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Publication date: 29 October 2024

Sachin Banker, Rajiv D. Banker, Angelika Dimoka and Eunbin Whang

Allocation problems in accounting require joint costs to be allocated among participating agents. In this setting, however, unfair allocations can stifle cooperation and lead to…

Abstract

Allocation problems in accounting require joint costs to be allocated among participating agents. In this setting, however, unfair allocations can stifle cooperation and lead to inefficient group outcomes. Then, what qualifies as fair enough for individual agents to agree to cooperate and extract joint benefits? Building on prior analytical literature that has offered perspectives involving joint cost allocations, we experimentally evaluate two common notions of fairness that present competing predictions in the cost allocation context – proportionality and equality. We operationalize two notions of fairness using a behavioral approach and examine which fairness notion prevails in cost allocation problems. More specifically, we examine fairness considerations in the cost allocation context using a modified ultimatum game, where joint cost savings can only be acquired through cooperation between two agents and individual contributions are varied transparently. Our experimental evidence suggests that fairness considerations in cost allocations coincide more with the proportionality notion when individuals make different contributions to create joint benefits. These findings provide important insights on the key rationale underlying the prevalent cost allocation method in accounting practices and the design of fair cost allocations that promote cooperation among agents.

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Advances in Accounting Behavioral Research, Volume 27
Type: Book
ISBN: 978-1-83608-280-4

Keywords

Available. Open Access. Open Access
Article
Publication date: 2 December 2016

Vincent Charles and Rajiv D. Banker

374

Abstract

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Journal of Centrum Cathedra, vol. 9 no. 2
Type: Research Article
ISSN: 1851-6599

Available. Open Access. Open Access
Article
Publication date: 10 July 2017

Vincent Charles and Rajiv D. Banker

255

Abstract

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Journal of Centrum Cathedra, vol. 10 no. 1
Type: Research Article
ISSN: 1851-6599

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Article
Publication date: 1 May 1997

Rajiv D. Banker and Alex Thevaranjan

The impact of accounting earnings based compensation contracts an effort allocation is analyzed using an agency‐theoretic model. In this model, the CEO of a publicly traded firm…

105

Abstract

The impact of accounting earnings based compensation contracts an effort allocation is analyzed using an agency‐theoretic model. In this model, the CEO of a publicly traded firm expends effort on operational short‐run activities and strategic long‐run activities. The shareholders desire the CEO to expend more effort in the strategic long‐run activities because the return to shareholders depends more on long‐run than short‐run activities. More specifically, they desire the effort to be allocated between these two activities on the proportion of the sensitivity of stock returns to these two activities. Compensating the CEO based on the stock returns performance measure is shown to induce the CEO to exert the desired proportion of effort in the long‐run activities. Unlike stock returns, accounting earnings are believed to focus more on the short‐run performance of the firm and not reflect the full impact of a CEO's long‐run effort. Compensating the CEO based on accounting earnings, in addition to stock returns, is shown to induce the CEO to expend less than the desired proportion of effort in long‐run activities. As the emphasis placed on accounting earnings relative to stock returns increases, the CEO decreases the proportion of effort expended in long‐run activities. On the positive side, including accounting earnings in the contract increases the total effort that the CEO exerts in short‐run and long‐run activities. The benefit accruing from the increase in total effort more than offsets the dysfunctionality caused by the short‐run focus. More specifically, adding accounting earnings to the incentive contract is shown to increase the expected return to the shareholders. In summary, while accounting earnings cause the CEO to be short‐run focused, their use in the incentive contract improves the firm's performance by motivating the CEO to work harder overall.

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Managerial Finance, vol. 23 no. 5
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 March 1994

James M. Kurtenbach and Robin W. Roberts

Accounting researchers have performed many studies related to public sector budgeting and financial management. Public sector accounting research seeks to explain the role of…

212

Abstract

Accounting researchers have performed many studies related to public sector budgeting and financial management. Public sector accounting research seeks to explain the role of accounting and auditing in the public sector. For example, researchers examine issues such as (1) the use of accounting information by elected officials, (2) the demand for auditing, and (3) the determination of bond ratings. This review of the public sector accounting literature describes some of the theoretical foundations utilized in public sector accounting research and reviews a sample of selected empirical studies.

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Journal of Public Budgeting, Accounting & Financial Management, vol. 6 no. 2
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 10 June 2014

Rajiv D. Banker, Raj Mashruwala and Arindam Tripathy

The purpose of this paper is to investigate the relationship between the strategic positioning of firms and the sustainability of firm performance. The paper argues that pursuing…

29051

Abstract

Purpose

The purpose of this paper is to investigate the relationship between the strategic positioning of firms and the sustainability of firm performance. The paper argues that pursuing a differentiation strategy leads to more sustainable financial performance compared to following a cost leadership strategy. However, a differentiation strategy may also be associated with greater risk.

Design/methodology/approach

To investigate the research questions, the authors utilize publicly available archival data consisting of 12,849 firm-year observations for the period 1989-2003. In the first stage of the analysis, factor analysis is used to determine firms’ strategic positioning. The resulting factor scores are subsequently used in regression analysis to investigate the sustainability of performance based on the strategic positioning of firms.

Findings

The results indicate that both cost leadership and differentiation strategies have a positive impact on contemporaneous performance. However, the differentiation strategy allows a firm to sustain its current performance in the future to a greater extent than a cost leadership strategy. The differentiation strategy, though, is also associated with greater systematic risk and more unstable performance.

Originality/value

Sustainability of performance refers to how much a firm's current profitability can be sustained in future periods. The main contribution of this study is the comparison of generic strategies based on the sustainability of firm performance. This aspect of the strategy-performance link has not been considered in prior work. Another contribution of the study is that it considers multiple dimensions of firm performance in order to evaluate the trade-offs involved with pursuing different strategies. In particular, the authors contribute to the literature by documenting that while differentiation leads to more sustainable earnings, it also leads to riskier and more unstable earnings.

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Management Decision, vol. 52 no. 5
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 1 March 1994

K. K. Raman and Wanda A. Wallace

The relationship between the size of state audit budgets, audit responsibilities, professional characteristics of staff, risk, and tax and expenditure limitations is explored…

59

Abstract

The relationship between the size of state audit budgets, audit responsibilities, professional characteristics of staff, risk, and tax and expenditure limitations is explored. Bivariate relationships are examined and then a model is estimated which controls for size, complexity, financial risk factors, and political risk factors. This provides a framework for considering the incremental influence of specialized audit inputs. Both "brand names" and size have been used in past research to proxy for quality dimensions intended to differentiate the audit product provided by different suppliers. This research extends such work by considering characteristics of the auditing services as reflected by specific inputs and by using cost data rather than audit fee data. The states are observed to differ in their responses to financial and political factors by spending resources on peer review, continuing professional education, certifications of professional staff, and expertise in both the computer science area and in law. A positive association of cost and auditor differentiation, implicit in past audit fee literature is corroborated.

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Journal of Public Budgeting, Accounting & Financial Management, vol. 6 no. 3
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 1 March 1997

Connie Rae Bateman, Neil C. Herndon and John P. Fraedrich

This paper represents a discussion of transfer pricing (TP). Key factors are identified and propositions developed from tax accounting and other perspectives. Stages of the TP…

548

Abstract

This paper represents a discussion of transfer pricing (TP). Key factors are identified and propositions developed from tax accounting and other perspectives. Stages of the TP decision process are identified along with the critical factors directly affecting sales and a TP audit. Propositions are derived which show relationships among these variables and tax rates, competition, and TP methodologies. Finally, academic research implications are suggested.

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International Journal of Commerce and Management, vol. 7 no. 3/4
Type: Research Article
ISSN: 1056-9219

Available. Content available
Book part
Publication date: 29 October 2024

Free Access. Free Access

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Advances in Accounting Behavioral Research, Volume 27
Type: Book
ISBN: 978-1-83608-280-4

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Book part
Publication date: 6 May 2003

Abstract

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-84950-207-8

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