Jeffrey L. Callen

Board Composition, Committees and Organizational Efficiency: The Case of Nonprofits

This article investigates the relationship between nonprofit board composition and organizational efficiency. Overall,we find a significant statistical association between the presence of major donors on the board and indicators of organizational efficiency. Although causality cannot be demonstrated,our findings are consistent with the Fama and Jensen (1983) conjecture that major donors monitor nonprofit organizations at least in part through their board membership. The multivariate analysis shows that the ratio of total expenses to program expenses is significantly and negatively associated with higher donor representation. Decomposing the total expense ratio into its two components,we find that different factors affect the administrative and fundraising expense ratios. The percentage of major donors on the finance committee,a key committee overseeing budgets and administrative expenses,is negatively related to the organization’s administrative expenses ratio. The presence of major donors on other board committees is not significantly statistically associated with nonprofit efficiency.

Money donations, volunteering and organizational efficiency

The purpose of this article is to explain the cross-sectional variation in money donations to charities at the organizational level. Using a unique data base which includes volunteer labor data, this article tests the hypotheses that money donations are positively related to volunteering and the technical efficiency of the firm. Technical efficiency is measured by a number of non-parametric indices. The empirical results indicateinter alia that the more technically efficient the charity, the more money donations it is able to raise. Moreoer, at least for one model, money donations and volunteering are found to be complementary at the organizational level. In addition, the results in this article are not consistent with the well-known hypothesis that government financing crowds out private donations.

Domestic and Foreign Earnings, Stock Return Variability, and the Impact of Investor Sophistication

We examine the importance of foreign earnings relative to domestic earnings for a sample of U.S. multinationals using variance decomposition. Our methodology represents an alternative and complementary approach over the prior literature, which is based on traditional regressions and earnings response coefficients. We document that domestic earnings are more important in explaining the variance of unexpected returns than are foreign earnings and that the relative importance of domestic earnings is a decreasing function of investor sophistication. Last, we classify institutional investors as either short‐ or long‐term oriented following Bushee [1998]. We find that the variance contribution of foreign earnings increases with the level of investment by long‐term investors. In contrast, there is no significant relation between the degree of ownership by short‐term (or transient) investors and the variance contribution of domestic and foreign earnings. Overall, our results are consistent with Thomass [1999] finding that investors on average underestimate the persistence of foreign earnings.

Opportunistic underinvestment in debt renegotiation and capital structure

Abstract This paper models debt renegotiation as a bargaining game between debtholders and shareholder-oriented management, in which management credibly threatens to run down firm assets to force concessions from the creditors. Creditors anticipate this opportunistic behavior by management, creating an upper bound on debt capacity that is less than the value of the firm. If an advantage to debt is introduced, such as favorable tax treatment, an interior optimal capital structure obtains even in the absence of realized bankruptcy costs. Our model also explains variations in debt-equity ratios and the use of certain puzzling debt covenants.

Just-in-time: A Cross-sectional Plant Analysis

This paper uses a unique data base of plant-level cross-sectional data to analyse the relative performance of Just-in-time (JIT) plants operating in two distinct manufacturing industries: electronic-components and auto-parts. The multivariate tests show that JIT plants use significantly less work-in-process and finished goods inventories than do non-JIT plants. JIT plants are significantly more profitable than non-JIT plants. Furthermore, JIT plants have significantly smaller total and variable costs than do non-JIT plants. Fixed cost differences, on the other hand, are not significant. JIT plants exhibit significant learning curve effects in that the earlier adopters use less inventories and are more profitable than later adopters. JIT plants that claimed to be more successful at controlling process quality also tended to have significantly less work-in-process inventory, less total costs and more profits. On the other hand, JIT plants that claimed to be more successful at controlling product quality were not significantly different from other plants. Finally, unionization appears to have no impact on the relative performance of JIT versus non-JIT plants.

Neural network forecasting of quarterly accounting earnings

Abstract This study uses an artificial neural network model to forecast quarterly accounting earnings for a sample of 296 corporations trading on the New York stock exchange. The resulting forecast errors are shown to be significantly larger (smaller) than those generated by the parsimonious Brown-Rozeff and Griffin-Watts (Foster) linear time series models, bringing into question the potential usefulness of neural network models in forecasting quarterly accounting earnings. This study confirms the conjecture by Chatfield and Hill et al. that neural network models are context sensitive. In particular, this study shows that neural network models are not necessarily superior to linear time series models even when the data are financial, seasonal and non-linear.

Religion and Stock Price Crash Risk

This study examines whether religiosity at the county level is associated with future stock price crash risk. We find robust evidence that firms headquartered in counties with higher levels of religiosity exhibit lower levels of future stock price crash risk. This finding is consistent with the view that religion, as a set of social norms, helps to curb bad-news-hoarding activities by managers. Our evidence further shows that the negative relation between religiosity and future crash risk is stronger for riskier firms and for firms with weaker governance mechanisms measured by shareholder takeover rights and dedicated institutional ownership.

Linear Accounting Valuation When Abnormal Earnings Are AR(2)

The Ohlson (1995) model assumes that abnormal earnings follow an AR(1) process primarily for reasons of mathematical tractability. However, the empirical literature on the Garman and Ohlson (1980) model finds that the data support an AR(2) lag structure for earnings, book values and dividends. Moreover, the AR(2) process encompasses a far richer variety of time series patterns than does the AR(1) process and includes the AR(1) process as a special case. This paper solves the Ohlson model directly for an AR(2) abnormal earnings dynamic. The model is estimated on a time series firm-level basis following the approach used by Myers (1999). It is found that, like the Ohlson AR(1) model, the Ohlson AR(2) model severely underestimates market prices even relative to book values. These results further bring into question the empirical validity of the Ohlson model.

Modeling Dividends, Earnings, and Book Value Equity: An Empirical Investigation of the Ohlson Valuation Dynamics

This study empirically investigates the information dynamics of the Ohlson valuation framework. Single-period lagged linear autoregressive relationships among dividends, earnings, and book values of equity are estimated for a sample of stochastically stationary firms and are found not to support the valuation framework. This study further extends the empirical analysis to a multilagged vector autoregressive linear information system. Consistent with the Ohlson valuation framework,the past time series of all three variables are generally found to be relevant for firm valuation. This study brings into question empirical research utilizing the Ohlson framework that presupposes a single-period lagged information dynamic.

Productivity Measurement and the Relationship between Plant Performance and JIT Intensity

The management accounting and operations management literatures argue that the adoption of advanced manufacturing practices, such as JIT, necessitates complementary changes in the firms Management Accounting and Control Systems. This study uses a sample of JIT and non-JIT plants operating in the Canadian automotive parts manufacturing industry to study the interaction between performance outcomes, intensity of JIT practices and productivity measurement. This study provides evidence that productivity measurement mediates the relationship between performance outcomes and intensity of JIT practices. Specifically, both JIT and non-JIT plants that use a broader range of productivity measures are more efficient and profitable. Also, plants that employ industry driven productivity measures are more profitable and efficient relative to plants that employ idiosyncratic productivity measures, especially if the former are more JIT intensive. Furthermore, plants that employ quality productivity measures are less efficient and less profitable, especially if they use more intensive JIT practices. The latter result is consistent with JIT intensive plants over-investing in quality. This study also finds that plants that invest more in buffer stock are less efficient and less profitable, especially if they use more intensive JIT practices. Despite the fact that plant profitability and efficiency are highly correlated, JIT intensive plants are more profitable but less efficient relative to plants that are not JIT intensive, after controlling for productivity measures, plant size and buffer stock. This result suggests that despite wasting resources, JIT intensive plants are still able to generate superior profits relative to plants that are not JIT intensive.