The Journal of American Business Review, Cambridge

Vol. 3* Number 2 * Summer 2015

The Library of Congress, Washington, DC   *   ISSN 2167-0803

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Halliburton and Efficient Market Theory

Dr. Donald G. Margotta, Northeastern University, Boston MA



On March 5, 2014 The United States Supreme Court reviewed the case of Halliburton Corp. v. Erica P. John Fund, a securities fraud case that had been in litigation for more than ten years. The case has important implications for the acceptance of efficient market theory in securities fraud litigation, and perhaps other types of litigation, especially litigation involving valuations issues.  This paper reviews the history of the case, the legal issues motivating it, and the implications the case has for the future use of efficient market theory in litigation. Although the case before the Supreme Court in Halliburton Corp. v. Erica P. John Fund (“Halliburton”),1  involved securities fraud allegations against Halliburton, key issues in the case issues relate to the Supreme Court’s 1988 landmark decision in Basic v. Levinson (“Basic”).2 In particular, that case validated use of the “fraud on the market” theory in securities fraud litigation, a legal theory premised on the finance theory of efficient markets and the validity of both theories were challenged in Halliburton. The significance of  Basic’s fraud on the market theory was underscored by in a 2013 Forbes article (Fischel) which referred to it as “the most powerful engine of civil liability ever established in American law,” while plaintiffs in Halliburton described Basic (Kendall) as "the cornerstone for modern private securities litigation." The economic importance of the case can be seen from the fact that “more than 3,000 private class-action securities-fraud lawsuits were filed between 1997 and 2012, generating more than $73 billion in legal settlements” (Kendall) and companies involved in class action lawsuits experienced approximately $600 billion in lost shareholder value (Steinberg). “Halliburton” also attracted the attention of leading finance scholars, twenty nine of whom signed amicus curiae briefs in the case, including 2013 Nobel Prize recipient Eugene Fama. The background of the case and the key legal principles involved are described first.  Finally, although finance issues are discussed throughout, the final section is devoted to a more focused discussion of the role of finance theory and the implications for its future use in securities fraud and other types of litigation.  The origin of this case dates back to 1988 when Halliburton merged with Dresser Industries.3 Harbison-Walker Refractories, a Dresser subsidiary, carried with it asbestos liabilities and Halliburton’s estimates of those liabilities and its comments about the expected benefits of the merger became important components of the litigation.  The specific complaints in the case were plaintiffs’ claims that Halliburton made false statements about three areas of its business: (1) the expense (potential liability) of asbestos litigation; (2) changes to accounting methodology used by Halliburton and their effect on earnings; (3) the benefits of Halliburton's merger with Dresser Industries. 4 Plaintiffs contended that when Halliburton issued subsequent disclosures correcting the allegedly false statements the market price of the company’s stock declined, thereby causing plaintiffs to lose money. Although the overriding legal issue motivating this case is the alleged stock fraud committed by Halliburton, most of the litigation to date has centered on a procedural point involving “class certification” as evidenced by the following brief summary of the litigation to date. Several legal terms used in this summary are explained in the subsequent section of this paper. Nov. 4, 2008 AMSF v. Halliburton U.S. D. Court N. District of Texas: The legal record of this case begins with the November 4, 2008 decision by the U.S. District Court for the Northern District of Texas (the District Court) in the case of The Archdiocese of Milwaukee Supporting Fund et al. (AMSF), v. Halliburton, a case originally filed in 2002. The issue before the Texas District Court was Plaintiffs' Motion to Certify Class. The Court framed the key issue to be decided as follows: it first took as a given that loss causation must be shown before a class could be certified; it then asked whether plaintiffs had in fact shown loss causation.  It found they had not and therefore denied class certification.  Feb. 12, 2010, AMSF v. Halliburton U.S. Court of Appeals 5th Circuit: Plaintiffs appealed the District Court decision to the Fifth Circuit Appeals Court, contending that the District Court applied an erroneous standard for loss causation and required it to prove more than is required under law. Specifically, they contended that the District Court applied a standard established in Oscar Private Equity Investments (2007) that class plaintiffs prove loss causation at the class certification stage is contrary to Supreme Court and other circuit court precedents.  It therefore affirmed the District Court’s decision denying class certification. Plaintiff’s appealed to the United States Supreme Court and petitioned for a writ of certiorari in May 2010 which the Supreme Court granted in July 2010. June 6, 2011, EPJ, Petitioner v. Halliburton U. S. Supreme Court: During the course of this litigation the name of the lead plaintiff changed from The Archdiocese of Milwaukee Supporting Fund et al. (AMSF) to Erica P. John Fund (EPJ) and this was the first decision in which the new name was used. The Supreme Court held that securities fraud plaintiffs need not prove loss causation in order to obtain class certification thereby vacating the judgment of the Fifth Circuit and remanding the case back to the Texas District Court for further proceedings consistent with its opinion.  July 20, 2011, AMSF v. Halliburton, Court of Appeals Fifth Circuit (on remand): In this brief decision the Appeals Court simply acknowledged that its previous decision had been vacated by the Supreme Court and remanded the case to the District Court for further proceedings or decision. Jan. 27, 2012, AMSF v. Halliburton, U.S. District Court N. District of TX (on remand): The Texas district court which originally decided this case and denied class certification reviewed its decision on remand from the U.S. Supreme Court and following the Supreme Court’s instructions reversed its earlier judgment and decided on remand to grant class certification.  April 30, 2013, EPJ v. Halliburton U.S. Appeals, 5th Circuit (remand): Halliburton appealed the district court’s revised decision granting class certification back to the Fifth Circuit Court of Appeals. The Appeals Court upheld the District court on granting class certification and also concluded that price impact fraud-on-the-market rebuttal evidence should not be considered at class certification.  June 23, 2014, Halliburton v. Erica P. John Fund (EPJ); Oral argument in this case took place on March 5, 2014 and the decision handed down on June 23, 2014. The Supreme Court affirmed that loss causation did not have to be proved before class certification was granted, but it also reversed the lower courts on the price impact issue, saying that defendants could rebut Basic’s presumption of reliance by showing lack of price impact and again remanded the case to the lower courts for further deliberations on that point.


Systems Theory and Unintended Consequences of Government- Motivated Currency Wars: A Multiple Case Study

Dr. Craig Martin, University of Phoenix, Northcentral University, and Walden University



Although the actions initiated by governments and central banks are intended to produce positive outcomes for the host country, financial implications for markets and the macro economy often produce uncertainty and detrimental consequences for consumers and investors alike. Using a foundation of Systems Theory and Complexity Theory, the multiple case studies sought to further understand why these unintended factors arise and to explore how financial risk for investors emanating from the uncertain future of a currency war may be mitigated. The research suggests that market volatility during and post the currency war is expected, that inflation and/or deflation will arise and that upheaval of the system of global currencies occurs as a result of the currency wars. By furthering understanding the derivation of these economic consequences, long-term, retirement-planning investors can manage portfolio asset diversity to mitigate risk for expected returns on investment. Although international currency wars have produced one of the most destructive sets of outcomes, government actions leading to a currency war do not occur for the purpose of initiating economic conflicts (Rickards, 2011). Central governments seek full employment for national constituents; economic theory has posited that employment growth follows from growth in production of goods and services (GNP). Growth in exports contributes positively to GNP growth, and governments employ fiscal and monetary policy to achieve growth in exports (Hill, 2013). Unintended consequences from government actions to foster growth in trade have ranged from the theft of market share in exports from trading partners and the resultant retaliation by those partners to sequential bouts of inflation and deflation and recession to collapse of currency systems. Such are the outcomes from the currency wars of the twentieth- and twenty-first centuries (Rickards, 2011). While the research suggests that unintended consequences in aggregate are predictable as outcomes from a currency war, the specifics of these occurrences are not predictive. The resultant uncertainty promises an environment that does not suit the long-term, retirement-planning investor whose proclivity is to seek a return certain on one’s investments (Dent, 2014). However, if the investor understands the likely boundaries of outcomes for values of paper currencies operating in context of economic currency wars, said investor should be able to rationally plan a diversified portfolio that mitigates risk to the potential return on investment (Taleb, 2012). The review of literature will explore the operating factors resulting from government actions found in the three international currency wars occurring since the early 1900s. Literature reviewing how the investor is influenced by economic outcomes of currency wars and governmental tactics taken to combat said wars will be considered. Foundational theories of risk and uncertainty incorporated into systems theory as applied to economics will be explored, as well as theories about use of complexity theory to explain factors and behavior found in complex systems. There have been three economic, global currency wars since the early 1900s (Rickards, 2011). The first arose after the end of World War I (WWI), commencing in 1921 as Germany sought to develop a plan to satisfy requirements of war reparations dictated unilaterally by the Allies at the Treaty of Versailles. It concluded in 1936 as the world moved toward military confrontations. The second currency war began in 1967 with the attacks by speculators on the value of sterling, and ended in 1987 as the United States (US) dollar was bolstered in value as a result of the Plaza Accord. Currency war number three, featuring the dollar, the euro and the yuan, was precipitated by the Federal Reserves’ Quantitative Easing Program, which officially began in 2010 and which has not as yet reached a conclusion. Central government leaders have a primary objective to achieve full employment for their citizens who want to work to provide for their families (Ohmae, 2005). Citizens able to satisfy microeconomic needs peacefully have no reasons to pursue policies to extract needed goods from country neighbors and/or to seek a new government through revolution (Sowell, 2004). In the early 1900’s, Western central governments adopted concepts introduced by Karl Marx and John Maynard Keynes to actively foster macroeconomic growth, which was thought to be correlated to achievement of full employment (Lewis, 2009). The US government and the Federal Reserve, as well as other governments and other central banks, have been primary agents for actions taken that led ultimately to the formation of each of the three post-1900 economic currency wars (Stockman, 2013). In 1921, Germany, in order to pay reparations dictated by the Treaty of Versailles, (led primarily by France and England and to a lesser degree, the United States), purposefully devalued the mark to enhance export of manufactured chemicals to raise hard currency. The German action alone might not have led to a currency war, but, after the 1928 stock market collapse, both the US and France inflated/devalued their own paper currencies by straying from the quasi-gold standard agreed to as part of the Treaty of Versailles (Rickards, 2011). Shortly thereafter, Great Britain released the British pound from the silver standard in order to continue to compete in the France-Great Britain-USA trade triangle. As the GNP of England and the US continued to fall and deflation appeared, President Roosevelt introduced tariffs to make popular imports more expensive, confiscated US gold held by citizens and devalued the paper dollar further by buying gold on the British currency exchange. World War II (WWII), and not the cumulative actions by the Germany, France, Great Britain and the US, enabled the countries to escape the disruptive economic outcomes of the first currency war (Hill, 2013). The formation of a gold exchange standard for the world’s dominant currencies at Bretton Woods in 1944 enabled a stable currency system for trade until the late 1960s (Eisen, 2013). During that period, the US dollar evolved as a reserve currency, serving alongside the British pound sterling. With the decline of the British economy relative to other global economic leaders, and with the US economy over-burdened by President Johnson’s “guns and butter” policy for supporting the Viet Nam War and the US consumer, speculators began to attack first the value of the pound relative to sterling in 1967 and subsequently the value of the dollar relative to gold. In 1971, President Nixon devalued the currency indirectly by ending the gold exchange privilege for the dollar, effectively establishing the floating currency system that remains in existence in 2015. The devaluation set the stage for the second currency war of the 20th century, which lasted until 1987 (Rickards, 2011). The primary governments involved in this second currency war included the major developed countries of Europe – West Germany, Italy, France, England – and the US and Japan. During much of the 20-year period, 1967 – 1987, the United States experienced inflation and low, stagnant growth in GNP. Japan and the western European countries grew economically during the period as the US shifted from a leader in net exports to a leading net imports nation (Stockman, 2013). The third currency war began in 2010 when the Federal Reserve introduced its quantitative easing program, further enacting monetary policy established by the US government (Rickards, 2011). The intent of this monetary policy, which ended in 2014, was to indirectly influence the reduction in long term interest rates in the US to accompany the short-term rate reductions directly influenced by Federal Reserve interbank rate policies (Lowenstein, 2011). Driving US interest rates down toward zero enacts a reduction in periodic interest payments due to other countries and in real value of dollar-denominated debt owed to other countries – primarily England and the Republic of China (China). The reduction in interest rates also influences the relative value of the dollar downward (devaluation of dollar) versus those countries with relatively higher long-term interest rates for national securities. Devaluation of a currency favors exports and inhibits imports for the country undergoing devaluation of its currency (Appleyard and Field, 2014).


Electronic Medical Records, Patient Privacy and Deployment of Healthcare Systems on Cloud Resources: Analysis of the Legal, Business and Technological Aspects

Rupesh Mishra, POC Supervisor, Golden Valley Hospital, Clinton, Missouri

Brian Palmer, Systems Engineer, Saint Luke's Health System, Kansas City, Missouri

Dr. Sam Ramanujan, Professor of CIS, University of Central Missouri, Warrensburg, Missouri



This paper explores the legal and security aspects of onsite medical records in paper and electronic formats as well as the business, legal and technological aspects of healthcare systems deployed on cloud resources. We will take a look at the current healthcare trend for entities deploying systems that uses a standardized form of electronic medical records as a standard of care and how these entities maintain privacy of confidential medical data. Furthermore, we also take a look at how the presence of many disparate systems of various capacities and capabilities within these entities makes it difficult to integrate them to provide quality patient care at a larger scale in terms of efficiency, timeliness, cost-effectiveness, geographical distribution and security. To eliminate issues that arise from system integration problems, we will discuss how the deployment of healthcare system over cloud resources could become a solution and innovation for the healthcare field in the future. In the medical technology world, we are truly entering a new era.  Because of government initiatives concerning patient privacy, providers are moving towards a common format for patient medical records.  The EMR, or Electronic Medical Record, is quickly becoming a key focus.  Gone are the days of folder upon folder of paper records and now a small practice can hold all of its patient data on a portable hard drive. The change is massive and while we are moving quickly, there are still improvements to be made.  At the core of this movement is the concern for patient privacy and the integrity and protection of data.  We should be concerned not only with protecting data for the sake of the patients, but new technology developed should also be focused on protecting the integrity of the data as well.  What good is data privacy, if we can’t rely on the integrity and/or accuracy of the data itself?  We must also look to access control when discussing privacy of data; like any good security protocol, having preventative measures for unauthorized access in play is a necessity.  However, all of these methods are currently in place; what does the future have in store for medical records and privacy? The future has healthcare systems being deployed over cloud resources. Let’s imagine a healthcare system where a local hospital can access health records of a critical patient, on whom they have no prior history, being brought to the hospital by an ambulance. Let’s imagine patients having access to their health records in any geographical region of the world via the internet. Let’s imagine healthcare systems which can store large amounts of data that could provide better financial management or that could be used in broader clinical and epidemiological studies. All of these imaginations could turn into a reality if medical records were stored electronically while maintaining its integrity and moreover if healthcare information systems were deployed over the cloud with reliable infrastructure. Deployment of Healthcare Information Systems over Cloud resources can bring forward an innovative transformation in the way health records are managed, accessed, stored and distributed across hospitals, clinics, pharmaceutical companies, insurance providers, government agencies and patients (Ackerman 2012). Few benefits of such deployment for organizations include strategic technology management, cost reduction, easier and faster access to health records for the patients as well the caregivers, ability to shift focus to developing core standards rather than investing time, money and resources for support, monitoring and management of onsite hardware and software and an opportunity to move from localized healthcare to global healthcare. However, delivery of healthcare systems over cloud resources has many risks and challenges, few being, loss of control over data management, privacy issues, data security, maintaining interoperability within different systems and legal liabilities.  In this paper, we will discuss how record keeping of patient data has evolved since the 1920’s and what has driven the paradigm shift from paper records to electronic records. We will also discuss the issues which arise from handling confidential patient data, how to create solutions to such issues, what security issues have happened in the past and how such security issues should be addressed for healthcare systems in the future and how cloud based healthcare systems provide an advantage over in-house Hospital Information Systems by erasing integration complexity of disparate systems, provide enhanced security and relieving healthcare providers of the cost and burden of in-house based healthcare systems. Finally, we will discuss the impact of Cloud-based Health Systems on the current healthcare industry and provide an analysis of the business, legal and technological aspects of such a transformation. It truly wasn’t until the 1900s when people began to realize the importance of keeping an ongoing medical record.  Accumulated data of this type was and still is very important in establishing a quality patient experience.   When a doctor has accurate history for a patient, the doctor or caregiver can simply provide a better and safer experience for the patient.  In 1928, the American College of Surgeons established the American Association of Record Librarians.  The first keepers of these sorts of records were called Record Librarians.  This organization is still around today, and is currently called the American Health Information Management Association (AHIMA).  Paper records were the norm for years.  It wasn’t until the 1960s or 1970s and the big boom of super computers that research universities began exploring the combination of heavy computing power and medical record storage.  Right at that moment, academics knew that the technology was there to automate and improve an entire industry. Gone were the days of human error while entering or deciphering data, and the possibility of uniformity was truly right there. Full adoption proved to be slow however, owing to technology complexity, highly prohibitive technology costs and performance.  As computers became more ubiquitous and less costly though, it was hard not to see that the future of medical records was going to the computer. In the 1980s and 1990s, more and more individual departments in hospitals and private practices had begun using technology to automate at least a part of their jobs.  Patient indexes and admissions particularly were areas where computers had begun to take hold.  A simple computerized check-in was the true beginning of patients benefiting from the new technology.  Though the benefits of patient indexes weren’t initially all that apparent to patients, medical professionals were seeing great benefits from the adoption of that technology.  As these systems grew in both size and scope, many ancillary departments were now using information systems in some form.  The problem in this phase of EMR adoption was that information was not able to be freely shared across systems.  Different systems stored and transmitted patient information in proprietary formats and weren’t easily transitioned from system to system.   There were no inter-application connections or interfaces.  Progress was being made, but there was still a rather large gap between expectations and implementation.  However, by the turn of the millennium, a new push was being made for standardization.  This was required because of human errors and serious deficiencies in processes for handling medical records, patient injuries and deaths were occurring at a higher rate than normal.  Thus, the Centers for Medicare and Medicaid stated that electronic medical records would allow “Providers to make better decisions and provide better care” and “Reduce incidence of medical error by improving the accuracy and clarity of medical records”.  Even more importance was placed on electronic health record technology during George W. Bush’s January 2004 State of the Union address, “By computerizing health records, we can avoid dangerous medical mistakes, reduce costs and improve care.” (Bush, 2004) Couple this emphasis with the ARRA and HIPAA compliance and you have the recipe for a revolution in the industry.  But what are the EHR vendors doing for patient privacy?  Is it getting better?  Have we truly found a foolproof way? Ever since the advent of medical records and their storage, privacy has been a very large concern.  The privacy for such medical information highlights the intimacy and trust needed between patients and providers.  Confidentiality is implied in transactions that take place with this medical information.  Though confidence in record privacy has gone through ebb and flow cycles during the recent past, the sad fact is that patient information is still viewed or accessed by unauthorized personnel on a very regular basis.   A third of medical professionals have said that information is regularly given to unauthorized people. (Van Fleet, 2010) The somewhat ambiguous nature of privacy in this context is a bit problematic. 


Consumer’s Achieving Styles (ASI) Similar to the Brand’s Achieving Styles (OASI) in a High Involvement, Relational Exchange within an Academic Setting

Dr. Stephen M. Rapier, Pepperdine University, CA

Dr. David L. Ralph, Pepperdine University, CA

Dr. Stacy M. P. Schmidt, California State University, Bakersfield, CA



This is a quantitative research study of the correlation of the consumer’s Individual Achieving Styles (ASI) with the consumer’s perception of the Achieving Styles (OASI) rewarded by the brand.  The hypothesis proposed by the researcher is that the consumer’s Individual Achieving Styles (ASI) will be similar to the consumer’s perception of the Achieving Styles (OASI) rewarded by the brand.  The full research design for the hypothesis utilized a partially mixed methods approach employing both quantitative and qualitative methodologies.  Using a sequential design that contained a two-stage approach, the dominant quantitative phase was conducted first and the qualitative phase second before mixing the data at the interpretation stage (Leech & Onwuegbuzie, 2009).  The final findings will reflect an integrative mixed methods approach, whereby the data from each methodology contribute to the results (Castro, Kellison, Boyd, & Kopak, 2010). These findings reflect only the first stage of the research which consisted of only the quantitative phase of the study.  The findings of the quantitative study supported the hypothesis, that the consumer’s behavior will correspond with the behavior favored by his/her brand choice.  For the purpose of this study, the hypothesis was predicated on the assertion in the leadership literature that similarities between the follower and leader fuel the follower’s feeling of “reassurance and familiarity” (Gardner, Avolio, Luthans, May, & Walumbwa, 2005).  The follower is motivated by the perceptions to bond with the leader (Ilies, Morgeson, & Nahrgang, 2005).  As a result of the study, it is conjectured that a consumer similarly connects with a brand because of the brand’s perceived similarity to him/herself.  In addition, the study indicates that using the Connective Leadership Model, this affinity would be reflected in the alignment between the consumer’s Achieving Styles (ASI) and those rewarded by the brand (OASI).  The hypothesis proposed by the researcher is that the consumer’s Individual Achieving Styles (ASI) will be similar to the consumer’s perception of the Achieving Styles (OASI) rewarded by the brand.  The full research design for the hypothesis utilized a partially mixed methods approach employing both quantitative and qualitative methodologies.  Using a sequential design that contained a two-stage approach, the dominant quantitative phase was conducted first and the qualitative phase second before mixing the data at the interpretation stage (Leech & Onwuegbuzie, 2009).  The final findings reflected an integrative mixed methods approach, whereby the data from each methodology contributed to the results (Castro, Kellison, Boyd, & Kopak, 2010). These findings reflect only the first stage of the research which consisted of just the quantitative phase of the study.  The literature’s focus included the brand’s relationship with the consumer as a contributing factor to a brand’s success.  Research into the brand’s relationship with the consumer revealed the essential role of consumer commitment to a brand’s success (Gundlach, Achrol, & Mentzer, 1995; Chaudhuri & Holbrook, 2002).  In addition, the literature also described the consumer’s perceived risk in the brand relationship and the trust necessary for ongoing consumer commitment (Dwyer, Schurr, & Oh, 1987; Morgan & Hunt, 1994; Chaudhuri & Holbrook, 2001).  In order to continue to address the nature of relationships, the literature broadens its focus beyond short-term, single transactions to include longer, “relational exchanges” (Morgan & Hunt, 1994).  Macneil (1980) describes relational exchanges as only those relationships that endure for a prolonged period of time (as cited in Dwyer, Schurr, & Oh, 1987, p. 12).  These protracted relationships acknowledge what Van de Ven (1976) characterized as the limitations of one party achieving certain goals independent of another party, requiring cooperation between the two parties (as cited in Morgan & Hunt, 1994, p. 31).  By broadening the focus of the research to include relational exchanges, the significance of consumer commitment during these prolonged relationships became clear (Morgan & Hunt, 1994).  This brand commitment is not given freely by the consumer and results in the consumer expectation of the brand to reciprocate by behaving in his/her “best interest” (Doney & Cannon, 1997).  Thus resulting in the brand’s reward for this reciprocation including a variety of long-term benefits (Dwyer, Schurr & Oh, 1987), including what Kanter (1972) described as loyalty (as cited in Gundlach, Achrol, & Mentzer, 1995, p. 78) prompting consumer resistance to competitive brands (Raju, Unnava, & Montgomery, 2009).  Although a brand is motivated to act in the consumer’s best interest to maintain the consumer’s loyalty and commitment, the consumer is uncertain whether the brand will uphold its end of the relationship.  The literature further states that the consumer’s uncertainty in the relational exchange with a brand is exacerbated by his/her concern about negative outcomes resulting from the relationship.  According to Stuteville (1968), this anxiety is prompted by the degree of the consumer’s involvement in the decision, as determined by the decision’s expense, visibility and “all-or-nothingness”.  Stuteville (1968) further suggested that in some instances a consumer may not be concerned about negative outcomes arising from a low involvement decision that is not expensive, visible, or permanent.  On the other hand in situations that result from high involvement in the decision making process that is expensive, highly visible, and/or “all or nothing” Stuteville (1968) proposed that a consumer may be extremely concerned about negative outcomes. Mandrik and Bao (2005) found that the combination of protracted uncertainty with the concern about negative outcomes translates into perceived risk for the consumer.  This jeopardy requires the consumer to trust the brand before he/she can commit (Chaudhuri & Holbrook, 2001) and furthermore, the trust must exist before the relationship can become successful (Dwyer, Schurr, & Oh, 1987; Morgan & Hunt, 1994).  The literature indicates that trust defines the quality of the relationship in terms of cooperation (Anderson & Narus, 1990), sincerity, and dependability (Moorman, Zaltman, & Deshpande, 1992).  The risk that exists rises the concern of how a consumer becomes confident that a brand will act in his/her best interests.  Does a Super bowl advertisement or a celebrity endorsement of a product solely cause the consumer trust a brand?  Alternatively, do consumers trust as what Rotter’s (1967) time-honored notion of trust described as the willingness of one party to rely on another (as cited in Morgan & Hunt, 1994, p. 23).  In describing this willingness, studies alluded that there is a definite role of consumer behavior in the trust-building process.  For example, Crosby, Evans, and Cowles (1990) contend that the basis for trust is the perceived “honesty and integrity” of the other party (as cited in Garbarino & Johnson, 1999, p.71).  This characterization is similar to the one advanced by Morgan & Hunt (1994), who suggested that it is the perception of the brand’s “reliability and integrity” that leads to trust.  In addition to suggestions of the role of brand behavior in the formation of brand trust, brand authenticity was viewed as important in trust’s development.  For example, the investigation into retro brands revealed the essential element of what Benjamin (1973, 1985, 1999) described as the brand’s aura, or sense of “authenticity” necessary for a brand’s meaning (as cited in Brown, Sherry Jr., & Kozinets, 2003, p. 21).  Kozinets (2001) in addition to others (Belk & Costa, 1998; Holt, 1997; Penaloza 2000) have characterized the search for authenticity as “one of the cornerstones of contemporary marketing” (as cited in Brown, Sherry Jr., & Kozinets, 2003, p 21).   The literature clearly alludes to the presence in the trust-building process, however, the literature did not explicitly describe brand behavior or its connection to authenticity.  Therefore, this limitation served as the impetus to look for a more clearly expressed model of the trust-building process in a similar dyadic relationship. The significance of trust in the relationship between leaders and followers (Bennis & Nanus, 1997; Gardner, 1990), encouraged this research to examine the follower’s trust-building process as a potential analogue to the consumer’s trust-building process.  Similar in its importance to the consumer’s relationship with a brand, trust is regarded as a key factor in the successful relationship between a follower and leader thus creating a connection between the leader model and brand trust. 


Self-Leadership: Guiding Principles for Adaptive Leaders and Organizations

Dr. Richard Pircher, University of Applied Sciences bfi Vienna

Christiane Seuhs-Schoeller, Center for Integral Leadership, Vienna, Austria



To adapt to a changing environment requires appropriate perception of the current status. Therefore we have scrutinized theoretical and empirical findings on individual human perception as a basis for decision-making and appropriate behavior. Special focus is placed on the role of the unconscious and dual-system approaches. From this foundation we derive guiding principles for more sustainable internal balancing and more comprehensive integration of external stimuli. These principles allow leaders and organizations to identify blind spots more easily and to improve perception of the inside and the environment. Self-leadership is suggested to be the key factor for applying these principles both individually and in organizations. We will give examples for organizations with improved internal homeostasis and adaptability to changing environments. The ability of an organization to survive and to be successful relates to its potential to adapt to a changing environment. The competence to perceive relevant stimuli from the outside and the inside of the organization constitutes a prerequisite for organizational adaptability. Consequently appropriate perception is a crucial factor for individuals and teams to decide and behave in a productive way. Therefore in this paper we apply a multi-disciplinary analysis of human perception. From this basis we derive guiding principles for adaptable self-leadership. They are expected to provide the foundation for the increased adaptability of individuals, teams and organizations.  Self-leadership may be defined as “a comprehensive self-influence perspective that concerns leading oneself toward performance of naturally motivating tasks as well as managing oneself to do work that must be done but is not naturally motivating” (Manz, 1986: p. 589). In addition to self-management, the concept of self-leadership not only addresses the “how” of self-influence. Additionally, also the “what” and “why” are covered. Through the focus on the “why” and “what” of self-influence, individual self-leaders address the underlying reasons for effort and behavior (Manz, 2014). Increased self-leadership corresponds with better affective responses and improved work performance (Stewart, Courtright & Manz, 2011). Perception is the main basis for learning and behavior. For us as human beings our abilities to perceive the environment and our own bodies with our senses are very limited in quantity and quality. For instance we are not able to perceive magnetic and electric fields like some birds and fish, UV light and carbon dioxide like bees and ultrasound like bats (Chittka & Brockmann, 2005). Perceiving starts with input signals from the senses which are being handled in a cascade of cortical brain regions (bottom-up). This flow appears to be in a constant interaction with feedback from the brain facilitation (top-down). The brain first uses rudimentary signals to derive analogies linking that input with representations in memory. Therefore we may understand perception as a mutual activity of bottom-up and top-down processes. The latter seems to build upon expectations of the most likely interpretations of the input image. The top-down process facilitates recognition by substantially limiting the relevant object representations. This provides focused predictions which facilitate perception and cognition (Bar, 2007). Recognition thus rather resembles an iterative approximation than an exact matching. It builds upon what is already known. Limitations of our senses like the blind spot in our eyes where the nerves leave the eyeball are automatically corrected by the brain. We do not see anything missing or unusual at this point. “We do not see that we do not see” (von Foerster, 2003, p. 284).  To focus on something means to overlook almost everything else. An experiment shows that even a highly salient human in a black gorilla suit walking through the image showing off beating her breast may be invisible for viewers for this reason (Most, Scholl, Cliffort & Simons, 2001). Also substantial changes in images are not recognized under certain circumstances by many observers, which is an effect known as change blindness. Change blindness seems to be very counterintuitive because most people firmly believe that they would notice such large changes – a kind of “change blindness blindness” (Simons & Rensink, 2005, p. 17). We may conclude that human perception is very limited in quantity and quality, highly subjective, iterative and approximate. It is strongly influenced by our internal patterns which consist of both a legacy of evolution and a product of personal history. The limitations of our perception are easily overlooked. We do not (want to) see what we do not see. People who recalled an experience of social exclusion, experience a lower room temperature than others who recalled an inclusion experience (Zhong, Chen-Bo, & Leonardelli, 2008). Watching pictures of items drawn from business contexts (e.g. briefcases, boardroom tables, fountain pens, etc.) leads to a more competitive behavior than watching pictures of neutral objects like cups (Kay, Wheeler, Bargh & Ross, 2004). These are just a few examples of very many studies where the so-called priming effect takes place in a statistically significant way: A stimulus unconsciously and automatically triggers the response to a later stimulus. It is suggested that these effects increase with the degree of ambiguity (Kay et al., 2004). Hence priming seems to be an unconscious solution to fill the disturbing gap of uncertainty.  Human decision-making was found to be distorted from rationality in many ways (e.g. Ariely, 2008). One example of many is myopia, the tendency to search for immediate gratification and to fail in long-term planning (e.g. Hardin & Looney, 2012). Even if people know that biases may occur in human judgment, they tend to unconsciously ignore the possibility to be biased themselves (Pronin, Olivola & Kennedy, 2008). Regarding business plans, it was found that there is a cognitive bias to accentuate the positive aspects, which is called planning fallacy (Lovallo & Kahneman, 2003). Thus there are many indications that we tend to favor everything which attunes us in a positive mood and adulates our ego: seemingly immaculate perception, unbiased judgment, very promising business plans, etc. These examples show that unconscious mental processes exhibit a strong distortive influence on behavior and decision-making. However, it is very efficient and fast to process inputs automatically. Daily activities like driving a car mainly rely on automatic and unconscious processes which are believed to have high capacity and to be fast and independent of the central working memory (e.g. Evans, 2008). Novice golfers for example perform more poorly under time pressure whereas skilled golfers even benefit from reduced performance time (Beilock, Bertenthal, Hoerger, & Carr, 2008). Automatized, unconscious processes allow us to rapidly and holistically interpret our environment, to process these interpretations and to act.  Unconscious effects “are ubiquitous and pervasive across the major forms of psychological phenomena: appraisal and evaluation, motivation and goal pursuit, social perception and judgment, and social behavior. This research has been impressive in demonstrating the wide scope and reach of nonconsciously instigated influences on our daily lives” (Bargh, 2006, p. 148). They even dominate behavior according to results of empirical research: “Everyday intuitions suggest full conscious control of behavior, but evidence of unconscious causation and automaticity has sustained the contrary view that conscious thought has little or no impact on behavior. […] conscious causation is often indirect and delayed, and it depends on interplay with unconscious processes” (Baumeister, Masicampo, & Vohs, 2011, p. 331).


Are Women Treated Fairly in the U.S. and European Markets?

Jennifer Mitchell, Sam Houston State University, TX

Dr. Balasundram Maniam, Sam Houston State University, TX

Dr. Hadley Leavell, Sam Houston State University, TX



The number of women in the labor market increased across the globe in the last century.  Although the United States have legislatively determined that gender-neutrality is the law for this country, that lofty goal does not appear to be reality.  Determining whether women are treated in a gender-neutral way is the first issue to address. This paper does a comparative analysis of the treatment in the work place of women, both in the United States and in several European countries.  Research focused on women’s employment in the last forty years indicates differing trends between the United States and Europe regarding participation, wages and salary, career advancement, and job specializations for women. These differing trends may be explained by a number of factors. Technological changes have opened many fields and allowed job specialization leaps for women. Legal changes have forced the hand of employers.  Globalization has opened the eyes of people long-accustomed to a status quo. Education opportunities have become more affordable thus permitting women to seek higher-level positions.  Finally, cultural preferences within the family structure have continued to evolve with a strong shift toward two-parent families sharing the child-rearing responsibilities. The United States and the European countries are experiences these factors to varying degrees. This paper explores these differences in treatment along with their causes.  Gender equality is an emotional subject for many. In order to facilitate change, the subject must be studied with objective quantifiable methods. As an increasingly large number of women shifted into the workforce, an intense amount of research, debate and legislation has occurred regarding the difference in treatment of women in the workforce.  One might assume that the European workforce conditions would be comparable to the United States. Instead, a number of inconsistencies occur in the statistics and customs of women’s employment when comparing the United States and Europe.  Variances occur in the number of working women and the wage differences between genders.  Statistical results on the “glass ceiling”, or the inability to advance, differ between the United States and Europe.  The largest dissimilarities occur concerning the benefits that women receive as part of job opportunities.  The cultures have a dissimilar focus on the specialization, or desired schedule and family leave provisions offered to women, and this may be a large factor in the differences in wages and advancement.  After analyzing these differences, discovering the motivation for these differences is needed.  Why does treatment of women in the work force in the United States differ from Europe in some areas?  Main factors discussed include the rate of technological advancement, changes in the law, globalization, education, and cultural preferences on family structure.  Finally, conclusions about how each continent will address the gender divide in the future and whether or not differences will even out will be covered. Over the years, numerous studies have been conducted to look at the differences between males and females in the work force. Many of these studies have concentrated in the United States and Europe. The main focus areas in the research are on female participation in the work force, differences in the salary, and promotion.  The United States and other industrialized countries throughout Europe had a growing female involvement in the labor market in the last century.  Goldwin (2006) attributes the increasing percentage of females in the job market to a cultural shift which had previously seen women leaving the workforce upon marriage. Harkness, Machin, and Waldfogel, (1997) recorded a growth in female representation in the work force from 43 percent to 68 percent in the time period of 1960 to 1991.  Female participation workforce in the United Kingdom reached 65 percent in the same time period.  France and Germany both increased by 10 points to 57 percent participation in France and 59 percent participation in Germany.  In Sweden, the proportion of employed women equaled the proportion of men in the final years of the 1990s (Andersson-Skog, 2007).  They currently lead the United States and the European Union with a 2012 rate of 77 percent of labor force participation.  Almost half of the European Union countries have steadily increased since 1990 (The World Bank DataBank, 2014).  Workforce involvement by women in the United States has remained fairly constant since 1990 (Weinberg, 2000).  Overall, the European Union average female labor force participation rate is less than in the United States.  In both the United States and Europe, female earnings failed to match that of men, but the distribution of earnings across wage rates differed.  In the United States, female income relative to males did not change until the 1980s (Goldin, 2006).  At that time, women had gained job experience which in turn leads to seniority earnings.  Women had begun to achieve higher levels of education which allowed them to enter more jobs.  Additionally, they were seeking more previously-consider male-only jobs.  Doors were opening for females.  Still, in the personnel and labor sector specifically, earnings increased during the 1980s but women still earned only approximately  two-thirds of the overall earnings of men. In 1979, women working full time earned 62 percent of what men did.  This wage differential is lessening.  In 2011, women’s wages were measured as 82 percent of men’s wages. (BLS Reports, 2013)  As early as 1999, Sweden could brag that their overall gender gap was smaller than the United States.  In both Sweden and the United States, the largest difference in wages occurs in top salaries.  However,  Sweden has a much larger gap than the United States when looking at the high wage earners (Albrecht, Björklund, and Vroman, 2003).  Upon review of Sweden’s gap, the researchers concluded that fifty percent of the difference in wages by gender is not explained by levels of education, experience, or commitment to the firm.  The authors could not find a specific quantifiable characteristic between employees that clarified why the gap between genders occurred. This lack of statistical explanation lends credence to a wage gap bias.  Swedish wages for women do match men at lowest salaries, due to legislative-required minimum wages.  A look at wages in Germany reveals that female wages in Germany tend to match for men and women at the middle earnings level (Eberharter, 2003).  Unfortunately, as is typical of many countries in the European Union, most women remain at the lower earnings level.  A higher concentration of men than women fulfill positions at the higher earnings levels.  As the economy improves, the number of women in the lower earnings level increases but no comparable increase appears in the higher levels during an upturn in the economy.  Perhaps surprisingly, research indicated that females were more likely to progress to a higher earning level during economic downturns.  Germany’s results appear to be comparable to both France and the United Kingdom.  As the United Kingdom contains a larger number of women working part-time, employers pay lower wages to these employees.  Employers are more willing to invest training monies and mentoring into fulltime employees, as the company stands to have a more robust return for that investment.  Due to women’s general emphasis on family responsibilities, the question remains whether the part-time employment is by choice or by design.  (Ermisch and Wright, 1993).  Though female employment and wage rates differ across the United States and Europe, the populations share one feature.  The number of women in managerial positions failed to match men across both the United States and Europe.  Looking back fifty years, American men had a better chance of success in finding promotions even though more women began entering the job market in the 1960s. More men filled higher level jobs than women when comparing genders with similar years of service and education.  In each level of employment, men had fewer years of service and less education than the women in that level.  Interestingly, women did not have a preference on the gender of supervisors, but 75 percent of men at that time preferred men to women as leaders (Harrison, 1964).  Men with higher education levels were more likely to be gender-neutral in making promotions.  When reviewing results from the last decade, very few women filled top managerial positions.  The number of women in the workforce increased to an equal amount as men, but equality does not exist between roles (Valentine and Fleischman, 2003).  As the level of the position increases, the amount of women in the position decreases (Bell, McLaughlin, and Sequeira, 2002). 


Internal Audit Excellence Orientation and Firm Survival

Pennapa Kueket, Mahasarakham University, Thailand

Dr. Karun Pratoom, Mahasarakham University, Thailand

Dr. Saranya Raksong, Mahasarakham University, Thailand



The current, internal audit department has developed a function of operations audit, by focusing on excellence. The all organizations have believed that the internal audit that focused on excellence will be able to create value for the internal audit function and to survive to the organization. This research aims to study the impact of internal audit excellence orientation and firm survival by having mediating variable composite; internal audit practice quality, risk management effectiveness, fraud error detection success, operational efficiency outstanding, business excellence, goal achievement. The 94 food export firms are the samples. The statistics used is the OLS regression. The study found that the internal audit excellence orientation has a positive impact on internal audit practice quality, risk management effectiveness, fraud error detection success, operational efficiency outstanding, business excellence, goal achievement, and firm survival. The result shows that operation of internal audit that focused on excellence can create value for the internal audit and operation of organization. In addition, that internal audit practice quality has a significant positive effect on goal achievement, that risk management effectiveness has a significant positive effect on the business excellence, fraud error detection success has a significant positive effect on the business excellence, operational efficiency outstanding is not significantly related to the business excellence, business excellence and goal achievement has a significant positive effect on the firm survival. The future research, we suggest to study antecedent variables that affect on the internal audit excellence orientation, the benefits for internal audit departments and organizations into adaptation for improving the operation to have efficiency and effectiveness. The internal audits are being developed for the management of both public and private (Cohen et. al., 2002), which the concept internal audit is the foundation of discipline in important internal audit. It is the main business philosophy that can reflect activity and behavior of organizational. The process of managing operational of internal audit to ensure in the effective which must be consistent with the standard make the operational internal audit has quality. In addition, the internal audit that is effective will help operations of the organization to achieve and survive. The accounting scandal in the United States about fraudulent financial reporting as of the beginning impaired and threatened the confidence of capital market participants (Ball, 2009). The internal audit thus came into a role and has been developed ongoing role. By focusing on internal audit function to remove barriers that can occur and cause a negative effect on the operation of the organization such as, fraud issues, risk management, internal control. However, these problems did not go away, because of rapidly changing environment which makes a complex in operational processes within the organization. The current, internal audit function has developed to focus on excellence to respond to the administration of the internal audit department and organizations have effectiveness and efficiency of its operation.  The past, the scholars have reconstruction to entrepreneurs who are interested in internal audit both the concepts and operations. Which internal audit is an activity that adds-value. By the internal auditors must be operational in accordance with the standards of professional practice of internal audit to bring about the success in operation of organizational to effectively and effectiveness (Al-Twaijry et al., 2003). For research in recognition of internal audit excellence and effects of operational internal audit focused on excellence. The literature in the past, the lack of integrity to answer that the internal audit focused on excellence have effect on survival in operation of organization.We try to pay attention in studies to answer this and this research is the first empirical study. This paper aims to study the effects of internal audit excellence orientation and firm survival by the development model of research, which is the synthesis of the literature in the past. The sample used in this study was food export firm in Thailand, and frozen and dried type. Because it is a large and to export into number one in 2013. It is possible that the opinions or attitudes about the focus on excellence in the internal audit will be the same direction and recognizes the importance of internal audit function. The remainder of the paper is organized as follows. The next section reviews the related literature and provides the focus of the study by examining the conceptual framework of internal auditing and its effectiveness. The third section presents the research design by providing information on the sample, the development of the survey and the methodology for data analysis. The results of the study and reported and discussed in the fourth section. Then, the fifth section summarizes the paper, presents major findings of the study and forwards the ensuing conclusions. Finally, the paper concludes by limitations of the study and future research directions. The organization with an internal audit function was more likely than those without such a function to detect fraud within their organizations (Coram et al., 2006). The role of the internal audit department has been changed and continuous development. In the early 1900s, the internal audit focused on checking for fraud and to meet the needs of users of financial statements (Guy et al., 1996). The development of internal audit, caused by economic development, societal changes, which is the important in pushing by the industrial revolution in Europe, the rapid growth of technology, the scope operation of the organization increases. The executives no control over the operation thoroughly, and need to have agents to support the operation (Aisiopoulos, 1980). After the 1940, the internal audit has developed a theory of internal audit is systems and tangible by the founders of the Institute of Internal Auditors (IIA), in 1941 (Dittenhofer, 2001). The previous study explained how to audit that is for development over time (Gramling et al., 2004). The recent past standardized auditing work programs set of procedures to determine the numbers accounting ledger and feeder systems. However, the current auditors have developed internal control to occur which is part of the risk strategy. Which moving from the financial transactions at a low risk to high risk, risk strategy thus has been increasingly recognized (Rudasingwa, 2006). The change and technology needs, the complexity of the activities within of organization makes the appearance services of internal auditor changed from an emphasis with a check  of the practice traditional to focus on independence that  have a role in the value-adding partners and managed the more important (Abdolmohammadi et al., 2006; Allegrini et al., 2006). However, Pickett (2004), the internal audit that the long standing in the past two decades, the study aimed at explaining the existence of the internal audit functions, which has issue of corporate governance more. However, the research is still featured on the internal audit function, such as the study of Carcello et al. (2005) stated that has focused on US companies that already established an IAF and investigated actors that have an impact on the size of the IAF. The internal audit function is part of the corporate governance structure can cause changes in the operations of the organization. Internal audit function is an important tool in preventing of crime behavior within (Nestor, 2004). The purpose of the internal audit to improve the efficiency, and effectiveness of the organization through constructive criticism. The internal audit has four main components: 1) verification of written records; 2) analysis of policy; 3) evaluation of the logic and completeness of procedures, internal services and staffing to assure they are efficient and appropriate for the policies of organization; and 4) reporting suggestion for improvements to management (Eden and Moriah 1996). However, the importance of the internal audit was supported by the New York Stock Exchange (NYSE) (NYSE, 2003). The internal audit function reduces errors detected from the external auditors (Wallace and Kreutzfeldt, 1991). The study focuses on developing the role of internal audit, which is of paramount importance in the success of goals of the organization (Hass et al., 2006; Roth, 2003). The role of the internal auditor, the practice, the internal audit involves counseling, managing and the internal audit ensure efficiency and effectiveness (Flesher, 1996). The profession of internal auditing has changed noticeably over the past half century. Before 1941, internal auditing was really a clerical function with no organization and no particular standards of conduct. The internal auditing function was important as an arm of the accounting function. Since much of the record-keeping at that time was implemented manually, auditors were needed to check the accounting work after it was accomplished in order to locate errors in posting and footings. The manual processing also made fraud at ease. Today, the internal auditor is accepted as an important part of the management team, a function that includes not only financial auditing, but also operational auditing (Rudasingwa, 2006).


The Impact of Board Financial Expertise and Education on Corporate Derivatives Using

Dr. Po-Kai Huang, Shih Hsin University, Taiwan

Dr. Li-Yu Chan, JinWen University of Science and Technology, Taiwan



This study investigates the impact of board financial expertise and education on corporate use of derivatives. Specifically, the study investigates whether a higher level of financial expertise among board members is more likely to result in the company using derivatives for hedging, but not for speculation. Results show that directors on the board with financial expertise (and a master’s degree or above) hold positive views on hedging. In addition, regarding the speculation ratio, they have a negative influence. However, directors on the board with accounting expertise (and a master’s degree or above) cause higher amounts of speculation and have a negative influence on the hedging ratio.  When the board of a company is making the decision to use derivatives, the people who are making the decision are equally important. In addition, when the company wants to engage in derivatives trading, it is also required by the government to take full responsibility of the supervision and management of the trading. However, because of the complex structure and high degree of professionalism related to derivatives, for the Board to be able to take the onus of supervision and management, it needs to have financial expertise. If the board has financial expertise and takes responsibility of supervision and management, it would prohibit the use of derivatives to conduct speculation and for hedging purposes. In addition to hedging functions, derivatives also provide the means to allow the company to engage in speculation. Speculation is not good for a company. It can increase a company’s earnings or cash flow volatility, as well as corporate exposure to risk. If financial experts join the board, they will help the board to perform supervisory functions and lower the probability of accountancy fraud, violation of regulations, and alteration of reporting forms (Abbott, Parker, and Peters, 2004; Agrawal and Chadha, 2005). Therefore, this study inferred that the financial expertise of the board will also affect the decision making regarding use of derivatives by the company. The study’s purpose is to investigate the relationship between financial expertise of the board and a corporation’s use of derivatives for hedging. More specifically, the study investigates whether a higher level of financial expertise among board members is more likely to result in the company derivatives hedging, but not speculation. In particular, the study also emphasizes the relation between the financial expertise of independent board members and the using of derivatives. According to a study by Dionne and Triki (2005), the higher the level of independence of the board, the more emphasis it places on corporate risk management. Marsden and Prevost (2005) believe that after New Zealand announced a new law in 1994, the higher the ratio of external directors, the less likely a company will use derivatives; because under the new law, external directors must be held responsible for mistakes made regarding corporate investment decisions. If the board has the expertise and experience required to run the business, it will affect the operating performance of the company. The results of a survey conducted by Bhagat and Black (1999) suggest that compared with the independence and scale of the board, directors with professional knowledge and experience running the business are also very important for the company’s performance. Accounting experts in the audit committee are associated with good financial reporting quality. DeZoort and Salterio (2001) consider that the number of independent directorships held by audit committee members and their audit-reporting knowledge are positively associated. McDaniel, Martin, and Maines (2002) suggest that audit committee experts’ evaluations of financial reporting quality are more strongly associated with their assessments of characteristics underlying reporting quality. Directors with financial or accounting expertise affect corporate decisions. Abbott, Parker, and Peters (2004) document a significant negative association between an audit committee that includes at least one member with financial expertise and the occurrence of financial reporting restatements. Agrawal and Chadha (2005) find that the probability of restatement is lower in companies whose boards or audit committees have an independent director with financial expertise. Defond, Hann, and Hu (2005) show that a positive stock market reaction to the appointment of directors with accounting knowledge to the audit committee. Guner, Malmendier, and Tate (2008) argued that when commercial bankers join boards, external funding increases and investment-cash flow sensitivity decreases. The study by Dionne and Triki (2005) is close to this study. They explored the relationship between the financial expertise of the Board and a company’s risk management operations. The variable proxy of corporate risk management is composed of the risk management portfolio amount divided by the expected production volume. The results show that the higher the level of independence of the Board, the more attention the company will pay to corporate risk management. However, for the composition of the Board, if over half the directors of an independent Board and audit committee have an accountancy background, there will be no significant impact on corporate risk management. Interestingly, compared with directors with working experience in finance or accountancy, directors with a financial background have a significantly better impact on corporate risk management. The study uses sampling of listed companies on the TWSE and GTSM for the period January 2006 to December 2012. The stocks that were previously listed or delisted on the TWSE and GTSM are included in the sample to avoid survivorship bias. Financial and insurance stocks are excluded owing to derivatives trading being one of the main professional areas of the sample companies, and the nature of their industry being different from general industries.  The derivatives data comes from the derivatives database of the Taiwan Economic Journal. This database is a summary of derivatives input into the MOPS by companies in the prescribed format before the 10th of each month. It is particularly noteworthy that companies must publish their intentions for using derivatives. Such intentions are categorized into “trading” and “non-trading” purposes, which can be respectively treated as “speculation” and “hedging.” The term “trading purposes” refers to the holding or issuing of derivatives to earn commodity trading spreads, and “non-trading purposes” refers to trading activities other than the above mentioned purposes. In this study, the sum amount of monthly write off and non-write off total contract amounts are defined as the amount of derivatives used each month; and the average data from each month in the current year is defined as the amount of derivatives for hedging or speculation for the year. On the basis of the experiences and education disclosed by companies’ annual reports, this study distinguishes the expertise of directors and supervisors into financial affairs and accountancy. Graduates who majored in Finance or Business Administration and have work experience in corporate financial management, financial analysis, financial consulting, banking, or other financial-related areas are classified as finance professionals; whereas, graduates who majored in accountancy with practical experience in corporate accounting, or worked as accountants are classified as accounting professionals. In examining the impact of board expertise and education on corporate derivatives using, we estimate a pooling regression analysis in the form of: where Use_Ratio is either hedging or speculation ratio, which is hedging or speculation amount divided by sales. Financial or accounting expertise is the ratio of financial or accounting expertise on the board. Education is the ratio of Bachelor or Supbachelor degree on the board. Supbachelor degree is defined as a master's degree or above. We also discuss the financial (accounting) expertise and education of the managers and independent directors, therefore, the main variables are also classified into board, managers, and independent directors.  Firm characteristics are market value, long-term debt ratio, book-to-market ratio, quick ratio and cash dividend yield. Market value is the closing stock price cross outstanding shares. Long-term debt ratio is the long-term debt divided by firm size. Firm size is defined as the market value plus long-term debt plus preferred stock. Book-to-market ratio is the book value of common shareholders' equity (total assets less total liabilities less preferred stock) divided by market value. Quick ratio is the short-term asset (cash plus short-term investment) divided by short-term debt. Cash dividend yield is the cash dividend divided by market value. The model also controls for year and industry effects.


Cost Allocation Effectiveness and Organizational Survival: An Empirical Assessment of Textile Manufacturing Businesses in Thailand

Pittaya Ponklang, Mahasarakham University, Thailand

Dr. Karun Pratoom, Mahasarakham University, Thailand

Dr. Saranya Raksong, Mahasarakham University, Thailand



Cost allocation effectiveness is important for cost management as it supportsdecision making, enhances competitive advantage and enables organizationsto survive. The objective of this study is to investigate the effects of cost allocation effectiveness on organizational survival. In thisstudy, 179 textile manufacturing businesses in Thailand are the sample of the study.The results of the study reveal that cost allocation effectiveness has a significant positive effect on cost management efficiency, decision making success, and resource usefulness quality. Cost allocation effectiveness consequences havea significant positive effect on superior operational excellence, outstanding firm performance, and organizational survival. In addition, business vision, managerial accounting knowledge, and competitive intensity have an important positive impact on cost allocation effectiveness. The future study needs to develop other methods which may be applied in the future such as in-depth interview, case studies in order to fully understand of this construct measurement and confirm all relationships of this model.It is the sameneeds to collect data from covering a wider industrial manufacturing in order to increase the external reliability. The importance of cost information has increased judgment and decision maker’s use for planning, directing, and controlling of the firms (O’Donnell and David, 2000) which are useful to support strategic management. In addition,the appropriate strategy is determined for the organization to focus on the cost information.Under competitive intensity, the cost management that executives need to know about the cost information as accurately as possible so they can support decision making success about  resource allocation, customer profitability, product profitability, pricing, and product mix. Cost allocation isone of the majorobligationsof executives whoneedto make decisionsaboutallocating of joint cost and support cost management system. This will enable thecostofaccuracy and completenessbe used indecision making andmanagement to be effectivein the organization. Thus, managers needto focus onunderstanding theobjectivesof cost allocation.However, in the practice of cost allocation has posed a key problem for management accountants for years (Terzioglu, 2012), because it iscomplicatedin practice.Therefore, cost information from allocating effective is importantto firm's success as itwill help managersunderstand of utility costs and  support cost management and competitive advantage(Ilic, Milicevic and Cvetkovic, 2010). This study emphasizes the behavioral and organizational aspects of cost allocation effectiveness, which is the achievement of an organization to allocate indirect costs, to provide product cost accuracy, effective cost control, cost information credibility, and cost reporting usefulness to support the cost management for achieving the business goals of the organization. The cost allocation effectivenessto supportthe strategic decisions, controloperations, andreport preparation for outsiders. Which can be classified as fourmain objectives; to predict theeconomic effects of strategic and operational control decisions, to provideincentives thatwould like toprovide feedbackfor evaluationof performance, to compute costs and asset valuations, andto demonstratethe costor geta refund(Horngren, Datar and Foster, 2008). In addition, Snyder and Davenport(1997) indicate the benefits of cost allocationinclude the motivation of performance, andbetter economic decision making.For strategic costing, the chief executive should focus on the regarding cost allocation to obtain accurate and efficiency of cost information to use decision making(Buaphaun and Ussahawanitchakit, 2013). According to the literature, Pizzini (2006) indicated the proxy of cost management effectiveness includecompleteness, accuracy, relevance and timeliness which have an effect on cost information usefulness and firm performance according to Cadez and Guilding (2008) it was found that cost management efficiencyeffect on cost information usefulness, cost information credibilityand through to a firm performance. Therefore, in this studystated thatthe cost allocation effectiveness focuses on four main objectives; product cost accuracy, effective cost control, cost information credibility, and cost reporting usefulness. Based on cost management research, cost management efficiency can improve the decisions success, competitive advantage and performanceof the company (Kennedy and Affleck-Graves, 2001). The key purpose of managerial accounting is to prepare andreportaccount informationthat is usefulin the management ofthe company(Rajan and Reichelstein, 2004). The firms that have better performance should win quality of the companies which lead to organizational operationefficiency, financial success, and a sustainable competitive advantage (York and Miree, 2004). A questionnaire-based survey carried out by Brierley, Cowtonand Drury (2006), revealed that product cost information was the least important element in cost management efficiency, decision making success, and resource usefulness quality which willaffect on firm performance including organizational survival. Furthermore, the business vision, managerial accounting knowledge, accounting system, and competitive intensity, they are critical tothe achievementof cost accounting (Chenhall, 2003; Guilding, Drury and Tayles, 2005; Harzallah and Vernadat, 2002; Revilla and Rodriguez, 2011). The primary motivation in this study is that despite the fact that it is well known that the allocation of overhead costs has been ongoing issues for management accountingand the harmful effects that may occur when the costs are calculated incorrectly, whilethe cost allocationis still oneofthe majorheadachesformanagement of accountants,surprisingly there is very few research on the cost allocation effectiveness and their impact on competitive advantage. Consistent withScapens and Bromwich (2010) reviewed articles published by Management Accounting Research Journal in management accounting research: 20 years onduring 1990-2009, and reported that articles on cost accounting systems and techniques of all topics studied only 11% during 1990-1999, but only 4% during 2000-2009. In addition,Chenhall and Smith (2011) reviewed 231 articles published by papers published by 10 leading management accounting journals between the years 1980 and 2009, and reported that topics on costing only 11 articles or 4.8% of all topics studied. Finally, Shields (1997) reviewed 152 articles published by North American researchers in six leading journals of management accounting research between 1990-1996 seven-year time period, and finding that only 8% of the articles dealt with cost allocation.The apparently large declines in academic interest in cost accounting are important, because there is no evidence that cost accounting issues have been resolved in recent years (Terzioglu, 2012).Based on the literature, there is little empirical research on cost allocation effectiveness to describe the complete phenomena. Hence, this study is to examine the effect of cost allocation effectiveness on organizational survival. The population frame of this study is businesses in the textile industry in Thailand. The textile industry has attractive features to study, becausethere is focusing on cost information which is an important factor in competitive advantage.Furthermore, textile industry has high global competition, this is because the number of competitors in Asia is increasing (Thailand Textile Institute, 2014). The government and enterprises emphasize increasing competitive advantage in the global market. Therefore, businesses in the textile industry are interesting to study and the results are expected to prove that cost allocation effectiveness is a vital factor, increasing the competitive advantage and firm value by creating unique resources. This study outlines as follows, the section twodescribes the theoretical foundation, literature reviews and hypotheses development. Section three contains a research methods. Section four explains the results and discussions. Finally, contains a discussionof conclusions and areas for further research. This study integrates two theoretical perspectives to support how cost allocation effectiveness affects organization survival including the dynamic capabilities theory, and contingency theory. The business environment has changed dramaticallyall the time, the capabilities oftraditional enterprise (Capabilities )is may be not sufficien tfo rthe creation ofcompetitiveadvantage. The organization must be poweredat all times to meet the changes in society. In which these issues are considered increasingly. Thus, the creation of new knowledge and the ability to lead a dynamic (Dynamic Capabilities). Consequently, suggests that the key drivers of cost allocation effectiveness are the capabilities within the firm that are used to resolve and select appropriate strategies, resource utilization, and sustainable development in firm performance to continuously increase its ability to manage for survival of the organization.Dynamic capabilities support firms to begin again their abilities todevelop strategies and resource usefulness quality and include the configure internal and external organizational skills for competitive advantage of the firms (Eisenhardt and Martin 2000; Teece, Pisano and Shuen 1997).


The Impact of Information Asymmetry and Dispersion of Opinion on Stealth Trading Around Earning Announcements

Dr. Han-Ching Huang, Chung Yuan Christian University, Taiwan R.O.C.

Dr. Pei-Shan Tung, Chung Yuan Christian University, Taiwan R.O.C.



This paper examines stealth trading in stock markets around earning announcements. During preannouncement period, most of the cumulative stock price change occurring in the small-size category is larger than that in other size categories under earning announcement. Moreover, the extent of stock stealth trading before earning announcements is positively correlated with the level of ex ante information asymmetry and negatively correlated with the dispersion of opinion. After earning announcements, the stealth trading is negatively correlated with the information asymmetry and negatively correlated with the dispersion of opinion.  This paper examines stealth trading in stock markets around earning announcements. The stealth trading hypothesis proposed by Barclay and Warner (1993) indicate that if stock price movements are mainly caused by private information being revealed through the trades of investors and if privately informed traders concentrate their trades in certain sizes – not too small (which is too expensive in terms of trading costs) and not too large (which could give them away) – then most of a stock’s cumulative price change will take place on medium-sized trades. That is, informed traders attempt to camouflage their information to earn more profit by spreading their trades over time. Traditionally, informed traders engage in medium-sized trades since the trading costs of small trades are too expensive and large trades may reveal their information. Since transaction costs have decreased due to the decimalization, Hansch and Choe (2007), Hvidkjaer (2008), Blau et al. (2009), and Jain and McInish (2010) found that the lower bound of the size of stealth trades has declined. Thus, small-sized trades contribute more to the price change than medium-sized trades during the decimalization period. In this paper, the stealth trading is defined as trading in a size at which most of a stock’s cumulative price change would take place. Based on information-based stealth trading hypothesis proposed by Blau et al.  (2009), when trading volume is lower, informed traders are more inclined to break up their trades to disguise their information. Similarly, following liquidity-based stealth trading hypothesis proposed by Lebedeva et al.  (2009), we can also infer that when trading volume is lower, the extent of stealth trading is also greater. Chae (2005) shows that trading volume decreases prior to earning announcements, implying that uninformed investors avoid trading when there is a high level of ex ante information asymmetry. Nonetheless, almost 35% of stocks on CRSP exhibit greater average trading volume before earning announcements. Saffi (2008) finds that the differences of opinion about earning announcements help to explain these observed differences. In addition, the extent of stealth trading is associated with trading volume. Therefore, we explore the impact of dispersion of opinion and information asymmetry on the extent of stealth trading in stock and option markets before (after) earning announcements. The following examines two related hypotheses to study the stealth trading. Hypothesis 1: The extent of stealth trading before earning announcements is positively correlated with the level of ex ante information asymmetry and negatively correlated with the level of ex ante dispersion of opinion. Chae (2005) indicates that the trading volume before earning announcements is negatively correlated with levels of ex ante information asymmetry.1 Because lower volume is accompanied with greater stealth trading and trading volume before earning announcements is negatively correlated with levels of ex ante information asymmetry, the extent of stealth trading before earning announcements should be positively correlated with the level of ex ante information asymmetry. Saffi (2008) finds that when the level of ex ante differences of opinion is smaller, the trading volume before earning announcements is smaller. In addition, the lower volume is accompanied with greater stealth trading. As a result, the extent of stealth trading before earning announcements should be negatively correlated with the level of ex ante dispersion of opinion. Hypothesis 2: The extent of stealth trading after earning announcements is negatively correlated with the level of ex ante information asymmetry and negatively correlated with the level of ex ante dispersion of opinion. Chae (2005) indicates that the trading volume after earning announcements is positively correlated with levels of ex ante information asymmetry. When the level of ex ante information asymmetry is larger, the trading volume after earning announcements is larger. In addition, the higher volume is accompanied with smaller stealth trading, the extent of stealth trading after earning announcements should be negatively correlated with the level of ex ante information asymmetry. According to Saffi (2008), when the level of ex ante differences of opinion is smaller, the trading volume should be smaller. Besides, the higher volume is accompanied with smaller stealth trading. Thus, the extent of stealth trading after earning announcements should be negatively correlated with the level of ex ante dispersion of opinion. The main contributions of this paper are as follows. The literature about timing information (e.g. Chae, 2005) examines the trading volume. Instead of trading volume, we explore stealth trading. Saffi (2008) combines the differences of opinion and information asymmetry to explain the trading volume before earning announcements. We use the differences of opinion and information asymmetry to explore the stealth trading around to earning announcements.We find that the small-sized trades contribute more to the stock price change than medium-sized trades during benchmark and post-announcement periods because lower transaction costs due to the decimalization decline the lower bound of size of stealth trades. During preannouncement period, most of the cumulative stock price change occurring in the small-size category under earning announcement is large, whereas during postannouncement period, most of the cumulative stock price change occurring in the small-size category under earning announcement is small. Moreover, the extent of stock stealth trading before earning announcements is positively correlated with the level of ex ante information asymmetry and negatively correlated with the level of ex ante dispersion of opinion. The extent of stealth trading after earning announcements is negatively correlated with the level of ex ante information asymmetry and negatively correlated with the level of ex ante dispersion of opinion.  The sample consists of top firms that made earnings announcements in 2011. Following Schwert (1996), we define the announcement date as date 0. We also define the trading period from trading -200 to -100 as the benchmark period, the trading period from trading -30 to -1 as the pre-announcement period and the trading period from trading +1 to +30 as the post-announcement period. I/B/E/S data are used for the earnings announcements sample. The announcement dates are obtained from the I/B/E/S summary files. The daily data of stock price and trading volume are obtained from Center for Research in Security Prices (CRSP). Only observations that have at least 200 days before and 30 days after announcements are included in the sample. The price change that occurs on a given trade is defined as the difference between the trade’s price and the price of the previous transaction. For each security in the sample, all price changes that occur on trades in a given trade size category during the sample period are aggregated. We then divide this sum by the cumulative price changes during the sample period. Finally, the weighted cross-sectional mean of the cumulative option price change is estimated, where the weights are equal to the absolute value of the cumulative price change over the sample period. We use the following to elaborate the process.


Performance Evaluation System Competency and Firm Survival: Empirical Evidence from Cosmetic Businesses in Thailand

Suwit Waitip, Mahasarakham Business School, Mahasarakham University, Thailand

Dr. Suparak Janjarasjit, Mahasarakham Business School, Mahasarakham University, Thailand

Dr. Saranya Raksong, Mahasarakham Business School, Mahasarakham University, Thailand



The main objective of this study is to examine relationships between performance evaluation system competency and firm survival of empirical evidence from cosmetic businesses in Thailand. Data were collected by survey questionnaires distributed to the heads of accounting departments of firms, 130 completed questionnaires are used in the analysis. The results indicate that performance evaluation system competency has significant positive impacts on firm survival by using organizational commitment awareness, organizational citizenship behavior, organizational loyalty concern, business excellence, and corporate competitiveness as the mediators. Similarly, organizational commitment awareness has positive effects on organizational citizenship behavior, organizational loyalty concern, and business excellence. Likewise, organizational loyalty concern has significant relationship to business excellence, and corporate competitiveness. However, organizational citizenship behavior does not relate to business excellence, and corporate competitiveness due to two variables may be affected by other important factors such as organizational learning rather than such variable and it also was conducted under the rules and regulations. The implications, further research, and limitations are also highlighted.  Nowadays, the environment has become more complex and changing, especially business environments issues regarding advance technology for production and administration, the quality of products and services, diversity of productions, and change of customer behaviors. Also, it has increase competition locally and globally and changes laws and engagement environment conditions to economic benefit sharing and response customer demand such as Association of Southeast Asian Nations (ASEAN) Trade in goods agreement (Association of Southeast Asian Nations, 2014). This has effect on organizational operation and performance toward survival of the firm. Organizational operation efficiency is based on many factors that are components of management in organization, especially management tools or techniques which are important factors that support the administration and development of the firm to create competitiveness and organizational operation excellence and toward the survival of the organization. Most management techniques and tools are generally used and are very important to create organizational performance and survival of the firm such as competitive strategy, human resources management, and technical and management accounting practice (i.e.,budgeting, performance evaluation, and strategic planning and costing) (Agbola, Hemans and Abena, 2011; Haldma and Laats, 2002; Pansuppawatt and Ussahawanitchakit, 2011 and Sananuamengthaisong and Ussahawanitchakit, 2010). Pansuppawat and Ussahawanitchakit (2011) and Sananuamengthaisong and Ussahawanitchakit (2010), indicate that strategic organization which is capability has a positive relationship with business excellence and firm survival. The performance evaluation is a key tool or strategic for human resource management to improve performance, competing power and survival of organization (Prowse and Prowse, 2009; Abdulkadir, Isiaka and Adedoyin, 2012). It also has become a key manner in organizational drives towards competitive advantage through continuous performance improvement and change performance of individual and the organization (Agbola, Hemans and Abena, 2011 and Coens and Jenkins, 2000). It is believed that it enables organizations to survive. It is used for identifying employees’ strengths and weaknesses, conducting job analysis and design, as well as the basis for providing training and development opportunities for employees. Moreover, the objective of performance evaluation is to administer and develop decisions regarding paying, promoting, training, and documenting for legal purposes (Ikramullah et al., 2011) especially, allocation of their human resources and performance management under limited resource available that maximize benefits to the organization. Additionally, it helps organization identify three major things: performance standards, core competences, and communicating the standards and competencies to employees which make business activity covering with individual goals and the organization goals (Iqbal et al., 2013). Thus, to efficiency and effectiveness of organizational operation in such environmental, the firm should focus on management with performance evaluation process due to it has relationship with work attitudes and behavior and has effect on organizational operation and performance. According to research Karimi, Malik and Hussain (2011), indicate that the reliability of instruments used of performance evaluation system has positively affect employee satisfaction, which in turn effect on organizational performance and ultimate building organizational success. Similarity, the fairness of performance evaluation process has affects organizational commitment, job satisfaction, trust in superior, and organizational citizenship behavior (Lau, Wong and Eggleton, 2008; Sananuameng and Ussahawanitchakit, 2010 and Teh, Boerhannoeddin and Ismail, 2012). Moreover, Wang, Liao and Xia (2010) indicate that organizational justice in performance evaluation system has significant relate to work performance through organizational commitment as mediating effects. Likewise, the research of Warokka, Gallato and Moorthy (2012), examine the effect of fairness in performance evaluation on work performance through performance evaluation satisfaction as mediating effects. The results reveal that support for the relationship.  While, firms have attempted to manage their performance evaluation system is efficiency to gain a competitive advantage in both domestic and global markets and enhance organizational performance in such environment. However, prior research and practitioner yet recognize performance evaluation process issue and its consequence, but have a little research and it does not find performance evaluation efficiency in practices due to lacking of investment. Hence this study proposes the concept of performance evaluation system competency to be a key role in driving firms’ organizational commitment, organizational citizenship behavior, organizational loyalty, business excellence, corporate competitiveness and firms’ survival. The main purpose of this study is to explore, address, and assess the existing literature of performance evaluation system competency- evaluation method, measurement criterion, evident collection, and performance result which is based on organizational justice, reliability, accuracy, and transparency, organizational commitment awareness, organizational citizenship behavior, organizational loyalty concern, business excellence, corporate competitiveness, and firm survival. In this study, the key research questions are: How does performance evaluation system competency influence firm survival?: and How organizational commitment awareness, organizational citizenship behavior, organizational loyalty concern, business excellence, and corporate competitiveness are mediator of relationship between performance evaluation system competency and firm survival? This study is outlined as follows. The first existing significant literature in the areas and streams of performance evaluation system competency and firm survival links between the concepts of the aforementioned variables, and development of the key research proposition of those relationships. The second provides the contributions and suggestions for future research. The final section is overall summary of those issues. In this study, the resource-based view is used to explicate the relationships between each variable in model (Figure1) as follows. The resource-based view of the firm confirms that firms are heterogeneous bundles of resources and capabilities which are controlled by the firm. The task of the entrepreneur is to develop, assemble and acquire these resources and capabilities to achieve competitive advantage which, in turn, leads to superior organizational performance (Barney, 1991) and ultimate survival of organization. The resources of organization include intangible and tangible assets. Capability is one intangible resource that used for organizational management to create competitive advantage and firms’ survival which valuable resources, rare resources, inimitability, and non-substitutability (Barney, 1991). For this research, the resources-based view is applied to explain the phenomenon of performance evaluation system competency which is the capability of the firm that manages in terms of the performance evaluation process, evaluation method, measurement criterion, evidence collection, and performance result, including performance evaluation participation to enhance efficiency and effectiveness of organizational performance whether performance of individual and organization and ultimate the sustainability of the organization. Prowse and Prowse (2009) states that performance evaluation is important factor in organizational drives towards competitive advantage through continuous performance improvement and change performance of individual and the organization (Agbola, Hemans and Abena, 2011). 


Foreign Exchange Volatility and Yields Movements in Eurozone

Dr. Ana Rimac Smiljanic, University of Split, Croatia

Dr. Ivan Karin, University of Split, Croatia



This paper studies the impact of yields movements on the long-term sovereign bonds on foreign exchange volatility in the Eurozone from the beginning of 2003 to the end of 2013. Using such a period of time allowed us to carry out separate analysis before and after the global financial crisis. Namely, today in the world of free financial flows the exchange rate is one of the most important indicators of the country’s stability. After the emergence of the global financial crisis, state stability is again in the main focus of investors. The Eurozone countries rocked the debt crisis after the global financial crisis. One of the specificities of the Eurozone compared to the rest of the world is that a common currency exists, while all member states are issuing government bonds individually and have a separate fiscal policy. With the arrival of turbulence in  financial markets, investors have different perceptions of the quality of government bonds of member countries. A change of government bond yields indicates, also, a change in the perception of risk of investing in the financial assets of countries from the Eurozone. This changed perception of risk is causing the movement of capital among countries and consequently is resulting in a change in the Euro and US dollar exchange rate. The results of our empirical study proved that three member states have the greatest impacts on the movement of capital between Euro and Dollar assets: namely Luxembourg, the Netherlands and Germany. After the financial crash in 2008, the yields on the sovereign debt of Eurozone countries started to move in different directions. Namely, after the introduction of the Euro, the yields on bonds of these countries were moved in a similar pattern, and differences among them became smaller in time. On the other hand, these economies reacted differently to the global financial crisis and some of them found themselves in serious fiscal difficulties. Consequently, the credit rating agency started to downgrade the sovereign debt ratings on some of them which gained a great deal of attention from investors. This resulted in great movements of capital among Eurozone counties but also in great inflows and outflows of capital from the Eurozone to other countries. Namely, the member states of the Eurozone share a common currency, but each country still has full fiscal sovereignty. Therefore, this creates a unique economical environment that allow us to search for the answer to how the yield change on the sovereign debt in one member country of the Eurozone  affects the movements of the Euro on the foreign exchange market. Therefore, any factor potentially affecting domestic bond prices has the potential to predict foreign exchange (Ang, Chen, 2010). Namely, the majority of studies seek the answer to how short term interest rates are affecting movements on foreign exchange market. In the case of the Eurozone and the integration of capital markets, the short interest rates are primarily reflecting the changes in common monetary policy and inflation expectation. The expectations of country risk premiums are built up in the yields of the sovereign debt of each country (Ang, Chen, 2010), i.e. the risk premiums of individual countries are related to the domestic interest rates. Namely, the situation on financial markets after the beginning of the crisis in 2008, and especially during _ 2009 and 2012 reflected the fact that investors perceive the Eurozone countries very deferentially and therefore the long term yields on the state bonds should have a different effect on value of the Euro on the foreign exchange market. This study confirmed that countries with weaker macroeconomic fundamentals, like fiscal deficit and current account deficit, are perceived by investors as being more risk-averse and require higher yield or sale of the asset. Namely, in times of crisis, risk aversion significantly increases (Barrios et al., 2009) and therefore investors value less the economically weaker states and seek higher yields. Also, investors could choose the strategy of selling the asset from countries that are perceived to be more risky. Additionally, the problems in so called PIGS countries, Portugal, Italy, Greek and Spain arouse fear about stability and the future of whole Eurozone and therefore place an additional weight on the risk assessment for all Eurozone countries and especially the future of a single currency. All of that could result in a significant effect on the foreign exchange market. In our research, we are trying to find an answer to these questions. Since the two most important world currencies are the Dollar and the Euro, in this paper we are seeking the answer to what are the influences of the bond yields of Eurozone countries on the Euro/dollar exchange movement before and after the global crisis, especially during the Euro debt crisis.  This paper is organized as follows: Section 2 contains the methodological approach and the data used in the analysis are described. In Section 3 the empirical results are presented and discussed. Section 4 concludes the paper with a summary. We analyzed and empirically tested the theoretical model on samples of data from Eurozone countries from January 2003 to December 2012 by using the monthly data. This approach allowed us to capture the longer effect of yield change on foreign exchange, and exclude the first reaction to prices on financial markets that might include _panic or other irrational investment behaviour. The following data variables have been taken into consideration: The nominal effective Euro/US dollar spot exchange rate (FX €/$): in the model the value of the exchange rate is taken on a monthly basis. Listing is done in a way that shows how many units of the US dollar should be set aside to buy one Euro. We took a Euro/ Dollar exchange rate to test a model because, according to BIS (2010), the largest trading volume on the Forex market took place between the Euro-Dollar currency pair. Change in the perception of the risk in investing in a country also causes changes in yields in investment in the government bonds of that country. Therefore, inflows and outflows of captital occur causing change in the value of the Euro.The data on foreign exchange rates were taken from publicly available data of the FED. The Money (M): The volume of money in the Eurozone is measured by the monetary aggregate M2 of the European Central Bank. Namely, theoretically the effect of central bank change of volume in the monetary aggregate M2 acts to change the exchange rate over changes in interest rates which affect the yield of assets in Euros. The M2 monetary aggregate in the model is taken as change (delta Δ) compared to the previous period. According to theoretical assumptions, it is expected that changes in the quantity of money affects the change in investor behaviour. The data of the monetary aggregate M2 are taken from the ECB web site. The yield on government bonds of Member States (Yield): Yields refer to the secondary market of government bonds with a maturity of 10 years. Data on yields on government bonds are downloaded from the ECB. Current account trade balance (TB) represents the country’s balance compared to (?) foreign countries. The deficit or surplus in balance of payment affects _ capital movements_ in or out of the country and therefore indirectly affect the exchange rate. Data on foreign trade balance are downloaded from the website of the ECB. Dollar short interest rate (R): Together with the economic factors of the analyzed country which might have an impact on the exchange rate, it is equally important to include in the model the influential factors of the other country, specifically the USA. Following the methodology presented in Nwafor (2008) as an indicator of external developments, the effective short term interest rate on the dollar was taken. The short-term interest rate is taken as representative of the price of money in the United States. Namely, a higher interest rate in the USA will, according to the portfolio theory, lead to the sale of assets denominated in Euros and a higher demand for assets denominated in US dollar. As a consequence of these developments, the foreign exchange rate should change. The data on the interest rates movement are taken from publicly available databases of FED. Credit rating announcements (CRA) is a measurement of risk for investing in the government bonds of a specific country, and it is also a indicator of country risk in risk assessment for the other financial assets from that country. The higher level of credit rating also means a greater likelihood of collection, which inspires investors’ confidence in the market. The changed probability of collection revenues from financial assets affects the demand for asset from that country, and therefore the causes domestically and internationally flows of funds which can lead to changes in foreign exchange rates. In this paper, the credit ratings assigned by Moody’s rating agency are used. The data on the movements rating by Moody's agency is taken from the website Since in the observed period there were no changes in credit ratings in all monitored countries, the variable credit rating was dropped from the model in the empirical testing. However, its value is captured in the values of yield as a reflection of investor asset valuation of state bonds.


Modern Computerized Accounting Knowledge and Job Performance of Accounting in the Thai-Listed Firms


Mukdawan Poldet, Mahasarakham University, Thailand

Dr. Suparak Janjarasjit, Mahasarakham University, Thailand

Dr. Phaprukbaramee Ussahawanitichakit, Mahasarakham University, Thailand



This study attempts to provide understanding the relationships among modern computerized accounting knowledge, its consequents and job performance by investigating the reality phenomena. The objective is to investigate the effects of modern computerized accounting knowledge on job performance of accountants in the Thai-listed firms. The knowledge-based view of the firm is used to explain the relationship of the variables in conceptual model. Data were collected from a sample of 95 accountants in the Thai-listed firms by questionnaire mailings. The Ordinary Least Squares (OLS) regression is used for testing the proposed hypotheses. The results show that modern computerized accounting knowledge has a significant positive effect on computer-based AIS creativity and best accounting practice. Moreover, computer-based AIS creativity and best accounting practice have a significant positive effect on decision-making efficiency support. Finally, decision-making efficiency support has a strong positive effect on job performance. This empirical finding is a useful guideline for accountants, organizations, and regulators to increase modern computerized accounting knowledge for enhancing the accounting job outcome and job performance. In short, conclusion and directions for future research are suggested at the end. Advanced accounting technologies are namely as accounting software, online-based accounting applications, real-time systems, database management systems, computer networks, and database design. They are used to prepare and to produce financial reporting and accounting information for users to make better economic decision (Bovee et al., 2002; Ghasemi et al., 2011; Jones and Willis, 2003; Sürmen and Daştan, 2007). Nevertheless, it is an undeniable circumstance that information technology plays a major role of accountants to provide the momentum of driving accounting activities (Vaassen and Hunton, 2009). For instance, the enterprise resource planning (ERP) systems adoption has developed the quality, ease of access and accounting information timing for managers, and can improve transaction processes to more flexibility (Granlund and Malmi, 2002). Moreover, the using computers in accounting part of business, it is agreed that reasonable and more efficient methods of data collection and recording, processing and storage accounting data. The increasing use of advanced accounting technology is significantly influenced the process of decision-making user, which it has effects on accounting process in accountants’ jobs (Granlund, 2007). Thus, advanced accounting technology has impact in the role of accountants, which are changed from manual to computerized accounting (Larres, Ballantine and Whittington, 2003; Ismail and Abidin, 2009). Correspondingly, the success of accountants depends on their use information technology to fast and easy access data from various sources; understand the integrated systems and abilities the advanced accounting technologies using (Peccarelli, 2004).  Thus, computerized accounting competencies requirement is important for professional accountants. It is the use of information technology in their accounting task. Likewise, firms need accountants who have computerized accounting knowledge to perform activities such as implementation, design, and operation of computerized accounting systems (Caglio, 2003). New comprehensive information technology knowledge of professional accountants plans to perform the combination roles of “user, designer, manager, planner, or evaluator of information systems” (Wessels, 2008). In response to these challenging circumstances, accountants need to revise their skills and improve knowledge to survive with the technological environment. Many academics (Bierstaker, Burnaby and Thibodeau, 2001; Chang and Hwang, 2003; Jones and Abraham, 2007) expressed that should be to identify a new comprehensive set of information technology knowledge. According to Trites (2004) suggestions, accountants should change from the “Pacioli paradigm” to the “Google paradigm” that accountants must develop information technology skills and knowledge for the new challenges coming of the technology-driven in the new world economy. The business competitive advantage in new world economic phenomenon is addressed in terms of the knowledge economy that focused on knowledge and is information-driven (Grant, 1996; Hult, 2003; Malone, 2002). The fundamentals of economic knowledge agree that new knowledge can create innovation, productivity, and competitive advantage (Adams and Lamont, 2003; Mundra, Gulati and Vashisth, 2011). Therefore, knowledge can improve firm capability performance in the relationships between knowledge and business strategies (Constantinescu, 2009). Moreover, the knowledgeable worker is improved from experience, skills, and creativity in organizational sustainability and competitive advantage (Meisinger, 2006). Consequently, organizations expect that knowledge is a core competence of sustainable competitive advantage (Grant, 1996; Nonaka, 1994). Thus, knowledge is a core competency of, professional accountants (Larres, Ballantine and Whittington, 2003). The professional accountants requirement are demanded to have skills and knowledge for use of modern computerized accounting to improve their jobs quickly. The previous accounting information systems (AIS) literatures addressed the professional accountants are still lack of knowledge about the using modern computerized accounting in accounting processes (Ismail and King, 2005; Sorensen et al., 2008). However, the prior AIS researches were concentrated on the investigation of AIS success or AIS effectiveness, and focused on end-user information satisfaction for both individual and conceptual measuring (Doll and Tokzadeh, 1988; Marble, 2003; Wang and Liao, 2007). The previous empirical studies are still not attempting to identify critical information technology knowledge for appropriation in helping accountants to use advantage from the complete scope of information technology hardware and software. Consequently, the accountants need to know the technical details to understand computerized accounting implementation. However, the accounting academics and practitioners are concerned about the modern accounting technology. The International Federation of Accountants (IFAC) is a professional accounting body in worldwide purposed to issue the following International Education Guideline (IEG-11): Information Technology and the Accounting Curriculum. IEG-11 has the functional support for the member bodies and prepares accountants for ready to work in information technology-driven economy. It covers information technology knowledge and accountants competency requirements (Heales, 2005). Conversely, Jones and Abraham (2007) finding showed that technology skills of accountants are still below the minimum IFAC expectation (IFAC, 2007). Thus, accountants need to address the issue of developing information technology competency requirements for professional accountants.  Furthermore, information technology utilization such as recordings, processing and producing the accounting information of end-user (professional accountants) have positively influenced on job performance that the information technology fits with their tasks (Sorebo, Christensen and Eikebrokk, 2004). Therefore, this study focuses on contemporary accounting technology in terms of modern computerized accounting knowledge (MCAK) of professional accountants. The accountants also need to use modern computerized accounting such as accounting software, databases, electronic network and hardware in business implementations, which is the key support the effective and efficiency of accounting task (Croteau and Raymond, 2004; Greenstein and McKee, 2004; Mgaya and Kitindi, 2008; Wessels, 2008). Individual expertise is needed for practical knowledge in order to develop professional accounting discipline. Moreover, many researchers point out that knowledge directs the determination of job performance through the role of capability to perform tasks in terms of practical intelligence (Gatewood and Field, 2001; Outtz, 2002; Robertson and Smith, 2001; Tenopyr, 2002). Thus, the key question and the main purpose of this study are how the relationship between modern computerized accounting knowledge and job performance come via computer-based AIS creativity, best accounting practice, and decision-making efficiency support.  This study proposes the contributions to enhance the prior literature that investigates the effect of modern computerized accounting knowledge on job performance of accountants in Thai-listed firms. Consequently, this study guides to new information for professional accountants that covers the computerized accounting process and the values of using the computer system to record and update accounting transactions for the accuracy and reliability of the accounting informations. Finally, the knowledge-based view of the firm concept will clarify in individual views based on the impact of the consequences. The relationship between modern computerized accounting knowledge and job performance in this study is drawn from the knowledge-based view (KBV) of the firm. The KBV of the firm refers to knowledge that is a key resource of the firms and is difficult to replicate (Grant, 2002). Moreover, the KBV of the firm is concentrated that knowledge in the core of the strategic management for organization, which is the critical sources for competitive advantage (Patton, 2007; Wang, He and Mahoney, 2009).


The Process of European Direct Tax Harmonization

Dr. Maria Luisa Fernandez de Soto Blass, Universidad Catolica San Antonio de Murcia, Spain



Tax harmonization implies a process of progressive approximation and coordination of legislation in tax matters of the member states of the European Union. It is a series of steps which tries to reduce the financial and tax distortions and discriminations in the jurisdictional conditions which exist within the member states in order to achieve the full realization of freedom of movement of goods, people, services and capital in the Single Market. It is one  step off the unification of tax systems through the creation of identical taxes but with different rates in a first stage, or taxes and tax rates which are the same in a second stage.  The present paper contains a study of  the concept of tax harmonisation, the principles, techniques, instruments and procedures in European Union Tax harmonisation, the development of European Union harmonisation of direct taxation and finally some conclusions. The researches discuss about the legal nature (direct or indirect ) of the Spanish Estate Environmental Taxes. This paper is the result of the researches that the author is carrying out about “Taxation and Climate Change”, that is a National Investigation and Development Research (DER2010-14799) and the other research about “Study on the desirability and the possibility of extending the freedom of choice in education at the Community of Madrid through the implementation of private funding sources (EDUCACEU) REF USPBS-PI02/2011-UNESCO 5309-5802-5909 and group of researches: Law: Past, present and future legal issues of Universidad Católica San Antonio de Murcia.  Tax harmonization implies a process of progressive approximation and coordination of legislation in tax matters of the member states of the European Union  (Fernández de Soto Blass (2004). It is a series of steps which tries to reduce financial and tax distortions and discrimination in the jurisdictional conditions which exist within the member states in order to achieve the full realization of freedom of movement of goods, people, services and capital in the Single Market. It is one step off the unification of tax systems through the creation of identical taxes but with different rates in a first stage, or taxes and tax rates which are the same in a second stage ( new articles, 90 - 102 TCE) The Neumark Report states that tax harmonisation consists of the necessary measures to establish taxation and public spending conditions similar to those which would exist in a unified Economy (Pelecha 1994, pp. 62) . The member states have expressed their particular objections to the advances sought through the Community process due to the compulsory yielding of national sovereignty, which is an integral part of the process, since it undermines the functions of the National Parliaments (Fernández de Soto, 2001a, p.2). Indirect tax harmonisation has been considered a priority over direct taxation. The following taxes have been harmonized by official directives; VAT, special taxes and the different ways of taxing capital concentration operations. Despite the partial silence of the European Union Treaty (artics. 90-97 TUE) on indirect taxes (artic. 92 TUE), this has not stopped intense activity on the part of the European Commission to get the harmonisation process underway. The member states have preferred to come together through the channel of coordinating tax policy action rather than through the channel of bringing together the binding legal regulations (Official Directives). Community directives leave little room for maneouvre for the national legislators due to their technicality, detail and legal reserve principle. The scope of action of the Commission has been limited by the direct effect concept. Work has centred on the harmonisation and alignment of indirect taxes since it is considered that indirect taxes directly and visibly affect trade between member States and could impinge on competition. However, direct taxes on company capital are equally important for its competitive position. The implementation of the single currency (Fernández de Soto, 2003, p. 730), the euro and the Amsterdam and Nice reforms and the prospect of a European Constitution which introduce the principle of strengthened cooperation and flexibility (artic. 43 TUE and artic.11 TCE) which add to the requirement for unanimity before adopting decisions on regulations within the community could mean a step forward toward in the European tax harmonisation process which has been so slow until now  (Fernández de Soto, 2001b, p. 10). There is no single criterion in the doctrine with respect to the principles of tax harmonization. We can identify those which occur most frequently in the harmonization process  (Aparicio Pérez,  Álvarez García, Arizaga Junquera, 2000, p 50): 1. The principle of the market economy. The objective of the Community treaties is to facilitate the development of economic liberalism through the eradication of those barriers which seek to impede them: frontiers, customs, interventionist legislation, monopolies, etc. 2. The principle of free competition whose objective is the bringing together of other community policies and promoting the smooth functioning of the market as the best means of assigning resources in the sphere of European integration. (Article 82 and 83 ECT). 3. Equality of treatment principle. There are to be no differences in treatment in situations which are the same. 4. Anti- discrimination principle. Discernible in 2 principles: that of no discrimination between intra-community exchanges and the taxation of goods in the country where they are to be consumed. 5. Subsidiary principle. Based on a dual rule: that of minimum intervention on the part of community institutions and secondly, that of intervention by those institutions only when necessary and to the extent which is necessary (Olesty  Rayo, 1998, p 37). We can observe different tax harmonisation techniques. These criteria include the origin of the drawing up of the harmonisation regulations, the legal power of the act, the objective to be achieved, the time in which it is to be carried out, the content of the harmonisation action, the harmonization of material regulations. The harmonization procedures used are: EU reception technique, EU homologation, EU verification, EU permission model, EU auto certification, EU examination of type (Milán ,1986, p. 240).  The harmonisation instruments of the legislations are the legal means validated by the Community such as the constituent treaties and their modifications, regulations, guidelines, decisions, recommendations, exceptional action, rulings and agreements and conventions. In February 1960, the Commission created a Fiscal and Financial Committee to study the necessary fiscal measures for the correct functioning of the Common Market. In 1962 the Committee drew up the Newark Report which deemed desirable “that all European countries should pay the same rate of income tax” (Spanish Treasury Ministry , 1994) . A declaration was made on the introduction of a standardized tax in which the rates could vary although the States would follow the same model. The subject of double taxation of dividends and the integration of Income Tax and Corporation tax arose with the subsequent proposition of a double rate system as a solution (Aparicio Pérez,  Álvarez García, Arizaga Junquera, 2000, p 70). It is some people’s opinion that nothing has changed since then there is no sign of harmonisation on the horizon. On the 1st of December 1965, a Memorandum was approved in which the following points were set out: 1. The necessity to adjust and harmonise the tax system of parent companies and subsidiaries. 2. The convenience of eliminating the bureaucracy from mergers and the need to harmonise the tax treatment of capital gains which abound in such operations. 3. The need to harmonise the tax on company profits so as to avoid distortions when setting up companies and to favour the freedom of investment.


Accounting Well-Roundedness Competency and Professional Success: Evidence from Bookkeepers in Thailand

Phathairat Pongpratead, Mahasarakham University, Thailand

Dr. Saranya Raksong, Mahasarakham University, Thailand

Dr. Suparak Janjarasjit, Mahasarakham University, Thailand



As changing environment of business, the bookkeepers, therefore, need to adapt themselves according to environmental change such as new technologies, new regulations, and laws. The bookkeepers need to have an accounting well-roundedness competency (AWRC) to succeed and sustain their profession. However, this research also proposes the definition of the AWRC leading to the professional success (PS) by using regression analysis methods. The results show that the AWRC needs to have accounting knowledge excellence, accounting applied, and knowledge integration that can be a part of the PS. In addition, the AWRC can generate the job quality (JQ) and job effectiveness (JEN) resulting in the stakeholder acceptance that leads to the PS as well. To understand the role of moderating variable, this research also proposes the experience usefulness (EU) as to moderate the relationship AWRC with its dimensions and JQ and JEN. The results show that the EU can only support to moderate the relationship between the AWRC and the JQ as well as the AKE. As changing environment of business, the bookkeepers, therefore, need to adapt themselves according to environmental change such as new technologies, new regulations, and laws. The bookkeepers need to have a well-roundedness competency to succeed and sustain their profession. Davie (2008) found that the bookkeepers cannot provide an efficient work with only the accounting knowledge because they need to have a variety of knowledge for accounting occupation. This corresponds with the research of Oakes (2012) that professional success needs to have a variety of knowledge. Ahmed (2013) found that it is time to develop ability of bookkeepers to respond to the requirement of accounting users in order to progress of the bookkeepers. As above mentioned, accounting well-roundedness competency is important to sustain and succeed for the bookkeepers. In addition, the lack of well-roundedness competency is a reason that the bookkeepers cannot succeed in accounting profession (Gomez and Guerrero, 2013). In addition, there are a lot of competitions among bookkeepers to have more customers due to economic competition. Therefore, accounting well-roundedness competency is a factor to success in their occupation. Accounting well-roundedness competency of bookkeepers leads to professional success, reflecting sustainability in a bookkeeper’s social. Professional success also reflects the image of holding customers, customer increases, and an ability of strongly being in a bookkeeper’s social strongly. However, the level of professional success depends on the well-roundedness of bookkeepers as well (Oakes and Miranti, 2012). This is the important reason for this research: the need to answer firstly whether the well-roundedness of bookkeepers will be able to have an effect on professional success of bookkeepers. Secondly, it requires answer on how accounting well-roundedness of bookkeepers will produce quality work and increase accounting effectiveness. In this research, accounting well-roundedness competency does not mean only the accounting knowledge, but it also includes the understanding value of the profession, accounting practice, applications for using accounting knowledge, and proper integration of the other fields. This research has focused on studying the independent variable to explain the dependent variable that will apply the theory of successful intelligence and contingency theory to describe the phenomenal occurrence.  The theory of successful intelligence will focus on explanation of successful of the person who is bookkeepers that will consist of well-rounded knowledge and they can apply their knowledge to evaluate, analyze, and decide to achieve the target plan. Moreover, the important content of theory of successful intelligence will be able to briefly explain that the professional success or professional achievement also needs to understand in the professional value that they are working. Furthermore, the bookkeepers need to have the ability to apply with the appropriate situation and related knowledge which can lead to the professional success (Haynes, 2008). While, the contingency theory is the explanation that the bookkeepers have to adjust or flexible according to the situation changes.  Particularly, the new rules have been issued, the bookkeepers have to change the way for working including the working concept properly to be in time and ready to work when situation changes.  Therefore, this research has investigated whether accounting well-roundedness competency (AWRC) will affect to professional success (PS). In addition, the AWRC is divided as three dimensions, which are accounting knowledge excellence (AKE), accounting applied (AA), and knowledge integration (KI), to be studied whether these three dimensions have a relationship with the PS. Particularly, there are study whether the AWRC can generate job quality (JQ) and job effectiveness (JEN) which are expected that these variables lead to the PS. Moreover, this research has also studied a moderating variable (experience usefulness) whether it will increase the relationship between the AWRC and PS. To illustrate the relationship among the variables, the conceptual framework has been shown in Figure 1. In order to test the above relationship, the regression analysis has been used. Aims of this research can following explain. Firstly, the bookkeepers, who need to have professional success, will be able to understand the way to develop themselves or know the target what they should do. Secondly, the employer or head of bookkeepers can specify the direction to support the accounting well-roundedness properly and divide the budget for supporting. Thirdly, this research can be usefulness with accountants who aim to be the bookkeepers in the future. Lastly, this research can be the information data to be the reference for development of curriculum for school of accounting. Accounting well-roundedness of bookkeepers will lead to professional success (Oakes and Miranti, 1996).  That professional success might show an increase in new customers and it can reflect on the sustainability of the accounting community. However, the level of professional success will depend on the level of well-roundedness. Knowledge is not an only factor that can provide achievement for bookkeepers. Since the environmental change, a great deal of transactions and complexity results in adaptation of bookkeepers. This adaptation can increase potential of bookkeepers if they have other field of knowledge.  The previous research has not much empirical evidence. Thus, the study of accounting well-roundedness competency and each dimensions have not been investigated in the same time. The collection of the variables is the dimension of accounting well-roundedness competency. This kind of work is held to be the first study that has the empirical evidence that can clearly reflect the overall image, rather than that of the previous research. The theory of successful intelligence explains that persons, who can get success, need to have the knowledge and enough experience because they are to integrate the knowledge and experience they have in order to plan and decide to get achievement (Sternberg, 2005). This is the realization in professional value which can explain that when a person realizes their professional value, they are able to know the advantages and disadvantages regarding benefits. Then, they are able to achieve professional success. The second point is that accounting practice accuracy, which is  accuracy for working in accounting, can follow the standard resulting in the best quality of work (Stemler et al., 2009). In addition, the accounting profession is useful for related people. Thus, accuracy in work lead to professional success for bookkeepers.  The third point is accounting environment implementation fits with the ability to  adapt and apply to that  updated situations and environmental change. The last point is  professional related factor integration which is the one of the variables that is the dimension of accounting well roundedness competency. This means that potency or capability that can bring  other fields of knowledge other than the accounting knowledge  gets professional success. The contingency theory explains that there are no exact choices or approaches that can lead to achievement. However, achievement or success is required to realize the situation and environment at that time, and also can apply the strategies in uncertainty situations to obtain achievement. This is because the different situations need different decisions, based on different factors (Cadez and Guilding, 2008). Thus, this research can properly explain the situation between  independence and dependence.


The Investigation of the Influence of Service Quality Toward Customer Engagement in Service Dominant Industries in Thailand

Dr. Wilert Puriwat, Chulalongkorn University, Thailand

Dr. Suchart Tripopsakul, Bangkok University, Thailand



The concept of customer engagement gained the attention of marketing scholars and practitionersever since there was research evidence to confirm that positive customer engagement lead to increasing a firms’ performance. In today’s interactive dynamic business environment, customer engagement represents a strategic imperative for generating enhanced corporate performance such as sales growth, superior competitive advantage, and profitability. Engaged customers enhance a firm’s performance by providing positive word-of-mouth, being involved in new product development processes, and co-creating experience and value.  Although there has been an increased recognition in the concept of customer engagement, empirical research concerning both antecedents and consequents of customer engagement are still very limited, especially in marketing literature.  This study endeavors to add value to the customer engagement conceptualization in response to emerging importance of the theory as emphasized by the Marketing Science Institute. The concept of customer engagement has become more popular in marketing theory and needs more concrete empirical research to support it. However, only a few extant empirical studies have examined the relationship between service quality and customer engagement. The purpose of this study is to investigate the influence of service quality toward customer engagement. The results found that service quality has a positive relationship with customer engagement as the antecedent factor. According to the Structural Equation Modeling analysis of proposed hypotheses, sub dimensions of service quality significantly influence customer engagement in three dimensions; namely, cognitive, emotional, and behavioral engagement. Reliability is the highest positive effect to customer engagement with 0.854 factor loading. The second highest positive effect is responsiveness with 0.841 factor loading. Tangibility has the third highest positive effect to customer engagement with 0.832 factor loading. Customer engagement (CE) has received attention by marketing scholars as a result of the recognition that customers are not only value recipients, but also act as value co-creators. Customer’s experiences also add value to the firm and a company’s endeavor to find the methods to interact with their prospect customers and existing customers. Previous research showed that there is a positive relationship between customer engagement and firm performance. In other words, engaged customers can assist firms to have better corporate performance by providing positive word-of-mouth about a firm’s products, services, and brands to others and by getting involved with the firm’s new product development, and also co-creating experiences and values (Brodie et al, 2011a).Therefore, the concept of customer engagement has increasingly become an important element of firms’ marketing strategies.  However, more understanding of the concept of customer engagement is still needed. The Marketing Science Institute (MSI) called for better understanding of “customer engagement” as a research priority (2010-2012). MSI defines CE as “customers’ behavioral manifestation toward brand”. The word “engagement” has been used in psychology, management, information system, education, and also in the marketing field.  Researchers and practitioners have tried to define the concept of engagement. However, its domain and the definition of the engagement concept are still inconsistent across these disciplines and research areas.  In marketing literature, the concept of customer engagement still needs the empirical studies to make a better understanding about the CE theoretical foundation.  In spite of this interest, there are still limited numbers of research investigating the main antecedent which directly links to customer engagement.  The objective of this paper is to investigate the influence of service quality as expected as one of the antecedent of customer engagement. Few authors have defined the definition of “customer engagement” in marketing literature. There are related words such as “Customer brand engagement”, “Brand engagement”, and “Consumer engagement”. Patterson et al. (2006) define the customer engagement as “the level of a customer’s physical, cognitive and emotional presence in their relationship with a service organization”; whereas Hollebeek (2011) uses the word “customer brand engagement” as “the level of customer’s motivational, brand-related and context dependent state of mind characterized by a specific level of cognitive, emotional and behavioral activity in brand interactions”. According to Vivek (2009), the perspective of relationship marketing has shifted from “marketing to” to “marketing with” approach. The value is co-created by customers and firms as the co-creation especially in service-dominant logic (S-D logic) than goods-dominant logic (G-D logic). Firms start trying to encourage their customers to get involved in other activities as non-transactional behaviors apart from only purchase intentions (Verhoef et al., 2010). In marketing literature, there is still a lack of consensus of definition and dimensionality of customer engagement (Cheung et al., 2011). Customer engagement can be classified into two concepts; namely, unidimensional and multidimensional conceptualization. For unidimensional conceptualization, customer engagement is focused on only the behavioral aspects. On the other hand, multidimensional conceptualization portrays customer engagement comprising of several sub-dimensions including cognitive, emotional, and behavioral (Vivek et al., 2010; Hollebeek, 2011; Brodie et al., 2011).Brodie et al. (2011) provided a comprehensive review of customer engagement definitions and conceptualization. According to Brodie et al. (2011), a general definition of customer engagement can be portrayed as: “Customer engagement (CE) is a psychological state that occurs by virtue of interactive, cocreative customer experiences with a focal agent/object (e.g., a brand) in focal service relationships. It occurs under a specific set of context dependent conditions generating differing CE levels; and exists as a dynamic, iterative process within service relationships that cocreate value. CE plays a central role in a nomological network governing service relationships in which other relational concepts (e.g., involvement, loyalty) are antecedents and/or consequences in iterative CE processes. It is a multidimensional concept subject to a context- and/or stakeholder-specific expression of relevant cognitive, emotional and/or behavioral dimensions”  The customer engagement concepts, definitions, and dimensionality constructs in marketing literature are summarized in Table 1. Service quality is the very important dimension for gaining the competitive advantage especially in service related business. Firms providing excellent service quality will lead to high customer satisfaction and customer loyalty (Hung et al., 2003).  Although the definition of service quality varies, the service quality can be defined as the customers’ perception on services offered by firms. There has been recognition of the multidimensionality of service quality.  The first attempt to formulate a dimension of service quality was in 1985.Parasuramanet al. (1985) formulated the dimensions of service quality; SERVQUAL, took into consideration the assessment of customers’ point of view in terms of the gap between expectations of a particular service and the evaluation of the said service by a particular provider. Parasuramanet al. (1985; 1988; 1993) proposed ten components of SERVQUAL, namely reliability, responsiveness, competence, access, courtesy, communication, credibility, security, understanding/knowing the customer, and tangibles. In 1988, Parasuramanet al. were conceptualized into five dimensions: reliability, assurance, tangibles, empathy, and responsiveness. They also developed 22 item instruments to measure customer expectations and perceptions of SERVQUAL. Cronin & Taylor (1992) developed the SERVPERF scale; the “perception measurement only” scale for measuring service quality.  This study investigates the influence of service quality toward customer engagement.  According to the definition and the findings from relevant literature review, a conceptual framework of influence of service quality towards customer engagement was developed. The conceptual framework portrays service quality construct consists of 5 sub constructs namely, Reliability, Responsiveness, Assurance, Empathy, and Tangible. For customer engagement, we adopted the customer engagement’s concept of multidimensionality (Bowden, 2009b; Hollebeek, 2011). There are three dimensions of customer engagement; namely, cognitive, emotional, and behavioral. On the basis of the literature review presented above, a conceptual model for the present research is presented in Figure 1. This model depicts certain hypothesized relationships among the constructs of service quality and customer engagement. The conceptual framework is illustrated as Figure 1.


Internal Audit Knowledge Management Proficiency and Internal Audit Success: An Empirical Investigation of Corporate Governance Awarded Firms in Thailand

Napaporn Shupkulmongkol, Mahasarakham University, Thailand

Dr. Phaprukebaramee Ussahawanitchakit, Mahasarakham University, Thailand

Dr. Suparak Janjarasjit, Mahasarakham University, Thailand



This paper aims to examine the relationship among the effects of internal audit knowledge management proficiency and internal audit success. The components, the consequences of internal audit knowledge management proficiency are included best internal audit practice, internal audit report efficiency, internal audit quality, internal audit professionalism, and internal audit success. For the relationships among internal audit knowledge management proficiency and its consequences can explain by the knowledge-based view theory (KBV). Future research is suggestion to seek other consequence variables of internal audit knowledge management proficiency for literature review. Theoretical and managerial contributions are explicitly provided. Conclusion and suggestions and directions of the future research are included. Currently the world has entered the era of Knowledge-based Economy (KBE). Knowledge has been considered as one of the most important assets for businesses and the strategic resources needed for the organization to maintain a sustainable competitive advantage (Chen, Yeh, and Huang, 2012; Nonaka, Toyama, and Konno, 2000). Moreover, the knowledge is more important than physical assets (land, capital, and labor, etc.) (Chen, Yeh, and Huang, 2012).Knowledge management is the process that allows organizations to create and acquire knowledge and to select, organize, use, disseminate, and transfer important information and expertise which is essential for the management of the organization (Decision making, problem solving, learning, and strategic planning, etc. (Gupta, Lyer, and Aronson, 2000). The implementation and use of knowledge management has increased rapidly since 1990, the figure was 80 percent. Lord of the largest global organizations that knowledge management were used (KPMG, 2000; Lawton, 2001). The report from the Economist Intelligence Unit state indicated that senior executives and scholars have confidence that knowledge management is the only way for an organization to be able to meet the challenge of maintaining its competitive advantage constantly (Schiuma, 2012; Walker, 2006). Consistent with Zack, Mckeen, and Singh, 2009 who suggested that knowledge management has become a priority in the operation of business enterprises. The results of operating the organization are effective, productive and more competitive (Yang, 2009; Zack, Mckeen, and Singh, 2009) including cost reduction and meets the needs of customers (Civi, 2000; Grayson and O'Dell, 1998). Therefore, the main key to develop a competitive advantage is knowledge and understanding how to manage and involve in the administration of organization. Especially; it is in the business environment where the competition is high (Amir and Parvar, 2014; Hamel, 2009; Schiuma, 2011).  In the context of internal audit's role which is the important role in supporting management decisions in the organization to achieve better management of activities within the organization; the internal audit is intended to add value and contribute to the business development of the organization (Botez, 2012; Daniela and Attila, 2013). In general, the internal audit activities will operate under the internal audit departments whose primary job is to report directly to the Board of Directors or the Audit Committee who has the authority to audit the company's operations at all levels. At the same time, they must be free to deal with a major role in promoting business efficiency (Botez, 2012).In addition, the internal audit functions as a mechanism to promote compliance with the management of corporate governance and reliability of the audit (El-Kassar, Elgammal, and Bayoud, 2014). In the context of Thailand firms that are in a level of good governance will affect to increase the efficient performance of the organization, and becomes interested in the investment market (Gawer, 2009; Manescu, 2011). However, the agency's internal audit was also experiencing some problems with understanding the need for the operation. Which is manifested by a specific organization without compiling internal audit function and the internal audit function of the organization is important because it helps the firm achieve its objectives, added value, transparency, and helps the organization at the same time (Huot-de. , Rosenthal-Sabrou, and Grundstein, 2006; Usman et al., 2014). Moreover, the internal auditor has resigned from his job at a level that is higher or equal to 23 percent, more than 1 in 5 of the new employees who come to work each year (Huot-de, Rosenthal-Sabrou, and Grundstein, 2006.) which highly causes the risk of organizational knowledge loss. Due to the internal auditor retired from the organization. In this view, knowledge management, it is important to have a role in participating in the maintenance of knowledge and as a way to improve the quality and Know-how and skill to prevent the loss of knowledge. Therefore, knowledge management mechanisms and tools have the potential to improve the operating performance of the audit leading to be professional in the performance, able to report on the performance the audit of the quality. As a result, the internal audit will be sustainably successful in the profession. Furthermost of the previous researches did not study internal audit knowledge management proficiency in specifically; mainly all that has been well studied separately by crushing the topic of internal audit with knowledge management. In addition, researches on internal audit of firm knowledge management have been very few studies (Huot-de, Rosenthal-Sabrou, and Grundstein, 2006; Zhu and Xue, 2014). Based on the reasons above, it is the motivation of this research. This study is integrated the concept of internal audit and knowledge management process within together. In this paper focused on the internal audit knowledge management proficiency that is the process is predicated on the review, trade knowledge and experience, transmission, gathering, using knowledge gained from the past. And revealing the knowledge with the purpose of managing and taking advantage of the knowledge of the internal audit system is among the members of the audit team leading to an attainment operational efficiency and internal audit success (Ali and Owais, 2013; Chang and Chuang, 2011; Chou et al., 2007; Datta, 2007; Fazey et al., 2013; Paulin and Suneson, 2012; Srichanapun and Ussahavanitchakit, 2013). Therefore, the purpose of this study is for suggestion of the conceptual model of internal audit knowledge management proficiency and internal audit success. The remainder of this study is outlined as follows. The next section discusses the theoretical foundation that explains the relationship between internal audit knowledge management proficiency and its consequences. The second provides the literature review and proposition. The third section is research methods. The fourth section is analyzed results and discussion. The fifth section shows of theoretical and managerial contributions. Finally, the sixth provides the conclusion of the study. The relationships among consequences of internal audit knowledge management proficiency and internal audit success can explain the empirical evidence by the knowledge-based view theory (KBV). The straightforward impression of the knowledge-based view theory is to explain the importance of knowledge; Grant (1996) identified knowledge is the most important strategic resource of the organization because the knowledge is valuable, rare and difficult to imitate. The ability to transfer knowledge from one member to another and members of the body of knowledge has been accumulated, it will continue to develop and transfer knowledge to keep them from loss which is the true source of competitive advantage and organizational success (Amir and Parvar, 2014; Holliday, 2001; Lopez, 2005).The concept of research in the field of knowledge management that affects the organization and takes the knowledge that is applied to any organization that brought knowledge to appropriately apply it. The performance of knowledge management is a business advantage for organizations trying to build up (Morris, Snell, and Wright, 2005; Mauzy and Harriman, 2003; Robinson and Stern, 1997). Corporate should possess knowledge management, and proficiency needed to perform firm responsibilities. The internal audit activity cooperatively ought to keep or obtain the knowledge, skills, and proficiency. The corporates should have sufficient knowledge proficiency for internal audit function (IIA, 2004). The knowledge-based view theory identified that knowledge is the most important resource of the organization that is rare and difficult to replicate. Therefore, in this research meaning of internal audit knowledge management proficiency is the processes linked to the cumulative of building knowledge about the internal audit system (Kim et al., 2014; Zhu and Xue, 2014). They lead to best internal audit practices, internal audit report efficiency, internal audit quality, internal audit professionalism, including internal audit success. Thus, this research has been using KBV theory to explain the relationship of the variables in the research, internal audit knowledge management proficiency and consequence. This study examines the relationships among internal audit knowledge management proficiency through the mediating functions of best internal audit practice, internal audit quality, internal audit professionalism, and internal audit success on the corporate governance awarded firms in Thailand. Therefore, the conceptual, linkage, and research models present the relationships among internal audit knowledge management proficiency and internal audit success as shown in Figure 1.


Empirical Investigation of the Market Reactions to the SEO in Korean Stock Market

Dr. Doug S. Choi, Metropolitan State University of Denver, Denver, CO



The purpose of this study is to examine stock market reactions to the seasoned equity offering (SEO) among the firms in the Korean stock market. An SEO is a new equity issue by an already publicly traded company. Major effort is devoted to ascertain the extent to which Myers’ (1984) pecking order theory of corporate financing appears to explain financial structure among fifty of the largest firms listed in the Korean Stock Exchange for five financial years from 2008 to 2012. The results of this study will reveal if the experiences of the U.S. firms hold true in the Korean financial community. The capital structure studies incorporating recent developments in the Korean market are beneficial to U.S. as well as Korean firms, since many U.S. firms have become heavily involved with many Asian firms through direct and indirect investment. Although the capital structure theory is not a new area of research, it remains one of the most interesting and puzzling topics of research. Following the work of Modigliani and Miller (1958) and Miller (1977), the general view of capital structure has been the static trade-off theory. According to this theory, firms’ optimal capital structure mix is generally viewed as a trade-off between the various costs of bankruptcy and financial distress. Recent empirical studies, however, suggest that some important financing behaviors are not explained by the static trade-off theory since there are wide variations in actual financing behaviors, even in firms with similar financial characteristics. These discrepancies have propagated several attempts to reconcile theory with perceived practices. Several empirical studies attempt to explain dispersion of actual debt policies in many firms in the U.S. Despite these attempts, recent studies on the capital structure among the U.S. firms provide little evidence of empirical consensus in this area of the capital structure theories. Furthermore, the majority of the studies that addressed capital structure mixture have been focused in the context of developed countries; in particular, the U.S. and U.K. There are relatively few studies that have tested the capital structure theories and their explanations using data from developing countries. The puzzling issue of capital structure, besides the lack of research in developing countries in general, and in Korea in particular, motivates the conduct of this study on the financing practices of the firms listed in the Korean Stock Exchange, where answers for many questions are still not clearly developed. The questions are: What are the main determinants of the financing behavior for the Korean firms? Is the explanatory power of mainstream capital structure theories applicable to the Korean capital market? In his article entitled “The Capital Structure Puzzle,” Myers (1984) maintains that the static trade-off theory does not seem to explain actual financing behavior observed in the current U.S. market. Empirical evidences form the basis for the pecking order theory, which assumes that, because of asymmetric information, external financing costs are higher than internal financing costs, and relative costs are a major factor that affects corporate financing decisions. In particular, the static trade-off theory does not seem to explain the wide variation observed in actual debt levels or the heavy reliance on debt over external equity when firms require outside financing. As a framework for his new capital structure theory, Myers revived the original pecking order concept. This theory not only supports a preference on internal financing and debt over equity when new securities are issued, but also the firm has no well-defined target debt-to-value ratio. However, recent progress in the area of asymmetric information allows the remodeling of the original pecking order theory into a more viable “modified pecking order theory.” In Myers and Majluf (1984), the modified pecking order (MPO) theory is based on two assumptions: (1) asymmetric information, and (2) management acting in the interests of existing shareholders. These assumptions explain several aspects of corporate behaviors not covered by the static trade-off theory. In the asymmetric information scenario, managers are assumed to have information pertaining to the firm’s value and investment opportunities superior to those of outside investors. In addition, management is also assumed to be concerned about the value of the existing shareholders’ stake within the firm. Per scenario, there are two financial situations deserving consideration: 1. SEOs are issued when managers believe equity is overpriced. 2. There are two possible outcomes when new shares are underpriced: a. In the absence of ample financial slack, a firm may pass up investment opportunities to prevent the dilution of existing shareholders’ stake since it cannot issue safe debt. b. In the presence of ample financial slack, a firm may not pass up investment opportunities without dilution of existing shareholders’ stake since it can issue safe debt if it needs to. These situations, based on the asymmetric information scenario, are in line with the propositions of the pecking order theory; i.e., rely on internal sources of financing, prefer debt to SEO, and maintain the dividend level. Asquith and Mullins (1986), Masulis and Korwar (1986), and Mikkelson and Partch (1986) empirically observe that announcements of SEO issues are accompanied by sharp declines in stock prices. This condition is one of the major reasons why SEO issues are comparatively rare among large, established corporations in the U.S. In addition, studies of Baker and Wurgler (2002) and Welch (2004) show findings supporting modified pecking order that rebalancing leverage ratios toward targets is the secondary concern of the financing decisions. The modified pecking order theory illuminates some of the areas in corporate finance where the static trade-off theory has not provided a suitable explanation. The purpose of this study is to examine stock market reactions to different types of external financing decisions; i.e., debt and SEO in light of Myers’ modified pecking order theory. The results of this examination will reveal if the experiences of the U.S. firms hold true in the Korean financial community. The capital structure studies incorporating recent developments in the Korean market are beneficial to U.S. as well as Korean firms since many U.S. firms have become heavily involved with many Asian firms through direct and indirect investment. The asymmetric information hypothesis, supporting Myers’ modified pecking order theory, is tested by examining market reactions to the announcement of external financing decisions. Prior research revealed that U.S. firms experience sharp declines in stock prices after announcement of new equity issues; however, not many on the Asian stock markets. Myers suggests that under asymmetric information, SEO issues are regarded as bad news, because managers are motivated to float new issues when the stock is overpriced. The Korean Stock Exchange is selected in this study. The Korean stock market has made a significant stride from the 1997 financial crisis due to the currency devaluation. The Korean Stock Exchange has been one of the major financial hubs in Asia. The Korean Stock Exchange has gained a reputation for the rigor and comprehensiveness of its listing requirements, including accounting and disclosure obligations since the financial crisis of 1997. The sample in this study is divided into two groups: (1) firms with new debt financing, and (2) firms with new seasoned equity offerings. The period covered by the study is from January 2008 through December 2012. Firms with either an issue of new debt or equity during this period, and with available daily price and financial data, are included in the sample. The issue information on debt and equity is collected from various issues of Securities Statistics Yearbook, which provides amounts and dates of recent issues for securities listed on the Korean Stock Exchange. The daily returns for the sample are obtained from the Financial News in Korea.  The Korean Composite Stock Price Index (KOSPI) is selected in this study. Originally started in 1964, the index has been modified numerous times over the years, taking its current form in 1994. The KOSPI Index is composed of two hundred of the largest firms traded on the Korean Stock Exchange. The index is market capitalization weighted, meaning that firms with the largest market value have the greatest influence on the KOSPI returns. In this study, several steps were involved in choosing the sample of firms from the population with new external financing. All firms listed and traded on the Korean Stock Exchange, excluding non-Korean firms and foreign subsidiaries, are initial candidates for the sample. Each firm in the sample is examined to determine whether it issued new debt or equity during the period from 2008 to 2012.


Regional Economic Development Models of Automotive Centers in the Southern German states: Neckarsulm and Sindelfingen

David Fekete, Szechenyi Istvan University, Gyor, Hungary



This article observes two German automotive industry centers (Sindelfingen and Neckarsulm) in the framework of the research programme titled “Development of Economic and Social Role of Automotive Regional Innovation and Technological Knowledge Centre at Széchenyi István University”. In the study I analyze the cooperations between the relevant actors of the automotive industry centers in order to reveal the functional models and their institutionalized or informal cooperation systems in Sindelfingen and Neckarsulm. There are many similarities between the two centers: cities with relatively small population, the presence of a significant automotive industry company, there aren’t any universities and R&D activity takes place in the framework of the automotive industry companies. Both cities are interested in the diversification of the economic system and their economic development policy focuses on the development of infrastructure. Nowadays, one of the flagships of the European economic growth is the continuous development of the automotive industry. Keeping and increasing the capacity of this sector is a key element for both the state and the local participants, therefore the ones, who are involved, do their best. Collaboration and co-operation amongst the city, the automotive company, the local institution of higher education and K+F (research and development) institutions, can be considered as an important key element of local development. In Győr –  that gives home to the most important automotive factory of Audi AG and at the same time to the biggest engine factory of the world – a widespread cooperation has started among the participants of the automotive industry (big, small and middle sized automotive companies, educational institutions, career guidance centres, local authority, higher education, cluster etc.) in order to let all the participants know each other’s opinions, the directions of development through regular consultations, meetings and besides building out a network, in order to form a cooperation that has a strong lobbying force. Several alternatives have arisen concerning the practical frames of cooperation, even solutions that do not need to be institutionalized and have an organizational form. As an answer to this, a scientific research syllabus has been made, the aim of which is to study the regional cooperation model of different European automotive centres, with the help of the project under TÁMOP (Social Rejuvenation Operational Programme) -4.1.1.F-03/1-2013-0001 ‘Development of Economic and Social Role of Automotive Regional Innovation and Technological Knowledge Centre at Széchenyi István University’. The presence of the German automotive industry companies has an extremely complex influence on the local labour force of the given city, on labour costs, social integration and on the existing companies (Czakó 2014). That is why it is important to study the local economic development strategies and intentions and to analyse their relationships to the automotive companies. In the present study based on the research syllabus and on one of my former works (Fekete 2014) I examine two important Southern German automotive industry centres: the towns of Sindelfingen and Neckarsulm. In the study, I want to find an answer if an institutionalized or informal co-operation in the given automotive centres exists (or not) and I try to reveal the functional model of the automotive industry centres through analysing the relationship between the involved participants. After giving the basic data of the towns and introducing their history briefly I introduce the industrial traditions of the region and its relationship to the automotive industry. Then I deal with co-operations among the given towns, the research-development institutions and the automotive factory, in particular investments, developments, events etc. Studying the economic development of the local authority, the study should be able to rate the co-operational systems that are typical of the automotive industry centres. The town of Sindelfingen can be found in the province of Baden-Württemberg of Germany. The territory of the town is 51 km2, the population is 60.5 thousand people. Based on the archaeological artefact found in the area of the town, it is known that the town was inhabited in 3 500 BC, then Celtic and Roman residents used to live in this area. The town was officially established in 1263 due to the increasing influence of the already existing Sindelfingen Abbey: The first houses were built around the formerly built church. (Martinskirche) The Abbey was moved to Tübing in 1477 (to serve the university established there), so the development of the town slowed down in the next few centuries. The population of the town in the 16th, 17th century was about 1 500 people, also due to the agrarian riots and the 30 years long war. The next development started in the 19th century. At the time the extension of the town was bigger than the former Middle Age town centre. The spread of weaving industry played an important role in modernization. A new town hall and a market square were built, too. At the time of railway construction rail tracks avoided the town, which had a negative effect on its development, and the neighbouring Böblingen was joined to the railway system instead of Sindelfingen. Appearance and headway of still determining automotive industry can be bounded to the world wars. The Sindelfingen army airport was built in 1915, upon which the company of Daimler built an aeroplane engine producing plant. At the end of World War I the number of the employees exceeded the number of the population of Sindelfingen of the time. (its population was 5 600 people). Due to the following period’s policy of building flats, the economic boom after World War II, and in which Daimler company took part, set the present course of development for Sindelfingen. Although in World War II both the town and the plant suffered serious damages, after World War II production restarted very soon again. Sindenfilgen became a very important centre of the automotive industrial development, which played a significant role in the German miracle. The population of the town in 1945 was only 8 500 people, this number increased to 20 000 by the year of 1962, to 54 000 by 1971. It was attached with the arrival of foreign guest workers, the consequence of which is, that 20% of the people in Sindelfingen have foreign origin (Zecha 2013). The town and the automotive industry have interwoven in the last few decades, and in the budget of the town the local business tax is a significant item. Looking through the data of the last three decades it can be said that from the point of view of financing the town it is very significant, but at the same time – it makes budget planning very difficult – the local business tax is unpredictable. The record financial year of the last thirty years was 1986, when 136.5 million Euros flew in from this form of tax. In 1989 it was half of it and the 1990s averaged 25 million Euros a year. The 2 000s showed an increasing production tendency, the income from the local business tax averaged 40 million Euros, but the world recession of 2008 had a serious impact: in 2009 the local business tax of the town turned into negative (!) (-7.5 million Euros)1 This year the town borrowed some 25 million Euros to handle the situation, which was paid back in 2010. Unevenness can be seen through the fact that in 2011 this kind of income exceeded 100 million Euros again (Stadt Sindelfingen 2013).  Daimler AG and the automotive industry have been two inseperable conceptions since the second half of the 19th century. Gottlieb Daimler and Carl Benz, the inventors of cars had vehicle manufacturer companies since the 1800s or had interests in these kinds of companies, which can be considered as the forerunners of Daimler-Benz AG established in 1926. The company developed during the boom years of the World War. Due to the continuous modernisation of motor-car production, important achievements were realized, which satisfied all the demands of the customers. As it was said before, the Sindelfingen factory was established in 1915 and the first car was produced in 1919. However during World War II all of the German premises suffered significant damages, one of the important winners of reconstruction was Sindelfingen itself: The management of the company in 1945 decided that the final assembly of the motor-cars is settled in this town. The group of companies played an important role in the German miracle during the decades and grew into the most dominating participant of the automotive industry worldwide. After several transformations and fusions (e.g. with Chrysler company) nowadays Daimler AG tops both motor-car and truck producing and has production units on five continents. Today besides producing vehicles the company also deals with financial, investment guidance and different services ( 2014a).  In the development of Sindelfingen park the next important step after 1945 was the building of a clients’ centre. Due to the centre you can visit the factory, you can watch the exhibition introducing the history of the company, you can buy presents and you can take over the purchased vehicle personally. Another significant occurence of the town was, when in 1995 Mercedes-Benz Technological Centre was given over. The research-development centre is world famous, where the newest models are planned. During the last decades the premium category vehicles of the brand have been produced here, such as some types of Mercedes C, E and S. Nowadays most of the hybrid and electric vehicles are produced here. The Sindelfingen factory worldwide is the biggest production unit of Daimler AG. More than ten per cent of the total number of employees of 275 000, some 28 000 people work in the Sindelfingen plant, and out of the 2.2 million produced cars from all over the world, nearly 20 % (430 000 pieces) are produced here.  The company work actively together with the town of Sindelfingen in the area of taking social responsibility in the town. The two participants set up the so-called ‘WerkStadt’ project, the essence of which is that the factory (Werk) and the town (Stadt) co-operate in different cultural and sport activities. Every year Daimler AG supports the organization of an exhibition connecting to modern arts in the Sindelfingen Gallery. The yearly organized mass running (WerkStadtLauf) joins the plant and the town symbolically through the route, since the participants start from the entrance of the factory and run about 11 kilometres through the town ( 2014b).


Proactive Internal Control System and Firm Success: An Empirical Investigation of Electrical Appliances and Electronic Parts Businesses in Thailand

Pattareya Henklang, Mahasarakham University, Thailand

Dr. Sutana Boonlua, Mahasarakham University, Thailand

Dr. Phaprukbaramee Ussahawanitchakit, Mahasarakham University, Thailand



This study aims to investigate the effects of proactive internal control system on firm success via the proactive internal control system consequences; organizational risk reduction, corporate practice efficiency, financial reporting quality, internal audit quality, goal achievement, and stakeholder. Data were collected by survey questionnaires administrated to the internal audit directors or internal audit managers of electrical appliances and electronic parts businesses in Thailand, 214 completed questionnaires are used in the analysis. The results of the study indicated that the proactive internal control system had an influence on organizational risk reduction, corporate practice efficiency, financial reporting quality, internal audit quality, goal achievement, and firm success. Moreover, organizational risk reduction, corporate practice efficiency, financial reporting quality, and internal audit quality had an influence on goal achievement, and stakeholder satisfaction. Furthermore, goal achievement had a positive effect on stakeholder satisfaction; similarly, goal achievement and stakeholder satisfaction showed a positive effect on firm success as well. Future research is then needed to collect data from the different sample and/or comparative populations in order to verify the generalizability of the study and increase the level of reliability. At present, internal control systems have become very important for the operation and achievement of organizational objectives in businesses worldwide. Internal control system represents all the approved policies and procedures used by management in order to achieve an effective business management (Mihaela and Lulian, 2012). Moreover, internal control systems are the basic instrument for the enterprise control to assist the administration as important mechanism of governance processes for the organization’s activities. It also plays important roles in detecting and eliminating the threats and risks in due time, preventing fraud and irregularities in its operation (Lakis and Giriūnas, 2012; Wardiwiyono, 2012). Certainly, lack of internal controls and their deficient operations make companies vulnerable to a number of risks, such as improper recording of accounting transactions, making unauthorized transactions, and fraud. All these matters have a significant impact on financial performance and competitiveness. According to the issue of 2002 Law of Sarbanes–Oxley in the US in especial, the collapses of high-profile corporates such as Enron and WorldCom causing accounting scandals. The result stemmed from the inattention towards the internal control systems and assessment. Good internal control system must be clearly concretized, defined, and implemented to achieve its effectiveness. The internal control system is efficient when it has concrete cost/benefit and is useful in the design of the system which consequently focuses on the risk structure of the company (Ionescu, 2008).  The internal control system is dynamically changing; therefore, to ensure the effectiveness of the internal control system, the corporate executives should recognize the importance of the proactive internal control system for changing environments in the future because the environment is not static, and affects decision making in the organization (Birnberg and Zhang, 2011). A proactive internal control system is an organizational strategy that helps the organization adapts to survive in a changing environment. It emphasizes innovative and modern technology that is important for firm management (Haro-Domı´nguez, Ortega-Egea and Tamayo-Torres, 2010). Furthermore, internal control systems are superior to these traditionally used within the organization and are aimed at step-ahead by designed internal innovation, which assists in establishing a competitive advantage more quickly (Cherpack and Jones, 2013). After conducting the proactive internal control system, firms are in better positions to identify, analyze, evaluate, monitor and review risk and opportunity associated with their organizations. Therefore, appropriate internal controls in the environment that has changed rapidly should be focused on proactive strategies. Accordingly, Jokipii (2010) indicates that firms should adapt the internal control structure to deal with environmental uncertainty and to achieve observed control effectiveness. COSO, in particular, has adapted the COSO’s Internal Control–Integrated Framework (1992 Edition) to COSO’s Internal Control–Integrated Framework (2013 Edition) in several important respects for example, changes in internal controls system can reflect changes in business and operating environments. The advantage of adapting COSO 2013 Internal Control - Integrated Framework consists of good governance that the company unavoidably applies to increase activities for promoting it. Besides good governance, it helps increase additional practices a priority, positioning of technology control system with automatic mechanism, a focus on globalization, and a change in business model. Hence it is a good condition that should be taken to adapt the internal control system appropriate for the organization (COSO, 2013). Previously, the proactive internal control system has not been focused in any related investigations. Most studies focused on the efficiency and effectiveness of the internal control and internal control reporting under Sarbanes-Oxley Act of 2002 (SOX), which put the emphasis on practical topics over management controls or strategic topics (Jokipii, 2010; Schneider et al., 2009; Selto and Widener, 2004). Thus, this research aims to investigate the relationships between proactive internal control system and consequences of the proactive internal control system, which is deemed essential in academic research. As aforementioned, this research investigates the relationships between proactive internal control system and organizational risk reduction, corporate practice efficiency, financial reporting quality, internal audit quality, goal achievement, and firm success. Additionally, this research scrutinizes the relationships among organizational risk reduction, corporate practice efficiency, financial reporting quality, internal audit quality on goal achievement, and stakeholder satisfaction.   The remainder of this study is outlined as follows.The next section discusses the theoretical foundation that explains the relationship between proactive internal control system and consequences of proactive internal control system. The third provides the literature review and hypotheses developments. The fourth section explains the research methods, sample selection, data collection procedure, variables and methods. The fifth section shows the results of the study which are derived from 214 internal audit directors and internal audit managers of the electrical appliances and electronic parts businesses in Thailand. The next shows the study which summarizes both theoretical and managerial contributions, and presents suggestions for further research. Finally, the seventh provides the conclusion of the study. This research implements the dynamic capabilities theory and the stakeholder theory to explain the relationships between proactive internal control system and the consequences of proactive internal control system as aforementioned. The concept of dynamic capability of firms has been introduced by Teece, Pisano and Shuen (1997), who define dynamic capabilities asthe firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments.In this concept, non-dynamic capabilities change through the action of dynamic capabilities. In addition, the dynamic capability of the firm approach involves adaptation and rapid changes, because they build, integrate, or reconfigure other resources and capabilities (Helfat and Peteraf, 2003). Dynamic capabilities are the solution to the challenges of hypercompetition, which is a condition of rapidly escalating competitive environments where competitive advantages are rapidly created and eroded (Eisenhardt and Martin, 2000; Grant, 1996; Zott, 2003). Based on the dynamic capability theory, this research is used to explain proactive internal control system and mechanisms that enable a firm to achieve competitive advantage in a highly turbulent global environment. That is, proactive internal control system is the resource and capacity of a firm. Especially, proactive internal control system is the internal resources and capacities to increase competitive advantage, enhance stakeholder satisfaction, and lead to firm success. Stakeholder theory was proposed by Freeman (1984) as a theory of organizational management and business ethics that serve the interests of stakeholders of an organization.The theory proposes that executives need to pay attention to a multiplicity of external and internal constituents for the development and implementation of business strategy. Based on the assumption of stakeholder theory, all stakeholders have ample or few legitimate interests in firm according to the theory nature related to these relationships in terms of both processes and outcomes (Jones and Wicks, 1999). An organization has responsibilities for the needs of certain shareholders, which may not coincide with other stakeholders. Therefore, enterprises had been expected to be more socially responsible for the interest and other stakeholders such as local communities (Simmons, 2004). This research investigates under the stakeholder theory, which is applied to explain the stakeholder satisfaction.


Research and Development Effects on Company Dynamic Capabilities

Dr. Lovorka Galetic, Professor, Faculty of Economics & Business, University of Zagreb, Croatia

Dr. Zeljko Vukelic, Marius Consulting, Zagreb, Croatia



In the current conditions of wide-reaching changes, research and development is faced with new challenges and is increasingly tasked with creating business solutions in a markedly different way than in the past. Great progress in the area of new technologies, the resulting rapid increase in the speed of doing business, global business networking, and the increasing appearance of new business models are but a few of the examples that illustrate the very enhanced dynamics in business today. The dynamic capabilities framework, as a concept recognised at the end of the 20th century, is gradually becoming an increasingly important factor of business success. This paper examines the main characteristics of research and development and presents a new model of company dynamic capabilities in line with contemporary trends and the current conditions of the 21st century. Connections between these two concepts have been developed in theory. This link has created a basis for investigating the influence of a company’s research and development on its dynamic capabilities, with the aim of development and strengthening capabilities, as this can ultimately result in a competitive advantage and achieving the desired business result. Research and development was considered on the basis of its fundamental determinants, which are also a framework for their measurement pursuant to the most recent Frascati Manual of the Organisation for Economic Co-Operation and Development. These determinants pertain to expenditures on research and development, and on personnel involved in research and development, which are divided into research and technical staff based on their profession and role in the accompanying processes. Dynamic capabilities are examined on the basis of the fundamental factors for their identification and measurement, which includes the capability of sensing and seizing business opportunities, the possibility of reconfiguring existing and acquiring new resources, internal and external transformation of a company, the integration of internal and external knowledge, and business coordination and activities of the company, which is also a key complement of the new multi-dimensional construct based on business agility presented here. Empirical research was conducted on a sample of 114 medium and large Croatian companies in late 2014. The survey established the existence of a significant correlation between the observed variables, confirmed all three hypotheses on the relationships between the determinants of research and development and dynamic capabilities, and indicated that research and development can be a strong strategic tool for the company in terms of its dynamic capabilities. The comprehensive and rapid changes that largely characterise business operations today undoubtedly have an effect on the research and development segment of companies. Research and development (R&D), with its beginnings in the industrial laboratories of the 20th century, remain an important concept (Fagerberg, Mowery and Nelson, 2005), though it now faces new challenges. The development of new features and functionality, new levels of ease of use, new channels, new businesses, and new price models are critical factors that can make significant progress in a company's operations (Prahalad and Krishnan, 2008). R&D can be the element that is able to follow and generate such operating dynamics. This dynamic best describes the business conditions in the 21st century, and from that, the well known concept of company dynamic capability is taking on increasing importance. This paper recognises the mutual significance of R&D and dynamic capability, and reports the results of an empirical study of their connections and mutual impacts in a sample of Croatian companies. The survey results could be a stimulus for further development of R&D, and might provide answers as to which factors positively affect the development of dynamic capability within a company, as a very important strategic goal, both now and in the future. Accomplishments in the use of new knowledge and the accompanying techniques and processes is an organisational path towards business success, and the possession of superior knowledge and organisational capability to use that knowledge is a very important source of competitive advantage (Galetic, 2011). R&D is a sector in which the purpose and goal is to achieve organisational success in exactly that manner. By definition, this pertains to creative activities that unfold on a systematic basis, aimed at increasing the stock of knowledge, including knowledge of man, culture and society, and the use of this stock to create new applications (OECD, 2002). Great advances have been observed in new technologies and new development directions on the global market. However, highly turbulent changes are also being observed in all spheres of operations. R&D is considered a very important segment of the contemporary business world, and an important part of company strategy. The universally recognised document for considerations of research and development are the publications of the Organisation for Economic Co-Operation and Development (OECD), which are used in the analysis, validation and measurement of accompanying processes and activities. The OECD Canberra Manual is used for the purposes of detailed measurements of science and technology (S&T) activities, and is oriented towards activities of employed personnel in S&T. In this handbook, the combination of S&T and human resources (HR) is considered a key element of competitiveness and economic development, and as a means for safeguarding and improving the business environment in the coming decades (OECD, 1995). The Canberra Manual gave the first official determination of the role of HR based on their profession and education, which was later taken and defined in the Frascati Manual (OECD, 2002). The most recent, seventh edition of the Frascati Manual (OECD, 2002) included a thematic organisation of R&D activities and gave guidelines for measuring S&T activities. Today, it is considered the fundamental framework for the study of R&D. It views R&D through two entry elements to be measured, which are also the fundamental determinants of R&D: expenditures for research and development, and human resources employed in R&D, and which are divided on the basis of their profession and their role in line with the following definitions: research personnel – professionals involved in the creation of new knowledge, products, processes, operating methods and systems, including management of the above, technical staff – participate in the processes of research and development by undertaking tasks of a scientific and technical nature, including the implementation of concepts and operational methods that are usually under the supervision of the research personnel, and which require technical knowledge and experience. The significance of R&D in the modern age of business is uncontested. Studies to date have confirmed a positive connection between R&D and company productivity (Ortega-Argiles, Piva and Vivarelli, 2011). Furthermore, experts agree that R&D is the backbone of a globally competitive, knowledge-driven economy (Markovic, 2012). In light of the rapid technological changes in place today, R&D has been proven to be an important element of economic growth (Edworthy and Wallis, 2011). For these reasons, R&D is an important construct deserving of further research. Reviewing the history of a strategic approach to business, the 21st century has been marked by the greatest changes to date. The capabilities of a company need to successfully handle the dynamics of its business environment, to be able to achieve strategic harmony, i.e. to be capable and to independently affect the dynamic changes of the business environment in the sense that it initiates those changes, for the purpose of achieving greater business success. They are defined as the company's ability to reconfigure, redirect, transform and appropriately shape and integrate its existing key competencies with external resources and with strategic and complementary assets, so as to respond to the challenges posed by the business world, marked by competition and imitation, and rapid changes and time restrictions (Teece, Pisano and Shuen, 1997). This concept pertains to a company's ability to create an innovative response to changes in its business environment (Jones, MacPherson and Jayawarna, 2010), and represents an organisational and strategic routine by which the company achieves a new configuration of its resources through the lifecycle of the market in which it operates (Eisenhardt and Martin, 2000). Dynamic capabilities also represent the ability of a company to recognise and take advantage of new opportunities, to reconfigure and protect its knowledge, assets, competencies and complementary assets and technology so as to achieve a sustainable competitive edge (Teece, 1998) and include an adaptation to change, for the reason that change creates, integrates or reconfigures other resources and competencies (Helfat and Peteraf, 2003). Many traditional strategic models do not take sufficient account of the dynamics of today's competitive environment (Grimm, Lee and Smith, 2006), while dynamic capabilities are considered to be a source of a company's competitive edge during times of rapid change (Teece, 2009). For these reasons, the fundamental objective is to create a basis for companies to be in a position to determine whether they possess dynamic capabilities and the degree of that possession within the organisation. The following are factors that consider dynamic capabilities in various domains, and they are a complement to the existing knowledge: sensing and seizing business opportunities, ability to reconfigure existing and acquire new resources, internal and external transformation of a company, integration of internal and external knowledge, business coordination and company activities.


Regional Economic Development Models of Automotive Centers in the France: Rennes and Poissy

Andras Horvath, International Relations Expert, Budapest, Hungary



The PSA Rennes Plant is one of the most important car plants in France. The plant was acquired by the PSA Group in 1976. The plant is one of the biggest employer of Rennes. In the 60s Citroen decided to build a new plant on a greenfield site in Rennes which area was an agricultural center. During the next fourty years the plant produced 10 million cars. The plant has good relation with the institutions of education system. They launched a partnership which works well. Both parties benefit the advantages. The PSA provides internships and entry-level jobs for the students. The Academy can also develop their education program because PSA supports the learning of the new technologies. PSA also gives advices to students for the guidance. They permit to visit the plant where student can ask from PSA experts and also can meet several job opportunities. Both parties are interested in an education program often updated. The Science center in Rennes called L’Espace des Science is an intermediary between science and people. It has an important role, it wants to show the science for people of all ages. PSA’s Poissy plant is an important car plant in the suburbs of Paris. The history of the plant is linked to the city’s history. In the 20th century the production of vehicle provided job for citizens. Nowadays 80% of job is directly or indirectly connected to PSA Group. The city leaders always have a good relationship with the plant. Because of the economical crisis the plant decreased the production, so the operation of the plant changed. As PSA invested a large amount before the crisis, the plant can not be closed. In our days the PSA operate only 2 production line, besides of this they forms their new leaders. The plant has good relation with the institutions of education system. They launched a partnership which works well. Both parties benefit the advantages. The PSA provides internships and entry-level jobs for the students. The Academy can also develop their education program because PSA supports the learning of the new technologies. PSA also gives advices to students for the guidance. They permit to visit the plant where student can ask from PSA experts and also can meet several job opportunities. As the part of the project named “Development of Economic and Social Role of the Regional Automotive Innovative and Technological Know-how Centre on the Base of University of István Széchenyi” (TÁMOP-4.1.1.F-13/1-2013-0001), applying the experience of the European automotive regions, we wish to facilitate the collaboration of the relevant participants of the automotive centre in Győr by using the explored and known international examples. In my study I am going to examine two automotive regions located in France, with particular attention to the parties involved in the council, automotive company, vocational training as well as in the process of career orientation.  When examining an automotive centre it is recommended to analyse the empirical examinations in the dimension of higher education, research and development, characteristics of the local settlement level and automotive enterprises. (Rechnitzer-Fekete 2014). As it is well-kown in the theoretical literature, the presence of automotive industry companies has an extremely complex influence on the local labour force of the given city, on labour costs, social integration and on the existing companies (Czakó 2014). The structure of this article is based on the study of Fekete about the cooperation model of the automotive industry center of Ingolstadt. (Fekete 2014). Rennes, the capital of the region Britanny, is situated in the north-west of France in the department of Ille-et-Vilaine, on the banks of River Vilaine. It holds the title of the cultural and historical city of France. It is an industrial and cultural centre with a population of 210,000, also with a student population of over 60,000. Rennes is the biggest city in Brittany, the 11th biggest one in France. In 2011 the agglomeration of the city counted 770,000 inhabitants and it is one of the most productive and most dynamically developing regions with an unemployment rate of only 7.8% in 2014. (Bureau of Statistics in France 2014) (The Prefecture of  the region in Bretanny 2014) The Rennes zone after Paris has the highest GDP per capita, nearly € 55,000. (Federation of Mayor’s Offices of French Cities 2014) The foundation of Rennes and its first inhabitants are difficult to track back precisely. In 1762 the Britannic legistlation adjudged the dissolution of the Jesuit Order. The Rennes verdict was one of the important stations for the preparation of the French Revolution. The city emerged relatively safely from the revolution. In the 19th century the number of the inhabitants increased to 60,000 from 30,000. Its main reason was the labour force flowing to Rennes because of the railway construction. (Denis, Geslin 2003) During the World War II the Germans occupied Rennes in 1940. It was bombarded on several occasions – I would underline that in 1943 the German army nearly completely destroyed the city, of which pictures were taken, then submitted to the media and used for propaganda purposes. The city was liberated by the American army in 1944. The two largest employers of the city are the research centre of France Télécom and PSA factories. In 1958 Citroen decided to establish a factory in the region within the frame of the green field investments. They chose the city because the wages in the region living mainly on the primary sector are lower than in that of the Parisian’s, plus the necessary labour force was ensured. In 1961 Charles de Gaulle, the French Prime Minister, also made an appearance at the inauguration of the factory. Already this year the standardized production of the Citroen Ami 6 model was launched and further on two newer versions were produced, namely Ami 8 and Ami Super. In 1967 they launched the automatized production of the second model named Citroen Dyane and then in 1970 the Citroen DS model, which was the first middleware automobile of Citroen.  The automobile was a huge success for Citroen and it was awarded with the automobile of the year title in Europe. During the 16 years’ model cycle more than 2.5 million was produced. In 1978 when they installed a more modern and more powerful engine in the motor-car, it became the mid-range automobile with the highest sales. The 5-door version far excelled the competitors from aerodynamic aspect with a drag co-efficient of 0.31, while the Audi 100 of that age, which was introduced to the public only in 1983, had 0.61. ( 2014). In 1974 Peugeot gained a 38.2% share in the Citroen brand, which was further increased to 89.9% due to a bank credit. (Frigant, Lung 2001) From 1980 the new owers kept the factory under an even more strict financial control and employing the highest number of workers ever in its history, nearly 14,000. The management of PSA realised that the production of small automobiles in Vigo, Spain is much more cost-efficient than in Rennes. In the 1990s the two factories were competitors, they produced the same models and then it clearly emerged that the production was more expensive in every respect due to the more expensive French allowance system and taxes. As a result, by 2009 only 6,900 employees worked in the factory whilst in the 2000s the factory in Vigo produced more automobiles than the one in France. In Rennes between 1997 and 2004 963,000 units were produced from the Citroen Xsara, which is also manufactured in Madrid. In 2005 the production of the Citroen C5 was launched making 724,000 units in a 7 years’ span. In 2004, after 42 years of its production, the 10th million automobile left the factory. It was the first year when they also produced automobiles under the Peugeot trade-name: first the popular Peugeot 407, right at the start it came with three different bodywork versions, and then from 2009 the Peugeot 607, the sales figures of which had already considerably dropped by that time, which led to its production finally ceased in 2010. From 2006 up to our present the Citroen C6 top-class sedan has exclusively been produced in Rennes, although only 24,000 units have been assembled in 8 years.  In 2009 due to the success of the Citroen Xsara Picasso, in parallel the production in Vigo, they started to manufacture it in Rennes as well, and in the same year they installed the production line for the new model of Citroen C5. In 2011 the standardised production of Peugeot 508 was also launched and later in 2012 that of the 508RXH model, which was the first hybrid automobile made in Rennes. For the production of the model modernisation was implemeted in the factory and they bended every effort to ensure the smooth production of the world’s first diesel-hybrid automobile.  In 2014 the production of the new mid-range Peugeot 508 was launched, which fully suits the strict Euro 6 environmental requirements. ( 2014a) The present factory situated on 240 hectare can be divided into four zones: administration, logistics, quality controlling and production. The dimensions of the factory would allow the production of a yearly 400,000 automobiles, but in these days it totals up to ’only’ 300,000 units. Not even in the best year was the number of the produced automobiles more than 350,000. ( 2010). Needless to say, it is the production that occupies the largest part of the factory, where four sections can be separated.  In the press workshop hydraulic presses are used to form the body shells. In the body workshop robot welders weld the panels and the body of the automobiles is already recognizable. In the paint shop which is mostly automatized, they merge the panels into the ground coat and then the final coat is sprayed on the automobiles by a robot. The final assembly takes place in the assembly hall, the engines are installed into the automobiles and the complete assembly includes fitting the parts coming from the suppliers. Between the stages of installing the various units the automobile proceeds on a production line that also links the different parts of the production. After a follow-up quality control, the automobile is moved to the logistic section of the factory where it is prepared for transportation. ( 2014b) In the factory situated in Rennes improving efficiency plays an empashized role and they are proud of recycling the 99 percent of the waste. The assembly lines and the logistics operate according to strict regulations. The PSA has considered closing down the plant several times since the French wages, allowances and taxes are not by all means competitive with the plant in Vigo. The PSA produces a number of its cars here of which the production is rather dictated by prestige not by profit. These automobiles are produced in low numbers, however, they represent a higher quality. The PSA has been present in the city for more than 50 years, the infrastructure is at its disposal and the invested amount is of the order of millions, therefore the factory shutdown does not seem to be probable unless the results of the PSA start to decrease considerably.


The Moderating Role of Corporate Image on the Impact of Service Guarantee on Service Recovery Effect

Dr. Shao-Cheng Cheng, Chinese Culture University, Taipei, Taiwan

Yu-Huan Kao, Chinese Culture University, Taipei, Taiwan



Many scholars explored the impaction of service guarantee type towards consciousness of quality, probability of service failure, purchase intention and consumer's psychology and behavior, but little research about consumers’ responding after recovery when enterprise violated service guarantee. Therefore, this study uses experiment framework with totally 6 groups to investigate three different kinds of service guarantee against two different levels of corporate image to test whether service guarantee and corporate image impact service recovery differently in the restaurant industry. The results indicate that whether enterprise has provided service guarantee, the recovery effect are quite depressed even after recovery or compensation. But the recovery effect of enterprise with good corporate image is better than the normal one’s. In other words, even the enterprises provide service guarantee, they should make sure it can be execute correctly, otherwise the consumers will still not be satisfied after recovery. Increasing new customer and maintaining the relationships with regular customers are both significant for business managers (Johnston and Hewa, 1997), and an organization’s success is depending on whether it can provide highly stable service quality and satisfactory experience to maintain the customer relationships (Webster and Sundaram, 1998). Increasing the number of new customer and maintain the relationships with regular customers are both significant for the operator (Johnston and Hewa, 1997), and an organization’s success is depending on whether it can provide highly stable service quality and satisfactory service experience to maintain the customer relationships (Webster and Sundaram, 1998). However, because of attributes as invisibility, inseparability, variability, and easy to decay (Fisk, Brown, and Bitner, 1993), it may be impossible for service delivery to be hundred percent zero defection (Berry and Parasuraman, 1991; Bitner, Booms, and Mohr, 1994; Reichheld and Sasser, 1990). Once service failure arose, it will impact customers satisfactory towards this service as well as the overall satisfactory towards the enterprise, and later, negative public praise will be spread, customer do not want to continue purchasing results in losing income, and other passive effect will happen (Goodwin and Ross, 1992; Spreng, Harrel, and Mackoy, 1995).Therefore, how to decrease the frequency of failure during services process and improve the system of delivery system, is the vital management issue for the service organization (Berry et al., 1991; Fisk et al., 1993; Kelley, 1992, 1993). The scholars consider service recovery is a crucial part of quality management, enterprise must take some appropriate recovery action to retrieve the customers who are unsatisfied with the service failures (Berry and Parasuraman, 1991; Gronroos, 1988; Schweikart, Strasser, and Kennedy, 1993). Although service failure impact customer satisfactory immensely, or even prompt customer transfer their behavior (Keaveney, 1995), if the enterprise provide service recovery after occurring service failure, customer satisfactory may be even better than before (McCollough and Bharadwaj, 1992; Smith and Bolton, 1998). For the unsatisfied customer with any complaints, favorable service recovery give the chance to recover and prevent customer defections (McCollough, Berry, and Yadav, 2000); and the service recovery with poor implementation may expand the customer’s dissatisfaction, cause more damage to enterprise’s reputation and profits. It can be traced back to 1855 when the concept of service guarantee was first presented. Cyrus McCormick, the American who invented the harvester has given customers refund guarantee in written form, and from that time, vendors began to provide quality and repair guarantee for the products they product and sale(Swartz & Iacobucci, 2000). The advantage of service guarantee is giving employees clear targets, let customers have the right to complain and receive reply, making enterprises have remedial chance to improve the quality of service (Hart, 1988; Hart, Heskett, and Sasser, 1990; Swartz and Iacobucci, 2000). As well, scholars found that the occurrence of service failure would make customer feel unsatisfied, and be confused to the later purchase behavior. Therefore, providing service guarantee can eliminate the worries before purchasing for the customer who has experienced the failure (Schmidt and Kernan, 1985). Therefore, basing on the fact that failure often happens and the enterprise will do something to remedy, nowadays, several companies use service guarantees as marketing method. As Taiwan, the Phoenix Travel Agency is the only one which has stocked in Taiwan’s tourism industry, they apply the guarantee that customers can be returned back the tip if they are not satisfied with the tour guide. Only in the actual situation, enterprise may fail to live up to the guarantee and compensate customers if they apply. However, there is no specific research about responding of consumers who have experienced service guarantee default and compensation. Therefore, is the satisfactory of customers can be reflected better because of service recovery? Or still be unsatisfied even though they receive compensation? That is the most vital issue of this research. Besides it, because the corporation image is one of the most important judgment index when customers decide to buy the product or service, and further influence their expectations towards service quality, thus it affect the purchase decision. That is the reason why the corporation image cannot be ignore when considering the implementation of guarantee activities. Therefore, this research will add the corporation image as the moderating role, expect to simulate a better status in practice, clarify the impact and reaction when presenting some activities which will affect service guarantee. Since service’s production and consumption are in the same time, and for consumers and service maker, it is inseparable while delivering service. If there is any failure happens or customers are unsatisfied, negative cognitive will be appeared (Goodwin and Ross, 1992). Therefore, even though the strategy planning is specific, the quality management is strict, service provider is customer orientation, it cannot be totally prevent service from happening failure when delivering (Goodwin and Ross, 1992; Hart et al., 1990; Johnston and Hewa, 1997; Kelley and Davis, 1994; Tax and Brown, 1998).  Study about the type of service failure, Bitner et al.(1990) researched from the view of service contact to explore service failure’s conditions. 700 cases of three industries—airlines, hotels, restaurants, can be divided into three types: employee’s reaction towards the failure of service delivery system, employee’s reaction toward customer demand, and spontaneous behavior of employees. Then, Bitner et al.(1994) studied critical service encounters from the perspective of employee, and sum up in four kinds of service contract from 781 cases, compared with his study in 1990, the new type is problematic customer behavior, which is because this research has investigated employees. The conclusion of Bitner et al. (1990,1994) are also used in other scholars’ papers, as Kelley, Hoffman and Davis(1993), based on this research and focused on retail industry, summing up the retail failure of 3 categories and 15 fine items after analyzing 661 cases. Besides it, Hoffman, Kelley and Rotalsky(1995) investigated restaurant industry, 373 cases shown that service failure can be divided into 3 categories and 11 fines. Previous research shows that service failure will create negative effect towards consumers satisfaction, produce negative word-of-mouth or refused to buy again (Goodwin and Ross, 1992Spreng, Harrel and Mackoy, 1995), and service failure is the main factor which prompt customers to transfer their behavior (Keaveney, 1995). However, when customers are evaluating the service recovery, the damage or influence will be reference (Smith, Bolton, and Wagner, 1999). If this service is vital for customers, they will much care about whether it can be finished successfully. And once failure happens, customer will consider this failure is quite serious (Ostrom and Iacobucci, 1995). However, previous researches also show when service failure’s influence degree is higher, consumer satisfaction will be lower and more towards negative emotion (Hoffman et al., 1995Richins, 1987). Therefore, consumer satisfaction after recovery will be affected by the severity of failures. As for service recovery, is the service provider take some responses and actions for the defects or failures they produced (Gronroos, 1988). Or if corporation disturb customers because of the product or service failures, they will take some actions or reinforce measures to satisfy customers. (Kelley et al., 1993; Zemke and Bell, 1990). And for remedial measures of service, Goodwin and Ross(1992) found that customer will not be satisfied if the enterprise only  issue an oral apology, and the feeling of fair and satisfaction will stay low. Oppositely, satisfaction will be better if there is any material thing like discount or gift. Kelley et al.(1993) consider retailing industry will recover from these ways:1.Discount, 2.Correction, 3.Solved by staff or administrator, 4.Correction and compensation. 5.Change, 6.Regret, 7.Refund, 8. Consumer correct, 9.Discounts and allowance, 10.Correction of the unsatisfactory, 11. Adding failures, 12.Do nothing.  Through service recovery, customer who has experienced service failure can be satisfied again (Firnstahl, 1989), bring more benefits for the enterprise, just like: establish a good reputation, generate positive word of mouth, create a differentiation competitive advantage (Kelley and Davis, 1994). Service recovery is also helpful to realize how to improve the blemish transferred in the service (Brown, 1997). Increase satisfaction, trust, customer retention of all customers, produce long-term performance (Bitner et al., 1990; Blodgett, Wakefield, and Barnes, 1995; Boshoff, 1997). However, if enterprise fails to recover, the situation will be worse and customers will be more dissatisfied (Bitner et al., 1990; Brown, 1997; Webster and Sundaram, 1998). These impactions, including the negative evaluation toward this service and the company, negative word-of-mouth, the loss that customers are unwilling to purchase again, even make a great quantity of customers' vanishment , impact the company seriously (Smith, Bolton, and Wagner, 1999; Spreng, Harrel, and Mackoy 1995).  As shown above, service failure cannot be avoided, but if under good remedial actions, it can restore customer satisfaction, enhance corporation image and customer loyalty as well as repurchase rate, make a positive impact on enterprise performance.


Banking Sector in Poland: Stability over the Crisis

Dr. Michał Kruszka, Vistula University, Warsaw, Poland



The paper introduces performance of banking system in Poland during the period of European economic crisis. It also contains presentation of influence of financial supervisor on financial market and the real sector of the economy and possible threats to the institutional framework of financial supervision in Poland. Article presents how microeconomic changes of parameters of mortgage granted in foreign currency can be transformed into bank’s capital needs. Some details about resolutions and recommendations issued by the Polish Financial Supervision Authority (KNF) are also magnified in the paper. The practice of last years indicates that activity of the supervisory authority is an important determinant of financial stability.  This paper introduces performance of banking system in Poland during the period of European economic slowdown, ie. years 2007-2013. Main aim of author is to present a stability of Polish financial market and to show influence of financial supervisor on financial market and the real sector of the economy. Moreover an attempt has been made to find out what are possible threats to the institutional framework of financial supervision in Poland. Author presents also how microeconomic changes of parameters of mortgage loans granted in foreign currency can influence bank’s capital needs. Such an attitude is very important when one consider that in Poland some problems with mortgage lending (less serious than in the other EU countries) stemmed from changes of exchange rates rather than burst of housing bubble. The paper is divided into four parts. The first contains short presentation of key macroeconomic figures, the second is aimed at performance of banking sector, the third presents an example of FX loans problem while the last presents some details about resolutions and recommendations issued by the Polish Financial Supervision Authority (KNF).  Poland macroeconomic performance over the period 2007-2013  can be considered to be favourable, especially if country is compared with the European Union and Euro zone. Polish economy avoided recession and output growth was resilient remaining above EU average (see graph 1).  However,  despite output growth, labor market remained relatively weak: economic activity did not rise substantially, suggesting so called  jobless growth (1). This kind of problem had already emerged around ten years previously when Poland was hit by an economic slowdown (although there was no recession),and when weak output development was followed by an extremely high unemployment rate of around 20 percent. It should be noted that policymakers were aware of if (Ministry of Economy, 2004). However there have been no significant changes to labor market institutional framework over last years. A deep sensitiveness of employment to business cycles may curb demand for credit and pose problems with loan repayments .  The adverse performance of economy is forcing banks to develop and use proper risk assessment models combined with cautious credit policy in order to minimize nonperforming loans ratio. On the other hand the authority responsible for financial supervision should develop proper requirements for the banking sector in terms of capital adequacy ratio or liquidity performance while also making recommendations covering the provision of credits and the assessment of borrowers’ creditworthiness. Such an issue is extremely important when one consider effects of loose mortgage lending  policy, which resulted in housing bubbles followed by deep recession in Ireland and Spain (2). In the views of threats linked with vague assessment of the creditworthiness of debtors it should be noted, that unlike in some other EU countries (for example UK) (3), all potential borrowers in Poland were subject to income verification. As a result, even deterioration of labor market situation do not lead to sharp increase of nonperforming loans ratio. In the mortgage sector relationship between provisions for impaired loans and net value of credits was lower than 0.5 percent in Poland. This figure suggests proper attitude towards credit scoring policies and risk assessment in case of both supervision and of banks. In Spain, on the other hand,  the ratio of nonperforming mortgages rose from 0.8 percent to 7.6 percent during the period 2005 - 2011 (IMF,  2012). Contrary to relatively sound situation in the real sector of the economy, the global financial crisis hit capital market in Poland substantially. In 2007 the capitalization of domestic companies listed on Warsaw Stock Exchange accounted for 45 percent of GDP  but it fell to 36 percent of GDP in 2013 (see graph 3). The sharpest decrease was observed in 2008 when value of companies from WSE was below 30 percent of GDP.  However one should consider that WSE is classified together with other CEE stock exchanges in spite of the fact that its performance and size is much different from other similar institutions in the region. But for global capital market there is no clear distinction between Budapest stock exchange (where for example main market indicator-BUX is composed in 90 percent by four companies) or Prague stock exchange and WSE.  Yet it has to be stated that a relatively poor performance on the part of the capital market was not accompanied by a deterioration in the overall economy and did not amplify some adverse trends in the real sector.  In the period 2007-2013 the general outlook of the Polish banking sector can be assessed as fairly positive. In these years assets grew by 75 percent, which implies 8.4 percent of annual growth rate. In absolute terms such change means increase of balance sheet from around 800 billion PLN in 2007 to 1.4 trillion PLN in 2012 (see graph 4).  Growth of total  assets was followed by increase of loans to non financial sector. The latter grew faster than sum of assets: the total increase reached 88 percent (i.e. almost 10 percent per year) rising from 430 billion PLN in 2007 to 809 billion PLN in 2013 (growth of loans to MFI was much smaller, which also helped to mitigate problems stemming from financial crisis). Growth measured as share of private credit to GDP was also rapid, soaring from 36 percent in 2007 to 50 percent in 2013 as compared to GDP. However one has to remember that share of private credit in the GDP equal to 50 percent was still much lower than in many other EU countries (4). Main reasons for such rapid growth were loosing tight monetary policy after the period of very high interest rate at beginning of the 21st century and access to additional financing through subordinated debt in case of banks that relied on the foreign financing strategy (one has to remember that 63 % of banking assets in Poland belongs to the foreign investors).


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