Global Journal of Business Research

VOLUME 9 NUMBER 2 2015

CONTENTS

Evidence on the Speed of Convergence to Market Efficiency: Evidence from Stock 1Spin-OffsHan-Ching Huang, Yong-Chern Su & Chun-E Shih

The Role of Information Systems in Enhancing the Performance of the Pharmacy Council of Ghana 9Kwabena Obiri-Yeboah, Eliezer Ofori Odei-Lartey & Kenneth Simmons

Transforming Leaders through Cultural Intelligence 23James B. Box, Judith A. Converso & Efosa Osayamwen

Performance of Technical Analysis in Declining Global Markets 41 Jogiyanto Hartono & Dedhy Sulistiawan

Determinants of Internet Corporate Social Responsibility Communication: Evidence from France 53Laetitia Pozniak & Perrine Ferauge

The Nature and Concept of Accountability: A Case Study of Three Entities in Fiji 65Ezaaz Hasan, Anjani Mala & Glen Finau

The Value Creation Model of Patent Market Intermediaries 75Jin Bih-Huang & Chun-Yu Chu

Does Investment Experience Influence Fund Investors’ Perceived Value and Purchase Intention? 87Ya-Hui Wang

What Makes Offline Word-of-Mouth More Influential Than Online Word-of-Mouth? 95Ahmet Bayraktar & Emine Erdogan

Business Education & Accreditation

William Bealing Shippensburg UniversityPeter Geczy National Institute of Advanced Industrial Science and Technology (AIST)Katherine Kinkela Iona CollegeAndrás Kun University of DebrecenVictor Lewis National UniversityDeneb Elí Magaña Medina Universidad Juárez Autónoma de TabascoManuel Medina Universidad Autónoma de Coahuila

Linda Naimi Purdue UniversityPaul Pallab University of DenverFrancis Petit Fordham UniversitySiu Kay Pun Nanyang Technological University, SingaporeJuan Rositas-Martinez Universidad Autónoma de Nuevo LeónArup Sen D’Youville College

Editorial Board

Editor in ChiefTerrance Jalbert

Managing EditorMercedes Jalbert

Business Education & Accreditation, ISSN: 1944-5903 (print) and ISSN: 2157-0809 (online) publishes high-quality articles in all areas of business education, accreditation and related fields. Theoretical, empirical and applied manuscripts are welcome for publication consideration. The Journal is published twice per year by the Institute for Business and Finance Research, LLC. All papers submitted to the Journal are blind reviewed. The Journal is listed in Cabell’s directory and Ulrich’s Periodicals Directory. The Journal is distributed in print and through EBSCOHost, ProQuest ABI/Inform, SSRN and RePEc.

The views presented in the Journal represent opinions of the respective authors. The views presented do not necessarily reflect the opinion of the editors, editorial board or staff of the Institute for Business and Finance Research, LLC. The Institute actively reviews articles submitted for possible publication. However, the Institute does not warrant the correctness of information provided in the articles or suitability of information in the articles for any purpose.

This Journal is the result of the collective work of many individuals. The Editors thank the members of the Editorial Board, ad-hoc reviewers and individuals that have submitted their research to the Journal for publication consideration.

ISSN : 1944-5903 (print) and ISSN: 2157-0809 (online)

All Rights Reserved . The Institute for Business and Finance Research, LLC

Global Journal of Business Research Vol. 9, No. 2, 2015, pp. 1-8 ISSN: 1931-0277 (print) ISSN: 2157-0191 (online)

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EVIDENCE ON THE SPEED OF CONVERGENCE TO MARKET EFFICIENCY: EVIDENCE FROM STOCK

SPIN-OFFS Han-Ching Huang, Chung Yuan Christian University

Yong-Chern Su, National Taiwan University Chun-E Shih, National Taiwan University

ABSTRACT

We use order imbalance to investigate dynamic relations among intraday return, volatility and order imbalance of stock spinoffs. A GARCH model is employed to examine whether the larger order imbalance is associated with larger stock price volatility. We do not find a significant positive relation between them, which implies that market makers do a successful job of mitigating volatility on spinoffs. Moreover, we develop imbalance-based trading strategies and find they can beat open-to-close returns only in the 5-minutes time interval. JEL: G14, G34 KEYWORDS: Spin-off, Order Imbalance, Market Efficiency, Volatility INTRODUCTION

n recent decades, many diversified firms have gone back to basics by focusing on their core business. A spinoff, defined as a pro-rata distribution of a share of the subsidiary to the original parent’s stockholders, is a common way to sharpen focus. The majority of studies document significant positive

abnormal stock returns around spinoff announcements (See Cusatis et al. 1993; Krishnaswami and Subramaniam, 1999; Mulherin and Boone, 2000; Huson and MacKinnon, 2003; Maxwell and Rao, 2003; and Son and Crabtree, 2011). Many papers also present evidence that spinoffs increase long-run shareholder value (e.g. Burch and Nanda, 2003; Ahn and Denis, 2004; Kim et al., 2008; Lin and Yung, 2013; Jordan et al., 2014). The above studies use daily data to explore the abnormal returns. To our knowledge, no existing study that explores the behavior of market microstructure on the announcement day of a spinoff. In this study, we use intraday transactions to examine convergence in spin-off market efficiency. We explore whether lagged stock order imbalances could be used to predict stock returns. According to Charoenwong et al. (2008), prior to the spinoff announcement, trading could be mainly initiated by insiders. Nonetheless, trading on the announcement day could be mainly initiated by uninformed traders, who could only trade the stocks after hearing the announcement day news. We employ a time-varying GARCH model to examine whether larger stock price volatility is positively associated with larger order imbalance. We develop an imbalance-based trading strategy, which is to buy the stock at the ask price just when the positive imbalance appears, and to sell the stock once the negative imbalance appears. This paper makes several contributions. First, on the announcement day of the spin-off, market makers can mitigate volatility from discretionary trades through inventory adjustments. Second, we investigate the relationship between order imbalances and returns as we explore the intraday dynamics that are essential in

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the convergence process of the spin-off announcement. The remainder of the paper is organized as follows. In the next section, we present a literature review. The following section provide a discussion of the data and methodology used. Next, we present the study results and close with some concluding comments. LITERATURE REVIEW The literature presents several explanations of the value gains to spinoffs (short-run stock abnormal return or long-run shareholder value). First, parent firms divest unrelated divisions to sharpen their core business competence (Daley et al. 1997; Desai and Jain, 1999). Second, the management team of the parent enjoys increasing managerial efficiency, reducing potential misallocation of investment, improving operating performance, and eliminating negative synergies to mitigate the information asymmetry between managers and investors by allowing more accurate estimation of firm value (Schipper and Smith, 1983; Ahn and Denis, 2004). Third, the wealth gains associated with spinoffs result from the correction of a prior mistake, which was an unprofitable earlier acquisition. A spinoff represents the undoing of that unwise takeover (Allen et al., 1995). In addition, transfer of wealth from bondholders to shareholders (Veld and Veld-Merkoulova, 2004; Veld and Veld-Merkoulova, 2008), relaxing tax and regulatory burdens (Schipper and Smith, 1983), facilitation of a merger or takeover (Cusatis et al., 1993) and sending positive signals to the stock market (Kunz and Rosa-Majhensek, 2008) also explain gains to parent firms following spinoffs. If someone is capable of earning profit in spinoff, it implies that the spinoff market is not efficient enough to respond the arrival of relevant new information. Nonetheless, as all investors engage in diversified investment behavior, the market will converge toward efficiency gradually. How does the market converge to efficiency? Chordia et al. (2005) interpret convergence based on individual actions. First, order imbalances arise from traders who demand immediacy for liquidity or informational needs. These order imbalances are positively auto-correlated, suggesting that traders are either herding or spreading their orders over time, or both. Second, NYSE specialists react to initial order imbalances by altering quotes away from fundamental value in an effort to control inventory. Finally, outside arbitragers intervene to add market-making capacity by performing countervailing trades in the opposite direction. This arbitrage activity takes at least a few minutes since arbitragers must ascertain whether or not there is new relevant information regarding values. Chordia et al. (2005) indicate that efficiency does not happen immediately since order imbalances can predict future returns over very short intervals. They find it takes more than five minutes but less than sixty minutes for the market to achieve weak-form efficiency. Visaltanachoti and Yang (2010) also find that, on average, it takes 30-60 minutes for a foreign stock listed on the NYSE to achieve market efficiency. For a comparable US stock, it takes only 10-15 minutes. Moreover, Chordia et al. (2005) report that there is little evidence of unconditional serial dependence on returns since no t-statistic exceeds 2.0 in absolute value and thirteen of the fifteen t-statistics are less than 1.0 in absolute value. This suggests that these stocks conform well to weak-form efficiency; that is to say, using only the past history of returns, there is little, if any, predictability of future returns even over intervals as short as five minutes. DATA AND METHODOLOGY We identify spinoffs from Securities Data Corporation (SDC). We use Trades and Automated Quotations (TAQ) to obtain intraday transactions that include bid and ask prices and trading prices as well as trading size in consolidate trades database from 9:30 AM to 4:00 PM on announcement dates of spinoffs. We remove the beginning of day observations that include lagged terms from the previous trading day to avoid generating spurious results. Samples range from January 1, 1994 through December 31, 2005 because NYSE TAQ initiated intraday dataset in 1994. We collect stock prices and outstanding shares in announcement years from the Center for Research in Security Prices (CRSP). Seventy-three firms are included in our sample.

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We apply Lee and Ready’s (1991) algorithm on each transaction in 5-minute, 10-minute and 15-minute time intervals. The unreported results show that the mean return is -0.21%, with a median of 0% and standard deviation is 3.44%. The skewness of daily returns is 0.1654 and the kurtosis is 7.4787. These figures imply that the distribution is positively skewed and leptokurtic. Average market capitalization of the sample is 23.6350 billion and the median is 5.4059 billion. We examine the regression of return-order imbalance relation as follow:

Rt = α + εt εt |Ωt−1~N(0, ht) ht = A1 + B1ht−1 + C1εt−12 + D1OIt (1)

where Rt is the return in period t, defined as (Pt- Pt-1)/Pt-1, OIt is the explanatory variable, order imbalance, εt equals the residual of the stock return in period t, ht is the conditional variance in the period t, and Ω t-1 is the information set in period t-1. Chordia and Subrahmanyam (2004) document a positive relation between current return and current order imbalances and a negative relation between current return and lagged order imbalance after controlling for the current imbalance because of “information over-weighting” from market makers. We expect a positively predictive power between return and lagged order imbalances in spinoffs. After controlling for the current imbalance, we expect that a positive sign of contemporaneous imbalances and the positive relation between lagged imbalance and returns disappears. To examine dynamic volatility-order imbalance in convergence, we employ a time-varying GARCH model as follows:

Rt = α + εt εt |Ωt−1~N(0, ht) ht = A1 + B1ht−1 + C1εt−12 + D1OIt (2)

where Rt is the return in period t, defined as (Pt- Pt-1)/Pt-1, OIt is the explanatory variable, order imbalance, εt equals the residual of the stock return in period t, ht is the conditional variance in the period t, and Ω t-1 is the information set in period t-1. Dynamic volatility-order imbalance relation is another focus in our study. Intuitively, the higher volatility is positively associated with the higher order imbalance. A spinoff is not an exception. RESULTS AND DISCUSSION Table 1 shows the positive and significant coefficients on lag one order imbalance under time intervals of 5-minute, 10-minute and 15-minute. At the 5% significance level, the positively and significant percentages for lagged-one imbalances are 4.11%, 5.48%, and 6.85%, respectively. This finding implies an efficient spinoff market on convergence. Previous studies argue a positive abnormal return for parent firms at spinoff announcements (Schipper and Smith, 1983). When firms announce spinoffs, information spreads out during convergence. Discretionary traders actively split their large orders at announcement. To accommodate large imbalances from discretionary investors, market makers raise inventory levels to mitigate volatility at the announcement. Market makers successfully use sufficient inventory to conduct countervailing transaction against informed traders at spinoff announcements. In Table 2, we find 9.59%, 8.22%, and 10.96% of lagged-one imbalance are negatively significant under different time interval of 5 minutes, 10 minutes and 15 minutes at 5% significance level and the average lag-one coefficients are positive. We argue that market makers, inheriting a responsibility to mitigate volatility at a spinoff announcement, gradually increase imperceptible bid and ask prices with large positive

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order imbalance pressure within a 5 and 10 minutes period since discretionary traders keep placing large orders. Nonetheless, perceiving decay of large imbalances from discretionary traders, market makers start to lower bid-ask spreads. The result shows a negative return-lagged one order imbalance relation within a 15-minute time interval. Thus, the 15-minute interval is the best interval for market makers to mitigate volatility. Table 1: Unconditional Lagged Return-Order Imbalance OLS Relation

Average Coefficient Positive Positive and Significant Negative and Significant Panel A: 5-minute Interval OIt-1 3.1358 58.90% 4.11% 6.85% OIt-2 -3.3657 43.84% 6.85% 8.22% OIt-3 3.4476 57.53% 9.59% 6.85% OIt-4 -0.8808 46.58% 2.74% 1.37% OIt-5 1.0839 45.21% 1.37% 6.85% Panel B: 10-minute Interval OIt-1 -2.3254 36.99% 5.48% 6.85% OIt-2 5.4016 50.68% 8.22% 1.37% OIt-3 -6.5821 28.77% 4.11% 5.48% OIt-4 -4.3265 38.36% 5.48% 2.74% OIt-5 0.6592 36.99% 1.37% 8.22% Panel C: 15-minute Interval OIt-1 4.6263 50.68% 6.85% 1.37% OIt-2 -6.1272 36.99% 2.74% 9.59% OIt-3 -2.7114 39.73% 1.37% 2.74% OIt-4 -1.6110 39.73% 1.37% 2.74% OIt-5 -3.7464 46.58% 1.37% 1.37%

This table shows regression estimates of the equation. Rt=α0 + α1OIt-1+α2 OIt-2+α3OIt-3+α4OIt-4+α5OIt-5+εt, where Rt is the current stock return of the individual stock, and OIt is lagged order imbalance at time t for each individual stock. Panels A, B and C present the results in 5, 10 and 15 minute interval respectively. The average coefficients are multiplied by 109. *, **,*** indicate significance at the 10, 5 and 1 percent levels respectively. “Significant” denotes significance at the 5% level. Table 2: Conditional Contemporaneous Return-Order Imbalance OLS Relation

Average Coefficient Positive Positive and Significant Negative and Significant Panel A: 5-minute Interval OIt 13.4858 94.52% 67.12% 0.00% OIt-1 1.2657 53.42% 4.11% 9.59% OIt-2 -3.1376 38.36% 6.85% 10.96% OIt-3 3.5498 54.79% 6.85% 5.48% OIt-4 -1.1139 42.47% 5.48% 2.74% Panel B: 10-minute Interval OIt 16.7854 95.89% 45.21% 0.00% OIt-1 1.3831 46.58% 4.11% 8.22% OIt-2 3.9911 53.42% 8.22% 0.00% OIt-3 -3.8365 35.62% 1.37% 8.22% OIt-4 -2.2692 43.84% 8.22% 1.37% Panel C: 15-minute Interval OIt 14.6301 90.41% 39.73% 0.00% OIt-1 -3.7516 38.36% 9.59% 10.96% OIt-2 -5.0414 34.25% 1.37% 6.85% OIt-3 -2.4110 41.10% 0.00% 5.48% OIt-4 0.2419 47.95% 1.37% 1.37%

This table shows the regression estimates of the equation. Rt=α0 + α1OIt+α2 OIt-1+α3OIt-2+α4OIt-3+α5OIt-4+εt where Rt is the current stock return of the individual stock, and OIt is lagged order imbalance at time t for each individual stock. Panels A, B and C present the results in 5, 10 and 15 minute interval respectively. The average coefficients are multiplied by 109. *, **,*** indicate significance at the 10, 5 and 1 percent levels respectively. “Significant” denotes significance at the 5% level.

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Table 3 exhibits a dynamic volatility-order imbalance relation from a time-varying GARCH model. We observe that either the percentage of significantly positive or negative coefficients is less than 5% for all significance levels in three different time intervals. The empirical results reject a significantly positive relationship between volatility and order imbalance on convergence. Apparently, market makers have done a successful job in mitigating volatility from large imbalances. Market makers are reluctant to adjust bid-ask spreads to accommodate discretionary orders. We find that market makers have good power to stabilize the market at spinoffs. Table 3: Dynamic Volatility-Order Imbalance GARCH (1,1) Relation

Average Coefficient Percent Positive and Significant Percent Negative and Significant 5-min interval -67.8 4.11% 0.00% 10-min interval -0.73 1.37% 0.00% 15-min interval 65.7 2.74% 1.37%

This table shows regression estimates of the equation: Rt = α+ εt ,εt︱Ωt-1 ~ N(0, ht), ht = A + Bht-1 + Cεt-12 +γ*OIt where Rt is the return in period

t, and is defined as ln(Pt/Pt-1), OIt is the explanatory variable, order imbalance, γ is the coefficient describing the impact of order imbalance on stock volatility, εt is the residual value of the stock return in period t, Ωt-1 is the information set in period t-1. All coefficients are multiplied by 104. Based on previous empirical results, we develop an intraday imbalance-based trading strategy to beat the market. We trim 90% of small order imbalances in each day under three time intervals because larger imbalances have a more substantial impact on returns. For each stock, we buy the share at the ask price just when the positive imbalance appears, and sell the share once the negative imbalance appears. The trading strategies are built on quote price or trade price. In Panel A of Table 4, we find that returns of imbalance-based trading strategy for 5-, 10- and 15-minute time intervals are -0.74%, -1.04%, and -0.87%, respectively. The returns of imbalance-based trading strategy on quote price are significantly negative at the 1 % significant level. We use paired t-tests to examine whether the return from a trading strategy is higher than the open-to-close return on the announcement day of spinoff. Panel B shows the return of trading strategies for the 10-minute interval is significantly lower than an open-to-close return. Panel C shows that there is no significant difference among three different time intervals at the 10 % significant level. Table 4: Returns of Imbalance-Based Trading Strategy Based on Quote Price

Panel A: Returns Compared with Zero P-value 5-min return strategy 0.0013 10-min return strategy 0.0001 15-min return strategy 0.0001 Panel B: Returns Compared with Returns of Buy-and-hold Strategy

Mean Original Open-to-close Return P-value 5-min return strategy -0.0074 -0.0021 0.0530 10-min return strategy -0.0104 -0.0021 0.0093 15-min return strategy -0.0087 -0.0021 0.2602 Panel C: Differences in Returns among the Three Intervals P-value 5-min Return 10-min Return 15-min Return 10-min return 0.1508 15-min return 0.5932 0.1897

This table shows trading profits under the quoted price. For each stock, we buy the share at the ask price just when the positive imbalance appears, and sell the share once the negative imbalance appears. Panel A presents the p-values to be used to examine whether the return of imbalance-based trading strategy is positive. Panel B shows the p-values to be used to explore whether the return of imbalance-based trading strategy is higher than open-to-close return on spinoffs. Panel C exhibits the p-values to be used to examine whether there is no difference in return of the strategy among three different time intervals. Table 5 shows the returns of an imbalance-based trading strategy on the basis of trade price. Panel A shows the return for 5-minute intervals is 0.76%, which is significantly positive and higher than the return on a

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buy-and-hold strategy at the 1 % significant level. However, returns for 10- and 15-minute intervals are not significant at the 10 % significant level. Panel B, shows the return of imbalance-based trading strategy for 5-minute intervals successfully beat the market at the 1 % significant level. Panel C shows there are significant differences between 5 and 10 minutes as well as 5 and 15 minutes at the 1 % significant level. CONCLUDING COMMENTS Previous studies argue that information asymmetry problems between managers and investors is alleviated or exacerbated after the spinoff. They examine whether the spinoff event provides any information to lead traders to earn abnormal excess return around the announcement periods. However, if someone can earn profit at spinoff, it implies the spinoff market is not efficient enough to respond to the arrival of new information. Therefore, we use order imbalance as an indicator of insiders trading information in this study. We examine dynamic relationships between order imbalance, volatility and return of spinoffs on the announcement date. We also develop an imbalance-based trading strategy to test convergence to market efficiency of spinoffs. We examine the unconditional return-order imbalance regression relation based on Chordia and Subrahmanyam (2004). Our empirical results provide an insignificant positive relation between current stock returns and lagged order imbalances, which is inconsistent with Chordia and Subrahmanyam (2004). We investigate conditional contemporaneous return-order imbalance relation. We document a positive contemporaneous return-order imbalance relation for three different time intervals, which is consistent with Chordia and Subrahmanyam (2004). Further, we use a time-varying GARCH model to examine whether the larger order imbalance is positively associated with greater stock price volatility. Our empirical study indicates no strong positive relationship between them. We believe that market makers have good power to stabilize the market through inventory adjustments. Finally, we develop an imbalance-based trading strategy on the basis of quote and trading prices. Only returns on trades priced in the 5-minute interval could beat open-to-close returns. Thus, the spinoff market is not efficient in the 5-minute interval. This paper focuses on the impact of stock order imbalances on stock returns of spinoffs. Because the investors also trade options of underlying stocks, future research should examine the influence of option order imbalances on stock returns of spinoffs. Table 5: The Returns of Imbalance-Based Trading Strategy Based on Trade Price

Panel A: Returns Compared with Zero P-value 5-min Return of strategy 0.0027 10-min Return of strategy 0.3053 15-min Return of strategy 0.4930 Panel B: Returns Compared with Returns of buy-and-hold Strategy

Mean Original open-to-close Return P-value 5-min return strategy 0.0076 -0.0021 0.0006 10-min return strategy 0.0007 -0.0021 0.1990 15-min return strategy 0.0002 -0.0021 0.2602 Panel C: Differences in Returns among the Three Intervals P-value 5-min Return 10-min Return 15-min Return 10-min return 0.0013 15-min return 0.0013 0.4799

This table shows trading profits under the trade price. For each stock, we buy the share at the ask price just when a positive imbalance appears, and sell it once a negative imbalance appears. Panel A presents p-values to examine whether the return of imbalance-based trading strategy is positive. Panel B shows the p-values to explore whether the return of imbalance-based trading strategy is higher than open-to-close return on spinoffs. Panel C exhibits the p-values to examine whether there is no difference in return of the strategy among three different time intervals.

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REFERENCES Ahn, S. & Denis, D.J. (2004) “Internal Capital Markets and Investment Policy: Evidence from Corporate Spinoffs.” Journal of Financial Economics, vol. 71 (3, March), p. 489-516. Allen, J.W., Lummer, S.L., McConnell, J.J. & Reed, D.K. (1995) “Can Takeover Losses Explain Spin-Off Gains.” Journal of Financial & Quantitative Analysis, vol. 30 (4, December), p. 465-485. Burch, T.R. & Nanda,V. (2003) “Divisional Diversity and the Conglomerate Discount: Evidence from Spinoffs.” Journal of Financial Economics, vol. 70 (1, October), p. 69-98. Charoenwong, C., Ding, D.K. & Pan, J. (2008) “Asymmetric Information and Conglomerate Discount: Evidence from Spinoffs.” Working Paper, Nanyang Technological University. Chordia, T., Roll, R. & Subrahmanyam, A. (2005) “Evidence on The Speed of Convergence to Market Efficiency.” Journal of Financial Economics, vol. 76 (2, May), p. 271-292. Chordia, T. & Subrahmanyam, A. (2004) “Order Imbalance and Individual Stock Returns: Theory and Evidence.” Journal of Financial Economics, vol. 72(3, June), p. 485-518. Cusatis, P.J., Miles, J.A, & Woolridge, J.R. (1993) “Restructuring Through Spin-Offs: The Stock Market Evidence.” Journal of Financial Economics, vol. 33 (3, June), p. 293-311. Daley, L., Mehrotra, V. & Sivakumar, R. (1997) “Corporate Focus and Value Creation Evidence from Spin-Offs.” Journal of Financial Economics, vol. 45 (2), p. 257-281. Desai, H. & Jain, P.C. (1999) “Firm Performance and Focus: Long-Run Stock Market Performance Following Spin-Offs.” Journal of Financial Economics, vol. 54 (1), p. 75-101. Huson, M.R. & MacKinnon, G. (2003) “Corporate Spinoffs and Information Asymmetry between Investors.” Journal of Corporate Finance, vol. 9(4, September), p. 481-503. Jordan, B.D., Liu, M.H. & Wu, Q. (2014) “Corporate Spin-offs and Innovation.” Working Paper, University of Kentucky. Kim,S., Klein A. & Rosenfeld, J. (2008) “Return Performance Surrounding Reverse Stock Splits: Can Investors Profit.” Financial Management, vol. 37 (2, Summer), p. 173- 192. Krishnaswami, S. & Subramaniam,V. (1999) “Information Asymmetry, Valuation, and the Corporate Spin-Off Decision.” Journal of Financial Economics, vol. 53 (1, July), p. 73-112. Kunz, R.M. & Rosa-Majhensek, S. (2008) “Stock Splits in Switzerland: To Signal or not to Signal”. Financial Management, vol. 37(2, Summer), p. 193-226. Lee, C.M.C., & Ready, M.J. (1991) “Inferring Trade Direction from Intraday Data.” Journal of Finance, vol. 46(2, June), p. 733-746. Lin, Y.C. & Yung, K. (2013) “Motives for Corporate Spinoffs: Evidence from Ex-Ante Misvaluation.” Working Paper, Missouri University of Science and Technology. Man, K. & Chen, C. (2009) “On a Stepwise Hypotheses Testing Procedure and Information Criterion in Identifying Dynamic Relations between Time Series.” Journal of Data Science, vol. 7(2), p. 139-159.

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Maxwell, W.F. & Rao, R.P. (2003) “Do Spin-Offs Expropriate Wealth from Bondholders.” The Journal of Finance, vol. 58(5, October), p. 2087-2108. Mulherin, J.H. & Boone, A.L. (2000) “Comparing Acquisitions and Divestitures.” Journal of Corporate Finance, vol. 6(2, July), p. 117-139. Schipper K. & Smith A. (1983) “Effects of Recontracting on Shareholder Wealth: The Case of Voluntary Spin-offs.” Journal of Financial Economics, vol. 12 (4, December), p. 437-467. Son M. & Crabtree, A.D. (2011) “Earnings Announcement Timing and Analyst Following.” Journal of Accounting, Auditing & Finance, vol. 26 (2, April), p. 443-468. Veld C. & Veld-Merkoulova, Y.V. (2004) “Do Spin-offs Really Create Value? The European Case.” Journal of banking & Finance, vol. 28 (5, May), p. 1111-1135. Veld C. & Veld-Merkoulova, Y.V. (2008) “The Risk Perceptions of Individual Investors” Journal of Economic Psychology, vol. 29 (2, April), p. 226-252. Visaltanachoti N. & Yang T. (2010) “Speed of Convergence to Market Efficiency for NYSE-listed Foreign Stocks” Journal of Banking & Finance, vol. 34 (3, March), p. 594-605. BIOGRAPHY Han-Ching Huang is Associate Professor of Finance and Director of International Master of Business Administration at the Chung Yuan Christian University. His research appears in journals such as Journal of Banking and Finance, Pacific Basin Finance Journal, Investment Analysts Journal, and Applied Economics. He can be reached at Chung Yuan Christian University, 200, Chung Pei Road, Chung Li District, Taoyuan City, Taiwan, 32023, samprass@cycu.edu.tw. Yong-Chern Su is Professor of Finance at National Taiwan University. His research appears in journals such as Journal of Banking and Finance, Pacific Basin Finance Journal, Investment Analysts Journal, and Applied Economics. He can be reached at National Taiwan University, 50 Lane 144 Sec. 4, Keelung Road, Taipei, Taiwan, ycsu@ntu.edu.tw. Chun-E Shih is Master of Finance at National Taiwan University. She can be reached at National Taiwan University, 50 Lane 144 Sec. 4, Keelung Road, Taipei, Taiwan, r96723052@ntu.edu.tw.

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THE ROLE OF INFORMATION SYSTEMS IN ENHANCING THE PERFORMANCE OF THE

PHARMACY COUNCIL OF GHANA Kwabena Obiri-Yeboah, Kwame Nkrumah University of Science and Technology, Ghana

Eliezer Ofori Odei-Lartey, Kintampo Health Research Centre, Ghana Kenneth Simmons, Ashanti Regional Pharmacy Council, Ghana

ABSTRACT

Information systems present great potential for public institutions in developing countries to reengineer their processes, meet the current global trends and improve performance. This study describes the role of information systems in enhancing the performance of the Pharmacy Council of Ghana. Primary data was collected through semi-structured questionnaires. Questionnaires were administered to two groups; pharmacy operators that have been licensed by the Pharmacy Council and staffs from all the eight offices of the Pharmacy Council of Ghana. Presented in the analyses are the current information systems environment of the Pharmacy Council; the value of information systems as perceived by the Pharmacy Council staff and pharmacy operators; and respondent views on challenges facing the use of information system at the Pharmacy Council. Results from this study suggest that the Pharmacy Council has potential for computerization. Results further suggest that level of experience and exposure to computerization has significant level of influence on perceptions about computerization. Results also suggest major concerns about the availability of dedicated expertise to manage and maintain an information infrastructure at the Pharmacy Council. Results propose that the Pharmacy Council should examine all frequently recurring services and formulate strategies for computerization. JEL: M15, O33 KEYWORDS: Pharmacy Operators, Information System, Information and Communication Technology, Client Service, Public Institutions INTRODUCTION

nstitutions would ideally want to take decisions which are accurate and timely (Huber, 1990). Coming out with decisions largely depend on the information that is available and when it is made available (O'Reilly, 1982). Thus, data must be processed accurately and timely and must be easily accessible

when needed. Information systems are actively adapted to process data. The benefits inuring from making good decisions as a result of the proper implementation of an information system (I.S.) could be a competitive advantage for an institution (Porter & Millar, 1985). The business value of I.S. has received considerable interest from the business community due to the increased realization that it potentially improves productivity and has significant impact on business performance (Brynjolfsson, 1993; Brynjolfsson & Hitt, 2000; Davenport & Short, 2003). For most organisations information systems has changed the way in which they conduct business. Perception of information systems as a strategic way of enhancing or improving the efficiency of businesses is not exclusive to developed countries(Castells & Development, 1999; Diagnostic, Foster, & Briceño-Garmendia, 2010). The Government of Ghana (GoG) also recognizes the importance of information technology to improve the service delivery of public institutions (Gyamfi, 2005; Heeks, 2002a, 2002b; Martey, 2004). To this effect, the GoG developed a policy document for the country, the Ghana ICT for Accelerated development (ICT4AD), in 2003. In this policy

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document government seeks to deploy information systems to help improve service delivery by civil and public institutions to the public (Dzidonu, 2003; Policy, 2003). Although the use of Information systems is increasing in Ghana, it does not mean that all organisations especially public institutions are able to derive value from it. But regardless of this, organisations continue investing in IS. It can be also seen that most of these organisations have computers and other forms of information technology but how are these being used within the organisation to enhance their operations? How is information systems and IT being implemented in public organisations to assist in data gathering and processing within the organisations to help them achieve these objectives? The Government of Ghana acknowledges this in its policy document that the mere deployment of ICTs within public sector organizations and institutions does not necessary translates into improvements in productivity, efficiency and service delivery which collectively could impact on the overall developmental process of the country. The GoG suggests that, the deployment of ICTs within public institutions and business organizations and entities will have little or no impact on the nation’s development process if not accompanied by a number of organizational and procedural changes as well as changes in attitude to work and work ethics (ICT4AD pg. 41). So the question here is, are public organisations moving in line with the government of Ghana’s policy objectives as outlined for them in the ICT4AD? Another reason why organisations may not derive the business value of information systems in organisations is embedded in the phenomenon that information systems create business value indirectly but create business costs directly, making the value of information systems and the benefits thereof difficult for organizations to perceive. The Pharmacy Council as a government institution has computers and other forms of IT equipment at their disposal. They could be used to enhance the service delivery of the PC by improving on their service delivery capacity. This study explored the prospects and challenges of using information systems in government institutions in Ghana. In this study, we assessed the role of IS in enhancing the performance of the PC of Ghana in managing client information by identifying the current IS in operation, determining the human resource capacity available at the Pharmacy Council for operating information systems and soliciting views on the perceived value and challenges of IS from both staff and clients of the PC. This paper has been organised into six major sections. The first section is an introduction to the study. The second is literature review relevant to the discussion. The third section describes the methods used in the study. The fourth section elucidates results and discussions from the study. The fifth section concludes the study. The sixth section provides references to literature reviewed and the final section is a biography of the authors of this document. LITERATURE REVIEW An Information System (I.S.) could be described as the processes of collecting and analysing data in a function area using electronic tools, applications programming and implementation, data mining, and decision support systems (Alter, 1998; Ruiz, Mejia, & Kaplan, 2003). In a broader sense, the term Information Systems is used not to refer only to the information and communication technology that an organization uses, but also to the way in which people interact with this technology in support of processes. Within an organisational context I.S. commonly aims to support operations, management and decision making (Melville, Kraemer, & Gurbaxani, 2004). The time and process of gathering data in an organisation and transforming it into information is vital for making important decisions. This is because accurate and timely information is necessary to help organisation meet their set objectives (Daft & Lengel, 1986; Day, 1994; Lee, Strong, Kahn, & Wang, 2002; Naumann & Rolker, 2000). Information systems generally are classified into five categories: office information systems, transaction processing systems, management information systems, decision support systems, and expert systems (Joseph, 2013). However, it is difficult to classify a system as belonging exclusively to one of the five information system types mentioned owing to the reason that organizations increasingly are consolidating their information needs into a single,

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integrated information system. The impact of information systems on the performance of end users and the relationship between information systems and performance and productivity is of great interest to many researchers (Davis, 1993; Delone & McLean, 2003; Igbaria & Tan, 1997; Ravichandran & Lertwongsatien, 2005). While various studies have identified key factors for the success of information systems, other studies have been undertaken to measure the impact of I.S. on management performance of business organizations using different key performance indicators. Some studies have investigated the effects of a specific system performance of the user. These studies have established very important conclusions on the use of the system, system quality and reliability. DATA AND METHODOLOGY The study was conducted among staff in all ten (10) regions of the Pharmacy Council of Ghana. The study also included one hundred and thirty six (136) conveniently sampled from an alphabetically order list of four hundred and twenty (420) pharmacies registered with the Pharmacy Council in the Ashanti Region. With regards to the selection of pharmacy operators, factors of proximity, availability and willingness to participate were key determinants. Also, the sample excluded other pharmaceutical service providers such as licensed over the counter medicine sellers. This may place limitations on the extent to which this study can be generalized within the context of the Ghanaian pharmaceutical service providers. However, since activities do not vary within the organization there may not be wide deviations from what pertains with other service providers. Primary data was collected through structured interviews. Questionnaires were designed for this purpose with with a mix of closed-ended and open-ended survey questions. Reliability and validity of questions were assessed by repeating some questions. Questionnaires were interviewer-administered to staff of the pharmacy council on one hand, and managers and owners of the pharmacies on another. Microsoft Excel Spreadsheet 2007 was used to analyse frequencies and percentages of closed end responses. Regression and logistic regression analysis were performed with STATA 12. Open-ended qualitative responses were through data reduction and conclusion creation. RESULTS AND DISCUSSION Socio-Demographics Summary statistics on the socio-demographic characteristics of respondents from the Pharmacy Council staff are presented in Table 1. The summary statistics show the distribution of the respondents by sex, age grouping, regional office, department, position, level of computer knowledge/experience and access to use a computer at the department. Also presented are the percentage proportions for the distributions, relative to the total number of respondents. The age distributions are presented in six groupings, each with a ten year range up till age sixty and above. Results from Table 1 indicate that majority (67.74%) of staff respondents are males. This suggests that the number of male staff is more than twice the number of female staff at the Pharmacy Council. Results on the age distribution of staff respondents indicate that the ages of most of the staff respondents range from thirty (30) to forty (59) years. The age distribution of respondents from the Pharmacy Council staff reflects majority of the workforce fall within the active age of workers in Ghana. The distribution of staff respondents by the regional offices where they work, as presented in Table 1, indicate that over fifty per cent of staffs interviewed are located in the Greater Accra region. The very high number of responses from the Greater Accra region was because this region has two Pharmacy Council offices; the Greater Accra regional office and the head office. Responses from both the Greater Accra regional office and the head office were combined. With regards to distribution by departments, (49.11%) of the respondents were at the inspectorate department. The twelve staffs under the inspectorate department are distributed among the regions. All other departments however are at the head office of the Pharmacy Council. Results on the position/rank of staff also indicate that (47.83%) of the respondents held managerial positions. The number of managers interviewed was high because almost all managers at each regional office were respondents.

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Table 1: Socio-Demographic Characteristics of Pharmacy Council Staff

Panel A: Sex Distribution Staff of the Pharmacy Council n % Male 21 67.74 Female 10 32.26 Missing 1 3.13 Panel B: Age Grouping Staff of the Pharmacy Council

n % 20-29 years 3 9.68 30-39 years 12 38.71 40-49 years 9 29.03 50-59 years 7 22.58 60 years and above 0 0.00 Missing 1 3.13 Panel C: Distribution of by Region Staff of the Pharmacy Council (N=23)

n % Eastern 4 12.90 Ashanti 4 12.90 Western 2 6.45 Northern 1 3.23 Volta 3 9.68 Greater Accra 17 54.84 Missing 1 3.13 Panel D: Distribution by Department Staff of the Pharmacy Council (N=23)

n % Inspectorate 14 49.11 PPME 4 14.29 MIS&P 3 10.71 R & L 2 6.25 Accounts 4 14.29 ETD 1 3.57 Missing 4 12.50 Panel E: Distribution of Staff by Position Staff of the Pharmacy Council (N=23)

n % Accountant 4 17.39 Inspecting Pharmacist 2 8.70 Manager 11 47.83 Pharmacy Intern 1 4.35 Procurement Officer 1 4.35 Secretary 4 17.39

Table 1 shows the socio-demographic characteristics of the Pharmacy Council staff interviewed. Panel A shows the sex distribution of the respondents. Panel B shows the age distribution of respondents in years. Panel C shows their distribution by the region they work. Panel D shows their distribution by the department the work for. Panel E shows their distribution by staff role/position. The last row in each panel represents the missing values for that observation. The first column in each panel shows the socio-demographic variables observed. The figures in the columns labeled ‘n’ for each panel show the observations for each response. The figures in the columns labeled ‘%’ for each panel show the proportions of each observation in percentage. The total number of respondents (X) for each study area is reported as (N=X) at the header rows for each panel. Other staffs holding different positions are mostly from the head office. Responses were received from one hundred and thirty-six (136) pharmacy operators. In this section, summary statistics on the socio-demographic characteristics of respondents from the pharmacy operators are presented in Table 2. The summary statistics show the distribution of the respondents by sex, age grouping, educational level and ownership status. Also presented are the percentage proportions for the distributions, relative to the total number of respondents.

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Table 2: Socio-Demographic Characteristics of Pharmacy Operators

Panel A: Sex Distribution Pharmacy Operators (N=136) n %

Male 108 79.41 Female 27 19.85 Missing 1 0.74 Panel B: Age Group Pharmacy Operators (N=136)

n % 20-29 21 15.44 30-39 41 30.15 40-49 40 29.41 50-59 21 15.44 60 and above 12 8.82 Missing 1 0.74 Panel C: Education Level Pharmacy Operators (N=136)

n % Sec/Voc 22 16.18 Tertiary 113 83.09 Missing 1 0.74 Panel D: Ownership Status Pharmacy Operators (N=136)

n % Owner 53 38.97 Manager 46 33.82 Other 36 26.48 Missing 1 0.74

Table 2 shows the socio-demographic characteristics of the pharmacy operators interviewed in this study. Panel A shows the sex distribution of the respondents. Panel B shows the age distribution of respondents in years. Panel C shows the highest level of education attained by respondents at the time of interview. Panel D shows the ownership status of the respondents in relation to the pharmacy they operate. The last row in each panel represents the missing values for that observation. The figures in the columns labeled ‘n’ for each panel show the observations for each response. The figures in the columns labeled ‘%’ for each panel show the proportions of each observation in percentage. The total number of respondents (X) for each study area is reported as (N=X) at the header rows for each panel. In Table 2, results indicate that majority (79.41%) of respondents were males. Statistics from Table 2 suggests that most of the data gathered in this research reflects the opinion of male pharmacy operators. Results further indicate that the age grouping with the highest number of respondents (30.15%) was age range thirty to thirty-nine (30 – 39). Also, most of the pharmacy operators are within the middle aged population group. There is however a significant number of younger aged groups engaged in the operation of pharmacy. In general however, the statistics reflects the normal distribution of labour force in Ghana. With regards to the highest level of education attained, results indicate that all respondents had attained at least secondary/vocational level of education with a very large percentage (83.09%) of them having tertiary education. This pattern was expected due to the nature of work and level of knowledge/expertise required to successfully operate a pharmacy business. Summary statistics on the ownership status of the pharmacy operators indicate that more than half (38.97%) of respondents were owner managers. This could be attributed to the reason that pharmacy businesses in Ghana are operated as small enterprise with direct cash transactions. Owners of such enterprises usually operate the businesses on their own or with family members (Kwabena et al, 2013). The Information Systems Environment of the Pharmacy Council In this section, summary statistics on the information systems available at the Pharmacy Council are presented in Table 3. Also presented are the percentage proportions for the distributions, relative to the total number of respondents.

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Table 3: Summary Statistics on Pharmacy Council Regional Offices with Websites and Departments That Have Email Addresses and/or Computers

Region Has Website Departments with Email Addresses Departments That Have Computers Eastern Yes Accounts Inspectorate, Accounts Ashanti Yes Inspectorate, Accounts Inspectorate Western Yes - Inspectorate Northern Yes - Inspectorate Volta Yes - Inspectorate Greater Accra Yes MIS & P, Accounts Inspectorate, PPME, MIS & P,

R & L, Accounts, ETD Table 3 shows the summary statistics on Pharmacy Council regional offices and departments that have computers, websites and/or email addresses. From the left, the first column of Table 3 shows a list of the regions. The second column indicates responses to observations on the availability of a website. Third column indicates departments per region that have email addresses. The fourth column indicates, per region, departments that have working computers. Results in Table 3 indicate that not all regional offices and departments had email addresses. Results in Table 3 further indicate that all departments at the Greater Accra region have at least one computer. Results also indicate that the inspectorate department in each regional office has at least one computer. These results suggest that each regional office has at least one computer for staffs to work with; however some of the departments do not have email addresses they could use. This further suggests that some level of computerization already exists at each regional office of the Pharmacy Council. Responses were also received on the knowledge and/or experience of staff in the use of computers. Summary statistics on the responses is presented in Table 4. Results on computer knowledge are in three categories; high – to indicate advanced knowledge, average – to indicate basic knowledge, never – to indicate staff who have never had any experience with the use of computers. Responses were further solicited from staff on access to use a computer at the departments they worked. Summary statistics on their access to use computers at their departments are presented in Table 4. Table 4: Summary Statistics on Distribution of Staff by Computer Knowledge

Panel A: Computer Knowledge N % High 22 68.75 Average 9 28.13 Never 0 0.00 Missing 1 3.13 Panel B: Require Computers for Work N % Yes 24 75.00 No 7 21.87 Missing 1 3.13 Panel C: Use A Computer at Work N % Yes 27 84.38 No 4 12.50 Missing 1 3.13

Table 4 shows summary statistics on Pharmacy Council staff based on their knowledge and access to use computers at work. Panel A shows the distribution of respondents based on their knowledge about computers. Panel B shows the distribution of respondents who require computers to work. Panel C shows the distribution of staffs that have access to use a computer at work. The last row in each panel represents the missing values for that observation. The figures in the columns labeled ‘n’ for each panel show the observations for each response. The figures in the columns labeled ‘%’ for each panel show the proportions of each observation in percentage. Results from Table 4 indicate that at almost all respondents had some experience with the use of computers with more than two-thirds (68.75%) of the respondents having a high level of experience with the use of computers. These results suggest that majority of Pharmacy Council staff have high level of knowledge in operating computers. At least, every member of staff interviewed has knowledge in the use of a computer. This further suggests that the Pharmacy Council’s human resource is well equipped for a computerization program at the Pharmacy Council with little training. As indicated in Table 4, over eighty per cent of respondents have access to use computers at their departments. Interestingly, 4 respondents indicated that

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they don’t have access to use computers at their departments. Results from responses about access to a computer suggest that, most of the Pharmacy Council staff (84.38%) were exposed to using computers. The few (12.5%) who indicated that they did not have access to computers attributed that problem to the limited number of computers available at the region. Following analysis on computer knowledge, results on the experience of pharmacy operators on information systems are presented in Table 5. Statistics on level of knowledge in computers and operators who have their pharmacies computerized are presented. Also presented are the percentage proportions for the distributions, relative to the total number of respondents. Table 5: Summary Statistics on Computer Usage Experience

Panel A: Computer Experience N % High 90 66.18 Average 38 27.94 None 6 4.42 Missing 2 1.47 Panel B: Computerized Pharmacy N % Yes 76 55.88 No 56 41.18 Missing 4 2.94

Table 5 shows summary statistics on pharmacy operators based on their experience with the use of computers. Panel A shows the distribution of operators based on their level experience with computers. Panel B shows the distribution of operators with computerized pharmacies. The last row in each panel represents the missing values for that observation. The figures in the columns labeled ‘n’ for each panel show the observations for each response. The figures in the columns labeled ‘%’ for each panel show the proportions of each observation in percentage. Results in Table 5 indicate a high number of advanced users of computers. Six (6) respondents indicated that they have no experience using a computer. These results suggest that the Pharmacy Council may have a number of clients who may not have the ability to use computers. Although results in Table 5 indicate that almost fifty per cent of pharmacy operators interviewed have not computerized any of their business operations, the relatively large number of pharmacy operators who have computerized pharmacies supports the recognition of the value of computerization to the operation of businesses. This finding also suggests a potential environment for a seamless integration between the Pharmacy Council and pharmacy operators. An effort to computerize the Pharmacy Council may increase the number of pharmacy operators that may decide to computerize their pharmacies. Perceptions about Computerization of Processes/Services of the Pharmacy Council Responses were received concerning the extent to which Pharmacy Council staffs agree with the computerization of certain operations of the Pharmacy Council. Summary statistics of the responses is presented in Table 6. Results from the statistics indicate a high number of respondents agreeing with computerization of the listed operations of the Pharmacy Council. The relatively high strong approval from the staff respondents to computerize the renewal of license may be attributed to the fact that this activity is the most commonly recurring among the others. The few responses that disagreed to computerization of some of the services suggest that some staff have not yet adjusted to the use computers in their duties. With regards to opinions from pharmacy operators about the computerization of certain operations of the Pharmacy Council, summary statistics presented in Table 6 indicate that a high number of respondents agree with computerization of the listed operations of the Pharmacy Council. A relatively low proportion of pharmacy operators however do not strongly agree with the computerization of enquiry services.

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Table 6: Summary Statistics on Staff Opinion about the Computerization of Listed Processes/Services

Panel A: Opinions from Pharmacy Council Staff SA A I D SD Missing Total Application for Relocation 22 6 2 1 0 1 32 68.75 18.75 6.25 3.13 0.00 3.13 100.00 Application for a New License 21 6 1 2 1 1 32 65.63 18.75 3.13 6.25 3.13 3.13 100.00 Renew License 27 3 1 0 0 1 32 84.38 9.38 3.13 0.00 0.00 3.13 100.00 Enquiries 17 8 3 2 0 2 32 53.13 25.00 9.38 6.25 0.00 6.25 100.00 Registration 24 4 0 1 0 3 32

75.00 12.50 0.00 3.13 0.00 9.38 100.00 Panel B: Opinions from Pharmacy Operators SA A I D SD Missing Total Application for Relocation 71 50 7 2 0 6 136 52.21 36.76 5.15 1.47 0.00 4.41 100.00 Application a New License 81 36 7 3 0 9 136 59.56 26.47 5.17 2.21 0.00 6.62 100.00 Renewal of License 99 30 2 1 0 4 136 72.79 22.06 1.47 0.74 0.00 2.94 100.00 Enquiries 88 37 3 1 0 7 136 64.71 27.21 2.21 0.74 0.00 5.15 100.00 Registration 97 30 1 2 0 6 136

71.32 22.06 0.74 1.47 0.00 4.41 100.00 Table 6 shows summary statistics on the opinions of both Pharmacy Council staff and pharmacy operators about the computerization of a list of services at the Pharmacy Council. Panel A shows opinions from Pharmacy Council staff. Panel B shows opinions from pharmacy operators. The figures in the columns labeled ‘SA’ for each panel show the observations that strongly agree to service computerization. The figures in the columns labeled ‘A’ for each panel show the observations that partially agree to service computerization. The figures in the columns labeled ‘I’ for each panel show the observations that are indifferent to service computerization. The figures in the columns labeled ‘D’ for each panel show the observations that partially disagree to service computerization. The figures in the columns labeled ‘SD’ for each panel show the observations that strongly disagree to service computerization. The column labeled ‘Missing’ in each panel represents the missing values for the observations Similar to responses from staff respondents, results from Table 6 suggests that pharmacy operators also strongly allude to the computerization of renewal of license for possibly the same reason that it is the most commonly recurring process. Following results on perceptions, responses from pharmacy operators on the computerization and service quality improvement at the Pharmacy Council were paired with their ages to determine the association between the age of the respondent and response on whether computerization can improve the quality of service at the Pharmacy Council. The strength of the association was also subjected to a chi-square test. Univariate logistic regression models on the on perception about the effects of computerization on the service quality of the Pharmacy Council against operators’ age and computer usage experience is presented in Table 7.

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Table 7: Univariate Logistic Regression Model on the Influence of Age on Clients’ Perception about the Effects of Computerization on the Service Quality of the Pharmacy Council

Panel A: Age Groupings Odds Ratio P-Value 20-29 1 30-39 0.63** 0.70** 40-49 1.95** 0.64** 50-59 0.30** 0.32** 60 and above 0.13** 0.10** Panel B: Experience with the Use of Computers Odds Ratio P-Value High 1 Average 0.83** 0.8** None 0.11** 0.03** Panel C: Has Computerized Pharmacy Odds Ratio P-Value Yes 1 No 0.89** 0.9**

This table shows logit models that use Odds Ratio and the Pearson’s Chi-square test to determine the significance of association for the observations among pharmacy operators in this study. Panel A shows the logit model for age grouping. Panel B shows the logit model for experience in using computers. Panel C shows the logit models for operators that have computerized pharmacies. The first column in each panel in Table 7 shows the variables for the observations that are tested. The figures in the second column of each panel are the Odds Ratios. The third column in each panel shows the P-value. The symbols ***, ** and * indicate significance at 1, 5 and 10 percent levels respectively. The symbol ‘<0.001’ indicates that the actual P-value is less than 0.001. Following the Odds Ratio, for each operator within the 20-29 age grouping that approved computerization as a quality improvement approach for the Pharmacy Council, there is likely to be 1.95 more operators within the 40-49 age grouping that would approve computerization but 0.13 more operators aged 60 and above who would approve computerization. None of the p-values for each age grouping however is below 0 05. Results of the p-values from the regression model in Table 7 suggest no significant relation between age of pharmacy operators and their opinions about whether computerization can improve service quality at the Pharmacy Council. Results in Table 7 however indicate a significant association between those who had never used a computer before and their response on whether computerization can improve service quality at the Pharmacy Council. This relation may explain why some of the pharmacy operators disagree to the computerization of the processes/services of the Pharmacy Council. Also, there is a significant level of association between pharmacy operators who have computerized pharmacies and the perception of the pharmacy operators about whether computerization can improve the quality of service of the Pharmacy Council. Results from Table 7 suggest that pharmacy operators that have integrated computers with their business tend to appreciate the value of computerization better than those who have not computerized their businesses. Concerns in Computerizing the Services/Processes at the Pharmacy Council Responses were solicited on issues that may pose challenges to computerizing services or processes at the Pharmacy Council were received. These challenges were responses from Pharmacy Council staff. Results indicated that the availability of computers and expertise to maintain the system were the major concerns of the staff. The lack of commitment from top management to computerize services was also indicated as a challenge. Furthermore, some staff explained that computerization was not top priority on budget and management plans. Other staff attributed this lack of top-level commitment to the low level of knowledge among top management in using computers. Other staff also attributed the lack of top-level commitment to the centralized nature of processes at the Pharmacy Council. On the part of top management, the cost of equipment and employing new personnel to manage and maintain the system were the major issues raised. Challenges indicated by top management included the perceived high cost and lengthy process of training staffs. Other managers also mentioned the perceived difficulty in computerizing certain services and decision processes require physical presence and discretional decisions.

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CONCLUDING COMMENTS To conclude, the general objective of the study was to assess the role of information systems in enhancing the performance of the Pharmacy Council in its activities. The study was conducted at the Pharmacy Council, in addition to one hundred and thirty-six (136) Pharmacies in the Ashanti Region. The demographic and business characteristics of the pharmacy operators studied were determined and information was tapped from responses from both Pharmacy Council staff and pharmacy operators to achieve specific objectives set out for the study. A very large percentage of pharmacy operators had obtained tertiary education. This pattern was expected due to the nature of work and level of knowledge/expertise required to successfully operate a pharmacy business. Results from the statistics indicate that a high number of both the staff and pharmacy operators strongly agreed with computerization of the listed operations of the Pharmacy Council. There were relatively high approval from both the staff and pharmacy operators to computerize services for license renewal; the most commonly recurring service compared with the others. From this indication, an information system presents a great potential for the Pharmacy Council to reengineer its processes to meet the current global trends and improve on its service delivery. There is no significant association between the age of the pharmacy operators and their perception of the value of computerization to improve the quality of service of the Pharmacy Council. However, responses from pharmacy operators that have experience with the use of computers and those that have computerized pharmacy have significant associations with their perceptions about whether computerization can improve the quality of services of the Pharmacy Council. Based on the findings that there is a high level of computer literacy among the staff of the Pharmacy Council, it is recommended that more effort on computerization of the service of the Pharmacy Council should be concentrated on providing adequate equipment. The Pharmacy Council may have to consider increasing the number of computers available for use per region/department in order to ensure effective implementation of a computerized system. The complete access to computers at certain regions should be maintained. However, other regions with limited staff access to computers should be furnished with enough computers to cover, at least all staffs that require computer access in order to carry out their duties effectively. Since the existing human resource available at the Pharmacy Council have knowledge in the use of computers, the Council may require very little training for the staff. Concerning pharmacy operators, any effort to computerize the Pharmacy Council may have to take into account strategies that would not make the computerization exercise a disadvantage to the minority of operators that have no knowledge about using computers in order to ensure that computerization provides improved service delivery. Training programmes prior to and during computerization of the Pharmacy Council could be held to expose these pharmacy operators to the use of computers. On the other hand, packages such as end-to-end service integration with pharmacy operators who have their businesses already computerized may encourage more pharmacy operators to computerize their pharmacy businesses and hence provide more support to ensure that computerization enhances the service quality of the Pharmacy Council. Considering the high number of staff and pharmacy operators in favour of computerizing the renewal of license, the Pharmacy Council should consciously examine all other frequently recurring services and formulate strategies to computerize them. The identified association between experience of use and perception of the value of computerization suggests that, any effort toward computerization at the Pharmacy Council may be more effective if it is preceded by an awareness program; a program that should introduce pharmacy operators who have no experience in the use of computers to the benefits of computerizing systems. Based on the findings that the lack of personnel with high expertise coupled with the cost of hiring new personnel to manage an information system are significant challenges to computerization, the Pharmacy Council may consider alternative options of outsourcing the development and maintenance. On another hand, a little upgrade of the skills of a few of the existing staff with highly advance skills in using computers may prove cost effective. Following the challenges of commitment by top managers, it is recommended that one service process in one regional office should be computerized as a prototype. After

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a period, the experience from the prototype should be evaluated against those of other processes. This may serve as an evidence base to strengthen the commitment of top management to computerization. Concerning the difficulty in computerizing certain services, it is recommended that computerization should commence with the processes that could be easily computerized and gradually research into how other complex process could be also computerized. Further studies into the information systems of the Pharmacy Council should examine the availability and effectiveness of the administrative structures and Information Technology policy documents. Finally, data collection was skewed towards male operators of pharmacies. Further studies should endeavour to solicit views from an equal number of male and female operators for a richer response. From a technical perspective, further studies should examine should take into account recovery rate in case of system failure. REFERENCES Alter, S. (1998). Information systems: Addison-Wesley Longman Publishing Co., Inc. Brynjolfsson, E. (1993). The productivity paradox of information technology. Communications of the ACM, 36(12), 66-77. Brynjolfsson, E., & Hitt, L. M. (2000). Beyond computation: Information technology, organizational transformation and business performance. The Journal of Economic Perspectives, 23-48. Castells, M., & Development, U. N. R. I. f. S. (1999). Information technology, globalization and social development: United Nations Research Institute for Social Development Geneva, Switzerland. Daft, R. L., & Lengel, R. H. (1986). Organizational information requirements, media richness and structural design. Management science, 32(5), 554-571. Davenport, T. H., & Short, J. (2003). Information technology and business process redesign. Operations management: critical perspectives on business and management, 1, 97. Davis, F. D. (1993). User acceptance of information technology: system characteristics, user perceptions and behavioral impacts. International journal of man-machine studies, 38(3), 475-487. Day, G. S. (1994). The capabilities of market-driven organizations. the Journal of Marketing, 37-52. Delone, W. H., & McLean, E. R. (2003). The DeLone and McLean model of information systems success: a ten-year update. Journal of management information systems, 19(4), 9-30. Diagnostic, A. I. C., Foster, V., & Briceño-Garmendia, C. (2010). Africa's infrastructure: a time for transformation: World Bank Publications. Dzidonu, C. (2003). An Integrated ICT-led Socio-economic Development Policy and Plan Development for Ghana—the Ghana ICT for Accelerated Development (ICT4AD) Process. Accra: Institute for Scientific and Technological Information, Council for Scientific and Industrial Research. Gyamfi, A. (2005). Closing the Digital Divide in Sub-Saharan Africa: meeting the challenges of the information age. Information development, 21(1), 22-30. Heeks, R. (2002a). Information systems and developing countries: Failure, success, and local improvisations. The information society, 18(2), 101-112.

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Heeks, R. (2002b). Reinventing government in the information age. Reinventing government in the information age: International practice in IT-enabled public sector reform, 9-21. Huber, G. P. (1990). A theory of the effects of advanced information technologies on organizational design, intelligence, and decision making. Academy of management review, 15(1), 47-71. Igbaria, M., & Tan, M. (1997). The consequences of information technology acceptance on subsequent individual performance. Information & management, 32(3), 113-121. Joseph, R. (2013). Service Delivery Through Information Systems in TANROADS: Challenges and Possibilities in Dar Es Salaam and Mwanza: Anchor Academic Publishing (aap_verlag). Lee, Y. W., Strong, D. M., Kahn, B. K., & Wang, R. Y. (2002). AIMQ: a methodology for information quality assessment. Information & management, 40(2), 133-146. Martey, A. (2004). ICT in distance education in Ghana. Library Hi Tech News, 21(5), 16-18. Melville, N., Kraemer, K., & Gurbaxani, V. (2004). Review: Information technology and organizational performance: An integrative model of IT business value. MIS quarterly, 28(2), 283-322. Naumann, F., & Rolker, C. (2000). Assessment methods for information quality criteria. O'Reilly, C. A. (1982). Variations in decision makers' use of information sources: The impact of quality and accessibility of information. Academy of Management Journal, 25(4), 756-771. Policy, G. I. A. (2003). A Policy statement for the realization of the vision to transform Ghana into an information-rich knowledge-based society and economy through the development, deployment and exploration of ICT’s within the economy and society. Ministry of Education, Accra, Ghana. Porter, M. E., & Millar, V. E. (1985). How information gives you competitive advantage: Harvard Business Review, Reprint Service. Ravichandran, T., & Lertwongsatien, C. (2005). Effect of information systems resources and capabilities on firm performance: A resource-based perspective. Journal of management information systems, 21(4), 237-276. Ruiz, M., Mejia, V., & Kaplan, A. (2003). Information system comprised of synchronized software application moduless with individual databases for implementing and changing business requirements to be automated: Google Patents. BIOGRAPHY Kwabena Obiri-Yeboah is a lecturer in Information Systems at Kwame Nkrumah University of Science and Technology (KNUST), Ghana. He had his MSc in Management Information Systems from University of Texas at Dallas. He has 12 year experience in IT systems development; 10 years with JCPenney Corporation in Dallas. His areas of interest include IT adoption in business, IT policy and IT education. He can be contacted at: Department of Decision Science, KNUST School of Business, KNUST, Kumasi-Ghana. Phone: +233241076524. Email: kyeboa@yahoo.com

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Eliezer Ofori Odei-Lartey is a Data Manager and a Research Fellow at the Kintampo Health Research Centre. He can be contacted at: Kintampo Health Research Centre, P. O. Box 200, Kintampo-North, Brong Ahafo Region - Ghana. Phone: +233246926396. Email: eliezer.lartey@kintampo-hrc.org or elelart@gmail.com Kenneth Simmons is currently the Regional Head of the Pharmacy Council at Ashanti Region, Ghana. He holds BParm and MBA degrees from KNUST, Ghana and a Certificate in Public Administration from GIMPA, Ghana. He has over 8 years of experience as a regional head for the Pharmacy Council. He can be contacted at P. O. Box KS778 Adum-Kumasi: Phone +233244274875. Email: sabeku@yahoo.com

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Global Journal of Business Research Vol. 9, No. 2, 2015, pp. 23-40 ISSN: 1931-0277 (print) ISSN: 2157-0191 (online)

www.theIBFR.com

TRANSFORMING LEADERS THROUGH CULTURAL

INTELLIGENCE James B. Box, Northcentral University

Judith A. Converso, Northcentral University Efosa Osayamwen, Northcentral University

ABSTRACT

Developing charismatic leaders in the 21st century must include fostering the cultural awareness skills for effectively managing employees from many new and unique backgrounds. The purpose of this quantitative study was to determine if there was a correlation between cultural intelligence (CI) and transformational leadership (TL) attributes of managers at American Fortune 500 companies. The data results indicated that there was a statistically significant positive relationship between the CI and the TL abilities of managers. The conclusion drawn from the findings provide new information to theory of cultures when CI and TL constructs are compared. It is recommended that American Fortune 500 leaders continue to strengthen culture-specific awareness’s through educational and personal pursuits. JEL: C14, C42, D78, E61, I21, J24, J50, J52, J71, M12, M21, N30 KEYWORDS: Cultural Intelligence, Transformational Leadership, Motivational, Inspirational, Charismatic, Employee Turn-over INTRODUCTION

orth American Fortune 500 companies continue to grow into microcosms of the diversity in society (Martelli & Abels, 2011). In the last decade, American businesses have undergone extensive immigration and human resource policy changes due to globalization (Merrifield, 2006). United

States Department of Labor Statistics issued forecasts due to globalization that ethnic minorities and immigrants will increase over the next decade as compared to the white Anglo population percentage; Asian American (44%), Hispanic/Latin American (36%), African America (21%), and White (9%) increases. To address the impacts of globalization, American companies have created hiring strategies that support the new diversity requirements in business, including outsourcing high-paid jobs while importing lower-waged workers, incorporating new communication methodologies, and adjusting to the new influxes of people from many distant places (Wallace & Figueroa, 2012). As an example, American Fortune 500 companies have increased the hiring of many people from foreign countries, resulting in a 33% increase in U.S. Citizenship and Immigration Services H-1B visa, form I-129, activity (Butler, 2012). International cooperation in business has become increasingly important for effective American company leaders (Bass & Riggio, 2006) as they must operate within new diverse settings (Center for American Progress, 2009). This research extended the study done by Ng and Sears (2011) and Keung (2011), applied to different levels of managers in American Fortune 500 companies. Ng and Sears discovered that Chief Executive Officers in Canadian companies needed to strengthen their cultural intelligence skills in order to be effective and transform their workforces into inclusive, diverse environments.

N

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The ongoing globalization processes involve interculturally training managers to be effective in the workplace, transforming societies and cultures through advances in economics, technology, and communications (Scherer & Palazzo, 2011). Leadership through the transformational paradigm compliments organizational performances with many meta-analyses (DeGroot, Kiker, & Cross, 2000). The purpose of this research was to determine if there is a relationship between the attributes of cultural intelligence (CI) and transformational leadership (TL) attributes of managers at American Fortune 500 Companies and what effect does these interactions have upon their abilities. LITERATURE REVIEW Leadership and Cultural Intelligence The study of leadership comes in many forms of organizational behaviors and performance outcomes (Pauliené, 2012). Early leadership theorists attributed charismatic influences of leaders to the strength of their abilities (Weber, 1968). Leadership is an elusive construct, riddled with ambiguity, and difficult to study systematically (Nohria & Khurana, 2010). The study of intelligence includes areas in psychology, neurobiology, and behavioral genetics (Gottfredson & Saklofake, 2009). Twentieth century leadership involved complex behaviors and complex interconnected relationships in order to accomplish work (Baligh, 1994). One of the most controversial behaviors discussed within leadership literature is intelligence (Eysenck & Kamin, 1981). In essence, leadership intelligence exists in many forms and is developed mainly through experience and continued education (Sternberg, 2011). The requirement for intelligent managers to prepare organizations for the changes needed in the 21st century requires charismatic leadership skills operating in dynamic environments. Brown and Starkey (2000) called for continued explorations of the essential elements of modern leadership. Leadership attributes such as intelligence, education, sensitivity, hubris tendencies, and competence were the dominant themes for this research study (Riggio & Mumford, 2011). This research furthered leadership paradigms for the 21st century by providing empirical data for leader potential analysis (Silzer, 2010), including cultural awareness understandings and influences. Leaders in the 20st century maintained an authoritative posturing over subordinates, believing that greater efficiencies came from different forms of stronger dominance (Bussel, 1997). Past leaders and managers had inclinations to assume ultimate power in positions of authority (McClelland, 1961). Leaders also made decisions based upon the scope of his or her knowledge and the contributions that the decisions made to the enterprises (Drucker, 1955, 2004). This psychological study of leaders and managers added to the general knowledge of human interactions (Maslow, 1966). The cultural intelligence theory proposed by Ang, Van Dyne, and Koh (2006) was used to create the Cultural Intelligence Scale, CQS, as a self-awareness style of inventory to improve an individual’s cultural awareness (Moshavl, Brown, & Dodd, 2003). The impact of cultural exposure is the awareness that generates the need to foster skills dealing with new people with unique customs coming from many unique places in the world (Hester, 2005). The contemporary American strategy of outsourcing work into foreign countries also drives the need for cross-culturally trained leadership, guiding multinational businesses spread across different continents (Kamann & van Nieulande, 2010). Sternberg (1977) proposed that intelligence was more than solving problems; it was also an analytical reasoning process. Sternberg explained that successful intelligence leads to the ability to cope during a work career and life. Sternberg (1996) added that people tend to judge intelligence by levels of academic achievement, which is measuring inert intelligence, defined as the inability to apply knowledge, which may not lead to realistic problem-solving.

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This research study of managers provided a general grounding to improve the knowledge of human interactions. No preeminent theory has evolved from any contemporary research studies of the relationship between transformational leadership and cultural intelligence (Chin & Gaynier, 2006; Keung, 2011). Leadership learning of the culture of colleagues builds trust, breakdown communication barriers, and improves team efficiencies in American Fortune 500 companies (Thomas, Zolin, & Hartman, 2009). Identifying future leaders whom are transformational and culturally intelligent remains a critical task for all Fortune 500 companies in the 21st Century (Wilson & Mujtaba, 2010). The relationship between leadership cultural intelligence and leadership transformational skills has been the subject of few research studies to date (Keung, 2011). Comparative research into organizational behavior has demonstrated that the softer skill areas of management are critical for the cultural intelligence growth necessary in the 21st century (Brungardt, 2011; Brungardt, Greenleaf, Brungardt, & Arensforf, 2006; Johnson, Lenartowicz, & Apud, 2006; Sawhney, 2008; Service, 2012). Earlier, Yukl (1999) postulated that there was much to be discovered about the underlying processes through which leaders influence follower attitudes, behaviors and motivation. Earley (1984) added that identifying how followers’ cultures impact preferences, the stereotypes of leader preferences, and how these elements impact business. Previous research discovered that global leaders are thought to exhibit common behaviors such as cosmopolitan, cognitive complexity, mental inquisitiveness, honesty, humility, and personal resilience (Earley & Ang, 2003; Javidan, Steers, & Hitt, 2007; Mendenhall, Osland, Bird, Oddou, & Maznevski, 2008). In addition, no single preeminent theory substantiates the link between cultural intelligence and transformational attributes of leaders and managers (Keung, 2011; Lugo, 2007; Mannor, 2008). One previous study showed substandard results between cultural intelligence and the social influence predictors of transformational leadership, suggesting the influence of an unidentified factor of emotional intelligence (Brown & Moshavi, 2005). The relationship of the cultural intelligence and transformational leadership skills of managers influences how successful they are incorporating changes in the modern workplace (Bikson, Treverton, Moini, & Lindstrom, 2003; Heames & Harvey, 2006; Moran, Harris, & Moran, 2011; Oreg, 2006). Popper (2002) argued that a good theory has to be risky, as it can be shown to be either true or false. A bad theory may fit any data set according to Fontaine (2007). The assessment of the relationship between cultural intelligence and transformational leadership remains undiscovered in the literature when defining leadership, culture, and organizational behaviors (Ismail, Mohamed, Sulaiman, Mohamad, & Yusuf, 2011; Keung, 2011; Lugo, 2007); as Loehr and Schwartz (2001) called for continued studies in the psychology of leadership as a multidimensional, culturally-linked phenomena. Leadership and Transformational Motivations Many management theories have been tested across cultures (Dickson, Den Hartog, & Mitchelson, 2003; Vallas, Zimmerman, & Davis, 2009. The relationship between cultural intelligence and emotional intelligence theory and skills has been developed and contrasted numerous times (Goleman, 1995; Hui-Wen, Mu-Shang, & Nelson, 2010; Racheli, Dolan, & Cerdin, 2005); which is similar to comparisons of the relationship between transformational leadership and emotional intelligence (Yitshaki, 2012). In contrast, conjoined research of the relationship between transformational leadership and cultural intelligence theories is limited (Pauliené, 2012). A secondary principle theory integrated within this research study was the leadership transformational skills developed by Bass and Avolio (1994). There are extensive studies on the singular emotional intelligence (EI) along with both cultural intelligence and transformational leadership skills (Dean, 2007; Kim, 2009; Lugo, 2007). Transformative leaders motivate subordinates to reevaluate known resolutions rather than apply old solutions to new problems (Jones, Harris, & Santana, 2008). Contemporary transformational

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leadership skills were compared for interactions with cultural intelligence attributes within this research study. The social psychology and attribution theories added situation-specific behaviors based upon cultural traits (Webb, 1983). The social cognitive theory of personality (Bandura, 1986) and self-determination theory (Deci, Koestner, Ryan, & Cameron, 2001; Ryan & Deci, 2008) are foundations to the cultural intelligence theory development of the scale instrument. In the social cognitive theory individuals believe they can intentionally influence their life circumstances (Bandura, 1986; Deci et al, 2001), complimenting the need for managers in American multinational companies to strengthen his or her cultural intelligence skills in the 21st Century (Deci & Ryan, 2000; Moon, 2010; Ryan & Deci, 2008). In the self-determination theory personal choices or intrinsic aspirations energize individual actions. Both theories allow individuals to adapt to new diverse environments (Deci et al., 2001). The development of culturally competent personnel and leaders involves four levels of understanding, education and relationships (Brownlee & Lee, 2012; Caligiuri & Tarique, 2012; Chemers, 1997). The first stage in building culturally competent leaders is acquiring the knowledge of the cultural characteristics, values, beliefs, and behaviors of another cultural group (Kiyokawa, Dienes, Tanaka, Yamada, & Crowne, 2012). The second stage of building culturally competent managers is maintaining the cross-cultural and cultural awareness, and being open changes in cultural attitudes toward other cultures (Browlee & Lee, 2012; Webb, 1983). The third stage involves the understanding of the cultural differences and being sensitive to the intercultural conflicts that arise (Brownlee & Lee, 2012; Chiu & Hong, 2005; Johnson, Cullen, Sakano, & Takenouchi, 1996; Shapiro, Ozanne, & Saatcioglu, 2008; Skarmeas, Katsikeas, Schlegelmilch, 2002; Zagorsek, 2004). The last stage of cultural competence combines all of the previous steps and integrates the different behaviors, attitudes, and policies into cross-cultural group settings (Brownlee & lee, 2012; Crowne, 2008; Gregersen & Black, 1990; O'Sullivan, 1999). Zander, Mockaitis, and Butler (2012) added that cross-cultural competence in essential for leadership functioning in multicultural teams. The progression and attributes are shown in Figure 1 for developing cultural competent personnel with the cultural and cross-cultural intelligence necessary to function effectively in the 21st century. RESEARCH DATA AND METHODOLOGY The methodological design for this research study was a non-experimental (no control group) quantitative survey method and multivariate design (using a survey as a data collection instrument). This method was selected because of the benefits of the survey type of research. Survey research describes a sample by the use of quantitative or numeric description of trends, attitudes, activities, or opinions (Fowler, 2009). The survey instruments were distributed to the target population of 1082 managers at two American Fortune 500 companies. There were 266 questionnaires returned (one was incomplete) for a 25% response rate. A secure socket-layer, SSL, provided a secure website that kept the data from being compromised. Managers received the request for the survey through the company secured site. The online survey contained a consent page describing issues such as privacy, confidentiality, and risks associated with this research. The Cultural Intelligence Scale was used for this research study to collect data from all participants.

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Figure 1: The Cultural Intelligence Circular Progression Process Revolves Around Four Stages of Development.

In stage one the manager has an in-country, or foreign cross-cultural, exposure to a new culture. This is the foundation of cultural awareness. Stage two highlights the differences in communications, behaviors, and belief systems that the exposed relates to based upon their own cultural attitudes. Stage three is the beginning of sensitivity toward a new culture. The managers’ motivational and behavioral skills transition to a higher level of operational ability. Finally in stage four the manager has the ability to cognitively function within the new level of cultural competence. RESULTS The survey instrument was found to have a Cronbach’s Alpha of .752 for the 10 items. All the correlations of the study variables were examined to determine the strength the inter-relationship (Ang et al., 2007; Van Dyne et al., 2008). The correlations for the research study between the outcome variables (CI Cognitive, CI Motivational, CI Metacognitive, and CI Behavioral) and the predictor variable (Transformational Leadership) ranged from 0.199 (CI Cognitive), 0.266 (CI Motivational), 0.295 (CI Metacognitive), to 0.322 (CI Behavioral). The results of this analysis for this research question indicated a significant statistical relationship for CI behaviors and CI motivations and TL. A factorial ANOVA analysis with covariate interaction was also performed to test the homogeneity of variance for CI and TL of all levels of managers. The Levene (1960) test was also performed to test the homogeneity of variance where the null hypothesis is that the variances in the different groups were equal during the one-way ANOVA analysis. The Levene test results were significant for CI behaviors, CI Motivations, and CI metacognitive indicating that the homogeneity of variance was not equal and that the assumption of the homogeneity of variance has been violated. The

Stage I Cultural

Knowledge

Stage I Cross-Cultural

Knowledge

Stage II Cultural

Awareness Stage III Cultural

Sensitivity

Stage IV Cultural Competence

Stage II Cross-Cultural

Awareness

Stage III Cross-Cultural

Sensitivity

Stage IV Cross-Cultural Competence

Family History Organization Group values Morals / Beliefs Expectations

In-country learning Language adaptation Information process Experimental

Communications Differences / Beliefs Attitudes & Behaviors

Customs & habits Exchanges Role

Emic facts Motivational skills Behavioral skills Distinctiveness Transitions

In-culture values Customs Traditions Cuisine

Behaviors: Cultural functions Cognitive functions, Behavioral functions, Affective functions

Personal skills: Approachability, Accessibility, Laid back, & informal

CULTURAL INTELLIGENCE

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Leven test results were non-significant for CI cognitive indicating that the homogeneity of variance assumption was violated. Degrees of freedom one and two are defined for each manager grouping, first-level and all other levels, as N-1 for the 95% confidence level. See table 1. Table 1: Leven’s Test of Equity of Error Variances

Variables F df1 df2 Sig.

CI Behaviors 1.94 20 244 <0.05**

CI Motivations 2.46 20 244 <0.05**

CI Cognitive 1.12 20 244 >0.05**

CI Metacognitive 2.89 20 244 <0.05**

This table shows Levene’s homogeneity of variance test of the null hypotheses that the variances in the different groups are equal. Levene’s tests the assumption that the spread of the score is roughly equal at different points on the predictor variable. Levene’s test is significant at p≤.05. If the variances are significant then it is concluded that the null hypothesis is incorrect and the variances are significantly different and the assumption of homogeneity of variance has been violated. If Levene’s test is non-significant then the variances are approximately equal and the assumption is tenable. The degrees of freedom df1is the quantity of different sampled groups minus one. The degree of freedom df2 is the number of sampled cases minus the number of different groups. The variable effects and interactions were also analyzed using factor analysis with Varimax rotation and found to be from 0.4 to 2.8. The factor analysis was conducted in an attempt to reduce the R-Matrix of correlations down to meaningful (parsimony) non-latent variables (Cattell, 1966; Field, 2009). A post hoc test was performed using the repeated-measures ANOVA to test participants exposed to the same conditions of the experiment; in this case, the use of the CQS and MLQ instruments (Maxwell & Delaney, 2003). This analysis provided an inspection of the within-participant variances between the managers exposed to the two different experimental conditions. First, compound symmetry was measured to demonstrate that the variances and covariance’s of the experimental conditions were equal (Baguley, 2004). Second, sphericity was also measured for the equality of variances of the differences between treatment levels. In the current research study sphericity was not a constraint since there must be more than two conditions before there is concern (Field, 2009). The Mauchly’s test statistic was used to find significant differences between the variances of the differences. The Bonferroni adjustment methodology was also employed to minimize the family wise error rate (collection of ANOVA comparisons) and the resulting loss of statistical power (Toothaker, 1993). The results after adjustment indicated non-significant interactions between the CI Abstractions and the TL per manager level. See table 2. Table 2: Repeated Measures ANOVA Test

Variables F df1 df2 Sig.

CI Behaviors 1.94 20 244 <0.05**

CI Motivations 2.46 20 244 <0.05**

CI Cognitive 1.12 20 244 >0.05**

CI Metacognitive 2.89 20 244 <0.05**

Table two lists the ANOVA results for the four research variables, indicating there was a statistically significant relationship between CI variables and TL. The statistical relationship between CI and TL skills has been the subject of a limited number of research studies to date (Keung, 2011; Keung & Rockinson-Szapki, 2012). These results were a new empirical paradigm in research of the CI and TL statistical associations which had not been studied before Keung (2011). The current research results indicate an average association between CI variables and TL of managers.

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Additional Analysis The correlations of the transformational leadership variables predicting cultural intelligence after accounting for manager level were Pearson’s r coefficient numbers ranged from -0.147 (CI Motivation correlated to TL) to 0.322 (CI Behaviors correlated to TL). The positive numbers indicated that the cultural intelligence variable increased at an incremental rate in managers so did their transformational leadership level. The negative numbers indicated that the cultural intelligence variable decreased at an incremental rate in managers so did their transformational leadership level. See table 3. Table 3: Correlation of Cultural Intelligence Variables and Transformational Leadership

N Pearson's r & Covariances p

BEH_Index 265 0.322* 0.005*** TL_index 265 0.133 0.005*** MGR_Lvl 75 -0.031 0.005*** MOT_Index 265 0.25 0.005*** TL_Index 265 -0.147 0.005*** MGR_Lvl 75 0.084 0.005*** COG_Index 265 0.199 0.005*** TL_Index 265 0.088 0.005*** MGR_Lvl 75 0.044 0.005*** MC_Index 265 0.295 0.005*** TL_Index 265 0.123 0.005*** MGR_Lvl 75 0.019 0.005***

*Correlation is significant at the 0.005 level (2-tailed). This table lists the correlations between the Cultural Intelligence and Transformational Leadership variables. The N values are the sample sizes. Pearson’s r and covariance’s show the strength of relationship between variables and within-group error variances for the experiment. The covariate was the first-level manager for this study. In order to determine if any additional underlying (latent) variables were part of this research study, another factor Analysis was performed on the instrument. The variables analyzed were contained in the MLQ, CQS instruments, with the added manager levels. The Kaiser-Meyer-Olkin measure of sampling adequacy (KMO) was equal to 904 indicating that the variables used in this research were highly correlated. The results showed a mean range from 1.79 to 5.08 and were in turn determined to be inconclusive for the levels of managers in this study. The research data was analyzed using the Varimax Rotation analysis to determine if the sample size was adequate. The research variables were compiled from the CQS and the MLQ. The CQS variables analyzed were CI behavior, CI motivational, CI cognitive, and CI metacognitive; the MLQ variables were composed of the combined transformational leadership style, with the added manager levels. The manager level variable was the strongest factor. The factor analysis was conducted in an attempt to reduce the R-Matrix of correlations down to meaningful (parsimony) non-latent variables (Cattell, 1966; Field, 2009). The scree plot scale measured the study variables using eigenvalues from a low of (0.0) to a high of (12.7). Field (2009) recommended that the Varimax Rotation variables measured with eigenvalues below 0.7 be discarded when sample sizes are low, although in this case they were retained due to the high sample size of 265. See Figure 2.

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Figure 2: Scree Plot of Study Analysis

Figure 2: Scree plot from SPSS software of the Varimax Rotation Analysis for the research study. The scree plot graphs the eigenvalues for the variables in the research study. The scree plot shows a point of inflection, approximately 2.5, where the mean of the horizontal and vertical graphs intersect. The N = 50 for the number of factors in the research study. The communality after rotation was .6 which indicated that the scree plot of the 252 sample size was adequate for this research study (Field, 2009). Evaluation of Findings Virtually every leadership and management theory has been tested across cultures (Gelfand, Erez, & Aycan, 2007) before Keung and Rockinson-Szapkiw (2012), which highlighted the need for higher levels of cultural intelligence among 21st century managers. Many leadership models of the past decade have not captured this new leadership dynamic in a contemporary knowledge-driven economy (Lichtenstein et al., 2007). Most cultures exist to provide a source of identity among members (Earley, 2006), and because of increased immigration of workers across borders, American Fortune 500 companies are expanding teams containing workers with diverse ethnic and religious backgrounds, which requires new skills to manage effectively (Roberge, Lewicki, Hietapelto, & Adbyldaeva, 2011). In summary, mangers must prepare to effectively integrate this new diversity paradigm of resources in order to remain effective in the 21st century. The following section discusses how this project met the research expectations and also provides brief explanations for conflicting results. Cultural Intelligence Behaviors and Motivations and Transformational Leadership A statistically significant relationship was found between CI behaviors and motivations and TL of managers at the American Fortune 500 company even with the covariate partialled out of the analysis. The results from this study may be used to extend the Keung and Rockinson-Szapkiw (2012) study. The Keung and Rockinson-Szapkiw findings were limited to a university environment. While this study investigated the same variables, these were applied to a new corporate setting using the personnel in American Fortune 500 companies. The findings in this study were similar to Keung and Rockinson-Szapkiw, although there was a higher correlation coefficient, indicating a stronger relationship between manager’s CI behaviors and TL in American Fortune 500 companies. There was also a non-significant medium variable interaction between CI behaviors and TL for second level and above managers. This finding indicated that managers in this study with high CI behaviors and TL skills are able to manage more effectively in American Fortune 500 company business settings.

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Cultural Intelligence Cognitive and Metacognitive and Transformational Leadership A statistically non-significant relationship was found between cultural intelligence (CI) cognitive and metacognitive and transformational leadership of managers at American Fortune 500 companies, although when the covariate is partialled out of the analysis the results produced a non-significant relationship. However, these results may be used to extend the Keung and Rockinson-Szapkiw study (2012). The Keung and Rockinson-Szapkiw findings were limited to university environments. While this study investigated the same variables, these were applied to a new corporate setting using personnel in American Fortune 500 companies. The findings in this study were not similar to Keung and Rockinson-Szapkiw as the covariate indicated that second level and above managers improved at a lower rate than the first level managers. There was also a non-significant strong variable interaction between CI cognitive and TL. This finding indicated a need existed for additional training for second level and above managers to improve their CI cognitive and TL skills in order to manage effectively in American Fortune 500 company business settings. Summary The research study results indicated a relationship between cultural intelligence and transformational leadership skills of managers at American Fortune 500 Companies. Previous studies that recorded low levels of improvement in cultural intelligence and transformational leadership abilities, which resulted in a lack of leader communications and effectiveness, subordinate disloyalty, low employee motivation, employees not applying extra efforts, and a negative group environment (Amy, 2010; Jogulu, 2010; Thiederman, 2008). These same issues have also been investigated in the larger American Fortune 500 companies (Wallace & Figueroa, 2012). Each CI style was compared to managers’ TL. Each CI attribute was evaluated for Pearson’s r correlations. This highest Pearsons r was CI behavior (1.814), which indicates the percentage of variability shared and improvement with transformational leadership. This study showed statistically significant relationships between the cultural intelligence behaviors and motivation skills and transformational leadership abilities of managers in Fortune 500 companies in America. This study also showed statistically non-significant relationships between cultural intelligence cognitive and metacognitive skills and transformational leadership abilities of managers in American fortune 500 companies in America. The results of this study indicated that there was a need for improvement at all level of managers for cultural intelligence skills in order to manage effectively in 21st century American Fortune 500 company multicultural business settings. Implications According to the literature, managers in American corporations must embrace a solution to the lack of cultural intelligence problem. Managers must build their knowledge of cultures while transforming themselves, fostering new cultural awareness’s; while enabling this research to support continued success in businesses (Creque & Gooden, 2011; Deng & Gibson, 2009; Prewitt, Weil, & McClure, 2011; Roberge, Lewicki, Hietapelto, & Abdyldaeva, 2011; Warrick, 2011). The focus of this study was on the relationship between cultural intelligence and transformational leadership skills. There were two implications discovered in these research findings. The first implication pertained to the relationship between CI behaviors and TL of managers at American Fortune 500 companies. Based upon the results of this statistical analysis there was a statistically significant relationship between CI behaviors, CI motivations, and TL of managers at American Fortune 500 companies. Even when the covariate was partialled out of the regression analysis, the relationship between CI behaviors, CI motivations, and TL among the second level and above managers was found to be statistically significant. This finding implied that managers in American Fortune 500 companies who have overcome cultural-specific biases in CI behaviors and motivations and TL are better prepared to manage resources from different cultural

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backgrounds. The significance of this correlation adds to extant literature on the diverse changes required of managers in American Fortune 500 companies for the 21st century. Awareness of this relationship starts the cultural intelligence process postulated earlier in this study. The second implication addressed the research question pertaining to the relationship between CI cognitive, CI metacognitive, and TL of managers at American Fortune 500 companies. Based upon the results of this statistical analysis there was a statistically significant relationship between CI cognitive, CI metacognitive, and TL of managers at American Fortune 500 companies. Although, when the covariate was partialled out of the regression analysis, the relationship between CI cognitive, CI metacognitive, and TL among the second level and above managers was found to be statistically non-significant. Therefore the third implication in this study was that the relationship between CI cognitive and TL was statistically non-significant when the covariate was partialled out of the analysis. This finding implied that second level and above managers in American Fortune 500 companies may not have overcome cultural-specific biases in CI cognitive and TL and are not prepared to manage resources from different cultural backgrounds. The significance of this correlation adds to extant literature on the diverse changes required of managers in American Fortune 500 companies for the 21st century. Awareness of this relationship should start the education process for CI cognitive and CI metacognitive postulated earlier in this study. Conclusions were drawn solely from the data collected from the 265 managers who responded to the survey. The findings from the research were statistically significant and support and expanded upon the conclusions of Bass and Avolio (1994), Bland (2007), and Ismail, Reza, & Mahdi (2012), who found that leaders who successfully implemented transformational leadership processes will upgrade their knowledge, relevant skills and abilities to become more effective and gain commitment by followers. CONCLUSIONS The purpose of this quantitative method of inquiry was to determine if there is a relationship between CI attributes and TL abilities of managers at American Fortune 500 companies and what effect the interaction of these abilities has upon these managers. Previous studies have investigated leadership cultural intelligence, emotional intelligence, transformational and communication leadership although these linkages are still being discovered (Massury, 2009; Yitshaki, 2012). Contemporary researchers have also addressed specific populations, but more studies are needed to focus on the diversity of cultural intelligence and incorporating the transformational skills of managers in American Fortune 500 companies. Pieterse, Van Knippenberg, and Van Dierendonck (2013) identified how cultural diversity effects team learning, biases, and performance within social groupings. Pieterse et al (2013) continued that cultural diversity has the potential to stimulate and also disrupt the performance of teams. In particular, Kearney and Gebert (2009) found that team diversity moderated the effectiveness of the transformational manager through the integrating of information within the group. The potential outcome of this research is that managers may better understand the factors that promote higher levels of cultural intelligence through the engagement of their transformational charismatic skills (Ismail, Reza, & Mahdi, 2012). Each cultural intelligence (CI) style was compared in this study with transformational leadership (TL) abilities of managers. It was found that managers used the CI behaviors and transformational leadership styles most showed the highest level of CI increase. This study showed statistically significant relationships between the cultural intelligence behaviors and motivation skills and transformational leadership abilities of managers in Fortune 500 companies in America. This study also showed statistically non-significant relationships between cultural intelligence cognitive and metacognitive skills and transformational leadership abilities of managers in American fortune 500 companies in America. The smallest improvement after the covariate was partialled from regression model was the second level and above managers that use CI cognitive and TL styles in the workplace. This result was a non-significant

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statistical relationship between these variables indicating that the regression result was a chance finding only. In this case, this study did not show support for alternate hypotheses for the CI cognitive and TL of managers. There were four limitations identified during this research study. The first limitation was the confounding effect of self-rating managers. There also was no experimental manipulation performed to minimize causality or bias during the research. This limitation was minimized statistically with the multi-regression and correlation techniques used (Zerbe & Paulhus, 1987). The second limitation was that the research period was from February to June 2014. If there had been a longer collection and research report period there may have been a higher response rate to the questionnaire. The higher response rate would have added to the analysis of the findings. The third limitation was that culture-specific biases from ethics-related manager surveys. The mitigation of this cultural bias was that there was a highly diverse manager population represented by multiple cultures from around the world. The preamble also requested the respondents to put aside any biases and answer the questionnaire honestly. There also were reassurances that all data would remain private and any release of data must first be approved by the Company. The final limitation to this study was the inherent nature of using a quantitative research methodology. Although, this study provided statistically tested data for researchers, it did not give rich, in-depth personal experiences or perspectives from managers, as would a qualitative study. A qualitative study would have delved into manager’s beliefs and opinions about their applications of cultural sensitivity, awareness, intelligence and transformational leadership after having experienced these issues with their peers. However, qualitative results would not have indicated possible causal links or correlations between cultural intelligence and transformational leadership manager attributes. Managers from other American Fortune 500 companies may feel differently about their use of cultural intelligence and transformational leadership skills within different work environments. This study has shown to be valid to build a statistical foundation to demonstrate the existence of the relationship between cultural intelligence and transformational leadership in American Fortune 500 companies. Future quantitative research is recommended to replicate that the statistical relationship between the cultural intelligence and transformational leadership skills practiced in other large American Fortune 500 companies and United States Government agencies. The application of field interviews, collecting in-depth experiences, opinions and feelings may reveal new details and elegant characteristics of this new paradigm (Patton, 2002). Future qualitative research is also recommended to reveal new themes, patterns, and theoretical foundations of the combined cultural intelligence and transformational leadership as perceived and experienced by managers practicing in the field. An advantage of this study was the credibility and generalization of the findings. The setting was investigated using actual managers within an actual work setting. This advantage adds credibility to the phenomena studied in real world settings. Through being willing to enhance their understanding, leaders and managers transform business with new cultural perspectives (Bush, 2009). The researcher recommends that future research studies to explore the richness of diverse personal perceptions, experiences, and theoretical underpinnings of the cultural intelligence progression within the transformational management abilities at additional American Fortune 500 companies. REFERENCES Amy, A. H. (2010, June). Leaders as facilitators of individual and organizational learning. Leadership & Organization Development Journal, 29(3), 212-234 Baguley, T. (2004). An introduction to sphericity. Retrieved from http://homepages.gold.ac.uk/aphome/spheric.html

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Wilson, S. D., & Mujtaba, B. G. (2010, October). The relationship between leadership and multiple intelligences with the 21st Century’s higher education faculty. The Journal of Applied Business and Economics, 11(3), 106-120 Yitshaki, R. (2012, November). How do entrepreneurs’ emotional intelligence and transformational leadership orientation impact new ventures’ growth? Journal of Small Business and Entrpreneurship, 25(3), 357-374 Yukl, G. (1999). An evaluation of conceptual weaknesses in transformational and charismatic leadership theories. The leadership Quarterly, 10(2), 285-305 Zagorsek, H. (2004, June). Assessing the universality of leadership: A three-level approach. Economic and Business Review, 6(2), 155-179. Retrieved from http://search.proquest.com.proxy1.ncu.edu/ Zander, L., Mockaitis, A. I., & Butler, C. L. (2012, October). Leading global teams. Journal of World Business, 47(4), 592-603 Zerbe, W. J. & Paulhus, D. L. (1987, April). Socially desirable responding in organizational behavior: A reconception. Academy of Management Review, 12(2), 250-264 ACKNOWLEDGEMENT The author recognizes and thanks Dr. Judith A. Converso and Dr. Efosa Osayamwen for their numerous reviews and guidance during my research work. BIOGRAPHY Dr. James B. Box is a doctoral graduate of Business Administration at Northcentral University, School of Business. He has worked in numerous business domains for over the last 30 years including Engineering and Requirements, Operations Management, and Program Leadership. His main research interests are in management competence, new leadership paradigms, business development, and the integration of multi-cultural communications. Email: jbox@ncu.edu Judith Converso (PhD). Dr. Converso has 38 years in public and private education and is currently a full time Graduate School Dissertation Chair at Northcentral University, Prescott Valley, AZ. She is a recognized analytical education and training professional with instructional systems expertise, especially in the area of distance learning and large scale education and training initiatives. She earned a PhD in 2001 from Florida State University. Email: jconverso@ncu.edu Efosa Osayamwen (PhD). Dr. Osayamwen has been a Subject Matter Expert at Northcentral University, School of Business for 10 years. He has over over 21 years of technical experience and 17 years of management experience. As a chief privacy officer for a corporation, he holds various certifications; among the certifications are Certified Information Privacy Professional US (CIPP/US), and Certified Information Privacy Professional Canada (CIPP/C). His main areas of specialization are management information systems and information security. Email: eosayamwen@ncu.edu

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www.theIBFR.com

PERFORMANCE OF TECHNICAL ANALYSIS IN

DECLINING GLOBAL MARKETS Jogiyanto Hartono, Universitas Gadjah Mada Dedhy Sulistiawan, University of Surabaya

ABSTRACT

The main objective of this research is to discuss the impact of declining global markets on technical analysis performance using international data. McKenzie (2007) shows that technical analysis performs well during the 1998 financial crisis. Technical analysis produces better performance in stock markets with high volatility and a downward trend than in stable and uptrend markets (Ahmed et al., 2000). This study uses OSIRIS and Yahoo Finance databases. The focus is in the year 2011 because global stock markets substantially decline in that year. The year 2010 was a non-decreasing year, and data for that year are used as a control sample. This study examines 21 countries around the world. The total numbers of technical analysis signals identified are 11,040. For robustness tests, this study employs some technical analysis methods. These are SMA5 (5 days Simple Moving Average), SMA10, SMA15, WMA5 (5 days Weighted Moving Average), WMA10, and WMA15. In addition, short and long strategies and the combination of both are used. The findings strongly suggest that technical analysis produces higher returns than buy and hold strategies in declining global markets. JEL: G01, G15 KEYWORDS: Technical Analysis, Simple Moving Average, Weighted Moving Average, Declining Global Market INTRODUCTION

his study addresses the issue of technical analysis performance in global market declining periods. This research examines the impact of declining global markets on technical analysis profitability. To test global markets, this study uses inter-country analysis involving many capital markets around

the world. This issue is important to technical analysis studies because only a few studies about technical analysis are related to different market situations. In a declining global market situation, a declining business trend stimulates investors looking for competing information of fundamental information. Earnings informativeness falls during a crisis or an economic downturn (Swanson et al., 2003; Bernard and Stober, 1989). Consequently, investors look for alternative information besides that found in earnings. They try to use technical analysis information as additional information. Flanegin and Rudd (2005) study shows that technical analysis indicators are popular analysis in the investment profession. Technical analysis performed well during the 1998 financial crisis (McKenzie, 2007). Technical analysis produces superior performance in markets with high volatility and a downward trend (Ahmed et al., 2000). Similar to those studies, this study expects that technical analysis produces higher returns than buy and hold strategies in declining global markets.

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The main objective of this research is to discuss performance of technical analysis when global markets decline. According to the objective, this study employs 1050 firms from 21 countries around the world. Using those data, this research presents that technical analysis indicators produce positive returns in global bearish (bullish) markets using short (long) strategies. Technical analysis produces positive returns when global markets decline. This study produces robust results after testing based on long, short, and long-short strategies. Using several indicators, this study concludes that technical analysis produces higher returns than buy and hold strategies in declining global markets. This research generates several contributions. First, it contributes to technical analysis study by using declining global stock markets setting. The focus is in the year 2011, because global stock markets substantially decline. In bearish (bullish) markets, technical analysis can (not) beat buy and hold strategies. Second, it gives insight to global investment managers to adjust their trading strategies based on market condition. The results give benefit to investment communities. The remainder of the document is organized as follow. Section II presents a literature review and hypothesis development. Sample and operational variable definitions are discussed in section III, while section IV provides statistical analyses and results. Concluding comments appear in the last section. LITERATURE REVIEW Technical analysis is less popular in academic communities than in investment communities (Flanegin and Rudd, 2005). Fama and Blume (1966) support that idea. Conversely, several studies of technical analysis show that technical analysis produces good performances, for example, Brock, Lakonishok, and LeBaron (1992) and Sweeney (1988). Technical analysis is a competing information to fundamental information. Using Indonesian data, Sulistiawan and Hartono (2014) provide evidence that technical analysis signals produce a positive return around earnings announcements. Sulistiawan et al. (2014) also give evidence that those signals are competing information to earnings announcements. It absorbs price reaction on earnings announcements. Those results are similar to the Flanegin and Rudd (2005) findings. We also believe that market quality is an important determinant of technical analysis return. This belief is supported by Hartono and Sulistiawan (2014) and Fifield et al. (2005). Using international data, Hartono and Sulistiawan (2014) present that market quality is the determinant of technical analysis performance. They show that market capitalization negatively affect technical analysis returns. Using European market data, Fifield et al. (2005) also present similar conclusion. This study adopts those previous studies using market quality as controlling variable. Using US and Greece data, Milionis and Papanagiotou (2008) present that technical analysis signals produce lower (higher) returns than those of buy and hold in US (Greece) market. They show that SMA5-SMA20 are good indicators for stock trading. This study uses SMA5, SMA10, and SMA15 as the main indicators, because simple indicators produce superior performances to more complex indicators (Metghalci et al., 2012). Loh (2006) and Chang et al. (2006) also present that moving average indicators produce profitable returns. Ahmed, Beck, and Goldreyer (2000) give evidence that technical analysis produces superior performance in markets with high volatility and downward trend, except in US market. McKenzie (2007) also presents that technical analysis still produces good performances in 1997 crisis. Their studies present that economic crisis stimulates the usefulness of technical analysis indicators. Given those studies, this research believes that technical analysis becomes more important when global markets decline. This study uses the latest declining global stock market data. The focus of this research is to confirm the studies of McKenzie (2007) and Ahmed et al. (2000) using

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GLOBAL JOURNAL OF BUSINESS RESEARCH ♦ VOLUME 9 ♦ NUMBER 2 ♦ 2015

international data in 2011. In that year, stock markets declined. Declining business trends stimulate investors to find alternative information of fundamental information. That phenomenon explains why earnings informativeness falls in crisis or in economic downturn (Swanson et al., 2003; Bernard and Stober, 1989). This study predicts that stock market condition affects technical analysis performances. Specifically, technical analysis indicators produce higher returns than buy and hold strategies in declining global markets. DATA AND METHODOLOGY This study observes companies around the world in 2010 and 2011. The focus is in the year 2011, because global stock markets substantially decline in that year. The year 2010 was a non-decreasing year and data for this year are used as a control sample. By using comparing years, this study may analyze the effect of global bearish markets to technical analysis profitability. This research uses OSIRIS and Yahoo Finance databases. OSIRIS is financial database that is provided by Bureau Van Dick (bvdinfo.com). OSIRIS database skews to bigger firms in several countries (Lara et al., 2006). This study uses sample from many countries. Based on the availability, this study uses 21 countries that is available in Yahoo Finance database. According to technical analysis perspective, there are 11,040 technical analysis signals are detected in the sample as seen in Table 1. Table 1 Number of Technical Analysis Signals for 21 Countries using Daily Data

Countries LSMA5

2010 LSMA10

2010 LSMA15

2010 SSMA5

2010 SSMA10

2010 SSMA15

2010 LSMA5

2011 LSMA10

2011 LSMA15

2011 SSMA5

2011 SSMA10

2011 SSMA15

2011 TOTAL Argentina 53 29 29 51 29 27 57 35 27 55 33 27 452 Australia 69 41 27 71 41 27 57 43 29 57 45 31 538 Austria 59 39 33 59 39 31 59 39 41 57 37 39 532 Belgium 53 47 29 55 47 29 65 49 37 63 49 37 560 Brazil 65 39 31 63 37 29 57 41 25 57 43 25 512 Canada 61 45 31 61 43 29 63 35 29 61 35 27 520 France 67 39 29 69 39 29 67 41 31 65 41 31 548 Germany 63 37 33 65 37 33 67 49 33 65 49 33 564 Greece 57 33 19 59 33 19 69 39 31 67 39 31 496 Hongkong 59 35 25 59 33 23 59 41 29 61 41 27 492 Indonesia 57 37 27 57 37 25 67 41 35 65 39 33 520 Israel 65 49 31 65 49 29 65 43 39 63 43 37 578 Malaysia 55 37 27 55 37 27 57 35 25 57 35 23 470 Mexico 65 27 23 65 25 21 59 41 33 57 39 31 486 Netherland 67 49 37 69 49 35 71 41 33 69 41 33 594 New Zealand 63 33 25 65 35 25 55 37 31 55 37 31 492 Singapura 63 31 25 65 29 23 63 43 37 65 43 37 524 Switzerland 59 43 31 61 43 31 63 47 31 61 47 31 548 Taiwan 65 37 25 65 37 23 53 41 31 53 41 31 502 UK 59 43 21 61 43 21 69 51 41 67 49 39 564 US 67 43 13 67 41 11 65 45 43 65 45 43 548 TOTAL 1291 813 571 1307 803 547 1307 877 691 1285 871 677 11040

This table shows the number of technical analysis signals in each country. LSMA52010 (LSMA102010/LSMA152010) indicates the number of signals using long strategy based on SMA5 (SMA10/SMA15) indicator in 2010. LSMA52011 (LSMA102011/LSMA152011) indicates the number of signals using long strategy based on SMA5 (SMA10/SMA15) indicator in 2011. SSMA52010 (SSMA102010/SSMA152010) indicates the number of signals using short strategy based on SMA5 (SMA10/SMA15) indicator in 2010. SSMA52011 (SSMA102011/SSMA152011) indicates the number of signals using short strategy based on SMA5 (SMA10/SMA15) indicator in 2011.. Empirical Models The hypothesis is examined using both two-sample t-test and regression technique. The level of this study is not company level, but country level. The multivariate regression model used is as follows.

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𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑖𝑖,𝑡𝑡 = α + β1 𝐷𝐷𝐷𝐷𝑁𝑁𝐷𝐷𝑁𝑁𝑖𝑖,𝑡𝑡 + β2 𝑃𝑃𝑃𝑃𝑃𝑃𝐷𝐷𝑃𝑃𝑖𝑖,𝑡𝑡 + β3 (𝐷𝐷𝐷𝐷𝑁𝑁𝐷𝐷𝑁𝑁𝑖𝑖,𝑡𝑡 x 𝑃𝑃𝑃𝑃𝑃𝑃𝐷𝐷𝑃𝑃𝑖𝑖,𝑡𝑡) + Ԑ𝑖𝑖,𝑡𝑡 (1) NETRETi,t is adjusted technical analysis return for each country-i for each period-t. DYEARi,t is a dummy variable to test the hypothesis, with the value of 1 for declining year and 0 otherwise. PMCAPi,t is the proportion of market capitalization (market size) for each country-i for each period-t to control the size effect. The interaction variable (DYEARi,t x PMCAPi,t) is an interaction between proportion of market capitalization (PMCAPi,t) with dummy variable (DYEARi,t). Variable Operational Definitions Some variables are used. Variables are defined and measured as follows. NETRETi,t is an adjusted technical analysis returns for each country-i for each period-t. Technical analysis returns (profitabilities) are determined by technical analysis signals. Adjusted technical analysis returns are technical analysis returns after deducted by buy and hold returns. The performances of technical analysis is represented by NETRETi,t. This study uses long, short, and long-short strategies to capture technical analysis performance. Long (short) strategies can be described as buy and sell (sell and buy) strategies. The main rule of the strategies is buy (sell) decision on a buy (sell) signal. Technical analysis returns for country-i, period-t, and signal on the day k is calculated from the difference between prices on sell signal on the day k for country-i in period-t (Ps,k,i,t) and price of buy signals stock-k for country-i in period-t (Pb,k,i,t). The equation (2) is for long strategy, and the equation (3) is for short strategy. In long (short) strategy, a buy (sell) signal is followed by a sell (buy) signal. 𝑁𝑁𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠−𝑏𝑏𝑏𝑏𝑏𝑏,𝑘𝑘,𝑖𝑖,𝑡𝑡 = 𝑃𝑃𝑠𝑠,𝑘𝑘,𝑖𝑖,𝑡𝑡–𝑃𝑃𝑏𝑏,𝑘𝑘,𝑖𝑖,𝑡𝑡

𝑃𝑃𝑏𝑏,𝑘𝑘,𝑖𝑖,𝑡𝑡 (2)

𝑁𝑁𝑏𝑏𝑏𝑏𝑏𝑏−𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠,𝑘𝑘,𝑖𝑖,𝑡𝑡 = 𝑃𝑃𝑏𝑏,𝑘𝑘,𝑖𝑖,𝑡𝑡–𝑃𝑃𝑠𝑠,𝑘𝑘,𝑖𝑖,𝑡𝑡

𝑃𝑃𝑠𝑠,𝑘𝑘,𝑖𝑖,𝑡𝑡 (3)

Technical analysis return for country-i in period-t is

𝑁𝑁𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠−𝑏𝑏𝑏𝑏𝑏𝑏,𝑖𝑖,𝑡𝑡 = ∑ 𝑁𝑁𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠−𝑏𝑏𝑏𝑏𝑏𝑏,𝑘𝑘,𝑖𝑖,𝑡𝑡

𝒌𝒌𝟏𝟏 (4)

𝑁𝑁𝑏𝑏𝑏𝑏𝑏𝑏−𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠,𝑖𝑖,𝑡𝑡 = ∑ 𝑁𝑁𝑏𝑏𝑏𝑏𝑏𝑏−𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠,𝑘𝑘,𝑖𝑖,𝑡𝑡

𝒌𝒌𝟏𝟏 (5)

Rsell-buy,i,t(Rbuy-sell,i,t) is cumulative returns generated from the a buy (sell) signal that is followed by a sell (buy) signal during one period-t for country-i. Returns of buy and hold strategy and adjusted technical analysis returns for each country-i for each period-t are calculated as follows. Equation (6) calculates a return of buy and hold strategy. Equation (7), (8), and (9) calculate an adjusted technical analysis return based on long, short, and long-short strategies. 𝑁𝑁𝑏𝑏ℎ,𝑖𝑖,𝑡𝑡 = 𝑃𝑃𝑒𝑒𝑒𝑒𝑒𝑒,𝑖𝑖− 𝑃𝑃𝑏𝑏𝑒𝑒𝑏𝑏𝑖𝑖𝑒𝑒,𝑖𝑖

𝑃𝑃𝑏𝑏𝑒𝑒𝑏𝑏𝑖𝑖𝑒𝑒,𝑖𝑖 (6)

𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑖𝑖,𝑡𝑡,𝑠𝑠𝑙𝑙𝑙𝑙𝑙𝑙 = 𝑁𝑁𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠−𝑏𝑏𝑏𝑏𝑏𝑏,𝑖𝑖,𝑡𝑡 − 𝑁𝑁𝑏𝑏ℎ,𝑖𝑖,𝑡𝑡 (7)

𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑖𝑖,𝑡𝑡,𝑠𝑠ℎ𝑙𝑙𝑜𝑜𝑡𝑡 = 𝑁𝑁𝑏𝑏𝑏𝑏𝑏𝑏−𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠,𝑖𝑖,𝑡𝑡 − 𝑁𝑁𝑏𝑏ℎ,𝑖𝑖,𝑡𝑡 (8)

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GLOBAL JOURNAL OF BUSINESS RESEARCH ♦ VOLUME 9 ♦ NUMBER 2 ♦ 2015

𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑖𝑖,𝑡𝑡,𝑠𝑠𝑙𝑙𝑙𝑙𝑙𝑙+𝑠𝑠ℎ𝑙𝑙𝑜𝑜𝑡𝑡 = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑖𝑖,𝑡𝑡,𝑠𝑠𝑙𝑙𝑙𝑙𝑙𝑙 + 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑖𝑖,𝑡𝑡,𝑠𝑠ℎ𝑙𝑙𝑜𝑜𝑡𝑡 (9) There are many technical analysis indicators that can be used to generate buy or sell signals (Luca, 2000). This study uses not only Simple Moving Average (SMA) but also Weighted Moving Average (WMA). Both SMA and WMA indicators are also publicly available. The indicators are similar to the term of VMA (Variable-length MA), which means a distance of buy and sell signals is different for each signal. The formulas are presented as follow. 𝑆𝑆𝑃𝑃𝐷𝐷𝑆𝑆𝑖𝑖 = ∑ 𝑃𝑃𝑖𝑖,𝑒𝑒𝑒𝑒

1𝑙𝑙

(10)

𝑊𝑊𝑃𝑃𝐷𝐷𝑆𝑆𝑖𝑖 = 𝑙𝑙.𝑃𝑃𝑖𝑖,1+(𝑙𝑙−1).𝑃𝑃𝑖𝑖,2+(𝑙𝑙−2).𝑃𝑃𝑖𝑖,3+ ……+𝑃𝑃𝑖𝑖,𝑒𝑒∑ 𝑙𝑙𝑒𝑒1

(11) Pi,n is the price n days ago based on market index i. The symbol of n represents the period used in technical analysis indicators, where n is 5,10, and 15 for SMA5, SMA10, SMA15, WMA5, WMA10, and WMA15, respectively. The indicators of SMA and WMA generate buy and sell signals in the trading periods. Buy/sell signals are used to determine technical analysis returns. Buy (sell) signals that are followed by increasing (decreasing) price produce good performance of technical analysis. A buy signal occurs when the stock price the day 0 (P0) crosses up SMA line, where P0>SMA and P-1<SMA-1. A sell signal occurs when the stock price the day 0 (P0) crosses down SMA line, where P0<SMAn and P-1>SMA-1. In WMA, a buy (sell) signal occurs when P0 crosses up (down) WMA line, where P0>WMAn and P-1>WMA-1 (P0<WMAn and P-1<WMA-1). PMCAPi,t is the proportion of market capitalization for 50 companies for each country-i for each period-t to control the size effect. Measurement of market capitalization is the average of market capitalization of stocks in the sample in each country. Market capitalization proportion is measured by the each country's market capitalization (MCAPit) divided by the total sum of the market capitalization all countries in the sample. 𝑃𝑃𝑃𝑃𝑃𝑃𝐷𝐷𝑃𝑃𝑖𝑖,𝑡𝑡 = 𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑖𝑖,𝑡𝑡

∑𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑖𝑖,𝑡𝑡 (12)

Robustness Tests Robustness tests are conducted as follows. First, this study uses various technical indicators. There are SMA10, SMA15, WMA5, WMA10, and WMA15 indicators. Second, this study not only employs long strategy, but also uses short strategy, and the combination between long and short strategies, while for long and short strategy, return is calculated from the combination of short and long strategies. At the end of the measurement period, the last closing price is used as a reference price for calculating the last return.

The hypothesis is examined by paired sample t-test and regression analysis in equation (1). The hypothesis predicts that β1 coefficient is positive and statistically significant. RESULTS AND DISCUSSIONS Preliminary Results Global stock market returns are presented in Table 2. The table shows that in 2011, except Indonesia, returns for declining period decrease. Conversely, returns for non-declining condition in 2010 are likely to increase.

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Paired samples t-test is used to test the difference between years. The result shows that returns in 2011 and 2010 are statistically different. It means that both years are different. Table 2: Global Stock Market Returns

2011 2010 Returns Difference Argentina -0.31480 0.46700 -78.18% Australia -0.14770 -0.00860 -13.91% Austria -0.34990 0.14330 -49.32% Belgium -0.20290 0.00570 -20.86% Brazil -0.13210 -0.00740 -12.47% Canada -0.10130 0.12610 -22.74% France -0.18530 -0.05020 -13.51% Germany -0.15280 0.13850 -29.13% Greece -0.51750 -0.34910 -16.84% Hongkong -0.20010 0.04850 -24.86% Indonesia 0.02460 0.42870 -40.41% Israel -0.18820 0.12210 -31.03% Malaysia -0.00170 0.18970 -19.14% Mexico -0.03060 0.17380 -20.44% Netherland -0.13130 0.05730 -18.86% New Zealand -0.01030 0.01230 -2.26% Singapore -0.17680 0.10050 -27.73% Switzerland -0.08370 -0.02930 -5.44% Taiwan -0.21490 0.09180 -30.67% UK -0.05240 0.07190 -12.43% US -0.00250 0.07960 -8.21% Mean -0.15106 0.086295

t-statistic -6.471***

Table 3 shows technical analysis returns for all trading strategies in 2011 and 2010 using SMA indicators. The table shows that in declining global market period, long strategies produce negative returns for all SMA indicators (-5.37%, -10.85%, and -11.15% for SMA5, SMA10, and SMA15, respectively). All results are statistically significant. In contrast, group sample of non-declining global market period in 2010 shows that all returns are positive for all indicators (3.27%, 5.69%, and 9.82% for SMA5, SMA10, and SMA15) in long strategies. It means that short (long) strategies are suitable strategies in bearish (bullish) markets. As expected, a long strategy in technical analysis does not work well in declining global markets condition. In bearish period, investors usually employ short strategies instead of long strategies for their stock investing. Table 3 shows that short strategies work well and produce profits in 2011 when global markets decline for all indicators (9.61%, 7.79%, 7.84% for SMA5, SMA10, and SMA15, respectively). It means that the use of short strategies in declining markets improve trading performance using technical analysis signals. In contrast, in non-declining global markets condition in 2010, all indicators in short strategy generate negative returns; there are -4.85%, -4.99%, and -5.13% for SMA5, SMA10, and SMA15, respectively. It means that in bullish markets, short strategies are not recommended. In Panel B, technical analysis returns are adjusted by buy and hold returns. Buy and hold returns are calculated based on different prices between the beginning of January and the ending of December. After adjusted buy and hold returns, in 2011, technical analysis returns are positive and significant in all indicators and trading strategies. If both strategies are employed (long and short strategies), mean return in SMA5 indicator (19.16%) is the highest among others in declining global market condition in 2011. Conversely, in 2010, the use of SMA5 strategy is not recommended because it generates a negative return (-10.22%).

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Table 3: Technical Analysis Profitability Around the World: SMA Indicators

n=21 Long SMA5

Long SMA10

Long SMA15

Short SMA5

Short SMA10

Short SMA15

Long Short SMA5

Long Short SMA10

Long Short SMA15

Panel A: Rbh,i,t Year: 2011 Mean -0.0537 -0.1085 -0.1115 0.0942 0.065 0.0605 0.0405 -0.0435 -0.0509 t statistics -2.29** -4.826*** -4.939*** 3.138*** 2.281** 1.918** 1.065 -1.551* -1.532* Year: 2010 Mean 0.0327 0.0569 0.0982 -0.0485 -0.0499 -0.0513 -0.0159 0.007 0.0469 t statistics 1.308 2.162** 5.024*** -1.706* -2.102** -3.782*** -0.4 0.193 2.085** Panel B: NETRETi,t Year: 2011 Mean 0.0974 0.0425 0.0396 0.2453 0.2161 0.2116 0.1916 0.1075 0.1001 t statistics 4.355*** 2.182** 1.930** 4.540*** 3.956*** 3.752*** 3.753*** 2.391** 2.047** Year: 2010 Mean -0.0536 -0.0294 0.0119 -0.1348 -0.1362 -0.0137 -0.1022 -0.0793 -0.0394 t statistics -1.961** -1.14 0.391 -2.292** -2.531*** -2.981*** -1.848** -1.649* -0.953

The symbol ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively (one-tailed test). The symbol of n.s means that it is not statistically significant. All data are normally distributed based on Kolmogorov-Sminornov test.

To complement the results, Table 4 presents technical analysis returns using WMA indicators. These indicators are used to show that different indicators generate same conclusion. Long (short) strategy produce a positive return in 2010 (2011). In Panel A, short (long) strategies produce positive returns in global a bearish (bullish) period. In 2010, WMA5, WMA10, and WMA15 indicators generate 3.16%, 5.1%, and 6.4% (-4.04%, -4.49%, and -4.85%) when long (short) strategy is used. Conversely, in 2011, WMA5, WMA10, and WMA15 indicators generate -3%, -10.41%, and -9.89% (11.75%, 5.3%, and 7.07%) when long (short) strategies are used. Table 4: Technical Analysis Profitability Around the World: WMA Indicators

n=21 Long WMA5

Long WMA10

Long WMA15

Short WMA5

Short WMA10

Short WMA15

Long Short WMA5

Long Short WMA10

Long Short WMA15

Panel A: Rbh,i,t Year: 2011 Mean -0.0300 -0.1041 -.0989 0.1175 0.0530 0.0707 0.0875 -0.0511 -0.0282 t statistics -1.108 -4.148*** -4.183*** 3.445*** 1.911** 2.011** 1.774** -1.551* -0.752 Year: 2010 Mean 0.0316 0.0510 0.0640 -0.0404 -0.0449 -0.0485 -0.0088 0.0061 0.0155 t statistics 1.254 2.711** 2.610** -1.234 -1.732** -2.770*** -0.200 0.195 0.572 Panel B: NETRETi,t Year: 2011 Mean 0.1211 0.0470 0.0522 0.2686 0.2040 0.2218 0.2386 0.0999 0.1229 t statistics 4.796*** 2.307** 2.244** 4.827*** 3.860*** 3.659*** 4.056*** 2.187** 2.241** Year: 2010 Mean -0.0546 -0.0353 -0.0223 -0.1267 -0.1312 -0.1348 -0.0950 -0.0802 -0.0708

t statistics -1.839** -1.284 -1.135 -1.991** -2.278** -2.769*** -1.531* -1.535* -1.972** The symbol ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively (one-tailed test). The symbol of n.s means that it is not statistically significant. All data are normally distributed based on Kolmogorov-Sminornov test.

In Panel B, all technical analysis indicators and trading strategies confirm the hypothesis. The results show that technical analysis returns produce higher returns than buy and hold returns in 2011. It means that buy and hold strategy is not suitable strategy in a declining trend. The use of technical analysis is recommended in a bearish market.

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Multivariate Tests Table 5 shows the results of multivariate tests. All DYEAR coefficients are positive for all SMA indicators. They are 0.162 (t test is 3.8 significant at 1%) for SMA5, 0.103 (t test is 2.785 significant at 1%) for SMA10, and 0.075 (t test is 2.221 significant at 5%) for SMA15. The interaction effects are also significant for SMA10 (coefficient is -0.65, t test is -1,484 significant at 10%) and SMA15 (coefficient is -0.997, t test is -1.955 significant at 5%). PMCAP (proportion of market capitalization) are also significant for SMA10 and SMA15 indicators. These results support the hypothesis that technical analysis returns are useful in declining markets. Table 5: The Impact of Declining Market to Technical Analysis Performance for Long Strategy

Long SMA5

Long SMA10

Long SMA15

Intercept -.0043 -0.024 -0.002

Stat.t -1.401** -0.889 -0.066

PMCAP -0.226 -.123 0.293

Stat.t -0.606 -0.382 0.779

DYEAR 0.162 0.103 0.075

Stat.t 3.800*** 2.785*** 1.747**

DYEAR x PMCAP -0.236 -0.650 -0.997

Stat.t -0.466 -1.484* -1.955*

The regression equation is NETRETi,t = α + β1DYEAR + β2PMCAPi,t+ β3 (DYEAR x PMCAPi,t) + εi,t. Dependent variable is technical analysis return after adjusted buy and hold strategy. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively (one-tailed test). The symbol of n.s means that it is not statistically significant. PMCAP is proportion of market capitalization, that is represented by the average of market capitalization of companies in sample countries. DYEAR = 1 when year is 2011, and 0 otherwise. The residuals of those regressions are normally distributed. Robustness Tests Robustness tests are conducted for different trading strategies. Those are presented in Table 6. The results show that DYEAR coefficients are positive for both strategies and indicators. All of them are significant at 1%. Control variable PMCAP (proportion of market capitalization) are insignificant for short and long-short strategies for all SMA indicators, but the interactions are significant for SMA10 and SMA15 indicators using short and long-short strategies. These results support the hypothesis that technical analysis returns yield higher returns than those provided by buy and hold strategy. These results also give insight that as a moderating variable, DYEAR can affect the relation between market capitalization and technical analysis performance. To complement the results, this study also presents robustness test using WMA indicators. Those are presented in Table 7. That table shows that declining years stimulate better performance of technical analysis signal. All coefficients DYEAR are significant at one percent. McKenzie (2007) and Ahmed et al. (2000) studies demonstrate that technical analysis produce profitable returns in declining market. Using different trading strategies and technical analysis indicators, this study confirms those previous findings. Hartono and Sulistiawan (2014) also present that market quality affects technical analysis performances. This study complements those previous studies by explaining that declining market is an important moderating variable. It affects the relation between market capitalization and technical analysis performance.

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Table 6: The Impact of Market Capitalization and Declining Market to Technical Analysis Performance for Short and Long-short Strategies

SSMA5 SSMA10 SSMA15 LSSMA5 LSSMA10 LSSMA15

Intercept -0.126 -0.144 -0.164 -0.074 -0.072 -0.071

Stat.t -1.831** -2.207** -2.650*** -1.136 -1.329* -1.336*

PMCAP -.0183 0.164 0.565 -0.601 -0.152 0.665

Stat.t -0.218 0.206 0.747 -0.762 -0.229 1.027

DYEAR 0.430 0.426 0.433 0.316 0.253 0.232

Stat.t 4.471*** 4.681*** 5.006*** 3.493*** 3.340*** 3.134***

DYEAR x LnPMCAP -1.040 -1.551 -1.771 -0.459 -1.384 -1.952

Stat.t -0.913 -1.437* -1.726** -.0429 -1.543* -2.220**

Durbin-watson 1.760 1.987 1.815 1.720 2.081 1.899

The regression equation is NETRETi,t = α + β1 DYEAR +β2 PMCAPi,t+ β3 (DYEAR x PMCAPi,t) + εi,t. Dependent variable is technical analysis return after adjusted buy and hold strategy.***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively (one-tailed test). The symbol of n.s means that it is not statistically significant. PMCAP is proportion of market capitalization, that is represented by the average of market capitalization of companies in sample countries. DYEAR = 1 when year is 2011, and 0 otherwise. Residuals are normally distributed. SSMA15 (SSMA5 and SSMA10) indicates long strategy based on SMA15 (SMA5 and SMA10) indicator. LSSMA15 indicates long and short strategies based on SMA15 (SMA5 and SMA10) indicator. Table 7: Robustness Tests Using WMA Indicators LWMA5 LWMA10 LWMA15 SWMA5 SWMA10 SWMA15 SWMA5 SWMA10 SWMA15

Intercept -0.048 -0.027 -0.022 -0.124 -0.138 -0.136 -0.077 -0.070 -0.063

Stat.t -1.413* -0.930 -0.890 -1.691** -2.057** -2.065** -1.028 -1.180 -1.173

PMCAP -.0135 -0.170 -0.010 -0.057 0.146 0.028 -0.385 -0.217 -0.174

Stat.t -0.324 -0.477 -0.033 -0.064 0.178 0.035 -0.423 -0.300 -0.268

DYEAR .0190 .101 0.112 0.449 0.402 0.428 0.363 0.227 0.264

Stat.t 3.981*** 2.477*** 3.279*** 4.395*** 4.296*** 4.650*** 3.483*** 2.751*** 3.545***

DYEARxPMCAP -.0291 -0397 -0.790 -1.136 -1.411 -1.493 -0.610 -0.991 -1.467

Stat.t -.0516 -0.819 -1.950** -.937 -1.271 -1.369* -0.494 -1.012 -1.664*

Durbin-watson 1.517 1.799 2.115 1.729 1.814 1.970 1.566 1.741 2.181

The regression equation is NETRETi,t = α + β1 DYEAR +β2 PMCAPi,t+ β3 (DYEAR x PMCAPi,t) + εi,t. Dependent variable is technical analysis return after adjusted buy and hold strategy. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively (one-tailed test). The symbol of n.s means that it is not statistically significant. PMCAP is proportion of market capitalization, that is represented by the average of market capitalization of companies in sample countries.DYEAR = 1 when year is 2011, and 0 otherwise. Residuals are normally distributed. SSMA15 (SSMA5 and SSMA10) indicates long strategy based on SMA15 (SMA5 and SMA10) indicator. LSSMA15 indicates long and short strategies based on SMA15 (SMA5 and SMA10) indicator. In declining global market period (bearish), technical analysis performance are better than those of buy and hold strategy. Applying long trading strategy is not recommended when the markets are declining, resulting negative returns for both SMA and WMA indicators (see Panel A, Table 3 and 4, Year 2011). Even though returns provided by technical analysis are negative for all SMA and WMA indicators in declining global market period, returns obtained by buy and hold are more negative, resulted positive returns after technical analysis returns adjusted by buy and hold returns (see Table 3 and 4, Panel B). Applying short trading strategies are recommended when the markets are declining, resulting positive returns for all SMA and WMA indicators (see Panel A, Table 3, Year 2011). For long and short strategies, this study suggests using shorter SMA or WMA indicators, because shorter indicators generate higher returns that longer indicators. In this case, using SMA5 and WMA5 indicators are recommended. In non-declining global market (bullish) period, technical analysis performance are not always better than those of buy and hold strategy. For all strategies and all indicators, adjusted technical analysis returns are

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negative, except for SMA15 indicator (see Panel B, Table 3, Year 2010). These results suggest that returns generated from buy and hold strategies are greater than returns from technical analysis signals. It means, in a bullish market, buy and hold strategy is a recommended strategy. Applying long trading strategy is recommended for technical analysis when the markets are non-declining, resulting positive returns for all SMA and WMA indicators (see Panel A, Table 3, Year 2010). Applying short strategies for technical analysis are not recommended when the markets are bullish, resulting negative returns for all SMA and WMA indicators (see Panel A, Table 3 and 4, Year 2010). CONCLUSIONS The main goal of this study is to examine the impacts of declining global markets to technical analysis performance around the world. Using data of twenty-one countries around the world in 2011 and 2010, this study concludes that in declining global market period (bearish market), technical analysis performance are better than those of buy and hold strategy. In non-declining global market period (bullish market), technical analysis performances are worse than those of buy and hold strategy. The results are very important to the development of technical analysis researches in investing area. This study explains that bullish or bearish condition can determine technical analysis returns. When bullish (bearish), technical-analysis returns are lower (higher) than buy and hold returns. More variables are needed to deeply understanding about the determinants of technical analysis returns. Declining trend can decrease the usefulness of earnings data. Future study also needs to build a bridge between technical analysis and fundamental analysis studies.

REFERENCES Ahmed, P., Beck, K. & Goldreyer, E. (2000) “Can Simple Moving Average Technical Trading Strategies Help in Volatile and Declining Markets? A Study of Some Emerging Asian Markets,” Managerial Finance, vol. 26 (6), p. 49-62. Bernard V.L. & Stober T.L. (1989) “The Nature of Information in Cash Flows and Accruals,”Accounting Review, vol 64, p. 624-652. Bessembinder, H. & Chan, K. (1995) “The Profitability of Trading Rules in The Asian Stock Markets,” Pasific-Basin Finance Journal, vol. 3, p. 257-284. Brock, W., Lakonishok L. & LeBaron, B. (1992) “Simple Technical Trading Rules and the Stochastic Properties of Stock Returns,” Journal of Finance, vol. 47 (5), p. 1731-1764. Chang, Y., Metgalchi, M. & Chan, C. (2006) “Technical Trading Strategies and Cross-National Information Linkage: The Case of Taiwan Stock Market,” Journal of Business Finance & Accounting, vol. 16, p. 731-743. Eiteman D.K., & Smith, K.V. (1974) “A Portfolio analysis of teaching of investments,” Journal of Financial and Quantitative Analysis, vol 9, p. 771-780. Fama, E.F. & Blume, M.E. (1966) “Filter Rules and Stock-Market Trading,” Journal of Business, vol. 39, p. 226-241. Fifield, S.G.M., Power, D.M. & Sinclair, C.D. (2005) “An Analysis of Trading Strategies in Eleven European Stock Markets,” European Journal of Finance, vol. 11, p. 531-548.

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Flanegin F.R. & Rudd, D.P. (2005) “Should Investments Professors Join The “Crowd”,” Managerial Finance, vol. 31 (5), p. 28-37. Hartono J. &Sulistiawan, D. (2014) “The Market Quality to Technical Analysis Performance: Inter-Country Analysis,” Gadjah Mada International Journal of Business (forthcoming). Lara J.M.G., Osma, B.G. & Gill-de-Albornoz, B. (2006)“Effects of Database Choice on International Accounting Research,” Abacus, vol. 42, no. 3-4, p. 426-454. Loh, E. (2006) “A Proxy for Weak Form Efficiency Based on Confirming indicators in Technical Analysis,” The Business Review, vol. 5 (1), p. 301-306. McKenzie, M.D. (2007) “Technical Trading Rules in Emerging Markets and the 1997 Asian Currency Crises,” Emerging Markets Finance and Trade, vol. 43 (4), p. 46-73. Metghalchi, M., Chang, Y., & Gomez, X.G. 2012, “Technical analysis of the Taiwanese Stock Market,” International Journal of Economics and Finance, vol 4 (1), p. 90-102. Milionis, A.E.&Papanagiotou E. (2008)“On the Use of Moving Average Trading Rule Test for Weak Form Efficiency in Capital Markets,”Review of Banking, Finance and Monetary Economics,vol. 2, p. 181-201. Sulistiawan D., Hartono, J., Tandelilin, E. & Supriyadi (2014) “Earnings Announcements and Competing Information: Indonesian Evidence,” Journal of Indonesian Economy and Business” (forthcoming). Sulistiawan D. & Hartono, J. (2014) “Can Technical Analysis Signals Detect Price Reactions around Earnings Announcements?: Evidence from Indonesia,” The International Journal of Business and Finance Research, vol. 8 (1), p. 113-123. Swanson E.P., Rees, L. & Valdes, L.F.J. (2003)“The Contribution of Fundamental Analysis after a Currency Devaluation,”Accounting Review, vol. 78, p. 875-902. Sweeney R.J. (1988) “Some New Filter Rule Tests: Methods and Results,” Journal of Financial and Quantitative Analysis, vol.2 (3), p.285-300. Wong, W., Manzur M. & Chew B. (2003) “How Rewarding is Technical Analysis?: Evidence From Singapore Stock Market,” Applied Financial Economics, vol.13, p. 543-551. ACKNOWLEDGEMENT Authors gratefully acknowledge Faculty of Economics and Business at Universitas Gadjah Mada (UGM) for the research grant. Authors also appreciate the comments of research seminar participants at UGM. BIOGRAPHY Jogiyanto Hartono is a Professor of Accounting at Universitas Gadjah Mada. He received his Ph.D in Accounting from Temple University, USA. His research interest is market based accounting research. He can be contacted at Faculty of Economics & Business, Universitas Gadjah Mada, Jl. Sosio Humaniora No.1, Bulaksumur, Yogyakarta, 55281, Indonesia. His email is jogiyantohm@gmail.com.

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Dedhy Sulistiawan is a Lecturer of Accounting at University of Surabaya. He received his Ph.D in Accounting from Universitas Gadjah Mada, Indonesia. His research interest is market based accounting research and behavioral finance. He can be contacted at Faculty of Business and Economics, University of Surabaya, Jl. Raya Kalirungkut, Surabaya, 60295, East Java, Indonesia. His email is dedhy@ubaya.ac.id.

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Global Journal of Business Research Vol. 9, No. 2, 2015, pp. 53-63 ISSN: 1931-0277 (print) ISSN: 2157-0191 (online)

www.theIBFR.com

DETERMINANTS OF INTERNET CORPORATE SOCIAL RESPONSIBILITY COMMUNICATION:

EVIDENCE FROM FRANCE Laetitia Pozniak, University of Mons Perrine Ferauge, University of Mons

ABSTRACT

This research identifies determiners of internet Corporate Social Responsibility (CSR) communication of the 53 French enterprises which are members of “l’Observatoire sur la Responsabilité Sociétale des Entreprises (ORSE)”. This study is completed in two phases. First, we use an analytical grid and develop a scoring technique. We classify the French companies in our sample according to the intensity of their responsible communication on the Internet. Then, we test a set of hypotheses to highlight the explanatory variables of the communication level on the Internet of the responsible enterprise. The results indicate the performance of firms is positively related to the level of CSR communication trough the web. JEL: C31, M14, M15, M31, O32 KEYWORDS: Communication, Internet, Websites, Corporate Social Responsibility (CSR), Sustainable Development INTRODUCTION

ince the 2000s, the financial crisis, problems of pollution and the increase of mass redundancies in Europe, reduced the legitimacy of current models of company governance (Franklin-Johnson & Richomme-Huet, 2012). Companies are increasingly conscious of the impact of their activities on

their environment. They are sensitive to sustainable development of their activities (David et al., 2005). The company, "as societal actor, cannot worry about his only well-being, it has to be interested in the well-being of the society in general" (Gond & Mullenbach-Servayre, 2004). In line with this sustainable development, comes the concept of corporate social responsibility of companies (CSR). CSR makes reference to the "process of improvement within the framework of which companies integrate in a voluntary, systematic and coherent way social, environmental and economic considerations of order into their management in dialogue with their stakeholders" (CIDD, 2006). Companies thus want to legitimize at best these activities by the disclosure of CSR information to their stakeholders. To promote dialogue and answer the new expectations of these stakeholders, companies inform on their sustainable practices (Quairel & Auberger, 2005). The Internet is one of the main channels of communication used by firms to disclose information about their responsible practices (Wanderley et al. 2008). The internet offers many advantages such as the disclosure of more information at a lower cost, in a more reduced time and to a larger public (Branco & Rodrigues, 2006; Jahdi & Acikdilli, 2009). Some researches (Pollach, 2003; Welcomer et al, 2003; Branco and Rodrigues, 2006) focus on Internet CSR communications. But, few elements are known on the way companies use this communication tool, in particular with regard to European countries. This study tries to understand how French company members of the ORSE communicate their CSR practices through their Web site. This research aims at two main objectives: to propose a classification of companies to identify those which are the most active in term of

S

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CSR communication and which use the most complete means. Second we identify the main determiners (explanatory variables) of CSR communication on the Internet. We first present principles and challenges of CSR communication. We highlight the specificities of communication by internet. Next, we specify our methodological choices, describe our sample and present the results of our study. LITERATURE REVIEW Internet as a Tool of Responsible Communication Most companies are sensitive to sustainable development. This sustainable commitment is generally the object of responsible communication to the stakeholders. Birth et al. (2008) define CSR communication as communication designed and disclosed by the company to its stakeholders and is based on its investment regarding sustainable development. For Ven (2008), a company has to communicate on its implication regarding CSR to avoid differences between its sustainable investment in its activities and the perception of company stakeholders. Capriotti & Moreno (2007) argue that communication RSE is intrinsically connected to the sustainable action. Communication makes known the will of an organization to go beyond trade and economic priorities to strengthen its relations with the stakeholders and maintain a behaviour favouring transparency and ethics. According Birth et al. (2008: 184), the themes covered by the CSR are wide. They can include "the mission, the vision and the values of the company, the work atmosphere, the social dialog, the human rights, the implication in the society, the development of a local economy, the environment, the relations with the market and the ethics". Besides, CSR communication generates value to various considerations. Nevertheless, Ven (2008) recommends that companies limit their communication to the use of their web site and sustainable development annual reports. The internet allows disclosing more information, at a lower cost and at a reduced time. Furthermore, several targets can be reached and specific information can be sent to different target audiences (Branco & Rodrigues, 2006). The information can be updated, archived and is available at any time (Geerlings et al. 2003). According to Wanderley et al. (2008) the Internet has become one of the main communication channels used by companies to disclose information about their responsible practices. By concentrating on active companies on the French market, we analyze the way companies use their website to present their CSR strategy. What priority is given to CSR communication on the website? What are the covered themes? What tools are given? How is the information presented? We attempt to answer these questions. Determiners of Corporate Social Responsibility Communication Several researches have examined the internet as a corporate social responsibility (CSR) communication tool (Pollach, 2003; Welcomer et al., 2003 ; Birth et al., 2009) but few focused on determiners of CSR communication (Hamid, 2004 ; Pozniak et al. 2011). Nevertheless, many authors have studied determiners of voluntary disclosure. Others studied the determiners of financial communication (Raffournier, 1995; Craven & Martson 1999; Debreceny et al. 2002; Ettredge et al 2002; Xiao et al. 2004; Laswad et al. 2005; Paturel et al. 2006; L. Pozniak, 2010), others studied corporate communication (Adams & Hossain, 1998; Larran & Giner, 2001) and others tried to identify determiners of research and development communication (Ding & Stolowy, 2003). All these researchers attempted to identify variables that explain disclosure level. In the field of CSR communication, we present our research hypothesis below.

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Sector: Sector influence on the disclosure level is highlighted by several authors. Ding & Stolowy (2003) argue that the firms from the same sector evolve in the same environment and are under the same pressure which forces them to communicate. Bonson & Escobar (2002) reveal positive influences of the sector on the level of information revealed by the company. Companies from specific sectors must communicate on certain aspect in order to improve their image. For example, industrial companies communicate more environmental information than firms from other sectors. Quairel & Auberger (2005) talk about pressures on companies of the petroleum industry, the chemistry, the automobile and the transport on their suppliers. To show their technology mastery and to set the focus on their expertise, IT companies tend to communicate more through their website (Entwistle, 1999). It seems that belonging to the industrial sector positively influences CSR information disclosure, and belonging to the IT sector has a positive impact on Internet communication. This leads us to the following hypothesis: Hypothesis 1: Membership in the IT sector or in the industrial sector has a positive effect on its internet CSR communication score. We measure sector using a binary variable which takes the value 1 for companies of the IT or industrial sector and zero for other companies. The industrial sector includes the codes NAF Rév.1 from 01 to 43 included. The IT sector includes the NAF Rév.1 of 58 in included 63 Performance: Many researches find a negative relation between the level of financial information disclosure and the company’s profitability (Debreceny et al. 2005; Paturel et al. 2006; Pozniak, 2010). This negative relationship is namely explained by the incurred competitive risk in case of positive information disclosure. Due to lack of significant results, Hamid (2004) has not been able to validate his hypothesis of negative impact of the profitability on CSR communication score. This leads us to the following hypothesis: Hypothesis 2: Company performance has a negative effect on its internet CSR communication score. In this paper, performance is measured by Return on Equity (ROE) in a manner similar to Hamid (2004), Debreceny et al. (2005) and Paturel and al. (2006). The Return on Assets (ROA) ratio could also have been a good indicator for profitability (Mc Nally and al, 1982) but its correlation with total assets would have distorted the results of our econometric model. Size: Several studies highlight the positive influence of company size on disclosure levels (Adams & Hossain, 1998; Larran & Giner, 2001; Bonson & Escobar, 2002; Debreceny et al. 2002; Ettredge et al 2002; Xiao et al. 2004). Almilia (2009) explain that bigger firms have more developed internal reporting systems and so producing information costs them less. Ding & Stolowly (2003) showed that size was a significant explanatory variable of research and development communication level. The positive impact of company size on the CSR internet communication level was revealed by Hamid (2004) and confirmed by Pozniak et al. (2011). This brings us to forward the following hypothesis: Hypothesis 3: Company size has a positive effect on internet CSR communication scores. In this paper, as in many others (Mc Nally et al, 1982; Hamid, 2004), size is measured by total assets. We used the natural logarithm of total assets to mitigate skewness in the data set (Adams and Hossain, 1998). Listing status: Research conducted in Malaysia by Theoh & Thong (1984) reveals that listed companies communicate more CSR information than unlisted companies. They explain that listed companies can take advantage of information disclosure regarding their social activities. In their research on Portuguese banks, Branco & Rodrigues (2006) discover that listed banks place higher importance on internet CSR communication. They justify this through the fact that the more famous a company is, higher the need for justifying their existence through CSR communication. Actually, listed companies are more notorious than not listed companies. Hamid (2004) finds a positive relation between the listing status of a company and its level of CSR information disclosure. This leads us to the following hypothesis:

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Hypothesis 4: The listing status of the company has a positive effect on its internet CSR communication score. Listing status is measured by a binary variable which takes the value 1 for listed companies and 0 for unlisted firms. Age: Company age seems to be linked to its reputation and its involvement in CSR activities (Choi, 1999 cited by Hamid, 2004). A positive relation between company age and its level of CSR information disclosure is discovered by Hamid (2004) and Branco & Rodrigues (2006). This leads us to the following hypothesis: Hypothesis 5: Company age has a positive effect on its internet CSR communication score. In our research, company age is measured by the number of years since the company was created. The variables and their expected effect on the CSR communication score are presented in Table 1. Table 1: Explanatory Variables

Variables Measure Expected Effect on CSR Communication Score

Sector IT or Industrial sector = 1 and others = 0 Positive

Performance Return On Equities (ROE) ratio Negative

Size Log total assets Positive

Listing status Listed firms = 1 and Unlisted firms = Positive

Age Number of years since the creation of the firm Positive

This tables shows how the explanatory variable are measured and the expected effect on the CSR communication score. The variables sector, size, listing status and age are expected to have a positive effect on the dependent variable. The effect of variable performance is expected to be negative on the level of CSR communication score. RESEARCH METHODOLOGY This section has two parts. In the first part, we present information about our sample. In the second part, we present our methodology. Our study concerns 53 French companies’ which were members of « l’Observatoire sur la Responsabilité Sociétale des Entreprises (ORSE) » in April 2011. This association was created in June 2000 and offers members support on various questions related to sustainable development, responsible investment and CSR. The aim of our research is to analyse implemented strategies and tools in the frame of CSR communication. It seems relevant to base our sample on companies’ inclined to communicate on these aspects. Member companies of ORSE are registered as active or initiative in CSR. We suppose they communicate in this direction through their Web site. Indeed, according to Chaudhri & Wang (2007) active behavior of companies regarding CSR would lead them naturally to communicate on these aspects, in particular through their Web site. The best way to evaluate the level of CSR information disclosure on the internet is to analyse the contents of company websites (Branco & Rodrigues, 2006; Patten, 2002). Content analysis of websites is done using an analysis grid allowing us to highlight the presence or absence of certain elements of information. Our analysis grid was built in two phases. First, elements highlighted by the literature were listed (Jahdi & Acikdilli, 2009; Patten & Crampton, 2004). Then, the preliminary grid was pre-test on several sites of our sample. Elements discovered according to the study of websites allowed us to improve our grid. This iterative approach is inspired by Grounded Theory. Observation of the ground allows the identification of items to investigate (Corbin & Strauss, 2008). The items of the analysis grid are split into seven categories as shown in Table 2. Using our analysis grid, we examined the websites of companies and assigned them one point for each item on the site. All items are assigned equal importance. This technique of scoring is a current practice in the study of voluntary information (Larran & Giner, 2001; Arnone et al, 2010; Pozniak, 2010; Pozniak et al,

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2011). The quantity of disclosed items is a reasonable measure of the trend of the company to information disclosure (Branco & Rodrigues, 2006). A score is thereby obtained for every company. Using this score we were able to estimate the level of website information disclosure of the 53 companies in this study. Then, using the Stata 10.1 software, this score is analysed using the ordinary least squares (OLS) method according to explanatory variables which the hypotheses of this research concern. We do this in a manner similar to other authors (Debreceny & Rahman, 2005; Paturel & al., 2006; Ben Rhouma & Cormier, 2007; Jouini, 2007; Pozniak, 2013). Table 2: Categories of Our Analysis Grid

Accessibility

The "accessibility" category is interested in the fact that there is a tab dedicated to the CSR on the homepage of the Web site. It can be a tab called « sustainable development », a link to the annual CSR report, a text, a video or pictures dedicated to CSR on the first page. We also look after a search engine and different language version of the website.

Commitment of the company

The commitment of the company is measured by the presence of a slogan of the company referring to its responsible commitment and by a speech of the manager or a stakeholder illustrating the sustainable actions of the company.

Illustration of the CSR speech

This category analyses the illustration. For example, the commitment of the director, the internal actor to the company, the CSR report, can be presented in the form of video; texts relative to the CSR can be illustrated with images, with plans, with animations flash; a gallery of image can contain photos relative to CSR.

Strategy This category look at the contents concerning the sustainable actions of the company: its strategy, its objectives, its commitments, its results. A distinction is made between elements for environmental, social and societal action.

Results ‘objectivity

Nonfinancial communication is still the object of a lack of reliability. To remedy it, several elements can be advanced by communicating on the web site of the company: external social audit, certification, labelling, code of ethics conduct and ethical awards.

Interactivity This category is interested in the presence of FAQ, podcast, newsletter or a forum related to CSR; the possibility of sharing CSR information on social networks, the RSS feed.

Communication on sustainable action

We observe if the company communicates on its website to promote the sustainable development, to defend causes, to give responsibilities the consumer and to inform the public.

This table shows the categories of our analysis grid of web site. This grid was used to analyze 53 websites of our sample. For each item of the grid we gave one point. So we get a CSR communication score for each firm. RESULTS AND DISCUSSION This section includes two parts. In the first part, the results of our web contents analysis are presented and the CSR communication score are established. In the second part, the results of our regression are shown. CSR Communication Scores The analysis grid lets us examine the websites of all companies in our sample. A point was given for every item of the analysis grid on the website. The scores so obtained appear in Table 3. Some 29 firms (out of 53 companies in the sample) obtained a score equal or above to the average of the sample scores (19) for their responsible communication. Based on Table 3, we notice that the Sanofi Company distances itself from other companies of the sample. Indeed, of 57 items in our analysis grid, this firm counts 40 items. This first place classification is justified by an important internet communication of its implications and sustainable activities. This company dedicates its homepage to sustainable development and offers a direct link to the CSR annual report (presented on a website completely dedicated to its societal commitment). The company also distinguishes itself by the presence of a search engine, a speech of the managing director and internal actors of the company and through the use of images, videos and animations flash. Sanofi develops sustainable objectives and strategies and disclosed them on its website. The social side is put forward by a code of ethics and a social charter while societal aspects are widely presented in the section "Sanofi hope foundation" aiming at reducing disparities in the field of health. At the environmental level, the company is committed in the reduction of its CO2 emissions and in the conservation of the biodiversity.

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Table 3: CSR Communication Scores

Classification of Companies 1 Sanofi 40 19 EDF 25 37 Thales 14 2 Alcatel 36 20 Areva 25 38 La Française Des Jeux 12 3 Carrefour 34 21 Sodexo 24 39 ArmorLux 12 4 PSA Peugeot Citroen 34 22 Rhodia 24 40 Accenture 11 5 Lafarge 31 23 Bic 24 41 Adecco France 10 6 Accor 30 24 Suez Environment 24 42 SAP 8 7 France Telecom-Orange 30 25 Vinci 23 43 Starbucks Coffee 8 8 Veolia Environnement 30 26 RATP 21 44 SFR SA 8 9 GDF Suez 29 27 La Poste 19 45 Fives 7 10 Schneider Electric 29 28 L'Oréal 19 46 France Télévisions 6 11 Mobivia Groupe 28 29 Vallourec 19 47 Legrand 6 12 Aeroports De Paris 28 30 SNCF 18 48 Renault 6 13 Lagardère 27 31 Air France 18 49 Essilor International 2 14 PPR 26 32 Spie Batignolles 17 50 Oxylane 2 15 Nexans France 26 33 Danone 17 51 Total 2 16 Rexel 26 34 DCNS 16 52 Casino 1 17 Vivendi 26 35 Havas 14 53 Bonduelle 1 18 Alstom 26 36 LVMH 14

This table shows the CSR communication score for every firm of our sample. The average score is 19 points (up to 57 items in the analysis grid). As we can see, more than half of the sample (29 firms up to 53) have a score higher than this average. The results are clear and accompanied with an external audit and with responsible indicators. The weak point of its CSR communication concerns the interactivity of the site (3 items up to 10). The second place classification is attributed to Alcatel which obtains 36 points. Its responsible commitment is highlighted on the homepage on one hand by a quotation of the managing director, and on the other hand by the "faster, more intelligent, more eco-effective" slogan. It is also possible to view a video of the managing director presenting the implication responsible for the company as well as a video synthesizing all the initiatives in favor of the sustainable development. Carrefour and PSA Peugeot Citroën share the third place classification with 34 points. Both companies distinguish themselves by a link on their homepage which lead to a second website completely dedicated to sustainable development and to the empowerment of the company. Carrefour also set up a web tool "autodiagnosis sustainable development" which represents a guide of best practice intended to help the suppliers to act in a more responsible way. Among other companies of the top 10, we highlight in terms of responsible communication by internet, the presence of a code of conduct " Lafarge Wag " on the site of Lafarge imposed on all associates of the company. The development of good interactivity on the site of Accor is based on a FAQ, a newsletter, a link to specific CSR contact, a detailed description of its strategy and its CSR objectives for France Telecom Orange. The presence of a thread of news dedicated to sustainable development on the homepage of Veolia Environnement. The presence of the slogan " Be useful for the men" on the homepage of GDF-SUEZ and a sustainable speech with images for Schneider Electric. Determiners of CSR Communication Score The following regression equation was estimated to identify the determiners of CSR communication score: 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 = 𝛼𝛼 + 𝛽𝛽1 (𝑠𝑠𝑆𝑆𝑆𝑆𝑠𝑠𝑆𝑆𝑆𝑆) + 𝛽𝛽2 (𝑝𝑝𝑆𝑆𝑆𝑆𝑝𝑝𝑆𝑆𝑆𝑆𝑝𝑝𝑝𝑝𝑝𝑝𝑆𝑆𝑆𝑆) + 𝛽𝛽3 (𝑠𝑠𝑠𝑠𝑠𝑠𝑆𝑆) + 𝛽𝛽4 (𝑙𝑙𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑝𝑝𝑙𝑙 𝑠𝑠𝑠𝑠𝑝𝑝𝑠𝑠𝑠𝑠𝑠𝑠) + 𝛽𝛽5 (𝑝𝑝𝑙𝑙𝑆𝑆)

This model was tested using the 2007 version of the Software STATA. The explanatory variables arise from the database DIANE published by the Office Van Dijk. For each of these variables, we considered the last year of availability of the accounts. Descriptive statistics of the explanatory variables are presented in Table 4 and the correlation between those variables in Table 5. Because listing status and sector are binary variables, they don’t need to appear in Table 4.

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Table 4: Descriptive Statistics

Variables Mean Std.Dev Min Max Score 19.113 10.205 1 40 Performance 7.128 30.502 -100.24 105.30 Size 14.984 4.573 0 24.112 Age 45.207 36.478 8 179

This table shows the descriptive statistics of the explanatory variables. We get those statistics using STATA 10.1. Table 6 shows the regression estimates of the equation: Score =ά + ß1 (sector) + ß2 (performance) + ß3 (size) + ß4 (listing status) + ß5 (age). With regard to Table 6, only the coefficient of the variable performance is statistically significant at the 5% level. The negative sign of this coefficient confirms Hypothesis 2: Performance has a negative impact on the Internet CSR communication score. From then on, companies presenting a less good performance would more likely tend to use internet as vector of CSR communication. Other hypotheses are not verified. Indeed, the variables of size, sector, listing status and age are not statistically significant. This study, dedicated to French companies doesn’t show the same results as Pozniak and al. in 2011. The previous study focused on 41 member companies of the Association Business and Society Belgium and was also interested in determiners of Internet CSR communication. Their results (Pozniak and al, 2011) highlighted the positive impact of the size and the listing status. The results of the present paper studying French companies thus diverge from conclusions of the Belgian sample studied in 2011. Table 5: Correlation between Variables

Score Sector Performance Size Listing Status Age Score 1.000 Sector -0.0319 1.000 Performance -0.2170 0.0500 1.000 Size 0.0699 -0.0077 -0.0673 1.000 Listing status 0.0711 -0.1664 0.0123 0.4726 1.000 Age -0.0769 -0.1381 0.0138 0.0214 0.4779 1.000

This table shows the correlation between the explanatory variables. As we can see there is no problem of correlation between those variables. CONCLUSION Our research aimed at understanding how companies use the internet as communication channel of their responsible activities and identifying the determinants of this CSR communication level. We focus on the 53 French companies which are members of the ORSE, in April 2011. We analysed the intensity with which the companies of our sample use internet as vector of CSR communication, by means of a scoring. This approach used an analysis grid of websites. This analysis grid has seven categories (accessibility to the information, the commitment of the company, illustration of the speech, strategy, results’ objectivity, the interactivity and communication on sustainable action) and allowed us to establish a classification of the companies of our sample. Thanks we were able to identify the most active companies in term of CSR communication and highlight the strategic elements which companies emphasize in their CSR communication. We noticed that the majority of companies communicate their CSR commitment on their web site. They describe and distinguish generally their strategy on the social, environmental and societal plan. We find objectives clear and calculated on the site of numerous companies (more than half of them), with a trend to put forward more information regarding environmental objectives. We also noticed the weak presence of

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labels and ethical awards on the web sites of companies. We find that more than half of analysed sites include responsible codes of conduct. More than half of companies facilitate access to CSR information by the presence of a search engine, tabs from the homepage relating to a CSR page and/or to an annual CSR report. Nevertheless, few companies of the sample communicate on their socially responsible investments and propose tools of interactivity. Finally, concerning the general classification of companies, we cannot establish a significant link between the level of responsible communication and the business sector of companies. Table 6: Results of the Regression by OLS

Coefficient Robust Std.Error Sign Sector -0.3826 3.284 0.908 Performance -0.0725 0.0335 0.036** Size -0.0233 0.3755 0.951 Listing status 3.004 4.557 0.513 Age -0.0407 0.0528 0.445 Cons 20.737 6.199 0.002 Number of obs. 53 F stat 1.66 Prob > F 0.1637 R-squared adjusted 0.0683

This table shows the regression estimates of the equation: Score =ά + ß1 (sector) + ß2 (performance) + ß3 (size) + ß4 (listing status) + ß5 (age). ***, ** and * indicate the significance at the 1, 5 and 10 percent levels respectively. We can see that the only statistically significant variable is the performance. It means that it has an impact on the CSR communication score. We observe that most companies of the "energy" sector (6 on 9) are a part of the most active companies regarding CSR communication. Indeed, these 6 companies appear in 20 first companies classified. It could be explained by sensibility of the sector to the environmental problem. Among the present 7 companies in the sector of "communication and telecommunication ", 4 also appear among the first 20 companies of our classification. Furthermore, we notice positions relatively set for both groups of the retail industry. Carrefour is indeed in the 3rd position of the classification while Casino represents only in last place. Secondly, we tried to identify the determiners of this CSR communication score using the ordinary least squares method. Our econometric analysis allowed putting forward the positive impact of performance on the level of CSR internet disclosure. Our Hypothesis 2 was thus confirmed by the empirical results. This exploratory analysis also tried to enrich the research on the CSR internet communication which until this day had only been examined on a limited basis. We moderate our conclusions because the approach used in this research is exploratory. We concentrated our analysis on the Internet tool and did not examine voluntarily disclosures using other media. If we integrated other media, our classification could may have turn out different. In a communications strategy, the media act in synergy to strengthen the message. In the future, we think it would be interesting to study determiners of CSR communication via all the information channels and not exclusively by Web (press, television, meetings). Responsible communication would then be considered "as all the communications activities, whatever is the support, delivering a message about the environmental, social or societal commitments of a company" (Benoit-Moreau et al., 2010). The integration of the other media in our analysis could modify our classification. It would also allow the consideration of existing synergies between the media that strengthen the message. REFERENCES Adams M., Hossain M. (1998), “Managerial discretion and voluntary disclosure: empirical evidence from the New Zealand life insurance industry”, Journal of Accounting and Public Policy, n° 17, pp. 245-281. Almilia, L. C. (2009), “An Empirical Study of Factors Influencing Internet Financial and Sustainability Reporting in Indonesia Stock Exchange”, Working paper, 21 p. Available at

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Pollach I., (2003), “Communicating corporate ethics on the world wide web – a discourse analysis of selected company web sites”. Business and Society, vol. 42:2, pp. 277-287. Pozniak L., (2010), “Financial Communication on the Web - Evidence from Belgium”. Accounting & Taxation, n° 1, vol. 2, pp.47-58. Pozniak L., Ferauge P., Arnone L., Geerts A., (2011), “Determinants of Internet Corporate Social Responsibility Communication”. Global Journal of Business Research, Vol. 5, n° 4, pp. 1-14. Pozniak L., (2013), « Internet Financial Communication. Evidence from unregulated markets in Brussels and Paris », International Journal of Business and Finance Research, Vol. 7, n° 5, pp. 107-122. Raffournier B., (1995), “The determinants of voluntary financial disclosure by swiss listed companies”. European Accounting review, vol. 4, n° 2, pp. 261-280. Teoh H., Thong G., (1984), “Another look at corporate social and responsibility and reporting: an empirical investigation in developing country”. Accounting, Organization and Society, vol. 9, n° 2, pp. 186-206. Ven B., (2008), “An ethical framework for the marketing of corporate social responsibility”. Journal of Business Ethics, 82, 2, pp. 339-352. Wanderley L., Lucian R., Farache F., Sousa F. J., (2008), “CSR Information Disclosure on the Web: A Context-Based Approach Analysing the Influence of Country of Origin and Industry Sector”. Journal of Business Ethics, vol. 82, pp. 369–378. Welcomer S., Cochran P., Rands G., Haggerty M., (2003), “Constructing a web: effects of power and social responsiveness on firm-stackeholder relationships”. Business and Society, vol. 42:1, pp. 43-82. Xiao J., Yang H., Chow C., (2004), “The determinants and characteristics of voluntary Internet-based disclosures by listed Chinese companies”. Journal of Accounting and Public Policy, vol. 23, Issue 3, pp. 191- 225. BIOGRAPHY Laetitia Pozniak is Assistant Professor at Warocqué School of Business and Economics (University of Mons). She works in the Finance Department. Her researches fields are financial communication, stock exchange, unregulated markets, internet communication, Small-Medium size enterprise and grounded theory. She can be contacted at University of Mons, 20 place Warocqué, 7000 Mons, Belgium. Email: laetitia.pozniak@umons.ac.be Perrine Ferauge is Assistant Professor at Warocqué School of Business and Economics (University of Mons). She works in the Microeconomic Department. Her researches fields are corporate social responsibility and SMEs. She can be contacted at University of Mons, 20 place Warocqué, 7000 Mons, Belgium. Email: perrine.ferauge@umons.ac.be

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Global Journal of Business Research Vol. 9, No. 2, 2015, pp. 65-74 ISSN: 1931-0277 (print) ISSN: 2157-0191 (online)

www.theIBFR.com

THE NATURE AND CONCEPT OF ACCOUNTABILITY:

A CASE STUDY OF THREE ENTITIES IN FIJI Ezaaz Hasan, University of the South Pacific

Anjani Mala, Fiji National University Glen Finau, University of the South Pacific

ABSTRACT

The notion of accountability is a vague concept. This is because the appropriateness of accountabilities depends on the context in which accountability is discharged to the recipient of information. The impetus for this study stems from a critical issue of whether discharging accountability to stakeholders by entities can be generalizable to all accountability structures and to understand how appropriately accountabilities are being rendered by entities in Fiji to their stakeholders. In light of this, our research method involves a case study of three entities in Fiji namely, Paradise Beverages (Fiji) Ltd, Home Finance Company Ltd (HFC) and Greenpeace Australia Pacific (GAP). Interviews were also conducted with three individuals from these three entities. The findings indicate that accountability is always context specific. Accountabilities towards stakeholders can be improved on but cannot be generalized to other accountability structures. This study contributes to our understanding of the vagueness of the nature of accountability and although our findings cannot be generalizable, other entities across the globe can understand that accountability can never be perfect for all of their stakeholder groups. JEL: M41 KEYWORDS: Accountability, Appropriateness, Vagueness INTRODUCTION

ccountability is a multi-disciplinary concept. In simplistic terms, accountability helps the recipient of information to assess the performance of the renderer of accountability and consequently, the recipient of information can then make certain assessments and evaluations. However, some

pertinent issues exist when looking at the nature of accountability. These issues deal with concerns as to what exactly the recipient of information wants, what are the most efficient methods to discharge accountability and can there ever be one-best way of providing accountability. The initial premise is that the nature of accountability is a vague concept. This is a global phenomenon and as such, the impetus for this study stems from a critical issue of whether discharging accountability to stakeholders by entities can be generalizable to all accountability structures and to understand how appropriately accountabilities are being rendered by entities in Fiji to their stakeholders. In light of this, three entities were selected from different sectors from Fiji. Paradise Beverages (Fiji) Ltd (PBL); Home Finance Company Ltd (HFC) and Greenpeace Australia Pacific (GAP). Fiji falls under the jurisdiction of Greenpeace Australia Pacific. Paradise Beverages (Fiji) Ltd was selected because they are a publicly listed and a profit oriented company. Home Finance Company Ltd was selected because they are also a profit oriented but a locally owned Fijian bank. Finally, Greenpeace Australia Pacific was selected because they are a Non-Government Organization (NGO) and NGO’s typically have well established accountability structures.

A

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The selection of these three entities would create a platform to perform a comparative analysis because the nature of accountabilities discharged and required of the three entities is likely to differ. Thus, we will consider why this is so and how can these entities best develop their accountability to their stakeholders. This will pave the way to analyze the implications the expansion of each entity’s accountabilities may have for their processes of governance and theories of accountability and governance will be used to provide a theoretical framework. This paper is organized as follows: The next section looks at the literature review where prior studies on accountabilities will be discussed. Followed by, the research methods section and the analysis section. The final section delivers the conclusion and explores areas for future research. LITERATURE REVIEW Academics have continuously endeavored to study and investigate the vast issues underlying the concept of accountability. The concept of accountability has a multitude of definitions and it can be explained in different ways (Mashaw, 2006). The concept of accountability would depend on the nature of the relationship between the renderer and recipient of information which could either be vertical, horizontal or unilateral/bilateral relationships. It is argued that any accountability structure will provide an answer to at least six basic questions: who is accountable, to whom accountability is delivered, about what, through what processes, in accordance with criteria and with what effects (Mashaw, 2006 and Joannides, 2012). Mashaw (2006) also argues that there is no hesitation in saying that there is problem in accountability but the question is what sort of problem and why so much concern. Mashaw (2006) mentions that accountability has become a critical issue because business organizations are fleecing their shareholders, endangering consumers and damaging the environment. When the corporations begin to provide optimum accountability for their actions then such issues can be addressed. Moreover, the recent corporate scandals have led to increased demand for greater accountability from the management of corporations (Messner, 2009 and Porter, 2009). Roberts (2009) argues that in the recent financial market crisis, there was severe lack of transparencies particularly in terms of over-the-counter credit default swap market and off balance sheet entities. In light of this, it was argued that transparency can act as a supplement to intelligent accountability (ibid). Transparency often acts as a mechanism of accountability in order to cast light upon what would otherwise remain obscure or invisible in order to provide a basis for confidence to the investors (ibid). According to Roberts (2009), intelligent accountability involves “active enquiry, asking questions and talking- through which the relevance or accuracy of indicators can be understood in context”. However, Roberts (2009) goes on to say that “the ideal for complete transparency is an impossible fantasy”. The author elaborates that transparency can best signal the need for intelligent accountability but it cannot be depended solely as a form of providing accountability. According to Porter (2009), companies have now increased their power in society. The society today provides more resources to companies where in return the society demands accountability from managers. The level of accountability demanded has been extended whereby managers are held increasingly accountable due to the large number of corporate failures across the globe. Today, managers of large publicly listed companies are considered to be accountable to society for a wide range of corporate activities. Traditionally, accountability was provided mostly through the preparation and audit of financial reports.

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The study by Samkin & Schneider (2010) examined a public sector entity, the Department of Conservation (DOC) in New Zealand. Drawing on from legitimacy theory, the authors identified that DOC used formal accountability tools and narrative reports (such as annual reports) as a means of creating a favorable impression in order to gain legitimacy and acceptance within the society. The authors argued that the DOC used these techniques to create a positive image for itself and repair its legitimacy in light of negative public image and pressures from stakeholders. Although the study focused on legitimacy theory, it can be argued that DOC used both branches of normative and positive stakeholder theories to render its accountability to their stakeholders. This is because based on the findings of the study, DOC used proactive legitimization methods within its annual reports to maintain legitimacy and this fell under the normative branch of the stakeholder theory since they focused on all their stakeholders. The DOC also used reactive legitimization methods to repair its social image to certain stakeholder and this fell under the positive branch of the stakeholder theory. Shaoul et al (2012) argued that Public Private Partnerships (PPPs) have to incorporate the accountability requirements that was traditionally found in both private and public sectors. This could prove to be difficult since they have to be accountable to multiple stakeholders. The authors mention that in addition to the traditional method of discharging accountability, accounting through narrative reports (such as the annual reports) can be used to improve the accountability requirements for PPPs and as such, all information has to be conveyed in such a way that meets the need of the general public. Public sector accountability is also a concern. Lodhia and Burritt (2004) focus on public sector accountability failure in Fiji. The article elaborates on the case of National Bank of Fiji (NBF) scandal. It was found out that there was poor management and corruption in the NBF and thus accountability did not work as the parties or the relevant authorities did not provide a proper account of their actions. The impact of the scandal in the case of NBF would have been minimal if parties took actions or proper accountability for the actual processes was provided (Lodhia & Burritt, 2004). The authors’ argument is in relation to poor accountability in the public sector in Fiji in the presence of recently introduced new public sector management. The New Public Sector management is an effective mechanism to have proper accountability in place. The study by Samkin and Schneider (2010) shows that failure to render the appropriate levels of accountability can pose difficulties for any particular organization to exist in a society. Shaoul et al., (2012) argued that (PPPs) have to incorporate the accountability requirements traditionally found in both private and public sectors and this could prove to be difficult since they have to be accountable to multiple stakeholders. Hence, the authors mention that in addition to the traditional method of discharging accountability, accounting through narrative reports (such as the annual reports) can be used to improve the accountability requirements for PPPs and as such, all information has to be conveyed in such a way that meets the need of the general public. Furthermore, a study by Dhanani & Connolly (2012) examined the motivations of public accountability (in terms of reporting practices) for Non for Profit (NFP) entities and identifies four central themes of accountability: strategic, fiduciary, procedural and financial accountability. Dhanani & Connolly (2012) used the ethical (normative) stakeholder theory and legitimacy theory to explain accountability for NFP’s because NFP’s exists on an ethical basis for the benefit of the whole society. According to Dhanani & Connolly (2012), the ethical model of stakeholder theory is more appropriate to explain accountabilities being rendered by NFPs rather than the positive stakeholder theory. Contrary to the author’s initial presumption and in light of content analysis done on the organization’s annual reports, it was found that accountability was motivated through the positive stakeholder theory. The reasons put forward by the authors is that, the management of such organization was responding to market

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expectations and recommendations and reporting was designed to create a positive image for the organizations themselves. This, according to Dhanani & Connolly (2012), was similar to the accountability practices of the corporate sectors. This could be referred to as a decoupling effect because the findings from this study are not in line with the initial expectation that NFP organizations are driven by the normative stakeholder theory. Managing external accountability (accountability to outside parties) may prove to be a difficult task for many organizations because of the wide ranging demands that external stakeholders might have. But as was highlighted by Shaoul et al., (2012) accountability can be discharged through annual reports (accounting calculations) and accounting by narration. This was also highlighted by Samkin & Schneider (2010) who examined the Department of Conservation (DOC) in New Zealand that DOC used the annual report as a reporting mechanism to legitimize its position and be accountable to its stakeholders. Culture is another factor that drives accountability. In Fiji, accountability is to some extent influenced by culture (Rotuivaqali and White, 2013). Fiji is made up of two major communities, the iTaukei and non-iTaukei communities. The study by Davie (2005) states that the iTaukei society is a large power distance society. People tend to place high levels of trust on people who are responsible to discharge accountability. Individuals in the Fijian society have a culture of respecting others’ values and norms thus they do not tend to question the responsible authorities such as pronouncement of the chiefly class. However, the non-iTaukei society has a different power distance from the iTaukei society. DATA AND METHODOLOGY The research design encapsulates qualitative and descriptive methods to analyze the findings. The research methods involve the case study of three entities namely, Paradise Beverages (Fiji) Ltd (PBL); Home Finance Company Ltd (HFC) and Greenpeace Australia Pacific (GAP). The analysis was limited to the examination of archival materials over three years from 2012 to 2014. These included the annual reports and websites of these three entities. To further validate our findings, we conducted interviews with knowledgeable individuals in these three organizations. We interviewed the Manager Finance at Paradise Beverages (Fiji) Ltd (hereafter referred to as Interviewee # 1) and for Home Finance Company Ltd we interviewed the acting Chief Executive Officer and General Manager Risk and Governance (hereafter referred to as Interviewee # 2). Finally, we interviewed an Oceans Campaigner at Greenpeace Australia Pacific (hereafter referred to as Interviewee # 3). Our central research objectives for this study are stated below:

1) To critically consider why these entities have different accountabilities and how they may best develop their accountability to parties interested in their operations.

2) What implications will expansion of each entity’s accountabilities have for their processes of

governance? RESULTS AND DISCUSSION Our analysis and discussion is divided into three sections based on our research objectives. Section A: Why Do Accountabilities of These Three Entities Differ? The underlying reason is that these three entities operate in different sectors in Fiji and thus have different stakeholders. PBL operates in the brewing industry; HFC operates in the Banking sector and GAP in the

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NGO domain. The type of sector or industry that these three entities operate in affects their nature of accountability to their stakeholders. Another reason is the level of competition in the market. PBL is the only manufacturer of alcoholic beverages in Fiji and thus enjoys a monopoly power in the market. This could explain why PBL does not disclose its social and environmental performance in its annual reports. After doing a content analysis of PBL’s annual report, it was found out that the annual reports of PBLwere purely designed to meet the needs of their shareholders. However, competition in the banking sector in Fiji is high with the existence of many other banks. Due to high competition, HFC has to be accountable to its stakeholders in the highest level possible to gain legitimacy within the Fijian society. GAP provides accountability to its stakeholders by disclosing financial and non-financial information in its annual reports and also by disclosing information on its website. GAP has a different accountability spectrum when compared to PBL and HFC because they operate on the NGO domain and mostly deal with the social, environment and human rights issues. In light of this, it can be argued that the stakeholders of these three entities have different needs and thus the type or level of accountability offered is different. For example, PBL is accountable to the Reserve Bank of Fiji (RBF) in terms of compliance with the Code of Corporate Governance whereas HFC is accountable to RBF in terms of compliance with regulatory requirements such as the banking acts and insurance acts. How Paradise Beverages (Fiji) Ltd May Best Develop Its Accountability to Their Stakeholders? The findings indicate that accountability rendered by PBL is driven by the need to fulfill their shareholder’s needs. Interviewee # 1 said that the main focus of PBL was on shareholders, customers, suppliers & regulators. Interviewee # 1 did not mention PBL’s accountability to its employees and the community. The annual reports only provide the shareholders with financial information but do not provide any information pertaining to non-financial information such as how PBL is performing socially and environmentally. Current investors need to know how PBL is exercising its corporate social responsibility and may want to know to what extent PBL is environmentally and socially focused. Presumably, shareholders of PBL are environmental conscious and are concerned about their reputation. PBL needs to disclose its corporate social responsibility information in its annual reports or alternatively develop a website to disclose this. How Home Finance Company Ltd May Best Develop Its Accountability to Their Stakeholders? HFC’s accountability is driven by its corporate culture since this is embedded in HFC’s statement of corporate mission, vision and values. But at present, HFC does not publish any annual reports because they only have two major shareholders namely, Fiji National Provident Fund (75% holding) and Unit Trust of Fiji (25% holding). HFC can publish annual reports since the annual reports would serve as vehicle by which HFC can disclose more relevant and detailed information to all of its stakeholders. The annual reports will make it easier for stakeholders to follow and understand HFC’s operation because annual reports will consolidate all of HFC’s financial and non-financial information. Furthermore, the annual reports will help to inform HFC’s stakeholders how HFC is accountable to them. Interviewee # 2 mentioned that HFC is considering the possibility of publishing its annual reports from this year. He said:

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“We are looking at to publishing annual reports from this year…we did a cost benefit analysis. It was not required but it seems to be necessary for other disclosure purposes. Now that we have gone into the banking field [HFC became a bank in 2014]….it is something that we are considering from this year”. Alternatively, HFC can consider placing its audited financial statements on its website. In this case, accountability pertaining to HFC’s financial performance can reach a wider range of interested groups most notably, its customers, creditors and the community. How GAP May Best Develop Its Accountability to Their Stakeholders? The International Non-Government Organization (INGO) Accountability Charter sets out core values and operating principles for Greenpeace International. Greenpeace International then transmits these core values and operating principles to all its regional and national offices all over the world. Hence, a proper accountability mechanism currently exists for GAP. Interviewee # 3 said that despite them being centralized in Australia, their operations will in fact remain the same for Fiji and their accountability will not change to a great extent. Interviewee # 3 stated that “We have just relocated but our ideals remain the same. Our accountability to Fiji will not be altered to a large degree but we will continue to provide satisfactory accountability”. However, there are some suggestions for improvements for Greenpeace Australia Pacific. Firstly, GAP can enhance its accountability by being more transparent to the society in Fiji by providing specific reports and placing them in the public domain so that their stakeholders are aware of the activities they are engaging in. Secondly, Interviewee # 3 said that “the accountability of Greenpeace to the society is based on how much they are doing to protect the environment”. However, it is suggested that they can be more proactive on issues pertaining to deforestation and pollution by holding environmental awareness campaigns in Fiji. The relevance of these campaigns would help Greenpeace exert its accountability to the society because such activities are what the society would expect them to do. Section B: What Implications Will Expansion of Each Entity’s Accountabilities Have for Their Processes of Governance? For PBL, any expansion in the nature of accountability will have an impact on the type of accountability relationships. Currently, PBL has a vertical (unidirectional hierarchy) accountability structure whereby all the employees reports to the management, and the management reports to the shareholders. Any expansion of accountability will require the accountability relationship to become bilateral (that is, bidirectional) in nature. For example, the General Manager becomes accountable to the line managers and the line managers are accountable to the junior level employees. HFC’s governance structure is well developed and dynamic (that is, subject to continuous improvement). Interviewee # 2 mentioned that HFC has a continuous improvement program within its policy framework. The RBF has developed a governance framework for all banks in Fiji, based on the corporate governance policy established by the Bank of International Settlements (BIS). HFC implements these changes and makes recommendations to the RBF on certain issues that needs to be addressed and considered. This, according to Interviewee # 2 is being done to improve the governance structure in HFC so that they can be more transparent and accountable. He said that:

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“There is a continuous improvement in our policy framework…..it has to do with corporate governance framework….. Together with that we have also been giving advice to the central bank [RBF] as to how these things should work”. The Stichting Greenpeace Council (SGC), on behalf of Greenpeace international, acts as a signatory to the INGO Accountability Charter which enables Greenpeace to enhance its accountability and transparency to its stakeholders. GAP also adopts this accountability charter in its corporate governance program. The governance structure for GAP is appropriate because it allows for monitoring and some legislative changes to best meet its governance objectives. More so, the directors at GAP compromise of environmental experts and GAP is able to enhance its governance through the intelligent accountability through its annual general meeting. Section C: Application of Accountability and Governance Theories to Develop a Theoretical Framework The arguments drawn for PBL relates to application of agency theory. PBL is a publicly listed entity whereby the management is mainly accountable to its principals or the shareholders since they are the ones who strengthen the capital structure of PBL. In our analysis, it was highlighted that PBL is rendering its accountability to its shareholders through the provision of audited financial statements within its annual reports. In addition to this, the positive stakeholder theory also helps to justify our arguments that PBL focuses on rendering higher accountabilities to certain stakeholders only. This was also mentioned by Interviewee # 1, who stated that PBL provides more accountability to their important stakeholders such as shareholders, customers, suppliers and regulators. One of the theories that underlie our basis of argument for HFC is the agency theory. In line with the discussion provided for PBL, the agency theory drives HFC’s accountability to its two shareholders. Fiji National Provident Fund and Unit Trust of Fiji need to know how and where their funds are being used and what the financial status of HFC is. Furthermore, the normative branch of the stakeholder theory also underpins our arguments. HFC operates in the banking sector and thus they have a wide range of interested parties to whom they are rendering their accountability. Interviewee # 2 mentioned that HFC is discharging its full accountability to all its stakeholders. He said that: “….it’s in our corporate culture and values….we treat all our stakeholders fairly and equally. We actually pride ourselves on this basis and more so, if we feel that we are not being fully accountable to any one of our stakeholders….we look at those issues and try to fix it up”. One way in which HFC is planning to enhance its accountability to all of its stakeholders is through the development and publication of their annual reports. On this same note, the legitimacy theory can also apply to our arguments pertaining to the manner in which HFC exercises its corporate social responsibility. HFC engages in a wide spectrum of social activities when compared to PBL. These social activities are designed to channel HFC’s accountability to the wider community and justify (that is, legitimize) its existence in the society. The theory that underpins the arguments for GAP is the ethical or normative stakeholder theory. Greenpeace is accountable to all its stakeholders through the audited financial reports and annual reports which help to legitimize its operations in the society, so that they can achieve their objectives and goals. The ethical stakeholder theory is relevant because GAP exists on an ethical basis for the benefit of the whole society.

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Another theory that relates to our arguments of GAP is resource dependence theory. Greenpeace is an organization that is highly dependent on outside resources in order for them to operate successfully. One of the major resources that Greenpeace is dependent upon are donations and volunteers. GAP’s 2013 annual report indicates that board of director’s compromises of influential individuals (such as environmental scientists and environmental academics) and they have the means to get the necessary resources such as donations, human capital and technical equipment for GAP to operate successfully in the Pacific region. CONCLUDING COMMENTS This paper examines the appropriateness of accountability to stakeholders and three entities were studied namely Paradise Beverages (Fiji) Ltd, Home Finance Company Ltd and Greenpeace Australia Pacific Ltd. These three entities were used to gauge just how vague and complex the nature of accountability can be. Our analysis dealt with the two main research objectives that were central to this study. It was highlighted that industry type, level of competition and the differing needs of stakeholders affects the nature of accountability rendered by these three entities. We also found out that GAP would not require major changes in their governance processes and in the same context, HFC’s governance structure is appropriate but can be improved upon. However, the governance structure for PBL will require some changes if PBL has to improve its accountability. Overall, the findings of this study indicate that discharging accountability to stakeholders is always context specific. Accountabilities towards stakeholders can be improved on but cannot be generalized to other accountability structures because different stakeholders of different entities have different accountability requirements. This study contributes to our understanding of the vagueness of the nature of accountability and other entities in Fiji and across the globe can understand that the process of discharging accountability can never be perfect for all of their stakeholder groups. The limitations of this study are as follows: Firstly, Greenpeace (Fiji) closed its Fiji operations due to cost constraints and this affected the results since insights could not be obtained as to the nature of their accountability in Fiji. Hence, Greenpeace Australia Pacific and in some cases Greenpeace International had to be used as a proxy. The analysis pertaining to Greenpeace Australia Pacific may not depict the true nature of their accountability in Fiji. Secondly, the sample of entities did not extend to the public sector (such as, government ministries and departments) and to other jurisdictions in Fiji. Our research could not sustain certain issues and thus areas for future research could look at accountability issues in other sectors in Fiji, such as the public sector because government ministries and departments also have stakeholders to whom they are accountable to. Other sectors can include the transport and real estate sectors. Research can also be undertaken for entities that operate in the same sectors to enhance comparison. Future research can also look into what roles auditors can play in helping entities to discharge higher levels of accountability. REFERENCES Blair, M. M., & Stout, L. A. (1999). A Team Production Theory of Corporate Law. Virginia Law Review, Vol. 85, No.2, pp. 247-328. Davie, S. S. K. (2005) The politics of accounting, race and ethnicity: a story of a Chiefly-based preferencing, Critical Perspectives on Accounting, Vol. 16 No. 5, pp. 551-577. Dhanani, A and Connolly, C., (2012) Discharging not-for-profit accountability: UK charities and public discourse. Accounting, Auditing & Accountability Journal; Vol. 25 No. 7, pp. 1140-1169.

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Fosters Group Pacific Ltd (2012) Annual Report. Retrieved on April 2nd from South Pacific Stock Exchange:http://www.spse.com.fj/Company-Information/Listed-Companies-Annual-Report/2012-Annual-Reports.aspx. Greenpeace Australia Pacific. (2013). Annual Report. Retrieved May 15, 2014, from www.greenpeace.org/australia/en:http://www.greenpeace.org/australia/en/about/how-is-greenpeace-structured/finance/. Greenpeace Australia Pacific. (2014, May). Greenpeace. Retrieved May 31, 2014, from http://www.greenpeace.org/australia/en/: http://www.greenpeace.org/australia/en/?ref=stop-the-maules-creek-min. Greenpeace International. (2012). Annual Report. Retrieved May 15, 2014, from www.greenpeace.org: http://www.greenpeace.org/international/en/about/how-is-greenpeace-structured/reports/. Home Finance Company Ltd (2013). Key Disclosure Statement. Retrieved on April 2nd from Home Finance Website: http://www.hfc.com.fj/annual-reports-and-agm/. Jensen, M., and Meckling, W., (1976) Theory of the firm: managerial behavior, agency costs andownership structure, Journal of Financial Economics; Vol. 3, pp. 305-60. Joannides, V. (2012) Accounterability and the problematics of accountability. Critical Perspectives on Accounting, Vol 23, pp. 244-257. Law. P., (2008) An empirical comparison of non-Big 4 and Big 4 auditors’ perceptions of auditor independence. Managerial Auditing Journal, Vol. 23 No. 9, pp. 917-934. Lodhia, S. K., & Burritt, R. L. (2004). Public sector accountability failure in an emerging economy:The case of the National Bank of Fiji. The International Journal of Public Sector Management, Vol. 17, No. 4, pp. 345-359 Mashaw, J, L. (2006) Accountability and institutional Design: Some thoughts on the grammar of governance. Yale Law School. Working paper, SSRN. Research Paper No. 116. Messner, M. (2009) The limits of accountability. Accounting, Organizations and Society, Vol 34, issue 8, pp. 918–938. O'Donovan, G. (2002) Environmental disclosures in the annual report: Extending the applicability and predictive power of legitimacy theory. Accounting, Auditing & Accountability Journal, pp. 344-371. Paradise Beverages (Fiji) Ltd. (2013) Annual Report. Retrieved on April 2nd from South Pacific Stock Exchange:http://www.spse.com.fj/Company-Information/Listed-Companies-Annual-Report/2013-Annual-Reports.aspx. Porter, B. A. (2009). The audit trinity: the key to securing corporate accountability. Managerial Auditing Journal, vol 24,No.2 , pp. 156-182. Pfeffer, J. (1972) Size and composition of corporate boards of directors: The organization and its environment, Administrative Science Quarterly, Vol 17, pp. 218-229.

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Pfeffer, J., and Salancik, G, R., (1978) The External Control of Organizations: A Resource Dependence Perspective. New York: Harper & Row. Roberts, J. (2009) No one is perfect; the limits of transparency and an ethic for ‘intelligent’ accountability, Accounting Organizations and Society, Vol 34, pp. 957-970. Rotuivaqali, M. T., & White, M. (2013). Accountability Failures in an itaukeicorporation:The case for a Fiji provincial company. Conference paper. Seventh Asia Pacific Interdisciplinary Research in Accounting Conference, Kobe 26-28 July . Ruf, B., Muralidhar, K., Brown, R., Janney, J., and Paul, K., (2001), An empirical investigation of the relationship between change in corporate social performance and Financial Performance. A stakeholder theory perspective. Journal of Business Ethics, Vol 32, No 2; pg. 143-156. Samkin, G and Schneider, A., ( 2010) Accountability, narrative reporting and legitimation. The case of a New Zealand public benefit entity. Accounting, Auditing & Accountability Journal, Vol. 23 No. 2, 2010 pp. 256-289. Shaoul, J., Stafford, A., & Stapleton, P. (2012). Accountability and Corporate Governance of Public Private. Critical Perspectives on Accounting, Vol 23, Issue3, pp. 213-229. ACKNOWLEDGEMENT The authors of this article would like to thank Professor Michael White who is a distinguished Professor at the University of the South Pacific for providing his insightful comments and feedback on this research study. The authors would also like to thank Mrs. Sheetal Mala for her dedication and valuable contribution to this study. However, the authors themselves are responsible for any errors or omissions which remain. BIOGRAPHY Ezaaz Hasan is a tutor in accounting at the University of the South Pacific. His research interest lies in the areas of public sector auditing and SME reporting. He can be reached at the University of the South Pacific, Laucala campus, Suva. Email address: hasan_e@usp.ac.fj. Anjani Mala is an assistant lecturer at the Fiji National University. Her research interest lies in economic policy. She can be reached at the Fiji National University, Nasinu campus, Suva. Email address: anjani.mala@fnu.ac.fj. Glen Finau is an assistant lecturer at the University of the South Pacific. His research interest lies in the areas of information systems and corporate governance. He can be reached at the University of the South Pacific, Laucala campus, Suva. Email address: finau_g@usp.ac.fj.

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www.theIBFR.com

THE VALUE CREATION MODEL OF PATENT

MARKET INTERMEDIARIES Jin Bih-Huang, Tunghai University

Chun-Yu Chu, Tunghai University, Taiwan

ABSTRACT In the era of knowledge economy, governments and entrepreneurs place importance on innovation and intellectual property gradually. Because of a shortened product of life cycle, increasing costs of R&D, many managers adopt the concept of open innovation. The market for patent licensing and monetization grows rapidly, as Open Innovation becomes the de facto management philosophy at more and more firms. Unfortunately, there are many obstacles while trading patents; therefore, patent intermediaries join the market. As the patent market grows, there is a diversity of patent intermediaries. However, studies about patent intermediaries are still lacking. Although a few studies mention patent intermediaries, they discuss how patent intermediaries run their business and what roles they play. The purpose of this thesis is to discuss what value patent intermediaries create in the patent market and how they do it. In this study, based on Amit and Zott’s (2001) value creation configuration, we discuss the value creation model of intermediaries for the patent market. We used a case study and expert interviews. We choose some representative patent intermediaries from abroad and in Taiwan. The interviewees are executives and directors in the organisations. The result appears that patent intermediaries provide integrated services to their clients. They create value based on four dimensions: efficiency, complementarities, lock-in, and novelty. Building a long-term relationship and trust with clients or members is the key success factors. JEL: O34 KEYWORDS: Patent Market, Value Creation, Case Study, Intermediary INTRODUCTION

ollowing the concept of Schumpeterian “creative destruction”, innovation provides momentum for economic development. The company’s competitive advantages stem from its continuous innovation. Somehow, according to Chesbrough (2006), western R&D laboratories have been

downsized, broken up, or redirected to new purposes since the start of the 21st century. Firms are also pressed by shortened product life cycles and the diseconomy of invention. Nowadays, firms realise that there are many ways to acquire innovation. Senior managements have adopted an open approach to create innovation efficiently (Tietze and Herstatt 2009). Firms started to open their innovation processes to acquire intellectual property in order to access the rights to operate technologies. They license and purchase intellectual property beyond business boundaries when they need to. At the same time, many companies invest huge sums of money on innovating new products to market, but for some reasons such as business focus changing, project leader leaving or no discernible reason at all, the products may never get to the market. If the firm is not selling the product disclosed and claimed in its patent, it makes sense that it might be willing to sell it to another firm to recover some of the sunk costs and to generate an ongoing licensing stream. Previous papers have discussed what obstacles exist in the patent market, why patent intermediaries join in, what roles they play, and what risks they can reduce. Chesbrough (2006) mentions the difficulties of

F

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patent transactions, and Troy and Werle (2008) highlight the uncertainties between companies who are willing to sell and buy their patent in the process of patent transactions. In order to solve the inefficiency and illiquidity of the patent market, intermediaries join in this market. They provide specialised service in a specific domain, just like the broker’s role in the real estate and stock markets. They bring sellers and buyer to meet each other. We believe patent intermediaries not only reduce uncertainties and risks in patent transaction process, they also provide services beyond patent transactions. Intellectual property can include patents, trademarks, trade secrets, copyrights, and semiconductor masks (Sullivan 1998). Our study focuses on patent monetization market because patents give owners the possibility to exclude other companies from the market. A consequence result of a patent litigation can therefore be the prohibition of competitors to sell their products in whole areas. Patents play an important role in various business fields. Firms leverage their patents to gain revenue and competitive position through legislation, spin-offs, licensing, or commercialisation. Though patents bring many benefits to firms, there are many obstacles and risks when it comes to patent transactions. From the perspective of value creation, the aim of this paper is two-fold. Firstly, we want to discuss what value patent intermediaries create for their clients. According to previous studies, we know patent intermediaries do not just match supply and demand; they provide value to the transaction (Benassi and Minin 2009). Secondly, how do patent intermediaries deliver value? Patent intermediaries try to implement more standard governance to diminish transaction costs (Tietze and Herstatt 2009). Also, they design mechanisms to offer value-added services to their clients in order to sustain their long-term relationship. We expect the contribution of this paper is to analyse different value creation modes and forecast how patent intermediaries will develop in Taiwan. In order to achieve our aims, we use a case study and expert interviews. This paper is structured as follows: First, we discuss the uncertainties during a patent transaction, patent intermediaries, and value creation. Second, we talk about how we conduct this paper. Third, we elucidate value creation from four sources. The paper concludes with a discussion of the findings and the future direction. LITERATURE REVIEW Obstacles in the Patent Market Information: One of the major difficulties transaction participants face is the alignment between patents for sale and the number of willing corporate buyers. Chesbrough (2006) mentions that one of the issues in accessing external technology is asymmetric information. They are assessing not just technical properties but also intangible issues regarding the difference between technologies, the future performance of the technology. The asymmetric information is particularly complex when the technologies are new and emerging. Additionally, Troy and Werle (2008) highlight the uncertainties and risks that companies will encounter during the patent transaction process. There are two types (strategic and fundamental) of uncertainties are relevant. The former type is fundamental or substantive uncertainty, the companies lack information necessary to make decisions with predictable outcomes. The other type is strategic uncertainty, which relates to the situations of asymmetric information. Asymmetric information will cause moral hazard and other forms of defective action (Troy and Werle 2008). Troy and Werle (2008) point out that patents contain knowledge in codified form, but it doesn’t mean there will be no problem with content. Because of a tricky patent claim and complex data, potential buyers and licensees often have difficulties figuring out what the future product will be like and what value it will have.

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Traders: Another obstacle is that patent sellers (licensors) can’t find potential buyers or licensees easily. Identity exposure is one of the issues during a patent transaction (Chesbrough 2006). Patent owners don’t know who is interested in their patent or how to find buyers or licensees. This will decrease liquidity for the patent market, and the value patent can’t be extracted as owners want. On the other hand, if sellers or licensors know who is interested in a patent, they may raise the deal price. That will cost buyers or licensees more to acquire the patent. Patent buyers or licensees will ask an agent to find a suitable patent for them. Chesbrough (2006) notes that patent intermediaries should foster a two-sided market. Millien and Laurie (2007) think patent intermediaries are not patent creators or consumers but market creators. They also gain revenue from matching patents. Specialisation: The third obstacle is the complex process of patent transactions. According to Benassi and Minin (2009), there are three parts of the process that patent intermediaries are involved in: intellectual property (IP) asset evaluation, market identification and selection, and negotiation. Technological experts evaluate the value of patents and select suitable patents. To find the potential opportunities of commercialisation, licensing, or transaction, patents are analysed based on technology, law, industry, and the business field. Large-sized companies might establish an intellectual department to cope with intellectual assets. On the other hand, small and medium-sized companies prefer to cooperate with intermediaries. There are many phases to go through the patent monetization process. Companies have to hire experts in different fields to work for them and build a database of industries and patents. For general companies, they will find it very difficult to know where to start and will be very willing to pay someone to help them navigate the world of patent monetization. Small and medium-sized companies will not internalise IP function (Benassi, Corsaro et al. 2010). Patent Intermediaries There is a variety of intermediaries in the market. Basically, intermediaries bring both the supply and demand sides to meet each other, and can reduce inefficiency in the market (Biglaiser 1993). Benassi and Minin (2009) attribute the reason patent intermediaries exist to transaction costs. They think incomplete information would make the patent market inefficient. Many studies talk about inefficiency in the patent market. Chesbrough (2006) claims there is one solution to these problems, and intermediaries are the answer. Previous studies discuss how to cope with uncertainties and transaction costs. Troy and Werle (2008) note that patent intermediaries increase credibility and a trusting atmosphere by providing accurate information, specialising in patent trading and contracting. As we mentioned previously, symmetric information is an obstacle in the process (Chesbrough 2006). In order to accomplish a patent transaction, patent intermediaries not only need to know about the status and context of a patent, but also the industry and market. When patent intermediaries provide accurate information to their clients, they will know exactly what patent they buy and what to do about the patent in the future. There are many steps to go through in a patent transaction: searching, market identification, selection valuation, due diligence, and negotiation. Patent intermediaries have the specialisation to deal with those with their expertise. Because of their specialisation and experience, customers could rely on them for help. We believe intermediaries may reduce uncertainties and risks, as well as offer added-value services to clients. Sometimes patent intermediaries discover the potential value of patent. Companies leverage their patent to gain more profit. Some studies talk about transaction modes of patent intermediaries. McLaughlin and Moss (2009) discuss different roles patent intermediaries can play. They separate patent players from buyers, sellers, and

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intermediaries. They further consider the role of patent aggregator who purchase patents and then provide defensive protection service in case of an infringement lawsuit and license patents they bought to generate profit. Millien and Laurie (2007) describe thirteen established and four emerging modes of patent intermediaries. There are many modes that patent intermediaries existed. Benassi and Minin (2009) discuss how economic and sociological theories explain the existence of patent intermediaries and classify patent intermediaries according to the value they add to the transactions. They provides a taxonomy of different types of intermediaries as enforces, aggregators, deal makers, shields, technology promoters, consultants, and evaluators. Bessant and Rush (1995) note that consultants can improve the operation of the innovation process. Their specialisation and experiences also speed up the transaction process. Some inventors have good ideas or patents, but they do not have enough resources to commercialise. Patent intermediaries may give them financial support or connect them with firms who are interested in them. Value Creation In the previous section, we talked about patent intermediaries reduce uncertainty and transaction costs for their clients and focuses on the efficiency enhancement. This section we will focus on the value creation role of patent intermediaries. The traditional view of value was introduced by Porter (1985), who explains that value is customers’ willingness to pay for service that is provided by firms. He believes firms offer their value through a series of activities called a value chain. Stabell and Fjeldstad (1998) extend Porter’s value chain concept into three distinct value configuration models configurations which are the value chain, the value shop, and the value network. These three value configurations provide a foundation for a theory of value configuring for competitive advantage. From this point of view, patent intermediaries are not patent creators but facilitators and assistants in this market. They solve problems and match patents for their customers. Chesbrough et al. (2006) mention the sources of value drivers which are efficiency, convenience, enabling and complementary goods. From another angle of value creation, Amit and Zott (2001) note the value creation structure consists of efficiency, complementarities, lock-in, and novelty. They think efficiency is consistent with transaction cost theory (Williamson 1975). This will help to speed up the transaction process. Complementarities are present whenever having a bundle of goods and services together provides more value than the total value of having each of the goods and services separately(Amit and Zott 2001). Teece (1986) also points out the importance of complementarity. He thinks that although a company has the advantages of first mover, without control the complementary assets may lose the market. Imitators who have critical complementary assets may have a better position in the market. We believe complementarities include not only goods but also physical and human resources. From the aspect of a strategic network, firms can build their competitive advantage from integrating external resources well.(Dyer and Singh 1998) Gulati et al. (2000) explain that once firms’ relationships occupy a more central position in the strategic network they enjoy superior returns. They will have better information and opportunities than others that are peripheral (Gulati, Nohria et al. 2000). Another firm’s critical resources may span firm boundaries and may be embedded in interfirm resources and routines. Dyer and Singh (1998) identify the four sources of interorganisational competitive advantage that are relation-specific assets, knowledge-sharing routines, complementary resource and capabilities, and effective governance. They note that after long-time interaction between firms, they will know each other enough to know who knows what and where to find the expertise (Dyer and Singh 1998). Normann and Ramirez (1993) point out another value creation concept — value constellation. They think a value creation system should be created by the participating firms. They also note two things are matters of the new logic of value: knowledge and relationship or a company’s competencies and its customers.

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Basole and Rouse (2008) point out that value includes the tangible and intangible. The former involves the price, quality, design functions, choices, customisation, and variety. The latter involves convenience, style, trust, security efficiency, and ease of life. During the patent transaction, patent intermediaries need to consider both the tangible and intangible dimensions of value. RESEARCH METHODOLOGY The topic of patent intermediaries is rarely discussed. Given the early stage of research on the topic, a qualitative approach was chosen because of its explorative character. Eisenhardt (1989) thinks a case study can be adopted to build fundamental theories and explore new phenomenon. Yin (2014) points out that a case study is a research strategy to deal with questions about “how” and “what”. Our aim in this paper is to study what value patent intermediaries provide and how patent intermediaries create value for their client through patents. Therefore, we adopted a case study as our research strategy. We chose seven patent intermediaries who had experience in patent transactions since their establishment. Table 1 lists the research samples included in this study. The samples that we picked devote themselves to matching patents for demand and/or supply sides. We collected secondary information from official websites, reports, and magazines. Because of the lack of public data about patent intermediaries, we also used expert interviews. For the purpose of knowing how patent intermediaries work, we interviewed executives or the top manager of patent intermediaries in Taiwan. The second reason we interviewed experts was because of the lack of primary sources on foreign patent intermediaries. The experts who we contacted had experience cooperating with them. We expected to gain more information about foreign patent intermediaries from them. We also used a snowball technique to build our samples. For this study, over ten open semi-structured interviews were conducted. The interviewees in this study are listed in Table 2. The interviews each lasted between one and two hours, and were conducted between April 2010 and Sep 2012. Table 1: Research Samples of the Case Study

Name Website

yet2.com http://www.yet2.com ICAP Ocean Tomo http://icapoceantomo.com/ InnovationXchange http://www.ixc.com.au/default Allied Security Trust http://www.alliedsecuritytrust.com/ RPX Corp http://www.rpxcorp.com/index.html TWTM http://www.twtm.com.tw ITRI http://www.itri.org.tw/chi/ttc/ APIPA http://www.apipa.org.tw/ CBEX http://www.cbex.com.cn/ Preventive maintenance

Table 1 provides a summary of the research samples and data sources included in this study. RESULTS In this section, we try to explain how patent intermediaries create value based on the value creation configuration introduced by Amit and Zott (2001). Efficiency From the literature review of this paper we know there are uncertainties during a patent transaction. Information is very critical in a patent transaction. Asymmetric information will be an obstacle to finding potential buyers and searching for patents. All patent intermediaries would try their best to search for

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information and data they need. APIPA builds an IP related multi-purposes databases to serve the industries in Taiwan through World Wide Web and provides services that include patent information, prior art search and analysis, and integration of databases from other countries. Table 2: Interviewees Position

Managing Director of Asia Pacific Intellectual Property Association President of Gainia Intellectual Asset Services Director of ITRI Technology Transfer Centre Division Director of ITRI Technology Transfer Centre, IP International Business Div. Division Director of ITRI Technology Transfer Centre, IP Business Div. Vice Director of National Chiao Tung University Innovation Incubation Centre General Manager (Taiwan) of Transpacific IP group Director of Peking University Science and Technology Law Centre CEO of WISPRO Group President of Cornerstone Intellectual Property Foundation Director of China Beijing Equity Exchange Table 2 shows the interviewees in this study When patent intermediaries have the ability to collect more information and integrate databases, they can quickly offer more details to clients. They collect multiple dimensions of information for their clients’ convenience and to reduce search costs. “Our existence is to decrease supply and demand sides cost and provide economic benefit. More and faster information is better.” This will speed up the progress of data searching. The information provided by patent intermediaries is not only about the patents themselves but also the patent underlying invention and industry. They should analyze the patents to understand how well positioned does the patents and to examine how to extract value from the patent and match suitable buyers or sellers. The intermediaries, such as ITRI, RPX, AST, and IXC, make use of professional employees to provide compelling information. Because of their expertise, experience, and abundant resources, the intermediaries cope with a deal faster than general companies or individuals. They know how to operate the process of a patent transaction, who the possible buyers and sellers would be, and which patent would be the suitable one. This enhances the quality of a patent transaction. We also know that specialisation is crucial to patent intermediaries. Without specialisation and domain knowledge, they cannot provide efficient service.

Complementarity Complementarity in this paper includes services and patents. Based on the angle of a strategic network, when an organisation can use its external resources properly its gains more advantages and value. There are complicated and cross-field tasks needing to be done, including analysis, valuation, and due diligence inquiry. The tasks can’t be accomplished by a single field of personnel and be accomplished by the experts own the cross-domain knowledge from legislation, technology, valuation, and business. “Patent intermediaries should offer cross-domain services. We need cross domain personnel of technology, business, analysis, and IT to join.” Integration can be internal and external. Usually, large-sized intermediaries have integrity of personnel. When they have better integration, they will enhance their performance. ITRI has its own R&D team to provide technological consultation, a center of technology transfer respond for patent transaction. Sometimes patent intermediaries can’t deal with all of the transactions by themselves. Based on the theory of strategic network, they need to integrate external resources to accomplish the task. Small-sized patent

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intermediaries may need to cooperate with external experts. “Sometimes we need other professional areas of technical experts’ help to find pearls in patents.” ITRI also cooperates with foreign patent intermediaries in order to enlarge the patent list for sale and the number of potential buyers. Its partners include IXC and AST, among others. TWTM has yet2.com, Tynax, BTG, and IPTJ as its partners. By building a relationship with other patent intermediaries, they have more information and patents. Aside from the complementary assets of service and personnel, finding the complementary patents is important too. Individual patents are like bricks and a portfolio is like a collection of bricks Figuring out the proper complementary patents and building a patent portfolio is the important task to create, protect, and grow value for shareholders. It’s different from just matching patents. Building a good patent portfolio can enhance the patent’s strength and enhance value more than a single patent. Patent intermediaries have to do their best to extract, and maximise patent value. Managing a patent portfolio requires much effort, and they should thoroughly analyse clients’ patents and forecast the future. Patent intermediaries explore how to exploit a patent portfolio in the market. Lock-in There are two important concepts of lock-in: repeated purchase and switching costs. Here we want to discuss how patent intermediaries design a lock-in mechanism. The following is how our research samples design their lock-in mechanism. RPX gives early joining members a discount with a reduced rate for their annual fee. The later members receive the same benefit as early joiners. ITRI contracts in long-term cooperation with its clients with a two-part tariff scheme. The initial membership fee is based on the service category corresponding to the service level. The annual fee is due each year at the end of their anniversary month (the month of their initial allocation). The members can get a greater discount rate if they pay the initial and annual membership fee in advance. Above we talked about discounts and contracts that are tangible between patent intermediaries and their members or clients. Now we want to discuss intangible things like relationships, trust, and reputation. When patent intermediaries cope with a patent transaction, they need to know some private and confidential information about clients’ technology and needs. “Generally speaking, the needs of the supply and demand sides are indefinite. Without specific instruction, we barely offer satisfied service. Sadly, it is not easy to know clients’ needs truly. We still try best to align to clients’ interests.” How to build a strong connection between them is an important issue. “In an atmosphere of trust, there will be better interaction between clients and us.” Because patent service is a customization, it is important to know your clients’ needs. “Patent intermediaries would like to spend lots of time building relationships with their clients and win their trust.” IXC would send so-called trust intermediaries to clients’ companies to facilitate the secure and sensitive knowledge or information. They sign non-closure agreements with their clients, and guarantee not to leak information to a third party who is not in IXC and help them to purchase patents. Building a long-term relationship with clients is beneficial to increase the quality of matching. “There are two ways to win a client’s trust. The first one is to name some important or heavyweight clients that you have served. Secondly, show them your achievements.” Generally speaking, accomplishing a patent transaction would take about a year; no one wants to waste a long time on someone who can’t get things done. When a patent buyer and seller choose a patent intermediary, they will take their trades of record into consideration. ITRI does something different to win clients’ trust. Nowadays, patent litigation is recognized by many companies as a valuable tool to maintain exclusivity and create profit margins. The outcome of litigation coupled with the advent of non-practicing entities has resulted in a flurry of patent litigations in recent

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years. In this scenario, firms face the need to formulate an effective strategy to tackle patent infringement accusations. It came up with a service for helping clients deal with lawsuits, which is also a way to win clients’ trust. ITRI collects the list of infringement lawsuits and finds potential clients from the list. It also collects data to do some preliminary analyses before meeting target clients and planning how to deal with the lawsuits that the accused faces. Once the accused becomes ITRI’s client, ITRI analyses the information in detail and searches for patents to acquire for defensive purposes. In Taiwan, ITRI assists many companies in settling. Novelty As we mentioned in the previous section of this paper, there are various types of transaction modes created by patent intermediaries. “The patent transaction model should change along the time axis.” Our research samples are representative modes of patent transaction. ITRI and Ocean Tomo developed a patent auction to trade patents. They would evaluate patents before the auction started and potential buyers could ask for limited information about the patent they wanted. This mode shortens the transaction time. If a firm or individual gets the authorization of a patent, they must pay a maintenance fee to the office to keep their patent valid. It would cost a lot if a firm has many patents in different countries. In order to provide greater convenience to clients, APIPA offers a patent management service first. It monitors the date of the maintenance fee notice for the clients to prevent from been extinguished. To provide superior services, APIPA cooperates and integrates its database with others. Because patent trolls boom in the market, many companies face lawsuits, which cost a significant amount of money. Some patent aggregation intermediaries such as AST, RPX and ITRI try to buy out all the patents that might be asserted against their members. They will assist members with the creation of patent portfolios and later assist in defending them from suits and in expanding their market share. A member fee will be used to purchase patents to build patent aggregation; every member has the right to be a licensee. Every member in AST is also a member of the board of directors. They are all involved in deciding which patent should be acquired. RPX uses a mode similar to AST. ITRI brings the concept of insurance into the service it offers. Members pay an annual fee for patent protection. Once a member faces a patent lawsuit, ITRI has to do an infringement analysis and patent research. Yet2.com created an online platform to transact patents, which is the first in the world. Users put their preliminary patent information on the board, search for patents, and have a simple valuation. Yet2.com wants to create an efficient way to attract numerous buyers and sellers to make licensing transactions and then charging a percentage commission on each transaction. Although yet2.com is unable to achieve a sufficient volume of transactions and create sufficient ‘IP liquidity’, their concept is new. TWTM was established by the government of Taiwan provides a similar service to its members. The government wants TWTM to be a central of platform for patent transactions. TWTM is just like a catalyst for patent transactions. It connects patent providers, buyers, and technology service agents. We believe there are connections between these four value creation drivers. At the beginning, we talked about efficiency and complementarity. When patent intermediaries provide critical complementarities and have a strong strategic network relationship, they can offer more information to clients at greater speed, as well as increase their benefits. For examples, APIPA supplies patent related information included by varieties of related patents, technology, and academic literature. Users can have multiple dimensions of information. ITRI internally integrates departments to increase value creation and efficiency. AST and RPX establish patent aggregation clients’ risk of a lawsuit to reduce their costs. When patent intermediaries offer efficiency to clients, they also make the patent market more profitable. A profitable market will attract more strategic networks and providers of complementarities to establish a relationship with patent intermediaries.

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We believe patent intermediaries exploit their strategic networks to increase the quality of service. Patent buyers and sellers take the success of a transaction seriously. “Your clients just give you one chance. They will not cooperate with you if the transaction fails once.” In order to handle the tasks well, patent intermediaries offer them a high level quality of services such as accurate information, professional consultation, and skilled negotiation. When they have abilities to provide quality services, they will gain a reputation and build a brand base on their records. “Building a brand will be another issue to patent intermediaries.” When patent buyers and sellers choose patent intermediaries, they will take their brand and reputation into consideration, as do patent intermediaries to find strategic networks. IXC adopted a different way to build a relationship with their clients — beer, bonding, and being there. It calls them the “three Bs”. As we mentioned previously, IXC sends trust intermediaries to clients’ organizations to implement the three Bs and make an agreement. IXC usually spends about three months building a relationship and gaining trust from clients. It emphasizes trust and relationships. One of our interviewees said: “I think patent intermediaries who are non-profit and semi-official are promising. They can build a good relationship and trust.” AST and RPX, because of their value proposition, should always align with clients’ interests and be on the same side with them. AST designed a good mechanism. Its members share the risks, benefits, and patents. AST and RPX must know their clients to arrange patents they may need in the future. Some patent intermediaries’ new modes create greater efficiency in patent transactions. Ocean Tomo’s auction mode makes accomplishes deals faster. They do not go through lengthy negotiations. The service APIPA offers first is to monitor the date of the maintenance fee. “Doing patent maintenance has lots of costs, including time, human, and physical resources.” Its service is a great help to its members. “APIPA asks for cheaper payment than a general agent because of their role of non-profit foundation.” The mode adopted by AST and RPX is helping members to reduce their risk of a lawsuit. Firms usually don’t want to be in court because it will cost at least $100,000, not to mention indemnity. They protect their members from lawsuits, which greatly helps to avoid risks and reduce costs. DISCUSSION From the relational view of competitive advantage(Dyer and Singh 1998), we found that the patent intermediaries should develop inter-firms relationship and effective governance that result in the sustainable competitive advantage. Lichtenthaler and Ernst (2008) note that patent intermediaries in the internet market should have internal and external integrated services. This will enhance customers’ benefits from relying on intermediaries. Patent intermediaries should do more than one domain task. In order to accomplish the transaction, they would have their strategic network, which will be a great help. Patent intermediaries are not the same size. We believe they should build an external network to at least acquire more information in a variety of areas and have more chances to deal. A sufficient source of patents is import to be successful patent intermediaries. Small-sized patent intermediaries can have the same benefits by building a network with other intermediaries. Patent intermediaries try to integrate horizontal complementarities to offer a one-stop shopping service.

Proposition 1: Patent intermediaries should build strategic network and integrate horizontal complementarities to offer a one-stop shopping service.

Patent intermediaries try to build a relationship and trust with their clients and members. “Building trust is a very significant and critical way to know what your clients need.” Patent intermediaries use many methods to achieve this goal. More opportunities for successful transaction and cooperation come from building trust relationship. Trust between firms and intermediaries helps to reducing transaction costs (Williamson 1979). Normann and Ramirez (1993) explain that the secret of value creation is building better relationships. Troy and Werle (2008) also mention that increasing atmosphere between both sides will

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enhance efficiency. When patent intermediaries build a relationship and trust, they maintain a long-term cooperation opportunities. Howells(2006) notes that collaborations last for periods of year, intermediaries will understand clients better. It involves a deep understanding of their needs and core competences.

Proposition 2: Building a long-term relationship and trust with clients or members is important. By doing so there will be positive feedback

CONCLUSION The aim of this study was to examine the value creation model of patent market intermediaries and to find out what values patent intermediaries create and how they do so. We adopted a case study and expert interviews. The results show that patent market intermediaries should build strategic networks, as well as a long-term relationship and trust with clients. Patent market intermediaries create value based on four dimensions: efficiency, complementarity, lock-in, and novelty. They integrate horizontal complementarities to offer a one-stop shopping service. They increase economic efficiency by reducing transaction costs, integrate internal and external personnel, information, and sources of patent, and build strategic networks. Furthermore, the value proposition of intermediaries should adapt with the changing business environment and customers’ needs. They must always align with customers’ interest. This study has some limitations. The first limit is that our expert interviews were limited to experts in Taiwan. We could not control whether all the relevant patent brokers were included in our list of interviews. Besides, we could not carry out a comprehensive study of the patent market intermediaries. Therefore, future research can verify the critical success of the value creation model for the patent market intermediaries with more case studies or use empirical data for further research. REFERENCES Amit, R. and C. Zott (2001). "Value creation in e-business." Strategic Management Journal 22(6/7): 493-520. Basole, R. C. and W. B. Rouse (2008). "Complexity of service value networks: conceptualization and empirical investigation." IBM Systems Journal 47(1): 53-70. Benassi, M., D. Corsaro and G. Geenen (2010). Are patent brokers a possible first best? Gennaio, Department of Business Statistics. Benassi, M. and A. D. Minin (2009). "Playing in between: patent brokers in markets for technology." R&D Management 39(1): 68-86. Bessant, J. and H. Rush (1995). "Building briges for innovation: the role of consultants in technology transfer." Research Policy 24: 97-114. Biglaiser, G. (1993). "Middlemen as experts." RAND Journal of Economics 24(2): 212-223. Chesbrough, H. (2006). Open business model: how to thrive in the new innovation landscape. Boston, Harvard Business School Press. Chesbrough, H., W. Vanhaverbeke and J. West (2006). Open innovation: Researching a new paradigm. New York, Oxford University Press.

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Dyer, J. H. and H. Singh (1998). "The relational view: cooperative strategy and sources of interorganizational competitive advantage." Academy of Management Review 23(4): 660-679. Eisenhardt, K. M. (1989). "Building theories from case study research." Academy of Management 14(4): 532-550. Gulati, R., N. Nohria and A. Zaheer (2000). "Strategic network." Strategic Management Journal 21: 203-215. Howells, J. (2006). "Intermediation and the role of intermediaries in innovation." Research Policy 35: 715-728. Lichtenthaler, U. and H. Ernst (2008). "Innovation intermediaries: why internet marketplaces for technology have not yet met the expections." Creativity and innovation management 17(1): 14-24. McLaughlin, M. W. and G. E. Moss (2009). Major patent players and the roles they play. Atlanta, GA, The Corporate IP Institute. Millien, R. and R. Laurie (2007). A summary of established & emerging IP business models. The Sedona Conference. Normann, R. and R. Ramirez (1993). From value chain to value constellation: designing interactive strategy. Harvard Business Review. 71: 65-77. Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. New York, Free Press. Stabell, C. B. and O. D. Fjeldstad (1998). "Configuring value for competitie advantage: on chains, shops, and networks." Strategic Management Journal 19: 413-437. Sullivan, P. H. (1998). Profiting from Intellectual Capital: Extracting Value from Innovation. New York, WILEY. Teece, D. J. (1986). "Profiting from technological innovation: implications for integreation, collaboration, licensing and public policy." Research Policy 15: 285-305. Tietze, F. and C. Herstatt (2009). Intermediaries and innovation. Hamburg, Hamburg University of Technology. Troy, I. and R. Werle (2008). Uncertainty and the market for patents, Max-Planck-Institute for the Study of Societies. Williamson, O. E. (1975). Market and hierarchies: analysis and antitrust implications. New York, Free Press. Williamson, O. E. (1979). "Transaction-cost ecnomics: the governance of contractual relations." Journal of Law and Economics 22(2): 233-261. Yin, R. K. (2014). Case study research: Design and methods, Sage publications.

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ACKNOWLEDGMENTS The author would like to acknowledge the financial support of Ministry of Science and Technology. BIOGRAPHY Bih-Huang Jin is Assistant Professor in the Department of Business Administration at TungHai University in Taiwan. He received his Ph.D. in Information Management from the National Chiao Tung University. His research and teaching interests include Internet economics, business model innovation, Information and Technology Management. His papers have appeared in Information and Technology management, Journal of Organizational Computing and Electronic Commerce, Computers in Human Behavior, and International Journal of Manpower, among others. He can be reached at Bihuang@thu.edu.tw. Chu Chun-Yu received the M.S. degree in Business Administration from TungHai University. She can be reached at beate0423@gmail.com.

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Global Journal of Business Research Vol. 9, No. 2, 2015, pp. 87-93 ISSN: 1931-0277 (print) ISSN: 2157-0191 (online)

www.theIBFR.com

DOES INVESTMENT EXPERIENCE INFLUENCE FUND

INVESTORS’ PERCEIVED VALUE AND PURCHASE INTENTION?

Ya-Hui Wang, National Chin-Yi University of Technology

ABSTRACT

Internet is now one of the most popular channels for investors to acquire investment related information. However, investors with different investment experience in mutual fund may have different perceived quality, perceived risk, and perceived value about Internet information. Therefore, this paper investigates the relationships between Internet information richness, perceived quality, perceived risk, perceived value, and purchase intention for investors with different investment experience. Using random sampling, we administered the questionnaires to investors living in Taiwan from March 1, 2013 to June 1, 2013. The research findings show that Internet information has a larger direct effect on perceived value and a larger indirect effect on purchase intention than perceived quality in Group 1 (investors with investment experience in mutual funds before), whereas perceived quality has a larger direct effect on perceived value and a larger indirect effect on purchase intention than Internet information in Group 2 (investors without investment experience in mutual fund before). JEL: G1, M1, M5 KEYWORDS: Information Richness, Perceived Quality, Perceived Risk, Perceived Value, Purchase Intention INTRODUCTION

nternet is now one of the most popular channels for investors to acquire information because they can easily find a huge amount of investment related information through Internet. It raises a question: Will information richness affect investors’ perceived value and purchase intention differently for

investors with different investment experience in mutual funds? Most information richness studies focused on communication media choices (Daft, Lengel, and Trevino, 1987; Lo and Lie, 2008), information security awareness (Shaw, Chen, Harris, and Huang, 2009), or determinants of virtual stores acceptance (Chen and Tan, 2004), with limited research targeting the relationship between Internet information and fund investor’s purchase intention for investors with different investment experience. Therefore, this paper investigates the relationships between Internet information richness, perceived quality, perceived risk, perceived value, and purchase intention for investors with different investment experience in mutual funds. This study’s results can provide a reference for fund industry practitioners, Internet information providers, and mutual fund investors. The rest of this paper is organized as follows. Section 2 reviews previous research on information richness, perceived quality, perceived risk, perceived value, and purchase intention. Section 3 describes the data and method we employ. Section 4 reports the empirical results, and section 5 concludes the paper. LITERATURE REVIEW Information richness is defined as “the ability of information to change understanding within a time interval” (Daft and Lengel, 1984) or “the amount of information that can be conveyed through a communication medium” (Lo and Lie, 2008). Perceived quality is the consumer’s judgment about a product’s overall excellence and superiority, not the actual quality of a product (Zeithaml, 1988; Aaker, 1991). Perceived

I

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risk is defined as the unfavorable outcomes related to a product or service (Engel, Blackwell and Miniard, 1995), the subjective perception of possibility and severity of a wrong purchase (Sinha and Batra, 1999), or the uncertainty a consumer perceives about the outcome of his or her purchase (Hoyer and Macinnis, 2010). Perceived value represents a trade-off between buyers’ perceptions of quality and sacrifice, and it is positive when perceptions of quality are greater than the perceptions of sacrifice (Monroe and Dodds, 1985). Purchase intention is the likelihood that a customer will buy a particular product (Fishbein and Ajzen, 1975; Dodds et al., 1991; Schiffman and Kanuk, 2000). The information richness is higher if more uncertainty and ambiguity can be reduced timely (Daft and Lengel, 1984), or more information can be conveyed within a time interval (Lo and Lie, 2008). In other words, when information richness is high, uncertainty and ambiguity can be reduced more, thus the consumer’s perception about risk will be lower, and investors’ judgment about Internet information’s overall excellence and superiority and their overall assessment of the utility of Internet information will also be higher. That is, their perception about quality and value of Internet information will be higher. Dowling and Stealin (1994) showed that perceived risk increased when information which consumers possess was less complete. Kim and Lennon (2000) also found that the amount of information perceived by the consumer was negatively related to their perceived risk and positively related to their perceived value. Accordingly, we note the following hypotheses. H1: The effect of Internet information richness on perceived value is mediated by perceived quality. H2: The effect of Internet information richness on perceived value is mediated by perceived risk. Perceived risk plays an important role of the perceived quality-perceived value relationship (Sweeney, Soutar & Johnson, 1999; Snoj, Korda & Mumel, 2004). A higher perception of quality improves consumers’ perceived value and then strengthens consumers’ purchase intention (Zeithaml, 1988; Dodds et al., 1991). Chen & Chang (2012) and Beneke, Flynn, Greig, & Mukaiwa (2013) proved perceived risk was negatively influenced by perceived quality. Faroughian, Kalafatis, Ledden, Samouel, & Tsogas (2012) also found perceived risk has a significant impact on perceived value. Besides, many scholars have considered that perceived value is relevant to the emotional responses and consumption experiences of consumers, which can further influence the consumer’s purchase behavior (Dumana & Mattil, 2005; Sweeney & Soutar, 2001). That is, purchase intention is positively related to perceived value (Beneke, Flynn, Greig, & Mukaiwa, 2013; Zeithaml, 1988; Chen & Chang, 2012; Tih & Lee, 2013). Corter and Chen (2006) show that investors with relatively more investment experience have more risk-tolerant responses and higher-risk portfolios than less experienced investors. Nicolosi, Peng, and Zhu (2009) present evidence that individual investors do learn from their trading experience, consequently adjust their behavior, and thus effectively improve their investment performance. It is rather reasonable to suggest that investors with different investment experience in mutual funds will have different perceived risk or perceived value about Internet information. Accordingly, we propose the following hypotheses. H3: The effect of perceived quality on perceived value is mediated by perceived risk. H4: Perceived value has a significantly positive impact on investors’ purchase intention. H5: The effect of perceived risk on perceived value is moderated by investment experience. DATA AND METHODOLOGY Using random sampling, we administered the questionnaires to investors living in Taiwan from March 1, 2013 to June 1, 2013. A total of 550 responses were distributed, and 500 usable responses were collected, for an acceptable response rate of 90.91%. We perform data analyses on SPSS 20.0 and AMOS 21.0, with the adopted methods including descriptive statistics analysis, reliability and validity analysis, correlation analysis, and structural equation modeling (SEM) analysis. We design the items of the questionnaire for the five dimensions: information richness, perceived quality, perceived risk, perceived value, and purchase

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intention. These items are measured on Likert’s seven-point scale, ranging from 1 point to 7 points, denoting “strongly disagree”, “disagree”, “a little disagree”, “neutral”, “a little agree”, “agree”, and “strongly agree”, respectively. The gauging scales are selected from the literature. Information richness is gauged by 4 items taken from Daft, Lengel, and Trevino (1987) and Lo and Lie (2008). Perceived quality is measured by 5 items taken from Petrick (2002). Perceived risk is measured by 5 items by means of Dowling and Staelin (1994), Sinha and Batra (1999), and Hoyer and Macinnis (2010). Perceived value is gauged by 3 items taken from Monroe and Dodds (1985). Purchase intention is gauged by 3 items taken from Zeithaml (1988) and Dodds et al. (1991). ANALYSES AND RESULTS Through descriptive statistics analysis in Table 1, we found that the basic attributes of major group are female (54.0%), unmarried (72.8%), 21-30 years old (63.8%), university education level (72.0%), monthly income below NT$40,000 (87.0%), students (39.6%), and investors without investment experience in funds before (59.6%). Additionally, all the dimensions in our study have a Cronbach’s α greater than 0.7, which complies with the criterion proposed by Nunnally (1978) and Wortzel (1979). Factor analysis is taken as a tool to verify the convergent validity of the questionnaire. We extract factors with an eigenvalue greater than 1, a cumulative explained variation greater than 50%, and a factor loading greater than 0.5 (Kaiser, 1958). It also has discriminant validity, because the correlation coefficient of each of the two factors is lower than the Cronbach’s α of each dimension. Table 1: Descriptive Statistics Analysis of Sample

Items No. of Respondents Percent (%) Gender Male 230 46.0

Female 270 54.0 Marital status Unmarried 364 72.8

Married 136 27.2

Age group

Younger than 20 years old 29 5.8 21-30 years old 319 63.8 31-40 years old 82 16.4 41-50 years old 44 8.8 Older than 50 years old 26 5.2

Education level Junior high school 17 3.4 Senior high school 60 12.0 University 360 72.0 Graduate school 63 12.6

Occupation

Service industry 117 23.4 Financial industry 33 6.6 Information technology 33 6.6 Manufacturing industry 29 5.8 Public servants & teachers 28 5.6 Students 198 39.6 Others 62 12.4

Monthly income

Below 20,000 20,001-40,000 40,001-60,000 60,001-80,000 More than 14,000

223 44.6

212 42.4

50 10.0

10 2.0

5 1.0

This table shows descriptive statistics analysis of the sample. The first two columns represent demographic variables and their items considered in this research. The third and fourth column reports the number of respondents and its corresponding percent, respectively This study also conducts structural equation modeling (SEM) analysis to test the fit of the factors (dimensions) of Internet information, perceived risk, perceived quality, perceived value, and purchase intention. The goodness-of-fit indices of the model are as follows: GFI is 0.882, AGFI is 0.848, CFI is

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0.907, RMSEA is 0.078, and 𝑥𝑥2

𝑑𝑑𝑑𝑑 is 4.007. All these indices are within the acceptable range, meaning that

the overall model fitness is good (Hair et al., 2009; Gefen et al., 2000; Wheaton et al., 1977). Figure 1a: Path Analysis - Group 1

Figure 1b: Path Analysis - Group 2

This figure shows the path analysis from structural equation modeling. Values beside the path represent the standardized regression coefficients. ***, ** and * indicate significance at the 1, 5 and 10 percent levels, respectively. Group 1 and Group 2 represents investors with and without investment experience in funds before, respectively. Figure 1a and Figure 1b presents the path analyses from SEM for investors with investment experience in funds before (Group 1) and without investment experience in funds before (Group 2). According to the estimated values of the standardized parameters of the relationship model, we find that all the hypotheses are supported in Figure 1a, and the only difference between these two groups is that perceived risk does not have a significant impact on perceived value in Figure 1b.

Information richness

Perceived quality

Perceived risk

Perceived valuePerceive

Purchase intention

0379***

0.253***0.

-0.409***

0672***

-0.076

0.230*** 0.771***

Information richness

Perceived quality

Perceived risk

Perceived value

Purchase intention

0.552***

0.205*

-0.356***

0.298***

-0.254***

0.532*** 0.611***

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Table 2: Effect Decomposition

Information Perceived Quality Perceived Risk Perceived Value

group 1 group 2 group 1 group 2 group 1 group 2 group 1 group 2

total effects pq 0.552 0.379 0.000 0.000 0.000 0.000 0.000 0.000 pr 0.009 0.098 -0.356 -0.409 0.000 0.000 0.000 0.000 pv 0.694 0.477 0.388 0.703 -0.254 -0.076 0.000 0.000 pi 0.424 0.368 0.237 0.543 -0.155 -0.058 0.611 0.771

direct effects pq 0.552 0.379 0.000 0.000 0.000 0.000 0.000 0.000 pr 0.205 0.253 -0.356 -0.409 0.000 0.000 0.000 0.000 pv 0.532 0.230 0.298 0.672 -0.254 -0.076 0.000 0.000 pi 0.000 0.000 0.000 0.000 0.000 0.000 0.611 0.771

indirect effects pq 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 pr -0.197 -0.155 0.000 0.000 0.000 0.000 0.000 0.000 pv 0.162 0.247 0.090 0.031 0.000 0.000 0.000 0.000 pi 0.424 0.368 0.237 0.543 -0.155 -0.058 0.000 0.000

This table shows the effect decomposition of information richness, perceived quality (PQ), perceived risk (PR), perceived value (PV), and purchase intention (PI). Group 1 (Group 2) represents investors with (without) investment experience in mutual funds before. According to the effect decomposition in Table 2, perceived value has the largest total effect on purchase intention in both groups compared to Internet information, perceived quality, and perceived risk. Moreover, the total effects of Internet information, perceived quality and perceived risk on perceived value in Group 1 (Group 2) are 0.694 (0.477), 0.388 (0.703) and -0.254 (-0.076), respectively, whereas the total effects of Internet information, perceived quality and perceived risk on purchase intention in Group 1 (Group 2) are 0.424 (0.368), 0.237 (0.543) and -0.155 (-0.058), respectively. This means that the total effects of Internet information on both perceived value and purchase intention are larger than the total effects of perceived quality on those same two in Group 1. Conversely, the total effects of perceived quality on these two dimensions are larger than that of Internet information in Group 2. Table 2 also shows that Internet information has a larger direct effect on perceived value and a larger indirect effect on purchase intention than perceived quality in Group 1. In Group 2 perceived quality has a larger direct effect on perceived value and a larger indirect effect on purchase intention than Internet information. CONCLUSIONS AND SUGGESTIONS Internet is now one of the most popular channels for investors to acquire investment related information. However, investors with different investment experience in mutual funds may have different perceived quality, perceived risk, and perceived value about Internet information. Therefore, this paper investigates the relationships between Internet information richness, perceived quality, perceived risk, perceived value, and purchase intention for investors with different investment experience. The research findings show that perceived value has the largest total effect on purchase intention in both groups compared to Internet information, perceived quality, and perceived risk. Besides, Internet information has a larger direct effect on perceived value and a larger indirect effect on purchase intention than perceived quality in Group 1, whereas perceived quality has a larger direct effect on perceived value and a larger indirect effect on purchase intention than Internet information in Group 2. According to the results, we suggest that Internet information providers should devote more efforts to strengthen the consistency, reliability, dependability, and superiority of the information which they provided on the Internet. By doing this, the information richness and the perceived quality of Internet information can be enhanced, which in turn increases the perceived value and purchase intention of both more experienced and less experienced investors. The primary limitation of this study is that we only considered perceived quality, perceived risk and perceived value in this study. There are still other factors that impact the purchase intention of mutual funds. Future research is recommended to include other variables in more comprehensive models with possibly higher explanatory power.

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REFERENCES Aaker David, A. (1991). Managing Brand Equity: Capitalizing on the Value of a Brand Name. New York: Simon & Schulter. Beneke, J., Flynn, R., Greig, T., & Mukaiwa, M. (2013). The influence of perceived product quality, relative price and risk on customer value and willingness to buy: a study of private label merchandise. Journal of Product & Brand Management, 22(3), 218-228. Chen, Y. S., & Chang, C. H. (2012). Enhance green purchase intentions: The roles of green perceived value, green perceived risk, and green trust. Management Decision, 50(3), 502-520. Corter, J. E., & Chen, Y. J. (2006). Do investment risk tolerance attitudes predict portfolio risk? Journal of Business and Psychology, 20(3), 369-381. Daft, R. L., & Lengel, R. (1984). Information Richness: a new approach to managerial information processing and organizational design. Research in Organizational Behavior, 6, 191-233. Daft, R. L., Lengel, R. H., & Trevino, L. K. (1987). Message equivocality, media selection, and manager performance: Implications for information systems. MIS quarterly, 11(3), 354-366. Dodds, W. B., Monroe, K. B., & Grewal, D. (1991). Effects of price, brand, and store information on buyers' product evaluations. Journal of Marketing Research, 28(3), 307-319. Dowling, G. R., & Staelin, R. (1994). A model of perceived risk and intended risk-handling activity. Journal of Consumer Research, 119-134. Engel, J. F., Blackwell, R. D. & Miniard, P. W. (1995). Consumer Behavior (8th Ed.), Fort Worth, TX: The Dryden Press. Faroughian, F. F., Kalafatis, S. P., Ledden, L., Samouel, P., & Tsogas, M. H. (2012). Value and risk in business-to-business e-banking. Industrial Marketing Management, 41(1), 68-81. Fishbein, M., & Ajzen, I. (1975). Belief, Attitude, Intention and Behavior: An Introduction to Theory and Research. Reading, MA: Addison-Wesley. Gefen, D., Straub, D. W., & Boudreau, M. C. (2000). Structural equation modeling and regression: guideline for research practice. Communications of the Association for Information Systems, 4(7), 1-70. Hair, J. F., Jr., Anderson, R. E., Tatham, R, L., & Black, W. C. (2009). Multivariate Data Analysis (7th ed.). New Jersey: Prentice Hall. Hoyer, D. & Macinnis, D. J. (2010). Consumer Behavior (5th ed.). Cengage Learning Inc. Kaiser, H. F. (1958). The Varimax criterion for analytic rotation in factor analysis. Psychometrika, 23(3), 187-200. Kim, M., & Lennon, S. J. (2000). Television shopping for apparel in the United States: effects of perceived amount of information on perceived risks and purchase intentions. Family and Consumer Sciences Research Journal, 28(3), 301-331. Lo, S. K., & Lie, T. (2008). Selection of communication technologies - A perspective based on information richness theory and trust. Technovation, 28(3), 146-153.

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Monroe, K. B. & Dodds, W. B. (1985). The Effect of brand and price information on subjective product evaluations. In E. Hirschman and M. Holbrook (Eds.), Advances in Consumer Research (p. 85-90), Association for Consumer Research. Nicolosi, G., Peng, L., & Zhu, N. (2009). Do individual investors learn from their trading experience? Journal of Financial Markets, 12(2), 317-336. Nunnally, J. C. (1978). Psychometric Theory (2nd ed.). New York: McGraw-Hill. Petrick, J. F., & Backman, S. J. (2002). An examination of the construct of perceived value for the prediction of golf travelers’ intentions to revisit. Journal of Travel Research, 41(1), 38-45. Schiffman, L. G. & Kanuk, L. L. (2000). Consumer Behavior (7th ed.). Prentice-Hall. Shaw, R. S., Chen, C. C., Harris, A. L., & Huang, H. J. (2009). The impact of information richness on information security awareness training effectiveness. Computers & Education, 52(1), 92-100. Sinha, I. & Batra, R. (1999). The effect of consumer price consciousness on private label purchase. International Journal of Research in Marketing, 16, 237-251. Snoj, B., Korda, A.P., & Mumel, D. (2004). The relationships among perceived quality, perceived risk and perceived product value. The Journal of Product and Brand Management, 13, 156-167. Tih, S., & Lee, K. H. (2013). Perceptions and predictors of consumers' purchase intentions for store brands: Evidence from Malaysia. Asian Journal of Business & Accounting, 6(2), 105-136. Wortzel, R. (1979). Multivariate Analysis. New Jersey: Prentice Hall. Zeithaml, V. A. (1988). Consumer perceptions of price, quality, and value: a means-end model and synthesis of evidence. The Journal of Marketing, 2-22. ACKNOWLEDGEMENT I would like to thank the journal editor, Terrance Jalbert, and two anonymous referees for the valuable comments and suggestions. Any errors are my own. BIOGRAPHY Dr. Ya-Hui Wang is an assistant professor of Department of Business Administration at National Chin-Yi University of Technology. She can be contacted at: Department of Business Administration, National Chin-Yi University of Technology, No. 57, Sec. 2, Zhongshan Rd., Taiping Dist., Taichung 41170, Taiwan, R.O.C. E-mail: yhwang@ncut.edu.tw.

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Global Journal of Business Research Vol. 9, No. 2, 2015, pp. 95-107 ISSN: 1931-0277 (print) ISSN: 2157-0191 (online)

www.theIBFR.com

WHAT MAKES OFFLINE WORD-OF-MOUTH MORE INFLUENTIAL THAN ONLINE WORD-OF-MOUTH?

Ahmet Bayraktar, Bozok University Emine Erdogan, Rutgers University

ABSTRACT

In this paper, we examine online and offline WOM communication channels in terms of their effectiveness. We explore the factors that make offline WOM more influential than online WOM. Furthermore, we explore how personal characteristics, culture and product categories and features influence consumer preference of one channel to the other. In addition, we examine the channel characteristics that influence consumer preference of one to the other. This study suggests that the strength of ties and the quality of communication are the antecedents to the effectiveness of WOM communication channel. Moreover, it suggests that the value of information mediates the relationship between the strength of ties and the effectiveness of WOM. The study also argues that consumers trust offline WOM more when they seek information about services. On the other hand, they pay more attention to expertise when they seek information about products with high complexity. The study indicates that mindful consumers tend to engage in online WOM more than less mindful or mindless consumers. Besides, consumers in individualist culture use online communication channel more than those in collectivist culture do in order to obtain information about products. JEL: M31 KEYWORDS: WOM Communication, Online WOM, Offline WOM, Online Reviews INTRODUCTION

any studies have shown that word-of-mouth (WOM), one of the most influential channels of communication in the marketplace, has significant effects on consumer behavior (e.g. Allsop, Bassett and Hoskins, 2007; Trusov, Bucklin, and Pauwels, 2009; Godes and Mayzlin, 2004;

Smith, Coyle, Lightfoot, and Scott, 2007). This communication channel can be classified into two broad categories: online and offline WOM. Due to the new developments in technology, and the increase in the number and importance of online social networks, the internet has become a popular channel in facilitating and spreading WOM messages. Since it has become an important driver of consumer behavior, marketers are increasingly interested in managing and influencing online WOM (Ashley and Leonard, 2009; Chen and Lurie, 2013), which is a kind of non-commercial channel. As in the case of “stealth marketing,” sometimes without revealing the commercial intention behind the tactics, they attempt to create online WOM through a variety of means such as chat rooms, blogs, newsgroups and other online social networks. This attempt is so widespread among marketers that it comprises substantial amount of total promotion efforts of many firms and the companies’ marketing budget for this kind of non-traditional marketing tactics is increasing significantly (Sass, 2006). Although online WOM has become a useful and a popular channel for the dissemination of marketing messages, very little is known about the effectiveness of this channel relative to offline WOM. Many studies (e.g. Kozinets et al., 2010; Prendergast and Ko, 2010; Chen and Kirmani, 2011) have been conducted to test the influence of either online or offline WOM communication channel. However, to the best of our knowledge, no research has compared the effect of online and offline WOM communications on consumer behavior, and explained the factors that influence the process. Intuitively, we can argue that

M

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individuals are more influenced by offline communication than online communication. At this point, the following questions arise: what are the factors that make one channel superior to the other? What are the factors that explain the general process? Why do consumers prefer one channel to the other? What are the roles of personal characteristics, and product categories and features in these preferences? Do these preferences vary across different cultures? In this paper, we seek to answer these questions by utilizing exploratory research method. The organization of the rest of the article is as follows: in section two, we provide a brief review of the literature on online and offline WOM communications. In section three, we describe the methodology used in the study. In section four, we introduce the exploratory research findings along with the proposed mechanism that explains the relative effectiveness of online and offline WOM. Finally, we conclude with implications and future research directions. LITERATURE REVIEW Word-of-mouth (WOM) involves informal communication about products and services (Liu, 2006). It describes “information seeking” and “information giving” among consumers. When consumers consider an advertisement a sales instrument instead of informative tool and guidance, they feel threatened (Sheth and Sisodia, 2006). Therefore, they reject the advertising claim or message and ultimately turn to WOM communication for guidance in their purchase decisions (Dichter, 1966). In other words, when consumers consider that an advertisement is biased due to its commercial nature, they resort to WOM communication through which they believe that they can obtain more credible and unbiased information regarding the products or services. Ryan and Gross’s (1943) diffusion study argue that informal communications among consumers are more important than marketing communications in influencing adoption. This results from the commercial nature of the marketing communication techniques and the non-commercial nature of the WOM. The role of social networks in facilitating and spreading WOM messages is very important. A social network can be described as a social structure made up of individuals or organizations, which are called nodes (Hansen, Shneiderman and Smith, 2010) and which are tied or connected by one or more specific types of interdependency. In today’s world, social networks can be classified into two general groups: online and offline social networks. Offline social networks are the traditional networks such as clubs, unions, cultural centers, fellowships and associations. On the other hand, online social networks are the virtual networks created on the internet. Due to the new developments in technology and the widespread use of the internet, online WOM has become a common phenomenon. Because of its potential effects on consumer behavior, marketers have been increasingly interested in influencing online WOM communications by utilizing various marketing strategies such as viral marketing, guerilla marketing and stealth marketing. Many well-known brands try to manage this informal communication, and stimulate individuals to talk about their products positively on web-based opinion platforms (Petty and Andrews, 2008). Furthermore, research on online WOM communications has been gradually increasing. One of the most important features of the Internet relative to other mass communication devices is its bidirectional property. Thanks to the internet, individuals can make their personal thoughts, reactions and opinions easily accessible to the global community (Dellarocas, 2003; Liu, 2006). Since the internet is becoming more and more integrated in individuals’ everyday life, including the formation and maintenance of intimate and non-intimate social relationships (Mesch and Talmud, 2006), the importance and the popularity of online WOM communications are gradually increasing. Email referrals, online forums of users and newsgroups, as well as customer product reviews encouraged by merchant websites enable consumers to give and obtain information far more easily than ever before (Bruyn and Lilien, 2008). Although online WOM communications have become a useful and a popular channel for the dissemination of WOM messages, very little is known about the effectiveness of this channel relative to offline WOM communication, which

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is the traditional channel of information giving and information seeking among consumers. Eventually, very little is known about the factors that make one channel superior to the other. METHODOLOGY This study adopted exploratory research method in order to obtain in-depth understanding of the relative effectiveness of online and offline WOM and the mechanism that explains the process. It utilized interviews with 40 individuals from Turkey and the US. While 20 of the interviews were conducted in Turkey, 20 of them were conducted in the US. Twenty-seven of the participants were female and 13 of them were male. The median age category for the participants was 30-35. The median education level was a bachelor's degree (35%). The occupations of the participants varied. Most of the participants (37.5%) were in business sector. Table 1 demonstrates the descriptive statistics of the sample. A semi-structured survey questionnaire was utilized during the interviews. The interviews were conducted in summer 2012 during home and workplace visits. All the interviews were tape-recorded. Table 1: Descriptive Statistics of Sample

Female Male Total USA 14 6 20 (50%) Turkey 13 7 20 (50%) Total 27

(67.5%) 13 (32.5%)

Age Frequency Percentage

15-20 1 2.5 21-25 4 10 26-30 12 30 31-35 13 32.5 36-40 6 15 41-45 1 2.5 46< 3 7.5

Nationality Frequency Percentage

American 12 30 Turkish 23 57.5 Chinese 1 2.5

akistani 2 5 African 1 2.5 Brazilian 1 2.5

Occupation Frequency Percentage

Business 15 37.5 Teacher 4 10 Academician 8 20

hD Student 4 10 MBA Student 3 7.5 Undergrad 1 2.5 Health Worker 3 7.5 Theologian 1 2.5 Lawyer 1 2.5

For the verbal analysis, the tape-recorded interviews were transcribed. In the analysis process, the verbal analysis techniques developed by Chi (1997) were used. For practical reasons, some steps were omitted. In this context, after reading a transcribed interview, we divided it into meaningful analytical units. After locating meaningful segments, we assigned codes for each of them. The selection of codes was based entirely on the research questions and the content domain. During the analysis process, we focused on the mechanism that explained the effectiveness of online and offline WOM and the reasons why the participants

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preferred one to the other. Furthermore, we focused on whether there was a specific WOM channel preferred by the interviewees for certain product categories. Finally, we focused on whether there were significant differences between Turkish and American participants’ responses. After the whole coding process, we sought a pattern or a mechanism in the data. After we revealed the pattern, we interpreted it. During the interpretation of the perceived pattern, the research questions were taken into account. The pattern was interpreted in terms of the processes and the content of the knowledge base. Fındıngs Based on the verbal analyses, we suggest that offline WOM is more effective than online WOM. Admittedly, this argument is rather intuitive. During the analysis process, we focused on the potential factors that make offline WOM more effective than online WOM. Furthermore, we attempted to explore how individuals’ preferences of offline WOM to online WOM are influenced by their personal characteristics, cultural factors and product categories. The Strength of Ties and the Value of Information Attributes of an information source have powerful influences on the way individuals respond to messages in a communication (Forman, Anindya, and Batia, 2008). They often directly influence the recipients’ attitudes and behaviors, independent of the message or information content. A highly credible source is more persuasive than a less credible one (Trusov et al., 2009; Kozinets, Valck, Wojnicki, and Wilner, 2010). Additionally, the strength of ties between listener and speaker in WOM communication is one of the most important factors that influence the value of information (Cialdini, 2009; Gatignon and Robertson, 1986; Mesch and Talmud, 2006; Godes and Mayzlin, 2004; Bruyn and Lilien, 2008; Trusov et al., 2009; Smith et al., 2007). Individuals are easily persuaded by the people that they like (Cialdini, 2009). The stronger the tie, the greater the emotional intensity and intimacy between two individuals, and thus, the greater the credibility of each of these individuals to the other (Gatignon and Robertson, 1986). In other words, strong-tie information sources are perceived as more credible and trustworthy than weak-tie information sources. Therefore, if the ties are strong between listener and speaker, the level of influence in WOM communication will be high. Based on our analyses, we argue that individuals develop stronger ties in offline environment than online. Therefore, we argue that the value of information obtained through offline WOM will be higher than the value of information obtained through online WOM. The strength of ties between individuals is usually measured by means of a combination of factors such as perceived closeness and trust (Mesch and Talmud, 2006), the amount of time spent together, emotional intensity, reciprocity (Dahlstrom and Ingram, 2003), intimacy (Dahlstrom and Ingram, 2003; Mesch and Talmud, 2006) and multiplexity (Knoke and Kuklinski, 1982; Dahlstrom and Ingram, 2003) associated with a relationship. Strong ties are positively related to a high level of intimacy, involving more self-disclosure, shared activities, emotional as well as instrumental exchanges and long-term interactions (Haythornthwaite, 2002). Most of the informants believe that online communication restricts emotional exchanges and prevents to develop a high level of intimacy. Face-to-face is a richer, a genuine way to communicate. It is a richer way to interact. You could see or cry or hug or laugh with the person. It just fills you up. It rejuvenates your soul. It is the highest quality. It is the best. Online is so-so. It helps to see the person that you are talking to online, not just reading what they write. (American female) Most of the interviewees mentioned that the people with whom they had a high level of intimacy mostly affected them.

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The people around me influence me the most. They are usually not experts but they are close to me. I guess you could say that they are influencer. I ask them for their opinions because what I buy usually concerns them or have to do with them. (Kenyan male) The person who is the most close to me influences me more. When I worked, I would ask my colleagues, now I am a student, so I will take my roommate’s advices. And I still remember when I was a little girl I shall ask my mom for everything. (Chinese female) However, informants tend to ask people who are expert for the purchase decision of products or services with high complexity (e.g. cars, computers, cell phones and insurance). In other words, expertise might be more important than intimacy for individuals that are seeking information about complex products or services. In addition, individuals might use online reviews more for products or services with high complexity. My product preferences are affected by other people a lot. I would like to talk to people who are experts in certain areas to find out what they think is the best. I look to friends who are more expert in particular areas while making decisions. (American male) My parent’s suggestions or my friends’ opinion are important; however, if I want to buy a computer, for example, I ask advice from people who are more knowledgeable and experienced than me. Eventually, the computers are complex products and include technical features. I need support from people who have strong knowledge and who are expert on this area. (Turkish female) When I bought my car, I asked my dad for his help and opinion. When I bought my dog, I asked my grandma for her help and opinion. When I bought my townhouse, I asked my parents for their opinion. I know they are an expert and give me an honest opinion. (American female) I would like to talk to people that I know about products. I really do not like the people that give their opinions but are not experts. I pay attention to online reviews for only electronic products. (Turkish female) The concept “social similarity” merits attention in the discussion of communication and the strength of ties. Social similarity is of vital importance in the formation, development, maintenance, and dissolution of close social relationships. It is “the result of opportunities for interaction emerging from the social structuring of activities that expose individuals to each other” (Mesch and Talmud, 2006, p. 139). Individuals are likely to participate in enjoyable joint activities with those who have similar interests (Aboud and Mendelson, 1996). Participation in the same activities increases the frequency and the duration of social interaction. All of these will lead individuals to develop stronger ties with those who are socially similar to themselves. Therefore, they will be mostly influenced by the people with whom they have a high level of social similarity. Definitely, I trust comments and suggestions that I receive from my offline friends. There are bunch of reviews on the internet. Most of them write their opinions based on their thoughts and lifestyle. However, I always seek information from my friends and family members who are similar to me, who have similar lifestyle, who have similar worldview, and whose opinions I can trust. That means I will receive information from someone who interprets the incidents from my point of view. Being expert is important, however, being socially similar and having the same frame of mind is more important. (Turkish male) The above discussion also highlights the importance of multiplexity, which is another important factor that increases the strength of ties (Knoke and Kuklinski, 1982; Dahlstrom and Ingram, 2003). Multiplexity, which is an indicator of trust and intimacy (Wasserman and Faust, 1995), is used to describe the different dimensions in a relationship. It refers to the kinds of relationships established among individuals in a network. It is present when two individuals have relationships that operate in more than one dimension (Dahlstrom and Ingram, 2003). In other words, “multiplexity exists when a tie between two or more people encompasses multiple activities or topics of conversation rather than a single activity or shared topic” (Mesch and Talmud, 2006, p. 139). It is considered high when individuals are connected in multiple

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activities and discussions. In addition, research argues that multiplexity is positively related to social similarity (Stoller, Miller, and Guo, 2001). We argue that individuals will be mostly influenced by the people with whom they have a high level of multiplexity. For example, I bought an Ipad Retina Display three days ago, based on my two friends’ suggestion. I did not check the online reviews. We are very close friends. We have been friends for 4 years. We come together 3-4 times a week. I trust them. (Turkish male) Considering the discussion about intimacy, social similarity and multiplexity, we can argue that since a wide range of activities such as gatherings, festivals, cultural activities and trips occur in offline social networks, the levels of intimacy, social similarity and multiplexity in offline social networks are higher than those in online social networks. Therefore, the strength of ties and the level of interactions in offline social networks are higher than those in online social networks are. This means that the value of information in offline social networks is higher than the value of information in online social networks. Furthermore, since strong social ties provide maintenance of relationships, we can argue that the relationships among members of offline social networks are longer than the relationships among members of online social networks. Bias Towards Online Reviews Findings suggest that individuals develop bias towards online reviews, which, in turn, negatively influences the value of information obtained through online WOM. Due to the commercial nature of the marketing communication and the non-commercial nature of WOM, the latter is more credible for consumers (Ryan and Gross’s, 1943). However, when it comes to online reviews, which is considered online WOM, the credibility is questionable. As noted before, a highly credible source is more persuasive than a less credible one (Trusov et al., 2009; Kozinets et al., 2010). On the other hand, individuals tend to believe that negative online reviews are more credible than positive ones. I am just alert that some of the reviewers are paid to write such reviews. I pay attention to the negative reviews. I consider them unbiased. (American female) In general, I do read a lot online reviews before buying anything. They affect my preferences, especially if I am buying online. Negative reviews affect me the most. If I would like to buy something and I see five positive comments and one negative comment, that one negative comment will make me not to buy that product. (Pakistani female) My parent, my wife, my friends, people that I like … they influence my preferences. Unfortunately, I cannot trust the comments on the internet. Some marketers, or even their friends, might positively rate the products using fake usernames or they might make negative comments on the competitors’ products. Since these kinds of behaviors are very common, I do not trust the comments on the internet. I rarely trust them. (Turkish female) On the other hand, some participants trust online reviews and comments, and thus engage in information seeking on the internet before shopping. Especially, participants in the US tend to believe in the objectivity of online comments more than participants in Turkey tend to do. I think online reviews or product reviews have influenced me more. If someone is willing to spend time to make a review, since they are not paid, then it is worth reading. Their opinion is really valuable because they spend time to make review. I realize that people are paid to that now, but I can tell that which ones are real and fake. I usually shop online and offline. I share websites, or share what I am going to buy. (American female) Online reviewers influence me the most in my product preferences because I know that they bought it and it is their opinions on the object. I feel like friends try to be nice when they give an opinion about something. Like they would say to buy an item which they have not used before. (Brazilian female)

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The Quality of Communication Research suggests that offline communication has higher quality than online communication (Mesch and Talmud, 2006). In other words, the quality of offline social interactions and relationships is higher than the quality of online interactions and relationships (Haythornthwaite, 2002). In their study, Cummings, Butler and Kraut (2002) suggest that e-mail communication is less reliable than face-to-face communication. They also claim that e-mail communication is considered inferior to communication in person for maintaining personal relationships. Greenshields (2010) argues that employing all the senses in a communication makes one’s message more effective. That is, using all the senses can increase the persuasiveness of the message, and thus, the quality of the message. Considering the fact that the senses that one can use in online communication are limited, we can argue that one can convey his/her message in offline social networks in a more effective way than that in online social networks. In other words, WOM messages in offline social networks can be more persuasive than WOM messages in online social networks due to the quality of these messages. Most of the participants prefer offline communication to online communication, which, in turn, influences their preference of offline WOM to online WOM. In online communication, you share %30 of that you can. This is what makes online interaction poor. The communication can be broken down. It can be interrupted at any time. I believe that you cannot explain what you want as much as you can do offline. (Turkish female) When you are talking to people face to face, it is a lot easier to see people being genuine in what they are talking about than online. It is easier to sound smart online and they could be doing a number of stuff while talking to you. (American male) Individual Mindfulness and the Effect of Word-of-Mouth The analyses suggest that mindful individuals tend to engage in online WOM as both a listener and a speaker more than less mindful or mindless individuals do. Mindfulness in business context has been discussed at the individual and organizational levels (Bayraktar and Ndubisi, 2014; Uslay and Erdogan, 2014). At the individual level, it is defined as “a receptive attention to and awareness of present events and experience” (Brown, Ryan, and Creswell, 2007, p. 212). It includes efforts “to focus one’s attention on the concrete aspects of one’s behavior, thereby eliminating the abstract, deliberative, high-level self-thoughts that can interfere with enacting automatic and complex behaviors” (Leary, Adams, and Tate, 2006, p. 1827). The literature on mindfulness suggests that mindful individuals pay greater attention to details, and are more open to new information (Langer, 1989). In addition, they have greater attention to the participation in the ongoing process of living (Gunaratana, 2002) and a more receptive attention to and awareness of current events, realities and experiences (Brown et al., 2007). Furthermore, they have greater sensitivity to their environment, greater skills in cognitive categorization, and advanced awareness of multiple perspectives in problem solving (Langer, 1989). Therefore, mindful consumers are expected to engage in time-consuming mental efforts and information seeking during their decision making process, and thus seek to understand critical intrinsic and extrinsic product cues, including online reviews (Bayraktar and Uslay, 2013). That is, mindful consumers will engage in online WOM as a listener more than mindless or less mindful consumers do. Besides, mindful individuals have greater interest and concern for life (Neff, 2003), and empathy for others (Beitel, Ferrer, and Cecero, 2005), and better skills at interpersonal communication (Bayraktar and Uslay, 2013). Hence, we suggest that they are likely to generate more online WOM to inform other people. In other words, we assume that they will engage in online WOM as a speaker more than mindless or less mindful consumers do.

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Individualism and Collectivism The relationships between individuals and their groups differ across cultures. Such important cultural differences appear in a wide range of psychological domains, such as cognition, emotion, achievement, motivation, and psychological well-being (Chen and West, 2008). Researchers (e.g. Hofstede, 1980; Ho and Chiu, 1994; Kim, 1994) use individualism and collectivism concepts to explain these cross-cultural differences.Individualism/collectivism expresses the distinction between prevalent cultural orientations that value the importance of an individual versus those that value group harmony (Sivadas, Bruvold and Nelson, 2008). While individualistic societies emphasize “me”, collectivistic societies emphasize “us” (Chen and West, 2008; Sivadas, Bruvold and Nelson, 2008). While individualists generally see themselves as independent of others, and behave according to personal attitudes and preferences, collectivists generally see themselves as interdependent with others, and behave according to social norms (Sivadas, Bruvold and Nelson, 2008). Individualistic societies are characterized by an expression of the self and comparison of others in relation to the self, whereas collectivistic societies are characterized by an expression of self within the framework of the peer group and comparison and definition of self in relation to others (Gurhan-Canli and Maheswaran, 2000). While individualistic culture highlights autonomy, emotional independence, individual initiative, right to privacy, pleasure seeking, financial security, need for specific friendship, and universalism, collectivistic culture accentuates collective identity, emotional dependence, group solidarity, sharing, duties and obligations, need for stable and predetermined friendship, group decision, and particularism (Chen and West, 2008, p. 261). Individualistic societies are primarily Western European countries and the United States, whereas collectivistic cultures are primarily Asian and Middle Eastern countries (Gurhan-Canli and Maheswaran, 2000). The analyses indicate that collectivistic people tend to be influenced by offline WOM more than individualistic people. Since collectivists see themselves as interdependent with others and behave according to social norms (Sivadas, Bruvold and Nelson, 2008), they will pay greater attention to peer groups’ opinion, and thus engage in information seeking through offline WOM. The analyses also indicate that individualists tend to engage in online information seeking more than collectivists do. I am not concerned about what others are going to think about my product preferences. I get what I like. I guess I would ask them, if the product involves other people. If it is personal, I know my taste so I would not care. (American female) If it is a product that I am not familiar with it, I ask a friend or someone that has the same product and ask for their opinion on it. Generally, I buy what I want, but I am affected by what other people say. In general, I choose what I want. I would say that I am in the middle. (American female) I definitely take into account others’ potential criticisms and comments when purchasing something. For example, color… my mom like certain colors and I consider them. I do not like a dress, if I believe that my mom will not like it. For example, if one of my friends says “this color does not befit… you look fat with this dress…” etc. I definitely pay attention to them and never buy it. (Turkish female) Product Social Signaling Value and Individuals’ Susceptibility to Normative Influence The analyses indicate that individuals tend to engage in offline WOM more for products that have high “social signaling value.” The social signaling value of a product is high when the product category is remarkable and its ownership or consumption is more publicly visible (Bayraktar, 2013). In this context, apparel, car and briefcase are the examples of product categories that have high social signaling value. The analyses also indicate that individuals who have high “susceptibility to normative influence” tend to engage in offline WOM communication more particularly for products that have high social signaling value. Susceptibility to normative influence refers to individuals’ inclination to reference group influence (Batra, Homer and Kahle, 2001). I do sometimes concern about what others are going to think about my preferences such as clothing that I wear to work. You have to present yourself a certain way at work. Also leisure clothing… because I want

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my friends to admire what I wear and not give me a criticism. (American female) Whether I will consider others’ opinion before shopping depends on the product I am going to buy. For example, when it comes to clothing, I would not buy a pink jacket, because it could give a message about my personality. However, for products about which others are not concerned, I never consider their opinion. For clothing, it is important because you spend time with other people. It is important in terms of image and identity. (Turkish male) I pay attention to others’ opinion when purchasing something. For example, I do not want to buy something that people will consider nasty. I do not want to buy something that will draw people’s reaction. This is important particularly for clothing. (Turkish female) CONCLUSION AND DISCUSSION In this study, we aimed at examining online and offline WOM communication channels in terms of their relative effectiveness. We attempted to explore the factors that made offline WOM more influential than online WOM. Furthermore, we explored how personal characteristics, culture and product categories and features influenced consumer preference of one channel to the other. In addition, we explored the channel characteristics that influenced consumer preference of one to the other. We utilized exploratory research method in order to obtain in-depth understanding of the relative effectiveness of online and offline WOM and the mechanism that explained the process. We conducted interviews with 40 individuals from Turkey and the US. During the analysis of the interviews, we focused on the mechanism that explained the effectiveness of online and offline WOM and the reasons why the participants preferred one to the other. Furthermore, we focused on whether the interviewees preferred a specific WOM channel for certain product categories. Finally, we focused on whether there were significant differences between Turkish and American participants’ responses. The findings suggest that the strength of ties and the quality of communication are the antecedents to the effectiveness of WOM communication channel. In addition, we argue that the value of information mediates the relationship between the strength of ties and the effectiveness of WOM. More specifically, we suggest that offline WOM is more influential than online WOM, since the quality of communication, the strength of ties, and thus the value of information are higher in offline WOM communication. Particularly, individuals tend to trust offline WOM more when they seek information about services. Therefore, marketers, especially those in the service industry, should pay more attention to influencing offline social networks. On the other hand, consumers pay more attention to expertise when they seek information about products with high complexity such as computers and cars. For this reason, marketers of highly complex products should utilize experts to manage and influence online WOM communications. We suggest that consumers’ suspicion about the possible commercial nature of online reviews and comments makes this channel less credible than offline WOM. Therefore, marketers who are interested in managing and influencing online WOM communications should attempt to change the acrimonious public perception of online reviews and comments. They should engage in efforts to persuade consumers that online reviews and comments are free from commercial nature. On the other hand, the findings suggest that participants in the US tend to believe in the objectivity of online comments more than participants in Turkey tend to do. This may result from the widespread use of the internet in the US compared to that in Turkey. Therefore, a relationship may exist between the extensity of internet usage and the confidence in online comments. In addition, since the quality of communication and the strength of ties are significant antecedents to the effectiveness of WOM, the websites should allow information seekers to get in contact with the reviewers. We propose that mindful consumers tend to engage in online WOM more than less mindful or mindless consumers. Therefore, if the mindfulness level in the target market is high, marketers should pay more attention to influencing online WOM communications. In addition, we argue that consumers in individualist culture use online communication channel more than those in collectivist culture do in order to obtain information

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about products. For that reason, marketers in individualist cultures such as the Western European countries and the US should attempt to manage online WOM. On the other hand, marketers in collectivist cultures such as Japan and the Middle-Eastern countries should develop strategies to influence offline social networks. Marketers should focus on influencing offline WOM particularly when the product’s social signaling value and individuals’ susceptibility to normative influence are high. Generalizability concern and researcher subjectivity are the main limitations of the study which lie within the nature of the qualitative research. Since the study relies only on qualitative data derived from a small sample and on subjective analyses of this data, the generalizability and objectivity of the research findings are limited. Future research should utilize quantitative data obtained from a large sample in order to test the structural soundness of the proposed relationships in this study. More specifically, future research should empirically examine the relative effectiveness of online and offline WOM communication. They should utilize online and offline social networks to study the relative effects of these two channels on consumer preferences and new product acquisition. Furthermore, they should empirically examine how personal characteristics, culture and product features influence the effectiveness of both channel. Researchers who study WOM generally use two methods: inference, survey, or both (Godes and Mayzlin, 2004). We suggest that future researchers should utilize experimental method in addition to these two methods in order to obtain results that are more robust. REFERENCES Aboud, FE., and Mendelson, MJ. (1996), Determinants of Friendship Selection and Quality: Developmental Perspectives, Company They Keep: Friendship in Childhood and Adolescence, Bukowski, WM, Newcomb, AF and Hartup, WW. (eds), Cambridge: Cambridge University Press. Allsop, D.T., Bassett, B.R. and Hoskins, J.A. (2007), ‘Word-of-Mouth Research: Principles and Applications,’ Journal of Advertising Research, December, 398-411. Ashley, C. and Leonard, HA. (2009), ‘Betrayed by the buzz? Covert Content and Consumer-Brand Relationship,’ Journal of Public Policy and Marketing, 28 (2), 212-220. Batra, R., Homer, PM., and Kahle, LR. (2001), ‘Values, Susceptibility to Normative Influence, and Attribute Importance Weights: A Nomological Analysis,’ Journal of Consumer Psychology, 11 (2), 115-128. Bayraktar, A. (2013), ‘When is the Country-of-Origin of a Brand a Weakness in Global Markets?’ International Journal of Management Research and Review, 3 (8), 3199-3210. Bayraktar, A. and Ndubisi, NO. (2014), ‘The Role of Organizational Mindfulness in Firms’ Globalization and Global Market Performance,’ Journal of Research in Marketing and Entrepreneurship, 16 (1), 26-46. Bayraktar, A. and Uslay, C. (2013), ‘The Moderating Role of Mindfulness in Consumer Response to Product Cues and Marketing Communications,’ Working Paper, Rutgers Business School, NJ. Beitel, M., Ferrer, E. and Cecero, JJ. (2005), ‘Psychological Mindedness and Awareness of Self and Others,’ Journal of Clinical Psychology, 61 (6), 739–750. Brown, KW., Ryan, RM and Creswell, JD. (2007), ‘Mindfulness: Theoretical Foundations and Evidence for Its Salutary Effects,’ Psychological Inquiry, 18 (4), 211-237.

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Smith, T., Coyle, JR., Lightfoot, E. and Scott, A. (2007), ‘Reconsidering Models of Influence: The Relationship between Consumer Social Networks and Word-of-Mouth Effectiveness,’ Journal of Advertising Research, December, 387-397. Stoller, EP., Miller, B., and Guo, S. (2001), ‘Shared Ethnicity and Relationship Multiplexity within Informal Networks of Retired European American Sunbelt Migrants,’ Research in Aging, 23, 304–325. Trusov, M., Bucklin, RE, and Pauwels, K. (2009), ‘Effects of Word-of-Mouth Versus Traditional Marketing: Findings from an Internet Social Networking Site,’ Journal of Marketing, 73, (September), 90-102. Uslay, C. and Erdogan, E. (2014), ‘The mediating role of mindful entrepreneurial marketing (MEM) between production and consumption,’ Journal of Research in Marketing and Entrepreneurship, 16 (1), 47 – 62. Wasserman, S. and Faust, K. (1995), Social network analysis. Cambridge: Cambridge University Press. BIOGRAPHIES Dr. Ahmet Bayraktar is an Assistant Professor of Marketing at Bozok University Department of Production Management and Marketing, Yozgat-Turkey. Dr. Bayraktar has a BS in Business Administration from Trakya University (2004), an MBA from Trakya University (2007) and a PhD in Marketing from Rutgers University (2013). He has taught Introduction to Marketing, Consumer Behavior, Marketing Communication and International Marketing, among others, at both graduate and undergraduate levels. His research interests include country branding, brand equity, marketing ethics, word-of-mouth communication and mindfulness. He has been an ad hoc reviewer for journals such as International Business Review, Journal of Brand Management and Global Journal of Business Research. He can be contacted at Bozok University Erdogan Akdag Kampusu IIBF Yozgat, Turkey 66200. Email: ahmet.bayraktar@bozok.edu.tr Emine Erdogan is a Ph.D. candidate in Marketing Department at Rutgers Business School. She received her BS in Business Administration and MS in Economics from Selcuk University (Turkey). Her research interests include mindfulness, international marketing strategies, WOM and network-based innovations. She is a recipient of the full scholarship of Turkey Ministry of National Education for graduate studies in the U.S.A. and a fellowship from Kaufman Foundation in Global Research Symposium (2013). She taught Marketing Research at Rutgers University (2015) and served as an assistant editor in Journal of Graduate School of Social Sciences and as an assistant coordinator of Erasmus and Farabi Student Exchange Programs in Pamukkale University (Denizli/Turkey). She can be contacted at Rutgers Business School, 1 Washington Park, Newark, NJ 07102. Email: emine.erdogan@rutgers.edu

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REVIEWERS The IBFR would like to thank the following members of the academic community and industry for their much appreciated contribution as reviewers.

Hisham Abdelbaki, University of Mansoura - Egypt

Isaac Oluwajoba Abereijo, Obafemi Awolowo University

Naser Abughazaleh, Gulf University For Science And Technology

Nsiah Acheampong, University of Phoenix

Vera Adamchik, University of Houston-Victoria

Iyabo Adeoye, National Horticultural Research Instittute, Ibadan, Nigeria.

Michael Adusei, Kwame Nkrumah University of Science And Technology

Mohd Ajlouni, Yarmouk University

Sylvester Akinbuli, University of Lagos

Anthony Akinlo, Obafemi Awolowo University

Yousuf Al-Busaidi, Sultan Qaboos University

Khaled Aljaaidi, Universiti Utara Malaysia

Hussein Al-tamimi, University of Sharjah

Paulo Alves, CMVM, ISCAL and Lusofona University

Ghazi Al-weshah, Albalqa Applied University

Glyn Atwal, Groupe Ecole Supérieure de Commerce de Rennes

Samar Baqer, Kuwait University College of Business Administration

Susan C. Baxter, Bethune-Cookman College

Nagib Bayoud, Tripoli University

Ahmet Bayraktar, Rutgers University

Kyle Brink, Western Michigan University

Giovanni Bronzetti, University of Calabria

Karel Bruna, University of Economics-Prague

Priyashni Chand, University of the South Pacific

Wan-Ju Chen, Diwan College of Management

Yahn-shir Chen, National Yunlin University of Science and Techology, Taiwan

Bea Chiang, The College of New Jersey

Te-kuang Chou, Southern Taiwan University

Shih Yung Chou, University of the Incarnate Word

Caryn Coatney, University of Southern Queensland

Iyanna College of Business Administration,

Michael Conyette, Okanagan College

Huang Department of Accounting, Economics & Finance,

Rajni Devi, The University of the South Pacific

Leonel Di Camillo, Universidad Austral

Steven Dunn, University of Wisconsin Oshkosh

Mahmoud Elgamal, Kuwait University

Ernesto Escobedo, Business Offices of Dr. Escobedo

Zaifeng Fan, University of Wisconsin whitewater Perrine Ferauge University of Mons

Olga Ferraro, University of Calabria

William Francisco, Austin Peay State University

Peter Geczy, AIST

Lucia Gibilaro, University of Bergamo

Hongtao Guo, Salem State University

Danyelle Guyatt, University of Bath

Zulkifli Hasan, Islamic University College of Malaysia

Shahriar Hasan, Thompson Rivers University

Peng He, Investment Technology Group

Niall Hegarty, St. Johns University

Paulin Houanye, University of International Business and Education, School of Law

Daniel Hsiao, University of Minnesota Duluth

Xiaochu Hu, School of Public Policy, George Mason University

Jui-ying Hung, Chatoyang University of Technology

Fazeena Hussain, University of the South Pacific

Shilpa Iyanna, Abu Dhabi University

Sakshi Jain, University of Delhi

Raja Saquib Yusaf Janjua, CIIT

Yu Junye, Louisiana State University

Tejendra N. Kalia, Worcester State College

Gary Keller, Eastern Oregon University

Ann Galligan Kelley, Providence College

Ann Kelley, Providence college

Ifraz Khan, University of the South Pacific

Halil Kiymaz, Rollins College

Susan Kowalewski, DYouville College

Bamini Kpd Balakrishnan, Universiti Malaysia Sabah

Bohumil Král, University of Economics-Prague

Jan Kruger, Unisa School for Business Leadership

Christopher B. Kummer, Webster University-Vienna

Mei-mei Kuo, JinWen University of Science & Technology

Mary Layfield Ledbetter, Nova Southeastern University

John Ledgerwood, Embry-Riddle Aeronautical University

Yen-hsien Lee, Chung Yuan Christian University

Shulin Lin, Hsiuping University of Science and Technology

Yingchou Lin, Missouri Univ. of Science and Technology

Melissa Lotter, Tshwane University of Technology

Xin (Robert) Luo, Virginia State University

Andy Lynch, Southern New Hampshire University

Abeer Mahrous, Cairo university

Gladys Marquez-Navarro, Saint Louis University

Cheryl G. Max, IBM

Romilda Mazzotta, University of Calabria

Mary Beth Mccabe, National University

Avi Messica, Holon Institute of Technology

Scott Miller, Pepperdine University

Cameron Montgomery, Delta State University

Sandip Mukherji, Howard University

Tony Mutsue, Iowa Wesleyan College

Cheedradevi Narayanasamy, Graduate School of Business, National University of Malaysia

Dennis Olson, Thompson Rivers University

Godwin Onyeaso, Shorter University

Bilge Kagan Ozdemir, Anadolu University

Dawn H. Pearcy, Eastern Michigan University

Pina Puntillo, University of Calabria (Italy)

Rahim Quazi, Prairie View A&M University

Anitha Ramachander, New Horizon College of Engineering

Charles Rambo, University Of Nairobi, Kenya

Prena Rani, University of the South Pacific

Kathleen Reddick, College of St. Elizabeth

Maurizio Rija, University of Calabria.

Matthew T. Royle, Valdosta State University

Tatsiana N. Rybak, Belarusian State Economic University

Rafiu Oyesola Salawu, Obafemi Awolowo University

Paul Allen Salisbury, York College, City University of New York

Leire San Jose, University of Basque Country

I Putu Sugiartha Sanjaya, Atma Jaya Yogyakarta University, Indonesia

Sunando Sengupta, Bowie State University

Brian W. Sloboda, University of Phoenix

Smita Mayuresh Sovani, Pune University

Alexandru Stancu, University of Geneva and IATA (International Air Transport Association)

Jiří Strouhal, University of Economics-Prague

Vichet Sum, University of Maryland -- Eastern Shore

Qian Sun, Kutztown University

Diah Suryaningrum, Universitas Pembangunan Nasional Veteran Jatim

Andree Swanson, Ashford University

James Tanoos, Saint Mary-of-the-Woods College

Jeannemarie Thorpe, Southern NH University

Ramona Toma, Lucian Blaga University of Sibiu-Romania Alejandro Torres Mussatto Senado de la Republica & Universidad de Valparaíso

Jorge Torres-Zorrilla, Pontificia Universidad Católica del Perú

William Trainor, East Tennessee State University

Md Hamid Uddin, University Of Sharjah

Ozge Uygur, Rowan University

K.W. VanVuren, The University of Tennessee – Martin

Vijay Vishwakarma, St. Francis Xavier University

Ya-fang Wang, Providence University

Richard Zhe Wang, Eastern Illinois University

Jon Webber, University of Phoenix

Jason West, Griffith University

Wannapa Wichitchanya, Burapha University

Veronda Willis, The University of Texas at San Antonio

Bingqing Yin, University of Kansas

Fabiola Baltar, Universidad Nacional de Mar del Plata

Myrna Berrios, Modern Hairstyling Institute

Monica Clavel San Emeterio, University of La Rioja

Esther Enriquez, Instituto Tecnologico de Ciudad Juarez

Carmen Galve-górriz, Universidad de Zaragoza

Blanca Rosa Garcia Rivera, Universidad Autónoma De Baja California

Carlos Alberto González Camargo, Universidad Jorge Tadeo Lozano

Hector Alfonso Gonzalez Guerra, Universidad Autonoma De Coahuila

Claudia Soledad Herrera Oliva, Universidad Autónoma De Baja California

Eduardo Macias-Negrete, Instituto Tecnologico De Ciudad Juarez

Jesús Apolinar Martínez Puebla, Universidad Autónoma De Tamaulipas

Francisco Jose May Hernandez, Universidad Del Caribe

Aurora Irma Maynez Guaderrama, Universidad Autonoma De Ciudad Juarez

Linda Margarita Medina Herrera, Tecnológico De Monterrey. Campus Ciudad De México

Erwin Eduardo Navarrete Andrade, Universidad Central De Chile

Gloria Alicia Nieves Bernal, Universidad Autónoma Del Estado De Baja California

Julian Pando, University Of The Basque Country

Eloisa Perez, Macewan University

Iñaki Periáñez, Universidad Del Pais Vasco (Spain)

Alma Ruth Rebolledo Mendoza, Universidad De Colima

Carmen Rios, Universidad del Este

Celsa G. Sánchez, CETYS Universidad

Adriana Patricia Soto Aguilar, Benemerita Universidad Autonoma De Puebla Amy Yeo, Tunku Abdul Rahman College

Vera Palea, University of Turin

Fabrizio Rossi,University of Cassino and Southern Lazio

Intiyas Utami , Satya Wacana Christian University

Ertambang Nahartyo, UGM

Julian Vulliez, University of Phoenix

Mario Jordi Maura, University of Puerto Rico

Surya Chelikani, Quinnipiac University

Firuza Madrakhimov, University of North America

Erica Okere, Beckfield College

Prince Ellis, Argosy University

Qianyun Huang, City University of New York-Queens College

REVIEWERS The IBFR would like to thank the following members of the academic community and industry for their much appreciated contribution as reviewers.

Haydeé Aguilar, Universidad Autónoma De Aguascalientes

Bustamante Valenzuela Ana Cecilia, Universidad Autonoma De Baja California

María Antonieta Andrade Vallejo, Instituto Politécnico Nacional

Olga Lucía Anzola Morales, Universidad Externado De Colombia

Antonio Arbelo Alvarez, Universidad De La Laguna

Hector Luis Avila Baray, Instituto Tecnologico De Cd. Cuauhtemoc

Graciela Ayala Jiménez, Universidad Autónoma De Querétaro

Albanelis Campos Coa, Universidad De Oriente

Carlos Alberto Cano Plata, Universidad De Bogotá Jorge Tadeo Lozano

Alberto Cardenas, Instituto Tecnologico De Cd. Juarez

Edyamira Cardozo, Universidad Nacional Experimental De Guayana

Sheila Nora Katia Carrillo Incháustegui, Universidad Peruana Cayetano Heredia

Emma Casas Medina, Centro De Estudios Superiores Del Estado De Sonora

Benjamin Castillo Osorio, Universidad Pontificia Bolibvariana UPB-Seccional Montería

María Antonia Cervilla De Olivieri, Universidad Simón Bolívar

Cipriano Domigo Coronado García, Universidad Autónoma De Baja California

Semei Leopoldo Coronado Ramírez, Universidad De Guadalajara

Esther Eduviges Corral Quintero, Universidad Autónoma De Baja California

Dorie Cruz Ramirez, Universidad Autonoma Del Estado De Hidalgo /Esc. Superior De Cd. Sahagún

Tomás J. Cuevas-Contreras, Universidad Autónoma De Ciudad Juárez

Edna Isabel De La Garza Martinez, Universidad Autónoma De Coahuila

Hilario De Latorre Perez, Universidad Autonoma De Baja California

Javier De León Ledesma, Universidad De Las Palmas De Gran Canaria - Campus Universitario De Tafira

Hilario Díaz Guzmán, Universidad Popular Autónoma Del Estado De Puebla

Cesar Amador Díaz Pelayo, Universidad De Guadalajara, Centro Universitario Costa Sur

Avilés Elizabeth, Cicese

Ernesto Geovani Figueroa González, Universidad Juárez Del Estado De Durango

Ernesto Geovani Figueroa González, Universidad Juárez Del Estado De Durango

Carlos Fong Reynoso, Universidad De Guadalajara

Ana Karen Fraire, Universidad De Gualdalajara

Teresa García López, Instituto De Investigaciones Y Estudios Superiores De Las Ciencias Administrativas

Helbert Eli Gazca Santos, Instituto Tecnológico De Mérida

Denisse Gómez Bañuelos, Cesues

María Brenda González Herrera, Universidad Juárez Del Estado De Durango

Ana Ma. Guillén Jiménez, Universidad Autónoma De Baja California

Araceli Gutierrez, Universidad Autonoma De Aguascalientes

Andreina Hernandez, Universidad Central De Venezuela

Arturo Hernández, Universidad Tecnológica Centroamericana

Alejandro Hernández Trasobares, Universidad De Zaragoza

Alma Delia Inda, Universidad Autonoma Del Estado De Baja California

Carmen Leticia Jiménez González, Université De Montréal Montréal Qc Canadá.

Gaspar Alonso Jiménez Rentería, Instituto Tecnológico De Chihuahua

Lourdes Jordán Sales, Universidad De Las Palmas De Gran Canaria

Santiago León Ch., Universidad Marítima Del Caribe

Graciela López Méndez, Universidad De Guadalajara-Jalisco

Virginia Guadalupe López Torres, Universidad Autónoma De Baja California

Angel Machorro Rodríguez, Instituto Tecnológico De Orizaba

Cruz Elda Macias Teran, Universidad Autonoma De Baja California

Aracely Madrid, ITESM, Campus Chihuahua

Deneb Magaña Medina, Universidad Juárez Autónoma De Tabasco

Carlos Manosalvas, Universidad Estatal Amazónica

Gladys Yaneth Mariño Becerra, Universidad Pedagogica Y Tecnológica De Colombia

Omaira Cecilia Martínez Moreno, Universidad Autónoma De Baja California-México

Jesus Carlos Martinez Ruiz, Universidad Autonoma De Chihuahua

Alaitz Mendizabal, Universidad Del País Vasco

Alaitz Mendizabal Zubeldia, Universidad Del País Vasco/ Euskal Herriko Unibertsitatea

Fidel Antonio Mendoza Shaw, Universidad Estatal De Sonora

Juan Nicolás Montoya Monsalve, Universidad Nacional De Colombia-Manizales

Jennifer Mul Encalada, Universidad Autónoma De Yucatán

Gloria Muñoz Del Real, Universidad Autonoma De Baja California

Alberto Elías Muñoz Santiago, Fundación Universidad Del Norte

Bertha Guadalupe Ojeda García, Universidad Estatal De Sonora

Erika Olivas, Universidad Estatal De Sonora

Erick Orozco, Universidad Simon Bolivar

Rosa Martha Ortega Martínez, Universidad Juárez Del Estado De Durango

José Manuel Osorio Atondo, Centro De Estudios Superiores Del Estado De Sonora

Luz Stella Pemberthy Gallo, Universidad Del Cauca

Andres Pereyra Chan, Instituto Tecnologico De Merida

Andres Pereyra Chan, Instituto Tecnologico De Merida

Adrialy Perez, Universidad Estatal De Sonora

Hector Priego Huertas, Universidad De Colima

Juan Carlos Robledo Fernández, Universidad EAFIT-Medellin/Universidad Tecnologica De Bolivar-Cartagena

Natalia G. Romero Vivar, Universidad Estatal De Sonora

Humberto Rosso, Universidad Mayor De San Andres

José Gabriel Ruiz Andrade, Universidad Autónoma De Baja California-México

Antonio Salas, Universidad Autonoma De Chihuahua

Claudia Nora Salcido, Universidad Juarez Del Estado De Durango

Juan Manuel San Martín Reyna, Universidad Autónoma De Tamaulipas-México

Francisco Sanches Tomé, Instituto Politécnico da Guarda

Edelmira Sánchez, Universidad Autónoma de Ciudad Juárez

Deycy Janeth Sánchez Preciado, Universidad del Cauca

María Cristina Sánchez Romero, Instituto Tecnológico de Orizaba

María Dolores Sánchez-fernández, Universidade da Coruña

Luis Eduardo Sandoval Garrido, Universidad Militar de Nueva Granada

Pol Santandreu i Gràcia, Universitat de Barcelona, Santandreu Consultors

Victor Gustavo Sarasqueta, Universidad Argentina de la Empresa UADE

Jaime Andrés Sarmiento Espinel, Universidad Militar de Nueva Granada

Jesus Otoniel Sosa Rodriguez, Universidad De Colima

Edith Georgina Surdez Pérez, Universidad Juárez Autónoma De Tabasco

Jesús María Martín Terán Gastélum, Centro De Estudios Superiores Del Estado De Sonora

Jesus María Martín Terán Terán Gastélum, Centro De Estudios Superiores Del Estado De Sonora

Jesús María Martín Terán Gastélum, Centro De Estudios Superiores Del Estado De Sonora

Maria De La Paz Toldos Romero, Tecnologico De Monterrey, Campus Guadalajara

Abraham Vásquez Cruz, Universidad Veracruzana

Angel Wilhelm Vazquez, Universidad Autonoma Del Estado De Morelos

Lorena Vélez García, Universidad Autónoma De Baja California

Alejandro Villafañez Zamudio, Instituto Tecnologico de Matamoros

Hector Rosendo Villanueva Zamora, Universidad Mesoamericana

Oskar Villarreal Larrinaga, Universidad del País Vasco/Euskal Herriko Universitatea

Delimiro Alberto Visbal Cadavid, Universidad del Magdalena

Rosalva Diamantina Vásquez Mireles, Universidad Autónoma de Coahuila

Oscar Bernardo Reyes Real, Universidad de Colima

HOW TO PUBLISH

Submission Instructions

The Journal welcomes submissions for publication consideration. Complete directions for manuscript submission are available at the Journal website www.theIBFR.com/journal.htm. Papers may be submitted for initial review in any format. However, authors should take special care to address spelling and grammar issues prior to submission. Authors of accepted papers are required to precisely format their document according to the journal guidelines.

There is no charge for standard paper reviews. The normal review time for submissions is 90-120 days. However, authors desiring a quicker review may elect to pay an expedited review fee, which guarantees an inditial review within two weeks. Authors of accepted papers are required to pay a publication fee based on the manuscript length and number of authors. Please see our website for current publication and expedited review rates.

Authors submitting a manuscript for publication consideration must guarantee that the document contains the original work of the authors, has not been published elsewhere, and is not under publication consideration elsewhere. In addition, submission of a manuscript implies that the author is prepared to pay the publication fee should the manuscript be accepted.

Subscriptions

Individual and library subscriptions to the Journal are available. Please contact us by mail or by email to: admin@theibfr.com for updated information.

Contact Information

Mercedes Jalbert, Managing Editor The IBFRP.O. Box 4908Hilo, HI 96720editor@theIBFR.com

Website

www.theIBFR.org or www.theIBFR.com

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All papers submitted to the Journal are blind reviewed. The Journal is listed in Cabell’s, Ulrich’s Periodicals Directory The Journal is distributed in print and through EBSCOHost, ProQuest ABI/Inform, SSRN and RePEc.

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All papers submitted to the Journal are blind reviewed. AT is listed in Cabell’s and Ulrich’s Periodicals Directory. The Journal is distributed in print and through EBSCOHost, ProQuest ABI/Inform, SSRN and RePEc.

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All papers submitted to the Journal are blind reviewed. BEA is is listed in Cabell’s and Ulrich’s Periodicals Directory. The Journal is distributed in print and through EBSCOHost, ProQuest ABI/Inform, SSRN and RePEc.

PUBLICATION OPPORTUNITIES

GLOBAL de NEGOCIOSEVISTAR

Revista Global de Negocios

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All papers submitted to the Journal are blind reviewed. RGN is distributed in print, through EBSCOHost, ProQuest ABI/Inform,SSRN and RePEc.RGN will be submitted to Ulrich’s Periodicals Directory, colciencia, etc. The Journal is distributed in print and through EBSCOHost, ProQuest ABI/Inform, SSRN and RePEc.

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All papers submitted to the Journal are blind reviewed. The IJBFR is listed in Cabell’s, Ulrich’s Periodicals Directory and The American Economic Association’s Econlit, e-JEL and JEL on CD. The Journal is distributed in print and through EBSCOHost, ProQuest ABI/Inform , SSRN and RePEc.

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All papers submitted to the Journal are double-blind reviewed. The GJBR is listed in Cabell’s, The American Economic Association’s Econlit, e-JEL and JEL on CD, and Ulrich’s Periodicals Directory. The Journal is distributed in print and through EBSCOHost, ProQuest ABI/Inform, SSRN and RePEc.

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All papers submitted to the Journal are blind reviewed. The IJMMR is listed in Cabell’s and Ulrich’s Periodicals Directory. The Journal is distributed in print and through EBSCOHost, ProQuest ABI/Inform, SSRN and RePEc.

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All papers submitted to the Journal are double-blind reviewed. RIAF is listed in The American Economic Association’s Econlit, e-JEL and JEL on CD, and Ulrich’s Periodicals Directory. The Journal is distributed in print, and through EBSCOHost, ProQuest ABI/Inform, SSRN and RePEC.

PUBLICATION OPPORTUNITIES