The impact of related party transactions on earnings management: some insights from the Italian context

Related party transactions have become a key issue as a result of recent financial scandals. This study examines whether firms use related party transactions for earnings management, and then, whether they try to minimize detection through the format of related party transactions disclosure. Firstly, we analyze the association between related party transactions structure (types and parties involved) and the probability of reporting small earnings increase. Related party transactions may have significant impact on, and implications for, earnings management. According to the agency theory, related party transactions are used opportunistically, while the efficient transaction hypothesis argues that related party transactions meet the economic needs of the business. We next investigate the association between the probability of reporting small earnings increases through related party transactions and disclosure quality. Disclosure quality should be studied in relation to impression management and investor attention; this approach takes account of the idea that earnings management behavior may influence the quality of disclosure as a possible way of lowering conflict of interest. In line with the agency theory, our findings show that revenue related party transactions are more likely to be used to manage earnings than other types of transaction; related party transactions with ultimate parents are associated with lower probability of reporting small earnings increases compared to operations with other related parties. Lastly, our results confirm that the decision to engage in earnings management is related to lower disclosure quality.     

The outsourcing of primary activities: theoretical analysis and propositions

There is a considerable literature comparing the virtues of markets and hierarchies as alternative governance structures for economic transactions. But governance decisions are not simple dichotomous choices, and there has been increasing recent interest in the ‘swollen middle’ of hybrid organisational forms that combine market and hierarchical elements. One such hybrid is outsourcing, which has become a topic of considerable contemporary interest both in business circles and within the academic literature. The main contribution of this paper has been to combine the insights of resource dependency theory, the resource-based view of the firm, and transaction cost economics to provide both an explanation for the outsourcing of primary activities and a set of testable propositions about firms’ propensities of outsource.     

Corporate governance and stakeholder conflict

The stakeholder management literature is dominated by the ‘shareholder value’ and ‘inclusive stakeholder’ views of the corporation. Each views the governance problem in terms of inter-functional conflicts between stakeholder groups, such as between investors and managers or managers and employees, and rests on the assumption of an idealized corporate structure characterized by the separation of ownership from management. Our review of corporate governance and stakeholder conflict shows that such functional-based characterization is too simplistic and fails to account for important intra-functional conflict. Through a comparative review that considers managerial, stakeholder and family systems of governance, we demonstrate that, while the modality of conflict varies by system, substantial intra-functional conflict is endemic to each. We integrate the findings of the agency and comparative stakeholder theories of corporate governance to offer an authority-based framework with three different governance structures that offers complementary insights into stakeholder conflicts. Thus, our study highlights the important, but often neglected, intra-stakeholder type of conflict in various organizations and provides a basis for understanding their various manifestations and consequences under the different systems of governance.     

The view from the crossroads: Brazilian culture and corporate leadership in the twenty-first century

The transfer of western leadership theories and practices across the globe has inspired criticism in recent years, suggesting the need for local/indigenous theories of leadership. Such search, however, is troublesome in countries with a heterogeneous cultural background where the constant influence of outside cultural/social/economic parameters abound. The purpose of this article is to identify local/indigenous practices of leadership in one country with a heterogeneous cultural background – Brazil. In this conceptual article, we explore selected literature to investigate the topic of Brazilian culture and its particular style of corporate leadership.     

Related party transactions and audit fees: the role of the internal audit function

Related party transactions (RPTs) are viewed as genuine transactions that rationally fulfil other economic demands of a company. However, RPTs can also be used to transfer wealth from minority shareholders to controlling shareholders. The existence of such transactions may deteriorate financial reporting quality, increase audit risk, and as a result increase audit fees. This study examines the relationship between RPTs and audit fees in Malaysia, where ownership is often concentrated within a controlling family and corporate governance mechanisms are poor. It also investigates the moderating effect of the internal audit function (IAF) on this relationship. We find that external auditors base their fees on the types of RPTs undertaken. Specifically, our results show that audit fees are higher for firms that undertake RPTs involving the sale and purchase of assets, goods, and services. We also document that external auditors rely on the IAF, and thus their fees are lower for firms that undertake RPTs and that have made a large investment in an IAF. Our study is the first to provide evidence that RPTs in Malaysian firms may be abused as a channel to facilitate tunnelling and that the IAF plays a vital role in controlling such transactions.     

政治治理、管理层权力与国有企业过度投资

党组织参与公司治理是我国国有上市公司治理的重要特征。本文以2011-2016年国有上市公司为样本,研究了政治治理、高管权力与过度投资的关系。结果表明,管理层权力与过度投资显著正相关,政治治理对管理层权力起抑制效应,减小了管理层权力较大企业过度投资的可能性。党委书记或党委副书记兼任董事、党委书记或党委副书记兼任高管分别对管理层权力与过度投资的正向关系产生抑制效应,而党委书记任董事长与党委书记任总经理的政治治理模式则分别与管理层权力与过度投资的正向关系产生协同效应。分组检验结果表明,地方国有企业中管理层权力与过度投资的正向相关关系较之中央国有企业更为显著,政治治理的对于管理层权力与过度投资关系的抑制作用在中央国有企业中比在地方国有企业中更为显著;在2015年新文件发布之后,管理层权力与过度投资的正向相关关系不再显著,政治治理对管理层权力的抑制效应较新文件发布前更为显著,降低了管理层权力较高的企业过度投资的可能性。     

The Management of Workplace Conflict: Contrasting Pathways in the HRM Literature

This paper reviews the human resource management literature on the management of workplace conflict. It suggests that workplace conflict is commonly viewed in the literature as a symptom of management failure: the notion that conflict may be intrinsic to the nature of work because employees and managers have hard‐to‐reconcile competing interests is given short‐shrift. At the same time, the paper identifies important differences in the literature, which the authors call ‘pathways’, about the best methods to manage problems at the workplace. It is argued that four contrasting pathways can be detected in the literature with regard to how organizations approach workplace conflict management practices. Each pathway is examined fully and their respective strengths and weaknesses are assessed.     

论台湾仲裁制度的理论基础

仲裁是快速、经济地解决企业经贸争议的有效工具。企业经贸合同尤其是跨国交易,预先制定仲裁条款,或产生争议时签订仲裁协议,采用约定之仲裁法律或国际仲裁范例来裁判纠纷,能为企业经贸争议提供申诉与救济大途径。本文以现行台湾仲裁法律的主要构件为对象研究探讨台湾仲裁制度的理论基础,以为台湾地区内、外企业经贸合同签订与交易争议的求偿者参考。     

Trustworthiness as an economic asset

The evaluation of trust in economic decision making remains on the periphery of mainstream economic analysis and teaching. Yet business managers use trustworthiness in daily exchanges to create competitive advantages for their firms. An exploratory empirical test of Barney and Hansen’s three levels of trust (weak, semistrong, and strong) and Lewicki and Bunker’s portfolio of governance mechanisms revealed that strong-form trust exists in day-to-day business relationships along with other governance mechanisms. Identity-based transactions were more prevalent than were weak trust market exchanges in important economic transactions.     

Managing C-suite conflict: The unique impact of internal and external governance interfaces on top management team reflexivity

The ability of Top Management Teams (TMTs) to reflect critically on their own actions represents an important element of effective TMT decision making and governance effectiveness. This paper therefore examines how the TMT-board interface internal to the organization, as well as the TMT interface with the external supervisory authority, shape TMT reflexivity. Drawing from governance and psychological theories, we posit that cognitive conflict at the TMT-board interface can escalate by increasing levels of affective TMT-board conflict, and hereby, harm TMT reflexivity if not managed well. This proposition was tested in a multisource team-level data set collected in the field among TMTs (N = 111 TMT members) and their supervisory boards (N = 152 board members) of 56 Dutch insurance companies. The findings demonstrate that the link between cognitive and affective TMT-board conflict is mitigated by board membership influx. Yet in cases where conflict escalation does occur, its subsequent impact on TMT reflexivity hinges on the degree to which an external supervisory authority monitored TMT actions. The results illustrate that TMT decision making processes can be effectively influenced by internal and external TMT-governance interfaces, yet at different conflict stages, and through different governance actions.     

Multinational Organizations as Rule-following Bureaucracies — The Example of Catholic Orders

Within the literature, organizational rules are mostly taken for granted even though the reduction of office management into rules and the provision of their blueprints may be the main enabler for the management of organizations that conduct operations in multiple countries. Using the example of Catholic Orders and their monasteries, we analyze whether rule-following bureaucracy contributes to the management of multinational organizations (MNOs). The introduction of organizational rules and the redefinition of labor within these rules produced early medieval monasteries that were the most efficient organizations of this time, allowing them to spread rapidly throughout the world. Our main hypothesis is that governance by rules is a superior governance mechanism for MNOs. MNOs with more bureaucratic rules have accumulated a richer pool of encoded knowledge to deal with heterogeneous problems and, thus, are better forearmed to deal with complexity. The empirical findings mostly support this assumption. Bureaucratic governance may be thus an important but neglected topic for the management of modern MNOs.     

基于协同效应的企业内外部RD与创新绩效研究

内部R＆D投资和外部技术并购作为提升创新能力的重要源泉均受到学术界和实务界的关注。从内在机理和外部表现分析内外部R＆D间存在的协同效应,并从正、反两个角度论述关联并购对协同效应的影响。基于医药企业技术含量高、R＆D投入强度大、属于重点推进并购重组行业的特征,以2002年至2010年在沪、深证券交易所上市的A股医药行业公司为研究样本,构建OLS回归模型,通过LR检验进行实证研究。研究结果表明,内外部R＆D的协同效应存在于医药行业企业,能够提升企业绩效,单纯的进行内部R＆D投资或者只进行外部技术并购,都不是提升企业价值的最优技术创新模式;与大型企业和国有企业相比,该协同效应主要存在于小型企业和非国有企业中;不同于已有研究关注的控股股东利益驱动下的关联交易,关联并购作为一种特殊的关联交易,其具有的信息优势有利于企业内外部R＆D协同效应的实现。     

资本市场非线性理论研究综述与展望

资本市场种种“异象”的涌现和大量实证研究结果表明,有效市场假说和以之为基础的 现代资本市场理论体系与资本市场的实际情况存在着矛盾和冲突,在此背景下出现了一些研 究资本市场的非线性理论. 文章对分形、混沌、突变、行为金融学、协同市场假说等非线性理论 在资本市场的研究方法进行了论述,提出了当前它们存在的问题,并对资本市场非线性理论的 发展做出了展望     

How Independent,Competent and Incentivized Should Non‐executive Directors Be? An Empirical Investigation of Good Governance Codes

There is a commonly held conviction among governance scholars and practitioners that increasing the number of non‐executive directors may have beneficial effects on board practices. This view has gained momentum after each wave of scandals. Given the relevance of the issue in governance studies and practices, the aim of this paper is to investigate how independent, competent and incentivized non‐executive directors should be according to governance scholars and board best practices. To answer this question, we conducted a review of the literature on non‐executive directors. We then collected corporate governance codes developed worldwide at the end of 2005, and made a comparative analysis of their recommendations about the independence, the competencies and the incentives of non‐executive directors. Our results show that (i) non‐executive directors' independence is a commonly recommended governance practice, the meaning of which differs widely among countries; (ii) non‐executive directors' competencies and incentives are not considered a governance issue to be regulated in detail; (iii) agency theory and the search for appropriate board demography tend to dominate the recommendations of governance literature and codes. Our findings have implications for both research and practice.     

The Contribution of Work Representation to Solving the Governance Structure Problem

The aim of this paper is to explain in what ways work representation may contribute to an efficient governance structure. The insights from institutional economic theories will be applied to two different kinds of employee participation, namely trade unions and works councils. From the discussion it follows that the latter may be better equipped than the former to play an effective role in corporate decision-making, owing to its specific institutionalisation. The paper concludes with the finding that works councils could fulfil an important economic function, by protecting the interests of the employees as well as those of the shareholders.Several agency problems can be solved. By giving the workers consultation and codetermination rights, this will reduce their dependence on unilateral decisions by the management and may stimulate them to be more cooperative, leading to greater productivity and less monitoring costs. By giving the workers information rights, the management becomes more disciplined as well. Because contrary to trade unions the works councils usually do not determine the terms of employment, the owners of the firm do not need to fear that the employees will be able to extract a portion of the firm's profits.     

An Empirical Evaluation of Conflict in the Franchise System

This paper articulates the theoretical rationale for conflict in franchising, operationalizes conflict through the measurement of franchisee satisfaction and labels empirically supported stratified satisfaction levels. Two propositions are advanced in relation to the drivers of conflict in franchise systems. The first proposition is underpinned by relational exchange theory, which postulates that franchisee–franchisor goal congruence is important to the fulfilment of the alliance efficiencies which motivate inter-organizational forms. Cooperation, communication, coordination and commitment, as perceived by the franchisees, are used in the context of a survey instrument to operationalize goal congruence.
The second proposition involves franchisor-provided services. Transaction-cost analysis suggests that long-term contractual relationships must be flexibly interpreted and governed if the relationship is to be maintained over a series of transactions. We propose that the transactional intersection of the franchise system is in franchisor-provided services. The perceived importance and subsequent adequacy of delivery of these services established a tolerance zone within which transactions support and/or enhance the relationship between the franchisor and the franchisee.
The empirical objectives of the study are accomplished utilizing a questionnaire sent to nine franchise systems, to which 621 franchisees responded. Three clear clusters of franchisee conflict emerged in near equal proportions. The propositions are supported and illustrated empirically and in CHAID tree diagram form.     

Management-Derailment und System-Derailment

The discussion about Management Derailment (MD) has been intensifying in the past few years. We want to contribute to this discussion by considering MD in connection with System Derailment, a topic that is often the subject of debates on economic and business ethics. The current debate is characterized by the notion that in order to increase profits, companies employ more and more ethically questionable and sometimes illegal practices. In particular, we propose that socially irresponsible corporate governance corresponds with morally derailed members of the (a) top management, and (b) with mid and lower management. Specifically, we ask if moral derailment by top managers (“bad management”) can also lead to economic derailment (“mad management”), while ongoing work pressures for mid and lower managers can also be linked to their moral and individual derailment (“sad management”).     

Internal corporate governance mechanisms as drivers of firm value: panel data evidence for Chilean firms

The paper analyses to what extent ownership structure, capital structure, and dividend policy as corporate governance mechanisms drive the firm value. From a data panel of publicly quoted Chilean firms for the years 2002–2010, we find that there is an inverse U-shaped relationship between ownership concentration and firm value. The positive slope is supported by the supervision hypothesis; whilst the negative relation between ownership concentration and firm value is supported by the expropriation hypothesis. We also find that there is a positive impact of both leverage and the dividend pay-out on the firm value. In this case, these two mechanisms reduce the free cash flows which otherwise might be used opportunistically by managers in their own interests (free rider problem). Contrary to the previous empirical literature in Chile, it is found that the mere fact that a firm is affiliated to a business group/conglomerate impacts positively its value. This positive effect is basically driven by the development of intragroup capital markets, and the governance imposed by the rules of the conglomerate.     

Corporate governance effectiveness along the entrepreneurial process of a family firm: the role of private equity

This paper was motivated by the increasing interest in the corporate governance debate on how effective structure and processes may influence entrepreneurial transitions. Along the entrepreneurial process, little research to date has investigated the exit in the context of entrepreneurial family firms. Previous literature has considered the exit mainly as a failure for entrepreneurial families, but when uncertainties arise this choice may enable ownership transitions, thus facilitating survival and long term strategies. Among the exit options, a private equity buyout may balance the family’s wealth protection and the firm’s future growth. However, which family specific characteristics and strategic needs may affect the exit option still remains a neglected topic. Drawing on corporate governance literature and recent research addressing entrepreneurship in family firms, this paper investigates, by a single case study, the bridging role of private equity buyout for going through entrepreneurial transitions. Findings suggest that a private equity buyout is a governance mechanism that may sustain an entrepreneurial transition by realigning family interests and goals. It may also allow the family commitment for improving organizational capabilities required by an entrepreneurial transition.     

Governing complexity to challenge neoliberalism? Embedded firms and the prospects of understanding new realities

Many initial assumptions about the appeal of global development and governance have run aground on the shoals of countervailing realities and interests. The overall trend of political despair and disillusionment, the loss of confidence in the markets as a unique arbiter of value creation and distribution, and the marketable appeal of governance best practices seem to have reached their nadir. Management literature has begun to question these issues and to call for a deeper understanding of the dynamics of political, social and corporate change. The question of (corporate) governance is plural and needs multilevel approaches to meet the new challenges of complex realities, especially the pressure of neoliberalism with two central consequences: financialization and globalization of economies. In this reflexive article, we aim to initiate avenues for new thinking at the institutional, corporate and academic levels. Institutional and regulatory frameworks need to be seen as local systems connected internationally and not global systems adapted locally. Theoretical frameworks need to be more integrated to grasp the same phenomena with multiple lenses. Methodological approaches and tools need also to be reinforced mutually to overlay the dichotomic examination of these complex realities.