Using data from a large telecom service provider in China between 2014 and 2019, we examine the impact of being passed over for promotion on subsequent performance for middle managers. Specifically, we find that there is a negative association between high promotion probability and post-pass over performance changes. Such negative association is less pronounced when bonus incentives are stronger and when promotions are more predictable. Our research highlights a hidden cost of promotion incentives and strategies organizations can use mitigate this unintended negative effect for promotion pass over on high performers.

Revenue-sharing contracts allow firms that are distant from their target markets to leverage sellers' local expertise. Although these contracts align incentives in operational decisions, they also introduce the potential for sellers to underreport revenues. We analyze film-level box office data from 7,309 Chinese cinemas and find that cinemas report significantly lower revenues for foreign films than for comparable domestic films, consistent with foreign producers being less able to monitor reported revenues due to geographic distance. The underreporting of foreign films is lower in cities with widespread mobile payments, in multi-unit cinemas, and when foreign films have more predictable revenues, suggesting institutional factors that increase detection likelihood can mitigate underreporting. Further tests indicate the lower reported box office revenues of foreign films is not due to government intervention. Our findings provide novel evidence of product-level misreporting under revenue-sharing contracts and offer insights on mitigating these risks in international markets.

Women are underrepresented in leadership positions despite outperforming men in monitoring tasks—an ordinary but critical work activity for most managerial positions. Using a unique data set on internal resource requests from a large Asian property management firm, we examine whether this underrepresentation occurs due to gender-biased perceptions of coaching behavior. Compared to men, women are more likely to coach subordinates who submit flawed requests, as evidenced by a greater delay in rejection decisions and a higher incidence of revision requests. Such behavior facilitates learning and improves the performance of properties under management but does not improve the promotion prospects of women. This phenomenon is not because coaching unfavorably affects competency assessments by slowing down decision-making, but because men benefit much more from coaching than women.

Combining the theses of "problemistic search" and "slack search," past research in the behavioral theory of the firm suggests that both low- and high-performing firms may engage in the same type of risk-taking activity. We counter this view with a consistent, motivation-based logic in the theory: low-performing firms are fixated on finding short-term solutions to immediate problems, so they have an increased probability of exhibiting deviant risk-taking behavior such as bribery, whereas high-performing firms are concerned about sustaining their competitive advantage in the long run and will more likely engage in aspirational risk taking such as research and development (R&D). Using a sample of 9,633 firm-year observations covering 2,224 listed companies in China, we find that, as a firm's performance falls further below its aspiration level, it has larger abnormal entertainment spending, an implicit measure of bribery expenditure, but not higher R&D intensity. However, as a firm's performance rises further above its aspiration level, it has greater R&D intensity, but not more bribery expenses. Legal development and industry competition moderate the relationship between performance feedback and risk-taking behavior.

Prior studies on corporate political strategies have taken an exchange view to examine these strategies' benefits and costs for firms and politicians, but have paid less attention to how politicians' political values shape their perceptions of, and willingness to engage in, these exchanges. We investigate how politicians' imprinted political ideologies affect the likelihood of firms' political appointments. Examining 760 city mayors across 242 Chinese cities from 2001 to 2013, we find that cities have fewer private firms appointed to local councils if the mayor-the key decision maker for such appointments-is more strongly imprinted with an orthodox communist ideology that opposes capitalism. The intensity and evolution of such an ideological imprint are influenced by contextual factors. The imprint's strength is shaped by the mayors' prior exposure to intense ideological experiences, such as experiencing the Cultural Revolution at a young age. Working in an environment consistent with the ideology (e.g., a province with a greater communist legacy) sustains and even strengthens the imprint, whereas working in an environment inconsistent with the ideology (e.g., a city with greater economic development) attenuates it. We discuss the implications of these findings for political strategy research, imprinting theory, and nascent research on political ideology.

ABSTRACT Corporate boards in America are dominated currently by outside directors because of the belief that they are more effective at monitoring management. There continues to be debate, however, concerning whether regulators should dictate board composition using input-based attributes of directors such as outside status. Opponents contend that board independence is best established through applying voluntary best practices to board processes. In this research, we study board processes and examine how the group task cohesion that is determined by directors' social similarity affects outside directors' reports that the CEO influences their beliefs, a key element of director independence. We propose that the degree of social similarity (similarity as to backgrounds) between outside directors and other directors is positively related to the degree of commitment directors have toward the board's tasks. We show that this task commitment (cohesion) has a positive effect on directors' efforts to obtain and receive information from the firm and CEO. Additional analyses show that the effect of information sharing on the level of CEO influence of outside directors depends on the presence of cognitive conflict—constructive discussion among directors regarding differing viewpoints—between the outside directors and the inside directors. We test our hypotheses using a survey, which was developed based on in-depth field interviews, and the archival data on directors' attributes as well as firm-level outcomes. Results support the hypotheses, and have implications for regulators and boards.

This study investigates how adopting new performance measures affects the decision process through which supervisors make subjective adjustments. In our setting, the Chinese government substituted economic value added (EVA) for return on equity (ROE) in the performance score formula it uses to evaluate State-Owned Enterprises (SOEs). In accordance with the Chinese government's objective to increase the capital efficiency of SOEs, supervisors shifted the weight in subjective adjustment decisions from ROE to EVA after EVA adoption. Consistent with EVA adoption creating fairness concerns, however, supervisors did not penalize SOEs for performing poorly on EVA when they performed well on ROE, and accomplished this by shifting the weight from EVA back to ROE. Additional analyses suggest that personal preferences motivated supervisors to make these lenient subjective adjustments. Overall, our findings indicate that adopting new performance measures creates fairness concerns that motivate supervisors to consider their personal preferences in subjective adjustment decisions.

ABSTRACT We examine the stock price impact of corporate site visits using a unique data set of site visits to listed firms in China. Our main findings are as follows. First, the market reaction around corporate site visits is statistically and economically significant and is stronger for group visits, visits conducted by mutual fund managers, visits covering accounting and finance topics, visits to firms with poor information environments, and visits to manufacturing firms. Second, the stock returns around site visits are positively associated with firms’ future performance. Third, the changes in visiting funds’ holdings are more predictive of firms’ future performance than those of nonvisiting funds. Overall, this study contributes to the literature by providing evidence that site visits are important venues for investors to collect information about firms and make informed trades.

While the conventional wisdom advocates a complementary view between political ties and market capabilities, we challenge it by proposing that they function as substitutes in affecting firm performance. We argue that the simultaneous use of political ties and market capabilities yields strong tensions: Internally, the incompatibility of their focuses and routines produces a crowding- out effect; externally, government interference arising from political ties invites a grabbing-hand effect. Results based on publicly listed firms in China from 2001 to 2014 provide strong support to our propositions. Political ties and marketing/operations capabilities have a negative joint effect on a firm’s future financial performance. Moreover, this substitution effect is stronger when market institutional development is high and for private firms (versus state-owned enterprises).

ABSTRACT While the construct of narcissism has existed for well over 100 years, it has become the most discussed personality disorder of recent times and has the potential to influence organizational culture and control systems. Although systematic research on narcissism has been conducted at the individual level, research on its effects within organizations is still in its nascent stages. Our objectives in this paper are threefold: (1) to present an overview of the narcissism construct and its causes, (2) to review how narcissistic employees behave differently in work settings compared to less narcissistic employees, and (3) to develop a framework for research from which we develop testable hypotheses about how increased levels of employee narcissism can affect the design and performance of management control systems.

This study examines the impact of corporate site visits on analysts’ forecast accuracy based on a sample of such visits to Chinese listed firms during 2009–2012. We find that analysts who conduct visits (“visiting analysts”) have a greater increase in forecast accuracy than other analysts. Consistent with the notion that site visits facilitate analysts’ information acquisition through observing firms’ operations, we find that the results are stronger for manufacturing firms, firms with more tangible assets, and firms with more concentrated business lines. Moreover, we find that the effect of a site visit is greater when the site visit is an analyst-only visit, when the current visit is preceded by fewer visits, and when visiting analysts are based far from the visited firms. Furthermore, we find that site visits partially mitigate nonlocal analysts’ information disadvantage. Collectively, these results indicate that site visits are an important information acquisition activity for analysts.

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This study finds that Chinese firms that issue high-quality corporate social responsibility (CSR) reports are perceived as having greater legitimacy (operationalized by government endorsement and media endorsement) by the Chinese government and media. Chinese firms that issue higher-quality CSR reports subsequently receive higher levels of government endorsement and media endorsement, which in turn lead to better financial performance. The positive relationship between the quality of a firm's CSR disclosure and subsequent financial performance is mediated by the firm's perceived level of legitimacy. The mediating role of government endorsement is stronger for firms based in underdeveloped regions.

ABSTRACT This study addresses the two-way process in which a subordinate and a superior engage in influence activities (bottom-up) and favoritism (top-down) in subjective Performance Evaluation. The research context is the Chinese government's evaluation of Chinese state-owned enterprises (SOEs) by the State-Owned Assets Supervision and Administration Commission of China (SASAC). We analyze archival records of the government's evaluation scores, score adjustments, and evaluation ratings given to 63 SOEs between 2005 and 2007. These analyses are also interpreted based on insights gained from in-depth field interviews with SASAC officials and chief financial officers (CFOs) of SOEs. Results indicate that the political connection of SOE CFOs, the geographic proximity of SOE headquarters to the SASAC central office, and political rank of the firm affect the SASAC's evaluations. Data Availability: Data used in this study cannot be made public due to a confidentiality agreement.

In this study, we find evidence that firms in China with stronger political connections get easier access to the bond market, offer larger size issues, and obtain higher credit ratings; however, strong political connections do not lead to lower bond costs. Our results suggest that as government control weakens and market forces strengthen, the role of political connections becomes less important. We also explore how rent-seeking behavior influences the relationship between political connections and bond costs. We find that political connections established through personal relationships are subject to the rent-seeking of government officials, and lead to an increased level of bond costs.

This study addresses how political connections influence a firm’s access to bond capital using a database of 1672 new bond issuances in China from 2001 to 2009. In this context, firm political connections are measured using a score based on the highest bureaucratic position held by a firm executive, with the highest level of political connections attributed to those who have held top positions in the central government, followed by those in provincial and municipal governments. Results suggest that firm political connections are positively associated with debt offering amounts and issuer credit ratings, but only in the subsample of firms with poor information environments, such as non-publicly listed firms and non-Beijing headquartered firms, thus lending support to the argument that political connections contribute to firm reputation. The role of political connections in providing preferential access to debt is relevant to both state-owned enterprises and privately held firms. In addition, issuing firm political connections and bank underwriter political connections serve as alternative mechanisms when explaining the variation of offering amounts and issuer credit ratings. _______________________________________________________________________

In recent years, activity-based costing (ABC) has become a popular cost and operations management technique to improve the accuracy of product or service costs for firms to stay competitive. Two authors went to Xi'an area to collect a sample data on fuel overhead cost, number of wells, well-depth, distance, weight, and ton-kilometers at a Chinese oil well cementing company. We also verified the data accuracy with the company controller. This study investigates how to choose the appropriate cost driver of fuel overhead costs when adopting ABC . Using the linear regression analysis and the maximum r-square improvement (MAXR) model selection method, the empirical results show that among the five possible cost drivers of the number of wells, the distance from the office to the field, the weight of the cement and additive materials, the depth of well cementing, and the ton-kilometers measured by the product of the distance and the weight, the best cost driver is the product of the distance and the weight. Thus, by applying the ABC system and using the product of the distance and the weight as the cost driver will improve the fuel cost allocation accuracy among individual wells. I. Introduction Traditional cost accounting, which mainly uses one single cost driver such as direct labor or output volume to allocate the overhead costs, systematically distorts product costs in modern manufacturing environments in which overhead costs are a significant portion of product costs. Incorrect product cost information can lead to poor decisions. Activity-based costing (ABC) was developed by General Electric and other firms to improve the usefulness of accounting information (Johnson, 1992). Cooper (1988a) also pointed out that with the increasing diversification of product volume, size, and complexity, the calculated product costs would be deeply distorted under the traditional volume-based costing system. As a result, most of the attention has been directed to the design of ABC, which regards activity as the cause of resource assumption and develops multiple cost drivers through the measurement of activity (Johnson 1992; Cooper and Kaplan 1988a, 1988b; Cooper 1988a, 1988b, 1989a, 1989b, 1990a, 1990b; Kaplan 1988; andTurney 1992). After ABC had been implemented in practice for many years, case studies were widely prepared to identify the difference between ABC and the traditional costing system. These case studies include those by Artemis and Kaplan (1987), Cooper and Kaplan (1988a, 1988b), Bhimani and Pigott (1992), and Greeson and Kocakulah (1997). Wang et al. (2005) reported the first ABC study in China for a state-owned firm. Tsai et al. (2009) used the mathematical programming approach to incorporate both price elasticity of demand and capacity expansion features into an ABC product-mix decision model. For an empirical analysis of cost model and cost driver selection, Foster and Gupta (1990) were first to conduct the indirect overhead cost driver analysis for a U.S. firm using regression models. Datar et al. (1993) used the simultaneous equation method to estimate and select cost drivers for a U.S. firm. Banker et al. (1995) conducted an empirical analysis of indirect overhead cost drivers for a U.S. firm by building various regression models. Duh et al. (2009) investigated the design and implementation of an ABC system in a Taiwanese textile company using a series of regression models. This study is the first to study and select cost driver(s) for a Chinese company using a series of regression models. This company implements the traditional costing system using a simplified single cost driver, oil well depth, to allocate six overhead costs to individual wells. The company's top management was concerned with the current method that distorted the total cost of each individual oil well cementing work. Our study shows that by using the ABC system and the regression analysis method to select the appropriate cost driver, the company can improve the accuracy of its overhead cost allocation to an individual well. …

This study suggests that the performance evaluation of SOEs based on the EVA measure advocated by the SASAC can be subjective to influence activities on the part of SOEs,and proposes a possible solution.The research context is that of the Chinese government’s evaluation of Chinese state-owned enterprises(SOEs——the subordinates) by the State-owned Assets Supervision and Administration Commission of China(SASAC——the superior).We compared archival records of the government’s evaluation rankings given to 95 SOEs between 2005 and 2007 based on two different set of performance indicators,i.e.accounting performance measures and EVA measures.Results indicated that the political connections of SOE executives,especially those of the firm CFOs,affects the SASAC assigned EVA rankings when the cost of capital in calculating EVA measures is uniformly set to 5.5% across all SOEs.However,when using the industry-adjusted cost of capital to calculate customized EVA measures of SOEs,we failed to find any significant relationship between the customized EVA rankings and the political connections of SOE executives.Results indicated that using industry-adjusted cost of capital to calculate EVA measures can improve the equity level in the SASAC launched performance evaluation of SOEs.