Choosing between the formal and informal economy: how do managers decide?

PurposeWe raise and address an unexamined research question: Why do managers place some business activities in the formal economy and others in the informal? This firm-level managerial choice is most visible in emerging economies and is important due to its performance implications.Design/methodology/approachWe theorize that managers use social ties with formal institutions (e.g. parliament, central bank) to protect against (1) being singled out for enforcement and (2) opportunistic business partners, and that these protections allow managers to conduct more activities in the informal economy. Based on regulatory focus theory, we also submit that managers with a promotion (prevention) focus mindset are more (less) prone to use their social ties with formal institutions to emphasize the informal economy. Hypotheses are tested using survey data from 362 Lebanese top managers.FindingsManagers' social ties with formal institutions relate positively to their propensity to use the informal economy, and managers with a promotion mindset are more willing and those with a prevention mindset are less willing to leverage their social ties with formal institutions to conduct activities in the informal economy.Originality/valueOur study raises an important new research question at the intersection of strategic and international management and offers an initial answer. Working within the informal economy requires informal social ties among informal actors, but for formally registered firms, entry into the informal economy requires informal ties with formal actors.

Behavioural Determinants of Green Managerial Practices: A Study on Bangladeshi Bankers

The study aims to determine the influential factors behind the choice of green actions by the banking employees of Bangladesh. Hypotheses and a research framework are developed with a view to explore the relationship of green managerial choice of bankers with perceived green knowledge, peer pressure, rewards and recognition and government regulations in ensuring environmental performance. A self-administered questionnaire was utilized for collecting primary data and exploratory factor analysis was tested to verify the variance of the considered variables and finally multiple-regression analysis was used to comprehend the relationship among the variables. A positive relationship was identified with peer pressure and rewards and recognition that may influence the employees to accept the overall green policies and practices. The study can help the business administrators to identify the dominating factors and work on these factors to motivate the employees to increase their environmental behaviour so that organizational environmental performance can be enhanced.

From the Design of Structures to the Designing of Organizations

The chapter starts with a historical outline of organization design featuring the following trends: • Contingency and configuration • The Simonian design tradition • Institutional organization design • Cognitive, situated, and generative approaches • Systemic approaches from business economics. Next, the chapter turns to an analysis of future trends, based on three proposals. The first concerns the growth of design thinking, which although containing a host of proposals for organization design change, it is so far not seen as an organization designing trend. Second, the trend of managerial choice and action as the focus of organization design is brought back from classical organization theory but with a new twist, that is, the role of the manager is now split into three separate but integrated activities—strategizing, designing, and managing. Third, it is proposed that the turn in some management literature towards language and meaning would become the focus of managerial action under the new design-inspired paradigm.

If Higher Pay Is Profitable, Why Is It So Rare? Modeling Competing Strategies in Mass Market Services

Several case studies suggest that firms targeting mass market services can align profitability with jobs offering a living wage, stable schedules, and engaging work. Yet, few do. To understand this puzzle, we draw on theories of firms as systems of interdependent choices. Building on a few cases, we map the processes connecting managerial choice to performance and formalize the resulting performance landscape. In a strategy space defined by two dimensions—task richness and compensation—two local profitability peaks emerge: one with low compensation and low task richness and one with high compensation and high task richness. The bimodal landscape results from complementarity among choices and is robust when the strategy space is expanded from two to six dimensions and under many alternative parameterizations. Exploring how firms discover, move to, and remain at the high-compensation–high-task richness peak, we find three challenges to this strategy: (a) contextuality—adoption, imitation, and replication are harder for strategies that rely on interdependences among components and thus, require significant customization for each context; (b) temporal complexity—strategies depending on long-term and synergistic investments and slow-moving reinforcing feedbacks are hard to learn owing to misleading performance feedback; and (c) variable demand with no inventory buffers—efforts to adjust labor supply to highly variable demand in services often lead to unstable schedules given with short notice that drive quality employees away and compromise the strategy. These mechanisms can undermine promising strategies even if the actual performance landscape includes a small number of local peaks.

Earnings management and earnings predictability: A quantile regression approach

This study argues that the managerial choice of earnings management strategy could be contingent upon a firm’s information asymmetry and such a strategy may affect the firm’s earnings predictability. Measuring information asymmetry by earnings predictability based on the subsequent industry-adjusted dispersion in analysts’ forecasts and employing a quantile regression to analyze 28,383 US firm-year observations from 1988 to 2014, this study reports that the effect of earnings management strategies on earnings predictability is nonuniform. Specifically, the amount of absolute discretionary accruals is negatively (positively) related to the subsequent industry-adjusted dispersion in the low (high) quantiles of analysts’ forecasts. These results support the hypothesis that a firm could implement earnings management strategies according to the degree of information asymmetry between the firm’s management and corporate outsiders. JEL Classification: G12, G32

DECISION SUPPORT IN MANAGING THE PROCESS OF REORGANIZATION OF SOCIAL INSTITUTIONS IN THE REPUBLIC OF BANGLADESH

The paper deals with the problem of managing the process of reorganizing the social institutions in the People’s Republic of Bangladesh and with possible solutions through the use of decision support methods. This problem arose as a result of the implementation of social programs aimed at increasing the social institution effectiveness on the basis of autonomy of social institutions from the state subsidies. To formalize the system of social institutions, a graph representation is proposed. The project of the theoretical foundations of decision support in managing the reorganization of social institutions is presented by the method that uses the comparison of alternatives. The control actions are formed decisions taken on changing the current structure of social institutions aimed at maximizing the utility function value. Using the method of managerial choice on the modification of available network at the cost of adding the new social institution has been demonstrated by the example of the a managerial decision problem including a new social institution “hospital”. There have been singled out the groups of criteria which are used to estimate the alternatives. To increase the quality of decision making there has been applied a second assessment of generalized criteria, analyzed the nature of hierarchical structure of the network and a geographic situation of the new node.

Shareholder Influence on Joint Venture Exploration

In this study, we theorize about how different types of institutional investors influence firms’ choice of exploration versus exploitation for their joint ventures (JVs). Exploratory JVs engender risk, uncertain outcomes, and ex post contractual updating, whereas exploitative JVs allow for ex ante contracts. We argue that dedicated institutional investors (DIIs), who maintain concentrated holdings over time regardless of current earnings, offer tolerance for failure and reward for long-term success that encourages managerial choice of exploratory JVs. Transient institutional investors (TIIs), who trade frequently based on near-term performance metrics, prefer ex ante contracts and use exit to discipline managers who do not meet their short-term performance objectives. This suggests that TIIs may influence managers to reduce the extent to which they choose exploratory (as opposed to exploitative) JVs. Furthermore, we argue that the transactional governance of TIIs gives way to the relational monitoring of DIIs when both types of shareholders are present. As a result, the likelihood of choosing exploration, versus exploitation, as a JV formation strategy is greatest in the presence of high DII and TII ownership. We examine JVs among S&P 500 firms over the years 2000 to 2010, and results largely support our theory.

Comparative Analysis of the Traditional Models for Capital Budgeting

<p>Financial decision making for investing firms requires metric tools for comparison and analysis. The managerial choice among many investment alternatives with complex possibilities has made it easier to rely on the now more advanced computer programs of simulation that considers the uncertainty and stochastic changes in the cash flow and risk levels. The major drawback here, especially in the academic world, is the increasing dependency on software and departing from the underlying mathematical reasoning that is most practically fathomed by the manual problem solving. This paper goes back to the tradition on analyzing and comparing the major models of capital budgeting.</p>