Research Magazine 2020

Research Magazine 2020

Coles Research Magazine Sixth Issue | 2020

Conducting innovative, actionable research for the business community is a critical part of the Michael J. Coles College of Business mission. The Coles Research Magazine allows us to spotlight this work each year and to recognize the talented faculty and students who are furthering our theoretical and practical understanding of business. The research featured in this edition includes four papers published in Financial Times top-50 journals as well as the work of two PhD students, the winners of the Coles College Outstanding Journal Publication and Community Engagement awards, participants in the fourth Summer Research Fellowship, the winners of the College’s Working Paper Series awards, and papers presented at the second annual Coles Research Symposium on Homeland Security. Readers will find executive summaries of each paper and a list of key takeaways. Research only achieves its full potential when the results reach those who can put them into practice. Through decades of relevant, high-quality research, Coles College has emerged as a leader in the global effort to enhance how scholars study business and organizations conduct it. I am extremely proud to present the latest issue of The Coles Research Magazine and to share the valuable work of our students and faculty.

Robin Cheramie Dean, Michael J. Coles College of Business Tony and Jack Dinos Eminent Scholar Chair of Entrepreneurial Management Kennesaw State University

Table of Contents

Journal Publications - Financial Times Top 50 Journals 4 Auditor Sensitivity to Real Earnings Management: The Importance of Ambiguity and Earnings Context By Benjamin P. Commerford, Dana R. Hermanson , Richard W. Houston, and Michael F. Peters 6 Greater Reliance on Major Customers and Auditor Going-Concern Opinions By Dan Dhaliwal, Paul N. Michas, Vic Naiker, and Divesh S. Sharma 8 Multiechelon Lot Sizing: New Complexities and Inequalities By Ming Zhao and Minjiao Zhang 10 Robust Inference for Consumption-Based Asset Pricing By Frank Kleibergen and Zhaoguo Zhan Journal Publication - Distinguished Journal 12 Corporate Social Responsibility Report Narratives and Analyst Forecast Accuracy By Volkan Muslu, Sunay Mutlu , Suresh Radhakrishnan, and Albert Tsang Community Engagement 14 Research and Services Related to the US-China Trade War By Xuepeng Liu Research Grant 16 Using Neurophysiological Tools to Understand How Individual Characteristics Relate to Cognitive Behaviors of Students By Adriane Randolph PhD Summaries 18 Threat Recognition in Incumbent Firms: A Case for Organizational Velocity By Alan Amling , Torsten Pieper, Joseph Astrachan, and Clayton Christensen

PhD Summaries 20 Making Good Decisions: An Attribution Model of Decision Quality in Decision Tasks By Bethany Niese , Reza Vaezi , Michael Gallivan, and Saurabh Gupta Coles Research Symposium 22 Integration, Repression and Fungibility of Foreign Aid under Endogenous Corruption By Abhra Roy 24 Direct and Indirect Effects of Human Capital on Domestic Terrorism By Aniruddha Bagchi and Benjamin Scafidi 26 Determining Optimal Policies to Maintain the Strategic Mix and Force Readiness of Enlisted Military Personnel By Leo MacDonald and Jomon A. Paul 28 Democracy, Personal Freedom, and Islamic State Fighters By Moamen Gouda, Shimaa Hanafy, and Marcus Marktanner Summer Research Fellowship 30 Mapping Neural Networks of Ideal and Actual Leaders: A Visual Representation of Implicit Leadership Theories By Graham H. Lowman Working Papers 32 Foreign Operations’ Effect on the Audit Quality of US Multinational Corporations: Evidence from PCAOB International Inspections By Yuyuan Chang, Yangyang Fan, and Duanping Hong 34 Corporate Philanthropy: Do Board Gender Diversity and CEO Gender Matter? By Divesh S. Sharma , Vineeta D. Sharma , and Lucy F. Ackert 36 How Private Nonprofit Hospitals Differ from Private For-Profit Hospitals in Average Inpatient Length of Stay? By Jomon A. Paul and Huan Ni 38 Performance Implications of Diversification Strategies of Business Group and M-form Firms By Saptarshi Purkayastha, Rajaram Veliyath , and Rejie P. George

* Coles College of Business faculty highlighted in bold.

Auditor Sensitivity to Real Earnings Management: The Importance of Ambiguity and Earnings Context Benjamin P. Commerford, Dana R. Hermanson, RichardW. Houston, andMichael F. Peters

Contemporary Accounting Research Vol. 36, No. 2 (Summer 2019), pp. 1055-1076

Overview Real earnings management (REM) involves altering transactions, such as cutting expenses, in order to meet financial targets. In recent years, REM has become more popular, as auditors appear to have restricted other ways of manipulating financial results. We explore how auditors react to REM, using an experiment administered to auditors. We use three levels of REM (none, possible REM, and explicit REM), and we also vary whether the hypothetical client exceeded or missed its profit target. We find that auditors encountering REM decrease their assessment of management’s tone, and indicate a greater chance that they would discuss their concerns with the board’s audit committee and not continue to serve the client. When the REM is explicit, auditors react regardless of the profit target, but they react to possible REM only when the target was exceeded. The key driver of auditors’ reaction to REM is management tone, suggesting that REM reflects poorly on management’s character.

4 | Journal Publications - Financial Times Top 50 Journals

Executive Takeaways

■ REM involves altering transactions, such as cutting expenses, to meet financial targets. ■ REM has become much more prevalent as auditors focus on accounting estimates. ■ We find that auditors view management negatively when there is REM. ■ A key indicator of REM is that the company exceeded its profit target.

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

Greater Reliance on Major Customers and Auditor Going-Concern Opinions Dan Dhaliwal, Paul N. Michas, Vic Naiker, and Divesh S. Sharma

Contemporary Accounting Research Vol. 37, No. 1 (Spring 2020), pp.160-188

Overview In this study, we predict and provide evidence that distressed firms that rely heavily on sales to major customers have a high incidence of receiving going- concern opinions (GCOs), and this effect is driven by the most distressed firms. We also find that variations in key characteristics of the relationship between a distressed firm and its primary customer are incrementally linked to GCOs; specifically, the GCQ effect of greater reliance on major customers is driven by firms that are relatively smaller than their largest major customer. Additionally, GCOs are more likely when firms are in a shorter relationship with their major customer and have a different auditor than the major customer. Overall, our study indicates that supply-chain relationships are relevant business risks associated with auditors’ going-concern assessments.

6 | Journal Publications - Financial Times Top 50 Journals

Executive Takeaways

■ Financially challenged suppliers’ reliance on major customers can be a bane or a boon. ■ Major customers can take advantage of vulnerabilities to increase a supplier’s financial risk. ■ Auditors can provide insights to better manage risks in the supply chain. ■ Supply-chain relationships should be carefully monitored, evaluated, and managed.

Divesh Sharma, Professor of Accounting

Multiechelon Lot Sizing: New Complexities and Inequalities

Ming Zhao andMinjiao Zhang

Operations Research (forthcoming)

Overview We study a multiechelon lot-sizing (MLS) problem for a serial supply chain where demands can exist at the single production level as well as any of several transportation levels. Assuming stationary production capacity and general cost functions, our mixed-integer programming model integrates production, inventory, and transportation decisions, and generalizes existing literature on many multiechelon lot-sizing models. We answer an open question in the literature by showing that the MLS problem with intermediate demands is NP-hard. We develop polynomial-time algorithms for both uncapacitated and capacitated MLS with a fixed number of echelons. The results outperform many known algorithms developed for various MLS models. We also present families of valid inequalities for MLS that generalize known inequalities. For the uncapacitated case, we develop a polynomial-time separation algorithm and efficient separation heuristics. Finally, we demonstrate the effectiveness of a branch-and-cut algorithm using the proposed inequalities to solve large multi-item MLS problems.

8 | Journal Publications - Financial Times Top 50 Journals

Executive Takeaways

■ Production, inventory and transportation decisions are challenging in supply chain systems. ■ The MLS problem with a fixed-charge cost structure is NP-hard. ■ Computational complexities of many uncapacitated and capacitated MLS cases are improved. ■ Several families of existing valid inequalities for MLS are generalized. ■ The proposed branch-and-cut algorithms are efficient in solving large MLS instances.

Minjiao Zhang, Associate Professor of Quantitative Analysis

Robust Inference for Consumption-Based Asset Pricing

Frank Kleibergen and Zhaoguo Zhan

Journal of Finance Vol. 75, No. 1 (February 2020), pp. 507-550

Overview The reliability of traditional asset-pricing tests depends on (i) the correlations between asset returns and factors; and (ii) the time-series sample size T compared to the number of assets N. However, for macro-risk factors, like consumption growth, they often cannot be trusted. We extend the Gibbons-Ross-Shanken statistic to identify risk premiums and construct their 95-percent confidence sets. These sets are wide or unbounded when T and N are close, but when T exceeds N by a considerable margin, average returns are not fully spanned by betas. Our approach enables meaningful empirical inferences.

10 | Journal Publications - Financial Times Top 50 Journals

Executive Takeaways

■ In asset pricing, different consumption measures lead to different empirical findings. ■ Traditional tests fail to encompass the questionable quality of consumption measures. ■ We provide two robust inference methods for risk premiums.

Zhaoguo Zhan, Associate Professor of Economics

Corporate Social Responsibility Report Narratives and Analyst Forecast Accuracy VolkanMuslu, Sunay Mutlu, Suresh Radhakrishnan, and Albert Tsang

Journal of Business Ethics Vol. 154 (2019), pp. 1119–1142

Overview The information released in stand-alone corporate social responsibility (CSR) reports varies considerably because they are voluntary. In this study, we develop a disclosure score based on the tone, readability, length, and numerical and horizon content of CSR reports and examine its relationship to analyst forecasts. We find that high disclosure scores are associated with more accurate forecasts, while forecasts for firms that scored low are no more accurate than those for firms that do not issue CSR reports. The findings, driven by experienced rather than first- time CSR reporters, are robust to controlling for firm characteristics, including CSR activity ratings and financial narratives. Together, they suggest that more substantial CSR reports improve analysts’ forecast accuracy.

12 | Journal Publications - Distinguished Journal

■ We develop a disclosure score based on the content of stand-alone CSR reports. ■ Our disclosure score offers guidelines for improving CSR reports. ■ The content and style of CSR report narratives affect market participants. ■ External assurance of CSR reports complements the effects of the disclosure scores. Executive Takeaways

Sunay Mutlu, Assistant Professor of Accounting

Research and Services Related to the US-China Trade War

Xuepeng Liu

Overview Dr. Xuepeng Liu has done extensive research on US-China trade. He has been following the development of the recent trade war closely and sharing his research and expertise as an analyst of the tax-evasion behaviors traders exhibit when they face a sudden increase in barriers. He has published several papers on the subject in top (A+/A level) journals, which have been widely cited in both academic and policy circles. Some are featured on influential academic websites, such as the VOX, a policy portal to promote "research-based policy analysis and commentary by leading economists." Out of a sense of duty, Dr. Liu has presented his opinions at various events and contributed nontechnical writings to journals like China Currents and media outlets like The Telegraph (UK), GateHouse Media (US), and Weekendavisen (Denmark). He suggests a gradual approach to re-negotiate the US-China trade deal, like the US-Japanese negotiations in the 1980s, although its course may be affected by the severity of the COVID-19 pandemic. Dr. Liu also provides professional service to the US-China Business Council and the US Air Force, advising them on trade rerouting/transshipments and technology transfer during the trade war.

14 | Community Engagement

■ Dr. Liu has published on US-China trade in top journals in his field. ■ He is an expert on the tax-evasion behaviors of exporters and importers. ■ He is engaged in research and service related to the US-China trade war. ■ He has been interviewed by various domestic and international media on the trade war. Executive Takeaways

Xuepeng Liu, Professor of Economics

National Science Foundation Grant: Using Neurophysiological Tools to Understand How Individual Characteristics Relate to Cognitive Behaviors of Students

Adriane B. Randolph and Kimberly Linenberger Cortes

Overview Neurophysiological tools are increasingly used to examine cognitive behaviors in cross-disciplinary educational settings. In a three-year study funded by the National Science Foundation, “Collaborative Research: Modeling for the Enhancement of Learning Chemistry (ModEL-C): Measuring cognitive load & impact of modeling activities across the chemistry curriculum,” Drs. Adriane B. Randolph (Department of Information Systems) and Kimberly Linenberger Cortes (Department of Chemistry and Biochemistry), in collaboration with faculty at the University of Minnesota Rochester, are using brainwaves and eye-tracking technologies to model the cognitive load of undergraduate chemistry students. In one study, they recorded the EEG of students interacting with an information system for visualizing molecules and found that meditation, levels of athleticism, and medication affecting alertness practices significantly and positively correlate with increased cognitive load. Neurophysiological tools may enable instructional designers to facilitate students’ engagement without overloading them. The NSF award, issued under the Education and Human Resources program for Improving Undergraduate STEM Education, concludes this spring, but a no-cost extension will support another year of >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42

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