Mizou-college of Business

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University of MissouriColumbiaCollege of Business May 2007


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Inder K. Khurana , Xiumin Martin , and Raynolde Pereira

There are two con icting views on nancial development.One view is that nancial development does not produce any real e ects in that it has no impact on a countrys economicgrowth. More recent research, however, disputes this con-tention. Speci cally, recent research points out that lack o

nancial development increases the cost o external nancingand impedes a rms ability to invest in potentially pro tableinvestment projects. Te authors contribute to this inquiry by investigating the impact o nancial development on rm

cash policy.I external nancing is costly, theory contends that a rmshould increase its cash holdings by saving a higher level o its cash ows rom operations. Tese cash savings, however,can be costly since they may involve oregoing investments inthe current period. However, theory contends that rms willbe willing to incur this opportunity cost to invest in poten-tially more pro table uture projects. Tere ore, investigating

whether a rms cash savings rate is higher in nancially underdeveloped countries can provide insights on rm cashpolicy. A ter all, cash is a ungible asset that can be easily diverted. Hence, there is considerable concern as to whether a

rms cash policy is undertaken in the best interests o a rmowners. I nancial constraints impede a rms ability toinvest in potentially pro table projects, then managers actingin shareholder interests should undertake a cash policy thatcorresponds with the level o nancial constraints.

Using rm-level observations, the authors wereable to directly study managerial decisions asopposed to simply studying country-level aver-age behavior. Using data rom 35 countries rombetween the years 1994 to 2002, they ound apositive and signi cant relationship between

rm cash savings rate and nancial development.Probing urther, they ound that cash savings ratesare particularly higher among smaller rms andthat cash savings rates tend to be higher duringbusiness cycle downturns. Both these e ects aregreater in nancially underdeveloped countries.

aken together, the evidence is consistent with managerssaving cash to ease nancing constraints.Overall, this study provides timely evidence o the impact o

nancial development. Te evidence points to the act that alack o nancial development imposes nancial constraintson rms. More importantly, the study shows that rms arenot passive observers. Rather, they respond to these nancingconstraints by adopting higher cash savings rates.

Journal of Financial and Quantitative Analysis (2006),41:787-807.

From le t,Inder K. Khurana, Pro essor o Accountancy and DeloittePro essor; Xiumin Martin , PhD student in accountancy; andRaynolde Periera, Assistant Pro essor o Accountancy

Financial Development and the Cash FlowSensitivity o Cash

The evidence points to the act that a lack ofnancial development imposes fnancial constraints

on frms.


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Murali K. Mantrala , P.B. (Seethu) Seetharaman, Rajeeve KauSrinath Gopalakrishna , and Antonie Stam

A major problem or most retailer chains is making availathe right quality product to the right consumer at the right pricein the right store. Te authors o this article have developed,

or an automotive a termarket retailer, a solution to this prob-lem that acilitates optimal pricing strategies or quality tiereproduct lines.Te automotive a termarket retail industry supplies replacemenparts, accessories, maintenance items, batteries, and so orthor do-it-yoursel repairs to cars. Due to the recent economicdownturn, the increased usage o cars, as well as technologicachanges to cars that require more expensive parts, this industrhas seen growth as consumers try to save money.Because pricing is a critical success actor in todays retail wothe research team collaborated with a leading U.S. auto a ter-market retailer (AAR) to design and implement a model oroptimal pricing o their products. Troughout its 3,400 storesin 42 U.S. states, AAR sells nearly 1,000 product categoriesand eatures 200 di erent items in each category. All o theseproducts have several di erent levels o product a goodbetter, and best di erentiation, each with unique prices an

demand. Te research team was able to analyze sales and prod-uct-cost data on the store level rom the AAR national databaand established a model that would help AAR price its di eren

product levels to maximize pro t.Tis model allowed AAR to determine customer pricesensitivities and elasticities or di erent products. Tstudy suggested that AAR would bene t rom a sligreduction o prices in all three variants (good, betterbest) in hal o their stores, while a little more thanone-third o their retail locations could bene t romraising prices. Te researchers also noted that AAR could gain by narrowing the price gap between thegood and best variants. By using optimized pricinstead o the existing pricing strategy, AAR couldincrease their pro ts anywhere rom 23 percent to63 percent. Tey also ound that pro ts are typically more sensitive to under pricing than overpricing and,

just like the old saying location, location, location, that thelocation o stores a ects sales and price sensitivities. AAR cause this in ormation when deciding on new retail locations.Te model proposed by the researchers was implemented torecommend prices or one category o a product in 200 storesand resulted in a pro t increase o more than $610,000 or

AAR. Needless to say, AAR has decided to roll out the model other categories.

Journal of Marketing Research (2006), 43:588-604.

Optimal Pricing Strategies or an AutomotiveA termarket Retailer

The study suggested that AAR would beneft roma slight reduction o prices in all three variants (good,

better, best) in hal o their stores, while a little more

than one-third o their retail locations could beneft

rom raising prices.

From le t, Antonie Stam , Pro essor o Management and Leggett &Platt, Inc. Distinguished Pro essor o In ormation Systems;Murali K.Mantrala , Pro essor o Marketing and Sam M. Walton DistinguishedPro essor o Marketing; andSrinath Gopalakrishna, AssociatePro essor o Marketing


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This article explores evidence o tipping, which is the provi-sion o sell-side analysts initial research reports on a stock to aselect number o institutional clients prior to the release o therecommendation to the general public. Te avored institutionalclients then have a chance or pro table trading opportunitiesbased on their knowledge o the upcoming release. Select insti-tutional clients that use this in ormation to make a decision tobuy be ore the recommendations are released to the public havea leg up on other buyers/speculators (in general, they are able tobuy be ore the price rises as a result o a buy or strong buy initialrecommendation). Te sell-side rms have a nancial incentiveto tip their institutional clients because passing on in ormationabout upcoming recommendations can strengthen the business

relationship between institutional clients and the brokeragerm. Although some might question the legality and ethics o this practice, it is technically not banned. Tere are rulesexplicitly prohibiting trading by NASD member rms basedon analysts research reports, but these rules do not address

whether clients may act on this in ormation. Although somerms have guidelines against this in their own policies, there

is not an overall law regarding this practice.

Tipping

Andy Puckett , Assistant Pro essor o Finance

Although some might question the legalityand ethics o this practice, it is technically not

banned.

o test whether tipping is occurring in practice, theresearchers analyzed their hypothesis by searching or initialbuy recommendation releases and studying trades during a

window that spanned rom 60 trading days prior to 60 trad-ing days post the public release. Tey looked at the tradingactivity and compared market-wide trades to institutionaltrades. Teoretically, the day the analysts initial recommen-dation is announced to the public is when the most activity

would occur. Te researchers ound this to be true; however,they also noticed that institutional trading peaked about ourdays prior to the release o the recommendation, which isevidence consistent with tipping activity. Tey also oundthat on strong buy recommendations there was even moreinstitutional buying, which indicates that institutional trad-ing is related to characteristics o the upcoming recommenda-tion. In act, institutional imbalance increased rom approxi-mately 0.004 percent o shares to 0.019 percent prior to theinitiation. Although this does not seem like much, the totalimbalance that results is 145.3 million shares more than what

would normally be expected. Overall, this tipping results inaverage pro ts o $469,818 or the top decile o buyers.Te researchers conclude that there is evidence o unusualinstitutional trading during a period o about ve days priorto the public release o analysts recommendations, whichpoints to the possibility that institutions may be privy to thecontents o analysts initial upcoming reports prior to theirpublic release. Tis suggests that tipping occurs in practiceand that those investors who receive this in ormation aretrading at an advantage to the normal investor without thisknowledge.Tis research suggests that in the uture the SEC or Congressmay want to look into the practice o tipping to urtherinvestigate how inside knowledge may a ect pricing.

Review of Financial Studies (forthcoming 2007).

Paul Irvine, Marc Lipson, and Andy Puckett


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Dan Turban , Chair, Department o Management, and StephenFurbacher Pro essor o Organizational Change, advising PhD student

Wan Yan

Anyone who has ever managed a work orce knowsthat all employees are di erent. Tey come rom di erentbackgrounds and li e experiences that have shaped them andtheir di erent perspectives on work, the workplace, and theirrole in it. Te authors studied how employee perceptions o procedural justice and individual di erences in what makeseach employee tick a ect their organizational citizenshipbehavior. Organizational citizenship behavior (OCB) isde ned as behavior that is bene cial to the organization,discretionary (i.e., not mandated by company policy), and hasan important impact on the e ectiveness and efciency o theorganization. Altruism, courtesy, and conscientiousness areall examples o OCB.Te extent to which employees per orm OCB depends, inpart, on employees role de nitions (i.e., whether employeessee such behaviors as part o the job), although little isknown about how employee role perceptions are ormed.Nonetheless, scholars have proposed that OCB role de ni-tions o ten emerge as personally held belie s that can bein uenced by a persons social exchange relations (basedon reciprocity that individuals give bene ts to others inexpectation o receiving something equivalent back) and by an individuals pro-social role and that roles implications(e.g., i you see yoursel as a civic-minded person, you may volunteer in the community, serve on boards, etc.). It has

also been shown that i employees are treated airly, they willrespond in kind (e.g., work hard).Te researchers developed several hypotheses relating to thesetheories and tested them by implementing a study o 220 en-gineers and their immediate supervisors rom a Fortune 500company in India. Tey measured the employees perceptionson a variety o di erent individual and justice variables andrelated them to the OCB role de nitions and behaviors.Tey ound that employees are more likely to de ne their

jobs broadly when they believe they are being treated airly.Importantly, but perhaps not surprisingly, employees whohad broader role de nitions (saw organizational citizenshipbehaviors as part o their job requirements) were more likely to engage in organizational citizenship behaviors. Further,

when employees elt airly treated, they were more likely toengage in OCBs. Employees per ormed ewer OCBs whenthey were treated un airly. Notably, employees engaged inmore OCB when they saw the behavior as part o their joband/or elt that they were treated airly. Such results indicatethat to increase OCBs, which are bene cial or the rm,managers should attempt to broaden employees role de ni-tions and ensure that employees are treated airly.

o summarize, this study shows that employees perceive theirrole obligations di erently. It also demonstrates the impor-tance o employee role perceptions and how they in uencean employees behavior in the workplace. Managers not only should strive to be air at all times but should also actively attempt to broaden employee perceptions o their work tasks(within reason). Because employees who see discretionarybehaviors as part o their role are more likely to per orm suchbehaviors, managers should attempt to create broad role de -nitions through socialization processes and perhaps through

ormal and in ormal rewards. Because evidence has linkedorganizational citizenship behaviors with rm per ormance,such activities can be quite bene cial or rms.

Journal of Applied Psychology (2006), 91:841-855.

Dishan Kamdar, Daniel J. McAllister, andDaniel B. Turban

All in a Days Work: How Follower IndividualDi erences and Justice Perceptions PredictOCB Role Defnitions and Behavior

They ound that employees are more likely todefne their jobs broadly when they believe they

are being treated airly.


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The Time Frames oEntrepreneurs

The researchers study thee ects o derivative lawsuitson a companys boardo directors. Derivativelawsuits are brought by acorporations shareholderson behal o the rm andagainst a third party, suchas a manager or board o directors, when the thirdparty commits a wrongdo-ing, which can range rommismanagement to breacho loyalty.

While the derivative law-suit is designed to be a legal

mechanism to protect shareholders and regulate corporatemanagement, critics claim that these suits are rivolous anddriven by attorneys whose sole interests are in settlement eesTe researchers claim that the lawsuits actually do serve theirpurpose by publicizing the rms problems and encouragingthe rm to initiate corrective changes, o ten in their board odirectors.Te authors examined derivative suits in the U.S. rom 1982to 1999. By ollowing the lawsuits or ve years a ter they

were led, the authors tracked the results and monitored thesuits e ects on the board. Tey compared rms that hadsuits led against them with a control group composed o similarly sized rms in related industries that had no suits

led against them. About 18 percent o the lawsuits weredismissed or withdrawn, 63 percent o the judgments were

settled, and 19 percent o the outcomes were not determined.Te researchers ound that the rms sued generally had largerboards but had the same percentage (about 30 percent) o internal directors as the control groups had. Tey also oundthat the departure rate o board members increased a terlawsuits, supporting their claims that lawsuits usually causepositive changes ( ewer insiders on board) in corporate gover-nance. Additionally, the board size tended to decrease, and alower percentage o CEOs held dual roles as board chairmen.Tis evidence suggests that derivative lawsuits ultimately dolead to bene cial adjustments in corporate governance.

Journal of Financial and Quantitative Analysis (2007),42:143-166.

Derivative Lawsuits as aCorporate GovernanceMechanism: EmpiricalEvidence on Board ChangesSurrounding Filings

Allen C. Bluedorn , andGwen Martin

Stephen P. Ferris, Pro essor o Finance and James Harvey RogersChair o Money, Credit andBanking

Allen C. Bluedorn, AssociateDean and Emma S. HibbsDistinguished Pro essor

Entrepreneurs obviously have a di erent mindset thanmany others in the business

world. Tey would pre er tobe their own boss rather than

work or someone else, orexample. Te authors explorevarious other entrepreneurialmind rames, includingentrepreneurs views abouttime and how these attitudesrelate to work habits andstress levels.Te authors ound that interms o temporal depth,

entrepreneurs consider 30 days to be short term, three monthsto be middle, and three years to be long term. Tese time

rames are all shorter than the ve-year time rame traditionally considered by most to be long term. A possible explanation orthis speeded up time rame is entrepreneurs rush to be rst tomarket their new products.Te authors also explore entrepreneurs level o pre erence orpolychronicity, which is the extent to which people pre er tobe engaged in multiple tasks simultaneously. Te sampledentrepreneurs varied considerably in their pre erred levels o polychronicity, and the authors ound that the higher the levelso polychronicity the entrepreneurs pre erred, the more apt they

were to work quickly and not be punctual.Tese attitudes toward time impact the entrepreneurs level o stress. Te authors ound that those with longer-term views hadless stress in their lives. Tis longer-term view, or uture temporaldepth, may be associated with planning and thinking about theuture, which may be related to a rms success and survivability.Te results o this study provide a solid base o comparison or

uture temporal research on entrepreneurs.

Journal of Business Venturing (forthcoming 2007).

Stephen P. Ferris ,Tomas Jandik, Robert M.Lawless, and Anil Makhija


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Inder K. Khurana and K.K. Raman

The trend or Big 5 rmsto provide consultingservices to their audit clientsgenerated widespreadcriticism o the perceivedquality o Big 5 audits inthe nineties. Tis trend ledto a complex relationship

which could underminethe auditors role as anindependent watchdog, andthere ore the integrity o the

nancial statements. Tisarticle investigates whetherinvestor perceptions o the

nancial reporting credibility o Big 5 audits are related to theauditors economic dependence on the client.Te ndings in this study suggest that both nonaudit as well

as total ees are perceived negatively by investors, that is, thehigher the ees paid to the auditor, the greater the impliedthreat to auditor independence, and the lower the nancialreporting credibility o a Big 5 audit. Te lesson to be learned

rom this is that recent regulatory initiatives to limit nonauditees may not have adequately addressed the perceived, i not

the actual, threat to auditor independence posed by ees.

Contemporary Accounting Research (2006), 23:977-1016.

Can Good MarketingCarry a Bad Product?Evidence rom the MotionPicture Industry

Inder K. Khurana , Pro essor o Accountancy and Deloitte Pro essor

Do Investors Care Aboutthe Auditors EconomicDependence on the Client?

Mark B. Houston , AssociatePro essor o Marketing and Davidand Judy ONeal MBA Pro essor(pictured) and Shrihari Sridhar ,PhD student in marketing.

Torsten Hennig-Turau,Mark B. Houston , andShrihari Sridhar

Have you ever goneto a movie with great an-ticipation and then beendisappointed? Te authorsexplore movie studiosmarketing actions and thee ect these actions canhave on box ofce results.Because o the motionpicture industrys nature,sometimes a lm that isnot very high quality canstill garner huge open-ing-weekend earnings dueto the studios marketinge orts (including promo-tion and distribution) thatpreceded the lms debut.

Trough this study, the researchers discover that although astudios marketing actions can carry a poor-quality movietemporarily, in the long term the movies quality has moreimpact on its success than the marketing. Many people may come to watch a lm the rst weekend as a result o e ectivemarketing, but consumers will eventually stop going to seethat lm i its quality is poor.

Marketing Letters (2006), 17:205-219.


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Lisa K. Scheer, Associate Pro essoro Marketing and Emma S. HibbsDistinguished Pro essor

Customer Loyalty toWhom? Managing theBenefts and Riskso Salesperson-OwnedLoyalty

Xuemin (Sterling) Yan and Zhe (Joe) Zhang

I you could know orsure which horse would

win the Kentucky Derby next year, you would beton it, right? Having betterin ormation than the nextguy is how investors achievesuccess on the stock marketand are able to buy low and sell high. Do someinstitutional investors havebetter in ormation thanothers? Te authors explorethe relationship betweeninstitutional investors

investment horizons and their in ormational roles in the stockmarket.Institutions are grouped based on how actively they trade.

Tose who trade most actively are classi ed as short-terminstitutions; those who trade least actively are classi ed aslong-term institutions. Institutions that have an in ormationaladvantage are expected to exploit it and trade more actively.Consistent with this expectation, there is strong evidence thatshort-term institutions trading orecasts uture stock returns.In contrast, there is no evidence that long-term institutionstrading predicts uture returns. Short-term institutions alsoseem to possess superior in ormation about uture earnings.Collectively, these results suggest that short-term institutionsare better in ormed and that they trade actively to exploittheir in ormational advantage.

Review of Financial Studies (forthcoming 2007).

Institutional Investors andEquity Returns: Are Short-Term Institutions BetterIn ormed?

Xuemin (Sterling) Yan , AssistantPro essor o Finance

Robert W. Palmatier, Lisa K. Scheer, and Jan-BenedictE.M. Steenkamp

Customer loyalty hasmany bene ts or a rm,including increased sales,lower costs, and the ability to charge customers higherprices. But loyalty can be adouble-edged sword. Teresearchers investigate how much o a customers loy-alty is actually loyalty to the

rm and how much can beattributed speci cally to thecustomers relationship withone o the rms salespeople.Many companies survey their

customers and ask how much they plan to buy in the uture,how committed they are to doing business with the company,etc. Managers assume the answers to these questions reveal how loyal those customers are to the company.Te researchers ound a way to assess salesperson-owned loyalty that part o a buyers loyalty to the rm that resides speci -cally with the salesperson. Tey studied business-to-businessseller-customer relationships involving manu acturers reps by surveying both the buyer and the salesperson and by investigat-ing the buyers purchases rom the sellers records.Te authors hypothesized that salesperson-owned loyalty positively a ects the selling rms nancial outcomes directly and by increasing the customers loyalty to the selling rm.Customers who have greater loyalty to the rm are more willingto pay a price premium, but customers who have salesperson-owned loyalty not only are more willing to pay a price pre-mium, but they also will buy a wider variety o products andspend more with that seller. Salesperson-owned loyalty can havea stronger and broader e ect on nancial outcomes than generalloyalty to the seller.Customer loyalty is generated be relationship marketing e orts(e.g., special services, dedicated personnel, nancial incentives),but when the salesperson is able to take credit or those e orts,that resulting loyalty will be vested more with the salespersonthan with the selling rm. I , however, the selling rm is ableto ensure consistency across all personnel and communications

with the customer, it is less likely that relationship marketinge orts will generate salesperson-owned loyalty.

Journal of Marketing Research (2007), 44:185-199.


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ChairsBailey K. Howard World Book Chair in Marketing S. Ratti Ratneshwar , Department Chair and Pro essoro MarketingEstablished in 1975 by Field Enterprises Charitable Corp.

Missouri Bankers ChairEstablished in 1986 by the Missouri banking community John S. Howe , Pro essor o Finance

Emma S. Hibbs/Harry Gunnison Brown Chairof Business and EconomicsEstablished in 2002 by Sherlock HibbsTomas W. Dougherty , Pro essor o Management

Emma S. Hibbs/Frederick A. Middlebush Chairof Entrepreneurship Established in 2002 by Sherlock HibbsRichard A. Johnson, Pro essor o Management

James Harvey Rogers Chair of Money, Credit and Banking Established in 2002 by Sherlock HibbsStephen P. Ferris , Pro essor o Finance

ProfessorshipsCurators ProfessorshipEstablished in 1968 by the University o Missouri Boardo Curators Jere R. Francis , Pro essor o Accountancy

Ernst & Young Professorship in Accountancy Established in 1982 by Ernst & Young, LLPLoren A. Nikolai , Pro essor o Accountancy

KPMG/Joseph A. Silvoso Distinguished ResearchProfessorship in Accountancy Established in 1989 by KPMG Jere R. Francis , Pro essor o Accountancy

PricewaterhouseCoopers/Joseph A. Silvoso Distinguished Professorship in Accountancy Established in 1989 by PricewaterhouseCoopersVairam Arunachalam , Pro essor o Accountancy

Curators Teaching ProfessorshipEstablished in 1990 by the University o Missouri Boardo Curators James A. Wall, Jr ., Pro essor o Management

Stephen Furbacher Professorship of Organizational Change Established in 1991 by Stephen FurbacherDaniel B. urban , Department Chair and Pro essoro Management

Joseph A. Silvoso Directorship in Accountancy Established in 1992 by riends o Joseph A. SilvosoTomas P. Howard , Accountancy Director and Pro essoro Accountancy

Faculty Members with Named Positions

Sam M. Walton Distinguished Professor of Marketing Established in 1992 by Sam M. Walton Murali K. Mantrala , Pro essor o Marketing

BKD ProfessorshipEstablished in 1992 by BKD, LLP Elaine G. Mauldin , Associate Pro essor o Accountancy

Raymond W. Lansford Distinguished Professorshipof Leadership Established in 1998 by riends o Raymond W. Lans ordBruce J. Walker , Dean and Pro essor o Marketing

Leggett & Platt, Inc. Distinguished Professorshipof Information SystemsEstablished in 2000 by Leggett & Platt, Inc. Antonie Stam , Pro essor o Management

David and Judy ONeal MBA Professorship Established in 2001 by David and Judy ONeal Mark B. Houston , Associate Pro essor o Marketing

Frances Ridge Gay MBA Professorship Established in 2001 by David and Judy ONeal Arthur G. Jago , Pro essor o Management

Emma S. Hibbs Distinguished ProfessorshipEstablished in 2002 by Sherlock Hibbs Allen C. Bluedorn , Associate Dean and Pro essoro Management

Emma S. Hibbs Distinguished ProfessorshipEstablished in 2002 by Sherlock HibbsLisa K. Scheer , Associate Pro essor o Marketing

Myron Watkins Distinguished Professorship Established in 2002 by Sherlock Hibbs Marsha L. Richins , Pro essor o Marketing

Deloitte ProfessorshipEstablished in 2004 by partners and employees o Deloitteand the Deloitte FoundationInder K. Khurana , Pro essor o Accountancy

Matteson Professor of Financial ServicesEstablished in 2005 by Duncan and Shirley MattesonPaul D. Brockman , Associate Pro essor o Finance

ScholarsCTMT ScholarEstablished in 2004 by C M and its employeesDavid A. West , Pro essor o Finance


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