Testing a Causal Model of Corporate Risk Taking and Performance

Bromiley, Philip

doi:10.5465/256301

Cited by 356 publications

(472 citation statements)

References 37 publications

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“…1 , and the required investment threshold, p (3) 1 , as indicated in (8). Notice that, although the investment threshold is usually expressed in terms of β 1k , it is more expedient to use β 2k here, taking into account that β 1k…”

Section: Regimementioning

confidence: 99%

Optimal regime switching under risk aversion and uncertainty

Chronopoulos

Lumbreras

2017

European Journal of Operational Research

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Highlights• We develop a regime-switching, utility-based framework for sequential investment• Greater price uncertainty and risk aversion may accelerate regime switching• Greater risk aversion promotes a compulsive and a laggard regime-switching strategy • Higher output price or innovation rate mitigates the impact of risk aversion• A leapfrog/laggard strategy may dominate even when a decisionmaker is risk averse

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Section: Regimementioning

confidence: 99%

Optimal regime switching under risk aversion and uncertainty

Chronopoulos

Lumbreras

2017

European Journal of Operational Research

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“…Poor performance, relative to benchmarks based on past performance or industry averages, increases corporate risk taking (Bromiley 1991 H1-H3 posit that certain firm characteristics will affect he probability of adopting the COLI shelter. Treasury and the business press have emphasized the role of tax shelter promoters in the rise of corporate tax shelter activity.…”

Section: H3 Explanatory Variablesmentioning

confidence: 99%

The Spread of Aggressive Corporate Tax Reporting: A Detailed Examination of the Corporate-Owned Life Insurance Shelter

Brown

2011

The Accounting Review

193

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This paper investigates the spread of aggressive corporate tax reporting by modeling a firm's decision to adopt the corporate-owned life insurance (COLI) shelter. I use a sample of known COLI participants to examine whether certain firm characteristics are associated with the decision to adopt a COLI shelter. I find some evidence that firms with higher performancematched discretionary accruals are more likely to adopt a COLI shelter, suggesting a positive relation between aggressive financial reporting and aggressive tax reporting. I also find that firms with greater capital market visibility are less likely to adopt a COLI shelter, consistent with a potential reputational cost for being associated with aggressive tax avoidance activities. Further, my results suggest that COLI adopters are generally R&D intensive firms with low leverage and few foreign operations. In addition to firm specific characteristics, I consider two explanations for the spread of COLI adoption motivated by theory on diffusion of innovations and institutional isomorphism. I investigate whether firms imitate prior COLI adopters and whether COLI adoption spreads through common auditors. My results are not consistent with an imitation vii explanation. Further, my results suggest that having the same auditor as a prior COLI adopter does not increase the likelihood that a firm will adopt COLI.viii Table of PART I 6Chapter The tax shelter industry also distorts allocation of economic resources. Tax shelter activity diverts resources away from the government toward accountants, lawyers and others who develop and promote tax shelters. Moreover, according to theories of corporate tax incidence, engaging in a tax shelter cannot make a corporation, per se, better off. The benefits from reducing the corporation's tax bill will ultimately accrue to its shareholders through higher stock prices, its employees through higher wages, or its customers through lower prices. Exactly how the benefits will be shared is unknown, but Slemrod (2004) Frank et al. 2006). 3 However, ETRs and book-tax differences are noisy measures of aggressive tax reporting. ETRs vary with profitability, industry differences in the reporting of revenue and expenses, and legitimate tax planning opportunities. Consequently, it is difficult to distinguish lower ETRs due to better tax planning from those due to aggressive avoidance or shelter activity. List of TablesTreasury's (1999) report suggests that the growing gap between financial statement income and 2 Many studies rely on Bankman's (2004a) working definition of a tax shelter as a "(1) tax motivated; (2) transaction unrelated to a taxpayer's normal business operations; that (3) under a literal reading of some relevant legal authority; (4) produces a loss for tax purposes in excess of any economic loss; (5) in a manner inconsistent with legislative intent or purpose." See also Bankman (1999).3 Graham and Tucker (2006) identify known tax shelter participants. However, their study focuses on firms' debt policy decisions, no...

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“…Defined in this way, it should be clear that some reference groups are potentially more valuable than others. For example, a small Yorkshire-based packaging company might define its reference group as other small Yorkshire packagers, or as all packagers across Europe, and it is very likely that the latter will offer a greater diversity of practices and behaviors, as well as a higher performance benchmark.The reference group concept is now fairly well established in the organizational literature (Cyert and March, 1963;Festinger, 1954;Wood, 1989), and authors use it to understand how firms make strategic choices such as how to position themselves in a market, how much to pay their CEO, and whether to innovate (Bromiley, 1991;Greve, 1998;Massini, Lewin, and Greve, 2005;Porac, Wade, and Pollock, 1999). In this article, the reference group serves as a means to interpret the overall model through which management innovation levels are determined.…”

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confidence: 99%

The sources of management innovation: When firms introduce new management practices

Mol

Birkinshaw

2009

Journal of Business Research

556

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Management innovation is the introduction of management practices new to the firm and intended to enhance firm performance. Building on the organizational reference group literature, this article shows that management innovation is a consequence of a firm"s internal context and of the external search for new knowledge. Furthermore the article demonstrates a trade-off between context and search, in that there is a negative effect on management innovation associated with their joint occurrence. Finally the article shows that management innovation is positively associated with firm performance in the form of subsequent productivity growth.Key words: Management innovation, management practices, performance, knowledge sources 3 THE SOURCES OF MANAGEMENT INNOVATION: When Firms Introduce New Management PracticesThe phenomenon of innovation continues to attract enormous interest among management scholars. Beyond the ubiquitous technological and product innovation, a number of subfields have emerged, concerned with aspects of innovation, such as business model innovation (e.g., Markides, 1997), service innovation (e.g., Gallouj and Weinstein, 1997) and process innovation (e.g., Pisano, 1996). This article focuses on one subfield, namely management innovation (Birkinshaw, Hamel, and Mol, 2008) and its antecedents in and consequences for individual firms. Hamel (2006;2007) in particular has forcefully argued that in today"s age management innovation may represent one of the most important and sustainable sources of competitive advantage for firms because of its context specific nature among others. That makes any study into this topic particularly relevant for practice but also important from the perspective of the study of sustainable competitive advantage, a key domain of strategic management and other academic areas.For some researchers, management innovation refers to a practice or structure that is "new-to-the-state-of-the art", meaning that it has no known precedent (e.g., Chandler"s (1962) description of the invention of the M-Form structure); for other researchers, management innovation refers to something that is "new to the firm" and is adapted from another context, such as a peer firm (e.g., Zbaracki, 1998). Each approach has its own body of literature and, while both fit under the banner of management innovation, it is to the latter body of literature this article contributes. This research defines management innovation as the introduction of management practices that are new to the firm and intended to enhance firm performance. 4 The introduction of new management practices is an important issue for firms as they seek to upgrade their productivity, improve the quality of customer offerings and retain competitiveness (Ichniowski, Shaw, and Crandall, 1995;Pil and MacDuffie, 1996). Policymakers see such practices as important drivers of sector-level or national improvements in productivity.For example, the DTI Innovation Survey and "Porter Report" (published in 2003) highlights the poor adoption of ...

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Testing a Causal Model of Corporate Risk Taking and Performance

Cited by 356 publications

References 37 publications

Optimal regime switching under risk aversion and uncertainty

Optimal regime switching under risk aversion and uncertainty

The Spread of Aggressive Corporate Tax Reporting: A Detailed Examination of the Corporate-Owned Life Insurance Shelter

The sources of management innovation: When firms introduce new management practices

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