013; gordon et al., 2014; du, 2017). the severe capital market repercussions associated with the decision to restate earnings, coupled with the fact that restatements are de facto evidence of poor earnings quality, make this a distinctive combination for researching investors’ ability to interpret less pervasive earnings 48 quality signals. additionally, the recent escalation in the number of restatements has created a heightened interest in both the causes and consequences of restatements. the negative financial implications of restatements are widely documented. based on a study of sec enforcement actions resulting in restatements between 1981 and 1992, dechow et al., (1996) report an average negative return of 6 percent. examining restatement announcements between 1995 and 1999, palmrose et al. (2004) similarly document an average negative return of 9 percent. in addition to firm-specific market reactions, gleason, jenkins, and johnson (2004) note that restatements induce a reduction in share prices of firms in the same industry. xu, najand, and ziegenguss (2006) also report that restatements affect the equity valuations of competing firms. they find that firms having cash flow characteristics similar to restating firms experience a negative return of 0.76 percent when the restatement reduces the stock price of the restating firm. in addition to eroding market capitalization, restatement firms are subject to other economic penalties. firms issuing restatements are also frequently the subject of class action lawsuits (jones & weingram, 1997). palmrose and scholz (2004) investigate the relationship between restatement characteristics and litigation. they indicate that core restatements and those involving a greater number of accounts (more pervasive) increase both the likelihood of litigation and plaintiff success. hribar and jenkins (2004) determine that restatements are associated with increases in the cost of equity capital, particularly restatements initiated by the auditor or for companies with high leverage. these studies provide support for the view that restatements have economically meaningful implications that go far beyond documented deteriorations in market capitalization. although these studies explore a variety of factors associated with restatements, prs (2004) extend this research and attempt to empirically model the capital market effect of restatement announcements. prs provides evidence that the severity of the abnormal negative returns following restatement announcements varies greatly depending on the characteristics of the restatement. for example, restatements associated with management fraud elicit the most severe stock price reactions. additionally, restatements initiated by the auditor or related to core operating accounts such as revenue also result in more substantial negative market reactions. extending prs, salavei and moore (2005) classify restatements according to the reason for the restatement and examine the market reaction according to nine different categories of restatements, including revenue, cost, securities, and transaction related. they determine that market reactions differ significantly by both the type of restatement and its magnitude. specifically, they find that restatements of noisy information items, such as securities and restructurings, increase investors’ information sets and therefore result in reactions that are more negative. conversely, restatements that are transaction-based increase the noisiness of investors’ information sets and do not influence the market reaction as strongly. while restatement announcements have obvious negative market consequences, there is a limited amount of research investigating what factors lead to the broad variability in returns following the announcement event. examining the relationship between pre-restatement earnings quality and severity of the market reaction can potentially help clarify the substantial heterogeneity in market responses. the market pricing of earnings quality evidence is mixed as to the extent to which earnings quality indicators are used by investors to extract value relevant information. some research provides evidence that market participants consider larger accruals or book-tax differences to be indicative of poor earnings quality, resulting in a contemporaneous reduction in stock prices (balsam et al,. 2002; francis et al., 2005; hanlon, 2005; baber et al., 2006). other research indicates that market participants overprice the discretionary component of income, thus temporarily over-inflating stock prices (sloan, 1996; subramanyam, 1996; bradshaw, richardson, & sloan, 2001; xie, 2001). widely publicized accounting scandals, however, coupled with new regulatory requirements, have resulted in an increased focus on earnings quality 49 issues. consistent with a heightened emphasis on earnings quality, recent research indicates investors and analysts have become more cognizant of potential earnings management techniques and the subsequent implications for future earnings (balsam et al., 2002; francis et al., 2005; hanlon, 2005; baber et al. 2006). these findings imply market participants may be capable of identifying earnings quality signals, which may affect the market reaction to restatement announcements. francis et al. (2005), provide convincing empirical evidence suggesting investors price accruals quality. they find that lower accruals quality is associated with higher costs of debt, larger equity betas, and larger earnings-price ratios. other studies corroborate these findings, suggesting that investors utilize information concerning the quality of earnings during price formation. for example, balsam et al. (2002) report a negative association between unexpected discretionary accruals and cumulative abnormal returns over a 17-day window following the release of the form 10-q. similarly, baber et al. (2006) examine the influence of the voluntary disclosure of balance sheet and cash flow information on price reactions to earnings announcements. they provide evidence that investors discount earnings when contemporaneous supplemental disclosures contain information suggesting earnings have been managed via discretionary accruals. defond and park (2001) also provide evidence suggesting market participants adjust, at least in part, for earnings quality at the time earnings are announced. they report that firms announcing positive earnings surprises have lower earnings response coefficients when income-increasing accruals exaggerate the magnitude of the earnings surprises. collectively, these studies indicate that the earnings quality information conveyed in accruals is to some degree reflected in contemporaneous security prices. the above research provides evidence that investors are capable of extracting earnings quality information from the information contained in earnings quality proxies such as accruals. as such, signals of low-quality earnings in accruals should be reflected in stock prices prior to firms announcing restatements. restatements, to some degree, may confirm investors’ prior suspicions regarding poor earnings quality. thus, this signal provides investors with less new or surprising information, resulting in a less substantial negative stock price reaction. conversely, investors may not expect firms with good pre-restatement earnings quality to restate, thereby triggering a more substantial negative price reaction. these arguments lead to the following hypothesis: h1: firms with low earnings quality will experience a less severe market reaction to the announcement of a restatement relative to firms with high earnings quality. methodology variable development research by prs (palmrose et al. 2004) provides the foundation for the model to test the hypothesis. the model relates various characteristics of restatements and restating firms to the cumulative abnormal returns on the day of and the day following a restatement announcement. their model consists of nine variables, all of which are used as control variables in the model. the prs model is enhanced by additional variables taken from related literature, most notably the earnings quality proxy. in addition to the earnings quality proxy, two additional control variables are added to the prs model. these variables, as well as the dependent variables, are developed in the following sections. the first set of variables developed by prs (2004) provides information as to managements’ competence and integrity. restatements resulting from fraud are one primary indicator that management may lack integrity. fraud is an indicator variable equal to 1 in instances where the restating firm was subject to an sec accounting and auditing enforcement release (aaer) and 0 otherwise; instances of fraud are expected to be negatively related to the market reaction. restatement attribution (attrib) designates the party that identified the need for restatement: auditor, sec, or company management. restatements attributed to the external parties such as the auditor or sec are 50 expected to introduce a greater amount of uncertainty about the reliability of financial information and be associated with more negative market reactions. instances where the firm identified the need for restatement may provide a heightened level of assurance vis-à-vis the ability of management to identify and correct potential misstatements, and are thus expected to be positively associated with market reactions to the restatement announcements (palmrose et al., 2004). attribution is captured as a series of indicator variables, one for each attributing party, external auditor, sec, and management. restatement announcements with no attribution serve as a no-information baseline. the prs (2004) model also includes variables associated with the aspects of the material impact of the restatement. restatements affecting core (core) accounts such as revenue, cost of goods sold, and operating expenses, are expected to be associated with a more negative market reaction because they represent changes in on-going operating income. core is an indicator variable equal to 1 if the restatement affected one or more core account groups and 0 otherwise. materiality (mat) represents the impact of the restatement on net income and is computed by subtracting restated net income from original income over all restated periods and scaling the difference by total assets. prs (2004) indicate that mat is significantly positively related to the market reaction surrounding the announcement date. the pervasiveness (pervas) of the restatement is defined as the number of general account groups affected by the restatement and is expected to be negatively related to the market reaction. the persistence (years) of the misstatement provides information about the competence of management and the reliability of the firm’s internal control structure. persistence is measured as the number of periods impacted by the restatement, where a quarter is equal to 0.25, and is expected to be negatively related to the market reaction. the prs (2004) model includes three variables that control for company-specific characteristics of the restating firms. an interaction term between firm size, measured as the natural log of the book value of total assets at year-end in the period prior to restatement, and the materiality variable (sizemat) is used to control for variations in the relative size of the restating firm. consistent with prs (2004), sizemat is expected to be negatively related to the market reaction. an interaction term between the ratio of long-term debt to total assets and the materiality measure (levmat) is used to control for variations in debt levels across the restating firms. long-term debt and total assets are measured at year-end in the period prior to the earliest restated period. levmat is expected to be negatively related to the market reaction to restatement announcements. the final control variable in the prs (2004) model captures the returns of the restating firm in the 120-day period preceding the restatement announcement (priorret). prior returns are expected to be positively associated with the market reaction. the prs (2004) model is enhanced by two additional control variables. an indicator variable (bign) is set equal to 1 if the firm engaged a big n auditor in the year(s) of restatement and 0 otherwise. this variable is included to control for variations in audit quality between big n and nonbig n firms (francis et al,. 1999). as big n auditors are associated with better audit quality, bign is expected to be negatively associated with the market reaction. in addition to type of auditor, lazer, livnat, and tan (2004) report a higher incidence and magnitude of quarterly restatements for firms that switched auditors as compared to those that did not. the authors contend that these restatements are a function of the incoming auditor attempting to manage the litigation risk associated with the new client. if restatements following auditor changes are the result of audit firms’ attempts to manage litigation risk, then the signal conveyed to the market by the restatement announcement may not be considered as indicative of low-quality earnings. therefore, an indicator variable (audchange) equal to 1 if the firm changed auditors in the year of the restatement announcement and 0 otherwise is also included in the model and expected to be positively associated with the market reaction. model the prs (2004) model combined with earnings quality (eq) and the two additional 51 control variables (bign and audchng) is represented by the following regression equation: car = β0 – β1eq – β2fraud ± β3attrib – β4core + β5mat – β6pervas – β7years – β8sizemat – β9levmat + β10priorret – β11bign+ β12audchange (1) where: car dailyret indreti t t i= − = =  ( ) 0 1 (2) dailyret = daily return for company i for days 0 and +1; indret = crsp market index return; for the test of the hypothesis, cumulative abnormal returns are measured on days 0 and 1 where day 0 is the day of the restatement announcement. accrual measure of earnings quality ddeq (-) = dechow and dichev (2002) modified accruals quality (ddeq) proxy for earnings quality, multiplied by negative one (-1); fraud (-) = indicator variable 1 for fraud 0 for no fraud (determined by issuance of an sec accounting and auditing enforcement release); attrib (+/-) = series of three indicator variables where 1 equals auditor, management or sec attribution and 0 indicates either no or other attribution. the three attribution indicator variables are: attribution auditor, attribution management and attribution sec; core (-) = indicator variable 0 for restatements not involving core accounts, 1 for restatements involving core accounts (revenue, cost of sales and on-going operating expenses); mat (+) = originally reported income less restated income for all years summed over all restatement periods and scaled by total assets in the year immediately prior to the restatement; pervas (-) = pervasiveness as the number of account groups from 1 to 7 that represent the focus of the restatement; years (-) = persistence of restatement defined as the number of years the financial statements were restated (a restated quarter equals .25); sizemat (-) = interaction between firm size [natural log of the book value of total assets reported the last fiscal year-end prior to restatement (size)] and the earnings change measure (mat); levmat(-) = interaction between ratio of long term debt to total assets (based on book values at fiscal year-end prior to restatement) and the earnings change measure (mat); priorret(+) = buy and hold returns over the last 120 days prior to the restatement announcement (day –120 to day –1); bign (-) = indicator variable equal to 1 if firm engaged a big n auditor in year or quarter of restatement and 0 otherwise; audchange (+) = indicator variable equal to 1 if restating firm changed auditors from the restated period up to the period ending with the announcement date and 0 otherwise. 52 consistent with francis et al. (2005), a measure of accruals quality developed by dechow and dichev (2002) (hereinafter dd) is utilized. accruals quality in the dd model is measured by the extent to which working capital accruals map into operating cash flow realizations in the prior, current, and future periods. the dd model is based on the assumption that accruals reflect managements’ temporary adjustments to either delay or anticipate the receipt of cash. the error term, thus, captures the extent to which managements’ estimates did not accurately capture operating cash flow realizations. therefore, the dd model reflects both intentional estimation errors arising from earning manipulations and unintentional accrual estimation errors resulting from uncertainty in the operating environment. wherein the dd model is based on current accruals, francis et al. (2005) enhance the reliability of the dd model by adding accrual proxies from the modified jones model (dechow, sloan, & sweeny, 1995; jones, 1991) for revenue changes (rev) and property, plant and equipment (ppe). this adaptation results in the following accruals model, which estimates the proxy for earnings quality: tca assets cfo assets cfo assets cfo assets v assets ppe assets j t j t j j j t j t j j t j t j j t j t j j t j t j j t j t j t , , , , , , , , , , , , , , , , , , , re = + + + + + + − +       0 1 1 2 3 1 4 5  (3) where: these estimations produce firm and year-specific residuals that form the basis of the earnings quality metric: ddeq = )( 1, −tj  . the metric is equal to the rolling five-year standard deviation of firm j’s (calculated over the years t 4 through t) estimated residuals with larger standard deviations indicating lower earnings quality. because the measurement of accruals quality is the standard deviation of the residual, rather than the residual itself, companies with consistently large or small residuals have small standard deviations and thus, good earnings quality. the notion being that this consistency is associated with considerably less uncertainty (francis et al., 2005). the residual in the equation (3) is estimated for each year for each one of the fama and french 48 industry classifications for which there are at least five total observations. this metric is hereinafter identified as ddeq. consistent with prior research, the extreme values of the distribution are winsorized to the 1 and 99 percentiles (francis et al., 2005). interpretation of the regression coefficient on earnings quality is intuitively complicated by the fact that there is an inverse relationship between the ddeq statistic and earnings quality (i.e., greater t = year prior to latest year or quarter restated; j = firm; tcaj,t = firm j’s total current accruals for year t (caj,t cl,j,t, cashj,t+ stdebtj,t); assetsj,t = firm j’s average total assets for year t and t-1; cfoj,t = firm j’s cash flow from operations for year t; net income before extraordinary items less total accruals (where taj,t = caj,t clj,t cashj,t + stdebtj,t – depnj,t); depnj,t = firm j’s depreciation and amortization expense for year t; caj,t = firm j’s change in current assets from year t-1 to year t; clj,t = firm j’s change in current liabilities from year t-1 to year t; cashj,t = firm j’s change in cash from year t-1 to year t; stdebtj,t = firm j’s change in short term debt from year t-1 to year t; revj,t = firm j’s change in revenue between year t-1 and year t; ppej,t = firm j’s gross value of ppe in year t. 53 standard deviations equal worse earnings quality). for this reason, the values of ddeq have been multiplied by negative one (-1). this transformation allows a more direct intuitive interpretation of the results in that larger values (less negative) of the ddeq estimates are associated with better earnings quality. sample and data the sample consists of companies announcing restatements between january 1, 1997, and december 31, 2004. these sample firms were obtained from the gao database and from searches on the lexis-nexis news library. the gao (2002) database contains a list of all companies announcing restatements between january 1, 1997, and june 30, 2002. to locate firms that announced restatements after june 30, 2002, keyword searches were performed (e.g. adjust, error, misstate, restate, revise) in the lexis-nexis news library. there were 1,368 restatement announcements identified during the sample window. this number was reduced by 30 firms that issued more than one restatement within a six-month period, 213 firms that restated for reasons other than to correct previously misstated income, and 74 firms that did not ultimately issue a restatement. of the remaining 1,051 firms, 332 were eliminated due to missing data items. this resulted in a final sample of 719 restatement announcements. the breakdown of sample attrition is presented in table 1. additional information was taken directly from the restatement announcements. the restatement announcements generally contains information indicating to whom the restatement is attributed (attrib), the total expected impact on net income (mat), the fiscal period(s) affected (years), the account groups impacted and/or the reason for the restatement (i.e. revenue recognition timing)(core, pervas). hand collected data items not found in the restatement announcements were taken from a combination of 10-k, 10-q and 8-k reports. additional data was collected electronically from compustat, crsp, and thomson financial (13f) filings. results descriptive statistics and univariate results table 2 presents a breakdown of restatement announcements by industry and year of announcement. consistent with increases noted in other studies (gao, 2002 & 2006; huron consulting, 2003 & 2004; palmrose et al., 2004), the sample increases, although not consistently, across years with the largest number of announcements in 2004. although over 50 percent of restatement announcements are clustered in the business and services industry grouping, the distribution of restatements across both calendar quarters (not tabulated) and years is independent of industry. this 54 suggests market anticipation of announcements due to industry clustering is not likely to be an important factor in the observed market reactions. table 3 presents the summary statistics for the car associated with restatement announcements across four different return windows. in addition to providing returns on all restatements in panel a, the table classified restatements into two distinct subsets. panel b contains those restatements announced in conjunction with earnings releases and panel c contains those restatements announced separately. the mean car for the full restatement sample on days (0, 1) is negative 4.5 percent. as the reaction window is expanded for the full sample, returns become increasingly negative up to 5.6 percent for days (-1 to 3). the mean car on days (0, 1) for restatements announced in earnings releases is negative 3.0 percent, which is significantly greater than the mean car of restatements announced separately of negative 5.4 percent (z-statistic 3.06). this supports the conjecture that information contained in earning releases may attenuate reactions to the restatement announcements. as expected, the car are significantly negative across all four different return windows and all three classifications of announcement groupings. the car in the first column of table 3 represents the primary dependent variable for the regressions associated with hypotheses one. table 4 presents descriptive statistics and univariate results for the control variables. in most cases, the results are similar to the findings of prs (2004). fraud observations (12 percent, 84 of 719) have an average car of negative 11 percent, significantly lower than the negative 3.6 percent car associated with non-fraud observations (t-statistic = -2.83). restatements involving core accounts announcements of all potential restatements a 1368 duplicate restatement announcements b (30) restatements for technical reasons not amounting to misstatements c (213) announcements that did not result in actual restatements d (74) restatements eliminated by missing data e (332) restatements included in analysis 719 d announcements of potential restatements later determined to be unnecessary. c restatements for technical reasons such as change in accounting policy, discontinued operations, mergers/acquisitions, and stock splits were eliminated because they are not properly classified as misstatements. e restatements with missing data items are those primarily missing crsp returns and the five years of data required to compute dechow & dichev (2002) earnings quality metric. table 1 sample attrition a number of initial restatement announcements identified through key word searches on lexis nexis (july 2002 december 2004) and the gao database (january 1997 june 2002). b firms that announced a restatement within a six month period of a prior announcement were eliminated from the sample if the restated periods were the same as in the original announcement. 55 also have significantly lower average car of negative 6.5 percent compared to negative 0.9 percent for non-core restatements (t-statistic = -6.38). as in the prs study, the 97 restatements attributed (attrib) to auditors result in the most negative returns (10.4 percent) and the 357 attributed to management the second most negative returns (4.9 percent). of those restatements attributed to only one party, the sec initiated restatements resulted in the least negative returns (2.8 percent). despite the somewhat logical presumption that sec involvement should elicit a more negative reaction, the above findings are corroborated by dechow et al. (1996), who document auditor identified accounting problems as being associated with more negative reactions than those identified by the sec. the materiality (mat) measure indicates that restatements associated with larger decreases in net income are associated with returns that are more negative. returns decrease significantly as the number of account groups (pervas) increases (f-statistic = 21.55, p-value < .01). although the majority of the full restatement sample affects only one account group (75 percent, 541 out of 713) and is associated with a negative reaction of 3 percent, restatements affecting more than four account groups elicit a considerably larger negative return of 19 percent. these results are also consistent with those in the prs (2004) study. the number of years (years) that were restated averages 1.4 for the entire sample. the average 120-day return for the sample firms is negative 4.3 percent. industry a food products 5 1% 2 <1% 5 1% 1 <1% 13 2% recreation 2 <1% 4 1% 7 1% 2 <1% 15 2% printing and publishing 0 <1% 1 <1% 2 <1% 1 <1% 4 1% consumer goods 3 <1% 2 <1% 1 <1% 2 <1% 8 1% apparel 3 <1% 1 <1% 1 <1% 2 <1% 7 1% healthcare & medical products 15 2% 11 2% 15 2% 17 2% 58 8% construction & materials 1 <1% 0 0% 2 <1% 1 <1% 4 1% steel works 2 <1% 1 <1% 1 <1% 1 <1% 5 1% fabricated products & machinery 10 1% 5 1% 6 1% 11 2% 32 4% electrical equipment 1 <1% 0 0% 3 <1% 0 0% 4 1% automobiles & trucks 0 0% 2 <1% 2 <1% 2 <1% 6 1% petroleum & natural gas 10 1% 5 1% 5 1% 4 1% 24 3% utilities 8 1% 3 <1% 4 1% 6 1% 21 3% communications 12 2% 7 1% 6 1% 7 1% 32 4% personal & business services 116 16% 67 9% 94 13% 99 14% 376 52% business equipment 3 <1% 0 0% 1 <1% 2 <1% 6 1% computer software 33 5% 21 3% 25 3% 25 3% 104 14% total 224 31% 132 19% 180 25% 183 25% 719 100% table 2 distribution of restatement sample by industry and announcement quarter total a industries are defined by sic code based on a modified version of fama and french's classification for 30 industries. 1 432 announcement quarter 56 the number of firms that engaged a big n (bign) auditor is substantially higher than those that did not, 89 percent compared to 11 percent. this representation remains consistent across both sub-samples. in the sub-sample of no earnings release announcements, however, the returns are more market-adjusted car % a 0, 1 -1, 0, 1 -1, 0, 1, 2 -1, 0, 1, 3 mean -4.50 -5.16 -5.42 -5.59 standard deviation 0.14 0.15 0.15 0.16 t -statistic c (-8.77) (-9.54) (-9.42) (-9.64) first quartile -7.69 -8.85 -9.73 -9.92 median -1.60 -2.11 -2.74 -2.76 third quartile 1.62 1.49 1.47 1.47 panel b: restatements announced in earnings releases d mean -3.00 -3.71 -4.02 -4.04 standard deviation 0.12 0.13 0.15 0.15 t -statistic c (-3.98) (-4.65) (-4.46) (-4.47) first quartile -6.10 -8.12 -9.73 -8.08 median -0.67 -1.30 -1.85 -2.41 third quartile 3.13 2.85 2.78 3.04 mean -5.43 -6.04 -6.28 -6.54 standard deviation 0.14 0.15 0.16 0.16 t -statistic c (-7.93) (-8.40) (-8.44) (-8.71) first quartile -8.44 -9.03 -9.58 -10.30 median -2.12 -2.59 -3.02 -2.99 third quartile 0.87 1.02 1.37 1.25 c null hypothesis for each window is car = 0. t -tests are two-tailed. d subset of 273 restatements announced in earnings releases. e subset of 446 restatements announced separately from earnings releases. panel c: restatements not announced in earnings releases e panel a: all restatements b table 3 event window surrounding announcement day 0 b announcements of 719 restatements to correct misstatements of annual and quarterly financial reports announced between 1997 and 2004. cumulative abnormal returns a market-adjusted car calculated using equally weighted index (palmrose et al. 2004). calculated as the summation of firm i's daily return less crsp market index return over each of the four event windows. 57 negative for big n firms (-5.6 percent compared to -3.7 percent), but not significantly so (t-statistic = 0.86). the reverse relationship exists for the sub-sample of earnings release announcements, wherein less negative returns are associated with big n firms (-1.8 percent compared to -3.1 percent). of the 719 firms, 154 (21 percent) changed auditors between the latest restated period and the restatement announcement date. both auditor changes and non-changes are associated with negative returns across the primary sample and sub-samples. car are not significantly different between groups in the full sample or either sub-sample. multivariate results results of hypothesis one that tests the impact earnings quality has on the market reaction to restatement announcements and examines the earnings quality proxy within the context of the multivariate model are presented in table 5. hypothesis one results for the earnings quality proxy (ddeq) are presented and discussed below. results for the ols regression for the full sample indicate the model is highly significant (fstatistic = 7.65, adjusted r2 = 11%). earnings quality is significantly negatively related to restatement announcement market reactions (t-statistic = -2.57, p value < .01) in the full sample of restatement announcements. this result holds in the sub-sample of restatements announced separately from earnings releases, (t-statistic = -1.84, p value < .05) and in the sub-sample announced concurrent with earnings announcements (t-statistic = -1.89, p value < .05). to summarize, the above results for the ddeq measure of earnings quality support hypothesis one in the context of both the full restatement sample and the sub-samples announced both separately from and with earnings releases. in each of these samples, ddeq is significantly negatively related to the market reaction to restatement announcements. this finding provides strong support for hypothesis one and the contention that investors are, to some degree, impounding earnings quality information into stock prices. in addition to the primary finding for hypothesis one, there are numerous results of note for the control variables included in the prs (2004) model. not surprisingly, fraud is significantly negatively related to the market reaction across the primary and both sub-samples of restatement announcements (t-statistics -3.28, -1.78, and -2.91, p values < .01, .05 and .01 respectively). similarly, restatements which impact core operating accounts (core) are also significantly negatively related to the market reaction (t-statistics -2.86, -3.25, and -1.64, p values < .01, .01, and .05, respectively). the negative effect the pervasiveness (pervas) of the restatement has on the market reaction is driven by the sub-sample of restatements not announced in earnings release (t-statistic -6.95, p-value .01). the finding that pervasiveness is not significantly negatively related to the market reaction in the subsample of announcements included with earnings releases may be due in part to more complex restatements warranting separate announcements. the additional variables added to the prs (2004) model, bign and audchange, are only marginally significant in the sub-samples. bign is negatively related to the market reaction to restatement announcements in only the sample of restatements not announced in earnings releases (tstatistic -1.38, p-value < .10). this finding is not surprising given that 89% of both the full and each sub-sample were audited by large firms. similarly, audchange is only moderately significant in the sub-sample of firms that announced restatements in earnings releases (t-statistic -1.31, p-value .10). 58 # percent or mean car e days (0,1) # percent or mean car e days (0,1) # percent or mean car e days (0,1) 719 273 446 control variables fraud 84 12% -0.111 23 8% -0.074 61 14% -0.124 no fraud 635 88% -0.036 250 92% -0.026 385 86% -0.043 (tstatistic) (-2.83) *** (-1.25) (-2.45) ** (zstatistic) (-3.30) ** (-1.30) (-3.01) *** attribution f auditorauditor 97 13% -0.104 30 11% -0.079 67 15% -0.109 managementmanagement 357 50% -0.049 143 52% -0.039 214 48% -0.055 secsec 72 10% -0.028 29 11% -0.026 43 10% -0.030 noneunattributed 164 23% -0.018 66 24% 0.003 98 22% -0.032 auditor & mgmtauditor & mgmt 25 3% -0.018 4 1% 0.067 21 5% -0.034 auditor & secauditor & sec 1 <1% 0.009 1 <1% 0.009 0 0% 0.000 mgmt & secmgmt & sec 3 <1% 0.043 0 0% 0.000 3 <1% 0.043 (fstatistic) (4.39) *** (2.53) ** (3.14) *** (χ 2 ) (19.56) *** (15.89) *** (8.25) core earnings 465 65% -0.065 182 67% -0.049 283 63% -0.075 non-core earnings 254 35% -0.009 91 33% 0.007 163 37% -0.019 (tstatistic) (6.38) *** (4.30) *** (4.91) *** (zstatistic) (4.74) *** (3.06) *** (3.79) *** materiality overall mean -0.040 -0.001 -0.065 quintile means 144 -0.263 -0.090 54 -0.105 -0.062 89 -0.361 -0.102 144 -0.023 -0.085 55 -0.017 -0.051 89 -0.027 -0.115 143 -0.006 -0.025 55 -0.005 -0.030 90 -0.007 -0.028 144 -0.001 -0.024 55 -0.001 -0.006 89 -0.001 -0.023 144 0.081 -0.001 54 0.104 -0.001 89 0.069 -0.003 (fstatistic) (13.26) *** (2.55) ** (12.04) *** (χ 2 ) (56.11) *** (11.42) ** (49.04) *** pervasiveness 1 541 75% -0.032 210 77% -0.026 332 74% -0.036 2 112 16% -0.056 43 16% -0.048 69 15% -0.061 3 36 5% -0.086 11 4% -0.006 25 6% -0.121 4 18 3% -0.128 6 2% -0.101 12 3% -0.141 5 6 1% -0.154 1 0% -0.004 5 1% -0.184 6 5 1% -0.463 2 1% -0.041 3 1% -0.745 7 0 0% 0.000 0% 0.000 0 0% 0.000 (fstatistic) (14.19) *** (0.72) (21.55) *** (χ 2 ) (23.96) *** (4.12) (24.46) *** years mean 1.42 1.15 1.58 median 1.00 0.75 1.00 table continued on the next page table 4 all restatements b restatements announced in earnings releases c restatements not announced in earnings releases d descriptive statistics for control variables a 59 # percent or mean car e days (0,1) # percent or mean car e days (0,1) # percent or mean car e days (0,1) 719 273 446 sizemat mean -0.07 -0.013 -0.105 median -0.012 -0.001 -0.016 levmat mean -0.022 -0.013 -0.035 median -0.001 -0.001 -0.001 prior returns mean -0.043 -0.027 -0.052 median -0.001 -0.001 -0.001 bign bign 641 89% -0.046 243 89% -0.018 398 89% -0.056 non-bign 78 11% -0.029 30 11% -0.031 48 11% -0.037 (tstatistic) (1.03) (0.55) (0.86) (zstatistic) (1.58) (1.14) (1.11) auditor change changed 154 21% -0.053 49 18% -0.048 105 24% -0.056 no change 565 79% -0.043 224 82% -0.026 341 76% -0.054 (tstatistic) (0.84) (0.93) (0.88) (zstatistic) (0.93) (0.23) (0.81) f instances of restatements attributed to multiple parties in the restatement announcement were coded as such. a control variables defined as follows (in table order). fraud: sec issued an accounting and auditing enforcement release (aaer). core earnings: restatements involving revenue, cost of goods sold, or on-going operations. non-core earnings: restatements involving transitory items such as merger accounting, tax accounting, non-operating gains or losses and others. attribution auditor, management, sec or combination of multiple entities: restatement attributed to specific entity in press release, baseline case is unattributed. materiality : restated income (loss) less originally reported net income over restated period scaled by book value of total assets at the year end prior to the earliest restated period. pervasiveness: number of account groups involved in restatement. the seven account groups are revenue, cost of sales, operating expenses, onetime/special items, merger-related, non-operating expenses and other. the sub-account groups used in these classifications are defined in appendix x. years: sum of periods restated where a fiscal year = 1 and a fiscal quarter = 0.25. sizemat : interaction between materiality variable and the natural log of the book e cumulative abnormal returns (car) calculated using market adjusted model and equally weighted index on days 0 and 1 where day 0 is the date of the restatement announcement. b announcements of 719 restatements to correct misstatements of annual and quarterly financial reports announced between 1997 and 2004. c subset of 273 restatements announced in earnings releases. d subset of 446 restatements announced separately from earnings releases. value of total assets in at year-end in the year prior to the earliest restated period. levmat : interaction between materiality variable and ratio of book value of long term debt to book value of total assets at year-end in the year prior to the earliest restated period. prior returns : buy and hold returns over last 120 prior to restatement announcement. bign: indicator variable equal to 1 if restating firm engaged a bign auditor during the period of restatement and 0 otherwise. auditor change : indicator variable if restating firm changed auditors from the restated period up the period ending with the announcement date. *,**,*** difference across quintiles is significant at 0.10, 0.05, 0.01 levels respectively. t -tests are two-tailed. non-parametric results are based on the mann-whitney z-statistic (two group comparisons) or the kruskal-wallis χ2 (quintile and multiple group comparisons). descriptive statistics for control variables a table 4 (continued) all restatements b restatements announced in earnings releases c restatements not announced in earnings releases d 60 limitations and conclusion as is the case with many studies employing various earnings quality metrics, there is a potential survivorship bias related to the number of years of data required to estimate earnings quality. the final sample is likely skewed towards larger, more successful firms. in addition to possible survivorship bias, while the accounting literature includes numerous definitions of earnings quality, the primary earnings quality metric (ddeq) used in this study estimates earnings quality based on the relationship between accruals and cash flows. signals regarding earnings quality are not limited to the information independent variables expected sign coeff. t -stat coeff. t -stat coeff. t -stat panel a: ddeq earnings quality ddeq -0.05 -2.57 *** -0.061 -1.89 ** -0.045 -1.84 ** control variables f fraud -0.050 -3.28 *** -0.049 -1.78 ** -0.055 -2.91 *** auditor attribution -0.031 -2.17 ** -0.036 -1.46 * -0.022 -1.23 management attribution + 0.001 0.01 -0.029 -1.67 ** 0.182 1.23 sec attribution 0.018 1.00 -0.036 -1.32 0.052 2.25 ** core -0.03 -2.86 *** -0.053 -3.25 *** -0.023 -1.64 ** materiality + 0.206 1.67 ** 0.348 0.65 0.223 1.68 ** pervasiveness -0.034 -5.75 *** -0.001 -0.12 -0.051 -6.95 *** years 0.006 1.36 * 0.010 1.29 * 0.004 0.82 sizemat -0.106 -1.49 * -0.179 -0.52 -0.115 -1.52 * levmat -0.061 -1.71 ** -3.424 -0.75 -0.067 -1.69 ** 120 day return + 0.026 2.06 ** 0.028 1.41 * 0.025 1.53 * bign -0.018 -1.16 -0.004 -0.15 -0.029 -1.38 * auditor change + -0.018 -0.14 -0.027 -1.31 * 0.013 0.79 intercept 0.034 1.77 0.023 0.78 0.025 1.65 ** model statistics n 719 273 446 adjusted r 2 11% 5% 16% f -statistic 7.65 *** 2.09 ** 7.25 *** *,**,*** coefficient or model is significant at 0.10, 0.05, 0.01 levels repectively. results are one-tailed. f control variables defined in table 4. b cummulative abnormal returns (car) calculated using market adjusted model and equally weighted index on days 0 and 1 where day 0 is the date of the restatement announcement. c announcements of 719 restatements to correct misstatements of annual and quarterly financial reports. restatements announced between 1997 and 2004. d subset of 273 restatements announced in earnings releases. e subset of 446 restatements announced separately from earnings releases. all sample restatements c restatements announced in earnings releases d restatements not announced in earnings releases e table 5 ols regression results for hypothesis 1 for all sample restatements and subsets that were/were not announced in earnings releases a earnings quality variable defined as follows: ddeq = standard deviation of firm j 's residuals, from year t -4 to year t from annual cross sectional estimations of the modifed dechow-dichev (2002) model. variable is multiplied by negative one (-1). car = β0 – β1eq – β2fraud ± β3attrib – β4core + β5mat – β6pervas – β7years – β8sizemat – β9levmat + β10priorret – β11bign+ β12audchange 61 conveyed by accruals, however. market participants likely extract earnings quality data from a variety of sources that are outside the scope of this study. one primary motivation for undertaking this research was to provide additional insights into market participants’ abilities to discern and subsequently price the implications of earnings quality. unlike prior studies that have relied on associating earnings quality proxies with future returns and cash flows, this study associates earnings quality with returns following an observable signal that earnings are of poor-quality accounting restatements. this study examined the association between an accruals earnings quality proxy and the market reaction to restatement announcements. results indicate that earnings quality is negatively related to investors’ reactions to announcements of restatements. associating pre-restatement earnings quality with 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(2006). intra-industry effects of earnings restatements due to accounting irregularities. journal of business, finance and accounting, 33(5): 696-714. 1 trends making social responsibility easier: two corporate structures, a certification and the united nations global compact doug nay east stroudsburg university of pennsylvania denise t ogden penn state university – lehigh valley in our global business environment, short term profit focus, stock price fluctuations, global competition and disruptive technological change tempt leadership toward disregarding corporate social responsibility and in many cases behaving unethically. there are four positive trends underway that encourage achieving social good and more ethical governance. all four introduce a duality of purpose for achieving both business profit goals and social issue objectives: 1. starting or changing to a benefit corporation, 2. becoming a certified b company, 3. operating as a l3c organization and, 4. following the united nation’s global compact. this article examines the foundations for each. these trends are gaining traction as businesses focus more on corporate social responsibility. keywords: corporate social responsibility; benefit corporations: low -profit limited liability corporations; b corporations; social entrepreneur introduction in his speech at the 2008 world economic forum, bill gates challenged people to engage in “creative capitalism” which is “a hybrid engine of self-interest and concern for others [which] serves a much wider circle of people that can be reached by self-interest or caring alone” (gates, 2008). because of bill gates and others, creative capitalism is changing the way many conduct business, with more focus on behaving more socially responsible while making a profit. more companies are focusing on the triple bottom line, a phrase coined by elkington (1997) to designate those companies focusing on people, planet and profits. in our global business environment, short term profit focus, stock price fluctuations, global competition and disruptive technological changes tempt leadership toward disregarding corporate social responsibility and, in many cases, behaving unethically. proactive social responsibility (torugsa, o’donohue & hecker 2013) occurs when firms voluntarily go beyond regulatory requirements to support sustainability and contribute to society. http://journals.sfu.ca/abr advances in business research 2018, volume 8, pages 1-14 2 our paper outlines four positive trends underway that encourage achieving social good and more ethical governance: 1. starting or changing to a benefit corporation 2. becoming a certified b corporation 3. operating as a low-profit limited liability company (l3c) and 4. following the united nation’s global compact. all four introduce components related to the tenants of corporate social responsibility: this article examines the foundations for each trend. these structures are gaining traction as businesses focus more on corporate social responsibility. these structures are important because of the potential for mutually beneficial partnerships that focus on improving society. the impetus to focus on corporate social responsibility helps to grow communities by helping to solve local problems. many people prefer to buy from companies that align with their own altruistic goals and these trends allow companies to focus on social goals over profits or both social goals and profits. these business formats provide opportunities for social entrepreneurs and legal protection for corporate managers who can now better balance societal concerns with shareholder returns (stecker, 2016). corporate social responsibility while there are many definitions of corporate social responsibility (csr), most consider the welfare and values of society. one of the first attempts to define csr was bowen (1953) who said business management “must be used with a view to the interests of society at large” (p. 135). his idea was reinforced and broadened through the years, including mcguire (1963) who included employee and community welfare and education and political needs of society. the committee for economic development (ced) (1971) published a report, social responsibilities of business corporations, which outlined the rationale to reexamine the role that companies play in society. their main premise is that “business functions by public consent, and its basic purpose is to serve constructively the needs of society –to the satisfaction of society” (1971, p. 11). the ced presented corporate responsibility as three concentric circles. the inner circle represents a companies’ primary economic responsibilities, the intermediate circle includes a corporation’s obligation to become more aware of societal values and align the company’s policies and practices with these values and the outer circle expands expectations so that companies are more active in improving society (carroll, 1979, davis & blomstrom, 1975). rasche (2017) supports corporate social responsibility as being good for business in growth, reputation, talent discovery and return on investment. seminars, speeches and leaders teach social and environmental transparency and ethical responsibility with business accountability. according to research, in general, consumers support companies that are socially responsible (bhattacharya & sen, 2004; brown & dacin, 1997; creyer, 1997; eccles, ioannou & sarafeim, 2012; ellen, mohr & webb, 2000; murray, 1997; sen & bhattacharya, 2001). still, quarterly results, meeting company predictions, and financial success define the capitalistic model, supported by the contingency that believes social and environmental issues are not a business responsibility. economist, milton friedman wrote: …there is one and only one social responsibility of business -to use its resources and engage in activities designed to increase profits so long as it stays in the rules of the game, which is to say, engages in open and free competition, without deception or fraud, conforming to the basic rules of society, both those embodied in law and those embodied in social custom (1970, 133). 3 the first part of the quote is the most cited, but the second part is as important. unfortunately, many corporations adhere to increasing profits no matter the costs. bowen (1953), a pioneer in corporate social responsibility, states that csr is “…the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society” (p. 6). carroll (1991) simplifies the concept, “ …the csr firm should strive to make a profit, obey the law, be ethical and be a good corporate citizen”(p. 43). csr is a multidimensional construct with overlapping themes in several disciplines. according to kashyap, mir and mir (2011) the multidimensional nature of csr arises from six factors: 1. diversity in the set of processes that constitute a set of socially responsible firm behaviors 2. multiple stakeholders with differing, often conflicting interests 3. differences in corporation missions or values that motivate firms to engage in socially responsible activities 4. variances in performance attributed to socially responsible behavior 5. subjectivity in judging what constitutes socially responsible behavior 6. multiple domains of csr (legal, ethical, economic) (p. 55) while there are differences in opinion and approach, the pioneers of csr laid the groundwork for policies and practices that are in existence today including benefit corporations, certified b corporations, low-profit limited liability companies (l3c), and the united nations global compact. these formats provide incentives to embrace the focus on both profits and social good, and to recognize that profits and helping society are not mutually exclusive benefit corporations a benefit corporation is one that is committed to creating public benefit. the legal structure provides greater protection for directors and officers who may consider other aspects (such as employees, environment and community) besides profits to make decisions. benefit corporations are a relatively new legal corporate structure passed in 36 states which can be adapted from the start of life of an organization or transformed from an existing corporate form (c corporation, limited liability corporation, sub chapter s or any other legal incorporation type). a benefit corporation is a hybrid that “bridges the legal gap that separates for-profit companies from not-for-profit companies” (poltenson, 2012, p. 1). in 2010, maryland became the first state to allow benefit corporations (haigh, walker, bacq & kickul, 2015). kentucky is the newest member having implemented the legislation on july 1, 2017. in addition to the 36 states with legislation, an additional seven states are in the process of accepting these types of corporations. the end-result is more widespread and lasting impact (wilburn & wilburn, 2014). according to haigh, walker, bacq and kickul (2015). “with the market for socially and environmentally conscious products and services growing to 290 billion and the market for socially responsible investments growing to $3 trillion in the assets in the u.s. alone…” (p. 5), hybrid organizations are wanting to meet this market opportunity. they define hybrid organizations as “those enterprises that design their business models based on the alleviation of a particular social or environmental issue” (p. 5). rawhouser, cummings and crane (2015) cite reasons to become a b corp including organizational flexibility, societal spillovers, stakeholder clarity and a cultural shift. there is more 4 protection for corporate officers and board of directors when using company resources pursuing a social goal. there is no tax advantage to benefit corporations and currently there are no state protected or legal precedents for protecting the social goal in the event of a takeover by another company. the opposing arguments made in legislative debate against creating benefit corporations included difficult regulatory enforcement, threat to the for-profit category, stakeholder confusion and category redundancy. while a record number of companies are becoming b corps, there are concerns about shareholders’ rights and some investors would rather keep profits than see them go to socially responsible endeavors (holbrook, 2010; stecker, 2016). in almost all 36 states benefit corporations are required to declare a social purpose, report on it annually and renew their charter annually or biannually. for example, delaware shares a list of 250 possible social objectives that businesses can select and report on, some of which include (rawhouser et al., 2015): • the reduction or elimination of psychosocial distress in cancer patients and their friends and family • providing employment opportunities for at-risk women around the world by collaborating with artisan groups to form design partnerships and sustainable market opportunities • making a positive impact on the planet by sourcing the majority of materials to fit one or more of these criteria: locally made, natural, and/or recycled • help communities rise out of poverty and give customers assurance that the products they buy from the corporation are fair trade and ethically made • returning a minimum of 1% of net profit to fund education and healthcare projects in partnership communities • provide tutoring and supplemental education • using its business to inspire social and environmental change that results in the improvement of the human condition, increased social consciousness and the amelioration of poverty • accelerate high-impact businesses innovating in business, science and technology with the potential to make a positive social or environmental impact on the world • to increase the social and environmental sustainability and positive social impact of tourism activities benefit corporations represent a growing trend in the pursuit of social goals as additional states enact the legislation legitimizing social improvement goals adding to corporate social responsibility. stecker (2016) concluded that the benefit corporation are a “strategic and helpful business form that social entrepreneurs, green businesses, millennials, consumers and social impact investors will continue to enthusiastically embrace” (p. 374). according to hiller (2013), “…this 5 new business structure is an ethical step toward empowering socially committed commercial entities” (p. 287). the stringent requirements to become a benefit corporation may reduce confusion about a firm’s goals (rawhouser et al., 2015). haigh, kennedy and walker (2015) present a scored hierarchy of what strategic changes might be made in a benefit corporation. first on the list was satisfying the desire to better facilitate the mission. other reasons for choosing a hybrid form included the need to raise capital, the need to be understood, the need to diversify income and the need for expedience. oregon is a state with a growing number of benefit corporations. according to then secretary of state jeanne p. atkins who issued a press release (2015) announcing the 500th benefit company, “oregon is a hotbed of socially conscious entrepreneurs looking for a new way to conduct business. it’s very exciting to see the number of benefit companies grow so rapidly.” owner and founder jenelle isaac of living room realty, the 500th benefit company commented “living room realty wanted to become a benefit company because of our belief that we build a business by building community one great neighbor at a time. it was an extension of our company’s social environmental and ethical values.” in california and washington an original flexible purpose corporation has now been changed to a social purpose corporation, similar to a benefit corporation charter. in almost all 36 states benefit corporations are required to declare a social purpose, report on it annually and renew their charter biannually. to get a clear picture of how many benefit corporations are in existence, the secretary of state office or corporate commission offices for each state in the u.s. were contacted. while all states do not keep a separate benefit corporation category, there are approximately 3400 corporations chartered in the 36 states (table 1). the corporation leader, delaware, reports 756 benefit corporations as of july 2017. certified b corporations while a benefit corporation is a legal entity, a certified b corporation (cbc) designation is a third-party certification that verifies the company is socially and environmentally responsible. often benefit companies also seek the certified b corp certification. the companies who seek cbc status embrace the triple bottom line philosophy to focus on people, planet and profits. a third-party verification is beneficial because the company is assessed by a neutral unregulated party that has strict guidelines and assessment procedures. organizations use the certification (identified as a circumscribed b) on their product or service advertisements as a differentiator, to attract customers, generate public relations, pass legislation and to benchmark performance. the certified b corporation is not a legal structure; therefore, any for-profit company can seek the designation. although nonprofit organizations cannot seek the certification due to their legal status, many certified b corporations partner with nonprofit organizations, as their goals often overlap. many companies use the designation on all company collateral to attract socially-conscious consumers and job seekers who care about working for a socially-responsible organization. annual fees for certification range from $500 to $50,000, depending on the size of the organization gellman and feintzeig 2013; b lab 2018). in terms of disadvantages, due to the newness of certified b corps there is uncertainty about the benefits. while the certification is useful in marketing an organization, the accountability required to maintain certified b corp certification may also be an obstacle in terms of time and money. many products and industries embrace third-party certification as an indication of quality. examples include coffee (fair trade certification), milk (usda organic certification, livestock on farms and ranches (american grassfed association) and recycling (r2 certification). to become a certified b corporation, a company is assessed by b lab, the nonprofit organization behind both 6 benefit corporations and the certified b corp designation. according to their website, b lab “serves a global movement of people using business as a force for good.” patagonia, ben and jerry’s, king arthur flour, and dansko footwear are four of the better known certified b corporations. these are four b corporations of the twelve hundred companies in seventy-five countries world-wide as of july 2017. their social purpose is examined and approved by b lab and renewed every two years after a re-examination. the requirements for certified b corporations are outlined in the handbook subtitled “how to use business as force for good” (honeyman, 2014), describing how private enterprise can create public good through interdependent action. the three founders of b lab are jay coen gilbert, bart houlahan and andrew kassoy. the idea of b corps was directed at millennials and changing expectations of what a business does and how work should be different. the founders described b corps as a capitalism evolution. the b impact assessment tool from b lab is a free, online management tool, for the business, pursuing what is “good for workers, good for the environment, good for the community, good for long term and good to the core”. the impact assessment tool looks at what is happening inside a certified b corp and benchmarks the results which are shared anonymously among fifteen thousand users in the certified b and benefit corporation community (honeyman, 2014). the founders of b lab had already experienced business success with their 1993 start-up, “and 1”, basketball shoes, growing to two hundred fifty million in sales by 2000 and acquired by global international inc. in 2005 (nicholson, 2011). many of the ideas for b corps and benefit corporations were taken from that experience and driven by their experience that a family-centric, socially responsible approach could be successful. the impact assessment tool now has a long-term focus on the company mission and methods to maintain the social focus after an acquisition (bogage, 2016). table 2 summarizes the difference between benefit corporations and certified b corporations. 7 table 1: number of benefit corporations as of july 2017 legislation passed state number of corps 2011 vermont 47 2011 virginia 12 2011 hawaii 15 2012 maryland 136 2012 massachusetts 67 2012 new york 884 2012 south carolina 15 2013 arkansas 13 2013 delaware 756 2013 illinois 146 2013 pennsylvania n/a 2013 washington, dc 6 2014 arizona n/a 2014 california 541 2014 colorado 51 2014 connecticut 24 2014 florida 18 2014 nebraska 4 2014 oregon 545 2014 west virginia 119 2015 indiana 6 2015 louisiana n/a 2015 minnesota 122 2015 montana n/a 2015 nevada 4 2015 new hampshire 54 2015 new jersey 4 2015 rhode island 8 2017 kansas 2017 kentucky pending alaska pending iowa pending mississippi pending north dakota pending new mexico pending oklahoma total: 30 states, 2086 benefit corporations data collected in july 2017 8 table 2: the difference between benefit corporations and certified b corporations issue benefit corporations certified b corporations purpose legal structure that allows a corporation to legally pursue social goals ahead of or equally with profits third-party certification based on a company’s verified performance accountability directors required to consider impact on all stakeholders same transparency must publish public report of overall social and environmental performance assessed against a third party standard* same performance self-reported must achieve minimum verified score on b impact assessment recertification required every two years against evolving standard availability available for corporations only in 30 u.s. states and d.c.** available to every business regardless of corporate structure, state, or country of incorporation cost state filing fees from $70-$200 b lab certification fees from $500 to $50,000/year, based on revenues role of b lab developed model legislation, works for its passage and use, offers free reporting tool to meet transparency requirements; no role in oversight certifying body and supporting 501(c)(3), offering access to certified b corporation logo, portfolio of services, and vibrant community of practice among b corps; to learn more about b corp certification, visit www.bcorporation.net * delaware benefit corps are not required to report publicly or against a third-party standard ** oregon and maryland offer benefit llc options source: benefit corporations and certified b corps. accessed april 2018 from http://benefitcorp.net/businesses/benefit-corporations-and-certified-b-corps https://www.bcorporation.net/ http://benefitcorp.net/businesses/benefit-corporations-and-certified-b-corps 9 low-profit limited liability company (l3c) another encouraging new legal form is the low-profit limited liability (l3c) company. l3c s combine the advantages of the traditional limited liability corporation with the social mission of nonprofit organizations (lane, 2010). nonprofit and for-profit organizations may seek l3c status. social entrepreneurs are especially attracted to these legal forms. social entrepreneurs tailor their activities with the goal of creating social value (abu-saifan, 2012). unlike benefit corporations or certified b corps, tackling charitable or educational purposes has first position and profits are second in a l3c. the original idea for l3cs was created by robert lang in 2005. his concept was to have a hybrid corporation with a profit and a nonprofit component. he described the l3c as “the forprofit with a nonprofit soul” (williams, 2009, p. 1). according to lang, the l3c is the “perfect vehicle for economic development, medical research, operation of social agencies, museums, concert venues, housing and any activity with a charitable purpose and a revenue stream” (americans for community development, 2011, p. 2). l3cs were also seen as an opportunity to increase grants and investments from private foundations through program-related investments (pris). pris allow investments and grants from private foundations to social enterprises while maintaining tax-exempt status (schmidt, 2010). lang also saw the social purpose as an opportunity to develop a steady revenue stream through investments in for-profit companies to raise l3c revenues, governed by the irs code defining charitable activities (lang & minaugh, 2010). lang uses a “tranches” (different investment levels) strategy, where each tranche is a class of members with different levels of risk and different expectations of returns. the l3c would invest capital from private foundations’ donor gifts by giving a market return to that level, while a social purpose level from donors would receive little or no return and a middle level would be below market, though still higher than a previous nonprofit return (lang and martin 2015). there were significant differences of opinion during the legislative process before vermont allowed the low-profit limited liability company in 2008. the lawmakers and interested parties welcomed the l3c’s social purpose as another vehicle of corporate social responsibility. there were mixed opinions about the investment message. specifically, lang expected foundations and other nonprofits would embrace the new format. he thought a new federal law, including irs review of a new foundation information form, would add a comfort level for using the l3c as the business model. this new federal legislation has not been passed to date (lang, 2015). there was a re introduction in 2016 as the philanthropic facilitation act. during the debate process, four selected law review articles presented points of view on the l3c; two supported and two did not. callison and vestal (2012) recommended the l3c be shelved until or unless tax laws embraced the l3c and gave the opinion that private foundation investment in social entrepreneur projects would not be optimized with the l3c. murray and hwang (2011) postulated that social business would be facilitated by the l3c. tyler (2010) proposed a framework for governance, fiduciary duties to resolve the problem of solving two masters, profits and social missions and supported the l3c. finally, kleinberger (2010) in his delaware law review took the position that attracting foundation investments though a tranching strategy was “flatly wrong” and would not happen in a meaningful way. as of april 2018, intersector partners, itself a ten-year old l3c, reports there are 1,599 active l3cs in nine states, puerto rico, and in the oglala sioux and navajo tribes, formed since the original 2008 implementation in vermont. the l3c is seen as a natural extension of an llc, carrying with it limited liability, flexible operating plans and contractual-like form. efforts seem to have been discontinued to add the l3c business formats in additional states. also introduced was 10 the idea that since delaware would accept the l3c in the llc category to secure program related investments, that a social entrepreneur could file in delaware and operate in any state, much like any other delaware corporation could. the delaware corporate database does not include a separate category for l3cs, and it is difficult to confirm that l3cs would be accepted, except as an llc. schmidt (2010) surveyed existing l3cs eighteen months after forming. what schmidt found was: 1. the possibility of receiving program related investments (pri) while intriguing was not the most important factor in the entrepreneurs, decisions to form l3cs. 2. the l3c fit the entrepreneurs’ business needs for a legal entity that bridged the for profit and nonprofit worlds. 3. the simplicity and flexibility of the l3c were important considerations in choosing a business form, as was the branding potential. 4. had the l3c not been available, pioneers would have chosen a for profit entity over a 501(c)(3). 5. for the most part the l3c business form has not provided a branding or fundraising advantage to these (pioneer) entrepreneurs. 6. vermont’s social hybrid pioneers remain pleased with the l3c business format despite its relative obscurity and their inability to secure program related investments. intersector partners l3c is an advocate of l3cs, led by founder rick zwetsch. in an interview on august 1, 2018, zwetsch stated that he believes social mission achievements are the main drivers for his l3c and the other l3c company leaders whom he advises and consults. united nations global compact another positive force making corporate social responsibility activities more visible is the united nations global compact (ungc). the compact was established in 2000 with the agreement of three stakeholder sets including the united nations, non-governmental special interest groups and multinational business actors. the ungc is a voluntary initiative in which business leaders commit to implement stated sustainability principles. as of 2018, there were over 9,600 business signers in 161 countries committed to the united nations compact. signers agree to follow ten principles as shown below (un global compact, 2018). each signer chooses one principle to improve and is required to report on actions in a biannual report. principle 1 businesses should support and respect the protection of internationally proclaimed human rights principle 2 make sure that they are not complicit in human rights abuses principle 3 businesses should uphold freedom of association & effective recognition of the right to collective bargaining principle 4 the elimination of all forms of forced and compulsory labour principle 5 the effective abolition of child labour 11 principle 6 eliminate discrimination in respect of employment and occupation principle 7 businesses should support a precautionary approach to environmental challenges principle 8 undertake initiatives to promote greater environmental responsibility principle 9 encourage the development and diffusion of environmentally friendly technologies principle 10 businesses should work against all forms of corruption, including extortion and bribery these principles had been previously introduced in the united nations before adoption by the global compact. the tenth principle about preventing corruption was added in 2004 (williams, 2004). the addition of corruption is further evidence of progress in corporate social responsibility. in some parts of the world bribery is considered an accepted business practice. adding the corruption principle and defining bribery as corruption focuses on public good. according to pitelis (2013, p. 662), “for corporate governance to help foster sustainable world-wide value creation, it should be aligned to public and supra-national governance.” the united nations global compact is a step toward this vision. some critics say that reporting on one principle leaves a signer free to ignore the others and there is no legal enforcement of the compact. the investment community sees the signing of the compact as a reputation signal and a symbol of corporate social responsibility (janey, dess & forlani, 2009). the compact requires an increase in transparency of both positive and negative news. baumann-pauly and scherer (2013) reviewed five well known swiss companies who signed the compact (ubs, cs, nestle, abb and novartis) and confirmed that corporate citizenship is enhanced by adopting the ethical principles of the global compact. conclusion and future research proactive social responsibility is seen as a competitive advantage and the trends described in this paper help to make actions more visible. according to torugsa, o’donohue and hecker (2013), proactive corporate social responsibility occurs when firms voluntarily go beyond regulatory requirements to support sustainability and contribute to society. the challenge is to please numerous stakeholders with differing priorities. the four active efforts to increase corporate social responsibility actions outlined in this paper are growing as the number of companies adopt new approaches and states pass legislation creating new corporate forms. these are the first new corporate forms since the limited liability corporation (llc) was passed in 1977. increases in numbers of companies pursuing these new formats indicate acceptance of the tenets of corporate social responsibility. chen and kelly (2014) document the rapid growth of b corps since 2007. they found that b corps have exceeded the financial performance of their public company competition, both large and small. their studies used b lab data from b lab’s partner, duke university. these structures provide marketing support and, in some cases, legal protection for companies who pursue altruistic goals along with profit motives. future research should include assessment of companies adopting social responsibility structures. more information is needed on the successes and failures of these types of companies. 12 because state legislatures control the incorporation rules and the federal government controls some of the levers of success, the growth of these new socially focused business types may be slowed. thus far, these obstacles have not stopped the growth. it took eleven years for the irs to change the rules for limited liability companies (llc) so perhaps the interest and social impetus will speed the change. the creation, growth and acceptance of the new corporate types and certifications are cause for encouragement and evidence that business is taking a wider interest in addressing social problems. as the number of companies engaging in formal forms of csr grow, research on these forms will also grow. of interest is whether the hybrid form results in higher ethical standards and values among managers and employees. future research should examine the marketing practices of these firms as well as the satisfaction levels of various stakeholders. references abu-saifan, s. 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(2011 august 26). and none: the fast rise and hard fall of and1. the good point. retrieved from: http://thegp.sports.ws/history-and-1/ oregon secretary of state press release (2015). oregon registers 500th benefit company (june 11), retrieved from http//sos.oregon.gov/business/pages/benefit-compa pitelis, c. n. (2013). towards a more 'ethically correct' governance for economic sustainability. journal of business ethics 118(3), 655-665. poltenson, n. (2012). benefit corporations: redefining success in business. the business journal central new york 26(43), 1. retrieved from http://ezaccess.libraries.psu.edu/login? url=https://search-proquest-com.ezaccess.libraries.psu.edu/docview/1152185910? accountid=13158 rasche, a., morsing, m., and moon, j. (2017). corporate social responsibility, cambridge, uk: cambridge university press. rawhouser, h., cummings, m., and crane, a. (2015). benefit corporation legislation and the emergence of a social hybrid category. california management review 57(3), 13-35. sen, s. and bhattacharya, c.b. (2001). does doing good always lead to doing better? consumer reactions to corporate social responsibility. journal of marketing research: 38(2), 225-243. schmidt, e. (2010). vermont’s social hybrid partners: early observations and questions to ponder. vermont law review (35), 163-209. stecker, m. j. (2016). awash in a sea of confusion: benefit corporations, social enterprise and the fear of “greenwashing.” journal of economic issues 50(2), 373-381. the u.n. global compact (2018). website accessed april 2018: https://www.unglobalcompact.org/sdgs/action-platforms torugsa, n. a., o’donohue, w., and hecker, r. (2013). proactive csr: an empirical analysis of the role of its economic, social and environmental dimensions on the association between capabilities and performance. journal of business ethics 115(2), 383–402. tyler, j (2010). negating the problem of having two masters: a framework for l3c fiduciary duties and accountability. vermont law review (35), 117-161. wilburn, k and wilburn, r. (2014, january 15). the double bottom line: profit and social benefit (case study). harvard business review. williams, g. (2009). dozens of companies are sprouting with the same goal: going good. the chronicle of philanthropy, nov 12. available at https://www.philanthropy.com/article/dozens-of-companies-are/173209 williams, o. (2004). the un global compact: the challenge and the promise. business ethics quarterly 14(4), 755-774. http://www.marcjlane.com/clientuploads/articles/marc-lane-basic_l3c_primer.pdf https://lawreview.vermontlaw.edu/wp-content/uploads/2012/02/12-lang-minnigh-book-1-vol.-35.pdf https://lawreview.vermontlaw.edu/wp-content/uploads/2012/02/12-lang-minnigh-book-1-vol.-35.pdf http://thegp.sports.ws/history-and-1/ https://www.unglobalcompact.org/sdgs/action-platforms 36 a study of the consumer-company identification on mobile application’s attributes and apparel purchase intention zui chih lee, ph.d. new jersey city university mengsteab tesfayohannes, ph.d. farmingdale state college min jon kuo, ph.d. national dong hwa university purpose in this demanding and diversified social commerce market characterized by consumers’ quickly changing expectations, service quality for mobile-retailing is imperative. consumer-company identification (cci) is becoming an important tool for building a company’s brand. this research examines how mobile application (app) attributes, mobile-service quality and cci lead to mobile consumers’ purchase intention for apparel products through app. design/methodology/approach an experimental survey was conducted with 300 respondents. seven hypotheses were examined by a structural equation model to explore the relationships amongst mobile app attractiveness, mobile-service quality, cci, perceived usefulness, and consumers’ intention to purchase products from the mobile app. findings our findings supported the relationships amongst consumers’ perceived usefulness of the mobile app, mobile-service quality attributes, and consumer purchase intention. our findings also supported cci’s impact on consumers’ intention to purchase through the application of the technology acceptance model. research implications our research finding showed consumers’ psychological attachment toward apparel brands and its mobile app. the research further demonstrated the consumer-retailer relationships, and the findings support consumer purchase pattern through mobile app apparel purchase. retailers’ attention to dimensions of mobile-service quality of app design will strengthen consumers’ perceived usefulness of their mobile app. keywords: tam model, online apparel shopping, identification, mobile-service quality introduction mobile commerce has, in recent years, gained prominence within the online and e-tailing business. the department of commerce indicated that retail e-commerce sales in 2019 grew to http://journals.sfu.ca/abr advances in business research 2020, volume 10, pages 36-54 37 $365.2 billion, an increase of 15.7% since 2018. apparel and accessories e-sales totaled $103 billion in 2019, up 22.6% year-over-year and is expected to be as high as $194 billion in 2024 (clement, 2020). retailers’ investments in online technology (e.g., websites, mobile apps) were intended to meet the diversified demands of mobile commerce market. distinct from general e-commerce, mobile commerce empowers customers to shop anytime and anywhere without location and time limits (chen, 2018; wang et al., 2015). a mobile application (app) is a computer program designed to run on a mobile always-on device such as a smartphone/tablet or smartwatch, with features such as a pocket or purse-size case, smaller screen, virtual keyboard, limited processor, and alwaysconnected internet (agrebi & jallais, 2015; wang et al., 2015). in this demanding and diversified social commerce market characterized by consumers’ quickly changing expectations, mobile application design and service quality for mobile retailing is imperative. therefore, this study examines the correlation amongst consumers’ intention of apparel purchase, the consumercompany identification through company’s mobile application attributes. we examine attributes based on dimensions of app attributes (attractiveness, informativeness), and service quality attributes (efficiency, system availability). based the degree of correlation amongst mobile application attributes, we can determine how mobile search can lead to purchase intention. literature review app technology is gaining its popularity within mobile commerce market given its ability to provide timely information and a more interactive, immediate, and personal shopping experience (wang et al., 2015). for marketers, apps enhance the effectiveness of transaction security for personal data more than website cookie that is tracked by the competitors (sarkar, et al., 2019). in comparison to website shopping, mobile apps provide the advantage of accessibilities such as, search convenience, access convenience, and service recovery convenience (almarashdeh, et al., 2019; holmes, et al., 2014; wang et al., 2015). efficient service recovery procedure highlights the online interaction and procedures communication, which conveys efficiency, efficacy, and timely perceived procedural justice to customers (almarashdeh, et al., 2019). mobile innovations support consumers’ decision-making at diversified pre-purchase activities, such as product and price search and alternatives comparison, via apps click-only transactions. as compared to direct sales, retail apps are more suitable for promoting clear product information (holmes et al., 2014). furthermore, mobile apps also provide channels for customer retention, reinforcement of customers’ existing habits or behaviors, and strengthening customers’ loyalty. mobile retailers can integrate other devices (e.g., desktop computer, notebook) or channels with new information, brands, or products (wang, et al., 2015; kim, 2017). hence, this study applied the technology acceptance model to investigate factors that lead to customers’ intention to purchase apparel and accessories solely through an app. technology acceptance model the technology acceptance model (tam) discusses the interconnectedness amongst the characteristics of a particular technology, its users’ attitude, and his/her behavior (davis, 1986). tam theorizes consumers’ perceived ease-of-use (peou) and perceived usefulness (pu) of a particular technology. peou speaks to the degree of effort people believe that using a particular technology would require, and is presented as an antecedent to pu. pu refers to the extent potential users believe that using a particular technology can meet their objective. in the mobile environment, previous research indicated that peou is not significantly positively correlated to the intention to shop via smartphone. this is because users are usually already accustomed to access to unlimited information via internet emails on their mobile devices. pu plays a more critical role as compared to peou during consumers’ mobile shopping (agrebi & jallais, 2015; ooi & tan, 2016). therefore, pu is applied in this study to examine consumers’ intention to purchase apparel or accessories through a mobile app. as for the antecedents of pu, previous research confirmed that accessibility, convenience of usage (kim, et al., 2009), perceived enjoyment (agrebi & jallais, 2015), mobile perceived compatibility (mpc), mobile perceived security risk (mpsr) (ooi and tan, 2016), and decision38 making styles (i.e., quality, novelty-fashion, and price consciousness) are positively correlated to pu in the mobile environment (sarkar et al., 2019). this study will further investigate the attributes of app design, the attributes of mobile-service quality during the retailer’s online transactions, and consumer-company identification (cci) as potential antecedents to pu of the mobile app. in this study, we examined users’ intention to purchase apparel and accessories through the mobile app. users’ behavioral intention is the crucial dependent variable in tam. as for its antecedents, except pu, previous research confirmed perceived enjoyment (agrebi & jallais, 2015), habitual purchase (i.e., previous product purchase). mobile shoppers tend to use mobile devices to shop for habitual products that they already have a history of purchasing (wang, et al., 2015). mobile perceived compatibility (mpc) mpc, mobile perceived trust (mpt) were applied to assess a new mobile technology acceptance model (mtam), which consists of mobile usefulness (mu) and mobile ease of use (meu) to determine scc adoption (ooi & tan, 2016). the platform identifies habit, price comparison preference, and shopping independence preference (chen, 2018) to be positively correlated to users’ behavioral intention in the mobile environment. in this study, we focused on pu and cci. mobile application design attributes mobile application (app) is a type of software designed to run on a mobile device, such as smartphone or tablet. app design is a critical factor for developing technology that fits mobile customers’ needs and values related to online shopping and purchases. hedonic value, spurred by positive e-store image, leads to consumer purchase (chang & tseng, 2013). by contrast, utilitarian value emphasizes complete information by users who are more task-oriented, safer transactions, and so on (agrebi & jallais, 2015; holmes et al., 2014). an improved mobile design, which contains both hedonic and utilitarian values, enhances the browsing efficiency for consumers’ product search (lee et al., 2015). app and website features are important for customer relationship management (e.g., affective commitment) and e-loyalty (bilgihan & bujisic, 2015). visually appealing features, with cues (e.g., color and size) that facilitate navigation, result in impulsive online purchases (liu et al., 2013). consumers are attracted by web design such as layout, color, complexity, and processing speed (chen, et al., 2002; hausman & siekpe, 2009). online stores pique consumers’ interest with brand personality around browsing and buying (brown et al., 2003). fashion design characteristics significantly sustain consumers’ expectations and fulfillment based on how an app functions (hausman & siekpe, 2009; parasuraman et al., 2005; zhang et al., 2007). järveläinen (2007) emphasized website’s importance in consumers’ online search and purchase. positive word of mouth (wom) occurs when consumers perceive a website or app to be innovative and has superior e-service quality. these attributes promote consumers’ loyalty and intentions. o’cass and carlson (2012) found that a sport team’s website operation success depends significantly on fans’ positive brand image and trust toward that sport team’s website, which further influences fans’ website loyalty. this study measures consumer reactions to app design attribute via two constructs: perceived attractiveness and perceived informativeness. perceived attractiveness and informativeness the perceived attractiveness of an app depends on the aesthetics of its graphic design – including layout, color scheme, print size/type, as well as the number of videos, photographs, graphics and animation. these dimensions retain consumers’ attention for the product advertisements (hoffman & novak, 1996; hoque & lohse, 1999; schlosser & kanfer, 1999). veryzer and hutchinson (1998) found that visual style influences website usage frequency and attitudes towards purchase, which promotes users’ perceived usefulness of this technology. the quality of information is critical for online group buying (ogb) websites for high utility-oriented consumers (wang, 2016). the quality, credibility, and quantity of consumers’ reviews are considered a form of electronic wom, which leads to online repurchase intention (matute et al., 2016). website informativeness measures the magnitude of information for a 39 product/service to accomplish consumers’ shopping objectives. ducoffe’s (1996) extended use & gratification theory indicated that consumers are motivated by psychological needs beyond those that are strictly tied to their functional objectives. hence, consumers will continue to choose and use the technology that successfully gratifies their psychological and functional needs. katz et al. (1973) indicated that consumers are more likely to continue using a form of technology when if that technology satisfies their needs. hausman and siekpe (2009) indicated that the usage of familiar language within a website strengthens consumers’ ability to quickly access desired information. hardware requirement, such as mobile devices’ screen size, offers enhanced ease for navigating product information. wellorganized app page and layout maximize consumers’ search efficiency to receive quality of information during shopping. venkatesh, et al (2003), brown and venkatesh (2005), and venkatesh (2006) reported that websites or related online/mobile that offer well organized information and well-developed service foster stronger consumer impression (lee, et al., 2015). in the study of mobile augmented reality (mar) app, dacko (2016) verified that the completeness of information received from the app increases users’ conviction in what they are buying. other benefits, not as apparent as purchase certainty, are increased shopping efficiency and better prices. the hypotheses regarding these two mobile app attributes are as follows: h1: a mobile app’s perceived attractiveness is positively related to consumer perceptions of app usefulness. h2: a mobile app’s perceived informativeness is positively related to consumer perceptions of app usefulness. mobile-service quality attributes mobile-service quality is defined as the assessment of website/app usefulness related to consumer attitudes toward brand preference, choice of channel, and behaviors. website quality influences repurchase intention through enhanced customer satisfaction, trust, and commitment in online transaction (shin et al., 2013). mobile-services should facilitate consumers in efficiently completing all phases of an online transaction: shopping, purchasing, receiving, and return product. early research determined that the perception of service quality is based on the services that customers expect a company to offer versus the services that the company actually offers (grönroos, 1982; lehtinen & jarmo, 1982; lewis & bernard, 1983; parasuraman et al., 1985; sasser et al., 1978). e-business can be conducted largely without human intervention but relies heavily on service quality. globerson and maggard (1991) found that well-developed service process was designed to meet consumers’ quality expectations toward the website (e.g., for an appropriate greeting, for timely service). parasuraman et al. (2005) further suggested that companies that focus on mobile-service quality will sustain brand impression via customized service. different dimensions were applied to improve the quality of a website/app. cronin and taylor (1992) found that the service quality dimensions of an intangible operation and service process impact attitudes towards a website. online or mobile consumers can be easily discouraged by low mobile-service quality attributes, such as lack of customer service responsiveness, inefficient navigation, complexity in payment process, and perceived security risk during a transaction (elliot & fowell, 2000; ooi & tan, 2016). system efficiency refers to the ease and speed of accessing and using an app for purchase. system availability refers to the reliability of an app’s operations. system efficiency speaks to how well the app functions assist consumers’ shopping and purchasing, whereas system availability speaks to whether the app functions are working properly. 40 weinberg (2000) found that visitors’ evaluation of e-service quality is positively correlated to the speed of a website/app. parasuraman et al (2005) noted that mobile and online consumers rely more on the impressions of service quality (e.g., package tracking, prompt customer service response). additionally, yen and lu (2008) and chang et al. (2009) and lee et al. (2015) reported that online consumers’ perception of e-service quality is positively correlated to their intentions to future purchase. mobile app’s flexibility and the ease-of-use prompt consumers’ repeat purchase, word of mouth, retention, cross buying, brand loyalty and satisfaction (wahab et al., 2011). as for businessto-business market, luo and lee (2011) recognized business-to-business marketing improvements in airline industry’s e-services by reducing waiting time, which enhances consumers’ perceived usefulness of and trust in the company’s websites. o’ cass and carlson (2012) found that website e-service quality was a strong determinant of fans’ trust and loyalty toward the sports teams with frequent usage. su et al. (2015) found that tourism companies, which focus on consumers’ positive quality feedbacks of e-service, maintain online satisfaction for future usage of the same website. there are numerous, valid measures of e-service quality (e.g., barnes & vidgen, 2002; wolfinbarger & gilly, 2003; zhang et al., 2007). for this study, we will focus on two attributes of mobile-service quality: system efficiency and system availability. hypotheses regarding the two relevant mobile-service quality attributes are as follows: h3: a mobile app’s mobile-service quality attribute of efficiency is positively related to consumer perceptions of app’s perceived usefulness. h4: a mobile app’s mobile-service quality attribute of system availability is positively related to consumer perceptions of app’s perceived usefulness. company-consumer identification ashforth and mael (1989) investigated the role of organizations in individual’s social identities and coined the term “organization identity.” organization identification happens when people believe an organization to be associated with the characteristics they consider to be selfreferential or self-defining (pratt, 1998). consumer-company identification (cci) is derived from social identity theory (tajfel and turner, 1979). social identity theory addresses how individuals identify with social groups. members of a social group (in-group) identify with that group and then make comparisons with out-groups in an effort to enhance the self-esteem status of the in-group, and thereby increase their own personal self-esteem. tajfel and turner (1985) found that when individuals perceive themselves to have membership in a group, their self-esteem rises by positively differentiating their in-group as compared with an out-group based on a value important to them. walther and tidwell (1995) reported that people in a group were more interested in other group members who displayed the same social cues they portray and have more positive perceptions of those who showed similar social cues (i.e., identities). loyal members of a group theoretically try to improve their group’s standing (riketta and laderer, 2005). extending social identity theory into the realm of marketing, kramer (1991) reported that organizational consumers often have self-categorization based on various social groups (e.g., gender, ethnicity, occupation, religion, and sport teams). subsequently, the consumers establish strong ties with social groups’ self-categorization process, which helps an individual determine “who am i?” through the comparison of one’s own defining characteristics (e.g., personality traits, values, demographics) with those of others (ashforth & mael, 1989; dutton et al., 1994). solomon and schopler (1982) and kleine et al. (1993) found that consumers shop for and own identityrelated products to express their belongings with a specific brand or company. bhattacharya and sen (2003) applied social identity theory to develop a framework of the antecedents and outcomes of cci. this group identification is based on the customers’ perceptions that a company and its own identities are similar, distinctive or unique, and reflective 41 of a desired prestige or status. cci is then theorized to predict several desired outcomes, including company loyalty, company promotion, consumer recruitment, and consumer resilience to negative information. goffman (1959) noted the importance of company logos in such a consumer-company connection process. later, ahearne et al. (2005) found that cci perceptions are derived both from an organization overall, as well as the company representative who interacted with the consumers. this was positively correlated to consumers’ related product purchase from the organization (e.g., promoting product, recruiting consumers). bonabeau (2004) identified the online strategies that suggested social cues offered via a website could motivate consumers’ recognition and association with the website/company. lee and yurchisin (2011) found consumers’ positive perception of a website to be useful when identifying with the company and its owned brands, and in turn experience cci. lee et al. (2015) reported that the website attributes of visual attractiveness, perceptions of e-service quality, and cci lead to significant perceived usefulness of the website. in the study of mobile augmented reality (mar) shopping apps, dacko (2016)’ categorization indicated that consumers with higher experiential orientations have higher intention to download and use retail apps. according to mathwick et al (2001), dacko (2016) categorized mar shopping apps into four types: (1) extrinsic-active value: similar to economic value and give emphasis to customers’ return on investment (roi) and shopping efficiency; (2) extrinsic-reactive value: highlighting the value of service excellence; (3) intrinsic-active value: pursuing the intrinsic enjoyment of shopping or the feeling of escapism by shopping; (4) intrinsic-reactive values: underscoring the visual, aesthetic, or entertainment appeal. the mar shopping app users would select apps that provide one or several of these values and benefits, which would not be provided in other shopping. agrebi and jallais (2015) implied that consumers would go mobile shopping to fulfill their needs for hedonic or/and utilitarian value. holmes et al. (2014) concluded a relatively ambivalent phenomenon: some consumers deemed hedonic value (e.g., enjoyment, fun, excitement) as important drivers to adopt mobile shopping, whereas others thought the hedonic value might hinder consumers’ willingness to mobile-shop and instead emphasized more utilitarian value (e.g., convenience and accessibility). chen (2018) indicated customers may use mobile shopping apps to reflect their lifestyles, which are fabricated and affected by one’s experience, beliefs, values, culture, family, friends, social classes, and other reference groups. in light of aforementioned social identity theory, consumers are orientated to categorize themselves into various social groups based on gender, ethnicity, occupation, etc. in the self-categorization process, individuals compare their own defining characteristics, e.g., values, personality traits, with those of others (dutton et al., 1994; kramer, 1991). therefore, consumers prefer to choose the tools reflecting or fitting their own values or lifestyles in order to acquire their specific objectives or benefits. in other words, consumers would instinctively or deliberately adopt the shopping apps with a high level of cci and perceive that using the apps can enhance delivery their objectives (i.e., perceived usefulness, pu). thus, the hypothesis regarding cci is as follows: h5: consumers’ consumer-company identification (cci) is positively related to consumers’ perceptions of app’s usefulness. apparel purchase aims to deliver consumers’ self-image in accordance with the personal characteristics of products, such as trendiness, sophistication, level of luxury and self-esteem. app/brand/company attempts to align its image to its consumer’s personalities. this emotional and trustful bond provides consumers a natural motive for online shopping (lee and yurchisin, 2011). the more consumers perceive the website to be useful, the more likely they will conduct future purchase (lee et al., 2015). perceived usefulness of telebanking was proven as a significant driver of behavioral intention (alalwan, 2016). therefore, based on tam, the following hypothesis about the mobile app is proposed: 42 h6: consumers’ perceived usefulness of a mobile app is positively correlated to the intention to purchase apparel and accessories from the mobile app. store brand identification has significant social influence on consumers’ brand loyalty and their store purchase intention (calvo-porral & levy-mangin, 2016). mobile app’s identification is theorized to act as a mediating factor that combines purchase search streams with consumer behavior. this new branding strategy is for online retailers to develop a relationship bond with the customer (so et al., 2016). we have inferred that consumers’ cci is positively correlated to their perceptions of app’s usefulness and the perceived usefulness is positively correlated to consumers’ intention to purchase apparel and accessories from the mobile app. according to elaboration likelihood model (elm) of persuasion (petty and cacioppo, 1984), under the central route, persuasiveness is driven by consumer’s level of message consideration and elaboration on the true merits of a subject, for example, consumer consider it useful to purchase apparel and accessories from their mobile app. the cci here arises from different cues and the cci itself is also a cue. this study planned to examine the effect of the cci to purchase apparel and accessories from the mobile app (i.e., the peripheral route) without considering its usefulness (i.e., the central route). hence, we put forth the following hypothesis: h7: consumers’ consumer-company identification (cci) is positively related to their intention to purchase apparel and accessories from the mobile app. figure 1 hypothesis model measurement questionnaire development a survey was developed to test hypotheses based on participants’ previous experience with the mobile app (see appendix). the questionnaire consisted questions for measuring conceptual constructs. the first section contained a four-item measure adapted from lee et al. (2015). participants were directed to think of their favorite mobile app while rating their level of agreement mobile service quality attributes attributes perceived informativeness efficiency perceived usefulness of app intention to purchase through app system availability consumer-company identification h2 h4 h5 h1 h3 perceived attractiveness h7 h6 mobile app attributes 43 with each of the items on a seven-point likert-type scale (1 = strongly disagree, 7 = strongly agree). after the pilot study from summer 2016, the “majority” of 30 business major students selected a company’s app. the participants were asked to evaluate the clarity of instrument items. all aspects of the questionnaire were presented, including wording, question content, sequence, form and layout, question difficulty, and instructions. relevant editorial changes were employed based on the feedback of participants. description of sample and responses the experimental survey was completed by 300 participants, with a total of 250 usable questionnaires, and the demographic information is displayed in table 1. table 1 – demographic information measurement model analysis factor analysis consists of exploring the patterns of relationships among variables. these patterns are represented by what are called factors. examination of the loadings of variables on each factor helps to identify the character of underlying dimensions. confirmatory factor analysis (cfa) was conducted to assess the validation of scales for the measurement of specific constructs. each construct is assessed by its own indicators. the model contains indicators and latent variables (labeled as constructs). characteristics frequency / percentage number of respondent s total: 250 gender total percentage male female missing 66 183 1 26.6 % 73.4 % 0.3% age (mean), standard deviation 22 5.06 ethnicity caucasian 1 58 62.2 % african american 48 18.2 % hispanic latino(a) 7 3.1 % asian american 3 1 .0 % other 34 12.4 % year at school freshmen 57 22.8 % sophomore 50 20.0 % junior 64 25.5 % senior 56 22.4 % graduate level 23 8.6 % major m arketing and consumer s tudies 1 04 4 1.6 % business administration and related major 89 35.4 % other majors 57 23.0 % monthly income under $300 75 28.9 % $300 $499 58 23.1 % $500 $749 38 15.2 % $750 $999 1 8 7.9 % $1000 $1299 29 10.7 % $1300 or more 32 12.4 % 44 table 2 descriptive statistics and correlations reliability and validity first, all standardized factor loadings were greater than 0.50 except the sa-1 and sa-4 of the mobile-system availability construct and the ef-3 of the mobile-service efficiency (see table 3), which indicates reasonable convergent validity (nunnally and bernstein, 1994). measurement model analysis was used to assess the reliability and validity of measurement items. first, cronbach’s α was used to assess reliability related to internal consistency between constructs and set an acceptable level that is more than 0.7 (hair et al., 1998). cronbach’s α values ranged from 0.86 to 0.96 (excluding the mobile-service quality construct, which has the lowest cronbach’s α, 0.62), and thus indicate high internal consistency among items. second, convergent validity refers to the degree to which the items of a specific construct share a proportion of variance in common (hair et al., 1998). high convergent validity indicates that measurement scales meet the intended concept. three standards to measure convergent validity were used: (1) a factor loading value larger than 0.5; (2) composite reliability (cr) larger than 0.7; (3) average variance extracted (ave) larger than 0.5 (bagozzi & yi, 1988; fornell & larcker, 1981; hair et al., 1998). cr also tests the internal consistency of the measured items representing a latent construct (hair et al., 1998). as shown in table 3, factor loading values ranged from 0.25 to 0.98, with most results above 0.7, therefore meeting acceptable levels. the cr ranged from 0.61 to 0.98, with most in the 0.9 range. ave values exceeded the threshold of 0.5, from 0.36 to 0.95, indicating the convergent validity of constructs is acceptable and explained a relatively high level of variance in common (fornell & larcker, 1981). lastly, discriminant validity requires a construct to be distinctive from other constructs. the square root of the ave must be greater than its correlations with other latent constructs (fornell and larcker, 1981). as shown in table 2, the values of square root of the ave ranged from 0.60 to 0.98, greater than its correlations with other latent constructs. these results indicate that discriminant validity exists between constructs. model variable mean std. dev correlations 1 2 3 4 5 6 7 1. pa 5.7 0.9 (0.85) 2. in 5.7 0.9 0.55** (0.85) 3. ef 6.0 0.8 0.58** 0.57** (0.76) 4. sa 5.3 1.6 0.38** 0.33** 0.47** (0.60) 5. cci 4.5 1.7 0.48** 0.34** 0.33** 0.41** (0.88) 6. pu 5.7 1.2 0.58** 0.55** 0.59** 0.39** 0.48** (0.91) 7. ip 4.0 2.0 0.32** 0.23** 0.28** 0.39** 0.72** 0.42** (0.98) note: *, if p<0.05; **, if p<0.01. the bold diagonal values are the square root of the average variance extracted for each construct. 1. pa = perceived attractiveness; in = perceived informativeness; ef = mobile-service efficiency; sa = mobile-service system availability; cci = consumer-company identification; pu = perceived usefulness; ip= intention to purchase through app. 45 table 3 factor loading, reliability, cfr, and ave structural model analysis and hypotheses testing model testing structural equation modeling (sem) was conducted using the full information maximumlikelihood estimation procedure through amos 26. the full model had a χ² test-statistic of 849.45 (d.f. = 360; p < .000), and fit indexes were gfi=0.81, nfi=0.88, ifi=0.93, tli=0.92, and cfi=0.93. the model’s rmsea index is 0.074, with a 90 percent confidence interval between 0.067 and 0.080, indicating an acceptable model fit for the data (see figure 2). construct standardized factor loading construct reliability (cronbach’s á) composite factor reliability (cfr) average variance extracted values (ave) perceived attractiveness (pa) pa1 pa2 pa3 pa4 0.88 0.84 0.86 0.82 0.91 0.91 0.72 perceived informativeness (in) in1 in2 in3 0.89 0.83 0.82 0.86 0.88 0.72 mobile-service efficiency (ef) ef1 ef2 ef3 ef4 ef5 ef6 ef7 ef8 0.76 0.72 0.25* 0.76 0.65 0.84 0.73 0.83 0.91 0.90 0.57 mobile-service system availability (sa) sa1 sa2 sa3 sa4 0.38* 0.79 0.50 0.43** 0.62 0.61 0.36 consumer-company identification (cci) cci1 cci2 cci3 cci4 cci5 0.90 0.85 0.85 0.92 0.85 0.93 0.95 0.82 perceived usefulness of app (pu) pu1 pu2 pu3 pu4 0.77 0.94 0.96 0.95 0.89 0.98 0.95 intention to purchase through app (ip) ip1 ip2 ip3 0.96 0.98 0.98 0.96 0.94 0.76 note: * the standardized factor loading of the item is less than .50. cronbach’s á, cfr, and ave are calculated after deleting the item. ** the item is not deleted for keeping enough indicators although the loading is less than .50. 46 figure 2 sem results discussion in figure 2, h1 was supported. specifically, the positive and direct relationship predicted in h1 between perceived attractiveness and perceived usefulness was supported by the data (β1= 0.17, z = 2.16, p < .05). this result corresponds with the findings of chen and wells (1999), chen et al. (2002), and hausman and siekpe (2009). the use and gratification theory suggests that a high level of informativeness and engagement, along with low level of irritation, are factors that will likely generate a favorable impression of a website (chen et al., 2002). perceived usefulness was related to respondents’ attitudes toward the app or website, similar to a relationship found by agarwal and venkatesh (2002) and hu et al. (2009). results supported that users decide whether to use mobile app based on perceptions of its attractiveness (e.g., design, layout, colors). this finding is consistent with a study by lee et al. (2015). seock and norton (2008), which indicated that attractiveness was important to perceptions of a website’s usefulness, as well as findings by chen and wells (1999), moon (2004), and song and zinkhan (2003). in this study, it is possible that respondents’ perceived usefulness was affected by users’ familiarity with the store and its carrying product brands. h2 predicting a positive relationship between app informativeness and perceived usefulness, was supported (β2= 0.16, z = 2.13, p < 0.05). the information offered by the app (e.g., context informativeness) was found to be significant to users’ perceptions of app’s usefulness. mobile service quality attributes perceived informativeness efficiency perceived usefulness of app intention to purchase trough app χ2=849.45 (d.f. = 360) χ2/d.f =2.36 gfi=0.81 nfi=0.88 ifi=0.93 tfi=0.92 cfi=0.93 rmsea=0.074 system availability consumer-company identification note: (z-value; two-tailed) *z-value=1.96 (p< .05), **z=2.58 (p<.01), ***z=3.45 (p<.001). 1. indicator variables, correlations among exogenous variables, and disturbances have been omitted for notational simplicity 2. coefficients from completely standardized solution 3. dotted lines indicate the hypothesis is not supported 0.16* 0.08 0.22*** 0.17* 0.24* perceived attractiveness 0.08 0.7*** mobile app attributes 47 these findings suggest that in order to increase consumer’s perceived usefulness of an app, an informative function and instruction which emphasis on visual design are important. the positive relationship between mobile-service quality-efficiency and perceived usefulness of mobile app (h3) was supported (β3= 0.24, z = 2.00, p < 0.05). the more consumers perceive efficiency from app usage, the more likely it is that consumers will use the mobile app. with an efficient app design (e.g., fast and filter search functions, price comparisons, threedimensional product presentation, and colorful layout), consumers can assess the specific qualities of the product. the positive relationship between mobile-service quality-system availability and perceived usefulness of mobile app (h4) was not supported (β4= 0.084, z = 0.73, p > 0.05). the download speed and availability may not be a significant consideration for app users because consumers may expect the mobile environment to have different signal strengths. the service should combine online and offline activities. within the mobile environment, the typical mobile service communication tools such as discussion forums, virtual chats, emails, and faqs may not be presented in a consistently stable internet environment, e.g., at home or in the office (almarachdeh et al., 2019). customers usually do not distinguish the mobile system availability from the whole service image when they evaluate the mobile-service quality. the relatively unstable mobile connection exacerbates the image, leading to an assessment of decreased usefulness. social identity theory showed individuals’ attempt to fit-in through identification with a group (tajfel & turner, 1979). consumers have a greater tendency to purchase product/service from companies/brands relevant to their self-identity. they prefer to shop at stores whose organizational identities are similar to their own, also known as consumer-company identification (cci). h5, predicting a positive relationship between cci and perceived usefulness of mobile app, was also supported (β5= 0.22, z = 3.66, p < .001), similar to the results of kleine et al. (1993), lee et al. (2015), and solomon and schopler (1982). consumers’ sense of belongingness facilitates cci identification with an app and strengthens a positive attitude by enhancing their product or purchase experiences. consumers collect information and knowledge through repeated online usage (alba & hutchinson, 2000; koufaris, 2002; raju et al., 1995). analyzing consumers’ behavioral intentions, h6 predicted a positive relationship between perceived usefulness of the mobile app and consumers’ intention to purchase. this was supported by the data (β6= 0.70, z = 12.08, p < 0.001), confirming the theory that perceived usefulness is a predictor of behavioral intention (venkatesh & morris, 2000). lastly, h7, which examined the positive correlation between cci and users’ intention to purchase apparel within the mobile app, was not supported. according to elaboration likelihood model (elm) of persuasion (petty and cacioppo, 1986), a consumer can be persuaded through central route (i.e., via perceived usefulness) or peripheral route. the statistical result evidenced that the effect of persuasion through central route was stronger than the peripheral route. cci may indirectly influence consumers’ intention to purchase apparel and accessories through the perceived usefulness of the app itself. perceived usefulness of the app acts as a mediator between cci and consumers’ intention for mobile shopping. similar to brown and venkatesh (2005), this study found that a mobile app is perceived to be useful and increases consumers’ intention to purchase apparel and accessory. cci is a relatively significant factor influencing perceived usefulness (h7 is not supported) of a mobile app, thus strengthening the gap in the tam model. conclusion and implications this study examined the drivers leading to consumers’ intentions to use an app to search for information and purchase of apparel products. according to the findings, perceived attractiveness (e.g., color, layout) is a significant attribute that influences the perceived usefulness of an app. 48 additionally, the research provided an understanding of how consumers evaluate the mobile app as useful. online/mobile advertisement may employ advisors and decision-supporting technologies that interact with their consumers via instant text message to communicate product shipping and payment confirmation through mobile devices. thirdly, this study examined the causal relationship of consumers’ perceived usefulness of the company’s app toward their intention to purchase apparel products from the app. results of this study support the positive relationship between consumers’ perceived usefulness and purchase intentions (agrebi & jallais, 2015; kim et al., 2009; mathieu & zajac, 1990; meyer et al., 2002; riketta, 2002; zhang et al., 2007). our study provides cci as another variable in theory of reasoned action (tra) and tam to predict perceived usefulness and further intention to purchase. mobile marketing strategies should address brand/image similarities between the company’s identity and consumers’ personalities, values, and lifestyles to significantly foster stronger cci. previous research has indicated that consumers tend to use apps to conduct habitual products/services purchase from the retailers that they have trading experience before. the products/services that mobile consumers purchase are often the ones with which they are most familiar, have low involvement, and with short consumption cycles (wang et al., 2015). by contrast, the research also indicated that consumers tend to use mobile device to conduct pre-purchase activities, such as information search and alternatives review. consumers require an extended period of time to gain additional information during their planning to purchase products or services, with high or medium-involvement, which experience longer consumption cycles (holmes et al., 2014). mobile app supports in-store shopping and postpurchase. on the other hand, an app allows consumers to assess whether the products or services align to what they are seeking (dacko, 2016). app purchases have the advantages of mobile devices, such as timeliness and convenience. app designers also need to deal with challenges such as smaller screen, unstable processing speed, and reduced security (wang et al., 2015). in addition to the functionality, consumers also demand a more attractive layout to further satisfy their service needs (including fun, excitement, and enjoyment), as well as utilitarian values (including timely information updates, higher discount). retailers and marketers should not view an app as a replication of the internet, but as a mobile supplement for current internet-based activities (holmes et al., 2014). companies should launch a collection of apps, instead of relying on one single app, to cater to users’ diversified expectation of needs and values (kim et al., 2017). consumers can comfortably browse apps to assess primary prices/product information and check-out though email or alternative internet platform for the final purchase decision. apps with timely promotion updates can also facilitate consumers’ in-store shopping. it is critical for mobile’s seamless experience and more userefficient browsing environment by integrated omni-channel stores, websites, and apps to better function and benefit from mobile shopping experience. apparel and accessories retailers can consider designing apps for different product features and target segments. the app could focus more on the brand image advertisement, push notification service, and other promotion activities. perceived attractiveness of an app may be more useful for better customer engagement. in contrast, for consumers who seek lower priced and generic items from apps, the apps should focus more on perceived informativeness and service efficiency to facilitate consumers’ comparison and search efficiency. consumer-company identification (cci) provides another route to enhance consumers’ mobile search and purchase. apparel retailers and marketers should understand mobile customer’ expectation, including individual’s values, personality traits, and lifestyles. mobile apps’ design and advertisement content should continually enhance the visual presentation and services quality attributes in accordance with the company’s target customers’ characteristics and brand attitudes. a well-designed mobile app with a high level of cci, can exude the perception of appeal, trustworthiness, and a sense of belongingness. this will sustain the customer’s journey that leads to a strong sense of usefulness toward further intention of purchase, which is the key impact for this study. 49 limitations and recommendations for further research this study relied on respondents’ predisposition to an app. therefore, limitations result from the individual preference of each respondent. for instance, individuals that were assigned to an app they liked had a more positive or different response than individuals who were assigned to an app of a product that he/she was not familiar. secondly, the research was limited by the fact that it was a single time survey and carried out in a 15-20-minute period. it is likely that different consumers need varying time durations when browsing and searching through an app. thus, results may differ if respondents did not have a time limit for completing the survey. thirdly, respondents may not have been motivated to shop on the assigned app and may prefer an app with products or brands with which they identify more strongly. references agarwal, r. & venkatesh, v. 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(2007). online consumer search depth: theories and new findings. journal of management information systems, 23(3), 71–95. appendix: adopted measurement items definition and source table 4: sources of scales constructs number of items examples literature source(s) mobile app attributes 4 perceived attractiveness • the layout of this app is attractive. • the colors on the app are attractive. • the design of this app is eyecatching. • overall, i find this app looks very nice. van der heijden (2003) lee, et al (2015) 3 perceived informativeness • this app is a good source of product information. • this app supplies relevant information for my purchase decision. • this app function is informative about the company’s product. hausman & siekpe (2009) mobileservice quality attributes 8 efficiency • this app makes it easy to find what i need. • it is easy to browse anywhere on the app. • this app enables me to complete a transaction quickly. • information at this app is well organized. • this app loads its pages fast. • this app is simple to use. • this app enables me to get on to it quickly. • this app is well organized. parasuram an et al. (2005) 4 system availability • this app is always available for business. • this app launches and runs right away. 54 • this app does not crash. • pages at this app do not freeze after i enter my order information. perceived usefulness of the app 4 • i find this app is useful. • the app improves my shopping performance. • the app enhances my shopping effectiveness. • the app increases my productivity in searching and purchasing products. hausman and siekpe (2009) consumercompany identification 5 • i strongly identify with this company/app. • i feel good about being a customer of this company/app. • i like to tell others that i am a consumer of this company/app. • this company/app image fits me well. • i feel attached to this company/app. lee et al. (2015) homburg et al (2009) intention to purchase though the app 3 • i intend to purchase through this app in the near future. • it is likely that i will purchase through this app. • i expect to purchase through this app in the near future. hausman and siekpe (2009) 82 evidence of the relationship between credit ratings and reporting discontinued operations douglas k. schneider, ph.d. east carolina university denise dickins, ph.d. east carolina university mark g. mccarthy, ph.d. east carolina university dennis o’reilly, ph.d. east carolina university to test whether standard setters’ objective of improving the usefulness of the financial statements by enacting accounting standards update (asu) 2014-08 was achieved, this study compares the relationship between credit ratings and discontinued operations under statement of financial accounting standard (sfas) no. 144 and asu 2014-08. if discontinued operations are interpreted by credit ratings agencies as non-recurring, they should have no or low persistence and should be unrelated to credit ratings. the study finds that the relationship between reported discontinued operations and credit ratings under sfas no. 144 is significant, the implication being that credit ratings agencies perceived discontinued operations as recurring. in contrast, the relationship is insignificant under asu 2014-08, discontinued operations are now viewed as non-recurring and the objective of standard setters was achieved. the results of the study contribute to extant literature on discontinued operations and the relevance of separately stated or disclosed items. keywords: discontinued operations; credit ratings; apb no. 30; sfas no. 144; asu 2014-08 data availability: all data are available from public sources. introduction the financial accounting standards board’s (fasb) conceptual framework recognizes that one objective of financial reporting is to provide information that is useful for assessing the amount, timing, and uncertainty of an entity’s future cash flows (fasb, 2010). a guiding philosophy is that an income statement is more useful for this purpose if non-recurring items are separated from income from continuing operations. this study examines whether asu 2014-08, reporting discontinued http://journals.sfu.ca/abr advances in business research 2020, volume 10, pages 82-94 83 operations and disclosures of disposals of components of an entity, improved the usefulness of financial statements by testing whether the relationship between credit ratings and discontinued operations changed after its implementation compared to the earlier period when discontinued operations were defined more broadly under statement of financial accounting standard (sfas) no. 144. credit ratings are important due to their significant impact on financial markets and financing decisions (e.g., blume et al., 1998; hand et al., 1992; kisgen, 2006), and financial information impacts credit ratings (e.g., blume et al., 1998; ziebart & reiter, 1992). the study’s results inform academics, standardsetters, and financial statement users. for the most part, the results of extant literature support that gains and losses reported as special items are transitory (jones & smith, 2011), or at least more transitory than other components of income (burgstahler et al., 2002). but, dechow and ge (2006) found that the persistence of core earnings can be impacted by special items if investors misunderstand their transitory nature. separately stated items should have less persistence than recurring or core earnings and therefore should have little or no relationship with market valuations such as stock price and credit ratings. while the presentation of discontinued operations as a separately stated item in the income statement has been consistent over the last 45 years, the rules for what qualifies as a discontinued operation have changed. beginning in 1973, under accounting principles board (apb) opinion no. 30, asset disposals qualifying for discontinued operations accounting were narrowly defined as a component of a business that represented a major line or class of customer. sfas no. 144 replaced apb no. 30 in 2001 and expanded the type of asset disposals that qualified by redefining a component as comprising “operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity” (sfas no. 144 – codified under asc 20520-20, 2). it also eliminated the requirement that the disposed component represent a major line or class of customer. in 2014, asu 2014-08 revised the criteria for discontinued operations treatment to again be more restrictive by adding a requirement that the disposal represent a “major strategic shift” for the company (asu 2014-08, 69). in each instance, the standard setters’ goal was to improve the usefulness of the resulting financial statements (e.g., sfas no. 144, 6). given the more inclusive definition of discontinued items under sfas no. 144, it may have been that the fasb believed under apb no. 30 companies were including at least some non-recurring items in continuing operations. there is evidence that supports the misclassification of non-recurring items. for example, comparing the persistence of continuing operations under the two regimes, curtis et al. (2014) found the broader scope of discontinued operations under sfas no. 144 produced more persistent income from continuing operations among firms reporting discontinued operations. by returning to a more restrictive definition of discontinued operations under asu 2014-08, it appears standard setters believe sfas no. 144 was too expansive, and the results of extant research suggest they may be correct. for example, barua et al. (2010) found that companies shift operating expenses to discontinued operations to increase core earnings and to meet or beat analysts’ forecasts. sfas no. 144’s definition of discontinued operations may have enabled managers to smooth or otherwise manipulate earnings (barua et al., 2010; dickins et al., 2017). the present study finds that the relationship between reported discontinued operations and credit ratings under sfas no. 144 is significant; credit ratings reflect that at least some of discontinued operations were recurring. in contrast, the relationship is insignificant under asu 2014-08; discontinued operations are now more likely to be viewed as non-recurring and the objective of standard setters was achieved. these results contribute to extant research about the goal of the conceptual framework to provide decision-useful financial reporting (e.g., burgstahler et al., 2002; dechow & ge, 2006; jones & smith, 2011). the results also address a gap in the literature on discontinued operations (e.g., barua et al., 2010; curtis et al., 2014). 84 background, literature review, and hypothesis background in 1973, the accounting principles board (the board) issued apb no. 30 to, among other things, provide criteria to assist preparers in determining how to account for the disposal of a segment of the business. the board noted that many accountants believe the income statement is more useful if the results of continuing operations are reported separately from the operations of a segment of the business that has been or will be discontinued.1 apb no. 30 mandated such treatment. apb no. 30 narrowly defined a segment of a business as a component of an entity that represents a major line of business or class of customer. it specifically noted that companies should distinguish the disposal of a business segment from those asset disposals that occur in the normal course of operating a business. the board stated that the results of discontinued operations were required to be reported after income from operations but not as an extraordinary item. the 2001 release of sfas no. 144 expanded the definition of disposals to be accounted for as discontinued operations to include “component operations.” a component “comprises operations and cash flows that can clearly be distinguished, operationally and for financial reporting purposes, from the rest of the entity” (sfas no. 144, 5). this standard also eliminated apb no. 30’s requirement that the disposed component represent a major line of business or class of customer. instead, sales of individual buildings, or the closing of individual stores or plants could qualify as discontinued operations. not surprisingly, and consistent with the expectations of the fasb (sfas no. 144, 6), the number of u.s. publicly-traded companies reporting discontinued operations was significantly greater under sfas no. 144 (mean of 315 per year from 2002 to 2014) than under apb no. 30 (mean of 88 per year from 1989 to 2001) (difference of 227, p < 0.001). literature review while there are several studies that analyze the impact of financial information or events on credit ratings, none address the current study’s contribution, the relevance of discontinued operations under varying accounting standards. for instance, jorion et al. (2009) provided evidence that decreases in credit ratings are associated with certain changes in accounting quality. ayres et al. (2010) investigated whether credit analysts incorporate information from tax reporting alternatives in addition to financial data prepared using generally accepted accounting principles (gaap). they reported evidence that book–tax changes signal negative information to credit rating agencies. more closely related to this investigation, chen et al. (2015) tested whether credit ratings are influenced by underfunded multiemployer pension plan obligations (mepps) under two different accounting standards. the newer standard, effective in 2011, required more disclosure related to underfunded mepps. they found that both before and after the passage of the accounting standard, the underfunding was negatively associated with a firm’s credit rating suggesting information conveyed in the expanded disclosure was already known to creditors. other studies provided evidence consistent with the idea that rating agencies use both public and private information when assigning credit ratings (ziebart & rieter, 1992; hand et al., 1992). specific to the impacts of discontinued operations, curtis et al. (2014) examined the influence of changes in accounting on the usefulness of disaggregated income components in predicting a company’s future income. they found the broader scope of discontinued operations under sfas no. 144 produced more persistent income from continuing operations among firms reporting 1 interestingly, apb 30, paragraph 5, references “accountants” vs. users of financial information. also, while the fasb does not explicitly express agreement with this view, agreement is implicit in that the fasb adopted provisions in line with this view. 85 discontinued operations. similarly, under sfas no. 144, barua et al. (2010) found that firms shift losses to discontinued operations to meet or beat analysts’ expectations. hypothesis the semi-strong version of the efficient market hypothesis (emh – fama, 1965; fama, 1970) suggests that market prices reflect all available public information, including accounting information (beaver, 1968; beaver, 1970; jensen, 1978). credit ratings are valuation measures which are influenced by accounting and other public and private information (ziebart & reiter, 1992; hand et al., 1992). companies perceived as having greater financial prospects (higher future cash flows) generally receive higher credit ratings. chen et al. (2015) found underfunding of pension liabilities disclosed in footnotes to financial statements to be associated with credit ratings under two different accounting standard regimes. in addition, jorion et al. (2009) found that changes in the quality of accounting information impact credit ratings. this evidence, which is consistent with the emh, demonstrates credit ratings reflect economic information no matter how (or if) it is reflected in the financial statements. therefore, to the extent sfas no. 144’s expanded criteria resulted in gains and losses from recurring asset disposals being reported as discontinued operations, credit rating agencies will consider them in estimating companies’ future cash flows. in contrast, by narrowing the definition of discontinued operations, asu 2014-08 likely decreased the possibility that gains and losses are separately stated, improving the transparency of transitory items, and enabling credit rating agencies to better predict future cash flows. our hypothesis, which is examined under two periods to detect changes resulting from adoption of asu 2014-08, is: h1: discontinued operations are a significant predictor of credit ratings. discontinued gains increase credit ratings and discontinued losses reduce credit ratings. methodology sample to evaluate the study’s hypothesis, six years of data are collected and segmented into two equal three-year periods representing the sfas no. 144 years (2012 to 2014) and the asu 2014-08 years (2015 to 2017). sample firms are those located in the u.s. (compustat fic = ’usa’), traded on a major stock exchange (compustat data item stko = 0), reporting discontinued operations (compustat data item do) other than zero, and reporting a stock price (compustat data item prcc_p) greater than zero at fiscal year-end.2 the sample of discontinued operations firms was merged by gvkey with the standard & poor’s domestic long-term issuer credit rating (compustat data item splticrm). the sample was further refined to eliminate firms with negative common shareholders’ equity (compustat data item ceq), and those with no reported total assets (compustat data item at), long-term debt total (compustat data item dltt), earnings before income and taxes (compustat data item ebit), net income (compustat data item ni), or interest expense (compustat data item xint), as these data are necessary to construct ratios used in the regression model. the resulting sample includes 1,322 firm year observations. all continuous variables are winsorized at the 1st and 99th percentiles to reduce the likelihood of influential outliers. as depicted in table 1, of the 1,322 observations, 798 are in the sfas no. 144 period and 524 are in the asu 2014-08 period. this decrease is expected due to the more stringent requirements for reporting discontinued operations under asu 2014-08. 2 more specifically, data is from compustat-capital iq, monthly updates, north america-fundamentals annual data base and the ratings data base. 86 table 1 frequency distribution of firms sfas no. 144 fiscal years 2012-2014: number year fiscal year of firms percentage 1 2012 250 31.3 2 2013 283 35.5 3 2014 265 33.2 sub-total 798 100.0 asu 2014-08 fiscal years 2015-2017: number year fiscal year of firms percentage 1 2015 197 37.6 2 2016 163 31.1 3 2017 164 31.3 sub-total 524 100.0 total 1,322 table 2 presents the observations by industry representation within each period. as depicted, reporting of discontinued operations is not distributed evenly across industries. the industries comprising the largest percentages of observations in the sfas no. 144 period are durable manufacturers (18.30 percent), services (10.27 percent), retail (9.52 percent) and utilities (9.52 percent). in comparison, in the asu 2014-08 period, durable manufacturers (20.42 percent), computers (10.11 percent), retail (9.54 percent), and services (8.78 percent) comprise the largest percentages. 87 table 2 industry classification of sample firms industry primary sic codes sfas no. 144 fiscal years 2012-2014 asu 2014-08 fiscal years 2015-2017 observations % observations % agriculture 1-999 0.75 3 0.57 chemicals 2800-2824, 28402899 56 7.02 42 8.02 computers 7370-7379, 35703579 and 3670-3679 52 6.52 53 10.11 durable manufacturers 3000-3999, excluding 35703579 and 3670 3679 146 18.30 107 20.42 extractive industries 2900-2999, 13001399 68 8.52 35 6.68 financial institutions 6000-6499 60 7.52 44 8.40 food 2000-2111 23 2.88 11 2.10 insurance & real estate 6500-6999 23 2.88 15 2.86 mining and construction 1000-1999, excluding 1300-1399 35 4.39 22 4.20 other 9000 and above 3 0.38 3 0.57 pharmaceuticals 2830-2836 9 1.13 10 1.91 retail 5000-5999 76 9.52 50 9.54 services 7000-8999, excluding 7370-7379 82 10.27 46 8.78 textiles & printing 2200-2790 42 5.26 27 5.15 transportation 4000-4899 41 5.14 23 4.39 utilities 4900-4999 76 9.52 33 6.30 total 798 100.0 524 100.0 this classification uses compustat data item standard industrial classification – historical (sich). the distribution of observations by credit rating is presented in table 3. in both periods, most of the observations are clustered in the middle of the credit ratings falling in the bto a range (numerical sequencing of 7 to 17). over 95 percent of the sfas no. 144 observations fall within this range, while just under 95 percent of the asu 2014-08 observations are in the range. 88 table 3 numerical equivalents of standard & poor’s credit rating numerical sfas 144 2012-2014 asu 2014-08 2015-2017 credit rating equivalent firms percentage firms percentage aaa 22 1 0.13 0 0.00 aa+ 21 3 0.38 1 0.19 aa 20 6 0.75 5 0.96 aa19 3 0.38 7 1.34 a+ 18 13 1.63 4 0.76 a 17 44 5.51 28 5.35 a16 52 6.52 25 4.78 bbb+ 15 68 8.52 56 10.71 bbb 14 126 15.79 76 14.53 bbb13 90 11.28 60 11.47 bb+ 12 69 8.65 58 11.09 bb 11 81 10.15 59 11.28 bb10 76 9.52 61 11.66 b+ 9 58 7.27 34 6.50 b 8 59 7.39 23 4.40 b 7 40 5.01 15 2.87 ccc+ 6 3 0.38 4 0.76 ccc 5 4 0.50 2 0.38 ccc 4 0 0.00 1 0.19 cc 3 1 0.13 1 0.19 c 2 0 0.00 0 0.00 d 1 3 0.38 3 0.57 total 798 100.00 *523 100.00 *for the ordered probit model one observation was deleted due to missing values, so only 523 observations were used. research design the following regression equation, which is consistent with extant related research (e.g., alalia et al., 2012; ayres, 2016; blume et al., 1998), is used to test the study’s hypothesis using an ordered probit3 model: creditrating i,t+4 = α0 + δ1doati,t + δ2intcovi,t + δ3levi,t + δ4returni,t + δ5debtcovi,t + δ6logati,t + δ7betai,t + δ8industryi,t + δ9yeari,t + ei,t. 3 the model was also estimated using a generalized linear model (glm) and the results were consistent with the ordered probit findings. 89 variables used in the equation are summarized in table 4. the dependent variable, creditrating, is the standard and poor’s long-term domestic credit rating (compustat data item splticrm), converted from letter grades to numerical equivalents (ayres, 2016). credit ratings are provided monthly. to allow sufficient time for a firm’s credit rating to reflect the financial reporting of the most recent fiscal year-end, creditrating is measured four months after the date of each observation’s fiscal year-end (ayres, 2016). doat, the variable of interest, is constructed as discontinued operations (compustat data item do) divided by total assets (compustat data item at).4 a significant doat coefficient suggests credit rating agencies perceive discontinued operations as being relevant to assigning a credit rating – they are expected to have some persistence. variables that prior research has shown to be highly correlated with credit ratings are included in the regression equation. these are, leverage (lev), which is calculated as long-term debt (compustat data item dltt) divided by long-term debt plus total assets. this variable is expected to have a negative coefficient since higher leverage is expected to be negatively related to a firm’s credit rating. return, calculated as operating income (compustat data item ebit) divided by sales (compustat data item sale), is expected to be positive since favorable operating performance positively impacts credit ratings. the interest coverage ratio, intcov, is earnings before interest and taxes (compustat data item ebit) divided by interest expense (compustat data item xint). the coefficient on intcov is expected to be positive since a higher coverage ratio represents a better ability to meet interest payments. logat is the log of total assets. a positive coefficient is expected since larger firms tend to be less risky. debt coverage, debtcov, is measured as earnings before interest (compustat data item ebitda) less interest expense (compustat data item xint) and taxes (compustat data item txt), divided by total liabilities (compustat data item lt). debtcov is expected to have a positive coefficient as greater liquidity suggests lower risk. previous studies provide evidence that as a firm’s equity risk increases (beta), it is less likely to service its debt. consistent with prior studies investigating credit ratings, (blume et al.,1998; jorion et al., 2009; ziebart & reiter, 1992), the study includes beta in the equation and estimated it using monthly returns over the sixty-month period prior to the fiscal year-end. it is expected to have a negative coefficient as more risk, higher beta, should result in lower credit ratings. to control for industry-specific fixed effects, the study includes industry, which is one of 15 (16 industries detailed in table 2, minus 1) indicator variables to control for industry-specific fixed effects (barth et al., 1998; easton & pae, 2004). in addition, to control for the year specific fixed effects, the variable year is included. table 4 definition of regression dependent and independent variables compustat data items in (italics) (addition (+) and subtraction (-) assumed to occur before division (/)) variable definition 4 because discontinued operations are typically comprised of two components, gains or losses on the sale of assets and net operating costs expected to be incurred prior to disposition of the discontinued unit, and the recorded value of total assets is more stable than operating income or sales, doat is deflated by total assets. deflating by total assets is also consistent with the methodology used by guragai et al. (2020). 90 dependent variable: creditrating standard & poor’s domestic long-term issuer credit rating (splticrm), converted from letter grades to numerical equivalents. to provide sufficient time for a firm’s credit rating to reflect the financial reporting of the most recent fiscal year-end, the rating is measured four months after the date of each observation’s fiscal year-end. independent variables: doat discontinued operations (do) divided by total assets (at). intcov interest coverage is earnings before interest and taxes (ebit) / interest expense (xint). if interest coverage ratio is < -1 then it is set to = -1 and if > 25 then set to 25. an average of the three most recent years is used. lev leverage ratio is long-term debt (dltt) / long-term debt (dltt) + total assets (at). an average of the three most recent years is used. return return is operating income (ebit) / sales (sale). an average of the three most recent years is used. debtcov debt coverage is earnings before interest (ebitda) – interest expense (xint) – taxes (txt) / total liabilities (lt). if debt coverage is < -1 then it is set to = -1 and if > 5 then set to 5. an average of the three most recent years is used. logat natural log of total assets (at). beta market model betas were estimated using monthly returns over a 60 month period prior to the fiscal year-end of each observation. descriptive statistics of variables included in the regression equations are presented in table 5. panel a shows the mean and median of the sfas no. 144 variables reported for discontinued operations and panel b presents the mean and median for the variables during the asu 2014-08 period. also presented are the 25th and 75th percentiles for each variable. table 5 descriptive statistics of dependent and independent variables panel a sfas no. 144 fiscal years 2012-2014 (n = 798): variable mean 25th median 75th 91 percentile percentile creditrating 12.312 10.000 13.000 14.000 doat 0.002 -0.001 0.000 0.002 intcov 5.887 2.181 3.892 7.938 lev 0.466 0.339 0.453 0.570 return 0.113 0.062 0.103 0.169 debtcov 0.125 0.071 0.115 0.172 logat 8.808 7.793 8.666 9.668 beta 1.422 0.891 1.328 1.814 panel b asu 2014-08 fiscal years 2015-2017 (n = 524): variable mean 25th percentile median 75th percentile creditrating 12.390 10.000 13.000 14.000 doat 0.002 -0.001 0.000 0.001 intcov 6.328 2.609 4.327 8.895 lev 0.487 0.358 0.473 0.609 return 0.106 0.059 0.106 0.164 debtcov 0.125 0.072 0.121 0.175 logat 9.008 7.900 8.846 9.928 beta 1.317 0.905 1.234 1.644 the dependent variable creditrating is not significantly different between the periods (sfas no. 144 = 12.312 and asu 2014-08 = 12.390). however, sample firms in the asu 2014-08 period are more leveraged (lev, p < 0.05), larger (logat, p < 0.05), and less risky (beta, p < 0.01) than sample firms in the sfas no. 144 period (not tabulated). differences may, in part, be due to period specific economics, the impact of which are accounted for in the year fixed effects variables included in the regression equation. discussion results correlation analysis presented in table 6 depicts that some of the independent variables used in the regression equation are highly correlated. statistical diagnostics reveal variance inflation factors (vifs) associated with all of the independent variables are less than three. therefore, collinearity is not adversely impacting the power of the study’s tests to detect significance of the relationship between doat and creditrating. 92 table 6 correlations of independent variables used in the regression equation (n = 1,322) variable intcov lev return debtcov logat beta doat -0.027 -0.010 -0.065* -0.011 -0.034 -0.012 intcov -0.578*** 0.258*** 0.636*** 0.158*** -0.253*** lev -0.028 -0.417*** -0.118*** 0.172*** return 0.345*** 0.328*** -0.225*** debtcov -0.094*** -0.176*** logat -0.190*** *, **, *** significant at p < 0.05, p < 0.01, p < 0.001, respectively. variable definitions are shown in table 4. two regressions are estimated, one for each of the time periods, sfas no. 144 (years 2012 to 2014) and asu 2014-08 (years 2015 to 2017). the results of the regressions are presented in table 7. for ease of interpretation, the coefficients on the fixed effects variables are not tabulated. table 7 results of ordered probit for sfas 144 (2012-2014 fiscal years) and asu 2014-08 (2015-2017 fiscal years) creditrating i,t+4 = α0 + δ1doati,t + δ2intcovi,t + δ3levi,t + δ4returni,t + δ5debtcovi,t + δ6logati,t + δ7betai,t + δ8industryi,t + δ9yeari,t + ei,t . sfas 144, 2012-2014 asu 2014-08, 2015-2017 predicted independent variables sign coefficient p-value coefficient p-value doat positive 4.4447 0.013 0.2858 0.887 intcov positive 0.0625 <0.001 0.1064 <0.001 lev negative -1.6250 <0.001 -1.2635 <0.001 return positive 0.4048 0.427 0.9983 0.128 debtcov 14.02299 14.02299 positive 1.84631 0.008 1.7843 0.058 logat positive 0.7602 <0.001 0.6397 <0.001 beta negative -0.4704 <0.001 -0.5221 <0.001 total observations 798 *523 model f-value 79.63 356.3425 p < 0.001 41.97 p < 0.001 r2 0.71 0.67 variable definitions are shown in table 4. the coefficients on industry and year are not presented for ease of interpretation. *for the ordered probit model one observation was deleted due to missing values, so only 523 observations were used. 93 in the sfas no. 144 period the coefficient on doat is positive and significant (p = 0.013) suggesting that discontinued operations in this period are viewed as persistent and considered when assigning credit ratings. in comparison, in the asu 2014-08 period, the coefficient on doat is not significant (p = 0.887). these results demonstrate that in this period discontinued operations are viewed as having little or no persistence. in both periods, the coefficients on four of the six control variables are significant and the signs are in the expected direction. the variables lev and beta have significant negative coefficients while the variables intcov and logat, have significant positive coefficients. the debtcov coefficient is significant in the sfas 144 model and moderately significant (p = 0.058) in the asu 2014-08 model. the coefficient on return is not significant in either time period. as a robustness test, return is replaced with return on assets (roa), measured as net income divided by total assets. results are substantially unchanged. in the sfas no. 144 period, the coefficient on doat remains significant (p < 0.01) and the coefficient on roa is significant (p < 0.001), but the coefficient on debtcov is no longer significant. in the asu 2014-08 period, the coefficient on doat remains insignificant and the coefficient on roa is significant (p < 0.01), and the coefficients on the remaining independent variables are significant in the direction predicted. contributions this study found that during the sfas no. 144 period, the relationship between reported discontinued operations and credit ratings was positive and significant. this suggests that the amounts reported as gains and losses from discontinued operations influence the reporting company’s credit rating. this result is likely due to the relatively broad definition of discontinued operations in use under sfas 144. although the fasb’s conceptual framework supports the notion that an income statement is more useful for decision making if non-recurring items are separated from income from continuing operations, it appears the provisions of sfas no. 144 did not achieve this goal. it may be that this was an unintended consequence of expanding the definition of qualifying items from that of apb no. 30, or it may be that the more inclusive definition allowed managers greater flexibility to present recurring losses outside of continuing operations in the income statement. in contrast, no relationship was found between reported discontinued operations and companies’ credit ratings during the subsequent asu 2014-08 period. this suggests that under the narrower definition, included gains and losses are more likely to be non-recurring. it appears standard setters recognized that the definition of discontinued items under sfas no. 144 was not consistent with the goal of the conceptual framework, and asu 2014-08’s more restrictive definition appears to improve the usefulness of the income statements. these results contribute to extant research about the goal of the conceptual framework to provide decision-useful financial reporting (e.g., burgstahler et al., 2002; dechow & ge, 2006; jones & smith, 2011) and address a gap in the literature on discontinued operations (e.g., barua et al., 2010; curtis et al., 2014). importantly, the results suggest that users of financial information are not misled when recurring gains and losses are reflected as separately stated discontinued operations. consistent with the emh, credit ratings reflect relevant economic information no matter how it is reported in the financial statements. managers need not expend effort attempting to 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(2020). discontinued operations and dividend payout policy. working paper presented at the 2020 annual meeting of the american accounting association. hand, j., holthausen, r., & leftwich, r. (1992). the effect of bond rating agency announcements on bond and stock prices. the journal of finance, 47(2), 733-752. jensen, m. (1978). some anomalous evidence regarding market efficiency. journal of financial economics, 6(2/3), 95-101. jones, d., & smith, k. (2011). comparing the value relevance, predictive value, and persistence of other comprehensive income and special items. the accounting review, 86(6), 2047-2073. jorion, p., shi, c., & zhang, s. (2009). tightening credit standards: the role of accounting quality. review of accounting studies, 14(1), 123-160. kisgen, d.j. (2006). credit ratings and capital structure. journal of finance, 61(3), 1035–1072. ziebart, d., & reiter, s. (1992). bond ratings, bond yields and financial information. contemporary accounting research, 9(1), 252-282. microsoft word 156-copyedited-final.docx http://journals.sfu.ca/abr advances in business research 2016, volume 7, pages 29-50 29 which ifrs should the united states adopt? george schmidt university of arkansas – fort smith kaitlyn schoeppey university of arkansas – fort smith accounting is a byproduct of its environment. it takes information and transmits it for users that are both internal and external to the company. the united states has been working to converge with ifrs since the norwalk agreement in 2002. these environmental factors have caused different accounting standards to develop in different countries. the international financial reporting standards (ifrs) were developed to address the differences in accounting standards worldwide. however problems persist with ifrs. comparability even within countries that use ifrs is not perfect. many countries use a local variation of ifrs. in addition, the european union has a formal endorsement process for every ifrs standard published by the iasb to decide if the eu will adopt the standard. in addition to the political pressure this causes, it could cause further problems with comparability in the future if the united states adopt ifrs. the fundamental rules vs. principles debate and the cost of conversion to ifrs for us companies is also a barrier to the convergence project. keywords: accounting standards, ifrs, gaap, ifrs adoption, international accounting. introduction accounting is the language of business. it takes information and transmits it for users that are both internal and external to the company. in order to begin the discussion of the differences between the international language of business (international financial reporting standards) and the united states version (united states generally accepted accounting principles) it is important to understand how accounting develops within a region. international accounting: a user perspective gives ten ways accounting interacts with its environment. these are the nature of capital markets, type of reporting regime, size and complexity of business entities, type of legal system, level of enforcement of regulations, rate of inflation, political and economic ties, stature of the accounting profession, existence of a conceptual framework, and quality of accounting education (saudagaran, 2009). in addition, there is another source affecting accounting in various regions. prior accounting scandals contribute to the future of accounting in a region. the nature of capital markets affects the foundation of accounting in a region. in some areas, companies primarily raise the capital needed for business from stock markets. in other regions, this capital is acquired from banks or the government. banks and stockholders have different information needs and the language of business has adapted differently to provide them. the type of reporting regime also affects the accounting in a region. in some countries, such as the united states, there are different rules in reporting to the government for tax purposes and reporting to stock markets or other external accounting users. in other countries, the same rules should the us adopt ifrs? 30 apply for both. as mentioned previously, the needs of the external users influence accounting in a region. the size and complexity of business entities in an area also shapes the local accounting practices. as businesses increase in size and complexity, accounting rules must also become more complex to translate the substance of the transaction to external users of financial statements. the type of legal system is another contributor to the type of accounting reporting adopted. some countries, including the u.s., use a common law system. other countries use a code law system. in code law countries, the focus is on protecting the creditors of the company. in a common law country, more attention is placed on presenting a true and fair picture to shareholders (saudagaran, 2009). the level of enforcement of regulations is another important point. it does not matter what the accounting rule is if no one enforces it consistently. one problem with using consistent accounting rules internationally is that it may give some shareholders a false sense of security. they may assume the company is correctly applying the same rules as everyone else, when in reality the company may be reporting transactions incorrectly either by mistake or as an intentional act of fraud. the rate of inflation shapes accounting in an area. in the united states, the rate of inflation tends to run at about 2% a year. some countries may have a 20% rate of inflation this year or even higher. particularly in those countries with high inflation, the historical cost of assets does not make sense as a way to value assets because it leaves the assets undervalued on the balance sheet. the political and economic ties of a country shape accounting for transactions in the country. countries want to use similar accounting methods as their international trading partners to encourage their companies to trade and invest more freely with each other. the stature of the accounting profession also notably shapes accounting in an area. in some countries the accounting profession is held in high esteem. in other countries, accountants are held at about the same status as a clerk. this stature will influence the quality of the accounting standards produced (saudagaran, 2009). directly related to the stature of the accounting profession is the quality of accounting education. the quality of accounting education is better in countries that hold it in high esteem because the stature of the profession can help attract some of the best and brightest students into accounting careers (saudagaran, 2009). the existence of a conceptual framework is another factor that shapes accounting in a country. “… accounting in countries that have developed or adopted a conceptual framework are likely to be more similar to each other than to countries that lack a conceptual framework” (saudagaran, 2009, p. 10). in addition, there is another factor that has historically shaped accounting in a region: prior accounting scandals. one of the most famous accounting scandals involved enron. in part because of the enron scandal, the u.s. congress passed the sarbanes oxley law to reduce accounting scandals. when companies take advantage of relatively vague rules, it can cause policymakers to set more strict ones. all of these factors come together to influence accounting in an area. this is why countries all over the world have historically developed different accounting systems. these varied accounting systems are leading to problems as the world becomes increasingly one market. because countries are reporting the same transaction in different ways, there is a lack of comparability in the financial statements of companies worldwide. this paper will focus on two accounting standards: the united states generally accepted accounting principles and the international financial reporting standards. schmidt & schoeppey 31 literature review the united states generally accepted accounting principles is the legacy of the history of accounting in this country. before the industrial revolution, companies accounted for transactions, but everyone followed their own rules. there was no standardization and therefore no comparability among companies (“accounting standards,” n.d.). the industrial revolution began to change that. companies, particular railroad companies, started to standardize financial reporting. this led to an influx of capital from investors. public companies continued to take the lead in accounting innovation for many years until the great depression. after poor accounting and reporting procedures were blamed for contributing to the downturn, the american institute of accountants and the new york stock exchange worked together to fix the accounting problems. a few years later, the securities act of 1934 was passed. this act chartered the securities and exchange commission and gave the securities and exchange commission the power to oversee the methods used for accounting and auditing (“accounting standards,” n.d.). by the 1970’s, the accounting profession decided that it is necessary to have an independent standard-setting structure that is distinct from the accounting profession. its purpose is to keep the standards from being tainted by the self-interests of practicing accountants and their clients. in 1972, the accounting foundation recommended creation of a new standard-setting body and the financial accounting foundation was born. the following year, the financial accounting foundation established the financial accounting standards board which became responsible for setting financial accounting standards (“accounting standards,” n.d.). this set the foundation for modern day accounting in america. publicly traded companies must comply with the generally accepted accounting principles, which are set by the financial accounting standards board. new standards are developed regularly both to address new business transactions and to improve the accounting reporting of existing ones. this allows the companies to be compared because every company reports every transaction using the same rules. however, because of the impact environment has on accounting standards, not every stock exchange requires their companies to record transactions the same way that the united states generally accepted accounting principles does. as more and more investors choose to invest money in foreign companies on foreign stock exchanges, there must be comparability across companies worldwide instead of only being comparable on individual exchanges. the idea of international convergence first arose following world war ii. the world was becoming economically integrated and it needed accounting to follow suit. the international accounting standards committee was formed in 1973. it was the first international standard-setting body. in 2001, the international accounting standards committee reorganized into the international accounting standards board. it became an independent international standard-setter (“comparability in international accounting,” n.d.). “as of 2013, the european union and more than 100 other countries either require or permit the use of international financial reporting standards (ifrss) issued by the iasb or a local variant of them” (“comparability in international accounting,” n.d.). political challenges faced by standard-setters accounting standard-setters face many challenges trying to create the rules accountants must follow to report transactions. many of the challenges are political. the united states financial accounting standards board is funded through fees that are paid by companies who choose to list their securities on stock exchanges (spiceland, sepe, & nelson, 2013). this is done to prevent the should the us adopt ifrs? 32 financial accounting standards board from having to bend to the will of interest groups in order to stay funded. for example, airlines have to report huge liabilities for the leased aircraft they essentially own. it would appear much better on the airlines’ books if they only had to report an expense every time they make the lease payment. their vested interest could have prevented the financial accounting standard board from passing the standard that showed the substance of the transaction. therefore, it is important the standards board does not have to fundraise or to receive funding from interest groups. in contrast, the international accounting standards board receives a large amount of its funding from voluntary donations, both from accounting firms and corporations (spiceland, sepe, & nelson, 2013). accounting firms have a vested interest in the standards as well because their clients do. as long as the iasb has to fundraise then they cannot be entirely independent. this keeps them from having the independence to make the right decisions when interest groups are pushing for the wrong ones. the financial accounting standards board thinks it is so important that one of the milestones specified by the securities and exchange commission for the adoption of ifrs in the united states is that the international accounting standards board’s independence be enhanced by a funding mechanism similar to the financial accounting standard board’s mechanism (spiceland, sepe, & nelson, 2013). the international accounting standards board faces political pressure from other sources in addition to the pressure from interest groups. countries have a vested interest in making the companies in their country look as profitable as possible. the european union has demonstrated that vested interest by requiring a formal evaluation process for determining whether an ifrs standard will be endorsed for use in european union countries (“ifrs in europe – background,” n.d.). …the european union is required to decide on the applicability of individual iass within the eu. it may adopt an ias only if: it is not contrary to the principles of the eu fourth and seventh directives, it is conducive to the european public good, and it meets the criteria of understandability, relevance, reliability and comparability required of financial information needed for making economic decisions and assessing stewardship of management. (alexander, 2007, pp. 52-53) if the european union decided that an international financial reporting standard was not in its best interest then it could refuse to adopt it in the european union. then the iasb would be forced to choose between having comparability in financial statements or using the standard it originally wanted all the countries to adopt. in addition to the political problems this creates, it could potentially cause future problems with comparability. comparability in international financial reporting standards while the international financial reporting standards purpose is to move countries to one set of unified accounting standards, variations within the international financial reporting standards exist. for example, remember this quote, “as of 2013, the european union and more than 100 other countries either require or permit the use of international financial reporting standards (ifrss) issued by the iasb or a local variant of them” (“comparability in international accounting,” n.d.). a local variant of the international financial reporting standards is not the same as using the international financial reporting standards. investors will still need to research differences between the accounting method the country uses and the standard international financial reporting standards. typically, the differences between the countries’ local variation of ifrs and ifrs as published by the iasb are small, but too many countries have local variations for the differences between them to be ignored. schmidt & schoeppey 33 the chart in appendix a was compiled based on pricewaterhousecoopers 2014 report: ifrs adoption by country. approximately 28.33% of the countries that use some version of ifrs in the chart fall into a category of “other”. this means that they use some form of the international financial reporting standards, but they do not use the version published by the international accounting standards board or endorsed by the european union. the category “other” can range from venezuela that uses ifrs as adopted locally to japan that uses ifrs as designated by the financial services agency of japan (ifrs adoption by country, 2014). an additional 25.83% of the countries in the chart that use some form of ifrs use ifrs as endorsed by the european union. as discussed earlier, standards published by the international accounting standards board must be formally approved in order to be used by the european union. currently all of the iasb documents that are not currently endorsed are expected to be endorsed before the iasb effective date (the eu endorsement status, 2015). however, the european union has the option of refusing to endorse any iasb standard. if they choose to do so, then 25.83% of the countries that use some form of ifrs will not be using the same form of ifrs as the rest of the countries. if the european union is committed enough to fight a standard, potentially two main forms of ifrs could exist. this may seem farfetched except that it’s already happened. the european union refused to endorse controversial parts of ias 39, which dealt with hedge accounting (brackney & witmer, 2005). the other 45.83% of the countries in the chart that use some form of ifrs, use ifrs exactly as published by the iasb. that means that less than half precisely follow every standard. admittedly, they are close to what the iasb publishes, but the whole point of an international accounting standard is to have comparability in accounting practices worldwide. if the international accounting standards board cannot get stock exchanges to commit to using ifrs exactly as published then it may be time to look for other international accounting solutions that can. regardless, until recently, the united states generally accepted accounting procedures have attempted to converge with the international financial reporting standards. it’s important to understand the history behind that decision in order to understand the reasons that led to the convergence project. history of u.s. gaap and ifrs convergence foreign companies that wished to trade on united states stock exchanges had to complete a form 20-f to reconcile their financial statements to us gaap. this expensive burden in addition to the costs of complying with the sarbanes oxley law led many foreign entities to pull their companies from us stock exchanges (sullivan, 2014). this led many groups to hold public discussions about whether the us was losing its competitive edge as a market for raising capital (erchinger & melcher, 2007). when the fasb and iasb met in norwalk, connecticut on september 18, 2002, they both acknowledged their commitment to developing both high-quality and compatible accounting standards for domestic and international financial reporting (memorandum of understanding, 2002). at the meeting, both the fasb and iasb pledged to use their best efforts to: “(a) make their existing financial reporting standards fully compatible as soon as is practicable and (b) to coordinate their future work programs to ensure that once achieved, compatibility is maintained.” (memorandum of understanding, 2002, p. 1). this “memorandum of understanding” started the process of convergence between ifrs and gaap. should the us adopt ifrs? 34 in 2006, the fasb and iasb demonstrated again their commitment to this convergence project by setting specific milestones to be reached by 2008 (“convergence between ifrss and us gaap,” 2006,n.d.). in 2007, the united states securities and exchange commission (sec) removed the requirement for all non-us companies registered in the us to reconcile their financial reports with us gaap if their accounts complied with ifrs as issued by the iasb. the sec also published a proposed roadmap for adoption of ifrss by domestic companies (“convergence between ifrs and us gaap,”2007, n.d.). additionally, the european commission proposed that the european union remove the need for u.s. companies with securities registered on european stock exchanges and with financial information prepared in accordance with u.s. gaap to reconcile their accounts to ifrss or provide other compensating disclosures (completing the february 2006, 2008). in 2013, russell golden was nominated as the chairman of the financial accounting standards board. he became chairman at a time when our relationship with the international accounting standards board was changing. the iasb set up an accounting standards advisory council of which the united states is one of multiple members (cohn, 2013). the asaf generally meets for two days on four occasions a year (“accounting standards advisory forum,” 2013,n.d.). meeting eight days a year is a big change from the commitment to convergence both standard setters had just a few years before. priorities had clearly shifted, and it left many firms wondering, “what happened?” christopher cox, chairman of the sec from 2005-2009, blames the international accounting standards board, but says the financial accounting standards board and a lack of interest by us investors and corporations enabled it to happen (katz, 2014). three main factors led to the end of the convergence project between ifrs and us gaap: the us remained competitive in the world’s capital markets, the fundamental rules vs. principles split in the standards that neither side was willing to compromise on, and the cost of converting financial statements to ifrs. no doubt there was concern after the financial scandals in the early 2000’s and the extensive regulation that followed (sarbanes-oxley) that companies would stop trading on us exchanges and instead trade on other exchanges elsewhere in the world. the costs of compliance was high both because companies had to follow us generally accepted accounting principles and because they had to meet the requirements of sarbanes-oxley. this caused many foreign companies to remove themselves from us stock exchanges (sullivan, 2014). it was a difficult game that regulators had to play with the financial market. too much regulation and companies may run a cost-benefit analysis and decide to leave us capital markets. too little regulation and investors will not trust the financial information provided by companies and may decide not to invest money in companies in us capital markets. in this uncertain environment, the convergence project seemed like an important step in securing the future of the us capital markets. by converging our accounting standards with the international financial reporting standards, foreign companies could save the costs of reconciling their financial statements to gaap. this would lessen the burden of the new financial regulation and make companies more likely to continue trading on us markets. however, now the sec has allowed companies that use ifrs as published by the iasb to use ifrs in their financial statements without providing a reconciliation to us gaap (acceptance from foreign private, 2008). this change effectively accomplished the same goal. foreign companies save the compliance costs of reconciling their financial statements with gaap, and domestic companies are spared the costs of becoming compliant with ifrs. the sec’s decisions paid off. the us markets are continuing to succeed. almost 50% of the world’s equity shares (by market capitalization) are traded in the united states (donaldson, 2005). foreign issuers are also continuing to trade in the us. non-us investors have nearly $4.5 trillion invested in stock markets in the schmidt & schoeppey 35 united states (donaldson, 2005). now that the worries have mostly past, people are less concerned about switching to ifrs. they see the costs of convergence unnecessary after the change in the u.s. markets acceptance of iasb ifrs and the international stock markets acceptance of u.s. gaap. one of the main problems with switching to ifrs is the rules vs. principles debate. the question of how much guidance is appropriate with every standard is a fundamental difference between gaap and ifrs. both sides are defensive of their approach. leases provide a good example. gaap makes the distinction between capital leases and operating leases. an operating lease is a traditional lease. a one-year rent agreement for an apartment is a good example. in contrast, capital leases are essentially rent-to-own agreements. the lease agreement lasts for so long that the asset has essentially been bought. under gaap, a lease is a capital lease if one or more of these criteria are met: 1. the agreement specifies that ownership of the asset transfers to the lessee. 2. the agreement contains a bargain purchase option. 3. the noncancelable lease term is equal to 75% or more of the expected economic life of the asset. 4. the present value of the “minimum lease payments” is equal to or greater than 90% of the fair value of the asset. (spiceland, sepe, & nelson, 2013, p. 863) under ifrs, a lease is a capital lease if substantially all the risks and rewards of ownership are judged to have been transferred (spiceland, sepe, & nelson, 2013). they specify some things that may imply it’s a capital lease, but the iasb does not specify percentages and the judgments are left to the accountant. there are advantages and disadvantages to both systems. under a rules-based system, there is little room for judgment so every company will account for the same transactions the same way. if none of the four criteria are met then it’s not an operating lease. it doesn’t matter if it comes close to being a capital lease on every criterion. because of this, companies will purposely find loopholes to the rules. they will set up transactions so that none of the criterion are met even though they are still essentially renting-to-own the asset. in a principles-based system, the accountant makes the judgment. if the accountant decides that it’s essentially a rent-to-own asset then it is a capital lease and is accounted for accordingly. however, that also means that an accountant could decide that it’s not a capital lease even if one of the rules for the rules-based system is met. accounting in this manner potentially sacrifices consistency, but should do a better job of translating the substance of the transaction for external users. another problem with the principles-based system is since accountants make a judgment about the transaction, two accountants could make different decisions about how to report the same transaction. this could lead to managers pressuring accountants to record a transaction in a way that appears better on the financial statements. managers could even purposely hire accountants that will report transactions in a way that looks as good as possible for the company. this could create a conflict of interest between the accountant trying to translate transactions for external users of financial statements and also trying to translate the transactions such that they keep their jobs. both the rules-based and principles-based standards for accounting have their share of problems. they are fundamentally different ways to set standards and they do not leave much room for compromise. scot taub identified areas in which u.s. gaap and ifrs have had difficulty dealing with: 1. revenue recognition, 2. common control transactions, 3. rate regulation, 4. extractive industries, and 5. insurance. should the us adopt ifrs? 36 of those, the most important by far is revenue recognition, and that will be resolved shortly by the issuance of the new joint standard (taub, 2014). another reason the convergence project did not succeed in full is the cost of switching to ifrs for us companies. ifrs does almost everything in accounting at least a little bit different than gaap does. this chart summarizes the differences between gaap and ifrs. it is based on the differences between gaap and ifrs given in spiceland, sepe, and nelson’s 7th edition intermediate accounting textbook. this chart is not meant to be all-inclusive. it gives a sample of some of the many differences remaining between us gaap and ifrs. concept us gaap ifrs income statement allows extraordinary items prohibits extraordinary items classification of cash flows cash outflows for interest payments and inflows from interest and dividends are operating cash flows. dividends the company pays out are financing cash flows. interest and dividends paid can be an operating or a financing cash flow and interest and dividends received can be either an operating or investing cash flow. long-term construction contracts requires the completed contract method when reliable estimates can’t be made. requires the cost recovery method when reliable estimates can’t be made. interim reporting views interim periods as integral parts of the annual period. views interim periods as discrete periods. cash and cash equivalents overdrafts are treated as liabilities. overdrafts can be offset against other cash accounts. transfer of receivables the decision is made whether it is a secured borrowing or a sale depending on whether control of assets has transferred to the transferee. the decision is made whether it is a secured borrowing or a sale based on if the company receives the receivable’s cash flows, substantially all the risks and rewards of ownership, and whether control has been transferred. inventory cost flow assumptions allows lifo prohibits lifo inventory valuation for calculating lower of cost or market, market is replacement cost with a ceiling of net realizable value and a floor of net realizable value minus normal profit margin. for calculating lower of cost or market, market is always net realizable value. research and development expenditures expensed in the period incurred. research expenditures are expensed in the period incurred. development expenditures are capitalized as an intangible asset. depreciation allows depreciation of components, but most companies do not do so. requires that each component of an item be depreciated separately if its cost is significant in relation to the total item cost. valuation of property, plant, and equipment and intangible assets property, plant, and equipment are reported at cost less accumulated depreciation. property, plant, and equipment can be reported at cost less accumulated depreciation or at its fair value. biological assets valued at cost less accumulated depreciation valued at fair value minus estimated costs to sell impairment reversals of impairment loss are prohibited. ifrs requires the reversal of an impairment loss if the cause of the loss is resolved. costs of defending intangible rights capitalized and amortized over the expensed as incurred. schmidt & schoeppey 37 concept us gaap ifrs remaining useful life of the intangible. investments accounted for using the equity method fair value option permitted. does not provide fair value option for most investments accounted for using the equity method. recoveries of other-than-temporary impairments does not allow recovery of any otherthan-temporary impairment of equity or debt with the exception of loans. recognized in earnings for debt investments, but not for equity investments. liabilities to be refinanced classified as long-term if refinancing is completed before the date of issuance of the financial statements. classified as long-term if refinancing is completed before the balance sheet date. loss contingencies if there is a range of equally likely outcomes, gaap would use the low end of the range. if there is a range of equally likely outcomes, ifrs would use the midpoint of the range. gain contingencies never accrued. accrued if future realization is virtually certain. debt issue costs recorded as an asset. reduce the recorded amount of the debt. convertible bonds recorded as debt (liability). divided into liability and equity elements. leases four classification criteria to determine if a lease is a capital lease. a lease is a capital lease if substantially all risks and rewards of ownership are transferred. error corrections an error in a prior financial statement must be reported for retrospectively. when correcting errors in prior financial statements, the effect of the error can be reported in the current period if it’s not considered practical to report it retrospectively. conclusion if full adoption of ifrs were to occur, the twenty-two differences listed in the chart are only a small sample of the many changes awaiting us companies. appendix b contains all eighty-nine of the differences in the intermediate accounting powerpoints accompanying the textbook by spiceland, sepe, & nelson. the list of the differences between gaap and ifrs for many of concepts are in most of the textbooks. this list does not include every financial accounting difference between gaap and ifrs. there are likely also differences on industry-specific guidelines and on consolidation practices. all of these changes have costs associated with them. deloitte, for instance, gives four categories of costs when converting to ifrs. these costs are internal human resource costs, external resources (for instance accountants and lawyers hired to help with the transition), information technology resources, and potential costs such as the cost of erroneous conversion (2009). even though the changes in each of the categories are small, us companies will be summarily forced to make all of these changes and more. it’s both time-consuming and expensive. in addition, it could lead to increased litigation cost. the people who prepare the financial statements could make mistakes in their application of the unfamiliar rules. the users of those financial statements could then sue based on the harm caused by the improperly prepared financial statements (epstein & cheng, 2009). the ceo and cfo could be held personally accountable for those mistakes under sarbanes oxley (marden, edwards, & stout, n.d.). all of these costs discourage us investors and corporations to push for a transition to ifrs. should the us adopt ifrs? 38 these litigation and change-over costs are in addition to the increased comparability problems that a switch to ifrs could cause. many investors realize they cannot directly compare two companies’ financial statements that use different accounting standards. therefore, they will not try to compare the companies without making some adjustments for the differing standards. in contrast, if both of the companies were using the international financial reporting standards, investors are more likely to directly compare them without any adjustment. this could lead to misguided decisions if the two companies decide to report the same transaction in different ways. big investors who know about the comparability problems will have to spend money hiring people to research and dig into the notes of the financial statements to examine the comparability issues and make informed decisions. fasb’s statements of accounting concepts addresses the importance of comparability. left to themselves, business enterprises, even in the same industry, would probably choose to adopt different reporting methods for similar circumstances. but in return for the sacrifice of some of that freedom, there is a gain from the greater comparability and consistency that adherence to externally imposed standards brings with it. there also is a gain in credibility. the public is naturally skeptical about the reliability of financial reporting if two enterprises account differently for the same economic phenomena. (financial accounting standards board, 1989) in addition, the change to ifrs would cause comparability problems as companies are converting. generally, gaap allows companies a few years to make major changes like this, and early conversion is generally allowed. this means that for the few years until everyone is required to use ifrs, some companies will be using ifrs and others will continue to use gaap. one thing the us’ markets do not want to lose is credibility. investors need to know they can trust the financial information that comes from financial statement preparers in the us. the convergence project has gone as far as it needed to. the marginal costs of continuing to converge far exceed the marginal benefits. the u.s. should remain with gaap until ifrs becomes more uniform with all countries to avoid consistency and comparability problems in accounting reporting. references acceptance from foreign private issuers of financial statements prepared in accordance with international financial reporting standards without reconciliation to u.s. gaap. 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(n.d.). the ceo/cfo certification requirement. the cpa journal. retrieved from http://www.nysscpa.org/cpajournal/2003/0703/features/f073603.htm memorandum of understanding. (2002, september). retrieved from http://www.fasb.org/memorandum.pdf saudagaran, s. m. (2009). international accounting: a user perspective (third ed.). chicago, il: cch. spiceland, j. d., sepe, j. f., & nelson, m. w. (2013). intermediate accounting (seventh ed.). new york, ny: mcgraw-hill/irwin. should the us adopt ifrs? 40 sullivan, m. (2014, march 4). the rise and stall the u.s. gaap and ifrs convergence movement. retrieved march 5, 2015, from http://insurancenewsnet.com/oarticle/2014/03/04/therise-and-stall-the-us-gaap-and-ifrs-convergence-movement-a-468950.html#.vpgnufnf-so scott taub. (2014,august 7) busting some myths about ifrs and gaap. retrieved june 2014 edition from compliance week. george schmidt earned his ph.d. in accounting from the university of north texas. he is an associate professor of accounting at the university of arkansas – fort smith. he can be contacted at george.schmidt@uafs.edu. kaitlyn schoeppey is an accounting graduate of the university of arkansas – fort smith. appendix a appendix a was compiled based on pricewaterhousecooper’s 2014 report, ifrs adoption by country. ifrs as published by iasb ifrs as endorsed by the eu don't use ifrs no local exchange other north america antigua and barbuda x aruba x bahamas x barbados x bermuda x british virgin islands x canada x cayman islands x costa rica x dominican republic x dutch caribbean x el salvador x guatemala x honduras x jamaica x mexico x nicaragua x panama x st. kitts and nevis x schmidt & schoeppey 41 st. lucia x trinidad and tobago x united states x south america argentina x bolivia x brazil x chile x colombia x ecuador x paraguay x peru x uruguay x venezuela x europe albania x austria x belarus x belgium x bosnia and herzegovina x bulgaria x channel islands x cyprus x czech republic x denmark x estonia x finland x france x georgia x germany x greece x greenland x hungary x iceland x ireland x isle of man x italy x kosovo x latvia x lithuania x luxembourg x macedonia x malta x should the us adopt ifrs? 42 moldova x montenegro x netherlands x norway x poland x portugal x romania x russian federation x serbia x slovak republic x slovenia x spain x sweden x switzerland x ukraine x united kingdom x asia afghanistan x armenia x azerbaijan x bahrain x cambodia x china x hong kong x india x indonesia x israel x japan x jordan x kazakhstan x korea (republic of korea) x kuwait x kyrgyz republic x laos x lebanon x macao special administrative region x malaysia x mongolia x oman x pakistan x philippines x qatar x saudi arabia x schmidt & schoeppey 43 singapore x sri lanka x taiwan x thailand x turkey x united arab emirates x uzbekistan x vietnam x west bank/gaza x africa algeria x angola x botswana x cameroon x chad x cote d'ivoire x democratic republic of congo x egypt x equatorial guinea x gabon x ghana x guinea conakry x kenya x libya x madagascar x malawi x mauritius x morocco x mozambique x namibia x nigeria x republic of congo x rwanda x senegal x south africa x swaziland x tanzania x tunisia x uganda x zambia x zimbabwe x oceana australia x should the us adopt ifrs? 44 new caledonia x new zealand x papua new guinea x totals 55 31 14 12 34 of the countries that use some form of ifrs (don't use ifrs and no local exchange excluded): 45.83% use ifrs as published by the iasb 25.83% use ifrs as endorsed by the eu 28.33% fall into a category of "other" less than half of the countries directly use ifrs as published by the iasb. appendix b appendix b is taken from the powerpoint slides created by booker, caldwell, galbreath, & rooney. they are meant to accompany spiceland, sepe, and nelson’s intermediate accounting textbook. every chapter’s powerpoints contained differences between gaap and ifrs and they are directly quoted here. differences 1-51 are based on the powerpoint’s that accompanied the 2011 (sixth edition) of the textbook. the remaining differences are based on the 2013 (seventh edition) of the same textbook. differences between us gaap and ifrs gaap ifrs 1 does not specify a minimum list of items to be presented in the balance sheet. specifies a minimum list of items to be presented in the balance sheet. 2 some u.s. companies use the statement of financial position title as well. statement title changed to statement of financial position 3 presents current assets and liabilities before noncurrent assets and liabilities. does not prescribe the format of the balance sheet, but balance sheets prepared using ifrs often report noncurrent items first. 4 has no minimum requirements. specifies certain minimum information to be reported on the face of the income statement. 5 sec requires that expenses be classified by function. allows expenses classified by function or natural description. 6 “bottom line” called net income or net loss. “bottom line” called profit or loss. 7 report extraordinary items separately. prohibits reporting extraordinary items. 8 includes four possible other comprehensive income items. includes same four. includes a fifth possible item, changes in revaluation surplus, from the optional revaluation of property, plant, and equipment and intangible assets. 9 operating activities: dividends received, interest received, interest paid operating activities schmidt & schoeppey 45 10 investing activities investing activities: dividends received, interest received 11 financing activities: dividends paid financing activities: dividends paid, interest paid 12 earnings process is complete or virtually complete. revenue and costs can be measured reliably. 13 reasonable certainty as to the collectibility of the asset to be received. probable that economic benefits will flow to the seller. risk and rewards are transferred to buyer and seller does not manage or control the goods. stage of completion can be measured reliably. 14 requires completed contract method when reliable estimates can’t be made. requires cost recovery method when reliable estimates can’t be made. 15 revenue should be allocated to the various elements based on the stand-alone selling prices of the individual elements. these can be estimated for non-software arrangements if vsoe is not available, but have to use vsoe for software arrangements. may be necessary to apply the recognition criteria to the separately identifiable components of a single transaction. allocation of total revenue to individual components are based on fair value. 16 has over 100 revenue-related standards that sometimes contradict each other. has two primary standards that also sometimes contradict each other and that don’t offer guidance in some important areas (like multiple deliverables). 17 bank overdrafts are treated as liabilities. bank overdrafts may be offset against other cash accounts. 18 u.s. gaap allows a “fair value option” for accounting for receivables. ifrs restricts the circumstances in which a “fair value option” for accounting for receivables is allowed 19 u.s. gaap does not allow receivables to be accounted for as “available for sale” investments. in the years between 2010 and 2012, companies may account for receivables as “available for sale” investments if the approach is elected initially. after january 1, 2013, this treatment is no longer allowed 20 u.s. gaap requires more disaggregation of accounts and notes receivable in the balance sheet or notes. 21 u.s. gaap focuses on whether control of assets has shifted from the transferor to the transferee. ifrs requires a more complex decision process. the company has to have transferred the rights to receive the cash flows from the receivable, and then considers whether the company has transferred “substantially all of the risks and rewards of ownership,” as well as whether the company has transferred control. 22 lifo is permitted and used by u.s. companies. ias no. 2, inventories, does not permit the use of lifo. 23 if used for income tax reporting, the company must use lifo for financial because of this restriction, many u.s. companies use lifo only for domestic inventories. should the us adopt ifrs? 46 reporting. 24 lcm requires selecting market from replacement cost, net realizable value or nrv reduced by the normal profit margin. ias no. 2, states that the designated market will always be net realizable value. 25 designated market is compared to historical cost to determine lcm. 26 under u.s. gaap, the lcm rule can be applied to individual items, logical inventory categories, or the entire inventory. the lcm assessment usually is applied to individual items, although using logical inventory categories is allowed under certain circumstances. 27 reversals are not permitted under gaap. if an inventory write-down is not longer appropriate, it must be reversed. 28 except for software development costs incurred after technological feasibility, all research and development expenditures are expensed in the period incurred. research expenditures are expensed in the period incurred. development expenditures that meet specified criteria are capitalized as an intangible asset. 29 the percentage used to amortize software development costs is the greater of (1) the ratio of current revenues to current and anticipated revenues or (2) the straight-line percentage over the useful life of the software. the same approach is allowed, but not required. 30 component depreciation is allowed but not often used in practice. each component of an item of property, plant, and equipment is depreciated separately if its cost is significant to the total cost of the item. 31 the depreciable base is determined by subtracting estimated residual value from cost. annual reviews of residual values are not required. depreciable base is determined by subtracting estimated residual value from cost. ifrs requires a review of residual values annually. 32 property, plant, and equipment is reported in the balance sheet at cost less accumulated depreciation (book value). property, plant, and equipment may be reported at cost less accumulated depreciation, or alternatively, at fair value (revaluation). 33 revaluation is prohibited. if revaluation is chosen, all assets within a class of property, plant, and equipment must be revalued on a regular basis. 34 biological assets, such as timber tracts, are valued at cost less accumulated depletion. biological assets are valued at fair value less estimated costs to sell. 35 intangible assets are reported at cost less accumulated amortization. intangible assets may be reported at (1) cost less accumulated amortization or (2) fair value, if fair value can be determined in an active market. 36 u.s.gaap prohibits revaluation of any intangible asset. if revaluation is chosen, all assets within the class of intangibles must be revalued on a regular basis. 37 assets are tested for impairment when events or changes in indicators suggest that book value may not be recoverable. assets must be assessed for circumstances of impairment at the end of each reporting period. schmidt & schoeppey 47 38 an impairment loss is required when an asset’s book value exceeds the undiscounted sum of the estimated future cash flows. an impairment loss is required when an asset’s book value exceeds the higher of the asset’s valuein-use (present value of estimated future cash flow) and fair value less costs to sell. 39 the impairment loss is the difference between book value and fair value. the impairment loss is the difference between book value and the recoverable amount, the higher of the asset’s value-in-use and fair value less costs to sell. 40 reversals of impairment losses are prohibited. an impairment loss is reversed if the circumstances that caused the impairment is resolved. 41 if certain criteria are met, indefinite-life intangible assets are combined for the required annual impairment test. indefinite-life intangible assets may not be combined with other indefinite-life intangible assets for the required annual impairment test. 42 the level of testing (reporting unit) is a segment or a component of an operating segment for which discrete financial information is available. the level of testing (cash-generating unit) is the smallest identifiable group of assets that generates cash flows that are largely independent of the cash flows from other assets. 43 measurement of an impairment loss is a twostep process. in step one the fair value of the reporting unit is compared to its book value. a loss is indicated if the fair value is less than the book value. in step two, the impairment loss is calculated as the excess of book value of goodwill over the implied fair value of goodwill measurement of an impairment loss is a one-step process. the recoverable amount of the cashgenerating unit is compared to its book value. if the recoverable amount is less, goodwill is reduced before other assets are reduced. 44 litigation costs to successfully defend intangible rights are capitalized and amortized over the remaining useful life of the asset. litigation costs are expensed, except in rare situations when an expenditure increases future benefits. 45 u.s. gaap also allows transfers out of the trading security category. ias no. 39 now allows transfer of debt investments out of the fair value category into afs or htm in “rare circumstances”. 46 reclassifications under u.s. gaap are rare. the current financial crisis qualified as one of those circumstances. 47 u.s. gaap permits classification as htm, afs, and ts. investments in debt securities are classified as either “amortized cost” or fvtpl. 48 no significant tests are required to classify a debt investment. to be classified as a debt investment, two important tests must be met. the current financial crisis qualified as one of those circumstances. 49 there is no comparable fvtpl or fvtoci classification. investments in equity securities are classified as either “fvtpl” or “fvtoci” (“fair value through other comprehensive income). 50 ifrs, unlike u.s. gaap, there is no equivalent to recognizing oci any non-credit losses on debt investments. calculation of the amount of impairment differs depending on the classification of an investment. should the us adopt ifrs? 48 51 under ifrs, an ott impairment for a debt investment is likely to be larger if it is classified as afs than if it is classified as htm, because it includes the entire decline in fair value if classified as afs but only the credit loss if classified as htm. 52 liabilities payable within the coming year are classified as long‐term liabilities if refinancing is completed before date of issuance of the financial statements. liabilities payable within the coming year are classified as long‐term liabilities if refinancing is completed before the balance sheet date. 53 refers to both accrued and non-accrued obligations as contingent liabilities. refers to accrued liabilities as provisions and nonaccrued as contingent liabilities. 54 defines probable as an event is likely to occur. defines probable as more likely than not, a lower threshold than u.s. gaap. 55 does not make a distinction between the two types of contingencies, distinguished under ifrs, but typically requires disclosure of the same contingencies. makes a distinction between and requires disclosure of two types of contingent liabilities: those whose existence will be confirmed by uncertain future event(s) that the company does not control, and those where a present obligation for a future outflow is not probable or where the future outflow cannot be measured. 56 requires use of low end of a range of equally likely outcomes. requires use of midpoint of a range of equally likely outcomes. 57 allows using present value under some circumstances. requires reporting present values when material. 58 with the exception of long-term construction contracts and terminated contracts, anticipated losses on money losing contracts are generally not recognized or disclosed until incurred. ifrs recognizes provisions and contingencies for contracts, where the unavoidable costs of meeting the obligations exceed the expected benefits. 59 gain contingencies are never accrued. gain contingencies are accrued if their future realization is virtually certain to occur. 60 debt issue costs are recorded separately as an asset. “transaction costs” reduce the recorded amount of the debt. 61 amortized over the term to maturity. the cost of these services reduces the net cash the issuing company receives and the amount recorded for the debt. 62 the fair value option may be elected by the firm. although u.s. gaap guidance indicates that the intent of the fair value option under u.s. gaap is to address these sorts of circumstances, it does not require that those circumstances exist. companies may only elect the fair value option when: when a group of financial assets or liabilities is managed and its performance is evaluated on a fair value basis, or if the fair value option reduces "accounting mismatch." 63 situations that require classification as a capital lease if any one (or more) is met are: situations that normally would lead to classification as a finance lease are: 64 "major portion" is defined specifically as 75% or more. the noncancelable lease term is for a "major portion" of the expected economic life of the asset. schmidt & schoeppey 49 65 "substantially all" is defined specifically as 90%. the present value of the minimum lease payments is equal to or greater than "substantially all" of the fair value of the asset. 66 no similar situation specified. the leased asset is of a specialized nature such that only the lessee can use it without major modifications being made. 67 no similar situation specified. the lessor's losses are borne by the lessee upon cancellation. 68 no similar situation specified. gains or losses from changes in the fair value of the residual value go to the lessee (for instance, by means of a rebate of lease payments). 69 no similar situation specified. the lease contains a "bargain renewal option" whereby the lessee can continue the lease for substantially less than market rent. 70 for example, u.s. gaap requires a loss contingency be accrued if it is both probable and can be reasonably estimated. accruing a loss contingency leads to a deferred tax asset. for loss contingencies, ifrs uses a “more likely than not” threshold, which is lower than the u.s. “probable” requirement. as a result, under the lower threshold of ifrs, a loss contingency and a deferred tax asset sometimes is recorded for ifrs but not for u.s. gaap. 71 gaap separately reports both discontinued operations and extraordinary items on the income statement and each are shown net of tax. ifrs does not separately report extraordinary items on the income statement. as a result, the only income statement item reported separately net of tax using ifrs is discontinued operations. 72 gains and losses are the difference between the actual and expected returns, where the expected return is different from company to company and usually different from the interest rate used to determine the interest cost. requires that we use the same rate (the rate for “high -grade corporate bonds”) for both the interest cost on the defined benefit obligation (called projected benefit obligation or pbo under gaap) and the interest revenue on the plan assets. 73 requires that gains and losses are to be (a) included among oci items in the statement of comprehensive income when they first arise and then (b) gradually amortized or recycled out of oci and into expense (when the accumulated net gain or net loss exceeds the 10% threshold). gains and losses are included in oci when they first arise, but unlike u.s. gaap those amounts are not subsequently amortized out of oci and into expense. instead, under ifrs those amounts remain in the balance sheet as accumulated other comprehensive income. 74 capital stock: share capital: 75 common stock. ordinary shares. 76 preferred stock preference shares. 77 paid‐in capital—excess of par, common. share premium, ordinary shares. 78 paid‐in capital—excess of par, preferred. share premium, preference shares. 79 accumulated other comprehensive income: reserves: 80 net gains (losses) on investmentaoci investment revaluation reserve. 81 net gains (losses) foreign currency translationaoci translation reserve. should the us adopt ifrs? 50 82 fair value adjustments not permitted. revaluation reserve. 83 retained earnings. retained earnings. 84 total shareholders' equity. total equity. 85 presented after liabilities. often presented before liabilities. 86 preferred stock normally is reported as equity, but is reported as debt with the dividends reported in the income statement as interest expense if it is “mandatorily redeemable” preferred stock. most non-mandatorily redeemable preferred stock (preference shares) also is reported as debt as well as some preference shares that aren’t redeemable. under ifrs (ias no. 32), the critical feature that distinguishes a liability is if the issuer is or can be required to deliver cash (or another financial instrument) to the holder. 87 a deferred tax asset (dta) is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense. the deferred tax asset is not created until the award is “in the money;” that is it has intrinsic value. 88 account for each vesting amount separately or account for the entire award on the straight-line basis over the entire vesting period. straight-line choice is not permitted. companies not required to recognize the award that has vested by each reporting date. 89 gaap requires it to be reported retrospectively. when correcting errors in previously issued financial statements, ifrs (ias no. 8) permits the effect of the error to be reported in the current period if it’s not considered practicable to report it retrospectively. 20 the role of gender in transformational information technology leadership: extending the glass-cliff theory ugur yeliz eseryel east carolina university christopher furner east carolina university deniz eseryel north carolina state university ayşın paşamehmetoğlu özyeğin üniversitesi, istanbul, tr brenda killingsworth east carolina university april reed east carolina university anna johnson east carolina university asligul erkan-barlow east carolina university http://journals.sfu.ca/abr 2024, volume 14, pages 20-39 http://journals.sfu.ca/abr 21 the glass cliff phenomenon refers to a tendency to appoint women to leadership positions when organizational performance is declining, often resulting in lower levels of female leader success. this phenomenon is well documented in management literature, however, the social and psychological mechanisms that lead to these appointments are still poorly understood and have not been investigated in the information technology (it) field. therefore, this study fills a gap in the literature by developing a model of predicted it leadership success and predicted transformational it leadership. results of a scenario-based experiment indicate that expectations tend to be higher for female candidates. additionally, when members of a leader hiring team score higher in terms of sexism, they tend to rate transformational information technology (it) leadership of female leaders higher. this may explain the glass cliff phenomenon since transformational it leaders are believed to be better suited to turning around poor-performing teams. implications of gender for it researchers, hiring teams, and leader evaluation boards are discussed. keywords: transformational it leadership, leader gender, it leadership success, organizational performance, women in it introduction individuals’ career advancement and leadership opportunities are visibly and significantly influenced by their gender (for a comprehensive review, see lindqvist et al., 2021). management literature suggests that among the individuals whose assigned gender at birth corresponds to their self-defined gender identity (i.e., cisgender individuals), women were more disadvantaged than men, even when their capabilities are similar (khushk et al., 2023; koburtay et al., 2019; lindqvist et al., 2021; shen & joseph, 2021). this article investigates the current situation that cisgender women face as a minority group compared to cisgender men within the context of leadership in the information technology (it) field. even though the glass ceiling is more permeable than in the past, female leaders are still held to different standards and expectations than their male counterparts (rudman et al., 2012). several years ago, psychologists identified a newer form of discrimination called glass cliff (ryan et al., 2007). glass cliff suggests that females are preferred for leadership positions in highrisk, precarious situations. coincidentally, when companies are geared toward success, male leaders are more likely to be chosen for leadership positions. while the glass ceiling has become more permeable over the last few years, female leaders are still held to different standards and expectations than male leaders. glass cliff has adverse outcomes for both the women who are information technology (it) leaders, in general, and those who were put into high-risk positions. female is leaders taking on risky leadership positions are more likely to fail due to the increased riskiness of the endeavor. consequently, their reputations and leadership careers may be impacted negatively and irrevocably (ryan et al., 2007). furthermore, such leadership failures may be generalized and impact the employment of women overall by creating a negative stereotype of female it leaders. therefore, it is crucial to understand and overcome the glass cliff phenomenon within the it profession. this phenomenon is particularly salient, since it may manifest due to the perceivers' sexist attitudes (acar & sumer, 2018). for simplicity, hereafter, the discussion of the it profession includes the information systems field. sexist attitudes are likely to exist in the historically male-dominated it profession which also tends to have a masculine organizational culture (kirton & robertson, 2018). lawler and molluzzo (2016) conducted a study of information systems students at their university and found that female students, in particular, were aware of sexism in their field, which also led to bullying. their research showed that information systems and computer science students are “essentially knowledgeable of 22 bullying as a concern in [the] industry” (lawler & molluzzo, 2016, p. 137). not only can sexism affect female leaders, but it can also affect work quality in that it can “constrain the morale and the performance of professionals” (lawler & molluzzo, 2016, p. 137). the researchers concluded there was enough concern to suggest that programs prepare students for this eventuality before entering the profession. other studies identified a need to understand and reduce the gender gap in the profession through approaches like understanding barriers, i.e., the lack of access to technology education in high school (reid et al., 2010). empirical studies of the glass cliff phenomenon have demonstrated contradictory results (ryan et al., 2016). in responding to criticism regarding the glass cliff phenomenon, the authors who coined the term suggest that the phenomenon is nuanced and context-dependent (ryan et al., 2016, p. 449). however, a literature review identified a gap in this research area and highlighted the need to understand the different contexts in which it occurs (ryan et al., 2016). in this study, we investigate the psychological and social drivers of the glass cliff phenomenon and its impact on the it profession. this study also employs a conceptualization of transformational leadership that was developed for the it field, which is characterized by a culture of innovation and constant change. specifically, this study investigates the influence of a leader's gender on perceptions of the degree of transformational it leadership associated with the leader, and how the sexism of the perceiver influences this relationship. we also investigate whether a leader's gender influences predicted success of the organization that they lead. therefore, we pose the following research question: rq. how does a leader’s gender influence perceptions of transformational it leadership and predicted organizational success? this study seeks to contribute to the glass-cliff paradigm by (1) testing this phenomenon within the information systems field and (2) examining the impact of the glass-cliff phenomenon on perceptions of transformational it leadership. the findings augment the understanding of the mechanisms that drive the glass cliff phenomenon and should carry implications for leader selection teams seeking to avoid bias in their hiring decisions. this study also contributes to the information systems literature by introducing the impact of the glass-cliff phenomenon. it also enhances studies on gender-related issues in is research that promote women's participation both in the is field and especially in is leadership. the practical contribution of this study includes eliciting factors that increase bias in it-related hiring decisions. this would allow executives and hiring staff to increase their awareness and take action to eliminate such bias. findings that performance expectations tend to be higher for female candidates are consistent with the glass cliff paradigm. further, the finding that when members of a leader hiring team score higher in terms of sexism, they tend to rate female candidates higher in terms of transformational it leadership represents a potential explanation of the glass cliff phenomenon, since transformational it leaders are expected to be more effective at turning around poorperforming teams, and members of the hiring committee who score higher in sexism (and thus have stereotypical expectations regarding characteristics of female leaders) may assume that women will exhibit a transformational style of leadership (characterized by nurturing, open communication, and team building rather than inter-team competition). in addition to the implications for the glass cliff phenomenon and female leadership in the it field, these findings have implications for hiring teams, related to the identification of implicit biases and gender-based expectations of leadership candidates. these implications may have a substantial influence on leadership candidate selection, team performance, and the career prospects for female leader candidates. 23 in the following section, we review relevant research on the glass cliff phenomenon, transformational leadership, organizational performance, organizational culture, and gender in the it field, including the gender gap, masculine organizational culture, and sexism. a model of predicted transformational it leadership and organizational performance is developed and tested using a simulation-based experiment. results are discussed, highlighting one unexpected finding, implications, and areas for further exploration. the paper concludes by summarizing remarks. literature review to answer our research question, the relevant literature on transformational leadership, the glass cliff phenomenon, and gender in the information systems field are reviewed. the glass cliff phenomenon borrowing the glass metaphor from the ‘glass ceiling’ term, ryan and haslam (2005) coined the term glass cliff to describe an observed tendency for women to be chosen for leadership positions during times of low performance, turbulence, crisis, or impending failure. earlier scenariobased experiments confirmed this tendency (e.g. mulcahy & linehan, 2014). many factors are at play in the glass-cliff phenomenon. some key drivers are selection bias based on stereotypes about women and a faulty understanding of the characteristics associated with successful emergence from crisis (ryan et al., 2016). for instance, women tend to be perceived as communal, while men tend to be viewed as agentic (ryan et al., 2016). further, the common and biased beliefs about "good leadership" tend to track with stereotypes associated with masculinity (i.e., competence, independence, competitiveness), yet when performance is declining, this association no longer applies, and preference is for stereotypically feminine characteristics of nurturing, empathy, and compassion (ryan et al., 2016), and tactfulness and a desire to avoid controversy (morgenroth et al., 2020). evolving leadership theories in the it field the information systems discipline is characterized by multiple unique factors that make traditional leadership theories less effective at explaining outcomes than in other fields (eseryel, 2014). in addition, the dynamic nature of this field suggests that the leadership factors that influence organizational outcomes are changing, and thus require frequent attention from researchers. for example, researchers found different ways of decision-making, knowledge creation and management, politeness behaviors among members, and unique participation behaviors in certain it-enabled organizations. further, many theories do not explore the characteristics of leaders that influence transformation in the technology industry, which is characterized by several distinct traits (pittenger et al., 2022). these characteristics include a focus on innovation, a dynamic business environment, and unique supply chain characteristics (i.e., short distribution channels, and high production costs but negligible distribution costs) (altinkemer & guan, 2003). several it-based theories are developed such as the it self-leadership (eseryel, 2020), action-based transformational leadership theory (eseryel & eseryel, 2013), e-leadership (avolio et al., 2000), functional & visionary leadership theory (eseryel et al., 2021), and transformational it leadership theory. in this study, we use transformational it leadership (eseryel, 2020; eseryel & biernath, 2024) theory because it fits very well for organizations with a specific leader who tries to make an outstanding impact in the organization to transform it in a major way. transformational it 24 leadership refers to the ability of a leader to foster a culture of innovative thinking where the followers use it to improve their work processes and outcomes. the gender gap and the transformational it leadership women remain underrepresented in tech leadership positions (atomico, 2021). the percentage of women studying it has steadily dropped since reaching 37% in 1984 (computerscience.org, 2022) and is now only 18.7% (nsf, 2019). mccain (2022) reported that women comprise only 19% of senior vice president positions and 15% of ceo positions in the tech industry. many factors that influence the low representation of women in tech have not changed over the years the education pipeline, recruitment, hiring, pay equity, promotion, and retention of women are still prevalent concerns in the tech industry today (deloitte, 2021). lamar and shaikh (2020) note that the top three barriers reported by women that prevent them from moving into leadership positions in the tech industry are gender bias (21%), followed by work/life integration (16%), and lack of sponsorship (14%). extant research identifies the need to understand and reduce the gender gap in the information systems field through approaches such as understanding barriers (reid et al., 2010). one well-documented result of the it gender gap is a culture of sexism (harmon & walden, 2020). as male it professionals work with other males, they can develop experience-based norms and expectations of what constitutes a good coworker, as these norms develop socially. the social construction of these norms is driven by interactions among mostly males. these norms may reflect masculine characteristics, and over time, a masculine, or in some cases, even sexist organizational culture may emerge. business literature commonly views culture as "a pattern of shared basic assumptions learned by a group and to be taught to new members as the correct way to perceive and think as it solved its problems of external adaptation and internal integration well enough to be considered valid" (schein, 2010, p. 18). occupational culture is defined as a unique culture related to a field, which is formed as a corollary of specific tasks and expertise (jacks, 2012). for instance, it professionals support technology services, including hardware and software, and bring expertise in system analysis and design, programming, database administration, project management, and technical support (jacks & palvia, 2014). the it occupational culture includes technical jargon, ideation, and unique values (jacks & palvia, 2014). as such, the it field has an occupational culture that is different from other business aspects (annabi & lebovitz, 2018), which may lead to some adverse organizational outcomes (jacks et al., 2018). in addition to sexism, male-dominated fields tend to be characterized by a culture of masculinity (blondé et al., 2022). while a culture of masculinity can imply gender-differentiated roles, masculinity refers to a sense of competitiveness, individual accomplishment, and propensity to succeed in risky endeavors. individuals who score highly in masculinity tend to seek opportunities to set themselves apart from others (furner & george, 2012), often by taking on challenging tasks and highlighting their accomplishments relative to their peers. individuals who report lower masculinity, on the other hand, tend to be more nurturing, supportive, and communal (hofstede, 2011). while a majority of gender in transformational leadership studies find that female leaders are perceived as being more transformational, hypothesis 1 predicts that in a technologically intensive environment, a culture of masculinity will dominate, where leaders value individual achievement and measurable performance over relationship building and collaboration, and this will lead subordinates to strive to outperform each other, resulting in a competitive race to stand out. in this setting, it is 25 predicted that subjects will view male leaders as more masculine, fostering a sense of competition that will push employees to go beyond transactional expectations, and as such, male it leader candidates will be perceived as more transformational. h1: within the it field, male leader candidates will be perceived as higher in terms of transformational it leadership. sexism and perceptions of transformational it leadership the it field, similar to some other male-dominated fields, is characterized by a culture of sexism (matwyshyn, 2003). occupational terminology is rampant with sexist terms such as motherboard, grandfather, father backups, and alexis – a female servant. it occupational culturerelated barriers that obstruct women include male-dominated environments, gender discrimination, and companies not supporting women for leadership positions (kirton & robertson, 2018). while women are less likely to be promoted, when they are promoted, it is at a minor step up the career ladder and often in a career path that moves them further from the core business functions (alegria, 2019). women continue to be underrepresented in tech leadership positions (atomico, 2021). similarly, benevolent sexism leads to a lack of promotion of women to jobs in which they are underrepresented (hideg & ferris, 2016). therefore, we posit that sexism moderates the relationship between the leader's gender and the transformation of it leadership perception as such: sexism may affect female leaders and their work quality because it can "constrain the morale and the performance of professionals" (lawler & molluzzo, 2016, p. 137). sexist attitudes may be why the glass cliff phenomenon exists (acar & sumer, 2018). glass cliff refers to female executives being more likely to be appointed in high-risk situations when a firm's performance is declining (ryan & haslam, 2007). the already downward trajectory increases the likelihood of failure, which, in return, may negatively and permanently impact women's reputations and leadership careers (ryan et al., 2007). since sexism refers to prejudice based on stereotypes, we anticipate that subjects who score higher in terms of sexism will harbor more stereotypical expectations regarding female leaders, specifically that they are nurturing, collaborative, supportive, and collegial rather than competitive. we expect that this biased view of females will lead those who score highly on the sexism scale to view female it leader candidates as more transformative and that this will supersede the effects of masculinity described in hypothesis 1. in summary, we predict that a culture of masculinity will lead it professionals to view male candidates as more transformative because they can foster a competitive work environment (h1). however, if the it professional scores highly in terms of sexism, their expectations of female leaders will supersede their beliefs regarding the relationship between a competitive environment and transformational it leadership, and they will rate female candidates as more transformational (h2). h2: sexist responders will rate female candidates higher in terms of transformational it leadership. organizational performance & predicted it leadership success a variety of individual organizational and environmental factors influence leadership success, and definitions of success vary depending on situational factors. for many leaders, success is determined by the financial performance of the organization. 26 for example, chen et al. (2019) explored ceo transformational leadership on firm performance and examined a potential difference in the moderating role of environmental uncertainty on the relationship between transformational leadership and firm performance. they contend that high technology uncertainty and sophisticated information technology information are considered different types of environmental uncertainty, which may explain a negative influence on the relationship between transformational leadership and firm performance. they hypothesized that "technology uncertainty negatively moderates the positive effect of ctl on exploratory innovation" (chen et al., 2019, p. 88). although the impact of technology innovation and uncertainty were evident, this hypothesis was not supported. however, demand and technology uncertainty had a partial mediating role in the relationship between ctl and firm performance. the relationship between leadership style and organizational performance has been studied extensively. relevant to this study, glass cliff researchers suggest that leadership success is determined in part by organizational performance trajectory, which refers to the relative change in the entity's performance at a given point in time. corporate performance trajectory is higher when growth has been improving until the time of measurement and lower when growth has been declining. for example, yang et al. (2021) examined a sample of u.s. college football coaches. they found that when leaders take over high-performing organizations, if there is a decline, then the rate of performance decline is lower, suggesting a positive relationship between performance trajectory and leader success. d'aventi (1989) notes that managing declining firms is challenging because organizations are systems that tend to get caught in positive or negative reinforcing cycles. hence, identifying the cycle drivers and correcting the negative drivers is complicated by social, cultural, and political factors and by the fact that the drivers are only sometimes visible to leadership. moreover, according to d'aventi (1989), the mechanism that drives these negative cycles also applies to positive ones. chaganti et al. (2005, p. 133) echo this sentiment and add that an incumbent ceo must not only manage the performance trajectory of the firm but must also "address repeated transitions between performance cycles of decline, stagnation, and growth." consistent with the findings of several studies within the glass cliff literature and the findings of yang et al. (2021), d'aventi (1989), and chaganti et al. (2005), we anticipate that when a firm is in a state of growth, expectations of leadership success for incumbent leaders will be higher than it would if the firm was in a state of decline. h3: a positive organizational performance trajectory will increase predicted it leadership success. according to jas and skelcher (2005, p. 195), "[the] improvement of organizational performance is a major theme in contemporary debates about the governance and management of public organizations." the turnaround paradigm represents a substantial body of literature that examines the factors that influence the efforts to improve performance when organizational performance is declining. for example, jas and skelcher (2005) argue that in the absence of leadership capability and cognition, organizations fail to self-initiate turnaround and are at higher risk of failure. as a result, organizations in a state of performance decline will often replace leadership (bodolica & spraggon, 2021) to instigate substantial change that results in turnaround. while research on leadership during periods of declining organizational performance is extensive, research on the influence of gender on leadership success is relatively limited, particularly within the context of the it workforce. within the glass cliff paradigm, the role of gender 27 expectations of leaders is well studied. however, few glass cliff studies measure performance expectations, and fewer are still conducted in an it-intensive setting. according to morgenroth et al. (2020), a common approach to the design of glass cliff studies is to develop a quasi-experiment in which subjects are presented with two leader candidates, one male, and one female, and are presented with two firms, one that is described as doing well, and another that is depicted as being in crisis. findings generally indicate that female candidates are preferred when the organization is in crisis (morgenroth et al., 2020), with many researchers explaining this finding by suggesting that stereotypically feminine personality characteristics of compassion, collaboration, and communication are desirable when a substantial degree of organizational change associated with turnaround is needed. while the focus of glass cliff literature is on the tendency to appoint female leaders to organizations in crisis, no literature was found during the conduct of this study that explores leader gender preferences when the organization is in a state of high and improving performance. previous literature on the effect of leadership characteristics on firm performance, which were not conducted in it work contexts, suggests that critical leadership characteristics include charisma (awamleh & gardner, 1999), conscientiousness (colbert et al., 2014), strategic vision (zaccaro & banks, 2001), experience, emotional intelligence, and intelligence (cavazotte et al., 2012). revisiting the literature on the gender gap in the it field, which was outlined while describing hypothesis 1, it was argued that the it field was characterized by a masculine culture driven by achievement and a focus on individual accomplishment. suppose this masculine culture also characterizes those firms that are experiencing improving performance. in that case, it stands to reason that evaluators will expect that a leader who embodies these masculine characteristics would be best suited to continue the trajectory of performance improvement and would thus prefer a male leader candidate. in addition, the positive effect of prior leader experience on organizational performance has been demonstrated in multiple studies (desai et al., 2016). since the it industry is male-dominant, likely, the number of available experienced male leaders is simply higher, leading to a tendency to select male leader candidates. h4: male information technology leaders will be perceived to have higher levels of it leadership success when organizational performance is increasing. figure 1 research model 28 method to evaluate the research model, a scenario-based experiment was conducted in which subjects were asked to assume the role of a hiring professional tasked with considering applicants for a leadership position. the experiment is described in the following subsection. research design first, a scenario-based experiment with a 2x2 factorial design (candidate sex and organizational performance trajectory) was developed. scenario-based experiments allow researchers to examine the effects of specific manipulated factors on individual judgment and cognition while controlling for factors that are not modeled (rungtusanatham et al., 2011). next, a hiring scenario was developed in which subjects are asked to assume the role of a hiring professional considering applicants for a director of information technology (it) role. the subjects are provided with a job description, a one-paragraph financial times article about the company that indicates either declining performance or growth, and a short, half-page resume for one candidate. after reading this material, subjects were asked to predict the candidate's performance impact and to indicate their potential for transformational it leadership. each subject evaluated one candidate, consistent with the protocol employed by (furner & grubb, 2020). subjects were also asked a series of questions related to sexism and demographic questions. measures both organizational performance trajectory and candidate sex were manipulated during the experiment. specifically, organizational performance trajectory (trajectory) was manipulated using a 1-paragraph financial times article along with a line graph, which indicated either declining (coded as 1) or increasing (coded as 2) stock performance. candidate sex (c_gender) was manipulated using resumes that included a small photo of the candidate (male is coded as 1; female is coded as 2) along with culturally traditional names that matched the sex of the candidate's photo. manipulation checks for trajectory and c_gender were also conducted. sexism (sexism) was assessed using glick and fiske's (1997) 22-item ambivalent sexism inventory, where both dimensions, hostile sexism and benevolent sexism, were included. predicted success (success) was measured using three questions developed for this study. more precisely, a 5-point likert-type scale was used where 1 was "very poor," and 5 was "very good" to measure participants' responses. the questions asked were: (1) what do you think will be the success of this company after [candidate's name] works in this position for five years? (2) to what extent will [candidate's name] be able to influence the company to change in positive ways within five years? (3) to what extent is the success or failure of this company dependent on [candidate's name]? transformational it leadership (transform_lead) was measured using eseryel and biernath’s (2024) 22-item scale. subjects data were collected from undergraduate student subjects at two universities, one in turkey and one in the netherlands. these students had an average of 5.8 months of professional work experience. students from these two countries were chosen because they differ on hofstede's (2011) 29 masculinity dimension and, as such, are expected to provide sufficient variance on the sexism variable. participation was voluntary. each survey was presented to the participants in their native language and included candidate profiles that provided typical names and experiences from their country. five hundred sixty-two responses were collected, with 281 from turkey and 281 from the netherlands. cases were excluded if subjects did not answer any of the analyzed questions, yielding a final usable sample of 441 subjects. analysis and results the data were analyzed with ibm’s statistical package for the social sciences (spss) version 26. before testing the main effects, a manipulation check was run to ensure that subjects correctly identified the firm's performance trajectory (trajectory) and the candidate's sex (c_gender). the bivariate correlation between trajectory and the corresponding manipulation check is 0.96 and was significant. additionally, the bivariate correlation between c_gender and the corresponding manipulation check was 1.00 and significant. finally, we conducted an exploratory factor analysis (efa) using principal components analysis with varimax rotation on the items for sexism, success, and transform_lead. factor loadings ranged from 0.69 to 0.91 for sexism, from 0.48 to 0.79 for success, and from 0.49 to 0.88 for transform_lead, indicating discriminant validity. cronbach alphas were 0.926 for sexism, 0.805 for success, and 0.943 for transform_lead. means, standard deviations (std. dev.), and bivariate correlations (r) are presented in table 1. hypotheses 1 and 2 can be tested using regression analysis. hypotheses 3 and 4 can be tested using a second regression analysis. a regression analysis was conducted to test hypotheses 1 and 2, with predicted success as the dependent variable and organizational performance trajectory and an interaction term of candidate sex multiplied by organizational performance trajectory as independent variables. the regression equation was significant (f(2,441) = 6.07 p=-0.003; adj. r2 = 0.027). table 1 means, standard deviations, and bivariate correlations variables mean std. dev. r(1) r(2) r(3) trajectory (1) 1.52 0.50 1.00 0.05 -0.01 c_gender (2) 1.52 0.50 0.05 1.00 0.03 sexism (3) 4.05 1.20 -0.01 0.03 1.00 success 5.45 0.94 transform_lead 5.30 0.75 *** = p < 0.001; ** = p < 0.050; and * = p < 0.100 trajectory is an indicator variable; it is equal to 1 when a participant received a declining performance scenario and 2 if given an increasing performance scenario. c_gender is an indicator variable; it is equal to 1 for male participants and equal to 2 for female participants. sexism – is a factored variable based on glick and fiske's (1997) 22-item ambivalent sexism inventory. success is a factored variable using three items created for this study. transform_lead – is a factored variable adapted from podsakoff, mackenzie, and bommer's (1996) 22-item transformational leadership behavioral scale for use in an it context. 30 a regression analysis was conducted to test hypothesis 3, with perceived transformational it leadership as the dependent variable and sexism and an interaction term of candidate sex x sexism as independent variables. the regression equation was significant (f(2,439)= 10.11, p < 0.001; adj. r2 = 0.040). regression results are presented in table 2. table 2 results of regression analysis dependent var hypothesis independent var beta se t supported transform_ lead h1 gender -0.21 0.10 -2.03* yes h2 sexism x c_gender 0.08 0.02 4.23** yes success h3 trajectory 0.29 0.09 3.21** yes h4 trajectory x c_gender 0.13 0.40 3.21** no ** = p < 0.001; * = p < 0.050 trajectory is an indicator variable; it is equal to 1 when a participant received a declining performance scenario and 2 if given an increasing performance scenario. c_gender is an indicator variable; it is equal to 1 for male participants and equal to 2 for female participants. sexism – is a factored variable based on glick and fiske's (1997) 22-item ambivalent sexism inventory. success is a factored variable using three items created for this study. transform_lead – is a factored variable adapted from podsakoff, mackenzie, and bommer's (1996) 22-item transformational leadership behavioral scale for use in an it context. hypothesis 1 predicted that within the it field, male leader candidates would be rated higher in transformational it leadership. this hypothesis was supported. hypothesis 2 predicted that the influence of candidate sex on perceived transformational it leadership would be different for respondents who score higher on sexism and that they would rate female candidates as higher in transformational it leadership. this hypothesis was supported. findings indicate that when the respondent scores higher in terms of sexism, they tend to rate female candidates higher in terms of transformational it leadership. hypothesis 3 predicted that when organizational performance trajectory was positive, predictions of leadership success would increase. this hypothesis was supported. finally, hypothesis 4 predicted that when organizational performance trajectory was positive, male leader candidates would be rated higher in terms of leadership success. this hypothesis was not supported. while a positive relationship was identified, female leader candidates were rated higher in terms of leadership success. discussion the objective of this study was to evaluate the effect of leadership candidate characteristics, including sex, on predictions of transformational it leadership and candidate success within the context of the glass cliff paradigm. this study carries implications for researchers as well as it professionals, particularly those involved in decisions affecting the appointment of leaders. findings are discussed along with research implications, followed by practical implications, limitations, and opportunities for future research. 31 theoretical contributions findings supported a relationship between candidate gender and perceptions of transformational leadership, in which male candidates are rated higher in terms of it transformational leadership (h1). this finding differs from the consensus within the glass cliff paradigm, in which female leaders tend to be viewed as more capable of inspiring subordinates to go beyond their transactional obligations. this finding is attributed to differences in the culture in the it field, which is male-dominated and tends to be masculine, thus favoring male candidates. further findings supported an interaction between decision-maker sexism and the relationship between candidate gender and organizational performance trajectory on predicted success, in which female candidates were rated as more transformational when the respondent scored higher in terms of sexism (h2). this finding is consistent with the cultural literature on masculinity, in which individuals characterized by higher levels of masculinity not only espouse gender-based roles but also view women as more nurturing and social. in contrast, they view men as more focused on individual accomplishment hofstede, 2011). for the glass cliff paradigm, this implies the phenomenon in which female leaders tend to be appointed to leadership opportunities in which the odds of success are lower. it occurs partly because the people making the assignment may believe that a transformational leader would be better suited to turn around the poor-performing team. if they are sexist, they may believe that female leaders will be more successful at facilitating the transformation. while the r-squared for this regression was relatively low, the dependent variable, perceptions of transformational it leadership are complex and nuanced, and as such a vast number of factors, including subject-level psychological factors, organizational cultural derived perceptions of leadership expectations, and many others influence this outcome. as our understanding of the factors that drive perceptions of transformational it leadership evolves, our ability to develop models that explain the factor should improve as well. in the meantime, our findings that gender and the interaction between gender and sexism are important to our understanding of leadership in it, given the traditional male-dominated nature of the field. while low, these r-squared values are not inconsistent with those found in other studies that have had a substantial impact on emerging paradigms (e.g., de bondt & thaler, 1985; fan & wong, 2002). this study predicted that organizational performance trajectory would be positively associated with predicted success (h3), and evidence supports this relationship. consequently, the findings are consistent with the premise of the glass cliff paradigm that the underlying factors that influence organizational outcomes tend to persist, which is also consistent with yang et al. (2021), and d'aventi (1989). findings did not support a moderated relationship between candidate gender and the relationship between organizational performance and perceived leadership success in which male candidates are rated higher in terms of perceived leadership success when organizational performance was higher. rather, an interaction effect was observed in which female candidates were rated higher on perceived leadership success when organizational performance was higher. this unexpected finding might be explained by nuance in organizational leadership theory. when organizational performance is strong, transformational leadership may not be as effective as transactional leadership since maintaining the rate of performance growth is preferable to transforming or changing performance growth. this may not be the case in every industry. as loderer et al. (2016) point out, maintaining performance growth in the it industry is difficult because of frequent disruptions in the business environment, resulting in a situation where transformational leaders tend to outperform transactional leaders over the long term. within the it industry, female candidates may be rated as more apt to be successful leaders when the organization 32 is experiencing success because they are viewed as less assertive and thus less likely to support substantial change to operations, which may alter the organization's performance trajectory. this unexpected finding suggests that this relationship is quite nuanced and that exploration of this relationship could augment the leadership paradigm. while the r-squared for this model was relatively low, the outcome and predictions of leadership success are complex and dependent on a variety of both psychological and organizational factors. consistent with the research objectives, the model is relatively simple and focused, and as a result, one would only expect to explain a limited proportion of the variance in this outcome. the variance explained in this model is not inconsistent with that reported by other studies that examined a relatively small factor that influenced a substantially complex outcome (malmendier & tate, 2005). practical implications from a theoretical perspective, hypothesis 4 represents a potential explanation for the phenomenon underlying the tendency to appoint female candidates to leadership positions when the organization is in a state of performance decline. this finding also carries significant implications for hiring and appointment teams tasked with selecting leaders. members of these teams should reflect on their personal biases regarding both men and women. this includes what they may believe are positive biases, such as women being more transformational leaders than men, before considering candidates. the implications of continuing the trend of appointing women to leadership positions of low-performing organizations have already been articulated and include substance reputation and career roadblocks, as well as a perpetuation of gender stereotypes regarding leadership. hypothesis 3 found that when sexism is not considered, leader gender does not significantly influence perceptions of transformational leadership. this implies that hiring/appointment teams can make decisions without gender bias if the members are not sexist. although controversial, it may be prudent for organizations to consider asking hiring/appointment teams to screen for signs of sexism, perhaps employing a questionnaire to help identify and address biases before making decisions. however, there are challenges to this recommendation, including socially desirable reporting bias and time issues, as well as a potential loss of trust among the hiring team members. hypothesis 2 found that expectations of success were higher when the candidate was female. expectation confirmation theory suggests that when expectations are higher, leaders may be evaluated using higher standards than when expectations are low. therefore, boards of trustees and others who assess leaders should be aware of expectation/confirmation bias when evaluating leaders, particularly female leaders. limitations and future research the findings of this study advance the glass cliff paradigm; however, they are limited by the study design and sample characteristics. the most substantial determination is that the role of sexism in perceptions of transformational leadership depends on the conceptualization of sexism, which is limited by the study design in two ways. first, data were collected in turkey and the netherlands. these two countries were selected specifically because they are on opposite ends of the masculinity spectrum (see hofstede, 2011). by choosing these two countries, we expected an acceptable variance on the sexism scale to facilitate analysis. however, this sample is limited, and other cultural or country-specific factors could come into play. for this reason, future studies could consider the same relationships but employ a sample from other countries, perhaps from countries that score in the middle on the masculinity dimension. this study measured sexism at the individual 33 level, mitigating this concern. however, more reflective samples tend to yield more generalizable results, and therefore, replication studies would be recommended as future research. second, the sample consisted of students. while students are prone to sexism, and our results indicated variation on the sexism scale, there is reason to believe that students are more progressive than the population at large, which may have affected our results. further, even if the subjects were sexist, the topic of this study does lend itself to socially desirable reporting, potentially conflating the measurement of the sexism variable. finally, beyond the measure of sexism, students are unlikely to have been involved in appointing leaders and may not fully understand organizational performance trajectory, although we did get adequate variation on this variable. as a result, future studies could seek to confirm or disprove these findings by sampling different populations, ideally those involved in leader appointment decisions. despite the limitations of the sample, common to many studies, our findings raise several new questions regarding the glass cliff phenomenon. first, if perceptions of transformational it leadership combined with attitudes about women as being more transformational influence appointment decisions when performance is declining, what other leadership style perceptions might be tied to gender and come into play during leadership appointment decisions? the literature on leadership styles is vast. researchers may consider which leadership style topologies may be influenced by gender bias and model these relationships. from the human resources point of view, the social and psychological characteristics of hiring/appointment team members are complex. hiring decisions are also likely influenced by various organization-specific, industry-specific, and environmental factors. by studying these factors, researchers may be able to augment our understanding of this phenomenon and hopefully mitigate its harmful effects on the careers of female it professionals. finally, future research in the it field should test our findings for cisgender women for other genders that constitute a minority. we suggest operationalizing gender as consisting of various aspects including (a) physiological/bodily aspects; (b) gender identity or self-defined gender; (c) legal gender; and (d) social gender in terms of norm-related behaviors and gender expressions following (lindqvist et al., 2021, p. 333). future research that enhances our understanding of the biases faced by all genders is needed to create gender equality for all. understanding biases against various genders and creating means to eliminate gender gaps are likely to improve organizational performance and increase employee satisfaction. conclusion ceo replacement is common during periods of changes in organizational performance trajectory (downes, 2019). the glass cliff phenomenon, in which female candidates tend to be appointed to teams in which performance is declining, is well documented. however, the psychological mechanisms of the members of the hiring/appointment teams that lead to this phenomenon are not. it stands to reason that these mechanisms are complex and entail many factors, and our findings suggest that those mechanisms may be industry-dependent. they likely vary substantially from team to team and depend on other organizational industry-level factors. in this study, we provide evidence to support one potential explanation: hiring/appointment team members believe that transformational it leaders will be more effective at turning around poorly performing teams or organizations and that if members are sexist, they may perceive female leaders as more transformational than male leaders. while there is still much to learn about the drivers of this phenomenon, this study should constitute an essential step in understanding this phenomenon 34 and, through understanding, empower the mitigation of the damage that the glass cliff phenomenon has on the careers of female it professionals. references acar, f. p., & sumer, h. c. 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(2001). leadership, vision, and organizational effectiveness. in s. j. zaccaro & r. j. klimoski (eds.), the nature of organizational leadership: understanding the performance imperatives confronting today's leaders (pp. 181-218). jossey-bass: a wiley company. https://doi.org/10.1108/intr-03-2020-0112 https://doi.org/10.1016/j.im.2016.11.006 https://doi.org/10.1108/09593840210430561 introduction literature review the glass cliff phenomenon evolving leadership theories in the it field the gender gap and the transformational it leadership method research design measures subjects analysis and results discussion theoretical contributions practical implications limitations and future research conclusion 37 an examination of the effects of fan-based brand associations of a professional soccer league on league brand equity serdar turedi purdue university northwest sinan nardali izmir katip celebi university musa pinar valparaiso university tulay girard pennsylvania state university-altoona sanem alkibay gazi university the main objectives of this study are to 1) identify the relevant dimensions of the fan-based brand associations (fbba) of a sports league and develop a measurement scale for fbba, and 2) investigate the relationship between brand equity and its components (brand associations and internalization). data are collected from 227 soccer fans and a partial least square structural equation modeling (plssem) analysis is conducted. the results indicate that player, referee, head coach, stadium, team success, (team) management, and soccer federation are significant dimensions of the sports league fbba and that the fbba and internalization can be applied to investigate the brand equity of professional sports leagues. the findings also suggest that league managers can collaborate with other key members of the industry (e.g., players, head coaches, or team managers) to develop a strong professional sports league. keywords: sports league, sports brand equity, branding, soccer brand equity, fan-based brand associations introduction due to increased competition and globalization, managers have given top priority to the branding efforts of their organizations (ailawadi & keller, 2004). brands allow customers to efficiently http://journals.sfu.ca/abr 2022, volume 12, pages 37-56 38 associate personal meaning to the products offered by organizations as brands sustain functional and symbolic information about goods, services, and experiences (oh et al., 2020). therefore, a strong brand refers to the consumers’ association of specific positive attributes with the brand (kunkel et al., 2014), and a strong brand is essential for creating positive perceptions among consumers (kaynak et al., 2008; kunkel et al., 2014). realizing that a brand is one of the most valuable intangible assets of an organization, focusing on developing strong brands and brand equity has become a common practice between organizations. developing brand equity, which is defined as ‘the differential effect of brand knowledge on consumer response to the marketing of brand (keller, 1993, p. 2), is considered the central construct in the strategic management of brands (rosenbaum-elliott et al., 2011). further, brand equity is related to positive financial and behavioral outcomes (keller, 1993) that ultimately create value for customers (tong & hawley, 2009). brand equity has become particularly important in the sports management area as the fans develop an emotional connection with the sports teams that they support and the leagues that they follow (biscaia et al., 2013). as the competition for fans across different sports, the proliferation of sports franchises, and new social media tools to reach the fans globally increased, teams and leagues have adopted a business-like approach to managing their brands (james et al., 2002). these trends and changes in the global sports field suggest that it has become essential to build strong sports brands to distinguish the leagues and teams from their competitors in the same sport and across different sports (kaynak et al., 2008). findings of the 2021 annual report on the most valuable (highest brand equity) football (aka soccer in the u.s.) brands present good evidence for the importance of branding strategy for teams and leagues because nine of the top ten teams in the most valuable and strongest brands’ lists have been the same teams (brand finance, 2021a). consequently, managing a team as a brand has become a growing paradigm in the sports industry (ross, 2006) and the number of studies investigating sports team brand equity has increased (e.g., bauer et al., 2005; bauer et al., 2008; gladden & funk, 2002; ross et al., 2006, ross et al., 2008). prior literature on sports teams and leagues has operationalized brand equity as a multidimensional construct (e.g., bauer et al., 2008; biscaia et al., 2013; kunkel et al., 2017; ross et al., 2008). they use brand associations and brand awareness constructs to indirectly measure brand equity. brand associations, which are defined as anything that is linked in memory to a brand (aaker, 1991), are classified as brand attributes (product-related and non-product-related), brand benefits, and brand attitudes (keller, 1993). however, prior studies on sports brand equity focus only on brand attributes (e.g., biscaia et al., 2013; kunkel et al., 2017) and reveal that sports brand associations provide a sound basis for explaining sports brand equity. in contrast, the literature that investigates the role of brand awareness, which is defined as familiarity with a brand (aaker, 1991) on sports brand equity, has contradicting results. while some studies argue that brand awareness is not a relevant measure of sports brand equity since it would be typically high among the fans of a team or league (bauer et al., 2008), others find that brand awareness, measured as the internalization of a brand, explains sports brand equity (biscaia et al., 2013). because brand awareness and internalization are two different constructs, this study uses the attributes-based brand associations and internalization constructs as the components of brand equity. despite the growing number of research on the team brand equity topic, to the best of the authors’ knowledge, league brand equity has received limited attention (ekebas-turedi, karaatli, & turedi, 2020; kunkel, 2013; kunkel et al., 2014; kunkel, 2017). this is surprising given that a league serves as an umbrella brand (master brand) over its teams (sub-brands). in a league-team brand architecture, leagues offer the participating teams a platform for their product (games/ matches) as a source of entertainment and excitement for fans and for developing their fan base (kunkel et al., 2014). furthermore, leagues function as a franchisor that supports their teams to ensure the team's success (kunkel et al., 2014). this support involves the use of marketing and promotion activities to 39 build a brand (pitt et al., 2003). for example, the turkish football federation auctions the turkish super league’s tv rights nationally and internationally on behalf of all of the teams and organizes turkish super cup final games in stadiums outside turkey to increase international viewership and build a stronger brand. in turn, fans’ perceptions of individual teams positively influence their perceptions of the league (kunkel et al., 2017). therefore, in the league-team brand architecture, leagues and teams are mutually dependent on each other’s brand-building strategies, such that one cannot exist without the other (kunkel et al., 2014). moreover, neither team brand equity nor league brand equity literature has attempted to explore the relationship between sports brand equity and its components. kunkel et al. (2014) state that it is important to understand not only the team brand equity but also the league brand equity and its relationship to its components. however, previous studies on sports brand equity have mainly focused on indirect measures of team brand equity and identifying the team brand association dimensions (e.g., bauer et al., 2008; biscaia et al., 2013; ross et al., 2008). most of the studies that investigated the components of league brand equity and dimensions of league brand associations also used an indirect measure approach and developed a single-item scale for league brand associations (kunkel et al., 2013; kunkel et al., 2014; kunkel et al., 2017). these studies have not examined the relationship between brand equity and its components as indirect measures intend to identify the sources of brand equity. on the other hand, direct measures focus on the responses of customers to the marketing efforts of brands (tong & hawley, 2009). therefore, studies that use direct measures with a multi-item scale to measure overall brand equity suggest a causal relationship between brand equity and its components (girard et al., 2017). hence, this study uses the direct measurement approach and examines the following three research questions to address the gap in the literature: (1) what are the fan-based brand associations of sports leagues? (2) how does fan-based brand associations of sports league affect sports league brand equity? (3) how does internalization affect sports league brand equity? this study investigates these research questions by employing a sample of 227 turkish soccer fans. this study answers the first research question by identifying from the literature the relevant fanbased brand association (fbba) dimensions that contribute to a strong sports league brand and developing a multi-item measurement scale to measure them. to answer the second and third research questions, this study uses league brand equity as the dependent variable and two main components of brand equity (fbba and internalization) as the independent variables. the empirical results of this research make two significant contributions to the literature. first, this study aims to extend the literature by developing the multi-item fbba scale. second, it attempts to shed light on the impact of fbba and internalization on league brand equity. furthermore, this research also discusses the managerial and theoretical implications of the results to developing a strong sports league. given the interdependence of sports leagues and teams through the league-team brand architecture, the findings of this research will contribute to sports branding literature by offering a better understanding of the league brand associations dimensions and the relationships between a league’s brand equity and its components. background brand equity two different perspectives have been used to study brand equity: financial-based (e.g., simon & sullivan, 1993) and consumer-based (e.g., keller, 1993). while, financial-based brand equity measures the financial value of a brand (simon & sullivan, 1993), consumer-based brand equity measures the value consumers attached to a brand (keller, 1993). as rosenbaum-elliott et al. (2011, p. 90) emphasize, “in a very real sense, understanding brand equity must come from the consumer’s point of view because that is what ultimately will affect brand success.” keller (2013) states that the 40 power of the brand lies within what customers learn, feel, and hear about the brand and how they respond over time, as brand equity is the value that consumers associate with a brand. brand equity is built through the effective management of the brand promise and brand experience and serves as a key indicator of a brand’s health (keller, 1993). from a consumer-based perspective, aaker (1991, p.15) has conceptualized brand equity as “a multidimensional concept, consisting of brand awareness, brand associations, perceived quality, and brand loyalty, all of which are important from the customer perspective”, however, he does not operationalize any scale to measure brand equity. following that, keller (1993) introduced the consumer-based brand equity (cbbe) model, which identifies brand awareness and brand image associations as essential components that represent the core of brand equity. consistent with this conceptualization, previous studies have examined the relationship between brand equity and its components (e.g., girard et al., 2017; tong & hawley, 2009). nevertheless, there is still a lack of consensus on the exact definition of brand equity. despite the lack of consensus on a definition, there is an agreement that successful brands develop a strong personal and emotional relationship with their consumers (aaker, 1996). such a relationship becomes more apparent in the sport context, as the emotional and personal relationship between fans and their favorite sports team tends to be strong (biscaia et al., 2013). brand equity in sport industry there has been a growing interest in studying the role of brand equity in the sport context. prior literature has investigated the sports team brand equity and developed frameworks for consumer-based brand equity of the sports teams (bauer et al., 2005; bauer et al., 2008; biscaia et al., 2013; gladden & funk, 2002; gladden et al., 1998; ross, 2006; ross et al., 2006; ross et al., 2008). for example, gladden et al. (1998) offer a conceptual framework to show the multidimensional nature of sports brand equity. their framework, which is developed for assessing brand equity in division i college athletics, includes four brand equity components: (1) brand associations, (2) brand awareness, (3) perceived quality and (4) brand loyalty. further, it includes three groups of brand equity antecedents (team-related, organizational-related, and market-related attributes) and three group of consequences in the marketplace (national media exposure, corporate sponsorship, and merchandise sales). later, gladden and milne (1999) add two antecedents (logo design and stadium) to gladden et al. (1998)’s framework to expand it to a sports brand equity context. however, neither study provides a scale to measure their models. bauer et al. (2005), is the first study to propose a measurement scale for brand equity in the context of team sport and develop the brand equity in a team sport (bets) scale and operationalize brand equity using fourteen indicators and two components: 1) brand awareness and 2) brand (image) associations. bauer et al. (2005) suggest that their model would hold over leagues as well as countries and encourage conducting further research utilizing it. yet, the model is criticized for not considering consumer experience with the brand (biscaia et al., 2013). to address this problem, ross (2006) develops the spectator-based brand equity (sbbe) model by considering consumer experience. the sbbe model also employs brand associations and brand awareness as the team's brand equity components. finally, biscaia et al. (2013) assess the validity of the sbbe model in the european soccer league. they represent brand awareness using identification and internalization. however, these two constructs are grouped into a single dimension and renamed internalization by the authors. since the fans are already aware of the team brand that they support (bauer et al. 2005), this study uses brand associations and internalization to study league brand equity. 41 sports brand associations several studies have explored brand associations in the sport context. table 1 summarizes the key studies that examine the brand association dimensions for sports teams and sports leagues, and lists the dimensions used for measuring brand associations. the studies related to sports teams' branding have provided a good understanding of team brand association dimensions. table 1 summary of key research on sports brand associations factor dimension gladden and funk (2002) ross et al. (2006) bauer et al. (2008) ross et al. (2008) biscaia et al. (2013) kunkel et al. (2014) productrelated head coach x x x management x x x non-player personnel x x star player x x x rivalry / competition x x x (team) success x x x x x team (member) x team performance / team play x x x x nonproductrelated concessions x x x club history and tradition x x x x x x fans x brand mark / logo x x x x x x product delivery x x stadium (atmosphere) x x x x x x brand benefits education x emotions x entertainment / excitement x x escape / diversion x x x identification x x nostalgia x x x peer-group acceptance x x player development x pride in place x x socialization x x x x brand attitudes affect x x importance x knowledge x commitment x x x organizational attributes x x x specific team x gladden and funk (2002) develop the team association model (tam) to enhance the understanding of team brand associations. the tam categorized team brand associations into four factors: 1) product-related attributes, 2) non-product-related attributes, 3) brand benefits and 4) brand attitudes. following a four-step procedure, they determined 16 brand associations and offered a measurement scale. ross et al. (2006) develop team brand association scale (tbas) and identify 11 sports teams' brand associations. however, they do not empirically examine the relationships between brand associations and their dimensions. bauer et al. (2008) develop a framework to measure brand (image) 42 associations and investigate their importance for fan loyalty in the team sports industry in germany. the model includes product-related attributes, non-product-related brands, multifaceted perceived brand benefits, and brand loyalty measured as behavioral loyalty. bauer et al. (2008) reveal that a club’s brand associations play a major role in fostering loyal fan behavior, and the influence of non-productrelated attributes is almost tripled those of product-related attributes. this is a surprising result as the authors state that product-related attributes are expected to be of greater importance to fans. based on these results, they suggest that neither competitive success nor the team itself is a central driver of a fan’s utility perception. thus, bauer et al. (2008) argue that there should be a special focus on nonproduct-related attributes. ross et al. (2008) criticize the previous models for being derived from the perspectives of manufactured goods and are not addressing the importance of the consumer’s actual experience. they state that addressing actual experience is critical due to the experiential nature of spectator sport. ross et al. (2008) empirically test ross (2006)’s sbbe model, which includes dimensions for brand associations and brand awareness in line with keller (1993)’s cbbe model. the results of ross et al. (2008) show that brand awareness and brand associations are relevant constructs for their sbbe model for a sports team. moreover, ross et al. (2008) find that success and team characteristics constructs are the strongest two dimensions of the sports team brand associations. ross et al. (2008) conclude that their model is a reliable tool to measure brand equity in sports. biscaia et al. (2013) empirically test ross et al. (2008)’s sbbe model on the portuguese soccer league. their final model includes ten brand association dimensions. results of the multi-group analysis reveal that the sbbe model is a valid tool for assessing the brand equity of soccer teams in europe. their results also indicate that all ten dimensions of brand associations showed statistically significant relationships with the second-order construct of brand associations. the strongest dimension of brand associations is team success. kunkel et al. (2013) is the first study to explore the role of branding in the sports league context. they test different driver roles of the league and team brands on consumer loyalty. they find that a co-dominant brand relationship exists between professional sports leagues and their affiliated teams, which is the prevalent perceived brand relationship. despite these results, a few studies have further explored this co-dominant relationship. in a different study, kunkel et al. (2014) modified and integrated gladden and funk (2002)’s and ross et al. (2008)’s team-based brand associations frameworks to measure league brand associations. they indicate that brand associations for a professional sports league represent attributes, benefits, and attitudes linked in consumer’s mind with that league. this is the first study to examine league brand associations from consumers’ perspectives and their results reveal that existing team brand equity literature can be applied to explore consumerbased league brand associations of sports leagues. kunkel et al. (2014) conclude that team brand associations used in previous research (bauer et al., 2008; gladden & funk 2002; ross et al., 2006; ross et al., 2008) are relevant for sports leagues. kunkel et al. (2017) have integrated brand architecture and brand associations literature to examine the role of league brand on the relationship between the team brand and team-related behavior. they state that while sports leagues and teams represent unique entities, team brands can influence the league brand and the league brand can influence team-related behavior. thus, teams affiliated with a strong league brand benefit from the positive league brand associations that consumers form. however, the studies that focus on sports team brand associations and brand equity do not address the league brand associations or brand equity (bauer et al., 2008; gladden & funk 2002; ross et al., 2006; ross et al., 2008). prior studies that cover sports leagues (kunkel et al., 2013; kunkel et al., 2014) provide some insights about the league brand associations (kunkel et al., 2014), the role of league brand on the relationship between the team brand and team-related behavior (kunkel et al., 43 2017) and the driver roles of leagues and teams (kunkel et al., 2013). however, these studies use single-item scales to measure each brand association dimension and do not provide multi-item scales for sports league brand association dimensions. they also do not examine the relationships among the brand association dimensions as they use formative models. further, they have never linked the league brand associations to league brand equity, nor do they offer measures for league brand equity. hence, it is essential to examine the sports leagues' brand associations, which could help to create a strong league brand equity. this study intends to fill this gap in the literature by examining the fbba of a sport (soccer) league – measured with a multi-item scale. further, drawing from the previous sports branding literature, this study proposes that: h1. a positive relationship exists between fan-based brand associations and league brand equity internalization brand awareness is another important component of brand equity. it represents a consumer’s ability of brand recognition and brand recall (aaker, 1996), and it is related to the strength of the brand in memory, reflecting consumers’ ability to identify the brand under different situations (rossiter & percy, 1987). brand recognition is consumers’ ability to correctly identify a product or service based on a brand name, logo, or other indicators (keller, 1993). for example, fans can recognize a soccer game on tv as an english premier league game or la liga (spanish soccer league) game by the logo on the screen without looking at the details of the game. on the other hand, brand recall is the likelihood of a consumer’s instant recollection of the brand name when prompted with a product or service (keller, 1993). for example, most fans automatically think of the english premier league or la liga when they talk about soccer. thus, brand awareness can be an indicator of product or service quality or consumers’ commitment to that brand (aaker, 1991). it affects consumers’ decision-making process regarding a product or service and has a direct effect on brand equity (tong & hawley, 2009). brand awareness also received attention in the sports brand equity literature. bauer et al. (2005) is the first study to explore the role of brand awareness on sports team brand equity. they measure brand recall through the enumeration of known brands (teams) in professional german soccer, and brand recognition through the recognition of certain teams in professional german soccer and familiarity with these teams. bauer et al, (2005) conclude that brand awareness may not be a factor that adds a lot of value to understanding the sports team brand equity because the amount of variance explained by it is too small. they stated that the use of brand awareness in the sports brand equity context might be problematic because the brands in professional sports are well known among fans. thus, bauer et al. (2005) suggest that brand awareness only adds value to the understanding of brand equity when there is a high variance in consumers’ knowledge and diversity in their product category expertise. ross et al. (2008) measure team brand awareness using identification – belongingness to a brand (bhattacharya & sen, 2003) – and internalization – taking in brand values as one’s own (deci & ryan, 1985). they state that although there are more direct measures of brand awareness, they use psychological commitment to a team as the measure since these two dimensions serve as a gauge for recognition and recall and may influence the sports team's brand equity. biscaia et al. (2013) test ross et al. (2008)’s model on the portuguese soccer league. brand awareness is initially measured by eight items representing identification and internalization in their model. these constructs are grouped into a single dimension which is renamed internalization and measured by three items. in addition, bhattacharya and sen (2003) point out that research has failed to differentiate the aspects of identification from internalization. further, to the best of the authors’ knowledge, none of the sports 44 league brand equity studies have addressed the importance of internalization on sports league brand equity. hence, drawing from the previous sports branding literature this study proposes that: h2. a positive relationship exists between internalization and league brand equity figure 1 illustrates a conceptual model for fbba for a sports league, which includes the dimensions of league brand associations, internalization, and league brand equity. the studies, from which the item scales are developed, along with the measurement items of the multi-item scale of the final model are presented in table 2. figure 1 proposed model – measuring brand associations for league brand equity table 2 final measurement scale: means and standard deviations constructs (source) item id items mean std. dev. player (gladden & funk 2002) pl3 star players in super league always perform at the highest level. 5.36 1.76 pl5 foreign star players in the league improve the quality of their teams. 5.48 1.58 head coach (gladden & funk 2002) hc2 successful teams have the same head coaches for a long time. 5.35 1.63 hc3 head coaches in the league maintain discipline for their team's success. 5.44 1.63 stadium (ross et al., 2008) sta3 league stadiums are designed for fans to enjoy the game. 5.48 1.55 sta4 restrooms and all other facilities at the league stadiums are of the best quality. 5.32 1.55 sta5 outside of the league stadiums offer places for the fans to have a good time before the game. 5.43 1.50 ref2 league referees are consistent in their decisions. 5.60 1.52 fan-based brand association dimensions brand equity player head coach referee team success fan-based brand association management stadium soccer federation league history internalization h1+ h2+ 45 referees (developed by the authors) ref4 referees’ decisions are fair and consistent with the rules of the game. 5.60 1.63 team success (ross et al., 2008) team1 teams in the league play well in every game. 5.64 1.38 team2 teams in the league have star players who would help win the games. 5.52 1.57 management (gladden & funk 2002) man3 team managers do not make negative comments about the other/opposing teams. 5.42 1.57 man4 team managers' priority is to build a strong league brand. 5.37 1.54 soccer federation (developed by the authors) sf1 the league commissioner treats every team the same. 5.67 1.54 sf9 the league commissioner does not discriminate among teams. 5.58 1.58 internalization (ross et al., 2008) int1 i feel like i am a member of the super league. 5.56 1.58 int2 being a fan of the super league is a large part of who i am. 5.25 1.79 int3 fans "live and breathe" league. 5.57 1.55 brand equity (tong & hawley, 2009) be2 even though there are other sports activities equally fun, super league games are preferred. 5.44 1.53 be3 the quality of super league games is worth the price fans pay. 5.30 1.72 methodology1 research context according to the statistics published by plunkett research (2016), the sports industry is one of the top 20 global industries, with a $1.5 trillion market value, of which advertising makes the most significant contribution with $34.9 billion in annual spending. the most recent annual report of the world’s most valuable 50 football (soccer) brands (brand finance, 2021a) shows that despite the effects of covid-19, there is a growing interest in branding and creating valuable brands in the sport. the report indicates that the premier league of england has the highest brand value with €7,485,189 billion in 2021. although the turkish super league was not evaluated in the 2021 annual report, according to the 2016 brand finance football 50 report, the turkish super league has ranked the sixth biggest brand among european soccer leagues with a brand value of $211 million (brand finance, 2016). also, the brand values of the top three turkish soccer teams (galatasaray with $49 million, fenerbahce with $48 million, and besiktas with $35 million) (brand finance, 2021b) validate the importance of the turkish super league among european leagues. hence, the turkish super league provides a compelling research context to examine the relationship proposed in figure 1. scale development the current research implements malhotra and groves (1998)’s measurement scale development framework to achieve the study objectives. first, the constructs of the study have been identified. the current research chooses brand associations and internalization constructs as the independent variables since the extant literature mainly uses them as the determinants of sports brand equity (e.g., bauer et al., 2005; biscaia et al., 2013; keller, 1993; ross et al., 2008). further, following the models tested in previous non-sport brand equity research (e.g., girard et al., 2017; tong & 1 this paper is based on a survey that was designed to provide data for more than one study; hence, the methodology presented in this paper is similar to the methodological discussions presented in pinar et al. (2017). 46 hawley, 2009; yoo et al., 2000), the overall league brand equity construct is used as the dependent variable. the brand associations measures are compiled from previous sports branding literature (bauer et al., 2008; biscaia et al. 2013; gladden et al., 1998; gladden & funk, 2002; ross, 2006; ross et al., 2006; ross et al., 2008) and modified to reflect the league brand associations. even though brand associations consist of attributes, benefits, and attitudes (keller, 1993), prior sports branding literature does not integrate attitudes into brand association models because attributes and benefits determine attitudes (bauer et al., 2005; gladden & funk, 2002). attributes define descriptive characteristics of a product or service, whereas benefits represent personal value that customers attach to the same product or service (keller, 1993; kunkel et al., 2014). hence, this study focuses on the attributes dimension of brand associations to examine the proposed model. gladden and funk (2002), identify eight main attributes in the team context. these attributes are: 1) star player, 2) success, 3) head coach, 4) management, 5) stadium/arena, 6) tradition, 7) logo design and 8) product delivery. this study uses players (5 items), team success (4 items), head coaches (5 items), team management (5 items), stadium (5 items), and league history (3 items) to measure the first six attributes respectively. this study does not include logo design in the proposed model because the turkish soccer league is well known among turkish soccer fans, and logo design may not make any significant difference concerning soccer league attributes. kunkel et al. (2017) confirm this assumption because they find logo has no significant effect on consumers’ perception of the league brand. this study also does not include product delivery as it is not applicable in the context of the soccer league for turkey. instead, this study adds two additional brand associations – soccer federation (9 items) and referees (5 items) because the soccer federation serves as a franchisor and league’s governing body by establishing game rules and implementing these rules via referees. these two dimensions are relevant because the soccer federation, as a governing body, develops the game rules to guarantee that each team is equally and fairly treated, and promotes the league brand, while the referees are in charge of making sure that the game rules are developed by soccer federations are fairly and consistently implemented for all games to assure the improvement of the overall quality of the games (kunkel et al., 2017). the measures for internalization are adopted from biscaia et al. (2013) and modified to reflect the sports league. finally, the league brand equity measurements are compiled from the non-sport team branding literature (e.g., girard et al., 2017; tong & hawley, 2009; sirianni et al., 2013; yoo et al., 2000) and modified to reflect the sports league from the fans’ perspectives because there have been no prior scales for measuring sports league brand equity. this is because prior studies focusing on sports teams’ brand equity examine the dimensions of brand associations and brand awareness. however, those studies do not link brand associations and internalization to sports team brand equity. this study uses an importance scale to determine how important the brand association dimensions and internalization are in creating a strong league brand equity. each item is measured on a sevenpoint scale (1 = very unimportant to 7 = very important). the survey instrument was originally developed in english using the measurement scale items from the aforementioned literature. following the recommendation of ball et al., (2002), the survey was translated into turkish and then translated into english by different experts to avoid translation errors and maintain the intended meanings of the questions. the original and translated versions of the survey were compared until there were no differences. all of the scale items, as explained below, were pretested to improve their meaning and ease of comprehension. once the initial survey instrument was developed, the next step was to conduct several pretests to improve the quality of scale items. first, a panel of 3 academics, who are experts on branding and scale development, were asked to provide feedback on the survey. based on the feedback of the panel, the survey was revised. the first pre-test was conducted in izmir (the third largest city with a 47 population of over 2.5 million), turkey, with 113 soccer fans, who followed and/or attended soccer matches. the respondents were asked to indicate the importance level of each item in the survey in creating a strong soccer league brand. to minimize possible bias, the instructions of the survey disclosed that the turkish soccer league did not sponsor the research. based on the results of exploratory factor analyses, the authors modified the survey and eliminated items that have poor factor loadings and/or are loaded on multiple factors. after that, the authors conducted the second pre-test in izmir and ankara (the second largest city with a population of over 4 million), turkey. the authors administered the survey to 60 respondents in each city which produced 120 valid surveys. as this study is designed to examine the brand associations and internalization in soccer leagues, the authors purposefully used a convenience sample of respondents who were interested in soccer. the authors conducted exploratory factor and reliability analyses that provided useful input for improving the measurement scale and establishing the face validity of the constructs (churchill & iacobucci, 2005; narver & slater, 1990). after the modifications, the final survey instrument resulted in a total of 31 items, out of which were 25 scale items for the dimensions of brand associations. each of the eight brand association dimensions initially had three items, except for the soccer federation, which had four items. in line with biscaia et al. (2013), internalization also initially had three items. finally, the overall league brand equity initially has three items. the survey also included demographic questions. sampling plan the target population for this study project was soccer fans in turkey, who were 18 years old or older. the survey was administered with the help of a market research company, xsights located in istanbul, turkey, to reach the target population. identifying an adequate sample size is important to ensure the statistical power of the test for the proposed model. prior literature offers two different approaches for determining the minimum sample size required for a powerful analysis: (1) power analysis (cohen, 1988) or (2) a 10-times rule of thumb (hair et al., 2014). the 10-times rule of thumb specifies that the minimum sample size needs to be equal to the larger of: (1) 10-times the largest number of formative indicators used to measure a single construct, or (2) 10-times the largest number of structural paths directed at a construct in the structural model. on the other hand, power analysis recommends using 0.15 for effect size, a level of 5% for an alpha, and a minimum of 80% power (cohen, 1988; hair et al., 2014). accordingly, power analysis suggests a minimum sample of 139, whereas the 10-times rule of thumb recommends a minimum sample of 150 for this study. xsights administered the survey to a randomly selected 350 soccer fans from their national panel of over 68,000 members. the respondents were qualified with a screening question to guarantee they were soccer fans. soccer is mostly followed by male fans in turkey. the sample selection has considered this fact. furthermore, since most soccer teams are in major metropolitan areas, the sample consisted of respondents from metropolitan areas. a total of 227 out of 350 surveys were deemed complete and usable (64.9% effective response rate) after detailed data screening, cleaning, and omitting outliers. similar to studies of biscaia et al. (2013) and kunkel et al. (2017) that used a panel of respondents for their survey, a response rate could not be reported. nevertheless, the effective response rate of the research is similar to the effective response rates of similar studies (biscaia et al., 2013: 62.6%, kunkel et al., 2017: 55%). the 227 respondent profiles in table 3 show that 78% of the respondents were male and 22% were female, more than half of the respondents (52%) were between 18 and 31 years old, and 69% of them earned monthly income between 2,000 tl and 3,000 tl ($675-$1,000 at the time of the data collection). the respondents were asked how they usually followed most of the games in the turkish super league in a given season. a majority (70%) of the respondents indicated that they followed most of the soccer games on tv, whereas 10% followed from social media, and 5% followed from 48 newspapers and/or did not follow at all. 15% of the respondents indicated that they regularly attended the games. in addition, when the respondents were asked how frequently they went to the games of the teams that they supported in a regular season, 38% of the respondents indicated that they usually attended 1-3 games, 15% attended 4-6 games, 10% attended 7-10 games, only 8% attended more than 10 games in a regular season, while 29% of the respondents stated that they did not attend games at all. furthermore, it is interesting to note that almost half (46%) of the respondents preferred to have both a strong league and team brand, whereas 42% preferred to have a strong team brand, and 12% preferred to have a strong league brand. table 3 selective demographic profiles of respondents gender n percent age n percent female 50 22 18-24 54 24 male 177 78 25-31 64 28 total 227 100 32-38 52 23 income n percent 39-45 57 25 less than 1,000 tl 4 2 total 227 100 1,001-2,000 tl 22 10 attending games n percent 2,0001-3,000 tl 158 69 never 65 29 3,001-4500 tl 27 12 1-3 games 87 38 more than 4,500 tl 16 7 4-6 games 33 15 total 227 100 7-10 games 24 10 following games n percent more than 10 games 18 8 from tv 159 70 total 227 100 attending games 34 15 brand preference n percent social media 24 10 league brand 28 12 newspaper 4 2 team brand 94 42 not follow 6 3 both team & league 105 46 total 227 100 total 227 100 results assessing reliability and validity — testing measurement model smart-pls 3.2.1 was used to run pls-sem for assessing the measurement and path models. the path model was designed to be in line with the existing literature. that is, the head coach, soccer federation, referee, player, stadium, team success, (team) management, and league history were treated as sub-dimensions of brand associations construct (low order constructs – locs), and brand associations were treated as high order construct (hoc) (biscaia et al., 2013). all locs were modeled to be reflective in the measurement since the authors intend to establish a common league brand associations factor (hair et al., 2017). the reliability and validity of each construct as well as their measures were assessed before testing the hypothesized relationships in figure 1. first, outer loadings were examined to test the indicator reliability. eight items (player4, head coach5, refree5, team4, management5, soccer federation2, 8, and be1) were removed from the measurement model because of low loadings (below .70). as a result, some of the constructs left with only two items. yet, as hair et al., (2011) indicate this is not an issue for pls-sem. in addition, the league history construct was excluded from the model as its items did not load onto the hoc. the remaining seven locs with a total of 15 items (for details see table 2) were used as brand association dimensions in the final model. internalization was measured with three items and brand equity was 49 measured with two items in the final model. figure 2 illustrates the results of the pls structure model. furthermore, measurement reliability was tested using the composite reliability scores and all scores were above the threshold (.70), indicating no reliability problem (hair et al., 2014). to test the convergent validity, the analysis of average variance extracted (ave) was used. the highest ave was 0.886, and the smallest ave was 0.736. therefore, the result of the analysis revealed that all ave values were higher than the threshold (0.50), which confirmed the convergent validity of all brand association dimensions as well as internalization and brand equity constructs. these results indicate that the eight items dropped from the model to improve indicator reliability do not affect the robustness of the measurement scale. the scores of construct reliability and validity are illustrated in table 4. figure 2 results of the pls structure model table 4 construct reliability and validity scores constructs composite reliability average variance extracted (ave) head coach 0.94 0.89 brand associations 0.98 0.74 internalization 0.92 0.80 50 brand equity 0.92 0.86 soccer federation 0.94 0.88 referee 0.93 0.87 player 0.93 0.86 management 0.92 0.85 team 0.90 0.82 stadium 0.92 0.79 the discriminant validity was examined using fornell and larcker's (1981) internal consistency measure. as hair et al. (2014) suggest, the discriminant validity between the hoc and the locs, as well as within the locs was ignored because of the high correlations among these constructs. a detailed examination of fornell and larcker (1981)’s internal consistency measures for hoc and brand equity showed that the square root of ave value for each hoc or latent variable (brand associations = 0.858, internalization = 0.895 and brand equity = 0.926) was greater than its highest correlation with any other hoc or latent variable. this provides support for the discriminant validity among hoc and latent variables. the results of the internal consistency test are shown in table 5. table 5 fornell and larcker’s internal consistency of constructs constructs 1 2 3 4 5 6 7 8 9 10 head coach (1) 0.94 brand associations (2) 0.92 0.86 internalization (3) 0.80 0.86 0.90 brand equity (4) 0.78 0.86 0.79 0.93 soccer federation (5) 0.87 0.94 0.82 0.81 0.94 referee (6) 0.88 0.94 0.80 0.79 0.91 0.93 player (7) 0.80 0.92 0.76 0.80 0.83 0.82 0.93 stadium (8) 0.84 0.95 0.83 0.83 0.87 0.86 0.86 0.89 team (9) 0.78 0.92 0.77 0.78 0.82 0.85 0.85 0.88 0.90 management (10) 0.84 0.93 0.80 0.78 0.84 0.86 0.83 0.88 0.83 0.92 testing the structural model the findings of testing the path model in figure 2 suggested that the effects of brand associations (β = 0.692, t = 68.327, p = 0.00) and brand internalization on brand equity (β = 0.191, t = 2.238, p = 0.025) were positive and significant, which supported both h1 and h2. results of this study also showed that the brand association dimensions of player (β = 0.915, t = 52.964, p = 0.00), head coach (β = 0.921, t = 57.539, p = 0.00), stadium (β = 0.953, t = 109.213, p = 0.00), referee (β = 0.944, t = 100.972, p = 0.00), team success (β = 0.919, t = 64.936, p = 0.00), management (β = 0.930, t = 68.327, p = 0.00), and soccer federation (β = 0.939, t = 99.332, p = 0.00) were subcategories of sport league brand associations (figure 2). after the measurement model was identified to be within the acceptable level in terms of reliability and construct validity, the collinearity issue of the structural model had to be checked before interpreting the results. the variance inflation factors (vifs) were used to evaluate the collinearity. the highest vif value was 3.800, which was lower than the recommended threshold score of five (hair et al., 2014). this indicates no collinearity issue. in addition, full collinearity vif values were investigated to test common method variance. as kock (2015) recommends, all of the full collinearity vif values were below 3.3, which indicated no common method variance issue. next, the significance level of the path coefficients in the structural model was evaluated by running the bootstrapping option to obtain the t-values for all path coefficients (hair et al., 2014). the direct effect of brand 51 associations and internalization on league brand equity was tested as part of the overall structural model. as path coefficients with standardized values above 0.20 are usually significant (hair et al., 2014), initial screening of the path coefficients indicated both brand associations (β=0.692, t=8.82, p<0.01) and internalization (β=0.191, t=2.23, p<0.05) had a significant influence on league brand equity. additionally, the adjusted r2 value was analyzed to evaluate the explained variance of an endogenous variable (brand equity) by all of the exogenous variables (brand associations and internalization). the r2 value of 0.25 for an endogenous variable was considered weak, while 0.50 was considered moderate and 0.75 was considered substantial (hair et al., 2011). the r2 value for brand equity was 0.74, which can be considered substantial. in addition, the effect sizes of the significant path coefficients were used to assess the relative importance of each exogenous variable as an antecedent of its related endogenous variables. the thresholds to assess f2 values were 0.02 for a small effect, 0.15 for a medium effect, and 0.35 for a large effect (hair et al., 2014). based on these thresholds, the findings of this study indicate that the effect of brand associations on brand equity is large (f2 = 0.493) and the effect of internalization on brand equity is small (f2 = 0.038). discussion theoretical implications this study makes several contributions to the sports league brand equity literature by enhancing the understanding of the sports league equity concept. one of the main goals of this research is to identify fan-based brand associations of a sports league. to address the first research question, the authors developed a multi-item measurement scale for an fbba for sports leagues. to the best of the authors’ knowledge, this is the first study that develops a multi-item scale for the sports league fbba. even though the literature offers several team brand association models and multi-item scales, there is no robust multi-item measurement scale for league brand associations. the multi-item fbba scale contributes to the theoretical understanding of sports league brand associations. hence, the results of each specific dimension of the league brand association should be evaluated carefully. for example, although the stadium is not one of the strongest dimensions of the prior team brand associations research (e.g., biscaia et al., 2013), the findings reveal that it is the strongest dimension of league brand associations, which means that the stadium is an important measure for league brand associations. one possible explanation is that stadiums are places for capturing the feelings and emotions of fans of all teams in the league, not just one team. given the experiential and entertainment nature of the sport, stadiums offer a visual representation of the league, teams, and matches (underwood et al., 2001). therefore, the atmosphere surrounding a match is one of the most important motives for fans to attend games (koenigstorfer et al., 2010). this result shows that stadiums with a great atmosphere can contribute to the experiential and hedonic needs of fans (biscaia et al., 2013). in addition, the high loadings of (team) management, head coach, team, and player show the importance of the teams as sub-brands for the league brand associations. these dimensions are consistent with findings of the previous team brand associations studies (e.g., bauer et al., 2008; biscaia et al., 2013; gladden & funk, 2002; gladden et al., 1998; ross, 2006; ross et al., 2006; ross et al., 2008). the results indicate that team management as a decision maker has the authority to hire coaches and recruit players to form a strong team and provide high-quality and entertaining games. the relatively high mean values for the team management items suggest that fans expect team managers not to make any negative comments about opposing teams (man3) and to have priority for building a strong league brand (man4). this finding is an indication of fans’ understanding of the importance of 52 a strong league brand. similarly, team and player are product-related dimensions and are the producers of the game and competition as entertainment. further, none of the previous team brand equity studies included league federation and referee dimensions, due to their irrelevance to team brand associations. the measurement scales for those two dimensions are developed and included in this study based on expert suggestions and pre-tests. results of this study indicate that these two new constructs (soccer federation and referee) are important dimensions of league brand associations, suggesting that these dimensions should be included as valid measures of league brand equity. these two dimensions are relevant for measuring league brand equity because the soccer federation serves as governing authority of the league, whereas a league serves as a foundation for competitive matches offered to fans as sports entertainment (kunkel et al., 2014). moreover, referees implement the rules and regulations set by the league during the matches, therefore their decisions can have a significant impact not only on the quality but also on the outcome of the matches. this indicates that the referees can have a direct effect on the entertainment value of the matches, and ultimately on the satisfaction of the sports fans with the matches. the highest mean values of the perceived importance of the turkish soccer federation and referee (for details, see table 2) indicate that these two factors must be managed well to create a strong sports league brand. the soccer federation can play a key role in developing strategies by coordinating marketing activities to promote the league matches that will build a strong league (pitt et al., 2003). hence, the findings confirm the importance of the sports league as a master brand (kunkel et al., 2013; kunkel et al., 2014) for the success of the teams by not only offering a platform for the teams to display their matches, but also providing the rules, regulations and standards for the matches that are implemented by referees, as well as marketing support for the teams. the importance of soccer federation and referees constructs is also confirmed by their high loadings. another goal of this study is to examine the role of brand associations and internalization on sports league brand equity. although previous sports team brand equity studies emphasized the value of team and league brand equity (e.g., ross et al., 2008; kunkel et al., 2013), they have not included a measure for the overall league brand equity construct in linking the brand associations and internalization to brand equity. to address the second and third research questions, this study employs the overall league brand equity construct and fbba dimensions to examine the relationship between league brand associations, internalization, and league brand equity. the results confirm that the brand associations and internalization significantly and positively impact league brand equity. this positive impact indicates that brand associations and international are antecedents of league brand equity. this means that positive league brand associations and internalization lead to stronger league brand equity. this is a vital contribution to the sports brand equity literature, as well as the sports branding literature. since a sports league serves as the master brand and provides a platform for its teams, brand association dimensions identified in the study can help to develop branding strategies for creating a strong league brand, which in turn, contribute to creating strong team brands. furthermore, given that 46% of the respondents prefer to see both strong team and league brands, the results support the codominant relationship between a sports league and the teams in a master brand and sub-brand framework (kunkel et al., 2013). managerial implications this study also has several managerial implications for leagues as well as team brands. first, the fbba framework can help league managers to understand the expectations of the fans and guide them in developing the right brand associations to attract new fans and retain existing fans. for example, stadiums are one of the most important league brand associations for fans. therefore, league managers can incentivize team managers to invest in their stadium facilities to attract new fans to stadiums. consequently, teams can positively influence fans’ experiences, perceptions, and behaviors 53 by emphasizing the aesthetic characteristics of stadiums (kerr & gladden, 2008). as a result, attending the games provides a memorable experience to satisfy the fans’ hedonic consumption (bauer et al., 2008). while each team could have the aesthetic appeal of their stadium, it is desirable to have some uniformity and/or consistency among all stadiums of the league to reflect and/or support the league’s brand image because consistency is important for creating a strong brand (keller, 2013). moreover, because the only thing fans (consumers) take away from a game day is the memories (gladden et al., 1998), the managers of the league and teams should do everything to provide fans with an exceptional experience at the stadiums before, during, and after each game. the importance of this holistic entertainment approach to attending sports games is observed in most sports events in the united states at the professional and college level. second, the positive effect of league brand associations on league brand equity indicates that league managers should collaborate with other key members of the industry, such as team managers, players, and head coaches, to create positive associations. the effective management of the league brand associations will allow league managers to improve the league brand equity and develop a stronger brand for the league. similarly, the positive influence of internationalization on league brand equity reveals that league managers should attempt to develop a psychological commitment to the league brand and encourage fans to incorporate the league into their personal identity. when the level of commitment increases, a greater internalization of the league can be developed. consequently, fans can be better equipped to recognize and recall the league brand. finally, five of the seven league brand associations identified in the final model of this study are in parallel with team brand associations of previous studies (e.g., biscaia et al., 2013; gladden & funk, 2002). given the interconnected and mutually dependent relationship between a league and its teams (kunkel et al., 2013), league managers should collaborate with managers of the teams to improve common brand associations and develop stronger league brand equity that could have a significant financial contribution to the leagues and their teams. the english premier league is great evidence for this assertion. it is one of the most watched leagues in the world (curley & roeder, 2016) with a 5.3 billion euro brand value during the 2016-2017 season (deloitte, 2018). the premier league’s tv deals have generated $8 million from local contracts and $5 billion from international contracts for the 2016-2019 period (curley & roeder, 2016). limitations and future research as the first study to examine the league brand equity using multidimensional fbba using multiple items, the findings of the study provide some insights into the relationships among the fbba dimensions and internalization in creating a strong league brand equity. however, the findings must be interpreted with some caution due to the limitations of the study. first, this is the first study measuring the fbba of a sports league using data from a european soccer league. therefore, future research may benefit from including and comparing other soccer or sports leagues outside europe to capture the cross-cultural differences and cross-validate the findings. second, current research is conducted in one country. future research could benefit from conducting similar studies in multiple countries for cross-country validation of the findings. third, while a sample size of 227 sports fans may be sufficient for an exploratory study, a larger sample size could help to validate the findings of this study more accurately. further, using a convenience sample may limit the generalizability of the results. fourth, this study focuses on only two brand equity components -brand associations and internalization. future studies could investigate the role of other brand equity components like perceived quality on sports league brand equity. fifth, some of the brand association dimensions were measured using only two items. even though hair et al. 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(2012). the effects of brand name structure on brand extension evaluations and parent brand dilution. journal of marketing research, 49(3), 373-382. tong, x., & hawley, j. m. (2009). measuring customer-based brand equity: empirical evidence from the sportswear market in china. journal of product & brand management, 18(4), 262-271. underwood, r., bond, e., & baer, r. (2001). building service brands via social identity: lessons from the sports marketplace. journal of marketing theory and practice, 9(1), 1-13. yoo, b., & donthu, n. (2001). developing and validating a multidimensional consumer-based brand equity scale. journal of business research, 52(1), 1-14. yoo, b., donthu, n., & lee, s. (2000). an examination of selected marketing mix elements and brand equity. journal of the academy of marketing science, 28(2), 195-211. serdar turedi purdue university northwest sinan nardali izmir katip celebi university musa pinar valparaiso university tulay girard pennsylvania state university-altoona sanem alkibay gazi university introduction background brand equity brand equity in sport industry sports brand associations internalization methodology0f research context scale development sampling plan results assessing reliability and validity — testing measurement model testing the structural model discussion theoretical implications managerial implications limitations and future research references 13 covid, customer loyalty, and sacrificial hr strategies among customer service representatives evidence across industries robert pellegrino tarleton state university kimberly pellegrino florida memorial university customer service is a straightforward concept and its effects are widely studied and well known. no one would disagree that good customer service has a crucial and positive impact on firm profitability (goodwin, 1992) so why do so many firms continue to provide poor customer service? research indicates that instead of viewing customer service as an external customer issue, perhaps it should be viewed as an internal human resource issue. in other words, managers may reap what they sow by not properly managing employee relationships and then expecting these same employees to turn around and successfully manage customer relationships. using justice theory, this study explores the management of customer service representatives. specifically, a national survey was conducted of call center managers utilizing measures for the three types of organizational justice: distributive, procedural, and interactional. call center managers from many different service industries responded including travel/hospitality, telecommunications, retail/catalog, health care, insurance, and financial services. results of the study indicate that justice theory can be used to explain a significant amount of employee commitment in call center operations. the significance of these findings provides a possible explanation as to why good customer service seems to be disappearing. can any manager expect csrs to provide good customer relationship management when managers are not properly handling employee relationships? covid-19 and customer service covid-19, a 100-year pandemic, struck the united states in the early part of 2020, and the country (like others) locked down to stop the spread of the virus. while this lockdown was a severe threat to many businesses, it was a tremendous opportunity for others. for example, during the covid-19 lockdown, peloton saw sales surge by 66% in the first quarter of 2020 and by 94% in the second quarter. peloton makes high-end gym equipment for home use and since people could no longer go to the gym, peloton saw a substantial increase in demand for their products. peloton had always prided itself on its customer service in the past but dozens of customers took to twitter and facebook to complain about poor customer service in the second quarter of 2020. customers received emails right before scheduled deliveries indicating “extenuating circumstances” would prevent http://journals.sfu.ca/abr 2022, volume 12, pages 13-25 http://journals.sfu.ca/abr 14 delivery. promises made that deliveries would be rescheduled within 72 hours went unfulfilled. customer service reps blamed non-existent curfews or did not return calls at all leading customers to believe that peloton was “hiding behind recent events as excuses, as opposed to transparency to the real problem”, a clear example of making a poor customer service experience worse. customers stated that they would be a lot more understanding “if they were honest” (hanbury, 2020). covid-19 created a tremendous opportunity for peloton and poor customer service prevented them from capitalizing on it. covid-19 uncovered a weakness that peloton didn’t seem to realize they had. sitel group’s covid-19 customer service impact study indicated that consumers have been more forgiving of brands during the pandemic (with few complaints submitted) but when asked how long it took the company to get back to them about a complaint, more than a quarter indicated that the issue had never been resolved. in july, martin wilkinson-brown, cmo at sitel group, stated “in this quickly changing world, customer experience is truly one of the only ways for brands to stay competitive within their industries, and now more than ever it’s critical to meet consumers where they want to interact with brands. our covid-19 cx impact study reveals that brands have a short window of time to construct their plan for the future, and consumers are rewarding innovation over passive action” (pr newswire, 2020a). in october of 2020, hiver published a report that indicated 80% of us consumers expect customer support to get more empathetic or more responsive and, in some cases, both, indicative of that very short window mr. wilkinson-brown mentioned (pr newswire, 2020b). research conducted by a customer service specialist in 2014 indicated that poor customer service was eroding customer loyalty. the survey found that 30% of consumers had become less loyal to retail brands over the last five years and a large percentage of the respondents identified poor customer service as the reason for the reduced loyalty (dow jones institutional news, 2014). in 2016, newvoicemedia reported that companies lost 62 billion dollars as a result of poor customer service. in 2018, they updated that number to $75 billion lost (newstex trade and industry blogs, 2018). it reports that “brands are failing to create the positive, emotional experiences that drive customer loyalty.” they coined the phrase “serial switchers” for customers that are willing to switch brands because of poor customer service and they estimated that 67% of customers were currently serial switchers. they also indicated in their 2018 report that that percentage is a 37% increase from the report two years earlier, indicating that the number of serial switchers is increasing at a significant rate. further, customers today turn to social media when they have a bad customer experience to publicly “out” the company for poor service (mehra, 2018). the ceo of hiver stated, “a few years back, you could make customers feel taken care of by sending automated replies and just by convincingly stating that you are doing your best. that does not fly anymore, as customers are more educated and better connected. throw a pandemic in the mix, and you have very high customer service expectations” (pr newswire, 2020b). given the straightforward nature of customer service and complaint handling and the significant benefits that can arise when these two concepts are handled well, why do firms continue to provide poor service (goodwin & ross, 1992)? a service encounter can yield negative consumer reactions in even the most careful organization: flights and medical appointments are delayed, waiters serve food that wasn't ordered, and hotels lose reservations. realistically, firms cannot eliminate altogether the possibility of errors arising in service delivery; however, the firm's response to a consumer's post-consumption dissatisfaction may restore a level of satisfaction that will bring him/her back and lead to referrals for future transactions (goodwin and ross, 1992, p. 149). tax et al. (1998) indicate a great deal of dissatisfaction from customers who complain in terms of both the procedures used to resolve a complaint and the outcomes of the complaint process itself. they also argue that handling complaints effectively can have a dramatic impact on customer retention rates, prevent damaging word-of-mouth events and improve the bottom line performance of the firm. 15 complaint handling becomes a critical "moment of truth" in maintaining and developing strong customer relationships. this statement is even more true today than it was in 1998. this risk-reward customer service relationship has evolved through technology. surveys indicate that consumers have become so dissatisfied with customer service that they are willing to pay, on average, a nine percent premium to businesses that treat them well (restaurant hospitality, 2010). on the risk side, poor service now produces more than just damaging word-of-mouth events, turning them into monumental events. customers today broadcast their experienced poor service far and wide on the internet. and surveys indicate that half of all consumers check online service reviews and give more credence to negative reviews than to positive ones (restaurant hospitality, 2010). supportive hr strategies and customer service what happened to good customer service? one stream of research indicates that the lack of supportive hr strategies is responsible for the loss of good customer service representatives and the resulting poor customer service. according to hr literature, excellent service is achieved through the supportive management of employees. to provide a competitive level of service and quality, lawler (1986) stated that a firm's hr strategy should revolve around ensuring motivation and commitment among employees. monger and perkins (2008), in their appropriately entitled text, "survey pain relief: transforming customer insights into action. a cure for the billions wasted on "dead-end" customer survey programs" argue that to improve customer service, companies should take a closer look at the hr strategies utilized by those employees providing the service. specifically, they advocate for hr strategies such as participation and empowerment, employment security, self-managed teams, training and skills development, information sharing, promotion from within, and financial incentives. they go further and state, "if you want it, reward it" (monger and perkins, 2008, p. 52) and treat customer service representatives equitably. monger and perkins highlight the concepts of both distributive and procedural justice when dealing with hr strategies designed ultimately to improve customer service through better customer service representatives. they define distributive justice as fairness in the amount and allocation of employee rewards and procedural justice as the perceived fairness of the process through which employee distributions are made. maxham and netemeyer (2003) state that customer service representatives are frequently the primary determinant of a company's image and companies often fail to motivate and inspire the representatives that are providing service. employee apathy creates mediocre customer service at best and disgruntled or frustrated employees can even sabotage the firm's customer service. maxham and netemeyer (2003), propose the model exhibited in figure 1 and pose the question "does treating employees fairly affect customers' perceptions of how fairly they have been treated after initiating a complaint?” (p. 46). they present evidence from field research that indicates firms may need to internally market the firm to employees the same way that employees need to externally market the product to customers. they provide evidence from a field study of a large electronics firm that indicates customer service managers may in fact, as the article is so aptly named, "reap what they sow." specifically, maxham and netemeyer (2003) suggest that for customer service representatives to provide justice/satisfaction to customers, they must first receive justice/satisfaction from the organization. they suggest that organizations that don't provide distributive, procedural, and interactional justice to their employees can't expect those same employees to provide distributive, procedural, and interactional justice to customers. "employees treated fairly by the firm will treat customers fairly (i.e.., "justice in-justice out")" (maxham and netemeyer, 2003, p. 51). customers that don't receive this justice are not satisfied, will not purchase from the company again, and will not provide favorable word-of-mouth about the company's product. 16 figure 1 – recovery process model (excerpted from maxham and netemeyer, 2003, p. 48) sacrificial hr strategies and customer service a second stream of research also links customer service and employee commitment, albeit from a different perspective. a countervailing view, in some respects, to organizational justice theories is termed the sacrificial hr strategy. wallace et al. (2000) explore the evidence that employers may be intentionally creating turnover in call centers by sacrificing the employees they have hired to perform customer service. according to this theory, firms achieve both efficiency and high levels of service at the same time by sacrificing the enthusiasm and motivation of the front-line customer service reps. with this strategy, emotional burnout and high turnover among customer service reps are tolerated, if not encouraged. stress levels in the call centers studied appeared to be high. customer service agents interviewed made spontaneous comments such as "at the end of the week i am a zombie, the stress is so bad that on the weekends i do not want to talk to anyone” (p. 176). similar studies reported call center agents having stress levels higher than coal miners. wallace et al. (2000) suggested that one contributor to emotional burnout was the lack of supportive elements in the work design. information on employee turnover in the wallace et al. study was contradictory. call centers involved in the research reported annual turnover rates between 15 and 35% while managers within the centers reported that tenure was about 18 months, which would imply a turnover rate of 67%. employees were hired specifically for their enthusiasm and motivation and then required to absorb the emotional costs on the front line, burning out quickly and leading to high turnover. the authors contend that this sacrificial hr strategy is now possible because advances in information technology have allowed for common assumptions about, for example, the high cost of turnover to be invalidated. before these technological advances, the high costs associated with turnover and burnout were too large to allow 17 for a singular concentration on efficiency (defined in this sense as using up motivated and enthusiastic customer service reps). the sacrificial hr strategy is the opposite of the justice theories illustrated earlier. supportive behaviors such as distributive, procedural, and interactional justice are set aside in favor of a shortterm, efficiency strategy that frustrates and burns out customer service agents. sacrificial hr strategies and justice theories do agree on the outcome however, that frustrated and burned-out employees will leave the firm. the difference is about the journey from the first day of work to the last, with one theory indicating supportive strategies need to be utilized more and one strategy indicating customer service reps need to be sacrificed. both theories lead to the same place when employees are not provided with support in the workplace reduced commitment and loyalty. in other words, the lack of supportive hr strategies is an indication of the presence of sacrificial hr strategies. conceptual framework and hypotheses this research explores whether there is evidence supporting the employee commitment effects of distributive, procedural, and interactional justice in a cross-sectional survey of customer service managers across various industries. commitment measures included average turnover and the average length of employment (tenure). justice theory states that to create systems that lead to motivated and enthusiastic extra-role behaviors by customer service personnel, hr systems must first lead to perceptions of organizational justice. what is meant by the term organizational justice and how is employee perception of organizational justice increased? according to folger and cropanzano (1998), organizational justice includes two distinct components, procedural justice, and distributive justice. procedural justice “refers to fairness issues concerning the methods, mechanisms, and processes used to determine outcomes. for example, these issues might involve considerations about the proper way to conduct a decision-making process, a dispute-resolution process, or an allocation process in an organization” (folger & cropanzano, p. 26). procedural justice may also encompass a form of organizational justice known as interactional justice. interactional justice “refers to the quality of the interpersonal treatment received by an individual. distributive justice is the perceived fairness of the outcomes or allocations that an individual receives”. these individuals are evaluating whether an outcome is appropriate, moral, or ethical. while research has found that the effects of procedural justice tend to be much stronger than distributive justice (moorman 1991), it is still the sum of both procedural and distributive justice that leads to the overall perception of organizational justice. therefore, if extra-role behaviors are to be created within the organization, the systems in place must be perceived as fair methods of making decisions and the decisions that are made must be perceived as fair (carbo et al., 2009). distributive justice derives from social exchange theory. people assess the fairness of the "exchange" that takes place between individuals. in an organizational context, employees would compare their inputs (effort, skill) and their outcomes (salary, rewards) and judge an exchange as fair when the inputs and outcomes are proportional (deutsch, 1985; greenberg, 1990). in this research, distributive justice is defined as the degree to which employees feel they have been paid fairly for their work. to examine the effects of distributive justice within the organizations studied, we chose to look at the relationship between starting wages and average wages and their corresponding effect on tenure and turnover. we also looked at the overall benefits package and its effect on tenure and turnover. specifically, we postulate that the distributive justice effects can be viewed by examining the effect of average wages as opposed to starting wages on common measures of job commitment, specifically turnover and tenure. consider a scenario in which customer service agent a is offered $10 per hour for performing his or her job. agent a thinks this is a fair rate and accepts the job and its corresponding starting wage. after working in the position, agent a receives various pay raises based on performance and he or she will then reevaluate the fairness of job outcomes with a greater 18 understanding of both the inputs and the outcomes involved. therefore, the employee will develop a perspective on distributive justice. for example, the level of stress will now be a clear input and the amount of compensation that results for both agent a and other agents will also become clearer. therefore, we postulate that in a distributive justice context average wages will have a significant effect on employee satisfaction measures, as follows: h1 (distributive justice): average wages will have a significant positive relationship with tenure and a significant negative relationship with turnover. h2 (distributive justice): financial incentives will have a significant positive relationship with tenure and a significant negative relationship with turnover. h3 (distributive justice): benefits will have a significant positive relationship with tenure and a significant negative relationship with turnover procedural justice "refers to the fairness of the policies and procedures used to achieve organizational outcomes" (maxham and netemeyer, 2003, p. 49). whether or not the outcome of a decision is fair, employees can and do judge the fairness of the process used to get to the outcome. how effectively processes are utilized and designed depends on the specific interpersonal skills of the managers. consider this scenario: customer service agent a needs to ask the manager for permission before providing a refund to angry customers. agent a believes this is a fair process until he or she discovers that agent b can make these decisions without management input. the manager provides no reason for the disparity in authority either in a written or verbal policy. this would cause agent a to judge this process as unfair, regardless of whether or not there is a legitimate reason behind this disparity. the manager's communication failure prevented perceived fairness. therefore, procedural justice is intricately and inexorably tied to management's interpersonal communication skills, and we hypothesize that: h4 (procedural justice): the presence of a policy on interpersonal training for managers will have a significant positive relationship with tenure and a significant negative relationship with turnover. h5 (procedural justice): the paid time off policy will have a significant positive relationship with tenure and a significant negative relationship with turnover. interactional justice refers to the actual interactions between managers and employees. even if employees judge processes and outcomes as fair, they can still decide that they are treated unfairly if they perceive injustice during actual interactions with managers (maxham and netemeyer, 2003). consider our last scenario: let's assume that agent a, who is not allowed to provide refunds without management permission, is prohibited from doing so because the written policy requires a year of successful performance first and that is why agent b has the authority and agent a doesn't. agent a could easily perceive this as a fair process however let's assume agent a isn't aware of the policy and asks the manager about it. the manager replies harshly that he doesn't have time to answer useless questions. agent a, based solely on the actual interaction that took place, perceives unfair treatment despite the equity evident in the written policy. the perceived unfairness would be even greater if this is the only interaction agent a has with her supervisor and this interaction is likely to reduce further interactions. therefore, we postulate that interpersonal interactions between the manager and employees will have a significant effect on employee satisfaction measures. 19 h6 (interactional justice): interpersonal interactions (non-financial rewards like employee of the month, a preferred parking space, a plaque, a pat on the back, or a thank you) between the manager and employees will have a significant effect on employee tenure and turnover. h7 (interactional justice): the budget for non-financial rewards will have a significant effect on employee tenure and turnover. measurement this research relied on a survey of customer service managers across the following industries. the surveys were collected in the united states and canada with the majority of the respondents in the united states. average wages for new/inexperienced agents started at $11.59 per hour. average wages for new experienced agents were $12.79 and average wages for customer service agents overall were $14.19. ninety-two percent of respondents were inbound customer service managers. eight percent of respondents were outbound customer service managers. eighty-nine percent of those surveyed managed agent-handled contacts via telephone (voice). other categories included email, webchat, and others on the survey. one hundred and four surveys were returned. employee commitment measures included: annual turnover percentage and the average tenure in months. distributive justice measures included average wages, financial incentives, and benefits. procedural justice was measured by asking customer service managers about policies. "have you as a site manager been trained yourself and/or trained front line supervisory personnel in the techniques of appropriate interpersonal/communication skills?" possible responses included: yes, i am sure this regularly happens; yes, but this does not regularly happen; and no, we do not consistently train supervisory teams. “what is the number of paid days off per year for customer service representatives?” interactional justice was measured by asking customer service managers "how many non-financial, other 13% travel/hospitality 11% contact center outsourcing 2% telecommunications 8% utility 3% retail/catalog 11% health care 5% insurance 26% financial services 21% 20 positive interpersonal interactions take place between you and your employees on a yearly basis?" possible responses included: none, 1-12 per year, 13-24 per year, and 25 or more per year. managers were also asked what the annual budget was for non-financial rewards. results distributive justice h1: average wages will have a significant positive relationship with tenure and a significant negative relationship with turnover. the data in table 1 supports both parts of the first distributive justice hypothesis. average wages did correlate significantly both with agent turnover and agent tenure. the positive relationship with tenure and the negative relationship with turnover was as expected. table 1 – correlations for average wage pearson correlation (significance) agent turnover agent tenure average wage -0.529** 0.476** n = 104 ** p-value < 0.01 h2: financial incentives will have a significant positive relationship with tenure and a significant negative relationship with turnover. the results in table 2 show that the amount of budget that was allocated to financial incentives did not have any statistically significant effect on either agent tenure or agent turnover. table 2 – correlations for financial incentives pearson correlation (significance) agent tenure agent turnover budget for financial incentive -0.011 ns -0.120 ns n = 64 ns not significant (p-value > 0.10) h3: benefits will have a significant positive relationship with tenure and a significant negative relationship with turnover. the results in table 3 below reveal that total combined benefits had a marginal negative correlation with agent turnover (p-value = 0.053). however, there was no statistically significant relationship between agent tenure and total benefits. table 3 – correlations for total benefits pearson correlation (significance) agent tenure agent turnover total benefits 0.080 ns -0.165† 21 n = 97 † p-value < 0.10 ns not significant (p-value > 0.10) procedural justice h4: the presence of a policy on interpersonal training for managers will have a significant positive relationship with tenure and a significant negative relationship with turnover. table 4 – anova analysis anova dependent variable metrics sum of squares df mean square error f sig. agent turnover between groups 5853.820 2 2926.910 3.761 0.027* within groups 70824.667 91 778.293 total 76678.487 93 agent tenure between groups 65.153 2 32.576 0.030 0.970 ns within groups 98296.901 91 1080.186 total 98362.053 93 least significant difference (lsd) dependent variable group i group j mean difference (i-j) std. error sig. agent turnover yes i am sure this regularly happens yes, but this does not happen regularly 4.10015 6.74204 0.545 ns yes i am sure this regularly happens no, we do not consistently train and expect a supervisory team -37.07485 14.35930 0.011* yes, but this does not happen regularly yes i am sure this regularly happens -4.10015 6.74204 0.545 ns yes, but this does not happen regularly no, we do not consistently train and expect a supervisory team -41.17500 15.11331 0.008** ns not significant (p-value > 0.10) † p-value < 0.10 * p-value < 0.05 ** p-value < 0.01 *** p-value < 0.001 22 the data in table 4 show no relationship between agent tenure and the presence of a policy on interpersonal training for managers. regarding agent turnover, the results are far more interesting. it seems that if you have any policy in place regarding interpersonal training for managers it is going to be statistically better than having nothing at all. h5: the paid time off policy will have a significant positive relationship with tenure and a significant negative relationship with turnover. table 5 – correlations for paid time off (pto) pearson correlation (significance) agent tenure agent turnover pto days per year 0.302*** -0.111ns n = 104 ns not significant (p-value > 0.10) *** p-value < 0.001 table 5 illustrates that while paid time off did not have any significant statistical relationship with agent turnover, it was highly correlated to agent tenure. more paid days off per year does seem to encourage agent tenure. interactional justice h6: interpersonal interactions (non-financial rewards like employee of the month, a preferred parking space, a plaque, a pat on the back, or a thank you) between the manager and employees will have a significant effect on employee tenure and turnover. table 6 – anova analysis anova dependent variable metrics sum of squares df mean square error f sig. agent turnover between groups 458.922 3 152.974 0.181 0.909ns within groups 76219.565 90 846.884 total 76678.487 93 agent tenure between groups 13909.724 3 4636.575 4.941 0.003** within groups 84452.329 90 938.359 total 98362.053 93 ns not significant (p-value > 0.10) 23 ** p-value < 0.01 the findings in table 6 show once again a split result. agent turnover was not influenced by the use of non-financial rewards. however, the use of non-financial rewards had a significant and positive effect on agent tenure. h7: a budget for non-financial rewards will have a significant effect on employee tenure and turnover. table 7 – correlations for non-financial rewards pearson correlation (significance) agent tenure agent turnover budget for non-financial rewards -0.173* -0.031ns n = 91 ns not significant (p-value > 0.10) * p-value < 0.05 table 7 shows a similar, mixed result. the non-financial rewards did influence agent tenure but did not influence agent turnover. discussion significant support was found across industries for the impact of distributive, procedural, and interactional justice theories on employee commitment. this research supports the contention that sacrificial hr strategies are present in customer service departments across industries. these sacrificial hr strategies lead to a lack of employee commitment. the results of this research provide evidence that customer service firms do "reap what they sow", a concept first introduced by maxham and netermeyer in 2003. perceived justice by customer service reps impacts the extra-role behaviors they engage in when dealing with a customer (maxham and netermeyer, 2003) and that "moment of truth" exchange that takes place. hiver’s report on customer service during the pandemic indicates that consumers have a very low tolerance for poor customer service and 89% indicate they will make their bad experience known to friends and family and on social media. the report also indicates that 30% of consumers will not give a company a second chance after just one bad customer experience (pr newswire, 2020b). simplr, in their june 2020 state of customer service report, indicated that “it remains important to the consumer that a company brings empathy and humanity to each customer service interaction” (murphy, 2020). empathy has also been recommended by brennan (2020) as a way of setting a company apart in customer service. she calls the concept “radical empathy” and defines it as a deep understanding of your consumer. she recommends combining radical empathy to delight your customers as a way to navigate to excellent customer service during this pandemic. extra role behaviors like empathy and delight are not the typical customer satisfaction goal. delight and empathy require exceptional customer service efforts. how would it be possible for a customer service rep to show radical empathy and deliver delight to a customer when that csr does not receive any radical empathy or delight in the workplace? the average annual turnover rate across industries in this sample was 30%. the average tenure in months was 37 months or approximately three years. this tenure barely spans the full length of an extended product warranty. this research highlights that customer service firms that utilize sacrificial hr strategies will reap what they have sown, particularly in challenging competitive times (like a 100year pandemic). the complaints about peloton were not as much about delivery delays as they were about the lack of honesty and lack of responsiveness of the customer service representatives. 24 unhappy customers said things such as “hiding behind recent events as excuses, as opposed to transparency to the real problem” and i would be a lot more understanding “if they were honest” (hanbury, 2020). this research explains why peloton, and other firms, who are proud of their customer service and positioned well for a pandemic, may be unable to take advantage of the tremendous opportunity covid-19 presented to them. the opposite situation would also be true, as companies who are significantly threatened by the pandemic would have difficulty minimizing the threat the pandemic represents. when the pandemic hit, airlines were inundated with calls from customers. they had to enlist senior executives to take customer calls and customers could not get issues resolved. when the pandemic hit, companies struggled to provide customer service. the american express co. login page is topped with a message, in red letters, warning of long wait times and encouraging people to “use our digital tools.” british airways’ customer service line to manage flight reservations plays a message to call back later or visit the company’s website. calling the toll-free number for procter & gamble’s charmin brand toilet paper tells people looking for bathroom tissue that the company is working “as fast as humanly possible” to supply retailers and ends with “we hope you are able to find it in stores soon,” before disconnecting (terlep, 2020). this study may help to explain why brands are “failing to create the positive, emotional experiences that drive customer loyalty” and why consumers are becoming “serial switchers”. newvoicemedia reports that 86% of surveyed customers said that “if there was an emotional connection with a customer support agent and the customer felt they were cared for and valued, they would be willing to continue to do business with the company again” (newstex trade and industry blogs, 2018). sixty six percent of customers indicated they would be more loyal if they received good customer service and 65% indicated they would be willing to recommend the company. the lack of supportive hr strategies may save money in the short run but does this lack erode long-term customer loyalty? customer loyalty may be the only sustainable competitive advantage during the turbulent environment of covid-19. references brennan, b. (2020) radical empathy and other ways to rethink your customer experience, forbes online, https://www.forbes.com/sites/bridgetbrennan/2020/10/08/radical-empathy-andother-ways-to-rethink-your-customer-experience/?sh=9023ace5f3bd. october 8, 2020. carbo, j., pellegrino, k.; and pellegrino, r. (2009) using strategic management principles, shrm theory and organizational theories to make practical, legal, ethical and strategic employment law related hr decisions. proceedings of the academy of business disciplines, fort myers florida, november 2009. customer service blog (may, 2018) “$75 billion dollars is lost due to poor customer service”, newstex trade & industry blogs, chatham. dow jones institutional news (2014) poor customer service is eroding customer loyalty to retail brands. new york, new york, august 20, 2014. deutsch, morton (1985). distributive justice: a social-psychological perspective, new haven, ct: yale university press. folger, r. & cropanzano, r. 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(2020).customer calls to companies rise amid coronavirus, but operators aren't standing by. wall street journal online, new york, new york. wallace, c., eagleson, g., & waldersee, r. (2000). the sacrificial hr strategy in call centers. journal of service management, 11(2), 174-184. 26 modeling the relationship between trust in science and reliance on formal news sources william randall university of north texas vikas sinha university of north texas victor prybutok university of north texas communication of scientific information to the population presents challenges because of the need to balance being transparent with avoidance of complex scientific terminology. the spread of information and news through social media and other informal sources rose during this past decade. the focus of this study is to understand what relates to reliance on formal news media. formal news sources influence businesses and people, making them more apt to believe in science as measured by their beliefs in scientific concepts such as vaccinations, climate change, and compliance with covid protocols. while this study looked at science because of the timeliness of covid-related communication, this is a major issue related to all areas of business. for example, consider that in the case of covid vaccines which has a consumer product manufactured by pharmaceutical firms, manufacture of the physical products related to vaccines, the distribution, and administration of vaccines. trust in the predictive modeling that suggests vaccinations and ppe protocols impact pandemic and health concerns help influence actions. this empirical research shows that belief in science is correlated with the formality of the news source. having a population that uses scientific information leads to behaviors like controlling the spread of something like covid which is good for business, and not doing so results in the potential to have shutdowns or restrictions that are bad for business. if one fully understands the process, the public trusts in scientific modeling information, the impacts of non-compliance, and the negative business impact of non-compliance can be minimized. keywords: covid; predictive modeling; information source http://journals.sfu.ca/abr 2022, volume 12, pages 26-36 http://journals.sfu.ca/abr 27 introduction there is a conjecture that some individuals do not trust science and are hesitant to take proper actions to respond to what the science suggests (e.g., covid-19 complications if people do not follow preventative measures or fail to take the vaccine) (plohl & musil, 2020). this proposed study uses research concepts and approaches from studies evaluating the trust (or lack of trust) in science and examines the correlation of this trust with the source of information. the subject of trust in science is a multilayered area to try to investigate. for example, one might trust in the science that leaping from a considerable height is incongruent with a long healthy life but trusting in climate change predictions to cause lifestyle changes are more complicated. while both the effect of gravity and climate science are predictive aspects of science, the former is considered obvious, while the latter would depend more on one’s trust in science. the rise of rapid information dissemination through social media channels has increased awareness amongst people. however, some people also tend to believe the misinformation or disinformation that is coming through those informal channels. this source of information – formal news versus informal news – influences whose science people believe in (brewer & ley, 2013). it is accepted that existing literature does not reach a consensus on defining trust (rousseau et al., 1998). there is an agreement in the peer-reviewed literature on the positive impact trust has on collaborative behavior (badcock & gambetta, 1990), fostering the rapid formation of informal working groups, decreasing harmful conflicts, and reducing transaction costs (meyerson et al., 1996). mayer et al. (1995) described trust as a “willingness to be vulnerable,” as cited in meyerson et al. (1996, p. 152). in contrast, other researchers describe it as a “willingness to rely on” or “confident, positive expectations” (rousseau et al., 1998, p. 394). this study accepts the definition that encapsulates all the above information in this definition of trust. “trust is one party’s willingness to be vulnerable to another party based on the belief that the latter party is (a) competent, (b) open, (c) concerned, and (d) reliable” (meyerson et al., 1996, p. 152). this empirical research analyzes various beliefs people have that influence decision they make in their lives. the beliefs in science items included vaccinations, climate change, nuclear energy safety, the safety of genetically modified food, and obesity and health. the correlation of these beliefs to the news source was then analyzed. the study justifies that belief in science is strongly correlated with the type of source from which a person gets their news. here, that would be formal news sources. formal news is defined as news gained from mass media such as major television and print sources and not social media, friends, family, scientific experts, or search engines. the remainder of this paper presents a review of prior literature, research methodology, analysis of results, conclusion and future research, and reference list. literature review the science-society relationship has been turbulent over the years (national academies of sciences, engineering, and medicine, 2017). this turbulence is often valid when the scientific findings conflict with religious beliefs or long-held views. added to that are the concerns about manipulating information on popular social media channels like facebook, twitter, and whatsapp (michael & breaux, 2021). digital technology has fundamentally altered the sources from which people seek their news and information. readily accessible user-generated information content and numerous niche news channels now vie with formal news sources. the growing use of unconventional sources of information correlates with a propensity to question (fletcher & park, 2017) and increases skepticism of formal sources (tsfati & cappella, 2003) while not questioning informal news sources. other the other hand, trust in information can also be linked to expectations (vanacker & belmas, 2009). an individual expecting gossip news is likely to trust a source that fulfills that expectation, while still believing that a reputed formal news source, like new york times, better informs the audience. in 28 certain geopolitical regions and cultures, information from governments is deemed to carry more trust than the news from social media, interpersonal communication, or religious clerics (melki et al., 2021). this changing consumption pattern has similarly resulted in people relying more increasingly on informal news sources such as search engines and social media for their information needs (gil de zuniga et al., 2017). while the use of television appears to be declining, print news is sharply declining, and social media as a source of news is on the rise (nielsen et al., 2016). often these informal news sources are not vetted and can carry deliberate misinformation or disinformation. people consume content from numerous sources with unverified credibility and when not contextualized the source’s intentions could negatively impact the public's trust in all news sources' accuracy, quality, and objectivity (flanagin & metzger, 2017). this presents an even more significant challenge to the business and scholarly community when trying to communicate accurate scientific information. people do not realize that they still need to vet the information they receive no matter the news source (ognyanova, 2019). this unquestioning belief represents a severe dichotomous relationship between information gained from formal and not questioning informal news sources. people are drawn to and do not question news sources that reinforce their current beliefs, while they avoid and do not trust news sources that are incongruent with their current beliefs (michael & breaux, 2021). the national academies of sciences, engineering, and medicine in a study (nasem, 2017) on communicating science effectively suggested that people who understand science or have the willingness to understand scientific information often seek to understand the relative merits of the evidence presented or how well the facts and underlying information support the particular issue being described. believers in the beliefs in science list are willing to have evidence-based scientific findings presented to them and, therefore, would be considered to have some degree of trust in science. people's views towards scientific information and science are impacted when emerging technologies and scientific information threaten deeply held values and challenge beliefs (blank & shaw, 2015; nasem, 2017). the following paragraphs will consider a few topics of science-related public controversy or contentious societal issues. the topic of vaccines has risen to a broader public conversation lately, primarily because of the current covid-19 pandemic. this controversy has created a divide among people based on sub political affiliations, religious beliefs, or just a long-held belief that vaccines lead to adverse events, like autism, later in life (van der linden et al., 2015). people must decide whether to follow medically reasonable vaccination recommendations (downs et al., 2013). refusal to vaccinate poses a severe public health risk. those with a higher level of trust in scientific evidence are expected to accept the idea of the importance of vaccinations. this trust can be the topic of childhood vaccinations (stratton et al., 1994; mckeever et al., 2016) or vaccination deemed necessary while traveling for protection against communicable diseases such as ebola (nasem, 2017), malaria, and now covid-19. those who use the informal social channels for science-related information are disproportionately people whose views counter the scientific consensus (mckeever et al., 2016). this phenomenon certainly appears to be the case in the climate change debate, gaining extensive traction in information sources like social media. social media in the context of this study consists of social internet sites that do not include mass media (major television and print sources), friends and family, scientific experts, or search engines. people who believe that climate change is indeed real are likely founding their belief on scientific evidence (dunlap & mccright, 2010; mccright et al., 2016; mccuin et al., 2014; ranney et al., 2012). knowledge is not needed for having an opinion on a subject, which helps to explain why knowledge and attitudes do not seem to be linked (nasem, 2017). in the case of genetically modified organisms (gmos) in food, people think about whether that is a good thing or not, but most people do not know about them (mcfadden & lusk, 2016). in such cases, the news source can easily frame the topic to influence how individuals think about the issue. similarly, people are faced with 29 complicated and inconsistent claims, for example, about the hazards and benefits of consuming added sugar, salt, and fats, while making their food choices to avoid obesity. the primary topic in front of them is whether they believe the food industry contributes to obesity and whether obesity is linked to health (bleich et al., 2007; dunlap & mccright, 2010). people believe the risk is more minor or the potential benefits as more significant when the information they receive is from an institution they trust (chryssochoidis et al., 2009). trust in institutions strongly influences support for nuclear power (besley & mccomas, 2015; visschers & siegrist, 2012; whitfield et al., 2009). in each area discussed above, vaccinations, climate change, the safety of gmos in food, obesity, health, and nuclear energy safety, individuals cling to their common-sense mental models or long-held views about how the world works (vosniadou & brewer, 1992). nevertheless, there is also evidence that with scientific reasoning and evidence from formal sources, such thinking can be influenced and revised (ranney et al., 2012) toward greater trust in science. news from formal and scientific sources can therefore increase awareness of how people perceive and act on a range of controversial scientific issues. method this study employed a deductive quantitative research approach in a survey form(creswell & creswell, 2018). the data collection was done with an online survey instrument created from the scholarly articles described in the literature review, which provide the framework for studying the relationship between trust in science and the formal news source as the primary source for scientific information. all the statistical analyses presented in this paper are done with ibm spss statistics version 27. data collection the online survey instrument was created in qualtrics (https://www.qualtrics.com/), approved by the institutional review board, and given to students at a midwestern university. this quantitative survey used likert scale responses to measure the strength/intensity of responses for each question created by contextualizing the questions related to science-related public controversies and complexities of communicating science from nasem (2017). the survey captured responses to a series of questions that would help understand their degree of belief in topics of science-related controversies from formal news sources. sampling frame the study used a sample drawn from undergraduate and graduate students at a large metropolitan midwestern university in the united states. this student population was chosen as a target group owing to their availability throughout the study's length, and a higher chance of consenting to participate. additionally, the chosen university has a mature student body, with many students surveyed also working full-time in the industry outside the university. table 1 shows the demographics of the survey respondents. the study obtained 207 valid survey responses. using g*power t-tests for multiple linear regressions, the a priori required sample size for testing the parameters of a two-tailed test with an effect size of 0.07, alpha 0.05, power 0.9, and 10 predictors required a minimum sample size of 153. the study sample size was 207 which was adequate to support the planned analysis. data analysis this research measures the trust in formal news sources as the source for obtaining facts and information. eleven independent variables are employed in the model. these are described in table 2. the survey also asked respondents to rate their level of confidence in the news coming from formal news sources and scientists. this confidence formed the dependent variable formalnewssource in the study. the survey was conducted between october 2020 and february 2021. ordinary least http://www.qualtrics.com/) 30 squares (ols) regression analysis was conducted to analyze the trust in formal news sources based on the respondents' trust in science. the stepwise regression method was used to iteratively construct the regression model by adding and removing independent variables in succession and testing for statistical significance after each iteration. this method allowed us to retain the most influential and statistically significant independent variables in the regression model. table 1 – sample demographics gender n % income n % age n % 0 female 146 70.5% 1 (less than $31,000) 44 21.3% 1 (18y 21y) 113 54.6% 1 male 59 28.5% 2 ($31,001 to $42,000) 33 15.9% 2 (22y 25y) 33 15.9% 2 other 2 1.0% 3 ($42,001 to $126,000) 97 46.9% 3 (26y 29y) 22 10.6% 4 ($126,001 to $188,000) 18 8.7% 4 (30y or over) 39 18.8% 5 ($188,001+) 15 7.2% education level n % college attending n % 1 first-year undergrad student 79 38.2% 1 college of education 12 5.8% 2 sophomore 25 12.1% 2 college of engineering 16 7.7% 3 junior 13 6.3% 3 college of health and public service 92 44.4% 4 senior 7 3.4% 4 college of information 3 1.4% 5 graduate student 83 40.1% 5 college of liberal arts and social sciences 22 10.6% 6 college of merchandising, hospitality, and tourism 1 0.5% 8 college of science 22 10.6% 9 college of visual arts and design 1 0.5% 10 school of journalism 5 2.4% 11 college of business 33 15.9% table 2 – independent variables independent variables 1 childhoodvaccine trust in childhood vaccines 2 travelvaccine trust in vaccines for travel 3 climatechange trust in climate change predictions 4 gmosafety trust in the safety of genetically modified organisms 5 nuclearenergysafety trust in the safety of nuclear energy 6 overweightandhealth trust in the link between obesity and health 8 gender gender of the respondent 31 9 age age of the respondent 10 income income of the respondent 10 collegemajor major college of the respondent 11 educationlevel graduate or undergraduate level of the respondent results the survey questionnaire asked the respondents to rank their level of agreement with each statement about the selected science-related public controversy or long-held personal belief. the ols regression was conducted in multiple passes to determine the best approach. each result table presented herein identifies the variables, coefficients, t-statistic, p-values, and adjusted r-square for each regression run. table 3 presents the results of this regression analysis. the first regression was conducted with all independent variables included in the regression model, and the adjusted r-square for this regression was 0.332. however, several independent variables, such as childhoodvaccine, geneticmodified, nuclearenergy, gender, income, college, age, edulevel, were statistically significant in this regression. therefore, a stepwise regression was subsequently run to iteratively construct the regression model by adding and removing independent variables in succession and testing for statistical significance after each iteration. stepwise regression retains the most influential and statistically significant independent variables in the regression model. table 4 presents the results of the stepwise regression analysis. this analysis identified three models, each with a different combination of independent variables. model #3 emerged as the model with the highest adjusted r-square value and lowest standard error of the estimate. the adjusted r square for model #3 was 0.335. this r-square is slightly better than the 0.332 adjusted r-square from the regression run with all variables included. however, each independent variable selected in model #3 – travelvaccine, overweightandhealth, climatechange – was statistically significant with p values <0.001. table 3 – ols regression with all variables included model summary model r r square adjusted r square std. error of the estimate .607a 0.368 0.332 0.68906 a. predictors: (constant), edulevel, climatechange, income, gender, overwthealth, nuclearenergy, college, childhoodvaccine, geneticmodified, age, travelvaccine anovaa model sum of squares df mean square error f sig. regression 53.895 11 4.900 10.319 .000b residual 92.585 195 0.475 total 146.481 206 a. dependent variable: formalnewssource 32 b. predictors: (constant), edulevel, climatechange, income, gender, overwthealth, nuclearenergy, college, childhoodvaccine, geneticmodified, age, travelvaccine coefficientsa model unstandardized coefficients standardize d coefficients t sig. 95.0% confidence interval for b b std. error beta lower bound upper bound (constant) 1.061 0.306 3.472 0.001 0.458 1.663 childhoodvaccine 0.000 0.077 0.000 -0.001 1.000 -0.152 0.152 travelvaccine 0.212 0.076 0.293 2.768 0.006 0.061 0.362 climatechange 0.156 0.055 0.202 2.822 0.005 0.047 0.265 geneticmodified 0.039 0.059 0.057 0.666 0.506 -0.077 0.155 nuclearenergy -0.007 0.053 -0.010 -0.123 0.902 -0.112 0.099 overwthealth 0.282 0.053 0.332 5.272 0.000 0.177 0.388 gender 0.048 0.108 0.027 0.444 0.657 -0.165 0.261 income 0.047 0.044 0.062 1.063 0.289 -0.040 0.133 college -0.020 0.017 -0.077 -1.171 0.243 -0.053 0.014 age 0.018 0.072 0.025 0.253 0.801 -0.123 0.159 edulevel -0.078 0.049 -0.169 -1.602 0.111 -0.175 0.018 a. dependent variable: formalnewssource table 4 – stepwise regression summary model summary model r r square adjusted r square std. error of the estimate 1 .439a 0.193 0.189 0.75938 2 .552b 0.304 0.298 0.70669 3 .587c 0.345 0.335 0.68748 a. predictors: (constant), travelvaccine b. predictors: (constant), travelvaccine, overweightandhealth c. predictors: (constant), travelvaccine, overweightandhealth, climatechange anovaa model sum of squares df mean square f sig. 1 regression 28.266 1 28.266 49.016 .000b residual 118.215 205 0.577 total 146.481 206 2 regression 44.600 2 22.300 44.653 .000c residual 101.880 204 0.499 total 146.481 206 3 regression 50.536 3 16.845 35.642 .000d residual 95.944 203 0.473 total 146.481 206 33 a. dependent variable: formalnewssource b. predictors: (constant), travelvaccine c. predictors: (constant), travelvaccine, overweightandhealth d. predictors: (constant), travelvaccine, overweightandhealth, climatechange coefficientsa model unstandardized coefficients standardized coefficients t sig. 95.0% confidence interval for b b std. error beta lower bound upper bound 1 (constant) 2.354 0.189 12.485 0.000 1.982 2.725 travelvaccine 0.317 0.045 0.439 7.001 0.000 0.228 0.406 2 (constant) 1.245 0.262 4.759 0.000 0.729 1.760 travelvaccine 0.298 0.042 0.412 7.039 0.000 0.214 0.381 overweightandhealth 0.285 0.050 0.335 5.719 0.000 0.187 0.383 3 (constant) 0.988 0.265 3.735 0.000 0.466 1.509 travelvaccine 0.217 0.047 0.300 4.602 0.000 0.124 0.309 overweightandhealth 0.258 0.049 0.303 5.259 0.000 0.161 0.355 climatechange 0.181 0.051 0.234 3.544 0.000 0.080 0.281 a. dependent variable: formal newssource the results shown in table 4 were sufficient to determine the variables that were most influenced by formal news sources. however, the variables that were excluded from model #3 during stepwise regression, shown in table 5, were further examined to evaluate if retaining any of these in the regression model would uplift the model fit. it is of note that the variable edulevel was excluded with a p-value rounded to 0.050. forced retention of this variable into the model did not yield any significant improvement in the r-squared value. therefore, it was decided to stay with the regression model as determined by the stepwise method. table 5 – best model (excluded variables) excluded variablesa variable beta in t sig. partial correlation collinearity statistics tolerance gender .055d 0.957 0.340 0.067 0.980 income .040d 0.694 0.488 0.049 0.996 collegemajor -.007d -0.118 0.907 -0.008 0.992 age -.084d -1.430 0.154 -0.100 0.926 educationlevel -.114d -1.970 0.050 -0.137 0.946 childhoodvaccine .003d 0.033 0.973 0.002 0.314 gmosafety .064d 0.932 0.352 0.065 0.683 nuclearenergysafety .034d 0.537 0.592 0.038 0.812 34 a. dependent variable: formalnewssource d. predictors in the model: (constant), travelvaccine, overweightandhealth, climatechange a puzzling factor was why travelvaccine was included during stepwise regression and childhoodvaccine was excluded. the authors believe that those who do not believe in vaccines would not believe in any vaccine, or conversely, those who believe in the vaccines would unconditionally trust them regardless of whether they are trying to protect their children during their younger years or their family and themselves while traveling to regions where pre-travel vaccinations are highly recommended. to test our hypothesis, a correlation analysis was run comparing the variables travelvaccine and childhoodvaccine. the results of the correlation analysis are shown in table 6. as anticipated, a high correlation between these two variables with a pearson correlation factor of 0.83 was found. including both these variables in the model would have presented a problem with collinearity, and therefore it now made sense to include the one that resulted in a higher adjusted r square value. table 6 – correlation results correlations childhoodvaccine travelvaccine childhoodvaccine pearson correlation 1 .813** sig. (2-tailed) 0.000 sum of squares and cross-products 260.734 220.126 covariance 1.266 1.069 n 207 207 travelvaccine pearson correlation .813** 1 sig. (2-tailed) 0.000 sum of squares and cross-products 220.126 280.995 covariance 1.069 1.364 n 207 207 **. correlation is significant at the 0.01 level (2-tailed). from these results, one can conclude that people who believe in science, as evidenced by their beliefs in topics of science-related controversies, trust formal news sources for obtaining scientific facts and information. among the science-related controversies or long-held beliefs are belief in vaccinations (these are people who want to ensure their families and loved ones are safe and well protected while at home or away), belief in scientific predictions (understand the climate change, its impact, and the future predictions), recognize the importance of being healthy (understand the relationship between obesity and health), and degree of maturity achieved through a level of academic education. listening to or following formal news sources or mainstream news correlates to a belief in scientific concepts. therefore, belief in science is highly correlated to where people get their news. 35 discussion and future research communicating scientific impact on business is difficult. this research confirmed that news coming from formal sources such as mainstream media and scientists is the most impactful. among the areas of belief that were found to be significantly correlated to getting news from formal sources were belief in vaccinations (these are people who want to ensure their families and loved ones are safe and well-protected while at home or away), belief in predictive sciences (understand the climate change, its impact, and the future predictions), and recognize the importance of being healthy (understand the relationship between obesity and health). the areas that did not influence were individuals' gender, income, age, college major, education level, and their beliefs in the safety of nuclear energy and the safety of genetically modified organisms. mainstream news and formal news sources influence people, making them more likely a believer in science as measured by their beliefs in scientific concepts measured and analyzed in this study. this information is useful to anyone interested in communicating science effectively. at the time of this writing, there is a reluctance on the part of many to take covid-related actions based on the scientific information available. this research furthers the knowledge base in support of this and other communicating science issues. a similar future study relating to those who primarily consume news from information sources such as social media and through friends and family would help put an alternate perspective on trust in science. references badcock, c., & gambetta, d. 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(2009). the future of nuclear power: value orientations and risk perception. risk analysis: an international journal, 29(3), 425-437. introduction literature review method data collection sampling frame data analysis results discussion and future research references microsoft word abr--first-time-online-submission-2016.docx advances)in)business)research! first!time!online!submission!instructions! ! ! go!to!the!journal!website:!http://journals.sfu.ca/abr/! ! click!on!register! ! fill!out!the!form.!!be!sure!to!complete!all!areas!of!the!forms!and!use!normal!capitalization!and! punctuation!for!names,!titles,!affiliations,!abstracts,!etc.! ! make!sure!you!check!the!register(as:!author:!able!to!submit!items!to!the!journal!tick!box!(and! others!as!applicable).! ! submit!the!form!(it!might!reject,!for!example,!if!you!mistype!the!validation!text,!just!try!again).! ! once!the!form!is!successfully!submitted,!you’ll!see!the!user(home!where!you!can!see!your!roles! such!as!author!or!reviewer.! ! click!on!author!and!it!will!take!you!to!the!active(submissions!page.! ! you’ll!see!this:! ! ! follow!the!five!steps!and!the!last!step!is!“confirm!submission.”!!! ! be!sure!to!complete!all!areas!of!the!forms!(including!colauthors,!added!with!the!add!author! button)!and!use!normal!capitalization!and!punctuation!for!names,!titles,!affiliations,!abstracts,! etc.! ! after!you!finish!step!five,!you’ll!be!taken!to!your!active(submissions!page.! ! ! ! ! 64 connecting governance to ceo replacement and organizational recovery meredith downes, ph.d. illinois state university manuscript type: conceptual/theoretical research question/issue: why do ceos overstay and, in some cases, long overstay their welcomes? social network theory may offer some explanation for delays in dismissing ceos that, in the eyes of shareholders, should have been long gone. social network theory also suggests that delaying the dismissal of a ceo will in turn delay firm performance recovery. social network theory is reviewed in the context of board monitoring and its effects on ceo dismissal and subsequent recovery. it is ultimately suggested that certain board attributes will have an indirect effect on recovery time, as mediated by ceo dismissal time. a model and propositions are laid out and potential next steps are outlined for pursuing this line of inquiry. research insights: based on the literature review, it seems likely that board composition will have an indirect effect on how long it takes for organizations to recover from poor performance, after replacing an underperforming ceo. theoretical implications: this paper makes important contributions to the corporate governance literature. first and foremost, it extends the research agenda on board composition, ceo turnover, and performance, to include the element of time. more specifically, it suggests that certain characteristics of corporate boards are more likely to inhibit the types of governance necessary to remove underperforming ceos, and this, in turn, will impact the time it takes for organizational performance to recover. the paper also deepens the application of social network theory to the study of corporate governance, addressing several elements of social networks that are found in nonindependent boards and with “overboarded” directors. practitioner implications: risks of poor performance due to inadequate governance are farreaching, and shareholders and d&o (directors and officers) liability insurers are particularly vulnerable. even with new management in place, shareholders might lose faith in the board if important strategic actions were delayed and especially if they negatively impact their investments. the anticipated effects of recovery can also discourage future investment in the company. vigilant boards, composed of independent directors with optimal bandwidth, would be more likely than dense and embedded boards to replace the ceo when it is warranted. it would, therefore, behoove shareholders to participate in the election of directors, rather than turning that privilege over to the very board that took too long to replace the ceo due to its strong network structure. keywords: corporate governance; social network theory; board composition; ceo dismissal http://journals.sfu.ca/abr advances in business research 2019, volume 9, pages 46-59 65 introduction along with stock ownership concentration, executive compensation, and the market for corporate control, boards of directors can be powerful mechanisms for governing today’s corporations (barney & ouchi, 1986; dyl, 1988). the literature on corporate governance emphasizes the abuse of managerial power in the absence of robust boards (burrough & helyar, 1990; hwang, 1993; lublin, 1991). we see evidence of this abuse in the lofty compensation packages afforded to ceos even when firms are underperforming. according to management guru peter drucker, “whenever an institution malfunctions as consistently as boards of directors have in nearly every major fiasco of the last 40 or 50 years, it is futile to blame men. it is the institution that malfunctions” (drucker, 1981). therefore, allowing ceos to receive such large sums in compensation for mediocre or even poor performance is evidence of board ineffectuality. in fact, allowing the ceo to continue to reign over the organization may indicate board deficiency. these and other practices have certain shareholders, particularly large-block institutional investors, up in arms -and they are not blaming management. they are blaming the boards (pulliam & pereira, 1995; smith, 1996). the board of directors is charged with oversight responsibilities to ensure that management actions are in the shareholders’ best interests (monks & minow, 1996). it is only in the last two decades that the board’s role as an “ornament on a christmas tree” has been vehemently denounced. instead, they have been “granted authority” by the example set by a few boards (e.g. ibm, general motors), to replace the current ceo. subsequently, ceos at westinghouse, american express, eastman kodak, scott paper, and borden were all pressured to resign. however, these companies suffered years of decline before the ceos were ousted. this begs the issue of why some firms wait too long for proof of managerial incompetence before making a move, and thus board effectiveness comes into question. for instance, it may be that, true to the “old boy’s club” accusation, there is a collegiate culture in the boardroom that fosters an unwillingness to speak out against a prevailing view. board members who have served together for years, or those who are somehow beholden to top management, are particularly likely to favor the status quo. if the agency relationship between owners and managers explains the need for governance mechanisms such as corporate boards, what explains the fact that boards may not always be prompt in addressing the agency problem? although charged with the task of protecting owners (and, more recently, other stakeholder groups as well), from managerial opportunism, there is no guarantee that they will fulfill this responsibility. research has given some weight to the role that board composition plays in its ability to monitor effectively (i.e. by removing an underperforming ceo). the extant research suggests that outside-dominated, independent, diverse boards, with limited director bandwidth and no ceo duality, are ideally composed and thus the most likely boards to pursue ceo dismissal when it is warranted. some of this research has been empirical (e.g. triana, miller, & trzebiaowski, 2014; vafeas, 2003), although most are suggestive, based on agency and social network theory (e.g. hambrick, misangyi, & park, 2015; libit & freier, 2015a). the current paper adds to this research agenda by addressing a related yet unexamined phenomenon – that of delays in ceo dismissal – in order to capture the dynamic elements of the decision to dismiss. another addition of this paper is in the way that subsequent performance is addressed, also dynamically, in terms of how long it takes for organizational performance to recover following ceo dismissal. specifically, in modeling the relationship between board composition and organizational performance, the delay in ceo dismissal is incorporated as a mediator. it is suggested that certain characteristics of corporate boards are more likely to inhibit the types of governance necessary to promptly remove underperforming ceos and that this, in turn, will impact the time it takes for organizational performance to recover. direct and indirect effects of specific board characteristics on recovery will be addressed. figure 1 shows the proposed relationships among the relevant constructs, each of which is developed below. 66 figure 1. theoretical model and proposed relationships literature review and proposed model ceo dismissal can be defined as a situation in which the ceo’s departure is against his or her will and is not part of a mandatory retirement policy. whether due to the need for a scapegoat (gamson & scotch, 1964; nystrom & starbuck, 1984), the desire to shift organizational direction, or ceo wrongdoing, dismissal represents a major organizational event typically initiated by the board of directors. the mere threat of dismissal acts as a constraint on managerial actions, with poor performing ceos more likely to be replaced if internal governance is strong. although poor corporate performance has been consistently associated with high rates of ceo turnover (giambatista, rowe, & ruiz, 2005), many ceos have been dismissed even when their firms were performing well. in addition, some findings indicate a direct performance-dismissal link (giambatista et al., 2005; haleblian & rajagopalan, 2006), whereas others show a more modest association between actual performance and dismissal (phan & lee, 1995; triana et al., 2014). this calls the causal nature of the relationship into question and suggests that the link may be mediated by other forces. therefore, this paper explores the role of board composition on its decision to dismiss an underperforming ceo and how this, in turn, impacts future performance. social network theory is used to develop the ideas for this paper and is therefore reviewed in general terms below, followed by more deliberate application of the theory in order to support the arguments regarding board composition, ceo dismissal, and subsequent recovery. social networking theory networked structures are those systems characterized in terms of nodes (individual actors, people, or things within the network) and the ties or edges (relationships or interactions) that connect them. there are three types of social networks. ego-centric networks are connected through the ties that members have with a single node or individual, socio-centric networks are closed systems with connections across multiple nodes and where the boundaries of the network are formal and defined, and open-system networks are those where the boundaries are not clear since they cross over formal 67 structures. the structural patterning of a network depends on the combination of characteristics that it takes on, with most attention typically given to its density and its embeddedness. highly embedded networks are composed of actors who show a preference for transacting with other actors inside rather than outside the network (granovetter, 1985; uzzi, 1996). embeddedness emphasizes not only the social ties between certain actors but also the absence of ties between others (wellman, 1999). density represents the cohesion of the network. dense networks are those with a high percentage of actual connections relative to the possible number of connections in the network. networks can also be described in terms of their range (or size) and their diversity, with homophily referring to the extent to which actors form ties with similar as opposed to dissimilar actors in the network. finally, the multiplexity of a network refers to the number of ways in which actors within the network are connected to each other. some may only be co-workers, for example, whereas others may work together but also attend the same church. while centrality has been used to characterize networks as well, it is more individualistic in nature, referring to the importance of a particular node to the entire network. this relates to the length of the path, such as the degrees of separation between nodes, with some nodes holding considerable power as bridges to other nodes in the network. network characteristics are somewhat elusive, in that they are very difficult to measure directly. however, boards of directors, by virtue of their compositions, enable us to capture many of these characteristics. corporate boards most closely resemble socio-centric networks, and the group of firms and directors connected through board interlocks form open-systems networks. table 1 allows us to see both types and will be referenced throughout the paper. board multiplexity can be captured by the number of interlocks among directors, and embeddedness is reflected in the proportion of insiders or non-independent directors on the board. in addition to capturing aggregate board characteristics, hambrick et al. (2015) assert that even the most ideally composed boards may not include a single director with all of the necessary qualities to be an effective monitor. this is analogous to a movie with a decent cast but which, without at least one stellar acting performance, is not likely to be nominated for an academy award. the hambrick et al. (2015) model calls for at least one but preferably two directors with a requisite four attributes (independence, domain expertise, bandwidth, and motivation) in order to render the board effective. their “quad model” also stresses the need to address these attributes conjointly, rather than as mutually exclusive characteristics. the current paper addresses many issues raised by previous studies, thoughtfully grouping board characteristics to be considered conjointly. it also makes a unique contribution to the literature, by (i) adding a dynamic element to the heretofore static conceptualizations of board monitoring by addressing delays in ceo dismissal and delays in firm recovery, and (ii) solidly grounding all of the above in theory. 68 propositions most of the research on ceo dismissal takes a static approach, treating dismissals as successful board events when they coincide with poor firm performance. this ignores the damage to the firm in the time leading up to a dismissal. there have in fact been cases, such as the united way, the jewish center of washington, dc, and food for the poor (glazer, 1994; kay, 1994; sinclair, 2000), where ceo misdeeds went on for years without detection. this indicates a governance problem. although the ceos in each of these cases perpetuated the wrongdoing, it was the board that failed to institute accountability measures and therefore failed in its oversight responsibilities. phan and lee (1995) examined firm performance for the three years prior to dismissal, hinting at the dynamic nature of such an event. haleblian and rajagopalan (2006) also included the element of time in their study of board cognitions and the decision to dismiss, considering the board’s perception of the firm’s performance, its attributions of that performance, and its assessment of the efficacy of the ceo. this suggests that the dismissal is not a one-time event but rather a process of gathering information and making a series of assessments that may or may not lead to ceo dismissal. therefore, the logic suggested by the extant literature is extended here to include the length of time over which organizations are declining before action is taken to replace the ceo. since monitoring is an ongoing process, it would make sense that a board that is diligent in its monitoring role would detect inadequacy when it emerges and address it in a timely manner. the literature on board of directors’ best practices tells us that certain board characteristics should facilitate such diligence and that opposite characteristics are likely to inhibit it. several of these are discussed below, applying social network theory to the explanation for why some boards are more effective monitors than others. independence although often treated as separate phenomena, the board characteristics discussed in this section all describe the ability or willingness of board members to be objective where management is concerned and therefore reflect director independence. insiders/outsiders agency theory questions the appropriateness of inside directors (those who are employed by the firm) due to the potential for ineffective monitoring and conflicts of interest. for a board composed primarily of insiders, directors would essentially be charged with monitoring themselves, only to be exacerbated when the ceo is also chairman of the board. with each director representing a node in the board network, those who are insiders share more than one connection with the ceo, in that they serve together on the board and also work in the same company, thereby increasing their multiplexity. they are also likely to have more connections within than across networks, since insiders spend more time at the same firm, further embedding the network. it may even be the case that insiders serve on the board out of reciprocity, loyalty, or fear, and thus may not play a monitoring role at all. with their careers potentially tied to their board service (mobbs, 2013), insiders have little power vís-a-vís their ceos, and this increases the ceo’s centrality within the network. finally, according to (haleblian & rajagopalan, 2006), the board makes attributions about its company’s performance, in which case insiders are less likely to attribute poor performance to internal factors such as their ceo. it stands to reason, then, that with more insiders on the board, it will take more time to convince them that ousting the ceo is the appropriate course of action. outside directors, on the other hand, and especially those without any other affiliation to the firm, will be more effective in performing a monitoring role based on their increased objectivity (zahra & pearce, 1989). for outsiders, the backlash for speaking up may not be as imminent and may have more of a social rather than a career impact, and thus they may be more inclined to voice their concerns about the ceo or other top managers. 69 reciprocal interlocks board interlocks (also referred to as interlocking directorates) take on many of the characteristics of social networks (e.g. burt, 1980; mizruchi, 1996; palmer, 1983; palmer, friedland, & singh 1986), increasing the multiplexity and reciprocity within the board. this situation is present if directors serve together on multiple boards, as well as if a director on the board of firm a is the ceo of firm b, and the ceo of firm a sits on the board of firm b. this special kind of interlock speaks to the independence of board members, creating a situation of “you scratch my back, i’ll scratch yours” (see table 1), and thus it becomes very unlikely that either would call for the other’s ouster. interlocks embed the board, creating social circles that entrench the ceo and interlocked directors in the social environment, making it more difficult to dislodge any of the actors because social systems favor stability over change (zucker, 1977). ceo involvement in selection through their involvement in director selection, ceos may actually be in control of whether or not they are dismissed by the board. although shareholders vote on board membership, selection can be heavily influenced by the ceo. without a nominating committee, for example, all board members including the ceo participate in the nomination process. if the board does have a separate nominating body, it is possible that input is sought from the ceo or even that he or she is on the committee. in a study by shivdasani and yermack (1999), greater ceo involvement leads to the nomination of less independent directors. this includes not only insider nominees but also “gray” outsiders who have conflicts of interests (e.g. are relatives of, or have interlocks with, the ceo). with heavy ceo involvement in selecting directors, board embeddedness is enhanced as ceos opt for new or returning directors with whom they already have ties, and board density is strengthened through ceo centrality, thereby increasing the proportion of directors who are connected to each other. in addition to influencing board nominations, the ceo can affect the outcome of the shareholder vote itself. in situations where the ceo owns significant shares in the company, we can again expect more non-independent directors to ultimately be selected. according to the similarityattraction theory, ceos with influence in the selection process prefer to interact with others who have similar values and attitudes (byrne, 1997; condon & crano, 1988; montoya & horton, 2004), which serves to reinforce their own opinions and beliefs. similarity also reduces the uncertainty of interpersonal interaction and helps people to communicate more easily with one another (zhu & chen, 2015). therefore, even if the ceo does not have ties to board nominees prior to selection, their like-mindedness is likely to facilitate these ties over time. this groupthink board mentality is an obstacle to change and thus it will take longer to convince members that any of the actors should be dismissed. tenure while the average tenure of directors at s&p 500 companies has dropped considerably since the passing of sarbanes-oxley, there is still concern over lengthy board stays. this concern exists among non-u.s. firms as well, as the european commission has recommended that eu-based companies limit director tenure to 12 years (libit & freier, 2015b) limits. the 2014 spencer stuart board index shows that only three percent of the s&p 500 boards have term limits for directors, ranging from 10 to 30 years, but that many companies have mandatory retirement ages for directors. there are arguments both for and against board tenure as an effective governance mechanism. although long-standing directors are experienced and knowledgeable, there are concerns that once a director reaches a particular length in tenure, his or her independence from management may become compromised. directors may start to think like insiders, having been exposed to the viewpoints of management, especially if serving among other long-standing directors. seasoned directors are more likely to befriend and less likely to monitor managers. they may even be co-opted by management as they become less mobile and less employable. senior board members are frequently engaged in “grey” 70 professions, in that they may be hired by management to render services to the company, managerial business, and directors with twenty or more years of service are almost twice as likely to be classified as grey (vafeas, 2003). according to daily, johnson, and dalton (1999), such directors are by no means independent, since independence would require no previous connection to the firm or the ceo for three years prior to serving. lengthy board tenure serves to further embed boards as ties are formed over time, and if several board members serve together for years, the mulitplexity of ties among members is likely to increase. it becomes more difficult to remove actors from the network since dismissal is likely to cost the board more than just its company’s ceo – it may cost friendships, sever bonds, and cause factions within the board. this leads to ceo entrenchment, whereby he/she is more valuable if retained rather than dismissed (gibelman & gelman, 2002). there is also the potential that long-tenured board members may be “zombie directors” (libit & freier, 2015a), with no initiative or enthusiasm, just going through the motions of serving on a board where nothing really changes. finally, extended tenure also tends to reduce intra-group communication and isolates groups from key information sources (katz, 1982). libit and freier (2015a), provide several company cases where “board refreshment” is preferred but also state that best practices may depend on a number of factors, including the relationship that a firm has with its shareholders. director turnover increases the opportunity for diversity as well as the chance to bring fresh ideas into the boardroom. new directors may come with updated industry expertise and, if they are outsiders and without ties to the ceo, they are more likely to embrace changes when necessary. in a recent study, clements et al. (2018), found a positive relationship between director quality and low/intermediate board tenure, and a negative relationship between director quality and lengthy tenure, although these negative effects varied based on a number of company characteristics. with the research to date showing more preference for limited board tenure, social network theory leads us to believe that non-independence is at the forefront of this concern. therefore, even when the firm is underperforming, it is expected that boards with long-standing directors would be more likely to postpone the inevitable task of dismissing the ceo. diversity there is reason to believe that diversity among board members impacts the speed and quality of its decisions since most attributes of social networks indicate homogeneity and thus any deviations are likely to affect the network structure. research suggests that this is a double-edged sword. on the one hand, heterogeneous boards have better access to information (adams & ferreira, 2007; bebchuk & weisbach, 2010), which creates a culture of communication and questioning (van knippenberg, de dreu, & homan, 2004). the board becomes aware of and more sensitive to a wider range of stakeholder concerns. in addition, heterogeneity increases the likelihood that some board members will not belong to the social network. such boards will be less dense and less embedded, with many directors free to remove underperforming ceos without the professional or social repercussions felt by directors with stronger ties. however, when competing claims vary widely, the board may reach a stalemate in the decision-making process. in addition, since cognitions may vary as a function of demographics (milliken & martins, 1996; robinson & dechant, 1997), diverse boards are less cohesive than homogeneous ones, also stalling the process. it is difficult to separate board diversity from director tenure and insider-dominance. a mixture of new and long-standing members, for example, creates heterogeneity, as does a combination of inside and outside directors. outside directors can offer a fresh perspective, may represent or be connected (through their firms or industries) to important stakeholder groups (wiley, 1995), and may be more sensitive to a wider range of stakeholder concerns. wahid (2012) found that diversity in terms of director tenure, as well as rank, enhances ceo performance-turnover sensitivity. the effects of gender diversity on ceo turnover has also been addressed in the literature, although with inconsistent findings. while wahid (2012) found no significant impact on turnover, triana et al. (2014) found gender diversity to be important when firm performance is poor, as the potential for conflict among competing claims is 71 high (daily, dalton, & cannella, 2003; westphal & bednar, 2005). in times of crises, rather than amplify the variety of alternatives that can lead to a stalemate, diverse teams tend to reduce information processing by narrowing it down to what is absolutely necessary to reach a decision (gladstein & reilly, 1985). based on this discussion, it is expected that diverse boards are more independent than homogenous ones, so they are less likely to succumb to management pressure (carter, simkins, & simpson, 2003) and are more likely to produce devil’s advocates and engage in focused debate that leads to prompt decision-making. to summarize, independent boards are those which are diverse and outsider-dominated, with limited director tenure and limited ceo involvement in director selection, and with no reciprocal directorships. therefore, the majority of directors on independent boards are not beholden to the ceo for their selection to the board, they do not work for the ceo, and they are more likely to question decisions rather than to protect the ceo as a member of their social network. alternatively, non-independent boards are less likely to blame the ceo for poor performance, protecting him or her for as long as possible. it is only when the firm is in crisis mode that non-independent directors will succumb to pressure to remove the ceo. p-independence. independent boards will take less time to respond to organizational underperformance by dismissing the ceo. bandwidth research on the effects of multiple directorships (referred to as “overboarding”) has revealed two competing theories, as synthesized by mobbs (2013). the attentiveness theory (fich & shivdasani, 2006; perry & peyer, 2005) suggests that when directors serve on three or more boards, their value as a director diminishes because they become too busy. too many directorships can reduce the time and energy a director has to invest in any one firm where s/he serves (jiraporn & gleason, 2007), whether it be to monitor ceo activity or to vie for the ceo position him-/herself. conversely, those with few directorships are more dedicated and hence devote more time to their monitoring roles. mobbs (2013) states that it is the routine type of monitoring that is best served by directors who serve on fewer boards (mobbs, 2013). the expertise theory, on the other hand, argues that individuals holding more outside directorships are in high demand in the market because their experience increases their human capital. harris and shimizu (2004) find that outside directors with multiple directorships are important sources of knowledge during acquisitions, for example, and are therefore more valuable for monitoring under special circumstances. consistent with the attentive perspective addressed above, companies and even the stock exchanges on which they are listed, have imposed limits on the number of directorships. seventy-four percent of s&p 500 companies limit other corporate directorships for their board members. one example is nuevo energy corp., which restricts its ceo to two outside board seats. in addition, nasdaq and the nyse require outside directors to meet in executive session, which commits more of their time and in effect makes it more difficult to serve on multiple boards. direct and indirect interlocks interlocking directorates also indicate multiple directorships, and these open-systems networks are created as companies connect through their board memberships, as shown in table 1. these become social circles, and the directors who belong to these networks carry a certain cachet, bringing with them the reputation of the companies where they are (or were) employed. to each board on which they sit, they bring with them the reputation of their own companies if they work for one. also, their behavior on these boards is a reflection of the companies for which they work and thus facilitates good governance. so, in addition to the expertise that interlocks bring to each of the connected boards, it also incentivizes directors to uphold their own company’s reputation by monitoring in a timely and effective manner. 72 what we can surmise from the scenario presented results thus far is that director expertise derived from extensive bandwidth facilitates monitoring to a point, beyond which they are simply too busy to participate in the routine monitoring which is necessary for acting in a timely manner. based on the above discussion, two directorships are considered optimal bandwidth for a board member, as attentiveness and interlocks will both be possible. specifically, directors who have the time to be more attentive to the company will be more sensitive to changes in performance, as well as to whether any decline should be attributed to the ceo. for an otherwise busy and less attentive director, the performance of any one firm on whose board he sits may not be as consequential to him. he is, therefore, less likely to invest the time it takes to initiate or support the dismissal of the ceo. however, if the board is vigilant in its oversight and evaluation of the ceo, early identification of problems is likely. in this event, there is time to work with the ceo to remedy the performance deficits. but this is a time-consuming process that requires the attentiveness of directors who are not overboarded. in addition, kim, kim, and miller (2006) suggest that the anticipated negative consequences of turnover are the very reasons that keep ceos from getting fired. with extensive interlocks (which include those connections through the ceo), dismissal of an entrenched ceo can translate into significant losses of the relationships that he or she facilitates. therefore, we expect timely ceo dismissal from boards with enough bandwidth to be concerned about their reputations but with not so many interlocks that the ceo is entrenched. p-bandwidth. boards with optimal average bandwidth among outside directors will take less time to respond to organizational underperformance by dismissing the ceo. recovery as evidenced above, empirical research on the speed of ceo dismissals has been limited. however, there is reason to believe that speed of dismissal and speed of recovery are linked (kim et al., 2006), although there is a lack of consistent results regarding this relationship (finkelstein et al., 2008). this may be due to the varying ways in which post-succession consequences have been measured, which include not only the strategic changes that ensue but also the firm’s accounting and market performance (kim, 2011). according to kim (2011), as well as to ertugrul and krishnan (2011), dismissals which are too early or too late may have negative effects on firm performance, suggesting that a moderate speed to dismissal would be ideal. but recent research has found a more linear relationship between speed of dismissal and speed of recovery. according to hazarika, karpoff, and nahata (2012), timely recognition of performance losses improves the board’s ability to use both accounting and market performance information effectively when evaluating ceo performance and making ceo replacement decisions, and hu, kim, and lin (2015), have found that such timeliness leads to greater ceo turnover-performance sensitivity. similarly, in a study by ertugrul and krishnan (2011), firms that acted early in dismissing underperforming ceos experienced short-lived declines in operating performance close to the time of dismissal but recovered immediately afterward. on the other hand, when boards are not vigilant, issues can go undetected and thus remedies such as ceo dismissal will be delayed (gibelman & gelman, 2002). when the need for a replacement finally becomes urgent, the firm often finds itself in crisis mode, scrambling for a replacement rather than planning for a smooth transition in leadership. the delay also signals to shareholders that their needs were ignored, damaging board reputation and institutional trust (haleblian & rajagopala, 2006). as a result, future investment may be slow in coming. gibelman and gelman (2002) attribute the effects of ceo turnover to the circumstances surrounding the departure, and the inconsistent findings regarding the relationship between speed of dismissal and speed of recovery may also be explained this way. for example, kim (2011) found type of performance feedback information to affect ceo dismissal speed, which in turn showed a u-curve relationship with post-succession performance. similarly, stannard (2016) shows that the way in 73 which a ceo is dismissed (i.e. publicly or privately) depends on whether the performance issues are accountingor stock-based, and that when ceos are dismissed in response to market concerns, positive outcomes are more immediate but shorter-lived. however, if ceo dismissal is used as a scapegoat for another underlying issue, this may be the catalyst for recovery (hermalin, 2005). finally, when it comes to pre-turnover performance, research indicates that the relationship is linear. in fact, friedman and singh (1989) found that the market tends to react positively to succession when pre-turnover performance is poor and negatively when pre-turnover performance is good. according to hambrick & d’aveni (1988), since decline is a slowly developing process, it may not trigger timely corrective action, suggesting that management is likely to remain unchanged throughout much of the decline. studies have indicated that there is a “downward spiral” that organizations experience (bozeman & slusher, 1979; forrester, 1971; staw, sandelands, & dutton, 1981), whereby “weakness leads to even greater weakness” (hambrick & d’aveni; 1988). since board diversity has been found to enhance ceo performance-turnover sensitivity as well as the likelihood of improved post-dismissal succession (wahid, 2014), and since lengthy ceo tenure has an adverse effect on corporate turnaround (abebe, 2010), there is even more reason to believe that the circumstances surrounding the dismissal may affect the relationship between speed of dismissal and speed of recovery. since it is proposed above that boards with certain social network characteristics will delay ceo dismissal, it is under these circumstances that we expect recovery to be delayed after dismissal. we, therefore, propose the following: p-recovery. when socially networked boards respond slowly to organizational underperformance, post-succession recovery will be delayed. p-recovery. the longer the board’s response time to organizational underperformance, the longer it will take the organization to recover upon ceo replacement. conclusion the propositions presented in this paper are meant to advance research on board characteristics, ceo dismissal, and organizational recovery, with social network theory as the backdrop. the paper reviews several board characteristics that comprise networked boards and explain in detail why such boards delay ceo dismissals, which in turn delay recovery. it is ultimately proposed that non-independent boards with greater than optimal bandwidth will not act in a timely manner to remove ceos in the face of organizational decline. reasons for these delays include their lack of attentiveness to the firm as well as their social connections with the ceo and with other board members. it is then proposed that, when ceo dismissal is delayed due to networked boards, organizational recovery will be delayed as well. this paper makes important contributions to the corporate governance literature. first and foremost, it extends the research agenda on board composition, ceo turnover, and performance, to include the element of time. more specifically, it suggests that certain characteristics of corporate boards are more likely to inhibit the types of governance necessary to remove underperforming ceos, and this, in turn, will impact the time it takes for organizational performance to recover. it also takes a contingency approach with respect to the relationship between speed of dismissal and speed of recovery, contending that the circumstances surrounding dismissal are likely to dictate the relationship. the paper also deepens the application of social network theory to the study of corporate governance, addressing several elements of social networks that are found in non-independent boards and with “overboarded” directors. all arguments favor independence and optimal bandwidth as the type of governance needed to promptly remove underperforming ceos and to quickly recover from poor performance. to pursue this line of inquiry empirically, research should address accountingand marketbased performance, both before and after ceo dismissal, given the conflicting effects that these have 74 been shown to have on the decision to dismiss as well as the consequences thereafter. to assess board independence, the historical conceptualization as outsider dominance does not take into account the conflicts of interest that many outside directors face. this information is sometimes disclosed in firm proxy statements but not with enough consistency for empirical analysis. it is therefore suggested that an independence index be computed as a function of outsider dominance, diversity (e.g. gender and nationality ratios among board members), director tenure, reciprocal interlocks to the extent that they can be determined, and whether the director served on the board at the time the ceo was selected. implications risks of poor performance due to inadequate governance are far-reaching, and shareholders and d&o (directors and officers) liability insurers are particularly vulnerable. even with new management in place, shareholders might lose faith in the board if important strategic actions were delayed and especially if they negatively impact their investments. the anticipated effects of recovery can also discourage future investment in the company. vigilant boards, composed of independent directors with optimal bandwidth, would be more likely than dense and embedded boards to replace the ceo when it is warranted. it would, therefore, behoove shareholders to participate in the election of directors, rather than turning that privilege over to the very board that took too long to replace the ceo due to its strong network structure. in the event that shareholders are discontented and file suit, d&o liability insurance can provide personal financial protection for directors but is somewhat of a catch 22 for the providers and the companies that purchase the coverage. since it indemnifies the board members and reduces the risks associated with making poor decisions, there is less incentive to act promptly and in the best interest of shareholders. however, d&o coverage has become increasingly necessary to attract experienced and 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(1977). the role of institutionalization in cultural persistence. american sociological review, 42: 726-743. 41 supply chain finance: impact on supply chain competency and organizational performance mujtaba zia university of north texas at dallas philip bond southern arkansas university kenneth green, jr. southern arkansas university limount zhao southern arkansas university supply chain finance (scf) has begun to garner some attention in the supply chain management literature, yet we find no empirical works assessing the role that scf plays within a supply chain context and the impact it has on supply chain competency (scc) and organizational performance (op). this paper is an attempt to fill this literature gap in supply chain management and provide empirical evidence on the role of scf. this study employs a structural equations model to investigate the role of scf in the context of supply chain management on u.s. manufacturing firms. the results map scf in the center of the supply chain management spectrum with supply chain management strategy (scms) and information sharing (is) as the antecedents to, and scc and op as the consequences of scf. supply chain finance, together with supply chain competency positively impacts 51% of the variations in organizational performance. keywords: supply chain finance, supply chain management strategy, information sharing, supply chain competency, organizational performance introduction supply chains developed and evolved to efficiently and effectively satisfy the demands of final customers (jarratt and fayed, 2001). the most successful supply chains are adaptable, agile, and aligned (lee, 2004; whitten et al., 2012). these imperative capabilities are possible only when strong, long-term relationships have been established among the supply chain partners (heizer and render, 2006; fynes et al. 2004). supply chain management is the integration and coordination of the business processes and management improvement programs throughout the supply chain to satisfy the end customers (green et al., 2012). this integration and coordination of business processes strengthen the http://journals.sfu.ca/abr advances in business research 2021, volume 11, pages 41-59 http://journals.sfu.ca/abr 42 relationships among supply chain partners and supports the development of capabilities such as adaptability, agility, and alignment. the supply chain management literature contains strong evidence that successful supply chain management yields both improved supply chain performance and organizational performance (green & inman, 2005; green et al., 2008; green et al., 2014). given that successful supply chain management leads to improved performance, the question then turns to how best to optimize the efficiency and effectiveness of supply chains. which combination of business processes should be integrated and coordinated to better satisfy customers? green et al. (2012) provide a list of business processes that should be integrated and coordinated throughout supply chains including purchasing, manufacturing, marketing, logistics, and information systems. this study argues that finance should also be included in the list of processes that must be integrated and coordinated throughout the supply chain. it is important to manage the financial flows, as well as the inventory and information flows through the supply chain (martin & hofmann, 2017), as “the financial and operating activities of an organization are closely connected and interdependent” (hofmann, 2005, p. 204). the primary purpose is to assess the role of supply chain finance within a supply chain context and to assess the impact that supply chain finance has on supply chain and organizational performance. supply chain finance has begun to garner attention in the supply chain literature (xu et al., 2018; caniato et al., 2019), but this study finds no empirical works assessing the role that scf plays within a supply chain and the impact that scf has on supply chain competency and organizational performance. this study theorizes a structural model with supply chain finance as the focal construct, supply chain management strategy (scms) and information sharing (is) as antecedents to, and supply chain competency (scc) and organizational performance (op) as the consequences of supply chain finance (scf). supply chain finance is operationally defined and a new measurement scale is developed for its measurement. data collected from a sample of u.s. manufacturing managers are analyzed using a multi-method structural equation modeling methodology. the rest of this paper is as follows. section two provides a review of the literature. section three describes the theoretical model and the embedded hypotheses. section four discusses the data collection procedure and methodology. section five presents the results and robustness tests. finally, section six concludes with a summary and brief remarks. literature review theoretical background resource advantage theory, systems theory, complementarity theory, and transaction costs theory all play a role in underpinning this research. resource advantage theory (hunt, 1997) is based on the idea that organizational resources can be developed in such a way as to provide a competitive advantage. in this case, the study posits that organizations that develop a supply chain management strategy and the ability to share information with supply chain partners coupled with the ability to efficiently and effectively manage the financing of inventories throughout the supply chain, benefit from a strategic and tactical competitive advantage. systems theory (johnson et al., 1964) supports a logical argument that the integration and coordination of subsystems yield greater performance levels than the implementation of the subsystems separately. supply chain processes such as manufacturing, purchasing, selling, logistics, and finance combine to create a supply chain system that optimizes the allocation of resources and customer satisfaction. complementarity theory (milgrom & roberts, 1990; narasimhan et al., 2010) supports the argument that capabilities such as information sharing and supply chain finance interact to provide performance superior to levels that could be achieved if only one of the capabilities is possessed. transaction costs theory (rindfleisch, 2020) also plays a role in explaining the need for and development of supply chain finance in that organizations seek to shift 43 and delegate activities to supply chain partners such as third-party financial services providers in such a way as to minimize costs and maximize profits throughout the supply chain. hofmann (2005, p. 206) describes supply chain finance as “an approach for two or more organizations in a supply chain, including external service providers, to jointly create value through means of planning, steering, and controlling the flow of financial resources on an inter-organizational level.” while the optimization of financial resources through financial contracts is a century-old concept, supply chain finance is a relatively new one that started at the beginning of the 21st century (hoffman, 2005; pfohl & gomm, 2009). this new concept mainly pertains to the management of internal and external financial resources in conjunction with supply chain management giving rise to both internal and external perspectives of supply chain finance. the internal aspect focuses on the financial optimization of working capital while the external aspect focuses on the outsourcing of working capital finances through an external source involving a third-party financial institution. the supply chain finance literature describes both supply chain and finance orientations (gelsomino et al, 2016). the supply chain orientation requires that supply chain partners integrate and coordinate financial flows and structures throughout the supply chain for better customer satisfaction at a relatively low cost (hofmann, 2005; pfohl & gomm, 2009; gomm, 2010; grosseruyken et al, 2011; wuttke et al, 2016). the finance orientation focuses on the financial products and services of a third party to facilitate and optimize the processes related to the flow of funds, products, and information among supply chain stakeholders (camerinelli, 2009; chen & hu, 2011; lamoureux & evans, 2011; more & basu, 2013). “cost reduction has become a preeminent goal for businesses” (bharadwaj & matsuno, 2006, p. 62). supply chain finance has evolved as an important supply chain capability to reduce transaction costs and to better align the finance-related objectives throughout the organization and subsequently the supply chain. materials, products, information, and services flow through the supply chain at significant costs. these costs, which are primarily associated with working capital components, may constrain supply chain competency, if not managed effectively. the misalignment of objectives among supply chain decision-makers (different departments within the firm) and between the supply chain stakeholders (suppliers, producers, and clients) may create inefficiencies leading to a reduced level of supply chain competency. for instance, operations managers may be concerned with and compensated based on the speed of production and delivery, while finance managers may be more concerned with maintaining certain financial ratios than the speed of production and delivery. the operations and finance departments may have different objectives and these objectives may not be integrated and coordinated well. integration and coordination of financial decisions within the organization and throughout the supply chain are the primary focus of supply chain finance as supply chain managers attempt to reduce the total cost of the product or service delivered to customers. conducting an empirical study in supply chain management, heide and stump (1995) study the performance implication of buyer-supplier relationships in u.s. manufacturing firms from a transaction cost perspective and find that establishing strong relationships positively impacts the overall performance for the supply chain partners. empirical studies focusing on supply chain finance are scarce and mainly limited to case studies (gelsomino, et al. 2016, chakuu et al. 2017). conducting 40 interviews, wuttke et al. (2013) investigated the supply chain finance practices of eight european firms. they explored how these firms manage upstream cash flows to determine whether supply chain finance practices lead to improved supply chain performance. they report that managers can improve working capital and reduce risk by engaging in supply chain finance activities based on transaction cost economics. a case study conducted by blackman et al. (2013) investigates supply chain finance practices at motorola and finds cost savings for the parties involved by cooperatively managing financial flows in conjunction with customers, suppliers, and banks. similarly, mathis and cavinato (2010) adopt the case study 44 method to investigate the supply chain management strategies adopted by toyota and zara and document that both companies reduce costs through supply chain finance strategies and practices. surveying 62 companies from switzerland and conducting ten expert interviews, martin and hoffmann (2017) study the reasons why companies involve financial service providers in supply chain finance practices and derive a structured need for companies to be matched with available service offers from financial service providers. while these case studies document the benefits of supply chain finance on cost reduction and better supply chain performance, the mechanism through which supply chain finance affects supply chain performance is unclear. xu et al. (2018) do identify six recent empirical studies in an exhaustive literature review of supply chain finance articles. none of those articles investigate the role that supply chain finance plays within a supply chain context. in particular, the available literature fails to map supply chain finance as an important component of a comprehensive supply chain management strategy. this research study attempts to fill this gap in the supply chain finance literature by establishing the role that supply chain finance plays in conjunction with an established supply chain management strategy and the complementary ability to synchronously share real-time information among supply chain partners on supply chain and organizational performance. theoretical model figure 1 depicts the theorized structural model with supply chain finance as the focal construct, supply chain management process and information sharing as antecedents to, and supply chain competency and organizational performance as the consequences of supply chain finance. this study proposes that the adoption of a supply chain management strategy coupled with the ability to share information among supply chain partners through an established enterprise resource planning information system supports the implementation of supply chain finance. further, it posits that the successful implementation of supply chain finance will lead to improved supply chain competency and organization performance. the structural model incorporates five constructs: supply chain management strategy, information sharing, supply chain finance, supply chain competency, and organizational performance. all of the constructs have been previously defined in the supply chain management literature. cohen and roussel (2005) and wisner (2003) argue that an effective supply chain strategy focuses on an end-to-end integration of business processes including purchasing, manufacturing, and selling throughout the chain for providing optimal value to customers and consumers. figure 1 – theorized structural model with hypotheses scms scf op is scc h2: (+) h4: (+) h1: (+) h3: (+) h5: (+) h6: (+) 45 green et al. (2007) and zelbst et al. (2010) define information sharing as the ability to synchronously share real-time information with suppliers and customers. the information is available to all supply chain partners as needed on a real-time basis. generally, both green et al. (2007) and zelbst et al. (2010) acknowledge that this type of information is made available through established erp [enterprise resource planning] systems. following camerinelli (2009), chen and hu (2011), lamoureux & evans (2011), and more & basu (2013), this study defines supply chain finance as the use of third-party financial services providers to finance inventory as it moves from end-to-end through the supply chain, thereby maintaining optimum cash flow levels for all supply chain partners. to this end, supply chain and operation decisions are supported by the finance function in such a way that the customers are provided with the products and services they desire in a timely fashion and at a relatively low total cost. the judicious application of financing by third-party financial services providers eliminates finance-related bottlenecks that would otherwise lead to delivery delays and unwarranted costs. supply chain finance smooths the flow of products through the supply chain to the customers. bowersox et al. (2000) defines supply chain competency as the ability of supply chains to respond to customer demands with high-quality products and services at low costs. whereas, claycomb et al. (1999), green et al. (2004), and green and inman (2005) define organizational performance or success as a firm's ability to compete in return on investment, return on sales, and profitability categories against its peers. hypotheses there are six hypotheses embedded within the supply chain finance performance model we propose in this paper. hypotheses one and six have been previously studied. the remaining four hypotheses incorporate the supply chain finance construct. these four hypotheses have not been empirically assessed. these hypotheses that include the supply chain finance construct form the basis of our claim of significant originality. the four original hypotheses tie supply chain management strategy and information sharing to supply chain finance as antecedents and supply chain competency and organizational performance as the consequences. essentially, the model is structured in such a way as to highlight the role of supply chain finance within the context of supply chains. this study argues that the implementation of supply chain management serves as the foundation for the successful implementation of supply chain finance which leads to improved supply chain competency and subsequently to improved organizational performance. successful supply chain management depends upon the ability to share real-time information synchronously among all supply chain partners. once the decision to manage at the supply chain level has been made, organizations must develop and implement a supply chain management strategy that is supported by the implementation of an enterprise resource planning system (green et al., 2007). green et al. (2007) analyze data from a sample of u.s. manufacturing managers and report that supply chain management strategy has a significant positive impact on information sharing. they empirically test and support the following hypothesis, which is the first hypothesis in our scf model. legend: scms supply chain management strategy is information sharing scf supply chain finance scc supply chain competency op organizational performance (+) positively affects 46 h1: scm strategy positively impacts information sharing the financial supply chain runs parallel to the flows of physical goods and information and its integration with the physical supply chain is a critical and ubiquitous aspect of supply chain integration (silvestro & lustrato, 2014). supply chain finance extends financing to suppliers by purchasing accounts payables from buyers and moves the risk of financing towards the stronger party in the supply chain, i.e., the buyer, and therefore, improves the financial resilience of the supply chain (cavenagly, 2014). it is becoming an increasingly important tool that could bring benefits to both suppliers and buyers across the integrated supply chain, and mitigate and minimize supply chain risk (de meijer & de bruijn, 2014; cavenagly, 2014). successful scm strategy calls for and contributes to efficient supply chain finance. companies should include financial service providers in the integrated supply chain through scf practices. therefore, this study hypothesizes as the following: h2: scm strategy positively impacts supply chain finance the idea behind supply chain finance is to leverage the real-time supply-chain data to accelerate payments and help suppliers receive their payments sooner (cavenaghi, 2014). specifically, buyers are often able to validate the goods received and approve the related invoices in a matter of days, thanks to modern efficient global supply chains, which allow buyers and suppliers to manage the entire delivery-to-payment cycle in a semi-automatic fashion. however, the approved invoice will not be paid until it becomes due in typically 30 to 90 days, depending on the industry sector and country. if the information about approved invoices (i.e., account payables for buyers, or accounts receivable for suppliers) is passed on to third-party financial service providers (fsp), it becomes more cost and time-efficient. therefore, efficient information sharing makes supply chain finance possible and establishes the basis for successful supply chain finance. hence, the study hypothesizes that: h3: information sharing positively impacts supply chain finance working capital management plays an increasingly important role in the performance and success of the firm. seifert and seifert (2011) estimate that an average company can increase its aftertax returns on invested capital by 16% if it can reduce its working capital by 30%. however, improving working capital position is not costless and may negatively impact organizational performance. for instance, extending trade credit requires higher working capital for suppliers and raises their financial risks in supply chains. with supply chain finance, approved account payables are financed by financial service providers at lower costs since it is based on the credit risk of the buyer, which is typically the financially stronger party in the supply chain. additionally, supply chain finance significantly reduces the cash conversion cycle (ccc) (huff & rogers, 2015). jose, lancaster, and stevens (1996) show that shortened cash conversion cycle is associated with higher profitability for several industries. therefore, scf can reduce the need for both parties’ working capital, reduce ccc and mitigate financial risks leading to improvements in organizational performance. hence, the study hypothesizes that: h4: supply chain finance positively impacts organizational performance supply chain finance leads to better supply chain competency of firms as financial service providers furnish the suppliers and buyers with reliable access to liquidity. in that sense, scf programs act as safety nets during unexpected financial situations and improve the financial resilience of the supply chain. with scf programs, suppliers typically enjoy sooner payments for their products 47 delivered to buyers. the process enables them to focus on delivering according to the requests of the buyer without relying on the payments from buyers. this will lead to better delivery speed, delivery dependability, and delivery response. on the other hand, buyers also benefit from the scf process as they can order supplies without relying on funds from customers. scf can smooth unexpected delays in cash flows and ease disruptions in production chains. therefore, scf eases unexpected delays in cash flows and makes the supply chain more resilient. hence, this study hypothesizes that: h5: supply chain finance positively impacts supply chain competency organizations must now compete at the supply chain level. attempts by managers to directly impact organizational performance may have adverse effects on the performance of the overall supply chain (meredith & shafer, 2002; chopra & meindl, 2004). supply chain management is necessarily focused on improving supply chain performance which subsequently improves organizational performance (green et al., 2014). conducting an empirical study on us manufacturing firms, green et al. (2014) report that supply chain competency has a positive and significant impact on organizational performance. h6: supply chain competency positively impacts organizational performance data and methodology data collection process and sample description the data collection process was managed by qualtrics, a third-party data collection service. the use of such third-party data collection is well established in the supply chain management literature (inman et al., 2011; green et al., 2012). data were collected from 130 manufacturing managers working for u.s. manufacturing plants. of the 130 respondents, 25 (19.2%) identified their field as finance, 103 (79.2%) identified their field as supply chain management, and 2 left the field blank. respondents have been in their current positions for an average of 9.7 years. the average plant size for the respondents’ work was 564.5 employees. table 1 displays frequencies by manufacturing industry category and position title. the descriptive statistics and frequencies in table 1 indicate that the sample of u.s. manufacturing managers is relatively well experienced and relatively diverse. this is in line with the study’s goal of developing such an experienced and diverse sample to support the ability to generalize results across the u.s. manufacturing sector. table 1 – data description frequencies panel a: data frequencies by manufacturing industry category manufacturing industry category and codes frequency percent 311 food 10 7.69% 312 beverage and tobacco 2 1.54% 313 textile mills 2 1.54% 314 textile product mills 1 0.77% 316 leather and allied product 1 0.77% 321 wood product 3 2.31% 322 paper 2 1.54% 48 323 printing and related support activities 4 3.08% 324 petroleum and coal product 3 2.31% 325 chemical 4 3.08% 326 plastics and rubber products 6 4.62% 327 nonmetallic mineral product 3 2.31% 331 primary metal 14 10.77% 332 fabricated metal product 17 13.08% 333 machinery 14 10.77% 334 computer and electronic product 9 6.92% 335 elec equipment, appliance and component 8 6.15% 336 transportation equipment 3 2.31% 337 furniture and related product 5 3.85% 339 miscellaneous 19 14.62% total 130 100.00% panel b: data frequencies by manager's position title position title frequency percent accounting manager 7 5.38% buyer 3 2.31% controller 4 3.08% engineering manager 8 6.15% financial services manager 3 2.31% inventory control manager 1 0.77% logistics manager 5 3.85% operations manager 40 30.77% plant manager 14 10.77% purchasing manager 5 3.85% sales manager 14 10.77% supply chain manager 3 2.31% other 23 17.69% total 130 100.00% measurement scales extending the work of martin and hofmann (2017), this study developed a new measurement scale for supply chain finance.1 it uses the work of wisner (2003) for the supply chain management strategy measurement scale. it employs the work of green et al. (2007) for the information sharing measurement scale2 and the work of bowersox et al. (2000) for the supply chain competency measurement scale. the organizational performance scale is based on the work of green and inman (2005). except for the supply chain finance scale, all scales have been previously assessed and found to be sufficiently valid and reliable (wisner, 2003; green et al., 2007: bowersox et al., 2000; green and inman, 2005). all measurement scales are assessed for sufficiency in terms of validity and reliability using the assembled dataset. 1 martin and hoffmann (2017) use a survey instrument to capture supply chain finance exclusively defined as thirdparty financial services providers or the external dimension. this study extends that instrument and add three more measurement items. these items are number one, seven and eight in the scf measurements listed in table a.3 in appendix a. this captures supply chain finance from both dimensions, external and internal or both finance oriented and supply chain-oriented dimensions as defined in this paper 2 item number 10 was added to the list of measurement instruments of greet et al. (2007) to capture information sharing related to supply chain finance 49 common method bias to test our dataset for possible common method bias, we employ statistical tests before running our models. to assess the impact of common method bias on the data collection for this study, as it was collected in a single wave that may raise the issue of common method bias, this study adopts the smallest correlation proxy method recommended by malhotra et al. (2017), lindell and brandt (2000), and malhotra et al. (2007). the smallest correlation among the items in our dataset is .031 between scf2 and scc6. this study compares .031 to the smallest correlation among the latent constructs in our study which is .349 between supply chain finance (scf) and supply chain competency (scc) using the equation recommended by malhotra et al. (2017). the final result of solving the equation is a computed z-score of 11.31 indicating significance at the .01 level. this result indicates that our data is statistically significant and does not suffer from a common method bias. validity and reliability assessment apart from supply chain finance, all other measurement scales are directly utilized from previous research (wisner, 2003; green et al., 2007; bowersox et al., 2000; green & inman, 2005). the supply chain finance scale items are partly derived from the work of martin and hofmann (2017). to be certain that the dataset is valid and reliable, this study uses partial least square (pls) and structural equation modeling (sem) analyses. the indicator loadings and cross-loadings matrix produced by the pls/sem analysis indicate that measurement scale items are sufficiently convergent and valid. table 2 displays reliability scores, correlations, and the square root of the average variance extracted for each of the measurement scales in the study. the square root of the average variance extracted values for each construct is higher than the correlations with other constructs indicating sufficient discriminant validity (wetzel et al., 2009). except for the average variance extracted value for supply chain competency (scc) which is .477, other statistical scores such as cronbach’s alpha, composite reliability, and the average variance extracted (ave) for all measurement scales including scc exceed the respective recommended thresholds of .70, .70, and .50, as prescribed by garver and mentzer (1999). the average variance extracted value of .477 for scc is slightly smaller than the recommended .5 threshold. since the focus of this study is on the supply chain finance (scf) parameter and the average variance extracted value for that is .748 (well above the recommended .5 value) and all other reliability and validity scores for all parameters (including scc) are above the recommended thresholds, the constructs used in the research model exhibit sufficient levels of content, discriminant, convergent validity, and reliability. table 2 – reliability scores and correlation among first-order latent constructs variables cronbach's alpha composite reliability average variance extracted scms is scf scc op scms 0.925 0.936 0.551 0.743 is 0.935 0.946 0.638 0.514 0.799 scf 0.955 0.963 0.748 0.585 0.539 0.865 scc 0.907 0.922 0.477 0.485 0.553 0.435 0.691 op 0.891 0.915 0.605 0.555 0.614 0.349 0.667 0.778 legend: scms supply chain management strategy scc supply chain competency is information sharing op organizational performance scf supply chain finance bold square root of ave 50 statistical analysis this study uses a multi-method structural equation modeling (sem) methodology similar to that employed by inman and green (2018) to assess the theorized model. specifically, the partial least squares structural equation modeling (pls/sem) methodology is used to test the hypotheses and determine the percentages of variation that the model explains in the outcome variables. next, covariance-based structural equation modeling (cb/sem) is used to validate the pls/sem hypotheses to determine how well our theorized model reflects reality in the u.s. manufacturing sector. this combination of structural equation modeling methods is based on the discussion by hair et al. (2011) related to the appropriate uses of both pls/sem and cb/sem. results and discussion structural model results based on pls/sem pls/sem is well suited for hypothesis testing when the goal is to examine and explain the variation in parameters (wetzels et al., 2009; hair et al., 2011). testing the hypotheses within the model and assessing the fitness of the model based on the percentage of variation explained for each of the dependent constructs (scms, is, scf, scc, and op) in the model are the primary objectives of the study. the focal point is to empirically map supply chain finance (scf) in the spectrum of general supply chain management. to accomplish these objectives, this study employs the pls/sem methodology. figure 2 displays the pls/sem results derived using warppls 6.0 software. the pls/sem results support all our hypotheses at the .01 significance level. figure 2 – partial least squares structural equation modeling results scms scf op is scc .42** .26** .53** .34** .38** .58** legend: ** .01 significance level scf supply chain finance scms supply chain management strategy scc supply chain competency is information sharing op organizational performance r2 = .28 r2 = .44 r2 = .15 r2 = .51 51 these findings empirically support the hypotheses. the model shows that supply chain finance (scf) plays an important role in the spectrum of supply chain management. together with supply chain competency (scc), it explains 51% of the variation in organizational performance. while alone, it explains 15% of the variation in supply chain competency (scc). to isolate the impact that scf alone has on op, squaring the correlation coefficient between scf and op of .349 (see table 2) yields an r2 value of .1218 indicating that scf alone explains 12.18% of the variation in op. these results imply that supply chain finance (scf) is an important part of the supply chain processes and practices affecting supply chain competency and organizational performance. the research model indicates that 44% of the supply chain finance (scf) variation can be explained by the supply chain management strategy (scms) and information sharing (is). on the other hand, the supply chain management strategy (scms) explains 28% of the variation in information sharing (is). structural model results based on cb/sem for robustness purposes, the model analysis uses structural equations modeling based on cb/sem. cb/sem is well suited to assess the goodness of fit of structural models (hair et al, 2011; inman et al., 2011; green et al., 2012). the coefficients for each hypothesis in the research model are significant at the .01 level. these coefficients are very close to the ones derived from the pls/sem analysis as shown in figure 2. the results from the cb/sem analysis are presented in figure 3. it shows that each of the coefficients for hypotheses testing is significant at the .01 level, thus validating the results derived from the pls/sem analysis. the cb/sem results shown in figure 3 indicate that the model fits the sample data well. the chi-square statistic for the model is 1.79, which is well below the threshold of 3 as prescribed by kline (1988), therefore the goodness-of-fit of the research model is analytically supported. for robustness purposes, the root mean square approximation for the model is also calculated. the test statistic is .07 which is also smaller than the prescribed level of .08 by schumacker and lomax (1996). these results increase the confidence in the overall goodness-of-fit of the model. figure 3 – covariance-based structural equation modeling results scms scf op is scc .45** .24** .54** .31** .36** .65** r2 = .44 legend: ** .01 significance level scf supply chain finance scms supply chain management strategy scc supply chain competency is information sharing op organizational performance 52 discussion this study theorizes a structural model with supply chain finance as the focal construct, supply chain management strategy and information sharing as antecedents to supply chain finance, and supply chain competency and organizational performance as consequences of supply chain finance. both partial least squares structural equation modeling (pls-sem) and covariance-based structural equation modeling (cb-sem) are used to assess the model. pls-sem is used to test the hypotheses embedded in the model and cb-sem is used to test the overall fit of the model. the pls/sem results include standardized path coefficients that are positive and significant for all study hypotheses. the pls-sem analysis produces an r2 value of .51 for the organizational performance construct indicating that supply chain finance together with supply chain competency explains 51% of the variation in organizational performance. supply chain finance alone explains 15% of the variation in supply chain competency. furthermore, the successful implementation of supply chain finance depends upon the existence of an established supply chain management strategy accompanied by a functioning enterprise resource planning information system. cb-sem was utilized for robustness purposes and produced standardized path coefficients that are significant at the .01 level, confirming the results from the plssem analysis. cb-sem is also used to assess the overall fit of the model. the results indicate that the model fits the data sufficiently well and that all hypotheses are supported. the combination of a supply chain management strategy with an enterprise resource planning system capable of sharing information among supply chain partners supports the successful implementation of supply chain finance. the successful implementation of supply chain finance leads to improved supply chain competency and organizational performance. conclusion supply chain finance plays an important role in supply chain management as managers strive to efficiently and effectively finance inventories as those inventories move through the supply chain from suppliers to customers. while customers do make final payments for goods and services received at the end of the supply chain, the associated inventories must be financed until such final payments are made. third-party financial service providers intermediate the financing of inventories in such a way as to minimize the associated transaction costs. these third-party financial service providers are important partners who complement and support suppliers, manufacturers, and customers. the results of this study identify the context in which supply chain finance can be successfully applied. supply chain finance is a strategic tool that is effective only when the supply chain management strategy is accompanied by a fully functioning enterprise resource planning system that affords both transparency and traceability of inventories at all stages in the supply chain. the study finds positive and significant antecedent links from both supply chain management strategy and information sharing. the study also identifies the positive significant impact that supply chain finance has on the ability to satisfy supply chain customers and bolster organizational profits. the results show positive and significant antecedent associations between supply chain finance and both supply chain competency and organizational performance. therefore, the study concludes that supply chain finance is an important subsystem within the overall supply chain management system. supply chain finance complements other established supply chain subsystems such as purchasing, manufacturing, marketing, and logistics. a supply chain system that incorporates supply chain finance is arguably both more efficient in terms of lowering total costs to final customers and effective in terms of providing final customers with quality products where and when demanded. 53 contributions the study further develops and describes the supply chain finance construct within the context of supply chain management and develops a measurement scale that exhibits the properties of validity and reliability. this assessment establishes supply chain finance as an important component of an overall supply chain management strategy that improves an organization’s ability to support the firm’s ability to satisfy customers. the authors believe that this study is one of the few that offer empirical evidence for the value of implementing supply chain finance. the study establishes that supply chain management strategy and information sharing are important antecedents of supply chain finance. the strong, long-term relationships that come from the adoption of a supply chain management strategy and the ability to synchronously share information among supply chain partners through established enterprise resource planning systems are necessary for the successful implementation of supply chain finance. the financing of inventories as they move through the supply chain from suppliers to manufacturers to customers who are working with third-party financial services providers requires supply chain transparency and traceability that is possible only when supply chain management strategy and a functioning enterprise resource planning system are in place. the study also posits that the implementation of supply chain finance improves supply chain performance in the form of supply competency which ultimately improves organizational performance. additionally, further evidence is provided to support the established links between supply chain management strategy and information sharing (green et al., 2007) and between supply chain competency and organizational performance (green et al., 2014). implications for practitioners supply chain managers struggle to achieve profitability for their organizations while managing both the organizational and supply chain levels. they continually search for strategies and tactics that will ensure a strong supply chain and organizational performance. research supports the implementation of a supply chain management strategy to improve the alignment of supply chain partners in conjunction with an enterprise resource planning system that facilitates supply chain transparency and traceability as products and services move toward the end customers. research also verifies that the implementation of supply chain purchasing, manufacturing, and marketing programs improves supply chain performance which, in turn, improves organizational performance. based on the results of this study, supply chain management practitioners working to improve both supply chain and organizational performance will be well served to implement supply chain finance. it is logical then to argue that supply chain finance should be added to the firm’s portfolio of supply chain programs (e.g., purchasing, manufacturing, marketing, and logistics) to achieve a competitive advantage. limitations and future research the statistical results presented in this study are based on data from the manufacturing sector of only the united states thus limiting generalization of the results. it is important to conduct similar studies with samples from other countries around the world to verify the results presented here. it is also suggested to incorporate supply chain finance within a more comprehensive model that includes other business processes such as manufacturing, purchasing, marketing, and logistics. it should also be noted that the definition of supply chain finance offered and studied here is relatively narrow in that it focuses solely on the role of third-party financial services providers in the financing of inventory as it moves through the supply chain to final customers. other financial services that can be provided by third parties should also be considered in future research. 54 references bharadwaj, n. & matsuno, k. 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(2010). rfid utilization and information sharing: the impact on supply chain performance. journal of business & industrial marketing, 25(8), 582–589. 58 appendix a measurement scales table a.1. supply chain management strategy (wisner, 2003) please indicate the importance of each of the following issues/concerns to your organization's supply chain management efforts (low importance=1, high importance=5). 1. reducing response times across the supply chain. 2. improving the integration of activities across the supply chain. 3. searching for new ways to integrate scm activities. 4. creating a greater level of trust throughout the supply chain. 5. identifying and participating in additional supply chains. 6. establishing more frequent contact with supply chain members. 7. creating a compatible supply chain communication and information system. 8. involving all supply chain members in your firm's product/service marketing plans. 9. communicating customers' future strategic needs throughout the supply chain. 10. extending supply chains beyond your firm's customers/suppliers. 11. communicating your firm's future strategic needs to suppliers. 12. creating scm teams including members from different firms. table a.2. information sharing (green et al., 2007) please indicate the extent to which agree or disagree with each statement (1= strongly disagree, 7=strongly agree). 1. we can more quickly respond to customer needs by sharing information with our suppliers. 2. information flows seamlessly between the suppliers, manufacturers, and customers in our supply chain. 3. we openly share information with our suppliers and customers. 4. our suppliers and customers openly share information with us. 5. the information shared by participants (suppliers, manufacturers, and customers) in our supply chain is available on a real-time basis. 6. our customers make inventory and sales information visible to us on a real-time basis. 7. visibility of customer inventory and sales information has allowed us to quickly replenish customers' inventories with precise quantities at precise locations at precise times. 8. information distortion is minimized throughout our supply chain through quick, frequent, and accurate information transfer among supply chain members. 9. as a part of our supply chain management efforts, we have worked to develop an information system that is compatible with the systems of our suppliers and customers. 10. we involve our finance department (cfo, treasurer, financial analyst, financial manager, financial controller….) in our supply chain decisions. note: items 1-9 are directly from the work of green et al. (2007). item number 10 was added to capture information sharing related to supply chain finance. table a.3. supply chain finance practices (martin & hofmann, 2017) please indicate the extent to which you are with each of the following statements (strongly disagree=1; strongly agree=7) 1. we use third-party financial service providers to finance accounts receivables. 2. we use third-party financial service providers to finance accounts payables. 3. we use third-party financial service providers to finance inventories. 59 4. we use third-party financial service providers to manage working capital flows. 5. we use third-party financial service providers to shorten order-to-cash cycles. 6. we use third-party financial service providers to shorten forecast-to-fulfill cycles. 7. we use third-party financial service providers to shorten purchase-to-pay cycles. 8. financial decision-making in our company is well aligned with our supply-chain decisions. 9. we are well satisfied with our third-party financial service providers. note: items number 2-7 are directly from the work of martin & hofmann (2017), items 1,8, and 9 are added to better capture supply chain finance measurement. table a.4. supply chain competency (bowersox et al., 2000) please rate your company's performance in each of the following areas as compared to the performance of your competitors (1=much worse than the competition, 5=much better than the competition). 1. customer satisfaction 2. product customization 3. delivery speed 4. logistics cost 5. delivery dependability 6. responsiveness 7. order flexibility 8. delivery flexibility 9. information systems support 10. order fill capacity 11. advance ship notification 12. inventory turnover 13. return on assets table a.5. organizational performance (green & inman, 2005) please rate your organization's performance in each of the following areas as compared to the industry average (1= well below the industry average, 5 = well above industry average). 1. average return on investment over the past three years. 2. average profit over the past three years. 3. profit growth over the past three years. 4. average return on sales over the past three years. 5. average market share growth over the past three years. 6. average sales volume growth over the past three years. 7. average sales (in dollars) growth over the past three years. table a.2. information sharing (green et al., 2007) microsoft word 6-415-3--final for publication.docx http://journals.sfu.ca/abr advances in business research 2016, volume 7, pages 1-13 1 the consumer costs and rewards of direct social interaction with vendors at farmers' markets benjamin garner university of north georgia this study examines the consumer rewards and costs of having direct communication with a farmer at a farmers’ market. this analysis deepens an understanding of interpersonal benefits, as well as the potential negative aspects of this direct exchange. this study uses qualitative interviewing methods, emphasizes thematic coding, and uses principles from grounded theory. several themes encapsulate the customer experience regarding direct communication with the farmer. these included the rewards of face-to-face communication, friendship, trust, customized service, and regularity. the costs of a direct consumer-farmer interaction included obligation and having to endure rude farmer behaviors. the qualitative study responses reflect the perceptions of the participants. future studies could use the categories discovered to survey a larger sample and sample across markets in different locations. this study, unlike many farmers’ market surveys, goes into much greater depth by cataloging the consumer rewards and costs that result from purchasing directly from a farmer. keywords: consumer behavior, farmers’ markets, buyer-seller relationship, interpersonal communication, social exchange theory, costs, rewards introduction farmers’ markets have been growing dramatically in recent decades, and in this paper, qualitative interview data concerning the rewards and costs customers experience by communicating directly with farmers at farmers’ markets is analyzed. an overview of farmers’ market growth and customers’ enjoyment of the social aspect of markets is provided first. then the methods are explained. interview data is interpreted through the theoretical lens of the costs and rewards from social exchange theory (cropanzano & mitchell, 2005; emerson, 1976; thibaut & kelley, 1959). this paper is an exploratory project that aims to catalog and deepen our understanding of the effects of the increased social interaction between buyer and seller. a brief history of farmers’ markets farmers’ markets in the united states (u.s.) have grown from around 1,000 to over 8,000 in roughly the past 25 years (gowin, 2009; usda, 2014). farmers’ markets have also become popular in many other countries in the west, including the united kingdom and canada (feagan & morris, 2009; smithers, lamarche, & joseph, 2008; trobe, 2001). some estimate farmers’ markets generate around $1 billion annually in the u.s. (c. brown & miller, 2008). farmers’ markets are growing in popularity for a variety of reasons. one reason is that customers view food from the farmers’ market as better than industrially produced food, and farmers’ markets are an outlet for customers to support local growers (a. brown, 2002; feagan & morris, 2009; mcneill & hale, 2016; smithers et al., 2008). industrially produced food has been critiqued a variety of reasons, with critics citing health, environmental, and labor problems with this production model (kenner, 2008; pollan, 2007, 2008). others have exposed the way industrial food systems mistreat employees, often immigrant laborers, in the meatpacking (stull & broadway, 2004) and fruit industries (stephen, 2007). the result is that some consumers fear their food and feel they are not able to trust industrially produced food (pollan, 2007, 2008; amelia baldwin text consumer costs and rewards 2 winne, 2008; winter, 2003). some consumers support local producers at farmers’ markets as an effort to encourage sustainable agricultural methods (alkon, 2008a, 2008b; forssell & lankoski, 2015; garner, 2014). thus these consumers use their buying power to cast their vote for what they perceive as a better system, even though in reality there is no guarantee that local farmers at these markets are growing sustainably (born & purcell, 2006; forssell & lankoski, 2015). they then turn to farmers’ markets as a potential source of high quality, healthy, fresh, sustainably produced food (alonso & o'neill, 2011; a. brown, 2002; wolf, spittler, & ahern, 2005). obtaining high quality products (often fresh produce) that are nutricious is the dominant reason people report attending markets (alonso & o'neill, 2011; andreatta & wickliffe, 2002; a. brown, 2002; wolf et al., 2005) however, there are a variety of social benefits that customers enjoy by being embedded in local farmers’ market community, as well as simply enjoying the market as fun entertainment (andreatta & wickliffe, 2002; feagan & morris, 2009; lyson, gillespie jr, & hilchey, 1995; robinson & hartenfeld, 2007; trobe, 2001). one study found that approximately 50% of customers came to socialize (wolf et al., 2005). however, across two different studies, only about 14% of customers surveyed reported that socializing was their primary reason for attending markets (gumirakiza, curtis, & bosworth, 2014; wolf et al., 2005). so it seems that the high quality food products lure the consumers to the farmers’ market, but customers also enjoy a swath of other benefits while they shop. the literature about the varying benefits customers receive as a result of increased social interaction with farmers is explored next. farmers’ markets provide social benefits consumers like farmers’ markets in part because this venue is a more social shopping experience compared to grocery stores. farmers’ markets are often reported as personal and pleasant places to shop (andreatta & wickliffe, 2002; robinson & hartenfeld, 2007; wolf et al., 2005). farmers’ markets encourage direct communication between buyer and seller, which offers the customer a social exchange in addition to the economic exchange. with the sale, customers get the opportunity to receive customized service, the ability to form trust in their food supply, the chance to provide feedback to farmers, and the venue for supporting local farmers (lyson et al., 1995; mcgrath, sherry, & heisley, 1993; robinson & hartenfeld, 2007). these benefits are described in greater detail next. social space. the farmers’ market has been shown to be a social and community space for some customers. in one study, customer-vendor interaction was four times more likely to occur at a farmers’ market than at a supermarket (sommer et al., 1981). however, as previous studies have noted, there are different types of customers with different social goals (mcgrath et al., 1993; wolf et al., 2005). because vendors tend to retain the same stall location, this encourages a “relational stability” whereby consumers know where to find a particular vendor (mcgrath et al., 1993, p. 304). some people even attend markets for entertainment (wolf et al., 2005) or to participate in local community even if they don’t purchase anything (robinson & hartenfeld, 2007). many farmers at the market analyzed in this study preferred to sell to die hard shoppers (mcgrath et al., 1993; mcneill & hale, 2016) because they tend to spend more money. customized service. other benefits that arise from increased contact with the seller include customized service. this may include accepting checks, loaning or borrowing items, deferring payment, sharing knowledge, and more (feagan & morris, 2009; hunt, 2007; robinson & hartenfeld, 2007). it is not uncommon for other interpersonally rich exchanges to occur between farmers and customers such as giftgiving, the exchange of personal information, and the use of first names (robinson & hartenfeld, 2007). trust. trust also appears to play an important role in the customer-farmer relationship at markets. a study of a canadian farmers’ market revealed a prioritization of trust and responsibility (feagan & morris, 2009), and another study showed that some consumers tend to trust farmers’ markets more than supermarkets (garner, 2014; mcgrath et al., 1993). the farmers’ market provides a chance to learn about a farmer’s life and develop a shared history many people prefer to buy food from people they know and trust (robinson & hartenfeld, 2007). because not all food products are grown sustainably or organically at farmers’ markets, customers learn production methods through conversation (robinson & hartenfeld, 2007) or by visiting the farm. other research indicates that customers place trust in farmers to produce food in garner 3 environmentally responsible ways (garner, 2014). trust underpins consumer confidence on a number of levels at local farmers’ markets. feedback. another dimension of the interpersonally rich dynamic at farmers’ markets relates to feedback. face-to-face feedback means farmers can change practices quickly to meet consumer demand (hunt, 2007). unlike large industrial food supply chains, the distance between farmer and customer at farmers’ markets is so short that it allows instant feedback that the farmer can use to change practices rather than waiting a whole season or set of seasons to adjust practices. additionally, because farmers tend to be in the same stall every week at the market, customers can be confident they can have regular contact with and provide that feedback to the farmer who grew their food (lyson et al., 1995; mcgrath et al., 1993). supporting farmers. another factor that distinguishes farmers’ markets from typical grocery stores is that consumers want to support local farmers financially. for example, many studies indicate that supporting local farms is a high priority for consumers (andreatta & wickliffe, 2002; a. brown, 2002; c. brown & miller, 2008; feagan & morris, 2009). customers often purchase products from farmers they know in their community in order to support them socially and economically. costs and rewards social exchange theory is a perspective that examines the intertwining of social and economic exchange between social actors (cropanzano & mitchell, 2005; emerson, 1976; foa & foa, 1980; roloff, 1981). one of the basic premises is that social actors analyze the costs and rewards of social and economic exchanges and remain in relationships in which the rewards outweigh the costs (levine, kim, ferrara, & levine, 2010; roloff, 1981; thibaut & kelley, 1959). people evaluate the costs and rewards and compare those to alternative options they perceive they could gain if they switched allegiances (adams, 1963; dwyer, schurr, & oh, 1987; rusbult, drigotas, & verette, 1994; thibaut & kelley, 1959). this theoretical lens provides a useful vocabulary for analyzing the social benefits customers receive at farmers’ markets as well as the potential costs they incur as a result of increased interpersonal communication with farmers. currently, we understand farmer-customer relationships primarily based on survey research, and we need more in-depth, richer descriptions of the interpersonal costs and rewards customers receive from farmers. consumers are increasingly saying that direct communication with farmers is important (feagan & morris, 2009; hunt, 2007), but we need to understand the nuances of this interpersonal connection and what rewards consumers report getting from these relationships. while the literature is full of data charting consumer buying habits and motivations, most analyses of the customer-farmer relationship lack depth or theorization. many studies identify the farmers’ market as a social or community space (hunt, 2007; mcgrath et al., 1993; trobe, 2001), but these studies do little to theorize the rich interpersonal dynamic that exists between buyer and seller. unfortunately questionnaire data often results in percentages of customer preferences for social interaction (andreatta & wickliffe, 2002; hunt, 2007; trobe, 2001), which is an oversimplified term for such a complex set of interactions. the most thorough treatment of the interpersonal relationship between farmers and customers (robinson & hartenfeld, 2007) demonstrates how community and relationships can form in these spaces, but this analysis offers a romanticized view of the customer-farmer relationship. we also need to be open to the potential negative aspects (costs) of the customer-farmer relationship to provide an accurate picture. this study, therefore, aims to map the consumer rewards and costs in an exploratory way that will extend our understanding of the customer-farmer relationship. based on these concerns, the following research questions are addressed: rq1: what rewards do consumers perceive they gain as a result of direct interpersonal interaction with vendors at the farmers’ markets? rq2: what costs do consumers experience as a result of increased interpersonal interaction between vendors and customers? consumer costs and rewards 4 methods participants. data was gathered from 19 participants (10 female, 9 male; average age = 46.2 years), representing 16 customers and 3 farmers from the downtown lawrence farmers’ market (dlfm) in lawrence, kansas. all participants were over the age of 18, and all participant names used in this paper are pseudonyms. interviews were conducted in places like coffee shops, on a university campus, in individuals’ homes, or at local farms. semi-structured interviews lasted from 40 minutes to 75 minutes, and one participant preferred to answer questions via email. interview data produced 324 pages of double-spaced text. participant observation spanning 10 market days from september 2011-september 2012 was also conducted as well as three farm visits generating 37 pages of field notes. procedure. this analysis focuses on interview data. because the focus is on how people make sense of vendor-customer relationships at the farmers’ markets in everyday life, qualitative methods were used (warren & karner, 2010) that procured this type of interpretive data. rooted in symbolic interactionism, this research privileges perceptions and lived experience with the understanding that qualitative work “rests on the importance of interpretation and understanding as key features of social life” (denzin, 2001, p. 2) the majority of participants were recruited at the farmers’ market. willing participants signed up, and were contacted via email or telephone to set up interviews. a research protocol was formulated as a framework, but emergent data could certainly change or add it (charmaz, 2006). several times spontaneous discussion suggested that a new question should be added to the protocol. before interviews, participants filled out a short, one-page demographic survey. then they answered interview questions. the goal of the interview was to have a semi-structured conversation that covered the research questions. analysis. the analysis for this project primarily focused on generating a thematic analysis of interview data. thematic analysis is a qualitative data analysis technique that involves mining participant interview data for repeated ideas, common threads among participants, connections between themes, ideas that stand out, and other data that speaks to the research question (braun & clarke, 2006; ryan & bernard, 2003). one of the most common uses of thematic analysis involves a researcher trying to see if participant voices are saying the same thing. this constitutes a triangulation approach (tracy, 2010; warren & karner, 2010) to generating themes. researchers may also identify themes by topics that go unspoken or are avoided and are considered missing data (ryan & bernard, 2003). after gathering and transcribing interview data, broad concepts were extracted from the data concerning the interpersonal relationship between farmers and customers and then broke that down into further analytic categories. for example, quotations, field notes, and concepts relating to the customer-farmer relationship were copied and pasted into a single word document. digital pile sorting was then used to generate more specific categories that teased out nuances among comments. the customer-farmer relationship proved to be multi-faceted. this forced a differentiation between these facets through more specific categories. results several themes characterized the relationship between farmers and customers. the rewards of an increased farmer-customer relationship included: face-to-face communication, sociality, customized service, trust, accountability, and regularity. the costs of an increased farmer-customer relationship included the emergence of obligation and rude farmer behaviors. these concepts will be explored in detail in the following paragraphs. some of the results corroborate and deepen our understanding of the social benefits mentioned above in the literature, and some themes reflect new findings. rewards of direct interpersonal communication with farmers rq1 asked what rewards customers received as a result of a more direct contact with sellers at farmers’ markets. the themes below reflect what customers reported during interviews. face-to-face communication. one of the most basic rewards many consumers report is increased face-to-face (ftf) communication with sellers. for instance, angela said: “face-to-face, they know our garner 5 names for the most part, we know their names. we chit-chat.” carol said: “when i know the farmer’s name and i can think about the farmer’s face, that means i am more involved, and i think being involved closer to what you are consuming is better.” the customer matt described the difference between the farmers’ market and the grocery store saying: it’s nice to be able to have actual information about someone. “why are these tomatoes more expensive?.... ‘oh, we’ve had a really bad year’ or ‘oh, we lost a lot or the deer got them.’ the person in the store will just be “that’s what it costs.” farmers also promote this benefit. for instance, a farmer named jean said: “the best thing about farmers’ market face-to-face, there is that open window. that communication is really key because people can learn about what they’re buying.” direct, ftf communication provides the opportunity for transparency of growing practices, and it also encourages interpersonal connections. direct, ftf communication is reflected in other studies on farmers’ markets (feagan & morris, 2009; hunt, 2007; wolf et al., 2005). while not all customers value this increased social contact, many do. the rewards include that customers feel known, they have the chance to talk with farmers, and they are able to be closer to the production source and know more about the product. some consumers have turned to local food sources to avoid food scares (feagan & morris, 2009; winter, 2003), so having ftf communication helps customers gain confidence. sociality. another social benefit that customers receive is the opportunity to gain or maintain friendships with farmers. three main sub-themes emerged around friendship: forming new friendships, maintaining preexisting ties, and exchanging social support. forming new friendships. some customers expressed interest in making friendships with vendors made. for instance, a customer named lisa said: “i’ve met several growers there” and “if you actually shop there regularly, you get to know the growers.” lisa characterizes farmers’ market relationships as “social” and “a side benefit.” likewise, brady and jaclyn have befriended an artisan chocolate maker. brady commented: “there’s somebody behind it. you know who made it.” angela talked about a vendor, saying: “if we don’t have anything to buy from him, we’ll still walk over there and chat with him for five to ten minutes.” angela likened the farmers’ market to the tv show “cheers” about bar that turns into a community space hangout. these customers reported knowing the vendors’ children as well. the farmer reggie stated, “it’s a social occasion for me too. very social.” reggie leaves off prices for his products so customers are forced to inquire and interact with him. this strategy contrasts with supermarket products that feature clear pricing and an absentee farmer. maintaining preexisting friendships. other customers attended the market to maintain preexisting relationships with farmers. for example, chris said: one of the vendors is an old acquaintance. and then his wife worked with my wife, so it’s just one of those community things where they’re just in part of the web of the community. and it turns out that they’re raising these chickens, and they’re really good...we have a personal relationship with him. chris later contradicted himself by saying that he was “on the fence with the taste” about this vendor’s chicken, but patronizing his friend’s enterprise was the most important thing. similarly, likewise, peter talked about reconnecting with old friends, and sheryl has seen her clients vending at the market. other examples reiterated the fact that some customers use the market to bolster preexisting friendships. social support. some customers seem to develop a deeper relationship with farmers and exchange mutual social support. social support (goldsmith, 2004) at the market can take many forms, including providing someone advice, information, or empathizing about the bad weather. for instance, angela said, we would go to kristen and dave [farmers]...and say ‘my god, the potato beetles are killing us. what do you do for them?....and that was really helpful...or commiserate... to be reassured that it’s not just our plants that are dying, it’s everybody’s plants that are dying. some farmers inquire about customers’ life concerns. irene said: thomas [grandson] had some health issues that were pretty serious, and kathy [farmer] stopped me one day when i was at the market and asked specifically how thomas was. in this way, farmers offer various types of support to customers, which include advice, emotional support, informational support, and similar resources. this theme of social support will be explored in greater depth in another manuscript (garner, unpublished). consumer costs and rewards 6 customized service. another potential reward of a more direct communication between customer and farmer is the possibility for customized service. for instance, the customer brady said: “you can actually ask them questions. you can actually make requests of them. you can’t go up to most grocery stores.” he used the phrase “more customizable service.” similarly, jaclyn reported: “there’s one guy that…he has granola.... i mentioned that i was allergic to walnuts and he said, ‘well, i’ll bring some next week that doesn’t have walnuts.’” the personal interaction and listening that farmers do allows for these kinds of services. relatedly, irene has a grandson who is allergic to chicken eggs. when she asked a farmer about acquiring duck eggs, the farmer began saving them for her and delivered them by car to her during the winter months when the farmers market was closed. these examples characterize the possible service type rewards customers enjoyed as result of the direct exchange with farmers. farmers get to know customers and then are well positioned to provide them personalized service. trust. like other studies have shown, trust was at the center of the customer-farmer relationship. trust at the market often relates to knowing how a farmer produced a product. for instance, matt said: you can ask them [farmers] questions, you can get more information and more finely detailed information…so there is a level of trust.... there’s a lot more trust. similarly, angela reported: “i know not only that they [farmers] have good methods, but also that i agree with their overall philosophy about how plants and land and animals should be treated.” irene commented that some farmers are not certified organic but advertise things like no spray or no chemicals. irene trusts the farmers: “i believe they don’t spray it…. i trust them very…i never have a problem.” similarly, carlo said: there are some things what you could trust from a farmer that you take for granted, that what they are doing is good, that they are not abusing the animals....you just trust it, because they are ready to sell it to your face—they are ready to give you a product and smile. jaclyn said: there’s an inherent tendency to trust someone that you’ve met more than someone you haven’t met…. you make certain assumptions that you can trust that person more. sometimes you’re totally wrong. but you make those assumptions, you do, and you don’t ever have that opportunity in a large store. customers seem to trust farmers because they have that direct, ftf interaction. farmers garner trust in different ways. some farmers have photos of the farm, others invite customers out to the farm, and yet other farmers have clear labeling and pamphlets describing their products. one farmer, jean, said: we have a collection of photos so when somebody who we don’t know approaches our booth we’ll say, “hey, can we show you our operation and our farm.”… we do show them sort of what we spend our time doing. similarly, reggie feels his customers trust in the quality of his honey. if he has a unique variety, he will tell customers. reggie said: they [customers] do realize that there is a difference between what you can get from a commercial source… if i do have a particular honey that comes from a certain nectar source, i’ll tell them that. i’ll either write it on the jar or write it somewhere. overall, customers talk about the high level of trust they can get at the farmers’ market and contrast that with the lack of ability to gain trust at the grocery store. many of these customers have framed the argument in such a way that demonstrates that the alternatives (cropanzano & mitchell, 2005; emerson, 1976; roloff, 1981) to shopping at the farmers market is not as good. this reaffirms in part why they shop in this outlet. of course, trust is not a guarantee, even at the farmers’ market. for instance, sheryl bought a product that had been processed with a chemical that she is allergic to. this chemical was not labeled on the product, and sheryl got sick after consuming the product. she lost confidence in that farmer’s knowledge of his product. similarly, angela said: “the trust comes in though, because in some ways there’s no way we could know.... they could just be spraying every day.” a customer’s trust in a farmer is contingent on the farmer providing transparency and clear communication about the product. accountability. another theme customers mentioned that directly related to trust was accountability. accountability, in this setting, refers to checks and balances that encourage farmers to do what they claim. for instance, the consumer matt said: garner 7 there’s more accountability.... there should be at least a level of verifiability... if they tell me that they don’t spray and they do spray, and i find that out, there’s repercussions for them...it’s the whole reason farmers’ markets exist. one reason. to give the sense of accountability to people. several factors encourage accountability. for instance, jaclyn said: i think you assume that they’re going to be more honest in their product because they’re meeting you face-to-face. they really do have a reputation invested. likewise, brady talked about knowing how to isolate food borne illness: “you get a bad piece of meat from a local rancher, well, you know exactly who to look at.” angela said: there’s also something about actually seeing the faces of your customers, too. there’s the positive and negative. the negative would be the threat—negative reinforcement to keep doing well. maybe i just want to believe that because there’s a relationship. customers also believe there is a community safety net that maintains accountable producers. in other words, the farmers’ market community of vendors and managers encourages accountability. matt said: “there’s also the community surrounding that, so other vendors can tell us ‘well, they’re [another farmer] full of shit. they say they do this but they don’t.’” similarly, jaclyn said: if i buy something from you and it’s bad and i tell the relatively small group of people at the farmer’s market, “hey don’t buy from them because that’s a bad product,” that could really hurt your business…. so i think you do make an assumption that there’s more accountability. additionally, the farmers’ market administration conducts an initial farm visit before admission into the market and requires all farmers to produce their products within a roughly 75 mile radius. both the market management and other farmers have a vested interest in maintaining accountability and trust, so customers gain confidence by talking to other farmers. accountability can also be realized if customers visit the farm and witness production if. the customer randy said: you could go visit the farm, depending on how paranoid you were…. you might want to see something for yourself. you might want to check it out….most of them are very happy to have you come out because they want to form relationships with you, and if they’re savvy, they know that the better the relationship with you, the more likely you’re going to be there buying stuff from them. additionally, every fall the farmers’ market advertises and supports a county farm tour organized by numerous local food groups. many of the farmers at the market participate. overall, one of the strongest rewards for consumers concerned about food safety and food quality is that they gain greater trust in the source of their food by forming a relationship with the grower and learning about production methods. the fact that customers might switch allegiances if they find out that the farmer is dishonest about growing methods was reflected in matt’s comment that there are “repercussions” for farmers who are found out captures the related accountability theme. as exchange theory suggests, trust is a foundation for the routinized, stable exchange that benefits both parties (blau, 1986). regularity. since trust undergirds a stable exchange, it is no surprise that regularity and being able to have a reliable source of local food is a reward that customers enjoyed at the market. being a “regular” patron of a particular farmer means coming on a weekly or bi-weekly basis and patronizing the same vendors repeatedly. many customers often fall into the habit of finding a farmer who they unofficially designate as their producer for a particular crop or product, and this also relates to receiving customized service. for example, irene said: “anyone that goes to the market, they have certain vendors they go to. i always get my honey from reggie.” likewise, deborah said: “you sort of identify, “okay, so this is going to be the melon guy this summer.” peter said, “i’m kind of a creature of habit and so i do go to the same people.” regularity often entails relational interdependence (rusbult et al., 1994; stafford & canary, 2006). deborah said: “i’ve just sort of come to depend on them and come to know them for certain things.” carlo referred to his relationship with farmers as “a loose partnership of some sort…like a friendly business partnership.” customers rely on farmers to provide them top-notch products, and farmers rely on customers to purchase those products that are labor intensive to grow. regularity allows for the relationship development, loyalty, and interdependence, and as others have said, “relational stability” (mcgrath et al., 1993, p. 304). the reward for being a regular customer may be the increased customized service mentioned above, but it is also involves having reliable access to high quality food products. on the flip side, the cost of consumer costs and rewards 8 regularity can be the obligation customers sometimes feel about needing to support farmers, and this will be discussed further below. the reward of regularity for the farmer is a loyal customer base that consumes regularly and reduces the risk of producing a labor-intensive product. however, the regularity or relational stability is challenged if the farmer is not at the market on a weekly basis, or as is the case sometimes at the dlfm, the farmer does not have the same booth from week-to-week. farmers at this market strongly desire to get a consistent stall so they can build this sense of regularity. the vendors who have come for several years have gained a “permanent” vendor status, whereas new vendors at the market are considered “floaters” and must go wherever the market manager can find them a spot. utilitarian shoppers. while not a reward, it is important to briefly note that consumers engage in these social rewards at varying levels. for instance, a subset of customers is more utilitarian in their approach to market interactions and are less interested in the social rewards. for instance, helen said: “i go and get my stuff, and i’m in and out in like five or ten minutes.…for me it’s the exact same as going to the grocery store.” similarly, jack said: “i don’t think of anyone that i met at farmer’s market because of the vendorseller relationship, at all.” deborah, who has been going to the market for around six years, said: “i don’t chat em’ up…. i don’t really know any of these people on a personal basis.” these utilitarian shoppers who view the market merely as an economic exchange (cropanzano & mitchell, 2005; roloff, 1981) hardly engage in relationship building at all, with many of these shoppers not even knowing farmers’ names. these customers might relate to what others have classified as die-hard shoppers (mcgrath et al., 1993) or those who are primarily product oriented (mcneill & hale, 2016). costs of increased consumer-farmer communication research question two examined the potential consumer costs that resulted from an increased direct customer-farmer interaction and communication. two costs emerged: obligation and rude farmers. these negative cases help form a more robust picture of the customer-farmer relationship by avoiding the tendency to over-romanticize this connection. obligation. some customers who formed relationships with farmers developed a sense of obligation to consume a certain amount of products to support a farmer. for instance, carlo stated: you feel that they expect a certain amount of consumption from you. i don’t know, it’s weird, i don’t know. i don’t know they are like, after you buy it, if you buy a certain number of times maybe you’re a regular and you kind of feel at least you have to stop by and say hello….you feel like you have a standing appointment with a friend. carlo also explains how asking farmers questions sometimes entails an obligatory purchase: “i made a decision in my head, i took up her time and customers came by, so maybe i’ll get something small.” if carlo cannot attend the market, he said: “i feel like i’ve disappointed them.” similarly, sheryl said: “my problem is that i become friends with so many vendors that i have this dilemma of, who am i going to buy my onions from this week?” angela said: “we do feel guilt if we miss the farmers’ market.” obligation and awkward feelings can develop among some customers who have developed friendships with farmers. obligation, indebtedness, and reciprocity are central features of a social exchange (blau, 1986; cropanzano & mitchell, 2005), so it is not surprising that some customers feel bad if they aren’t consuming on a regular basis. of course, there is no formal agreement in most cases; obligation springs out of the implicit exchange and relationship that has developed. for the utilitarian customers mentioned above, these exchanges are primarily economic, and thus they will likely experience little-to-no guilt if they fail to purchase from a particular farmer on a given week. rude farmers. while most farmers display a positive smile and engaging front, some farmers do not. during my interviews, several customers commented on a particular farmer’s booth as being staffed with unpleasant workers. angela said, there is the one group that we do buy from every single week, and we buy a lot from them because they have a lot. but they’re not very nice. we’re put off by it just about every week...we don’t really talk to them that much...they must love farming but they don’t like people. garner 9 matt said, “we still buy stuff…we still go even though they’re kind of dicks [derogatory meaning intended]. similarly, peter commented about how the owner of the booth was rude: “my favorite stand, though, the guy that runs it is about as unfriendly as can be.” peter supports this vendor’s stand because he has befriended one of the owner’s employees. peter said also: “they’ve got top notch organic vegetables and there’s no substitute; they’re doing it for real....i just want to support them.” people purchase vegetables from this vendor despite the rude customer service because the quality of the produce is excellent. the rude farmer flouts the farmers’ market convention of being a friendly place to shop, and this is a type of exchange violation that should be met with social disapproval (blau, 1986; roloff, 1981). but the fact that consumers continue to patronize this farmer’s stall indicates that he has power or a valuable resource that consumers need (blau, 1986; roloff, 1981), which in this case is his “top-notch organic vegetables.” for these customers, the rewards of remaining in this exchange relationship still outweigh the social costs of dealing with the rudeness. if the market grows and more vendors provide an equally good product with a more friendly communication pattern, consumers may switch allegiances and shop from someone else. discussion this paper rests on the premise that farmers’ markets provide greater social interaction between seller and buyer compared to supermarkets. this increased communication and social interaction between producer and consumer yields several rewards and costs for consumers. in mapping these rewards and costs, previous research has been both confirmed and also extended by adding new categories. but unlike most analyses of farmers’ markets that have provided a shallow treatment of the relational benefits of market exchanges, this analysis adds depth to the understanding of the relational costs and rewards in this exchange. there were many rewards that customers reported receiving at this market as a result of an increased interaction with farmers that were also echoed in the literature: the face-to-face, social aspect of the market, customized service, trust, accountability, and the relational stability that is generated by regularity. other concepts such as customer feedback are mentioned in the literature but were not a significant theme in this sample of customers. in addition to corroborating existing data, this research has generated a more in-depth understanding of these rewards. for instance, i have demonstrated that the “social” aspect of farmers’ markets (as it is referred to in the literature) has multiple dimensions, including that customers form new friendships, maintain pre-existing friendships, and gain various types of social support from farmers. customers also gain social interaction with other customers, but that is outside the scope of this analysis. this research has focused specifically on the consumer to farmer interaction patterns. further, while the existing literature highlighted the importance of trust, this research has gone beyond that simple definition to include the consumer notion of accountability as intricately linked to trust. others have found that the related concept of food traceability is also important at markets (wolf et al., 2005). as discussed above, consumers increasingly fear how their food was produced (paarlberg, 2010; winne, 2008; winter, 2003), and they perceived that the farmers’ market provides a safer way to eat ethically and healthfully. a final extension of the previous literature is the addition of social costs that consumers face when shopping in a personal way. in the existing farmers’ market literature, the author could find very little in the way of research that discussed the negative aspects of an increased personal relationship with farmers. some discussion of conflict during election season has been referenced elsewhere (robinson & hartenfeld, 2007) and also that local food can advertise environmental benefits of shopping locally that may not always be accurate (born & purcell, 2006). negative attributes are also sometimes explored in the form of reasons for not shopping at markets. for example, in one analysis, consumers reported that some of the main reasons they did not attend markets were that they were inconveniently located, held at inconvenient times, and had poor parking (wolf et al., 2005). another study (alonso & o'neill, 2011) looked at the dimensions of the market consumers want to change, such as providing a longer selling season, more product variety, and more vendors. however, the present study has gone further in terms of mapping out the social costs of a more personal shopping interaction by charting instances of guilt and obligation that can develop. consumer costs and rewards 10 this finding is not surprising from one vantage point because social exchange theory predicts obligation in committed exchange relationships (blau, 1986; roloff, 1981). but these negative attributes have not been applied to farmers’ market interactions. this has left the impression that all market interactions are positive, which is not the case. in some ways, it is not surprising that consumers enjoy varied levels of friendships with farmers, since previous studies (mcgrath et al., 1993; mcneill & hale, 2016) have shown that some customers are primarily product focused. here, i have also added to our understanding of these utilitarian shoppers in greater depth by highlighting the way they view their market relationships. theoretically, the customers who reported social costs of obligation towards farmers and the negative interactions with rude farmers provided the most interesting cases. to reflect back on a few of these customer comments, angela used the word “guilt” and carlo said: “i feel like i’ve disappointed them.” according to social exchange theory, feelings of guilt and obligation often result from the customers’ perception of an imbalance in the informal exchange agreement (blau, 1986; cropanzano & mitchell, 2005; roloff, 1981). in other words, customers sometimes perceived that they did not reciprocate their end of the bargain and felt bad about it. but again, not all customers will experience guilt, either because of personality differences or because their relationships with the farmers are different. on the other hand, it is somewhat surprising that customers would continue to shop from rude farmers, especially since the overall perception of farmers’ markets is that it is a friendly and social space. the rude behaviors identified here are seemingly at odds with farmers’ markets’ reputation. again, social exchange theory helps explain why some customers continue to purchase from the rude farmer, and that is because the benefits they get in terms of a high quality food product outweigh the negative social interaction. this would suggest that the quality of the food is a more important factor than the social interaction for the customers who continue to patronize the rude farmer. this fact is consistent with surveys that routinely find customers’ primary reason for shopping is to obtain a high quality product (andreatta & wickliffe, 2002; wolf et al., 2005). on the other hand, other customers in this study purchased food just because the vendor was their friend, even if the taste was only ok. needless to say, consumers’ social and utilitarian goals are complex, sometimes contradictory, and influence their purchasing habits in multiple ways. those with power in a relationship are able to flout reciprocity norms and can get away with imbalanced exchange (roloff, 1981). this explains why the rude farmer can offend people and still be financially successful. this particular farmer has one of the best and largest vegetable stands at the market and has sold for many years, so people know and rely on his product. the limited supply of high-quality, organic produce and the customer demand at this market means that for the time being, this farmer has the power to be rude to customers and still receive regular patronage. this could change as more friendly farmers enter the market with equally high-quality products and increase competition. this analysis addressed the rewards and costs of direct interaction with farmers from the consumers’ perspective. previously discovered social benefits were cataloged and organized in greater depth and charted new concepts for future researchers to explore. importantly, i have also examined the potential social costs of ftf communication with farmers, which was previously unexplored. this data will help future scholars to avoid romanticizing customer-farmer relationships without also showing the potential costs of this direct interaction. this study has several limitations and opportunities for future research. first, the comments and themes developed represent the perceptions of the 19 participants and not the entire market. this study’s aim was not population representativeness, but theoretical representativeness (charmaz, 2006). while researchers would likely find similar themes at markets that also emphasize local food production, this would undoubtedly vary from market to market. it is important to note that there are different types of shoppers (mcgrath et al., 1993; mcneill & hale, 2016). i highlighted some cases of customers who were utilitarian in focus, but it is important to mention that the benefits discussed are contingent upon a customer’s motivation to be social and interact with farmers. thus, customers will capitalize on the benefits to varying degrees. future studies could examine when and why customers choose to switch allegiances and patronize different farmers. more work also needs to be done to further understand negative emotions such as obligation and guilt in this space. more broadly, this work suggests a consumer tension between having a personal relationship with a farmer and wanting to purchase the best quality product. these values are sometimes in tension. as demonstrated above, there are costs and rewards to having a direct relationship with garner 11 the owner or vendor. future research could explore this tension across different industries 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(2005). a profile of farmers’ market consumers and the perceived advantages of produce sold at farmers’ markets. journal of food distribution research, 36(1), 192-201. dr. benjamin garner is an assistant professor of marketing and management at the university of north georgia. 95 glass ceiling effect in lithuanian private sector: what holds women back from moving to the top positions beatrice ozgirdaite lcc international university scott stewart lcc international university donna fallon, phd lcc international university the study explores the relationship between glass ceiling perceptions, promotion, and leadership opportunities for workplace middle-management positions in lithuania. for this study, data was collected using an online questionnaire distributed using the linkedin social network. the total number of participants was 725, of which 521 were females (72%), and 204 were male (28%). of the 725 participants, 379 (52%) agreed or somewhat agreed that there is gender inequality in the workplace in lithuania. while the results suggest the perception of a glass ceiling still exists in lithuania, the results were not highly explicit as many of the responses fell between the "somewhat agree" and "neutral" range. the european institute for gender equality suggested that if lithuania would improve gender equality, it could lead to a 12% increase of gdp by 2050 through creating additional jobs for women (eige, 2019). to test the economic influence for the lithuanian economy in the face of the glass ceiling, almost 300 out of 725 (41%) of the participants agreed that they would not remain in their job if the amount of gender inequality increased, even choosing that it would lead to their choice of leaving their job or, in extreme cases, leaving lithuania. additionally, there were no significant differences between male and female perceptions about leadership and promotion. finally, both genders valued flexible work schedules and "work-life," as well as recognition for achievements they bring to the company. keywords: gender inequality, mid-level management, glass ceiling, women leadership, promotion opportunities introduction the glass ceiling is a phenomenon that creates a barrier to reach top positions in organizations based on the person’s gender. the glass ceiling can be looked at from different angles since it has multiple factors that can cause it. interestingly, invisible barriers that stand in front of women when reaching higher positions can be based on attitudes, stereotypes, and devaluation of women's skills. the scandinavian bank, swedbank lithuania, economist laura galdikienė suggested that gender discrimination happens unconsciously. when society sees working women, they tend to value her less and do it automatically, without even realizing it (juškauskaitė, 2017). http://journals.sfu.ca/abr advances in business research 2020, volume 10, pages 95-106 96 although this is suggested to be done sub-consciously, the results are still very real. for example, the unadjusted gender pay gap by economic control in lithuania in 2019 was 13% in the private sector, and the percentage has constantly grown since 2009 (lithuania statistics department, 2020). because of this, eliminating the gender gap is one of the top priorities of gender-related policies at both the european union and national levels. in addition to antidiscrimination legislation at the national and international levels, there continues to be ongoing discussions and legal changes globally addressing equal pay and rights for all the people, and not based on their gender. the european institute for gender equality is calculating that by diminishing the gender-related differences in a workforce, lithuania could increase the gdp of the country 12% by 2050. "gender equality has strong, positive impacts on gdp, which grow over time and can exceed the impacts of other labor market and education interventions."(eige. 2019) theoretical background situation in lithuania – was there no change since 2005? to understand the complexity of the glass ceiling in lithuania, it is important to look at the historical context. the european institute for gender equality released an index in 2019 that measures the progress of gender equality in the european union countries. its core domains are work, money, knowledge, time, power, and health, which create 31 indicators and compares them between 28 european union countries for five times since 2005. in this index, lithuania holds 23 rd place with an index of 55.5% (european union average is 67.4%). interestingly, the same reported index back in 2005 was 55.8%. given that information, it suggests that not only has there been no substantive progress, but there has actually been a decline by .3%. this decline was clearly identified and underscored that lithuania was the only country in the european union that made no progress. "lithuania was the only member state, with gender equality index scores lower than the eu whose scores declined as the eu average increased, widening the gap as a result" (european institute for gender equality, 2019, p. 26). interestingly, although the country had a two-term woman president, based on the equality index, lithuania is performing the worst in the financial and governmental sectors when it comes to gender equality. understanding that lithuania became an independent nation again in the early 1990s, the newfound independence brought with it a desire to understand the social statuses perceived by lithuanian citizens regarding gender differences in the workforce. in 1994, a survey was conducted in lithuania asking people if they agreed that in a workplace shortage, the priority is for men to be hired. not surprisingly, the results yielded that 72% of men and 54% of women agreed with this statement and prioritized working men over women. in 2014, the same study was replicated with substantially different results. in the 20 years that passed from the original study, the mindset of lithuanians surveyed stated only 19% of men and 10% of women agreed with the prioritization of men over women in employment opportunities (skardžiūviene ̇, 2019). currently, there is a relative balance when it comes to gender in the workforce. the working population in lithuania division by gender is almost equal with 733.2 thousand men and 739.8 thousand working women (lithuania statistics department, 2020). although employment is reasonably similar, with more women in the workforce, the main inequality in the labor market is seen as the "wage gap." in a report released in 2020 by the lithuanian department of statistics, there was a notable difference in average income between men and women in 2019, with women earning an average annual gross earnings – 14,625 euro, and men – earnings 16,479 euro, an 1854 euro difference in earnings that favored the men. (statistics lithuania, 2020). additionally, while the employment rate in lithuania for both women and men is almost equal (women 70.2%; men 70.6%) ), it is important to provide some additional context. when considering persons 18 to 64 years of age who were unemployed due to parental leave, the number of women is four times larger with 66.3% women and 15.4% men unemployed for 1-3 year periods due to some sort of parental leave (statistics lithuania, 2019). 97 the global gender gap (world economic forum, 2020) research identified some possible reasons why there is a gender pay gap in lithuania. the first issue found suggested that a pay gap exists due to professional career track choice. the study reported, women do not choose stem (science, technology, engineering, and math) studies, where there is greater potential for pay equity. additionally, the report cited stem education statistics that show in education programs in this area, the student populations have a disproportionate interest between men and women, with only 12.3% of women participating in stem, while 47.23% of men participate in stem in some educational sphere (world economic forum, 2020). additionally, four times more men are working in science, technology, engineering, and math fields. the second reason identified by the report suggested, women are choosing to work fewer hours, or in less challenging work, just to have a more flexible schedule. more flexible hours give an ability to control how much and when a person is working; it affords them greater control over their "work-life balance". the study reported that part-time employment favored women at 28.37%, in comparison to their male counterparts at 17.05% (world economic forum, 2020). these two factors contribute the most to the overall gender pay gap. nobel laureate economist gary becker in his book "a treatise of the family" (1993) identified that people marry one another for comparative advantage. the economist assumes that women are better at taking care of the household and bearing children, while men are financial providers, focusing on the labor market. as becker (1993) suggested, it is advantageous for both genders to combine the strengths and make an alliance. in a survey of equal opportunities in lithuania, 58% of respondents agreed that a wife's duty is to take care of her husband and household, and 53% agreed that men should focus on their careers more than women should (skardžiūvienė, 2019). this historical information suggests that while opportunities for employment may exist in lithuania, the change in mindset for a "woman's role" is still changing at a slower rate, and more than half of the population still believe that women should do most of the work at home. nordic countries – top in gender equal rights nordic countries (denmark, finland, iceland, norway, and sweden) typically rank high on this type of index and can be an example for other countries. the reasons why scandinavian countries are at the top are the introduced quota and an equal number of employment opportunities across gender. legislation, maternity, and paternity leaves are created for work and push the country forward to a more equal environment. "they were among the first countries in the world to provide women with full voting rights" (nordic council of ministers, p.1, 2018). nordic countries are proof that legislation for gender equal rights can lead them to being one of the world’s most gender-neutral countries. the significant difference is nordic countries' public sector, which is highly represented in many gender equalities sectors, serves as a model for the private sector which still lags in some regards. sorgel (2020) stated "women have flourished in the nordic public sector – the prime ministers of denmark, finland, iceland, and norway are women, as is 47% of sweden’s parliament. but the private sector is a different story." (soergel, 2020). however, a study completed by einarsdottir et al. (2018) cast a different light on the perception women have in the private sector. they found that women could not identify themselves with top management positions since they assumed it to be a closed world for them. when considering the higher position in a company, women felt that they should adopt some of the masculine gender role traits. the most telling conclusion noted by einarsdottir et al. (2018) was the conclusion that "barriers still hinder the career progress of women in icelandic organizations, and the only way that these women see around these barriers is to change themselves to become more like men" (p. 11). this research gives few reasons why it is hard for women to move up with their career seeing that men create relationships outside work such as watching sport games, going to the bar for a beer, and other informal settings; it is considered acceptable and needed for men to foster these relationships for professional opportunities. einarsdottir et al. (2018) suggested that for men, it comes out to be natural, but for a woman to enter this “club” is rarely possible. also, jobs are created to fit male traits and it is hard for a female to adopt “manly” traits in order to feel like they 98 fit in. a final, more mentioned reason, was the combination of work and duties at home. women working a "double shift a day" does not provide them with the opportunity to focus on their careers and seek promotions. higher education an interesting approach is that more women seek and higher education. “in european union in 2016, women accounted for an estimated 54.1% of all higher education students in all europe countries (28 countries)” (eurostat, p. 58. 2017). in lithuania the percentage of women enrolled in the higher education is even higher, there is 60.8% women compared to 39.2% men seeking higher education. beaudin (2018) studied the correlation between academic performance in university and workplace position after graduation where alumni were asked to answer questionnaires adding their demographic information and answers related to their grade point average (gpa) and the current industry and position that they work in. the results suggested that women are less likely to have a higher position in the organization. family life balance psychological factors also have a significant influence on women when speaking about their career life. a study conducted in canada by ezzedeen et al. (2015) sought to understand the challenges women face in the workforce in relation to their home commitments. the results of the study suggested that women indicated that they feel personal limitations and obstacles when it comes to work-life choices. however, ezzedeen et al. (2015) also suggested that a pipeline mentality is beginning to emerge, and posited, "conversely, the pipeline perspective holds that more women in middle management will push more women into the executive ranks, thus, it is only a matter of time before equality prevails." (ezzedeen, et al., p.3 2015 ). the example of a gender related inequality and childcare is presented using danish administrative data from 1980 – 2013. one of the more dominant pieces of the discussion can be found in the loss of pay or promotion opportunities for women based on having children. kleven et al. (2018) suggested that women who have children and provided direct care through maternity leave or other programs resulted in a 20% long-term gap in pay and promotion. in lithuania, women often take two years of maternity leave to raise children, while at the same time their colleagues grow and move up the corporate ladder. lithuanian office of equal opportunities ombudsperson's research reported an important point on the perception of a woman's "traditional role" by detailing that 58% agreed with the statement that “the wife has to take care of her husband's life” (office of equal opportunities ombudsperson in lithuania, 2019). house care is predicted to be done by women, which led to an unequal number of hours doing housework. women’s beliefs women‘s beliefs are related to their future success and can be one of the main factors holding them back from reaching the top positions. "women in the workplace" is the largest study about the corporate state of women in america. this study has been conducted annually since 2015 and gives a summary of what has changed during the years. mckinsey and company (2019) reported an interesting trend that " more women are being hired at the director level and above than in past years. second, “senior-level women are being promoted on average at a higher rate than men" (p.12 ). the study suggests that while that the glass ceiling is cracking and it becomes easier for women to reach the top, a new term “broken rung” has been presented. mckinsey and company (2019) described this as resulting “in more women getting stuck at the entry-level and fewer women becoming managers.” (mckinsey & company, p.7, 2019). stereotypes 99 gender stereotypes affect not only critical thinking about oneself but also the future results for people. research about gender beliefs by angelica moe (2009) explored the concepts surrounding the influence of an assumption given before doing a task and the task result. for this research, people were divided into six groups and given different instructions for doing the mental rotation test (mrt). the divided subjects received one of the three specifications about the task and gender: men are better at doing it; women are better at doing it; no comment about gender role. the task was done better by those women that heard a positive note about their performance and the results were equal to men’s. this a. moe reserach (2009) found that the stereotype threat works in life in many different situations and effect the way people react to different situations. methodology research questions q1: what is the level of inference of a glass ceiling existence or perception of a glass ceiling in lithuania? q2: how does the apparent or perceived glass ceiling effect influence the lithuanian economy? sample the research was designed to investigate the glass ceiling effect in lithuania private sector companies when taking into consideration observations from both female and male counterparts. the population of this study is working-age people that have several years of work experience and can comment on possibilities to receive/apply for a higher position in their organizations. the targeted audience was from 25 to 65 years old, and working in middle management positions in their organizations. the working population size for this research was extracted from the lithuanian statistics department. using data from the government, the total population of people from ages 21 to 65 was 1,593,708. (see appendix d for information of on age groups) according to the same statistical information, there are 371,500 people working in the public sector, leaving a total population of 1,222,708 for this study. for this population size to have an ideal sample size with a 99% confidence level and margin of error 5%, the ideal sample size was 663 participants. this research received a total number of answers from 747 participants. 22 participants were removed from the survey, because they stated that they are working in public sector and this research focus is on private sector companies. the total number of 725 participants were applicable for this research. data was collected using an online google forms questionnaire program consisting of 17 questions. the direct link with the instructions was sent via direct message on linkedin using the private account of the researcher. the participants had to evaluate questions using a likert scale. (table 1.) results and discussion to test the hypothesis and research questions, both genders were addressed and asked to participate in this research. of the participants, the majority were females (521) which comprised 72%. male participants comprised the remaining 28% with 204 respondents. since the topic of a glass ceiling is gender-related, it is visible in the results where more than two-thirds of volunteer participants were women. participants were divided into categories according to their age groups. the two main groups that made more than 80% of the participants were from 25 – 45 years old (age group 25 – 36 had 341 participants representing 47% of the sample; age group 36 – 45 had 258 participants representing 36% of the sample). according to the statistics department information, this is the main category for working-class people (more than 600,000 in this age group). since the glass ceiling is most likely to occur for people with a higher education degree, participants were asked to select their highest level of education obtained. ninety-six percent of the participants have received a higher education diploma. 100 the participants were asked: “your employers' head of the company gender is”. the results of the study disclosed that two-thirds of the responses – 484 participants, had a male company director or ceo, while only one-third – 241 participants – had a woman leading their organization. the interesting finding, in this case, is that even though two-thirds of the participants were females, when speaking about the highest level in a company women are one third. it suggests that at the top strategic levels, one out of three women can participate in strategic meetings of big companies. to answer this research questions, a likert scale was used for scaling the research answers (table 1): 1 meaning agreement, 3 meaning neutral, 5 meaning disagreement with the statement. participants were asked to express their opinion to whatever they agree that there is gender inequality at work in lithuania the mean for this question is 2.56, which indicates that society, in general, does not have strong beliefs about gender inequality at the workplace in lithuania. the standard deviation is 1.36, the distance from the mean is relatively leaning more towards the agreement side. to get a better understanding of beliefs about gender inequality, participants were divided by gender. this shows that while men (mean – 3.08) have no opinion and lean more towards the fact that there is no gender inequality at work, women tend to agree with the statement (mean – 2.35). from a literature review (poushter. fetterolf, 2019) it is posited that males tend to ignore and not notice gender inequality occurrence at work, and when they do not see it, they do not address it as a problem. the agreement (strongly agree/agree) for the question about the beliefs if there is a gender inequality was answered by 379 people out of 725 (52%), which indicates that more than half of people admit to the fact that inequality exists. table 1 likert scale meaning response value intervals perception level 1.0 – 1.8 very important/agree 1.8 – 2.6 important/somewhat agree 2.6 – 3.4 neutral 3.0 – 4.1 somewhat unimportant/somewhat disagree 4.2 5 unimportant/disagree throughout the survey, participants were given basic stereotypes about gender that are heard and often believed in society. “women should cook and do housework”, “men should be in charge at home and work”, “women should earn less money than men”, “men are smarter than women,” “men are taking the job and their career more serious”, “women are better at staying at home and raising children”, “women do not possess required skills for some professions” or “i don’t believe with any of this statement”. in addition, they could add a comment about their choice regarding the stereotypes. ninety-seven participants agreed that women are better at staying at home and raising children. some commented that it is women who have a gift of giving birth so it is their duty to take care of children, but at the same time, for a strong woman, a child is not a problem to receive a higher position at work. eleven participants agreed that men are taking their job and career more seriously and that division of work at home is agreed at every household individually, but it is expected that women take care of the home. ten participants agreed that women should cook and do household work. four agreed that men are in general smarter than women. some other stereotypes received not more than one vote for it while the majority of participants expressed that they do not agree with any of these stereotypes. these participants expressed that there are no stereotypes because every person is individual and it depends on personality and not gender. some men can be a great cook and take care of household and children, while some women can have many traits to have a better career and to take their career seriously. 101 table 2 promotion gender mean standard deviation i believe i should receive a promotion 2.94 1.36 female 2.90 male 3.05 how important are future opportunities for career development 1.62 0.85 female 1.57 male 1.72 there is an unequal salary based on gender 3.66 1.45 female 3.54 male 3.94 there is an unequal opportunity to grow based on gender 3.75 1.43 female 3.65 male 4.01 there is an unequal opportunity for promotion based on gender 3.76 1.42 female 3.66 male 4.02 men are promoted more quickly than women with equivalent qualification 3.41 1.51 female 3.28 male 3.71 women are not given equal opportunities to voice their opinion and decision making 4.09 1.28 female 3.96 male 4.39 your gender has played a role in you missing out on a raise, promotion, key assignment 4.01 1.33 female 3.87 male 4.33 table 2 presents the information about the participant's opinions about gender and promotion opportunities; table 3 shows the spearman’s correlation between these variables. the participants could choose from agreeing or disagreeing with various statements. “there is an unequal salary based on gender.” the mean for this question of all participants is 3.66 suggesting that on average people are neutral and lean more to the disagreement side. when looking at this question and division by gender, it reveals that men tend to disagree with this statement more; the majority at least somewhat disagree with this statement. two hundred ten participants completely or partially agreed with this statement, which is almost one-third of all. similar results are with the statement “there is an unequal opportunity to grow based on gender.” all participants mean is 3.75 suggesting that people lean towards disagreement with this statement and, when looking at its division by gender, it is divided in that men lean towards higher disagreement with it (mean: men – 4.01; women – 3.65). the statement, “there is an unequal opportunity for promotion based on gender” received almost the same results as a previous question, all participants mean – 3.79 (female 3.65, male 4.02). the statement with the speed of the promotion received a slight increase towards agreement compared to other questions: “men are promoted more quickly than women 102 with the equivalent qualification” (mean 3.41). this shows neutrality with somewhat disagreement (mean: female 3.28, male 3.71). with the following statement “women are not given equal opportunities to voice their opinion and decision making” all participants mean was 4.09 which shows somewhat disagreement or strong disagreement. in this case, both genders agree that women can express themselves and make decisions the same way as men do. (mean: female – 3.96, male – 4.39). the statement with equal opportunities for women “women are not given equal opportunities to voice their opinion and decision making,” all participants mean was 4.09 which shows that participants disagreed with this statement. the gender difference is visible for the means, men disagree with this statement more firmly. (female – 3.96, male – 4.39). the question about gender influence on receiving a more important task “your gender has played a role in you missing out on a raise, promotion, key assignment,” mean – 4,01 making this response somewhat disagree. for this statement men were stronger about their opinion and expressed that they barely have received gender-related discrimination towards them, while women would not be so firm about disagreeing and some of them had felt it. (mean: female – 3.87 male – 4.33.) overall, these means and division by gender suggest that men tend to disagree more with gender-related statements. according to the composite mean, the difference for people to get promoted based on gender barely exists. as well, they have rarely experienced gender inequality towards themselves. table 3 spearman‘s correlation for promotion selfperception career development salary professional growth promotion qualification voice recognition speci assign spearman's selfperception 1.000 career development .028 salary .067 .774** professional .081* growth .802** .870** promotion .058 .688** .732** .776** qualification .064 .637** .699** .713** .703** voice .086* recognition .638** .653** .650** .646** .696** special .145** assignments -.015 -.033 .007 .002 .026 .018 *. correlation is significant at the 0.05 level (2-tailed). **. correlation is significant at the 0.01 level (2-tailed). leadership opportunities table 4 represents the questions asked regarding their perception of leadership traits and importance for them and table 5 shows the spearman's correlation between these variables. the participants were asked how important it is for them to be recognized for their expertise at work and the mean – 1.4 and standard deviation 0.66 meaning that everyone needs to receive recognition for work that they do. an interesting factor is for women to be recognized at work is more important than for men, female mean – 1.29 and male mean – 1.68. this might be due to the fact 103 that the majority had a higher manager man and for women, it is important to feel accepted by workers. another question regarding being the leader of a team, overall mean – 2.23 and standard deviation 0.99 indicates that being a leader is somewhat important for people. when dividing it by gender, the female mean is 2.25 and the male mean is 2.17, suggesting that more men are seeking leadership positions at work, and it is more important for them to have a team of their own that they can control. one more question was regarding taking risky decisions to gain more for the company; the mean for all is 1.92 and standard deviation 0.93 shows that it is somewhat important to gain more for them and the company even if the task or decisions made are riskier. when looked at more closely and divided by gender, the numbers suggest a different story. in response to the question regarding taking risks, the mean score for women was 1.97 while their male counterparts scoreed 1.81. these results suggest that women are less tolerant of risky decisions and fewer of them are willing to take risks. the question regarding having a high status in the society seemed neutral for participants mean – 2.53, standard deviation 1.09; this could indicate that for people, their status in society is an additional value, but not the one that has a high priority. status is more important for females; their mean is 2.5 and the male mean is 2.61. this could be due to the fact that it is harder for women to reach a higher status in society so it becomes an ambition to have one. table 4 leadership gender mean standard deviation being recognized for the expertise at work 1.4 0.66 female 1.29 male 1.68 being the leader of a team 2.23 0.99 female 2.25 male 2.17 taking the risks to gain more for the company 1.92 0.93 female 1.97 male 1.81 to hold a high status in the society 2.53 1.09 female 2.5 male 2.61 participants expressed a flexible working schedule as a really important factor (mean – 1.67), the balance between work and other areas of life (mean – 1.48). this information could be useful for employers that want to attract a highly skilled worker. people want to work by their schedule and be able to plan their day to day activities themselves. meeting personal and family needs was found to be important for everyone, as was the freedom to schedule daily activities based on daily needs. when receiving control of personal life and work, people tended to increase their productivity and focus on tasks. often, mothers are the ones that leave the job when the child is sick or called to the school. due to a strict working hours culture in lithuania, it is hard for most women to balance between these things, so it can lead to working park-time. adjusting working hours and working from home could be a possibility for women to stay full time at work. one more interesting comment from the open-ended questions is regarding the experience of different employees' perceptions when leaving a job early to care for children. if a woman leaves a job early to take a child from school, it is perceived that she is irresponsible; if a man leaves a job 104 for his children, he is pictured as a good parent. these are two completely different opinions of an employees' actions taken for the same situation. perhaps this would not occur if there were more flexible work schedules for employees to choose. table 5 spearman's correlation for leadership recognition leadership decision-making status spearman's rho recognition 1.000 leadership .241** - decision-making .255** .519** - status .231** .488** .359** 1.000 **. correlation is significant at the 0.01 level (2-tailed). economic influence the questions regarding a person's willingness to leave a job or a country for felt gender inequality are important for the lithuanian economy and companies' ability to attract professional workers. of the stated participants, 330 respondents answered they would consider leaving a job if they felt that there is gender discrimination against them. the open-ended question gives an insight into felt gender inequality at work that could lead to a decision to move away from lithuania. colleagues with equal expertise and work experience were both approached by headhunters and asked to interview for an open department head position. after the interview, the men were offered a job and a woman received an offer to work as his assistant (half a salary) with a comment that having two children would make her not flexible for work in the higher position. the woman also added that she felt that she needs to prove herself all the time, to increase her voice, and to go the extra mile to be heard and recognized for work that she does. conclusion to conclude, the perception of glass ceiling gender inequality existence in the workplace is a thing that is felt and described more by women since men do not routinely acknowledge and see it. both genders are moderate about their leadership and promotion opportunities in their workplace. to be recognized for work that is done for a company is described to be the top priority for participants, as well as to have a balanced work with personal life and flexible schedule. some open-ended questions added that in their opinion, what holds women back is their personal beliefs about gender inequality at work. women accept lower pay and status themselves; in many situations, they tend to lower their voices and keep away from saying anything and standing up for themselves. another mentioned aspect is that women have to go the extra mile and do more to be heard and recognized at work. especially working in male-dominated sectors, women feel the need and pressure to go past typical negative stereotypes of appearance to be successful. additionally, it is not uncommon for men to underscore even the smallest of accomplishments while women take a more humble, pragmatic approach to self-recognition of task accomplishment. companies are working towards changing their work ethics and moving to a more open and gender attentive place, but the change should start in the people's attitude. the change that starts at home and moves to society is the one that will stick and be implemented to other levels in life. one of the open-ended answers sums up the personal experience and situation in a workplace in lithuania. although the effect of a glass ceiling is beginning to become less and less visible, the progress as of now is not enough. it was found that a woman right after graduation is usually hired only for administrative and lowest levels because she has no relevant work experience. a woman with experience, however, is viewed with the perception that she is a liability as she will 105 get married and have children, therefore she is turned down for a higher position. most likely, women will go on maternity leave and the period for them re-entering the job market is exceptionally hard because employers assume they are out of the job market and market innovations for too long, leaving women to pick up where they left off or rejoin in lower positions within the organization in terms of salary and career opportunities. it is also perceived that having children means not prioritizing work and can lead to a less carried workload. after several years, if not improving and not keeping up with market trends, the knowledge is not applicable to the job market. future research based on the open-ended questions, many topics provide the opportunity to be discussed and examined deeper. while this study focused primarily on the glass ceiling from a woman's perspective in line with theoretical frameworks, it would be interesting to evaluate the counter position of men in woman-dominated business spheres. based on a response from a male participant, the individual stated a challenge for men to gain employment in human resources, and how one heard in several interviews he would not be accepted because his gender, as the hr team in the company consisted only of female employees. even when a man does get a position in such a company, he is left out from team building activities or discussions because coworkers are speaking "ladies' stuff." to see the perspective from a man working in the female-dominated sphere (such as: nurses, hr, social workers, teachers, administrative assistants) would be an interesting turn to determine if there is a glass ceiling for these men. in addition, future research should consider checking more variables and comparing them with the spearman correlation method, doing various combinations and for example, checking the difference between leadership and promotion based on the level of education that a person holds. in open-ended questions, it was repeatedly mentioned that being a parent has substantial influence on women and their future careers. an interesting factor to look at would be the effect having children has on perceptions about careers, the importance of promotion, and leadership. an important question to add to the dynamic of the study would also be to evaluate how parenthood changes priorities in life, the importance of a career after starting a family, and how employers view the concepts and realities of maternity and paternity leave. references beaudin. l. 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(2020). minding the nordic inequality gap. retrieved from: https://www.usnews.com/news/best-countries/articles/2020-01-16/gender-equalityperceptions-versus-reality-in-nordic-countries world economic forum (2020). the global gender gap report. retrieved from: http://www3.weforum.org/docs/wef_gggr_2020.pdf https://www.pewresearch.org/global/2019/04/22/how-people-around-the-world-view-gender-equality-in-their-countries/ https://www.pewresearch.org/global/2019/04/22/how-people-around-the-world-view-gender-equality-in-their-countries/ http://www3.weforum.org/docs/wef_gggr_2020.pdf 48 mired in myth: students’ misguided expectations of marketplace behavior nathanael peach fort lewis college joshua sauerwein lubbock christian university seth sikkema george fox university this study evaluates whether business and non-business students have different impressions of the attitudes and behaviors that lead to success in business. the extent to which business and non-business students are similar, or dissimilar, has important implications for the business curriculum. to teach business ethics effectively, professors ought to understand students’ beliefs before entering the classroom. this study focuses on the degree to which selfish, self-interested, and self-sacrificing attitudes impact behavior in commercial settings. the data analyzed are from a survey administered at 14 colleges and universities across the country. the final data set contains 665 responses. results from this study suggest that both business and non-business students believe that selfish and self-interested behavior is common in business. students believe that to be successful, business decisions need to be motivated by these antisocial attitudes. this finding reveals a level of ignorance regarding the role of prosocial attitudes and behaviors in commerce. it also reveals that societal metanarratives, rather than business education alone, are likely fueling student perceptions. this provides an opportunity to move the business curriculum towards highlighting the prosocial attitudes that contribute to success in business. antisocial attitudes and behaviors should not be ignored, but they need to be put alongside examples of businesspeople contributing to the common good. keywords: business education, economics education, social norms introduction the first few weeks of the covid-19 pandemic provided ample opportunity for businesses to take advantage of a frenzied public. as the demand for products like toilet paper, hand sanitizer, http://journals.sfu.ca/abr 2023, volume 13, pages 48-60 http://journals.sfu.ca/abr 49 and disinfectant wipes skyrocketed, some businesses marked up their prices. the office of the new york city public advocate (2020) found instances where a dozen 8-ounce packs of hand sanitizer sold for nearly $160, a box of 10 masks sold for almost $200, and a 320-count package of disinfectant wipes sold for $220. the u.s. public interest research group (2020) found that 1 in 6 products sold directly by amazon had price spikes (for similar products) of 50% or more during the initial weeks of the pandemic. while a certain amount of price increases may be warranted and expected, the public’s reaction was one of frustration and anger. formal complaints of price gouging to state attorney generals rose dramatically in pennsylvania, iowa, michigan, and washington (office of attorney general, 2020). even though it is logical to assume that prices will increase during an emergency period, consumer sentiment toward these practices was largely negative. instances of price gouging and dramatic increases in prices fed into narratives that emphasize the role of selfishness and greed in business. more compelling than the evidence of drastic price increases is the fact that five out of six retailers in new york city did not engage in these extreme practices. for every story of predatory pricing, there are also stories of business owners who chose a different path. for instance, an owner of a chain of grocery stores in alaska chose to not increase prices, sometimes selling items at a loss. he even chose to give employees a raise, during the initial months of the pandemic, because he knew they were bearing an extra burden of the effects. when asked why he chose this path, he compellingly states, “everybody is your friend or neighbor” (usa today, 2020). for one reason or another, stories like this are not nearly as prevalent as those of greed and corruption. students who are exposed to these callous business practices may enter the classroom believing that the marketplace is filled with similar personalities, each eager to seek the next profitmaximizing opportunity. these beliefs may be reinforced by the normalization of self-interest in business education, particularly via economic courses (ghoshal, 2005; miller, 1999). as a result, students could erroneously conclude that business is simply about the relentless pursuit of self-interest. miller (1999) argues that this process is self-reinforcing. when individuals believe a particular norm ought to guide behavior, they fear deviating from this expectation to avoid negative social consequences. a particular problem arises when the norm of self-interest impacts student perception and behavior. for example, ifcher and zarghamee (2018) show that even a brief instructional encounter with the norm of self-interest increases self-interested behavior. as a result, when business education focuses exclusively on self-interest, other motivations and behaviors are ignored. by ignoring them, the signal is sent to students that they are irrelevant. students then are left to conclude that self-interest is the only relevant norm in commercial life. an open question remains: are business students’ perceptions impacted by their business education as compared to non-business students in other programs? as a result, this study examines attitudinal differences among business and non-business students as it relates to self-interest. to further understand the role of these attitudes, survey questions and prompts were placed in the context of various business scenarios. by doing so the individual’s attitude, what they believe an anonymous businessperson would do, and whether the action is acceptable is evaluated. the study creates a robust picture of self-perception, perception of others, and the extent to which individuals believe certain marketplace behavior is acceptable. the results of this study provide evidence that students have a dim view of the marketplace which may lead them to pursue antisocial behavior. the results of this study also help place business education in a broader social context and highlight how business professors are in a position to emphasize the prosocial aspects of business. the study proceeds as follows. a literature review presents a sample of studies that have explored the relationship between attitudes and behaviors in business. in this section, three hypotheses that are evaluated in the study are presented. in the methods, the survey used is presented. the survey’s 50 descriptive statistics are also provided in the appendix. the full data set is available upon request. results are then considered. in this section, the extent to which there is agreement between business and non-business majors is evaluated. the paper concludes with reflections on the study’s limitations and implications. literature review merriam-webster (2021b) defines “self-interest” as “a concern for one’s own advantage and well-being”. there is no inherent disregard for others contained in this definition. rather, it leaves the door open to smith’s “invisible hand” in which the pursuit of self-interest leads to the common good. therefore, this study defines self-interested attitude as the perception of self-enrichment achieved through socially acceptable means such as cooperation and fairness. to this end, a self-interested attitude can manifest itself as a perception that one is contributing to public goods, giving blood, and other altruistic activities. the individual benefits because these activities contribute to their well-being. this is contrasted with a marketplace participant who pursues their goals through selfish, illegitimate, or anti-social means. merriam-webster (2021a) defines “selfishness” as “having or showing concern only for yourself and not for the needs or feelings of other people”. this attitude often closes the door to cooperation and fairness and opens the door to dishonest, exploitative, and greedy behaviors. in this study, selfish attitudes are defined as self-maximizing choices that lack honesty and achieve gain at someone else’s expense. on the opposite end of the spectrum is the marketplace participant who exhibits a selfsacrificing attitude. they have a high concern for others and display empathy and care for others. those who enact these attitudes often do so at their own expense. these attitudes pursue service over self-interest and place profit in service to people rather than vice versa (karns, 2016). when met with marketplace decisions these participants often choose to put others ahead of themselves. in this study, self-sacrificing attitudes are defined as the perception of self-limiting acts born out of concern for others. overtly self-interested and selfish attitudes and behaviors have been well-documented in economics students (bekkers & wiepking, 2011; frank et al., 1993; frank & schulze, 2000). frank et al. (1993), offer two rationales for this finding. first, given a student’s personality, background, and prior learning set, students high in self-interest may choose to major in economics. second, the effects of university training indoctrinate students into this worldview that relies exclusively on self-interest. in this study, we focus on the self-selection rationale while expanding the literature to a broader student set as we explore differences between business and non-business students. respondents were considered a business major if their declared major was in their institution’s college, school, or department of business. all other respondents were considered non-business majors. in prior studies, differences in self-interested behavior among economics majors and noneconomic majors were investigated and found that the former displayed significantly higher levels of self-interested behavior (frank et al., 1993). further, non-economics majors appeared to become more cooperative during their university years. thus, business education could be reinforcing self-interested behaviors. male economics students have also been found to be more corruptible than their female or non-economics counterparts. this result held for all four years of undergraduate students, leading the researchers to suggest that self-selection into the economics major might be a larger determinant of behavior than university instruction (frank & schulze, 2000). this within-major difference is intriguing as it is suggestive of differences within and across majors. additionally, in a study of midwestern students, researchers found that economics majors kept more money for themselves and were less concerned with fairness than education students (wang et al., 2011). in a follow-up study, 51 they found that students who had completed three or more economics classes had significantly more positive attitudes towards greedy behaviors, even to the point of classifying greed as moral. these findings are in contradiction to other studies. researchers at george washington university found interesting evidence to suggest that economics students were more honest and less willing to benefit at another’s expense (yezer et al., 1996). additionally, other researchers have found no self-selection effect among economics students (hummel, 2018). while studies between economics majors and non-economics majors have been studied extensively and appear conflicting, the difference between perceptions of selfish behavior among business and non-business students has not been studied. therefore, this study hypothesizes the following: h1: there is no difference between business students and non-business students regarding the acceptance of selfish behaviors. seminal research in this area focuses on constructs of fairness, trust, and loyalty. in their ground-breaking study, kahneman et al. (1986) found that 82% of participants thought it was unfair for a business owner to increase the price of a snow shovel after a snowstorm. extending this study, frey and pommerehne (1993) found that 82% of the general public thought the price increase was unfair, but only 38% of advanced economics students and 41% of beginning economics students found the increase unfair. in a similar study, 71% of business executives thought increasing the price constituted unfair business practices (gorman, 1992). in further studies investigating differences among students pursuing business majors, researchers found that only 29% of third-year business and economics students, 44% of third-year accounting students, 61% of third-year management and marketing students, and 78% of tourism students thought the price increase was unfair. they also found further evidence to suggest that students who seek profit maximization tend to self-select into the economics major (cipriani et al., 2009). in a study of university students and staff, maxwell and comer (2010) found that 55% viewed the price increase due to a snowstorm as unfair. based on these research findings, it appears that economics and business students have different conceptions of fairness than the general public, as they are more apt to view price setting that borders on predatory pricing as fair. prior research does not address whether the views on fairness (the proxy for selfish and self-interested behavior) differ significantly among business and non-business students. therefore, this study hypothesizes the following: h2: there is no difference between business students and non-business students regarding the acceptance of self-interested behaviors. self-sacrificing behaviors are the hallmark of many professions. nowhere was this more noticeable than in healthcare and other essential services during the peak of the covid-19 pandemic. they are also espoused in business professions, like accounting. the american institute of certified public accountants (aicpa) code of professional conduct states a professional must have “an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage” (aicpa, 2014, p. 6). however, given the misperceptions of common marketplace activity, behaviors can be quite inconsistent with professional codes of conduct. consistent with the aforementioned evidence, rubinstein (2009) finds evidence that economics students are more willing to lay off employees to achieve higher levels of profit than other students. further, others have shown that economics students are less likely to make charitable donations than arts and science majors (bauman & rose, 2011). these results seem to indicate that the self-selection effect persists and even mitigates prosocial behaviors. using these insights, this study seeks to investigate the prevalence of self-sacrificing 52 behaviors in business students as compared to non-business students. therefore, this study hypothesizes the following: h3: there is no difference between business students and non-business students regarding selfsacrificing behaviors. methods the survey was designed to elicit possible differences in how business and non-business students view commerce and behavior in the economy. the survey was composed of hypothetical scenarios, attitudinal questions, and demographics, in that order. in a pilot study, 51 undergraduate students, in two different sections of a business ethics course, participated in a focus group. feedback from the focus group resulted in editing the survey to ensure its wording was understandable and focused, and that questions prompted the considerations intended. the authors administered the survey to a purposive sample of students. the survey was administered at 14 institutions, both public and private, across the country during the spring of 2017. once the survey was completed the data were cleaned in several ways. first, incomplete surveys were removed from the sample. next, responses by graduate students and non-u.s. citizens were removed. the few responses obtained from graduate students were from prospective mba students enrolled in undergraduate courses. as there was not an appropriate comparison group, these responses were removed. additionally, their removal allowed us to focus on undergraduate students. to minimize the impact of cross-cultural differences on the results, non-u.s. citizens were removed from the sample. of the 783 surveys received, 665 were kept, 85% of the initial sample. before presenting our results, it is worthwhile to make the reader aware of groups that ended up being oversampled. seniors, business majors, and white males are oversampled relative to their proportion of the population of college students. oversampling tempers the applicability of results to the undergraduate population at large, but it does not negate them. key demographics related to this study are presented in tables a1 – a4 of the appendix. the full data set is available upon request. results and analysis the survey began with three scenarios in which respondents predicted the behavior of others, stated how they would behave, and then offered an ethical interpretation of their responses. scenarios were chosen that allowed us to consider self-interested, selfish, and self-sacrificing behavior. to evaluate whether business and non-business students are different in these regards, tests were conducted to determine if there are statistically significant differences in the responses provided by each group. the first scenario posed in the survey was by frank et al. (1993): “a business had been shipped 10 microcomputers but charged for 9” (p. 168). the prompt was edited to refer to “ipad” instead of “microcomputer.”). respondents were asked about the likelihood that the owner of the business would report the error as well as the likelihood that they would. descriptive statistics are presented in table 1. table 1 likelihood that a shipping error is reported owner likelihood personal likelihood mean 54.4% 76.7% median 50% 90% standard deviation 29.9 29.9 53 note: n = 665. results are for the entire sample. the ipad scenario was applied to hypothesis 1 regarding selfish behaviors. in absolute terms, there is not a marked difference between business and non-business majors; 77.3% of business majors and 75.7% of non-business majors stated they would report the error. not surprisingly, this difference is not statistically significant (t-statistic = 0.701, p-value = 0.484). the test fails to reject the null hypothesis, that business and non-business students do not differ in their self-reported honesty. the second way the ipad scenario was evaluated was by asking respondents what an anonymous business owner would do. this question determines if business and non-business students differ in their perceptions of others. the difference between the respondent’s stated course of action and the hypothetical business owner was significantly different (t-statistic = -13.644, p-value = 0.000). individuals view themselves as more honest than business owners. there was not a significant difference between the impression of others by business and non-business students (t-statistic = 1.393, p-value = 0.164). the second scenario analyzed is from kahneman et al. (1986): “a hardware store has been selling snow shovels for $15. the morning after a large snowstorm, it believes it can raise the price to $20” (p. 729). respondents were asked about the probability the hardware store would raise the price, the price they would charge for a snow shovel if they owned the hardware store, and whether raising the price would be fair. descriptive statistics for this scenario are presented in table 2. table 2 responses to increase in demand for snow shovels likelihood store raises price personal price charged raising the price is fair mean 71.0% $16.58 74.1% median 75.0% $17.00 standard deviation 24.8 5.4 0.71 note: n = 567. ninety-eight respondents indicated they would charge a price greater than $40. given the possibility that the question was misread, these responses have been removed for this question. raising the price is fair is coded as = 1 if fair, = 0 if unfair. standard economic theory justifies raising the price; the snowstorm has increased demand. if firms are solely profit maximizers, they ought to charge more for this product. but as kahneman et al. (1986) point out, the nature of the market shock leads many to conclude it would be unfair to do so. as a shock beyond anyone’s control, it is unfair to take advantage of consumers. as such, the profit motive is pitted against one’s sense of fairness. the snow shovel scenario was applied to hypothesis 2 regarding self-interested behaviors. analysis of this scenario was limited to respondents that would raise the price by less than $25. ninetyeight respondents indicated they would charge a price over $40. while this is plausible, it is also likely that these respondents did not read the prompt accurately. dropping these responses lowers the number of observations considered to 567. in this sub-sample, 25.9% said that increasing the price of the snow shovel was unfair. there is a statistically significant difference, at the 1% level, in the perception of fairness between business and non-business students (t-statistic = -2.591, p-value = 0.010). business students believe a price increase is more permissible than non-business students. participants were also asked what they would charge for the snow shovel if they were the business owner. overall, 55.9% reported 54 they would raise the price. the average price charged by business majors is $16.84, while for nonbusiness students it is $16.20. this difference is not statistically significant (t-statistic = 1.398, p-value = 0.163). it is interesting that while the majority of respondents do not view the price increase as unfair, they are only willing to modestly raise the price. in the scenario, the owner believes they can raise the price from $15 to $20. a motivation other than fairness seems to be constraining students’ willingness to raise the price. perhaps the price increase is justified because they are not raising it by as much as the owner does. participants were then asked about the likelihood of an anonymous business owner increasing the price. on average, 72.5% of respondents believed the owner would increase the price; 72.1% of business majors, and 69.3% of non-business students. the difference is not statistically significant at the 5% level (t-statistic = 1.35, p-value = 0.177). business and non-business majors view business owners as self-interested, both groups expect the price to increase. in many states, a price increase of this magnitude would constitute price gouging. in light of the discussion on price gouging in the introduction, this finding is intriguing. both groups expect price gouging to occur. while price gouging does occur, if the anecdotes from the introduction serve as a guide, it is not nearly as widespread as students believe. another explanation is that the students are correct, price gouging would be more widespread were laws against it not in place. before turning to hypothesis 3 it is worth noting that these results are sensitive to the sample being analyzed. when the full sample is considered, meaning individuals that would charge more than $40 are included, business students are much more likely to view the price increase as fair and charge a much price higher than non-business students. a higher percentage also expects the business owner to increase the price. it is possible that what is perceived as outliers in the sample are the future business leaders who grab headlines with their provocative behavior. the third scenario on the survey was original. it posed a trade-off between sending an employee to a training seminar and a business owner’s income. sending the employee to the seminar would mean the owner would lose a portion of their year-end bonus. descriptive statistics for this scenario can be found in tables 3 and 4. as this is a novel scenario, two sets of responses are considered to evaluate its nuance. after the respondents reported the probability, that the manager would send the employee to the training event; they chose how much income they would be willing to forego in the same situation. table 3 responses to employee training scenario likelihood owner sends employee to a training seminar mean 33.5% median 30.0% standard deviation 25.9 table 4 amount of income willing to forego to send an employee to a training event amount percent of sample $0 5.7% $1 to $500 19.3% $501 to $1,000 31.4% 55 $1,001 to $1,500 22.6% more than $1,500 21.1% this scenario is applied to hypothesis 3 to evaluate self-sacrificing behaviors. concerning what respondents believe the owner will do, the difference between business and non-business students was not significant (t-statistic = 0.245, p-value = 0.806). while this confirms findings from hypotheses 1 and 2, it extends them by including an opportunity cost. in the scenario, the amount the owner would forego if the employee attended the seminar is $10,000. this amount of money is not trivial, and it should be highlighted that 33.5% of respondents believe the owner would send the employee to the training, while the remaining 66.5% do not believe the opposite. respondents were then asked how much of an annual bonus they would forgo to send the employee to the seminar. options were on a five-point scale from $0 to more than $1,500 in $500 increments. the mean response for business students was 3.41 and non-business was 3.23. a value of three corresponds to $501 to $1,000 and four $1,001 to $1,500. the difference between business and non-business students was significant at the 10% level (t-statistic = 1.925, p-value = 0.055). this suggests that business majors are willing to sacrifice more of their income to facilitate an employee’s personal development. this could be due to business students having a deeper appreciation for business education, presumably due to their experiences in the classroom. it is interesting to note that it does not extend to student’s impressions of business professionals. results compared to prior research the first scenario posed in the survey was from frank et al. (1993). the researchers are interested in whether respondents will change their answers after taking an economics course. they report a 40.0% increase in the number of students who expect the owner to not report the error and a 38.3% increase in respondents saying they would not report the error. additionally, the mean for the individual reporting the error is consistently larger, typically by a magnitude of approximately 20 percentage points, than for the owner. individuals view themselves as considerably more honest than others. our findings exceed this difference. these findings are in line with other studies that have applied the first scenario (iida & oda, 2011; yezer, 1996). what this study adds to the literature is the insight that business students are not unique in perceiving themselves as honest and business owners as dishonest. although this study measured perception and not behavior, the results indicate that arguments that claim business students are more dishonest and more selfish than other students because of the business curriculum are not justified. the cause of the divergent impressions of self and others lies outside of business education. the second scenario posed in the survey was from kahneman et al. (1986). the researchers found that 82% of the public viewed a price increase as unfair. since then, the scenario has been applied in studies of different groups (e.g., students versus non-students) and different nations (cipriani et al., 2009; frey & pommerehne, 1993; gorman & kehr, 1992; gao, 2009; maxwell & comer, 2010; thaler, 2015). across these studies, the perception of whether a price increase is fair is quite large. the lowest value is found in thaler (2015): 24% of mba students reported the price increase as unfair, a value close to what is found in this study. discussion a few themes emerge from the study’s results. student definitions of fairness (as it relates to the pricing of goods) continue to change dramatically, and not in favorable directions. the snow shovel scenario (h2) found that 74% of students said that increasing the price of the snow shovel was fair. this is a marked contrast from the original survey conducted in 1986 that found 18% of the general public viewed the increase as fair. 56 while some have contended that business education is to blame, others have surmised that economics and business students are more self-interested than other students. however, this study suggests a different reality. in two of the three hypotheses, the differences between business and nonbusiness students are not significant, which suggests conflicting evidence for both the self-selection and indoctrination hypotheses. there is a larger metanarrative taking place, causing all students to have an increasingly dim view of business professionals, which in turn affects their perceptions, attitudes, and possibly behavior. students believe 46% of business owners would, in effect, steal an ipad, 72.5% believe business owners would engage in price gouging, and 66.5% believe owners would not choose to forego a bonus to further an employee’s training. these findings are concerning. students’ acceptance of less-thanadmirable behaviors can be a response to their perceptions of others in the marketplace. these perceptions may result in taking advantage of customers and employees because of the myth that this is “how business is done.” researchers have found evidence to support the notion that people believe greater profits are produced through harmful business practices. even though there was little to no evidence to support this link, consumers believed that businesses with higher profits were engaging in actions like overcharging customers and exploiting legal loopholes (bhattacharjee & dana, 2017). in the study’s sample, neither group had a particularly noble view of behavior in business. the expectations of lying and price gouging were quite high. these erroneous anti-profit beliefs could alter individual behaviors and encourage selfish actions that conflict with internal belief structures. limitations it should be noted that the authors highlighted the covid-19 pandemic and corresponding business practices to illustrate the ongoing issue of predatory, unethical, and selfish behavior among marketplace participants. this type of behavior is not unique to a single era – indeed we could refer to marketplace misbehavior resulting from the collapse of enron or worldcom, or the banking crisis of 2007, for example. however, because this study collected data from 2017, student attitudes may have already shifted post-pandemic. this study also excluded non-us citizen responses to minimize cross-cultural differences. however, cross-cultural differences have been shown to play an important role in self-interested behavior (wildavsky, 1994). as a result, our results may have limited generalizability. conclusion in this study, undergraduate students’ perceptions of ethical behavior in the marketplace are considered. the motivating impulse is the degree to which business and non-business students differ from one another. both business and non-business students have a dim view of business and business professionals. they believe that selfish and self-interested behavior is quite common. in most instances, business and non-business students hold similar views. thus, something other than business education, possibly media or even campus attitudes toward business, is instilling these beliefs and attitudes. these misguided beliefs quite possibly are in contrast to prevailing marketplace behaviors. in a follow-up question, students were given the following statement: it is more important for a business to seek the welfare of its community than it is to seek the welfare of its owners. interestingly, over 50% of all students agreed with the statement. this is an encouraging finding that illuminates a grand opportunity for business education. while this may be little more than aspirational or wishful thinking, it is also an opportunity for business professors to help students construct a meaningful framework of good business and its positive outcomes. this could be done by nudging the business curriculum towards highlighting the role of business in human flourishing and telling the stories of leaders who have done so. bringing these leaders into the classroom (through interviews, lectures, or case studies) might help students reimagine the marketplace in a more positive light. 57 further, studies of ethics should move well beyond codes of conduct and case studies of egregious behavior into values, belief structures, and character development. directing students towards these ends, instead of toeing the ethical line, would help prepare them for the realities of the marketplace, while concurrently helping them articulate a vision for good business. as future business leaders, the business students of today ought to stand above their peers in understanding the selfless, altruistic, and self-sacrificing elements of commerce. not just because these types of behavior may improve the bottom line, but because they are more representative of the vast number of business owners who understand the 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(1996). does studying economics discourage cooperation? watch what we do, not what we say or how we play. journal of economic perspectives, 10(1), 177-186. 60 appendix survey demographics table a1 academic standing freshman 12.3% sophomore 26.9% junior 24.1% senior 36.7% table a2 gender male 51.1% female 48.9% table a3 racial composition african american 2.1% asian/pacific 11.7% hispanic 16.4% white 75.2% other/mixed 6.0% refuse to answer 2.4% table a4 business majors business major 60.8% non-business major 39.2% note: respondents were considered a business major if their declared major was in their institution’s college, school, or department of business 55 extraordinary success in the sales profession: three case studies in china jon m. hawes, ph.d. xuerui wang indiana state university university of toledo yinjia wang yijing pan university of toledo university of toledo success is elusive for some people who pursue sales careers. for a few privileged others, it is extreme. what is it about those few who achieve exceptional success that empowers them? this paper examines the sales careers of three sales superstars who have achieved extraordinary sales success in an unexpected place, china, where western capitalism is not championed to the extent that it is in many other parts of the world. these three case studies combine to offer some insights that can lead others to higher levels of sales success. characteristics common in all three cases examined here were found: exceedingly long hours of work each week; complete devotion to the job, the company, and/or the industry; very high levels of intelligence; willingness to take risks; and the ability to bounce back after setbacks. keywords: sales, success, leadership, case study, china introduction the past offers us great insight into the future, if only we take the trouble to look. the tendency to overlook the opportunity to learn from what happened earlier is not new. indeed, over a hundred years ago, the great philosopher george santayana (1905 p. 284) stated: “those who cannot remember the past are condemned to repeat it.” in business, post-mortems are more often performed when a major failure occurs (collier et al., 1996), but there may be even more value in examining high levels of business success, particularly great people and their careers. from a business management perspective, lamond (2005) supports this notion of examining the past very effectively in his editorial titled “on the value of management history.” indeed, examining success stories can lead the way for others to identify role models, adopt similar actions, and to consequently experience higher performance levels. studying high achievers and developing generalizations can provide much insight. for proof of the popularity of this method, look no further than peters and waterman’s (1982) book in search of excellence which sold over 3 million copies in its first four years and was the most widely held monograph from 1989 (the first year the list was compiled) to 2006 (mcclain, 1997). in http://journals.sfu.ca/abr advances in business research 2020, volume 10, pages 55-69 56 that now classic book and the associated educational products and services that sprang forth from it, stories of successful american firms were described, examined, and then developed into a framework for improving business practice. in this paper, we utilize a similar methodology but on a much smaller scale. we humbly examine the success of three tremendously successful salespeople in hopes of developing some insight into how other salespeople can also become successful. using case study research to begin building theory is a well developed notion in management research (eisenhardt & graebner, 2007; eisenhardt, 1989) and we modestly engage in that process here with three case studies of salespeople who thrived beyond the highest of expectations. biographies and case studies of exceptionally high achievers examining success stories, including the study of biographies of great leaders, can be especially useful for young people looking to learn about a profession as they progress in the socialization process for that career (e.g., engelland et al., 2006; english, 1995; jacobs, 2007; rubens et al., 2016). in addition, all of us need positive role models to inspire us and to motivate us to do our best (gronn, 1993; morgenroth et al. 2015). examining case studies of success contributes to this form of education and serves as motivation to emulate that high level of performance when we learn about the extraordinary accomplishments of others. in the popular press within the field of sales, much attention has been directed to sales superstars or sales heroes. these elite salespeople are said to constitute only about 4 percent of the sales force, yet accounts for a disproportionate share (64 percent) of company sales (pipedrive blog, 2020). this is far beyond the level of concentration suggested by the pareto principle’s 80/20 ratio (kim et al., 2017). there are many articles in business trade magazines about how to hire sales superstars, how to develop them, how to keep them, etc. (e.g., allen, 2002; hallenbeck, 1999; southerst, 1992; graham, 2016; wayshak, 2016). let’s brainstorm for a moment. think of some great superstars of selling perhaps your sales heroes. where do they sell? where do they live? many would predict that they would work in a highly competitive and free-market economy. in addition, many would expect sales superstars to work in countries with advanced, highly developed economies, probably one of the g7 which includes: canada, france, germany, italy, japan, the united kingdom, and the united states (bampatsou & halkos, 2019, p. 357). furthermore, if you currently live in one of these g7 countries and have even an ounce of ethnocentrism, there is a good chance you would expect sales heroes to be from your homeland. the senior author is from the united states and pleads guilty for his expectation that many sales superstars are american. but while many do, in fact, work in the united states (inc., 2011; nguyen, 2011), they also live and work all around the world. in fact, sometimes sales superstars can be found in unexpected places, even in china, one of only a few currently existing communist states in the world! if you had to guess where in the world sales would not be expected to flourish, a communist country might be a good guess but you could be wrong! if sales superstars can be found in china, where one would not expect sales to thrive as a profession given the stereotypical view of a planned, communist economy, then certainly sales success can be found in your market, too. indeed, as it has so often been said, “if you can make it there, you can make it anywhere.” this paper describes three of china’s most successful sales superstars in hopes that these stories provide an opportunity for others to learn from their triumphs. our goal in writing the paper is to demonstrate that humble backgrounds do not necessarily lead to mediocre careers, even when the 57 environment seems less than ideal for business success. we also hope to provide inspiration to others to strive for high levels of achievement no matter where in the world they may work. case selection the senior author recently had the privilege of teaching as a visiting professor a section of an advanced sales class to a group of highly talented undergraduate exchange students from china studying in the united states. one of the class projects was in the form of “problem-based learning” (marra et al., 2014). this project involved selecting a person who achieved extraordinary success within the field of sales, justifying that selection, writing a paper analyzing the career of the individual, and presenting the findings to the class. they could choose from a list of well-known sales superstars or “sales heroes” mostly from the united states but were very strongly encouraged to identify a person from their home country of china and to seek then instructor approval. prior to the beginning of the course, the instructor had searched extensively using many different search terms on various major u.s.-based search engines to identify the people in china who were thought of as sales superstars or sales heroes. it was thought that this might make the project more meaningful for these students who grew up in china. after almost a full week of futile searching, no one had been found. the chinese exchange students, on the other hand, had access to a wider variety of chinesebased search engines and to chinese media. even more importantly, they were able to read chinese (their primary language) in which much of that material is written. as a result, they were successful in finding some very worthy sales professionals in china who met the criteria for being classified as a sales superstar or as their sales hero. three of the more interesting sales superstars chosen from their home country by these excellent chinese students and their findings are provided in this paper. this is not intended to be a random sampling of salespeople from china. in fact, it is a purposefully selective choice of what were considered the most interesting cases, primarily due to the extreme level of success along with access to information about these salespeople. in the social sciences, this is sometimes called deviant or extreme case study (seawright & gerring, 2008). while sweeping generalizations would be unwarranted, valuable insight can be gained from the study of these extreme case studies in qualitative studies. here are some of the highlights of this research. case 1: mingzhu dong our first case is chinese sales superstar mingzhu dong. she was the youngest of seven children born into a working-class family in nanjing city, located in southeastern china. her parents named her mingzhu, a name which conveys the meaning of a shiny pearl. from that humble origin, they certainly never expected their daughter to grow up and be widely thought of royally as china’s: “home appliance queen” (ren, 2019), “marketing queen” (tatlow, 2011), “sales queen” (hongwen, 2017, p. 64), or as “the sales empress of china.” (lanhee & naville, 2008). mingzhu dong graduated from wuhu institute of technology, a vocational school, with a major in statistics. she considered a career in the military, but instead, after graduation, became a manager in a small chemical research center in her hometown. life was ordinary and routine, the same as for millions of other chinese traditional families. mingzhu dong married and then gave birth to a son. life was good. but tragedy struck. her husband got sick and died when she was only 30 years of age and her son was two years old. without her husband’s source of income, the family 58 needed money to pay back loans for his medical expenses. this led to her decision to move and seek a higher paying job in zhuhai, a city with some of china’s biggest manufacturers which provided many employment opportunities, especially for young adults who could endure extremely hard work. figure 1 mingzhu dong in 1990, mingzhu dong, at age 36, transitioned to a sales job at haili electric (the former name of gree electric), which was a small, state-owned air conditioning company that only made airconditioners. in addition, one must remember that selling was a new profession in china at that time (hongwen, 2017, p. 31). furthermore, only about one in 300 urban homes in china then had air conditioning, even fewer in rural areas. by 2010, in large part due to dong, about half of the urban homes did (financial times, 2010). compared with other females in the early 1990s in china, mingzhu dong was much braver, more decisive, confident and powerful. what’s more, she was not afraid of any obstacle and pressure from supervisors. she never worried about making mistakes. as she has often said, “i don’t make mistakes” (ho, 2019). what truly astonished all the people who worked there at the time was that she attempted to negotiate with a large organization and succeeded in making a deal worth 2 million yuan in total revenue during her first year in sales. in 1992 mingzhu dong achieved a record 16 million yuan annual sales while earning a 2% sales commission. she was then transferred to the nanjing district to try and expand market share in that under-performing region. at the end of the next fiscal year, her sales surpassed 36 million yuan, which was more than any other salesperson had achieved at gree (jie, 2018). by 1994, the market had turned highly competitive and there was a plummeting of demand, mainly due to china’s exploration of a more market-based economy, government regulatory changes, and social changes. gree failed to sell all that they manufactured and had a severely overstocked inventory. dong realized that under those conditions, upper management would expect even more from its salespeople. when she was voted to become the new gree head of sales in 1994 (hongwen, 2017), dong knew she must begin by building the brand and enhancing customer loyalty as well as promoting products. mingzhu dong built a professional sales team with only 23 elite salespeople in gree, while comparably sized competitors had hundreds of salespeople, many of them mediocre at best. she started reforming the whole organizational structure, including management of the sales team, demanding better product quality from manufacturing, setting higher product standards, changing suppliers, and applying rational and scientific decision-making processes. 59 mingzhu dong proposed several new selling principles in 1995 when gree built the first air filter factory seeking better quality control. she put forward the idea that sales revenue promotes quality and that sales also promotes the enterprise’s growth and development (jie, 2018). by this, she meant that sales generated revenues and that the profits coming from those increased revenues were the basis and the motivation for improving quality throughout the firm. in 2001, mingzhu dong became the general manager of the company and gree began to flourish under her leadership. in 2003, sales reached a record of 10 billion yuan. dong was named gree president in 2007. growth continued at a fast pace, and in 2018, gree’s annual revenue surpassed 200 billion yuan (about us$29 billion), a 33.6% increase over 2017 (xia, 2019). in 2019, mingzhu dong was the leading shareholder of gree stock. during 2010, “sister dong,” as she was called at gree, ranked 5th in the world by the financial times in their women at the top program in which the 50 most prominent businesswomen around the world are honored (financial times, 2010). in 2015, she was recognized as an “aacsb influential leader” (aacsb influential leaders, 2015). during 2019 mingzhu dong was also listed among china’s top multinational leaders by forbes (li, 2019), and she was ranked 44th by forbes in their list of the world’s most powerful women (forbes & mcgrath, 2019). case 2: hong jian our second case is chinese sales superstar hong jian. he was born in 1963 and studied hard during his early years. there is nothing unusual about that. many people study hard, especially in china where education receives such a high priority. in 1980, he entered wuhan university, a wellknown university in china, as an economics major and studied a series of economic principles and applications. after graduation, he was assigned to work in the guizhou provincial development and reform commission (success network, 2020a). in 1986, his passion for economics and finance led him to give up that job and go back to wuhan university for graduate studies in finance and insurance. figure 2 – hong jian hong studied in graduate school until 1987. at that time, there was a substantial investment boom in china (baidu, 2020). hong’s recently gained knowledge of economics and finance had improved his understanding of these financial markets and he decided to seek business opportunities in hainan province. he left graduate school and went to hainan for employment. there, hong worked for a variety of hotels, import and export companies, the mining industry, and with real estate companies. in these jobs, he accumulated management experience and, in 1992, founded his own real estate company as its ceo. 60 in 1992, hainan’s real estate boom was surging. hong earned tens of millions of yuan in that year by doing real estate speculation. the money came quickly, but it also left quickly. due to a new government stipulation in 1997 that a bank’s funds must not be used for real estate speculation and that the loans needed to be recovered, all of hong’s funds were invested in real estate speculation and, therefore, could not be repaid. his company could only be liquidated. he was once a wealthy man, but now, almost overnight, he had become a poor man (success network, 2020a). such a tragic turn of events, however, did not discourage him. instead, it spurred hong’s interest in nontraditional business practices. that spirit supported his continuous climb and his upward progress which soon followed. by chance, hong, who now had nowhere to go but up, joined an insurance company and became a salesperson. it surprised many people when hong began selling insurance. he had no experience nor training in sales. his education focused on the quantitative aspects of finance, not about marketing, persuasion, or sales. nevertheless, he passed the probationary period in only ten days and soon reached a premium level of more than 300,000 yuan during his second month. in less than half a year, he sold enough to win almost all the company’s sales awards (success network, 2020a). as he progressed in his career, however, continued success was not always easy. at first, hong, like most people, started his insurance sales career by visiting with prospects one at a time. on a pedestrian bridge in shenzhen, he once tried to strike up a conversation with a woman about insurance. but he only got a short and powerful response from her when she called him “disgusting.” he tried cold calling by setting a goal of knocking on the doors of eighty-six houses in one morning, but that day only one house would even open the door. in addition, the male owner of that house told his child, “in the future, if such uncles and aunts knock at the door, don’t open it.” hong would also hold an umbrella for shoppers at the entrance of the mall on rainy days, hoping to gain an opportunity for a sales call, but that was almost always futile. with an ever-increasing number of rejections, hong realized that there was a problem with his sales practices for insurance. when a person like hong has high sales targets, other sales techniques must be used. so, the goal must be established first: how much money you want to make should lead to the use of a sales method that can result in that level of income. at the beginning of his sales career, hong had been selling insurance to individuals. he was always looking for anyone willing to talk to him about insurance. finding viable clients was like looking for a needle in a haystack. he gradually learned to target his insurance business to more wealthy people, such as entrepreneurs and managers of large companies. also, he understood that no matter what kind of person the customers are, they only care about their issues–not yours. every sales conversation should take place from the customer's perspective rather than from the salesperson’s perspective. it’s never “my product is great.” it’s always “here’s how i can help you.” hong learned quickly and set specific stretch goals for himself. he became very successful. in 1998, hong won the young professional award from shenzhen financial systems department. soon, he was qualified to participate in the 1998 world chinese life insurance conference and was awarded mdrt (million dollar round table) membership. hong was the first mdrt member in mainland china. in 1999, he won the top spot in the nation of china by selling 17.45 million yuan. in 1999, 2000, 2001, and 2002, he won the top membership of mdrt for four consecutive years (insurance experts, 2020). in 2001 and 2002, he was appointed by mdrt as the local chairman of 61 mdrt china. compared to his peers during that time, the reason why hong was able to achieve such an exceptional level of success is not because of luck, but perhaps because of the following explanations. first, he received an excellent education. during his studies at wuhan university, he learned about economics, finance, insurance, and consumer psychology, which enabled him to have a deeper understanding of the insurance industry. secondly, hong’s years of investment experience in hainan, no matter whether it brought him profit or left him to face bankruptcy and liquidation, gave him the opportunity to accumulate a lot of relevant industry experience. it also honed his mind and helped him develop perseverance. that built character and supports him now in his career. even though he is constantly encountering the potential to be rejected, he knows that he can always again start from scratch, renew his skill set, and achieve success. thirdly, his interest in new business opportunities and his courage to try new things led him to founding the first ping an jian hong source club in the 1990s. the network continued to develop and effectively serves the needs of policyholders. he also founded a personal life insurance business website. he called it life-first life insurance, and that website opened as a precursor of the online insurance business. soon, he had received the first online order of ping an insurance. to the best of our knowledge, this was the first online sale of life insurance in china ever. in just two months, the website was visited by more than 18,500 people, with as many as 2,900 daily visits (success network, 2020a). this was a small step for hong as a salesperson but a significant step in the development of the online life insurance business of the future. finally, his precise interpretation of the insurance industry and customer service is an important part of his success. some people asked him how he could make insurance so popular. hong shared his secret of success: he tries to do his best to serve his own customers and create his own brand of customer service. in other words, he tries to cultivate a good relationship with customers. “customers are in my heart” (success network, 2020a). with that mantra, hong injected a new concept into customer service. in 1999, hong set up his own client club to provide benefits for his customers. his customer service covers a wide range of areas, such as the ability to purchase tickets or food, provides medical information, helps introduce policyholders to babysitters, moving companies, and even tutoring service providers. hong said sincerely: “i have been thinking about doing something for them. i know all my successes are based on their concerns, support and help” (success network, 2020a, para. 13). the relationships established with customers have become increasingly deep, and these long-term customer relationships help hong broaden the scope of his business, enabling it to become stronger and more stable. for these achievements and so many more, hong has been called “the first person in china’s insurance marketing” (success network, 2020b). case 3: lei jun our third case is chinese sales superstar lei jun, currently ceo of xiaomi, a large cell phone company based in china. he has changed the chinese market for cell phones in many ways. for example, the role of hundreds of salespeople in brick-and-mortar retail stores has been replaced with extensive use of social media in which video of lei jun is used to promote cell phones that can only be bought over the internet. lei ju became the sales voice and the visual image of the company. while competitor samsung spent 5.4% on marketing, xiaomi spends only 1 percent 62 (einhorn & larson, 2014). his sales innovations have been so profound that jun lei has been called the “chinese steve jobs” (montlake, 2012). figure 3 lei jun so, what made lei jun so successful? he was born in 1969 and entered wuhan university in 1987. lei was so smart that he earned a bachelor’s degree with a major in computer science in only two years instead of the expected four years (einhorn & larson, 2014). during this time, he worked in a variety of technology roles and obtained extensive experience in writing encryption software, anti-virus software, financial software, cad software, chinese system, and various practical gadgets. he also worked on circuit board design and did some soldering of circuit boards. he started his first technology company during his second (and final) year of college to produce computer chips, gundugoms. the firm’s goal was to make it easier to process data in chinese, but it failed. there was already tough competition from kingsoft and lenovo when he entered the market, and his firm did not have enough capital to fight it out with wealthy competitors (horwitz, 2018). two years later, lei jun had become familiar with the leaders of various computer companies in the area. in fact, he had become a well-known figure in the wuhan electronic area. although lei jun’s first company failed, industry people recognized that lei jun was a genius. of course, it also did not hurt that he worked 100 hours a week, too (flannery, 2015). so, in 1992 kingsoft, one of gundugom’s former competitors hired him as an engineer. he rose through the ranks to ceo in 1998. while working there, during 2000, in his “spare time,” he founded another company on his own called joyo.com, an online bookstore. he sold that firm to amazon in 2004 for us$75 million. he left kingsoft in 2007 under troubling and contentious circumstances to become an angel investor. lei jun created a unique way to differentiate among applicants for his capital. in fact, jack ma (later well known as the founder of alibaba and now one of the world’s richest people) tried to borrow money from lie jun during that time. in 2010, a phone called iphone 4 was released by apple and championed by steve jobs. soon, people fell in love with the phone and apple quickly became the most successful company in the world. at about the same time, a man called lei jun was starting a new cell phone company in china called xiaomi (dou, 2015). he had previously been serving as the ceo of jinshan software, a powerful company in china, but decided to establish his own company (junyi, 2018). although he had been a successful manager at jinshan, he felt the need to jump out of his comfort zone, even though his family and friends thought it was a big mistake. when apple and jobs were enjoying their early success, jun lei was still dealing with people’s doubts about his cell phone products at xiaomi. his goal was to target an emerging class of chinese consumers who wanted technology but could not yet afford top-of-the-line products (vella, 2015). 63 he had a plan and was going to follow it. when he started xiaomi in 2010, lei did three things which few others do prior to starting a company. first, he decided to use his team’s software-creating ability to build a new operating system called miui. second, he asked his team to create a relationship with those people who tried miui, then asked them what new functions and features they would like. this process tied the new company and its users even closer together to build a solid business foundation for their system and the smartphone they would release later. thirdly, they conducted a survey about what chinese consumers really wanted from a cell phone and how they planned to use it. these three actions enabled the new company to learn what consumers truly needed, and they then built a cell phone designed to provide those benefits for them. it was not too much, not too little, but just right. after one year’s preparation, the company released the mi1. it was equipped with almost the very best hardware and was priced at only 1999 chinese yuan (about us$300). most people who saw that price tag were astonished. that was about half the price of other companies’ cell phones at that time. xiaomi also proudly announced their new system and lie jun was the spokesperson. during 2011 and 2012, sales levels for the mi1 were phenomenal. because of xiaomi’s pricing strategy, they also did not make any profits. but they sent a message to the entire phone industry that they can no longer price their products as they want. xiaomi was a force to be reckoned with. xiaomi soon became a company that consumers loved, and competitors hated. not long after this, xiaomi even launched a device called the xiaomi redmi note 2 at about half the price of the mi1. xiaomi had disrupted the entire mobile phone industry and accelerated the popularity of smartphones. now, lei jun has become a name known by nearly every young chinese person. he has received many recognitions, including being named by forbes magazine as asia’s businessman of the year (flannery, 2015. as his success and recognition has grown, so has his personal wealth. he recently ranked 25th on forbes list of china’s wealthiest people (flannery, 2020). xiaomi’s success was due to its good quality, favorable consumer attitudes, and lei jun’s incredible marketing and sales techniques. here are some of those innovative sales and marketing methods. technique 1: lei is someone who loves to talk with his customers, and he knows that his company needs to build long term relationships with them in a variety of ways. consequently, he decided to become the voice of his company. not only because he was the best sales representative of xiaomi, but he also wanted to be the symbol of the young company. technique 2: lei jun changed the traditional way of selling cell phones or other electronic products which had been sold in retail stores. companies like oppo mobile and vivo preferred to use traditional face to face communication to attract consumers. by doing so, they had to hire a lot of employees and it was expensive to train and compensate them. on the other hand, xiaomi’s unique way to promote product was letting lei jun show their products on the internet and use his popularity and passion to win even more consumers. lei jun’s personal show on live streaming platforms and at events held by xiaomi let him be himself and he was much more effective than competitors’ in-store sales employees. technique 3: after building their reputation through their operating system over the internet, they decided to have a launch event in beijing and do a live stream video to promote the new cell phone system. please realize that at that time, phone companies primarily used recorded tv commercials and other mass media to promote their products. the live stream was more like a real64 time face-to-face communication than those boring tv advertisements. as a new company, xiaomi did not have any retail stores, so they decided to use the internet only as their selling channel and this had yet to be proved as a success. no matter whether you lived in a big city like shanghai or in some suburban area, you could get a xiaomi phone with a simple mouse click. technique 4: hunger marketing was used. xiaomi always has experienced great sales performance since 2011, but this makes us forget that they are still a relatively young company. it doesn’t yet have the strong muscle of bbk (formerly bubugao) or huawei. some people have criticized xiaomi for being unable to fulfill the markets’ demand. others suggest that lei jun and his team invented a practice now called “hunger marketing” which means that planned scarcity makes a product even more desirable. examples of hunger marketing include: (1) increasing desire for a product by making it available for only a limited time, (2) creating an expectation of selling out quickly, (3) providing price discounts but for only a limited time, or even (4) the short-time excitement created in the us for shopping on the day after the country celebrates the thanksgiving holiday which is known as black friday. each of these tactics is an application of the persuasion principle of scarcity. interestingly, when one looks up hunger marketing on wikipedia, there is a reference to xiaomi as they sold out of the mi note 2 within only 50 seconds of its availability (hunger marketing, 2020). in addition, xiaomi’s first release of 100,000 mi3 smartphones sold out in only 86 seconds (einhorn & larson, 2014). technique 5: lei jun directly used a sheet to compare the specs of xiaomi and competitors’ phones at the launch event. he waited to reveal the price until the last minute and used that aspect of his presentation to build suspense. technique 6: in addition to the smartphone itself, lei jun knew that the operating system of the phone was very important when selecting a smartphone. lei decided to let everyone freely use the miui system. which means that even other brand’s phone could also run on the miui system at no charge. this enabled a wider base of customers to become familiar with the system and they came to appreciate its advantages. as we know, xiaomi’s target customers were in their 20’s or 30’s and are more likely to try new things than older consumers. research findings these three brief biographies of sales heroes in china present much useful information for those of us not yet in the “superstar” category. while we must be cautious about trying to generalize too widely, are there some “golden threads” of knowledge that we can glean from these stories? by golden threads, we mean characteristics or behaviors which all three of the chinese sales superstars have in common. once identified, we can try to emulate those actions for our own personal use and improvement. the first of these golden threads is working exceedingly long hours each week over an extended period of time. there seems to be no secret alternative or shortcut here. lei jun routinely works about 100 hours per week (flannery, 2015) and mingzhu dong has not taken a vacation in nearly 30 years. as she says, “i can rest when i retire” (tatlow, 2011). another central theme or golden thread of all the sales superstars profiled here is their complete devotion to the job and their company. instead of working to earn a living, working is their life. jian hong “believes in life insurance” (success network, 2020a). to him, it is a calling, his way of serving others and helping them create a better life for themselves. for mingzhu dong, gree is central to her life. in order to pursue her career at gree, she let her mother do most of the work of raising 65 her son. indeed, she has a calligraphy scroll hanging in her office that reads “selflessly committed to gree; heroically conquering the business world” (hongwen, 2017, p. 24). clearly, there are sacrifices to be made in personal lives to achieve the kind of success demonstrated by these three superstars of sales. all three chinese sales superstars profiled here possess very high levels of intelligence. for example, lei jun completed his undergraduate studies in computer science at wuhan university in only two years and has been described as a “genius” (lahiri & tang, 2018). even as a child, lei was called “the smart kid” by his neighbors (jin, 2016). mingzhu dong has also been described as a genius (mcdonald, 2011, p. 639). all the chinese sales superstars profiled here were willing to take risks. jun lei even started a technology firm called gundugoms while he was in college. he thought if steve jobs and steve wozniak could do it, so could he. jian hong dropped out of graduate school to become an entrepreneur and engaged in real estate speculation which is about as risky a business as there is. mingzhu dong left her family and moved away from home to take a commission only sales job for a firm that only sold air conditioners in a market where fewer than one percent of homes had them. all demonstrated a determined readiness to assume risks. some of the adventures worked out, some did not. that leads us to the final golden thread to be identified here. while all were willing to take multiple risks in their careers, all faced serious setbacks, indeed tragedies, in their lives and fought back with vigor to overcome those severe challenges. mingzhu dong had to subjugate the tragedy of becoming a widow and the necessity of providing for her family at a very early age in life. lei jun’s first company, gundugoms, went bankrupt and he left kingsoft amid controversy. jian hong lost a fortune in real estate speculation and went from great wealth to poverty in a matter of weeks. nevertheless, all the salespeople profiled here overcame their challenges and became even more successful afterwards. we are not proposing that their later success was because of their earlier failures, but they certainly did not lose their courage to take new risks and to pursue new opportunities because of their previous setbacks. contributions to the field this paper makes an important first step in describing successful salespeople within the country of china. for many americans, the notion of salespeople thriving in a communist country is unexpected to say the least. the field of selling is so tied to the concepts of capitalism, free enterprise, and the economic freedom to succeed or fail based on your own efforts. nevertheless, we portray three highly successful people who amassed great wealth through professional selling in china. this certainly offers an insight into the chinese economy that some americans will find surprising. beyond the shattering of these stereotypes, this paper advances the field of professional selling by offering insights into what led to high achievement across these three case studies of extreme sales success. these characteristics can now be tested empirically in large samples to examine how robust those characteristics are across different individuals in various markets. these descriptions of three chinese sales superstars also serve as important reminders that while each culture is different, the determinants of success could be surprisingly stable across cultures. as one reviews the conclusions of the study shown above, it is interesting to note that perhaps these factors which led to success in china could have occurred in many other countries 66 located anywhere in the world. possibly we are not as different as we often believe ourselves to be. the results of this study also provide evidence of the value of secondary research as a starting point in a field of study. it is often surprising to see how much useful information can be secured from these sources. when examined carefully with a purpose in mind, these materials provide vivid descriptions useful in the establishment of a base from which further empirical work can proceed. future research directions we hope that this research will encourage others to study people who have experienced exceptional success. all too often, post-mortems are conducted on failures (collier et al., 1996). while such examinations are useful, there is also much to be learned from success. for example, future research should examine high levels of success within other countries. systematic studies in countries which are at various stages of development may offer insights. perhaps a team of researchers can compare success stories in highly developed, developed, developing, and less developed countries then search for differences across these categories. beyond stages of economic development, there would be value in examining sales success across populations based on the extent to which each economy was free of government involvement (warnecke & de ruyter, 2010). another avenue for future research is to examine success across high tech vs. low tech industries. in addition, there may be different reasons for success in high growth vs. low growth sectors of the economy. furthermore, examining differences across goods versus service sectors may also bear important findings. there could also be differences by career stages. entering a field of employment at a later age may pose additional and meaningful challenges (or opportunities) for mature workers. of course, there is also much value in comparing worker behaviors across a wide range of success levels with a goal of identifying opportunities for improving the performance of currently underperforming employees. some of the research conducted within educational settings may have opportunity for application here as well. for example, the development of success coaches and the use of aggressive or intrusive career advising might move some marginal performers into higher performance categories. while we believe there is much to be learned from examining these three sales 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(2007) framework and spans departmental boundaries making it both relevant and practical to all business disciplines and fields. keywords: hr systems; human capital; resource orchestration introduction strategic human resources management (shrm) research focuses in part, on how firms utilize systems of human resource practices, policies, and processes (i.e., hr systems) to implement firm strategy and affect organizational outcomes by leveraging individual and collective knowledge, skills, abilities, and other characteristics (ksaos). strategic human capital (shc) research focuses on how ksaos and hr systems integrate across levels into firm strategy development (boon et al., 2018; fulmer & ployhart, 2013). shrm research examines how the collective of individuals in organizations and hr systems help with strategy implementation, while shc examines how the collective and hr systems might influence strategy formulation. historically, the two streams of research investigate “what” components of hr systems and “what” individual resources help firms build and sustain competitive advantages (brymer et al., 2015) through strategy formulation and implementation. in this paper, we theorize about “how” firms leverage hr systems and resources in conjunction with each other to affect various organizational outcomes by focusing on the interaction between hr systems and resource orchestration. hr systems have been shown to amplify financial performance (bowen & ostroff, 2004; huselid, 1995), increase organizational learning (snell et al., 1996), and contribute to successful financial investment decisions (molloy et al., 2011). while studies have examined links between hr systems and organizational outcomes, the conditions under which the relationship operates remains unclear, especially across different contexts (li et al., 2011). research using resource-based theory (barney, 1991) and resource orchestration (sirmon et al., 2011) argues that capabilities interact with managerial resource orchestration to influence firm outcomes (sirmon et al., 2008; sirmon et al., 2007). we use these arguments to show how the interactions between hr systems and resource orchestration leads to various outcomes, as opposed to hr systems alone. http://journals.sfu.ca/abr advances in business research 2020, volume 10, pages 18-35 19 we focus on the synergistic effects when resources are bundled and leveraged, and rely on several assumptions. first, we are assuming that organizations are engaging in effective hr policies and procedures which utilize high performing work system practices (hpws). in doing so, we are taking a truly synergistic approach. jiang et al. (2012b) discuss that hr research uses one of three approaches or frameworks when discussing how resources are bundled: additive, substitutive, and synergistic. in this paper, we adopt the latter. each subcomponent of the forthcoming propositions can stand alone. however, alone they do not provide a sustainable advantage in either organizational learning or firm performance, two key tenants of this paper. resources in this paper cannot substitute for one another and sustain advantage either. while they are additive, this still doesn’t work toward sustainability. it is the synergy that is created by the unique combinations of all of the components discussed below that fosters sustainable learning and performance. to further illuminate this fact, consider the following statement by jing and colleagues (2012b:83): “hr configurations are assumed to be theoretical combinations of hr practices that maximize synergistic effects on outcomes.” this article contributes to the shrm and shc literature in two ways. first, we examine the interactions between hr systems and resource orchestration to gain a more complete understanding of conditions influencing the relationship between hr systems and organizational outcomes. existing research in shrm and shc views hr systems as standalone structures that have direct connections to firm outcomes. we describe how hr systems must instead work in tandem with other aspects of a firm’s internal environment, bundled by firm managers. we focus on resource orchestration because as the world economy expands and globalization increases, firms that successfully integrate their human capital with internal resource orchestration are able to respond to more dynamic, complex problems in their operating environments (snell & dean, 1992), making resource orchestration a key element of a firm’s internal environment. this responds to a call in the literature to explore how human capital integrates with other organizational resources and capabilities (wright et al., 2014). a second major contribution is that shrm and shc studies have often used firm performance as the outcome of interest. we argue that the outcome depends on which resources are bundled with the hr system. for example, we propose that land selection processes (the location of headquarters, plants, etc.) interact with hr systems to increase organizational learning as the firm will use recruitment practices that focus on attracting and selecting individuals most likely to be integrated with the firm’s other resources. we start with a review of the shrm and shc research focusing on hr systems. we then review the resource-based theory (rbt) and resource orchestration approach as well as our two outcomes of interest (organizational learning and firm performance) before proceeding to our propositions. we conclude by addressing theoretical and practical implications. literature review shrm and shc research crosses multiple disciplinary and theoretical divides (wright et al., 2014), and it is important to detail and understand these divides as we build our propositions. ployhart and colleagues (2014) noted that economics scholars study hr vis-a-vis how investment in employees yields value for the firm, while hr researchers examine how ksao aggregation leads to unit-level hr emergence. finally, strategic management scholars explore interconnections among the structure (what it is), function (what it does), and level (where in the organizational hierarchy) of human capital resources and how these shape firm strategies. within these disciplinary areas, hr is theoretically studied from three perspectives universalistic, contingency, and configurational (delery & doty, 1996). a universalistic perspective assumes that individuals respond similarly to environmental stimuli; contingency focus on context and assumes that individuals react differently based on the internal and external environment (delery & doty, 1996); and finally, configurational perspectives assume that hr systems are configured to produce firm outcomes (guest & conway, 2011). we draw from all three perspectives to show how configurations of the hr system in the context of firm resource orchestration yield firm outcomes. specifically, effective use of hr systems with firm resource orchestration activities such as land selection, branding, production processes, and r&d unlock synergies and increase firm financial performance and organizational learning. 20 hr systems jiang and colleagues (2012b) note that hr systems are the highest level of aggregation for hr activities and represent overall patterns of hr activities. hr systems contain policies (programs that focus on different domains like motivation) and practices (individual procedures within policies). system composition varies between firms, but internal consistency and synergy between hr systems and firm strategy increases firm outcomes by affecting ability, motivation, and opportunity among employees stronger than simple aggregation of hr activities (huselid et al., 1997; jiang et al., 2012a). similarly, high performance work systems (hpws) are a subset of hr systems that link overall human capital to firm-level outcomes. hpws include rigorous selection procedures, internal merit-based promotions, grievance procedures, cross-functional and crosstrained teams, high levels of training, information sharing, participatory mechanisms, group-based rewards, and skill-based pay. hpws are theoretically and empirically linked to turnover rates, firm productivity, financial performance (guthrie, 2001; huselid, 1995; lepak & snell, 1999; messersmith et al., 2011), and organizational learning (snell et al., 1996). hpws unlock these firm outcomes most effectively when hr systems complement overall firm strategy. additionally, hpws increase organizational learning by building firm-specific skills when tied into firm strategy based on the allocation of individual and collective ksaos (bidwell & keller, 2014). allocation of ksaos are facilitated through promotions and transfers, and facilitate information impactedness (when knowledge is known but not easily shifted) by restructuring information that is known but cannot be easily transferred. this information flow is enhanced by high involvement work processes that enhance employee skills, allow participation in firm decision-making, and increase motivation. in these environments, workers have higher skill requirements, discretion is emphasized in work design, and incentives are tied to motivation and commitment leading to higher levels of organizational learning (pil & macduffie, 1996). hpws are most effective in highly capital intense industries when market growth is strong, and when industry differentiation for products and services is high as managers use discretion to maximize hr policy utility (datta et al., 2005). other contextual factors include industry characteristics that allow increased innovation, speed, and adaptability (chadwick et al., 2013). internal firm contingencies include the strength of the hr system. bowen and ostroff (2004) define hr system strength as, “the process by which a consistent message about hrm content can be sent to employees” (207). stronger systems lead to shared standing and better interpretation of what behaviors are expected and rewarded. misaligned hr systems negatively affect psychological contracts and yield negative organizational outcomes, such as increased turnover (peat & perrmann-graham, 2019). finally, we assume that hr system strength yields a common understanding of processes and allows the organization to capitalize on resource orchestration. while employees must attribute meaning to hr systems, they can lead to increased performance through message-based persuasion where employees are convinced of their effectiveness, irrespective of actual efficacy. strong hr systems lead to high levels of distinctiveness, consistency, and consensus (bowen & ostroff, 2004), but full understanding of the hrm-performance relationship requires examination of implementation processes (guest, 2011). while these contingencies have some theoretical and empirical support, others (including more robust internal firm contingencies) are underexamined in the literature (messersmith et al., 2011). by examining how firms bundle and orchestrate other resources in conjunction with hr systems (primarily hpws), we can more fully understand how they lead to organizational outcomes and how firms adapt to dynamic environments. the resource-based theory the resource-based theory (rbt) posits that firms leverage valuable, rare, inimitable, and nonsubstitutable (vrin) resources to create competitive advantage (barney, 1991). rbt researchers examine the link between human capital as an internal, heterogeneous resource and firm strategy (barney & wright, 1988), assuming that individual human capital is normally distributed in organizations and labor supply, and demand 21 is heterogeneous. human capital is rare (high ability levels are rare), inimitable (contextually linked to historical conditions), causally ambiguous, and rooted in social complexity (wright et al., 1994). the core tenants of rbt that are presented throughout this paper follow conner and prahalad's (1996) conceptualization which suggests that rbt is knowledge-based versus opportunism-based, which is based strictly on transaction-cost. firms make strategic decisions (such as where to locate, what labor pools are available, etc.) and are proactive in their intent. when firms are more opportunism-based, or transaction-cost focused, they engage in reactive behaviors. rather than apply the knowledge that they bring to the firm and using this knowledge to inform decisions which proactively identify locations with access to a qualified workforce (including labor pools, pipelines, and other workforce characteristics), they look simply to the most cost-effective choices and try to fit the rest of the pieces into the puzzle. resource orchestration other resources identified within rbt include both tangible assets such as land, building, and financial capital, and intangible assets such as brand, reputation, and trademarks (priem & butler, 2001). traditionally, these resources were viewed as static, but recent refinements include the introduction of resource orchestration, changing the view to a more active employment of firm resources by managers. resource orchestration is described as process-oriented actions taken by mangers to create value by actively structuring, bundling, and leveraging resources within the firm portfolio (sirmon et al., 2011). this, in turn, allows managers to synchronize processes to pursue competitive advantage in dynamic and complex environments. whereas the view of firm resources as static answers the “what,” examining resource orchestration answers the “how.” firms establish processes for how to (re)configure their resources to meet changing environments including reconfigurations of entire labor forces (wright et al., 2001). sirmon et al. (2007) offer a framework wherein firms use resource orchestration to structure their resources through acquisition, accumulation, or divestment; bundle resources through stabilizing, enriching, or pioneering; and leverage their resources through mobilization, coordination, and deployment. these processes are synchronized to leverage firm resources and environmental factors to create and sustain value for the firm. synchronization goes beyond component resource management (acquisition, accumulation, bundling, and divestment of individual resource types) to take a holistic look at how these resources are structured, bundled, and employed across resource categories (financial, physical, human, etc.) in different contexts. prior research has shown that these three processes (structuring, bundling, and leveraging) link to organizational outcomes when synchronized and are separate from the actual resources being managed (sirmon et al., 2011). additionally, different strategies and life cycles of firms require different actions related to resource orchestration within these three process domains, and resource orchestration requires collective action from different levels within the firm. however, unlike other forms of resources, a firm’s human capital is not inherently owned by the firm but rather by the individual employees (e.g., financial capital and physical assets can be wholly bought and owned by individual firms). instead, firms match wages to individuals’ education, experience, and other characteristics in an attempt to obtain and increase value from human capital (chadwick, 2017). additionally, managers maximize value when they coordinate resource structuring, bundling, and leveraging with hr systems designed for specific types of human capital (chadwick & flinchbaugh, 2020). the different processes within resource orchestration interact with the different elements of hr systems to yield different organizational outcomes. the development and deployment of human capital often complements structuring, bundling, and leveraging of other resources, creating complex interdependencies (kor & leblebici, 2005). structuring tangible and intangible resources requires simultaneous selection, promotion, and cross-training of human capital to create building blocks for bundling and reconfiguration of idiosyncratic firm resources. however, doing so requires managers to identify their markets, correctly identify complementarities within the resource bundles, and build network positions that create advantages from the resource orchestration (schmidt & keil, 2013). as noted by dierickx and cool (1989), bundles of 22 complementary resources must be acquired and/or built together to create value, especially when individual resources take time to develop (i.e., human capital). additionally, hitt and colleagues (2006) noted that managers coordinate their resource deployment and reconfigure human capital to successfully implement organizational strategies. extending this dynamic perspective, sirmon et al., (2008) explored the role resource management has on performance through active bundling and deployment of resources. specifically, they examined human capital on major league baseball teams and how different ksaos related to batting, pitching, and fielding affects organizational outcomes. similarly, monks and loughnane (2006) found that specific hr bundles create building blocks that fit within the greater strategic determination of resource orchestration, noting that configurations of hr systems with other firm resources matter for firm-level outcomes. extending these findings, recent research shows that commitment-based hr systems are a crucial mediator between top management attitudes and resource orchestration to organizational learning and firm performance (chadwick, super, and kwon, 2015). conceptual model of hr systems and resource orchestration with an understanding of the seminal theories as a foundation, we provide a more narrowly focused discernment of what specific tenants of shrm and rbt are relevant to our propositions. resource orchestration focuses on the role that the individual manager plays within the organization. past theory in strategic management understudied this crucial role. according to sirmon et al. (2011: 1391), “the role of managers is the most underdeveloped element in rbt…in terms of the resource-related processes or actions they initiate and oversee.” hansen, perry, and reese (2004: 1280) “conclude that what a firm does with its resources is at least as important as which resources it possesses.” the current paper uses a resource orchestration lens to unpack the black box on how possessed resources and managerial decisions about those resources are combined and leveraged to increase organizational learning and performance. we use key tenants of both rbt and shrm research following the framework set forth by sirmon et al. (2007). we focus on large scale resources that are in direct control of the top management team (such as land selection, building design, production processes, and branding) and how they are leveraged with more intimate resources (human capital) through effective hr systems to increase organizational learning and firm performance (see figure 1). the key is bundling and leveraging, not the resources themselves. this follows a call from sirmon et al. (2011: 1391), which suggests that “possessing resources alone does not guarantee the development of competitive advantage; instead, resources must be accumulated, bundled, and leveraged, meaning that the full value of resources for creating competitive advantages is realized only when resources are managed effectively.” this suggestion is both practical and relevant and provides a starting position for the current paper. as we discuss, one way to manage, bundle, and leverage these resources is by combining them with effective hr practices which align perfectly with the sirmon et al. (2007) framework. figure 1 – model of firm hr systems and resource orchestration 23 though outside the scope of this paper, we must also mention dynamic capabilities in relation to our propositions. much of the foundation of resource orchestration relies upon understanding dynamic capabilities or “the capacity of an organization to purposefully create, extend, and modify its resource base” (helfat et al., 2007: 4). understanding this in the current context lies within our choices of resources to formulate the forthcoming propositions. similar to resource orchestration, research on dynamic capabilities has maintained a premise that is rather general in form. helfat et al. (2007) explain that this is intentional. the simplicity of the definition allows room for the researcher to define and characterize the particular resources and capabilities under investigation, as long as they are specific and clearly defined. organizational learning and firm performance. organizational learning is a measure of “acquisition, interpretation, storage, and implementation of new knowledge” (kocoglu et al., 2011: 74). conceptualized as a firm outcome, it provides an indication of how well the organization is able to learn from and adapt to dynamic, external environments (namada, 2017). in our paper, we use organizational learning as a measure of how well hr systems interact with resource orchestration via tangible resources such as land selection, r&d efforts, and firm production processes. while parallel and related to organizational learning, firm performance is also key in understanding the interaction effects of hr systems and resource orchestration, albeit different conceptually from organizational learning. we use firm performance as a measure of market performance or financial health. evidence suggests that firm performance and organizational learning are related (see namada, 2017), but it is important to note the differences. both can be conceptualized as measures of overall organizational performance, but firm performance is specifically capturing how resource orchestration interacts with hr systems to promote the overall market or financial health of the organization via aspects such as superior person-organization fit and increased employee interdependence. while past research has suggested both direct and indirect relationships between organizational learning and firm performance, the two concepts are distinct. while organizational learning is linked to many key organizational processes, such as knowledge acquisition, knowledge sharing, and innovation, this does not always translate into market performance. for example, in 1998, mcdonald’s corporation implemented the highly innovative “made for you” program in an effort to provide a fresher product to consumers, successfully remodeling and training employees in nearly all of the 13,500 kitchens in the united states. however, this significant innovation and knowledge sharing did not match mcdonald’s efficiency-based business strategy and ultimately led to a $1 billion loss and poor financial performance (hess & modica, 2009). thus, while organizational learning was high, the financial health of the company was significantly hampered. the following sections delve into how interactions between resource orchestration and hr systems influence organizational level outcomes together. these specific resource orchestration processes were chosen as they are theoretically interesting (incorporating multiple interdisciplinary literature streams), able to be empirically investigated for future studies, and offer practically relevant starting points. the resources and capabilities were chosen in line with sirmon et al. (2007). the researchers highlight the need for research to demonstrate how shrm is combined with rbt to accomplish effective resource orchestration. to date, the link between strategy and firm outcomes has had a weak theoretical basis (batt, 2002), inhibiting empirical examinations. we propose that the interaction with resource orchestration provides the mediating effect between hr strategy and firm outcomes, and that this effect is most clear during major development milestones. thus we chose early developmental orchestration activities, including land selection, building design, branding, and r&d systems, as they are known to have the strongest effect. as will be addressed more fully in the decision section, one of the assumptions that we make in the current research is a temporal one. the propositions in this paper are focusing on the front-end but are not limited to the early stages of organizational development. as such, our propositions delve deep into the structuring and bundling aspects of sirmon et al. (2007) framework and set the stage for empirical testing of the leveraging aspect. it is imperative for our propositions to have a solid understanding of the sirmon et al. (2007) framework within which the components of our propositions are nicely aligned. the framework includes 24 structuring, bundling, and leveraging. structuring is defined as the managing of the firm’s resources and includes acquiring, accumulating, and divesting. bundling considers how the firm’s resources are combined and includes stabilizing, enriching, and pioneering. finally, leveraging focuses on how the firm’s capabilities create value for customers and wealth for stakeholders. leveraging consists of mobilizing, coordinating, and deploying. land selection. where a firm chooses to locate its headquarters, plants, and other physical structures depends on a variety of contingencies. often, new firms are limited in selection based on financial constraints, human capital availability, and other startup limitations. once established, and after unlocking new resources, firms have the opportunity to remain in their initial location, move to a new headquarters, or purchase a second headquarters. land selection has been viewed in operations research, specifically in terms of supply chain management, as a critical process that increases a firm’s ability to respond to dynamic environments and facilitate competitive actions to increase organizational financial performance by optimizing firm logistical requirements (chou et al., 2008). additionally, marketing researchers study land selection related to retail management in terms of population movement to and from retail outlets, traffic flows near retail centers, changes in transportation mechanisms, neighborhood decay and regeneration, obsolescence of technologies, and overall change. successfully managing these factors allow retailers to increase economic efficiency and social comfort for customers increasing interchange of business. ultimately, retail selection is a function of markets, labor, supply chains, and raw material management (nelson, 1958), demonstrating the need to theoretically view this resource more holistically and dynamically. while historically land selection in management research is usually viewed as a post-hoc, static resource (miller & shamsie, 1996) within the framework of rbt, practitioners have noted that firms who utilize a dynamic process approach similar to those in operations and marketing when selecting a new location for a headquarters or facilities can unlock potential synergies in their hr systems (kimberly, 2013). firms that view their location as static and limit their land choice due to financial constraints, regulatory restrictions, or only considering their current market, restrict their ability to expand and respond to ever-changing global markets. infrastructure in terms of transportation, educational systems, and other desirable aspects within land choice increases a firm’s access to a more diverse and utilitarian labor force. specifically, mass transit systems and major airport proximity allow firms to quickly and effectively access supply chains and customers as well as provide a desirable location based on ease of travel for employees. a well-established and operational secondary and higher education system provides a two-fold benefit in terms of desirability for employees with school-age children and access to more highly educated labor pools. locations also have significant variance in the “friendliness” to larger firms. more business-friendly locations provide firms with tangible benefits such as tax breaks and access to infrastructure as well as intangible benefits such as acceptance in the community. these contextual factors are dynamic with shifting infrastructure systems (e.g., age, new construction), changing demographics (e.g., increasing education rates), and shifting economic centers. properly configured hr systems exploit resource availability by enabling firms to recruit, train, and retain the best fit employees for the organization. this process increases performance and organizational learning by putting the best people in the best positions and leveraging unique ksaos throughout the firm. hr systems are configured for available labor pools (jiang et al., 2012b) and labor pipelines (brymer et al., 2014) to exploit these dynamic processes and produce increases in firm performance and organizational learning by attracting, selecting, and retaining employees with the best fit ksaos. similar to retail selection above, land selection that incorporates consideration of available labor pools and pipelines will increase recruitment efficiency and optimize hiring logistics by increasing visibility, reducing transportation costs, and increasing opportunities for interchange between candidates and firms. complementary hr systems use configurations of rigorous selection procedures, internal merit-based promotions, grievance procedures, cross-functional and cross-trained teams, high levels of training, information sharing, participatory 25 mechanisms, group-based rewards, and skill-based pay to maximize ksao development and alignment with firm resources to increase organizational learning and financial performance. another aspect important to consider in land selection is workforce characteristics. workforce characteristics incorporates ksaos but is more inclusive. it is a broad term that is widely used in shrm research. while some studies choose which specific characteristics are measured, many studies use it as an umbrella term. to better understand the propositions set forth in the current paper, workforce characteristics can be understood as any of the following: qualifications of the job (galindo-rueda & haskel, 2005), education (dunton et al., 2007), and demographic diversity (galindo-rueda & haskel, 2005). workforce characteristics also introduce a boundary condition to the current paper. the overarching objectives of the forthcoming propositions are not solely to set the stage for testable hypotheses for each proposition component and subcomponent, but rather to provide an adequate area for open discussion crossing the boundaries between shrm and rbt using resource orchestration. this will offer an opportunity for collaboration between these two conversations, which will allow researchers to formulate testable hypotheses and more adequately inform practice. another boundary condition and assumption that is being made in the forthcoming propositions is a focus on the synergistic effects of bundling. as was mentioned earlier, the objective of the current paper is not strictly to present a list of testable hypotheses, but to begin a conversation which involves both shrm and rbt. as such, all propositions offered in the current work focus on how research in both areas can inform one another. this is accomplished through understanding the synergistic effects that take place when practices in each area are strategically bundled. while shrm research has informed us that workforce characteristics are important alone, it is the unique leveraging and bundling of all resources that provides the strongest impact. as stated in sirmon et al., (2007: 275), using the combination of resources that an organization has at its disposal, and using them effectively, “is at least as important as owning them.” this illuminates the need for not only possessing resources (i.e., a strong labor pool, pipeline, and workforce characteristics), but also being able to employ efficacious hr procedures (i.e., rigorous selection, training, compensation) to use the combination of resources effectively. as such, when any one resource or characteristic is eliminated from the bundling, it would be expected that any interaction effects will likely still be present, but reduced. furthermore, bundling and leveraging multiple resources available to the organization is critical because it provides the organization with a better opportunity to match the “firm’s internal capabilities with conditions in the external environment” (sirmon et al., 2007: 284). this aids in the organization’s ability to match its capabilities to the dynamic needs of customers and the market as a whole. the reduction in synergistic effects of bundling holds true with eliminating any of the bundled resources. to further emphasize this point, consider what would happen if a firm only focuses on workforce characteristics bundled with rigorous selection procedures but does not factor in the labor pool or pipeline in their choice of location. revisiting the diversity discussion above, having rigorous selection procedures will only increase firm performance and learning if the firm has access to a diverse labor pool. if the organization chooses to locate in an area with a limited labor pool and pipeline, they will not necessarily have access to the employees needed. in fact, if an organization does not choose a location with a sufficient labor pool and pipeline, it may have no choice but to outsource some of its activities (graf & mudambi, 2005). while this may be an attractive option in some industries, outsourcing is outside the scope of this paper and is not the end all be all best option for all industries. rather, what we are considering here are domestic companies that are maintaining domestic operations. to further understand the potential role that incorporating land selection with labor pool, pipeline, and workforce characteristics can have on organizational learning and firm performance, it is imperative to consider that “using resources is at least as important as possessing or owning them” (sirmon et al., 2007: 275). when a company has access to better labor pools, and greater selection potential in workforce, this will increase their ability for organizational learning. to further understand organizational learning, it is necessary to consider diversity. while a full discussion of diversity research is outside the scope of this paper, diversity plays a role in the importance of a large labor pool, pipeline, and workforce characteristics. in order for 26 organizations to improve their organizational learning, they need to remain proactive. one way to remain proactive is to allow the organization access to a diverse set of employees who provide the organization with unique combinations of ksaos, and have the capability of connecting to a diverse set of customers. diversity is a key factor in organizational learning and performance from both a micro and macro perspective. therefore, having access to an organizationally (or industry) appropriate labor pool, pipeline, and other workforce characteristics, gives the organization the ability to engage in rigorous selection procedures by having more options at their disposal. with a limited labor pool, pipeline, and access to other workforce characteristics, the organization is not able to focus on more minute aspects of employee selection (such as diversity in thought, experiences, and demographics). as such, “the strategic response to learning is to be proactive” (kim, 2006: 81). proactive in this sense would be to make strategic decisions about where to locate the business to have access to the diverse labor pool, pipeline, and other workforce characteristics. in turn, the organization, by locating as such, will have increased firm performance. the access to a better labor pool, pipeline, and other workforce characteristics “provides firms with a potential capacity for strategic flexibility and the degrees of freedom to adapt and evolve” (sirmon et al., 2007: 275). this strategic flexibility will allow the organization to adapt to the evolving customer needs and demands, therefore increasing firm performance as it is able to remain relevant at a faster speed as compared to those organizations who are not able to adapt their strategy as quickly based on limited access to labor pools, pipelines, and other workforce characteristics. within the sirmon et al. (2007) framework, land selection links to orchestration through acquisition of resources by accessing desirable labor pools and creating localized human capital pipelines. however, accessing this resource also requires properly configuring hr systems that unlock the potential complementarities in the local environment. thus, when managers orchestrate land selection with specific hpws (including rigorous selection procedures, cross-functional and cross-trained teams, high levels of training, and information sharing), firms are able to increase organizational learning through knowledge substitution and knowledge flexibility (conner & prahalad, 1996). firms are also able to utilize sustainable sourcing in the local environment to complement land selection and increase firm performance (pullman et al., 2009). amazon provides an illustrative example. on september 7, 2017, amazon announced a search for a second headquarters to be known as amazon hq2 and requested bids from major us cities that met specific criteria. these include metropolitan areas of at least 1 million residents, international airport proximity, access to mass transit systems, a higher education infrastructure, high level of education in the workforce, business-friendly operating environment, and features that would allow amazon to “attract and retain” a technical and high-quality workforce (turner, 2017). to maximize increases in organizational learning and firm performance, amazon’s hr system focuses on selection, training, and retention efforts on educated employees who desire the same components described in the search criteria. by maximizing the personorganization fit, amazon maximizes their organizational learning and financial performance. proposition 1a: land selection processes that incorporate labor pools, pipelines, and workforce characteristics interact with hr systems configured using hpws practices to increase organizational learning. proposition 1b: land selection processes that incorporate labor pools, pipelines, and workforce characteristics interact with hr systems configured using hpws practices to increase firm financial performance. physical building design. the physical building and configurations of a workspace provide an interesting and understudied area of organizational resource orchestration. physical configurations can influence collaboration when they are open, inspire cooperative interactions, and increase team process gains. a full discussion of both team processes and collaboration is outside the scope of this paper, but the physical structures that drive these processes represent a firm resource within the scope of management influence. 27 organizations that encourage collaboration in the workplace use open concepts that allow employees to proximally interact with those on whom they are task interdependent (spatial proximity) (brown, 2008). when designing hr systems to interact with physical building spaces, managers have two primary choices: design systems that select, train, and retain employees who can work in collaborative environments or select, train, and retain those who are more apt for non-cooperative work environments. each of these two designs are useful depending on the level and type of task interdependence of the employees. there are several specific types of interdependence to bear in mind when considering which design to choose. pooled interdependence is when work is completed separately then compiled to create a finished product, service, etc. sequential interdependence occurs when work is completed in succession, or in consecutive steps. independent tasks require little to no interdependence. all three of these are best suited for non-cooperative environments. on the other hand, reciprocal interdependence, where team members work on their portion of a task and consult subgroups within the team, and comprehensive interdependence, where tasks are interrelated, both thrive in collaborative environments (avolio et al., 2009). as not all employees can succeed in both environments, firms that employ hr systems that maximally utilize their employees’ abilities to work in environments characterized by different types of interdependence will yield the strongest outcomes. whereas land selection represents the acquisition sub-process of structuring, the building design process reflects accumulating within sirmon et al. (2007) framework. land selection provides general human capital for the firm through targeted labor pools and pipelines, but firms must first “build” what they have “bought” from the labor market. zappos provides an illustrative example of how building design layout interacts with hr systems to maximize organizational outcomes, as the company used an open office concept to foster collaboration at their headquarters in las vegas, nv. from their core values, zappos emphasized open and honest relationships through communication, team spirit, creativity, and a change-focused environment. demonstrating these values, zappos designed their office space to minimize personal space and emphasize common areas to increase workplace interactions and foster collaboration. desks are mobile and ethernet drops plentiful to facilitate employees working in multiple spaces with different collaborative partners. zappos’ workspace density is only 70 feet per employee (searer, 2013). hr systems that select, train, and retain employees suited for reciprocal and comprehensive task interdependence realize the strongest increases in the relationship with organizational outcomes when using similar building design concepts to zappos. proposition 2a: firm physical building design processes focused on collaborative environments interacts with hr systems configured to develop collective ksaos to increase firm performance by promoting reciprocal or comprehensive interdependence proposition 2b: firm physical building design processes focused on non-cooperative environments interacts with hr systems configured to develop individual ksaos to increase firm performance by promoting pooled interdependence, sequential interdependence, or task independence r&d. research and development (r&d) provides a significant strategic risk and reward system for firms. r&d is part of the firm’s innovation processes and involves the study of future products, services, and capabilities with a focus on product/service improvement. based on this, r&d is an innovation effort that increases exploratory organizational learning. with ever increasing r&d intensity, managing this resource is a prime driver of innovation (kotha & vadlamani, 1995) and thus organizational learning. hr systems that focus on knowledge building, creativity, and innovation to drive organizational learning will see the largest increases from interaction with a robust r&d system. hr systems that create human capital pipelines, or repeated interorganizational hiring create focused acquisition of resources by reducing search requirements, simplifying socialization, and integrating employees (brymer et al., 2014). these human 28 capital pipelines are essential for competitive strategies based on innovation, product diversification, and continual improvement as they provide a continual source of new employees skilled in innovation. within the sirmon et al. (2007) framework, r&d represents bundling through the sub-components of stabilizing and enriching. r&d processes focus on improvements and innovation, which encapsulates both minor improvements (stabilizing) and extending current capabilities that reach well beyond training employees to do new things (enriching). when combined with production processes and branding, r&d can also be representative of the pioneering subcomponent of bundling. pioneering involves creating new capabilities to allow the firm to both remain and gain in its competitive position. volkswagen ranks as a top r&d firm worldwide, spending more than $13.5 billion dollars on r&d in 2013 (5.2% of annual revenue) (casey & hackett, 2014). these r&d efforts focus on product differentiation, environmental and safety research, and product improvement in an industry that introduces new models and concepts annually. the relationship between volkswagen’s hr system and their exploratory organizational learning will be maximized by a strong emphasis on r&d as they hire from pipelines that are known for r&d focus. proposition 3a: hr systems configured to promote knowledge building, creativity, and innovation through hpws practices interact with firm r&d efforts to increase exploratory organizational learning. production processes. production process improvement signifies the other branch of innovation: exploitive innovation. this includes both incremental and substantial process improvements with the ultimate goal of reducing defect rates, creating higher quality products or services, reducing waste of other resources, and improving turnaround times to increase efficient use of resources. quality assurance processes include those that detect defective products or poor service deliveries, improve efficiency, or increase the effectiveness of production or service delivery (sinha & noble, 2008). successful process improvement yields higher value (and higher satisfaction rates) for customers and efficient flow of resources through supply chains. the increased efficient and effective use of resources lowers operating costs creating a virtuous cycle of efficiency in production. this allows firms to exploit their current resources as a strategic advantage, and these improved processes reduce environmental impacts by reducing wasted resources. hr systems that focus recruitment, selection, training, and retention on ksaos related to commitment building, detail-orientation, and maximum output will see the strongest increases in the relationship with firmlevel outcomes in firms that continually improve production processes. innovative creativity is still important in process improvement as in r&d, but the creativity is more focused on exploiting current processes over exploring new areas. ford provides an illustrative example of a firm that maximized exploitive innovation as a means of increasing both financial performance and organizational learning. ford has been known as a leader in production process improvement since the early 1900s when henry ford introduced and employed standardization of work, formal assembly lines, and other innovative processes to increase the efficiency of manufacturing. modern ford process improvements include the use of a balanced scorecard system to continually track manufacturing with the ultimate goals of cost reduction, customer satisfaction improvement, and lower impact on the environment. ford exploits its previous innovations by continually improving and changing processes to meet these goals (jacobsen, 2011). ford uses hr systems that focus on recruitment, selection, training, and retention of employees whose ksaos align with manufacturing process improvement. these include selecting and employing high numbers of lean six sigma black belts and green belts, employees who have ksaos related to process improvement, pushing process controls to the lowest level, and sharing successes across the organization as a whole (jacobsen, 2011). this interaction of focused hr systems with continual process improvement increases 29 ford’s organizational learning capacity as well as its financial performance as a global leading automotive manufacturer. proposition 3b: hr systems configured to promote commitment building, detail-orientation, and maximum output through internal hpws practices interact with firm production processes to increase exploitive organizational learning. branding. branding is one of the most important aspects of organizational marketing, as brand recognition is a powerful mechanism for attracting and retaining customers. the brand itself is an intangible resource, but successful branding processes build trust and credibility. this increases firm financial performance as people are more likely to purchase goods and services from an organization that they trust (zentes et al., 2011). highly effective branding processes create quintessential brands known as “the” something (google as “the search engine”) or a brand that becomes synonymous with the product or service (e.g., band-aid for a sterile bandage). additionally, successful branding creates additional value by attracting more potential employees allowing the firm to use selective processes for whom they want to employ (allen et al., 2007). brands that successfully achieve a high level of status take on similar qualities to transformational leaders in that employees admire, trust, and respect the leader. employees in an organization with a strong brand development process take actions to maintain high levels of enthusiasm and commitment to the brand. this can lead to innovation and creativity through intellectual stimulation to continually try new ideas and improve the brand for customers. the interaction between hr systems and branding processes will be strongest when the hr system attracts, selects, trains, and retains employees who both identify with and are committed to the brand. specifically, employees must have ksaos that fit with the brand and must be willing to work with the domain of the brand. southwest airlines provides a well-known example of successful branding and an illustrative example of the interaction between hr systems and branding as a dynamic capability. southwest’s guiding principle is to be “the low fare airline” while maintaining a secondary principle of fun at work for employees (thomas, 2015). southwest maintains its position as one of the most well-liked airlines in the united states due to its fun and relaxed atmosphere and focus on people first (both customers and employees). southwest’s heart symbol represents its branding efforts to remind customers and employees of the human element in the industry and is a major inclusion in marketing and recruitment efforts for the firm. southwest’s hr systems focus on attraction, selection, training, and retention of employees whose ksaos match the organizational strategy of people first. southwest ranks employees higher in importance than customers and shareholders, which has led to high levels of employee satisfaction. additionally, this has had a pipeline effect passed onto customers as well as the bottom line yielding higher levels of customer satisfaction and financial performance. proposition 4: branding processes interact with firm hr systems configured using effective hpws practices to attract and retain employees with strengthened identity with the brand, increase commitment, and decrease turnover rates to increase financial performance. discussion and future research the interaction between firm resources and resource orchestration provides an interesting and innovative area for study within the shrm and shc literature. while traditionally human capital is viewed as a standalone resource, the mechanisms for recruiting, training, retaining, and configuring human capital interact with firm resource orchestration including land selection, physical building design processes, production processes, research and development, and branding processes to increase firm financial performance and organizational learning. as the world increasingly becomes more global, firms face operating environments with ever increasing levels of complexity and dynamism. by leveraging the firm’s internal 30 environment (through resource orchestration), firms can create synergies through the configuration of their hr systems and attract, select, train, retain, and employ the best people to respond to these challenges. while researchers have examined human capital interactions with other resources, our focus on resource orchestration, the inherent active employment of resources, expands our understanding of how synergies are unlocked by integrating and configuring hr systems with these capabilities. this holistic view of how firms structure, bundle, and employ their resources, including their internal and external labor pools, provides a more complex look at how firms respond to complex and dynamic environments. our propositions follow the framework set forth by sirmon et al. (2007). what remains unexplored in this framework allows for a fruitful area of future research. the components in our propositions appropriately lay the foundation for empirically exploring the accumulating and bundling aspects of that framework. this paper has left the final component, leveraging, relatively untouched. it is our stance that leveraging would be firmor industry-specific and entail sustained performance and readjustments over time. as such, leveraging would be a promising area for future research, especially through the use of several case studies. it is important to note that several boundary conditions exist in this paper. in addition to the boundary conditions discussed in presenting the propositions, there is also a temporal focus here. as an organization ages, it becomes better at spotting opportunities (sirmon et al., 2007). while the bundling of resources is always important, it is most crucial for newer organizations. the more resources that new organizations have at their disposal (including labor pool, pipelines, and workforce characteristics), the better positioned they will be to bundle these resources effectively to result in organizational learning and firm performance. however, as time passes, the organization will have accumulated a significant amount of knowledge and at that point, mobilization and land selection will be key to driving new business. in addition, shrm theory asserts that “as the organization grows and develops, human resource management programs, practices, and procedures must change and develop to meet its needs” (baird & meshoulam, 1988: 116). even though past research has provided steps or stages to follow as an organization adapts hr procedures to match growth, these steps are anecdotal and provide little consideration to how the needed resources can be orchestrated to enable the adaptation. therefore, by combining rbt and shrm theory and considerations, the firm is able to simultaneously utilize both lenses to make external decisions that will match internal hr policies and procedures to allow for this growth and change over time. by ignoring the rbt view of the firm, the organization will be transaction-cost focused and potentially miss the opportunity to provide itself with the external factors (location, labor pool, pipeline, workforce characteristics, reputation, and brand) that will allow it to adapt hrm changes over time. without allowing hrm programs, practices, and procedures to change over time, critical customer needs and emerging opportunities will be overlooked, and the organization is not likely to sustain growth and/or profitability. as will be discussed in further detail below, the propositions included in this paper are not all-inclusive or representative of a “one right way” to merge rbt and shrm theory and practice. rather, what we have offered is a way to go beyond the simple main effects of each theory and truly integrate and synthesize core tenants of each. in this paper, we have deeply focused on the synergistic effects when resources are bundled and leveraged with effective hr practices. the simple effects and relationships between each subcomponent of the propositions can be found as standalone hypotheses that have been given statistical significance in other research (see mackey et al., 2014; messersmith et al., 2011; datta et al., 2005; denrell et al., 2003; hitt et al., 2000; and teece et al., 1997). our major contribution is the attention being paid to the combination of two theoretically different lenses: rbt and shrm. as research and practice in the field of management currently stands, there appears to be two different conversations occurring. one is at the micro, organizationallyinternal level, within shrm. this conversation focuses on decisions, policies, and procedures that happen internal to the firm and include hiring, firing, training, and organizing of personnel. the other conversation is at the macro, organizationally-external level, within strategic management as a whole. this conversation focuses on external resources (such as location and labor pools) and answers the question of why firms exist and how they operate amongst one another in the competitive environment. there are very few instances where rbt and shrm researchers invite one another to the same table for conversation and integration (for 31 an exception, see colbert, 2004). therefore, the propositions suggested above provide a foundation in which both research areas can begin to speak the same language and gain a more developed understanding of how they can inform one another. by informing one another, the two research streams will be synergistically working together to improve organization learning and performance. this paper is by no means inclusive of the entire relationship and has its limitations. the exemplar resource orchestration processes included here are only a few of the many processes used by firms to create, allocate, and integrate resources to respond to dynamic and complex environments and were selected due to their being theoretically interesting, able to be empirically investigated, and practically relevant. they also offer the unique benefit of spanning both disciplinary (within the realm of academia) and departmental (within the realm of the organization as a whole) boundaries. additional resource orchestration processes include those internal and external features that allow firms to integrate, build, or reconfigure resources to achieve maximal organizational outcomes. next, we detail a few of these as possible areas of future research and focus. technological capabilities. firms employ new technologies with significant variance in approach and levels of success. these technologies increase the need to reevaluate hr systems, especially when technologies replace human ksaos. one specific example of technological capabilities is the increasing use of social media in organizations. while traditionally, communication systems were heavily structured, social media fundamentally changes communication networks, processes, and interactions. social media provides the ability for firms to create user-generated content and provide voice to the entire organization (leonardi & vaast, 2017). hr systems in this context must focus on ksaos related to technological savvy, collaboration, and restraint. communicative processes and network management. the communicative interactions within a firm also represent a resource within the management sphere of influence that is causally complex and ambiguous in terms of organizational outcomes. often firms’ tacit knowledge diffuses throughout the organization through interactions that are complex and inimitable. hr systems in this context must focus on ksaos that foster open communication and conscious management of individual communication networks in the organization. intellectual property management. one of the most important resources in an organization is the process for developing and protecting intellectual property. intellectual property helps firms create and maintain competitive advantage and is strongly linked to financial performance. hr systems in this context must focus on ksaos related to discretion, secrecy, and commitment to prevent disclosures of intellectual property to competitors. another area of future research draws on the upper echelons theory to examine how top management teams implement strategies in coordination with hr systems and resource orchestration to maximize financial performance and organizational learning. historically, shrm research viewed hr strategy as derivative to firm competitive strategy, however with the increasing number of human resource executives in firms and the recognition of their contributions to firm performance (chadwick et al., 2016), future research should examine how hr system development is integrated into strategy development by top managers. finally, empirical studies of hr system interactions with resource orchestration should employ a variety of methods that match the interdisciplinary studies of shrm and shc. given the causal complexity and assumptions of equifinality in hr systems, configurational techniques, including qualitative comparative analysis using fuzzy sets, should be employed to examine configurations of hr systems and resource orchestration. practical implications as firms face increasingly complex and dynamic challenges, those who successfully configure their hr systems in conjunction with bundling, managing, and leveraging internal resources are able to attract, retain, and employ the best people for the job. managers must recognize the important relationships between their capabilities and the hr system to unlock this synergy. by employing recruitment, retention, and incentive 32 programs in hr systems focused on complementarities with their internal firm resource management, managers can respond to these challenges. 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(2011). retail branding and positioning. strategic retail management (pp. 179–200). wiesbaden: gabler verlag. 33 perceived value of hr professional certification in a disrupted marketplace brian martinson tarleton state university john a. deleon texas a&m university-corpus christi randy mccamey tarleton state university in response to lengnick-hall and aguinis’ (2012) call for examining the practical value of hr professional certification, and using lengnick-hall and aguinis’ individual-level propositions as hypotheses, this study compares 123 hr practitioners’ evaluations of hr certification based on attained education, membership in professional associations, and commitment to the hr profession. our analysis found that hr practitioners value certification equally regardless of attained education level, members of professional associations ascribe 16% more value to certification than nonmembers, and certified members have a higher commitment to the profession. further, a comparison between the established hrci certifications and the newly competing shrm certifications on pay level, job offers, and promotions received mixed results, with the established hrci credential yielding slightly more value for job offers than the new shrm certifications. keywords: hr certification, human capital, selection, signaling theory introduction in 2012, human resource management review published a special issue on human resource management certification. the focus of the issue was to stimulate a broader discussion about whether or not, and if so, how, hr certification contributes to the value of hrm practices in support of organizational outcomes (thacker, 2012). the lead paper on the issue decried the lack of scientific measurement of the effect of hr certification on individual and organizational outcomes and provided 14 propositions guided by a multi-level framework to address hr certification research (lengnick-hall & aguinis, 2012). the propositions aimed at individual and organizational outcomes http://journals.sfu.ca/abr 2023, volume 13, pages 33-47 http://journals.sfu.ca/abr 34 suggested testing if hrm certification relates to individual job opportunities, pay level, and job performance, as well as hr unit level reputation and effectiveness; and queries whether the combination of these two levels may lead to increased legitimacy perceptions of the hr profession as a whole. surprisingly, few studies have been published directly testing the individual-level propositions put forth by lengnick-hall and aguinis (2012) since the release of the special issue, and no studies have been published comparing the value perceptions between the old human resource certification institute (hrci) and the new society for human resource management (shrm) certifications. this study seeks to provide theoretical support, and tests, for several of their individual-level propositions (propositions 1,2,7,8 and 9) and compares these outcomes between the hrci certifications, the gold standard at the time of their article’s publication, and the new shrm certifications recently developed by the leading hr professional association in the world. this study seeks to contribute to the hr field by answering cascio and aguinis’ (2008) call to address the science-practice gap by being one of the first to test lengnick-hall and aguinis’(2012) individual-level propositions. the second contribution this study seeks to make is comparing hr professionals’ perceptions of the value of hr certification between the well-established hrci phr/sphr certifications and the newly introduced shrm-cp/scp certifications. before 2014, shrm and hrci both participated in the creation and promotion of the phr/sphr credentials. in 2014 they ended their partnership and became competing organizations promoting separate credentials (jackson, 2014), essentially disrupting the hr professional certification market and causing individuals to choose between preparing for, earning, and maintaining the established hrci credentials or expending the considerable effort and cost of attaining the new shrm credentials. this study is the first to investigate the effect of this dramatic change on the individual level value perceptions of hr certification by shrm members and nonmembers and by hr certified professionals and non-certified hr professionals. the study will take the following approach. a review of hr certification literature will be presented along with brief descriptions of the hrci and shrm organizations and their respective certifications. the five hypotheses addressing individual-level effects of hr certification will be presented along with theoretical support for each prediction. next, the sample and data collected will be described along with the statistical analysis results. finally, the results will be discussed along with practical implications, research limitations, and the significant conclusions derived from the study. literature review a brief history of hr certification while the specific definition of a “profession” is debated (saks, 2012), it is typically thought of as knowledge and expertise that differentiates one occupation from another, and that has a “stronger formal knowledge and education base than other occupations” (freidson, 1986, as cited in saks, 2012, p 2). certification typically involves assessing whether or not an individual within a profession possesses the requisite skills or knowledge based on some set of established standards, “to most people, the word “certified” is interchangeable with the word “competent” (butler, 2001, p. 91). lengnick-hall and aguinis (2012) state that individuals in human resources certify “to gain credibility as an established field” (p. 246) and to “demonstrate mastery of a body of knowledge” (p. 247). dachner et al. (2021) suggest that certification demonstrates a commitment to a profession, signals to employers the level of knowledge and skill obtained and enables individuals to take the initiative to earn certification to attain higher levels of knowledge and career benefits. certification is also a way for organizations to verify the competence of workers in specific jobs or occupations, including those individuals working in the field of human resources (gasiorowski-denis, 2012; kis et al., 2020; loufrani-fedida & aldebert, 2020; subramony et al., 2021). certification has been linked to both 35 antecedents and outcomes of organizational values (piwowar-sulej et al., 2022). typically, certification is a measurement process within professions that resembles a comprehensive program examination in higher education designed to demonstrate mastery of the programs, processes, and procedures within that profession (institute, 2017). as early as 1948, discussions were taking place about how to determine and measure competencies required for hr professionals. these discussions centered around three questions: what body of knowledge must personnel professionals [hr professionals as they are now called] know? who defines that body of knowledge? how do you objectively measure it? (leonard, 1998). in 1973, the american society of personnel administration (aspa, now the society for human resource management or shrm) embarked on a process to develop “criteria that would define human resource management as a profession” and accreditation for hr professionals through the aspa accreditation institute or aai (now the human resource certification institute). certification contributes to the recognition of a profession in that it defines knowledge that is authorized and made explicit (kihlander et al., 2022). committees were created within the aai to develop the hr body of knowledge. as fate would have it, the “committee names” essentially defined the body of knowledge at that time and included: employment, placement and personnel planning, training and development, compensation and benefits, health, safety and security, employee and labor relations, and personnel research (leonard, 1998). two levels of hr certification exams were also first initiated in 1975, the generalist and the specialist (leonard, 1998). the first “certification exams” were then given in 1976 (hrci, 2017). in 2002, hrci initiated a global hr certification program, and by 2004, hrci began computer-based certification exams (leonard, 1998). since their inception, the number of individuals earning hr certification has grown considerably. a report by putka et al. (2015) lists a total of 111,449 individuals who hold certifications by hrci as of august 2014. shrm and hrci have ended their longstanding association. shrm, beginning in 2011, developed its competency model and hr body of knowledge resulting in two new hr certifications, the shrm certified professional (shrm-cp) and the shrm senior certified professional (shrmscp) (management, 2017). there are a variety of other professional certifications in some of the more specialized fields under the umbrella of human resources, mostly by the sponsoring professional organizations within those specialized fields, including the certified compensation professional (ccp) and certified benefits professional (cbp) offered by the worldatwork organization (worldatwork, 2019), the international public management association certified professional (ipma-cp), and the certified professional in learning and performance (cplp) from the association for talent development certification institute (atd certification institute, 2019), among others (lengnick-hall & aguinis, 2012). hypotheses development lengnick-hall and aguinis (2012) call for a comparison of the views on the value of hr certification between members and non-members of hr associations (proposition 1). at the organizational level, the institutional theory dimension of normative isomorphism (dimaggio & powell, 1983) suggests that as members of a profession, hr professionals may share similar beliefs about the value of a credential, especially if it was promoted and recognized by the leading professional association dedicated to the advancement of the hr profession. professionals are exposed to normative pressures in part because of their shared experiences such as similar training (parks-leduc et al., 2018), expressed codes of conduct, compliance requirements of rules and regulations that apply to their area of operations (higgins & lo, 2018), and the development of shared values and beliefs about the appropriate action to take for a given management challenge (suchman, 1995, wilensky, 1964). as previously mentioned, shrm, the world’s largest professional association for hr 36 practitioners (shrm, 2017), developed both the hrci and shrm credentials and actively encourages achieving certification through robust marketing programs and through the development of local, state, and national certification leaders tasked with promoting certification and professional development activities aimed at maintaining certification (shrm, 2019). the constant reinforcement of the knowledge and skill enhancement derived through preparing for the certification exam, and the expected benefits realized after achieving certification, as promoted by shrm, would likely yield strong normative pressure across the hr profession given shrm’s role as a dominant influence on the norms and values of hr practitioners. cumberland et al. (2018) found enhancing personal identity was a strong motivating factor in pursuing professional certification. at the individual level, social identity theory (tajfel & turner, 1986) suggests that an individual’s self-identity is shaped and reinforced through social categorization and the desire to align with others along common categories to achieve feelings of self-esteem and legitimacy as well as to distinguish themselves from out-group members (ashforth & mael, 1989). the desire for feelings of belonging to the group will cause members to adhere to the norms, behaviors, and beliefs of the group (hogg et al., 1995). as a category, membership in a profession, as opposed to membership in a professional organization is more general and less volitional, and therefore less salient than actively joining a specific organization. given that individuals with membership in shrm organizations are more directly exposed to communication regarding the degree to which the organization values professional certification, we propose the following hypothesis: h1: members of local or national shrm organizations will rate hr certification as more valuable than non-members human capital theory predicts people will make investments in their knowledge, skills, and abilities (ksas) in pursuit of increased returns from the use of their human capital in the labor market (becker, 1962; wayne et al., 1999). lengnick-hall and aguinis (2012) conjecture based on signaling theory (kirkpatrick & hoque, 2022; spence, 1973), that formal college degrees in hr fields provide stronger signals to employers about an employee’s ksas than certifications (proposition 2). if this holds, given the effects of diminishing marginal utility (hirshleifer, 1965), the significant investment of time, effort, and money required to achieve certification will yield variations in the perceived value of certification relative to its cost, given an individual’s level of educational attainment. therefore, we propose the following: h2: individuals with undergraduate or master's degrees in human resource management or related disciplines will value hr certification less than individuals without the degree lengnick hall and aguinis (2012) posit that possessing hr certification will be related to higher pay levels (proposition 7). hsu and yacey (2015) found a positive correlation between pay level and possessing certification. several theories support this proposition. human capital theory suggests that investments in developing ksas yield a return on investments. the effort invested in attaining certification would yield increases in the content knowledge associated with the certification exam. this increased knowledge may allow an individual to perform a broader range of tasks (creating greater deployment flexibility), execute tasks more independently (reducing the need for supervision), and/or perform tasks more efficiently and effectively (yielding higher output for a given unit of input). skillbased pay approaches, policies that set pay levels based on skills attained by the employee rather than the requirements of a job (murray & gerhart, 1998), seek to stimulate and reward human capital development utilizing the efficiency wage theory (cappelli & chauvin, 1991). according to the theory, 37 above-market wages would be offered in exchange for ksas that lead to above-average performance. the increased knowledge, the ability to work more independently, and increased productivity expected of an individual earning hr certification would satisfy the condition supporting the efficient wage theory, and therefore we propose: h3a: having hr certification will relate to receiving increased pay as described earlier, the most salient attribute of a credential is what earning the credential coveys about the holder to an interested observer. signaling theory suggests that a prospective employer may assume the certified job candidate possesses at least the minimum required general hr knowledge needed to earn the credential. in addition, possessing the credential provides additional evidence of an applicant’s interest in the profession and reflects a level of an initiative undertaken by the candidate to prepare for employment in the field. as proposed by lengnick hall and aguinis (2012) (proposition 8), given these apparent indicators of an applicant’s attained level of human capital, hiring managers are likely to select certified candidates over noncertified candidates to reduce uncertainty about the new hire’s potential to successfully perform their new role. lester et al., (2010) found that hr college graduates successfully passing the phr certification exam were more than twice as likely to obtain an hr job than those that did not take or pass the exam. ceteris paribus, we propose: h3b: having hr certification will relate to increased job offers weer and greenhuas (2017) propose and test a model for how supervisors develop perceptions of employees’ prospects for career growth. their study found that enhanced career opportunities are afforded to employees perceived by their managers to be engaged in their work and exhibit extra-role behaviors. these positive behaviors were viewed by managers as indications of employee career and organizational commitment, which in turn yielded increased manager perceptions of increased employee growth opportunities. their findings were strongest for opportunities within the employee’s job through increased responsibilities and challenging assignments. in addition, de pater et al., (2009) found that challenging job assignments were strong predictors of supervisor promotability evaluations. based on signaling theory, we propose that competence and initiative are conveyed through earning an hr credential which, in turn, will lead to increased opportunities within an organization, and ultimately to higher-level positions within the organization. there before we propose: h3c: having hr certification will relate to increased job promotions the final hypothesis focuses on the relationship between hr certification and commitment to the hr profession proposed by lengnick hall and aguinis (2012) (proposition 9). commitment, as defined by meyer and allen (1993) existing from an employee to an organization (and subsequently extended to a profession), can be considered along three dimensions. affective commitment is a positive emotional attachment reflected by identification with the goals of the organization and a desire to remain affiliated with the organization. continuance commitment is the need-based cause that motivates a person to continue a relationship with an organization. it is a function of the economic and social costs of leaving versus the costs of staying and is influenced by the employee’s investment of time such as time spent developing firm-specific knowledge, cultivating social capital within the organization, and status and benefits received as a result of their job tenure. normative 38 commitment is reflected as a felt sense of obligation to others. it reflects the effects of norms of reciprocity and the potential imbalance that leaving an organization may cause. in meyer and allen’s 1993 study designed to extend the constructs of commitment to professions, they found a positive correlation between affective and continuance commitment and continued engagement in professional activity. they also found a negative correlation between affective and continuance commitment and intentions to leave an occupation. oh et al. (2017) proposed that a person’s ability to exhibit competence and creditability, and earn recognition are critical factors related to commitment to the hr profession, and found support for their proposition with korean hr managers. the desire to achieve certification and the costs of switching careers given the investment in an hr-specific certification, along with the competence and creditability gained, and recognition earned for meeting the experience and knowledge requirements of the hr professional certification, suggest the following: h4 certified hr professionals will be more committed to the hr profession than noncertified hr professionals. methods we collected data using an online survey system to distribute an anonymous survey link to three separate groups. the first group was comprised of individuals affiliated with two local shrm chapters located in north texas with a combined sample size of 562. the second group was graduate students enrolled in a masters of science in hr program at a regional university in the same geographic area with a sample size of 159. the third group was 113 individuals from an online job posting site that self-identified as interested in hr-related positions in the state of texas. overall, the survey was distributed to 834 individuals interested in, or working in, hr careers. 123 individuals submitted complete responses for a response rate of 14.7%. the sample consisted of 62 respondents from local shrm chapters (50.4% of the total sample), 32 respondents from a university graduate hr program (26.0% of the total sample), and 29 respondents from an online job recruiting site (23.6% of the total sample). sample characteristics the demographic characteristics of the sample indicated that 79.7% were female, 77.2% were white, and their age ranged from 22 to 75 years with a median age of 44. the highest level of educational achievement reported indicated a four-year degree (62.6%) as most common, followed by a master’s degree (20.3%). the mean job tenure is 6 years, with a median of 3 years and a range of 0 to 30 years. 20.3% of the sample were exclusively national shrm members, 12.2% were exclusively local shrm chapter members, 42.3% indicated both national and local shrm membership, and 25.2% indicated no membership with either the national shrm organization or a local chapter. 61.0% of the sample indicated they held an hr certification, with 17.1% indicating they held an hrci certification exclusively (phr or sphr), 2.4% held an shrm certification exclusively (shrm-cp or shrm-scp), 41.5% indicating they held both certifications from both hrci and shrm, and 39.0% did not have a certification from hrci or shrm. measures subject responses were recorded using a variety of single-item measures and one adapted scale. membership in national and/or local professional associations was measured using a dichotomous variable indicating yes or no. subjects were asked to identify which of the following certifications they have earned: phr, sphr, gphr, shrm-cp, shrm-scp. subjects were asked to rate how valuable the phr/sphr and the shrm-cp/shrm-scp certifications would be for helping them “get their 39 next job,” “get increased pay,” and “get a promotion at work,” using a 7-point likert scale with 1 being “no value at all” and 7 being “very valuable”. subjects were asked to report their age, race, sex, employment status, and level of education including degree and major area of study. commitment to the hr profession was measured with a six-items adapted from elsbach’s (1994) managing legitimacy scale. using a 7-point likert scale with 1 being “definitely not,” and 7 being “definitely,” subjects responded to the following statements: do you plan to stay in the human resource management field for the rest of your career? have you ever thought of switching to a non-hr position for future employment? would you take a non-hr position that pays a comparable salary to your current or most recent position if it was offered to you? would you take a non-hr position that pays a higher salary than your current position if it was offered to you? would you encourage a friend or family member to pursue a career in hr? would you encourage a coworker to pursue a career in hr? results we tested our hypotheses using t-tests for differences in means. while the results from a ttest and ordinary least squares (ols) regression are expected to be the same, a t-test has fewer model assumptions. the rest of this section is as follows. first, we provide our tests of hypotheses 1, 2, and 4. second, we provide our tests of hypothesis 3 when hrci and shrm certifications are grouped together. third, we examine hypothesis 3 considering hrci certification and shrm certification independently. finally, we discuss differences in conclusions between hrci and shrm certification. hypothesis 1 predicted that members of a local or national shrm organization would value hr certification, in general, more than non-members. our test of hypothesis 1, found in table 1a, was conducted using a t-test. hypothesis 1 found strong support (p<.01) for the difference in hr certification value based on local or national shrm membership. on a scale of 1 to 7, members of a local or national shrm organization evaluated the value of hr certification with a mean value of 5.0, as compared to a mean value of 4.3 for non-members. table 1a beliefs about certifications (n=123) members non-members difference (p-value) value of certification 5.0 4.3 0.73 0.0091 survey on a scale of 1= “no value" to 7= "very valuable" hypothesis 2 predicted individuals who have completed formal education in hr, either an undergraduate or master’s degree, would value hr certification less than individuals that have not completed a formal hr education. our test of hypothesis 2, found in table 1b, was conducted using a t-test. hypothesis 2 failed to find statistical support (p>.10). surprisingly, and in contradiction to our hypothesis, the mean value reported by those with a formal hr education was higher than for those without a formal hr education (4.2 compared to 4.1). although a conclusion about the relative order or difference should be taken with caution since the difference is within the range expected due to sampling error, and as a result, firm conclusions are not statistically justifiable. table 2b beliefs about certifications hr education non-hr education difference (p-value) certification benefits 4.2 4.1 0.15 0.6271 survey on a scale of 1= “no value" to 7= "very valuable" 40 hypothesis 4 predicted certified individuals to be more committed to the hr profession than non-certified individuals. our test of hypothesis 4 is found in table 1c and was conducted using a ttest. hypothesis 4 found strong support (p<.01) for commitment to the hr profession based upon being certified versus non-certified. the mean value for commitment to the hr profession for certified individuals was 6.1, compared to 5.3 for non-certified members. table 3c commitment to hr career certified non-certified difference (p-value) commitment 6.1 5.3 0.86 0.0035 survey on a scale of 1= “definitely not" to 7= "definitely" benefits of hr certification hypothesis 3 predicted that possessing an hr certification would be related to increased pay (hypothesis 3a), increased job offers (hypothesis 3b), and an increase in job promotions (hypothesis 3c). our test of hypothesis 3 is found in tables 2a and 2b. for each hypothesis, we tested the relationships by examining the mean value reported (table 2a) and comparing the difference between the mean value reported by certified members to non-certified members (table 2b). our approach is premised on the belief that differences between the evaluations of certified and non-certified members are informed by the actual experiences of certified members against the expectations of non-certified members. table 2a mean value of hr certifications (n=123) mean (p-value) pay level impact 3.8 0.0000 job offers impact 5.0 0.0000 promotion impact 3.6 0.0000 survey on a scale of 1= "no value" to 7= "very valuable" table 2b mean value of hr certifications (n=123) certified members (p-value) non-certified members (p-value) difference (p-value) pay level impact 3.4 0.0000 4.4 0.0000 -1.08 0.0018 job offers impact 5.1 0.0000 4.8 0.0000 0.29 0.3505 promotion impact 3.5 0.0000 3.8 0.0000 -0.30 0.4216 survey on a scale of 1= "no value" to 7= "very valuable" hypothesis 3a predicted that hr certification would be related to increased pay level. the mean value of hr certification for increases in pay level was 3.8 on a scale from 1 to 7. using a t-test between certified and non-certified members, hypothesis 3a failed to find support. surprisingly, we found significant differences existed but in the opposite direction than expected. certified members 41 evaluated the value of certification for increased pay levels lower than non-certified members (table 2b, the value 3.4 compared to 4.4, p<.01). hypothesis 3b predicted hr certification to be related to increased job offers. the mean value of hr certification for increased job offers was 5.0 on a scale from 1 to 7. hypothesis 3b failed to find support. while certified members did place more value on hr certification for increased job offers than non-certified members, the difference was not statistically significant (table 2b, 5.1 compared to 4.9, p>.10). hypothesis 3c expected an hr certification to be related to increased job promotions. the mean value of hr certification for increased job promotions was 3.6 on a scale from 1 to 7. hypothesis 3c failed to find support. certified and non-certified members did not have significantly (p>.10) different views on the value of hr certification for a job promotion. benefits of hrci certification table 3a provides the mean values reported by certified and non-certified members in relation to hrci certifications. hypothesis 3a (pay level) failed to find support. contrary to our hypothesis the mean value reported was lower for certified members as compared to non-certified members (table 3a, the value 3.7 compared to 4.6, p<.05). this would seem to suggest that the pay level benefits expected by non-certified members failed to materialize. hypothesis 3b (job offers) found support (p<.05). the mean value reported was statistically significantly higher for certified members versus non-certified members (table 3a, the value 5.7 compared to 5.0, p<.05). finally, hypothesis 3c (promotions) failed to find support. again, surprisingly the mean value reported for certified individuals was lower than the mean value reported for non-certified individuals (table 3a, the value 3.8 compared to 3.9, p>.10) but the difference was not statistically significant. table 3a mean value of hrci certifications (n=123) certified members (p-value) non-certified members (p-value) difference (p-value) pay level impact 3.7 0.0000 4.6 0.0000 -0.85 0.0348 job offers impact 5.7 0.0000 5.0 0.0000 0.72 0.0342 promotion impact 3.8 0.0000 3.9 0.0000 -0.05 0.9086 survey on a scale of 1= "no value" to 7= "very valuable" benefits of shrm certification table 3b provides the mean values reported by certified and non-certified members in relation to shrm certifications. again, hypothesis 3a failed to find support, while the difference in mean values reported by certified and non-certified members was statistically significant, it was in the opposite direction expected. certified members reported a lower mean value in relation to pay level when compared to non-certified members (table 3b, the value 3.0 compared to 4.3, p<.001). hypothesis 3b also failed to find support when considering only shrm certification. the mean value reported for increased job offers by certified members was 4.5 as compared to 4.6 for non-certified members (table 3b, p>.10). hypothesis 3c also failed to find support. the mean value reported for increased job promotions by certified members was 3.1 as compared to 3.7 for non-certified members (table 3b, p>.10). 42 table 3b mean value of shrm certifications (n=123) certified members (p-value) noncertified members (p-value) difference (p-value) pay level impact 3.0 0.0000 4.3 0.0000 -1.31 0.0001 job offers impact 4.5 0.0000 4.6 0.0000 -0.13 0.7091 promotion impact 3.1 0.0000 3.7 0.0000 -0.56 0.1439 survey on a scale of 1= "no value" to 7= "very valuable" hrci certification versus shrm certification conclusions for the value of hrci certification and shrm certification concerning our predictions were similar. for instance, both hypotheses 3a and 3c failed to find support regardless of the specific certification considered. in both cases, the mean value reported for pay level was lower for certified members than for non-certified members and was statistically significant, and the mean value of job promotions was statistically insignificant. however, differences between hrci certification and shrm certification did exist. first, while hrci certification was perceived to be related to increasing job offers (supporting hypothesis 3b), shrm certification was not perceived to be related to increasing job offers. this may be due to the relatively short period in which shrm certification has been available as compared to hrci certifications. second, hrci certification was perceived by both certified and non-certified members to provide more value than shrm certification concerning hypotheses 3a, 3b, and 3c. these differences are reported in table 3c. this would suggest that, in general, those in the hr profession place a higher value on hrci certification than shrm certification. table 3c difference in value of hrci vs shrm certifications (n=123) certified members (p-value) non-certified members (p-value) difference (p-value) pay level impact 0.75 0.0006 0.28 0.0296 0.47 0.0969 job offers impact 1.19 0.0000 0.34 0.0298 0.85 0.0078 promotion impact 0.70 0.0012 0.19 0.0429 0.51 0.0604 survey on a scale of 1= "no value" to 7= "very valuable" discussion our study sought to test the individual-level propositions lengnick-hall and aguinis (2012) posited to guide the inquiry into the role hr certification plays in advancing the hr profession. consistent with their proposition, we found that membership in shrm organizations predicted how individuals value hr certification. members of shrm organizations valued certification approximately 16% more than non-members. this suggests that normative isomorphism pressures across the profession may have less of an effect than the social identity effect of organization membership on the evaluation of the value of hr certification by hr practitioners. both groups place a relatively high value on earning the credential. further study of the effect of group membership (profession vs. shrm member) on certification valuation might provide insights as to which group 43 membership is more salient for a particular individual given their attributes and perhaps serve as a measure of the influence the shrm organization has on the hr profession overall. contrary to lengnick-hall and aguinis’s (2012) expectations, we found that possessing advanced education in hr management did not predict how individuals value hr certification. again, both groups rated the credential as relatively valuable, but the difference between the two was minimal and not statistically significant. this might suggest that college graduates with hr majors would consider investing the time, effort, and money in raising their human capital as would non-college graduates or non-hr majors pursuing careers in hr in part because of the realized benefits purported and assumed. as described earlier, lester et al., (2010) found that college graduates with hr degrees who passed the phr certification exam fared much better at obtaining an hr position after graduation. however, passing the exam is not the same as earning the credential and being allowed to use it for gaining and maintaining employment. earning the credential requires knowledge plus experience. in their study, they may have been measuring something other than the value of earning the credential. further study could include distinguishing the differing effects between earning the credential and possessing the knowledge required to earn the credential. practical implications our findings offer several practical implications for job seekers, employees, and employers. regarding job seekers, our study has two major implications. first, jobseekers should highlight any current hr certifications or pursue hr certification if they are currently uncertified as employers are seeking certified hr professionals more than they have in the past (bayer & lyons, 2020). both members and non-members of shrm placed significant value on hr certification (table 1a). in addition, while differences between certified and non-certified members may not have always been statistically significant in our study, in each case individuals attributed some value to hr certifications towards pay level increases, job offer increases, and promotions (table 2a), despite increased job offers being the only supported outcome hypothesis in our study. further, given the greater commitment of certified individuals to the hr profession, hr certification may signal to prospective employers they are dedicated to staying in the profession which might also indicate an intent to stay with the organization if the opportunities for advancement are available. second, job seekers might consider prioritizing hrci certification over shrm certification until the credential becomes more established. in every instance we evaluated, individuals reported a higher mean value for hrci certification than shrm certification. in addition, hrci certification was found to have a positive impact on job offers, whereas shrm certification failed to provide the same value. the new shrm certification was less than two years old at the time of the study. future research should review these comparisons to determine if the passing of time has changed respondents’ evaluations. for currently employed hr practitioners, our study suggests that hr certification may only provide limited benefits, and the pursuit of certification might be considered for reasons other than pay and job level changes. hr certification failed to provide increased pay level benefits or increased job promotions, as such there is limited utility for those currently employed. this is consistent with mccamey (2003) who found that individuals are more likely to participate in professional education for reasons of professional development more so than for personal benefits (i.e., pay and promotion) and this has been found in other studies as well (cf. tana, 2019). regarding employers, our study suggests that hr certification may provide a useful screening tool for prospective and current employees. kirkpatrick and hoque (2022) found firms employing more qualified hr professionals adopted high-performance work practices (hpwp) at a higher rate than firms with fewer qualified hr professionals. browne (2000) found a subset of hpwp identified as healthy work organization (hwo) practices correlated with improved employee job satisfaction and reduced work-related stress which led to increased organizational outcomes. additionally, 44 individuals with an hr certification indicated higher levels of commitment to the hr profession that may ultimately lead to lower turnover costs for the organization (martinson & de leon, 2017). further, given the increased commitment signaled by earning hr certification (dachner et al., 2021), the increased knowledge gained by preparing for hr certification, and the lack of pay level increases associated with hr certification, employers should consider ways to reward individuals achieving hr certifications and make more explicit the current organizational rewards acquired through certification. limitations and future research one limitation of our study was the potential for common methods bias to increase measurement error through the use of self-report data to measure the benefits received from possessing hr certification. this was slightly attenuated by using varying scale anchors as well as collecting the responses using an anonymous survey (podsakoff et al., 2003). comparing the expectations of non-certified respondents to the experiences of certified respondents to calculate the pay level, job, and promotion outcomes provides a reasonable estimation of the actual value but independently verified objective data would provide additional support to measuring the value of certification. further research should study the outcomes of pay level, hiring practices, and promotability of hr professionals with the professional certification status of the hiring manager as a predictor variable. it is implied that the theoretical hiring managers referenced in our study would generally have direct knowledge of hr profession-specific human capital and the body of knowledge required to earn profession-specific credentials and therefore, have a realistic assessment of the value of human capital associated with possessing certification. empirically testing this assumption would provide valuable information and insight as to the real value of the credential beyond the certification in-group and across the hr profession group as a whole. also, these studies could be expanded to hiring, promotion, and pay outcome comparisons across and within professions. are hr professionals in a unique position by being more involved in hiring and pay decisions across organizations as part of their core functions than various other professional groups within an organization? do they value hr certifications similarly to how other professions value their profession-specific credentials as evidenced through hiring, pay, and promotion opportunities? conclusion this study sought to investigate hr professionals’ evaluation of, and experience 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(1964). the professionalization of everyone? american journal of sociology, 70(2), 137158. microsoft word 157-copyedit-final.docx http://journals.sfu.ca/abr advances in business research 2016, volume 7, pages 81-89 81 auditor bargaining power and audit fee lowballing shaowen hua la salle university zenghui liu western washington university xiaojie christine sun california state university, los angeles ji yu state university of new york at new paltz incoming auditors usually charge fewer audit fees to obtain the client (i.e., audit fee lowballing). prior research shows that industry expert auditors have better expertise and resources to perform a higher quality audit than non-expert auditors. consistent with this literature, we predict and find empirical evidence that the magnitude of lowballing will be significantly smaller for industry expert auditors compared with non-expert auditors. this result adds new evidence of the impact of auditors’ bargaining power to the audit fee lowballing literature. keywords: audit fees, lowballing, bargaining power, industry expert auditor introduction this paper investigates the cross-sectional variances regarding the audit fee lowballing effect. specifically, a study is conducted on whether the magnitude of the lowballing effect varies when levels of auditor bargaining power change. the audit fee lowballing refers to the practice whereby auditors charge lower audit fees for initial audit engagements (deangelo 1981). regulators and legislators have expressed concerns that the lowballing practice could impair auditor independence, and therefore, decrease audit quality (securities and exchange commission (sec) 1978; aicpa 1978; sec 2000; healy 2005; williams 2007). to address these concerns, several researchers use an analytical model to examine lowballing and its effect on auditor independence. for example, deangelo (1981) and chan (1999) argue that the technology advantage and transaction costs allow the incumbent auditors to keep their clients, and therefore, auditors are able to charge higher audit fees in subsequent years (quasi-rents). dye (1991) suggests that the quasi-rent is zero if clients have the ability to negotiate the audit fees to the level of audit costs, and therefore, lowballing only occurs when quasi-rents are not observable by the clients. in addition, morgan and stocken (1998) model the effects of business risk on auditors’ fee decisions and predict the lowballing practice in initial audit engagements for clients with higher business risks. moreover, kanodia and mukherji (1994) use an analytical model to explore the conditions under which the magnitude of lowballing is related to the bargaining power between auditor bargaining and lowballing 82 auditors and clients. in this study, we empirically test the impact of the auditor’s bargaining power on lowballing. prior literature provides consistent empirical evidences on the lowballing practice in auditing profession. simon and francis (1988) and ettredge and greenberg (1990) document evidence that auditors offer abnormally low fees during the initial year of audit engagements. in addition, sankaraguruswamy and whisenant (2009) provide evidence that auditors’ lowballing practices continue after the required disclosure of audit fees. moreover, pong and whittingtong (1994) and gregory and collier (1996) also find lowballing evidence in a u.k. setting. while prior studies focus on the evidence of lowballing behavior as well as its effect on auditor independence, few studies explore the systematic variance of the lowballing practice. ettredge and greenberg (1990) report evidence that fee cuts are related to the change of auditors as well as to the numbers of bidding auditors. ghosh and lustgarten (2006) document that big auditors have less competition, and therefore, use the lowballing practice less. huang et al. (2009) suggest that there is less lowballing behavior among big 4 firms in the post-sox period than in the presox period. casterella et al. (2004) report that audit industry specialists collect more audit fees from small clients. this study extends this literature by exploring whether an auditor’s lowballing behavior varies based on the auditor’s bargaining power. auditor industry expertise is used as a proxy for bargaining power. auditors with industry expertise have more resources and better technology to provide a high quality audit. therefore, clients who need these resource and technology advantages are limited to these expert auditors. as a result, industry expert auditors have more bargaining power when negotiating the audit fees with their clients (poter 1985). auditor industry expertise could affect lowballing practice in two ways. on the one hand, auditors with industry expertise are more efficient at conducting audits in their specific industry, and thus have the advantage of economies of scale. as a result, auditors are more capable to lower their audit fees for initial engagements to attract more clients. on the other hand, industry expert auditors can provide higher quality audit work with advanced technology and industry knowledge. therefore, they may be less likely to lower their audit fees because clients that need this high quality audit might not have other choices. given that auditor industry expertise could either increase or decrease the likelihood of lowballing behavior, we do not offer a prediction of the association. consistent with prior studies (ferguson and stokes 2002; casterella et al 2004; ghosh and lustgarten 2006; huang et al. 2009), we examine the effect of auditor industry expertise on audit fee lowballing by including the interaction of two indicator variables, initial-year audit and auditor industry expertise, in a regression model with the natural logarithm of audit fees as the dependent variable. by analyzing a sample of 21,255 firm-years during the years 2000 to 2012, our results indicate that auditor industry expertise has a negative effect on the lowballing practice. specifically, we find evidence of lowballing behavior for the group of auditors who are not industry experts, and no evidence of the lowballing practice in the group of industry expert auditors. in summary, these results suggest that auditors with industry expertise have higher bargaining power than non-expert auditors, and therefore, are less likely to lowball their audit fees during the initial audit engagement. the rest of this paper is organized as follows. section 2 shows the methodology used in this study. section 3 discusses the empirical results, and section 4 presents the conclusion and discussion. hua et al. 83 methodology this section describes the research methods used, including how the sample was selected and the regression model. sample selection the sample selection process began by extracting audit fees and auditor-related information for fiscal years 2000 to 2012 from the audit analytics database. the sample is then merged with the compustat database to acquire financial information of companies. foreign companies (adrs), companies in regulated industries (sic 4000-4999) and in financial industries (sic 6000-6999) were then removed. the final sample contains 21,225 firm-years. regression model we follow prior audit-fee studies (ferguson and stokes 2002; francis 1984; huang et al. 2009) to test the effect of auditor industry expertise on the relationship between audit fees and new audit engagements. in addition to the variables of interest, industry expert and new audit engagement, we also control for financial and auditor factors of companies in our sample. !"#$%&! = !! + !!!"#$%!!! + !!!"#!$%! + !!!"#_!"#! + !!!"#$%! + !!!"! + !!!"#$! + !!!"#! + !!!"#$%! + !!!"#"$%&"! + !!"!"##! + !!!!"#_!"#! + !!"!"#$%&! + !!"!"#$! + !!"!"#$! + !!"!"#$! + !!"!"#! + !!"!"#$!%_!"#! + !! our dependent variable is a natural log of audit fees in thousands of dollars (laudit), which is in line with prior literature (abbott et al. 2003; fields et al. 2004; mayhew and wilikins 2003). new audit engagement is surrogated by an indicator variable of lowball, equaling to 1, if the company is a new client of the auditor, 0 otherwise. we define an auditor as an industry expert when the auditor is ranked top at both the national and local level in an industry (reichelt and wang 2010). we further interact new engagement and industry expert (low_exp) to observe whether the discount of the initial engagement is attenuated by the premium of auditor industry expertise. because the financial status of a company affects the scope of the audit work, we use a natural log of total assets (logat) to control for the size of the company, and we use book-to-market ratio (bm) to control for the growth opportunity of the company. the labor hours of audit work is determined by a company’s operating income as well. we include return on assets (roa), whether the fiscal year incurs a net loss (loss), the debt to asset ratio (leverage), and the quick ratio (quick) to control for the operating effectiveness of the company. as the company extends its operations to foreign countries and offers distinct products, the business becomes more complex and requires more auditor resources. therefore, we control for number of segments (nseg) and foreign operations (forps) of companies. furthermore, inventory/receivables (inv_rec) and special items (spitem) are accounts that are easily subject to earnings management, and auditors need to spend more time testing these accounts. hence, we control for these factors in the model. auditor bargaining and lowballing 84 finally, several auditor characteristics affect audit fees. because most companies end their fiscal year in december, they will pay extra fees to compete for auditors’ time. as a result, we include an indicator variable, busy, to represent the december fiscal-end of companies. auditors also consider the risk of the engagement when they price an audit project. we add the going-concern opinion from an auditor (gcm) in the model as another element that affects audit fees. prior literature documents that big4 (or big5 prior to the demise of arthur andersen) auditors possess prestigious brand names that allow them to charge significantly higher audit fees than their peers. we created an indicator variable bign to denote deloitte, pwc, ernst and young, or kpmg. when the audit report is issued at a date long after the fiscal year-end, it implies that the audit work is complicated. therefore, we use the number of days between fiscal year-end and audit report date (report_lag) to control for the difficulty of the audit task. definition of all variables can be found in table 1. table 1. variable definitions dependent variables audfee = audit fees in thousand dollars; laudit = log of audit fees in thousand dollars; independent variables lowball = 1 if it is a new audit engagement, and 0 otherwise; expert = 1 if an auditor is both national and city level industry expert, 0 otherwise low_exp = the interaction of lowball and expert asset = total assets in millions of dollars; logat = natural log of total assets; bm = book-to-market ratio; busy = 1 if fiscal year end is december, and 0 otherwise; roa = income before extraordinary items deflated by total assets; quick = current assets divided by current liabilities; leverage = total debts deflated by total assets; loss = 1 if the firm report loss for current year, and 0 otherwise; inv_rec = sum of inventories and receivables, divided by total assets; spitem = 1 if the firm reports a special item, and 0 otherwise; bign = 1 if the firm is audited by a big 5 audit firm, and 0 otherwise; nseg = the number of business segments; fops = 1 if firm has a foreign operation, and 0 otherwise; gcm = 1 if firm receives a going concern opinion, and 0 otherwise; report_lag = time in days from fiscal year end to the audit report date; hua et al. 85 table 2 reports descriptive statistics of the variables in our model. laudit has a similar mean and median, suggesting that audit fees are normally distributed. the mean of lowball is 0.07, which indicates that most of our observations are not first-time engagements. expert shows that 27.6% of the sample audit reports are prepared by industry expert auditors. in addition, 74.2% of clients’ books are closed during busy season (busy), and 74.1% of the audits are done by big4 auditors (bign). the companies in our sample are generally growing as the mean book-to-market ratio (bm) is smaller than one. average roa of our sample companies is -9.59%, and 35.68% of companies reported net loss (loss). though being unprofitable in general, our sample companies have good liquidity as the mean quick ratio (quick) is 218.84%. the sample companies are not heavily indebted, because on average, 58.67% of companies’ total assets are financed through debts (leverage). our variables generally show similar distribution to what prior audit literature documents. table 2. descriptive statics (n = 21,225) variable mean median standard deviation 25th percentile 75th percentile audfee 1,640.02 607.00 3,391.94 199.67 1,616.00 laudit 6.39 6.40 1.42 5.29 7.38 lowball 0.07 0.00 0.26 0.00 0.00 expert 0.28 0.00 0.44 0.00 1.00 logat 5.60 5.72 2.31 3.99 7.24 bm 0.44 0.45 1.19 0.24 0.76 busy 0.74 1.00 0.44 0.00 1.00 roa -0.09 0.03 0.48 -0.06 0.07 quick 2.19 1.48 2.23 0.95 2.52 leverage 0.59 0.48 0.66 0.29 0.66 loss 0.36 0.00 0.48 0.00 1.00 inv_rec 0.30 0.27 0.21 0.14 0.42 spitem 0.66 1.00 0.47 0.00 1.00 bign 0.74 1.00 0.44 0.00 1.00 nseg 2.29 1.00 1.60 1.00 3.00 fops 0.55 1.00 0.49 0.00 1.00 gcm 0.07 0.00 0.25 0.00 0.00 report_lag 107.77 100.00 46.17 86.00 117.00 table 3 provides the pearson correlation matrix of our variables. consistent with prior literature, the dependent variable, laudit, is negatively correlated with new audit engagement (lowball) and positively correlated with industry expert auditors (expert). laudit is significantly correlated with each of the explanatory variables. most of the paired correlations are significant at the 0.10 level or lower. auditor bargaining and lowballing 86 bold indicates correlation significant at p< 0.10 level. see table 1 for variable definitions. results the regression results are reported in table 4. we found a negative association between audit fees and the initial engagement (lowball), which suggests that auditors give discounts on audit fees for first-time clients. the positive association between industry expert auditors (expert) and audit fees suggests that industry experts charge higher prices than non-experts. our chief variable of interest, industry experts (low_exp), which indicates that new customers are audited by industry experts if equals to 1, exhibited a significantly positive coefficient. the results indicate that auditor industry expertise has a diminishing effect on the audit fee lowballing practice. furthermore, the combined coefficient of low_exp and lowball is not significant, suggesting that expert auditors do not cut prices for their new clients. the model reports a high adjusted rsquare (87%), which is consistent with prior audit literature. all other variables, controlling for the characteristics of financial performance of companies and the audit engagement, also demonstrate the same signs and similar significance as previous audit studies. we further separate our sample into companies audited by industry experts and non-experts and run regressions on these two subsamples (untablulated). the coefficient of lowball of the expert group is not significant, whereas it is significantly negative for the non-expert group. the results from the subsamples support our primary finding that non-experts lowball the audit fees for initial engagements; we do not find evidence that industry expert auditors lower their audit fees for new audit engagements. hua et al. 87 table 4. testing the moderating effect of auditor bargaining power on lowballing variables predicted sign coefficient t-statistic p-value intercept ? 3.003 115.58 0.000 low_exp ? 0.115 2.77 0.006 lowball -0.128 -8.59 0.000 expert + 0.110 12.55 0.000 logat + 0.495 197.44 0.000 bm -0.031 -8.65 0.000 busy + 0.117 14.11 0.000 roa -0.186 -15.94 0.000 quick -0.031 -17.05 0.000 leverage + -0.000 -0.08 0.937 loss + 0.143 15.86 0.000 inv_rec + 0.173 9.01 0.000 spitem + 0.132 16.08 0.000 nseg + 0.063 23.88 0.000 fops + 0.303 33.55 0.000 bign + 0.362 17.16 0.000 gcm + -0.016 -0.89 0.376 report_lag + 0.001 15.78 0.000 n 21,225 adjusted r2 0.87 conclusion while the practice of lowballing audit fees attracts concerns from regulators and legislators (sec 1978; aicpa 1978; sec 2000; healy 2005; williams 2007), few empirical studies explore the moderating effect of lowballing. kanodia and mukherji (1994) analyze the theoretical model in conditions where bargaining power affects the magnitude of lowballing. this study provides the empirical evidence on the effects of the auditor’s bargaining relationship on the audit fee during the initial year of audit engagement. this paper documents a negative association between auditor industry expertise and lowballing. in addition, we only find evidence of lowballing for non-expert auditors. these results are consistent with the notion that industry expert auditors have high bargaining power when negotiating audit fees and do not engage in the lowballing practice. our study is the first to consider the effect of auditor bargaining power on lowballing for new audit engagements. our findings are of interest to regulators, professionals, and academic researchers. auditor bargaining and lowballing 88 references abbott, l.j., s. parker, g. f. peters, and k. raghunandan. 2003. the association between audit committee characteristics and audit fees. auditing: a journal of practice and theory 22 (2): 17-32. american institute of certified public accountants (aicpa). 1978. commission on auditors= responsibilities: report, conclusions, and recommendations. new 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tests of price cutting and price recovery. the accounting review 63 (2): 255-269. williams, p. 2007. accounting: playing lowball. accountancy age (july 12). available at: http:// www.accountancyage.com / articles / print / 2193827 shaowen hua is assistant professor of accounting in the school of business at la salle university. she holds a ph.d. in accounting from lebow college of business, drexel university. her research interests include analyst/management forecasts, corporate governance, and auditing. zenghui liu is assistant professor of accounting in the college of business and economics at western washington university. he earned his ph.d. degree in accounting from drexel university. his research specialty ranges from auditing, corporate governance, to financial accounting. he could be reached at: liuz3@wwu.edu. xiaojie christine sun is assistant professor of accounting at california state university, los angeles. she received her ph.d. in accounting from lebow college of business, drexel university. her research interests include auditing and financial reporting. ji yu is assistant professor of accounting in the school of business at state university of new york at new paltz. he holds a ph.d. in accounting from the fogelman college of business and economics, university of memphis. his research interests include initial public offering underpricing, financial reporting quality and auditing. 28 fair value measurements, information asymmetry, liquidity, and firm value joseph reid east carolina university this study examines whether the implementation of fasb accounting standards codification on fair value measurements (asc 820-10) impacts information asymmetry, liquidity, and firm value. asc 820-10 was designed and implemented under the premise it would improve financial reporting quality and comparability of fair value measurements in financial reports by requiring firms to disclose activity within and between fair value measurement levels. increased disclosure that reduces information asymmetry (risk) will increase financial statement readability and increase liquidity. if the disclosed information lacks precision, the value of the information is discounted and its effect on investor perception becomes ambiguous. this study examines 10-k and 10-q filings of firms with level 2(3) fair value activity from 2007 through 2012. initial results reveal asc 820-10 did decrease liquidity for firms with material transfers furthermore some investors and analysts assign value to financial statement information based on relevancy and understandability. taken together these results signal to standard setters the increased mandatory disclosures around the measurement of unobservable inputs (level 3 securities) are value relevant and economically significant. this study extends the literature on the relationship between fair value relevance, information asymmetry, and information precision and contributes to the debate on the efficacy of unobservable units in fair value measurements. keywords: fair value, liquidity, information asymmetry, disclosure, valuation, financial reporting quality introduction the financial accounting standards board (fasb) increased the disclosure requirements related to fair value measurements & disclosures, accounting standards codification 820-10 (asc 820-10), in 2010 to improve financial reporting transparency in financial reporting.1 the new disclosures required by the fasb require that firms disclose: (1) transfers in and out of levels 1 and 2; and (2) activity in level 3 fair value measurements. this disclosure requirement is significant because 1 the new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after december 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in level 3 fair value measurements. those disclosures are effective for fiscal years beginning after december 15, 2010, and for interim periods within those years (fasb, 2006, 2010). http://journals.sfu.ca/abr advances in business research 2021, volume 11, pages 28-40 http://journals.sfu.ca/abr 29 it attempts to reduce information risk associated with fair value measurements, a contemporaneous and economically relevant issue. prior literature establishes a link between information risk and market liquidity (greenstein & sami, 1994; welker, 1995; coller & yohn, 1997; healy et al., 1999; leuz & verrecchia, 2000; rajgopal & venkatachalam, 2011). information risk refers to an investor’s ability to accurately ascertain the valuation parameters for a particular asset (riedl & serafeim, 2011). theoretically, the increased disclosure mandated by the revised standard will reduce information risk and improve the financial reporting transparency of financial statements (diamond & verrecchia, 1991; botosan, 1997). in turn, the improved transparency of financial statements will increase liquidity and reduce the cost of capital, subsequently affecting firm value (affleck-graves et al., 2002). the relationship detailed above is still an open empirical question within the context of fair value measurements, specifically those measurements involving unobservable inputs. this study examines the annual and quarterly filings of firms with level 2 and level 3 fair value activity from 2007 through 2012 and identifies a sample of 404 firms with disclosed transfer activity and 371 firms, serving as the control group, without material transfer activity. the overall results reveal that information risk increased as a result of asc 820-10 adoption and the effect is significantly different for firms affected relative to firms not materially affected by asc 820-10. additionally, results further reveal that firm value increased for firms as a result of asc 820-10 however, firm value decreased for firms with material transfers relative to firms not materially affected by asc 820-10. asc 820-10 was adopted with the intent to increase financial statement transparency by reducing information asymmetry surrounding fair value measurements. however, additional disclosures do not necessarily result in additional useful information for the reader. fasb member and leader of the fasb’s disclosure framework project believes that: “some of this information becomes boilerplate, or it may not be material to the reporting entity…that makes it harder for the reader to find information even if they know what they’re looking for. and it may cause them to miss information that they did not know how to look for. (journal of accountancy, 2012)” the fundamental research objective of this study is to determine whether the increased disclosure mandated by asc 820-10 decreases information risk and its subsequent relation to firm value. overall, the results of this study conclude that the mandatory disclosure requirement of asc 820-10 does increase information asymmetry as the reliability and relevance of the information provided to investors about fair values is in question. the uncertainty about the disclosed information has a significant negative impact on liquidity and firm value. investors likely view the disclosure required by asc 820-10 as superfluous and its meaning ambiguous and thus is viewed negatively. these results have significant policy implications as the fasb and iasb currently debate effectively streamlining disclosures. furthermore, this study highlights that the relationship between information asymmetry and disclosure is directly affected by the precision and relevance of information released. background and hypotheses development prior studies have established the link between information risk and market liquidity (diamond & verrecchia, 1991; greenstein & sami, 1994; welker, 1995; coller & yohn, 1997; healy et al., 1999; leuz &verrecchia, 2000; rajgopal & venkatachalam, 2011). information risk refers to an investor’s ability to accurately ascertain the valuation parameters for a particular asset (riedl & serafeim, 2011). therefore, information risk is partially determined by the degree of information asymmetry, informational advantage, between informed and less-informed investors. diamond and verrecchia (1991) analytically show that disclosure policies that reduce information asymmetry will increase the liquidity of a firm’s securities by inducing traders to take larger current positions in securities. greenstein and sami (1994) examined the impact of the sec’s segment disclosure 30 requirement and found that increased disclosure had a significant impact on the bid-ask spread, a proxy for information asymmetry. welker (1995) directly examines the relation between disclosure policy and liquidity by departing from the traditional event study methodology approach and focusing on the nondisclosure period. after controlling for return volatility, trading volume and share price results reveal a significant negative relation between disclosure and bid-ask spread. results indicate that the effects of increased disclosure occur beyond the initial information release period. leuz and verrecchia (2000) analyze the economic consequences of increased disclosure for a sample of german firms and finds that firms that commit to increased disclosure experienced lower bid-ask spreads and share turnover. affleck-graves et al. (2002) show that firms with more predictable earnings show decreases in the adverse selection component of the bid-ask spread. these results further substantiate the link between information risk and liquidity. all other things being equal, decreased information risk (e.g., more predictable earnings) increases market liquidity. a more recent study by rajgopal and venkatachalam (2011) examines returns from 1962 to 2001 and shows that higher idiosyncratic return volatility is significantly negatively related to information quality. an increase in idiosyncratic return volatility is related to information risk and is effectively priced influencing the cost of equity capital and liquidity (goyal & santa-clara, 2003; easley & o’hara, 2004). overall, the studies above support the link between liquidity and information risk however a more subtle, yet equally important point is present. valuation is theoretically linked to market liquidity through information risk. at its core, firm valuation reflects the underlying value of the assets and liabilities of a firm in addition to the expected future cash flows discounted for appropriate risk. if investors (analysts) are unable to accurately forecast expected future cash flows because of heightened information risk or accurately value assets or liabilities because of illiquidity, firm value is ultimately affected. this study seeks to analyze the relationship between liquidity, information risk, and firm value in the fair value context. the association between liquidity and information risk is important for level 3 fair value measurements, measured using unobservable inputs to measure fair value to the extent that observable inputs are not available, because investors appear to demand compensation for firms that carry illiquid securities (amihud & mendelson, 1986; brennan & subrahmanyam, 1996). firms with transfers between fair value measurement categories signal to investors an increase (decrease) in the objectivity and comparability of the transferred securities. theoretically, transfers from (to) level 3 decrease (increase) information risk and increase (decrease) liquidity. information risk can be directly linked to market liquidity through the theories of incomplete information, estimation risk, information asymmetry, and impacts on future cash flows (legoria et al., 2008; ng, 2011). incomplete information (merton, 1987) arises when investors are unaware of all investment opportunities, which results in a smaller investor base and lower stock price. estimation risk arises when investors are uncertain about the return distribution parameters which leads investors to demand higher required rates of return (barry & brown, 1984). information asymmetry risk (easley & o’hara, 2004) arises when informed investors exploit their informational advantage to earn trading gains at the expense of less-informed investors. ng (2011) finds that higher information quality is negatively associated with liquidity risk and that relationship between information quality and cost of capital is economically significant. additional analysis reveals that unexpected changes in market liquidity exacerbate the negative relationship between information quality and liquidity risk. ng defines liquidity risk as “the sensitivity of the stock’s return to unexpected changes in market liquidity” while a liquid market is one with narrow bid-ask spreads in which large trades can be absorbed without significantly moving market prices (black, 31 1971).2 when investors buy shares of a stock, the broker quotes an asking price (the “ask”). conversely, if the investor attempts to sell the same shares, the broker quotes a lower bid price (the “bid”) with the difference between the two prices being the “bid-ask spread” (callahan et al., 1997). the spread between the bid and ask prices is the market maker’s source of gross profit and must be wide enough to cover the market maker’s operating costs including adverse selection costs (stoll, 1978). prior research (amihud & mendelson 1986; copeland & galai 1983; glosten & harris 1988; stoll 1989) suggests that the spread is comprised of three types of costs facing the dealer: order processing costs, inventory holding costs, and adverse selection costs. the order-processing costs are the dealer's costs of arranging trades and clearing transactions and include such items as the exchange seat, floor space rent, informational service costs, labor costs, and the opportunity cost of the market maker’s time. 3 the inventory holding costs are the dealer's costs of carrying the necessary inventory of stock to be able to trade on demand. lastly, the adverse selection costs are the losses the market maker sustains when trading with investors who are privy to more precise private information about the true worth of the security4 and is commonly referred to in the literature as “information asymmetry.” in response to information asymmetry and related adverse-selection costs, a market maker will reduce market depth (kyle, 1985) and widen spreads (glosten & milgrom, 1985).5 specifically, amihud and mendelson (1986) find a positive association between bid-ask spreads and stock returns and brennan and subrahmanyam (1996) show a positive relation between stock returns and inverse market depth. overall, these studies indicate that investors demand a premium for holding illiquid stocks, and lower market liquidity impacts firm value. in summary, the aforementioned theories predict that compliance with asc 820-10 should (1) reduce incomplete information, (2) reduce estimation risk, (3) reduce information asymmetry, and/or (4) impact expected future cash flows. based on the above discussion, this study hypothesizes: h1: fair value disclosure requirement asc 820-10 has a positive effect on firm liquidity. h2: fair value disclosure requirement asc 820-10 has a positive effect on firm value. sample selection and description the sample was compiled using a combination of hand-gathered procedures and available data from compustat and crsp databases. first, all firms with any activity in level 2 and level 3 were identified in compustat resulting in 816 firms. next, the number of firms in the initial sample was reduced by 41 as corresponding data to compute liquidity and firm value proxies were incomplete for these firms. the above procedures result in a final sample of 775 firms and 6,853 firm-quarter observations. 2in this study the distinction between liquidity risk and liquidity is made strictly for definitional purposes with respect to different streams within the finance and accounting academic literature. the empirical findings in pastor and stambaugh (2003) and ng (2011) imply that the effect of financial reporting quality on the cost of capital and market liquidity is significant. 3 bollen et al. (2004) finds that in the short run, order processing costs are largely fixed and their contribution to the size of the bid-ask spread should be minimal. also, in a highly competitive market, bid-ask spreads should equal the expected marginal cost of supplying liquidity, in which case order-processing costs may be irreverent. 4 “the adverse selection component of the spread is closely related to information flows in capital markets and is, therefore, of the most potential interest to accountants.” (callahan et al, 1997) 5 accounting theory of disclosure states that value relevant disclosure mitigates resource misallocation on the capital market by reducing information asymmetries between insiders and investors and the associated cost of capital. however, the existence and magnitude of this effect depends on the perceived credibility of the disclosure (gu and li, 2007). 32 to gather disclosure data on selected firms, the 10-k wizard search engine was employed to search quarterly, and annual reports filed beginning in q3 2009. transfers between fair value hierarchical levels were identified with a keyword search for all occurrences of “transfers to/from level 3 (iii)” and “level 2 (3) reclassification” in quarterly and annual financial statements. this process produced a subsample of 404 firms with transfers between level 2 and level 3 and 371 firms that reported “no material activity between level s “and/or “adoption of asc 820-10 does not materially affect the financial statements.” table 1 – description of sample firms and transfer activity type panel a: sample reconciliation # of firms all firms in compustat database with level 2/level 3 fair value activity 816 firms with missing financial data 41 final sample 775 firms reporting no material activity between levels 371 firms reporting material activity between levels 404 panel b: type of transfer activity assets liabilities total level 3 activity n % n % n % transfer in 2,508 90% 1,476 53% 3,984 71% transfer out 294 10% 1,326 47% 1,620 29% totals 2,802 100% 2,802 100% 5,604 100% panel a of table 1 describes the final sample of 775 firms and subsample of firms with (404) and without (371) transfer activity while panel b of table 1 reports level 3 transfer activity. panel b shows that a considerable majority (71%) of the transfer activity was reclassifications of assets/liabilities into level 3 fair value category. research methodology and empirical proxies proxies for liquidity liquidity is captured via three measuresthe bid-ask spread, share turnover, and price impact. the bid-ask spread (ba) represents the market maker’s profit including inventory, processing, and adverse selection costs. a wider spread indicates a higher degree of information asymmetry and information risk which results in decreased liquidity. following fu et al. (2012) the bid-ask spread is calculated daily as (ask-bid)/ ((ask+bid)/2). the second proxy, share turnover (st), is a common measure of liquidity and is calculated as the daily total of shares traded divided by the average shares outstanding. a higher share turnover indicates a more liquid security. following daske et al.(2008) and fu et al.(2012) the third and final proxy, price impact (pi), captures the ability to trade a security without an impact on price. price impact is calculated as the daily absolute return divided by trading volume in dollars ($). following prior literature (fu et al., 2012), the following control variables are used to test the relation between liquidity and asc 820-10: size = total assets at the end of the previous period, log-transformed turnover = median daily turnover ratio in a quarter, log-transformed volatility = standard deviation of daily return in a quarter, log-transformed 33 nasdaq = 1 if traded on the nasdaq exchange; 0 otherwise proxies for firm value firm value is measured via two proxies-tobin’s q and enterprise value ratios. tobin’s q (tq) is a well-established proxy for firm value in the accounting and finance academic literature and is calculated as the sum of the equity market value of assets and book value of liabilities divided by the sum of equity book value and the book value of liabilities. enterprise value (ev) represents the value of a firm inclusive of the company’s debt and therefore represents a more accurate measure of valuation when compared to other measures of firm value (i.e., market capitalization). enterprise value is calculated as the sum of quarterly market capitalization, long-term debt, minority interests, and preferred stock reduced by total cash and cash equivalents. following prior literature (dang et al. 2019), the following control variables are used to test the relation between firm value and asc 820-10: growth = (sales revenuet – sales revenuet-1)/sales revenuet size = total assets at the end of the previous period, log-transformed leverage = total debt/total assets roa = net profit/total assets roe = net income/total equity table 2 – descriptive statistics panel a: descriptive statistics by time period pre-asc adoption (n = 3,997) variable mean std. dev q1 median q3 n ba 1.593 4.047 0.119 0.280 1.027 3,997 st 547.34 708.90 114.92 356.87 718.14 3,997 pi -0.088 0.983 -0.024 -0.001 0.006 3,997 tq 1.385 0.996 0.979 1.040 1.343 3,997 ev 8.495 6.680 0.000 12.160 13.253 3,997 size 12.905 1.853 11.665 12.872 13.891 3,997 turnover 3.103 1.283 2.236 3.099 3.908 3,997 volatility 0.208 0.127 0.118 0.182 0.270 3,997 nasdaq 0.626 0.484 0.000 1.000 1.000 3,997 growth 12.822 3.661 11.670 12.752 13.113 3,997 leverage 0.162 0.065 0.000 0.607 1.125 3,997 roa 2.059 5.082 0.000 0.600 2.400 3,997 roe 1.283 0.881 0.224 1.323 1.417 3,997 post-asc adoption (n = 2856) ba 1.028 2.683 0.074 0.182 0.649 2,856 st 483.44 1847.98 100.38 278.03 572.94 2,856 pi 0.008 0.642 -0.010 0.000 0.013 2,856 tq 1.395 1.039 0.978 1.031 1.337 2,856 ev 9.026 6.850 0.000 12.297 13.425 2,856 size 12.873 1.923 11.654 12.803 13.869 2,856 turnover 3.084 1.232 2.223 2.963 3.792 2,856 volatility 0.156 0.083 0.097 0.140 0.195 2,856 nasdaq 0.628 0.483 0.000 1.000 1.000 2,856 growth 11.98 2.754 11.24 12.545 13.003 2,856 34 panel a of table 2 displays the descriptive statistics for sample firms by time while panel b of table 2 provides descriptive statistics by category of transfer activity. firms with material level 3 transfer activity generally had larger bid-ask spreads and higher share turnover than firms without material transfer activity. the difference in the firm value proxies (i.e.tq and ev) for the two categories are significant and show that firms with material activity have significantly higher enterprise value but significantly less value as measured by tobin's q. further analysis reveals that the differences noted in the firm value proxies are likely driven by total debt as evidenced by the significantly higher leverage for firms with material transfer activity. overall, panel b of table 2 indicates that firms with material transfers have less turnover, more volatility, and higher roa when compared to firms without material transfer activity. models for tests of liquidity (h1) and firm value (h2) to test h1, the following model is used: xit = β0 + β1ascit + β2fv3_trnsit + β3asc x fv3_trnsit + β4sizeit + β5turnoverit + β6volatilityit + β7nasdaqit +eit (1) leverage 0.266 0.118 0.000 0.484 0.980 2,856 roa 1.929 4.794 0.000 0.600 2.700 2,856 roe 1.017 1.281 0.000 1.303 1.439 2,856 panel b: descriptive statistics by sub-sample firms without level 3 activity (n = 4,051) firms with level 3 activity (n = 2,802) diff. variable mean median mean median ba 1.326 0.238 1.403 0.241 *** st 501.869 318.453 547.946 317.723 *** pi -0.049 0.000 -0.047 -0.001 ** tq 1.402 1.036 1.370 1.037 * ev 8.630 12.160 8.841 12.257 ** size 12.881 12.823 12.907 12.875 * turnover 3.098 3.050 3.089 3.022 * volatility 0.185 0.159 0.188 0.162 * nasdaq 0.633 1.000 0.618 1.000 ns growth 12.000 12.550 13.300 13.010 *** leverage 2.002 0.567 2.121 0.513 *** roa 1.971 0.600 2.054 0.600 ** roe 1.120 1.190 1.290 1.210 *** *, **, *** indicate significance at the 10 percent, 5 percent and 1 percent levels, respectively. panel a displays descriptive statistics for sample firms by time period. panel b displays the mean and median for the two time periods by firm activity. variables defined: ba = bid-ask spread (i.e. askbid)/((ask+bid)/2); st = share turnover (i.e. daily volume shares traded divided by average shares outstanding for the quarter); pi = price impact (i.e. daily absolute return divided by average trading volume); tq = tobin's q ratio (i.e. market value of equity divided by book value of equity); ev = enterprise value (i.e. sum of market capitalization, long-term debt, minority interests and preferred stock reduced by cash and cash equivalents); size = market value at the end of the previous period, log transformed; turnover = median quarterly turnover ratio, log transformed; volatility = standard deviation of quarterly return in a year, log transformed; nasdaq = 1 if listed on the nasdaq stock exchange, 0 otherwise; growth = percentage change in slaes growth from previous period (i.e. (currrent period sales revenue prior period sales revenue)/current period sales revenue); leverage = total debt/total assets; roa = net profit/total assets; roe = net income/total equity. 35 where xit indicates one of the proxies for liquidity, bid-ask spread, share turnover, and price impact, detailed above. asc is a dummy variable coded as 1 if calendar quarter is after q4 2009, 0 otherwise; fv3_trns is a dummy variable coded as 1 if transfer activity to/from level 3, 0 otherwise; asc x fv3_trns is the interaction term coded 1 if both asc and fv3_trns equal 1, 0 otherwise. to test h2, the following model is used: zit = β0 + β1ascit + β2fv3_trnsit + β3asc x fv3_trnsit + β4growthit + β5sizeit + β6leverageit + β7roeit/roait +eit (2) where ze indicates one of the proxies for firm value, tobin’s q and enterprise value referenced above. asc is a dummy variable coded as 1 if calendar quarter is after q4 2009, 0 otherwise; fv3_trns is a dummy variable coded as 1 if transfer activity to/from level 3, 0 otherwise; asc x fv3_trns is the interaction term coded 1 if both asc and fv3_trns equal 1, 0 otherwise. results table 3 presents the correlation coefficients for the liquidity and firm value proxies and associated control variables. the results follow expectations and prior literature with the liquidity proxies being significantly related to size, turnover, volatility, nasdaq, leverage, and roa variables. the firm value proxy, ev, is negative and significantly related to turnover, volatility, and roa while being positive and significantly related to nasdaq and leverage. table 3 – correlation matrix ba st pi ev size turnover volatility nasdaq growth leverage roa roe ba 1 st -0.100 1 pi -0.125 0.022 1 tq -0.261 0.204 0.054 ev 0.298 -0.108 -0.034 1 size -0.040 0.048 -0.012 0.010 1 turnover -0.252 0.355 0.060 -0.149 0.018 1 volatility 0.208 0.108 0.080 -0.035 0.020 0.377 1 nasdag 0.161 -0.116 -0.039 0.177 -0.003 -0.214 -0.073 1 growth 0.022 0.010 0.001 0.007 0.003 0.006 0.031 -0.019 1 leverage 0.237 -0.066 -0.093 0.307 0.004 -0.061 0.007 0.086 0.006 1 roa -0.125 0.059 0.037 -0.123 -0.040 -0.014 -0.115 -0.035 -0.006 -0.113 1 roe -0.013 0.013 0.005 -0.018 0.018 0.028 -0.002 0.013 -0.01 -0.007 0.039 1 table 3 displays correlation coefficients. bold indicates significance at the 5 percent level. variables previously defined. table 4 presents the results for the analysis of the relationship between liquidity and asc 82010. the significant negative coefficient for asc, when liquidity is proxied by ba indicates that bid-ask spreads decreased, and information asymmetry decreased as a result of asc 820-10 however the coefficients for asc when liquidity is proxied by st and pi imply a different interpretation. the significant negative coefficients for asc when proxied by st and pi indicate that share turnover decreased and price impact increased, a result of increased information asymmetry. the explanation for this may be in that the increased requirements imposed by asc 820-10 increased the available information, but investors discounted this data embedding the uncertainty in increased price impact and decreased share turnover. the marginally significant and insignificant coefficients for fv3_trns suggest that investors may view transfers to/from level 3 similarly and disclosure of this information provides no informational advantage. the interaction term, asc x fv3_trns, is significant at the 1% level when 36 liquidity is proxied by pi. relative to firms without transfer activity, firms with transfers experienced a 0.119% decrease in price impact. collectively these results suggest that the increased disclosure requirement, albeit increases the information provided to investors, decreases liquidity (increases information asymmetry) and transfers between fair value categories do not provide additional relevant and reliable information and thus h1 is not supported. table 5 presents the results for the analysis of the relation between the proxies for firm value and asc 820-10. when the firm value is measured using tobin's q, none of the coefficients on the variables of interest are significant. this is not surprising given that the value of tobin's q is susceptible to speculation and market momentum. given that enterprise value is a more precise measure of firm value, i draw inferences about information asymmetry from the enterprise value regression results. when the firm value is proxied by enterprise value asc, fv3_trns and asc x fv3_trns are all significant at the 1% level. likely, the significance difference found on the coefficients for the respective proxies is driven by the conceptual difference in tobin's q and enterprise value. enterprise value is a more precise and comprehensive measure of firm value as it represents the takeover price of a firm and includes preferred equity and unfunded pension liabilities. overall, the results support h2. table 4 – analysis of liquidity (h1) variables predicted sign dependent variables ba significance st significance pi asc -0.480 *** -84.908 *** 0.150 -0.105 -21.981 -0.030 fv3_trns 0.036 25.713 0.050 -0.115 -27.515 -0.029 asc x fv3 +/0.135 72.380 -0.119 -0.155 -62.283 -0.042 size -0.721 *** 84.850 *** 0.034 -0.034 -26.055 -0.009 turnover -0.684 *** 354.415 *** 0.037 -0.048 -76.455 -0.014 volatility + 3.323 *** -139.463 *** 0.061 -0.451 -360.428 -0.204 nasdaq -0.232 *** -37.226 0.003 -0.091 -46.143 -0.022 constant 12.682 *** -1600.703 *** -0.877 -0.669 -212.707 -0.151 observations 6,853 6,853 6,853 year fixed effects yes yes yes adj r2 21.56% 14.08% 4.21% *, **, *** indicate significance at the 10 percent, 5 percent, and 1 percent levels, respectively. robust standard errors with clustered standard errors are in parentheses. variables previously defined. 37 table 5 – analysis of firm value (h2) variables predicted sign dependent variables tq significance ev significance asc 1.760 0.731 *** (1.410) (0.200) fv3_trns 0.403 0.488 *** (1.410) (0.192) asc x fv3 +/2.110 -0.706 * (3.380) (0.313) growth + 0.778 *** 24.549 *** 0.034 6.043 size 10.800 *** -1.745 *** (1.110) (0.066) leverage + 0.005 *** 0.000 ** (0.001) (0.000) roe/roa -1.120 *** -0.067 *** (0.113) (0.015) constant -132.000 *** 31.100 *** (15.800) (1.066) observations 6,853 6,853 year fixed effects yes yes adj r2 23.11% 16.55% *, **, *** indicate significance at the 10 percent, 5 percent and 1 percent levels, respectively. robust standard errors with clustered standard errors are in parentheses. variables previously defined. in an additional untabulated analysis of firms with material transfers, the sample was bifurcated by type of transfer activity (i.e assets and/or liabilities transferred in or out of level 3). the results reveal that the type of transfer activity is not significantly related to either of the proxies for firm value however assets transferred into level 3 are positive and significantly related to the bid-ask spread, while liabilities are not. this finding suggests that transfers of assets between level 2 and level 3 categories play a significant role in the increase or decrease of information asymmetry while liabilities do not. in an additional analysis, the study tests the sensitivity of these results following the model employed in esqueda et.al (2019), and with the inclusion of additional controls; i find that the results are similar and statistical inference unchanged. conclusion this study evaluates the effect of the fair value mandatory disclosure requirement, asc 820-10, on liquidity and firm value. initial results conducted on a broad sample of 6,853 firm-quarter observations for 775 firms suggest that liquidity decreased, 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(1995). disclosure policy, information asymmetry, and liquidity in equity markets. contemporary accounting research, 11(2), 801–827. 1 brand personification and money: the effect of collective vs. solo brands on monetary decisions napatsorn jiraporn state university of new york at oswego for decades, marketing professionals have crafted brands with human-like traits, like mr. clean and tony the tiger, to create emotional connections and influence buying behavior. scholars have explored brand personification, examining its effects and mechanisms. this research investigates anthropomorphic collective branding, which involves using multiple anthropomorphized brand entities to create a collective brand presence. two experiments revealed that consumers evaluate collective brands more positively than solo ones, particularly in financial decisions such as buy now pay later services or donations. trust was found to mediate this effect, enhancing positive evaluations. these findings contribute to the understanding of brand anthropomorphism, highlighting the effectiveness of collective branding strategies in specific decision-making contexts. future research could explore how these strategies influence consumer behavior in diverse financial settings, like gambling or other financial transactions. for marketing professionals, this study emphasizes the nuanced impact of different types of brand anthropomorphism on brand evaluation, depending on the consumer decision context. leveraging these insights can help optimize branding strategies to better engage consumers. keywords: brand anthropomorphism, brand personification, brand trust, buy now pay later, consumer-brand relationship, monetary decision introduction over the past several decades, marketing practitioners have ingeniously imbued brands with human-like characteristics and personalities, creating iconic figures such as mr. clean (a well-known cleaning product in the united states), the michelin man (also known as bibendum, a mascot of a french tire company), the aflac duck (a famous insurance company in north america), pillsbury’s doughboy (a well-known mascot for baking products in the united states), tony the tiger (a mascot for breakfast cereal from kellogg’s), and ronald mcdonald (a mascot of mcdonald’s, a global brand of fast-food restaurant). this strategic approach has consistently elicited consumers' perceptions of brands as living, breathing entities with emotions and thoughts (aaker, 1996; fournier & alvarez, 2012; kim & mcgill, 2011; puzakova et al., 2013). studies show that when brands have personality, consumers tend to form stronger emotional bonds with them. aaker’s http://journals.sfu.ca/abr 2024, volume 14, pages 1-19 http://journals.sfu.ca/abr 2 (1996) work on brand personality suggests that consumers are more likely to stay loyal to brands that exhibit a personality similar to their own or one they admire. furthermore, kim and mcgill (2011) highlight that personified brands are often seen as more trustworthy, as the human-like attributes of a brand can make its promises and commitments appear more credible. this trust is crucial for fostering consumer loyalty and encouraging repeat purchases. aggarwal and mcgill (2012) proposed that brand anthropomorphism triggered consumers’ automatic goals to have a successful social interaction, so people behave differently towards anthropomorphized vs. non-anthropomorphized brands. additionally, research by puzakova et al. (2013) indicates that consumers are more inclined to interact with brands that exhibit personality traits, whether through social media, brand communities, or other platforms. while some brands have taken the bold step of creating mascots capable of speech, movement, and emotional expression, reavey et al. (2018) propose that brand personification can be achieved in more subtle ways. simply referring to the brand using human language or imbuing the product itself with anthropomorphic traits can evoke similar feelings of connection and familiarity. for instance, a yogurt bottle shaped like an hourglass resembling the human body subtly reinforces notions of health and vitality, forging a personal bond between the consumer and the brand. despite the widespread use of anthropomorphism in advertising, two critical areas remain relatively unexplored: i) the varying effectiveness of different forms of brand anthropomorphism and ii) the possible impact of these strategies across diverse product categories. understanding these nuances is essential for marketers seeking to maximize the potential of brand personification in their campaigns and tailor their approaches to resonate with specific target audiences. in essence, the practice of imbuing brands with human-like qualities has become a cornerstone of modern marketing, blurring the lines between products and personalities, and forging enduring connections with consumers that transcend mere transactions. recent research conducted by puzakova & kwak (2023) sheds light on these areas by revealing that the presence of multiple anthropomorphized entities, known as collective brands, can decrease advertising effectiveness compared to anthropomorphized solo brands. anthropomorphized collective brands were conceptualized here as brand communication that includes cues of multiple entitles leading to the perception of a collective presence of the brand. advertisements using multiple anthropomorphized entities (e.g., multiple humanlike characters, brand characters, or mascots) are quite common in the industry. examples of such brands are belgian boys, birch benders, and m&m. the findings that such collective brands harm brand evaluation are robust across research studies and surprisingly, this effect is more pronounced among women, who tend to develop lower expectations of the consumer-brand relationship with collective brands. in contrast, studies found no effect of collective brands on men. this disparity in perception suggests a nuanced interplay between brand anthropomorphism and gender dynamics, shedding light on the divergent ways in which men and women engage with anthropomorphized collective brands. the evidence pointing to the negative effects of collective brands on brand evaluation sparks curiosity about why such brands remain popular in the industry. this raises interesting questions about the effectiveness of branding strategies and the contexts that might influence their impact. although collective brands are widely used, their drawbacks compared to solo brands are unclear. this study aims to fill this gap by examining how different types of brand anthropomorphism— specifically, collective versus solo—impact consumer monetary decision-making. despite a growing interest in branding and consumer behavior, there is a lack of research exploring how branding strategies affect monetary decisions. thus, this study seeks to shed light on how brand personification strategies influence financial choices, a crucial area for marketers and consumers alike. this research focuses on two main questions: first, does the type of brand anthropomorphism—collective or solo—affect monetary decisions? second, what underlying 3 factors—mediators or moderators—contribute to consumers' preferences for collective brands over solo ones? by exploring these questions, this study aims to provide insights into how branding strategies shape consumer financial behavior. to address these questions, a series of theoretically grounded hypotheses were developed and tested through two between-subject experiments conducted in the contexts of financial services (buy now, pay later) and money donation. this research focuses on the consumers within the united states for a few reasons. first, the country boasts a vast diverse consumer market representing various demographics, cultures, and preferences. conducting research in the country provides insights into a broad spectrum of consumers. moreover, the selection of the united states as the primary locus of investigation is substantiated by its status as a global leader in technological innovation, particularly evident within the area of retail and payment technologies (imd world competitiveness ranking, 2023; mckinsey & company, 2022; world intellectual property organization, 2023). given the overarching goal of this study is to investigate the dynamics underpinning consumer evaluations of collective brands in the context of financial decisions, it becomes vital to anchor these empirical analyses within a context where consumers have been exposed to an innovative payment option of buy now, pay later. buy now, pay later (bnpl) is a financial service that allows consumers to purchase goods and services and defer payment over a specified period, often without interest if payments are made within the agreed timeframe (consumer financial protection bureau, 2022). according to a survey conducted by bankrate (2022), 39% of americans reported that they have used bnpl service. fiftyfive percent of participants in the millennial age group reported that they have used bnpl and this is the larger percentage across age groups (bankrate, 2022). during the period of this research endeavor, no definitive market leader had emerged within the realm of this payment option in the country. noteworthy contenders competing in the industry included affirm, klarna, and afterpay. the research participants were recruited through the amazon mechanical turk (mturk) platform where researchers can get online crowdsourcing participants to complete tasks. strikingly, the findings remain consistent across both studies and both contexts, revealing that when monetary decisions are involved, collective brands are evaluated more positively than solo brands. the mediation analysis discovered that the underlying mechanism of the effect is possible because consumers perceive collective brands as more trustworthy. this research demonstrates the significant impact of branding on consumer monetary decisions, offering valuable theoretical insights. specifically, it highlights the role of collective brand personification in shaping consumer perceptions and behavior within financial decision-making contexts. from a practical standpoint, the findings suggest that firms can enhance their marketing effectiveness by strategically leveraging collective brand personification to foster consumer trust and loyalty. by aligning branding strategies with consumer preferences, firms can cultivate stronger emotional connections with consumers, ultimately driving purchase intent and engagement. these insights underscore the importance of a nuanced approach to brand management and have implications for both theoretical discourse and practical marketing strategies. literature review brand personification strategy in the united states, consumers are highly familiar with many brands anthropomorphized through their mascots such as the pillsbury’s doughboy, the green giant, mr. clean, and the geico gecko. brand personification or brand anthropomorphism is a human-like representation that is associated with the brand with certain human characteristics and personality (aaker,1996). this concept stems from the idea that consumers tend to anthropomorphize brands, attributing human 4 qualities to them, which can significantly influence their perceptions, attitudes, and behaviors toward those brands. this literature review aims to provide an overview of the key theoretical frameworks, empirical findings, and practical implications associated with brand personification. the theoretical foundations of brand personification came from two streams of research. first, anthropomorphism theory suggests that individuals have a natural tendency to attribute human-like qualities to non-human entities including brands. this theory forms the basis for understanding how consumers anthropomorphize brands and the psychological processes underlying this phenomenon. prior research shows that consumers’ ability to anthropomorphize a brand can be influenced by the extent to which the product is characterized by human schema such as a car with a front grill that looks like a smile (aggarwal & mcgill 2007). second, the brand personality framework posits that brands can be conceptualized in terms of personality traits, similar to how individuals are characterized (aaker, 1996). researchers have adapted various personality dimensions, such as sincerity, excitement, competence, sophistication, and ruggedness, to assess and measure brand personalities (aaker, 1996; calderón-fajardo et al, 2023; coelho et al, 2020; motoki et al., 2023). it is important to note that in the industry, brands can be anthropomorphized in various ways. some brands utilize mascots or spokespersons to embody their brand personalities, such as the geico gecko. other brands incorporate human-like features into their products, exemplified by m&m’s characters with arms, eyes, and legs. additionally, certain brands employ human language to describe or refer to their products, as seen in goodyear’s (1987 )'take me home' campaign. similarly, the extant academic literature demonstrates a wide range of methods for manipulating brand anthropomorphism. aggarwal and mcgill (2007) demonstrated that products can be anthropomorphized through the inclusion of physical characteristics, such as a smiling grille on a car. in contrast, kim and mcgill (2011) employed linguistic techniques, using human language to anthropomorphize skin cancer, referring to it as 'these criminals' and using pronouns such as 'they' and 'their' to enhance the anthropomorphic effect. reavey et al. (2018) examined varied degrees of brand humanization (overt and subtle) and found that consumers preferred subtle humanization when the ads did not use assertive language (buy now!). numerous empirical studies have demonstrated that brand personification influences consumers' perceptions of brands. brands perceived as having human-like traits are often evaluated more favorably in terms of likability, trustworthiness, credibility, and authenticity compared to brands lacking personified characteristics (aggarwal & mcgill 2012; braxton & lau-gesk 2020; delbaere et al., 2011; eskine & locander, 2014; fournier, 1998; han et al., 2021; kim & mcgill, 2011). brand personification has been shown to influence various aspects of consumer behavior, including brand preference, brand loyalty, purchase intentions, and willingness to pay premium prices (braxton & lau-gesk, 2020; fournier, 1998). consumers tend to form emotional connections with personified brands, leading to stronger brand attachments and increased purchase likelihood. prior research has also shown that brand personification can affect risk perceptions and behaviors. specifically, an anthropomorphized slot machine increased liking among their research participants (kim & mcgill, 2011). chandler & schwarz (2010) show that when consumers have humanized their car brands, they are less likely to replace them and put less importance on the quality when making a replacement decision. hence, anthropomorphized brands appear to gain brand loyalty and have stronger relationships with their consumers. brand personification has been found to increase involvement with a non-profit organization (stinnett et al., 2013) and changes in behavioral intentions (aggarwal & mcgill, 2012). the work of aggarwal and mcgill (2012) also demonstrated that brand personification can have a social role (e.g., partner, servant, leader) and consumers respond to various social roles differently. more recently, rai et al. (2022) extended the literature on social roles by establishing that anthropomorphized brand roles can influence goal-directed consumers differently depending on how far along they are in the goal-pursuit journey. recent work 5 by zhang et al. (2020) revealed that brand position (distinctiveness vs. popularity) moderates the effect of brand personification on consumers’ brand attitudes. in general, these studies found a positive effect of brand personification. however, one very interesting finding from the work of puzakova and kwak (2023) found that when a brand anthropomorphized into multiple entities (anthropomorphized collective brand), the strategy led to a decrease in advertising effectiveness. as a result, it appears that not all brand personification strategies are equal, and these conflicting results shed light on the importance of understanding how variations of brand personification shape consumer’s responses to the brands. collective vs. solo brand anthropomorphism marketing practitioners frequently endeavor to construct perceptions of their brands as humanlike entities, either as individuals (e.g. tony, the tiger) or collectives (e.g. m&m brand characters, coca-cola’s polar bears, kellogg’s rice krispies, and belgian boys’ waffles and pancakes). however, the topic of solo vs. collective anthropomorphized brands has only been recently examined. prior research studies can serve as a foundation for the predictions that consumers should vary in their reactions to individual brand entities vs. collective brand entities. for example, scholars found that collective and dyadic relationships are primarily distinguished by differences in relationship closeness and intimacy (hoza et al., 2000; williams, 2010). puzakova and kwak (2023) have contributed significantly to our understanding of anthropomorphized brands by introducing the concept of collective anthropomorphized brands. these brands go beyond the traditional notion of a singular anthropomorphized entity and instead incorporate cues from multiple brand entities, creating a perception of a collective presence. this novel approach suggests that consumers can develop relationships not just with individual brand characters but with a broader collective of brand personalities. in contrast to anthropomorphized solo brands, where the focus is on a single character representing the brand, collective brands offer consumers the opportunity to engage with a diverse array of brand personalities. this shift in perspective opens new avenues for consumer-brand interaction and relationship building. the research conducted by puzakova and kwak (2023) involved four studies, employing both fictitious and real-world brands in the food and furniture categories within the united states. their findings revealed an intriguing gender difference in how participants evaluated collective brands. female participants tended to view these brands less favorably than solo brands, driven by their expectation of greater relationship closeness with the brand. this suggests that women may have different preferences or expectations when it comes to brand relationships compared to men. building upon this insightful discovery, the current research aims to delve deeper into the implications of these two variations of brand personification on consumer decision-making processes, particularly concerning financial choices. by exploring how individuals respond to collective versus solo anthropomorphized brands in the context of monetary decisions, we can gain further insights into the psychological mechanisms underlying consumer-brand interactions. understanding the impact of brand personification on consumer behavior is crucial for marketers seeking to enhance brand engagement and loyalty. by examining the nuances of collective anthropomorphized brands and their effects on consumer decision-making, this research contributes to a more comprehensive understanding of branding strategies in today's market landscape. consumer monetary decision-making the realm of monetary decision-making within consumer behavior literature encompasses a wide array of topics, reflecting the multifaceted nature of financial choices individuals make in their daily lives. scholars have explored various aspects such as consumer spending patterns (kurt et al., 2011; fornell et al., 2010), borrowing behaviors (hirst et al., 1994), saving habits (durante & laran, 2016; 6 loibl & scharff, 2010), and the purchase of financial products (howcroft et al., 2007; dogra & kaushal, 2022). additionally, research has delved into areas such as donation and charity contributions (white & peloza, 2009; xu et al., 2022), illustrating the breadth of financial decisions studied within consumer behavior literature. within this extensive body of literature, various factors have been identified as influential in shaping individuals' monetary decisions. for instance, education levels have been linked to financial decision-making processes, with studies highlighting the impact of education on financial literacy and decision outcomes (estelami, 2009; williams, 2007). furthermore, the framing of choices has been shown to significantly influence decision outcomes, with different presentations of information leading to varying decision preferences (petersen et al., 2015). moreover, the disclosure of information regarding financial products or decisions can impact consumer perceptions and subsequent choices (adams et al., 2021). despite the breadth of research in this area, there remains a notable gap concerning the intersection of branding strategies and consumer monetary decision-making processes. the present research seeks to address this gap by examining how branding strategies, specifically the anthropomorphization of brands, influence consumer decisions related to money in two distinct contexts: financial services and charitable donations. by uncovering the impact of brand personification on financial decision-making processes, this research aims to provide valuable insights for marketing practitioners seeking to optimize branding strategies for financial products and philanthropic initiatives. moreover, understanding the mechanisms underlying consumer financial decision-making not only benefits marketers but also holds implications for consumer welfare more broadly. hypothesis development the primary research inquiry pertains to whether or not the utilization of brand personification strategies, specifically contrasting collective versus solo brand representations, elucidates the variance observed in monetary decision-making processes. while extant scholarship has previously illuminated potential drawbacks associated with collective brand personification, positing a decrement in advertising efficacy (puzakova & kwak, 2023), the present investigation posits a divergent perspective. specifically, it is hypothesized that within the context of monetary decisionmaking, collective brand personification may engender more favorable evaluations and heightened effectiveness compared to solo brand counterparts. this proposition is underpinned by a few unique characteristics of monetary decisions. firstly, financial decisions often exhibit a higher degree of irrevocability and permanence. unlike many consumer goods, which can be returned or exchanged if deemed unsatisfactory, financial transactions are often irreversible, with limited avenues for recourse in the event of unfavorable outcomes. for instance, once an investment is made or a financial product is selected, reversing, or undoing that decision may not be feasible or may come at a significant cost. second, financial decisions often have long-term implications that transcend the immediate transaction. choices such as spending, budgeting, retirement planning, investment allocation, or mortgage selection can shape one's financial trajectory and lifestyle over extended time horizons. consequently, the evaluation of financial options necessitates a forward-looking perspective and an awareness of how decisions made today may reverberate across years or decades. moreover, there is evidence from the branding literature that suggests that collective brand entities tend to be perceived more favorably. first, research on co-branding and brand alliances provides substantial evidence that consumers often prefer collective brand entities. co-branding involves the collaboration of two or more brands to create a combined product or service, which can enhance consumer perceptions of quality and trust. a systematic literature review by pinello et al. (2022) highlights that co-branding alliances can lead to positive spillover effects, where the 7 strengths of each brand reinforce the overall perception of the collective brand entity. research by washburn et al. (2000) indicates that brand alliances can enhance brand equity by leveraging the strengths and reputations of the involved brands. this can lead to increased consumer preference for the collective brand entity, as the combined brand equity is perceived to be greater than the sum of its parts. similarly, the concept of social proof, as discussed by cialdini (2009), suggests that individuals look to the behavior and opinions of others to guide their own actions, especially in uncertain situations. when multiple brands endorse a product or service, it creates a sense of consensus, which can enhance consumer trust and preference for the collective brand entity. hence, the first hypothesis is: h1: consumers will develop greater preferences for a collective-anthropomorphized (versus a solo anthropomorphized) brand when making monetary decisions. furthermore, a growing body of literature underscores the pivotal role of consumer trust in driving the adoption and sustained utilization of financial products and services. empirical investigations have delineated how trust exerts a palpable influence on various facets of financial behavior, spanning the continued engagement with online financial platforms (pi et al., 2012), the propensity to embrace novel banking offerings and the uptake of islamic banking services within predominantly muslim societies (ashraf et al., 2015). notably, the establishment and maintenance of consumer trust emerge as quintessential determinants shaping the contours of contemporary financial landscapes. this research inquiry pivots on a central concern: discerning consumers' perceptions regarding the relative trustworthiness of collective versus solo brand personifications. institutional theory suggests that consumers trust institutions more than individuals due to perceived stability, expertise, and accountability. multiple brand entities reinforce this perception. moreover, the work by ingenhoff and sommer (2010) sheds light on this issue by demonstrating a propensity among consumers to ascribe greater trust to corporate entities than to individual ceos. one potential explanation for this phenomenon is that individuals, particularly high-profile figures such as ceos, are often perceived as being more vulnerable to scrutiny and are judged more rigorously across various dimensions, such as competence, benevolence, and integrity. in contrast, corporate entities, by their collective identity, may appear more stable and less prone to the biases or idiosyncrasies of individual behavior, thereby fostering greater trust. beyond the research in organizational behavior, social psychology offers additional valuable insights, indicating that group-based entities are often viewed as more trustworthy than individuals in various contexts. studies conducted by isenberg (1986) and myers and lamm (1976) demonstrate that groups tend to make more extreme and confident decisions, which can enhance credibility and perceived expertise in financial and organizational decision-making contexts. this phenomenon highlights the significance of collective decision-making in shaping trust and confidence. consistent with the notion of risk reduction through collective entities, bauer (1960) posits that consumers perceive diminished risk when entrusting collective groups, as the risk is dispersed among multiple entities. this phenomenon is echoed in online marketplaces, where consumers exhibit heightened trust in platforms featuring multiple sellers, such as yelp and tripadvisor (kim et al., 2018). furthermore, research indicates that collective ratings and reviews foster consumer trust, as evidenced by fang et al. (2019). analogously, within the context of brand personification, it is plausible to hypothesize that anthropomorphized solo brands may be understood as less intrinsically trustworthy relative to their 8 collective counterparts. building on these insights, this study aims to investigate these assumptions empirically through the development of the following hypothesis. h2: consumers will perceive greater trust for a collective-anthropomorphized (versus a soloanthropomorphized brand). extensive research has demonstrated that trust serves as a mediator in various aspects of consumer behavior. for instance, chaudhuri and holbrook (2001) found that trust mediates the relationship between brand affect—consumers’ emotional responses to a brand—and brand loyalty, which is the likelihood of consumers repeatedly purchasing the same brand. similarly, delgadoballester and munuera-aleman (2005) identified that trust mediates the impact of brand personality on both brand loyalty and consumer satisfaction. building on this body of literature, the present study hypothesizes that: h3: brandttrust mediates the effect of the types of brand personification on brand evaluation. figure 1 theoretical model: the mediating role of brand trust method and results study 1 to test the hypotheses outlined, two distinct studies were conducted. the first experiment was designed specifically to examine h1, which posits the primary effect of collectiveanthropomorphized branding on consumer preference. this experiment employed a manipulation of brand conditions to observe participant responses. a total of eighty participants were recruited through amazon mechanical turk (mturk) and subsequently randomly assigned to one of two distinct conditions of brand personification: collective brand or solo brand. within these conditions, participants were presented with information regarding a novel buy now pay later (bnpl) service named "thereafter," purportedly available at prominent retailers such as walmart, target, sephora, and amazon across the united states. the fictitious "thereafter" service was described as being accessible to any consumer who made a minimum purchase of $100 within the network of affiliated retailers. participants were then prompted to indicate their likelihood of utilizing the "thereafter" bnpl service as their preferred payment method. each participant was exposed to either a collective brand representation (depicted by an icon featuring three individuals) or a solo brand h3 h2 branding strategy (collective vs. solo) brand trust adoption/donation likelihood h1 9 representation (featuring a single individual). visual representations of these brand conditions were included in the appendix provided to participants for reference during the study. the measures used in this experiment are adapted from prior literature (puzakova and kwak 2023). manipulation check questions asked the participants to answer the question “the logo of thereafter shows ____” (a person vs. a team) and “you think of thereafter as___” (a person vs. a team). then participants report their previous experience related to the bnpl service. then they reported their intention to adopt thereafter, their likelihood to recommend it to others, and their perception of the brand on multiple dimensions (e.g., trust, warmth, competence). the last section asked for demographic information and included gender, age, and income. the key measures are listed in the appendix. the final subject pool consists of 52% male and 48% female participants. the average age is 37 years old. more than half of the participants reported their household income to fall in the range of 55,000 – 99,000 us dollars. to check whether the brand conditions were successfully manipulated, participants were asked to identify the brand condition they were in, and the results show that all participants were able to do so correctly. brand preference (adoption likelihood) to test the first hypothesis, which proposes that participants in the collective brand condition should report stronger brand preference than those in the solo brand condition, an independentsample t-test was performed using the likelihood of using the bnpl service as a dependent variable. the results show that consistent with the hypothesis, those in the collective brand condition reported a greater likelihood to use thereafter than those in the solo brand condition (mcollective = 4.10 vs. msolo = 3.20, t = 4.45, p <.01). in other words, there is a significant main effect of branding strategy on the brand preference, so the first hypothesis was supported. additionally, puzakova and kwak (2023) found a significant interaction between gender and solo vs. collective branding strategy. a similar analysis was conducted in this study to examine such effect of gender. the results of proc glm (similar to anova) showed that there is no significant main effect of gender on brand preference (p >.05) and the interaction effect of gender x branding strategy is also not significant (p > .05). no significant gender differences were observed across all analyses. therefore, gender is not discussed further in the paper as it was not found to be a meaningful factor in this study. word of mouth to test the strength of the brand preference, a similar analysis was conducted on another dependent variable, the likelihood of telling others about the brand. the results are consistent with the earlier findings. specifically, participants in the collective brand condition reported greater likelihood than those in the solo brand condition ((mcollective = 4.30 vs. msolo = 2.40, t = 7.89, p <.01). hence, the findings are robust across the two dependent variables. study 1 provided compelling evidence supporting the primary hypothesis (h1) regarding the impact of collectiveanthropomorphized branding strategies on consumer preference within a specific context of monetary decision-making. however, the generalizability of these findings to broader consumer behaviors and diverse populations remained an area of inquiry, prompting the design and execution of study 2. 10 figure 2 mean scores across brand conditions in study 1 study 2 the objectives of study 2 are i) to replicate the results of study 1, ii) to test h1 in a different context of monetary decision: charity donation, and iii) to investigate the underlying mediating role of trust as hypothesized in figure 1. similar to study 1, a total of 78 research participants from mturk were invited to participate in a brand study where they were exposed to one of the two brand personification conditions, collective vs. solo brand condition. they read information about an opportunity to donate money to “children’s dream” (or “child’s dream”) a non-profit organization focusing on child and youth charity as prior research found that this type of charity sector is the most recognizable by general consumers (michaelidou et al., 2015). in each scenario, the participant saw either a collective vs. solo brand (an icon of three men vs. a man and an icon of children vs. a child) as shown in the appendix. consistent with study 1, they reported their likelihood to donate money, likelihood to donate their time, brand trust, warmth, and competence. then they proceeded to report their demographic information before being dismissed. the subject pool consists of 53% female and 47% male participants, and the average age is 37.97 years old. sixty percent of the participants reported their household income to fall in the range of 55,000 – 99,000 us dollars. overall, the demographic characteristics of participants are very similar to those of study 1. the manipulation check reveals that all participants correctly identified the branding condition in which they were. two participants were dropped from the analysis due to excessive missing values. brand preference (money donation likelihood) an independent-sample t-test reveals that h1 was supported. specifically, the participants in the collective brand condition reported a higher likelihood of donating money to this fictitious organization than those in the solo brand condition (mcollective = 4.22 vs. msolo = 3.12, t = 6.26, p <.01). consequently, this result establishes the possibility of the generalization of the main effect of collective branding strategy outside the financial service context. 4.1 4.3 3.2 2.4 0 1 2 3 4 5 mean adoption likelihood mean wom likelihood collective brand solo brand 11 brand preference (time donation likelihood) consistent with the money donation, the analysis of the time donation shows consistent results. specifically, the participants in the collective brand condition are more willing to donate their time to this organization than those in the solo brand condition (mcollective = 3.83 vs. msolo = 3.02, t = 3.26, p <.01). hence, h1 was again supported. brand trust a similar t-test shows a significant difference in brand trust across the two branding conditions. specifically, as hypothesized in h2, participants in the collective brand condition reported greater trust (mcollective = 4.16 vs. msolo = 3.06, t = 6.65, p <.01). figure 3 mean scores across brand conditions in study 2 mediation analysis the mediation analysis conducted in this study, following the three-step mediation test proposed by baron and kenny (1986), offers valuable insights into the underlying mechanisms of brand trust as delineated in figure 1 and hypothesis h3. this rigorous analytical approach enables a comprehensive examination of the mediating role of brand trust in the relationship between branding strategy and donation likelihood. in the first step of the mediation analysis, a regression analysis was conducted to ascertain the main effect of branding strategy on brand preference, operationalized as donation likelihood in this study. the results of this initial regression model reveal a significant main effect of branding strategy on brand preference, as evidenced by the regression coefficient displayed in figure 4 (path c). this finding provides empirical support for the notion that branding strategy plays a substantive role in shaping consumer preferences and behavioral intentions regarding donation likelihood. moving to the second step of the mediation analysis, a separate regression model was employed to assess the influence of branding strategy on brand trust (path a). consistent with theoretical expectations, the results of this regression model demonstrate a significant effect of branding 4.22 3.83 4.16 3.12 3.02 3.06 0 1 2 3 4 5 money donation likelihood time donation likelihood trust collective brand solo brand 12 strategy on brand trust, thereby confirming the hypothesized relationship between these constructs. this finding underscores the importance of branding strategies in engendering consumer trust and confidence in the brand, which, in turn, can have significant implications for consumer behavior and decision-making processes. in the final step of the mediation analysis, a regression model incorporating both branding strategy and brand trust as independent variables was constructed to evaluate the mediating role of brand trust in the relationship between branding strategy and donation likelihood. the results of this mediation model reveal that brand trust fully mediates the effect of branding strategy on donation likelihood, as evidenced by the attenuation of the direct effect of branding strategy (path c') and the persistence of a significant indirect effect through brand trust (path b). this finding provides compelling empirical evidence in support of hypothesis h3, confirming that brand trust serves as a crucial mechanism through which branding strategy influences consumer preferences and behavioral intentions regarding donation likelihood. overall, the results of the mediation analysis offer robust empirical support for the hypothesized relationships outlined in the conceptual framework. figure 4 mediation analysis study 2 builds upon the framework established in study 1, aiming to uncover the mechanisms driving consumer evaluations of collective brands in monetary decision-making. through mediation analysis, it validates the main theoretical prediction that collective brands evoke greater trust, thereby influencing positive evaluations in monetary decisions. additionally, study 2 replicates these effects in the donation context, enhancing the external validity of the findings. these results contribute to both theoretical understanding and practical marketing strategies, emphasizing the importance of collective branding in fostering consumer trust and influencing decision-making processes. discussion the exploration of collective anthropomorphic branding and its impact on consumer behavior spans two distinct studies, each highlighting unique contexts of monetary decision-making and drawing from diverse subject pools. through these investigations, compelling evidence emerges showcasing the potential of collective anthropomorphic brand appeals to significantly influence various facets of consumer brand evaluation, adoption or donation decisions, and the inclination towards word-of-mouth advocacy. this research represents a notable departure from previous studies, such as the work conducted by puzakova and kwak (2023), which suggested that collective brands may be less effective than their solo counterparts. contrary to this prior finding, the current research underscores the efficacy of collective anthropomorphic branding, particularly within the realm of monetary decision-making. in the context of financial choices, consumers exhibit an increased tendency towards factors of trust and reliability. collective anthropomorphic brands, characterized by their representation path b: β = .50, p <.01 path a: β = 1.10, p <.01 branding strategy (collective vs. solo) brand trust adoption/donation likelihood path c: β = 1.09, p <.01 path c’: β = .54, p >.05 13 through multiple personified entities, appear to convey a sense of communal reliability and credibility to consumers. this perception of trustworthiness associated with collective branding likely contributes to the observed positive impact on consumer brand evaluation and decisionmaking. moreover, this research reveals the mediating role of trust in shaping consumer perceptions toward anthropomorphized brands. the degree of trust placed in a brand significantly influences how consumers evaluate and engage with the brand, particularly in scenarios involving monetary decisions. by illuminating the underlying mechanisms through which trust mediates the relationship between collective anthropomorphic branding and consumer responses, this research advances our understanding of the intricate dynamics at play within the domain of brand-person interactions. conclusion the research findings offer significant theoretical implications for marketers and scholars by discovering the important linkage between collective branding strategy, perceived trust, and subsequent brand evaluation. this work contributes to the broader body of literature on brand anthropomorphism by demonstrating the positive impact of collective branding strategies within specific contextual settings. moving forward, future research avenues may explore the role of brand trust and collective branding strategy across diverse monetary contexts, such as gambling or financial borrowing/lending decisions. by extending the investigation beyond the current scope, scholars can gain deeper insights into the nuanced dynamics governing consumer behaviors across various financial domains. moreover, the managerial implications of the current findings are noteworthy for marketing practitioners operating within the industry. despite the growing adoption of brand anthropomorphism techniques to enhance marketing effectiveness, this research underscores the importance of considering variations in the type of brand anthropomorphism employed, particularly in the context of decision-making scenarios. understanding how different forms of anthropomorphism may impact brand evaluation can inform more nuanced and contextually sensitive branding strategies, thereby enhancing the effectiveness of marketing efforts. furthermore, future research efforts may seek to extend the current study by investigating the effects of collective versus solo branding on key marketing metrics, including brand loyalty, repeat purchase behavior, brand switching tendencies, and consumers' willingness to pay premium prices for preferred brands. by examining these outcomes, scholars can gain deeper insights into the longterm implications of branding strategies on consumer-brand relationships and purchase behavior. additionally, the topic holds the potential for extension into cross-cultural contexts, where researchers can explore how collective versus solo branding strategies interact with cultural dimensions such as collectivism versus individualism. by examining these dynamics across diverse cultural contexts, scholars can shed light on the complex interplay between branding strategies and cultural influences on consumer behavior. for policymakers, the research findings carry profound implications for the design and implementation of public policy campaigns aimed at promoting various societal objectives, ranging from encouraging charity donations to enhancing financial literacy and regulating financial products. by gaining insights into how collective brands influence perceived trust among consumers, policymakers can tailor their campaigns to capitalize on the potential benefits of collective branding strategies, thereby enhancing the effectiveness and impact of their initiatives. in sum, these research avenues offer promising opportunities for scholars to deepen their understanding of the multifaceted dynamics between branding strategies and consumer spending behavior in today's complex marketplace, thereby 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(2020). the effect of brand anthropomorphism, brand distinctiveness, and warmth on brand attitude: a mediated moderation model. journal of consumer behavior, 19(5), 523-536. appendix bnpl solo brand condition thereafter thereafter is the latest buy now pay later service available through various big retailers. thereafter is a smart way to pay over time with no late fees or hidden fees so you can get things you love without breaking your budget. thereafter allows you to pay in 4 simple payments every two weeks. shop at your favorite online or in-store merchants with thereafter. you will see thereafter logo at the checkout or you can request a virtual card in our app. unlike credit cards, thereafter does not impact your credit score and you will never owe more than what you agree to upfront. payments are made simpler with thereafter. bnpl collective brand condition thereafter thereafter is the latest buy now pay later service available through various big retailers. thereafter is a smart way to pay over time with no late fees or hidden fees so you can get things you love without breaking your budget. thereafter allows you to pay in 4 simple payments every two weeks. shop at your favorite online or in-store merchants with thereafter. you will see thereafter $ $ $ $ 18 logo at the checkout or you can request a virtual card in our app. unlike credit cards, thereafter does not impact your credit score and you will never owe more than what you agree to upfront. payments are made simpler with thereafter. money donation solo brand condition every child needs a safe, nurturing place to call home, and the chance to achieve its potential through education. sadly, not every child is so fortunate. child’s dream has cared for orphans and vulnerable children around the world since 1965. the organization helps the most desperate children—orphans, unwanted girls, abandoned or abused children, and children with hiv/aids. your donation will go towards: 1. scholarships to promising students who cannot afford higher education. with your help, a student can earn a degree and break the cycle of poverty. 2. funds for home improvement focusing on toilets, clean water, beds with mosquito nets, libraries, and playground equipment. 3. vulnerable children rescued from human trafficking, exploitation, and illegal child marriage. you can change a child’s life forever. money donation collective brand condition every child needs a safe, nurturing place to call home, and the chance to achieve its potential through education. sadly, not every child is so fortunate. children’s dream has cared for orphans and vulnerable children around the world since 1965. the organization helps the most desperate ♥♥♥ children’s dream ♥♥♥ ♥♥♥ child’s dream ♥♥♥ 19 children—orphans, unwanted girls, abandoned or abused children, and children with hiv/aids. your donation will go towards: 1. scholarships to promising students who cannot afford higher education. with your help, a student can earn a degree and break the cycle of poverty. 2. funds for home improvement focusing on toilets, clean water, beds with mosquito nets, libraries, and playground equipment. 3. vulnerable children rescued from human trafficking, exploitation, and illegal child marriage. you can change a child’s life forever. measures adoption likelihood (study 1) how likely are you to choose thereafter as your payment method? 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(1 = extremely unlikely, 5 = extremely likely) 1 emotional intelligence: comparative analysis of accounting and non-accounting business majors at two universities anna carol lampe rockhurst university barbara burgess-wilkinson winthrop university steven a. frankforter winthrop university jayne d. maas winthrop university success in accounting has long been associated with completing technical tasks as opposed to cultivating relationships. in 1999, the aicpa core competency framework was adopted and expanded professional competencies to include not only functional competencies but personal and broad-based business competencies. personal competencies include intrapersonal and interpersonal skills, comprising a range of behaviors collectively grouped as emotional intelligence. this study examines the emotional intelligence (“ei”) of 609 business school students at 2 different universities (university a and b), using tti’s emotional quotient (tti) inventory report. the groups were segregated into accounting and non-accounting groups and comparative t-tests were conducted. the results were significant, confirming our hypotheses that the ei of accounting students at universities a and b, separately and combined, were lower than the ei scores of non-accounting business majors. introduction traditionally, accounting programs have taken the view that cognitive skills (i.e., technical accounting knowledge) are the most important attributes for accounting graduates to acquire and achieve success throughout their professional accounting careers. in the late 1980s, the professional paradigm shifted; stakeholders began to exert significant pressure for changes in accounting education to emphasize other skills and attributes such as interpersonal/relationship-building (soft skills). http://journals.sfu.ca/abr 2022, volume 12, pages 1-12 http://journals.sfu.ca/abr 2 (american accounting association, 1986; kullberg, et al.,1989; accounting education change commission,1990) over time, a broad set of skill-based competencies has begun to develop out of this mandate. in 1998, the american institute of certified public accountants (aicpa) launched the aicpa vision project (aicpa, 1998). out of this process, the aicpa developed the core competencies framework (aicpa, 1999) in concert with academic partners. this framework represents a tall order for entry-level core competencies and professional success in accounting a broad range of functional, broad-business, and personal competencies still intact today. technical competencies most closely align with the task-oriented skills and value contributed by accounting professionals, such as decision modeling, risk analysis, measurement, reporting, and research. broad business competencies relate to the context in which accounting professionals perform their services such as strategic/critical thinking, industry/sector and international/global sector, resource management, legal/regulatory perspective, and marketing/client focus. personal competencies, most relevant to this paper, include one’s behaviors, attitudes, and professional demeanor, as well as problem-solving and decision-making, interaction, leadership, communication, and project management. emotional intelligence is a pivotal component of the aicpa core competency framework (1999) because personal competencies include behaviors and attributes that control and regulate one’s emotions to act in appropriate ways in the professional workplace. despite calls by many constituencies to change accounting education to incorporate more personal competencies (soft skills like emotional intelligence), academia has been slow to respond. mcphail (2004) observed that accounting educators had not significantly assisted in the development of emotional intelligence among accounting students: “…all accounting and business problems could be construed as being resolved on arriving at a particular emotional state. however, while accounting education generally provides students with help in exploring the analytical and perhaps even the critical elements of business decisions, it fails to develop the kind of emotional competencies that would enable students to engage in a more emotional way with these problems” (p. 634) salovey and mayer’s (1990) study of social (non-cognitive) intelligence presented a framework for emotional intelligence (ei), which was based on the ability to regulate one’s emotions and accurately monitor others’ emotions. the authors defined ei as “a form of social intelligence that involves the ability to monitor one’s own and other's feelings and emotions, to discriminate among them, and to use this information to guide one’s thinking and action” (p185). in a previous study, goleman (1995) examined the relationship between traditional cognitive iq tests and success in the workplace, finding that iq by itself was not a good predictor of job performance. goleman found that ei is a more important determinant of management success (including accounting professionals) than technical expertise or cognitive ability. cherniss and adler (2000) found that ei was critical for effective work performance across several business-related fields. likewise, several studies indicate a positive correlation between ei and academic success among college students. lam and kirby (2002) found that ei accounts for increases in individual cognitive-based performance above the level attributed to general intelligence in three of the four emotional intelligence subscales: overall ei, perceiving emotions, and regulating emotions. burgesswilkerson et. al. (2012) analyzed ei in an academic setting and found that ei scores can improve as a result of academic interventions. in addition, research indicates that millennials have been coached most of their lives and are very amenable to coaching as a workforce readiness strategy at the collegiate level (wright, 2015). in this study, we conduct a comparative analysis of ei among accounting and non-accounting business majors at two four-year universities in the united states. this research adds to the current 3 literature by evaluating the emotional intelligence of accounting and non-accounting business students using the tti inventory, a validated instrument for which results have not been previously reported. to address the concern that student data may be weak and lack external validity, the study used two different universities. we begin with a brief review of the literature regarding ei and its application to accounting. this is followed by a discussion of the design and results of the study. we conclude with a summary and discussion, including suggestions for future research. literature review emotional intelligence emotional intelligence (ei) is a construct that involves the awareness and expression of emotions experienced by oneself and others, as well as the ability to understand and regulate such emotions. thorndike and stein (1937) first reported the concept of “social intelligence” as the ability to understand and manage people to act wisely in human relations. he did not believe people were born socially intelligent. wechsler (1940) fought for the addition of “non-intellective aspects” as a measure of general intelligence. wechsler believed that factors other than intellectual ability are involved in intelligent behavior. his philosophy was that intelligence is the global capacity to act purposefully and deal with one’s environment. likewise, leeper (1948) purported that “emotional thought” should be considered when reviewing the concept of “logical thought”. he believed that “emotional thought” was a part of “logical thought” and emotional processes of all sorts are organized in their influence and should be studied as an aspect of the motivation of higher animals. however, it was not until the 1980s that the current concepts related to emotional intelligence started to emerge. gardner (1983) shared a theory of multiple intelligences that encouraged researchers to step outside the notion that human beings are confined to a singular or plural view of intelligence, observing that higher education primarily emphasized language intelligence and logical-mathematical intelligence. he concluded that five other types of intelligence were equally important to collective human intelligence and could be grouped as interpersonal and intrapersonal intelligence. interpersonal intelligence focuses on external events and involves the recognition and evaluation of feelings in others. intrapersonal intelligence, on the other hand, focuses on the self and one’s ability to recognize and evaluate his or her own feelings. within these multiple levels of intelligence, a movement evolved that expanded interpersonal and intrapersonal intelligence. salovey and mayer (1990) coined the term “emotional quotient” and later defined it as a type of social intelligence that involves the ability to monitor one’s own and others’ emotions, discriminate among them, and use that information to guide one’s thinking and actions. both intrapersonal and interpersonal intelligence are theorized to be a large portion of what mayer et al (2000) define as emotional intelligence (ei). bar-on (2005) argued that the multiplicity of definitions from gardner’s approach added layers of confusion and complexity as to the best approach, definition, and measure of emotional and social intelligence. as a result, some researchers (goleman, 1998; mayer & salovey, 1997) named this construct "emotional intelligence" while bar-on (1997) chose the term “emotional and social intelligence” thereby formalizing the concept of emotional-social intelligence (esi) in 2005. for this study, we use the term emotional intelligence (ei) as defined by salovey and mayer (1997), and includes the ability to understand and regulate one’s emotions and the emotions of others. emotional intelligence and accounting goleman (1995) argued early on that ei was capable of being taught in the same way as other traditional cognitive intelligence skills. in 2002, goleman focused his attention on accounting and examined the impact of ei attributes (self-management and social skills) on the ability of partners to 4 add profitability in a large public accounting firm. goleman observed that partners with strong social skills added 100 percent more than those with only self-management skills and that partners who had significant self-management skills contributed 78 percent more in incremental profits than partners who did not have such skills. the theme emerged that ei was related to professional success in accounting. likewise, goleman et al. (2002) found that partners in a large public accounting firm achieved a 390 percent incremental annual profit when strong self-management and social skills existed. akers and porter (2003) further validated what goleman had observed earlier: professional accountants performed better if self-awareness, self-regulation, motivation, empathy, and social skills were developed. later studies followed this same line of research: interpersonal and communication skills were significant in partner promotions (blanthorne et. al., 2005); accountants must understand emotions and be capable of working with individuals from all walks of life (jones & sin, 2003); intrapersonal/communication skills are valued by accounting stakeholders (ashiabor et. al., 2006); employers value ei among accounting professionals (manna et. al, 2009); accounting majors with the ability to connect their emotions to solve problems and manage stressful tasks do better in job interviews (chia, 2005); and accountants need a combination of ei and generic skills (daff et. al, 2012). few comparative ei studies of accounting and non-accounting majors exist. bay and mckeage (2006) conducted a comparative study of ei among 47 accounting and 54 marketing students in two junior-level courses using the mayer-salovey-caruso emotional intelligence test (msceit) (mayer et. al., 2002). the msceit is an ability-based test designed to measure the four scales of ei. the results revealed that the accounting students and marketing students scored 93.7 and 86.3, respectively, on aggregate ei. although accounting students performed better, scores of 90 -100 were perceived as low average scores for ei under the msceit test guidelines meaning both groups performed poorly. esmond-kiger et. al. (2006) evaluated accounting versus non-business accounting students in one university setting, using the weisinger emotional intelligence instrument. the weisinger instrument is modeled after salovey and mayer’s theoretical building blocks of emotional intelligence. of the 460 students that participated in the study, 281 were identified as accounting majors. the study found that the ei scores of accounting students were significantly lower than their non-business counterparts even though their gpas were higher. cook, et. al. (2011), on the other hand, evaluated the ei of 430 students representing a broader cross-section of firstand fourth-year accounting and liberal arts students at three different universities (us, canada, south africa). the msceit and levenson’s self-report psychopathy (lsrp) iii instruments were used. levenson self-report psychopathy scale is a test of sociopathy. psychopathy is a personality disorder characterized by a lack of empathy for others. the measure consists of two scales: primary psychopathy (psychopathic emotional affect) and secondary psychopathy (psychopathic lifestyle). the test consists of twenty-six statements that could apply to the individual. the findings revealed that the average ei score of fourth-year students (seniors) did not exceed that of the first-year students (freshmen) and the ei levels for both cohort groups were less than average. no evidence existed that a university education increased the level of ei in students, implying a student is not guaranteed to be more emotionally mature upon graduation regardless of the field of study. similar findings showed no increase in ei scores from the firstto fourth-year liberal arts majors and accounting majors. purpose of the study the purpose of this study is to conduct a comparative analysis of emotional intelligence among accounting and non-accounting students at two universities with contrasting business programs, missions, and visions, as well as populations. of interest is the extent to which the emotional 5 intelligence test scores will vary among accounting and non-accounting business majors from these universities, identified as university a and university b. the tti emotional quotient (tti), a validated ei instrument, is used as the measurement tool. we predict that business students majoring in accounting will exhibit lower aggregate ei scores than non-accounting business majors. a limitation of the study existed in selecting a target population at a single institution that may have low or negligible external validity due to sample size and representation. to address this issue, we extended our research to include accounting and nonaccounting business majors at two different four-year institutions. we predict that business students majoring in accounting will score lower in ei than other non-accounting business students, and these results will be true at university a, university b, and in total. therefore, this study’s hypotheses are set forth as follows: h1a aggregate ei test scores among accounting major students at university a will be lower than ei test scores for other non-accounting business students. h1b aggregate ei test scores among accounting major students at university b will be lower than ei test scores for other non-accounting business students. h1c aggregate ei test scores combined, for both universities a and b, will be lower than ei test scores for other non-accounting business students. design participants the research population consists of 609 students at two four-year institutions: university a and b. both universities are in the united states and are accredited by the association to advance collegiate schools of business (aacsb). university a is a public, coeducational, liberal arts university in the southeast and is recognized by a national foundation as a university that "encourages character development." the values of service, excellence, diversity, community, and leadership have shaped university a’s successes and supported its development. there are 42 undergraduate and 26 graduate degree programs available to over 6,000 students. business school students major in business administration, with concentrations available in accounting, economics, finance, international business, marketing, management, and computer science. a liberal arts core is the foundation for all degree programs. the business school has approximately 1,000 undergraduate students of which approximately 200 are declared accounting majors. there is a 14:1 student-to-faculty ratio, an average size of 24 for undergraduate lecture classes, and all classes are taught by faculty. 75% of full-time faculty hold the highest degree in their field. university b is a private jesuit university in the midwest. the jesuits’ shared goal is to provide an excellent education that develops competent, compassionate, and committed leaders through a value-centered education. together, jesuits and professors embrace the contributions of other religious and ethical traditions because they complement the catholic intellectual tradition of social thought and service. the university is about half the size of university a, serving approximately 3,000 students on its campus but offering 50 undergraduate and graduate programs. the business school has approximately 375 undergraduate students of which 100 are declared accounting majors. business school students major in business administration, with concentrations available in accounting, economics, finance, international business, marketing, and management. a liberal arts core is the foundation for all degree programs. university b has a 12:1 student-to-faculty ratio, an average size of http://en.wikipedia.org/wiki/public_university http://en.wikipedia.org/wiki/coeducational http://en.wikipedia.org/wiki/liberal_arts 6 24 for undergraduate lecture classes, and all classes are taught by faculty. 92% of full-time faculty hold the highest degree in their field. tti’s emotional quotient (tti) the tti emotional quotient assessment is based upon a multidimensional perspective of emotional intelligence, developed by tti success insights company. the emotional intelligence item bank is based upon the goleman (1995) model of emotional intelligence. the tti assessment provides an overall emotional intelligence quotient (eq) score, an intrapersonal intelligence score, an interpersonal intelligence score, scores on five components of eq, and five personality factors. the tti has 57 questions and requires approximately 10 minutes for the completion of the online self-assessment. it has two components and five subcomponents. the questions use a five-point likert scale. the first component, interpersonal, includes self-awareness, self-regulation, and motivation. the second component, intrapersonal, includes social skills and empathy. the five subcomponents are combined into a total score. table 1 displays the components, subcomponents, and definitions for the tti. table 1 components, subcomponents, and definitions – tti emotional quotient instrument components subcomponents definition total score a general indication of a respondent’s level of emotional intelligence. includes all five subcomponents. intrapersonal the ability to understand yourself, form an accurate concept of yourself, and apply that concept to operate effectively. self-awareness the ability to recognize and understand your moods, emotions, and drives, as well as their effect on others. self-regulation the ability to control or re-direct disruptive impulses and moods and the propensity to suspend judgment and think before acting. motivation a passion to work for reasons that go beyond money and status and a propensity to pursue goals with energy and persistence. interpersonal the ability to identify and understand how to effectively relate to, work with and motivate others. this is made up of two key competencies: social skills proficiency in managing relationships and building networks. empathy the ability to understand the emotional makeup of other people. respondents rate each item using a likert scale with the options: “very inaccurate, somewhat accurate, neither accurate nor inaccurate, somewhat accurate, and very accurate”. there are 31 7 reverse-scored items on the instrument. the tti emotional quotient is normed based upon the standard bell curve resulting in 16% low scores, 68% average scores, and 16% high scores (eq mentor, 2008). reliability and validity the alpha coefficient provides information about the internal consistency of the scales and test-retest reliability is used to provide information about the stability of the instrument. all reliability estimates exceeded the minimally acceptable level of 0.7 which is similar to other ei assessments. the item bank was developed by two master’s level psychologists. eight subject matter experts reviewed the items for reliability to targeted constructs and pilot tested the instrument on 100 individuals for face validity information resulting in additional items, revisions of some items, and dropping a few items. further reliability and item analyses were conducted resulting in two additional revisions (eq mentor, 2008). table 2 shows the reliability measures and the descriptive statistics of the tti inventory used in this study. all tti scores and subscores are standardized on a 0 to 10 scale with an assigned mean of 7.5. table 2 reliability and descriptive statistics of the tti emotional quotient instrument component # items mean min max sd testretest alpha self-awareness 10 items 7.7 3.2 10.0 .94 .880 .738 self-regulation 12 items 6.5 1.0 10.0 2.77 .789 .792 motivation 12 items 7.9 3.1 10.0 3.04 .916 .767 empathy 12 items 7.6 3.3 10.0 2.90 .903 .764 social skills 11 items 7.5 3.4 10.0 1.33 .952 .817 total eq 57 items 7.3 3.6 9.5 0.94 .967 .926 intrapersonal eq 34 items 7.3 3.6 10.0 1.03 .948 .885 interpersonal eq 23 items 7.5 3.6 9.9 1.10 .901 .868 data collection and analysis the eq scores of 609 junior and graduate students were collected from university a and university b students in the college of business from 2010 to 2015, which included 512 university a students and 97 university b students. the median age of the junior students was 21 and that of the graduate students was 23. of the 512 participating business school students from university a, 140 (approximately 28%) were declared accounting majors. of the 97 participating business school students from university b, 35 (approximately 36%) were declared accounting majors. the tti was administered to students early in the semester in one of their core business courses at both universities, identifying the declared major of each student. irb protocol was followed at both institutions and each student signed informed consent documents. we gathered the aggregate eq score of all students who participated in the study. we segregated the student eq data into two groups: university a and university b. we performed an independent samples t-test on each group. we then aggregated all the data and performed an independent samples t-test on the combined groups. 8 results the results appear in table 3. at university a, the mean ei score for accounting majors and non-accounting business majors was 7.20 and 7.41, respectively. the t-statistic of -2.20 is statistically significant, supporting h1a. at university b, the mean ei score for accounting majors and nonaccounting business majors was 6.47 and 7.70, respectively. the t-statistic of -12.33 is statistically significant, supporting h1b. the combined results for both universities showed a mean ei score for accounting majors and non-accounting business majors of 7.05 and 7.47, respectively. the t-statistic of -4.97 is statistically significant, supporting h1c. in sum, our results support all three hypotheses that accounting majors have lower ei scores than non-accounting business students. table 3 difference of means for accounting majors vs. non-accounting business majors item accounting major mean (n) non-accounting business major mean (n) t significance university a 7.20 (140) 7.41 (372) -2.20 .048 university b 6.47 (35) 7.70 (62) -12.33 .000 total 7.05 (175) 7.47 (434) -4.97 .000 discussion this study compared the emotional intelligence (“ei”) of accounting and non-accounting business majors at two different four-year institutions in the united states, using the tti emotional quotient (tti) inventory report for which results have not previously been reported. the results indicate that the ei scores among accounting majors at both universities, separately and combined, were statistically lower than their non-accounting business major peers. the results, using the tti inventory report, are consistent with previously published results using different validated ei instruments. bay and mckeage (2006) reported an exception, using the msceit instrument. while the reported ei scores of accounting students were somewhat higher as compared to marketing students in their study, the score was still considered low on the instrument’s scale. the findings of the collective research strongly suggest that accounting students have lower ei than their non-accounting counterparts, regardless of the instrument used, the mix of students evaluated, or the university settings. given the premise in this paper that ei is a predictor of future professional success in accounting, the findings suggest accounting students will be ill-prepared for the workforce without the acquisition of ei skills in academic careers. this is especially a concern with millennials. millennials are now the largest population in the workforce. by 2030, 77 million will make up 75% of the workforce; however, millennials are said to have two lives. they are becoming hypersocialized online (second life) but increasingly alienated in their real lives (irl) meaning they will be less likely to develop interpersonal skills and abilities. research indicates they most likely will go deeper into interactive media, spending less time with face-to-face interactions (anderson & rainie, 2012). to develop professionally ready graduates who will be effective employees and leaders, students must be prepared to learn a variety of emotional intelligence skills including how to sense, understand, and effectively apply the power and acumen of their emotions and the emotions of others 9 to facilitate high levels of collaboration and productivity for their future employers. based on feedback from companies who hire accounting majors (o’connor et al., 2013), the university has a responsibility to provide students not only with a strong foundation in the major functional areas of accounting but also in professional readiness; emotional intelligence is a major component of this professional readiness. if colleges and universities can incorporate emotional training into their accounting curriculum, employers believe these students’ emotional intelligence will continue to improve, and they will be more professionally ready for working and succeeding in the accounting field. according to wilkerson et. al (2013), various business schools are embracing emotional intelligence as part of a program requirement either as part of an integrated curriculum or as a program activity. in one instance, emotional intelligence theory was infused into a school’s business communication curriculum as a strategy for developing interpersonal and intrapersonal communications more effectively (myers & tucker, 2005). vandervoort (2006) advocated improving student emotional intelligence because those with higher self-knowledge tend to make better career choices, have fewer behavioral/emotional problems, and have higher scores on standardized achievement tests. some colleges view emotional intelligence as a vital part of academic life, particularly in the colleges of business administration (cba). at a private jesuit university in the midwest, two semesters of professional readiness with an emphasis on developing emotional intelligence are required of all students in the aacsb business school (lampe, 2017). at this same school, the magis leaders program was designed to provide emotional intelligence training to accounting majors. according to milton friedman (2009), “the power to do good is also the power to harm”. being armed with emotional intelligence not only helps people gain an advantage in the workplace, but it can also make them aware of those with whom they deal day to day who may use their ei for nefarious purposes (bariso, 2016). burgess-wilkerson et. al. (2012) analyzed ei in an academic setting and found that ei scores can improve as a result of academic interventions. in addition, research indicates that millennials have been coached most of their lives and are very amenable to coaching as a workforce readiness strategy at the collegiate level (wright, 2015). it is therefore critical for accounting programs to provide resources for ei development either as a self-directed learning component or via the academic curriculum with strategies that include: 1) self-assessment 2) program opportunities for self-development in key areas through coaching and training; and 3) effective followup. if planned interventions are part of the required accounting curriculum rather than a business program overall, accounting students can be guided to better see the connection between accounting technical skills (hard skills) and ei skills (soft skills) as essential workforce skills. limitations and future research directions future research can enhance our knowledge in this area by studying the results of the subscale components of the ei instrument of accounting majors in more depth and to identify gender differences. this would help identify trends and patterns in key areas such as empathy, self-awareness, and social skills that might reflect an over-representation among accounting students. this would provide more specific data to improve the ei of accounting students through targeted planned interventions. despite the importance of ei to professional success in accounting, college students still view the accounting discipline as more quantitative and less interactive, suggesting personal competencies are not perceived as important to success. according to maas et. al. (2013), where students selfreported perceptions of accounting in a pre-and post-intervention activity, students frequently stated that accounting was number crunching, bookkeeping, doing taxes, and a desk job. however, after a planned intervention activity in which students learned that accounting indeed involves a great deal of communication and interactions with others, the post-intervention results suggested that these 10 significant perceived myths were shattered and increased students’ interest in accounting. this research shows that false perceptions of workforce readiness skills and attributes for the accounting discipline persist and could be factored into the self-selection process. a possible implication of flawed perceptions is that accounting majors are drawn to accounting because they perceive professional success as more closely tied to quantitative rather than personal competency skills. this might further suggest accounting students with lower ei gravitate toward the major. the issue of flawed perceptions and their impact on self-selection needs much further examination. this work did not employ a pretest-posttest design to control for possible self-selection bias. however, we also recognize that in virtually all published works related to emotional intelligence research (behavioral research in general), such controls are not administered. still, not employing such controls is a limitation of our study. ongoing research, combined with planned recruitment and interventions educating students regards the realities of the accounting profession early in their academic careers, might increase the eligible pool of accounting majors who have higher ei while training those individuals with low ei. the implications associated with low ei in an increasingly large millennials workforce may be significant. more research should be done in this area. references american accounting association. committee on the future structure, content, and scope of accounting education (the bedford committee). 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(2015). coaching millennials: the millennial footprint on media and entertainment. http://coachingmillennials.com/blog http://coachingmillennials.com/blog 112 the relationship between job satisfaction and organizational commitment: a small business perspective tammy brown, d.b.a. liberty university gina g. barker, ph.d. liberty university this study examined the relationship between perceived job satisfaction and organizational commitment in small business employees. although extensively researched in large corporations, the relationship between these two variables remains unclear, especially in small businesses. the fastest growing segment in the u.s., small businesses are characterized by non-standard work models, limited human resource management, and vulnerability to productivity loss from turnover. however, small businesses also offer unique opportunities for employees in terms of creativity, growth, flexibility, autonomy, and involvement in decision making. data collected through surveys from 101 small business employees representing various industries in the lynchburg area of virginia were analyzed using a correlational statistical approach. the results showed moderately strong relationships between job satisfaction and organizational commitment as well as between these two variables and five different subscales. interpretations of the findings are offered, recommendations for further research provided, and practical applications for small business owners and managers proposed. keywords: job satisfaction; organizational commitment; small businesses; human resource management, turnover introduction a wealth of literature suggests that motivational constructs such as job satisfaction and organizational commitment are precursors to turnover and other key indicators used to assess the overall well-being of an organization’s human capital and position in the market. job satisfaction and organizational commitment are dynamic variables that also directly impact employee performance, productivity, engagement, and, ultimately, organizational sustainability (grant, 2008; shanahan & hopkins, 2019; springer, 2011). when employees are not treated well, they develop a negative attitude towards the work, employer, and co-workers, and their commitment gives way to thoughts of leaving (chinomona & dhurup, 2014). consequently, when low employee job satisfaction results in turnover http://journals.sfu.ca/abr advances in business research 2019, volume 9, pages 112-130 113 (yang, 2012), the employing organizations are adversely affected and long-term knowledge management and labor supply are impacted as well (wessels, 2001). the relationship between employee job satisfaction and employee performance/ productivity has received a great deal of attention from scholars and practitioners alike (edmans, 2012; fisher, 2003; gerster & day, 1997; locke, 1976; spector, 2005; vandenberghe & tremblay, 2008). within the last few years, job satisfaction has also been correlated with other constructs such as organizational commitment (johnson, groff & taing, 2008), turnover (chen, ployhart, thomas, anderson, & bliese, 2011; jones, havens, & thompson, 2009; nyberg, ployhart, call & weekley, 2015), absenteeism (angermeir, dunford, boss, boss, & miller, 2009), person-job fit (peng & mayo, 2015), and culture (ng, sorensen, & yim, 2009; zhang & zheng, 2009). although conclusions regarding the causal direction and the strength of associations vary, many studies conducted in multiple industries and nations have shown significant relationships among job satisfaction, organizational commitment, and turnover (diestel, wegge, & schmidt, 2014; lambert, hogan & altheima, 2010; mafini & dlodlo, 2014; miller, erikson, & yust, 2001; monynihan & pandey, 2007; rosati, marren, davin & morgan, 2009; yucel & betkas, 2012). while much of this research has identified job satisfaction as an antecedent of organizational commitment (balassiano & salles, 2012; leite, rodrigues, & de albuquerque, 2014; robbins & judge, 2015), celik, dedeoğlu and i̇nanır (2015) reported that organizational commitment positively affects job satisfaction and that organizational commitment partially mediates between ethical leadership and job satisfaction. in schwepker’s (2001) study, the relationship between job satisfaction and turnover intent was fully mediated by organizational commitment. numerous studies have shown that organizational commitment has a consistent, direct effect on turnover intent (griffeth, hom, & gaertner, 2000; kanwar, singh, & kodwani, 2012). yet, some studies have suggested that organizational commitment only has an indirect influence on turnover in that it contributes to job satisfaction, but the latter is a more critical predictor of turnover (bateman & strasser, 1984; tett & meyer, 1993). shanahan and hopkins (2019) found, for example, that high job satisfaction may lead to reduced turnover even in the absence of organizational commitment. by contrast, cho, rutherford, friend, hamwi and park (2017) reported that while job satisfaction was associated with organizational commitment, neither variable predicted turnover. importantly, the strength of the associations between job satisfaction and organizational commitment remains unclear in small businesses (villanueva, 2014) where non-standard work models challenge the traditional employer-employee dynamic (cappelli & keller, 2013; springer, 2011). research on motivational constructs has focused primarily on large corporations, healthcare organizations, and government entities (zhang & zheng, 2009). yet, investigating how these constructs impact small businesses is critical given the disproportionate effects associated with the cost of productivity loss from turnover and sub-optimal human resource management (hausknecht, hiller & vance, 2008). small businesses are the fastest growing segment of economic development in the u.s. (small business administration, 2015). competition in both domestic and international markets presents a unique opportunity for small businesses to prove themselves through niche markets and segments. the role of a small business in the current economy requires that a minimum level of productivity, profitability, and an engaged workforce be maintained. thus, understanding the relationship between employees’ perceptions of job satisfaction and commitment will help small business leaders retain a stable and productive workforce that can maximize internal resources for a sustainable future (salleh, nair, & harwin, 2012). in order to add to the limited existing research, this study examined the relationship between job satisfaction and organizational commitment as perceived by small business employees. job satisfaction was defined as a pleasurable or positive emotional state resulting from the appraisal of one’s work, work experiences, and work environment (griffin, hogan, lambert, tucker-gail & baker, 114 2010; locke, 1976; warr & inceoglu, 2002). organizational commitment was defined as an employee’s evaluative assessment of his or her connection to the employing organization (akhtar, 2014, meyer & allen, 1997). small business employees were defined as those employed by an employer—whether a sole proprietor, limited liability company, partnership, or corporation—retaining 99 or fewer employees (heneman & berkley, 1999; small business administration, 2015). according to the bureau of labor statistics (2013), the number of small businesses in the united states is 30 million, of which 35% employs between 1-99 employees. the national turnover rate in small businesses is 2.2%. while rates in the southern region of the u.s. corresponds to the national average, the virginia employment commission (2013) reported an average turnover rate of 8.3% in the lynchburg metropolitan statistical area (lynchburg msa) in southeastern u.s. the lynchburg msa is home to 6,719 small businesses. although the above-average employee turnover rate in the lynchburg msa may be partly due to the relocation of companies to cities or states that are considered more favorable to small businesses (gentry, 2009), the impact on small businesses is, nevertheless, a significant problem in this area. the impact is magnified by the fact that job satisfaction and commitment rates in the small business sector are far below those of other industries (salleh et al., 2012). these conditions make the lynchburg msa the ideal target for a study on the job satisfaction and organizational commitment of small business employees. accordingly, the data for this study were obtained from 101 small business employees in the lynchburg msa who completed an online survey. review of literature as background for the study, literature on job satisfaction, organizational commitment, and small business employees was examined. foundational to this study was weiss, dawis, england, and lofquist’s (1967) theory of work adjustment, which assumes that individuals will seek to achieve satisfaction within their work environment by maintaining balance and harmony between their contributions and the rewards of the work environment. the theory assumes that the more satisfied the employees, the more likely they are to remain committed to their current employer and less likely to seek new employment (hoxsey, 2010). both job satisfaction and organizational commitment are multi-dimensional in nature and measured at the individual, team, and organizational unit levels in relation to performance and productivity (brimeyer, perruci, & wadsworth, 2010; latham, 2004; dong, mitchell, lee, holtom, & hinkin, 2012). the relationship between job satisfaction and organizational commitment is often examined in the context of motivation (edmans, 2012; mcalearney, 2006; pilcher, 2012), defined as “an internal state giving rise to a desire or pressure to act” (westwood, 1992, p. 288). work-related motivation encompasses the external (extrinsic) and internal (intrinsic) factors that determine an employee’s “direction”, “intensity”, and “duration” of effort in completing a job or task (latham, 2004). maidani (1991) concluded that there are intrinsic and extrinsic motivating factors that serve as sources of satisfaction. intrinsic motivation is defined as behaviors that are driven by internal rewards, such as a sense of accomplishment and fulfillment, autonomy, and self-esteem, while extrinsic motivation is defined as the motivation to perform a behavior to earn a tangible reward or avoid punishment (herzberg, 2003). herzberg, mausner, and synderman (2010), argued that while an intrinsic motivator is the foundational source of motivation, an extrinsic motivator is the fundamental source of dissatisfaction. interestingly enough, becchetti, castriota, and tortia (2013) found that intrinsically motivated employees are more productive and, therefore, end up earning more. job satisfaction as stated earlier, job satisfaction may be conceptualized as a pleasurable or positive emotional state resulting from the appraisal of one’s work, work experiences, and work environment. according to zhang, hirschi, herrmann, wei, and zhang (2015), job satisfaction is related to an employee’s attitude, which can be determined by examining the employee’s perception of his or her job. job 115 satisfaction is thus linked to an employee’s expectations and the degree of importance placed on various aspects of the job and the workplace. when there is harmony between expectations and experiences, equilibrium and balance result (yucel & bektas, 2012). yee, yeung, and cheng (2010) argued that the more an employee’s conditions are met through intrinsic or extrinsic measures, the greater the degree of job satisfaction. employee job satisfaction is an important indicator of a healthy work environment (kuo, lin & li, 2014). muindi and k’obonyo (2015) contended that job satisfaction is not dependent upon factors beyond the employee’s control but is, rather, predicted by personality. each employee develops a work personality that reflects his or her unique set of abilities and needs. these needs direct an individual to the desired motivations required to maintain a level of job satisfaction. deci and ryan (2000) also argued that job satisfaction is generated by fulfilling needs; specifically, needs for recognition of one’s abilities, aptitudes, and proficiency; relationships with others, and empowerment. some scholars have argued that low job satisfaction does not imply high job dissatisfaction but, rather, the two are independent dimensions (bassett-jones & lloyd, 2005). job dissatisfaction is defined as an employee’s emotional state that is experienced when job expectations are not met (mattarelli & tagliaventi, 2015). the idea that employees ascribe different meanings to the same job at any given time was also supported by chen et al. (2011), who reported that the influence of job satisfaction on turnover intentions is highly dynamic. others have argued that increasing job satisfaction in employees requires decreasing job dissatisfaction (herzberg et al., 2010). employers often assume that this is achieved by increasing employees’ monetary compensation. however, judge, piccolo, podsakoff, shaw, and rich’s (2010) meta-analysis of 86 studies revealed only a modest positive relationship between employees’ compensation and job satisfaction. this finding was consistent across pay levels. organizational commitment organizational commitment is a significant factor in establishing long-term relationships between employers and employees. it may be defined as an employee’s evaluative assessment of his or her connection to the employing organization (akhtar, 2014; meyer & allen, 1997) or as a psychological state that strengthens an employee’s ties to the organization (johnson et al., 2008; meyer & allen, 1991). meyer and herscovitch (2001) described commitment as a specific mindset that compels an individual toward a course of action. organizational commitment may thus be understood as an attitude that ultimately affects behaviors (angle & perry, 1981; jaros, 2010). solinger, olffen and roe (2008) noted, however, that organizational commitment to an objective and a behavior, respectively, may be qualitatively different. behaviors do not denote consistent actions or attitudes; commitment to a behavior is more constrained and only relevant in certain instances. therefore, they argued, commitment to an organization must be understood as an attitude that influences an employee to a variation of behaviors. according to da silva, hutcheson, and wahl (2010), the better the job fit between the goals and objectives of the organization and the employee’s individual intrinsic goals, the more committed the employee will be to the organization. to differentiate among various sources of commitment, meyer and allen (1991) conceptualized organizational commitment to consist of three components, i.e. affective, normative, and continuance. affective commitment refers to employees’ emotional connection to their employer, which generates a sense of belonging to, identification with, and loyalty toward the organization. employees who identify with their employer have a greater desire to remain in the organization (lam & liu, 2014). they are also more likely to work harder to improve their status within the organization (jussila, byrne & tuominen, 2012). affective commitment is a result of employees’ attraction to the values of an organization and assimilation to the culture of the organization. of the three components, affective 116 commitment has the strongest effect on organizational commitment in general as well as on turnover (allen & meyer, 1991, 1997: pepe, 2010). normative commitment reflects employees’ perceived moral obligation to stay with an organization, a willingness generated by a sense of duty and compulsion (meyer & allen, 1997; taing, granger, groff, jackson & johnson, 2011). since normative commitment is values-based, it is critical for employers to recognize the cultural fit between the organization and its employees and to ensure organizational and employee values are congruent. mayer and schoorman (1992) argued that value commitments result in independent decisions made evident by organizational behaviors such as exerting substantial effort on behalf of the organization. continuance commitment emerges from employees’ assessment of opportunities associated with remaining with an organization compared to the cost of leaving their employment (meyer & allen, 1997). benefits and work/life balance are considered high on employees’ list of needs, desires, and wants. according to ismail and nakkache (2014), extrinsic and intrinsic rewards are equally predictive of employees’ organizational commitment in the public and private sectors in the u.s. continuance commitment is also affected by employees’ perceptions regarding alternative job prospects (clugston, howell & dorfman, 2000). seeing other opportunities in the job market may lead to reduced commitment to employees’ current organization. the tenure of employees impacts their perception of the cost of leaving based on the investment made within the organization. each employee’s frame of reference is unique; therefore, each opportunity/cost comparison is distinctive from that of other employees. employees with high continuance commitment have a greater organizational commitment because they perceive a need to remain where they are (pepe, 2010). contrary to meyer and allen’s (1991) three-component model. penley and gould (1988) viewed organizational commitment as made up of affective and instrumental commitment. instrumental commitment emerges as employees trade personal involvement for compensation, thereby solidifying their commitment to the organization. extrinsic rewards play a greater role in instrumental commitment than any other factor. in general, understanding how intrinsic and extrinsic factors drive the commitment of employees is vital to fostering a high level of loyalty and reducing turnover (miao, newman, sun, & xu, 2013). managing turnover is especially challenging in small organizations because it must be large enough to prevent stagnation and small enough to ensure a healthy work environment (michael, timo, davidson, & wang, 2010). small business employees according to headd (2010), small businesses provide nearly one-half of all private-sector jobs and historically accounted for nearly 65 percent of net job creation. the small business administration (2015) reported that small businesses represent 99.7% of all employer firms. the economic growth that the small business segment accounted for in the u.s. increased from 64% in 1995 to 78% in 2015. thus, the small business sector is the cornerstone of the u.s. economy and a catalyst to fulfill the economic needs of the nation (rogoff, lee & suh, 2004; watson, 2006). the effectiveness of small businesses is based on many factors (jones, 2010). according to greenidge, alleyne, parris, and grant (2012), small businesses differ from large businesses in a number of ways. although small business owners in the u.s. are well-educated, with half holding a college degree (u.s. census, 2015), they generally have limited resources and are unable to pay wages comparable to those of large corporations. many hire employees on a part-time or halftime basis only and do not offer the benefits associated with full-time employment. many small businesses also lack the capacity for a dedicated human resource management department to develop recruitment and retention strategies for hiring and developing critical talent (allen, ericksen, & collins, 2013). however, small businesses are also able to offer unique opportunities for employees. by virtue of their size, small businesses are eligible to receive federal funding (small business administration, 117 2015). a small business is often used as the starting point for employees who are considered unemployable by larger corporations due to lack of experience or other employment-related obstacles such as lower levels of educational achievement (lockard & wolf, 2012). also, a smaller company is more likely to permit employees to voice concerns and engage in participative decision making for the good of the business. according to pajo, coetzer, and guenole (2010), individuals who are entrepreneurial and creative tend to prefer employment in small businesses where each decision or idea is heard and often implemented with ease. the intimate environment of a small business also allows managers to maintain a supportive atmosphere and devote time to each employee. the need to multi-task in a small business is essential (greenidge et al., 2012). bryson and white (2019) suggested that small businesses have a greater opportunity than larger businesses to cultivate intrinsic motivation, because they offer employees greater autonomy, control, and ability to influence major decisions. consequently, employees who are motivated by intrinsic factors are more likely to choose work environments that are conducive to creativity and learning new skills, whereas employees who are extrinsically motivated may be more prone to choose environments in which compensation and praise are important (beck, 2016). gountas, gountas, and mavondo (2013) argued that employees who are happy have a deep desire to serve with passion and deliver high levels of service. ifie (2014) found that in a small business that generates excellent customer service, job satisfaction can be experienced at a higher level because employees are able to assist each client in a deeper way. employees want to feel a part of an organization that is viewed as successful and acts in a responsible manner. pride in an organization also enhances organizational commitment. kankaanranta (2013) argued that commitment to a small business stems from internalized beliefs of the goodness of the job and a prevailing aspiration to preserve value in the eyes of the small business owner. there is an unwritten pledge that is formed between the employee and employer that is related to interpersonal permanency and that creates a sense of security and loyalty. davis (2004) and bryson and white (2019) reported that small business employees have a higher level of job satisfaction than employees in large corporations because of the capability of the employer to give individualized attention to each employee and to manage a slower pace and workflow. by contrast, smith, kendall, and hulin (1969) argued that employees in a small business are more likely to become dissatisfied with the overall atmosphere, work/life benefits, and job security than employees in a large to medium size firm. the dissatisfaction in a small business can be as a result of the inability to advance and the lack of resources offered to each employee. a lack of employee job satisfaction or organizational commitment can be detrimental to a small business because, with fewer employees, there is a greater risk that the underlying atmosphere is affected if several employees are not satisfied and committed and leave as a result. according to gialuisi and coetzer (2013), reasons for employee turnover in small businesses include lower compensation, greater unpredictability, and higher closure rates. rationale and research question from the above review, it is evident that research to date has found associations and interactions of varying strength between job satisfaction and organizational commitment (benazic & ruzic, 2013; irshad & naz, 2011). meyer and allen (1991) suggested that employees experience organizational commitment in three ways: affective commitment reflects an emotional attachment to the employer. normative commitment is experienced in an obligatory manner as a sense of duty. continuance commitment emerges from a cost/benefit analysis that can be economic or social in nature. (meyer, allen, & smith,1993). rather than treating affective, normative, and continuance commitment as acting independently, researchers have shifted to measuring the interactions among them (meyer & allen, 2004), as well as between elements of other constructs, such as job satisfaction (johnson et al., 2008; shaw 1990). 118 as noted previously, small businesses account for the majority of employer firms in the u.s. (small business administration, 2015). therefore, it is important for small business owners, in particular, to understand employee perceptions and levels of job satisfaction and its relationship to organizational commitment. small business owners need to identify and understand the factors that motivate employees in order to strategically change the workplace environment as needed to provide working conditions that enhance feelings of satisfaction and minimize feelings of apathy, dissatisfaction and frustration (caillier, 2012; herzberg et al., 2010; massenberg, spurk, & kauffeld, 2015). understanding how employees become satisfied and committed to work is conducive to designing better job fits and fostering greater workplace performance (suma & lesha, 2013). by understanding the contribution of both intrinsic and extrinsic factors to job satisfaction and organizational commitment, small business owners and managers may proactively develop strategies to retain valued employees. investigating the link between job satisfaction and organizational commitment in small businesses is especially important for the purpose of reducing turnover. mishra, mishra, and grubb (2015) reported that affective commitment and employee turnover are statistically linked in small business employees and managers. given the aforementioned higher average turnover rate in small businesses in the lynchburg msa, this research will aid small business leaders in improving human resource management processes aimed at enhancing retention to remain competitive in the region. in order to add to the limited research on job satisfaction and organizational commitment in small business employees, one exploratory research question was articulated to guide this study: rq: what is the relationship between perceived job satisfaction and organizational commitment in small business employees in the lynchburg msa? method in order to examine the relationship between job satisfaction and organizational commitment in small business employees, a quantitative method and correlational research design was chosen. the goal of correlational research is to examine the strength of relationships among two or more variables without inferring cause and effect. this approach was deemed appropriate as the review of previous research on the direction of the relationship between job satisfaction and organizational commitment revealed inconclusive findings. data were collected through an online survey questionnaire. participants employee phone numbers, email addresses, and mailing addresses were obtained by permission from small business owners attending the lynchburg regional business alliance expo on may 24, 2016; the lynchburg regional business alliance membership database; and the small business loan portfolio at union bank in lynchburg, va. in order to establish a working relationship with these organizations, initial contact was made with the business owners to discuss the purpose of the research and the requirements of participation in the study. measures were taken to ensure that the protection of participants’ privacy was adequate, and that informed consent was obtained. a pool of 382 small business employees representing various industries in the lynchburg (msa) were contacted via email with a request to complete an online survey available via a link to surveymonkey. small business employees who attended the lynchburg regional business alliance expo on may 24, 2016, were invited to complete the online survey on-site. after two weeks, those who had not yet completed the survey were sent a reminder with another link to the survey, which was available for 45 days. the response rate was initially 10% and increased to 34.3% after the reminder. 119 measures job satisfaction was measured using the short form of the minnesota satisfaction questionnaire (msq) originally designed by weiss et al. (1967) to measure the overall satisfaction in community health workers, it has become the instrument of choice for research on the satisfaction that employees derive from their job in a wide range of occupations. participants rate satisfying and rewarding aspects of their current job and work atmosphere responding to items such as “the chance to do different things from time to time,” “the competence of my supervisor in making decisions,” “my pay and the amount of work i do,” and “the way my co-workers get along with each other” on a five-point likert scale ranging from very dissatisfied to very satisfied. the 20-item scale includes subscales for intrinsic and extrinsic satisfaction. organizational commitment was measured using the three-component model of commitment (tcm). developed by meyer and allen (1997), this measure has become the standard instrument in organizational commitment research with more than 40 studies concluding that the scale’s construct validity is resilient (love, 2013). it gauges employees’ feelings and attitudes on a fivepoint likert scale ranging from strongly disagree to strongly agree with items such as “this organization has a great deal of personal meaning for me,” “i would be happy to spend the rest of my career with this organization,” “i would not leave this organization because of what i would stand to lose,” and “this organization deserves my loyalty.” the 18-item scale includes subscales for affective, normative, and continuance commitment. four items are reverse-coded. allen and meyer (1991) reported that antecedents of affective commitment and normative commitment are highly correlated with both dimensions, suggesting that affective commitment and normative commitment lack discriminant validity. the two measures were combined into a single survey questionnaire, which also included demographic questions related to age, gender, ethnicity, industry, length of employment in their current organization, whether employed full-time or part-time, and organization location. results from the initial sample of 131 participants, three were excluded for being younger than 18 years and 27 for submitting a mostly incomplete survey. of the resulting convenience sample of 101, 70% were employed full-time and 30% part-time—i.e. working fewer than 30 hours per week—in a small business. thirteen percent of participants had been with their current employer less than five years; 42% 1-5 years; 31% 6-15 years; and 14% 16 years or more. the sample consisted of 39% males and 61% females. ninety-one percent of participants were caucasian, 5% were african american, and 4% were categorized as other ethnicities. their average age was 41, the median 43, and the range 1872. the greatest number of responses came from within lynchburg city, followed by bedford county, amherst county, campbell county, bedford city, and appomattox county. the retail industry had the greatest number of responses at 23%, followed by the financial and insurance industry at 18%, and the professional, scientific, and technical services industry at 12%. the remaining participants represented a wide range of industries. data analysis using spss software, chronbach’s alpha coefficients were calculated for all scales to assess their reliability after reverse-coding was completed. composite variables were created from all scales and subscales, reflecting mean scores. kolmogorov-smirnov tests were conducted to examine the distribution of the scores in the main variables. for organizational commitment, the test was not significant at d(101) = .061, p >.05, which suggests the distribution was not different from a normal distribution. for job satisfaction, the test was significant at d(101) = 0.124, p <.001, which means the assumption of normality was violated. job satisfaction scores were negatively skewed with a notable 120 ceiling effect, suggesting that most participants in the sample experienced a very high level of job satisfaction. given the results of the test of assumptions of normality, box plots were created to see whether the cumulative probabilities of the distributions, based on the quartiles of the data, were normal. the box plot for organizational commitment, displayed in figure 1, showed a normal distribution and a few outliers. as displayed in figure 2, three potential outliers and two potential extreme outliers were identified in the job satisfaction variable. no outliers were removed from the data. figure 1 box plot of organizational commitment figure 2 box plot of job satisfaction statistical findings as shown in table 1, the pearson’s r correlation test revealed a statistically significant positive relationship between job satisfaction and organizational commitment (r = .656, p < .01). the relationship between the two variables was moderately strong, accounting for 43% of the variance. since pearson’s r correlation only tests the association—or shared variance—between two linearly related variables, and not causation, the results do not indicate whether job satisfaction predicts 121 organizational commitment or the other way around. job satisfaction had moderately strong positive associations with affective commitment (r = .649, p < .01), normative commitment (r = .588, p < .01), and continuance commitment (r = .445, p < .01). of these three correlations, the difference between affective and continuance commitment was statistically significant, as determined using eid, gollwitzer and schmidt’s (2011) formula. the associations between organizational commitment and intrinsic satisfaction (r = .606, p < .01) and extrinsic satisfaction (r = .602, p < .01), respectively, were also positive and in the moderate range, accounting for 36-37% of the variance. table 1 pearson’s r, means, and standard deviations 1 2 3 4 5 6 7 job satisfaction (1) 1 .935** .885** .656** .649** .588** .445** intrinsic satisfaction (2) 1 .678** .606** .558** .538** .454** extrinsic satisfaction (3) 1 .602** .626** .553** .369** organizational commitment (4) 1 .860** .860** .828** affective commitment (5) 1 .678** .529** normative commitment (6) 1 .543** continuance commitment (7) 1 mean 4.14 4.28 3.85 3.77 4.08 3.85 3.38 sd .65 .62 .85 .68 .79 .75 .87 scale 1-5 1-5 1-5 1-5 1-5 1-5 1-5 cronbach’s α .94 .92 .88 .91 .86 .83 .82 **correlation is significant at the .01 level (2-tailed). n = 101 discussion this research helped fill gaps in the research on the relationship between job satisfaction and organizational commitment in small business employees. previous research that focused on job satisfaction and organizational commitment in small businesses was relatively scarce and the number of newly published studies examining job satisfaction in general had diminished within the last few years (rowden & conine, 2005). this study added to the body of knowledge by providing an analysis of the degree to which job satisfaction is related to organizational commitment in general as well as the underlying aspects of the affective, normative, and continuance organizational commitment. additionally, the study examined whether intrinsic or extrinsic job satisfaction had a stronger effect on organizational commitment. most participants in the sample experienced a very high level of job satisfaction. this was expected, as bryson and white (2019) had previously reported similar findings. job satisfaction had a moderately strong association with affective organizational commitment, which reflects employees’ emotional connection to their employer; sense of belonging to and identification with the organization; as well as attraction to and affinity with the organizational culture. these aspects are captured in the affective commitment subscale of the tcm with items measuring emotional attachment, personalizing the organization's problems, perceiving oneself as part of a family, and deriving personal meaning from one’s employment (meyer & allen, 1997). small business employees, like the participants in this 122 study, often work in intimate settings where they are well-known and supported, where there is room for their creativity, and where there is flexibility to implement their ideas, as discussed by pajo et al. (2010). the association between job satisfaction and normative organizational commitment was statistically similar. measured with the normative commitment subscale of the tcm in terms of duty and obligation toward one’s employer and coworkers, indebtedness, conscientiousness about staying, and guilt at thoughts of leaving (meyer & allen, 1997), normative commitment represents a moral and values-driven basis for commitment that fuels substantial effort and a high level of performance (mayer & schoorman, 1992). normative commitment to a small business is thus sensitive to the integrity, direction, and overall contributions of an organization. according to kankaanranta (2013), commitment to a small business stems from internalized beliefs of the goodness of the job and a prevailing aspiration to preserve the value of the organization for its owner. employees want to work for an organization that is viewed as successful and that acts in a responsible manner (ifie, 2014). although continuance organizational commitment had a slightly weaker association to job satisfaction than affective commitment, it was still in the moderate range and statistically similar to normative commitment. understood as the outcome of employees’ weighing of opportunities associated with remaining with an organization relative to the costs of leaving, the continuance commitment subscale of the tcm captures this comparison in terms of time invested into the current organization, benefits enjoyed, personal sacrifices required if leaving, and anticipated disruptions if doing so (meyer & allen, 1997). clugston et al. (2000) noted that continuance commitment is highly affected by other opportunities available on the job market and whether employees perceive another employer has more to offer them. lockard and wolf (2012) noted that small business employees are generally considered less employable by larger corporations because of their relatively lower level of education and experience, which would positively impact their continuance commitment. employees’ tenure would also influence continuance commitment favorably over time, as noted by pepe (2010). twenty-eight percent of participants in this study had worked for their current employer more than ten years. the moderately strong associations between intrinsic and extrinsic job satisfaction, respectively, with organizational commitment is another important finding, which confirms ismail and nakkache’s (2014) claim that extrinsic and intrinsic rewards are equally predictive of employees’ organizational commitment in both public and private sectors in the u.s. beck (2016) reported that employees who are motivated by intrinsic factors are more likely to choose work environments that allow for creativity and learning new skills, whereas employees who are extrinsically motivated tend to choose work environments in which compensation and praise are emphasized. multi-tasking and flexibility are more essential in a small business (bryson & white, 2019; greenidge et al., 2012), and these work aspects tend to generate intrinsic job satisfaction. intrinsic job satisfaction is derived from internal rewards, which are measured with the msq intrinsic job satisfaction subscale in terms of how one’s job allows for autonomy and control over the pace, methods, variation, and type of tasks—whether working alone or directing others. the subscale also captures the feeling of accomplishment and significance from using one’s abilities and helping others (weiss et al., 1967). according to bryson and white (2019) and davis (2004), employees in small businesses have a higher level of job satisfaction than employees in large corporations because they have greater autonomy over work processes, opportunity to influence decisions, and a closer relationship to the business owner. extrinsic job satisfaction is derived from external rewards, which are measured on the msq extrinsic job satisfaction subscale with items that gauge perceptions of the quality of leadership and supervision; company policies and practices; opportunities for advancement; workload; and provision of pay and praise. according to gialuisi and coetzer (2013), a main reason for employee turnover in small businesses is lower compensation. a lack of resources may also result in less competent 123 managers and less efficient processes, whereas the overall size of operations in a small business may limit advancement opportunities for employees. smith et al., (1969) argued that employees in a small business are more likely to become dissatisfied with work/life benefits and job security than employees in a large or medium-size firm. thus, the finding that extrinsic job satisfaction impacted organizational commitment as much as intrinsic job satisfaction is noteworthy. limitations and recommendations for further research as is the case with all qualitative research—although higher in descriptive research designs— the ability to generalize is limited by the sampling method, sample size, and conditions under which the data were collected. a threat to the statistical validity of the research was posed by the small sample size, as it increased the chances of type ii error. another potential threat to the statistical validity was the violation of the assumption of normal distribution of the data. in order to increase the statistical validity, established measures with high historic and recent reliability were used and the internal consistency of each scale was tested. the reliability of the data rests on participants’ willingness to be candid in their responses and to trust in the integrity of the researchers to protect their private information. there was also a possibility of response error. a limitation of using a cross-sectional survey questionnaire to measure perceived levels of job satisfaction or organizational commitment is that they only gauge attitudes and perceptions held at one particular point in time, and they do not capture any changes in these variables, even though they are known to develop and fluctuate over time. surveys do not allow participants to provide rich contextual information that explains the responses given. the opportunity to generalize beyond the lynchburg msa, where the sample was obtained, is also limited and potential bias emerging from a convenience sample must be considered. despite its limitations, this study sheds light on the relationship between job satisfaction and organizational commitment in small business employees— a population that has not been examined extensively—and provided direction for further research. first, increasing the geographic focus is recommended; i.e. replicating the current research among small business employees elsewhere. enlarging the scope of the research to include both urban and rural settings and obtaining a larger sample would increase the generalizability of this research. second, future studies should examine generational effects of job satisfaction and organizational commitment by comparing scores and associations of two or more generations. the literature also suggests several subsets of small business employees that may be explored further, such as industry, organizational size, gender, and education. employer leadership styles and business approaches may also serve as important grouping variables. third, the way extrinsic and intrinsic motivators affect job satisfaction and the manner in which affective, normative, and continuance aspects affect organizational commitment should be explored more in-depth. a qualitative research approach with in-depth interviews with small business employees is recommended in order to more fully understand how underlying issues unique to small businesses influence job satisfaction and organizational commitment. applications and conclusions the results of this study can help small business owners and managers in the lynchburg msa and elsewhere acquire a greater awareness of these motivational constructs and reduce unwanted turnover. effective human resource management within an organization is the key to ensuring and cultivating employee job satisfaction and organizational commitment. however, because many small businesses lack the resources for a dedicated human resource management department that designs recruitment and retention strategies for hiring, developing, and motivating critical talent (allen, ericksen, & collins, 2013), recognizing the needs in this area will allow small business owners and managers to be strategic in their use of limited resources. 124 small businesses must create an environment that is supportive of the employees and provide experiences where employees feel that they are an integral part of the organizational structure and culture. this can be achieved through the development of a unified workforce that recognizes its impact on the overall mission and vision of the organization. if employees have confidence in the organization’s mission and understand their responsibility to achieve it, they are more apt to experience both satisfaction and commitment. incorporating training around the mission and vision of the organization can maximize the opportunities for employees to see where they fit in the organization and to recognize the importance of their individual roles. offering cross-training into other departments can stimulate employees to achieve greater understanding of the operation as a whole as well as of the flow of work within their specific area. this may, in turn, enhance employees’ perceptions of being valuable and effective. learning new skills can promote individual growth in employees and enhance their job satisfaction as well as their organizational commitment. by understanding the impact of intrinsic and extrinsic influences on job satisfaction in their particular organizations, small business owners and managers can create and revise job descriptions to make sure each position is matched to specific intrinsic and extrinsic motivators and increase praise, recognition, empowerment, new learning opportunities, responsibilities, bonuses, additional time off, and rewards for innovation accordingly. berumen, pérez-megino, and arriaza ibarra (2016) argued that managers have more influence over extrinsic than intrinsic reward systems, especially when job duties are routine and not inherently rewarding. chen and smithey fulmer (2018) found, for example, that flexible working arrangements enhance job satisfaction, as long as such arrangements are individualized rather than formalized and perceived as readily available. in their study, flexible scheduling impacted job satisfaction the most, followed by flexible work location, and the total number of hours. thus, small business owners can negotiate adjusted schedules, compressed work weeks, working-from-home arrangements, job sharing, etc. de menezes and kelliher (2017) found positive associations between flexible working arrangement and both job satisfaction and organizational commitment. interestingly, while flexible working arrangement established through an informal process enhanced employee performance in their study, formalized arrangements reduced performance in some instances. the authors reasoned that employee attitudes mediated the effect. small business owners and managers have the advantage of knowing their employees personally and being able to provide individualized work arrangements that enhance job satisfaction, organizational commitment, and performance. recognizing the relative impact of affective, normative, and continuance commitment, respectively, among their employees will allow business owners and managers to tailor benefits to fuel different types of commitment. understanding and meeting the expectations of small business employees is vital to retaining them. small businesses in a community may want to pool resources in training supervisors on how to motivate employees to maintain their organizational commitment in different ways and through different sources within the organization. the relationship between job satisfaction and organizational commitment is a complex issue when examined within the context of performance, productivity, profitability, competition, and turnover. the average turnover rate of 8.3% in the lynchburg msa—compared to the turnover rate of 2.2% in the region (virginia employment commission, 2013) —provided an important backdrop to this study and revealed that even when job satisfaction and organizational commitment are highly correlated, turnover may still be 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(2009). how does satisfaction translate into performance? an examination of commitment and cultural values. human resource development quarterly, 20(3), 331-351. 101 testing alternative theories of capital structure in the us electric industry karl a. mcdermott, ph.d. university of illinois springfield carl r. peterson ph.d. university of illinois springfield capital structure choices are somewhat mysterious. this mystery has prompted many different stories concerning a firm’s choice of leverage. the traditional trade-off theory holds that firms balance the tax advantages of debt with the costs of financial distress to minimize overall financing costs. more sophisticated theories, such as the pecking-order theory and managerial prerogative theories, incorporate notions of asymmetric information between shareholders and managers and predict that leverage choice is used to address the asymmetry of information. electric utilities, however, operate in a different business environment than do unregulated firms. financial decisions are scrutinized publicly before a regulatory body which generally has authority over the firm’s prices. moreover, public utilities are charged with providing service at the lowest possible cost. this paper explores two alternative theories of capital structure: the trade-off theory and the pecking order theory. following shyam-sunder and myers (1999), we use data from ferc form 1 to evaluate different theories of capital structure for the period 1988 through 2014 in the electric industry. we find that the pot tests do not characterize the electric industry through we do find that the tot tests appear to provide some explanatory power. keywords: capital structure; regulation; trade-off theory; pecking order theory; electric utilities introduction much of the academic work on capital structure has focused on the so-called optimal capital structure implying that some combination of financing mechanisms produces the lowest overall average cost of financing (myers, 2001). an overall theory of capital structure, however, eludes us, and indeed, as myers (2001, p. 81) notes, that is probably to be expected. yet firms devote significant resources to understanding, analyzing, and ultimately implementing capital structure decisions and it is generally accepted that financing decisions do matter. (stiglitz, 1988). to address these issues, this paper reviews stories about the choice of financing. the first of these stories suggests that financing decisions do not matter at all. introduced by modigliani and miller (1958) (mm), this story claims no material connection between the value of a firm and the financing decisions if capital markets are perfect, leaving no room for anything other than, perhaps, transitional arbitrage. the logic of the mm http://journals.sfu.ca/abr advances in business research 2019, volume 9, pages 101-111 102 result has been largely accepted, yet the question of why financing matters to the firm remains. subsequent work has identified other reasons why capital structure matters. first, taxes have an influence on the cost of financing through the tax shield. (miller, 1977). there is a trade-off between higher levels of debt, and consequently lower taxes, and the incremental probability of financial distress. this is called trade-off theory (tot) of capital structure. value-maximizing firms should have modest debt levels since the cost of future financial distress, in present value terms, at some level outweighs the benefit from reducing current tax burdens. second, managers (insiders) may have better information concerning the prospects of the firm than prospective investors (outsiders) leading to a perceived undervaluation of prospects by outsiders and a preference for using internally generated funds for financing (myers & majluf, 1984; myers, 1984). this research supports the pecking order theory (pot) in which managers prefer to use the internal funding before moving to the market to obtain financing since the managers have better information concerning the true value of funded projects. the pot implies that the bulk of external financing should be accomplished through debt issuance and, while firms may not have a target debt ratio, those firms that are profitable should borrow less since such firms have more free cash flow and prefer to use that source of funds before other sources. most academic research has focused on a broad range of firms to detect some overall pattern or patterns. yet financing decisions are likely affected by the degree of information publicly available, asset base, and the maturity of the firms. the electric industry provides a unique application of these approaches for several reasons. first, the industry is highly capitalized with firms owning significant physical assets. second, the earnings of the firms, to a large extent, are dictated by an administrative decision-making process. third, there is an unusual degree of public information about both the investment strategies of the firms and the financing decisions since most financing strategies must be approved, either explicitly or implicitly, by a regulatory body. finally, the method of regulation for most electric utilities creates an implicit shield against significant financial distress. while one can point to bankruptcy or near-bankruptcy in the industry, the rate of bankruptcy is exceedingly small relative to unregulated industries.1 in addition, each utility must keep separate books and finance itself separately from other entities that may be owned by the same holding company. data from these individual utilities is collected by the federal energy regulatory commission (ferc) in the ferc’s form 1. this data covers not only financial operations but a wide range of operational, business, and other information. this paper approaches the problem in a similar manner as shyam-sunder and myers (1999). this method takes a rather simplest view of firms’ financing choice by relating the net cash needs over the year to changes in debt levels. if debt is used to finance the cash deficit that provides evidence of the pot. we also run a simple test of the tot by simulating a firm’s optimal capital structure and relating that to the change in financing. we find moderate support for the tot in the electric utility industry and no support for the pot. the paper is organized as follows: section ii provides a literature review. section iii presents the model and results and the last section is reserved for conclusions and comments concerning further research. literature review most surveys of the literature on capital structure begin with the mm proposition that financing methods do not affect the overall cost of capital. (see e.g., myers, 2001, harris & raviv, 1991). mm suggest that the weighted overall cost of capital, ignoring taxes for the moment, must stay constant. 1 moreover, some bankruptcy costs associated with unregulated firms, such as the loss of human capital due to the concern that the firm will not survive, may also be mitigated due to the assumption that the utility will continue to operate, in some form, indefinitely due to the necessity of the product. 103 𝑟𝑎 = 𝑟𝐷 𝐷 𝑉 + 𝑟𝐸 𝐸 𝑉 (1) where: 𝑟𝑎 = overall weighted average cost of capital 𝑟𝐷 = cost of debt capital 𝑟𝐸 = cost of equity capital d = market value of debt e = market value of equity v = d + e if we accept the mm proposition that the value of the firm is constant despite the financing decisions, one can easily solve (1) for the expected return on equity demanded by investors for this firm as: 𝑟𝐸 = 𝑟𝑎 + (𝑟𝑎 − 𝑟𝐷) 𝐷 𝐸 (2) this is the same equation myers (2001, p. 85) uses to illustrate mm proposition 2. equation (2) shows that equity costs increase with the market debt-to-equity ratio and do so at a rate that reflects the spread between the average cost of capital and debt costs (id.). recognizing that debt capital has a first call on earnings of the firm, debt capital almost assuredly has a lower nominal cost than equity. given this, a financial manager might be tempted to leverage the capital structure. this action, however, serves only to increase the cost of the remaining equity such that the overall cost remains constant. testing this theory turns out to be remarkably complex yet some evidence can be marshaled to address this theory. for example, over the last forty years, financial innovation has created more and variable methods of raising capital and that would seem to suggest that new and better ways to obtain and package capital have value-enhancing properties. moreover, some investors may be willing to pay for the ability of firms to borrow on more reasonable terms than they can themselves. in the end, the mm story is analogous to the story economists tell about perfectly competitive markets. the relatively restrictive assumptions provide insight as to when such results could be expected, but, perhaps more importantly, tell us where to look for reasons why real life does not turn out the way theory predicts. the first place one might begin to look for a more realistic story is to include the effect of taxes. debt capital, unlike equity capital, is treated as an expense providing the firm with a tax-shield. in this simple story, the after-tax cost of financing provides an incentive for firms to use debt since the effective cost of debt is reduced by the tax shield. causal empirical observation suggests that there must be some cost associated with the tax shield otherwise corporations would not pay taxes if those taxes could be reduced by increasing debt in the capital structure (myers, 2001, p. 88). this is suggestive of a trade-off theory (tot) positing a balancing of the benefits of the tax shield with the costs of financial distress that may well be associated with an overly aggressive debt policy. the obvious implication of this theory in cases where financial distress is remote is that debt ratios should not be overly conservative. yet many firms that have been highly profitable for years have conservative debt ratios. (myers, 1984; baskin, 1989, also see harris and raviv, 1991). also, many studies focusing on the determinants of actual debt ratios find that profitability is the single most important factor. (see e.g., wald, 1999). the tot suggests that those firms with relatively safe tangible assets are more likely to use debt than those with riskier assets. in the world of regulated utilities, regulation provides a form of commitment to a minimum level of financial strength, under the tot once might expect a higher 104 level of debt than other industries without such commitment. indeed, debt ratios for regulated utilities tend to be relatively high compared to other industries.2 the second approach we review in this paper is the peaking-order theory (pot). pot, first suggested by donaldson (1961) and later formalized by myers and majluf (1984) and myers (1984), posits a hierarchy in firm funding that begins with internally generated cash, followed by, if necessary, debt and rarely equity. myers and majluf (1984) assume an on-going firm with an opportunity for growth. capital markets are assumed efficient, but investors do not have sufficient information to value the projects and the securities sold to support the projects. a proposed financing scheme, such as a sale of equity, could be interpreted as a signal of the value of the firm. on one hand, investors may interpret the action as a sign that the firm believes its project to be valuable by increasing the net present value of the firm (good news). alternatively, managers may have better information concerning the value of existing assets which could indicate that the securities are overvalued (bad news). one implication is that equity issues will cause the price of the stock to fall; not because demand is inelastic and as supply increases, price falls, but because investors see the bad news as outweighing the good news. several studies of equity issues by firms have confirmed this phenomenon. (asquith & mullins, 1986; dierkens, 1991; d'mello & ferris, 2000). debt, however, is less susceptible to mistakes of judgment since it is superior to equity. when the risk of default is negligible one should find that debt issues are less of a drag on the price of equity and studies confirm this result. (eckbo, 1986; shyam-sunder, 1991). direct tests of the pot, however, are less consistent. for example, shyam-sunder and myers (1999) find evidence for the pot, as opposed to the tot, for a cross-section of 157 us firms in the compustat database from 1971 to 1989. frank and goyal (2003) undertake a similar analysis and find that the pot does not hold for the 1990s. fama and french (2002) find contradictory evidence for both pot and tot but these authors claim that small low-leverage growth firms tend to be large issues of equity and claim this is a “deep wound” in the pot. bessler et al. (2010), in a study of international firms from 1995 to 2005, find more evidence for the pot theory in non-us firms and those from civil law countries. fama and french (2005) observe that firms undertake net issues of equity surprising often from the perspective of the pot, especially after 1990. finally, lemmon and zender (2010) reexamine fama and french’s (2002) “deep wound” in the pot and claim that when debt capacity limits are incorporated into the pot the “deep wound” is repaired. the prediction of the pot depends critically on the information asymmetry between managers and investors and while this assumption may be debatable for the broader cross-section of firms, the electric industry is fundamentally different than the broader cross-section of firms. first, the revenue expected from any utility investment is not a function of fickle market forces, rather revenue is generally calculated as a function of the historic investment cost of the project. second, in most cases, public planning procedures are used to vet the potential value of projects. this often occurs through a formal process such as a least-cost plan which directly evaluates future projects for the purposes of including such projects in the investment queue and, notably, projects that do not make the cut are generally delayed or abandoned. even in situations where a formal planning process is not in place, the regulatory contract and the post hoc nature of the review of utility investment behavior limits the discretion of mangers and consequently the likely errors investors may make in evaluating projects. these institutional arrangements likely limit the possible errors in evaluation by investors due to inconsistent or unavailable information concerning project valuation. for example, 2 bradley, jarrell and kim (1984, table 1) find a systematic relationship between regulated firms and the degree of leverage, though these authors do not attempt to explain the reason for the relationship. sanyala and bulan (2011) find that the liberalization of entry barriers in the us electric utility market in the 1990s appears to be related to a reduction in leverage by 2001. peterson and mcdermott (2017) find the de-leveraging trend continuing into the current era even as entry liberalization began to fade. whatever the reason for the changes in leverage in the industry, regulated utilities remain relatively highly leveraged relative to non-regulated industries. 105 filbeck and hatfield (1999) use an event study framework and find evidence from 325 new equity issues by public utility companies from 1977 to 1994 that the presence of institutional investors is insignificant when explaining share price response. this result is contrary to studies from a broader set of firms in which institutional investors are hypothesized to reduce the asymmetry of information as evidenced by a direct correlation with the size of the share price response to equity issuances. these authors interpret this finding as indicative of the information value to investors of regulation. mcdermott and peterson (2011) also find support for the tot as opposed to the pot in a limited study of the electric industry in the 1980s.3 methodology and results in this paper, we follow shyam-sunder and myers (1999) (ssm) in testing the pot for electric utilities against the tot. ssm explicitly removes electric utilities from their data set likely because there does appear to be an explicit trade-off of the tax shield and bankruptcy costs. (ssm, p. 221, citing miller and modigliani (1966). we wish to test the proposition directly and include only electric utilities in our data set. the ssm approach uses the simple statement of the pot that a firm will use internal cash flows to finance its dividends and real investment unless that is insufficient and then the firm will issue debt and the firm will never issue equity. ssm then create a funds flow deficit variable that must be funded. the funds flow deficit is defined at the end of period t as: 𝐷𝐸𝐹𝑡 = 𝐷𝐼𝑉𝑡 + 𝑋𝑡 + ∆𝑊𝑡 + 𝑅𝑡 − 𝐶𝑡 (3) where 𝐷𝐼𝑉𝑡 = dividend payment in period t, 𝑋𝑡 = capital expenditures during period t ∆𝑊𝑡 = net increase in working capital 𝑅𝑡 = current portion of long-term debt repaid during period t 𝐶𝑡 = operating cash flow after interest and taxes 𝐴𝑡 = net book assets, including working capital 𝐷𝑡 = total outstanding long-term debt at end of period t 𝑑𝑡 = 𝐷𝑡 𝐴𝑡 the book debt ratio ssm argue that in the pecking order model the components of 𝐷𝐸𝐹𝑡 are choices if safe debt can be issued. therefore, there is no incentive to issue equity. (id., p. 224). ssm claim that a direct test of the pot entails the following: ∆𝐷𝑖𝑡 = 𝑎 + 𝑏𝐷𝐸𝐹𝑖𝑡 + 𝑒𝑖𝑡 (4) where ∆𝐷𝑖𝑡 is the amount of debt issued or retired by firm i in period t. if the pot applies, then the coefficient a should be zero and b will equal 1. 𝐷𝐸𝐹𝑡 can be either positive or negative and the pot logic works equally well in both cases since managers will wish to sell stock when the price is overvalued by the market and buy it when undervalued.4 the tot suggests that mangers target a capital structure that minimizes overall costs. of course, events may cause the actual to deviate from this optimum transitorily, but managers will move the structure back to the optimum over time (that is, we should expect mean-reverting behavior). ssm suggest a simple model of the static tot as follows: ∆𝐷𝑖𝑡 = 𝑐 + 𝑑(𝐷𝑖𝑡 ∗ − 𝐷𝑖𝑡−1) + 𝑒𝑖𝑡 (5) 3 there is an additional area of research on the determinants of regulated firms’ capital structure that is not reviewed in this paper. this research attempts to set the choice of capital structure in the context of the regulatory structure. see e.g., taggart (1981), rao and moyer (1994), or spiegel and spulber (1994, 1997) 4 as ssm note, equation (4) cannot be generally correct since it does not correct for extreme cases of debt or equity. this is not likely to be an issue in the electric industry. lemmon and zender (2010) modify equation (4) to include the square of def. 106 equation (5) indicates that the change in debt levels is related by the parameter d to the difference between the target level in period t (𝐷𝑖𝑡 ∗ ) and the last period’s actual debt levels. if d>0 then adjustment is occurring toward the target, although there are likely to be some adjustment costs that make full adjustment in a single period infeasible which implies that d<1. the obvious problem with running equation (5) is that the optimal debt level is unobservable. several alternatives exist including long-term historical average debt ratios or perhaps some rolling average of shorter periods. we use data from ferc form 1 that is filed annually by electric utilities with the ferc. while as many as 300 firms report data, only 177 of these are what we consider state-regulated electric utilities.5 since we wish to restrict our analysis to state-regulated electric utilities we dropped firms that are required to report to ferc but are not traditionally state-regulated utilities.6 ssm remove firms that underwent mergers from their data set, however, in the case of state-regulated electric utilities a simple merger is not likely to have much effect on the firm’s financing decisions since the utility remains under existing regulations and subject to the same oversight as prior to the merger, including, and importantly, financing decisions. (peterson and mcdermott, 2007). we have, however, removed firms that undertook major restructuring such as merging two or more state-level utilities into one utility thereby merging their form 1 reports into one report.7 this approach limits the data set to 2,700 observations on 100 firms but also allows us to have a consistent set of data for each firm over the entire time to undertake the simulations used to estimating several of the equations below. despite these constraints, the data is remarkably consistent over time and our data set contains consistent data on most major investor-owned electric utilities in the united states. equation (4) is estimated for 1988-2014 using three alternative measures of the change in debt levels: (1) net debt issues (scaled by the total assets); (2) gross debt issues (scaled by the total assets) and (3) change in debt ratio defined as book debt divided by total book capitalization. in table 1 we report the ols results. further results on other model specifications are reported in appendix a with summary statistics reported in appendix b. we also tested several variations of the target debt level including rolling averages and period means. there was some sensitivity to shorter period rolling averages of the debt ratio to simulate target debt ratios. for example, when we used a three-year rolling average to simulate the target debt ratio the resulting coefficient estimates were not significant at normally reported levels. we simulated the target debt ratio with longer rolling averages, up to and including using the mean of the entire period, as reported in table 1, and the resulting fit becomes better. overall the results are inconsistent with the pot and only moderately consistent with the tot. the pot suggests that the coefficient on the dependent variable should be close to 1, yet for the pot model we find that the coefficients are all negative and inconsistently significant over the various specifications. (see table 1 and appendix a). the negative coefficient on the pot coefficient is difficult to interpret, however in reviewing table 1 we see that the pot coefficient’s absolute value is smaller than the constant and in all cases the r2 is exceedingly small suggesting that the pot specification is not explaining the change in financing for electric utilities. for the tot equation, there is some evidence that utilities appear to use an optimal capital structure, although the magnitude of the coefficients is relatively small. the result that is most tantalizing comes from the use of the change in debt ratio as the dependent variable. not only does the tot coefficient change in magnitude relative to the other specifications but the fit becomes better 5 in general, this means that the state regulatory body has oversight over financial decisions, at least as those decisions relate to setting the prices of the utility. 6 for example, entities such as regional transmission companies and wholesale electric generation companies, who are not regulated by the states, are dropped from this data set. 7 we have, however, left in firms that divested portions of the business such as generation assets since the remaining assets remain under regulation and must have separate financing from other portions of the holding company’s portfolio. 107 as well. indeed, the results for this specification are more consistent with what ssm found in their study of non-utility financing decisions. (ssm, table 2, panel a, column (5)). this could be an indication that long term target debt ratios are used in regulatory proceedings either tacitly or explicitly. if this is the case, utilities, because of the repeated interaction with regulators, use such metrics in their own financing decisions.8 we also tested a one-period lag of the def as well as first differences and in both cases either the coefficient’s absolute value was close to zero or was not significant at normal levels. finally, the overall fit of these equations is rather low. for example, ssm find that the tot variables explain as much as 25 percent of the variation. (ssm, table 1, panel a). our results are, for the most part, significantly lower than the ssm results. this suggests that the financing choices for regulated utilities are potentially somewhat more complicated. our results indicate weak support for the tot and no support for the pot. while perhaps somewhat disappointing, we explain these results by referring to the very nature of the regulatory process. the lack of support for the pot is perhaps understandable given the remarkable degree of transparency and predictability of the regulatory process. the asymmetric information concerns that form the foundation of the pot simply do not exist to the same extent that they do for unregulated firms. further, regulators may play the role of monitors who examine and approve or disapprove projects on a case-by-case basis for inclusion in approved prices.9 the historic financing decisions of the utility are incorporated into pricing using a weighted average cost of capital. while a specific optimal capital structure is not always, or even often, a result from this process, never-the-less since the regulator sets the final prices, a target range of capital structure may well be the result, even if that is not the intention. indeed, one regulatory body has expressed its approach as follows: [t]he commission has the duty to regulate utilities in a manner which provides customers with reliable service at reasonable cost. this is not to say that we may mandate to regulated utilities the proportions of debt and equity contained in their capital structures. rather, the actual capital structure is a matter within the discretion of corporate management; however, this does not preclude the commission from determining that a particular utility’s capital structure is unreasonable or uneconomical when balancing the goals of safety, prudent management and economy and utilize a hypothetical capital structure for ratemaking purposes. pa. puc v. carnegie natural gas company, 54 pa. puc 381, 393 (1980). it is therefore not surprising that utility financing decisions would take this process into account and we would observe, at least some degree, of capital structure targeting. table 1 results for equations (4) and (5) using ols dependent variable net debt scaled gross debt scaled by assets change in debt ratio net debt scaled by assets gross debt scaled by assets change in debt ratio 8 this could be due to the concern that a regulatory body may impose a capital structure for the purposes of setting rates that differs from the actual capital structure used to raise funds. there is evidence that such decisions by regulatory bodies can have dramatic, if short term, negative effects on the market valuation of the firm. (see e.g., peterson and mcdermott, 2018) 9 the notion that regulators are active monitors of financing decisions as opposed to passive players who respond optimally to decisions made by the regulated firm is at odds with much of the theoretical work on regulated capital structure in which the regulated firm strategically uses debt to elicit a predictable response from the regulator. (see e.g., taggart, 1991, spiegel and spulber 1994, 1997). jensen and meckling (1976) do argue that the regulatory body plays a monitoring role. 108 by assets pot coefficient equation (4) -0.0060 (0.0064) -0.0159* (0.0076) -0.0599* (0.0116) tot coefficient equation (5) 0.0971* (0.0099) 0.0243* (0.0120) 0.2569* (0.1284) constant 0.0065* (0.0013) 0.0388* (0.0016) 0.0103* (0.0023) 0.0057* (0.0007) 0.0365* (0.0009) -0.0002 (0.0009) r2 0.0003 0.0016 0.0103 0.0358 0.0016 0.1334 * significant at 5 percent level. the pot independent variable is the deficit defined in equation (4). the tot independent variable uses the total period average debt ratio to estimate the target debt levels. conclusions this paper reviews the pot and tot theories of capital structure for electric utilities using a simple deficit funding model and a target adjustment model. our results are inconsistent with the pot and only moderately consistent with the tot theory of capital structure for 1988-2014 in the electric industry. these results are consistent with mcdermott and peterson (2011) who found moderate support for the tot in a limited study of the electric utility industry. it appears that utility financing is somewhat more complicated than the simple models of capital structure might suggest. it may well be that the electric industry, due to its regulated nature, is less susceptible to problems of asymmetric information. moreover, it appears that the nature of the rate-setting process could lead to the use of a target capital structure range. future work, however, is necessary to refine the picture of the financing process for electric utilities. for example, the specific rate-setting mechanism may influence capital structure decisions. (see e.g., de fraja and stones, 2004). utilities that have formula rate mechanisms in which capital structure is set on an annual basis through an exogenous metric may operate differently from utilities with a more traditional administratively set capital structure. moreover, the favorability of the regulatory climate may also influence the decision. (see e.g., rao and moyer, 1994). for example, during portions of the time frame under study here, financing decisions were likely influenced by the rapid changes in the structure of the industry, namely the relaxing of entry restrictions. (see e.g., sanyal and bulan, 2011). we might expect deregulatory policies to favor the pot as regulated firms transition to operating more like unregulated firms and, consequently, begin to de-lever capital structures. yet deleveraging appears to have continued after the initial reforms in the industry and appears to have done so even for that portion of the industry not open to entry. finally, this paper has not addressed the strategic nature of the regulatory relationship. since regulated firms operate in a semi-closed system in which managerial decisions can influence regulatory outcomes, regulated firms may have incentives to strategically choose their capital structure (see e.g., taggart, 1981, spiegel & spulber (1994, 1997) or bortolotti et al., 2007). attempting to refine the picture of capital structure decisions through a more detailed examination of the regulatory structure should provide additional insights. 109 references asquith, p., & mullins, d.w. jr. 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(1999). how firm characteristics affect capital structure: an international comparison, journal of financial research, 22(2), 161-187. 111 appendix a: results from other equation specifications * *significant at 5 percent level. the pot and tot independent variables are the same as error! reference source not found.. we also tested first order serial correlation and rejected its existence in the pot equation but could not reject in the tot equation. addressing the serial correlation in the tot model does not change our conclusions from error! reference source not found.. appendix b: summary statistics mean standard deviation minimum maximum all years book value of assets 5,697,924 6,424,713 170,157 56,400,000 total book equity 1,816,495 2,046,668 (585,951) 16,600,000 total capitalization 3,474,787 3,780,611 114,216 30,900,000 debt ratio 47.58 9.88 138.71 1988 book value of assets 3,784,639 4,110,308 170,157 23,400,000 total book equity 1,402,213 1,526,404 71,592 8,100,123 total capitalization 2,709,387 2,944,056 114,216 15,900,000 debt ratio 47.55 7.00 13 71.65 1995 book value of assets 4,794,063 4,973,854 322,197 26,800,000 total book equity 1,593,212 1,675,914 4,937 9,138,689 total capitalization 3,010,765 3,128,189 214,305 17,200,000 debt ratio 47.06 9.28 99.60 2014 book value of assets 9,348,059 10,400,000 547,545 56,400,000 total book equity 2,923,655 3,116,867 116,168 16,200,000 total capitalization 5,452,158 5,743,268 221,071 30,900,000 debt ratio 46.82 6.45 14 57.61 variance components dummy variable each year dependent variable change in debt ratio change in debt ratio pot coefficient equation (4) -0.0599* (0.0115) -0.0629* (0.0116) tot coefficient equation (5) 0.2569* (0.0128) 0.2585* (0.0129) constant 0.0104* (0.0023) -0.0002 (0.0009) 0.0114* (0.0056) -0.0027 (0.0048) r2 0.0327 0.1532 18 strategic choice and firm performance during covid-19 albena r. ivanova robert morris university marcel c. minutolo robert morris university this paper aims to identify successful strategies for private companies to increase liquidity during times of crisis. we define four strategic choices based on an introduction and/or discontinuation of new products or services: cannibalization, retrenchment, expansion, or entrenchment. we use a micro data set from a worldwide survey of 10,349 companies conducted between april and september 2020 by the world bank. our results show that for most companies liquidity during covid-19 decreased or at best stayed the same. due to the pandemic, firms applied one of the four strategies, with the majority of the firms applying an intrench strategy. the chi-square test was used to assess which strategy is associated with increased liquidity during the covid-19 pandemic. results indicate that liquidity increased or stayed the same for the companies using the expansion strategy, followed by cannibalization, intrench, and retrench strategies. expansion and cannibalization strategies are both associated with the introduction of new products and/or services, suggesting that innovation is the key to surviving a pandemic crisis. keywords: crisis, crisis management, strategic choice, innovation, covid-19 introduction duquesnois et al. (2010) build the argument that in times of crises some firms “will disappear, others will not be affected, while others will improve their performance” (p. 251). while it may seem tautological, the statement warrants additional consideration. managers of firms will implement strategic choices in these periods that will result in the overall survival of the institution. in times of crisis, firms have four options: cannibalizing their existing offerings, retrenchment, intrenchment, or expansion. the covid-19 pandemic has caused firms all across the world to face difficult competitive choices given strict government policies enforced to mitigate the spread. during the peak of the quarantine policies in the united states, unemployment rose to 13 percent as a result of businesses shutting down and laying off employees (u.s. bureau of labor statistics, 2021). during this period, some organizations opted to offer new products or services; some discontinued operations altogether; and, still others offered their existing products or services in new ways. firms found http://journals.sfu.ca/abr 2023, volume 13, pages 18-32 http://journals.sfu.ca/abr 19 different channels to deliver their products or services while others found new means for customers to access them. the pandemic is, as thompson (1995) stated, a crisis that has strained businesses’ capacity to respond. the covid-19 pandemic has caused a managerial crisis that differs significantly from wellunderstood systems where firms produce relatively known and continuous output while minimizing distinct and undesirable events (schulman, 2021). regardless of the policies that governments enacted during the pandemic, firms had to decide how to react. small and medium enterprises (smes), compared to large enterprises, were under more pressure to survive, requiring them to respond effectively to the crisis (birinchi, 2022). in their work on how prepared small businesses are to manage in times of crisis, mikušová and horváthová (2022) note the importance of understanding the strategic orientation of small and medium-sized enterprises during the economic crisis. under such conditions, a firm might decide to update its offerings or organization (briciu et al., 2012), innovate (doern, 2017), be entrepreneurial or change its market orientation (beliaeva et al. 2020). the current research is motivated by the behaviors that firms took in response to the crises caused by the pandemic. in this article, we employ miles et al.’s (1978) framework to test firms’ strategic responses. the framework proposed uses two dimensions: exploration and exploitation, wherein firms have four strategic responses to changes in market conditions: prospect, analyze, defend, or react. a prospector creates new products (high exploration) with high technology flexibility for rapid response facilitated by administration (low exploitation). an analyzer locates new products and opportunities (high exploration) while maintaining the same customer base (high exploitation). a defender creates a stable set of existing products without new products (low exploration) and focuses on the efficiency of the current process by maintaining strict administrative control (high exploitation). a reactor has no specific business approach and thus is the most undesirable strategy (low exploitation and low exploration) (miles et al., 1978). the particular contribution of this work is in analyzing these strategic responses amid global crises. in the remainder of this paper, we discuss the salient literature and then present our data and our approach to consider the relationship between this strategic choice typology. after the methods section, we present the results. finally, we present a discussion of the results and potential implications as well as follow-up research that may be of value. literature review strategic choices the explanatory framework proposed by miles et al. (1978) identified four strategic choices: prospect, analyze, defend, or react. the first three choices may be viewed as positively adaptive behaviors in response to market conditions whereas the fourth is maladaptive behavior. in the context of this framework, prospectors develop new products or services in response to changes in the market. defenders’ choice in response to changing conditions is to “dig in” and maintain their market position which may come in the form of cost reductions. those firms that choose an analyze strategy focus on two activities: learning and scanning. the analyzers are taking a “wait and see” approach keeping their strategy open and waiting to see how the market responds and looking for creativity. finally, those who merely react find themselves constantly shifting, trying to stay afloat but without gaining any stability. some have criticized this framework as an oversimplification of the strategy-structure relationship (conant et al., 1990) but many claim that miles et al. (1978)’s framework remains relevant (desarbo et al., 2005; hambrick, 1983; kabanoff & brown, 2008). in response to the strict quarantine restrictions imposed on establishments, firms had to decide (i) to offer or not to offer new products or services and (ii) to keep or discontinue existing products or services. this is illustrated in figure 1 where we model the strategic choice space. those firms that 20 continue their existing offerings while introducing new ones do so at the risk of cannibalizing their existing products. these establishments are referred to as prospectors. organizations that discontinue an offering while not introducing new products are retrenching; these firms are reactors. firms that do not innovate or discontinue products are intrenching; they are the defenders. finally, firms that discontinue a product and introduce a new product are expanding; they are the analyzers. figure 1 graphic representation of strategic choice space liquid assets theory liquid assets theory states that firms need to hold large amounts of liquid assets as reserves against possible demands for payment of depositors (nzotta, 2004). holding short-term assets under this theory is necessary as a buffer in the face of various uncertainties in business operations and the various needs of a firm. nzotta (2004) states that the amount of liquid assets is dependent on a firm’s perceived needs, volatility of deposits, financial market conditions, and monetary policies of the government. the response by governments around the world during the covid-19 pandemic resulted in a large direct shock to corporate profits (almeida, 2021). this shock increased risk for many firms resulting in a rise in the demand for liquidity from affected firms. chebbi et al. (2021) found that as the daily number of new cases increased, stock liquidity decreased. in response to the increase in cases, governments around the world imposed lockdown restrictions to arrest the spread. guerini et al. (2020) found that the lockdown triggered an unprecedented increase in the share of illiquid and insolvent firms in france. amnim et al. (2021) found that the lockdown restrictions harmed liquidity in nigeria. analyzing 49 countries around the world, zaremba et al. (2021) found that business and school closures resulted in the deterioration of liquidity broadly. in response to liquidity challenges faced by firms during the pandemic, some countries issued long-term debt to increase cash holdings (almeida, 2021) by providing access to stimulus and capital to prop up the firms. for instance, in the united states, the government provided the paycheck protection program as forgivable loans as a means to provide payroll support allowing for greater liquidity (https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheckprotection-program). nonetheless, firms still needed to find a way to respond to the changing retrench (reactor) cannibalization (prospector) intrench (defender) expansion (analyzer) new product d is co nt in ue d pr od uc t no yes n o y es 21 purchasing patterns that resulted from government health policies. as suggested above, one strategic choice was to introduce new products or services for the market or to discontinue them to reduce risk. formalizing the hypothesized relationship between each of the strategic choices in light of liquidity theory, we propose the following: h1. firms that introduced new products or services (expansion and cannibalization) will report more often an increase in liquidity compared to those who did not introduce new products or services(intrench and retrench) h2. firms that discontinue old products or services (retrench and cannibalize) will report a decrease in liquidity more often compared to those who did not discontinue old products or services (intrench and expansion) the response “introduce new products or services” is thought to be a proactive, offensive response to the changes in the market when there is increased solvency. conversely, the response “discontinue old products or services” is thought to be a reactive, defensive strategy in light of increased insolvency. in the following section, we introduce the proposed relationship between the strategic choice developed in the preceding section and liquidity as developed in this section. proposed relationship between strategic choice and liquidity one may argue that strategic choice and environmental determinism represent mutually exclusive, competing explanations of organizational adaptation. this research will explore the view of hrebiniak and joyce (1983) that strategic choice and determinism are independent. they demonstrate that the result is a typology of firm adaption where the interaction of choice and determinism can be described as natural selection, differentiation, strategic choice, and undifferentiated choice. this typology determines the decision space of strategic choices available to the firm. this typology fits well with the miles et al. (1978) typology and aligns with the current work. in fact, under the conditions set by the covid-19 restrictions, environmental determinism would directly affect firm behavior. however, strategic choice suggests that firms have volition as to how they respond. as illustrated in figure 1, one strategic choice that a firm has in the face of environmental determinism is to expand its product or service offering while continuing to offer what it had been offering in the past. this decision is hrebiniak and joyce’s (1983) strategic choice, what we call expansion. under the same environmental conditions, some firms may discontinue a product or service thereby cannibalizing their current business, a differentiation choice. this leads us to the following hypotheses: h3: firms that use expansion will report an increase in liquidity more often than firms that use cannibalization h4: firms that use expansion will report an increase in liquidity more often than firms that intrench building on the previous line, firms have additional choices available to them. in addition to expansion and cannibalization, as illustrated in figure 1, firms may decide to intrench or retrench. in the case of intrenchment, firms decide to “dig in” with their current offering and wait to see what the environment will do; this amounts to an undifferentiated choice. finally, others may decide to cut out 22 some of their offerings focusing on a small, core piece of their business. this approach amounts to retrenchment or, as hrebiniak and joyce (1983) state, natural selection. the cannibalization, expansion and intrench strategic choices correspond to prospector, analyzer, and defender as introduced by miles et al. (1978). these three strategies are viewed as positively adaptive behaviors in response to market conditions, whereas the fourth strategy, retrenching (reactor) is a maladaptive behavior and thus should be avoided (miles et al. 1978). this is a situation when the company’s top management does not have a specific business approach but rather tries to catch up with the market as the environment changes. miles et al. (1978) suggest three reasons for this unstable strategic choice: (i) top management does not have a strategy; (ii) the organizational structure does not support the business strategy; and, (iii) top management maintains the old ways of doing things. this strategic choice is the way firms fail and will lead to the lowest performance. in line with this logic, we propose: h5: firms that intrench will report an increase in liquidity more often than firms that retrench h6: firms that cannibalize will report an increase in liquidity more often than firms that use retrench we can expand on figure 1 with the inclusion of the hypotheses. figure 2 provides a summary of the hypotheses. the direction of the arrows illustrates the direction of increased liquidity. figure 2 – summary of hypotheses in the next section, we present our data and methodological approach. retrench (reactor) cannibalization (prospector) intrench (defender) expansion (analyzer) new product d is co nt in ue d pr od uc t no yes n o y es h1 h2 h3 h4 h5 h6 23 method survey and dataset we source our data from the world bank open data database (world bank). the world bank developed a follow-up covid-19 company survey to assess the impact of the covid-19 pandemic on the global private sector. the follow-up covid-19 data is part of the enterprise survey that the world bank conducts. this survey is a firm-level survey of a representative sample of an economy’s private sector. the survey targets companies with five or more employees and is answered by business owners and top managers. the follow-up covid-19 survey was carried out in 30 countries, but the number of interviews depends on the economy’s size, from 150 in small countries to 1200–1800 in large economies (olczyk & kuc-czarnecka, 2021). the world bank had two rounds of follow-up surveys. our research is based on data obtained during the second completed round, between june and september 2020. the topics covered include changes in sales, demand for products or services, supply of inputs, workforce, cash flow availability, and government support. the survey was conducted using mainly computer-assisted telephone interviewing (cati), a telephone surveying technique in which the interviewer follows a script provided by a software application. telephone interviews are supported by email for selfadministration if needed. the exceptions are three african countries (face-to-face interviews) and russia, where an online survey was applied (olczyk & kuc-czarnecka, 2021). respondents to the survey cover micro, small, medium, and large enterprises from 30 countries including europe, asia, africa, and central america. a representative sample of the private sector excluding agriculture and extractive industries covers companies dealing in manufacturing (49.2%), retail (20.1%), and other services (30.8%). small and medium-sized firms account for 60% of the sample in the manufacturing sector and almost 88% in retail. we present the descriptive statistics of the sample in table 1 where we see that the largest number of respondents come from manufacturing. table 1 descriptive statistics of the variables (n = 10,288) respondents number percentage sector manufacturing 5,064 49.2 other services 3,156 30.7 retail services 2,068 20.1 size (by # of employees) micro (less than 10) 158 30.8 small (10-49) 4352 42.5 medium (50-249) 2141 20.9 large (more than 250) 599 5.8 strategic choice cannibalization 917 8.9 retrench 1,187 11.5 expansion 1,307 12.7 intrench 6,817 66.3 24 missing 60 0.6 liquidity increased 970 9.4 remained the same 3,531 34.3 decreased 5,728 55.7 don’t know 59 0.6 introduced new products or services yes 2,230 21.7 no 8,011 77.9 don’t know 47 0.5 discontinued old products or services yes 2,107 20.5 no 8,128 79 don’t know 53 0.5 measures the strategic choice was measured by combining the answer to two questions. the first question asks the respondent if the company has introduced or discontinued new products or services. the second question asks the respondent if the company has seen an increase, decrease, or no change in liquidity. the analysis covers survey data obtained from the world bank’s enterprise surveys covid19 survey, round 2 from 2021 (enterprise survey, 2021). the research sample includes 10,288 companies from 30 countries. however, it should be noted that not all respondents answered every question; hence, the number of observations at individual stages of the analysis may differ. the chisquare test was used to determine the differences between the expected and the observed values of the variables of interest for different strategic choices. results in this section, we present the results of our analysis. in each section, we test the hypothesis developed earlier using the chi-square test of homogeneity. franke et al. (2012) state that the chisquare test of homogeneity is often used to compare two or more conditions on a categorical outcome. given the nature of the survey and the responses of the participants, our data is categorical, and as such this test statistic is appropriate. new products or services and liquidity the first hypothesis (h1) states that firms that introduced new products or services, a form of innovation during the crisis, will report an increase in liquidity. the null hypothesis is that there is no relation between the introduction of new products or services and a change in liquidity. the expected counts presented in table 2 are the counts in case the null hypothesis were valid. the observed counts (listed only as “counts” in the table) report the actual counts of companies in each crosstabulation category. for example, if there is no relationship between new products/service 25 introduction and liquidity, we would expect to have 209 companies that report an increase in liquidity, 762 will report no change in liquidity, and 1,241 will report a decrease in liquidity. however, we observe that these numbers are different. in particular, the number of companies that introduced new products and services and reported an increase in liquidity (n = 399) was higher than the expected count (n = 209). the number of those who introduced new products and services and did not observe a change in liquidity (n = 682) was lower than the expected count (n = 762). the number of those who introduced new products and services and reported a decrease in liquidity (n = 1126) was lower than the expected count (n = 1241). the pearson chi-square statistic for this test is 247.50 (p < 0.001), which leads to a rejection of the null hypothesis and the conclusion that there is a significant correlation between new products and services introduction and change in liquidity. the conclusion is that companies who introduced new products and services reported an increase in liquidity more often than expected and companies who did not introduce new products and services reported an increase in liquidity less often than expected. this provides support for hypothesis 1. table 2 cross tabulation results for new product introductions and change in liquidity liquidity/cash flow change don't know increased remained the same decreased total introduced new products or services yes count 17 399 682 1126 2224 expected count 12 209 762 1241 2224 no count 37 563 2823 4581 8004 expected count 42 753 2743 4466 8004 total count 54 962 3505 5707 10228 expected count 54 962 3505 5707 10228 note: the chi-square test was significant at 0.001 discontinuation of old products or services and liquidity our second hypothesis states that firms that discontinue old products or services will report a decrease in liquidity more often as compared to those that do not. the results from the analyses presented in table 3 reveal that the number of those who discontinued old products or services and reported a decrease in liquidity (n = 1512) was higher than the expected count (n = 1176). similarly, the number of those who did not discontinue old products or services and reported a decrease in liquidity (n = 4201) was lower than expected (n = 4537). the pearson chi-square statistic for this test is 342.05 (p < 0.001), which leads to a rejection of the null hypothesis and the conclusion that there is a significant relationship between the discontinuation of old products or services and the change in liquidity. companies who discontinued old products or services reported a decrease in liquidity more often than expected and companies who did not discontinue old products or services reported a decrease in liquidity less often than expected. this provides support for hypothesis 2. table 3 cross tabulation results for discontinued products or services and change in liquidity liquidity/cash flow change don't know increased remained the same decreased total 26 discontinued products or services yes count 20 202 373 1512 2107 expected count 11 198 722 1176 2107 no count 34 760 3133 4201 8128 expected count 43 764 274 4537 8128 total count 54 962 3506 5713 10235 expected count 54 962 3506 5713 10235 note: the chi-square test was significant at 0.001 expansion versus cannibalization and liquidity our third hypothesis states that firms that use expansion will report an increase in liquidity more often than firms that use cannibalization. the results from the analyses presented in table 4 reveal that the number of those who chose expansion and reported an increase in liquidity (n = 252) was higher than the expected count (n = 235). similarly, the number of those who chose cannibalization and reported an increase in liquidity (n = 147) was lower than expected (n = 165). the pearson chi-square statistic for this test is 105.21 (p < 0.001), which leads to a rejection of the null hypothesis and the conclusion that there is a significant correlation between expansion and cannibalization, and the change in liquidity. companies who chose expansion reported an increase in liquidity more often than expected and companies who chose cannibalization reported an increase in liquidity less often than expected. this provides support for hypothesis 3. table 3 cross tabulation results for cannibalization and expansion and change in liquidity liquidity/cash flow change don't know increased remained the same decreased total strategic scope cannibalization count 11 147 186 573 917 expected count 7 165 281 464 917 expansion count 6 252 496 553 1307 expected count 10 235 401 662 1307 total count 17 399 682 1126 2224 expected count 17 399 682 1126 2224 note: the chi-square test was significant at 0.001 intrench versus expansion and liquidity our fourth hypothesis states that firms that use expansion will report an increase in liquidity more often than firms that use intrench. the results from the analyses presented in table 5 reveal that the number of those who chose an expansion and reported an increase in liquidity (n = 252) was higher than the expected count (n = 122). similarly, the number of those who intrenched and reported an increase in liquidity (n = 508) was lower than expected (n = 638). the pearson chi-square statistic for this test is 190.67 (p < 0.001), which leads to a rejection of the null hypothesis and the conclusion that there is a significant correlation between expansion and intrench and the change in liquidity. companies who chose expansion reported an increase in liquidity more often than expected and companies who intrenched reported an increase in liquidity less often than expected. this provides support for hypothesis 4. 27 table 5 cross tabulation and chi-square results for expansion and intrench and change in liquidity liquidity/cash flow change don't know increased remained the same decreased total strategic scope expansion count 6 252 496 553 1307 expected count 6 122 504 675 1307 intrench count 28 508 2636 3645 6817 expected count 29 638 2628 3523 6817 total count 34 760 3132 4198 8124 expected count 34 760 3132 4198 8124 note: the chi-square test was significant at 0.001 intrench versus retrench and liquidity our fifth hypothesis states that firms that intrench will report an increase in liquidity more often than firms that retrench. the results from the analyses presented in table 6 reveal that the number of those who intrenched and reported an increase in liquidity (n = 508) was higher than the expected count (n = 480). similarly, the number of those who retrenched and reported an increase in liquidity (n = 55) was lower than expected (n = 84). the pearson chi-square statistic for this test is 278.38 (p < 0.001), which leads to a rejection of the null hypothesis and the conclusion that there is a significant correlation between intrench and retrench and the change in liquidity. companies who intrenched reported an increase in liquidity more often than expected and companies who retrenched reported an increase in liquidity less often than expected. this provides support for hypothesis 5. table 6 cross tabulation results for retrench and intrench and change in liquidity liquidity/cash flow change don't know increased remained the same decreased total strategic scope retrench count 9 55 187 936 1187 expected count 6 84 419 679 1187 intrench count 28 508 2636 3645 6817 expected count 32 480 2404 3902 6817 total count 37 563 2823 4581 8004 expected count 37 563 2823 4581 8004 note: the chi-square test was significant at 0.001 retrench versus cannibalization and liquidity our sixth hypothesis states that firms that use cannibalization will report an increase in liquidity more often than firms that retrench. the results from the analyses presented in table 7 reveal that the number of those who chose cannibalization and reported an increase in liquidity (n = 147) was higher than the expected count (n = 88). similarly, the number of those who retrenched and 28 reported an increase in liquidity (n = 55) was lower than expected (n = 114). the pearson chi-square statistic for this test is 96.36 (p < 0.001), which leads to a rejection of the null hypothesis and the conclusion that there is a significant correlation between cannibalization and retrench and the change in liquidity. companies who chose cannibalization reported an increase in liquidity more often than expected and companies who retrenched reported an increase in liquidity less often than expected. this provides support for hypothesis 6. table 4 cross tabulation results for cannibalization and retrench and change in liquidity liquidity/cash flow change don't know increased remained the same decreased total strategic scope cannibalization count 11 147 186 573 917 expected count 9 88 163 658 917 retrench count 9 55 187 936 1187 expected count 11 114 210 851 1187 total count 20 202 373 1509 2104 expected count 20 202 373 1509 2104 note: the chi-square test was significant at 0.001 results results suggest that, overall, expansion is the best strategic choice during a pandemic crisis. the results from the analysis provide a comparison of the four strategic choices and their impact on liquidity. as illustrated in figure 2, expansion was associated with the highest percentage increase in liquidity and the lowest percentage decrease in liquidity. combination of “remained the same” and “increased”, the two best outcomes during a crisis, is highest in the expansion. while firms may want to grow, during a time of crisis they may satisfice with at least not declining. hence, the best strategic choice overall is expansion. on the other hand, the retrench choice was associated with the lowest percentage increase in liquidity and the highest percentage decrease in liquidity. the combined total of “increased” and “stayed the same” for the intrench strategy was lowest across the board. therefore, digging one’s feet in is not a good choice given the results here. 29 figure 3 changes in liquidity by strategic choice when comparing cannibalization and intrench choices, we observe an interesting phenomenon. cannibalization is associated with both a higher percentage increase in liquidity and a higher percentage decrease in liquidity at the same time. this implies that some companies that chose a cannibalization strategy can increase their liquidity, whereas others failed in execution. with cannibalization, the company discontinues an old product and introduces a new product. as there is a risk associated with this decision, two outcomes are possible. the first possibility is for the new product to be successful, in which case the company will increase its liquidity. the second possibility is for the new product to fail, in which case the company will decrease its liquidity. as there is no support from the old production, the company takes the risk of possible failure. thus, cannibalization is a risk-taking strategic choice. in intrench, the company continues the production of the old product, without introducing any new products. the percentage of companies reporting an increase or decrease in liquidity is smaller compared to cannibalization. the percentage of companies reporting no change in liquidity is higher compared to cannibalization. this is the risk-averse strategic choice. conclusions the findings of the study provide support for all six of the hypotheses provided earlier in the article. the findings indicate that the company’s strategic choice during the covid-19 pandemic impacts performance as measured by liquidity. companies that chose the proactive response to covid-19 by introducing new products or services outperformed those that did not (consistent with hypothesis 1). companies that chose a reactive response to covid-19 by discontinuing old products decreased their liquidity compared to those who did not discontinue old products (hypothesis 2). further, companies who decide to introduce new products and keep the old production/service lines – expansion – reported more often an increase in liquidity compared to those who introduce new products but discontinue the old products/services – cannibalization (hypothesis 3). similarly, companies who decide to keep old products/services and to introduce new products – expansion – report more often an increase in liquidity compared to those who kept the old products/services and did not introduce new products/services intrench (hypothesis 4). in addition, companies who decided to keep old products/services and not introduce new products – intrench – report more often 30 an increase in liquidity compared to those who discontinued old products/services and did not introduce new products/services intrench (hypothesis 5) finally, companies who decide to discontinue the old products/services and to introduce new products cannibalization, report more often increase in liquidity compared to those who discontinue the old products/services and did not introduce new products/services – retrench (hypothesis 6). our study provides empirical evidence to test the framework proposed by miles et al. (1978). the results show that a proactive approach to market changes is in general associated more often with improved firm performance, compared to a reactive approach. new products or service introduction is associated with an increase in liquidity in general; however, there is a risk when trying to be proactive, without having the support of the old products and services, in which case liquidity may decrease. the findings of this study resonate with the claims of desarbo et. al (2005) and kabanoff and brown (2008) that the proposed framework is still relevant. there are some limitations related to the research. the survey does not include countries from the united states, canada, western european countries, and japan, which are all high-income, developed countries. for this reason, we cannot compare the performance of the firms in developed and developing countries. it is also not possible to evaluate the performance of firms in specific sectors, which may impact performance as well as the strategic choice of a firm. additionally, we use cross-sectional data and cannot evaluate performance over time. covid-19 restrictions went through different stages over time with temporarily lifting the restrictions in late spring 2020 and re-introducing them again during the second covid-19 wave in the fall of 2020, followed by a third wave in the spring of 2021. finally, as noted by mikušová & horváthová (2020), restrictions were not imposed uniformly around the world. therefore, further research is needed to evaluate the longitudinal impact of covid-19 on firms' strategic choices and performance with respect to sanctions. a follow-up study in the future could provide evidence of the validity of the model in a post-pandemic environment. references almeida, h. 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(2021). covid-19, government policy responses, and stock market liquidity around the world: a note. research in international business and finance, 56, 10135 https://www.bls.gov/opub/mlr/2021/article/unemployment-rises-in-2020-as-the-country-battles-the-covid-19-pandemic.htm https://www.bls.gov/opub/mlr/2021/article/unemployment-rises-in-2020-as-the-country-battles-the-covid-19-pandemic.htm https://data.worldbank.org/ 60 preannouncements: forecast or realized earnings? debjeet pradhan tarleton state university the literature has long recognized preannouncements as management forecasts issued after the fiscal period ends but before the actual earnings announcements. however, with the advent of enterprise resource planning (erp) systems, companies now can gather information promptly and process it efficiently, which allows companies to prepare earnings summaries in real-time, thus making it unnecessary to issue forecasts in the days following the quarter-end date. this study argues that any earnings announcements issued after the quarter-end date (preannouncements) by companies that have implemented erp systems are based on realized earnings. such announcements are expected to be more accurate than management forecasts, which are based on estimates of future earnings, and may be issued before the quarter-end date. this study finds that the accuracy of management voluntary disclosures and the timeliness of preannouncements improved in the periods following erp implementation. keywords: preannouncements, management forecast, enterprise resource planning introduction innovations in information technology helped companies improve worker productivity and lead to the economic boom of the 1990s. it also changed the practice of accounting in meaningful ways and influenced the way managers disclosed information to the market. many companies implemented sophisticated enterprise resource planning (erp) systems to make the processing and storage of accounting data more efficient than the legacy systems that preceded them. erp systems helped improve operational efficiency by automating many accounting and data processing tasks and by eliminating information silos. erp systems gave managers the ability to consolidate and analyze accounting information rapidly, often within a matter of days following the close of calendar quarters. the mere implementation of a software platform such as erp, however, cannot improve company performance. in the initial days of erp, implementation companies faced resistance from employees who did not want to learn new software. they did not understand how the software worked and treated it like a black box. in addition, the early versions of erp failed to produce reports that were visually attractive to management and could not be directly used in presentations. many users simply preferred to extract accounting numbers from erp only to import them into microsoft excel to conduct further analysis. although excel may have helped them prepare better-looking presentations, it deprived them of the real power of erp systems, which was the ability to consolidate and summarize large volumes of data accurately in almost real-time. a significant improvement in firm performance, expressed in terms of a ratio of cost of goods sold to revenue, was only found 3 years http://journals.sfu.ca/abr advances in business research 2021, volume 11, pages 60-77 61 after erp implementation and not in the first or second years (poston & grabski, 2001). it is reasonable to expect a variation in the level and speed of adoption of erp among firms. because erp systems can consolidate and process data in real-time, it is possible to prepare financial statements based on realized financial performance within three working days or less. therefore, once a fiscal quarter closes, there is no reason for management to issue guidance based on a forecast. any guidance issued in the days following a quarter-end date is based on actual financial performance (e.g., earnings realization), and it is not a forecast. for simplicity, such guidance is referred to as “preannouncement” in this study. the literature has long recognized preannouncements as “management forecasts issued after the fiscal period end but before the actual earnings announcements.” (e.g., ajinkya et al., 2005 (footnote 11)). miller (2005, p.1), refers to preannouncements as “estimates of earnings disclosed after the accounting period-end and before the official earnings announcement.” soffer et al. (2000, p.1) do not specifically refer to the period in which preannouncements are made, preferring instead to define preannouncements as a “voluntary disclosure of a tentative earnings amount made shortly before the formal earnings announcement.” however, the common assumption that preannouncements are forecasts or estimates is mistaken, especially after the adoption of enterprise resource planning (erp) software by operating firms (erp firms). preannouncements are based on actual earnings results and, therefore, are not forecasts at all. even so, management forecast errors are not expected to be zero for erp firms because the incentives to meet or beat earnings guidance remain (see brazel & dang, 2008; soffer et al., 2000). in this study, preannouncements are defined as any disclosure of quarterly earnings corresponding to the recently completed quarter that is released to the market after the quarter-end date but before the actual earnings announcement (ea) date. this definition is more precise than soffer et al. (2000) who define preannouncement as “a voluntary disclosure of tentative earnings amount made shortly before the formal earnings announcement”. the preannouncement (pa) timeline is depicted in figure 1 below. figure 1 – preannouncement timeline quarter end date earnings announcement (ea) date in contrast to preannouncements, forecasts are based on management projections because earnings realizations cannot be determined until the close of the quarter. for the convenience of exposition, we use the term guidance to refer to both preannouncements and forecasts. before erp implementation, the forecast period may have extended beyond the quarter-end date. after erp implementation it is extremely unlikely that management would issue a forecast after the quarter-end preannouncement (pa) management forecast guidance 62 date, knowing fully well that they will have realized earnings information within a few days. therefore, the quarter-end date is a good cut-off date to distinguish between a forecast and a preannouncement. despite all the advances of erp, there have not been many moves by firms to replace their preannouncement with formal earnings announcements, although brazel & dang (2008) show that good news firms with erp tend to report their earnings earlier than before. there could be several reasons for this behavior. first, management may not believe that there is an obvious advantage to announcing early. second, firms may lose their ability to manage the expectations of analysts and investors during earnings season. soffer et al. (2000) show that firms with good news tend to release about half of the news during preannouncements while reserving the other half for the formal earnings announcement. to the extent that firms prefer to retain this flexibility, they will not advance their earnings announcement dates. third, having a time cushion before the earnings announcement may be beneficial should there be any auditing issues or other unforeseen events that crop up late in the earnings reporting cycle. earnings announcement dates are usually announced in advance in keeping with tradition, but preannouncements allow full flexibility to firms with regard to their timing. finally, companies may prefer to stick to tradition and announce formal earnings around the same time as they have been doing in the past. this study examines the relationship between erp systems and the voluntary disclosure behavior of firm managers. empirical analysis of management disclosure and erp implementation data shows that erp helps firms reduce guidance errors, and issue preannouncements to the market in a timelier manner. literature review the securities and exchange commission (sec) requires all publicly held us corporations to disclose all information that may be relevant for an investor to decide whether they may want to buy, sell or hold a company’s security. some disclosures are mandatory (e.g., 10k, 10q) while others are voluntary. however, voluntary disclosures are not optional – if any information is pertinent to an investment decision regarding a firm, it must be released. of course, managers have broad latitude in deciding what, when, and how to release non-public information, subject to the limitations imposed by regulation fd. such flexibility in voluntary disclosures allows managers to either act in a manner that enhances the information available to investors and reduces information asymmetry between investors and managers (well-intentioned behavior, consistent with the sec’s stated purpose for financial disclosure), or act opportunistically to benefit the firm, management, or a subset of investors. the sec has passed many regulations over the years to encourage voluntary disclosures and to provide some legal protections to managers who make such disclosures. significant regulatory changes include allowing companies to include forward-looking information in regulatory filings (enacted in 1973), providing safe-harbor to companies providing forward-looking disclosures to shield them from frivolous lawsuits related to disclosures made in good faith (enacted in 1979), and extending the safe-harbor rules to protect firms from lawsuits related to forecasts that do not ultimately materialize (enacted in 1996). voluntary disclosures usually take the form of either earnings forecasts (management guidance) or pro-forma (non-gaap) earnings measures. earnings forecasts are estimates of what a company believes it will report in the future as a measure of its financial performance. pro-forma earnings are alternative earnings measures that do not conform to generally accepted accounting principles (gaap). they are prepared and disseminated by managers in the belief that they may be useful to investors. 63 management guidance prior literature documents several reasons – both well-intentioned and opportunistic – why managers voluntarily provide earnings guidance. one reason is the expectations hypothesis (ajinkya & gift, 1984 and king et al., 1990), which posits that managers issue guidance to align the market’s earnings expectations with management beliefs. guidance reduces information asymmetry between managers and investors, reduces bid-ask spreads for a company’s common stock, decreases the dispersion of analyst forecasts, and favorably influences stock prices. another reason why companies disclose earnings guidance is to reduce litigation risk associated with shareholder lawsuits (skinner, 1994). if managers withhold material information, which subsequently leads to shareholder losses, they may be subject to shareholder lawsuits that may damage their reputation and impose significant costs on the company. therefore, managers have the incentive to release material information, especially unfavorable information, to investors. finally, managers disclose earnings guidance to develop a favorable reputation for transparent and accurate reporting (graham et al., 2005). prior literature also documents examples of opportunistic disclosure behavior. for example, choi & ziebart (2004) provide evidence that shows that managers’ long-term forecasts are systematically higher than actual earnings realizations. this may simply reflect managers’ natural tendency to be optimistic. on the other hand, it may also indicate that managers prefer to be overly optimistic to maximize their stock price by increasing the market’s expectation of future earnings. several studies (hutton, 2005; ke & yu, 2006; richardson et al., 2004) have shown that managers’ short-term forecasts tend to be systematically lower than subsequent earnings announcements. managers have been known to engage in “expectations management” to talk down analysts’ expectations shortly before earnings announcements in an attempt to meet or beat consensus analyst estimates (burgstahler & eames, 2006; matsumoto, 2002). the incentives for doing this are strong: the stock market provides a valuation premium to companies that meet or beat analyst consensus estimates (skinner & sloan, 2002) but punishes companies who miss analyst consensus estimates with a large drop in share price. other evidence of opportunistic disclosure behavior includes managers issuing bad news earnings guidance around stock option award periods to temporarily depress stock prices (aboody & kasznik, 2000), and issuing overly optimistic guidance around secondary equity offerings (seos) to ensure higher prices for new shares (rogers & stocken, 2005). voluntary disclosures of non-gaap earnings measures during the boom years of the 1990s, many companies released pro-forma earnings along with their quarterly earnings announcements. managers claimed that pro-forma earnings better reflected the actual economic performance of their companies. others claimed that since pro-forma earnings did not conform to gaap, managers could use them to mislead investors. academic research on pro-forma disclosures finds evidence that supports both claims. bhattacharya et al. (2003) show that pro-forma earnings are more strongly associated with stock prices than gaap earnings, suggesting that investors find pro-forma earnings more informative than gaap earnings. other studies (lougee & marquardt, 2004) show that the quality of gaap earnings for companies that report pro-forma earnings is of a lower quality than those companies that don’t. this suggests that companies that issue pro-forma earnings do so to improve on the deficiencies of their gaap earnings. hypotheses development us firms started implementing erp systems in the early-1990s. the transition from legacy systems-generated to erp-generated financial results happened over time (it took multiple years to complete implementation at many firms). erp systems gather information on time, help process accounting information efficiently (davenport 1998; hitt et al. 2002), and provide a unified enterprise 64 view of a firm’s financial condition (dillon 1999). they also help eliminate information silos and allow managers unprecedented access to accounting information (o’leary 2000). brazel & dang (2008) show that erp system implementations shorten reporting lags, between quarter-end and earnings release dates, for “good news” firms. hayes et al. (2001) compare erp adopters with erp nonadopters and illustrate that erp adopters exhibit improved operational performance. the above evidence points to an improved internal information environment for firms with erp systems which likely helped managers provide better guidance to the market. guidance errors (abserror) are expected to have decreased significantly in the years following erp implementation: abserror = |realized earnings management guidance|/ lagged assets per share (1), where management guidance corresponds to the latest forecast or preannouncement issued before the earnings announcement. hypothesis 1: management guidance errors in erp firms decreased in the years following erp implementation the motivation for managers to manage earnings expectation upward or downward has been extensively studied in the literature (see literature review above). the incentives for managing earnings are strong: the stock market provides a valuation premium to companies that meet or beat analyst consensus estimates (skinner & sloan, 2002) but punishes companies who miss analyst consensus estimates with a large drop in share price. consequently, risk-averse managers will prefer not to issue forecasts in the days leading up to the quarter-end date when they will be close to having the actual performance data from the erp system. they will postpone the issuance of management forecasts until they have actual earnings data. if they need to issue a forecast, it will happen earlier in the quarter. hypothesis 2: for the erp firms, the number of days to quarter-end of management forecasts issued in the days before the quarter-end, will increase in the years following erp implementation erp systems can gather, process, and consolidate data in real-time. towards the end of an accounting period, although some manual intervention may be required, in the form of adjusting entries or managerial reviews, it is possible to produce financial statements in three working days or less. in any case, companies can issue preannouncements much earlier after erp implementation compared to prior periods. hypothesis 3: for the erp firms, the number of days after quarter-end of preannouncements issued in the days following quarter-end, will decrease in the years following erp implementation method sample selection erp system implementation data are obtained from a proprietary database supplied by a leading international provider of erp systems. the database contains the names of firms that implemented erp systems and the dates on which the system went live, among other details that are not used in this paper. there are 315 unique firms with ticker symbols, cusip, and permno in the database that implemented erp systems between 1994 and 1999 (go-live dates). other data, which are described in more detail in appendix 1, are available from compustat, first call, audit analytics, and ibes. the data from compustat comprise 331,569 firm-quarter 65 observations for the period 1991 through 2002. this period was chosen to include at least 12 quarters of data before the first erp implementation date and 12 quarters of data beyond the last erp implementation date. this data was merged with management forecast data from first call, big4 data from audit analytics, and erp implementation data. observations with missing values were dropped. that left us with 7009 firm-quarter observations. finally, analyst forecast data obtained from ibes were merged and the observations were limited to plus or minus 3 years from the erp implementation dates. that left 1842 firm-quarter observations to estimate our regressions. the top and bottom 1% of each continuous variable was winsorized to mitigate the influence of outliers. research design the literature has employed two different approaches to study the accuracy of management guidance. one approach focuses on the incentives facing managers and their firms (e.g., rogers & stocken, 2005). the other approach focuses on the quality of internal control over financial reporting (feng et al., 2009). the quality of internal control is directly related to the quality of the data in the financial system. the quality of data is important because, no matter the incentives, management guidance based on inferior data will be less accurate. because erp systems are expected to enhance data quality, the second approach is chosen to conduct our empirical tests. managers’ disclosures influence the market, but their decision to issue guidance, being voluntary, may, in turn, be influenced by the market. to control for this endogeneity in managers’ disclosure decisions, the two-stage least squares model of feng et al. (2009) is modified to test our hypotheses. since material weakness disclosures were not required before the implementation of the sarbanes-oxley act, the material weakness variable in their regression is replaced with a corporate governance proxy (instown). an erp dummy variable is also included in the second stage, which takes the value of 1 in the years following erp implementation and zeroes otherwise, to test the impact of erp implementation on management guidance error. in the first stage, the following probit regression of the choice to provide guidance is estimated. guidance is an indicator variable that is equal to 1 if the manager issues guidance in the quarter, and zeroes otherwise. guidance = b0 + b1erp + b2ln_ta + b3big4 + b4abschgroa + b5std_af + b6volatility + b7organizational change + b8complexity + b9financial challenges + b10instown + b11ln_analysts + σb i industry and year indicators (2) the inverse mill’s ratio (imr) from the first stage model of the choice to issue guidance above (equation 2) is used to estimate the second stage ordinary least square model below: abserror = b0 + b1erp + b2instown + b3ln_ta + b4big4 + b5abschgroa + b6dispfor + b7volatility + b8organizational change + b9complexity + b10financial challenges + b11horizon + b12absrevision + b13imr + σbi industry and year indicators + e (3) the independent variables used in equations 2 and 3 are taken from prior research. a description of the variables is included in appendix 1. ln_ta is the natural logarithm of a firm’s total assets, used here as a proxy for firm size. prior research (e.g., kasznik & lev, 1995) provides evidence of a positive association between firm size and management guidance. big4 is an indicator variable that is equal to 1 if the auditor is a big 4 auditor, and zero otherwise. prior research shows that firms using big 4 auditors tend to have better disclosures (e.g. ajinkya et al., 2005). abschgroa, the absolute value of the change in return on assets, is used as a proxy for shocks to earnings, which makes 66 it more difficult to predict future earnings (feng et al., 2009). dispfor is the standard deviation of analysts’ forecast before the issuance of management guidance. this variable captures the inter-analyst uncertainty in the earnings prospects of a firm, indicating the level of difficulty of providing accurate earnings guidance (e.g., ajinkya & gift, 1984). the variables volatility, organizational change, complexity, and financial challenges are factors, derived from a principal component analysis of 14 variables that proxy for a firm’s underlying volatility and innate uncertainty. more detail on these variables is included in appendix 2. two additional variables, horizon and absrevision are used to control for the difficulty in estimating accurate management guidance. horizon is defined as the number of days before the fiscal period-end that the management guidance is issued, where a larger number indicates more timely guidance. guidance issued after the fiscal period-end is not excluded, and thus horizon can be negative. absrevision is the magnitude of the revision suggested by the management guidance, defined as the absolute value of management guidance less the pre-existing median of consensus analyst forecast deflated by lagged assets per share. both horizon and absrevision should be positively associated with guidance error (ajinkya et al., 2005). to successfully control endogeneity, at least one independent variable should be correlated with the dependent variable in the first stage model but not the dependent variable in the second stage model. in equation (2), the logarithm of the number of analysts following a firm (ln_analysts) is correlated with the dependent variable (see feng et al., 2009; lang & lundholm, 1996; ajinkya et al., 2005). analyst following and management guidance errors are not significantly associated (ajinkya et al., 2005). for h1 to be true, the erp coefficient, b1 in equation (3) should be negative and significant. hypothesis 2 for testing hypothesis 2, the variable horizon is split into two variables, fcast_horizon and pre_horizon, where fcast_horizon = number of days from management forecast date to quarter-end date, and pre_horizon = number of days from quarter-end date to preannouncement date. the 2nd stage regression, equation (3) is modified to include fcast_horizon as follows: fcast_horizon = b0 + b1erp + b2 instown + b3ln_ta + b4big4 + b5abschgroa + b6dispfor + b7volatility + b8organizational change + b9complexity + b10financial challenges + b11absrevision + b12imr + σb i industry and year indicators + e (4) the erp coefficient, b1 in the above regression is expected to be positive and significant. hypothesis 3 for testing hypothesis 3, the following regression is estimated: pre_horizon = b0 + b1erp + b2instown + b3ln_ta + b4big4 + b5abschgroa + b6dispfor + b7volatility + b8organizational change + b9complexity + b10financial challenges + b11absrevision + b12imr + σb i industry and year indicators + e (5) a negative and significant coefficient on the erp dummy variable (b1) will support hypothesis 3. 67 results table 1 shows descriptive statistics for all variables used in the two-stage regressions for the periods before and after the completion of erp implementation. variable definitions are provided in appendix 1. guidance error (abserror) has been defined as the absolute value of the difference between realized earnings per share and management guidance per share, deflated by lagged total assets per share. univariate comparison of abserror (table 1 panel a versus panel b) demonstrates that guidance errors decrease in the period immediately following erp implementations, suggesting that erp helps managers provide more accurate guidance after erp adoption. however, a univariate analysis does not reliably explain the change in guidance accuracy because it may be driven by other variables, creating a correlated, omitted variable problem. therefore, multivariate regressions are needed to study the relationship between our dependent and independent variables. table 1 – descriptive statistics panel a: before erp implementation variable n mean std. dev. min. max. abserror 902 0.0128 0.0298 0 0.2125 ln_analysts 902 1.8259 0.7346 0 3.3673 std_af 902 0.0669 0.1120 0 2.0560 dispfor 902 0.0660 0.1032 0 1.4616 ln_ta 902 7.3650 1.5799 3.9816 11.3012 absrevision 902 0.0031 0.0272 -0.0762 0.2133 instown 902 0.0845 0.0785 0 0.4026 abschgroa 902 0.0002 0.0009 0 0.0204 financial challenges 902 0.6281 0.7701 -3.4364 2.7437 complexity 902 0.5343 1.0106 -1.3618 4.9056 organizational change 902 0.0332 0.7711 -1.8766 6.3817 volatility 902 -0.3189 1.1488 -3.7094 2.8026 horizon 902 16.3968 43.7188 -43 191 fcast_horizon 734 32.2538 34.3408 1 191 pre_horizon 168 18.5424 42.0367 1 43 panel b: after erp implementation variable n mean std. dev. min. max. abserror 940 0.0051 0.0115 0 0.1437 ln_analysts 940 2.0994 0.8338 0 3.8067 std_af 940 0.0827 0.1437 0 3.1847 dispfor 940 0.0804 0.1345 0 3.1847 ln_ta 940 7.8074 1.5297 3.6431 11.8803 absrevision 940 -0.0013 0.0139 -0.1214 0.1105 instown 940 0.0221 0.0506 0 0.4584 abschgroa 940 0.0002 0.0006 0 0.0167 68 financial challenges 940 0.6248 0.7665 -3.5444 3.0007 complexity 940 1.2398 1.4453 -1.6843 8.0460 organizational change 940 0.0882 0.6908 -1.7346 7.1868 volatility 940 0.2350 1.3416 -3.6446 4.3402 horizon 940 41.2783 59.6901 -17 162 fcast_horizon 765 58.0475 34.9062 7 162 pre_horizon 175 39.5563 83.6112 1 17 variable definitions are provided in appendix 1 hypothesis 1 suggests that management guidance became more accurate following erp implementation. the results of a two-stage least squares test of h1 are presented in table 2 (1st stage) and table 3 (2nd stage). the instrument variable for analysts following (ln_analysts) is significant, as expected, confirming that it is correlated with the choice to provide guidance (guidance), the dependent variable. consistent with the literature, the probit regression shows that management guidance is more prevalent in larger firms (e.g., ajinkya et al., 2005). guidance is also significantly correlated with several other of our independent variables shown in bold in table 2. table 2 – probit regression (1st stage) of the choice to issue guidance variable coefficient wald chi-square p-value intercept -2.4828 162.65 <.0001 erp 1.0044 446.44 <.0001 ln_ta 0.1004 15.34 <.0001 big4 0.1507 1.76 0.1849 abschgroa 46.341 3.08 0.0794 std_af -0.8778 22.64 <.0001 financial challenges -0.1115 11.7 0.0006 complexity 0.0054 0.08 0.7803 organizational change -0.0361 1.88 0.17 volatility 0.1066 34.57 <.0001 instown -1.1286 12.26 0.0005 ln_analysts 0.1802 37.94 <.0001 industry indicators included year indicators included no. of observations 1842 log-likelihood -3433.61 the coefficient on the dummy variable erp in table 3 is negative and significant at the 10% level, suggesting that, on average, erp implementations help firms improve the accuracy of management guidance, which is consistent with hypothesis 1. the fact that the coefficient on the inverse mill’s ratio (imr) is significant indicates that self-selection in the choice to issue guidance does affect management guidance error. 69 table 3 – ols regression (2nd stage) of management forecast error (abserror) variable coefficient t-stat p-value intercept -0.0089 -1 0.3166 erp -0.0024 -1.74 0.0816 instown -0.0145 -1.92 0.0544 ln_ta 0.0001 0.14 0.8906 big4 0.0023 1.22 0.2217 abschgroa 9.6957 16.78 <.0001 dispfor 0.0286 8 <.0001 financial challenges -0.0042 -7.57 <.0001 complexity 0.0016 4.57 <.0001 organizational change 0.0010 2.2 0.0283 volatility -0.0004 -1.32 0.188 horizon 0.00002 4.8 <.0001 absrevision 0.4038 19.92 <.0001 imr 0.0057 3.95 <.0001 industry indicators included year indicators included no. of observations 1842 adjusted r2 0.335 table 4 shows the results of the 2nd stage of the two-stage regression (equation 4) for fcast_horizon, the number of days to end of the quarter from the date of the forecast. although univariate results in table 1 show that the forecast horizon increased from 32.25 days before to 58.05 days after erp implementation, supporting hypothesis 2, the results of multivariate regression of fcast_horizon in table 4 do not confirm the hypothesis. the erp coefficient, though positive, is not significant. table 4 – ols regression (2nd stage) of management forecast horizon (fcast_horizon) variable coefficient t-stat p-value intercept 77.1915 2.2 0.0277 erp 5.5139 0.56 0.5746 instown -82.7839 -2.97 0.003 ln_ta -0.1062 -0.05 0.9586 big4 -5.4671 -0.94 0.3449 abschgroa 3036.0372 1.03 0.3047 dispfor 2.8656 0.19 0.852 financial challenges -5.7780 -2.73 0.0064 complexity 1.3250 1.25 0.2108 organizational change 1.9915 1.34 0.182 volatility -1.3895 -0.96 0.3385 70 absrevision 444.2482 7.07 <.0001 imr -16.1390 -1.36 0.1733 industry indicators included year indicators included no. of observations 1499 adjusted r2 0.089 table 5 shows the regression results of the 2nd stage of the two-stage regression (equation 5) for pre_horizon, the number of days after quarter-end to the date of preannouncement. the coefficient on the erp dummy is negative and significant at the 5% level, which supports hypothesis 3. the evidence shows that preannouncements are issued sooner in the period following erp implementation compared to prior periods. table 5 – ols regression (2nd stage) of preannouncement horizon (pre_horizon) variable coefficient t-stat p-value intercept 194.1816 1.55 0.1214 erp -69.4219 -2.04 0.0426 instown -47.1383 -0.62 0.5341 ln_ta -5.6915 -0.77 0.4432 big4 14.5375 0.43 0.6642 abschgroa -4353.4860 -1.01 0.3142 dispfor 8.6675 0.27 0.7905 financial challenges -8.2207 -0.95 0.3427 complexity 4.5111 1.13 0.2602 organizational change 21.8187 3.73 0.0002 volatility 16.7339 3.17 0.0017 absrevision 111.3202 0.42 0.6734 imr -70.6082 -1.72 0.0865 industry indicators included year indicators included no. of observations 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appendix 1 – variables definition erp: an indicator variable that is equal to one for quarters following erp implementation, and zero otherwise guidance: an indicator variable that is equal to one if managers issue earnings guidance in quarter t, and zero otherwise ln_ta: the natural logarithm of total assets. big4: an indicator variable that is equal to one if the auditor is a big4 auditor, and zero otherwise. beta: the slope coefficient from estimating sharpe’s (1964) market model using daily return data from quarter t-1. ln_age: the natural logarithm of the number of years that a firm is covered by crsp. abschgroa: the absolute value of the change in roa (earnings before extraordinary items scaled by lagged total assets) from quarter t-1 to quarter t. dispfor: the standard deviation of the individual analyst forecasts for quarter t, before the management guidance in quarter t. std_af: the standard deviation of the individual analyst forecasts at the beginning of quarter t. volatility: a factor comprised of cash flow volatility, sales volatility, and the existence of foreign transactions org.change: a factor comprised of asset growth, sales growth, leverage, and merger and acquisition activity. complexity: a factor comprised of the number of segments, special items, and the existence of a restructuring financial challenges: a factor comprised of return on assets, losses, research and development, and earnings volatility. absrevision: the absolute value of the revision implied by the management guidance: [|(management guidance less the pre-existing median consensus analyst forecast)|/lagged assets per share]. abserror: absolute forecast error defined as |realized earnings management guidance|/ lagged assets per share 75 instown: institutional ownership in quarter t-1. ln_analysts: the natural logarithm of the number of analysts following the firm at the beginning of quarter t. sic: one-digit sic code. imr: inverse mill’s ratio from the stage 1 regression. horizon: the number of days before the fiscal quarter-end that the management guidance is issued, where a larger number indicates more timely guidance. guidance issued after the fiscal quarter-end is not excluded, and thus horizon can be negative. fcast_horizon: the number of days from management forecast date to quarter-end date pre_horizon: the number of days from quarter-end date to preannouncement date 76 appendix 2 – factors formation specific firm characteristics, as well as its external environment, may have a systematic impact on management forecast errors. these variables are expected to be associated with innate variability and uncertainty facing a firm (feng et al. 2009). to control for these factors, 14 variables that are listed below in table a2 are selected and principal component analysis is applied to aggregate them into 4 factors as shown below. all factor loadings were greater than 0.7. these factors are used in the regressions for testing hypotheses 1, 2, and 3. table a2 – factor formation financial challenges roa losses earnings volatility r&d complexity segments restructuring special items organizational change asset growth sales growth leverage m&a volatility cash flow volatility sales volatility foreign transactions variable definitions for factor formation: roa: earnings before extraordinary items/lagged total assets losses: an indicator variable equal to 1 if earnings before extraordinary items in quarter t and t-1 sum to less than zero, and zero otherwise earnings volatility: the standard deviation of quarterly roa over the prior 7 quarters (requiring at least 3 non-missing observations) r&d: research and development expense/lagged total assets 77 segments: the natural logarithm of the total number of geographic and operating segments restructuring: an indicator variable that is equal to 1 if the firm recognized restructuring charges in quarter t, and zero otherwise special items: absolute value of special items/ lagged total assets asset growth: asset growth from quarter t-1 to t (assetst – assetst-1)/assetst-1 sales growth: sales growth from quarter t-1 to t (salest – salest-1)/ salest-1 leverage: total liabilities/ lagged total assets m&a: an indicator variable that is equal to 1 if the firm undertook a large merger or acquisition in quarter t, and zero otherwise cash flow volatility: the standard deviation of quarterly operating cash flows over the prior 7 quarters (requiring at least 3 non-missing observations) sales volatility: the standard deviation of quarterly sales over the prior 7 quarters (requiring at least 3 non-missing observations) foreign transactions: an indicator variable that is equal to 1 if the firm has foreign transactions in quarter t, and zero otherwise. preannouncements: forecast or realized earnings? introduction literature review management guidance voluntary disclosures of non-gaap earnings measures hypotheses development method sample selection research design hypothesis 2 hypothesis 3 results conclusion references variable definitions for factor formation: microsoft word martin galley draft.edited 107 employee engagement among millennial cross-cultural ministers: insights for recruitment and retainment michael roy martin lcc international university western mission agencies are in a period of transition as baby boomers enter into retirement leaving personnel voids millennials and younger generations will need to fill. millennial values and expectations are different than previous generations and these differences affect their level of employee engagement. additionally, millennials have a reputation for being difficult to manage. as a generation though, they possess characteristics that would benefit cross-cultural ministry endeavors. mission agency leaders need to understand their unique values and expectations affecting millennials' level of engagement in order to attract and retain them in crosscultural ministry positions. nine factors were gleaned from a literature review that significantly impact millennials' level of employee engagement. method of empathy-based storying (mebs) was used to present a positive and negative scenario to existing millennial cross-cultural ministers (mccms). they were asked to rank these nine factors in order of importance as they saw them affecting the protagonist of the scenario's level of engagement. forty-nine mccms took part in the survey. a statistically significant consensus was reached as to the level of significance four of the nine factors hold for mccms. meaningful and challenging work and feeling valued and affirmed by leader was viewed as most important, and access to up-to-date technology and frequent feedback from leader was least important. these results can be used to gain insights for the recruitment and retention of millennials for cross-cultural ministry. keywords: millennial, employee engagement, cross-cultural minister, job crafting, recruitment, retainment introduction we are in the middle of a crucial time in cross-cultural ministry recruitment and deployment (vanhuis, 2019). increasingly baby boomers, those born between 1946 and 19641 are retiring from active cross-cultural ministry leaving personnel gaps that need to be filled by younger ministers. the millennial generation, those born between 1980 and 19962 is now the largest generation in our society (cattermole, 2018; fry, 2020; vowels, 2014; gong, greenwood, hoyte, ramkissoon & he, 2018; gerard, 2018; rawlins, indvik & johnson, 2008) providing the greatest pool of potential replacements. mission leaders will need to give more thought as to how they can recruit and retain younger generations like millennials in order to keep or increase current deployment levels. organizations seeking to survive what has been referred to as the “war for talent” (plaskoff, 2017) have focused their attention on concepts such as employee engagement in order to recruit and retain millennials. mission agencies are, and will be, in competition with those presenting other career options for millennial talent. a better understanding of the factors that affect levels of work engagement can be one key to win this "war." 1 age range for baby boomers according to gallup as reported by wolf (2019). 2 age range for millennials according to gallup, as reported by wolf (2019) advances in business research 2020, volume 10, pages 107-119 http://journals.sfu.ca/abr 108 according to research, higher levels of employee engagement have shown benefits for organizations and businesses. highly engaged employees outperform disengaged ones by as much as 20 to 30 percent (burnett & lisk, 2019). fully engaged employees are 50% more likely to exceed their employer’s expectations (goffee & jones, 2013). companies which have four engaged workers for every one disengaged worker show 2.6 times more growth in earnings per share compared to companies with one engaged worker, or less, to one disengaged worker (choo, mat & al-omari, 2013). engaged workers help companies outperform companies with mostly disengaged workers on several metrics, including 89 percent better customer satisfaction and up to four times more revenue (goffee & jones, 2013). burnett and lisk (2019) in their research also found that highly engaged workers have better interactions with customers. most importantly, employee engagement has helped organizations retain employees (ma, mayfield & mayfield, 2018; goffee & jones, 2013) and has contributed to higher levels of commitment (dagher, chapa & junaid, 2015; devendhiran & wesley, 2017; burnett & lisk, 2019). concepts such as employee engagement have become especially important in regards to millennial workers who appear uncommitted to long-term employment: fifty percent of millennials say they will be with another employer in a year’s time (wolf, 2019). millennials are the least engaged generation. in 2016, gallup found that only 29% of millennials surveyed were engaged with their current job, while 16% were disengaged, that is, actively seeking to harm their organization (adkins, 2016a; clifton, 2016). millennials, more than any other generation, struggle to find jobs that engage them (adkins, 2016b, clifton, 2016). according to barna group, a faith and culture research agency, 9 out of 10 millennials expect to stay in their current job for only three years (when millennials go …, 2016). however, some of this non-committal behavior may be a result of millennials entering a difficult job market brought on by the great recession at the end of the first decade of the 21st century (de hauw & de vos, 2010). furthermore, some stereotypes about millennials may merely be unjust anecdotes lacking empirical backing (wong, gardiner, lang & coulon., 2008). the author carried out research in an attempt to partially address the need for more millennial cross-cultural ministers (mccms) by studying factors that create higher levels of work and organizational engagement for millennials who are already working in an overseas context. the goal was to glean insights regarding work engagement that will have implications for better overall recruitment and retention strategies with millennials in mission service. a survey was performed by the author using method of empathy-based storying (mebs), in which mccms were asked to rank nine factors according to their significance for higher levels of engagement. these factors were gleaned from an academic review of literature regarding work engagement factors for millennials in domestic job settings. an extensive list of engagement elements was refined from 19 to 9, grouping elements together according to similarity. this was done to limit the number of factors a survey participant would have to rank. it was determined that asking someone to rank more than nine factors would have been an overwhelming and complicated task. persons born in or between 1980 and 1996, and currently ministering cross-culturally in a foreign country were asked to participate in the survey. little was found during a literature review regarding mccms and work engagement. while jolene cassellius erlacher in millennials in ministry (2014) provided invaluable insights into millennials in ministry regarding their values, expectations, and experiences, most of her study was based on interviews with millennial leaders in domestic home culture ministry settings. proportionally, few of her interviews were done with mccms. therefore, this research will have value for the broader understanding of millennials in ministry by focusing solely on mccms and what they need for better work engagement. research hypothesis the author proposes that millennials ministering cross-culturally will reach a consensus that some factors for better millennial work engagement are more or less significant in their cross 109 cultural work scenarios overseas. the null hypothesis is that no consensus in the ranking exercise will be reached. literature review schaufeli, salanova, gonzalez-roma, and bakker (2002) described employee engagement as, “a positive, fulfilling, work-related state of mind that is characterized by vigor, dedication and absorption.” william kahn (1990) found that people use varying degrees of their physical, emotional, and cognitive selves at different times in their jobs. therefore, it is not reasonable to expect someone to be fully engaged at all times. rather, we should learn to view an employee on a continuum between disengaged and engaged at different levels at different points of time (wollard, 2012). with this in mind, employers need to ask, what components contribute to higher levels of engagement and what is the best way to keep employees engaged more frequently at higher levels. unfortunately, most strategies for achieving higher levels of engagement are based on old ways of thinking, starting with company needs instead of individual needs (plaskoff, 2017). human resources departments need to better align their overall practice with employee engagement strategies (choo, et al, 2013) and one of the ways this can be done is to think about the worker’s condition more holistically; cognitively, emotionally, socially, politically, economically and physically (plaskoff, 2017). this is part of a shift in focus away from what can be extracted from an employee, to what can be instilled in an employee (goffee & jones, 2013). an important aspect of this shift toward employee investment is job crafting or job design thinking. job crafting starts with the needs, wants, fears, and emotions of the employee, and focuses on designing a work experience, or “solution” with the employee’s participation (plaskoff, 2017). this is a practice worth pursuing; job crafting has shown to positively affect organizational citizenship behavior (ocb), another element of employee engagement, especially among millennials (gong et al., 20132018). furthermore, a manager’s role and actions are paramount toward creating higher levels of employee engagement. especially when managing millennials, organizations need to be careful to hire not only motivated and skilled managers, but caring managers who want to maximize each worker’s potential (clifton, 2016; kultalahti & viitala, 2014; burnett & lisk, 2019). millennials expect managers to be coaches with whom they can be close (kultalahti & viitala, 2014; kultalahti & viitala, 2015). generational differences and employee engagement strategy for the first time in history, we have four distinct generations in the workforce (plaskoff, 2017; bennett, pitts & price, 2012; hansen & leuty, 2012; cahill & sedrak, 2012). generational cohorts differ from each other based on their life experiences, attitudes, beliefs, values and behaviors (cahill & sedrak, 2012; glazer, mahoney & randall, 2019; twenge, campbell & freeman, 2012). these shared identities are all very difficult to change (cahill & sedrak, 2012). different generations see themselves as marked by different strengths and characteristics (millennials: a portrait of ..., 2010). subsequently, every generation tends to put down the next generation based on differing characteristics (glazer, et al., 2019; vowels, 2014). each generation has different ideas about how to behave in the workplace and different ideas about what to expect from their employers (glazer et al., 20132019). it is important, therefore, to understand these differences and adapt accordingly, especially with newer generations entering the workforce. unfortunately, most leaders have taken a “wait and see” approach, anticipating that as younger workers grow older, they will adapt and fit in with what is expected of them (cahill & sedrak, 2012). such leaders may soon be disappointed, for hansen and leuty found in their research that work values are influenced more so by their generational cohort than their age (2012). as workers age, they are unlikely to change in order to fit in or adapt to their employer's 110 expectations. the onus therefore, it would seem, is on managers and leaders of organizations to understand and know how to manage people from different generations with different values. millennials – who are they? millennials are the largest living generation (cattermole, 2018; rawlins et al., 2008) and are expected to peak in the united states at 74.9 million people in 2033 (fry, 2020). millennials grew up with very different experiences as kids and youth (cahill & sedrak, 2012). they were the most supervised generation (vowels, 2014). they were raised by child-centric, high-performance parents (glazer et al., 20132019, raymo & raymo, 2014) and possess an intense drive to succeed because of the high expectations placed upon them (erlacher, 2014). they were constantly told they were special and encouraged that they could do anything they wanted to which may have contributed to a sense of entitlement and narcissistic behavior (erlacher, 2014; cahill & sedrak, 2012). they were encouraged in school to work together which generally makes them better team players than other generations (vowels, 2014). technology, which they are very comfortable with, was a present reality in their lives from birth (vowels, 2014; gerard, 2018). they were raised egalitarian, in that everyone got a prize just for simply participating (cahill & sedrak, 2012). millennials are confident and optimistic (adkins, 2016b). when millennials were asked in a survey to agree or disagree with the statement, “i believe i can do something great,” 96% agreed (vowels, 2014). they desire responsibility, even demanding it (martin, 2005) and want to be included in decision-making processes (luscombe, lewis, & biggs, 2013). millennials expect to get rewards, development opportunities and promotions immediately upon employment (cattermole, 2018). one of the most defining characteristics of millennials is their use of technology (millennials: a portrait of ..., 2010). the introduction of the internet during their youth has changed the way millennials "…interact, consume content, browse, buy and work" (adkins, 2016b). gordon, in her research into millennial librarians and their needs, states that millennials have learned to use technology as naturally as they have learned to speak their native language (2010). for this reason, millennials expect that all technology in their workplace will be up-to-date (luscombe et al., 2013). millennials bring a lot of strengths, benefits, and positive values to the workplace. millennials are stronger team players than most generations (gordon, 2010; cattermole, 2018). they desire collaboration (martin, 2005), so offering opportunities to work in teams is one way to attract them into organizations (bennett et al., 2012). as well, training and development are highly valued by millennials (gordon, 2010; glazer et al., 2019; luscombe et al., 2013; adkins & rigoni, 2016). they expect that their work will be varied and include meaningful, challenging tasks which provide opportunity for growth (kultalahti & viitala, 2014; kultalahti & viitala, 2015). providing opportunities to develop their skills creates ways for them to increase credibility with co-workers which in turn helps increase commitment (gerard, 2018). millennials in cross-cultural ministry millennials are needed in cross-cultural ministry. leaders need to see millennials as the solution instead of the problem, and that they are needed to replace retiring baby boomers (cahill & sedrak, 2012). much discussion to this effect is taking place in the business world, but unfortunately, not as much as it needs to be in ministry spheres (erlacher, 2014). this is unfortunate, for millennials have shown more proclivity to service than other generations (gong et al., 20132018). millennials have other characteristics and values that fit well with cross-cultural ministry, which vowels (2014) lays out:  they are a high performing generation if managed properly  they are optimistic and possess unfailing hope 111  they have a holistic approach to ministry  they consider other cultures as equal to their own  they are concerned about alleviating human suffering erlacher (2014) adds that they were taught from an early age to value collaboration and teamwork, along with tolerance of differences and engage strongly with social justice issues which seem to be noble character traits of those seeking to minister cross-culturally. issues managing millennials millennials have been referred to as a generation “much maligned” (cattermole, 2018, p. 290). some see them as lazy and self-centered (when millennials go …, 2016; lacore, 2015; rawlins et al., 20132008). many people see them as entitled and narcissistic, making them difficult to please (robison, 2018) and giving them an over-inflated view of themselves (vowels, 2014). being the most over-supervised generation ever makes many millennials seem emotionally needy (luscombe et al., 2013) and often they project the role of parent onto their leaders causing extra pressure and frustration (erlacher, 2014). many millennials were sheltered growing up, making it harder for them to deal with disappointment (erlacher, 2014). gordon states that they have the reputation of being, “… a generation of needy adults who can’t think for themselves” (2010, p. 395). millennials need constant praise (cahill & sedrak, 2012) and when there is an absence of constant affirmation, they begin to think that something is wrong (erlacher, 2014). furthermore, millennials can easily become bored as a result of being constantly occupied growing up (cahill & sedrak, 2012). these supposed attributions may become a source of stress for managers working with millennials. in regards to work engagement, millennials are the least engaged generation in the workforce today (adkins, 2016a; gong et al., 20132018). many millennials struggle to find jobs that engage them making millennials appear notoriously non-committal (clifton, 2016). this low level of commitment and psychological detachment from their jobs creates, by and large, a state of disinterest in long-term employment with their current employer (gong et al., 20132018). however, this may be a result of the life-stage millennials are currently in, which could change as more get married and have families of their own (glazer et al., 20132019). as well, some of this can be contributed to the job environment millennials found themselves in during the great recession (de hauw & de vos, 2010). the nine factors for better millennial engagement while researching millennial values and expectations in the workplace, certain themes repeatedly came forward as important factors affecting millennials' levels of work engagement. as mentioned beforehand, these themes were condensed into a list of nine factors. these factors were later used in a survey given to mccms to determine which ones were most or least significant for them for increasing levels of engagement. these nine factors are as follows: frequent feedback from leader(s) regarding performance (cattermole, 2018; no accounting for taste …, 2017; martin, 2005; gordon, 2010; clifton, 2016; luscombe et al., 2013), meaningful and challenging work (luscombe et al., 2013; gerard, 2018; martin, 2005; kultalahti & viitala, 2014; glazer et al., 20132019; vowels, 2014; erlacher, 2014; gong et al., 20132018, de hauw & de vos, 2010), feeling valued and affirmed by leader(s) (luscombe et al., 2013; gordon, 2010; erlacher, 2014; cahill & sedrak, 2012), opportunities for growth and development (kultalahti & viitala, 2014; kultalahti & viitala, 2015; adkins & rigoni, 2016; glazer et al., 20132019; gong et al., 20132018; gordon, 2010; de hauw & de vos, 2010), collaborative team environment (bennett et al., 20132012; erlander, 2014; vowels, 2014; martin, 2005; kultalahti & viitala, 2014; kultalahti & viitala, 2015; gordon, 2010; de hauw & de vos, 2010), access and use of up-to-date technology (martin, 2005; luscombe et al., 2013; millennials: a portrait of ..., 2010; vowels, 2014; erlacher, 2014), personal and open relationship with leader(s) (robison, 2019; clifton, 2016; kultalahti & viitala, 2015; martin, 2005; cattermole, 2018; erlacher, 2014; bennett et al., 20132012; cattermole, 112 2018), good work-life balance with flexible schedule (no accounting for taste …, 2017; martin, 2005; cattermole, 2018; gordon, 2010; kultalahti & viitala, 2015; erlacher, 2014; hasen & leuty, 2012; rawlins et al., 20132008; de hauw & de vos, 2010; twenge, 2010), being involved in decisions (luscombe et al., 2013; cattermole, 2018; vowels, 2014; gordon, 2010; martin, 2005). methodology data was collected in a survey using method of empathy-based storying (mebs). mebs has its roots in narrative inquiry and passive, non-active role playing (kultalahti & viitala, 2014). it came to be used as a substitute for deception used in experimental psychology (wallin, koroljungberg & eskola, 2019). the mebs approach has been called “applied empathy” (wallin et al., 20132019) where a participant is encouraged to look at the scenario from the protagonist’s perspective. in this way, the participant reveals their own perceptions, reasoning, expectations and values by transposing them onto the character’s situation. in mebs, participants are encouraged to imagine what the protagonist is thinking and feeling, thus creating a connection. mebs is thus well suited to examine the unique motivators that engage millennials by providing a framed story with which they can relate and bring their own unique interpretation to it, thus revealing their own values and expectations in similar situations. mebs is based on framed stories which are presented to participants in two variations with a single changed element. in this case, one story is about a positive experience and one story is about a negative experience involving the same protagonist in an overseas mission context; one day mel, who is a cross-cultural minister, comes home at the end of a day. mel feels motivated, dedicated, invigorated and is absorbed in the ministry. it is nice to start each morning and mel is always looking forward to the next day. mel’s relationship with the organization is thriving and mel enjoys the work. why would mel feel this motivated, dedicated, invigorated and absorbed with the ministry? one day mel, who is a cross-cultural minister, comes home at the end of a day. mel feels tired, demotivated, disconnected and depleted. mel feels drained and disconnected from the ministry. it is not nice to start each morning and mel dreads the beginning of each new day. mel’s relationship with the organization is distant and mel does not enjoy work. why is mel unmotivated, not dedicated, invigorated or absorbed with the ministry? the survey participants were then asked to rank the nine engagement factors for millennials, from most to least significance as they affected mel's experience in the different scenarios. a list of negative factors, for ranking was provided for the negative scenario and were the opposite of the positive factors:  infrequent feedback from leader(s) regarding performance  boring routine tasks without meaning  doesn't feel valued or affirmed by leader(s) or team  lack of development opportunities  lack of collaborative team  distant and closed relationship with leader(s)  no access to up-to-date technology  poor work-life balance with inflexible schedule  not involved in decision-making participants were sought through approaching different mission agencies, the leaders of which were sent a link to the online survey hosted by survey monkey. leaders were asked to distribute the survey link to millennials in the specified age bracket who had ministered or were currently ministering in a foreign country and who had at minimum three months of experience overseas. completed surveys were filtered to include only millennials born in or between the years 113 1980 to 1996 during data analysis. this age bracket was frequently used by gallup in their millennial research and was therefore chosen as an age parameter for this survey. according to this criteria, 49 valid surveys were collected for analysis. data was analyzed quantitatively using spss and analysis tools provided by survey monkey. results in the survey, the participants ranked all nine factors from one to nine, one (1) being the most significant and nine (9) the least significant factor. survey monkey then inverted these rankings so that higher scores (i.e., 9) indicated higher significance and lower scores (i.e., 1) indicated lower significance. for the positive mebs scenario, the factor accorded the highest score (8.18 out of 9.0) was having meaningful and challenging work, indicating that participants considered this a very important factor affecting the protagonist’s positive experience in cross-cultural ministry (see figure 1). this factor was ranked number one by 63.3% (n=31) of respondents. additionally, 22.4% (n=11) ranked meaningful and challenging work as either number two or three in significance, meaning 85.7% (n=42) ranked it as one of their top three most significant factors. clearly, for most participants, having meaningful and challenging work was the most significant factor, or at least was a very important one for determining their level of engagement. two other factors rounding out the top three for importance were a collaborative team environment (score=6.12) and feeling valued and affirmed by leader(s) (score=5.98). figure 1 mebs positive scenario cumulative ranking scores the lowest score, or that considered the least significant factor affecting the protagonist’s positive experience was having access and use of up-to-date technology (score=1.45). overwhelmingly, 75.5% (n=37) ranked it the least significant factor with 90% (n=44) of participants ranking it as number eight or nine. up-to-date technology may be somewhat important for millennials ministering overseas for work engagement, but in comparison to the 114 other factors, this was overwhelmingly considered the least important. frequent feedback from leader(s) regarding performance was scored the second lowest (score=2.92). in contradiction to what other researchers have found important for millennials in the workplace, mccms seem to not consider these two factors significant for engagement. turning to the negative scenario and participants’ responses; the antithesis of meaningful and challenging work, that is, boring, routine tasks without meaning, was ranked as the most significant factor affecting the protagonist's negative experience as a cross figure 2 mebs negative scenario cumulative ranking scores cultural minister, receiving a score of 6.8 out of 9.0 (see figure 2). close to one-third of respondents, 32.7% (n=16), chose it as the most significant factor in the negative scenario. not feeling valued or affirmed by leader(s) and poor work-life balance with an inflexible schedule made up the remainder of the top three significant factors affecting the protagonist's negative experience with scores of 6.22 and 6.06, respectively. as in the positive scenario, technology was considered the least significant factor affecting the protagonist’s negative experience, scoring 1.69. most respondents, 75.5% (n=37) of them, ranked it as the least significant factor. also deemed of little significance, but with a slightly higher score of 3.49 was having infrequent feedback from leader(s) regarding performance. the majority of respondents, 61%, ranked it either number six (n=10), seven (n=10), or eight (n=10), however, one respondent ranked it number one. statistical significance analysis of the ranking responses a kolmogorov-smirnov, non-parametric test of the data found that five factors had higher meaning in their rank placement by the participants. higher homogeneity in ranking (p < .050) was found for the following factors: meaningful and challenging work (m = 1.82, sd = 1.52, p < .001), access to up-to-date technology (m = 8.55, sd = 1.00, p < .001), no access to up-to-date technology (m = 8.31, sd = 1.43, p < .001), frequent feedback from leader (s) regarding performance (m = 7.08, sd = 1.51, p = 115 .019) and boring, routine tasks without meaning (m=3.20, sd = 2.31, p = .028). with these factors, we can conclude there was a clear consensus among the survey participants as to their level of affect on feelings of engagement. the remaining factors failed to show any clear consensus as to their importance for the participants. the factors were then combined with their opposing counterpart (e.g. “meaningful and challenging work” with “boring, routine tasks without meaning”) and tested for homogeneity of variance. four pairs showed a higher level homogeneity (p < .100): meaningful and challenging work/boring routing tasks without meaning (m = 2.51, sd = 2.06, p = .001), feeling valued and affirmed by leader(s)/doesn’t feel valued or affirmed by leader(s) or team (m = 3.90, sd = 2.24, p = .011), access to up-todate technology/no access to up-to-date technology (m = 8.42, sd = 1.24, p = .035), and frequent feedback from leader(s) regarding performance/infrequent feedback from leader(s) regarding performance (m = 6.80, sd = 1.73, p = .081). therefore, we can conclude that the survey participants reached a consensus as to the importance or unimportance of these factors and their affect on levels of engagement. the remaining paired factors achieved no clear consensus under statistical analysis as to their level of importance. discussion from the survey results, we can see that there is a clear consensus that having meaningful and challenging tasks significantly affects work engagement levels for mccms. from previous research into millennial values and expectations, most millennials desire to work at something meaningful that provides them with purpose (luscombe et al., 2013; gerard, 2018; martin, 2005; kultalahti & viitala, 2014; glazer, et al., 2019; vowels, 2014; erlacher, 2014; gong, et al., 2018). that it was a top choice for mccms should not come as too much of a surprise. someone who moves from what is familiar, their home country and culture, to a place that is unfamiliar and very different is not likely looking for an easy task. furthermore, close to a third of the survey participants did not want to name the country they were in for security reasons, indicating another level of challenge beyond mere cultural adjustments. mccms seem ready to take on any challenge no matter where they go. there could be higher motivations, i.e., spiritual, involved here that seem to make the difficulties they face worthwhile and all the more purposeful. the implication here is that providing work that challenges millennials will not deter, rather would more than likely attract them to ministering overseas. mission agencies should keep this in mind when recruiting new talent. potential candidates for cross-cultural ministry positions are looking for something that adds meaning to their lives and most likely will not be dissuaded if the path ahead is difficult. furthermore, mission agency leaders could help retain their mccms by providing task variety and somehow intentionally keep mccms from falling into tasks that become boring and routine. leaders of mccms could use tools like job crafting to create, with each millennial's input, positions that suit their unique desires and motivations and provide ongoing challenge and meaning. there is also a clear consensus regarding the insignificance of access to up-to-date technology and its effect on levels of engagement. perhaps this is because the majority of mccms’ work is with people, involving social interaction, and they are not as dependent on technology in their profession as millennials would be in other lines of employment. the slightly higher score for this factor’s significance affecting the negative scenario might be an indication that as long as technology is adequate, mccms will be satisfied. perhaps this factor’s level of significance can be better interpreted using herzberg’s motivation-hygiene theory (herzberg’s motivation theory …, 2018); while the absence of technology would be unacceptable, its quality, when needed, is not significantly important. the implication for mission agencies here seems obvious; using up-todate technology most likely will not attract millennials to cross-cultural ministry, nor will it be an important factor in keeping them on board. a clear consensus regarding the significance of feeling valued and affirmed came across in the factor rankings as well. being valued and affirmed was firmly ranked as a top three significant 116 factor in both the positive and negative scenario. this provides us with an understanding how significant morale support is for mccms ministering in the places they live. encountering discouragement and difficulty in a foreign country is more likely given the added challenges of cultural adjustment. therefore, encouragement from leaders, in the form of affirmation and value placement, could play an important part in helping mccms continue in their work. for recruiters, perhaps an honest evaluation of a candidate’s gifting and qualification, followed by acknowledgment of that in the form of affirmation would be a useful strategy to attract them to overseas positions. after successful recruitment, continually communicating to them their value to the organization and the ministry seems necessary. frequent or infrequent feedback regarding their performance received clear consensus as to its relative insignificance to mccm’s level of engagement. this is a little bit surprising considering the number of times constant feedback appeared in the literature review, particularly given the research showing how annual reviews are no longer adequate for millennials and that they expect on-going, continual feedback. however, the low significance it held for mccms could be explained as a result of cross-cultural ministers needing to act more independently, being geographically distant from their leaders. or it could be that leaders’ feedback may be seen as irrelevant because their leaders are not actually in the field and lack the insight a cross-cultural minister has from their everyday experience. whatever the reason for the low significance accorded to this factor, mission agency recruiters and leaders most likely will not need to focus on this in order attract new millennials or retain their current mccms. for the rest of the remaining factors, a clear consensus regarding their level of significance for engagement was not evident. this may not mean that they are insignificant or irrelevant for mccms. all we can conclude here, based on the present data, is that the remaining factors may or may not be important enough to those surveyed to be considered as valuable recruiting and retention tools. limitations to research the covid-19 pandemic was spreading around the world as the data collection phase of this project was beginning. mission leaders seemed preoccupied with this and perhaps not as many people were reached by the survey as could have had everything been running normally. a larger sample size would likely have provided more conclusive results. as well, an overwhelming majority of participants were ethnically caucasian. having more diversity in the ethnic make-up of participants would likely have offered better insights and would have better reflected the ethnical-diversity of the millennial generation as a whole. further research further research could be made into what constitutes work that is meaningful and challenging for mccms as well as what being valued and affirmed looks like to them. some more exploration into these two factors would be beneficial given the consensus that came from the data regarding their level of significance. as well, another ranking survey could be performed with the remaining five factors that did not produce a clear consensus as to their level of significance. eliminating four factors might enable participants to differentiate better the level of significance, or insignificance, of these remaining factors. conclusion a change in personnel is happening in mission agencies now. how well mission leaders address this transition, as one generation retires and another takes its place, will define what crosscultural ministry looks like in the years to come. it is important, therefore, that leaders learn to adapt their strategies to not only accommodate the millennial generation, but also future generations to come. this research provides leaders valuable insight regarding what millennials consider important for enhancing their level of work engagement. it will be important for mission 117 agencies to provide millennials with meaningful challenges to attract and retain their presence in missions work. it will be important too that they continually affirm and communicate a sense of value 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(2008). generational differences in personality and motivation. do they exist and what are the implications for the workplace? journal of managerial psychology, 23(8), 878–890. 1 peer identification as social stratification: comparing media and network measures of status in us universities david cavazos tarleton state university william ritchie james madison university steven harper james madison university this research investigates the extent to which peer group identification serves as a measure of university status. examining association of american universities (aau) member institutions reveals that university peer groups exhibit many of the same stratification qualities as social networks. specifically, higher-status universities tend to have more reciprocal ties with one another while lowerstatus universities, in addition to having more reciprocal ties with institutions of similar status, have more one-way ties with higher-status institutions. these findings are then used as a basis to illustrate how peer group networks can be used as an alternative measure of university status. network-based measures are then compared with media rankings to illustrate a surprising disconnect between network-based status and media status. keywords: social networks; peer identification; organizational status introduction external media reports of university prestige have been increasingly important to university programs. in management, business program rankings such as those developed by u.s. news, business week, and the princeton review have increased in their prominence. such media rankings have become increasingly controversial as such measures are more widely used by the university administration. empirical analysis of business week rankings, for instance, has found that such rankings are stable over time (morgeson & nahrgang, 2008). this is a particularly troubling trend since, as morgeson and nahrgang (2008) point out; it is highly unlikely that, given the over 500 business programs, a program can be ranked in the top 30. moreover, despite the slim chances of being highly ranked, most business schools participate in the ranking process (corley & gioia, 2000). http://journals.sfu.ca/abr 2023, volume 13, pages 1-17 http://journals.sfu.ca/abr 2 such participation is particularly the case for highly ranked programs that want to maintain their rankings for fear of losing status and/or identity (elsbach & kramer, 1996). for lower-ranked programs, moving up in the rankings poses the possibility of increased visibility, higher quality applicants, improved recruiting (gioia & corley, 2002), and higher prestige job placement for graduates (bedian et al., 2010). some scholars have been critical of ranking systems. tayar (2017), for instance, argues that national rankings evaluating lgbt equity and inclusion programs are largely based on superficial changes, not substantive efforts toward increasing lgbt inclusion in organizations. these types of ranking systems legitimize only one version of acceptable practices that can be difficult for small organizations to implement and can encourage symbolic conformity to ranking principles rather than a true commitment to the practices espoused by the ranking organization. gioia and corley (2002) argue that media rankings, because of their superficiality, drive universities to pursue image management rather than more substantive endeavors. zemsky (2008) finds that such rankings do not place the development of true indicators of university quality as a priority, despite what readers of such rankings are led to believe. glick (2008) argues that such measures, particularly those of business schools, increase focus on measures of gpa, gmat scores, and student/faculty rations without understanding their inherent dynamics. moreover, some of the characteristics of these rankings, such as reputation and length of existence, are factors that are sticky at best and incapable of change at worst. as a result, university rankings remain mostly stable over time. indeed, morgeson & nahrgang (2008) found that very few institutions drop out of the rankings. because of such criticisms; calls have been made for improvements in media rankings. glick (2008), for instance, has called for the improved validity of the data used to develop media rankings. in this paper, we propose that an additional measure of status can be developed by examining university peer groups. such an approach is rooted in empirical research in institutional theory and social networks that examines the stratification effect of social exchange. such an approach to assessing status, we argue, can address some of the identified shortcomings of media-based measures, as well as those that draw on limited network measures (sauder et al., 2012). peer groups can be used as a measure of organizational status because of the stratifying quality of social exchange. building on the premise that economic activity is embedded in social relations (granovetter, 1985), scholars have shown that network ties among organizations serve as transmitters of information, standing, and legitimacy (owen-smith & powell, 2008). network relations can also serve as status signals by serving as sources of distinction among categories of organizations (davis & greve, 1997; benjamin & podolny, 1999). such status signals serve to create various positions of standing within the institutional context in which homogeneous organizations interact, also known as organizational fields. regarding the importance of organizational fields, sharkey and bromley (2015) have shown how the number of firms in an industry that have a third-party rating increases the competitive and isomorphic pressures for unrated firms in the industry to conform to the guidelines reflected in those rankings. this is further supported by tayar's work (2017) which supports the idea that institutional isomorphism acts as a powerful impetus for firms to conform to a ranking system that is adopted by multiple peer organizations. organizational fields are shaped by rules and conventions and are composed of various positions of standing. such positions are created and reinforced by cognitive and social processes (anand & watson, 2004) that occur between organizations. some positions within organizational fields are perceived as more attractive than others (owen-smith & powell, 2008). variation in position attractiveness is due to perceptions of legitimacy as well as status that stem from, among other things, organizational ties and affiliations (podolny, 2001). organizational ties between organizations can be based on reputation as well as status (podolny, 2001). such ties can reinforce or enhance organizational standing among other organizations (owen-smith & powell, 2008). accordingly, network ties among 3 organizations may stem from similar status positions. as a result of the interplay between status processes and ties, organizational networks can shape possibilities of interaction as they pull organizations into positions within an organizational field (owen-smith & powell, 2008). such positions are defined by conceptions of legitimate action and social standing. as a result of the stratifying quality of networks, the basic composition of organization field structure may be determined by examining social ties among organizations within a particular field. to the degree that they are embedded in university peer groups, such ties can be used to examine groups of organizations (e.g., universities) to reveal status orderings. this study has two primary purposes. firstly, it aims to illustrate how university peer group identification can be used to examine organizational field stratification. secondly, this research aims to develop a measure of university status based on peer group identification by applying network analysis methodology. we begin by developing hypotheses that aim to explain how network ties can serve as status signals. a review of data and methods follows. we explain our methodology which aims to examine how peer networks are based on conceptions of media ranking of universities. we then build on our data analysis by considering peer identification as an independent measure of university status. theoretical background and hypotheses the conception of peer identification as a source of university status is rooted in social network theory as well as institutional theory. such work has used an organizational field level of analysis to examine the nature of interactions among organizations. organizational fields consist of organizations that engage in common activities and are subject to similar social and political pressures. for example, the realm of higher education, and organizational fields may consist of business schools that are aacsb accredited, whereby the deans of these organizations routinely interact at various accreditation events and share information related to the operational best practices. organizational fields have various positions of standing with some being perceived as more attractive than others (owen-smith & powell, 2008). such perceptions are forged by various social processes such as certification contests and tournament rituals. examples of certification contests include tests of organizational performance such as automobile speed tests (rao, 1994); while examples of tournament rituals include award ceremonies such as the oscars or grammy awards ceremonies (anand & watson, 2004). these processes reinforce field positions by defining legitimate action and organizational standing with those organizations earning the most “victories” being considered examples of legitimate behavior. organizational networks within fields shape possibilities of interaction as they pull organizations into positions with the field. these positions will vary in terms of legitimacy and status depending on the ties that characterize such positions (podolny, 2001). status is generally regarded as shared social perceptions that people who belong to one social group are more esteemed and competent than those who belong to another social group (webster & foschi, 1988). status is a relational component of social structure that is based on perceptions of various organizational outcomes applied to an organization by other organizations (washington & zajac, 2005). an organization’s status may be conceptualized as an intangible resource, in that it contributes to performance differences, and it is rare, complex, and difficult to trade or imitate (barney, 1991; peteraf, 1993). scholars have primarily relied on media measures and rankings of status (bedian et al., 2010; wade et al., 2006; washington & zajac, 2005). such external measures of status are indeed conferred upon organizations by external actors such as other organizations and media organizations. we argue that in addition to such measures, status is composed of behavioral factors such as peer identification. podolny and phillips (1996) extended the notion of status as an indicator of quality to include organizational affiliation. they found support for the hypothesis that being affiliated with other high 4 status organizations improves organizational status. this finding leads to the conclusion that status is, in fact, partially related to the networks of a target firm. moreover, in illustrating how ties with highstatus organizations can improve a focal organization's status, podolny and philips (1996) allude to the “leakiness” of status in which a high-status organization cannot engage in exchange relations with a low-status actor without possibly diluting status. because of the leakiness of status, we hypothesize that reciprocal ties among high-status and low-status universities will be unlikely. for example, organizations of high status will not routinely reference low-status organizations. instead, such ties will be one way stemming from lower status to higher status universities as lower status universities attempt to enhance their status by identifying higher status universities as peers. h1. one-way peer identification will more likely stem from lower status to higher status universities the conception of status has been synthesized with research in organizational fields and social networks to explain how status contributes to field structure (owen-smith & powell, 2008). networks involve interconnected social relations that offer opportunities in terms of information sharing as well as setting standards of practice (cattani et al., 2008; brass et al., 2004). such association is more likely among organizations of similar status (podolny, 2001; ring & van de ven, 1992). moreover, network centrality, the possession of numerous reciprocal ties (i.e., mutual ties between low-status and highstatus organizations), has been conceptualized as a measure of organizational status whereby organizations with such ties are viewed within the organizational field as having higher status (wasserman & faust, 1994, contractor et al., 2006). as a result of such association, distinct network clusters of organizations can form among organizations of similar status. status variation in networks shapes stratification processes by creating distinct processes of association among actors of similar status (owen-smith & powell, 2008). these network associations can become rule-like structures as practices by organizations can be driven by the actions of their peers (galaskiewicz & burt, 1991). conceptions of legitimacy as well as the logic of practice can be transmitted within these networks to form distinct patterns of behavior among peer organizations (davis & greve, 1997). accordingly, we hypothesize that universities of similar status and category will likely be characterized by reciprocal ties. h2. reciprocal peer identification will occur among universities of similar status. h3. reciprocal peer identification will occur among universities of similar categorical dimensions. aau university peer identification aau was founded in 1900 by fourteen of the united states’ leading ph.d. granting institutions at a conference held at the university of chicago. the organization was created as a forum for discussion on matters relating to graduate study and with the ultimate goal of improving the reputation that the then-young american research universities. a lack of standards on what constituted the requirements for ph.d. studies and degrees was weakening the international opinion of the american educational system. an additional concern was that the american system was unregulated and more decentralized than its european counterparts. the aau is a merit-based invitation-only organization that initially consisted of eleven private and three public universities (speicher, 1990). through the years, the aau has expanded to sixty u.s. and two canadian institutions. this total number is composed of thirty-six public and twenty-six private institutions. of the fourteen original institutions, twelve are still members. the current sixty-two universities represent the nodes in the network created for this study. the list of university nodes in this network, their date of joining the aau, and their public or private status are listed in appendix a. 5 peer identification among universities is said to be driven, in part, by the need for developing organizational performance criteria. accordingly, peer selection is based on university conceptions of resource needs, financial needs, and performance measurement (hurley, 2002). selection is, thus, shaped by determining both conceptions of one's institution as well as where the institution wants to be in terms of financial resources and performance. research examining the nature of peer groups has developed four types of peer group types based on the above needs: competitor, peer, aspiration, and jurisdictional (brinkman & teeter, 1987). all, but jurisdictional, which is based on location, relies on the university conception of identification (who is like us?) and aspiration (who do we want to be?). method social network analysis we apply social network analysis to illustrate how social ties among institutions in the form of peer identification can serve as a measure of status. social network analysis has been used to study multiple relationships between multiple actors in many situations. at the heart of this analysis is the representation of data in a network form that can be illustrated by using network graphs (wasserman & faust, 1994). in network graphs, the actors in a network (e.g., people, places, or organizations) are considered nodes in the representation; most often as a circle with a title. the relationships between these nodes (e.g., friendship, or identified peers) are drawn as lines between the nodes, which are called links or edges. when appropriate, these lines will have arrowheads on one or both ends that represent the relationship link as either a one-way link or a reciprocal link. many statistical measures can be made on a social network graph. there are individual node measures, such as the number of links at that node (called degree for the total number of links, indegree for links into the node; or outdegree for links out of the node), the betweenness of a node (connecting people as in a broker arrangement), and closeness of a node to another node (via the shortest path of links). additional measures exist when considering a dyadic pair of nodes or a triadic triple of nodes. the network as a whole can have measures of network density (the ratio of the actual number of links to the theoretical maximum number of links), network centralization (the extent to which some actors have higher betweenness than the other actors in the network, e.g., organizations with tall hierocracies are more central), network components (a maximal subset of mutually reachable actors), and network cliques (a subset of actors that are completely connected, there is a link between every pair of nodes in the subset). network representation is also shared with other physical networks such as roads connecting cities or the url links connecting websites. using the metrics above, it is possible to create a ranking system for the nodes that can indicate the prestige of each node as determined by the linkages between all the nodes in the system. a premier example of this ranking is the page rank algorithm used by google to rank an individual web page's value for information of a given search term. this page rank algorithm is based upon eigenvector centrality, which uses an adjacent matrix of the network to determine the centrality value that corresponds to the prestige of the node. in this way, the prestige of each of the nodes is conserved in an iterative way to weigh the values of the incoming links to determine the final node prestige value. sample and data collection the sample used for this study consisted of the 62-member universities in the association of american universities (aau). this sample of organizations was considered ideal for this study for many reasons. first, aau organizations have been present in the marketplace for many years and have a relatively high level of resilience to external pressures, such as economic fluctuations, that might confound the study of organizational status. second, these institutions had readily available data 6 related to the nature of the relationships between member organizations in the aau. third, these organizations are similar to other organizations in the marketplace in that they have an established culture, a diverse network of stakeholders, an international customer base (i.e., students), and unique mission statements. a network of universities was created by identifying those institutions which the universities in the sample considered as peers. these data were collected by doing an internet search using keywords that would deliver electronically available documents that give a listing of peer institutes as determined by the node of interest (i.e., the ego node). for example, the search term “peer institutes university of illinois” produced a link to the university of illinois office for planning and budgeting’s “data and research: links of interest” page. this webpage contains a list of peer institutions for the university of illinois, chicago, urbana-champaign, and springfield. this list of institutions was then used to create links between the ego node and other nodes included in the dataset. links to peer institutes that were not current members of the aau were not used in this network. finding a formal listing of peer institutions compiled on one webpage was rare and thus other university documents were used to obtain a list of peer institutions for the ego node. many times these documents were found using the same search as described above, but the list of peers was listed in a written document available on the university's websites or implied from web pages. an example of the former is the use of minutes from meetings for various concerns (e.g., committee reports on diversity or educational issues) and the latter is a webpage of links to peer institution web-accessible databases. in many of these cases where there was not a formal online peer listing, there were several documents that listed a consistent set of peers; we were able to triangulate our data. finally, in a few cases, one of the authors e-mailed or called the office of institutional studies, explained the study being conducted, and requested a list of institutional peers. this listing of peer institutions for all of the aau universities was compiled over three months from july to september 2008. in all cases, peer institutions that were identified that were not a member of the aau were not used in creating the network for this study. for example, rice university identifies james madison university (jmu) as a peer, but since jmu is not a member of the aau, a node for jmu was not included and the link from rice university was dropped. in this way, the resulting network was a completely self-contained set of nodes and links. measures status the concept of status was measured using the us news and world reports rankings of best colleges (www.colleges.usnews.rankingsandreviews.com/best-colleges). the media status of each aau school was determined by assigning their us news ranking (e.g., harvard is ranked number 1, and the university of california, berkeley is ranked number 21). in the case of ties for our resulting ordinal list, the school with the highest network eigenvector centrality value was ranked higher (e.g., princeton was tied for number 1 with harvard, but was assigned a ranking value of 1.1 due to a lower centrality score). eigenvector centrality gives a measure of the importance of a node in a network and is the basis of the page rank measure used by google. in two cases (the university of toronto and mcgill university) aau schools were not listed in the us news ranking. in these cases, the two schools were placed at the bottom of the media status list following the same ordering rules using network centrality. while using this popular press ranking is not our preferred measure of status (our recommendations will come later), this is a generally accepted university ranking and one that is available to universities, which may influence their choice of peer schools. using this resulting ordered status ranking, three levels of status were created: high, medium, and low. the top 16 schools were assigned a high status, the next 22 schools were assigned a medium status, and the final 24 were assigned low status. the cut points that determined the split of the 62 7 universities into groupings of 16, 22, and 24 versus a more even number of schools in each status category were done with the distribution of the ranking among these schools. the eigenvector centrality measures the mean plus or minus one-half standard deviation to determine the number in the middle-status category (22 schools). these cutoff values were chosen to represent the schools that represent the middle of the status category and were chosen over a simple middle one-third count methodology, which would be appropriate for a uniform distribution. by using the distance from the mean of the distribution of eigenvector centrality measures, the resulting middle-status category has been adjusted for the actual distribution of values. school type the type of school – public or private – was used to assign a categorical dimension to the universities.this classification was obtained from the aau listing of member universities and is shown in appendix a. the two canadian universities were assigned to the public category (aau places them in the canadian category). one-way and reciprocal peer links to determine the one-way and reciprocal links for each university, a 62 by 62 matrix was created with a value of 1 placed in a cell when the university on the row indicated that that university in that column was a peer; all other cells received a value of 0. this created an asymmetric matrix representing all of the university-reported peer schools p. transposing this matrix and doing an entryby-entry multiplication of the two matrices resulted in a new matrix that had a value of 1 for reciprocal ties and 0 in all other cells ( ri,j = pi,j x pj,i). this resulting matrix could then be subtracted from the original matrix to obtain a matrix of only one-way links ( o = p – r ). to obtain counts of withinstatus links, the sum of links in the appropriate square partition of the reciprocal tie matrix divided by two was used. for the links across status groups, off-diagonal rectangular partitions were used (partitions containing the high-to-medium, high-to-low, and medium-to-low links); the cell values were summed only in the upper diagonal of the reciprocal matrix r (since only half the matrix was used, no division by two was needed to obtain this count; the lower diagonal has symmetric and redundant entries). the resulting counts are shown in table 1. a similar procedure was done after ordering the reciprocal link matrix by the public and private categories, which resulted in 63 reciprocal links between public universities, 32 reciprocal links between private universities, and 8 reciprocal links between public and private universities. table 1 – reciprocal link count using us news ranking to determine the one-way links from lower to higher status schools, the one-way link matrix o was sorted by the us news modified ranking. next, the one-way links in each column below the ego status high medium low hi gh 26 13 1 st at us m ed iu m 19 22 lo w 22 8 school were summed to create the count of one-way links from lower-status schools (∑ 𝑂𝑂𝑖𝑖,𝐸𝐸62 𝑖𝑖=𝐸𝐸+1 , where e is the row of the ego school). this value was subtracted from the total number of one-way links to a school (the sum of the entire column), thus obtaining the one-way links from higher schools. using this procedure, there were a total of 91 one-way links from higher-status schools to lower-status schools and 422 one-way links from lower-status schools to higher-status schools. sub-networks the complete aau network was parsed into two networks based on membership in the private and public university categories. this was done by deleting all of the public university nodes and their corresponding links into and out of these nodes to produce the aau private university network. this resulted in a network with an edge density of 0.2754, with 26 nodes and 179 total links. of these links, 32 were reciprocal links. a similar procedure was used to create the aau public university network resulting in a network density of 0.3349 with 422 links of which 63 were reciprocal. the original aau network had a density of 0.1901 with 719 total links with 206 being reciprocal. results a chi-squared test of independence was performed on the resulting link counts. this test assumed that in a random matrix of links that there should be an equal probability of forming a link or not forming a link. the resulting matrix has expected values of reciprocal links between one status class and another or within a status class that is proportional to the total possible reciprocal links. for the three levels of the status model with 16 nodes in high, 22 nodes in medium, and 24 nodes in low status, there are 596 possible within status reciprocal ties and 1264 possible between status reciprocal ties. for the one-way links from higher to lower status or from lower to higher status, the expected value for the entire sample would be 1891 from low to high and 1891 from high to low. this follows since the determination is relative to the ego node; for the entire network, there is an equal chance from high to low as from low to high. the expected values of links within and between the categories of public and private were also determined by the total possible links: there are 924 links within the category and 936 ties between categories. hypothesis h1 proposes that one-way peer identification will more likely stem from lowerstatus universities to higher-status universities. to verify hypothesis h1 we found that there were 91 one-way links from a higher to lower status and 422 one-way links from a lower to a higher status. the test resulted in chi-squared = 213.569, p< 0.001, and thus supported hypothesis h1. hypothesis h2 proposes that reciprocal peer identification will occur among universities of similar status. to verify hypothesis h2 we found that there were 67 within status reciprocal links and 36 across status reciprocal links. the expected number of ties was 34.4 within status reciprocal links and 68.8 across status links. this test resulted in chi-squared = 47.267, p< 0.001, and this supported hypothesis h2. hypothesis h3 proposes that reciprocal peer identification will occur among universities of similar categorical dimensions. to verify hypothesis h3 we found there were 95 within classification reciprocal links and 8 across classification reciprocal links. the expected number of ties was 52 within classification reciprocal links and 51 across classification reciprocal links. the test resulted in chi-squared = 71.755, p <0.001, and thus supported hypothesis h3. comparison of the sub-network densities was done using an expected equal value and the observed value using a chisquared test of independence and the results were not significant (chi-squared = 0.410, p = 0.522). additionally, a categorical variable was created that was equal to 1 when there was a greater than 1.0 graduate-to-undergraduate student ratio and zero when the ratio was equal to or below 1.0. this resulted in within category reciprocal link count of 84 and a between-category count of 19. the expected values based on possible reciprocal links for the 15 schools above one and the 47 schools 9 below or equal to one are 64.6 between and 38.4 across. the test resulted in chi-squared = 15.628, p <0.001, and thus supported hypothesis h3. a network-based measure of status this research has examined how affiliation through peer groups can form a basis for fieldlevel stratification. an important extension of this research involves developing the notion of network affiliation into a behavioral measure of status. status is generally seen as something that does not belong to organizations; rather it is determined by external audiences. washington and zajac (2005), for instance, describe status as something that is “conferred” upon an organization. the social processes by which status can be earned by organizations is certainly an area for future research. for instance, status is not necessarily earned when organizations take actions that meet legitimacy criteria. at the same time, particular organizations that meet legitimacy criteria can be considered high status (anand & watson, 2004). the measurement of status is an additional area that merits further consideration. scholars have relied on various external rankings to measure both individual status (bedeian et al., 2010) as well as organizational status (washington & zajac, 2005). while such methods have their merits, a behavioral approach may be a more dynamic, complementary measure of status (sauder et al., 2012). we refer to a behavioral approach as one which relies on examining the behavior of the actors whose status is being assessed as opposed to applying external reports of actor status. this also allows for the assessment of power dynamics among and between peer groups, and groups with differing status structures. hence, examining the institutions which a given set of universities identify as peers is a behavioral approach since it involves examining the behavior of university peer identification. indeed, it is not what you look like on paper that matters, it is how your peers see you. to illustrate this point, this research has used a peer set of research ph.d. universities as determined by membership in the aau, and measured and supported the idea that the behavior of creating organizational peer groups can be consistent with other, external, measures of university status. we propose to take this to the next step and use measures indicating links of who each university considers their peers as the basis for creating a new and different status ranking. the process of conferring status upon organizations is illustrated by media rankings of universities. the business week rankings of business schools, for instance, rely on an assessment of institutions from corporations and recruiters. such measures, however, are problematic because of their extreme stability (morgeson & nahrgang, 2008). given the stratification quality of networks; as well as the network-like qualities found among university peer groups, we make the case that university peer group identification can serve as an alternative measure of university status. university peer groups are based on internal university identification as well as aspiration. thus, rather than an external measure of perceptions of quality, peer group identification is based on internal assessments of who (what) a university is and where it wants to be. using the same original network of the 62 by 62 matrix, we calculated the eigenvector centrality measure for the directed link network using netdraw (borgatti, 2002). this resulted in the ranking of status that is shown in table 2 in which the university of michigan displaces harvard university as the highest-status school. using this measure of status, unlike the us news ranking that places private universities at the top of the list (the highest-ranked public university was the university of california, berkeley at number 21), this new ranking has more balance between public and private schools. the resulting network diagram with the eigenvector centrality represented as size is shown in figure 1. the resulting network-based rankings illustrate a surprising disconnect between network-based status and media status. 10 table 2 – status and eigenvector network centrality university short name eigenvector centrality us newsrank michigan 3.74 27 ucb 3.152 21 yale 3.147 3 harvard 2.955 1 stanford 2.944 4 uiuc 2.762 35 wisconsin 2.747 39 cornell 2.447 15 uw 2.325 42 princeton 2.111 1 penn 2.053 4 ucla 2.009 24 columbia 2.004 8 texas 1.953 47 unc 1.753 28 minnesota 1.727 61 chicago 1.433 8 brown 1.429 16 mit 1.429 4 duke 1.408 8 osu 1.263 53 penn state 1.058 47 ucsd 1.052 35 jhu 1.045 14 uva 1.004 24 purdue 0.976 61 indiana 0.935 71 msu 0.923 71 iowa 0.898 71 wash u 0.768 12 usc 0.749 26 caltech 0.708 4 arizona 0.698 102 nyu 0.668 32 ucd 0.668 42 vanderbilt 0.639 17 11 oregon 0.627 115 texas a&m 0.587 61 nw 0.582 12 florida 0.572 47 maryland 0.462 53 buffalo 0.458 121 rutgers 0.44 66 colorado 0.437 77 ucsb 0.392 42 emory 0.381 17 rochester 0.37 35 uci 0.347 46 toronto 0.33 nr pittsburgh 0.326 56 nebraska 0.299 41 kansas 0.294 96 missouri 0.275 102 rice 0.194 17 case 0.172 41 cmu 0.152 22 iowa su 0.144 88 stonybrook 0.134 96 tulane 0.093 50 syracuse 0.051 58 brandeis 0.033 31 mcgill 0 nr 12 figure 1 – network of peer aau universities color represents public (gray) or private (black). thicker links indicate reciprocal ties. node size indicates status as determined by directional eigenvector centrality.university names are abbreviated, but full names are listed in appendix a 13 two pairs of counts for testing hypothesis h1 and hypothesis h2 (retesting hypothesis h3 was not needed since the status was not used, rather public or private classification, which did not change) were recalculated. this yielded 119 higher-to-lower one-way ties and 394 lower-to-higher one-way ties (chi-squared = 147.417, p< 0.001). this also yielded 64 within status and 39 across status reciprocal links (chi-squared = 39.027, p< 0.001). these results are consistent with hypotheses h1 and h2 above. additionally, the results, while illustrating some consistency with the results obtained with us news ranking, show several differences in ranking. this determination of status using the behaviorally created links does not completely contradict the determination of status by measures collected by a third party. at the same time, the resulting ranking is distinct enough to merit further consideration of both media measures of status as well as network-derived approaches. for instance, scholars have devised specific measures of media reputation (deephouse, 2000). the disparity between media measures and network measures illustrated in this research merit further exploration regarding possible differences between media measures of status and behavioral measures such as organizational affiliation. discussion this paper’s purpose was to examine how closely university actions of deciding on who and who not to call their peers fit within one highly-visible ranking of status (us news college ranking) and one categorical classification (public and private). after determining the validity of the links within these two systems, we extend suggestions that a more direct way of determining status can be by social network analysis (sauder et al., 2012) using the universities’ behaviors as the raw source of linkage between these universities. in doing so we have further research in a potentially rich area of exploration regarding how organizational status can be assessed. one of the primary conclusions of this project is the finding that network affiliations can serve as viable measures of organizational status. findings support this assertion by illustrating how withinfield network affiliations result in similar orderings as those developed by external actors. university status is a valuable measure that can help determine future student enrollment, research funding, and charitable donations. however, much of the determination of this status has been transferred to the third-party popular press, instead of by the members of the network themselves. the proposed measure, a score based on network centrality, assigns each organization a relative position of status. the proposed measure additionally allows one to assess the relative distance among ranked organizations. this has been actualized by jacquelyn elias with an online display tool on the chronicle.com website (elias, 2022). it must be noted at the time of this writing that this online tool is not complete, some universities have not submitted a peer list. methods using network analysis can be used to augment the current commercial rankings. this study is not without limitations. the set of 62 aau schools, for instance, can be extended to include a larger sample of universities. moreover, the results of this project, while illustrating significant variability in centrality scores among the field of aau universities, does so for a sample of organizations that, by their membership in aau, may be considered a higher status group of universities than non-aau institutions. the nature of peer identification, while many times indicating aspiration, may additionally reflect other factors such as benchmarking. hence, additional measures of affiliation can be considered in future work. in addition, multiple years, and possible sources, of university rankings may be applied and compared with corresponding peer identification to give provide a more temporal-oriented study. finally, additional network methodologies can be applied to gain further insights. future research can explore the temporal qualities of network measures of status. media rankings, such as those devised by business week, are stable over time. while we suspect that our measure is likely to exhibit variation over time, future research can explore the extent of such variation. additional research can apply this conception of status to either a broader sample of 14 institutions such as all accredited universities, or specific kinds of schools, such as aacsb-accredited business schools. future research can additionally apply the network-based measures of status to other organizational fields such as investment banks and/or government agencies. research has investigated affiliation among firms in terms of social identity (rao et al., 2000) as well as the degree to which affiliation facilitates joint ventures (lu, ma; 2009). future research can, thus, examine how firm affiliation in conjunction with behavior serves as a measure of status. other factors that can be examined can include the role of university leadership turnover in peer identification as well as the role that proximity/geography play in peer identification. references anand, n. &watson, m. r. 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(2005). rhetorical strategies of legitimacy. administrativescience quarterly, 50(1), 35-67. tayar, m. (2017). ranking lgbt inclusion: diversity ranking systems as institutional archetypes. canadian journal of administrative sciences, 34(2), 198-210. wade, j. b., porac j.f., pollock, t.g. & graffin, s.d.( 2006). the burden of celebrity: the impact of ceo certification contests on ceo pay and performance. academy of management journal, 49(4), 643660. washington, m. &zajac, e. (2005). status evolution and competition: theory and evidence. academy of management journal, 48 (2), 282-296. wasserman, s, & faust, k. (1994). social network analysis: methods and applications. cambridge, uk: cambridge university press. webster, j. m, & foschi, m. (1988). overview of status generalization.in, j.m webster & m. foschi (eds), status generalization: new theory and research, pp. 1-22. stanford, ca: stanford university press. zemsky, r. (2008). the rain man cometh – again. academy of management perspectives, 22(1), 5-14. 17 appendix a list of current institution members of the american association of universities brandeis university (1985, private) brown university (1933, private) california institute of technology (1934, private) carnegie mellon university (1982, private) case western reserve university (1969, private) columbia university (1900, private) cornell university (1900, private) duke university (1938, private) emory university (1995, private) harvard university (1900, private) indiana university (1909, public) iowa state university (1958, public) the johns hopkins university (1900, private) massachusetts institute of technology (1934, private) mcgill university (1926, canadian) michigan state university (1964, public) new york university (1950, private) northwestern university (1917, private) the ohio state university (1916, public) the pennsylvania state university (1958, public) princeton university (1900, private) purdue university (1958, public) rice university (1985, private) rutgers, the state university of new jersey (1989, public) stanford university (1900, private) stonybrook university-state university of new york (2001, public) syracuse university (1966, private) texas a&m university (2001, public) tulane university (1958, private) the university of arizona (1985, public) university at buffalo, the state university of new york (1989, public) university of california, berkeley (1900, public) university of california, davis (1996, public) university of california, irvine (1996, public) university of california, los angeles (1974, public) university of california, san diego (1982, public) university of california, santa barbara (1995, public) the university of chicago (1900, private) university of colorado at boulder (1966, public) university of florida (1985, public) university of illinois at urbana-champaign (1908, public) university of iowa (1909, public) the university of kansas (1909, public) university of maryland at college park (1969, public) university of michigan (1900, public) university of minnesota, twin cities (1908, public) university of missouri-columbia (1908, public) university of nebraska-lincoln (1909, public) the university of north carolina at chapel hill (1922, public) university of oregon (1969, public) university of pennsylvania (1900, private) university of pittsburgh (1974, public) university of rochester (1941, private) university of southern california (1969, private) the university of texas at austin (1929, public) university of toronto (1926, canadian) university of virginia (1904, public) university of washington (1950, public) the university of wisconsin-madison (1900, public) vanderbilt university (1950, private) washington university in st. louis (1923, private) yale university (1900, private) references 26 the rating dilemma of academic management journals: attuning the perceptions of peer rating ahmad rahal, ph.d. university of arkansas – fort smith mohamed zainuba, ed.d university of arkansas – fort smith the adoption of journal lists as proxies to scholarship quality has sparked an ongoing debate among academics over what is meant by quality, how it is perceived by the reviewers, and the thresholds for the rating, inclusion, or exclusion of journals from these lists. given the insufficient transparencies in the processes of journal quality evaluation when composing such lists, this research explores the use of the revealed preference approach to attune the ratings in both the australian business deans council journal quality list and academic journal guide, and approximate the rating of management journals if they were to be considered for inclusion in either of the two aforementioned lists. keywords: abs guide, abdc list, journal ratings, journal quality guide, journal rankings list introduction the worldwide emulation of the us management education system and the increased scholarship requirements by accrediting agencies has constrained the publication opportunities at top tier journals and exacerbated the proliferation of new publication outlets whose scholarship quality and credibility have not been thoroughly validated. furthermore, the limited availability of resources, the lack of expertise, or the absence of an agreed-upon tool or mechanism to evaluate scholarship quality have prompted business schools’ administrators to adopt existing journal lists as proxies to quality (taylor, 2011; ozbilgin, 2009), and as the tool of choice for administrative decision making “on the ground that a journal ranking list is far more objective in its construction than the opinion of a single expert” (sangter, 2015). while such adoption has simplified the quantification of scholarship quality into a mere letter or number, and provided a convenient solution to the assessment dilemma of scholarship (zainuba & rahal, 2015), it has inadvertently yielded an academic culture that is overwhelmingly influenced by such rankings, and altered how scholarship quality is recognized, assessed, and rewarded (pidd & broadbent, 2015; dahlstrom, nygaard, & crosno, 2008). http://journals.sfu.ca/abr advances in business research 2019, volume 9, pages 26-45 27 although there is a wide consensus about the scholarship quality of the top management journals, this may not hold true for the rest of the journals. as such, many studies have been undertaken and a plethora of journal rating lists have been created to benchmark scholarship quality and productivity for hiring, tenure, or promotion purposes (holden, rosenberg, & barker, 2005; hult, neese, & bashaw, 1997; rebne & davidson, 1992). however, despite the wide acceptance of many of these journal lists as proxies to scholarship quality, their lack of transparency and rating inconsistencies have cast doubts on their suitability for scholarship assessment. criticisms of the composition of journal lists range from their self-serving nature (peters, daniels, hodgkinson, & haslam, 2014; theoharakis & hirst, 2002), biases against certain research areas (hoepner & unerman, 2012), and inclusion of journals based on subjective characteristics such as influence and affiliations rather than merits, value, and assurances (brown, 2003). for example, looking at the two most widely used journal lists, except for regional biases it is unclear as to why some journals listed in the australian business deans council journal quality list (abdc list) might not sometimes appear in the uk’s academic journal guide (ajg) or vice versa, leading to questions on the approaches to scholarship assessment, the thresholds for the rating, inclusion, or exclusion of journals from these lists, and the inconsistencies in journal ratings. while the literature does not provide resolutions to either question which may be of interest to scholars, editors, reviewers, and administrators, and since the dilemma of classifying, rating, ranking, and assessing the quality of academic journals will continue to persist with no resolution in sight, this research will follow the work of abramo and d’angelo (2011), durieux and gevenois (2010), and cole & cole (1973, p. 35) who argue that “straight citation counts are highly correlated with virtually every refined measure of quality”, and investigate the use of the revealed preference approach (citation analysis) to address the quality and the rating of scholarship. this paper will first provide an overview of the approaches to scholarship assessment, the sources of citation data, the metrics of journal quality, and an overview of both the abdc list and the ajg. furthermore, a rating process for management journals and the thresholds to attune existing rating inconsistencies are also included. assessment of scholarship there exist two broad approaches to the assessment of research, the stated preference and the revealed preference (tahai & meyer, 1999), with a high degree of correlation of journal rankings between the two approaches (li, sanderson, willett, norris, & oppenheim, 2010; mingers & harzing, 2007) the stated preference approach the stated preference approach or peer reviewis the process of scrutinizing research manuscripts by qualified reviewers who may be capable of reflecting on the quality and contributions to the fields, and rank journals based on their judgments of their credentials (kelly, sadeghieh, & adeli, 2014). while this approach is widely used in the evaluation of scholarship, it may be susceptible to “the potential stifling of new journals and research methods, the domination of powerful cliques among editorships of well-established journals who act as gatekeepers and whose power is enhanced by rating lists” (hussain, 2015), or it may embody the prejudices, inconsistencies, interests, and limitations of the community of scholars rating such journals (jubb, 2016; lee, sugimoto, zhang, & cronin, 2013). wilsdon et al. (2015) provide a summary of both strengths and weaknesses of the stated preference approach as shown in table 1. 28 table 1: strengths and weaknesses of peer review weaknesses of peer review strengths of peer review  it is slow, inefficient and expensive, although most costs are hidden;  human judgment is subjective – which may however also be seen as a strength;  it is almost by definition not transparent;  it is inconsistent, sometimes characterized as a lack of inter-rater reliability;  it is a biased process (e.g. gender bias regarding career decisions, bias against negative studies in publication decisions, bias in favor of prestigious institutes, bias in favor of dominant paradigms);  its bias is strengthened by the matthew effect  the process can be abused (e.g. to block competitors, to plagiarize);  it is not very good at identifying errors in data or even in detecting fraudulent research;  it cannot process the complete research output of a nation and will, therefore, result in distorted rankings (since rankings are sensitive to the selection of submissions to the assessments);  it cannot provide information about the productivity and efficiency of the research system;  the selection of peer reviewers may create problems because of a variety of reasons (bias, lack of experts in emerging and interdisciplinary areas, lack of experts due to the speed of research areas, etc.).  its foundation in specialized knowledge of the subject, methodology and literature relevant for specific decisions;  its social nature;  the subjectivity of this approach could be seen as a strength (as well as a weakness);  it can help assess elements of research which are challenging to quantify e.g. novelty;  it can deliver more nuanced and detailed understandings of research in the context of research production. source: wilsdon et al. (2015). the revealed preference approach the revealed preference approach is considered a common and objective way of measuring a journal's influence (bauerly & johnson, 2005). it is based on a publication’s behavior, and on the idea that citation indicators are perceived measures of rigor, impact, status, and as proxies of scientific worth (groot & garcia-valderrama, 2006) and quality (baum, 2011; kostoff, 1998). unlike the preference stated approach where perceptions of a journal’s quality change very slowly, the revealed preference approach provides an updated assessment of a journal’s quality, and a more accurate picture of its impact (tahai & meyer, 1999). this sentiment is also echoed by cole & cole (1973, p. 35) who argue that “straight citation counts are highly correlated with virtually every refined measure of quality”. a summary of the strength and weaknesses of the revealed preference approach is shown in table 2. 29 table 2: strengths and weaknesses of the revealed preference approach weaknesses of peer review strengths of peer review  pressure exerted by reviewers or editors to cite their own journal or papers may inflate citations of self-citations to inflate the counts.  highly impacted by the field of research referencing patterns (books vs journals)  negative citations are counted  niche and specialized journals are disadvantaged compared to their more general counterparts  accuracy of the citation counts may be in doubt given the discrepancies between target articles and cited references (misspellings of journal or author names, errors in the reference lists, etc.), and mistakes in the indexing procedures  coverage and adequacy of the citation database and its impact on the number of citations  difficult to calculate  seen as objective  the procedure is transparent, and results can be reproduced using the same method  based on a broader audience hence eliminating the impact of personal biases.  eliminate the impact of subjective measures such as reputation, opinion, or acceptance rates.  eliminate the long memory and perception effects, and provides an updated assessment of a journal quality  a positive relationship between the citation impact and ranking  inexpensive and easily produced while the stated preference approach requires expertise with limited reliability and availability, the use of the revealed preference approach to analyze a publication’s behavior requires data sources for automated retrieval of citations, and some citation indexes to measure the impact of a journal. overview of sources of citations data and metrics the technological advances over the last few decades have resulted in the development of many sources of citation databases including clarivate’s’ web of science (wos), a subscriptionbased database covering 5,200 social science publications in 55 disciplines and captures cited references from sources including journals, books, and conference proceedings since early 1900. although the wos is a well-regarded database (wainer, goldenstein, & billa 2011), concerns about its flaws are well documented in the literature including its bias toward english language published journals (moussa & touzani 2010), its inconsistencies in covering of different research fields, and its underestimation of citation count and impact as it excludes the majority “of the new and niche disciplines that are under-represented in the citation analysis rankings” (serenko & bontis, 2009; lowry, humphreys, malwitz, & nix, 2007). the aforementioned limitations of the wos prompted the creation of alternative data sources including elsevier’s scopus, an abstract and citation database of peer-reviewed literature indexing about 23,000 titles curated from about 5,000 publishers, and google scholar (gs) that includes publications and citations from journals, conference proceedings, books, theses, dissertations, preprints, abstracts, and technical reports available including those available across the web (bauer & bakkalbasi, 2005; gardner & eng, 2005). with about 87% coverage of all english-language scholarly documents (khabsa & giles, 2014), and about 160 million of total worldwide documents (orduna-malea, ayllón, martín-martín, & lópez-cózar 2015), gs outperforms both scopus and wos. however, gs suffers from miscited articles and from multiple listings with different citations (haddad, singh, sciglimpaglia, & chan, 2014) casting serious doubts about its level of accuracy. hence, the authors will concentrate on using data from both scopus and the wos, while gs will not be used. http://onlinelibrary.wiley.com/doi/10.1002/meet.14504301185/full#bib2 http://onlinelibrary.wiley.com/doi/10.1002/meet.14504301185/full#bib8 30 journal citation metrics although there exists a plethora of citation indicators, this research is not intended to be exhaustive and will only refer to those citation metrics included in the ajg namely the journal impact factor (jif), scimago’s journal ranking (sjr), the impact per publication (ipp), and the source normalized impact per paper (snip). the h-index will also be included due to its wide applicability and adoption as a research assessment tool. the journal impact factor (jif) developed by garfield and sher (1963) as a tool to identify journals with impact and influence. it is easily understood and calculated as the ratio of citations received by a journal in a specific year over the number of citable items in the prior two years. nowadays, the jif is believed to be highly influential and is published for journals included in the wos. over the years, critics reported several of the jif’s flaws (table 3) with many calling for the use of other citation metrics. table 3: flaws of the journal impact factor  extremely skewed citations where the median number of citations may be more appropriate than the average (seglen, 1992)  sensitivity to discipline practices and publications’ expected life cycle  the 2 years window may be short and inappropriate for certain disciplines (campanario, 2011).  the need for normalized measures to account for the differences in referencing practices among disciplines (glänzel & moed, 2002).  the nature and merits of the citing journals are not addressed (tomer, 1986).  no information about individual papers in a journal (adler & harzing, 2009).  does not address the problem of authors sharing the same name or misspelled name.  allows for self and flattery citations. the technological advancements over the past two decades have allowed for the creation of sophisticated metrics, known as second-generation indicators addressing many of jif’s flaws such as valuing citations equally regardless of their origin, and allowed for the accounting for the nature, merits, or prestige of the citing journals. these indicators are data source-specific and include the source normalized impact per paper (snip) and the scimago journal rank (sjr) which are available in scopus, while clarivate’s wos introduced their own metrics such as the eigenfactor and its variants which will not be addressed in this research. scimago journal rank (sjr) inspired by google’s pagerank algorithm (page, brin, motwani, & winograd, 1998), the sjr is a size-independent metric that considers citations in scopus database within a 3-year period normalized by the total number of citations in the citing journal for the year in question. it is intended to measure the prestige of a journal, where the most prestigious journals will be the ones cited the most. it is a score where citations are weighted according to the importance of the citing journal (hassan-montero, guerrero-bote & de-moya-anegón, 2014). the sjr uses an iterative process where ‘‘the algorithm begins by assigning an identical amount of prestige to each journal. next, this prestige is redistributed in an iterative process whereby journals transfer their attained prestige to each other through the citation network” (gonzález-pereira, guerrero-bote, & moyaanegón, 2009). the sjr indicator was modified in 2012 to account for both the impact of the citing 31 journal and its distance (field of research) from the cited journal within the citation network. in other words, citations count for more when the citing and cited journals are closely related (guerrero-bote & moya-anegon, 2012). the sjr index limits excessive benefits derived from selfcitations once they exceed one-third of the total citations (colledge, de moya-anegon, guerrerobote, lopez-illescas, m’hamed, & moed, 2010). impact per publications (ipp) the impact per publications (ipp) is calculated as the number of citations in a given year by the total number of publications over the prior three years. ipp uses a three-year window versus the jif’s two years. like the jif, ipp does not correct for differences in citation practices between scientific fields. source normalized impact per paper (snip) introduced by hank moed (2009), the source normalized impact per paper (snip) corrects for differences in citation practices between scientific fields, where a citation is negatively impacted by the length of reference list of the citing publication. in other words, impact is given a higher value in subject areas where citations are less likely and vice versa i.e. mathematics vs. biology. the snip of a journal is the ratio of ipp over the journal’s relative database citation potential (rdcp) (waltman, van eckvan leeuwen, and visser, 2013). the h-index (h) proposed in 2005 by jorge e. hirsch as an indicator for lifetime achievement, the h-index has been widely embraced and accepted by the research community as a tool for measuring scientific performance (radicchi, fortunato & castellano, 2008). it can be calculated for any time window, uses different data sources, and addresses several of the shortcomings of the jif and its 2-year time window. its ease of use and the ability to provide quantity and quality measures (papers and citations count), has made the h-index a robust tool to evaluate the performance of journals rather than articles (harzing & van der wal, 2009). a journal’s h-index represents the number of articles that have received at least h citations over the whole period. compared to other metrics, the h-index is highly correlated to productivity bibliometric indicators rather than the measures of pure impact (mingers & yang, 2016; bornmann & daniel, 2007; lehmann, jackson, & lautrup, 2006). upon its introduction, critiques pointed to several of the h-index flaws (see table 4) which were addressed by the introduction of many of its variants (egghe & rousseau, 2008; anderson, hankin, & killworth, 2008; schreiber, 2008; schreiber, 2007; batista, campiteli, & kinouchi, 2006; kosmulski, 2006). table 4: flaws of the h-index  unfairness to young researchers due to the newness of their publication record.  failure to address variations across disciplines, research fields, quality of citing journals, and subject areas.  the h-index does not diminish with time and therefore cannot detect the declining research output the journal quality lists while there exists a plethora of journal quality lists (harzing, 2017), this research will concentrate on the two most widely used, highly influential, and freely available journal quality lists namely the abdc list and the ajg. 32 the abdc journal quality list the abdc list was created to provide, for the australian business schools, an influential and collective tool to support and promote the importance of quality in business education and research, and to overcome the regional and discipline biases commonly found in international journal quality lists (mcguigan, 2015), which mainly favor british and american journals. as one of the most popular and freely available lists, the abdc list classifies journals in one of four categories shown in table 5, and with different classifications of subject fields and journal ratings for its 2776 journals shown in table 6. table 5: abdc listdefinitions of the journal ratings rating definitions of quality rating a* the highest quality category, and indicatively represents approximately the top 5-7% of the journals assigned to the given primary field of research panel. a the second highest quality category, and indicatively represents approximately the next 15-25% of the journals assigned to the given primary field of research panel. b this is the third highest quality category, and indicatively represents approximately the next 35-40% of the journals assigned to the given primary field of research panel. c this is the fourth highest quality category and represents the remaining recognized quality journals assigned to the given primary field of research panel. table 6: abdc journal list (2016 interim update) with quality rating across different field of research field of research (for codes)1 a* a b c total accounting/tax (1501 & 180125) 11 (5%) 30 (14%) 44 (21%) 127 (60%) 212 economics (1401,1402,1403, & 1499) 46 (7%) 104 (15%) 208 (31%) 317 (46%) 675 finance (1502) 11 (6%) 31 (17%) 55 (30%) 86 (47%) 183 information systems (806) 13 (7%) 39 (22%) 50 (28%) 75 (42%) 177 law (180105) 15 (7%) 76 (37%) 67 (32%) 49 (24%) 207 management (1503, 1504, 1506, 1507,1599) 76 (7%) 255 (23%) 312 (28%) 452 (41%) 1095 marketing (1505) 10 (7%) 29 (20%) 44 (31%) 60 (42%) 143 statistics (104) 11 (13%) 23 (27%) 26 (31%) 24 (29%) 84 total number of journal 193 (7%) 587 (21%) 806 (29%) 1190 (43%) 2776 table 6 shows the abdc management journals are categorized as a* (7%), a (23%), b (28%) and c (41%). the academic journal guide 1 fields of research were aggregated as follow: accounting/tax (accounting, auditing, & accountability 1501, taxation law 180125), economics (economic theory 1401, applied economics 1402, econometrics 1403, other econ.1499), management (business & management 1503, commercial services 1504, tourism 1506, other management 1599, and transportation & freight services 1507). 33 since its introduction in 2007, the academic journal guide (ajg) has had a huge effect on research behavior (mingers & willmott, 2013), and in shaping academic research and publication activities (tourish & willmott, 2015). it is viewed by many institutions as a worthy and reliable proxy to the relative quality of the different journals within the management field. this notion of trustworthiness and reliability is clearly echoed by the editors in their introduction to the ajg (2018) our motivation is to provide guidance to scholars working across the diverse fields that constitute business and management. the ajg is intended to give both emerging and established scholars greater clarity as to which journals to aim for, and where the best work in their field tends to be clustered” (p. 4). moreover, rowlinson, harvey, kelly & morris (2011) argue that the main purpose of the ajg is to validate the relative quality of different journals to determine the excellence of business research and scholarship; and by extension, the relative status of different business fields and specialization. the ajg of 2018 classifies journals in one of five categories (see table 7) disaggregated into twenty-two different subject areas. table 7: ajg guidedefinitions of the journal ratings rating 4* journals of distinction. within the business and management field, including economics, there are a small number of grade 4 journals that are recognized worldwide as exemplars of excellence. as the world-leading journals in the field, they would be ranked among the highest in terms of impact factor. the initial paper selection and review process would be rigorous and demanding. accepted papers would typically not only bring to bear large scale data and/or rigor in theory, but also be extremely finely crafted and provide major advances to their field. 4 all journals rated 4, whether included in the journal of distinction category or not publish the most original and best-executed research. as top journals in their field, these journals typically have high submission and low acceptance rates. papers are heavily refereed. these top journals generally have among the highest citation impact factors within their field. 3 3 rated journals publish original and well executed research papers and are highly regarded. these journals typically have good submission rates and are very selective in what they publish. papers are heavily refereed. these highly regarded journals generally have good to excellent journal metrics relative to others in their field, although at present not all journals in this category carry a citation impact factor. 2 journals in this category publish original research of an acceptable standard. for these well-regarded journals in their field, papers are fully refereed according to accepted standards and conventions. citation impact factors are somewhat more modest in certain cases. many excellent practitioner-oriented articles are published in 2-rated journals. 1 these journals, in general, publish research of a recognized, but more modest standard in their field. a 1 rating is a useful indicator in that it indicates the journal meets normal scholarly standards, including a general expectation of peer review. papers are in many instances refereed relatively lightly according to accepted conventions. few journals in this category carry a citation impact factor. 34 the business and management field of research shown in table 8 (675 journals), was aggregated from several subject areas including: employment studies, entrepreneurship and small business, general management and ethics, human resource management, innovation, international business and area studies, management, management development and education, operations and technology management, operations research and management science, organizational studies, public sector and health, regional studies, planning and environment, sector studies, social responsibility, social sciences, and strategy. the ajg management journals are categorized as 4 (7.5%), 3 (18.5%), 2 (33.6%) and 1 (40.4%). table 8: the disaggregated summary of the 2018-update ajg across different field of research field of research agj 2018 4 and 4* 3 2 1 grand total % accounting 6 7% 21 24% 34 39% 27 31% 88 6% economic 25 7% 72 20% 133 37% 130 36% 360 23% finance 8 7% 29 27% 38 35% 34 31% 109 7% information man 6 6% 17 18% 34 36% 38 40% 95 6% management 51 7.5% 125 18.5% 227 33.6% 272 40.4% 675 43% marketing 8 11% 12 17% 21 30% 29 41% 70 4% psychology 19 11% 36 22% 45 27% 66 40% 166 11% grand total 121 8% 312 20% 532 34% 596 38% 1561 100% data validation and methodology addressing the rating discrepancies of the abdc list and the ajg require empirical analysis of citation metrics from three separate data sources which may not cover the same journals and may cause inconsistencies. as such, the data is first validated and then analyzed. data validation as previously mentioned, the data sources include the h-index and the sjr from the scopus powered scimago website, the snip and ipp from the scopus’ powered leiden university’s centre for science and technology studies (csts), while the jif is from clarivate’s wos. using the international standard serial number (issn) that uniquely identifies each journal, both the latest abdc list (the 2016 interim list) and the 2018 ajg were first merged and identified 675 management rated journals by the two lists. the new list was then matched with the scopus powered scimago journal database comprising of about 28,000 publications to collect their corresponding h-index and sjr citation metrics. this matching process was accomplished using a fuzzy logic software that shows matching based on "degrees of truth" rather than the usual "true or false" (1 or 0) of most software. this process was then repeated to match the newly created list with the wos’ journal citation report to retrieve the journal impact factor (jif). finally, the newly created list was then paired with the 2018 leiden university’s csts journal list of approximately 30,000 publications and then matched with their related snip and ipp indicators resulting in a final list of 625 management journals, each with at least one citation metric. of this final list of 625 management journals, 547 were rated by abdc and 428 rated by the ajg, with 350 journals common to both lists, 78 journals were rated by ajg and not by abdc, and 197 journals were rated by abdc and not by ajg as shown in table 9. for example, of the 55 a* rated journals in the abdc list, two are rated as 35 category “2”, twelve as category “3”, and thirty-two as category “4” in the ajg, while nine journals were in fact not included at all. table 9: matrix of journal classifications abdc vs. ajg due to the heavily skewed distribution where very few journals receive the majority of citations, the spearman rho was used to analyze the bivariate correlation between the metrics of the two lists (see table 10). results show significant correlations between the jif and both the prestige indicator of sjr (0.843), and that of the field-effect indicator the snip (0.828) for the ajg. the correlations were also as strong for the abdc list of 0.839, 0.827 respectively. the strengths of these correlations were quite remarkable given that the data sets originate from two different data sources. table 10: spearman’s rho bivariate correlations of journal metrics management journals ajg and abdc list **all correlations are significant at the 0.01 level (2-tailed). correlations greater than 0.8 are gray shaded. furthermore, the high correlation between the jif with ipp of 0.942 for both lists may be attributed to the fact that both metrics are based on citations per paper rather than a journal behavior. the low correlations of the h-index with jif can be attributed to highly cited papers that can distort the jif. given that our analysis does not show major inconsistencies between the data sources or the citation metrics, we can fairly assume that the data is valid and reliable for further analysis. methodology of ranking and rating using our list of management journal, the 428 ajg and the 547 abdc journals first were percentile ranked and graphed for each of the citation metrics, namely the sjr, h-index, ipp, snip, and jif, and with the rating thresholds for each of the ajg and the abdc journals shown in figures 1 and 2 respectively. the thresholds for the abdc journals were adopted form our analysis in table 6 showing the bottom 41% of journals ranked as c”, followed by the next 28 % (up to 69 percentile) rated as ‘b’ journals, followed by the next 24% (up to 93 percentile) rated as “a”, with the top 7 percentile of all abdc listed journals as “a*”. as for the ajg, the thresholds were adopted from our analysis in table 8 showing the bottom 40%, 74%, and 93% for each of the 1, 2, 3, or 4 rated journals. 36 figure 1: percentile ranking of journal metrics-academic journal guide figure 2: percentile ranking of journal metrics-the abdc list 37 figure 1 was then used to percentile ranked each of the 625 management journals (including the 197 non-rated journals) for each of the citation metrics in the ajg shown in tables 13a & 13b (columns c5, c8, c11, c14, and c17), and were then rated based using the previously discussed thresholds ( shown in columns c6, c9, c12, c15, and c18). table 13a: sample of the academic journal guide of 2018-journal rating vs predicted journal rating number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) sjr_score (c4) sjr based % ajg journal rank (c5) sjr based ajg journal_rating (c6) h_index (c7) h_index based % ajg journal rank (c8) h_index based ajg journal_rating (c9) 1 4or 2 41% 2 0.825 56% 2 31 37% 1 2 academia revis ta latinoamericana de adminis tración 1 9% 1 0.178 6% 1 7 3% 1 3 academy of management journal 4 99% 4 8.548 100% 4 266 100% 4 4 academy of management perspectives 3 92% 3 2.946 94% 4 108 93% 4 5 academy of management review 4 100% 4 7.88 99% 4 229 100% 4 6 academy of management annals 4 90% 3 11.231 100% 4 41 49% 2 7 acm transactions on model ing and computer simulation 3 36% 1 0.46 32% 1 42 51% 2 8 active learning in higher education 1 65% 2 1.397 75% 3 33 39% 1 9 adminis tration and society 2 46% 2 0.675 47% 2 48 57% 2 10 acta psychologica no rating 64% 2 1.331 74% 3 84 85% 3 11 action research 1 14% 1 0.308 16% 1 18 20% 1 12 adminis trative science quarterly 4 98% 4 10.187 100% 4 158 98% 4 13 american behaviora l scientis t 1 60% 2 0.982 61% 2 87 87% 3 14 american journal of psychology 2 27% 1 0.421 28% 1 38 45% 2 15 american journalof economics and sociology 2 13% 1 0.172 5% 1 31 37% 1 16 american journalof sociology 4 93% 4 3.685 96% 4 150 97% 4 17 african affa i rs 3 73% 2 1.869 84% 3 56 66% 2 18 agribus iness (new york): an international journal no rating 34% 1 0.487 34% 1 36 42% 2 19 american review of publ ic adminis tration 3 69% 2 2.062 88% 3 43 51% 2 20 american sociologica l review 4 98% 4 6.333 99% 4 161 98% 4 38 table 13b: sample of the academic journal guide of 2018-journal rating vs predicted journal rating in the same manner, figure 2 was used to percentile ranked each of the 625 management journals for each of the citation metrics (see tables 14a & 14b column c1) and rated them according to the previously discussed thresholds. table 14a: sample of the abdc list of 2016-journal rating vs predicted journal rating number journaltitle ajg actual rating ipp_score (c10) ipp based % ajg journal rank (c11) ipp based ajg journal_rating (c12) snip_index (c13) snip based % ajg journal rank (c14) snip based ajg journal_rating (c15) jif_score (c16) jif based % ajg journal rank (c17) jif based ajg journal_rating (c18) 1 4or 2 1.442 50% 2 0.9993 43% 2 1.206 22% 1 2 academia revis ta latinoamericana de adminis tración 1 0.705 17% 1 0.6016 17% 1 0.617 3% 1 3 academy of management journal 4 6.496 98% 4 3.6633 99% 4 6.700 98% 4 4 academy of management perspectives 3 3.684 91% 3 2.2970 92% 3 4.686 93% 4 5 academy of management review 4 7.432 100% 4 4.9784 100% 4 8.855 100% 4 6 academy of management annals 4 11.091 100% 4 10.0907 100% 4 9.281 100% 4 7 acm transactions on model ing and computer simulation 3 1.025 34% 1 1.1508 51% 2 0.931 12% 1 8 active learning in higher education 1 2.125 70% 2 2.3229 92% 3 1.969 49% 2 9 adminis tration and society 2 1.101 37% 1 1.0551 47% 2 1.761 42% 2 10 acta psychologica no rating 2.009 67% 2 1.0638 47% 2 1.862 45% 2 11 action research 1 0.622 14% 1 0.6399 19% 1 0.646 4% 1 12 adminis trative science quarterly 4 6.274 98% 4 3.4596 98% 4 5.878 96% 4 13 american behaviora l scientis t 1 1.675 58% 2 1.1782 52% 2 1.749 41% 2 14 american journal of psychology 2 0.848 24% 1 0.7142 24% 1 0.938 12% 1 15 american journalof economics and sociology 2 0.329 5% 1 0.5838 16% 1 0.333 0% 1 16 american journalof sociology 4 3.462 89% 3 3.1073 97% 4 3.764 88% 3 17 african affa i rs 3 1.766 61% 2 2.2436 91% 3 2.500 66% 2 18 agribus iness (new york): an international journal no rating 1.158 40% 2 0.8975 37% 1 1.147 18% 1 19 american review of publ ic adminis tration 3 1.926 66% 2 1.7545 78% 3 2.466 65% 2 20 american sociologica l review 4 5.563 98% 4 4.4891 99% 4 5.063 94% 4 number journaltitle abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_abdc rating (c21) actionabdc (c22) sjr_score (c23) sjr based % abdc journal rank (c24) sjr based abdc journal_rating (c25) h_index (c26) abdc %h_index (c27) h_abdc_rating (c28) 1 4or b 53% b 0.825 64% b 31 49% b 2 academia revis ta latinoamericana de adminis tración no rating 17% c 0.178 11% c 7 6% c 3 academy of management journal 1a* 99% 1a* 8.548 99% 1a* 266 100% 1a* 4 academy of management perspectives a 94% 1a* 2.946 93% 1a* 108 94% 1a* 5 academy of management review 1a* 99% 1a* 7.88 99% 1a* 229 99% 1a* 6 academy of management annals 1a* 92% a 11.231 100% 1a* 41 60% b 7 acm transactions on model ing and computer simulation b 47% b 0.46 42% b 42 61% b 8 active learning in higher education c 73% a 1.397 80% a 33 51% b 9 adminis tration and society b 58% b 0.675 57% b 48 67% b 10 acta psychologica a 72% a 1.331 79% a 84 89% a 11 action research no rating 24% c 0.308 28% c 18 29% c 12 adminis trative science quarterly 1a* 98% 1a* 10.187 99% 1a* 158 98% 1a* 13 american behaviora l scientis t b 70% a 0.982 70% a 87 90% a 14 american journal of psychology b 38% c 0.421 39% c 38 57% b 15 american journalof economics and sociology b 19% c 0.172 11% c 31 49% b 16 american journalof sociology 1a* 95% 1a* 3.685 95% 1a* 150 98% 1a* 17 african affa i rs no rating 80% a 1.869 87% a 56 74% a 18 agribus iness (new york): an international journal c 46% b 0.487 45% b 36 54% b 19 american review of publ ic adminis tration b 77% a 2.062 89% a 43 63% b 20 american sociologica l review 1a* 98% 1a* 6.333 98% 1a* 161 99% 1a* 39 table 14b: sample of the abdc list of 2016-journal rating vs predicted journal rating to illustrate the use of these tables, the 4or journal (item 1 in tables 13a & 13b) with an sjr metric value of 0.825 (column-c4), the journal ranks in the top 56% with a rating of “2” when ranked against all other management journals in the ajg (column-c2). as for the other metrics, when and if available such as in this case, the journal ranks in the 37th with a rating of 1 (columns c8-c9), 50th with a rating of 2 (table 13b, columns c11-c12), 43rd and a rating of 2 (see table 13b, columns c14-c15), and 22nd with a rating of 1 (table 13b, columns c17-c18) for each of the hindex, ipp, snip, and jif metrics respectively. averaging the percentile ranking of all metrics for the 4or journal yields an average percentile ranking of 41% (column-c1), and an estimated overall rating of 2 (column-c1) matching that of the ajg (denoted by a horizontal gold arrow in column c3). also, tables 14a and 14b shows 4or journal ranks in the 64% with a rating of “b” using the sjr score (column c25), in the 49% with a rating of “b” using the h-index score, 63% with a rating of “b” using the ipp score, 52% with a rating of “b” using the snip score, and 36% percentile using the jif for an overall average ranking of 53% rating the 4or as an b journal matching the current rating (see table 15). number journaltitle abdc actual rating (c19) ipp_score (c29) abdc %_ipp (c30) ipp_abdc_r ating (c31) snip_index (c32) snip based % abdc journal rank (c33) snip based abdc journal_rating (c34) jif_score (c35) jif based % abdc journal rank (c36) jif based abdc journal_rating (c37) 1 4or b 1.442 63% b 0.999 52% b 1.206 36% c 2 academia revis ta latinoamericana de adminis tración no rating 0.705 32% c 0.602 23% c 0.617 11% c 3 academy of management journal 1a* 6.496 99% 1a* 3.663 98% 1a* 6.700 99% 1a* 4 academy of management perspectives a 3.684 94% 1a* 2.297 93% 1a* 4.686 95% 1a* 5 academy of management review 1a* 7.432 100% 1a* 4.978 100% 1a* 8.855 99% 1a* 6 academy of management annals 1a* 11.091 100% 1a* 10.091 100% 1a* 9.281 100% 1a* 7 acm transactions on model ing and computer simulation b 1.025 49% b 1.151 61% b 0.931 24% c 8 active learning in higher education c 2.125 79% a 2.323 93% 1a* 1.969 63% b 9 adminis tration and society b 1.101 52% b 1.055 56% b 1.761 57% b 10 acta psychologica a 2.009 77% a 1.064 56% b 1.862 60% b 11 action research no rating 0.622 27% c 0.640 26% c 0.646 12% c 12 adminis trative science quarterly 1a* 6.274 99% 1a* 3.460 98% 1a* 5.878 98% 1a* 13 american behaviora l scientis t b 1.675 70% a 1.178 63% b 1.749 56% b 14 american journal of psychology b 0.848 40% c 0.714 32% c 0.938 24% c 15 american journalof economics and sociology b 0.329 11% c 0.584 22% c 0.333 3% c 16 american journalof sociology 1a* 3.462 92% 1a* 3.107 97% 1a* 3.764 90% a 17 african affa i rs no rating 1.766 72% a 2.244 92% 1a* 2.500 75% a 18 agribus iness (new york): an international journal c 1.158 55% b 0.897 45% b 1.147 33% c 19 american review of publ ic adminis tration b 1.926 76% a 1.755 84% a 2.466 74% a 20 american sociologica l review 1a* 5.563 98% 1a* 4.489 99% 1a* 5.063 96% 1a* 40 on another note, looking at the average journal percentile ranking in tables 13a & 13b (column c1), journals 8, and 13 are shown to be under-rated and deserving higher ratings (denoted by an upward green arrow), while journals 6, 7, 14, 15, 17, and 19 are estimated to be over-rated (denoted by a downward red arrow). a comparison between the actual and the estimated rating for the 428 ajg and the 547 abdc listed journal, shows the rating of the h index as the best predictor of a journal rating matching 54% of the actual ratings in the abdc list, and 53% of the ratings in the ajg (see table 16). table 16: efficacy of the rating schemes vs. listed journals in addition to estimating the rating of the listed journals, this research provides journals editors with a valuable tool to estimate the likely rating of any journal. for example, if journal 10 “acta psychologica” rated as “a” in the abdc list, is estimated to rate as “2” if it is to be considered for listing in the ajg (see tables 13 a & b). table 17 provides an aggregate estimate of the rating of journals that were included in one but not the other. for example looking at the average percentile rating, of the 197 journals not listed in the ajg, five (5) journals should be rated as “4”, 33 should be rated as “3”, 82 should be rated as “2”, while the other 77 journals should be rated as “1”. the same method applies for the other metrics. as for the 78 journals that were listed in the ajg but not in the abdc list, 3 journals should be rated as a*, 29 as a, 32 as b, and 14 as c. other metrics may have yielded close results. table 15: ranking and rating of the 4or journal 41 table 17: estimated rating for non-listed journals discussion & conclusion following cole & cole (1973, p. 35) argument that “straight citation counts are highly correlated with virtually every refined measure of quality”, this research used the latest citations metrics for journals listed in both the ajg and the abdc to provide scholars, editors, reviewers, and administrators with simple tools to rank, rate, and attune the rating discrepancies of any management journal using any of the citation metric discussed in this paper. when multiple metrics are available, the average ranking is used to rate a journal. as an illustration, looking at the journal of academy of management perspectives (number 4), this journal is rated as “a” in the abdc list (table 14a column c19), our method suggests that the average percentile ranking of this journal’s citation metrics journal rank it in the top 94% of all management journals in the abdc list (column c20) and a rating of “a* listed as 1a*” as shown in table (14a column c21). the same can also be applied to the ajg which shows this journal is correctly rated as a (“3”) journal. furthermore, this research provides a simple approach to estimate the rating of any management journal if it were to be rated in comparison to those journals listed in either list. for example, a journal listed or under consideration for inclusion in the ajg with sjr score of 1.0, ranks in the 61 percentile of all ajg listed management journals and a rating of “2” (using figure 1-ajg sjr). however, the same journal would rank in the 70 percentile of all management journals listed in the abdc list and a rating of “a” (using figure 2-abdc sjr). when multiple metrics are available, the average percentile ranking is used to rate such journals. our methodology correctly estimated the rating of about 54% of the abdc listed management journals and 44% of the ajg management journals. appendix a provides ratings for the 625 management journals included in our analysis, and allow comparison between the published and estimated ratings for both lists, including proposed actions shown as arrows where a golden horizontal arrow designates that the journal citation behavior matches the journal rating, the red downward arrow designate the rating of that journal as over-rated, while the green-upward arrow designates the rating as under-rated. it is important to note that this research is not exhaustive, but an attempt to provide the readers with a simple tool to assess the quality of any journal, and to show and attune the rating discrepancies that currently exist. while the proposed rating methodology may not be 100% rating 1 2 3 4 total average % rating 77 82 33 5 197 sjr 57 78 48 14 197 h-index 67 82 35 13 197 ipp 79 73 37 8 197 snip 66 88 28 15 197 jif 112 56 26 3 197 rating c b a a* total average % rating 10 42 24 2 78 sjr 12 42 22 2 78 h-index 14 32 26 6 78 ipp 16 31 26 5 78 snip 12 31 31 4 78 jif 30 27 17 4 78 estimated rating for journal listed by ajg and not abdc abdc non_rated journals ajg non_rated journals estimated rating for journal listed by abdc and not ajg 42 accurate, it provides a journal quality assessment tool that does not 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(2015). assessing the validity of business and management journals ranking list: an alternative approach for determining journal quality. annals of management science. 4(2), 1-28. number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 1 4or 2 41% 2 b 53% b 2 academia revista latinoamericana de administración 1 9% 1 no rating 17% c 3 academy of management journal 4 99% 4 1a* 99% 1a* 4 academy of management perspectives 3 92% 3 a 94% 1a* 5 academy of management review 4 100% 4 1a* 99% 1a* 6 academy of management annals 4 90% 3 1a* 92% a 7 acm transactions on modeling and computer simulation 3 36% 1 b 47% b 8 active learning in higher education 1 65% 2 c 73% a 9 administration and society 2 46% 2 b 58% b 10 acta psychologica no rating 64% 2 a 72% a 11 action research 1 14% 1 no rating 24% c 12 administrative science quarterly 4 98% 4 1a* 98% 1a* 13 american behavioral scientist 1 60% 2 b 70% a 14 american journal of psychology 2 27% 1 b 38% c 15 american journalof economics and sociology 2 13% 1 b 19% c 16 american journalof sociology 4 93% 4 1a* 95% 1a* 17 african affairs 3 73% 2 no rating 80% a 18 agribusiness (new york): an international journal no rating 34% 1 c 46% b 19 american review of public administration 3 69% 2 b 77% a 20 american sociological review 4 98% 4 1a* 98% 1a* 21 alternatives: global, local, political no rating 14% 1 a 22% c 22 annals of operations research 3 60% 2 a 70% a 23 annalsof regional science 2 43% 2 b 54% b 24 american journal of evaluation no rating 51% 2 c 62% b 25 annalsof tourism research 4 91% 3 1a* 93% 1a* 26 american journal of political science no rating 97% 4 1a* 98% 1a* 27 applied cognitive psychology 2 55% 2 b 64% b 28 applied psychological measurement 2 43% 2 b 54% b 29 american journal of public health no rating 90% 3 1a* 93% 1a* 30 american political science review no rating 93% 4 1a* 95% 1a* 31 annals of the american academy of political and social science no rating 70% 2 b 78% a 32 antipode 3 87% 3 no rating 90% a 33 asia europe journal: intercultural studies in the social sciences and humanities no rating 20% 1 b 31% c 34 asia pacific business review 2 19% 1 b 30% c 35 asia pacific journal of management 3 66% 2 a 74% a appendix a number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 36 asia pacific journal of tourism research 1 35% 1 b 47% b 37 asia pacific journalof human resources 2 26% 1 b 38% c 38 asian and pacific migration review no rating 14% 1 c 22% c 39 asian business and management 2 22% 1 c 33% c 40 asian journal of social science no rating 6% 1 c 12% c 41 asian journal of technology innovation 1 11% 1 no rating 21% c 42 asian population studies no rating 36% 1 b 47% b 43 asian survey: a bi-monthly review of contemporary asian affairs no rating 20% 1 c 28% c 44 asiapacific journalof operational research 1 22% 1 c 32% c 45 australasian journal of environmental management no rating 17% 1 a 28% c 46 australasian journal on ageing no rating 29% 1 b 40% c 47 australian journal of international affairs no rating 32% 1 a 44% b 48 australian journal of political science no rating 17% 1 a 28% c 49 australian journal of psychology 1 31% 1 b 42% b 50 australian journal of public administration 2 30% 1 a 42% b 51 australian journal of social issues no rating 24% 1 b 35% c 52 australian journalof management 2 35% 1 a 47% b 53 australian psychologist no rating 35% 1 b 47% b 54 automation in construction no rating 89% 3 1a* 91% a 55 baltic journalof management 1 23% 1 c 34% c 56 british educational research journal 3 68% 2 no rating 76% a 57 british journal of guidance and counseling 2 21% 1 no rating 32% c 58 british journal of management 4 80% 3 a 85% a 59 british journal of political science no rating 89% 3 a 91% a 60 british journal of psychology 3 81% 3 a 86% a 61 british journal of social psychology 3 61% 2 a 70% a 62 british journal of sociology 3 69% 2 a 76% a 63 british journalof industrial relations 4 62% 2 1a* 72% a 64 building research and information: the international journal of research, development and demonstration 2 78% 3 a 83% a 65 business and society 3 78% 3 a 83% a 66 business ethics a european review 2 61% 2 b 69% b 67 business history 3 29% 1 a 41% b 68 business history review 4 23% 1 a 34% c 69 business horizons 2 75% 3 c 81% a number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 70 business process management journal 2 47% 2 b 58% b 71 business strategy and the environment no rating 89% 3 b 91% a 72 california management review 3 89% 3 a 91% a 73 cambridge journalof regions, economy and society 3 79% 3 b 84% a 74 canadian journalof administrative sciences 2 17% 1 b 26% c 75 canadian public policy no rating 15% 1 b 25% c 76 career development international 2 51% 2 b 62% b 77 career development quarterly 2 53% 2 no rating 64% b 78 china quarterly 2 76% 3 a 82% a 79 cities 2 75% 3 no rating 82% a 80 citizenship studies no rating 46% 2 c 58% b 81 climate policy no rating 74% 2 c 80% a 82 cognitive psychology no rating 86% 3 a 90% a 83 communication monographs no rating 66% 2 a 75% a 84 communication research no rating 82% 3 a 87% a 85 communication theory no rating 83% 3 a 87% a 86 community development journal no rating 18% 1 b 29% c 87 comparative political studies no rating 87% 3 b 90% a 88 comparative politics no rating 60% 2 a 69% a 89 computational optimization and applications 3 56% 2 no rating 67% b 90 computers and industrial engineering 2 83% 3 no rating 87% a 91 computers and operations research 3 86% 3 a 90% a 92 computers in industry 3 77% 3 no rating 83% a 93 conflict management and peace science no rating 52% 2 b 62% b 94 contemporary pacific no rating 16% 1 b 25% c 95 contemporary sociology no rating 14% 1 c 21% c 96 cornell hospitality quarterly 2 61% 2 no rating 70% a 97 cornell hospitality quarterly 2 61% 2 a 70% a 98 corporate governance: an international review 3 68% 2 a 77% a 99 corporate social responsibility and environmental management 1 85% 3 c 88% a 100 creativity and innovation management 2 52% 2 c 63% b 101 critical asian studies no rating 35% 1 b 47% b 102 critical discourse studies no rating 24% 1 b 35% c 103 critical social policy 2 59% 2 no rating 70% a 104 critical studies in media communication no rating 27% 1 c 39% c 105 cross cultural and strategic management 2 41% 2 no rating 53% b number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 106 cultural diversity and ethnic minority psychology no rating 57% 2 b 67% b 107 culture and organization 2 26% 1 b 37% c 108 current issues in tourism 2 75% 3 a 81% a 109 current sociology 2 31% 1 no rating 43% b 110 cybernetics and systems 1 28% 1 no rating 40% c 111 decision analysis 1 26% 1 a 37% c 112 decision sciences 3 64% 2 1a* 72% a 113 demographic research no rating 55% 2 a 66% b 114 demography no rating 84% 3 a 88% a 115 development and change 3 59% 2 b 69% a 116 disasters: the journal of disaster studies, policy and management no rating 56% 2 a 66% b 117 discourse & communication no rating 22% 1 a 33% c 118 discourse and society: an international journal for the study of discourse and communication in their social, political and cultural contexts no rating 54% 2 a 64% b 119 discourse studies: an interdisciplinary journal for the study of text and talk no rating 43% 2 a 55% b 120 discrete optimization 2 26% 1 no rating 36% c 121 ecology no rating 92% 3 a 94% 1a* 122 economic geography 4 90% 3 a 92% 1a* 123 economy and society 3 72% 2 a 79% a 124 educational and psychological measurement no rating 65% 2 b 73% a 125 educational management administration and leadership 1 47% 2 b 58% b 126 electoral studies 3 49% 2 no rating 59% b 127 emerging markets review 2 58% 2 a 69% b 128 employee relations 2 46% 2 b 58% b 129 energy journal 3 64% 2 a 73% a 130 energy policy 2 91% 3 a 93% 1a* 131 engineering optimization 2 51% 2 no rating 62% b 132 engineering, construction and architectural management 1 48% 2 no rating 59% b 133 enterprise and society: the international journal of business and history 3 17% 1 a 27% c 134 entrepreneurship and regional development 3 75% 3 a 81% a 135 entrepreneurship research journal no rating 26% 1 b 37% c 136 entrepreneurship, theory and practice 4 95% 4 1a* 96% 1a* 137 environment and planning d: society and space 4 80% 3 a 85% a 138 environmental education research no rating 61% 2 a 69% a number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 139 environmental management (new york) 2 65% 2 c 74% a 140 environmental science and policy 3 84% 3 no rating 88% a 141 environmental science and technology 3 94% 4 no rating 95% 1a* 142 ethics: an international journal of social, political, and legal philosophy no rating 63% 2 a 71% a 143 eurasian geography and economics 2 38% 1 b 50% b 144 european journal of communication no rating 58% 2 b 68% b 145 european journal of industrial engineering 2 30% 1 no rating 41% c 146 european journal of industrial relations 3 57% 2 a 67% b 147 european journal of innovation management 1 47% 2 c 58% b 148 european journal of international relations no rating 82% 3 a 86% a 149 european journal of political research no rating 85% 3 a 88% a 150 european journal of population no rating 53% 2 b 63% b 151 european journal of psychological assessment no rating 47% 2 b 57% b 152 european journal of public health no rating 72% 2 b 79% a 153 european journal of social psychology 3 69% 2 a 77% a 154 european journal of sociology no rating 37% 1 a 49% b 155 european journal of transport and infrastructure research no rating 26% 1 b 38% c 156 european journal of women’s studies 2 31% 1 no rating 43% b 157 european journalof international management 1 13% 1 c 23% c 158 european journalof operational research 4 91% 3 1a* 93% 1a* 159 european management journal 2 79% 3 b 84% a 160 european management review 3 35% 1 c 47% b 161 european planning studies 2 58% 2 no rating 68% b 162 european sociological review 3 82% 3 no rating 86% a 163 european sport management quarterly 3 47% 2 b 58% b 164 european urban and regional studies 3 61% 2 a 70% a 165 europe-asia studies 2 33% 1 c 44% b 166 evaluation 2 55% 2 b 66% b 167 evidence and policy 1 29% 1 no rating 41% b 168 evolutionary computation 3 67% 2 no rating 75% a 169 family business review 3 87% 3 a 90% a 170 feminist economics 2 52% 2 a 63% b 171 feminist review 2 34% 1 no rating 45% b number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 172 flexible services and manufacturing journal (formerly 09206299 "international journal of flexible manufacturing systems") 1 68% 2 no rating 76% a 173 food policy 3 86% 3 b 89% a 174 foreign affairs no rating 48% 2 1a* 54% b 175 futures 2 67% 2 b 76% a 176 fuzzy optimization and decision making 3 61% 2 no rating 71% a 177 gender and education no rating 39% 1 a 50% b 178 gender and society 3 84% 3 1a* 88% a 179 gender, work and organization 3 63% 2 a 72% a 180 geoforum 2 77% 3 no rating 83% a 181 global environmental change 3 97% 4 1a* 97% 1a* 182 global environmental politics no rating 78% 3 c 83% a 183 global governance no rating 44% 2 b 56% b 184 global networks 3 59% 2 a 69% b 185 global strategy journal no rating 44% 2 a 52% b 186 governance an international journal of policy, administration and institutions 3 87% 3 no rating 90% a 187 group decision and negotiation 2 49% 2 a 60% b 188 group dynamics: theory, research and practice 2 53% 2 b 63% b 189 group organization management: an international journal 3 72% 2 a 79% a 190 group processes and intergroup relations 2 59% 2 b 69% a 191 habitat international no rating 75% 3 a 81% a 192 health and social care in the community 1 56% 2 no rating 67% b 193 health care management review 2 67% 2 a 75% a 194 health care management science 1 51% 2 c 63% b 195 health communication no rating 52% 2 b 63% b 196 health policy 2 69% 2 b 77% a 197 health services research 3 79% 3 a 84% a 198 higher education policy 2 30% 1 no rating 41% b 199 higher education: the international journal of higher education research 2 72% 2 a 80% a 200 housing policy debate no rating 41% 2 b 53% b 201 housing studies no rating 61% 2 a 70% a 202 human communication research no rating 74% 3 a 81% a 203 human performance 3 43% 2 a 54% b 204 human relations 4 85% 3 1a* 89% a 205 human resource development quarterly 2 62% 2 b 71% a number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 206 human resource development review no rating 48% 2 b 60% b 207 human resource management (usa) 4 71% 2 1a* 79% a 208 human resource management journal (uk) 4 71% 2 a 78% a 209 human resource management review 3 82% 3 a 87% a 210 humancomputer interaction 1 69% 2 a 76% a 211 ieee transactions on engineering management 3 53% 2 no rating 63% b 212 ieee transactions on intelligent transportation systems no rating 87% 3 a 90% a 213 ieee transactions on vehicular technology no rating 83% 3 a 87% a 214 impact assessment and project appraisal no rating 46% 2 c 57% b 215 indian journal of gender studies no rating 9% 1 c 15% c 216 industrial and corporate change 3 74% 2 a 81% a 217 industrial and labor relations review 3 68% 2 1a* 76% a 218 industrial and organizational psychology: perspectives on science & practice 1 49% 2 b 57% b 219 industrial relations a journalof economy and society 4 49% 2 1a* 60% b 220 industry and innovation 2 44% 2 c 56% b 221 infor information systems and operational research 1 13% 1 b 20% c 222 informs journal on computing 3 62% 2 b 71% a 223 innovation (abingdon): the european journal of social sciences no rating 22% 1 b 33% c 224 innovation organization and management 2 23% 1 c 35% c 225 innovations in education and teaching international 2 33% 1 no rating 46% b 226 interfaces 2 33% 1 b 44% b 227 international affairs no rating 77% 3 a 83% a 228 international business review 3 73% 2 a 80% a 229 international entrepreneurship and management journal 1 59% 2 c 69% a 230 international gambling studies no rating 45% 2 b 55% b 231 international journal of arts management no rating 14% 1 b 24% c 232 international journal of automotive technology no rating 45% 2 b 57% b 233 international journal of conflict management no rating 35% 1 a 47% b 234 international journal of contemporary hospitality management 3 76% 3 a 82% a 235 international journal of cultural policy no rating 30% 1 a 42% b number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 236 international journal of environment and pollution no rating 14% 1 c 22% c 237 international journal of general systems 1 65% 2 a 73% a 238 international journal of green energy 2 29% 1 no rating 41% c 239 international journal of human resource management 3 67% 2 a 76% a 240 international journal of intercultural relations 1 55% 2 a 65% b 241 international journal of management reviews 3 94% 4 a 95% 1a* 242 international journal of managing projects in business 1 34% 1 c 46% b 243 international journal of manpower 2 24% 1 a 35% c 244 international journal of operations and production management 4 84% 3 a 88% a 245 international journal of physical distribution and logistics management 2 83% 3 a 88% a 246 international journal of production research 3 77% 3 a 83% a 247 international journal of project management 2 90% 3 a 92% 1a* 248 international journal of selection and assessment no rating 40% 1 a 50% b 249 international journal of shipping and transport logistics 1 19% 1 no rating 30% c 250 international journal of social research methodology no rating 59% 2 b 69% a 251 international journal of sport psychology no rating 20% 1 b 30% c 252 international journal of sustainable transportation no rating 51% 2 b 62% b 253 international journal of tourism research 2 65% 2 a 74% a 254 international journal of vehicle design: journal of vehicle engineering, automotive technology and components no rating 23% 1 b 35% c 255 international journalof computer integrated manufacturing 2 52% 2 b 63% b 256 international journalof entrepreneurial behavior and research 2 50% 2 b 61% b 257 international journalof forecasting 3 74% 2 a 81% a 258 international journalof heritage studies 1 35% 1 b 48% b 259 international journalof hospitality management 3 87% 3 1a* 90% a 260 international journalof logistics research and applications 1 45% 2 b 56% b 261 international journalof production economics 3 94% 4 1a* 95% 1a* 262 international journalof sport finance 1 23% 1 c 34% c number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 263 international journalof sports marketing & sponsorship 1 11% 1 b 20% c 264 international journalof technology management 2 32% 1 b 42% b 265 international journalof urban and regional research 2 78% 3 b 84% a 266 international labour review 2 27% 1 b 39% c 267 international migration no rating 43% 2 a 55% b 268 international migration review no rating 75% 3 a 81% a 269 international public management journal 2 65% 2 c 73% a 270 international review for the sociology of sport no rating 43% 2 b 55% b 271 international review of administrative sciences 3 53% 2 c 64% b 272 international sociology 2 52% 2 no rating 62% b 273 international studies quarterly no rating 75% 3 a 82% a 274 international transactions in operational research 1 60% 2 b 70% a 275 ite journal no rating 7% 1 c 12% c 276 journal of advanced transportation no rating 33% 1 a 45% b 277 journal of air transport management 1 62% 2 b 72% a 278 journal of applied communication research no rating 40% 1 b 51% b 279 journal of applied social psychology 2 54% 2 b 64% b 280 journal of applied sport psychology no rating 58% 2 a 68% b 281 journal of behavioral decision making 3 55% 2 a 65% b 282 journal of business and psychology 2 77% 3 a 83% a 283 journal of business and technical communication no rating 36% 1 c 47% b 284 journal of business ethics 3 79% 3 a 84% a 285 journal of business logistics 2 68% 2 a 74% a 286 journal of career assessment 2 50% 2 a 61% b 287 journal of career development 1 43% 2 b 54% b 288 journal of cleaner production 2 91% 3 no rating 93% 1a* 289 journal of combinatorial optimization 2 34% 1 no rating 45% b 290 journal of communication no rating 93% 4 a 94% 1a* 291 journal of comparative policy analysis: research and practice no rating 36% 1 b 47% b 292 journal of constructivist psychology 1 20% 1 b 32% c 293 journal of cross-cultural psychology 3 57% 2 a 66% b 294 journal of cultural economy 2 27% 1 no rating 38% c 295 journal of education policy 2 76% 3 no rating 82% a 296 journal of educational and behavioral statistics no rating 68% 2 c 76% a number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 297 journal of employment counseling 1 19% 1 a 31% c 298 journal of engineering and technology management 2 71% 2 b 78% a 299 journal of environmental management 3 85% 3 a 88% a 300 journal of environmental planning and management no rating 47% 2 b 58% b 301 journal of european public policy 3 85% 3 a 89% a 302 journal of european social policy 3 63% 2 no rating 72% a 303 journal of experimental psychology: general no rating 93% 4 1a* 94% 1a* 304 journal of experimental psychology: human perception and performance no rating 71% 2 1a* 78% a 305 journal of experimental psychology: learning, memory, and cognition no rating 76% 3 1a* 82% a 306 journal of experimental social psychology 4 82% 3 a 87% a 307 journal of family business strategy 2 66% 2 c 74% a 308 journal of gambling studies no rating 63% 2 a 72% a 309 journal of health politics, policy and law no rating 46% 2 a 57% b 310 journal of health services research and policy 1 53% 2 c 64% b 311 journal of heuristics 3 53% 2 no rating 63% b 312 journal of higher education 2 71% 2 b 78% a 313 journal of hospitality and tourism research 2 78% 3 a 83% a 314 journal of hospitality, leisure, sport and tourism education 1 41% 2 no rating 52% b 315 journal of human development and capabilities no rating 26% 1 b 37% c 316 journal of industrial ecology 2 80% 3 no rating 85% a 317 journal of industrial relations 2 32% 1 a 44% b 318 journal of informetrics 1 79% 3 no rating 84% a 319 journal of intelligent manufacturing 1 77% 3 b 83% a 320 journal of intelligent transportation systems: technology, planning, and operations no rating 60% 2 b 70% a 321 journal of interdisciplinary history no rating 27% 1 c 38% c 322 journal of international management 3 70% 2 a 78% a 323 journal of international relations and development no rating 36% 1 c 48% b 324 journal of latin american studies 2 29% 1 no rating 41% c 325 journal of leadership and organizational studies no rating 49% 2 c 61% b 326 journal of leisure research no rating 45% 2 a 57% b 327 journal of management inquiry 3 54% 2 a 65% b 328 journal of managerial psychology 3 55% 2 c 64% b 329 journal of manufacturing systems 1 79% 3 b 84% a 330 journal of mathematical psychology 2 59% 2 b 69% a number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 331 journal of occupational and organizational psychology 4 85% 3 a 88% a 332 journal of occupational health psychology 4 91% 3 a 92% 1a* 333 journal of optimization theory and applications 3 50% 2 a 61% b 334 journal of performance of constructed facilities no rating 40% 1 c 52% b 335 journal of personality no rating 81% 3 a 86% a 336 journal of personality assessment no rating 69% 2 a 77% a 337 journal of policy analysis and management 3 81% 3 a 86% a 338 journal of pr ofessional issues in engineering education and practice no rating 37% 1 b 50% b 339 journal of public administration research and theory 4 93% 4 a 94% 1a* 340 journal of public policy no rating 34% 1 b 46% b 341 journal of purchasing and supply management 2 85% 3 b 88% a 342 journal of quality technology no rating 78% 3 a 84% a 343 journal of real estate finance and economics 3 51% 2 a 62% b 344 journal of research in personality no rating 76% 3 a 82% a 345 journal of rural studies 3 75% 3 no rating 82% a 346 journal of safety research 2 70% 2 a 78% a 347 journal of scheduling 3 48% 2 a 59% b 348 journal of service management 2 74% 3 a 80% a 349 journal of service theory and practice 1 56% 2 no rating 66% b 350 journal of simulation 1 30% 1 no rating 42% b 351 journal of small business management 3 81% 3 a 86% a 352 journal of social issues no rating 73% 2 a 80% a 353 journal of social policy 3 64% 2 a 74% a 354 journal of social psychology 1 42% 2 b 53% b 355 journal of sociology no rating 40% 1 b 52% b 356 journal of southeast asian studies no rating 12% 1 c 18% c 357 journal of sport and social issues no rating 45% 2 b 57% b 358 journal of supply chain management 3 93% 4 a 95% 1a* 359 journal of technology transfer 2 73% 2 c 80% a 360 journal of textile institute 1 37% 1 no rating 49% b 361 journal of the operational research society 3 54% 2 a 64% b 362 journal of tourism and cultural change no rating 31% 1 c 43% b 363 journal of transport and health no rating 54% 2 c 62% b 364 journal of transport and land use no rating 47% 2 b 57% b number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 365 journal of transport economics and policy 2 50% 2 a 62% b 366 journal of transport geography 2 79% 3 a 84% a 367 journal of travel and tourism marketing 2 56% 2 a 66% b 368 journal of urban affairs no rating 51% 2 a 62% b 369 journal of urban planning and development no rating 35% 1 b 47% b 370 journal of vacation marketing 1 55% 2 a 65% b 371 journal of world business 4 88% 3 a 91% a 372 journalof applied behavioral science 2 55% 2 b 65% b 373 journalof business economics and management 2 33% 1 b 45% b 374 journalof business research 3 78% 3 a 84% a 375 journalof business venturing 4 98% 4 1a* 98% 1a* 376 journalof common market studies 3 72% 2 b 80% a 377 journalof construction engineering and management 2 68% 2 1a* 77% a 378 journalof development studies 3 56% 2 a 66% b 379 journalof east european management studies 1 8% 1 c 17% c 380 journalof economic geography 4 89% 3 a 91% a 381 journalof economics and management strategy 2 51% 2 a 61% b 382 journalof forecasting 2 37% 1 a 48% b 383 journalof health, organisation and management 1 26% 1 b 37% c 384 journalof hospitality marketing and management 1 60% 2 a 69% a 385 journalof industrial and management optimization 1 32% 1 b 43% b 386 journalof intellectual capital 2 78% 3 b 82% a 387 journalof international business studies 4 98% 4 1a* 98% 1a* 388 journalof knowledge management 2 74% 3 a 81% a 389 journalof labour research 2 13% 1 b 21% c 390 journalof management 4 99% 4 1a* 99% 1a* 391 journalof management and organization 2 28% 1 b 40% c 392 journalof management studies 4 96% 4 1a* 96% 1a* 393 journalof operations management 4 97% 4 1a* 97% 1a* 394 journalof organizational behavior management 2 20% 1 b 31% c 395 journalof organizational change management 2 40% 1 b 51% b 396 journalof product innovation management 4 94% 4 1a* 95% 1a* 397 journalof regional science 3 67% 2 a 76% a number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 398 journalof risk research 2 34% 1 c 46% b 399 journalof service research 4 97% 4 1a* 97% 1a* 400 journalof sport management 2 58% 2 1a* 68% b 401 journalof sports economics 2 39% 1 b 51% b 402 journalof sustainable tourism 3 83% 3 1a* 87% a 403 journalof the royal statistical society series a 3 75% 3 a 82% a 404 journalof travel research 4 94% 4 1a* 95% 1a* 405 journalof world trade 2 19% 1 b 28% c 406 kyklos 3 43% 2 a 55% b 407 labor history no rating 19% 1 a 29% c 408 labour history: a journal of labour and social history no rating 8% 1 a 13% c 409 land use policy no rating 81% 3 a 85% a 410 language and communication no rating 30% 1 b 42% b 411 leadership 2 54% 2 b 64% b 412 leadership and organizational development 1 36% 1 b 48% b 413 leadership quarterly 4 92% 3 1a* 93% 1a* 414 leisure sciences: an interdisciplinary journal 2 50% 2 a 62% b 415 leisure studies 2 61% 2 a 71% a 416 local government studies 2 39% 1 a 51% b 417 long range planning 3 84% 3 a 88% a 418 management and organization review 3 46% 2 a 57% b 419 management communication quarterly 2 52% 2 b 63% b 420 management decision 2 50% 2 b 60% b 421 management international review 3 60% 2 a 70% a 422 management learning 3 57% 2 a 67% b 423 management science 4 94% 4 1a* 95% 1a* 424 manufacturing and service operations management 3 72% 2 a 79% a 425 marine resource economics 1 51% 2 a 63% b 426 maritime economics and logistics 1 54% 2 b 65% b 427 mathematical methods of operations research 1 33% 1 no rating 44% b 428 mathematical programming 4 85% 3 no rating 89% a 429 mathematics of operations research 3 53% 2 a 64% b 430 media culture and society no rating 49% 2 b 60% b 431 millenium: journal of international studies no rating 39% 1 b 51% b 432 mit sloan management review: mit's journal of management research and ideas 3 76% 3 a 82% a 433 motivation and emotion no rating 62% 2 a 72% a number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 434 multivariate behavioral research no rating 83% 3 a 87% a 435 narrative inquiry no rating 13% 1 b 21% c 436 negotiation and conflict management research no rating 27% 1 c 37% c 437 negotiation journal 2 14% 1 b 22% c 438 new political economy 3 68% 2 a 76% a 439 new technology, work and employment 3 51% 2 a 62% b 440 nonprofit and voluntary sector quarterly 3 68% 2 a 77% a 441 nonprofit management and leadership 1 44% 2 b 56% b 442 nutrition and food science 1 19% 1 no rating 30% c 443 omega the international journalof management science 3 94% 4 1a* 95% 1a* 444 operational research: an international journal 1 40% 2 c 51% b 445 operations management research 1 31% 1 c 42% b 446 operations research 4 81% 3 1a* 86% a 447 operations research letters 2 34% 1 a 43% b 448 optimal control applications and methods no rating 51% 2 b 62% b 449 optimization a journalof mathematical programming and operations research 1 37% 1 b 49% b 450 or spectrum 3 65% 2 b 74% a 451 organization and environment: international journal of ecosocial research 2 82% 3 b 86% a 452 organization science 4 90% 3 1a* 92% 1a* 453 organization studies 4 83% 3 1a* 88% a 454 organization: the critical journal of organization, theory and society 3 82% 3 a 86% a 455 organizational dynamics 2 36% 1 a 48% b 456 organizational psychology review 2 63% 2 b 68% b 457 organizational research methods 4 94% 4 1a* 95% 1a* 458 parliamentary affairs 2 40% 2 b 52% b 459 perceptual and motor skills no rating 25% 1 c 35% c 460 personality and individual differences 3 66% 2 a 74% a 461 personality and social psychology review no rating 99% 4 1a* 99% 1a* 462 personnel review 2 50% 2 a 61% b 463 philosophy and public affairs no rating 64% 2 a 71% a 464 philosophy of the social sciences no rating 17% 1 b 26% c 465 policy and politics: an international journal 3 50% 2 a 62% b 466 policy and society no rating 44% 2 b 55% b number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 467 policy sciences: an international journal devoted to the improvement of policy making 1 75% 3 b 81% a 468 policy studies 2 18% 1 b 29% c 469 policy studies journal no rating 72% 2 b 79% a 470 political communication: an international journal no rating 73% 2 a 80% a 471 political quarterly 2 40% 2 b 52% b 472 political science quarterly no rating 16% 1 a 24% c 473 political studies 2 66% 2 b 74% a 474 politics and society 3 61% 2 b 71% a 475 population no rating 20% 1 b 32% c 476 population and development review no rating 88% 3 a 91% a 477 population and environment no rating 59% 2 a 69% b 478 population research and policy review no rating 39% 1 a 51% b 479 population studies: a journal of demography no rating 57% 2 a 67% b 480 population, space and place no rating 69% 2 c 77% a 481 proceedings of institute of mechanical engineers part b journal of engineering manufacture 1 44% 2 -1 no rating 55% b 482 production and operations management 4 74% 3 a 81% a 483 production planning and control 3 68% 2 b 76% a 484 progress in human geography 3 97% 4 -1 no rating 98% 1a* 485 project management journal 1 60% 2 b 69% b 486 psychological research 3 64% 2 a 73% a 487 psychology of women quarterly 3 79% 3 a 84% a 488 public administration and development 2 35% 1 a 48% b 489 public administration review 4 90% 3 a 92% 1a* 490 public administration: an international quarterly 4 80% 3 a 85% a 491 public management review 3 75% 3 a 81% a 492 public money and management 2 27% 1 a 38% c 493 public opinion quarterly 3 73% 2 a 80% a 494 public performance and management review 1 32% 1 b 43% b 495 public personnel management no rating 43% 2 c 54% b 496 public policy and administration no rating 58% 2 b 68% b 497 quality and quantity: international journal of methodology no rating 30% 1 b 42% b 498 quality and reliability engineering international 1 54% 2 -1 no rating 64% b 499 quality of life research no rating 72% 2 a 79% a 500 quarterly journal of political science 3 67% 2 b 75% a number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 501 quest no rating 40% 2 c 52% b 502 queuing systems 2 46% 2 0 no rating 58% b 503 r & d management 3 62% 2 a 71% a 504 rairo operations research / recherche operationnelle 1 13% 1 0 no rating 21% c 505 rationality and society 2 16% 1 b 25% c 506 regional science and urban economics 3 62% 2 a 71% a 507 regional studies 3 85% 3 1a* 89% a 508 regulation and governance 3 73% 2 a 79% a 509 reliability engineering and system safety 3 90% 3 a 92% a 510 research evaluation 2 66% 2 c 75% a 511 research policy 4 97% 4 1a* 97% 1a* 512 research technology management: international journal of research management 2 53% 2 a 64% b 513 review of international organizations no rating 76% 3 c 80% a 514 review of international studies no rating 64% 2 b 74% a 515 review of managerial science 2 34% 1 1 no rating 45% b 516 reviewof international political economy 3 78% 3 a 83% a 517 risk analysis an international journal 4 73% 2 no rating 80% a 518 risk management: an international journal no rating 8% 1 c 15% c 519 scandinavian journalof hospitality and tourism 2 32% 1 b 44% b 520 scandinavian journalof management 2 44% 2 b 55% b 521 science and public policy 2 45% 2 c 56% b 522 science and society 2 9% 1 b 16% c 523 science communication no rating 52% 2 a 62% b 524 science, technology and human values 2 80% 3 a 85% a 525 science, technology and society 2 16% 1 b 26% c 526 scientometrics 2 69% 2 a 77% a 527 security dialogue no rating 80% 3 a 85% a 528 security studies no rating 58% 2 b 69% b 529 service industries journal 2 41% 2 b 52% b 530 service science 1 9% 1 no rating 16% c 531 sex roles 2 61% 2 a 70% a 532 siam journal on optimization 3 78% 3 no rating 84% a 533 signs 2 39% 1 no rating 51% b 534 small business economics: an entrepreneurship journal 3 85% 3 a 89% a number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 535 small group research: an international journal of theory, investigation and application 2 46% 2 a 57% b 536 social forces 3 75% 3 a 81% a 537 social indicators research no rating 55% 2 a 65% b 538 social justice research 1 31% 1 b 42% b 539 social networks 2 79% 3 no rating 84% a 540 social policy and administration: an international journal of policy and research 2 51% 2 a 62% b 541 social problems no rating 72% 2 a 80% a 542 social psychological and personality science no rating 65% 2 b 73% a 543 social science and medicine 4 84% 3 no rating 89% a 544 social science information: information sur les sciences sociales no rating 12% 1 c 20% c 545 social science japan journal no rating 14% 1 c 21% c 546 social science quarterly no rating 43% 2 b 53% b 547 social service review no rating 57% 2 b 68% b 548 social studies of science 2 77% 3 no rating 83% a 549 socioeconomic planning sciences the international journal of public sector decisionmaking 2 51% 2 no rating 62% b 550 socio-economic review 3 77% 3 a 83% a 551 sociological inquiry no rating 26% 1 a 38% c 552 sociological methodology 3 57% 2 a 68% b 553 sociological methods and research no rating 85% 3 a 88% a 554 sociologie du travail 2 24% 1 b 32% c 555 sociology 4 80% 3 1a* 85% a 556 sociology of health and illness 4 70% 2 no rating 78% a 557 sociology of sport journal no rating 40% 1 a 51% b 558 sport in society no rating 20% 1 b 31% c 559 sport management review 2 70% 2 a 77% a 560 sport psychologist no rating 47% 2 b 58% b 561 sport, education and society no rating 65% 2 b 74% a 562 strategic entrepreneurship journal 4 73% 2 a 78% a 563 strategic management journal 4 98% 4 1a* 98% 1a* 564 strategic organization 3 63% 2 a 72% a 565 stress and health 2 49% 2 a 60% b 566 structural equation modelling no rating 89% 3 a 91% a 567 studies in comparative international development no rating 45% 2 a 56% b 568 studies in higher education 3 73% 2 a 80% a 569 supply chain management: an international journal 3 88% 3 a 90% a 570 survival no rating 37% 1 b 50% b number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 571 system dynamics review 2 42% 2 a 53% b 572 systemic practice and action research no rating 23% 1 b 35% c 573 systems research and behavioral science no rating 26% 1 a 38% c 574 teaching in higher education 2 47% 2 c 59% b 575 technological forecasting and social change 3 80% 3 a 85% a 576 technology analysis and strategic management 2 46% 2 b 56% b 577 technometrics no rating 62% 2 a 71% a 578 technovation 3 91% 3 a 93% 1a* 579 telecommunications policy 1 61% 2 no rating 71% a 580 test no rating 51% 2 b 62% b 581 the baltic journal of road and bridge engineering no rating 11% 1 c 19% c 582 the china review: an interdisciplinary journal on greater china no rating 10% 1 c 19% c 583 the economic and labour relations review 1 16% 1 b 26% c 584 the international journal of logistics management 1 55% 2 a 65% b 585 the milbank quarterly 3 81% 3 b 87% a 586 the pacific review no rating 56% 2 a 67% b 587 the social science journal no rating 22% 1 c 33% c 588 the sociological review 3 73% 2 a 80% a 589 theory and decision 2 24% 1 a 34% c 590 theory, culture and society: explorations in critical social science 3 65% 2 a 73% a 591 third world quarterly 2 60% 2 no rating 71% a 592 top an official journal of the spanish society of statistics and operations research 1 35% 1 no rating 46% b 593 total quality management and business excellence 2 51% 2 c 62% b 594 tourism economics 2 34% 1 a 45% b 595 tourism geographies 2 61% 2 a 71% a 596 tourism management 4 97% 4 1a* 97% 1a* 597 tourism management perspectives 2 51% 2 b 62% b 598 tourist studies 2 39% 1 b 51% b 599 transport reviews 2 85% 3 a 89% a 600 transportation 2 78% 3 a 84% a 601 transportation journal no rating 34% 1 b 46% b 602 transportation letters no rating 13% 1 b 22% c number journaltitle ajg actual rating journal metrics average ajg % rank (c1) estimated_ ajg rating (c2) action ajg (c3) abdc actual rating (c19) journal metrics average abdc % rank (c20) estimated_ abdc rating (c21) action abdc (c22) 603 transportation planning and technology no rating 23% 1 b 34% c 604 transportation research part a policy and practice 3 86% 3 1a* 89% a 605 transportation research part b methodological 4 94% 4 1a* 94% 1a* 606 transportation research part d: transport and environment 3 81% 3 a 86% a 607 transportation research part e logistics and transportation review 3 85% 3 1a* 88% a 608 transportation research part f: traffic psychology and behaviour no rating 70% 2 a 78% a 609 transportation science 3 91% 3 a 93% 1a* 610 transportmetrica a: transport science no rating 61% 2 b 70% a 611 transportmetrica b no rating 61% 2 b 68% b 612 urban affairs review no rating 58% 2 b 69% b 613 urban studies 3 80% 3 1a* 85% a 614 us bureau of labor statistics: monthly labor review no rating 18% 1 b 26% c 615 utilities policy 1 52% 2 no rating 63% b 616 voluntas international journal of voluntary and nonprofit organization 2 39% 1 b 51% b 617 water resources research no rating 89% 3 a 91% a 618 west european politics 3 78% 3 b 83% a 619 work & stress: an international journal of work, health and organisations 3 86% 3 a 89% a 620 work and occupations: an international sociological journal 3 75% 3 a 81% a 621 work, employment and society 4 71% 2 a 79% a 622 world bank research observer 2 76% 3 b 82% a 623 world politics no rating 92% 3 a 94% 1a* 624 written communication: an international quarterly of research, theory, and application no rating 53% 2 b 64% b 625 zeitschrift für personalforschung (german journal of research in human resource management) 2 35% 1 no rating 44% b rahal zainuba, 2019.pdf rahal and zainuba appendix a.pdf rating analysis(2) abstract 70 a financial profile of firms awarded the highest technical ratings by value line in a period of high economic growth bruce c payne, ph.d. barry university marie beauchesne, ph.d. barry university michael tyler, ph.d. barry university this study examines the financial characteristics of the group of firms that have been identified by value line as having the highest technical ratings in their database during the four years preceding the 2020 occurrence and resulting economic downturn of the coronavirus-19 pandemic. that period was characterized by a high level of economic growth, low unemployment, and record-high equity markets. those highest-ranking firms are compared with firms chosen at random, but from the same industries, to determine whether the firms with the high technical ratings in such an economic environment have a unique risk-return profile, and by implication, a heretofore unknown relationship between technical and fundamental analysis. as in previous studies of this type, multiple discriminant analysis is used to identify the characteristics that most highly separate the two groups of firms, and canonical correlation ranks the discriminant variables. keywords: technical analysis, economic growth, multiple discriminant analysis. introduction the value line investment survey awards each of the 1700 companies in its database a technical rating ranging from one to five. a ranking of one indicates that the company has immediate investment potential over a three to five-month period, and a ranking of five indicates that there is no immediate investment potential and may indeed contain the potential for loss. value line uses a proprietary formula to predict the short-term (three to six months) future price returns relative to the value line universe of those 1700 companies (value line pro, 2019). the company has had a proven track record with its technical ranking system since 1965. their top-ranked stocks for technical ratings outperformed the dow jones wilshire 5000’s total-return index by an average of 2.6 percentage points a year over nearly three decades (hulbert, 2007). thus, the technical ranking has been of interest to investors and market researchers for years. http://journals.sfu.ca/abr advances in business research 2020, volume 10, pages 70-81 71 previous studies on the investment potential of highly ranked firms based on technical analysis have ignored the macroeconomic background and risk-return characteristics of those highly ranked firms. this study examines the financial characteristics of that group of firms that have been identified by value line as having the highest technical ratings in their database during the four years preceding this study. those four years have been characterized by economic growth, low unemployment, and record-high equity markets. regardless of the consistently high level of interest and apparent advantages of using the value line technical ranking to evaluate investments and the intrinsic value of firms in such an economic background, there have been no studies that have determined or established an association between traditional financial measures of risk and return (microeconomic measures) and the value line technical ratings in that economic environment. the purpose of this study is to establish a financial profile of those firms with the highest value line technical ratings in a growing economic environment and to compare those firms with firms chosen at random, but from the same industries as the first group to determine whether the firms with the high technical ratings have a unique risk-return profile. this manuscript contributes to the existing literature by empirically testing a classification model that could allow the identification of firms likely to obtain high technical ratings in future periods of high economic growth. these findings would have important practical implications for financial managers, investors, investment counselors, and academic researchers. literature review empirical evidence over time indicates that the relative accuracy of the value line technical ranking system has been outstanding. as stated, their top-ranked stocks using technical ratings outperformed the dow jones wilshire 5000’s total-return index by an average of 2.6 percentage points a year over nearly three decades (hulbert, 2007). the widespread use of the technical ratings is, however, contrary to the logic contained in all forms of the efficient market hypothesis (emh). thus, that extraordinary performance in an efficient market has led many to refer to it as the value line anomaly, or the value line enigma. fischer black, one of the fathers of the emh, once stated that value line’s results were the big exception to the emh (swedroe, 2010). the use of all value line data in investor decisions has grown steadily and continues to grow steadily in popularity since its inception in 1965 (reynolds, 2019). huang (2017) polled advisers, professional stockbrokers, and bond specialists to find the best investing tools, newsletters, websites, and journals for potential investors. the study concluded that value line is the most reliable source of stock investment research, with a history going back to 1931, and that historically, it has outperformed the competition when it comes to risk-adjusted-performance. there are, however, other views. damodaran (2014) suggested that technical analysis should not be used in isolation, but in conjunction with risk analysis and timing data. that study further stated that many traders fail to incorporate sound risk management techniques into their trading systems. moreover, many traders fail to incorporate stop-loss orders with their initial orders when using technical analysis indicators only damodaran (2014). the concept of risk is not often associated with technical ratings. however, waggle et al., (2004) found that investors selecting value line’s most highly rated stocks based on technical analysis tend to take on relatively high levels of market risk, as measured by beta. the authors concluded that individuals should focus on security betas rather than value line ranks when making investment decisions. they further concluded that value line’s assignments of technical ranks appear biased toward higher-beta (higher-risk) securities. lorenzoni et al. (2007) found that traders have a tendency to test their trading systems and technical analysis indicators on an insufficient amount of data and that analysts need to test trading systems and technical analysis indicators on a wide array of data in different types of trading markets. castater et al. (2020) found that technical ratings are very seldom used in isolation to evaluate investments but are usually used in conjunction with value line’s timeliness rating and that those two ratings should always be consistent. 72 lockwood et al. (2016) found that the value line effect (i.e., high success of the value line technical rankings) is confined to u.s. stocks. they concluded that u.s. listed stocks significantly outperform their benchmarks long after value line technical rank change announcements. in contrast, they found no evidence of a value line effect for recommendations made for foreign stocks that list on u.s. exchanges, nor for those that list outside the u.s. further, their study concluded that for days surrounding rank change announcements, trading volume is abnormally high for the u.s. listed stocks but remains unchanged for the foreign stock sample. whereas previous studies ignore the macroeconomic background at the time company rankings are awarded, this study examines those rankings and companies receiving those rankings for the four years preceding the 2020 occurrence and resulting economic downturn of the coronavirus19 pandemic. that period has been characterized by steady to high economic growth, record low unemployment, stable prices, and record-high equity markets. thus, conclusions reached in this study apply to these specific market conditions and should not be extrapolated to declining or stagnant markets. moreover, the fundamental risk-return characteristics of the highly-rated firms at the time those ratings are awarded have received little attention in the literature. as a result, this study adds to the existing body of knowledge of value line’s technical ratings and to the extent that the value line ratings are consistent with other financial services, then by extension to all technical ratings. financial data collected and managerial behavior regarding financial positions observed during this period are empirical evidence of the financial characteristics of firms and managerial behavior during such an economic environment. thus, the period march 2016 to march 2019 provides a workshop for the study of value line’s technical rankings, and the financial characteristics of those firms ranked highest in a period of unusual economic growth. methodology our approach to studying the financial profile of firms with high technical ratings is two-fold: 1) we develop a classification model, and 2) we evaluate the accuracy of our model’s predictions. more specifically, can firms be assigned, based on selected financial variables, to one of two groups: (1) firms that were identified as having the highest ratings for technical analysis in their database and simply referred to here as (htr) or (2) firms chosen at random (fcr) from the same database and the same industries as the htr group? multiple discriminant analysis (mda) provides a procedure for assigning firms to predetermined groupings based on variables or attributes whose values may depend on the group to which the firm belongs, and canonical correlation ranks those variables in order of their weighted effects on the results of the analysis. if the purpose of the study were simply to establish a financial profile of each group of firms, simple ratios would be adequate. however, as early as 1968, in a seminal paper on the use of mda in finance, altman showed that sets of variables used in multivariate analysis were better descriptors of the firms and had more predictive power than individual variables used in univariate tests (altman, 1968). the use of mda in the social sciences for classification is well known. mda is appropriate when the dependent variables are nominally or ordinally measured, and the predictive variables are metrically measured. in addition to its use in the altman study to predict corporate bankruptcy, other early studies used mda to predict financially distressed property-liability insurance firms (trieschmann & pinches 1973), to determine value (payne, 2010), and the failure of small businesses (edmister, 1982). this study also employs nominally measured dependent variables and metrically measured predictive variables. the nominally measured dependent variables are the group of htr firms and the group of fcr firms. the computer program used to perform the analysis is spss 25.0 discriminant analysis. since the objective is to determine the discriminating capabilities of the entire set of variables without regard to the impact of individual variables, all variables were entered into the model simultaneously. this method is appropriate since the purpose of the study was not to identify the predictive power of any one variable, but instead the predictive power of the entire set of 73 independent variables (hair et al., 1992). selection of sample and independent variables since all empirical evidence over time indicates that the long-term performance of value line’s technical ranking system has been outstanding, and as the use of value line data in investor decisions continues to grow steadily in popularity since its inception in 1965 (reynolds, 2019), it is used here as the subject of the current study. all data used in the analysis were gathered from value line ratings and reports.2 the first group (htr) was identified by value line as the first 100 firms with the highest technical ratings in our sample. the second group (fcr) consists of 100 firms randomly chosen from the value line database, but from the same industries as the first group. thus, there are 200 companies in our total sample. in periods of economic growth or economic decline, all industries will not experience the same effects, whether they are adverse or beneficial. it follows that for an unbiased study, the effects of industry must be held constant. this was accomplished by matching the companies in the htr group with companies from the same industry in the fcr group. for example, from the restaurant industry, bob evan’s is in the htr group, and p.f. chang’s is in the fcr group. from the drugs industry, forrest labs is in the htr group, and merck is in the fcr group. from the medical services industry, tenet healthcare is in the htr group and universal health is in the fcr group. from the entertainment industry, walt disney is in the htr group and warner music is in the fcr group. gentex is in the htr group from the auto parts industry and dura auto parts in the fcr group. in this manner, each company identified by value line as having high technical ratings was matched with a randomly chosen company from the same industry. thus, this matching method of randomly choosing and matching companies from the same industries eliminates any bias due to differences in industry listings. previous studies using this (and other) statistical methods have chosen explanatory variables by various criteria and theoretically driven arguments. in this study, the group of explanatory variables chosen for analysis includes one measure of the size of the firm, one measure of return on investment, two measures of risk, one measure of capital spending, a measure of the safety of investment, a measure of financial strength, a measure of price predictability, a measure of the timeliness of investment in the firm, and finally, and one measure of how the firm may be perceived by investors at the margin. it is the buying and selling of those investors that establish the market value of both equity and debt. an evaluation of those measures is needed to accomplish the purpose of this study. a basic tenet of this study is that all investors trade-off indicators of risk and return, and their perception of risk and return to establish the value of the firms. following are the ten explanatory variables: x1 sales is included as a measure of the size of the firm. market capitalization is commonly used to measure the size of the firm, but in this case, sales is the better measure because it is more likely affected by strong economic growth. the literature is mixed on whether the size of the firm is a factor in establishing technical value for investment. thus, it is included in the set in an attempt to add clarity. x2 return to total capital is used as a measure of return on investment. it includes a return to creditors as well as owners and recognizes that firm value is affected by the cost of debt. a measure of return to equity could be used, but it would ignore the cost of debt and the fact that debt as well as equity finances assets. x3 there is in any company, both financial risk (financial leverage) and operating risk (operating leverage). sharpe’s beta coefficients contain the effects of both operating and financial risk. it is customary in modern research to separate the two types of risk to identify and compare the sources of risk. the separation is accomplished by using hamada’s (1972) equation to unlever the published betas. the unlevered beta resulting from hamada’s equation is used as a measure of operating or business risk that results from fixed operating costs, and the debt 74 to total capital ratio is usually used as a measure of financial leverage (risk) (van horne 2001; brigham & daves, 2006). x4 long term debt to total capital (dtc) is used here as a measure of financial risk (financial leverage). there are other ratios that measure financial risk very well. however, the debt to total capital ratio again recognizes that the firm is financed by creditors as well as owners. x5 the fifth explanatory variable is capital spending per share. the data gathered from this study were gathered from the period four years preceding this study. it is expected that in periods of strong economic growth, all firms would increase capital expenditures. it will be informative to determine if, indeed, firms that have achieved high technical ratings have increased their capital spending beyond that of firms selected randomly. it has been written that while the price-earnings multiple is a rough measure of the value as a function of past earnings, the capital spending to earnings ratio may be regarded as an indicator of future value (payne, 2010). x6 for both individual investors and investment companies, safety is an important criterion. the value line rank for safety is assigned to each of the approximately 1,700 companies in their database. it measures the total risk of a stock relative to the approximately 1,700 other stocks. it is included here to answer whether a measure of safety is in any way associate with technical ratings. x7 just as safety is an essential criterion for both individual investors and companies considering an investment, the financial strength of a company is almost certainly a prime consideration. the purpose here is to determine whether the financial strength of a company is in any way associated with technical analysis. x8 value line’s price predictability statistic for all firms in their database is related to potential return on investment and, if positive, should be related to high technical ratings. the price predictability statistic is based on the stability of year-to-year earnings comparisons, with recent years being weighted more heavily than earlier ones. the ratings range from 5 to 100 and are derived from the standard deviation of percentage changes in quarterly earnings over eight years (value line pro, 2019). x9 the value line timeliness screen ranks a stock's probable market performance one year in advance. all 1700 stocks in the value line database receive a timeliness ranking from number one, for companies ranked the highest for potential positive movement to number five, those companies ranked lowest for timely investments. the ranking score is derived by value line via a proprietary computer program using as input the price and earnings history, recent price and earnings momentum, and earnings surprises. the company claims to have a proven track record with the timeliness ranking system since 1965. timeliness is thus included here and, if positive, should be related to the group of htr firms (value line pro, 2019). x10 -the activity of institutional investors has long been a favored topic in financial literature. the daily trading of such investors varied during this period between 50 and 70 percent of all daily trading on the new york stock exchange (brancato & rabimov, 2008). we include the buying activity of institutional investors during this period simply as an indicator of how the market or at least a significant part of the market regarded those firms. 75 in sum, there are ten explanatory variables in the multiple discriminant model. they are as follows: x1 a measure of size (sales) x2 – return to total capital x3 – hamada’s unlevered beta (operating risk) x4 – long term debt to total capital (financial risk) x5 – capital spending per share x6 – the value line measure of safety of investment x7 – the value line measure of financial strength x8 – the value line measure of price predictability x9 – the value line measure of timeliness for investment x10 – institutional buying activity the explanatory variable profile contains basic measures of standard financial variables. they were chosen, as in any experimental design, because of their consistency with theory, adequacy in measurement, the extent to which they have been used in previous studies, and their availability from a reputable source. when there are a large number of potential independent variables that can be used, the general approach is to use the fewest number of independent variables that account for a sufficiently large portion of the discrimination procedure (zaiontz, 2014). the more accepted practice is to use only the variables that logically contribute to the accomplishment of the study’s purpose (suozzo, 2001). however, the construction of this set of explanatory variables is consistent with the purpose of building a financial profile for the htr firms. the financial profiles simply consist of, as previously mentioned, one measure of the size of the firm, one measure of return on investment, two measures of risk, one measure of capital spending, a measure of the safety of investment, a measure of financial strength, a measure of price predictability, a measure of the timeliness of investment in the firm, and finally, and one measure of how the firm may be perceived by investors at the margin. it is the buying and selling of those investors that establish the market value of both equity and debt. an evaluation of those measures is needed to accomplish the purpose of this study. if the model can be successfully validated, it suggests that the profile for the highly ranked companies for investment may be used as a tool to forecast companies that will maintain high technical rankings in a growth economy in the future. tests and results the discriminant function used has the form: zj = c + v1x1j+v2x2j+...…+vnx nj (1) where: c0 is a constant xij is the firm’s value for the ith independent variable. vi is the discriminant coefficient for each jth firm’s ith variable. zj is the jth individual’s discriminant score. the function derived from the data in this study and substituted in equation 1 is: zj = 2.115 + .082x1 + .400x2 .087x3 + .096x4 .144x5 .259x6 .124x7 +.010x8 + .879x9 + .004x10 (2) the classification of firms is as follows: the values of the ten variables for each firm are substituted into equation (2). thus, each firm in both groups receives a z score. if a firm’s z score is less than a critical value, the firm is classified in group one (fcr). conversely, a firm’s z score that is greater than the critical value will place the firm in group two (htr). since the two groups are heterogeneous, the expectation is that htr firms will fall into one group, and the fcr firms will fall 76 into the other. interpretation of the results of discriminant analysis is usually accomplished by addressing four basic questions: 1. is there a significant difference between the mean vectors of explanatory variables for the two groups of firms? 2. how well did the discriminant function perform? 3. how well did the independent variables perform? 4. will this function discriminate as well on any random sample as it did on the original sample? to answer the first question, spss provides a wilk’s lamda – chi-square transformation (sharma, 1996). the calculated value of chi-square in this study is 27.99. that exceeds the critical value of chisquare 18.31 at the five percent level of significance with 10 degrees of freedom. the null hypothesis that there is no significant difference between the financial profiles of the two groups is therefore rejected, and the first conclusion drawn from the analysis is that the two groups have significantly different financial characteristics (for a complete explanation of the test of hypothesis, see appendix a). this result was, of course, expected since one group of firms experienced very high technical ratings, and the other group was chosen randomly. the discriminant function thus has the power to separate the two groups. however, this does not mean that it will, in fact, separate them. the ultimate value of a discriminant model depends on the results obtained. that is what percentage of firms were classified correctly, and is that percentage significant? to answer the second question, a test of proportions is needed. of the 100 htr firms in the total sample, 64 were properly classified. when looking at the entire sample of 200 firms, 131 firms were accurately classified between the two groups (i.e., htr and fcr), representing a success rate of 65.5%. the results are shown in table 1. table 1 – classification results predicted results htr fcr classification actual results htr fcr htr 64 36 fcr 33 67 to test whether a 65.5 percent correct classification rate is statistically significant, the press’s q test is performed (hair et al. 1992). press’s q is a chi-square random variable: press’s q = [n-(n x k)]2 / n(k-1) (3) where: n = total sample size n = number of cases correctly classified k = number of groups in this case: press’s q = [200 (131 x 2)]2 / [200 (2-1)] = 19.22 > 2 .05 3.84 with one d. f. (4) thus, the null hypothesis that the percentage classified correctly is not significantly different from what would be classified correctly by chance is rejected. the evidence suggests that the discriminant 77 function performed very well in separating the two groups. again, given the disparity of the two groups, and the sample size, it is not surprising that the function classified 65.5 percent correctly. the arithmetic signs of the adjusted coefficients in table 2 are important to answer question number three. normally, a positive sign indicates that the higher a firm’s value for the variable, the more likely it will be in group two, the htr group. on the other hand, a negative sign for an adjusted coefficient signifies that the higher a firm's [absolute] value for that variable, the more likely it will be classified in group one, the fcr group. thus, according to table 2, the greater the canonical coefficients of size, return on total capital, financial leverage (debt), price predictability, timeliness, and institutional buying activity, the more likely the firm would have a high-value line technical rating. the relative contribution of each variable to the total discriminating power of the function is indicated by the discriminant loadings, referred to by spss as the pooled within-groups correlations between discriminating variables and canonical function coefficients, or more simply, their structure matrix. those structure correlations are indicated by canonical correlation coefficients that measure the simple correlation between each independent variable and the z scores calculated by the discriminant function. the value of each canonical coefficient will lie between +1 and -1. multicollinearity has little effect on the stability of canonical correlation coefficients, unlike the discriminant function coefficients, where it can cause the measures to become unstable. (sharma, 1996). the closer the absolute value of the loading to 1, the stronger the relationship between the discriminating variable and the discriminant function. these discriminant loadings are given in the output of the spss 25.0 program and shown here with their ranking in table 2. table 2 – relative contribution of the variables discriminant variables canonical coefficient rank sales 0.057 7 return to total capital 0.208 4 hamada’s unlevered beta -0.042 9 long term debt to total capital 0.186 5 capital spending per share -0.273 2 investment safety -0.056 8 company rank for financial strength -0.034 10 price predictability 0.181 6 rank for timeliness 0.813 1 institutional buying activity 0.237 3 table 2 reveals that the measure of timeliness made the greatest contribution to the overall discriminating function. that was followed respectively by the measure of capital spending, institutional buying activity, return to total capital, debt to total capital, price predictability, size, safety of investment, operating risk (leverage), and finally, financial strength. some multicollinearity may exist between the predictive variables in the discriminant function since both safety and price predictability could be reflected in the results of the analysis. hair et al. (1992) wrote that this consideration becomes critical in stepwise analysis and may be the factor determining whether a variable should be entered into a model. however, when all variables are entered in the model simultaneously, the discriminatory power of the model is a function of the variables evaluated as a set, and multicollinearity becomes less important. more importantly, the rankings of explanatory variables in this study were made by the canonical correlation coefficients shown in table 2. as discussed in the previous paragraph, those coefficients are unaffected by multicollinearity (sharma, 1996). 78 validation of the model before any general conclusions can be drawn, a determination must be made on whether the model will yield valid results for any group of randomly drawn firms. the procedure used here for validation is referred to as the lachenbruch or, more informally, the jackknife method. in this method, the discriminant function is fitted to repeatedly drawn samples of the original sample. the procedure estimates (k – 1) samples and eliminates one case at a time from the original sample of k cases (hair et al., 1992). the expectation is that the proportion of firms classified correctly by the jackknife method would be less than that in the original sample due to the systematic bias associated with sampling errors. in this study, there was a difference of eight firms between the original test and the validation test. the major issue is whether the proportion classified correctly by the validation test differs significantly from the 65.5 percent classified correctly in the original test. that is, is the difference in the two proportions classified correctly by the two tests due to bias, and if so, is that bias significant? of course, it may be obvious that a difference of only eight cases will not be significant with a sample of two groups of one hundred firms in each group. however, as in the aforementioned case of the press’s q test of proportions, formal research requires the proof of a statistical test. the jackknife validation resulted in the correct classification of 61.5 percent of the firms. since there are only two samples for analysis, the binomial test is appropriate: t = (r – n p) / [n p q] 1/2 (5) where: t is the calculated t statistic r is the number of cases classified correctly in the validation test. n is the sample size. p is the probability of a company being classified correctly in the original test. q is the probability that a firm would be misclassified in the original test. in this case: (123 – 200 (.655)) / [200 (.655) (.345)] ½ = -1.19 < t05 1.645. (6) therefore, the null hypothesis that there is no significant difference between the proportion of firms classified correctly in the original test and the proportion classified correctly in the validation test cannot be rejected. thus, it can be concluded that while there may be some bias in the original analysis, it is not significant, and it is concluded that the procedure will classify new firms as well as it did in the original analysis. in addition to the validation procedure, researchers usually address the question of the equality of matrices. that equality is especially important in studies such as this, where there is a disparity in the size of the groups. however, there is no disparity in this study; both groups have 100 observations. one of the assumptions in using mda is that the variance-covariance matrices of the two groups are equal. the spss program tests for equality of matrices utilizing the box’s m statistic. box’s m is a parametric test used to compare variation in multivariate samples. more specifically, it tests if two or more covariance matrices are equal (homogeneous). in this study, box's m transformed to the more familiar f statistic of 13.37 resulted in a zero level of significance. thus, the null hypothesis that the two matrices are equal cannot be rejected. summary and conclusion the value line investment survey ranking of each of the 1700 companies in their database on the basis of technical analysis is well-known. it has been a popular source of information for investors since 1965. previous studies that examined the fundamental characteristics of those firms identified as having the highest technical ratings have ignored the macroeconomic background and conditions in the financial markets at the time those high ratings were awarded. the purpose of this study was to establish a financial profile of those firms identified as having the highest value line technical ratings in a unique economic environment characterized by high growth, stable prices, and low 79 unemployment. then to compare those firms with firms chosen at random, but from the same industries as the first group to determine whether the firms with the high technical ratings have a unique risk-return financial profile. in this study, the group of explanatory variables chosen for analysis includes one measure of the size of the firm, one measure of return on investment, two measures of risk, one measure of capital spending, a measure of the safety of investment, a measure of financial strength, a measure of price predictability, a measure of the timeliness of investment in the firm, and finally, and one measure of how the firm may be perceived by investors at the margin. it is the buying and selling of those investors that establish the market value of both equity and debt. a unique set of explanatory variables was found for those firms with high value line technical ratings. the results of the statistical analysis indicated first that there was a significant difference in the financial profiles of the two groups of firms and that among the ten variables tested, six were unique to the firms with high technical ratings, and four were not characteristic of that group. the arithmetic signs of the adjusted coefficients in table 2 reveal that distinction. normally, a positive sign indicates that the greater a firm’s value for the variable, the more likely it will be in group two, the htr group, and a negative sign for an adjusted coefficient signifies that the greater a firm’s value for that variable, the more likely it will be classified in group one, the fcr group. thus, according to table 2, the greater the canonical coefficients of size, return on total capital, financial leverage (debt), price predictability, timeliness, and institutional buying activity, the more likely the firm would have a high value line technical rating. conversely, the greater the measures of capital spending, investment safety, operating leverage (operating risk), and a company’s measure for financial strength, the more likely the firm would be a randomly chosen firm. the canonical coefficients in table 2 indicate the strength of each explanatory variable in the discriminant function. that is the relative power to discriminate between the two groups. five of these results may have been expected. four had no apriori expectations and, one was simply a mild surprise. explanations as to why the variables are associated with one group or the other are beyond the scope of this study. however, a few comments on the findings may be in order. it was expected that size, return on capital, price predictability, timeliness, and institutional buying activity be characteristics of high technical ratings. there were no apriori expectations regarding safety of investment and either financial or operating leverage. these were simply not known. the study resulted in one mild surprise. it is logical to surmise that financial strength is a desirable characteristic and would be associated with high technical ratings. however, this was not the case; rather, we found that financial strength was not particularly associated with either group, exhibiting the lowest ranking canonical correlation coefficient (-0.034) of the ten explanatory variables. that finding, as well as the other conclusions of the study, is rich in content for avenues of further research. this study has resulted in a contribution toward the construction of a theory that describes the riskreturn, financial strength, and size characteristics of firms that were regarded by value line as having the highest technical ratings in a period of very strong economic growth. it is further suggested that since the model was validated without bias, it may be used to predict firms that will again be ranked very high by technical analysis in a high-growth, low unemployment economy in the future. to make a more complete contribution to the theory, the aforementioned 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brand value; cross-sector alliance; sustainable innovations; strategic csr introduction brand management in a global environment presents a myriad of challenges (talay et al., 2015). maturation of globalization and the financial crisis of the last decade has led to severe criticism of the strategies of global brands. global brands and mncs including apple, mcdonald’s, nike, coke, and google have encountered resistance relating to product acceptance, negative perceptions with regard to cultural influences, degradation of the environment and adverse impact on local communities. indeed, for many consumers there may be a love/hate relationship with global brands – they may have a positive attitude towards a company’s products but have a latent dislike for the company http://journals.sfu.ca/abr advances in business research 2019, volume 9, pages 78-100 79 (nandan & nandan, 2014). brands have by and large focused on customers and investors with the intention of maximizing profit. this has resulted in loss of faith from communities at large (porter & kramer, 2011). for the purposes of this research, global brand is defined as “a brand that uses the same name and logo, has awareness, availability, and acceptance in multiple regions, derives at least 5 percent of its sales from outside the home region and is managed in an internationally coordinated manner (steenkamp, 2014, p. 7). a conceptual framework is proposed to build a connection between the increase in global brand value and three types of business activities (cross-sector alliances, sustainable innovations, and strategic csr) via the impact on multiple shareholders. steenkamp (2014) has proposed the “4vmodel” to explain how global brands create value at each successive stage in the brand value chain. the author further states that global brands take advantage of economies of scale and scope to create value. ozsomer and altaras (2008) and holt et al., (2004) highlight the cultural dimensions by asserting that global brands are symbols of global consumer culture. this paper seeks to build on prior studies by adopting a stakeholder framework to investigate global brand management. inherent in this approach is the notion that brands have to broaden their focus and appeal to a multiplicity of stakeholders in addition to its consumers. this research investigates three key dimensions, cross-sector alliances (csa), sustainable innovations (si), and strategic corporate social responsibility (csr) that have an impact on different stakeholders, and can enhance the value of global brands. we are not suggesting that activities associated with these three dimensions will always outweigh endeavors in other areas. it is to be expected that in the context of a digitally connected world, customers and other stakeholders expect that global brands will increasingly engage in csa, si, and strategic csr. in order to be competitive on a long-term basis, global brands have to differentiate themselves by incorporating “strategic csr” as part of their overall business plan. csr activities are strategic in nature where a company can address specific social or environmental issues in ways that fit strategically with its long-term, vision, core-competencies, intellectual properties, and other resources. a firm can make a significant social impact as well as secure business benefits through strategic csr (porter & kramer, 2006). strategic csr would lead to mutually beneficial outcomes for the companies as well as its stakeholders. based on a literature review, a set of propositions are offered for future empirical testing. five global brands have been investigated with respect to their engagement with different stakeholders through csa, si and strategic csr, and the results are presented as case studies. key findings and managerial implications are discussed along with limitations and suggestions for future research. stakeholder orientation the importance of a stakeholder orientation for business entities has been emphasized (brower & mahajan, 2013; peloza & shang, 2011; bhattacharya, 2010; ferrell et al., 2010). according to freeman (1984), a stakeholder is defined as “any group or individual who can affect or is affected by the achievement of an organization’s objectives” (pg. 46). the stakeholder theory, therefore, expands the focus of the firm beyond its shareholders and customers to include a multiplicity of constituents. broadening the scope of a firm’s focus can be justified from both a normative and instrumental standpoint. the normative implication is that firms have a moral obligation towards their stakeholders (matten et al., 2003). from an instrumental perspective, firms should cater to the needs of stakeholders because this contributes to the success of the firm (bhattacharya & korschum, 2008). the instrumental perspective, in as much as it includes other stakeholders, is still profit and firmcentric as the stakeholders are seen to be entities that have to be managed for the benefit of the firm. stakeholder orientation provides a valuable frame of reference for assessing the relationship of a firm to its stakeholders. ferrell et al. (2010) offer a preliminary definition of stakeholder orientation as “the organizational culture and behaviors that induce organizational members to be 80 continuously aware of and proactively act on a variety of stakeholder issues” (pg. 93). admittedly, the interests and priorities of stakeholders will not always converge. in fact, many stakeholders may view a firm’s activities to be in conflict with their interests and philosophies. it is unrealistic to expect a firm to meet the expectations of all stakeholders at all times (jawahar & mclaughlin 2001). however, effective stakeholder management entails that firms demonstrate an in-depth understanding of the multiplicity of stakeholders and incorporate their needs and expectations in corporate decision making. literature review and research propositions prior studies on global brand value include: consumer’s perception of brand “globalness” (steenkamp et al., 2003), influence of global consumer culture (holt et al., 2004; akaka & alden, 2010), economies of scale and scope (yip & hult, 2012), csr and global brand equity (torres et al., 2012) international market segmentation (papadopoulos & martin, 2013), and institutional environments across markets (randrianasolo, 2017). steenkeamp (2014) has outlined the 4 v model for value-creating activities. there has been increased attention with respect to themes relating to cross-sector alliances (clarke & crane, 2018), sustainable innovations (boons et al., 2013; varadarajan, 2015), and csr (malik, 2015; fatma & rahman, 2015). research in these areas has been multi-disciplinary spanning the fields of management, marketing, public administration/policy, environment, sustainability, social work, sociology, and information technology. hartman and dhanda (2018) have investigated the success factors in cross-sector alliances between multi-national corporations and non-profit organizations. csa research has also focused on co-creation of value (austin & seitanidi, 2012), social responsibilities of business (seitanidi & crane 2009, 2014), and the impact of cross-sector partnerships on beneficiaries (clarke & macdonald, 2016). the literature on sustainable innovations encompasses definitions and frameworks (vardarajan, 2015), environmental sustainability drivers (markusson, 2011; levidow et al., 2016) and development of sustainable business models (boons & lüdekefreund, 2013). marcon et al. (2017) found that process and organizational innovations were more popular than marketing and product innovations for multinationals that aim to balance business interests and environmentally sustainable growth. studies pertaining to value-enhancing capabilities of csr include: costs and benefits of csr (sprinkle & maines, 2010), customer satisfaction (lee & heo, 2009; carvalho et al., 2010), employee productivity (valentine & fleischman, 2008), capital market benefits (dhaliwal et al. 2011), and earnings quality (hong & anderson, 2011). strategic csr's impact on brand image, brand equity, and stakeholder expectations have also been investigated (popoli, 2011). the literature review indicates that although prior research has been conducted on brand value as well as on csa, si and strategic csr, no research has combined these concepts using a stakeholder framework. the present study seeks to address this lacuna through an investigation of the following variables that go beyond individual brand characteristics and attributes. cross-sector alliances global brands can create value by forming cross-sector alliances (csas) especially with nonprofit organizations (npos). companies may have built relationships with customers, investors, and supply chain members, but they may not have the skills needed to expand their sphere of influence to communities or the environment. thus, partnering with experts such as non-profit organizations may become necessary. such partnerships are called cross-sector alliances (csa) and are defined as collaborations between for-profit businesses and non-profit organizations (npos). these are also called social alliances (sakarya, bodur, & öktem, 2012) or cross-sector partnerships (schuster & holtbrügge, 2014). resource dependency theory suggests that collaborations can occur when organizations seek to obtain externally what they do not possess (pfeffer & salancik, 1978). in a complex and rapidly evolving socio-economic environment, global brands can develop partnerships 81 with stakeholders in non-profit organizations. these partnerships themselves can help global brands develop sustainable competitive advantage as the resources, skills, and capabilities generated through collaboration would not have been possible for the firm to have developed on its own (zaheer & bell, 2005). csas can seek to address social problems of mutual concern (sakarya, bodur, & öktem, 2012) through a shift from adversarial to collaborative relationships (hartman & danda, 2018). such partnerships have the potential to create transformational collaboration and social change (stafford & hartman, 2001). csas can also enable and encourage global brands and multinationals to adopt and practice codes of conduct benefitting local communities and society at large, which helps the firm succeed as it learns to create and maintain relationships with multiple stakeholders and create value through csas. successful csas would be able to leverage the core competencies of each partner. for example, businesses share their technology, marketing, or finance-related expertise with npos that could, in turn, provide access to local communities and projects. it follows from the above discussion that csas would have a higher likelihood of impacting a plurality of stakeholders in addition to existing consumers. hence: p1: global brands that form cross-sector alliances are more likely to impact multiple stakeholders in their ecosystem. sustainable innovation sustainable innovations are being recognized as an essential component of sustainable development and growth. according to varadarajan (2015) “sustainable innovation is a firm’s implementation of a new product, process, or practice, or modification of an existing product, process, or practice that significantly reduces the impact of the firm’s activities on the natural environment” (pg.17). boon, montalvo, quist, and wagner (2013) describe sustainable innovation as “a process where sustainability considerations (environmental, social, and financial) are integrated into company systems from idea generation through to research and development (r&d) and commercialization. this applies to products, services, and technologies, as well as to new business and organizational models” (pg. 3). clearly, this is a complex process as firms that focus on sustainable innovation have to consider the needs of many stakeholders, not just consumers and shareholders. notably, sustainability-driven innovations do not necessarily lead to higher costs in the long run. sustainable innovations yield both “bottom-line and top-line returns” by reducing input costs as well as generating additional revenues through superior products or new businesses (nidumolu, prahalad, & rangaswami, 2009). the creation of new business models based on sustainable innovations can be a source of competitive advantage that can ensure long-term success. a global brand has to link its sustainability initiatives with its business model along the dimensions of (i) the value proposition, (ii) supply chain management, (iii) customer interface and (iv) a financial model (boons & lüdeke-freund, 2013). an innovation can create socio-ecological value for multiple stakeholders and at the same time achieve above-average financial returns for the organization (dyck & silvestre, 2018). according to hutchins et al. (2019), resource-efficient technologies have been used to cut down the usage of gasoline (fuelefficient and battery-operated cars), water (single-rinse and cold-water formulations of laundry detergents), paper and plastic (through recycling and digitizing). clearly, the incorporation of a sustainability strategy will impact multiple stakeholders. previous studies (dahan et al., 2010; stanton & burkink, 2008; bordewijk, 2006) have highlighted the participation of supply chain members and stakeholders such as government, ngos, media and academics in the enhancement of sustainability programs of companies. hence: p2: global brands that utilize sustainable innovations are more likely to impact multiple stakeholders in their ecosystem. 82 strategic csr many global brands are increasingly accepting csr to be an important component of their business strategies (homburg et al., 2013). prominent global business leaders including bill gates (founder and chairman of microsoft) and john mckay (ceo of whole foods) have incorporated csr as a business philosophy for creating sustainable value for key stakeholders (williams, 2014). consciousness of the socio-environmental consequences of a global brand’s actions necessarily entails incorporating strategic csr as part of the branding strategy. in addition to engaging in strategic csr, global brands have to communicate their effectiveness as good corporate citizens to their stakeholders, such as consumers, investors, government agencies and social activists. more importantly, a firm has to have a clear vision regarding what it stands for and what are its core brand values (cbv). the core values summarize the corporate brand identity and are fundamental principles around which all the activities of the company are based (urde, 2003). the core values of a corporate brand form the basis of a company’s business strategy (louro & cunha, 2001). ideally, consistency between the core brand values (cbvs) espoused by the company and its csr activities is desirable (nandan & nandan, 2014). this is a strategic imperative and the essence of strategic csr. a company will be able to differentiate itself from its competition and find enhanced acceptability if it can communicate the congruence of cbv and csr to different audiences. hence: p3: global brands that incorporate strategic csr are more likely to impact multiple stakeholders in their ecosystem. brand value brand value, from a financial perspective, is determined by “the incremental capitalized future earnings and cash flow achieved by linking successful, established brand names to a product” (kerrin & sethuraman, 1998, p. 262). tiwari (2010) describes brand value as the difference between net present value of future cash flows from a branded product vis-à-vis a similar unbranded product. according to bloomsbury business library business & management dictionary (2007), brand value is defined as “the amount that a brand is worth in terms of income, potential income, reputation, prestige, and market value” (p. 1066). thus, brand value can be considered to be the financial worth of the brand. interbrand publishes brand values of the top 100 global brands every year and highlights the relative increase or decrease in brand value over previous years. the company uses proprietary brand valuation methodology that includes an analysis of financial performance of the brand, the role of brand in purchase decisions, and a brand’s competitive strength (interbrand, 2018). prior research has shown that csr impacting various stakeholders has a positive effect on global brand equity (torres et al., 2012). clearly, through cross-sector alliances, sustainable innovations and strategic csr global brands have the potential to positively influence multiple stakeholders. strong global brands can leverage their brand value into a source of sustainable competitive advantage (interbrand, 2015). hence: p4: global brands utilizing sustainable innovations, cross-sector alliances, and strategic csr are more likely to enhance their brand value over a period of time. a conceptual model of global brand value in a stakeholder ecosystem is provided in figure 1. javascript:__dolinkpostback('','mdb~~bth%7c%7cjdb~~bthjnh%7c%7css~~jn%20%22bloomsbury%20business%20library%20-%20business%20%26%20management%20dictionary%22%7c%7csl~~jh',''); 83 figure 1 global brand value in a stakeholder ecosystem methodology the methodology most appropriate for this research was qualitative case study. there are conceptual as well as empirical gaps in the literature pertaining to global brands, cross-sector alliances, sustainable innovations, and strategic csr. so, there is sufficient justification for the exploration of the concepts and their potential relationships through qualitative case study (patton, 2002; yin, 2003). purposeful sampling was utilized, suitable for studying underexplored phenomenon (yin, 2003). five global brands in diverse industries were selected that appeared in the forbes list of “most sustainable companies” as well as in the interbrand list of “best global brands” in 2017. criteria for sample selection included: (i) involvement in csr and sustainable innovation, and (ii) multiple cross-sector alliances. data has been gathered through documentary research utilizing sustainability reports, project reports, corporate websites, published periodicals, and journal articles. content analysis of this dataset led to the compilation of five case studies along the key research dimensions discussed above. case 1: siemens sources for case: siemens (2018a), siemens (2018b) siemens is one of the world’s largest producers of energy-efficient, resource-saving technologies. it is a leading supplier of systems for power generation and transmission as well as medical imaging and laboratory diagnostics. the company generated revenue of €83.0 billion and net income of €6.2 billion in 2017 (siemens, n.d.). siemens was ranked number 50 on interbrand’s 100 global brands and number 1 on forbes most sustainable companies in 2017. table 1 provides an overview of the company’s involvement and activities relating to cross-sector alliances, sustainable innovations, strategic csr and change in brand value. global brand ecosystem crosssector alliances sustainable innovations global brand value stakeholder orientation strategic csr 84 table 1 siemens: csa, si, strategic csr and change in brand value cross-sector alliances: alliance project goal/outcomes stakeholders con edison (nyc utility) installation of technology for continuation of service during severe weather increased resiliency of power system to unexpected weather events and flooding customers, community blue lake rancheria (native american reservation) utilization of siemens intelligent micro-grid management software to launch low carbon community and deliver cleaner power energy savings to local community of $200,000 in annual energy costs and reduction of 150 tons of carbon per year tribal, federal, state, and local governments, technology providers, community numerous start-ups “next-47” (siemens’ unit for partnership with start-ups) commercialization of emerging technologies in the area of 3d printing, robotics and drones, artificial intelligence and virtual reality entrepreneurs, customers in the area of health care, manufacturing, and renewable energy aspen institute technical scholars project for stem education at top community colleges increased opportunities in stem education and careers for students pursuing alternatives to 4-year universities community, students darktrace (leader in enterprise and industrial immune system technology) provides cutting-edge cyber defense to utilities and the oil and gas industry increase cybersecurity clients in utilities and oil and gas industry sustainable innovations: innovation benefit area objectives/outcomes shareholders daqri augmented reality helmet technology (smart helmet technology) digitalization in gas turbine training and field service operations increases speed, efficiency and accuracy of technicians; enhances productivity customers development of intelligent infrastructure (technology and software) integration of traffic management systems in urban areas through digitalization reduction of congestion, traffic incidents on existing roads; improved operational efficiency, energy and cost savings for rail customers, community members 85 operators; build smart cities of the future; creation of “internet of trains” medical imaging, molecular testing life-saving health technology improve patient outcomes; enhanced efficiency; early detection of zika virus customers, medical partners, patients incorporation of cybersecurity in all aspects of technology development cybersecurity and anti-terrorism enhanced protection of infrastructure and security of military customers, community strategic csr areas activities/projects goals/outcomes stakeholders technology integration of innovative technologies such as water solutions, ac drives and renewable energy solutions community development; improve quality of life of marginalized communities by providing electricity, clean drinking water and basic health care local community education provides education in science, technology, engineering and mathematics improve educational level; training of work force; enhanced employee satisfaction local community; employees cultural supporting values and culture of local communities humanitarian emergency aid local communities change in brand value (2012 -2017) brand forbes sustainability rank (2107) interbrand rank (2017)) brand value (in billion) % change in brand value (2012-2017) 2012 2017 siemens 1 50 $7.53 $9.98 33% case 2: cisco sources for case: cisco (2018a), cisco (2018b) cisco system is a multinational company that develops, manufactures and sells networking hardware, telecommunications equipment and other high-technology services and products. it is the largest networking company in the world. the company generated revenue of $48 billion and net income of $9.6 billion in 2017. cisco was ranked number 16 on interbrand’s 100 global brands and number 3 on forbes most sustainable companies in 2017. table 2 provides an overview of the https://en.wikipedia.org/wiki/networking_hardware https://en.wikipedia.org/wiki/networking_hardware https://en.wikipedia.org/wiki/telecommunications_equipment https://en.wikipedia.org/wiki/high-technology 86 company’s involvement and activities relating to cross-sector alliances, sustainable innovations, strategic csr and change in brand value. table 2 cisco: csa, si, strategic csr and change in brand value cross-sector alliances alliance project goals/outcome stakeholders shawnee mission school district enterprise license agreement for security, collaboration and oneto-one digital learning initiative enhanced safety and effectiveness with respect to student and teacher engagement; positive shift in student performance; increase in attendance local community, teachers, students, educational institution mozhugongka hospital, tibet installation of cisco collaboration equipment in hospitals in mozhugongka and nanjing use of video-conferencing for instant access to medical experts and research benefitting patients in remote and high mountainous areas. patients, hospitals, local communities bc hydro and power authority, vancouver automating and analyzing the electric grid increased data collection from once every two months to twice a day; controlled power outages; improved visibility for remote devices across the grid local community, public utilities milton keynes university hospital nhs foundation trust, uk enable digital healthcare improved patient outcomes; reduction in it costs patients, hospitals, local communities sustainable innovations innovation benefit area objectives/outcomes stakeholders intent-based network (software that helps to plan, design and operate networks) enterprise networking that allows network operators greater control over running the network scalable and secure networking technology; it automation for businesses; reduction of operational costs (projected to positively impact one billion people by 2025) governments, educational institutions, customers, ngos encrypted traffic analytics network security; innovative methods of using the network to detect and stop malware protection of private data for businesses clients, community iot management solution enhanced digitization of supply chain accelerated decision making, easy connectivity, lower costs and increased customer engagement clients, community 87 strategic csr areas activities/projects goals/outcomes stakeholders social entrepreneurship 2017 global problem solver challenge – supports entrepreneurs who create breakthrough technologies, products and services that address social and environmental issues. grants (including $100,000 grand prize) to multiple social entrepreneurs who used their innovations to solve problems in their community; for example, affordable speech-generating device for children and adults who are unable to speak local community financial services collaborates with opportunity international to provide seed funding for mobile financial services in three countries in africa; subsequent expansion to provide cash grants and donation of cisco technology. assist opportunity international’s goal of creating 20 million jobs worldwide primarily among poor women, farmers, and rural young people. local community; socially and economically vulnerable sections of society education cisco networking academy – integration of technology and education in order to prepare students for entry-level jobs and industryrecognized certification empowerment of students with vision, hearing, and physical disabilities; upward trend in female participation rates particularly in oman, peru, uae, nigeria and tunisia students, local communities, employers, clients change in brand value (2012 -2017) brand forbes sustainability rank (2107) interbrand rank (2017)) brand value (in billion) % change in brand value (2012-2017) 2012 2017 cisco 3 16 $27.19 $31.93 17% case 3: adidas sources for case: adidas (2018a); adidas (2018b); adidas (2018c) adidas is a multinational corporation that designs and manufactures shoes, clothing and accessories. it is the largest sportswear manufacturer in europe, and the second largest in the world, after nike. it employs nearly 57,000 people worldwide and produces over 900 million sports and sports lifestyle products with independent manufacturing partners every year. the company generated revenue of $€ 21.2 billion and net income of €6.2 billion in 2017. (adidas, n.d.). adidas was ranked number 55 on interbrand’s 100 global brands and number 49 on forbes most sustainable companies https://en.wikipedia.org/wiki/sportswear_(activewear) https://en.wikipedia.org/wiki/nike,_inc. 88 in 2017. table 3 provides an overview of the company’s involvement and activities relating to crosssector alliances, sustainable innovations, strategic csr and change in brand value. table 3 adidas: csa, si, strategic csr and change in brand value cross-sector alliances alliance project goals/outcome stakeholders sos children’s village, syria availability of clean water 700 local families in the region provided access to water on a daily basis local community parley for the oceans ocean plastic program reduction of marine plastic pollution society, local communities maersk line (shipping company; transportation and logistics partner for adidas) environmental program reduction of carbon footprint society, partners, collaborators ngo baidaire (non-government and non-profit civil society organization in pakistan) women’s empowerment program 1000 female workers in sialkot area of pakistan were provided job opportunities in the workplace local communities, vulnerable sections of population sustainable innovations innovation benefit area objectives/outcomes stakeholders futurecraft 4d (use of digital light synthesis in production) highperformance footwear; elimination of the use of traditional prototyping or molding company aims to produce 100,000 pairs by end of 2018 community, suppliers, customers ‘cotton + corn’ sustainable products initiative eco-friendly footwear production; components include organic cotton and industrial grown corn, which is a nonfood source company aims to market plant-based footwear by 2018 community, supply chain, customers recycle ocean plastic into yarn for shoes reduction of marine plastic pollution; use of recycled pet material in production company aims at creating one million pair of shoes made with parley ocean plastic society, supply chain, customers 89 strategic csr areas activities/projects goals/outcomes stakeholders energy conservation programs in energy efficiency, demand reduction, & renewable energy; divestment of some high energyconsuming sites 3% reduction in co2 emissions (baseline 2015) and enable carbon neutrality community, society water efficiency holistic approach to water management reduction of incremental water consumption community, employees waste management innovative waste diversion methods; timely and costeffective recycling of electronic waste company aims to achieve a 50% waste diversion rate at all owned operation facilities by 2020 society, local communities sustainability in retail stores construction of new stores incorporates sustainability fundamentals based on leed certification program company aims to have all new key corporate construction projects and key retail stores as leed (leadership in energy and environmental design) certified society, local communities, employees, customers change in brand value (2012 -2017) brand forbes sustainability rank (2107) interbrand rank (2017)) brand value (in billion) % change in brand value (2012-2017) 2012 2017 adidas 49 55 $6.69 $9.21 38% case 4: bmw sources for case: bmw (2018a); bmw (2018b) bmw is an automobile and motorcycle manufacturer that focuses all its brands on the premium segment. it has 30 production and assembly facilities in 14 countries and employs nearly 130, 000 people. (bmw, n.d.). the company generated revenue of €98.7 billion and net income of €8.7 billion in 2017. bmw was ranked number 13 on interbrand’s 100 global brands and number 16 on forbes most sustainable companies in 2017. table 4 provides an overview of the company’s involvement and activities relating to cross-sector alliances, sustainable innovations, strategic csr and change in brand value. 90 table 4 bmw: csa, si, strategic csr and change in brand value cross-sector alliances alliance project goals/outcome stakeholders brunp battery recycling in china reduction in pollution and waste sent to landfills; conservation of resources community, customers various stakeholders including cities and experts urban mobility enhanced individual and sustainable mobility in densely populated urban areas communities in urban areas, public and autotransport users unaoc (united nations alliance of civilizations) intercultural innovation award for innovative projects that seek solutions for intercultural tensions and conflict contribution to enhanced inter-cultural understanding; project sponsored by bmw award had reached over two million people worldwide by 2017 society, local communities sustainable innovations innovation benefit area objectives/outcomes stakeholders autonomous driving development and expansion of open platform for autonomous driving goal is to achieve fully autonomous driving in fields ranging from software development to road testing society, autotransportation users, employees, customers connected drive increased interaction of driver, vehicle and outside world through digital integration increased safety for drivers and road users; increased comfort for drivers society, autotransportation users; customers efficient dynamics development of efficient combustion engine, increasing electrification of drive-trains, and improved aerodynamics optimization of energy efficiency of automobiles and motorcycles society, autotransportation users, employees, customers strategic csr areas activities/projects goals/outcomes stakeholders environmental protection expansion of vehicle fleet with alternative drivetrains; innovative mobility service substantial reduction of co2 emissions; increased annual sales of electrified vehicles communities, autotransportation users, customers sustainability in supply chain increased supplier accountability with respect to transparency and resource efficiency increase supplier compliance with environmental and communities, employees, suppliers, collaborators 91 social standards across the value chain employees investment in employee training and development enhanced quality of life of employees; enhanced job-related skills of employees; enhanced employee loyalty and low staff attrition rate employees change in brand value (2012 -2017) brand forbes sustainability rank (2107) interbrand rank (2017)) brand value (in billion) % change in brand value (2012-2017) 2012 2017 bmw 16 13 $29.05 $41.52 43% case 5: l’oreal sources for case: l’oreal (2018a); l’oreal (2018b) l’oreal is the world’s largest cosmetics company. it operates in 150 countries and has nearly 82,600 employees worldwide. the company generated revenue of €26 billion and net income of €4.68 billion in 2017. l’oreal was ranked number 45 on interbrand’s 100 global brands and number 38 on forbes most sustainable companies in 2017. table 5 provides an overview of the company’s involvement and activities relating to cross-sector alliances, sustainable innovations, strategic csr and change in brand value. table 5 l’oreal: csa, si, strategic csr and change in brand value cross-sector alliances alliance project goals/outcome stakeholders various research institutions, laboratories, startups and suppliers open innovation new innovations for the beauty market and personalization according to customer needs educational institutions, suppliers, entrepreneurs, customers, community chinese ministry of the environment green consumption initiative sustainable production and reduction of environmental impact of formulas and packaging employees, government, consumers, community pur project (fair trade-certified cooperative practicing organic farming in thailand) planting trees in northeastern thailand enrichment of soil and biodiversity; improved moisture retention; captured 8,843 tonnes of co2 equivalent through planting trees supply chain, farmers, local community photon website factory project in chennai, india (use of digital economic development of region; job opportunities for local, underprivileged community, supply chain, employees 92 technology to implement and maintain websites) communities including women and minority groups ngo shanshui conservation, china development of supply chain for honey (used as an ingredient in some beauty products) production of high-quality honey; enhanced sustainable farming practices; positive impact of preservation of natural habitat of pandas in the region community, supply chain, employees sustainable innovations innovation benefit area objectives/outcomes stakeholders dermo-cosmetics skincare that incorporates health, safety, well-being, and naturalness immediate visibility of skincare results; combats environmental and lifestyle factors customers “coalescent innovations” combination of existing technology to create new products and processes in the area of skincare and beauty product application and skin reaction tests to combat ageing, uv exposure, and pollution product users, community collaborative robots or “cobots” assist in various steps in the production process as well as data management simplification of logistics, and operational management in stores employees, customers, suppliers dry factory reduction of water consumption company’s burgos plant located in spain uses 100% recyclable and reusable water community strategic csr areas activities/projects goals/outcomes stakeholders environment evaluation of environmental impact of raw materials used in production process along 2 parameters: biodegradability and the absence of aquatic ecotoxicity 99% of ingredients used to create hair care products are biodegradable; 70 to 100% are of natural origin community, consumers, suppliers packaging stimulate the circular economy 100% of the company’s plastic packaging is projected to be refillable, reusable or compostable community, consumers 93 environment zero deforestation policy the company projects that none of the ingredients and raw material used in its products would be linked with deforestation community environment peatland restoration project in borneo, indonesia; training of local village communities on sustainable farming practices project contributed to preventing the emission of more than 31,700 tons of co2 equivalent in 2017 community, supply chain members change in brand value (2012 -2017) brand forbes sustainability rank (2107) interbrand rank (2017)) brand value (in billion) % change in brand value (2012-2017) 2012 2017 l’oreal 38 45 $8.82 $10.67 21% discussion in the current socio-economic climate global brands need to move beyond “business as usual” mind-set. customers and other stakeholders have to be provided a broader array of activities through which they can enhance their association with global brands. it is apparent that all five companies – siemens, cisco, adidas, bmw, and l’oreal take a holistic approach to brand management. through the integration of sustainable innovations, cross-sector alliances and strategic csr, these companies are able to impact a wide variety of stakeholders, not just customers. the following are some of the key themes that emerge from this research. 1. cross-sector alliances: each of the companies were involved in csa with partners in diverse fields all over the world. siemens’ alliances included a utility company, a native american reservation, multiple start-ups in the area of 3d printing, education institutions, and cyber-security enterprises. cisco systems had alliances with a school district, hospitals in tibet and the usa, and hydro-power authority. adidas csas were in the areas of providing clean water, reduction of marine plastic pollution, reduction of carbon footprint, and women’s empowerment. bmw had alliances with partners in battery recycling, urban mobility, and reduction of intercultural tensions. l’oreal’s alliances were in the fields of innovations in the beauty market, sustainable farming, and economic development of underprivileged. thus, p1 was supported. the success of these companies is primarily because they were able to co-create synergistic value with their alliance partners. according to austin and seitanidi (2012), “synergistic value arises from the underlying premise of all collaborations that combining partners’ resources enables them to accomplish more together than they could have separately” (pg. 731). further, based on the case, through the companies' endeavors, it is apparent that they regarded the costs associated with providing societal and environmental value to various stakeholders as an investment rather than an expense. 94 2. sustainable innovations: each of the five global brands engaged in extensive sustainable innovations in diverse areas. these innovations were related to long-term sustainable development and were geared towards the fulfillment of stakeholder expectations. siemens sis encompassed smart helmet technology, lifesaving health technology, traffic management systems through digitalization, and cybersecurity. cisco systems was engaged in intent-based networks, encrypted traffic analytics, and enhanced digitization of its supply chain through sis. adidas initiatives included: use of digital light synthesis in production, eco-friendly footwear production, and reduction of marine plastic pollution. bmw focused on autonomous driving, digital integration, increasing electrification of drive-trains, and improved aerodynamics. l’oreal’s sis were in the areas of dermo-cosmetics (skincare incorporating health, safety, and naturalness), “cobots” (collaborative robots that assist in the production process and data management), and reduction of water consumption. the sis created socio-environmental value for multiple stakeholders as well as contributed to the enhancement of the brand value for each of the companies over a five year period (2012 -2017). stakeholder participation also led to the increased collaboration of supply chain members in some cases. for example, cisco systems’ intent-based network that aims to increase it automation and reduce operational costs involves the participation of stakeholders such as governments, educational institutions, various ngos, and customers. thus, p2 was supported. 3.strategic csr: global brands under investigation have used strategic csr to build and strengthen relationships with multiple stakeholders including local communities, vulnerable sections of society, government organizations, supply chain members, students, employees, and customers. siemens’ activities include community development and improving the quality of life of marginalized communities by providing electricity, clean drinking water, and basic health care; supporting the cultural values of local communities, and providing humanitarian emergency aid. cisco systems is actively involved in social entrepreneurship relating to societal and environmental issues. in addition, the company provides seed funding for mobile financial services and empowerment programs for women and students with disabilities. adidas’ strategic csr initiatives are in the fields of energy conversation, water efficiency, waste management, and sustainability in retail sustainability. bmw’s efforts are targeted towards environmental protection, sustainability in supply chain, and improvement in the quality of life for employees. l’oreal strategic csr is geared towards environmental protection initiatives and stimulation of the circular economy through recycling. thus, p3 was supported. 4. brand value – global brand equity: the increase in brand value for siemens, cisco, adidas, bmw and l’oreal over a five-year period (2012 to 2017) was 33%, 17%, 38%, 43%, and 21% respectively, thereby lending support to p4. a causal relationship between the three variables (csa, si and strategic csr) and global brand value is not being implied. however, correlation is being inferred. clearly, global brands have to consider moving beyond just customer profitability to meeting and exceeding stakeholder expectations in order to enhance their brand value. 5. consistency with core brand value proposition: it is also noteworthy that these global brands are engaging in multi-faceted activities in ways that are consistent with their respective core brand value propositions. in other words, csas, sis and strategic csrs are not carried out purely out of altruistic or philanthropic considerations but are designed around the companies’ core values. table 7 emphasizes the linkages between core brand values and key activities. 95 table 6 linkage between core brand value and key activities of global brands brand core brand value key activities siemens • help power a sustainable future across the globe • digital transformation • reducing carbon footprint • medical innovations cisco • “change the world” • customer focus • mutual respect and care • collaboration with csas in education, health, and hydropower • enhanced enterprise networking • digitization • world-wide job creation endeavors adidas • change life through sports • sustainability • collaboration with athletes, consumers, and partners • innovations in high-performance footwear and sustainable product development • energy conservation and water efficiency programs bmw • shaping the future of mobility • customer focus and service • autonomous driving technology • urban mobility and safety • environmental protection accountability from supply chain members • employee training and development l’oreal • “sharing beauty with all” • economic and social leadership • innovation in skincare and beauty • digital superiority • environmental and social collaborations with multiple csas managerial implications global brand strategy should be formulated on the basis of a multifaceted and multistakeholder perspective. the contribution of this research is that it adopts a new approach to studying global brand management by incorporating sustainable innovations, csa and strategic csr. this paper demonstrates potential linkages between the three concepts and global brand value. it focuses not only on the economic aspects of global branding but also on potential societal and environmental outcomes in enhancing brand value. global brands can differentiate themselves on the world stage by considering the priorities of local stakeholders. alliances with ngos and npos who are knowledgeable about local socio-cultural nuances can provide legitimacy and acceptability to international companies. further, high 96 congruence between value propositions of global brands and alliance partners can facilitate the formation of csas. this study reveals several examples of alliances that were based on mutually consistent value propositions. adidas partnered with parley for the oceans to reduce marine plastic pollution. cisco collaborated with a hospital in remote areas of tibet for video-conferencing and instant access to medical experts for patients. bmw formed an alliance with pur project (fair tradecertified cooperative practicing organic farming in thailand) for planting trees in eastern thailand for soil enrichment and biodiversity, thereby benefitting supply chain farmers and the local community. firms can attract socially responsible consumers and stakeholders who want global brands to “do good” or engage in philanthropy on their behalf. benabou and tirole (2010) use the term “delegated philanthropy” for such actions wherein the firm is used as a channel for the expression of citizen values. thus, global brands can target these consumer segments through their strategic csr endeavors. incorporation of sustainability principles including an emphasis on sustainable innovations has to be incorporated into the business model of global brands in order to ensure competitive advantage. the three principles of sustainable development have been identified as environmental integrity, social equity, and economic prosperity (bansal, 2005; elkington, 1999). according to bansal (2005), environmental integrity ensures that resources of the planet are not irreversibly depleted by human activities; social equity implies equal opportunities for all sections of society as well as future generations; and economic prosperity refers to the achievement of an acceptable quality of life for individuals aided by production and distribution of products that help enhance standard of living. the stakeholder perspective necessarily entails taking a long-term focus that includes company profitability while at the same time engaging in activities that have societal and environmental benefits. this recommendation is consistent with porter and kramer’s (2011) exaltation to create “shared value” as a consequence of interdependencies between business and society. brand loyalty and brand value can be enhanced by building trust with consumers and stakeholders through positive socioeconomic actions. limitations and future research the study has investigated only five global companies and has relied on secondary data. further, there is no causal relationship being implied between sustainable innovations, csa and strategic csr activities and an increase of brand value. this study has not focused on the downsides of a firm’s actions and the potential for conflict with different stakeholders. this may be the case if alliance partners are chosen whose core value propositions may not necessarily reflect those of particular global brands. similarly, brand value can be diluted if csr activities are seen to be merely “window-dressing.” further, the interactive effect of the three variables has not been investigated. the present research is an exploratory step to encourage investigation of global branding dimensions that have remained relatively uncharted till now. future cross-disciplinary empirical research can investigate a wide range of global brands across many sectors and industries. in addition, comparisons can be made between those brands that are on the forbes sustainability list and those that are not, to highlight best practice themes. references akaka, m.a. and alden, d.l. 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(2005) benefiting from network position: firm capabilities, structural holes, and performance. strategic management journal, 26(9), 809-825. 52 millenials in the mirror: work motivation factors for generation z (gen z) russell calk angelo state university angela patrick texas a&m university central texas connor blake angelo state university at twenty percent of the population, generation z (gen z) will soon become a substantial segment of the workforce in the united states. gen z has unique characteristics apart from their predecessors, the millennials. this creates a challenge for organizations as they seek to recruit and retain both millennials and gen z. this study applied the work motivation inventory, used by calk & patrick (2017) to examine millennials’ workplace motivating factors, to determine the motivating factors for gen z and how gen z differs from their predecessors. results show that gen z is more primarily motivated by factors such as salary and benefits and meaningful work while the previous study showed millennials being primarily motivated by the desire for recognition and the opportunities for interactions while working as part of a team. keywords: generation z (gen z), millennials, work motivation factors introduction defined as persons born between 1997 and 2012, gen z numbers approximately 67 million, or over 20 percent of the population, and will soon become one of the most prominent segments of the united states workforce (statista, 2021). by 2030, almost every entry-level position will be filled by a member of gen z (gabrielova & buchko, 2021). while some early members of gen z share characteristics similar to millennials, gen z has unique characteristics that provide them with their own identity and separate them from their immediate predecessors (pichler et al., 2021). numbering over 78 million, millennials were the largest generation to enter the workforce and, consequently, had a significant impact on the united states labor force (toossi, 2009). with an http://journals.sfu.ca/ab 2024, volume 14, pages 52-59 http://journals.sfu.ca/abr http://journals.sfu.ca/abr 53 employee group that, for the first time in history, spanned four distinct generations working together, organizations struggled to recruit, retain, and motivate workers as millennials entered the workplace (birkman, 2010; macon &artley, 2009; jenkins, 2008). these challenges facing organizations will certainly not diminish as the next generation, generation z (gen z), enters the workforce. this study applied the methodology used by calk & patrick (2017) to examine millennials to determine the workplace motivating factors of gen z. by doing so, this study will not only identify the workplace motivation factors for gen z but also make it possible to compare and contrast those factors to millennials. the results should be of interest to organizations as they seek to recruit and retain members of gen z while simultaneously seeking to satisfy the workplace motivation factors for millennials. literature review along with baby boomers, born between 1943 and 1960, generation x, born between 1961 and 1981, and millennials, born from 1982 to 1996, gen z is now one of four distinct generations in the workforce. gen z is the most diverse generation to date, with almost half (48%) identifying as a racial or ethnic minority (pew research center, 2018). gen z is a product of an environment defined by extreme and uncertain economic, political, and social change, unprecedented access and use of technology, and an extensive educational experience. not surprisingly, gen z has been greatly influenced by the world in which they have come of age. gen z has developed in an environment characterized by significant uncertainty such as the post-9/11 wars in afghanistan and iraq, the financial crisis of 2008, widespread social unrest, and the economic and social upheaval caused by the covid-19 pandemic, for example. experiences such as these have resulted in a generation that is adaptable, realistic, and highly driven (acheampong, 2021). unlike millennials who grew up in tandem with the emergence of advances in technology such as the internet, smartphones, and social media, gen z was born into such technology (ernst & young, 2015). technology has afforded gen z a sense of independence and freedom to explore that other generations have only been able to experience “with a bicycle or a car” (meehan, 2016). janssen & carradini (2021) found that 39 percent of people ages 18 to 29 and 45 percent of people ages 13 to 17 reported being online constantly compared to 26 percent for all americans. the freedom and independence that the pervasive, almost constant use of technology has provided has also led to an increase in mental health issues among the generation caused by cyberbullying or stress and anxiety from news headlines (pichler et al., 2021; ernst & young, 2015) gen z has always had ready and constant access to what previous generations would have considered advanced technology. consequently, gen z is capable of finding and processing information quickly. given the abundance of information and variety of alternatives available, they tend to scan, evaluate, and decide where to focus their time and attention very quickly. this is often interpreted by other generations as having a short attention span and may be perceived as a weakness in the workplace (janssen & carradini, 2021; scott, 2016). technology has also influenced the way that gen z communicates. with the pervasiveness of digital technology, gen z prefers online or other text-based communication rather than voice or in-person interaction (janssen & carradini, 2021). the reliance on digital communication may lead to deficiencies in the development of soft skills and impair the ability to communicate, interact, and work with others in person (janssen & carradini, 2021; schroth, 2019; bencsik et al., 2016). in general, gen z is more likely than other generations to prefer to spend time alone and is less likely to enjoy working or interacting as part of a group (pichler et al., 2021; schlee et al., 2020). many new gen z employees may need basic training on how to write a professional email or communicate on 54 a business call due to their lack of in-person communication skills (gabrielova & buchko, 2021). however, they understand the importance of soft skills and in-person interaction and appear to be willing to push themselves beyond their comfort zones to address these perceived weaknesses for the benefit of their professional careers (grow & yang, 2018). notwithstanding the negative short-term, and potentially long-term, effects of the forced move to technology-based remote learning due to covid-19 pandemic lockdowns, gen z is on course to become the most educated generation to date (gabrielova & buchko, 2021; parker et al., 2019). even though many are questioning the value of an advanced degree and are instead opting for technical or trade school over a university degree, they are attending postsecondary institutions in larger numbers than any previous generation (pichler et al., 2021). those members of gen z attending college view a university diploma as a launchpad for their careers and are selecting majors in business or stem areas that have a proven path to employability (schlee et al., 2020; beck & wright, 2019). beginning in high school, or before, gen z is motivated to qualify for admission to top-rated universities and become involved in extracurricular and other unique opportunities that strengthen their applications (schroth, 2019). nevertheless, they are wary of student debt and may opt for lower-cost universities despite qualifying for admission into elite institutions (beck & wright, 2019). the emphasis on academics and extracurricular activities has resulted in a substantial reduction in the number of teenagers participating in the workforce (schroth, 2019). this lack of practical, real-world work experience could potentially impact their future career readiness. gen z tends to be conservative with money, preferring to save rather than spend (anatole, 2013). more than half of gen z worry about their financial future (nielson, 2015). due to their families’ financial struggles during the 2008 recession and the covid-19 economic upheaval, gen z places a high value on security and extrinsic factors such as competitive pay and benefits (acheampong, 2021; gabrielova & buchko, 2021; mahmoud et al., 2021; dwivedula & singh, 2020; bencsik et al., 2016). while extrinsic factors are foremost, gen z also values intrinsic factors such as ongoing professional development and continuous learning and demands effective organizational engagement and support (gabrielova & buchko, 2021; dwivedula & singh, 2020). gen z are highly ambitious and entrepreneurial and may grow impatient with their career growth within a traditional organizational hierarchy (boyer et al., 2020). gabrielova & buchko (2021) found gen z to be achievement-oriented and committed to having their ideas heard and valued. gen z expects to be treated with respect and are motivated by a positive work environment and positive attitudes from their supervisors (acheampong, 2021; schroth, 2019). they tend to work best when given explicit goals and deadlines and a sense of purpose in their work. because they strive for advancement and career development, gen z prefers frequent feedback on performance and embraces lessons learned from their mistakes (acheampong, 2021; gabrielova & buchko, 2021). however, if they feel they are disrespected, they will reciprocate the perceived behavior, and they tend to display strong negative emotions toward what they believe is a negative culture (schroth, 2019; fratricova & kirchmayer, 2018). to be effective, leaders must understand and adapt to differences in communication styles and help gen z understand that the development of jobspecific knowledge is an experiential and potentially time-intensive process that flows down from more experienced employees (hardin, 2021). methodology and results to identify the work motivation factors for gen z and to compare and contrast those factors to millennials, this study parallels the study of calk & patrick (2017). this study surveyed 201 undergraduate students enrolled in a sophomore-level accounting class at a midsized, regional university located in the southwestern united states. the survey consisted of nine demographic questions and sixty constant-sum questions from the work motivation inventory developed by hall 55 & williams (1967) and most recently revised and updated by teleometrics international, which distributes the survey, in 2000. the copyrighted work motivation inventory is available directly from teleometrics international at http://www.teleometrics.com. the work motivation inventory is a 60-item inventory that uses a forced-choice, paired comparison technique to create a motivational profile of an individual’s values and needs considered important in making workplace decisions. the work motivation inventory is modeled after herzberg’s (1959) hygiene-motivator model of satisfaction and maslow’s (1943) hierarchy of needs. the instrument measures five workplace motivational needs: basic, safety, belonging, egostatus, and actualization. this study assumes the validity of the work motivation inventory given its robust history as well as the broad application and the instrument’s theoretical foundation. exhibit 1 provides a brief description of each motivational need captured by the work motivation inventory. exhibit 1 five motivational needs of the workplace motivation inventory basic reflected in concerns for pleasant working conditions, more leisure time, more luxurious personal property, increased salary, and avoidance of physical strain or discomfort safety reflected in concerns for performance standards, safe working conditions, and fringe benefits such as insurance and retirement plans belonging reflected in concerns for friendly colleagues, opportunities for interaction with others, and team membership ego-status reflected in concerns for recognition and rewards for performance and opportunities for job advancement actualization reflected in concerns for more challenging and meaningful work that allows for creativity and leads to a sense of personal fulfillment the five workplace motivational needs measured by the workplace motivation inventory address a spectrum of factors. basic and safety address fundamental concerns such as working conditions, salary, and benefits. belonging relates to interpersonal relationships in the workplace. along the other end of the spectrum, ego-status and actualization reflect the desire for recognition and rewards for challenging and rewarding work. although the five factors lie along a spectrum, they are not a hierarchy of needs such as those proposed by maslow (1943). it is not necessary, for example, that the basic factor be satisfied before a worker becomes motivated by ego-status or actualization. a total of 65 participants responded to the survey, with a response rate of 32.34 percent. three participants were excluded from the final sample: two because of missing variables and one because the respondent’s age was 47 (not a member of gen z). this resulted in a final sample size of 62. the respondents had a mean age of 20.28 (sd = 5.48), with a range of 18 47. table 1 shows the frequency distribution for other demographic variables. just over half (57%) of respondents were male. approximately half (51%) had full-time work experience. the majority (72%) had at least some part-time work experience. in short, the sample represents a gen z cohort with workplace experience. table 1 frequency distribution of demographic variables http://www.teleometrics.com/ 56 variable n % gender male 37 57 female 28 43 full time work experience yes 33 51 no 32 49 part time work experience yes 47 72 no 18 28 a repeated measures anova with one within-subjects factor was conducted to determine whether significant differences existed among the five work motivation inventory factors: basic, safety, belonging, ego-status, actualization. mauchly’s test of sphericity showed that the assumption was violated at an alpha level of 0.05 (p < 0.001). the p-values for the within-subjects factor and the interactions of the within-subjects factor were calculated using the greenhousegeisser correction to adjust for the violation of sphericity. the main effect for the within-subjects factor was significant (f4,244 = 15.42, p < 0.001), indicating that there were significant differences between the five factors. (see table 2). there were no significant interactions between the factors.1 table 2 repeated measures anova for differences in work motivation inventory factors source df ss ms f p within subjects within factor 4 8,001.47 2,000.37 15.42 <.001 residuals 244 31,656.93 129.74 tukey tests were performed to examine the pair-wise comparisons between the five factors. results are shown in table 32. basic was significantly greater than safety (t = 4.44, p < 0.0001). belonging (t = 3.91, p =0.002), and ego-status (t = 7.73, p < 0.0001) but was not significantly different from actualization (t = 1.92, p = 0.317). safety was not significantly different from belonging (t = 0.54, p = 0.983) and actualization (t = -0.89, p = 0.899) but was significantly greater than ego-status (t = 4.22, p < 0.0001). belonging was significantly greater than ego-status (t = 4.11, p = 0.001) but not significantly different from actualization (t = -1.46, p = 0.592). finally, egostatus was significantly less than actualization (t = -6.93, p < 0.0001). 1 a manova test was conducted to examine whether demographic variables were significant in explaining variability in the work motivation inventory factors. none of the demographic variables were significant, so the results are not reported in this study. 2 the analysis was repeated using a nonparametric freidman rank sum test. the results were the same as the parametric tests discussed in this study. 57 table 3 pairwise (tukey) comparisons of work motivation inventory factors contrast difference se df t p basic safety 6.97 1.57 61 4.44 < .001 basic belonging 8.05 2.06 61 3.91 .002 basic – ego-status 15.61 2.02 61 7.73 < .001 basic – actualization 4.81 2.50 61 1.92 .317 safety belonging 1.08 2.00 61 0.54 .983 safety – ego-status 8.65 2.05 61 4.22 < .001 safety – actualization -2.16 2.43 61 -0.89 .899 belonging – ego-status 7.56 1.84 61 4.11 .001 belonging – actualization -3.24 2.22 61 -1.46 .592 ego-status – actualization -10.81 1.56 61 -6.93 < .001 these results suggest several conclusions regarding the motivations for gen z in the workplace. first, gen z is motivated by earning a sufficient salary in a pleasant working environment (basic) while doing challenging and meaningful work (actualization). benefits, working conditions, and performance standards (safety) rate higher than actualization, but the difference is not statistically significant. gen z is least motivated by recognition and rewards (ego-status), with the factor rating significantly lower than all four of the other motivating factors. discussion and conclusion each successive generation has its own varying beliefs, attitudes, values, and expectations (niemiec, 2000). it is, therefore, not surprising that the results of this study examining the work motivation factors for gen z are different than the results of calk & patrick (2017) who examined millennials. in descending order, millennials scored highest on ego-status, belonging, and basic. ego-status was significantly more important than safety. results of this study showed that gen z rated, in descending order, basic, actualization, and safety as the most important. while ego-status was the most important factor for millennials, it was the least important for gen z. in fact, for gen z, ego-status was significantly less important than all of the other four factors. these results suggest a potentially challenging situation for organizations as they seek to recruit and retain talent for all levels of the entity from both millennials and gen z. organizations must simultaneously put systems in place that will appeal to millennials who are motivated primarily by a desire for rewards and recognition and concerns for interaction and team membership and gen z who place greater value on benefits such as insurance and retirement plans. both generations place value on earning a reasonable salary while doing meaningful, challenging work in pleasant work conditions. although specific recommendations are beyond the scope of this study, perhaps a reasonable suggestion would be for organizations to focus on the factors that the generations have in common. future research could examine how organizations successfully, or unsuccessfully, cope with the similarities and differences between the various generations that comprise their workforce. 58 references acheampong, n. a. a. 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(2010) “generational difference in work values: leisure and extrinsic values increasing, social and intrinsic values decreasing.” journal of management 3(1): p.1-26. https://urldefense.com/v3/__http:/www.nielsen.com/us/en/insights/news/2015/the-facts-of-life-generational-views-about-how-we-live.html__;!!kgfbwx4!snv1e37aqwbarufky4rmszndjrpbwfwtlkhqjhpavgh1h7lt4_sfrnseem5ascvxml2pvhlyh_qccvd2_cg$ https://urldefense.com/v3/__http:/www.nielsen.com/us/en/insights/news/2015/the-facts-of-life-generational-views-about-how-we-live.html__;!!kgfbwx4!snv1e37aqwbarufky4rmszndjrpbwfwtlkhqjhpavgh1h7lt4_sfrnseem5ascvxml2pvhlyh_qccvd2_cg$ https://www.forbes.com/sites/causeintegration/2016/11/28/get-ready-for-generation-z/ https://www.statista.com/statistics/797321/us-population-by-generation/ http://www.bls.gov/opub/mlr/2009/11/art3full.pdf 1 considering the relationship between business applications and state tax rank: effect of tax cuts and jobs act of 2017 benjamin b boozer, jr jacksonville state university john sneed jacksonville state university cindy sneed jacksonville state university this research measures the relationship between state-level taxes and per capita business applications. state-level taxes used in the analysis are based on the tax rank of each state from 1 to 50, with a lower number rank associated with lower tax burden for that category and a higher number rank with higher tax burden for that category. tax categories used as independent variables in the model are the following: corporate tax rank, individual income tax rank, sales tax rank, property tax rank, and unemployment insurance tax rank. five-time periods were measured from 2015-2016, 2016-2017, 2017-2018, 2018-2019, and 2019-2020. the research question for the model considers how the 2017 tax cuts and jobs act (tcja) legislation affects business applications within each state as measured through state-level variables. sales taxes are found to inversely affect business applications two years before tcja passage and during the year of passage, but to have a positive relationship one year after passage. income tax is positively correlated in that immediate year following passage, while corporate tax inversely impacts two years following passage. keywords: business development, taxes introduction prior research addresses the issue of cause-and-effect relationships between state tax policy and business activity within a state. the prior studies used a time-series analysis so data from multiple years were combined in the model. these prior studies found conflicting results in terms of the specific taxes that affected business activity as well as the relationship to business activity. since factors beyond state taxes, including federal taxes paid, impact business activity these additional factors could impact http://journals.sfu.ca/abr advan ce s in b u si n e ss r esear ch 2021, volume 11, pages 1-10 http://journals.sfu.ca/abr 2 the relationship between state tax policy and business activity (shuai & chmura, 2013). these differences across time are likely responsible for the varying results in prior research. this paper will address the issue by using five annual models for the third quarter of 2015 to the second quarter of 2020 to examine the relationship between state business activity and state tax policy. this paper uses total business applications per capita for each year to measure business activity. the establishment of new businesses relative to other states provides a good indication of the level of business activity in the state. one weakness of this measure is that a sole proprietorship and a onemember llc are not required to file for a taxpayer identification number so they will not be included in the analysis. for state tax policy five state taxes are ranked from most favorable (lower taxes) to least favorable (higher taxes) for all 50 states. the taxes included in the model are corporate income taxes, individual income taxes, sales taxes, property taxes, and unemployment insurance taxes. using the ranking for each state by year will help to control for any changes in the state taxes across time as the changes will be incorporated into the state tax rank. economic theory argues that states with lower taxes, decreasing the cost of operating a business, would lead to increased business activity. the majority of businesses generate business income that is taxed at the individual rates and business location decisions are frequently made based on this criterion (russell, 2011). specific sales taxes on equipment and the level of property taxes were found to have a negative relationship to new businesses started (bartik, 1989). the enforcement of taxes on online sales is an emerging issue in the impact of taxes on entrepreneurial activity (conroy, cutler, & weller, 2016). unemployment levels have traditionally been considered as a function of macroeconomic effects in measuring economic activity. barron and westley (1981) consider unemployment insurance taxes paid and the level of unemployment. to the extent that business activity may or may not be affected, murray (2018) found that the unemployment tax burden does not have a significant impact on the formation of benefit corporations in the united states, suggesting no effect for this variable. however, our data runs through the second quarter of 2020 which will include two or three months impacted by the pandemic which could have a major impact on the significance of this variable. although this paper focuses on the impact of state taxes on business activity businesses must also pay federal taxes. changes in the federal tax laws can impact the relationship between state taxes and business activity (huffer, iselin, sammartino, & weiner (2019). this is relevant to our study as the tax cuts and job creation act (tcja) was passed in 2017, implemented in 2018, and made substantial changes to the federal tax laws. one direct impact of this act related to state taxes was that it limited the deduction for state and local taxes paid (property, sales, or income) to $10,000 where before all of these taxes could be deducted on the federal tax return. this change would have a negative impact on high tax states as their citizens would see a decrease in their deductions on their federal tax hines (2017). since the limit applied to all state and local taxes and not just specific taxes states could not help their residents avoid the limit by shifting from one source of tax revenue to another. to address this issue new jersey set up a fund where taxpayers could donate money to the fund and claim a charitable contribution. then, any amount contributed to the fund could be taken as a credit to reduce their state taxes, allowing them to reduce their state taxes below the $10,000 and transfer the excess into a charitable contribution which can be deducted on the federal tax return. however, the federal government amended the law so that any contributions to these funds would then reduce the $10,000 limit on the federal return to prevent this practice in the states. the other major impact of the tcja was that it substantially reduced the taxes paid on business income (tax foundation, 2018). for corporations, the tax rate on business income was reduced from 35% to 21%, with the 14% reduction in the tax rate representing a 40% decrease in the federal tax on corporate income. the corporate income tax rates at the state level range from 2.5% in north carolina to a maximum of 12% in iowa; two states south dakota and wyoming have no corporate income tax. the decrease in the federal corporate tax rate is larger than even the highest 3 state corporate income tax rate which represents a substantial decrease in the taxes paid on corporate income. the other types of businesses have their income taxed at the individual tax rates which range from 10% for low-income taxpayers to a high of 37% for high-income taxpayers. the tcja added a 20% qualified business income deduction for these firms to reduce the taxes paid on the business income. for taxpayers in the 37% bracket, the deduction reduces the rate on their business income from 37% to 29.6% (80% of income * 37% tax rate) which is a reduction of 7.4%. at the state level, individual income tax rates range from 2.9% in north dakota to a high of 13.3% in california; nine states have no individual income tax. across the 41 states with an individual income tax, 31 states have a tax rate of 7% or less, which is smaller than the savings at the federal level. the significant reduction in the federal taxes on income could result in states being more willing to open new operations in high tax states as their overall tax liability could still be lower than before the tcja was passed. for this paper, models are run for the second quarter of 2015 to the second quarter of 2016 and the second quarter of 2016 to the second quarter of 2017 to examine the relationship between state tax policy and business activity for the two years before the passage and implementation of the tcja. the model for the second quarter of 2017 to the second quarter of 2018 was used to examine the impact of the passage of the act and the initial application of the new rules. the last two models, quarter 2 2018 to quarter 2 2019 and quarter 2 2019 to quarter 2 2020 examine the relationship for two years after the passage of the tcja. this methodology will illustrate the impact of the tcja on the relationship between state tax policy and business activity. what follows is a review of prior literature, research methodology, results, analysis of results, conclusion and future research, and bibliography. review of prior literature there are two competing theories as to what drives economic growth in a city or a region. the first relates to the climate for business in terms of tax policies and regulation as locations with lower taxes and less regulation would lead to increased economic growth. the second theory is that economic growth is driven by factors tied to operating the business and attracting employees like locally available talent, affordable housing, and affordable commercial property. the local educational system, public transportation, and the quality of public services will also impact business decisions. the argument is tied to the idea that cities in the same state facing similar tax and regulatory environments have substantially different levels of economic growth. nashville and memphis, both in tennessee, are two cities facing similar tax and regulatory environments where nashville has had substantial economic growth as compared to memphis (renn, 2018). while both theories have been supported in the research, the large increase in employees working remotely could potentially increase the importance of local and regional tax policies on business location decisions. the high corporate income tax rate in the united states has often been mentioned as a reason why many businesses choose to operate in foreign countries as opposed to the united states to lower their tax burden. since it is easier to move a business across states as opposed to across countries state tax structures should also have a major impact on business location decisions (russell 2011). a small business and entrepreneurial council study argues that personal income tax rates impact business location decisions as over 92% of businesses have business income taxed on individual tax returns at the individual tax rates. they also argue that high state unemployment tax rates increase the cost of labor so labor-intensive firms should avoid these states (russell, 2011). barron and wesley (1981) found significant differences in the unemployment rates across states with the highest rates in the northeastern states and lowest rates in many southern states. the highest unemployment rate for taxes paid was in california at 2.1% of total wages paid while in texas, the state with the lowest rate, it was only 0.3%. however, mcclure jr. (1981) argues that the objectives of state tax policy should focus on 4 allocation neutrality and not the redistribution of wealth so it should not impact business location decisions. he also argues that state corporate income taxes can impact business location decisions if they are different across the states. prior research has specifically addressed the impact of state or local tax policies on business location decisions. lower entrepreneurial rates have been found in states with higher individual tax rates, the existence of state-level estate and inheritance taxes beyond the federal tax, and a higher weight on the sales factor in the state corporate income tax apportionment formula. higher entrepreneurial rates were found in states with more progressive personal income tax structures and having aggressive corporate income tax structures with a combined reporting requirement (bruce & deskins, 2012). they also found that the composition of the state tax portfolio was not a significant factor in entrepreneurial activity for states. cline (2006) argued that the state and local tax burden in the united states includes much more than direct business taxes like income and franchise taxes, as firms also pay property and sales taxes. higher state corporate income taxes and higher state minimum wage rates were found to result in a reduced rate of entrepreneurial activity (garrett & wall, 2006). kreft and sobel (2003) found that the existence of a state inheritance tax led to a lower level of growth in the number of sole proprietorships formed. carlton (1979) found no evidence that local taxes influence the number of firm births. bartik (1989) found that higher property taxes, corporate taxes, and sales taxes on equipment negatively impact the number of small business startups. however, he also found that personal income taxes and general sales taxes had no significant impact. summarizing the impact of state tax policy on business location decisions finds that state tax policies can influence the decision but the results on the magnitude and direction of the impact have been inconclusive (bruce & deskins, 2012). the tax cuts and job creation act (tcja) of 2017 will likely have a significant impact on state tax policy as it makes substantial changes in the federal income tax laws. forty-one of the fifty states have state-level broad-based income taxes while two states only tax unearned income and seven states have no income tax. of the forty-one states, thirty start their calculation of state taxable income with the adjusted gross income from the federal return. five states start the calculation of state taxable income with federal taxable income. the last six states do not directly tie their taxable income calculation to a number from the federal tax return but use many of the same rules for measuring income and deductions. since the majority of states tie their taxable income to numbers reported on the federal tax return any changes in the federal tax laws will also impact state income taxes (huffer, et al, 2019). the major changes in the tcja are summarized below. the basic standard deduction was nearly doubled for each filing status which reduces taxable income. several states tie their standard deduction to the federal standard deduction which would have the same impact at the state level. the tjca also eliminated the personal exemption, $4,150 per taxpayer on the return, as well as the deduction for dependency exemptions which increases taxable income. to offset the impact of the loss of the dependency deductions the child credit for qualifying children was increased from $1,000 to $2,000 and a dependent credit of $500 was created for all other dependents. since the corporate income tax rate was reduced from 35% to 21% in the tcja they also adopted the qualified business income (qbi) deduction of up to 20% of business income for firms not operating as a corporation, reducing taxable income. another significant change was limiting the itemized deduction for taxes paid to $10,000 per year. while the increase in the standard deduction will significantly decrease the number of taxpayers claiming the standard deduction taxpayers in states with high property values, such as new york, new jersey, and california, are home to many taxpayers whose combined state property and income taxes exceed the $10,000 and still itemize and will face an increase in taxable income. huffer et al (2019) 5 examined the impact of the tcja on state income taxes. they found that the two largest impacts were from the increase in the standard deduction and the elimination of the personal and dependency exemptions which offset each other with a slightly larger impact from the elimination of the personal and dependency exemptions. the changes in the federal tax laws will potentially result in states examining their tax policies to adapt to the new rules. research methodology this research measures, as the dependent variable, per capita changes in the number of business applications submitted for each u.s. state. five independent variables are employed in the model: corporate tax rank; individual income tax rank; sales tax rank; property tax rank; and unemployment insurance tax rank. the rank for each category is within a range of 1 to 50, inclusive, representing the rank within each of the 50 u.s. states. a higher rank (i.e. 50) denotes higher taxes for that category within that state relative to other states; a lower rank (i.e. 1) indicates less tax imposed within that category. rank is not mutually exclusive between and among states; if a state does not tax income at the state level, then the rank for each of those states for that tax category would be 1. population estimates are provided from the u.s. census bureau and the number of business applications and rank for each tax category from the 2020 state business tax climate index that is published by the tax foundation. the model examines five distinct periods in years from q2 to q2: 2015 to 2016; 2016 to 2017; 2017 to 2018; 2018 to 2019; and 2019 to 2020. the tcja was passed in 2017 and implemented in 2018. effects are analyzed for two years before the legislation, 2015 to 2016 and 2016 to 2017, during the contemporaneous year of 2017 to 2018, and two years after enactment, 2018 to 2019 and 2019 to 2020. using ordinary least squares (ols) regression analysis, changes in per capita business applications were analyzed. five separate regressions were run to reflect how state tax activity within each tax category affects business applications within each of those five time periods. data are standardized to reflect differences in size and scope of input variables. business applications are measured as per capita change from year to year, while predictor variables are expressed by state rank from one to 50. to standardize, each predictor variable is multiplied by 1/100,000. thus, the interpretability of output coefficient values is enhanced (sweet & grace-martin, 2012). results the model for this analysis is structured within two time periods: before the enactment of 2017 tcja, during the enactment of 2017 tcja, and two years after the enactment of 2017 tcja. calculations are grouped and results are presented accordingly. each table identified the variables, coefficient, t-statistic, p-values, and adjusted r square for each regression output. table 1 presents results for before 2017 tcja enactment for 2015 to 2016 and 2016 to 2017 measured from q3 to q2 for each period. for this iteration of the model barely 5 percent of changes in business applications are explained by predictor variables. constant or intercept variable is statistically significant, with sales tax showing an inverse relationship, although only at a level of p < .10. for the 2016 to 2017 time period, the constant continues to be statistically significant with a strong, positive association. although higher taxes for each category are generally associated with lower levels of business application submission, the association is not statistically significant and is likely the result of chance. 6 table 1 – results before 2017 tcja q2 2015 to q2 2016 variable coefficient t-statistic p-value adjusted rsquare business applications change 0.05297 constant 42.6408 2.99736 .00446** corporate tax -0.3719 -1.33778 .18784 individual income tax -0.2931 -1.09168 .28092 sales tax -0.5100 -1.87530 .06740 property tax 0.2530 0.84655 .40183 unemployment insurance tax -0.3191 -1.08468 .28397 q2 2016 to q2 2017 variable coefficient t-statistic p-value adjusted rsquare business applications change -0.01805 constant 49.1374 4.59654 .00004*** corporate tax -0.1987 -0.98585 .32960 individual income tax -0.1875 -0.95414 .34523 sales tax -0.1965 -0.98339 .33079 property tax 0.0187 0.08754 .93064 unemployment insurance tax -0.2222 -1.04685 .30088 p < .05*; p < .01**; and p < .001*** table 2 lists regression output for the model during the coeval period of 2017 to 2018 that tcja was enacted. the model shows a much stronger fit with an adjusted r-square indicating more than 17 percent of the data fit the regression model. results find that sales tax shows a strong inverse relationship (t-statistic = -3.239) with changes in business application submissions for the period. while an inverse association existed from 2015 to 2016, during this time the association is stronger with a higher level of statistical significance (p-value = .002 compared to p-value = .067). table 2 – results for the model during 2017 2018 2017 tcja enacted q2 2017 to q2 2018 variable coefficient t-statistic p-value adjusted rsquare business applications change 0.17077 constant 85.9425 5.14356 .00001*** corporate tax -0.2490 -0.78020 .43945 individual income tax -0.4780 -1.56463 .12483 sales tax -1.0174 -3.23918 .00228** property tax 0.1636 0.48877 .62743 unemployment insurance tax -0.3801 -1.15199 .25555 p < .05*; p < .01**; and p < .001*** 7 table 3 presents regression output for two years after the enactment of the 2017 tcja. for the 2018 to 2019 time period the model explains over 17 percent of changes in business application submissions. two variables, individual income tax, and sales tax are statistically significant in addition to the intercept. what is interesting is that sales tax is strongly positively associated in this iteration, unlike strong inverse associations during two prior periods in this analysis. with an adjusted r-square of 0.132, the fit of the model in 2019 to 2020 is not as robust as the immediately prior year. however, corporate tax is strongly statistically significant (p-value = .009) in this regression output, unlike the output for any of the prior four years, with an inverse correlation (t-statistic = 2.719). property tax and unemployment insurance tax would be predictors in the model at a level of p < .10 but are otherwise subject to chance. the directional impact of property tax is positive, while unemployment insurance tax is negative or inverse. table 3 – results for the model after the 2017 tcja after 2017 tcja q2 2018 to q2 2019 variable coefficient t-statistic p-value adjusted rsquare business applications change 0.17460 constant -69.2490 -3.99191 .00025*** corporate tax 0.2536 0.73226 .46789 individual income tax 0.6422 1.93271 .05972* sales tax 0.9345 2.84319 .00675** property tax -0.0690 -0.19824 .84377 unemployment insurance tax 0.1516 0.44001 .66208 q2 2019 to q2 2020 variable coefficient t-statistic p-value adjusted rsquare business applications change 0.13242 constant 38.0140 1.76409 .08466 corporate tax -1.1319 -2.71856 .00935** individual income tax -0.2356 -0.59020 .55808 sales tax 0.0706 0.17515 .86176 property tax 0.7973 1.91242 .06235 unemployment insurance tax -0.6816 -1.64343 .10742 p < .05*; p < .01**; and p < .001*** analysis of results unlike the majority of prior research which used time-series data this analysis examining the impact of a state’s tax policies on economic activity is conducted yearly, analyzing the impact on business applications from july 1 to june 30 for each year. for the 2015-2016 year the ranking for corporate income taxes, individual income taxes, sales taxes, and unemployment taxes are negatively related to business applications while property taxes are positively related. however, the only significant relationship is for sales taxes with a p-value of .067. for the 2016-2017 year the direction of the relationships remains the same with no significant relationships. these are the two years right before the tax cuts and job creation act of 2017 took effect making significant changes in the federal 8 tax laws. since most states tie their tax systems to the federal laws it also had a significant impact on state taxes as well. one key difference between the two years is that a republican administration was elected in november 2016 and took office in january 2017. for the 2016-2017 year almost all of the states had significant increases in business applications making it more difficult to find significant relationships. this could have resulted from having an administration focused on reducing regulations to encourage business activity. the 2017-2018 year was the transition year as the new tax law was in place for half of the year covered during this period. the results for this year mirror the results for 2015-2016 as only sales taxes had a significant (p-value = 0.002) negative relationship with business applications. the results from the first three years, before the new tax law took full effect, indicate that all taxes except property taxes have a negative relationship with business applications with sales taxes representing the only significant relationship. the 2018-2109 year is the first year after the new tax law took effect, which had a significant impact on the results. for the 2018-2019 year the relationship between the different taxes and business applications completely reversed from the prior three years as corporate income taxes, individual income taxes, sales taxes, and unemployment taxes were positively related to business applications, and property taxes were negatively related. also, individual income taxes (p-value = .060) and sales taxes (p-value = .007) had a significant positive impact on business applications. the new tax law significantly reduced the income taxes paid on business income which would encourage business activity and reduce the negative impact of higher tax rates across states as less income was subject to tax. the most surprising result is having sales taxes go from a significant negative relationship for two of the prior three years to having a significant positive relationship. one potential explanation is if the decrease in the income taxes paid reduced the negative impact of paying higher sales taxes. the 20192020 year is the second full year under the new tax law but also includes a few months that were impacted by the coronavirus pandemic which shut down substantial segments of the economy. for the 2019-2020 year corporate income taxes, individual income taxes, and unemployment taxes were negatively related to business applications while sales taxes and property taxes had a positive relationship. thus, all taxes except sales taxes reverted to the same relationship as the three years before the 2018-2019 year. however, the significant relationships are now corporate income taxes (pvalue = .009) with a significant negative relationship and property taxes (p-value = .062) with a significant positive relationship. the increased risk in the economy may have encouraged economic activity in states who collect substantial amounts in property taxes as it represents a more stable source of tax revenue. one other significant finding for 2019-2020 is that unemployment taxes (p-value = .107) are approaching being significant as the coronavirus substantially increased the number of people on unemployment. since the year only included one quarter that was impacted by the virus, it is very possible that its significance will increase until the virus is controlled. prior research has found that the tax climates of the states did impact business activity, but the magnitude and direction of the impact varied across different studies. one factor frequently mentioned to explain the differences is that different measures were used to measure economic activity and different measures were used to measure the business and tax climate of the different states. this paper addresses this issue as the same measures were used to examine five separate years. the results again indicate that the magnitude and the direction of the impact of the different taxes vary across the years even when using the same measure for economic activity and the business climate. while the tax structure of the states can have a significant impact on economic activity in the state, the actual impact is tied to other events happening in the economy. for our analysis, the main factors were the new tax law and the coronavirus which had major impacts on the economy. 9 conclusion and future research the analysis indicates that federal tax legislation creates disruptions in state-level taxation through intricate relationships between each variable. that higher taxes generally thwart entrepreneurial activity as a result of higher costs is to be expected. with this analysis using the 2017 tcja as the focal point around which incentives and disincentives are created by extension at the state level, results indicate that effects are measurable but positive directional impacts were unexpected in 2018 to 2019, for example. with the implementation of the tcja in early 2018, additional observational time periods may further explain each phenomenon, or otherwise find changes to be an aberration. further, future research in this area is expected to be very robust as a result of covid-19 pandemic conditions. to what extent has the pandemic shifted tax incentives at the corporate level or individual level in explaining an area of economic development? remote working is a research area opportunity as physical location domiciles are replaced by a more fluid movement of workers away from traditional settings. how will tax legislation and incentives approach these changes in supporting economic development? including a measure of a state’s minimum wage to the federal minimum wage is also a variable to consider (garrett & wall, 2006). do higher state minimum wage levels continue to adversely impact entrepreneurial activity after an overall reduction in the tax burden in 2017? linking those interactions with higher percentages of remote work could identify shifts in the flow of capital. finally, while this study considered business applications to reflect any business structure (sole proprietorship, partnership, limited liability company, and corporate structures), exploring if these relationships hold when considering corporate forms, for example, could add another component to the research for analysis. fewer observations, however, may reduce data validity in explaining those relationships. bibliography barron, j.m. & mellow, w. 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(2006). creating a policy environment for entrepreneurs. cato journal, 26 (3), 525-552. hines, j.r., jr. (2017). business tax burdens and tax reform, brookings papers on economic activity, fall 2017, 449-471. huffer, e., iselin, j., sammartino, f., & weiner, d. (2019). effects of the tax cuts and jobs act on state individual income taxes. journal of law & policy, (58), 205-229. kreft, s.f. & sobel r.s. (2003). public policy, entrepreneurship, and economic growth. west virginia university department of economics working paper no.03-02. mclure jr,. c. (1981). integration of the state income taxes: economic and administrative factors. national tax journal, (34), 75-94. 10 murray, s.m. (2018). explaining the adoption of benefit corporation laws by u.s. states. journal of financial economic policy, 10(3), 351-368. renn, a. m. (2021, april 21). what employers want from cities. governing.com. retrieved october 11, 2021, from https://www.governing.com/archive/gov-employers.html. russell, r. (2011). playing the state tax lottery: local tax rates matter more to businesses than ever. accounting today, (2011), 14-15. shuai, x., & chmura, c. (2013). the effect of state corporate income tax rate cuts on job creation, business economics, 48(3), 183-193. sweet, s., & grace-martin, k. (2012). interpreting regression coefficients: changing the scale of predictor variables (from chapter 7 of data analysis for spss: a first course in applied statistics), 4th edition, pearson. tax foundation (2018). the tax cuts and jobs act simplified the tax filing process for millions of households. accessed on june 17, 2021 from https://taxfoundation.org/the tax-cuts-and-jobs-act-simplified-the-tax-filing-process-for-millions-of-americans/ https://taxfoundation.org/thehttps://taxfoundation.org/the1 advertising response to financial misreporting and the implications for firm value stacey sharpe, ph.d. california state university, los angeles do firms adjust advertising spending around accounting-based brand scandal events such as fraudulent restatement announcements? to address this question, this study presents an empirical assessment of firm-level advertising spending around fraudulent restatement announcements. this analysis is guided by opposing propositions presented in the brand scandal and marketing-finance literature regarding expectations for firm-level advertising response to brand scandals. to test these opposing conjectures, an empirical investigation is conducted on a sample of 136 firms accused of financial reporting fraud. the dataset is constructed using the sec and department of justice enforcement action database for corporate misrepresentation compiled by karpoff, lee, and martin (2008a) (klm) and annual compustat industrial files. the potential implications of advertising spending on post-restatement firm value are also assessed. the results of this study indicate that, on average, firms reduce advertising expenditures around fraudulent restatement announcements. the reduction in advertising is shown to effectively mitigate the potential damages to firm value. in addition to generating support and managerial guidance regarding the relevance of advertising expenditures to a firm's reputation management strategies, this paper is the first known study to investigate the relationship between advertising spending and an accounting-based brand scandal. this study also makes multiple contributions to the advertising, brand scandal, and reputation management literature. keywords: advertising spending; restatements; brand scandal; reputation management; financial misconduct introduction do firms adjust advertising expenditures around accounting-based brand scandal events such as financial reporting fraud? as the primary mode of firm-to-consumer communication, advertising is the "voice of the brand" (keller, 2007, p. 55) and represents an essential aspect of building and protecting a firm’s reputation. therefore, it is not surprising to find that among marketing scholars and practitioners, increased advertising is a preferred and recommended approach to countering the negative effects of product-related brand scandal events, including but not limited to product-failures and recalls (cleeren et al, 2008; cleeren et al., 2013; rubel et al., 2011). http://journals.sfu.ca/abr advances in business research 2020, volume 10, pages 1-17 2 while the subset of marketing literature which focuses on product-related brand scandals is extensive and growing, published research focusing on accounting related brand scandals such as financial reporting fraud remains nascent among marketing scholars. this is likely due to the overtly financial nature of accounting brand scandals as such events are typically lacking in any immediate consequences for consumers (i.e., no impact on product, price, availability, overall quality, etc.). however, from a resource advantage perspective, brands represent key market-based (intangible) assets of the firm and are widely recognized as sources of differentiation, competitive advantage, and enhanced cash flows (srivastava et al.,1998). as such, all adverse brand-related events, product-related or not, are of immediate concern to the firm and its stakeholders and should be examined for the purpose of strategic understanding and application. to this end, this investigation purports that the studied contexts of brand scandal should be extended to include accounting-based brand scandals, namely in the context of financial reporting fraud. financial misreporting (also referred to as fraudulent restatements) involves the conscious omissions of relevant information from the firm's financial reports in order to alter the overall image presented to investors and other relevant users. as demonstrated by high-profile cases of financial reporting fraud involving enron in 2001 and worldcom inc. in 2002, this type of corporate misconduct can lead to financial ruin for the accused firm and its investors, instigate widespread mistrust among consumers, as well attract regulatory attention (e.g. the securities act of 1933 and the sarbanes-oxley act of 2002). according to karpoff et al. (2008a), the legal penalties, levied against individual firms accused of financial misreporting between 1978 and 2002 exceeded $23 million on average. these authors also show that, on average, the impact of the reputational losses to the affected firms tend to be more than 7.5 times the legal penalties. the far-reaching implications of these accounting-based brand scandals substantiate the sustained scholarly interest in financial reporting fraud events. in addition to the implications of financial misreporting, accounting and finance scholars have also given substantial attention to the recovery efforts employed by firms accused of fraudulent behavior. changes to the composition of their boards of directors (farber, 2005), reducing ceo option-based compensation (cheng & farber, 2008), dismissal of ceo's and other culpable employees (karpoff et al, 2008b; wilson, 2008), naming a successor ceo (gomulya & boeker, 2014), and replacing auditors (wilson, 2008) are among the studied repair strategies—each of which have been shown to have positive effects on firm recovery. these studies also provide evidence of investors' interest in and sensitivity to fraudulent restatement announcements. however, to date, no attention has been given towards examining marketing-based strategies to address the reputational damages of financial misreporting. independent arguments and findings from the extant accounting and marketing-finance literature lead to the conclusion that both announcements of financial misconduct and adjustments in advertising expenditures are immediately relevant for brand associations and investor behavior. accordingly, the primary objectives of this investigation are, first, to examine the effect (if any) of financial reporting fraud on advertising expenditures, and second, to determine the effect (if any) of advertising spending on firm value following such events. this study tests whether firms adjust their level of advertising spending in the years around (i.e., prior to, during, or after) the revelation of financial misreporting. of note, the traditional views and associated findings of the extant brand scandal literature and that of the recent insights generated by the empirical findings from marketing-finance studies support conflicting expectations for advertising spending strategies around fraudulent restatement announcements and the related implications for firm value. while both perspectives support the use of advertising strategies for mitigating potential losses to the firm around brand scandal events, the brand scandal and marketing-finance literature support differing expectations regarding the associated outcomes of such strategies. insights from brand scandal literature suggests a positive outcome will be achieved by increasing firm-level 3 advertising, while those of the marketing-finance literature suggests positive outcomes will be achieved by a decrease in firm-level advertising. to test these opposing conjectures, an empirical investigation is conducted on a sample of 136 firms accused of financial reporting fraud between 1977 and 2010. the dataset is constructed using the sec and department of justice enforcement action database for corporate misrepresentation compiled by karpoff, lee, and martin (klm) and annual compustat industrial files. furthermore, the potential implications of advertising spending on post-restatement firm value are also assessed. the results of this study indicate that, on average, firms reduce advertising expenditures around fraudulent restatement announcements. in addition, the reduction in advertising is shown to effectively mitigate the potential damages to firm value. this examination makes multiple contributions to the extant literature in the areas of marketing-finance, brand scandal, and financial misconduct. it provides support and guidance regarding the relevance of advertising expenditures to a firm's reputation management strategies. in sum, the propositions derived from the marketing-finance literature are empirically and economically supported by the results of this analysis. based on what is known, this study is the first to investigate the relationship between firm-level advertising expenditures, accounting-based brand scandal, and the subsequent implications for firm value. in doing so, this study makes several noteworthy contributions to the advertising, brand scandal, and reputation management literature —each of which are discussed in the latter sections of the paper. the remainder of the paper proceeds as follows: the next section provides a discussion of the relevant literature and presents the hypotheses of the investigation. the data and key measures are described in the third section. the methodological approach and results of the empirical tests are presented in the fourth section, and concluding remarks, contributions, and future research are presented in section five. literature review and hypothesis development strategic advertising and brand building advertising as part of the firm's competitive conduct is a common tactic in marketing practice and a heavily studied area among marketing scholars. advertising provides firms with a unique opportunity to capture and influence the attention of its target population. advertising is a widely studied area in the marketing discipline. prior investigations into the potential firm outcomes associated with advertising spending indicate that it has the potential to strategically modify consumer preference (chamberlin, 1933; moorthy & zhao, 2000), create brand loyalty (chamberlin, 1933), influence changes in market composition (comanor & wilson, 1974), increase profitability (comanor & wilson, 1974; currim et al., 2012; joshi & hanssens, 2010), mitigate the negative implications of corporate social irresponsibility on firm performance (sharpe & hanson, 2018), influence investor attention (chemmanur & yan, 2009; lou, 2014; madsen & niessner, 2019), and increase firm value (cohen et al., 2010). according to the theories of market-based assets (srivastava et al., 1998) and customer equity (rust et al., 2004), increased investments in marketing helps to generate strong brand recognition and a loyal consumer following for the firm. additionally, srivastava et al. (1998) theorize that greater marketing expenditures create valuable intangible assets through which the firm can create barriers to entry and switching, as well as signal greater future profitability. the robust insights generated from these and other studies exploring the firm-level outcomes of advertising spending in the context of pursuing competitive advantage illustrate the relevance of increased advertising as part of the firm's strategic conduct. 4 strategic advertising and brand scandal response to date, advertising remains a key component of firm-level marketing strategy and a heavily studied area among marketing scholars. in this study, the relationship between accounting-based brand scandals and advertising spending is examined from the crisis management perspectives of image repair theory (benoit, 1995) and the closely aligned situational crisis communication theory (scct) (coombs 1998; coombs 2013). image repair theory posits that communication is a goaloriented activity and that maintaining a favorable reputation is a key goal of communication. building on these key assumptions, coomb's scct purports that organizations will use strategic communication to help mitigate the potential for reputational damage during turbulent periods (benoit, 2015; coombs, 2013; coombs, 2015; sellnow & seeger, 2013). scct is a relevant and commonly applied approach to image repair by organizations in crisis. the scct approach provides a succinct list of crisis response strategies organized into four postures—denial (i.e., attack the accuser, denial, and shift blame strategies), diminish (i.e., excuse and justification strategies), rebuild (i.e., compensation and apology strategies) and bolstering (i.e., bolstering, ingratiation, and victimage strategies) (coombs, 2012, p. 155; see also 2015). in the context of brand scandals, insights and recommendations from the extant marketing and crisis communications literature support a bolstering posture—namely, a communication-based crisis management strategy aiming to reduce the potential for reputational harm thru increased communication efforts designed to remind stakeholders of the organization's positive attributes (cleeren et al., 2008; cleeren et al., 2013; sharpe & hanson, 2018). more specifically, this subset of literature consistently indicates that by increasing advertising-based communications, scandal facing firms can reinforce their desired image and leverage their established relationships with key stakeholders through increased visibility. in doing so, it is also shown that such firms can effectively mitigate the potential losses associated with the brand scandal event (cleeren et al., 2008; cleeren al., 2013; sharpe & hanson, 2018). in their investigation into advertising spending around product-harm related brand scandal events, rubel et al. (2011) propose and test a dynamic model of advertising in which, at each point in time, there exists a nonzero probability for the occurrence of a scandal event that hurts brand sales and influences marketing effectiveness. using sales and advertising expenditures data for the corresponding weeks associated with product-harm scandals affecting three top automotive brands, they find that product harm scandals can reduce baseline sales up to 35% and positively influence advertising spending behavior. moreover, a statistically significant relationship is shown between brand scandal occurrence and positive adjustments in post-scandal advertising expenditures—thereby suggesting that managers intentionally increase advertising spending levels in response to brand scandal occurrences. based on their findings, and consistent with the recommendations of other marketing scholars, rubel et al. (2011) encourage increases in post-scandal advertising as a strategic response to limit, and ultimately recover from, the potential losses associated with brand scandals. additional empirical support for this recommended approach to post-brand scandal advertising is generated by cleeren et al. (2008), cleeren, et al. (2013), sharpe & hanson, (2018), and others. from a bolstering posture perspective, increased advertising following a brand scandal event can demonstrate (signal) that the firm is committed to the affected brand and thereby generate positive expectations among the firm's key stakeholders (consumers, investors, employees, etc.). based on the assumption that brand managers are rational, stakeholders will generally expect that established firms will act in the interest of overcoming brand scandals by undertaking necessary investments to mitigate potential losses—including but not limited to response actions such as directing brand-related communications, voluntary product recalls, and issuing restitutions. given the heightened levels of brand awareness and media attention around financial reporting fraud events along with the serious 5 threats to the firm's reputation and profitability, accused firms may be prompted to action based on the assumption that consumers and investors alike will be exposed to their response strategy. the aforementioned theoretical assumptions and the documented preference for increased advertising investments following (other categories of) brand scandal events leads to the expectation that the same strategy will be implemented by firms facing brand scandals derived from financial reporting fraud. more formally, it is anticipated that: h1a: firms increase advertising expenditures around financial reporting fraud announcements. diminished firm value is a major consequence of financial reporting fraud (karpoff et al., 2008a; murphy et al., 2009). however, the positive expectations and outcomes associated with increased advertising spending in both the general and brand scandal contexts lead us to consider the potential effect of this strategy on post-restatement firm value. additionally, growing evidence from the marketing-finance literature demonstrates advertising's positive effects on firm value in multiple investor-relevant contexts—namely, stock liquidity (grullon et al., 2004), shareholder value (lou & donthu, 2006), analyst following (lou & de jong, 2012), implied cost of capital (huang & wei, 2012), and equity offerings (belo, lin, & vitorino, 2014; chemmanur & yan, 2009; lou, 2014). consistent with the arguments and evidence from the extant brand scandal literature regarding the use of increased advertising to protect and remediate the brand's position during the post-scandal period, it is also expected that: h1b: increased advertising around financial reporting fraud announcements will mitigate the negative effect of financial reporting fraud on post-restatement firm value. strategic advertising and investor attention studies conducted by chemmanur and yan (2009), lou (2014), and belo et al. (2014) examine strategic advertising activity around equity offerings and the implications of these actions for investor behavior. collectively, these authors argue that firm managers are aware of the positive effect of advertising on investor attention and intentionally adjust advertising expenditures around key financial market events in order to strategically leverage this attention and thus influence the firm's stock returns. for example, in their examination of annual advertising spending among a sample of equity issuing firms in the initial public offering (ipo) year and the adjacent non-ipo years (specially, the two years before and two years after), chemmanur and yan (2009) find that ipo firms make significant increases to advertising spending prior to making initial public offerings (from year t-1 to the ipo year t). advertising spending between the ipo year t and the year immediately following (t+1) are also shown to be significantly reduced. these authors further conclude that the significant increase in advertising expenditures just prior to the ipo year followed by the significant decrease in advertising expenditures in the year after gives cause to suspect that managers intentionally adjust advertising to increase firm visibility prior to initial public offerings. additionally, they find that the stock returns for firms with this practice tend to be unusually high during the ipo year. similar advertising spending strategies are also observed around seasoned equity offerings (seos). in similar studies, lou (2014) and belo et al. (2014) confirm chemmanur and yan's findings regarding the adjustment of advertising around seos. lou (2014) provides additional evidence of increased advertising leading to contemporaneous growth in abnormal stock returns. this research also finds that managers opportunistically adjusting advertising spending around insider sales. more specifically, to examine the extent to which managers adjust advertising expenditures in the years before, contemporaneous, and subsequent to insider sales lou conducts a pooled ols regression using a sample of compustat firms. relative to all other years, his research reveals that the average 6 advertising spending in the years before, contemporaneous, and after insider sales is 5.3% higher, 6.9% higher, and 3.9% lower. lou contends that this inverted v-shaped pattern in firm-level advertising spending around insider sales provides evidence of intentional behavior among managers to exploit the effect of advertising on stock returns for the benefit of their firm. compared to a matched sample of firms which did not have insider sales lou finds that, the average advertising expenditures for firms with insider sales is significantly higher in the two years before insider selling (i.e., t-2 and t-1) and significantly lower in the two years after (i.e., t+1 and t+2). moreover, this analysis provides additional support for the argument that managers intentionally adjust advertising spending for the purpose of influencing investor behavior and stock prices around insider sales. in addition, a weak correlation is observed between advertising spending and future sales growth in periods of insider sales compared to other years and the observed pattern of advertising spending around insider sales is shown to be greater when there is an increased volume of insider selling. in an empirical analysis similar to that of lou (2014), belo et al. (2014) use an investment in brand capital (a variable constructed using annual advertising expenditures) to examine advertising and stock returns around seos. consistent with the results reported by lou (2014), they also observe an inverted v-shaped pattern in advertising investments around seos and find that this strategy has positive effects on stock returns during the immediate year before and contemporaneous to equity offerings. furthermore, madsen and niessner (2019) examine the role of advertising in financial markets by evaluating the advertising strategies used by firms to influence investor attention around earnings announcements. they find that daily print advertisements, especially those in weekend business publications, generate significant increases in google searches for the advertised firm's stock ticker. these results illustrate how a firms' advertising activity can effectively attract investors' attention. madsen and niessner also test for differences in advertising volume around earnings announcements and find that when earnings are positive firms weekly advertising increases by 3% starting one week prior to the earnings announcement through two weeks after the announcement—then returning to average advertising levels in the following weeks. these findings offer evidence consistent with that of an earlier study by cohen et al., (2010) showing that managers engage in real earnings management behavior to meet financial reporting benchmarks. more specifically, cohen and authors find that, on average, managers in their sample intentionally reduced advertising expenditures to alleviate potential losses and or decreases in earnings. the insights generated by cohen et al. (2010) and madsen and niessner (2019) showing that firms tend to reduce advertising when anticipating the release of negative information is contrary to the established support and recommendation from extant marketing and brand scandal literatures. this observed inconsistency suggests that managers anticipate that the interpretation of the firm's advertising around brand scandal events will be different for investors and consumers. as such, it can also be assumed that the firm's advertising spending strategy will differ when facing a product-based brand scandal event versus an accounting-based brand scandal event. chen et al. (2009), examination of investor sensitivity to the firm's brand scandal response, generate further support for this view. chen et al. (2009), measures the effect of proactive and passive response strategies on firm's financial value following a product-recall. to facilitate their investigation, the authors use a sample of consumer product safety commission recall announcements and daily stock return data for firms publicly traded on the new york stock exchange between 1996 to 2007. using event study analysis, they show that, on average, proactive response strategies (i.e. voluntary recalls, product replacements, etc.) have a more negative effect on firm value compared to more passive strategies—irrespective of firm and product characteristics. these results suggest that investors interpret proactive response strategies as indicative of an expectation on the part of the firm for severe financial losses. while chen et al. (2009) do not examine advertising response strategies, the findings of their study does suggest that investors would likely respond negatively towards proactive strategies involving increased advertising as well. this expectation is largely due to the increased visibility that 7 would be generated for the scandal facing firm as a result of an increase in advertising activity. for example, in the context of chen et al. (2009) study, the proactive response to product harm crises was measured by the firm's voluntary recall of defective products. though necessary for the safety and wellbeing of the firm's consumers at large, the recall-related communications will likely be widely distributed and discussed making the event highly visible. it is further assumed by the chen and coauthors that the increased visibility around this negative event will likely be discouraging to investors who may see this action as a sure sign of culpability—therefore leading them to take action to disassociate with the firm. benoit's image repair theory also stresses the relevance of audience (stakeholder) perceptions to the selection and ultimate success of communication-based crisis response strategies (benoit, 2015, p. 45; see also 1995). this perspective posits that, as part of their image repair strategy, the crisis facing organization seek to understand and influence the perceptions of multiple audiences—namely, employees, consumers, investors, government officials, and potentially other citizens. benoit also emphasizes that different audiences can have dissimilar values and perspectives in their evaluation of crisis situations and, as such, a crisis response strategy designed for one audience (i.e., consumers) may not persuade another audience (i.e., investors). in the aforementioned study, chen et al. (2009) provide strong empirical verification of investor sensitivity to product-based brand scandal response efforts. furthermore, the findings suggest that pronounced differences may exist in the advertising response strategy used by firms when facing a nonproduct related brand scandal event. these findings and perspectives also support a rationale for the alternative expectation that managers will reduce advertising activity around accounting-based brand scandal events. that said, it also reasonable to expect that: h2a: firms decrease advertising expenditures around financial reporting fraud announcements. additionally, as a result of the anticipated decrease in advertising expenditures around financial reporting fraud announcements, it is also expected that the positive effect of advertising on firm value will be significantly reduced around such events. arguably, by decreasing their advertising activity around financial reporting fraud, managers would reduce the firms advertising-derived visibility and in doing so limit investor attention and focus towards the negative event. this rationale motivates the following expectation: h2b: decreased advertising around financial reporting fraud announcements will mitigate the negative effect of financial reporting fraud on post-restatement firm value. data and key variables sample the dataset for this examination is constructed using firm-level accounting information from the annual standard and poor's compustat industrial files and the sec and us department of justice enforcement action database for financial misreporting compiled by karpoff et al.(2008a, 2008b) (hereafter referred to as klm). the klm data makes it feasible to identify enforcement actions initiated, by the sec and us department of justice against 626 firms between 1973 and 2011 for actions which violate one or more of the books and records, internal controls, or circumvention provisions outlined by the securities exchange act of 1934 as amended by the foreign corrupt practices act of 1977 (15 u.s.c.a. § 78 m(b)(2)(a)). when matched at the firm and year levels, compustat accounting data are available for 412 of the 626 klm misreporting firms. next, the sample is separated into two groups. the first group includes misreporting firms for which annual advertising data are available in compustat, while the 8 second group includes misreporting firms for which no annual advertising data is available in compustat. the sample size is further reduced by the exclusion of firms in the financial and regulated utilities industries (sic codes 6000-6999 and 4900-4999) and those for which the dependent or the control variables are missing. this selection process yields a final sample of 3,686 firm-year observations from 1977 to 2010 for 258 misreporting firms. there are 136 misreporting firms in the dataset sample with available advertising expenditures data and 122 without. table 1 presents the sample selection process leading to the final sample of misreporting firms. table 1 sample selection of misreporting firms variables restatement. financial restatement reflects a form of accounting-based misconduct—occurring when firms provide stakeholders with financial information that is neither credible nor accurate. restatements can arise from both managerial incompetence as well as from intentional acts of deception, both of which are damaging to a firm's reputation. restatements provide a unique setting for this investigation into the relationship between financial reporting fraud and firm-level advertising expenditures. in this study, the restatement variable equals one if a firm faced sec enforcement actions for financial restatement in a given year and zero otherwise. advertising expenditures. in the compustat database, advertising expenditures data are defined as the total annual cost of advertising media (television, radio, periodicals, etc.) and promotional expenses. this examination focusses on the firm's total annual advertising expenditures (defined as the natural logarithm of one plus advertising expenditures)—hereafter referenced as logadx. firm value. the proxy for firm value is tobin's q—a common method of estimating the fair value of the stock market. consistent with prior research, this measure is computed as the ratio of market this dataset is constructed using the sec and department of justice enforcement action database for corporate misrepresentation compiled by karpoff, lee, and martin (klm) between 1973 and 2010 and annual standard and poor’s compustat industrial files. the sample consists of 136 firms subject to enforcement actions for violating one or more of the books and records, internal controls, or circumvention provisions outlined by the securities exchange act of 1934. number of firms number of restatements all enforcement actions initiated by the sec and doj in klm database between 1973 and 2010 (i.e., fraudulent financial reporting, bribery, criminal obstruction/perjury, 1933 securities act fraud, etc.) 945 1102 less: – firms identified by the sec for having intentionally misrepresented their financial statements (namely, those identified by the sec as having intentionally violated of one or more of the three provisions of securities exchange act of 1934 252 294 – firms with multiple fraudulent restatements (10 firms had 2 restatements) 10 20 – firms with no identifiable restatement announcement date 57 162 – firms not matched to compustat database 67 67 – firms with no compustat data available during or after the restatement announcement year 147 147 – restatements lost with the exclusion of firms in the financial and regulated utilities industries (sic codes 6000-6999 and 4900-4999) and those for which advertising, tobin’s q and control variables are missing. 154 154 final sample firms with advertising expenditures data in compustat database 136 136 firms without advertising expenditures data in compustat database 122 122 258 258 9 value of the firm over the replacement value of its assets where the market value of assets is equals to the sum of book value of assets and market value of equity less the sum of book value of equity and deferred taxes (hirshleifer et al., 2012). control variables. multiple firm and industry-level factors are controlled for in this examination. among the firm-level controls, firm size (logassets) is measured as the natural logarithm of the firm’s book value of total assets. sales (logsales) is measured as the natural logarithm of annual sales. return on assets (roa) controls for firm profitability and is defined as operating income before depreciation scaled by the book value of its total assets. capital intensity (ppe/emp) is captured by the ratio of net property, plant, and equipment to the number of employees, and firms’ market value of equity (mve) is the product of a firm’s common shares outstanding multiplied by its annual closing price. additionally, market-to-book is measured as the ratio of (book value of assets – book value of equity + value of equity) to book value of total assets. consumer firms (consumer) are also specified among the control variables. the age of the firm (logage), defined as the natural logarithm of the number of years the firm has been listed in the compustat database, is also accounted for. lastly, industry competition is controlled for using the herfindahl-hirschman index (hhi). to minimize the effect of outliers, all the continuous and ratio variables are winsorized at the 1st and 99th percentile levels. moreover, year dummies are also included in the regression analysis to control for potential market-wide fluctuations and business cycle effects. empirical analysis and results summary statistics table 2 presents summary information for the sample of misreporting firms with available advertising data in the compustat database along with a sample of misreporting firms without available advertising expenditures. on average, the sample of 136 misreporting firms spend over $97 million annually on advertising. additionally, the average annual growth rate of advertising expenditures for these firms is 20.6%. unless otherwise noted, the empirical tests are conducted using all non-missing firm-year observations for the sample firms with available advertising expenditures data. this approach is consistent with prior studies focusing on advertising around financial events (see belo et al., 2014; madsen & niessner, 2019; lou, 2014). table 2 – summary statistics panel a: misreporting firms with available advertising expenditures data in compustat variable n mean std. dev. min median max restatement 2122 0.064 0.245 0.000 0.000 1.000 total assets [$m] 2122 3314.278 8871.554 0.409 257.346 59000.000 market value of equity [$m] 2122 4112.693 13000.000 0.783 221.882 85000.000 market-to-book 2122 2.009 2.463 0.204 1.241 20.578 return on assets 2122 0.038 0.339 -2.365 0.112 0.432 herfindahl-hirschman index 2122 0.375 0.212 0.109 0.317 1.000 property plant equipment/employees 2122 41.813 90.044 0.839 19.225 1801.882 sales [$m] 2122 3311.776 7976.582 0.014 310.486 44000.000 tobins q 2122 2.365 2.517 0.603 1.550 21.373 advertising expenditures [$m] 2122 97.032 294.062 0.000 3.899 1800.000 % growth in advertising 2122 0.206 0.763 -1.000 0.022 3.482 firm age* [years] 2122 22.084 15.809 3.000 17.000 57.000 10 baseline results: restatement, advertising investment, and firm value this examination is guided by the marketing, management, and accounting literature, the average effect of fraudulent restatement announcements on the advertising spending and firm value of the sample firms is examined. preliminary assessments are made using the following ordinary least squares (ols) regression model, 𝑙𝑜𝑔𝐴𝑑𝑥𝑖,𝑡( 𝑄𝑖,𝑡) = 𝛼 + β1𝑅𝑒𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡𝑖,𝑡 + 𝛾𝑍𝑖,𝑡 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦𝑖 + 𝑌𝑒𝑎𝑟𝑡 + 𝜖𝑖,𝑡, (1) where i and t reference the firm and time index, respectively. the dependent variables are logadx and q—the previously defined measures of annual advertising expenditures and firm value, respectively. in this model, restatement is the independent variable of interest. the coefficient associated with this variable (β1) captures the difference in logadx (q) between the restatement announcement year and all other years for the average misreporting firm in the sample. z is a vector of the control variables (logassetst-1, market-to-bookt-1, hhit-1, consumer, and logadxt-1 when logadxt is the dependent variable and logassetst-1, logsales_growtht-1, hhit-1, logppe/empt-1, and logadxt-1 when qt is the dependent variable). year and industry fixed effects are also included to account time and industry trend effects, and standard errors clustered at the firm level. the results for equation 1 are presented in table 3. as expected, restatement announcements events are shown to have a significantly negative effect on annual advertising expenditures and firm value. more specifically, as shown in panel a of table 3, restatement announcements have a negative and significant impact on logadx. this effect is consistent in the univariate (column 1; β = -.219, p < .05) and multivariate (column 1; β = -.098, p < .01) setting. the observed relationship between restatement announcement and advertising expenditures is also shown to become more significant when consumer firms (column 3) and advertising expenditures (column 4) are added to the control variables. the results presented in panel b of table 3 show that restatement announcements also have a negative and highly significant effect on firm value. specifically, in the univariate setting (column 1), restatement announcements instigates significant declines in q (β = -.451, p < .05). this relationship remains negative and increases in significance after controlling for the previously defined list of confounding factors—β = -.458, p < .01 in columns 2 and β = -.438, p < .01 in column 3. overall the results in panel a of table 3 suggest that fraudulent restatements have a negative impact on advertising expenditures—providing baseline support for the expectations of h2a (and against that of h1a). the results in panel b of table 3 corroborate the expectation that misreporting panel b: misreporting firms without available advertising expenditures data in compustat variable n mean std. dev. min median max restatement 1564 0.070 0.256 0.000 0.000 1.000 total assets [$m] 1564 1761.159 4679.757 0.848 120.976 39000.000 market value of equity [$m] 1564 1560.040 5820.896 0.671 110.404 73000.000 market-to-book 1564 1.755 2.227 0.199 1.047 14.715 return on assets 1564 -0.004 0.387 -2.365 0.092 0.400 herfindahl-hirschman index 1564 0.024 0.018 0.008 0.019 0.133 property plant equipment/employees 1564 57.728 121.435 1.416 20.912 742.747 sales [$m] 1564 2242.177 7068.434 0.030 141.555 48000.000 tobins q 1564 2.137 2.390 0.572 1.378 16.076 firm age [years] 1564 17.416 12.575 3.000 12.000 57.000 11 negatively impacts shareholder activity (karpoffet al., 2008a). additionally, baseline support is provided for h1b (and against h2b) regarding the potential for advertising to reduce the negative impact of restatement on firm value. specifically, in column 3 in panel b of table 3, the effect of restatement on q is shown to be negative and significant (β = -.438, p < .01) while the effect of logadx on q is shown to be positive and significant (β = .384, p < .01). table 3 baseline regressions this table shows ols regression results of the effects of restatement on advertising expenditures and tobin’s q. coefficient estimates for industry dummies (based on the fama-french 12 industry classification) and year dummies are not reported. t-statistics, shown in parentheses, are based on standard errors clustered at the firm level. ***, **, and * denote significance at 1%, 5%, and 10% respectively. panel a: restatement and advertising expenditures (1) (2) (3) (4) logadvertisingt logadvertisingt logadvertisingt logadvertisingt restatement -0.219** -0.164** -0.211*** -0.098*** (0.109) (0.065) (0.068) (0.033) logassetst-1 0.750*** 0.766*** 0.037*** (0.041) (0.040) (0.009) market-to-book 0.096*** 0.082*** 0.018*** (0.018) (0.022) (0.005) herfindahl-hirschman indext1 0.207 0.081 -0.027 (0.553) (0.320) (0.049) consumer 0.253 0.014 (0.237) (0.021) logadvertisingt-1 0.962*** (0.010) year_dum yes yes yes yes industry_dum yes yes no no _cons 3.202*** -1.386*** -1.855*** -0.087 (0.885) (0.419) (0.236) (0.058) n 2122 1984 1984 1822 adj. r2 0.145 0.791 0.770 0.977 panel b: restatement and firm value (1) (2) (3) qt qt qt restatement -0.451** -0.458*** -0.438*** (0.204) (0.161) (0.166) logassetst-1 -0.180*** -0.474*** (0.058) (0.103) logsales_growtht-1 0.313*** 0.345*** (0.107) (0.118) herfindahl-hirschman indext-1 -0.056 -0.086 (0.681) (0.702) logproperty plant equipment / employeest-1 -0.011 -0.012 (0.009) (0.009) logadvertisingt-1 0.384*** (0.096) year_dum yes yes yes industry_dum yes yes yes _cons 1.820*** 2.499*** 3.507*** (0.574) (0.752) (0.835) n 2122 1897 1751 adj. r2 0.121 0.175 0.210 12 analysis of hypothesis 1a and 2a while the results generated by equation 1 offer some baseline support for the propositions under investigation, the focus is limited to a general explanation of the effect of restatement announcements on advertising expenditures and firm value. as it is the aim of this investigation to evaluate advertising spending around fraudulent restatement announcements and the implications thereof for firm value, the established approaches of lou (2014), belo et al. (2014), and madsen and niessner (2019) are referenced, and the following pooled regression model is used to examine the conjectures of h1a and h2a: log (𝐴𝑑𝑥)𝑖,𝑡 = 𝛼 + 𝛽1𝑝𝑟𝑒𝐸𝑣𝑒𝑛𝑡𝑖,𝑡 + 𝛽2𝐸𝑣𝑒𝑛𝑡𝑖,𝑡 + 𝛽3𝑝𝑜𝑠𝑡𝐸𝑣𝑒𝑛𝑡𝑖,𝑡 + γ𝑍𝑖,𝑡−1 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦𝑖 + 𝑌𝑒𝑎𝑟𝑡 + 𝜖𝑖,𝑡, (2) where i refers to the firm and t indexes time. the dependent variable in this model is the previously defined advertising expenditures variable logadx. event, is a dummy variable which equals one if the firm has a restatement in that year and zero otherwise. for all years where event equals zero, preevent equals one if year t+1 is an event (restatement) year, and likewise postevent equals one if year t-1 is an event year and zero otherwise. the coefficients of these dummy variables indicate whether the average advertising expenditures in the year before, during, or subsequent to the restatement announcements are different from those in an average non-restatement year (i.e., when all three dummy variables are zero). in this model, z is a vector of the previously defined control variables. year and industry fixed effects are also included to account time and industry trend effects and standard errors clustered at the firm level. h1a (h2a) predicts positive (negative) and significant coefficients around restatement announcements. as such, it is expected that advertising expenditures for misreporting around restatement announcements will be higher (lower) than in all other years. the multivariate results corresponding to this prediction are shown in table 4. in columns 1 to 3, the results indicate that on average annual advertising expenditures are significantly lower in the year before, contemporaneous, and subsequent to a restatement announcement than average advertising expenditures in a non-event year. when the lag of advertising expenditures and the consumer variables are included among the list of controls (column 4), the negative effect of misreporting on annual advertising expenditures in the year prior to and following the restatement announcement loses significance. however, the average advertising spending in the year of the restatement announcement remains negative (β = -.102, p < .01). this result suggests that the average advertising expenditures in the year of fraudulent restatement announcements are 10.2% lower than in a non-restatement announcement year. taking the mean annual advertising expenditures for the firms in the sample ($97 million), this coefficient represents an average reduction of $9.9 million in annual advertising spending during the restatement year. h2a is, therefore, empirically and economically supported. in sum, the observed pattern of the event dummy coefficients reported in table 4 indicates that managers reduce advertising investments during the year of the restatement announcement. these findings are consistent with the rationale that managers make significant reductions in advertising expenditures prior to the announcement of negative information to reduce the advertising-based visibility of their firm and to avoid the intensification of negative associations among investors. 13 table 4 advertising spending around financial reporting fraud analysis of hypothesis 1b and 2b h1b (h2b) posit that the firm's advertising around fraudulent restatement announcements will mitigate the negative effect of misreporting on post-restatement firm value. consistent with the approach used to examine h1a and h2a, the following pooled ols regression model is used to assess these predictions: 𝑄𝑖,𝑡 = 𝛼 + 𝛽1𝑝𝑟𝑒𝐸𝑣𝑒𝑛𝑡𝑖,𝑡 + 𝛽2𝐸𝑣𝑒𝑛𝑡𝑖,𝑡 + 𝛽3𝑝𝑜𝑠𝑡𝐸𝑣𝑒𝑛𝑡𝑖,𝑡 + 𝛽4𝑝𝑟𝑒𝐸𝑣𝑒𝑛𝑡𝑖,𝑡 ∗ log 𝐴𝑑𝑥𝑖,𝑡 + 𝛽4𝐸𝑣𝑒𝑛𝑡𝑖,𝑡 ∗ log 𝐴𝑑𝑥𝑖,𝑡 + 𝛽4𝑝𝑜𝑠𝑡𝐸𝑣𝑒𝑛𝑡𝑖,𝑡 ∗ log 𝐴𝑑𝑥𝑖,𝑡 + γ𝑍𝑖,𝑡−1 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦𝑖 + 𝑌𝑒𝑎𝑟𝑡 + 𝜖𝑖,𝑡, (3) where the dependent variable q is firm value for firm i. the measure as well as the preevent, event, and postevent variables are as defined in the previous section. in this model, three key interaction terms are used among the list of independent variables—namely, preevent*logadx, event*logadx, and postevent*logadx including these interactions allows for the examination into how firm value is affected by advertising expenditures in the years before, contemporaneous, and after the restatement announcement. as in the prior models, z is the vector of control variables associated with q. year and industry fixed effects are also accounted for, and standard errors are clustered at the firm level. if the prediction of h1b (h2b) is supported, a positive significant (insignificant) relationship should be observed between the postevent*logadx interaction and q. table 5 presents the regression results for equation 3. before and after the inclusion of the control variables, the results in table 5 this table shows pooled ols regression analysis of total advertising spending around financial reporting fraud. coefficient estimates for industry dummies (based on the fama-french 12 industry classification) and year dummies are not reported. t-statistics, shown in parentheses, are based on standard errors clustered at the firm level. ***, **, and * denote significance at 1%, 5%, and 10% respectively. (1) (2) (3) (4) logadvertisingt logadvertisingt logadvertisingt logadvertisingt preeventt -0.326** -0.256*** -0.276*** -0.002 (0.138) (0.076) (0.085) (0.033) eventt -0.279** -0.201*** -0.253*** -0.102*** (0.130) (0.075) (0.079) (0.033) posteventt -0.305** -0.127* -0.171** -0.046 (0.126) (0.071) (0.075) (0.031) logassetst-1 0.750*** 0.766*** 0.037*** (0.041) (0.040) (0.009) market-to-book 0.097*** 0.083*** 0.018*** (0.018) (0.022) (0.005) herfindahl-hirschman indext-1 0.195 0.082 -0.028 (0.555) (0.321) (0.049) consumer 0.249 0.013 (0.236) (0.021) logadvertisingt-1 0.961*** (0.010) year_dum yes yes yes yes industry_dum yes yes no no _cons 3.258*** -1.338*** -1.806*** -0.083 (0.892) (0.424) (0.240) (0.058) n 2122 1984 1984 1822 adj. r2 0.147 0.792 0.771 0.977 14 show that on average q is significantly lower during the misreporting event year and the year after compared to a non-event year. consistent with the baseline regression results of panel a in table 3, the logadxt-1 variable is shown to have positive effect on q (β = .379, p < .01). adding the interaction terms of the event variables with logadx to the regression specifications generates strong support for h2b. specifically, the results presented in column 4 indicate that the average effect of advertising spending on firm value in the year of and year subsequent to the restatement announcement is positive but insignificant. as such, the expectation that advertising will not reduce the negative effect of financial reporting fraud on firm value is supported. in sum, it is observed that advertising spending produces no significant counter effect to the restatement announcements impact on losses to firm value. given that, on average, advertising's effect on firm value is positive and significant, the insignificant impact of advertising around restatement announcements is likely attributed to the reduction in advertising expenditures in the year of the restatement announcement. additionally, from the perspective of the manager and in the context of misreporting announcements, the effectiveness of advertising expenditures is evaluated by the reduction in investor visibility. as such, the positive yet insignificant impact of advertising around restatement announcements may suggest that reducing advertising effectively reduces firm visibility among investors—thereby mitigating (though not repairing) the potential damages incurred to firm value as a result of financial reporting fraud. considering the findings of chen et al. (2009), indicating that increased investor awareness of brand scandal events significantly diminishes firm value, actively reducing advertising around such events can be an effective strategy in the context of financial reporting fraud announcements. table 5 advertising effect on firm value around restatement this table shows pooled ols regression results for the effect of advertising expenditures on firm value. all models include industry dummies (based on the fama-french 12 industry classification) and year dummies, whose coefficient estimates are not reported. t-statistics, shown in parentheses, are based on standard errors clustered at the firm level. ***, **, and * denote significance at 1%, 5%, and 10% respectively. (1) (2) (3) (4) qt qt qt qt preeventt -0.190 -0.285* -0.210 -0.146 (0.200) (0.149) (0.143) (0.227) eventt -0.527** -0.530*** -0.439** -0.625** (0.219) (0.177) (0.169) (0.259) posteventt -0.627*** -0.506*** -0.462*** -0.600** (0.160) (0.166) (0.162) (0.260) preevent*logadvertisingt -0.032 (0.078) event*logadvertisingt 0.095 (0.092) postevent*logadvertisingt 0.068 (0.078) logadvertisingt 0.379*** 0.370*** (0.086) (0.088) logassetst-1 -0.181*** -0.462*** -0.459*** (0.058) (0.092) (0.092) logsales_growtht-1 0.309*** 0.299*** 0.293*** (0.109) (0.110) (0.109) herfindahl-hirschman indext-1 -0.056 -0.197 -0.176 (0.677) (0.669) (0.670) logpropertyplantequipment / employeest-1 -0.011 -0.010 -0.010 (0.009) (0.008) (0.008) year_dum yes yes yes yes industry_dum yes yes yes yes _cons 1.868*** 2.533*** 3.398*** 3.412*** (0.571) (0.752) (0.770) (0.776) n 2122 1897 1897 1897 adj. r2 0.124 0.179 0.207 0.207 15 conclusions this study examines whether firms adjust advertising expenditures around accounting-based brand scandal events such as financial reporting fraud. guided by the crisis management perspectives of image repair theory (benoit, 1995) and the closely aligned, situational crisis communication theory (scct) (coombs, 1998; coombs, 2013), this analysis focuses on two opposing propositions presented in the brand scandal and marketing-finance literature regarding organizational response to adverse events (i.e. brand scandals). while recent findings from the marketing-finance literature show that managers tend to reduce advertising when anticipating the release of negative information, this response is contrary to the established support and recommendation from the extant brand scandal literature. this inconsistency suggests that firms treat product-based brand scandal events differently from accounting-based brand scandal events—suggesting that managers anticipate investors' response to advertising around brand scandal to be different from that of a consumer. based on what is known, this study is the first to investigate the relationship between firm-level advertising expenditures, accounting-based brand scandal and the subsequent implications for firm value. in doing so, this study makes several noteworthy contributions to the advertising, brand scandal, and reputation management literature. firstly, it explicitly attends to the paucity of marketing investigations into the implications of non-product market brand scandal events for advertising spending strategy and the implications thereof. in doing so, it introduces corporate accounting scandals to the studied areas of brand crises and provides empirical support for the value relevance of firm-level advertising expenditures. secondly, this study contributes to the need for linking marketing actions to financial outcomes, which is a primary challenge facing today's marketing practitioner and is the primary focus of the extant literature on the marketing-finance interface. furthermore, this study contributes to this growing stream of literature by quantifying the returns of firm-level advertising investments in financial terms—and in a non-consumer setting. lastly, this examination also provides empirical support for the effectiveness of a marketing response (specifically advertising) and adds it to the list of post-restatement reputation building strategies currently addressed in the financial misconduct literature limitations and future research the findings from this study offer new insight into the marketing-related managerial action taken by firms experiencing accounting-based brand scandals and the implications for firm value. nevertheless, the overall scope of the investigation was subject to multiple data-related limitations— which, if remedied, could provide new and promising directions for future research. one limitation is the lack of information about the content of the advertising around restatement announcements. this detail is not captured by the compustat database and, as a result, it is not feasible to examine the implications of message related changes (i.e., images, copy, themes, etc.) in the advertising efforts put forth by our sample firms during the studied period. in addition, compustat does not include the distribution of firm-level advertising expenditures. this limitation restricts the analysis from testing the hypotheses on the basis of the various media types across which advertising budgets are typically distributed (i.e., television, radio, online, outdoor, print, etc.). such an analysis could offer additional insight into the differentiated approaches used by firms to communicate with consumers, investors, and other stakeholders during the periods around restatement announcements. furthermore, the need for additional investigation into the observed relationship between financial misreporting, advertising spending, and firm value remains active. in particular, future research efforts may seek to better explain the observed impact of advertising spending for firm value and overall performance around restatement announcements by specifically testing for differential effects. for example, the results of this study indicate that, on average, the studied sample of 16 misreporting firms experience a non-significant increase in firm value in the year of the restatement announcement. to determine whether the non-significant increases in firm value can be attributed to the strategic reduction in advertising expenditures, an analysis into whether there is a differential effect associated with misreporting firms which advertise compared to misreporting firms which do not advertise would be a vital direction for future research. additional insights into the potential sources of the observed difference in the advertising spending habits of firms facing accounting-based brand crises may also be garnered through the construction of a comparative matched sample of nonmisreporting firms. also, given the observation by 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