A PENSION DECISION MODEL FOR THE EMPLOYER*

Recently, the Financial Accounting Standards Board (FASB) reevaluated accounting for pension plans. The issue is emotional and highly political in nature. The FASB attempted to justify its approach on the basis of measuring economic activity, but it failed to provide much in the way of analytical support. This paper provides a managerial decision model and an economic basis for the existence of pension plans. A pension plan is described as a cost-saving, risk-sharing, incentive contract. The analysis is developed using agency theory. The model presented here meets three suggested objectives of an employer: 1. Maximization of utility through the maximization of profit 2. Ability to conform the risk characteristics of an employment contract to the risk characteristics of the employer 3. Diversification of the risk inherent in the employment contract Profit is maximized by producing cost savings associated with employee tenure and loyalty. Sharing cost savings with employees (i.e., offering a pension plan) meets the above objectives. The employer determines the optimal sharing rate for the expected cost savings. An examination of the employer's underlying decision process reveals implications for pension plan accounting which generally are consistent with and support the FASB's Statement of Financial Accounting Standards No. 87 [5].     

AN EMPIRICAL ANALYSIS OF THE TAX COURT'S DETERMINATION OF REASONABLE COMPENSATION

The determination of reasonable compensation is one of the most frequently contested issues between the taxpayer and the IRS. The major purpose of this study is to develop a multiple regression model to predict accurately the amount of compensation allowed by the Tax Court as a percent of the amount in dispute between the taxpayer and the IRS. In general, the taxpayer receives favorable treatment in Tax Court when contesting unreasonable compensation payments. The multiple regression model, developed using a stepwise procedure, is a good predictor of the compensation allowed by the court. The overall results have important implications for developing taxpayers' appeal strategies.     

THE INDUCE VERSUS PURCHASE DECISION: AN EMPIRICAL ANALYSIS OF INDUSTRIAL R&D*

With the recent slowdown in productivity growth within the economy, R&D has come under scrutiny as a policy target variable. If such targeting is to be effective, it must be realized that not all innovations employed within a firm are induced by the firm through its own R&D: many innovations are purchased through technological licensing or in the form of new capital equipment. Here, interfirm differences in this “make” versus “buy” strategy are analyzed within the context of the Utterback-Abernathy production process lifecycle. Our findings suggest that (1) alternative sources to a firm's R&D for stimulating innovation may prove a viable strategy for federal targeting and (2) extrapolating the Utterback-Abernathy model to an industry formulation has empirical validity.     

Notes and Communications “A DECISION THEORY EXAMPLE IN FOOTBALL”: A COMMENT*

Janssen and Daniel analyzed the choice between a one- or a two-point conversion for a particular game situation in college football. Their decision criteria was maximum expected utility based on a von Neumann-Morgenstern utility function defined over the games outcomes. An alternative approach based on a stochastic dominance criterion is presented that does not rely on knowledge of the relative importance of tying vs. winning; rather, it relies on a notion of consistency in the sequential problem.     

AN EMPIRICAL ASSESSMENT OF COMPUTER-ASSISTED DECISION ANALYSIS*

Decision analysis tools often are used in semistructured and ill-structured situations. While some researchers have argued that computerized decision analysis programs may improve decision quality in such situations, research support for this assertion is weak. In this laboratory study, business students used a computerized decision-analysis program with short strategic-management cases to prepare decision reports. Independent raters' perceptions of aided and unaided decision performance were contrasted, attitudes of students toward the program were assessed, individual differences were correlated with attitudes, and the program's impact on students' perceptions of their decision processes and performance was examined. Student attitudes toward the computerized aid were favorable, and individual differences in reactions generally were as predicted. However, the program did not improve the independent ratings of students' decision reports and recommendations. These findings suggest that computerized decision aids should be adopted cautiously. If such aids result in positive user affect and heightened decision confidence without corresponding improvements in decision quality, they may be dysfunctional. Rigorous research methodologies which incorporate independent evaluations of analyses and decisions are recommended for use in future research on computerized decision-analysis programs.     

AN ANALYSIS OF THE USEFULNESS OF DISAGGREGATED ACCOUNTING DATA FOR FORECASTS OF CORPORATE PERFORMANCE*

The purpose of this paper is to derive the conditions under which disaggregated accounting data contribute to more accurate forecasts of corporate performance. A comparison formula is derived and applied to actual data. The results obtained indicate that disaggregated data do not necessarily produce better forecasts of corporate performance than do aggregated data. The paper concludes with implications of the results to some reporting issues.     

Structure of Uncertainty and Decision Making: An Experimental Investigation*

Decisions in the real world usually involve imprecise information or uncertainty about the precesses by which outcomes may be determined. This research reports the results of a laboratory experiment which examined whether the structure of uncertainty, namely, both the center and the range of the probability distribution describing the uncertainty, is an important determinant of choice. Specifically, it examines how the uncertainty of audit by the Internal Revenue Service of income tax returns affects taxpayers' decisions about intentional noncompliance. The context is relevant as almost nothing is known about how taxpayers assess detection risks using the probability information they have. The study focuses on intentional noncompliance. The factors affecting it are distinct and separate from those affecting unintentional noncompliance. Other factors that affect intentional tax noncompliance, such as risk, tax rates, and penalty rates, were controlled in the experiment. It was hypothesized that the lower the mean and the lesser the range (ambiguity) of the perceived audit probability, the greater the international noncompliance. As hypothesized, the analysis indicates that both the mean and the range of the perceived audit probability rate affect intentional noncompliance, though the effect of ambiguity is greater at a relatively higher level of mean. This result suggests that the strength of the information describing an uncertain event is captured better by both the mean and the range of the uncertainty than either of those components singly.     

THE IMPACT OF PROBABILISTIC INFORMATION ON DECISION BEHAVIOR AND PERFORMANCE IN AN EXPERIMENTAL GAME

This research presents the results of a longitudinal experiment using experimental gaming. The results suggest that probabilistic information did change decision behavior and improve subject performance in the experiment. Moreover, there appeared to be a learning effect associated with the use of probabilistic information. Finally, the source of information (externally supplied by the researcher or generated by the subjects themselves) had an impact on decision behavior and performance in the experiment.     

MULTIPLE-CRITERIA DECISION MAKING INCLUDING QUALITATIVE FACTORS: THE POST-MODEL ANALYSIS APPROACH

As a method of solving multiple-criteria decision making problems with a single quantitative objective and multiple qualitative objectives, the post-model analysis (PMA) approach is proposed. The essence of PMA is to support the trade-offs between a quantitative objective and multiple qualitative objectives so that the decision maker can find a perceived most preferred nondominated solution. To this end, the optimal solution of a quantitative model is found first, without regard for qualitative factors. The solution is then evaluated in terms of qualitative objectives. When the initial quantitatively optimal solution is adjusted to allow improvement of qualitative goals, opportunity costs of achieving qualitative goals are incurred. In this process, an expert system and/or graphical display can be used. PMA therefore provides a way to incorporate quantitative models into knowledge-based expert systems.     

INFLUENCE OF POWER BASES IN ORGANIZATIONAL DECISION MAKING: A CONTINGENCY MODEL*

The relative influence of four power bases was investigated in four decision-making contexts using data from forty successfully implemented decisions. The analysis suggests that position power decreases in influence while resource power and political power increase in influence as decision contexts vary from less to more uncertainty. Expert power derives its influence when organizational uncertainty is low and when technical uncertainty is reduced, whereas political power thrives when organizational uncertainty is high and when technical uncertainty remains high. Indexing the influence of power bases provides greater understanding of decision processes than the sociological or social-psychological approaches of studying participation.     

Applications and Implementation DETERMINING THE REWARDS SALESPEOPLE VALUE: A COMPARISON OF METHODS*

Although salesmanagers can attempt to motivate salespeople by manipulating their rewards, these manipulations will fail if salespeople do not value the rewards and their levels. Methods for determining valued rewards can therefore be important to those charged with their determination. This study compares three measurement schemes for assessing salespeople's valences for various rewards: functional measurement, conjoint analysis, and thermometer scaling. All three schemes produce similar conclusions as to how rewards are valued and the acceptable tradeoffs among them. Thermometer scaling outperformed the others with respect to the time it took to secure the judgments and the palatability of the task, while conjoint measurement performed least well in these respects.     

A CANONICAL ANALYSIS OF MANAGERIAL-ENVIRONMENTAL RELATIONSHIPS: IMPLICATIONS FOR METHODOLOGY AND POLICY*

The present study uses canonical analysis to examine the contingency model of organizations in the nursing home field. Data on environmental pressures and managerial practices relevant to the decision-making process are analyzed. Results support the theory that managerial practices are contingent on environmental pressures. The implications of these results for health-care decision makers and for future assessments of managerial-environmental relationships are discussed.     

THE STRUCTURE OF EXECUTIVE INFORMATION SYSTEMS: AN EXPLORATORY ANALYSIS

This paper reports on a study which attempted to identify the structure of executive information systems and evaluate their relationship to decision making. The study centered on answering the question: “Where and how do senior executives get their decision-making information?” The data, provided by five senior executives, were gathered by a variety of means which included personal interviews, questionnaires, and logs of the executives' incoming-information transactions for a two-week period. Our findings support beliefs that senior executives receive much information from the environment, that informal systems play a role equal to that of formal systems, and that computers do not provide much information directly to an executive. The study also found that internal information is important and that preferred sources and media vary with different decision roles. The authors suggest that the scope of MIS and DSS be broadened to match those information networks managers actually rely on in daily practice.     

PREDICTING STOCK MARKET BEHAVIOR THROUGH RULE INDUCTION: AN APPLICATION OF THE LEARNING-FROM-EXAMPLE APPROACH*

An artificial intelligence-based rule-induction approach to the analysis of stock market prediction is presented. A single investment analyst was used as the expert for this study. Predicting intermediate fluctuations in the movement of the market for nonconservative investors was selected as the decision to analyze. Commercially available rule-induction software was used to generate rules that predicted the market calls of the market analyst and the actual movements of the market. Rules predicting actual market movement performed better than rules predicting the analyst's calls and better than the analyst himself. Such an approach may prove useful in designing a decision support system for market analysts or in improving the decision-making processes of such analysts. The dynamic nature of the stock market represents a substantially different decision environment than those previously analyzed by learning-from-example (LFE) techniques. This study provides insights into the limits and applications of LFE approaches.     

IMPACT OF PARTICIPATION IN THE BUDGETARY PROCESS ON MANAGERIAL ATTITUDES AND PERFORMANCE: UNIVERSALISTIC AND CONTINGENCY PERSPECTIVES*

Data from responsibility-center managers reveal that greater budgetary participation contributes to managerial performance and attitudes in high-environmental-uncertainty situations but hampers performance and attitudes in low-uncertainty situations. Higher budgetary participation reduces managers' propensity to create slack in high- (but not in low-) uncertainty conditions.     

Bringing Japanese Continuous Improvement Approaches to U.S. Manufacturing: The Roles of Process Orientation and Communications*

Continuous improvement (CI) has played a key role in Japan's quality management. U.S. companies have begun to adopt CI in recent years. This paper studies the implementation of CI in seven U.S. manufacturing companies. We view values as the core concept of culture that impacts CI effectiveness. Using both qualitative and quantitative data with a sample of seven companies, we observe empirically a relationship between process-oriented values and CI effectiveness. We also find that communications involving workers is strongly associated with CI effectiveness. Finally, we find an association between process orientation and communication frequency, and argue that communications act as an intervening variable between process orientation and effectiveness.     

THE PLANT LOCATION DECISION IN MULTINATIONAL MANUFACTURING FIRMS: AN EMPIRICAL ANALYSIS OF INTERNATIONAL BUSINESS AND MANUFACTURING STRATEGY PERSPECTIVES

The paper combines perspectives from international business and manufacturing to examine multinational plant location decisions. The location choice in manufacturing is between integrated and independent plants, while the international choice is between a foreign and domestic plant relative to their headquarters' country. The study empirically investigates whether these choices have different plant location determinants using data from a survey of plant managers of large, multinational firms. We find more evidence that the manufacturing choices benefit from consideration of international business issues than vice versa. However, managers rank determinants associated with manufacturing strategy considerably higher than those associated with intemational business.