Questions I (and co-authors) seek to answer (see below for details)
How do employee flows inform us about the future firm performance and do banks care about employee flows when setting the interest rate?
(relying on administrative data from Statistics Denmark and interviews with bank representatives)
Do employees use firm accounting information to negotiate pay and assess current and potential employers? (relying on large-scale randomized field experiment, survey and administrative data from Statistics Denmark)
Why do some SMEs voluntarily publish ESG reports while others do not?
(relying on large-scale randomized field experiment and survey )
How do SME's react to information about competitor performance?
(relying on large-scale randomized field experiment)
How do SME's measure and manage performance?
(relying on large-scale survey)
Why and how do SME's seek to beat benchmarks and how does this depend on the strength of economic and non-economic motivational factor?
(relying on administrative data from Statistics Denmark and interviews with owner-managers)
How does beating the zero earnings benchmarks affect SME managers' perception of new investment opportunities?
(relying on administrative data from Statistics Denmark and interviews with owner-managers)
How does owner-manager age affect their perception of new investment opportunities?
(relying on administrative data from Statistics Denmark and interviews with owner-managers)
Do income statement presentation formats matter to financial statement users?
(relying on lab experiments and market data)
Working papers
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5518280
with Martin Zafiryadis
ABSTRACT: We explore how regulation aimed at increasing financial transparency influences labor market outcomes by analyzing a 2013 Danish mandate requiring limited liability firms to submit financial statements in XBRL format. This reform catalyzed the rise of information intermediaries that access and disseminate firm-level financials at scale, thereby lowering information processing costs for unsophisticated users. Using economy-wide matched employer-employee data and a difference-in-differences design — with unlimited liability firms exempt from the mandate as a control group — we find that the regulation led to a statistically and economically significant increase in employee wages: approximately 1.0 percentage point. However, the effect appears driven not by direct employee use of financials, but by managerial preemption of anticipated wage demands. Our results align with theories of compensating wage differentials when disclosures reveal poor financial health, and rent-sharing when earnings exceed the zero-earnings benchmark. These results underscore how financial reporting regulation can influence dynamics with key non-investor stakeholders.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5204024
with Mike Minnis, Maximilian Muhn, Morten Seitz and Thomas Plenborg
ABSTRACT: Do firms know how well they are performing? In this paper, we examine the role of peer information on firms’ self-assessed performance using a field experiment with more than 4,500 private firms in Denmark, where financial information is publicly available for all limited liability firms. We randomly provide treatment firms with aggregated information on key financial metrics of their industry peers. Relative to a set of control firms that did not receive this peer information, we find a notable shift in firm satisfaction with their own performance post-intervention. Treatment firms put more weight on their relative performance and less on their absolute performance. We also show that while control firms fixate on the zero-earnings benchmark when assessing their own performance, treatment firms do not, suggesting that the absence of an appropriate benchmark might underlie the zero-earnings discontinuity observed for private firms. Taken together, our results suggest that public disclosure does not ensure the full utilization of information and still leaves private firms using simple heuristics to assess their own performance. They also suggest that the underutilization of peer financial information among private firms can lead to skewed performance perceptions.
with Steffen Brenner and Thomas Plenborg
with Sumair Hussain and Thomas Plenborg
ABSTRACT: Research and Development (R&D) is a factor of firm innovation and long-term value creation. However, financial reporting practices may reduce the amount of R&D-related information conveyed to users. This paper investigates whether the inclusion or exclusion of R&D expenses as a distinct line item on the income statement influences users’ evaluations of a firm’s innovativeness and future performance. Specifically, we conduct an experiment to investigate two different income statement presentation formats permitted under International Financial Accounting Standards (IFRS), where only one format presents R&D expense explicitly. We posit and find that financial statement users rate firms’ innovativeness differently under the two formats, but we find no evidence of a difference in future profitability ratings. These findings contribute to the ongoing discourse on how financial reporting of R&D impacts users’ judgment and decision-making.
with Morten Seitz and Thomas Plenborg
ABSTRACT: We use owner-managed firms, free from external pressure from shareholders, analysts, and media, to examine the role of intrinsic motivations (psychologically based, non-economic) in earnings benchmark beating. We observe benchmark beating as instances where owner-managers decrease their salaries to transform a loss into a profit. Two key findings emerge. First, even when accounting for various extrinsic motivations, such as reporting pressures from debt-holders, employees, and suppliers, we find that benchmark beating is highly prevalent when these motivations are negligible. Owner-managers who can beat the benchmark via salary decreases are 70% more likely to reduce their salaries than others without this potential. Second, managers’ earnings benchmark beating correlates with their private, non-economic benchmark beating. Our findings indicate that reference-dependent preferences from psychology literature complement economic arguments in explaining benchmark beating.
Nobody moves, nobody gets hurt: Age, certainty, and CEO investment decisions
with Steffen Brenner, Torben Andersen and Thomas Plenborg
ABSTRACT: A central puzzle in management research is why certain forms of firm risk-taking—such as investment decisions—decline with CEO age, despite mixed evidence from experimental studies on age and risk preferences. We argue that this pattern is best explained by an age-related amplification of the certainty effect: the tendency to overweight certain outcomes relative to probabilistic ones. Importantly, the certainty effect discourages investment, as the safe alternative of inaction appeals to those prone to this bias. In a large-scale experimental study of Danish CEOs, we find that the certainty effect becomes more pronounced with age. This mechanism holds even after accounting for alternative explanations, including symmetric risk aversion, loss aversion, shortened time horizons, and wealth accumulation. Our findings reveal a distinct, risk-based cognitive pathway that contributes to the status quo bias observed among older CEOs.
Work in progress
with Morten Seitz
with Matthias Breuer, Sumair Hussain, Bjørn Jørgensen and Maximilian Müller
with Morten Seitz
Published and accepted papers
in European Accounting Review (2024)
with Morten Seitz and Thomas Plenborg
ABSTRACT: This paper examines whether owner-managers of small firms use their compensation strategically to change reported earnings. We identify an institutional setting, Denmark, in which the owner-manager has the discretion to shift compensation from salary to dividends and hence increase reported earnings at almost no direct cost due to approximate tax neutrality between the two income streams. Three findings emerge. First, owner-managers are twice as likely to decrease their salary when doing so can result in meeting or beating the zero earnings benchmark. Second, those decreasing their salaries to beat the benchmark are 45% more likely to increase dividends simultaneously than those who can beat the benchmark but do not. This indicates that reporting incentives shape compensation shifting. Third, owner-managed firms enjoy about 6% (EUR 1070) lower interest rates (interest expenses), than firms reporting losses, when they beat the benchmark by simultaneously decreasing salaries and increasing dividends. Our results highlight that owner-managers can manage reported earnings by altering their own compensation, which has economic consequences for the firm. This has implications for users of owner-managed firms’ financial reports because reported earnings would seem a poor contracting signal for these firms.
in Journal of Behavioral and Experimental Finance (2023)
with Felix Holzmeister and Thomas Plenborg
ABSTRACT: In an online experiment with a sample of 4287 managers from small- and medium-sized enterprises in Denmark, we present participants with scenario-dependent outcomes of a hypothetical investment prospect and elicit their perception of risk and their perception of the investment’s attractiveness (as a proxy for investment preferences). The experimental data is merged with a set of background variables on the company from the Danish registry which allows controlling for firm-specific effects. We find that risk perception is driven by the likelihood and the return associated with the worst-case scenario as well as the size of the required investment. Furthermore, we provide evidence that managers’ perception of the project’s attractiveness is significantly associated with their individual-level risk preferences and the interaction effect between risk preferences and risk perception. This implies that not only the characteristics of the different scenarios but also individuals’ risk preferences play an important role when assessing the attractiveness of a business opportunity.
in Journal of Business Finance & Accounting (2022)
with Morten Seitz and Thomas Plenborg
This paper examines employee flows and the association with firm earnings and interest rates. We use administrative employer–employee matched panel data from Denmark spanning 17 years and hence exploit actual data on employee arrivals (labor inflows) and departures (labor outflows). Three main findings emerge. First, we condition by firms’ economic conditions. Departures predict earnings increases for prior-year loss firms, while they predict earnings decreases for prior-year profit firms, suggesting that this conditioning can help explain the mixed results in the literature. Arrivals predict earnings increases, though only for prior-year profit firms. These effects are stronger for high-paid employees than for low-paid ones. Second, the effects of departures are generally larger than the effects of arrivals, consistent with departures disrupting operations. Third, we find that lenders price employee flow information but only for departures of high-paid employees, despite the predictive ability of the flow of other employees for future earnings. Overall our results suggest that employee flows predict firm financial performance but are only partially priced by lenders.
Analyst long-term budgeting behavior
in Finans/Invest (Finance/Investments) (2021)
with Sarah Wassermann Hansen, Jacob Christian Kjeldsmark and Thomas Plenborg
Local research written in Danish. English abstract below
ABSTRACT: In this article we discuss the budgeting behavior of analysts in both the explicit budgeting period and the terminal period in relation to equity valuation. Based on master's and bachelor's dissertations from Copenhagen Business School for the period 2008-2020, we find that while long-term revenue growth is estimated lower than historical revenue growth, the opposite is the case for long-term operating profitability as measured by the return on invested capital (ROIC). For some tests we find that ROIC is estimated to be 44% higher than the historical level. This optimism is particularly driven by optimistic estimates of future operating costs. Taken together these results suggest that future earnings are budgeted more optimistically than the historical levels suggest and with the risk of a similar optimism in the resulting valuation
with Simone Stæhr
Financial analysts tend to demonstrate herding behaviour, which sometimes compromises accuracy. A number of explanations spanning rational economic logic, cognitive biases, and social forces have been suggested. Relying on an experimental setting where participants forecast future earnings from a rich information set, we posit and obtain support for individual risk tolerance (or lack thereof) as an explanatory variable for herding behaviours. Specifically, less risk tolerant individuals forecast with less boldness and instead issue forecasts in agreement with the consensus forecast. The results are argued to be at least partially a product of cognitive biases and an intuitive reaction to uncertainty
in British Journal of Management (2017)
with Matthew Robson
In this study we investigate how external interventions shape process-based trust development in cross-border alliances. Specifically, we exploit a unique opportunity to observe the magnitude of external intervention through publicly available amounts of money given by the foreign, developed country partners’ government to support alliances with local, developing country partners. Applying motivation crowding theory to trust processes, we develop theoretical logic explaining how and under what conditions such third-party financial support negatively affects the local partner's trust. Our assertions were tested using archival and survey data on 105 international strategic alliances. We find that amount of support is detrimental to local partner trust but that the negative relationship can be dampened via interaction between partners and agreement throughout these interactions. This shows a need for partners to think through trust development consequences of external interventions during the setting up of their alliances, in order to be able to act in a manner which promotes trust
in International Journal of Auditing (2017)
with Thomas Riise Johansen
Previous research has only minimally examined the association between the behaviour and performance evaluations of individual auditors beyond the use of efficiency-focused evaluations. We examine the association between dysfunctional auditor behaviour and three evaluation foci: an efficiency focus, a client focus and a quality focus. Our results, which are based on questionnaire responses from 196 auditors, demonstrate that an efficiency focus is not associated with dysfunctional behaviour. A client focus is found to be associated with dysfunctional behaviour. Finally, and perhaps most importantly, our results show that it seems possible to limit dysfunctional behaviours through a quality focus in performance evaluations. Our results provide insights of use to practitioners and regulators on how performance evaluations may not only induce but also reduce dysfunctional auditor behaviours
in International Business Review (2014)
with Thomas Plenborg and Matthew Robson
Over the last three decades, strategic alliance performance has been an important research topic within the international business and management fields. Researchers have investigated a number of factors explaining performance but often find diverging results. Scholars have suggested that one reason may be that different performance measures are used as the dependent variable. But which differences exist and how can they matter? Against this backdrop, the present study makes three main contributions. First, we identify dimensions that illustrate differences and similarities between performance measures and provide a simple yet comprehensive classification of the different performance measures used in 167 empirical studies in the literature. Second, we suggest how differences in performance measures may influence construct validity under different circumstances. Third, we show that the differences have empirical implications for the results researchers get when using the measures. The study implications serve to improve researchers’ ability to choose performance measures that are appropriate in a given situation and to help them assess the influence the choice of performance measure may have on tests of hypotheses regarding antecedents’ influence on performance
in International Journal of Management Reviews (2013)
This paper provides a systematic review of 165 empirical studies on the antecedents of performance in international strategic alliances. It provides the most detailed display of definitions, rationales, measures and findings currently available. Hence, this state-of-the art literature review creates an accessible pool of knowledge that is highly relevant for future research on international strategic alliances. Further, it draws on this knowledge pool to build a model which highlights the quite different rationales advanced by researchers to explain associations between the antecedents and performance. The model makes the different rationales explicit and will aid researchers in identifying tests that can be performed to examine the links between antecedents and performance as well as the mechanisms through which such associations operate. Finally, the synthesized evidence is used to suggest that researchers should give increased attention to achieving congruence between measures of antecedents and performance
in European Journal of Development Research (2013)
Researchers have suggested that linkages between multinational enterprises entering developing countries and local firms can promote knowledge upgrading in local firms. Alliances are a particularly intense type of linkage, and this study investigates how the construct of cooperation, which is the essence of alliance activity, relates to knowledge transfer from foreign to local alliance partners, and then to how large a proportion of that knowledge is subsequently diffused to other local firms. The results suggest that although alliance cooperation is positively associated with knowledge transfer from the foreign to the local partner--thus raising the potential for knowledge diffusion--it is negatively related to the proportion of that knowledge that is diffused to the local partner's competitors, and only insignificantly to the proportion diffused to its suppliers and customers. However, the difference between the coefficients for diffusion to competitors and to suppliers and customers is significant
in International Journal of Strategic Business Alliances (2013)
with Steven Globerman and Bo Bernhard Nielsen
This study provides a critical summary and assessment of the empirical literature on the relationship between cultural distance and the performance of international joint ventures (IJVs) based on studies published over the period 1993-2008. The existing literature reports inconsistent and largely statistically insignificant findings for the relationship. We add to this literature by analyzing some 63 empirical studies of the cultural distance IJV performance linkage. We further confirm the absence of any consistent and statistically significant linkage, despite strong conceptual arguments for anticipating a strong empirical relationship. We also evaluate different proposed explanations of the weak empirical findings in the literature and find some mixed support for these explanations. We conclude with some suggestions for improving the modeling of the cultural distance IJV performance relationship