Articles

Better Safe than Sorry: Subsidiary Performance Feedback and Internal Governance in Multiunit Firms

T. OBLOJ, m SENGUL

Journal of Management

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Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)


This paper explores the link between subsidiary performance feedback and internal governance mechanisms in multiunit firms. A central premise of performance feedback models is that performance below aspirations is associated with increased risk tolerance and thereby with a higher likelihood of taking excessive risks in resource allocation decisions. Building on this observation, we contend that the headquarters of multiunit firms take this association into account in the design of internal (i.e., headquarters-subsidiary) governance mechanisms. Accordingly, a subsidiary’s performance-aspiration gap (below aspirations) is positively associated with the headquarters’ oversight of its resource allocation decisions and negatively associated with the provision of incentive schemes that promote risk taking. Regression results, using data on subsidiaries in France between 1998 and 2004, support our hypotheses and show that subsidiaries performing below historical and social aspirations are less likely to be given discretion in investment decisions and incentivized by cash bonuses. In the supplementary analyses we also provide suggestive evidence that subsidiary performance problems in multiunit firms trigger structural adaptation in the internal governance mechanisms in pursuit of regaining fit

Better together: using meta-analysis to explore complementarities between ecological and institutional theories of organization

M. LANDER, P. HEUGENS

Organization Studies

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Départements : Management et Ressources Humaines, GREGHEC (CNRS)


Beyond the Target Customer: Social Effects of CRM Campaigns

E. ASCARZA, P. EBBES, O. NEDZER, M. DANIELSON

Journal of Marketing Research

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Départements : Marketing, GREGHEC (CNRS)

Mots clés : Customer Relationship Management (CRM), Field experiments, Targeting, Churn, Retention, Mobile


Customer Relationship Management (CRM) campaigns have traditionally focused on maximizing the profitability of the targeted customers. We demonstrate that, in business settings that are characterized by network externalities, a CRM campaign that is aimed at changing the behavior of specific customers propagates through the social network, thereby also affecting the behavior of non-targeted customers. Using a randomized field experiment involving nearly 6,000 customers of a mobile telecommunications provider, we find that the social connections of targeted customers increase their consumption and are less likely to churn due to a campaign that was neither targeted at them nor offered them any direct incentives. We estimate a social multiplier of 1.28. That is, the effect of the campaign on first-degree connections of targeted customers is 28% of the effect of the campaign on the targeted customers. By further leveraging the randomized experimental design we show that, consistent with a network externality account, the increase in activity among the non-targeted but connected customers is driven by the increase in communication between the targeted customers and their connections, making the local network of the non-targeted customers more valuable. Our findings suggest that in targeting CRM marketing campaigns, firms should consider not only the profitability of the targeted customer, but also the potential spillover of the campaign to non-targeted but connected customers

Blockholder Exit Threats in the Presence of Private Benefits of Control

Ole-Kristian HOPE, H. WU, Wuyang ZHAO

Review of Accounting Studies

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Départements : Comptabilité et Contrôle de Gestion

Mots clés : Exit-Threat Theory, Private Benefits of Control, Liquidity, China, Split-Share Structure Reform, Operating Performance, Quasi-Experiment

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2572724


Catching Falling Knives: Speculating on Liquidity Shocks

J. E. COLLIARD

Management Science

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Départements : Finance, GREGHEC (CNRS)


Many market participants invest resources to acquire information about liquidity rather than fundamentals. I show that agents using such information can reduce the magnitude of short-lived pricing errors by trading against liquidity shocks. However, the short-run stabilizing effect of this behavior also makes it more difficult to identify liquidity shocks, a signal-jamming effect that slows down price discovery in the long run. As more agents invest in nonfundamental information, market prices become more resilient to liquidity shocks but also recover more slowly from temporary price deviations.

CoMargin

J. A. CRUZ LOPEZ, J. HARRIS, C. HURLIN, C. PERIGNON

Journal of Financial and Quantitative Analysis

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Départements : Finance, GREGHEC (CNRS)

Mots clés : Collateral, Counterparty Risk, Derivatives Markets, Extreme Dependence

https://depts.washington.edu/jfqa/2016/02/25/comargin/


We present CoMargin, a new methodology to estimate collateral requirements in derivatives central counterparties (CCPs). CoMargin depends on both the tail risk of a given market participant and its interdependence with other participants. Our approach internalizes trading externalities and enhances the stability of CCPs, thus, reducing systemic risk concerns. We assess our methodology using proprietary data from the Canadian Derivatives Clearing Corporation that includes daily observations of the actual trading positions of all of its members from 2003 to 2011. We show that CoMargin outperforms existing margining systems by stabilizing the probability and minimizing the shortfall of simultaneous margin-exceeding losses

Consequences of the Abandonment of Mandatory Joint Audit: An Empirical Study of Audit Costs and Audit Quality Effects

C. LESAGE, N. RATZINGER-SAKEL, J. KETTUNEN

European Accounting Review

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Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)

Mots clés : Joint audit, Audit cost, Audit quality, Audit market, Denmark


This paper focuses on the unique Danish setting in examining the consequences of abandoning a mandatory joint audit regime. We study the effects on audit costs (measured by audit fees) and audit quality (measured by abnormal accruals) of the abandonment of the mandatory joint audit in Denmark in 2005. We perform our analysis on non-financial listed Danish companies for the 2002–2010 period. Our results show that a joint audit is associated with higher fees, but that the association between joint audit and abnormal accruals is insignificant. This suggests that the higher audit fees cannot be explained by higher audit quality. Our results are robust to alternative measurements of fees and audit quality. Additional analyses show that the fee premium related to a joint audit decreases over time and that the Big 4 concentration in our sample has increased since the switch from mandatory to voluntary joint audit. Our results are consistent with the motivations driving the regulatory change in Denmark and are of interest to regulators and actors in the audit market

Constructing, Contesting, and Overloading: A Study of Risk Management Framing

M. BRIVOT, D. HIMICK, D. MARTINEZ

European Accounting Review

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Départements : Comptabilité et Contrôle de Gestion, GREGHEC (CNRS)


In this study, we examine the ways in which actuarial consultants attempt to motivate their clients to see pension-related accounting regulations and market volatility as ‘risks’ that need to be managed through particular risk-mitigating technologies. This study is predicated on 23 interviews conducted with actuarial consultants and their clients and consulting agencies’ publically available documents. Taking framing theory and the sociological literature on risk as conceptual starting points, we find that consultants engage in specific framing strategies to persuade clients by rhetorically weaving a series of financial risk objects, financial de-risking strategies, and calls for action. We also find that current and prospective clients sometimes contest consultants’ prescriptions, despite the pervasiveness of risk management as the ultima ratio of organizational governance. This contestation occurs, ironically, because adopting de-risking solutions in one area is perceived by some clients as triggering new risks in areas unforeseen by consultants. This research increases our knowledge of how new risk objects and de-risking solutions come into existence and why some risk management practices fail to be diffused within organizations despite the staggering success of the risk management rationality. We explain the latter through the concepts of frame diffraction and overload

Drift or alignment? A configurational analysis of law firms' ability to combine profitability with professionalism

M. LANDER

Journal of Professions and Organization

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Départements : Management et Ressources Humaines, GREGHEC (CNRS)


Estimating Value Creation from Revealed Preferences: Application to Value-Based Strategies

O. CHATAIN, D. MINDRUTA

Strategic Management Journal

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Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)


We develop and apply a new set of empirical tools consistent with the tenets of value-based business strategies, leveraging the principle that “no good deal comes undone” and the methods of revealed preferences to empirically estimate drivers of value creation. We demonstrate how to use these tools in an analysis of value creation in buyer–supplier relationships in the UK corporate legal market. We show how the method can uncover evidence of subtle mechanisms that traditional methods cannot easily distinguish from each other. Furthermore, we show how these estimates can be used as parameters of biform games for out-of-sample analyses of strategic decisions. With readily available data on relationships between firms, this approach can be applied to many other contexts of interest to strategy researchers


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