Browsing by Author "Mashruwala, Raj"

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    Cost Uniqueness: An Alternative Lens for Examining Cost Behavior
    (2023-09-06) Wang, Ye; Mashruwala, Raj; Anderson, Mark; Zhao, Rong; Jingjing, Wang; Sherer, Peter; Weiss, Dan
    Cost information is a critical input required for profit analysis, earnings estimation, and firm valuation by capital market participants (Banker and Chen 2006; Weiss 2010; Ciftci et al. 2016). Conventional methods of understanding cost behavior seek to separate costs based on their movements relative to production volume. In a set of three essays, I investigate an alternative lens for examining cost behavior. In my approach, I seek to separate cost movements driven by firm-specific factors from movements that are common to industry or market peers. I refer to this as “cost uniqueness”. In the first of my essays, I describe this new construct of cost uniqueness, and I identify a method to empirically measure this new construct. Firm-specific cost variations are of special interest because costs reflect the inner workings of the firm that are opaque to investors. To establish the importance of measuring cost uniqueness, I investigate the effects of cost uniqueness on information uncertainty for external users by looking at the forecasting difficulty faced by financial analysts. In my second essay, I conduct an exploratory investigation into the forces that potentially drive some firms to be more unique than others. I organize my search around three distinct forces that can shape costs, namely, internal firm characteristics, external environment, and manager-specific characteristics. Within these three dimensions, I specifically examine various factors pertaining to the incentives and capabilities of firms to operate distinctively from their peers. In my third essay, I delve into some of the implications of cost uniqueness for firms. I examine the relationship between cost uniqueness and firm value to assess whether cost uniqueness is driven by managers’ value-enhancing activities or by value-destroying activities. I also investigate what measures a firm can take to mitigate the information uncertainty associated with cost uniqueness. Specifically, I examine whether firms increase their disclosure of cost items to help outsiders unpack cost uniqueness.
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    Empirical Analysis of Asymmetric Cost Behavior
    (2018-04-24) Lee, Joo Hyung; Anderson, Mark; Mashruwala, Raj; Tanaka, Atsuko; Beaulieu, Philip R.; Janakiraman, Surya N.
    The dominant cost behavior model described in current management accounting textbooks is based on the classification of costs into fixed costs and variable costs. Although this cost behavior model provides insights about how costs behave in relation to the volume of production, it does not take into account managers’ role in cost management as circumstances change over time. The focus of my dissertation is on the asymmetric cost behavior (ACB) model that relates changes in costs to changes in cost drivers between periods and considers the role of managers in decision-making. Based on prior ACB literature, my first study develops and estimates a model of operating cost behavior that includes two cost drivers: sales revenue as a volume of activity driver and property, plant, and equipment in use (PP&E) as a physical capacity driver. My study finds that changes in selling, general and administrative (SG&A) costs separate between the two cost drivers, and that the explanatory power of an asymmetric cost behavior model including a second capacity driver is significantly greater than the explanatory power of the single-driver cost behavior model. In my second study, I document that cost asymmetry varies systematically across life-cycle stages in a manner that reflects the option value of future revenue changes. This indicates that managers’ decisions whether to keep or release slack resources is conditional on firm circumstances and that managers appraise slack resources as real options. Managing cash flows is an important concern facing managers, especially in highly uncertain business environments. In my third study, I test whether operating cash outflows are sticky and find that they are. Also, I test whether stickiness in operating cash outflows is influenced by short-term financial constraints represented by the current ratio and find that it is. These findings contribute to the sticky costs literature by isolating changes in operating cash outflows associated with changes in revenue.
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    Labour Investment: A Managers’ Decision-Making Perspective
    (2020-04-22) Yu, Dongning; Anderson, Mark; Warsame, Hussein A.; Herremans, Irene M.; Mashruwala, Raj; Lehar, Alfred; Muslu, Volkan
    My dissertation consists of three studies that investigate factors that affect management’s labour investment decisions and how management of labour influences firm performance. In my first study, I examine how firms adjust their labour in response to business downturns and how different labour adjustment practices influence firms’ financial performance. I classify firms into two groups: those with more stable labour adjustment strategies (most sticky in labour) and those with more flexible labour adjustment strategies (least sticky in labour). I find that companies with more flexible labour adjustment strategies outperform relative to companies with more stable labour adjustment strategies in terms of return on assets. Using DuPont analysis, I find that underperformance of stable companies is due to lower efficiency (asset turnover) and the superior performance of flexible firms is due to higher efficiency. However, stable firms achieve higher profit margin than flexible firms, consistent with the resource-based view of human capital. In my second study, I investigate whether higher ability managers achieve better performance outcomes through labour investment. I document that deviations from expected net hiring are, on average, smaller for higher ability managers. In this regard, I find that higher ability managers avoid both over-investment and under-investment in labour. I also find that managerial ability mitigates the negative effects of deviations from expected hiring on future firm performance. This latter result holds whether deviations from expected hiring are positive or negative. In my third study, I investigate how companies adjust their employment in recessions with a focus on credit constraints. Controlling for firm productivity, I find an inverted U-shaped relationship between leverage and labour growth rate. This suggests that debt accommodates labour growth up to a certain point, but adding additional debt after that point imposes financial constraints on firms’ ability to effectively manage labour growth – these firms may be forced to grow labour less or reduce labour more than the optimal amount. In addition, recession enlarges the negative impact of financial constraints on labour growth rate. Findings of my thesis studies contribute to management decision-making regarding labour adjustment in response to business cycles.
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    Resource Commitment and Cost Behavior Under Different Strategies
    (2017) Yu, Zhimin; Anderson, Mark; Herremans, Irene; Mashruwala, Raj; Tanaka, Atsuko; Natarajan, Ram
    I analyze asymmetric cost behavior from the perspective of resource commitment made to support strategic positions. Previous studies of asymmetric cost behavior consider how managers’ expectations about future demand in relation to costs of adjusting resources affect cost stickiness. My studies focus on how managers’ resource commitments made for strategic reasons affect cost behavior, and how cost stickiness as evidence of commitment to strategy is associated with firm performance. My first study investigates how resource commitment or resource flexibility reflected in cost stickiness is related to firm performance under different generic strategies. I interpret higher cost stickiness as evidence of commitment to a differentiation strategy and find that intangible value (measured by Tobin’s Q) associated with differentiation increases with cost stickiness. I also find that the persistence of return on assets (ROA) increases with cost stickiness for differentiators. My second study examines stickiness of SG&A costs as a consequence of resource commitments made to support a customer-focused strategy reflected in higher customer satisfaction. I find that customer satisfaction increases with both the intensity and stickiness of SG&A costs. I also document that the positive relation between intangible value and customer satisfaction increases with cost stickiness. My third study focuses on the airline industry in order to gain further insights about the roles of strategy and operations in determining cost behavior. In the airline industry, full service carriers (FSCs) employ clearly distinctive operating strategies from low cost carriers (LCCs). Resource complementarity is important to FSCs whose strategy depends on combinations of resources that enable high levels of service but resource flexibility is important to LCCs whose strategic goals are to minimize costs in both up and down markets. I use revenue passenger miles (RPMs) flown as the primary cost driver to separate the influence of volume changes from price changes on the empirical analysis. I find that operating costs, number of employees, and number of flights all exhibit stickiness for FSCs but not for LCCs.  
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    Supply chain relational capital and the bullwhip effect: An empirical analysis using financial disclosures
    (Emerald Group Publishing Limited, 2019-08-15) Zhao, Rong; Mashruwala, Raj; Pandit, Shailendra; Balakrishnan, Jaydeep
    Purpose: The primary objective of this study is to conduct a large-sample empirical investigation of how relational capital impacts bullwhip at the supplier. Design/methodology/approach: The study uses mandatory disclosures in regulatory filings of US firms to identify a supplier’s major customers and constructs empirical proxies of supply chain relational capital i.e., length of the relationship between suppliers and customers, and partner interdependence. Multivariate regression analyses are performed to examine the effects of relational capital on bullwhip at the supplier. Findings: The findings show that bullwhip at the supplier is greater when customers are more dependent on their suppliers, but is reduced when suppliers share longer relationships with their customers. The results also provide additional insights on several firm characteristics that impact supplier bullwhip, including shocks in order backlog, selling intensity, and variations in profit margins. Further, we document that the effect of supply chain relationships on bullwhip tends to vary across industries and over time. Originality/value: The study employs a novel dataset that is constructed using firms’ financial disclosures. This large panel dataset consisting of 13,993 observations over 36 years enables thorough and robust analyses to characterize supply chain relationships and gain a deeper understanding of their impact on bullwhip.