Accounting-Based Brand Scandals and the Implications for Firm-Level Advertising Spending

This study examines strategic firm-level advertising behavior around accounting-based brand scandal events. This analysis is guided by propositions presented in the brand scandal and marketing-finance literatures regarding firm response to brand scandal events. While, recent findings from the marketing-finance literature show that managers tend to reduce advertising when anticipating the release of negative information, this response is contrary to the established support and recommendation from the extant brand scandal literature. This inconsistency suggests that firms treat product-based brand scandal events different from accounting-based brand scandal events. A sample of firms accused of financial misreporting by the Securities and Exchange Commission (SEC) and US Department of Justice between 1977 and 2010 is used to examine the central research question and hypotheses regarding the relationship between accounting-based brand scandals and firm-level advertising spending. The results of this analysis provide empirical support for the relevance of advertising expenditures to firm’s approach to reputation management strategies in the wake of accounting-based brand scandals.

Performance Shortfalls and R&D Investment Change: Aspirations, Actions, and Expectations

Built on the Behavioral Theory of the Firm, the paper examines how firm response to performance feedback is influenced by firm expectation on the likelihood of an action to close the performance gap. Using firm level change in R&D intensity as a problemistic search behavior, we explore how performance shortfalls relative to social and historical aspirations may prompt underperforming firms to adjust its R&D investment intensity, and how the magnitude of this adjustment is moderated by firm resources, past experience, industry and market conditions. We conduct our analysis using a longitudinal sample of Chinese firms listed on the ChiNext Board between 2009 and 2017. Our results indicate that underperforming firms increase their R&D intensity to a larger degree than their over-performing peers and periods when these firms have substantial cumulated R&D spending, abundant organizational slack, and are competing in more dynamic industries. We also document that these moderating factors influence relationships between social and historical aspirations and R&D investment decisions in a distinct way. We conclude that firm internal resources, capabilities and external industry and market conditions all affect firm expectations, and consequently shape the direction and magnitude of organizational actions in response to performance aspirations.

Auditor Commitment and Turnover Intentions Following Negative Inspection Findings: The Effects of Regulator Enforcement Style and Firm Response

SUMMARY We examine the effect of the regulator's style (critical versus supportive) when enforcing negative inspection findings and the audit firm's response to those findings (increase or decrease audit process structure) on auditor professional and firm commitment and turnover intentions. We find no evidence that enforcement style impacts professional commitment, but that auditors are more inclined to leave the profession when the regulator adopts a critical enforcement style and when their firm increases audit process structure. We further find that firm commitment is lower when the firm increases audit process structure, and that this is most pronounced when the regulator adopts a supportive enforcement style. We find no evidence of firm turnover intentions being impacted by either enforcement style or firm response. Recognizing the importance of retaining competent and motivated auditors, our results highlight the care needed, and alternatives available, when regulators enforce, and firms respond to, negative inspection findings. Data Availability: Data are available from the authors upon request. JEL Classification: M42.

A Reputation for Resolute Action

This chapter explores how Soviet premier Nikita Khrushchev viewed the resolve of President Dwight D. Eisenhower, considering Khrushchev's decision making surrounding the 1958 Berlin Crisis. The historical record shows that Eisenhower's early statements were particularly influential to the formation of his reputation, as they created expectations of how he would behave in the future. However, Eisenhower was unable to solidify his reputation for resolve at the 1955 Geneva Summit, as Khrushchev perceived Secretary of State John Foster Dulles rather than President Eisenhower as being in direct control of negotiations at the summit. Yet, in the year leading up to the 1958 Berlin Ultimatum, Khrushchev's perception of who was in control of U.S. foreign policy shifted to emphasize the importance of Eisenhower to America's Berlin policy. And the president's statements leading up to the Berlin Crisis led Khrushchev to believe Eisenhower was unlikely to make major concessions on the issue. Eisenhower's subsequent firm response to the Berlin Crisis then confirmed Khrushchev's expectations of the president's resolve. Accordingly, Eisenhower established a reputation for resolute action that would last until the end of his presidency. Further evidence suggests that Eisenhower's actions as a general during World War II were influential to Khrushchev's early perceptions of the president.

Firm Response to Competitive Shocks: Evidence from China’s Minimum Wage Policy

The large regional variation in minimum wage levels during the period 2002–8 in China implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labour to capital, reduce employment growth and accelerate total factor productivity growth—particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labour cost shocks can be explained by differences in management practices and suggests that management quality and competitive pressure are complementary.