Faculty Publication Summaries

2012-2013

 

Michael S. Gendron, Ph.D.

Professor, Management Information Systems

2013 School of Business Faculty Research Gold Award

Gendron, M.S. (2013). Business Intelligence Applied: Implementing an Effective Information and Communications Technology Infrastructure. Hoboken, New Jersey: John Wiley & Sons, Inc.

(Excerpted from the forward)  It’s 4 p.m. on a Friday, and Sally, a manager in your company, comes to her boss and says, ‘‘Joe, budgets are due next Friday morning, and I am not sure how much to ask for in our technology lines. Can you help me?’’ Joe is the manager of information technology for the organization and thinks, ‘‘Umm, I guess I will have her ask for enough money to implement that new idea I have for [insert your favorite project here].’’ During the week Joe tells Sally to ask for double last year’s budget because he wants to (insert your favorite project here). Next Friday morning, Sally is presenting to the board of directors, and she asks for double last year’s budget. The board wants a better rationale for the sum being requested. Sally turns to Joe and asks, ‘‘Can you assist with a rationale?’’ This situation is not too unreal. We ask for resources to support our favorite projects, but the question should not be ‘‘How much is our budget?’’ but rather ‘‘what are the organization’s objectives for implementing information and communication technology, and how much is the organization willing to devote to that implementation?’’ Gone are the days when we can build technology in the belief that it will get used; rather, we must understand why we are building infrastructure and what business imperatives it supports. Building infrastructure that supports the organization’s value propositions takes skills. This book is about creating those skills so the organization can maximize the use of its resources. Among the skills needed are (1) understanding the business value of information and communication technology (ICT) and how to align it with the organization’s strategy, (2) seeing an organization as a set of interconnected processes that work together to create value for customers, and (3) documenting infrastructure (both new and changes to the existing one) in a way that all stakeholders can understand and appreciate it. This book sets out to build those skills.

This book presents business theories and their application. It is divided into three parts. Part One, ‘‘Introducing ICT Strategy,’’ provides a foundation for understanding how ICT infrastructure supports business strategy. Part Two, ‘‘Understanding How ICT Produces Value,’’ gives background and instruction so the organization knows how to achieve maximum value from its ICT investments. Part Three, ‘‘Best Practices,’’ offers the organization tools to document process change and ICT infrastructure, within the context of best practices for designing ICT infrastructure. The text within the chapters is supported by extensive notes and exhibits (figures and tables) that emphasize key points. This book was created to draw together the current knowledge about using information and computer technology to create competitive advantage. The reader will come away from this book with a set of tools based on sound business theories. That tool kit will aid you in finding the elusive business value of ICT. You will have the tools to convey that value to the stakeholders, and unlike Joe and Sally, you will understand how to convince others of the business value of their ideas.

 

Jason L. Snyder, Ph.D.

Assistant Professor, Management Information Systems

2013 School of Business Faculty Research Silver Award

Snyder, J. L. (2012). Extending the empathic communication model of burnout: Incorporating individual differences to learn more about workplace emotion, communicative responsiveness, and burnout. Communication Quarterly, 60(1), 122-142.

Human-service workers are tasked with helping clients change physically or psychologically for the better, a task requiring caregivers to be adept at a number of highly specialized communication skills. They need to:

  • understand clients through listening, interpreting, and reflecting client thoughts and feelings;
  • provide support and crisis intervention; and
  • assist clients in problem solving, decision making, and behavior change.

Emotions are at the center of caregiver-client interactions. As a result, caregivers take part in emotional labor and emotional work. This means that caregivers are required to control emotions and express only those emotions deemed appropriate for the situation. They must also experience genuine emotions that arise from long-term relationships with distressed clients. Over time these interactions can result in job burnout, affect the emotional well-being of the caregiver, and decrease the quality of care delivered to the client.

This study looked at ways to prevent the job burnout that occurs when human-service workers become affected by their clients’ negative emotions and distress. In particular, the study drew upon emotional intelligence literature to examine ways that individual differences could be used to help prevent caregiver burnout.

One hundred fifty-nine human-service workers took part in a survey. They worked in a local nonprofit organization that provides traditional, outreach, and clinical programs designed to help individuals and families enhance their quality of life.

The results led to a number of practical implications. First, the ability to monitor the expression in emotions was an important predictor of caregiver burnout. Organizations can use this information to either develop survey instruments to enhance person-job matching or training that helps caregivers focus on the expression of emotion during caregiver-client interactions. Second, those caregivers who were able to maintain their sense of optimism were better able to fight off burnout and ultimately provide better care. Caregiver optimism can be enhanced through clear goal-setting processes, the implementation of problem-focused coping strategies, and the use of peer mentoring and best practices roundtables.


Stephen A. Cavaleri

Professor, Management & Organization

Cavaleri, S., Firestone, J. & Reed, F. (2012). Managing project problem solving patterns: Leveraging knowledge to improve performance. International Journal of Managing Projects in Business, 5(1), 125-145.

The purpose of this paper was to present a process for managing project problem-solving patterns. It focuses on shifting the emphasis of project teams toward a more collaborative and knowledge-based style of dealing with the challenges to project performance. The proposed path to improvement is one of becoming more agile -- by tapping lessons learned in projects -- and knowledge gained from project experiences to create higher quality solutions. The paper proposed a new framework for recognizing problem-solving patterns and used several actual case examples to illustrate applications.

Today, contemporary corporations are plagued by ineffective problem-solving initiatives. Adopting flawed solutions exacts a toll on organizations, their members, and the constituents they serve. This paper draws on the state of the art approaches to problem solving developed at Toyota and used in various agile software development firms. The essence of the approach is to continue to raise the quality level of knowledge gain from project experiences from project to project, and laterally across the firm. Particular focus is placed on Toyota’s yoko ten system which unites problem solving with quality improvement efforts and knowledge management into a cohesive whole. This system differs markedly from that used in most American companies because knowledge is developed in local sites in the organization, but is also validated across the firm as new approaches are developed and tried.

Cavaleri, S. & Lee, L.W. (2012). Learning to leverage strategic management processes. International Journal of Strategic Management, 12(1), 50-65

Virtually every major university in the world offers an integrative capstone course that helps business students see the long run implications of major decisions across a company. Unfortunately, such courses tend to be taught in ways that are fragment and address organizational issues in isolation or artificially attempt to link them together. The field of system dynamics, developed in the 1960s, at MIT, by its very nature seeks to explain how the interactions among parts of a system influence its long term performance. Typically, consultants and industry professionals seek to link corporate profitability to individual specific factors, such as market share or production efficiency or product quality. The dynamic complexity of modern companies makes it difficult for researchers isolate which company attributes are most closely linked to profits.

In this research, the decisions made by nearly one hundred CCSU senior business students were analyzed using system dynamics methods to determine which were most closely link to cumulative profits. Over 35 decisions were tracked within the Capstone business simulation over a period of eight simulated years of play. More specifically, a number of performance factors were also tracked. These included: 1. Forecasting accuracy, 2. Capacity utilization, 3. Rate of stock outs, 4. Carrying costs, 5. Market share, 6. Capacity adjustment, and 7. Capacity forecasting. Several types of statistical analysis were also conducted and revealed three main factors linked to firm profitability in the simulation. The factors were (in order of rank): 1. Market share, 2. Reduction of stock outs, and 3. Sales forecasting accuracy.

Mark Cistulli

Associate Professor, Management Information Systems

Cistulli, M.D., Snyder, J.L., & Jacobs, R. (2012). Affective organizational commitment as a predictor of military discussion and recommendation. International Journal of Business, Humanities and Technology, 2(3), 27 – 33.

This paper examined the relationship between affective organizational commitment, attitudes toward military advertising, attitudes toward the military, and intentions with regard to enlistment in the military. We showed that consumers’ evaluative responses to advertisements and brands could engender commitment to those brands in much the same way that employees develop commitment to their organizations. We concluded that affective (emotional) organizational commitment may play a role in the attitudinal chain that flows from advertisement viewing to brand evaluation to purchase (behavioral) intention. We built upon existing literature that showed varying degrees of emotional commitment as related to one’s organization and showed that some of these same measures can also illustrate the relationship between the American public and the United States Armed Forces. We are currently collecting data for the next phase of this study, which looks more deeply at generational differences in evaluations of advertising, brand evaluation and intention to recommend others to join the military.

Monique Durant

Associate Professor, Accounting
Durant, M.O. (2013). First circuit breathes new life into façade easement deductions. The Tax Adviser, 44(3), 154–157.

Recently, the First Circuit Court of Appeals held in Kaufman that a charitable donation of an historic façade conservation easement on real estate subject to a mortgage did not violate requirements under IRS Treasury Regulations 1.170A-14(g), which states the easement must be enforceable in perpetuity. This article discusses the First Circuit’s decision, explains its importance and how it will affect the appeals of other recent tax court cases involving the same issue.

Conservation easements and façade easements have been the subject of many Tax Court cases in recent years. The First Circuit Court of Appeals held in Kaufman that the Tax Court had imposed an unreasonably restrictive interpretation of regulations under Sec. 170(h) that “would appear to doom practically all donations of easements, which is surely contrary to the purpose of Congress.”

Previously, the Tax Court had held in Kaufman that a mortgage subordination agreement giving the lender priority on insurance and condemnation proceeds violated the Treasury Regulations 1.170A-14(g) “enforceable in perpetuity” requirement, particularly its “extinguishment” provisions. The First Circuit rejected the Tax Court’s interpretation of the regulation. The case was remanded to the Tax Court on issues of the valuation of easement and recalculation of penalties.

The Kaufman case determined the disposition of a noncash contribution deduction of $220,800, but has greater import to subsequent taxpayers, including two cases that were recently defeated in the Tax Court following the same reasoning. The first case, Wall, has to do with a disallowed historic façade easement in Illinois, and on appeal went to the Seventh Circuit. Two banks held mortgages on that property when the easement agreement was created. The second case, 1982 East LLC, has to do with a $6.57 million deduction for a contribution of a façade easement on a townhouse in an historic urban district in New York City. That case went to the Second Circuit on appeal.

Joseph Farhat

Associate Professor, Finance

Coleman, S., Cotei, C., Farhat, J. (2013). A resource-based view of new firm survival: New perspectives on the role of industry and exit route. Journal of Developmental Entrepreneurship, 18(1).

This article explores factors affecting the survival and exit routes of new firms created in 2004 using data from the Kauffman Firm Survey. We draw upon the Resource-Based View to test several hypotheses regarding the impact of both tangible and intangible resources on new firm survival in both service and non-service firms. We also distinguish between two types of exits: closures (permanently stopped operations) and mergers or acquisitions. Our results reveal that, although service and non-service firms may differ in terms of industry structure, the fundamental resources that contribute to their survival are the same: education, work and life experience, and adequate levels of startup financial capital. In spite of these similarities, our results did reveal industry differences in terms of exit. We found that serial entrepreneurs in the service sector were more likely to exit through merger or acquisition. Conversely, intellectual property decreased the likelihood of exit through merger or acquisition for non-service firms. Thus, our findings revealed a link between human capital, industry, and exit route for this sample of new firms.

Coleman, S., Cotei, C., Farhat, J. (2013). The debt-equity financing decisions Of U.S. startup firms. Proceedings of the Eastern Finance Association Annual Meeting, St. Pete Beach, Florida, 10 – 13 April.

We examine the debt-equity choice of startup firms using the Kauffman Firm Survey, the largest longitudinal database of U.S. startups, launched in 2004. To control for sample selection bias and the correlation among financing decisions, we apply a bivariate probit-tobit model. Our results are consistent with the predictions of theoretical models such as informational opacity, pecking order, credit rationing and individual risk-taking behavior. We find that several firm and owner characteristics are able to alleviate informational asymmetries and serve as signals of the firm's ability to service its debt and of its future prospects. In addition, for firms that use debt at startup, we document traits that explain the use of a particular source of business debt versus personal debt.

Henry Greene

Associate Professor, Management & Organization

Suh, M., Greene, H., Rho, T., & Qi, Q. (Submitted). The role of relationships in service failure: a cross-cultural study – U.S., China and Korea. Journal of Marketing Services Quarterly.

A cross-cultural study was conducted to examine how consumers respond to service failure in a retail exchange environment. Specific attention was paid to service failure resulting from two relationship conditions, exchange versus communal. Some relationships are primarily utilitarian/functional where a customer enters into an exchange expecting only a transaction that will produce functional value. Other relationships include social and emotional value (communal) and the consumer receives more than utilitarian benefit from the exchange. It is expected that consumers who have developed different types of relationships with service providers will have different reactions when they encounter service failure. This paper examines this issue.

This study also investigates whether there is a difference among varying cultures, specifically, China, Korea and the United States, where the cultural values of each country produce different expectations between consumers and businesses with regard to relationships and service failure.

One specific attitude that is different among the three cultures is Long Term Orientation (LTO). The authors propose that consumer response to service failure is moderated by LTO. China represents a culture that is very focused on long-term relationships, whereas consumers in the United States are not nearly as cautious or far-sighted. Korea serves as an interesting middle point because they inherent the Long Term perspective from the Chinese and yet they have been heavily involved with U.S. businesses for over 60 years and therefore are expected to react somewhere between China and the United States on most measurement scales.   An experiment was created with written scenarios describing a service experience and a subsequent service failure. Ninety people representing the three different nationalities were tested.   In this study, we were able to demonstrate that both relationship type and nationality vary in reaction towards service failure. This is an important result for service providers, especially those who function in the global marketplace. The effectiveness of a service recovery plan may be very dependent on both the type of relationship a consumer has with a service provider as well as his cultural values resulting from personal enculturation.  

Greene, H. & Crespi, C. (2012). The value of student created videos in the college classroom: An exploratory study in marketing and accounting. International Journal of Arts and Sciences, 5(1), 273-283.

This paper examines the potential value of student created videos as a learning exercise. Several studies have been conducted on the value of videos in the classroom. For the most part, researchers have discussed the value of videos prepared by a third party. There are some research papers, however, that deal with students taking on semester-long projects and creating videos that reflect their semester achievement. The vast majority of research has been primarily qualitative in nature.

The student created videos (SCV) that we discuss in this paper are different. First, the video exercises give students an opportunity to demonstrate specific concepts discussed in the classroom. Typically, students are given one specific topic and two weeks, and they are asked to create a two to five minute video explaining the topic. Students are encouraged to use various techniques to make their videos engaging and entertaining. The educational theory maintains that when students explain concepts to an audience, they will, by necessity, have to understand the concepts better than if they were passively sitting through a lecture listening to someone else explain the concept. In this paper we tested the use of videos through two different strategies. In the first case, students were assigned video projects and in the second case, they were given the option of creating videos for bonus credit. The value of the video projects was tested in both marketing and accounting classes.

This paper was the first of what is hoped to be a two part series. In this paper the video projects were evaluated from a qualitative perspective. Overall, student reactions to the projects, whether required or volunteered, were very positive. Students reported that they appreciated the projects, and they found them to be relevant and entertaining. They also said it helped reinforce concepts that they had been exposed to in class.   Quantitative data was also gathered, represented by quiz results. Those students who worked on the video projects performed better than those students who did not work on the projects; however, the samples were rather small and the results were not statistically significant.

Khoon Koh

Professor, Marketing

Koh, K. & Greene, H. (2013). Green event marketing: The sustainable community event portfolio. Journal of Interdisciplinary Business Studies, 2(1), 1-15.

The community event portfolio is suggested as a strategy for communities seeking tourism development but lacking significant natural, historic, or man-made attractions. It refers to a coordinated schedule of special events (both existing and to be created) that would be marketed to attract visitors year round. When successfully implemented, the plethora of events would generate a significant and steady inflow of visitors, thereby creating economic vibrancy and enhancing local quality of life. To sustain a community event portfolio, a sustainable tripartite approach is suggested: integrating green economics, green engagement, and green community.  Specific actions are offered for greening each domain, and a case study is also reported to illustrate its application.

Koh, K., Chen, P. & Yeoh, E. (2013). Museum marketing management: A sampling of non- and recent-visitors across place and group. Academy of Business Disciplines Journal, 5(1).

When museums are teeming with visitors (especially non-residents), they are community assets. When museums are silent places, they are community white elephants. To contribute to the marketing management of museum visitors, two types of leisure consumers (non-visitors and recent visitors) were sampled across three countries, each representing a different level of economic development (USA, Taiwan, and Malaysia); and two group types were compared (public samples versus university student samples).  The results indicated that (a) there is no significant difference between non-visitors and recent visitors in their demographic profile across place; (b) shared reasons for not visiting museums across place were: other leisure interests, lack of time, and types of exhibits; (c) shared museum attributes that significantly determined revisit consideration across place were: quality of exhibits, ambiance of museums, interactive exhibits, special events, and layout of exhibits; and (d) public samples and university student samples differ significantly in both non-visit and recent-visit responses across place.

Chester S. Labedz

Assistant Professor, Management & Organization

Labedz, C. (2013). Accounting for lean implementation in government enterprise: Intended and unintended consequences. International Journal of System Dynamics Application, 2(1), 14-36.

This research explores the effects of implementing a lean production system in a government facility. The organization’s formal accounting practices delay recognition of production savings, but informally the facility promotes its lean efforts through attention-getting, off-the-books, “innovative” accounting. The research stated three propositions relating to customer effects from the lean improvements and financial approaches, and four hypotheses relating to the measures’ unintended effects within the defense logistics enterprise as workload varied. We tested the hypotheses employing a system dynamics simulation similar to those in which MGT 348, Management Systems, provides undergraduate instruction. The research and simulation identified minor effects upon customer behavior and labor rates oscillation, thereby filling gaps in the literature relating to government productivity improvements and expanding knowledge on lean-induced labor savings, work demand, and workplace effects of lean change in a government environment. We identified the greater effects of supplemental funding provided to such facilities, and began the discussion of alternatives to current enterprise-wide government finance practices that may promote greater transformational behavior. The topics that this article covers include accounting for lean transformation, customer satisfaction with lean transformation, alternatives to working capital funds, change management, systems thinking, intentional system delays, system dynamics modeling, labor rate oscillation, and rate and price stabilization.

Jean M. Lefebvre

Professor, Marketing

Raajpoot, N., Sharma, A. & Lefebvre, J. (2012). Use of counterfactual thinking for understanding the impact of personal value orientation on blame assignment and customer complaint behavior. Atlantic Marketing Journal, 1(2).

Counterfactual thought processes are increasingly being studied in the context of consumer experiences. For example, recent research has used counterfactual thought processes to understand the comparison standards and related feature mutability to identify the factors thought to be responsible for negative experiences. We extend this line of research by examining the impact of personal value system on blame assignment and subsequent post-experience consumer behavior. Framed in the context of a service experience, our study demonstrates that personal values affect counterfactual thinking. Specific marketing implications are discussed.

Kwangsoo Kevin Lim

Associate Professor, Accounting

Lim, K. (2013). The shift of a dividend and share repurchase policy around the 2008 financial crisis. Presented at The Spring 2013 Conference of the Academy of Business, New Orleans, LA, 13-15 March.

The empirical relationship between corporations’ cash payout policies and their capital structures is likely to undergo a major change around the 2008 financial crisis as corporations adjust their capital structures and payout policies. In response to the extreme credit crunch during the financial crisis, corporations deleverage themselves and significantly reduce their cash payouts. This paper investigates a shift in a corporate’s payout policy and the relationship between capital structures and payout policies around the 2008 financial crisis. The sample firms are drawn from the U.S., Great Britain, Australia, France, Germany, Japan, China, and Korea.

I found that the relation between cash payouts and corporate earnings has decreased since the 2008 financial crisis. Cash payouts are measured by both dividends and share repurchases. I also found that the relation between cash payouts and corporate financial leverage has increased since 2008. I interpret this finding because the magnitude of deleveraging seemed to be greater than that of cash payout reductions. These findings hold for all sample countries except Great Britain and France.

There are three groups of firms, divided by their payout policies. The first group is non-payers who neither pay dividend nor buy back shares. The second is made up of dividend payers either with share repurchases or without them. The third group is either regular or occasional share repurchasers. The differential performances of three groups of firms around the 2008 crisis indicate the flexibility of dividend, share repurchase, and no-payout policy. The flexibility in payout is defined as a degree of freedom for managers to alter their payout policy. Dividend is most restricted. Share repurchase is less restricted. No payout has zero restriction. I found paying firms outperform non-paying firms before and after the 2008 financial crisis for both a market-based performance measure and an accounting-based performance measure.

Nusser Raajpoot

Professor, Marketing

Raajpoot, N., Lefebvre, J., & Jackson, A. (In Press). Nonverbal customertocustomer interaction in retail setting: An investigation of indirect effects of perceived customer similarity on important marketing outcomes. Atlantic Marketing Journal.

The purpose of this paper is to empirically examine the causal effects of similarity among customers in retail mall settings on four outcome variables: intent to stay, satisfaction, word-of-mouth generation and repurchase intention. Using structural equation modeling, we tested both direct and mediated effects. Results indicated significant direct influence in the direct model and significant indirect influence in the mediated model. The study suggests that similarity with other customers has a significant influence on outcome variables. Therefore, mall managers should measure and monitor consumers’ perceptions of similarity and enhance these similarities whenever appropriate and feasible. To our knowledge, this is the first paper to test a causal model in order to understand the effects of the mere presence of other customers’ retail setting. Care should be taken, however, when generalizing from student data.

Robert Schumaker

Associate Professor, Management Information Systems

Schumaker, R. (2013). Machine learning the harness track: Crowdsourcing and varying race history. Decision Support Systems, 54(3), 1370-1379

Racing prediction schemes have been around a long time. From following crowd wisdom and betting on favorites to mathematical methods like the Dr. Z System, we introduce a different class of prediction system, the S&C Racing System that derives from machine learning. We demonstrate the S&C Racing system using Support Vector Regression (SVR) to predict finishes, and analyzed it using fifteen months of harness racing data from Northfield Park, Ohio. We found that within the domain of harness racing, our system outperforms crowds and Dr. Z bettors in returns per dollar wagered on seven of the most frequently used wagers: Win $1.08 return, Place $2.30, Show $2.55, Exacta $19.24, Quiniela $18.93, Trifecta $3.56 and Trifecta Box $21.05. Furthermore, we also analyzed a range of race histories and found that a four-race history maximized system accuracy and payout. The implications of this work suggest an informational inequality exists within the harness racing market that was exploited by S&C Racing. The implications of machine learning in this domain shows promise.

Schumaker, R., Zhang, Y., Huang, C. & Chen, H. (2012). Evaluating sentiment in financial news articles. Decision Support Systems, 53(3), 458-464.

Can the choice of words and tone used by the authors of financial news articles correlate to measurable stock price movements? If so, can the magnitude of price movement be predicted using these same variables? We investigate these questions using the Arizona Financial Text (AZFinText) system, a financial news article prediction system, and pair it with a sentiment analysis tool. Through our analysis, we found that subjective news articles were easier to predict in price direction (59.0% versus 50.0% of chance alone) and, using a simple trading engine, subjective articles garnered a 3.30% return. Looking further into the role of author tone in financial news articles, we found that articles with a negative sentiment were easiest to predict in price direction (50.9% versus 50.0% of chance alone), and a 3.04% trading return. Investigating negative sentiment further, we found that our system was able to predict price decreases in articles with a positive sentiment 53.5% of the time, and price increases in articles with a negative sentiment 52.4% of the time. We believe that perhaps this result can be attributable to market traders behaving in a contrarian manner, e.g., see good news, sell; see bad news, buy.

Jason Snyder

Assistant Professor, Management Information Systems

Snyder, J. L., Forbus, R. G., & Cistulli, M. D. (2012). Attendance policies, student attendance, and instructor verbal aggressiveness. Journal of Education for Business, 87, 145-151.

The number one predictor of student performance is class attendance. Therefore, the present study used research related to workplace policies and persuasion to explore the influence of classroom attendance policy on student attendance and performance. In particular, the study wanted to explore attendance policies that neither rewarded attendance nor punished absenteeism.

One hundred seventy-three students from six sections of a 200-level business class were placed into one of three experimental conditions, with three versions of a class attendance policy included in the course syllabus. One group of students received no class attendance policy. A second group of students received a policy with the following statement: “Just as in business, you are expected to be present and on time every day.” The third group of students received a policy containing social proof. It said, “People who miss more classes generally get lower grades. The following statements are true of students just like you who have already taken this class…” The statement went on to provide average number of absences for students who received grades of A, B, C, D, and F in the course.

Although professors like to believe that students don’t pay attention to course policies, the results told a different story. Class absenteeism was a strong predictor of class performance. In addition, the provision of social proof in the syllabus was effective in reducing the number of class absences. Students seemed to pay attention to the syllabus. The study was a fine example of a classroom use of business-related research.

Juan Wang

Associate Professor, Accounting

Wang, J. (2011). Transient institutional investors and insider trading signals. International Journal of Accounting and Information Management, 19(2), 118-145.

Motivation and research question: Prior literature demonstrates that manager-insider (such as a CEO) trading conveys insiders’ private information, and that insider trading signals are value-relevant beyond accounting information. Not surprisingly, such signals are popular in the market, as illustrated by the fact that data vendors such as Bloomberg sell summaries of insider trading information to institutional investors. There is little empirical evidence, however, on how informed traders (i.e. transient institutional investors) use insider-trading signals in their investment decisions, or the extent to which informed trading by transient institutional investors affects insider profits from trading. This study seeks to fill this void.

Findings: This study examines a sample of 44,843 firm-quarters in the U.S. The study finds that the change in transient institutional ownership in the next quarter is positively associated with net insider trading in the current quarter, consistent with the notion that informed traders appear to increase (decrease) holdings following insider purchases (sales). In addition, the study finds that insider profits decrease in transient institutional ownership. Such evidence is consistent with the notion that informed trading by transient institutional investors accelerates the speed with which the private information conveyed by insider trading signals is impounded into equilibrium stock price. As a result, informed trading by transient institutional investors is likely to decrease the opportunity for insiders to trade profitably on their private information, and thus limits insider profits (Jensen, 1978).

Contribution: This study provides systematic evidence on how informed traders use insider trading signals. Moreover, this study contributes to the literature on the determinants of insider profits by providing evidence that informed trading by investors has incremental power to explain insider profits from trading.

Hribar, P., Jenkins, N. & Wang, J. (2009). Institutional investors and accounting restatements. Asian Journal of Finance and Accounting, 1(2), 75-105.

Motivation and research question: There is substantial loss (9%) in market value when a firm restates earnings. Despite the number of studies that document the overall market reaction to the restatement, little evidence exists on how different types of investors respond to this event and the extent to which the responses by different types of investors affect the market reactions surrounding restatements. This study seeks to fill this void.

Findings: We examine a sample of 364 restatements from 1997 through 2002 in the U.S. First, we find that transient institutional investors reduce their holdings in restating firms at least one quarter prior to the quarter of the restatement announcement, suggesting that institutional investors, to some extent, anticipate accounting restatements. Second, we find that transient institutional investors reduce their holdings in response to earnings manipulation predictors, providing evidence about the signals that actively trading institutional investors use in adjusting their holdings. Third, we show that restating firms with higher levels of transient institutional ownership exhibit more negative returns prior to the restatement announcement, which is consistent with the notion that higher levels of holdings by transient institutional investors allow restating information to be incorporated into stock price in a more timely fashion.

Contribution: First, this study adds to the literature on the information environment of institutional investors by showing that transient institutional investors can anticipate accounting restatements. The results shed additional light on the information source of transient institutional investors by showing that superior ability to process public information is likely the source of information advantage by transient institutional investors. Third, our work adds to the research examining the market reactions around restatements by showing that the market reactions to restatements vary by the ability of actively trading institutional investors to predict the restatement event.

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