articles+ search results

CONSERVATISM (Accounting), FINANCIAL statements, CONTRACTS, CONSERVATISM, and UNCERTAINTY

We exploit an influential 1991 Delaware court ruling to examine simultaneously two types of conservatism that play important roles in resolving creditor–owner agency conflicts: contracting conservatism and reporting conservatism. The ruling expanded managerial fiduciary duties in favor of creditors for Delaware‐incorporated firms in the vicinity of insolvency. In those firms, following the ruling, debt contracts are less likely to include conservative adjustments to accounting numbers used for covenant compliance (i.e., contracting conservatism decreases), while public financial reporting becomes more conservative (i.e., reporting conservatism increases). The decrease in contracting conservatism is concentrated in firms that exhibit a greater increase in reporting conservatism, suggesting that reporting conservatism is more cost‐effective in resolving agency conflicts. In addition, the substitution effect is more pronounced in firms facing greater business uncertainty and firms with greater board independence. [ABSTRACT FROM AUTHOR]

FINANCIAL statements, FINANCIAL analysts, DISCLOSURE, AREA measurement, and UNCERTAINTY

We present experimental evidence suggesting that critical audit matter (CAM) disclosures in the auditor's report involving areas of high measurement uncertainty forewarn users of misstatement risk. Specifically, in our first study with MBA students, financial analysts, and attorneys, we find that CAMs (i) lower premisstatement assessments of confidence in the financial statement area disclosed as a CAM, and (ii) lower assessments of auditor responsibility for a subsequently revealed misstatement in a CAM‐related area. In our second study with student participants proxying as mock jurors, we find that the responsibility‐mitigating effect of CAM disclosure is driven by CAM disclosures involving measurement uncertainty, as opposed to CAM disclosures involving categorical determinations. Combined, our findings help reconcile mixed evidence from prior research, supporting the view that the forewarning effect of CAM disclosures involving measurement uncertainty could mitigate perceived auditor responsibility for CAM‐related material misstatements. [ABSTRACT FROM AUTHOR]

DECISION making, MANAGEMENT, BAYESIAN analysis, EXECUTIVES, and UNCERTAINTY

Decision making requires managers to constantly estimate the probability of uncertain outcomes and update those estimates in light of new information. This article provides guidance to managers on how they can improve that process by more explicitly adopting a Bayesian approach. Clear understanding and application of the Bayesian approach leads to more accurate probability estimates, resulting in better informed decisions. More importantly, adopting a Bayesian approach, even informally, promises to improve the quality of managerial thinking, analysis, and decisions in a variety of additional ways. [ABSTRACT FROM AUTHOR]

THEORY of the firm, BUSINESS enterprises, LABOR incentives, INDUSTRIAL management, TWENTY-first century, and UNCERTAINTY

The article discusses the theory of the firm, or business enterprises, throughout the 21st century, including firm ownership, value creation and uncertainty. Other topics include business management, the use of artificial intelligence in business, incentives in industry and the social aspects of businesses.

INDUSTRIAL management, UNCERTAINTY, and THEORY of knowledge

An introduction is provided to articles within the issue on organizational and corporate uncertainty, or indeterminacy, imagination and managerial choice within the context of limited knowledge.

INDUSTRIAL management, BUSINESS planning, RISK management in business, UNCERTAINTY, and THEORY of knowledge

A response is provided to the article "Carving the nature of uncertainty at its joints," by T. Holmes and R. Westgren, which appeared in the issue. It discusses the difference between what is referred to as aleatory, or random, uncertainty and epistemic uncertainty in corporate management. Business strategies for lessening uncertainties and managing risk are discussed.

FORECASTING, SUPERVISORS, UNCERTAINTY, CHOICE (Psychology), and THEORY of knowledge

A response is provided to the article "On the Mitigability of Uncertainty and the Choice between Predictive and Non-Predictive Strategy," by M.D. and B.B. Clark within the issue. It discusses epistemic uncertainty, or the indeterminacy which can be understood through knowledge, including managers' perspectives on uncertainty.

BUSINESS planning, BUSINESS research, THEORY of knowledge, UNCERTAINTY, and PSYCHOLOGICAL adaptation

Despite the longstanding recognition of the importance of uncertainty in strategy, strategy researchers have given limited attention to the distinct challenges and processes involved in strategy making under uncertainty. To address this gap, we build on Knight's and Shackle's seminal ideas about how strategists address the incomplete knowledge problems that uncertainty poses. We argue that strategists adopt two distinct strategic postures when crafting strategies in uncertain markets—shaping and adapting—and theorize their constituent elements: intentions, epistemologies, and enactment strategies. Our framework extends current understanding of strategy under uncertainty by integrating research on adapting strategies, based on scientific epistemologies, which guide continuous experimentation and learning, with research on shaping strategies, based on design epistemologies, which guide significant symbolic and resource investments intended to create new market orders. [ABSTRACT FROM AUTHOR]

COMMERCIAL law, INDUSTRIAL management, ORGANIZATIONAL behavior, ORGANIZATIONAL goals, and UNCERTAINTY

Across all fields of management research, uncertainty is largely considered an aversive state that people and organizations cope with unwillingly and generally aim to avoid. However, theories based on principles of uncertainty reduction overlook opportunities arising from uncertainty creation. Building on recent research in management, cognition, and neuroscience, we expand current conceptualizations of uncertainty by introducing a model of uncertainty regulation where individuals employ opening and closing behaviors to achieve alignment between preferred and experienced levels of uncertainty and with exogenous requirements for effectiveness. We derive propositions for uncertainty regulation and work performance that extend existing concepts of adaptation in uncertain environments to include deliberate uncertainty creation and expansive agency. We discuss implications for dynamic models of agentic goal striving, organizational support for individuals' uncertainty regulation, and extensions to team- and organization-level phenomena. [ABSTRACT FROM AUTHOR]

ENTREPRENEURSHIP, ECONOMIC opportunities, CURIOSITY, COGNITION, and UNCERTAINTY

Creation theory suggests that opportunity formation is endogenous to the actions of entrepreneurs. However, this characterization of the opportunity formation process suggests at least two important questions that have yet to be fully addressed in the literature—one pertaining to early on in the opportunity formation process, and one to later in this process. The present paper proposes to address these two questions—in particular, through the integration of the theories of cognition with the creation theory of opportunities. The first question is as follows: "Given that individuals have no rational, profit-maximizing reason to begin the process of forming an opportunity under conditions of Knightian uncertainty, why do they do so?" The present paper suggests that entrepreneurial curiosity sparks the creation of opportunities. The second question is this: "In later stages of the opportunity formation, how do individuals create the many possible ways to exploit this opportunity?" Here, this papers posits that creating entrepreneurial opportunities under Knightian uncertainty includes the cognitive generative processes of entrepreneurs. These theoretical arguments, which extend the creation theory of opportunities, also have implications for the valuation and governance of creation opportunities. [ABSTRACT FROM AUTHOR]

ASSETS (Accounting), VALUE chains, VALUE creation, TECHNOLOGICAL innovations, and UNCERTAINTY

The role of complementary assets across the different stages of a firm's value chain in facilitating value creation and value appropriation from technological innovation remains a key area of interest in strategy and entrepreneurship research. However, current thinking on complementary assets operates with an unstated boundary condition—that relevant assets and asset configurations are relatively well known to the innovating firm. This assumption is applicable under conditions of "risk," wherein decision-makers can know outcomes and probabilities. It is less clear, though, how current insights apply under conditions of "Knightian uncertainty," in which neither outcomes nor probabilities are knowable. The purpose of this paper is to advance a complementary assets theory that accounts for conditions of Knightian uncertainty, thus aligning theory with the contemporary realities surrounding innovating firms. This article highlights an important intertemporal trade-off that existing literature ignores—without accounting for Knightian uncertainty, firms may unknowingly direct complementary assets in ways that favor current value appropriation at the expense of future value creation. We discuss theoretical implications for research on the microfoundations of dynamic capabilities and opportunities for future research on complementary asset configurations across geographic boundaries and across organizations in innovation ecosystems. [ABSTRACT FROM AUTHOR]

SUPERVISORS, FORECASTING, UNCERTAINTY, CHOICE (Psychology), VOLUNTARISM (Philosophy), EMPLOYEE psychology, and FREE will & determinism

Managers face a critical issue in deciding when to employ a predictive planning approach versus a more adaptive and flexible strategic approach. We suggest that determining which approach is ideal for a given context hangs on the extent to which uncertainty is, or might be, mitigable within that context. To date, however, the mitigability of uncertainty has not been adequately distilled. Here, we take on this issue, distinguishing mitigable ignorance of pertinent but knowable information (i.e., "epistemic uncertainty") from immitigable indeterminacy (i.e., "aleatory uncertainty"). We review the current state of the debate on the existence of free will, because the acceptance or rejection of conscious agents as a true first cause has fundamental implications. A critical examination of the arguments for and against the free will hypothesis land us on the side of voluntarism, which implies immitigable indeterminacy (but not complete unpredictability) wherever conscious actors are involved. Accepting the existence of immitigable or aleatory uncertainty, then, we revisit the determination of strategic logics and produce important theoretical nuance and key boundary conditions in the normative choice between predictive and nonpredictive strategies. [ABSTRACT FROM AUTHOR]

COVARIANCE matrices and TASKS

Disassembly line balancing problem (DLBP), which is to select disassembly process, open workstations and assign selected tasks to opened workstations, plays an important role in the recycling of End Of Life products. In real-world disassembly operations, task processing times are usually stochastic due to various factors. Most related works address the uncertain processing times by assuming that the probability distribution is known and the task processing times are independent of each other. In practice, however, it is difficult to get the complete distributional information and there is always underlying correlation between the uncertain processing times. This paper investigates the DLBP with partial uncertain knowledge, i.e. the mean and covariance matrix of task processing times. A new distributionally robust formulation with a joint chance constraint is proposed. To solve the problem, an approximated mixed integer second-order cone programming (MI-SOCP) model is proposed, and a two-stage parameter-adjusting heuristic is further developed. Numerical experiments are conducted, to evaluate the performance of the proposed method. We also draw some managerial insights and consider an extension problem. [ABSTRACT FROM AUTHOR]

SUPPLY chain disruptions, NET present value, NONLINEAR programming, SUPPLY chains, PROFIT, and CLOSED loop systems

A closed-loop supply chain configuration (CLSCC) encompasses the decisions related to the optimal selection of options at each stage of a closed-loop supply chain (CLSC) for the introduction and reconstruction of new products. The extant literature ignores the impact of supply chain disruptions on CLSCC. An attempt is made to fill this gap in this study. Thus, an integrated multi-sourcing CLSCC optimisation model for new and reconstructed products is developed. The optimisation model presented is a mixed-integer nonlinear programming (MINLP) model. Based on a real-world case study of an auto-parts manufacturer in India presented, a comprehensive set of computational experiments, scenario analyses are conducted. The key finding/observation that resulted from our computational experiments is that multi-sourcing generates higher net present value of total profit compared to single sourcing under the risk of supply chain disruption. Several other observations and managerial insights are drawn from computational experiments, and scenario analyses. Firms interested in configuring their CLSC under the risk of supply chain disruption may use the study's outcomes to understand the profit impact of various CLSCC parameters, individually and in combination. [ABSTRACT FROM AUTHOR]

CUSTOMER cocreation, CUSTOMER relations, AUTOMATION, VIRTUAL reality, and UNCERTAINTY

Industrial co-creation projects are often complex and ambiguous, involving high levels of interpretive uncertainty over processes and outcomes. To boost the effectiveness of such projects, firms have increasingly adopted virtual reality (VR) technology and have experienced unique benefits by utilizing digital artifacts—interactive objects in digital environments, such as factory installation layouts or design visualizations. This article provides case evidence demonstrating how VR-enabled digital artifacts support firms to effectively implement tailor-made solutions in robotics and automation projects. The adoption of new digital co-creation practices redefines the traditional customer-provider roles in industrial co-creation, increasing engagement, reducing uncertainty, and improving project outcomes. [ABSTRACT FROM AUTHOR]

ECONOMIC expansion, ECONOMETRIC models, MATHEMATICAL models of finance, MARKET volatility, BUSINESS cycles, UNCERTAINTY, and VECTOR autoregression model

We develop an asset pricing model with heterogeneous exposure to a persistent world growth factor to identify global growth and financial shocks in a multicountry panel VAR in volatility and output growth. The econometric estimates yield three sets of empirical results about (1) the importance of global growth for the interpretation of the correlation between volatility and growth over the business cycle and the possible presence of omitted variable bias in single-country VAR studies, (2) the extent to which output shocks drive volatility, and (3) the transmission of volatility shocks to output growth. Authors have furnished data, code, and an Internet Appendix, which are available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

WEIGHT loss preparations and UNCERTAINTY

Most previous studies about online product recommendation sources (recommendation agents [RAs], consumers, and experts) have been limited to the evaluation by a single source on a website. Thus, the relative influence of convergent recommendations from different sources on consumers' acceptance of the advice remains largely unknown. We draw upon and extend the product uncertainty model to theorize how the convergence of recommendations from various sources differentially influences customers' acceptance of recommendations. Our experiments show that the recommendation convergence between RAs and experts leads to the greater recommendation acceptance of the jointly recommended products than the convergence between experts and consumers or convergence between RAs and consumers. The rationale is that RAs best reduce fit uncertainty, and experts best reduce description and performance uncertainties. Experts and RAs complement each other by reducing all three dimensions of product uncertainty. Online merchants are advised to incorporate multiple sources into their websites, including sources (i.e., RAs and experts) that play complementary roles in reducing product uncertainty. [ABSTRACT FROM AUTHOR]

CONSUMER preferences, CONSUMPTION (Economics), DECISION making, PRODUCT attributes, BRAND choice, INFERENCE (Logic), UNCERTAINTY, and IGNORANCE (Theory of knowledge)

When a consumer realizes that information relevant to a consumption decision is missing, such uncertainty can be attributed to ignorance (i.e., the information has never been observed and is unknown) or to memory failure (i.e., the information has been observed and is forgotten). Although research has examined inferences about unknown attributes, no prior work has examined inferences about forgotten attributes. Across six experiments in the lab and in the field, we find that when uncertainty is attributed to ignorance, consumers often make inferences about unknown attributes based on existing correlational evidence (e.g., a brand comparison sheet that could indicate a positive or negative correlation between the unknown attribute and observable attributes). However, when uncertainty is attributed to memory failure, consumers tend to ignore such existing correlational evidence and instead make inferences about forgotten attributes that tend to be positively correlated with known attributes. This process occurs partly because when consumers believe that an attribute was forgotten, they falsely retrieve an impression about the attribute that tends to be consistent with their overall product evaluation. Overall, believing that an attribute is forgotten and believing that it is unknown can lead to opposite inferences and choices. [ABSTRACT FROM AUTHOR]

CORPORATE culture, CORRELATION (Statistics), EMPLOYEE attitudes, INTERPERSONAL relations, JOB descriptions, LABOR productivity, MATHEMATICAL models, METROPOLITAN areas, POWER (Social sciences), QUESTIONNAIRES, STATISTICAL sampling, SELF-evaluation, ORGANIZATIONAL structure, JOB performance, OCCUPATIONAL roles, SOCIOECONOMIC factors, JOB involvement, DESCRIPTIVE statistics, PSYCHOLOGICAL adaptation, AVOIDANCE (Psychology), BEHAVIOR, CHI-squared test, COGNITION, COMPARATIVE studies, CONFIDENCE intervals, CREATIVE ability, FACTOR analysis, LANGUAGE & languages, PSYCHOLOGY, SCALE analysis (Psychology), PSYCHOLOGICAL stress, TIME, UNCERTAINTY, and CULTURAL values

This study contributes to research on core job characteristics by examining when employees may perceive enriched jobs as a hindrance stressor and in turn may experience lower performance at work. Utilizing time‐lagged data collected from a sample of 386 employee–coworker dyads and drawing on cognitive appraisal theory of stress and coping, we explore the mediating role of hindrance stressors on the relationship between core job characteristics and key employee performance outcomes (i.e., creativity, counterproductive work behaviors, in‐role performance, and organizational citizenship behaviors) and the moderating roles of cultural values (i.e., power distance and uncertainty avoidance) in influencing this mediation. The results supported the hypotheses, providing evidence that the experience of hindrance stressors mediates the relationship between core job characteristics and job performance outcomes when employees score high on power distance and uncertainty avoidance cultural values, and not when their scores on these cultural values were low. Practical implications and future research are discussed. [ABSTRACT FROM AUTHOR]

CHIEF executive officers, EXECUTIVES' attitudes, MERGERS & acquisitions, CULTURAL identity, and UNCERTAINTY

We examine the role of cultural heritage in shaping U.S. CEOs' attitudes toward uncertainty, in the context of their corporate acquisition decisions. We find that CEOs with a more uncertainty-avoiding cultural heritage are less likely to engage in acquisitions. Conditional on making an acquisition, uncertainty-averse CEOs prefer targets in familiar industries and targets that can be more easily integrated. The emphasis on cultural identity by CEOs' parents and the ethnic composition of CEOs' early life environment significantly influence the cultural transmission process. Cultural differences about uncertainty attitudes persist over multiple generations, but become less pronounced over time. (JEL G34, G4, G40, G41) [ABSTRACT FROM AUTHOR]