Research Magazine 2019

Coles Research Magazine Fifth Issue | 2019

Welcome to the fifth edition of the Coles Research Magazine.

Coles Research Magazine highlights outstanding business research conducted by College faculty and students. The abstracts and executive summaries cover a broad range of topics and include both applied and discipline-based research. In that way, the magazine embodies the College’s research mission to develop thought leaders who advance business practice and theory. This edition features abstracts of Doctoral student and faculty collaborations, papers that won College research awards, and papers presented at the first Coles College Research Symposium. Held in fall 2018, the symposium was a showcase for research on improving all aspects of global security. Our faculty research builds on the solid foundation of business education to create ideas, elucidate and challenge accepted concepts, and develop leaders who change their communities and the world. I remain exceedingly proud of the work of our faculty members and guarantee that you will enjoy this edition of the Coles Research Magazine.

Kathy S. Schwaig Provost and Vice President for Academic Affairs Michael J. Coles College of Business Kennesaw State University

Table of Contents

Journal Publications - Financial Times Top 50 Journals Informed traders’ performance and the information environment: Evidence from experimental asset markets By Lucy F. Ackert, Bryan K. Church, and Ping Zhang Do debt covenants constrain borrowings prior to violation? Evidence from SFAS 160 By Moshe Cohen, Sharon Katz, Sunay Mutlu, and Gil Sadka 4 6

Journal Publication - Outstanding Impact

8

Corporate governance research in accounting and auditing: Insights, practice implications, and future research directions By Joseph V. Carcello, Dana R. Hermanson, and Zhongxia (Shelly) Ye

Journal Publication - Distinguished Journal

10

Espionage and the optimal standard of the Customs-Trade Partnership against Terrorism (C-TPAT) program in maritime security By Aniruddha Bagchi and Jomon A. Paul

Doctoral Research Summaries

12

An exploratory study of organizational security risk management for improved effectiveness By Angela Jackson-Summers, Humayun Zafar, Traci Carte, and Adriane Randolph Intuition in employee selection: Examining the conditions for accurate intuitive hiring decisions By Vinod Vincent, Rebecca Guidice, Neal Mero, and Stacy Campbell

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Applied Research

16

Logistics jobs in Georgia By Michael Maloni and Stacy Campbell

Coles Research Symposium

18

Optimal standard of human rights in countering an insurgency By Aniruddha Bagchi and Jomon A. Paul Socially optimal IT investment for cybersecurity By Jomon A. Paul and Xinfang (Jocelyn) Wang Conflict and aid dependency – An explorative study motivated by the case of Palestine By Marcus Marktanner and Almuth D. Merkel Natural disasters and their impact on cooperation against a common enemy By Timothy Mathews and Jomon A. Paul

20 22

24

Summer Research Fellowship

26

Competitive awareness of emerging and developed economy multinationals By Canan C. Mutlu Do foreign lenders face different enforcement in the U.S.? By Sunay Mutlu

28

Working Papers

30

Decision-support model for cybersecurity risk planning: A two-stage stochastic programming framework featuring firms, government, and attacker By Jomon A. Paul and Minjiao Zhang

32

The dark side of crowdfunding platforms By Susan L. Young and Birton Cowden

* Coles College of Business faculty highlighted in bold.

Informed traders’ performance and the information environment: Evidence from experimental asset markets

Lucy F. Ackert, Bryan K. Church, and Ping Zhang

Accounting, Organizations and Society, Vol. 70 (October 2018), pp. 1-15

Overview We designed 18 experimental markets to investigate the effect of the information environment on informed traders’ performance. We vary the number of informed traders across experimental markets, representing different information environments and posit that the cost of information affects traders’ ability to prosper. Traders bid to acquire costly but imperfect information on asset value, then participate in a double-auction asset market. Using the inverse relationship between cost of information and number of informed traders, we assessed whether traders can properly determine the value of the information under environments defined as enriched or impoverished based on the number of informed traders. We find that traders in an impoverished environment pay too much for information and, once informed, do not transact enough to recover its cost. Surprisingly, traders who compete for information that confers a strong advantage do worse than those who compete in an environment where information is more widely available.

4 | Journal Publications - Financial Times Top 50 Journals

Executive Takeaways

■ When market information is very costly, traders overestimate their ability to generate profit. ■ Self-focus leads traders to pay too much for information and risk too little to protect this advantage. ■ To hide their advantage, informed traders do not trade enough to recover the cost of information. ■ When information is less costly, many traders become informed, speeding dissemination.

Lucy F. Ackert, Professor of Finance

Do debt covenants constrain borrowings prior to violation? Evidence from SFAS 160

Moshe Cohen, Sharon Katz, Sunay Mutlu, and Gil Sadka

The Accounting Review (forthcoming)

Overview Prior evidence shows that leverage is reduced after covenant violations, but we do not know whether leverage is affected before covenants are violated. In December 2007, the US Financial Accounting Standards Board (FASB) issued SFAS 160, which mechanically relaxed certain covenant types. This study uses SFAS 160 as an exogenous, accounting-based shock to debt covenants that relaxed their tightness to examine whether covenants constrain leverage for borrowers that are close to violation, even when they are financially healthy. We find that SFAS 160 increased debt levels in firms that were close to violation and that financially healthy firms drove this increase. We conclude that the likelihood of future covenant violations could impede borrowing. We also find an increase in investment sensitivity to Q after SFAS 160 in firms close to violation, suggesting that the additional debt was used to make legitimate investments. Because SFAS 160 was passed during the financial crisis, generalizing our findings to normal financial periods is difficult.

6 | Journal Publications - Financial Times Top 50 Journals

Executive Takeaways

■ A new accounting standard in 2007, SFAS 160, mechanically relaxed certain covenant types. ■ Financially healthy firms with relaxed covenants borrowed more after SFAS 160. ■ These firms used their additional borrowings to fund legitimate investments. ■ This evidence shows that tight covenants restrict borrowing even before they are violated.

Sunay Mutlu, Assistant Professor of Accounting

Corporate governance research in accounting and auditing: Insights, practice implications, and future research directions

Joseph V. Carcello, Dana R. Hermanson, and Zhongxia (Shelly) Ye

Auditing: A Journal of Practice & Theory, Vol. 30, No. 3 (August 2011), pp. 1-31

Since the mid-1990s, academic accounting researchers have examined the relation between board of directors and audit committee characteristics and a variety of accounting and auditing outcomes, including fraud, earnings management, earnings quality, auditor quality, and internal control effectiveness. Researchers consistently have found that good governance “on paper” (e.g., boards and audit committees with independent, expert members) consistently is associated with better accounting and auditing outcomes. However, reforms, such as the Sarbanes-Oxley Act, to improve the independence and expertise of corporate directors and the adoption of governance best practices now are causing many boards and audit committees to look similar. As a result, the ability to link good governance on paper with good accounting now is fading. We discuss a number of practice implications and avenues for research in the post-Sarbanes-Oxley environment. Overview

8 | Journal Publication - Outstanding Impact

Executive Takeaways

■ Good board / audit committee traits have been associated with good accounting outcomes. ■ Regulation and best practices are causing boards and audit committees to look similar. ■ The ability to link good governance on paper with good accounting now is fading. ■ We offer many avenues for future research in the new governance landscape.

Dana R. Hermanson, Professor, Dinos Eminent Scholar Chair of Private Enterprise

Espionage and the optimal standard of the Customs-Trade Partnership against Terrorism (C-TPAT) program in maritime security

Aniruddha Bagchi and Jomon A. Paul

European Journal of Operational Research, Vol. 262, No. 1 (October 2017), pp. 89-107

Overview

We examine the effect of espionage on optimal design of the C-TPAT (Customs Trade Partnership Against Terrorism), a trusted-trader program administered by US Customs and Border Protection (CBP) on behalf of the Department of Homeland Security. A major CBP concern is that one of the many containers passing through ports can be used to import a “dirty” bomb. Inspecting every container would be expensive and slow down trade. C-TPAT was introduced to manage this problem. Firms that sign up make some expenditures to secure their supply chain in exchange for priority processing of their goods at the port of entry. We examine how other factors, such as the quality of information about terrorist groups, affects C-TPAT efficacy. First, we predict that terrorist groups are likely to smuggle weapons infrequently but to focus on highly lethal weapons. Second, if the CBP requires a higher standard of supply-chain security from trusted traders, we identify circumstances that will decrease or increase firms’ propensity to sign up. Third, we demonstrate that, although counterintuitive, social welfare may increase in response to an increase in the opportunity cost of time.

10 | Journal Publication - Distinguished Journal

Executive Takeaways

■ Espionage and role of standards in the implementation of trusted trader program considered. ■ Government underspends on espionage relative to the congestion-minimizing level. ■ Membership size depends non-monotonically on each of these policies. ■ Highly motivated terrorists will smuggle deadlier weapons less often. ■ An increase in the opportunity cost of time can enhance social welfare in certain situations.

Jomon A. Paul, Professor of Quantitative Analysis Aniruddha Bagchi, Professor of Economics

An exploratory study of organizational security risk management for improved effectiveness Angela Jackson-Summers (PhD Graduate) Humayun Zafar (Dissertation Chair) Traci Carte (Second Supervisor) Adriane Randolph (Reader)

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