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Journal of Management
Accounting Research
2007, Volume 19
Contents
Articles
Introductory Note
Spending Patterns with Lapsing Budgets: Evidence from U.S. Army Hospitals
Ramji Balakrishnan
Naomi S. Soderstrom
Timothy D. West
Abstract: We explore how the practice of reverting unused funds (budget lapsing) affects intra- and inter-year spending patterns. Data from 31 army hospitals over a period of five years provide strong support for a saving-dissaving model. Hospital administrators appear to stockpile pharmaceuticals and other supplies toward the end of a fiscal year, leading to a significant spike in spending that potentially exhausts their budget. Interestingly, data show a decline at the start of the next fiscal year that is larger than the preceding spike, indicating that mangers build a reserve for later use. The magnitude of the reserve accumulated at the start of a year is reliably persistent across years and accelerates the upward trend in spending through the year. That is, managers increasingly expend the reserve as environmental uncertainty decreases.We conclude that risk-aversion plays a significant role in determining intra-year trends.
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The Role of Financial Incentives and Social Incentives in Multi-Task Settings
Alexander Brüggen
Frank Moers
Abstract: In this paper, we investigate the role of financial incentives and social incentives in multi-task settings where the agent makes an effort-level choice and an effort-allocation choice. We focus on a setting where these choices are not independent and an active trade-off between effort level and effort allocation exists. Social incentives play a crucial role in this trade-off. While financial incentives increase the effort level, social incentives congruent with the principal's interest mitigate the distortions in effort allocation associated with financial incentives, which improves the effectiveness of financial incentives. In a 2 × 2 experiment, we find that participants who receive distorting financial incentives provide significantly more total effort than participants who receive a fixed wage, but they allocate effort significantly less congruently. However, the effort-allocation distortion caused by distorting financial incentives is significantly reduced by congruent social incentives. We further find that the level of effort on the unmeasured task is not significantly different between fixed wages and financial incentives, which implies that distortions in effort allocation are driven by doing more of the measured task instead of doing less of the unmeasured task. Our findings have important implications for both theory building and organizational practices.
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Product Costing for Decision Making in Certain Variable-Proportion Technologies
Dileep G. Dhavale
Abstract:
Most methods and techniques in management accounting assume that a production technology consumes inputs in a fixed proportion. This paper develops product-costing measures for pricing and decision-making purposes for homogeneous variable-proportion technologies using first-order conditions and Euler's theorem. The results developed in this paper show that relevant costs under these circumstances are conventional full costs adjusted by a factor that is a function of returns to scale of a variable-proportion technology.
In the development of the above results, it is shown that, for any technology, the price of a product is a linear function of its full cost only for a certain type of demand function. For all other demand functions, the relationship between the price and the full cost is nonlinear.
The fixed- and the variable-proportion technologies are compared using a Monte Carlo simulation to determine the relative magnitudes of errors in product costs and prices, and differences in profit resulting from inappropriate use of a fixed-proportion model in a variable-proportion technology environment. The simulation results indicate that the costs are about 3 percent higher for fixed-proportion technology over a range of returns to scale values. The pricing error, on the other hand, is significant and varies from 70 percent lower to 50 percent higher compared to the correct prices. Variance analyses of difference in profits under the two technologies indicate that the errors in costing and pricing under fixed-proportion technology result in significantly lower profits.
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Improvements in the Information Content of Nonfinancial Forward-Looking Performance Measures: A Taxonomy and Empirical Application
Shane S. Dikolli
Karen L. Sedatole
Abstract:
In this paper, we study empirical refinements that increase the information content of nonfinancial performance measures (NFPMs) regarding future financial performance. We synthesize these refinements into a taxonomy that includes: (1) measurement, (2) timing, (3) interaction, (4) functional form, and (5) mediation. We classify recent work that uses these refinements to examine variations in NFPM information content. We also present an empirical application of the refinements taxonomy—using a NFPM previously shown to be valued by the market for Internet retailers, i.e., website stickiness—to further illustrate how theoretically driven choices of specific refinements can improve NFPM information content. The chosen refinements in this setting increase the adjusted R2 of our empirical specification, predicting one-quarter-ahead Return on Assets from 52 percent to a maximum of 78 percent. More important, these refinements reveal important new insights about website stickiness. In particular, website stickiness is a positive signal of future financial performance for firms with good websites, but a negative signal for firms with poor websites. Additionally, we find the magnitude of the positive and negative signals is asymmetric: the magnitude of the negative signal is significantly higher than that of the positive relation.
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Differences in the Role of Job-Relevant Information in the Budget Participation-Performance Relationship among U.S. and Mexican Managers: A Question of Culture or Communication
Maria A. Leach-López
William W. Stammerjohan
Frances M. McNair
Abstract:
This study extends the stream of participative budgeting literature and, specifically, the work of Frucot and Shearon (1991). This study employs an expanded version of the path model introduced to this literature by Kren (1992) to examine and compare the budget participation-performance relationship for U.S. and Mexican mid-level managers. The expanded path model allows the examination of both the direct effects of budget participation on performance and the indirect effects of budget participation on performance that run through job satisfaction and job-relevant information.
The primary findings of this study are that while there are strong associations between budget participation and performance for both U.S. managers working in the U.S. and Mexican managers working for U.S.-controlled maquiladoras in Mexico, the causal mechanisms connecting budget participation to performance are quite different between these two groups. The information-communication aspect of the budget participation-performance relationship is much stronger among our Mexican managers and strongest among our Mexican managers who may face the greatest psychic distance from their U.S. parent companies: those who are not bilingual, and/or those who are supervised by U.S. nationals.
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Budget Adjustments in Response to Spending Variances: Evidence of Ratcheting of Local Government Expenditures
Tanya M. Lee
Elizabeth Plummer
Abstract:
This paper examines the degree to which government administrators incorporate prior year spending variances into current year budgets. Government administrators have incentives to increase their budgets, and constraints on government spending are weaker than those found in the private sector. Therefore, we expect budget increases associated with prior year government overspending (actual exceeds budget) to be larger than decreases associated with underspending of the same amount. This differential response is called ratcheting. We examine budgets for 1,034 Texas school districts (1995 through 2002), and find budget ratcheting in operating expenditures and the subcategories of instructional and non-instructional expenditures. Ratcheting is most pronounced for non-instructional expenditures. We also find that budget ratcheting is more pronounced when controls on government spending are likely to be weaker. Specifically, budget ratcheting is more pronounced for school districts that operate in a less competitive environment and for districts that have less voter influence.
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2007 Lifetime Contribution to Management Accounting Award
Joan Luft
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Topics Worthy of Continued Discussion and Effort—Even after Forty Years of Trying
William L. Ferrara
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Editorial Policy and Style Information
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Additional Journal Content
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