2009 Regional Business Review
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REGIONAL BUSINESS REVIEW Booth College of Business and Professional Studies CONTENTS ARTICLES: Do CEOs From Financially Sound Firms Exhibit Opportunistic Behavior Prior to a Voluntary Non-routine Departure? Ralph Edward Bourret, John Thomas Rigsby Leadership Flexibility and its Relationship to News Media Trauma Carla Edwards, Alisha Francis, Rebecca Hendrix, Doug Russell The Economics of Alternative Energy and Perspectives for a 21st Century Energy Policy James Haines, J.D. Kaad, Robert A. Weigand Does it Matter Who Pays? An Empirical Study of the Impact of Public/Private Ballpark Financing on MLB Club Performance Curt Hamakawa, Bruce Clemens, Sharianne Walker Hardening of the Categories: A Look at Why Diversity Training Programs Don’t Work and What to Do About It Delaney J. Kirk, Rita Durant Eminent Domain Controversy: Property Rights versus Economic Development Carol J. Miller Economic Growth and Political Instability in Ethiopia Assma Sawani, Zuriashe Patterson Exploring the Regional Effects of Rising Health Insurance Costs on Consumers John E. Schneider, Christopher S. Decker, Ann Kinzel, J. Ann Selzer, N. Andrew Peterson Revitalizing the Value Added Statement to Enhance Sustainability Reporting Stephen V. Senge Immigration Reform–States Respond to Congress’ Failure to Act Denise S. Smith, Robert Schlanser Conscience at Work C.W. Von Bergen BOOK REVIEWS: REVIEWED BY High Performance with High Integrity, by Ben W. Heineman Jr. Chi Lo Lim Outliers, by Malcolm Gladwell Deborah Toomey Available online at www.nwmissouri.edu VOLUME 28 MAY 2009 Regional Business Review Volume 28 . May 2009 ISSN 8755-1977 Northwest Missouri State University Booth College of Business and Professional Studies 660.562.1277 Thomas Billesbach, Dean Booth College of Business and Professional Studies Mark Jelavich, Chairman Department of Accounting/Economics/Finance Arley Larson, Chairman Department of Agriculture Phillip Heeler, Chairman Department of Computer Science/Information Systems James Walker, Chairman Department of Marketing/Management Jody Strauch, Chairman Department of Mass Communication Janet Marta, Editor CONTENTS Articles: Do CEOs From Financially Sound Firms Exhibit Opportunistic Behavior Prior to a Voluntary Non-routine Departure? . 1. Ralph Edward Bourret, John Thomas Rigsby Leadership Flexibility and Its Relationship to News Media Trauma . 24. Carla Edwards, Alisha Francis, Rebecca Hendrix, Doug Russell The Economics of Alternative Energy and Perspectives for a 21st Century Energy Policy . 36. James Haines, J.D. Kaad, Robert A. Weigand Does It Matter Who Pays? An Empirical Study of the Impact of Public/Private Ballpark Financing on MLB Club Performance . 54. Curt Hamakawa, Bruce Clemens, Sharianne Walker Hardening of the Categories: A Look at Why Diversity Training Programs Don’t Work and What to Do About It . 73. Delaney J. Kirk, Rita Durant Eminent Domain Controversy: Property Rights versus Economic Development . 92. Carol J. Miller Economic Growth and Political Instability in Ethiopia . 112. Assma Sawani, Mustafa Sawani, Zuriashe Patterson Exploring the Regional Effects of Rising Health Insurance Costs on Consumers . 123. John E. Schneider, Christopher S. Decker, Ann Kinzel, J. Ann Selzer, N. Andrew Peterson Revitalizing the Value Added Statement to Enhance Sustainability Reporting . 147. Stephen V. Senge Immigration Reform–States Respond to Congress’ Failure to Act . 162. Denise S. Smith, Robert Schlanser Conscience at Work . 184 C.W. Von Bergen Book Reviews: High Performance with High Integrity, by Ben W . Heineman Jr . 205. Chi Lo Lim Outliers, by Malcolm Gladwell . 207. Deborah Toomey Available online at www .nwmissouri .edu Volume 28 May 2009 Janet Marta, Editor Evan Rand, Editorial Assistant The editor gratefully acknowledges assistance from the following reviewers, from Northwest Missouri State University and other institutions: Northwest faculty referees: John Baker Chi Lo Lim Tom Billesbach Steve Ludwig Terry Coalter Dan Smith Ben Collier Deborah Toomey Carla Edwards Jim Walker Steve Gilbert Tekle Wanorie Mark Jelavich Jason White Arley Larson Mike Wilson Other referees: Larry Acker, Harris-Stowe State University Donald Baack, Pittsburg State University Gary Baker, Washburn University Kenneth Bass, East Carolina University Charles Carson, Samford University Debra Cartwright, Truman State University Chris Decker, University of Nebraska at Omaha Steve DeLurgio, University of Missouri—Kansas City Bruce Domazlicky, Southeast Missouri State University Leslie Fletcher, Georgia Southern University Becky Heath, Pittsburg State University Larry Lawson, Missouri Western State University Frank Markham, Mesa State College Patrick McMurry, Missouri Western State University Marcel Minutolo, University of Pittsburgh Eric Munshower, University of Dubuque Willie Redmond, Southeast Missouri State University Pete Richardson, Missouri State University Denise Smith, Eastern Illinois University Scott Smith, University of Central Missouri Jitendra Tewari, Missouri Western State University C .W . Von Bergen, Southeastern Oklahoma State University Chi Lo Lim Steve Ludwig Do CEOs From Financially Sound Firms Dan Smith Deborah Toomey Exhibit Opportunistic Behavior Prior Jim Walker Tekle Wanorie to a Voluntary Non-routine Departure? Jason White Mike Wilson Ralph Edward Bourret Eastern New Mexico University John Thomas Rigsby Mississippi State University INTRODUCTION Accounting accruals can either be used to provide information efficiently to stakeholders (Pourciau 1993) or to manipulate earnings opportunistically, with the intention of misleading some of the firm’s stakeholders about the actual financial condition of the firm (Healy and Wahlen 1999). Pourciau (1993) and Perry and Williams (1994) postulate that a change in CEOs creates opportuni- ties for earnings management . Dechow and Sloan (1991) support this assertion, showing that retiring CEOs do in fact manipulate earnings, using research and development . In contrast, Murphy and Zimmerman (1993) found little evidence of earnings management by outgoing CEOs, concluding it was poor perfor- mance that led to the CEOs’ demise . Results like these serve to illustrate the conclusion of Dechow and Skinner (2000) that prior scholarship on earnings management has yielded inconsistent findings. They state that, “understanding management’s incentives is key to understanding the desire to engage in earn- ings management,” (Dechow and Skinner 2000, 248) . This study examines evidence of earnings manipulation by chief executive of- ficers (CEOs) departing from financially sound firms to evaluate whether there is a difference between those whose departure is anticipated (control group) and Regional Business Review 1 those whose departure is unanticipated (study group) . It addresses the issue of how CEOs make accounting choices after they know they soon will be leaving the firm, so their interests are no longer aligned with those of the shareholders. The research question addressed here is different from prior research in several ways. The scope of this study is limited to the CEOs from financially sound firms who make a non-routine departure. We posit that this group is less strin- gently monitored than CEOs who are expected to leave the firm either due to age or poor performance . In earlier studies, Murphy and Zimmerman (1993) ana- lyzed all CEOs that were terminated, both those that reached a mandatory retire- ment age and those that were terminated prior to retirement age, while Pourciau (1993) studies only non-routine terminations . Dechow and Sloan (1991) examined CEOs that faced mandatory retirement (departure was anticipated) and compared those that continued working for the firm either as a board member or in a consulting capacity with those that severed all contact with the firm. In contrast, this study focuses on CEOs that take a voluntary, non-routine departure and have no further contact with the firm. A voluntary, non-routine departure is defined as one in which the departing CEO is less than 64 years old and did not give notice of departure until the quarter in which he or she was leaving the firm. This study examines whether the information asymmetry created by the CEO’s unanticipated departure creates an opportunity to manipulate earnings (Healy and Wahlen 1999) . The information asymmetry results from the fact that the CEO knows that he/she is leaving the firm but the board of directors does not. Once a CEO decides to terminate his or her association with a firm, he/she may no longer care about the future earnings of the firm since there will be no performance-related benefits accruing to him/her after departure.The departing CEO continues to have an interest, though, in maximizing earnings in the period of his/her departure . For example, earnings concurrent with the departure may be used in calculating a performance bonus . This study contributes to the earnings management literature by investigating the propensity of CEOs to manage earnings prior to departing a firm. It also con- tributes to the moral hazard literature by investigating whether the CEO’s short notice of plans to depart creates an information asymmetry that the CEO then takes advantage of to manipulate accruals upward, before their departure . Our expectation was that CEOs from financially sound firms taking unantici- pated departures (study group) would be less stringently monitored than those 2 Northwest Missouri State University CEOs whose departure was anticipated . As a consequence of this relaxed moni- toring,