In the absence of incentive-compatible control mechanisms, subordinate managers may misrepresent private information to advance their selfinterests at the expense of the firm. Analytical research has proposed incentive mechanisms to motivate truthful upward communication of private information. Yet incentive mechanisms observed in practice seldom are as complex as those proposed by theoretical research. This study contributes evidence that may help to explain this divergence between theory and practice, and for identifying potential directions for the further development of both. In a laboratory experiment, four control mechanisms-two suggested by analytical research, and two proxying for practice-were tested. Both analytically derived mechanisms were found to reduce subordinate misrepresentations relative to the reportedly common linear profit-sharing arrangement. However, superiors who were allowed to use costly and imperfect audits, and who could exercise subjective judgment, outperformed all of the other mechanisms at inducing truth-telling, though this superior truth induction did not translate into a significantly lower level of firm losses from suboptimal project selections. Results also indicated that none of the mechanisms tested was able to eradicate subordinate misrepresentations and the profit losses that they induced. Together, these findings provide a possible explanation for the analytically derived mechanisms' lack of real-world adoption. Further, they suggest ways for both theory and practice to advance through more extensive cross-fertilization.
In the current era of rapid globalization, accounting finns are increasingly expanding their international operations. As a result, an increasingly important issue is the extent to which the home-country organizational cultures can, and should be, transplanted to the operations in other national settings. Prior studies by Soeters and Schreuder ( 1988) and Pratt, Mohrweis and Beaulieu ( 1993) have examined the relation between accounting finns' home-country organizational cultures and those of the foreign countries in which they operate. Both studies have found that the home-country organizational cultures are exported, at least to some extent. Both also have suggested that employee selection is more potent than training and socialization as a means to accomplish this objective.The current study extends the empirical analysis to an important Asian culture--the ChiP'"·~· Data were collected from a !'ample of 201 ethnically Chinese employeefo ,)[independent domestic accoun .. ng tlnns and U.S. affiliates operating in Taiwan. The results are consistent with U.S. affiliates having organizational cultures which differ from those of the local Taiwanese firms in the direction of those of their U.S. parents. This finding suggests that U.S. accounting firms have found it desirable and feasible to transplant their organizational cultures that differ from the national culture of the foreign populace at large.
In the current era of intensifying global competition, much attention has been focused on how companies need to change their structures and processes, or more broadly, organizational cultures, to remain competitive in this environment. Three recent studies have examined the nature of accounting firms' organizational cultures. Soeters and Schreuder (1988) and Pratt, Mohrweis and Beaulieu (1993) tested the degree to which accounting firms are able to transfer their home‐country or ganizational cultures to their foreign operations, while Pratt and Beaulieu (1992) analyzed the organizational culture of U.S. accounting firms operating in their home country. An implicit premise of these prior studies is that an accounting firm's organizational culture is an important determinant of its economic success. Thus, Pratt and Beaulieu (1992) hypothesized that organizational culture would vary with such variables as accounting firm size and functional area. Yet none of these prior studies has directly studied the nature of these firms’ external environments to which they were presumably responding. Nor have they directly measured the fit between these firms' organizational cultures and the external environment, or the effect of this fit on firm performance. The current study extends the empirical investigation to these assumed linkages. Data were collected from a sample of accounting firms operating in an important Pacific Rim participant in the global economy — Taiwan. The results are consistent with the fit between organizational culture and the environment being an important determinant of firm performance.
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