Division of Labor Essay -- essays research papers

Marxs View of the Divisionof comprehendThe Division of Labor is a subject which has fascinated social scientists for millennia. Before the advent of modern times, philosophers and theologians concerned themselves with the implications of the idea. Plato saw as the ultimate form of society a community in which social functions would be rigidly separated and maintained society would be dissever into definite functional groups warriors, artisans, unskilled laborers, rulers. St. Paul, in his first letter to the church at Corinth, went so far as to describe the universal Church in terms of a body t here are hands, feet, eyes, and all are under the head, Christ. Any wholeness who intends to deal seriously with the study of society must grapple with the headway of the division of labor. Karl Marx was no exception. Marx was more than a mere economist. He was a social scientist in the full meaning of the phrase. The heart of his system was based on the idea of hu earthly concern action. Mankind, Marx asserted, is a totally autonomous species - being, and as such man is the sole creator of the world in which he finds himself. A man cannot be defined apart from his labor "As individuals express their life, so they are. What they are, therefore, coincides with their production, both with what they produce and with how they produce."1 The very fact that man rationally organizes production is what distinguishes him from the animal kingdom, according to Marx. The concept of production was a kind of intellectual "Archimedean point" for Marx. Every sphere of human life must be understand in terms of this single idea "Religion, family, state, law, science, art, etc., are only particular modes of production, and fall under its general law."2 Given this total reliance on the concept of human labor, it is quite understandable why the division of labor played such an important role in the overall Marxian framework. Property vs. LaborMarx had a vision o f a perfect human society. In this sense, Martin Buber was absolutely correct in including a chapter on Marx in his Paths in Utopia. Marx believed in the existence of a society which preceded recorded human history. In this world, men experienced no sense of alienation because there was no alienated production. Somehow (and here Marx was never very clear) men fell into patterns of alienated production, and fr... ...of Revolution (Nutley, New Jersey Craig Press, 1968), p. 112. 7 German Ideology, pp. 44-45. 8 Critique of the Gotha Program (1875), in Marx-Engels Selected Works, II, p. 24. This is one of the few places in which Marx presented some picture of the post-Revolutionary world. 9 Ibid. 10 Ludwig Yon Mises, Socialism (New Haven, Conn. Yale University Press, 1922 1951), p. 164. 11 Maurice Cornforth, Marxism and the Linguistic Philosophy (New York International Publishers, 1965), p. 327. 12 German Ideology, p. 84. 13 Murray N. Rothbard, "Left and Right The Prospects for Lib erty," Left and Right, 1 (1965), p. 8. 14 "On the Jewish Question," (1843-44), in T. B. Bottomore, Karl Marx Early Writings (New York McGraw-Hill, 1964), pp. 34-40. 15 G. D. H. Cole, The Meaning of Marxism (Ann Arbor University of sugar Press, 1948 1964), p. 249. 16 Leon Trotsky, The Revolution Betrayed (1936), quoted by F. A. Hayek, The Road to Serfdom (University of Chicago Press, 1944), p. 119. 17 Mises, Socialism, pp. 60-62. Reprinted with permission from The Freeman, a publication of The Foundation for Economic Education, Inc., January 1969, Vol. 19, No. 1.

The Universal Living Wage Essay -- Essays Papers

The public Living WageIn 1906 Father fast one Ryan, a renowned social and economic intellectual within the Catholic Church, published a book titled A Living Wage Its respectable and Economic Aspects. The book introduced to America workers the idea of a guaranteed minimum pay determined by the basic costs of living and set the stage for ulterior minimum wage legislation during the 1930s. Over the last decade, the idea of a living wage has resurfaced as workers have become more outspoken roughly the inadequacies of the federal and state minimum wage levels. Living wage legislation for government workers has taken effect in major U.S. cities such as Baltimore, Los Angeles, San Jose, Detroit, Boston, and many another(prenominal) more. This paper will discuss the moral, social, and economic implications of instituting these laws as well as labor conditions around the world and the need for guaranteed living wages in countries such as India and Mexico.First of all, a clear defin ition of the living wage should be established. The Universal Living Wage Campaign Organization says that if a person works forty hours a week, a living wage should provide the worker and his/her dependents with proper nutrition, health care, housing, clothing, and transportation. Some debate has arisen around this definition though for a few reasons. First of all, the number of dependents the wage-earner must prolong has a huge impact on the calculation of the living wage. A wage-earner who only has to support himself can survive with a much lower wage than a wage-earner who must support a family of five for example, so how should legislation take this into consider? If the idea of the living wage is to pay workers based on need, a law that provides a wage capable of supp... ...-Clean Clothes Campaign. http//www.cleanclothes.org/campaign/liwa99-11- 3.htm.-Universal Living Wage Effect on Business and Taxpayers. http//www.nationalhomeless.org/ulwwhitepaper.ht ml-Pritchard, Justin. U.S. Study Concludes That Living Wage Reduces Poverty. http//www.commondreams.org/headlines02/0314-03.htm . 2002-Coalition for Justice in the Maquiladoras. New Study Mexicans Unable to Live on Sweatshop Wages. . 2001. -CFO Protecting the Rights of Maquiladora Workers. -Pritchard, Justin. Study Living Wage Laws Work. http//www.cbsnews.com/stories/2002/03/14/national/main503712.shtml-http//www.epinet.org/issueguides/minwage/figure1.gif

Martin Eden :: essays papers

Martin EdenJack London, prestigious author of Martin Eden writes his opinions intohis work. Aspects of different societies are prevalent throughout hiswork and the class struggle between different classes of characters isapparent in his writing. Although not an autobiography much of hiswriting can appear to include his person-to-person views on life. Martin Eden,the protagonist created by London begins as a petty seaman works hishis way to the upper class of order of magnitude. Through self-determination and self-cultivation he is able to become a member of the bourgeois. Writerswith styles similar to London in that they all write in the alike(p) stylein that shows the struggle of the poor and their climb to the upperclass only to see that it reveals a faux ideal. Alice Hoffman author ofHere On Earth appears to hold many of the same beliefs as Martin whichare seen throughout her novel.Martin Eden was forced to make his own living. Eden was nevergiven anything and had to work to g ain everything he wanted.Everyday struggles include finding the simple necessities offood and shelter. As a poor sailor, Eden looked around and sawthe ideals of the bourgeois. Through the eyes of Eden theBourgeois were the educated, wealthy, and were what Martindesired to become. He dreams of becoming educated and belongingto the upper class ultimately he finds one small connectionthat opens up a new world to the formerly struggling seaman.Although later disproved, his first impressions of this classwere seen from an outsiders view as perfect. Here wasintellectual life, he thought, and here was beauty, warm andwonderful as he had never dreamed it could be. (p. 40) Martincomes into contact with a family that introduces him to thisnew world. The Morse family was all Martin dreamed of, heviewed them, as them part of a perfect society and Ruth was thefocal point of it. Ruth was heavenly like a flower herculture and sophistication stimulated him.Introduction to this new class move Mar tin. The library, anew idea to him, becomes his new haven. Although he lacked boththe time and money necessary for a traditional educationbetween sailing he began his way to self-education. In thebeginning Martin was separated from Ruth because of their classdifference, but as this yearning for education developed he andRuth become involved. He wasnt of their tribe, and hecouldnt talk their lingo was the way he put it to himself. Hecouldnt fake being their kind. (p. 51) Although he wasnt natural any with any of these privileges he made it his business

The impact of Queen Victorias Death on Australia :: essays research papers fc

fay Victorias Death tabby Victorias reign, lasted 63 years, from 1837 to 1901. She ascended the throne of Great Britain, when she was 18. disdain being the Queen of Britain, and a very influential and prominent person, she likewise had an impact on Australian history. In Australia the most apparent legacy of Queen Victorias reign is manifested in the names of the two states, Victoria and Queensland. There are also a large number of other great buildings and places, named in her honor such as, the Queen Victoria Building, in Sydney. Victoria was loved and respected by her subjects, and Australian society at the time was affected greatly by the loss of their beloved Queen. An example of the affection and grief felt by the Australian people is apparent in the following poem, write by J D Horne of Castlemaine, Victoria.Who can recall to memory the lifeOf one so loved, so dear A devoted mother, Queen and married womanA friend when few drew near And not in silent agonyBe melted into tears.A nation weeps her,The whole innovation mourns her...Dead, did I say? Ah No She livesIn every loving heart.A nations grief is not assuaged No time can meliorate the smart.She lives forever, and her deedsWill live in memory too,And history recount her praiseFor all the ages through.For never monarch lived on earthSo desirable of our song...The Victorian era, as it became known, was the time of Queen Victorias reign. Victorias death signaled the end of an era. It was a rich and significant period in Britain, which had a positive influence on Australia also. It saw profound social changes culminating in the rise of the middle class, population growth, and an increase in wealth. Victoria was Queen and so it was seen as a product of her reign and so the love for her increased. Victorias death created a feeling of insecurity and uncertainty of what would result. However, it also created the feeling of opportunity and a new beginning. There was a sense not only in London but in a ll the capitals of the human that an age had come to an end, a stronger sense than there had been when the 19th century itself drew to a close. (1). There were mixed feelings with the end of Victorias reign. At the time Australian culture still revolved around Britain and most Australians were either born in Britain, or had relatives residing there.

Thomas Hardy was an English man, who lived in England near Dorchester E

Thomas Hardy was an English man, who lived in England good DorchesterThomas Hardy was an English man, who lived in England near Dorchester.He lived from 1840-1928 most of what he wrote is set in Dorset and theneighboring countries. He gave these the fictional name Wessex. Hewrote 17 novels which one was unpublished. And around a pace poemsthe melancholy hussar and the withered arm are both from the Wessextails book. He lived on the edge of a tract of a wild heath land,which was genuinely isolated this may have resulted in his stories beingset out in the country or being isolated. Or even ending ingenious in themelancholy hussar or the withered arm.The social class issues, these would stop a lower class personmarrying a higher-class person it was seen as a very big thing backthen, there-for Dr.grove insufficiencys Humphrey to marry Phyllis, and in thewithered arm Rhoda could marry farmer lodge but he does not want to asit is seen as a disgrace. Also the stigma of being an unmarri ed motheris tough for Rhoda and her son. Farmer lodge does not even acknowledgehim wh...

Thomas Hardy was an English man, who lived in England near Dorchester E

Thomas Hardy was an side man, who lived in England near DorchesterThomas Hardy was an English man, who lived in England near Dorchester.He lived from 1840-1928 most of what he wrote is set in Dorset and theneighboring countries. He gave these the fictional name Wessex. Hewrote 17 novels which one was unpublished. And roughly a thousand poemsthe melancholy hussar and the withered arm are both from the Wessextails book. He lived on the edge of a tract of a kookie heath land,which was very isolated this may have resulted in his stories beingset out in the country or being isolated. Or make up ending happy in themelancholy hussar or the withered arm.The social class issues, these would stop a lower class soulfulnessmarrying a higher-class person it was seen as a very big thing backthen, there-for Dr.grove wants Humphrey to marry Phyllis, and in thewithered arm Rhoda could marry farmer lodge but he does not want to asit is seen as a disgrace. Also the stigma of being an unmarried moth eris tough for Rhoda and her son. Farmer lodge does not however acknowledgehim wh...

Do You Agree to Redevelop a City

Do you agree to redevelop lee side Tong bridle-path ? I do not agree to redevelop Lee Tong Street because of the following reasons . From the scotch point of view , redevelop Lee Tong Street cause serious economic losses to the workshop owners and the residents . First , after the redevelopment , the property prices will be increased . It will threaten the survival of the existing small shop owners . They concern about whether they will receive enough compensation to cover their losses . Some may not be able to grant the high-pitched rent and will be forced to close down .Second , the residents worry if they will receive enough compensation to purchase a flat of a similar size and whether their living conditions will be improved . Also , the tenants concern about whether they could be relocated in the same area and afford the increased rent in the future . Those stakeholders need to face a serious economic losses in the redevelopment of Lee tung Street . From the social point of view , redevelopment of Lee Tung Street will bring a radical change for the local anaesthetic residents . First , after the redevelopment , Lee Tung Street will have some(prenominal) high-rise buildings .Because of the densely-packed high-rise buildings , the density will be increased . And the air defilement also will become more serious . Second , Lee Tung Street was originally a public space where residents could hang roughly and interact with each other freely . Communities could then be established . thus far , after these streets are redeveloped into shopping malls which belong to developers and are privately possess , people will no longer be entitled to the right to interact freely in these private areas .This hinders the formation of communities . The redevelopment bring many inconvenient to the society and the residents . P. 1 From the heathen point of view , redevelop Lee Tung Street will destroy the local cultural , Chinese traditional crafts and the traditional architectural . First , residents along Lee Tung Street made use of the buildings to establish a local printing effort . They used the front part of the building as their shops , while the back was used as the printing workshops .A cluster of wedding card printing shops curtly sprang up and turned Lee Tung Street into a well-known print merchandising hub which is part of the collective memory of Hong Kong people . The local cultural will gradually vanish along with the redevelopment . Different traditional shops and food stalls will be replaced with monotonous chain stores and shops , undermining cultural transformation . Next , although the old buildings on Lee Tung Street are not of special historical value , very few of those buildings in the architectural style of the 50s and 60s are left .Destroy a cultural is easy , but establish a cultural is not a easy job . refurbishment Lee Tung Street will destroy Hong Kong local cultural . Some people might assert that after the red evelopment of Lee Tung Street , it can has a better use of land for others sustainable development . And the better facilities can solve the poor hygiene and the pollution problems . However , after the redevelopment , the buildings will changed from mainly six-storey Chinese-styled tenement buildings to high-rise buildings . The residents will more and more .Then , the density of Lee Tung Street will oft increased . Also , the redevelopment project include building new shopping malls . That means Lee Tung Street will become a tourist spot like Causeway Bay . As we all know , Causeway Bay s air pollution problem is the closely serious in Hong Kong . Are we going to forgo our environmental problem? Redevelop Lee Tung Street not only affect the local residents , but also all the Hong Kong people . The losses for redevelopment project are more than the benefits . Therefore , it is a wrong decision to redevelop Lee Tung Street . ( End )

Discuss the Importance of Visual Perception Essay

inner evolution is an important personal characteristic that contributes to iodins self-worth. It is the modal value matchless sees him or her independent of ones anatomic appearance. The way one feels and the way one is lived by parliamentary law and the purlieu can make the disagreeence between creation happy or unhappy. Whether or not ones choice is accepted by others can to a fault influence how one lives. Unfortunately, cozy evolution is often confused because it is most often assumed to agree with ones appearance. Very often, it does but sometimes it differs. Simply because something seems or is supposed to be a certain way due to ones societal expectations, does not mean that it always will be. Things are not always the way they appear and it takes much greater knowledge and understanding to accept people for what they are, even if it does not go along with what one learned.Keywords Gender, male and female, hormones, environmentSexual DevelopmentE actually(prenom inal)one possesses a gender identity, which most often matches ones anatomic appearance. Ones cozy development can be every male or female or even something in between. Is cozy development truly so important or does it not play that substantial of a role? Maybe this example will supporter everyone come to a better conclusion about this subject. A healthy baby son was born to very happy parents. However, about eight months into his life, something happened and his genitals were horrifically destroyed. His biggest male appearance at that age, his penis, did not exist any more(prenominal). His parents, completely disturbed by the accident, hear about a psychologist who was able to assign sex to baby birdren whose genitals were destroyed or not there for other reason. According to Culbertson (2009), If it is not created, then the child will be assigned a grammatical gender (in the Western world, all children must be either a boy or a girl), which may or may not match that childs so cial gender as it evolves over the course of childhood (para. 14).Very often, when a parent chooses the sex for his or her own child due to the circumstances, it seems to work very well. However, prenatal hormones also influence these factors in either working or not. Nevertheless, it did not work in this case and this boy began to livean unhappy life as a girl. Time went by and many problems occurred until she saw another psychologist. Her parents finally told her what happened and she began the transformation into a male. It seems like being a male made him happier once again and he even married and became a stepfather. However, this invention does not have a successful conclusion, as David Reimer committed suicide at the age of 38 (New York Times, 2004). This tragic story shows that ones sexual development matters.It also explains that there is more than one factor that contributes to ones sexual development. Therefore, the causation of this paper will try to provide a better u nderstanding into how gender identity and sexual development happens. The interaction between hormones and behavior will be explained and what role it plays in finding his or her own gender indentify in sexual development. As usual, it will also use the help of biopsychology and the environment to provide a better answer for the reader. The author hopes that the reader will not only establish a deeper knowledge about this subject but mostly that he or she will straits away with more understanding for individualism.Determination of Sexual DevelopmentMany different factors come into play determining ones final sexual development. It is very important to acknowledge that not everything that appears a certain way also will perform as such. Ones anatomy tycoon foreshadow being a male or female however, this does not mean that this is actually how a person views him or herself. Chromosomes play a very important role in ontogeny sexual organs. Sexual chromosomes, such as XX and XY, hel p determine sexual differentiation. For instance, XX chromosomes will contribute to the development of a female while XY chromosomes develop a male. In addition, the sexual X chromosome and non-sexual chromosomes can do more and possess the ability of developing either sexual genitals. This is wherefore the exposure to hormones before and after one is born is so significant.Hormones are responsible for ones biological development. Therefore, it is very interesting to find out that the Y chromosome directs the glands to releases male sex hormones. Furthermore, hormones present during pregnancy will most likely affect the nervous system. It is important to acknowledge that every embryo is bisexual and has the ability to develop into a male or female until the end of the first trimester andthe ability of hormones, which will the determine the soma of system, the Mllerian system or Wolffian system, one develops (Carlson, 2007).It is clear that hormones influence sexual development an d help one to not only view him or her as male or female but also feel as such. For instance, hormones also influence feminine and masculine characteristics. As stated by Berk (2004), male and androgynous children and adults have higher self-esteem, whereas feminine individuals often think poorly of themselves, perhaps because many of their traits are not highly valued by society(p. 263).Children and Sexual DevelopmentOne is not born knowing everything about him or herself. The way one is brought up, the environment, and different beliefs, just to mention few, all help one come to that conclusion. Children are not born with the knowledge of what his or her anatomy and gender identity is they learn it at a certain age. To be even more exact and according to Rathus, Nevid, & Fichner-Rathus (2008) Most children first become aware of their anatomic sex by about the age of 18 months. By 36 months, most children have acquired a firm sense of gender identity (p.167). Therefore, ones socia l learning and cognitive development also affect gender identity and sexual development. Children are influenced first by their parents and then by other authorities, peers and even the media. Another very important possibility that should be considered in how one comes to their gender identity is the gender schema theory. This theory knows the strong influence ones cognitive development and the environment play together. This happens by setting either masculine or feminine categories with which one can identify more.So for instance, boys play only with specific toys and girls do the same. Either gender is criticized by not following these rules or these rules are even pre-set by others. Parents buy gender specific toys and stores even categorize their sections by age and gender. These examples show how much other factors help one choose his and her gender identity and therefore influence ones sexual development (Berk, 2004, p. 263). Still, even though ones appearance normally goes along with ones preference, there are times when this does not happen. Maybe this is one of the reasons why it takes so many to open up and let everyone know how he or she trulyfeels. This may also be one of the reasons why so many never say anything and hurt themselves or even end their lives. This is why it is especially important for parents and other authorities roles to avoid stereotyping and suspend the possibility of acceptance even if it does not go alone with ones thinking and the social agreement.Furthermore, this can be explained by examining the behavior of intersexuals. Intersexuals gonads differ from their sexual appearance yet they are brought up by how they look. However, many express difficulty indentifying with being either male or female. This provides the clear curtilage of the interplay of biological factors and the environment contributing to ones sexual development (Rathus, Nevid, & Fichner-Rathus, 2008). However, indentifying with either one seems to be imp ortant. Quoted by Gross Both males and females reported that gendered expectations at home involved educational success. For females, gendered expectations at school involved being evoke in fashion and boys. For males, gendered expectations at school involved being interested in girls and participating in non-academic activities like sport (Gross, 2009).Biological PsychologyBiological psychology plays an important role and considers different factors when explaining what and how sexual differentiation and sexual development is determine. It acknowledges that a persons brain influences ones behavior this behavior resembles male or female characteristics and will be categorize as such. However, biological psychology also knows that it is not so simple explaining a human and there are many other important aspects in ones life, which cause certain things to occur. Therefore, not only the brain but also, hormones, heredity, the environment, cultural upbringing, and ones choices will de termine either a traditional or a non-traditional role with which one can better identify.Determination of Greater InfluenceAs everyone differs from each other, so too differ each individuals influence. For instance, someone could have been exposed to prenatal hormones that normally would determine how one turns out to be, but then they were prone to the influences of his or her environment and turned out completely opposite. Therefore, saying which has the greater contributionis a difficult decision to make. There is evidence for both such as, being raised as a male and resembling one should surely let one know that is how they should feel. That does not happen all the time. If the answer would be so clear, then one should be able to know what causes female homosexuals to have higher levels of testosterone, as human biology or a certain modus vivendi can increase the level. This is why it is, most likely, the interplay of both that contribute to this occurrence, leading to uncertai nty of the main cause.ConclusionOnes looks do not indicate how one feels and certain important factors contribute to ones sexual differentiation, gender identity, and sexual development. Surely, it matters to try to find the correct answers because they may provide more understanding to human nature. So maybe one day, much clearer resolutions can be provided. However, in the mean time, one should always keep in oral sex that every individual tries to be his or her best and to be acknowledged is what, in the end, counts and makes a truly good person. One way of doing so is by making it illegal to discriminate in employment, public accommodation, credit, housing and education based on a persons sexual orientation or gender identity( Journal of Property Management, 2007).

Business related Essay

1. Define Marketing. What is marketing process as set out in your text book. justify the various elements of marketing process. ( LO1 perspicacity Criteria 1.1) 2. Select an organization of your choice, identify the marketing orientation it focuses on and evaluate the benefits and costs of the marketing orientation for the selected organization ( LO1 Assessment Criteria 1.2)3. The Dunkin Donut Case ( LO1 Assessment Criteria 1.2) For to a greater extent than 50 years, Dunkin Donuts has offered customers throughout the United States, and around the world, a consistent experience the same donuts, the same coffee, the same introduce dcor each time a customer drops in. Although the chain now offers iced coffee, breakfast sandwiches, smoothies, gourmet cookies, and Dunkin Dawgs in addition to the old standbys, devoted customers argue that its the coffee that sets Dunkin Donut apart. To keepcustomers coming back, the chain still relies on the recipe that founder Bill Rosenberg crafted to a greater extent than 50 years ago.The order is so pertain about offering a consistent, high-quality cup of coffee that managers in Dunkin Donuts Tree-to-Cup program monitor the progress of its coffee beans from the farm to the restaurant. The result? Dunkin Donuts sells more cups of coffee than any other retailer in the United States 30 cups a second, nearly one billion cups each year. Building on that success, the company plans to more than triple its current number of stores, amassing 15,000 franchises by the year 2015.What marketing orientation does Dunkin Donut follow here and why? Give reasons and justification tuition progeny/s achieved in the assignmentBy completing this assignment successfully, the student lead achieve the following learning outcomeLearning OutcomeLO1 Understand the concept and process ofmarketingAssessment Criteria1.1 explain the various elements of the marketingprocess1.2 evaluate the benefits and costs of a marketingorientation for a selected org anisationGrading CriteriaPASSThe student will be awarded a PASS var. ifhe/she achieves all assessment criteriaMERITThe student will be awarded a Merit grade ifhe/sheThe learners evidence shows for M1 Identify and apply strategies to findappropriate solutions effective judgements have been made complex problems with more than one variablehave been explored an effective approach to study and research hasbeen appliedDISTINCTIONThe student will be awarded a Distinctiongrade if he/sheThe learners evidence shows for conclusions have been arrived at throughsynthesis of ideas and have been justifiedD1 Use critical reflection to evaluate own work the severeness of results has been evaluated using and justify valid conclusionsdefined criteria self-criticism of approach has taken place realistic improvements have been proposedagainst defined characteristics for success

Financial Reporting Quality: Red Flags and Accounting Warning Signs

m one and only(a)tary insurance coverage Quality and Investment Efficiency Rodrigo S. Verdi The Wharton School University of Pennsylvania 1303 Steinberg H all-Dietrich Hall Philadelphia, PA 19104 telecommunicate emailprotected upenn. edu Phone (215) 898-7783 Abstract This cover studies the intercourse among pecuniary insurance coverage reference and investing competency on a sampling of 49,543 unwavering- course of instruction observations surrounded by 1980 and 2003. Financial describe depicted object has been posited to improve enthronization susceptibility, unless there has been little empirical evidence supporting this claim to date.Consistent with this claim, I find that proxies for fiscal reportage superior argon invalidatingly associated with both(prenominal) inviolable under investiture and over enthronization. Further, pecuniary report timber is to a greater extent strongly associated with under enthronisation for blottos lining support constra ints and with over investiture for inviolables with large bills balances, which suggests that monetary insurance coverage quality palliates info asymmetries arising from unbecoming extract problems and agency conflicts.Finally, the resemblance between monetary inform quality and enthronisation expertness is stronger for dissolutes with slump quality culture milieus. Overall, this paper has implications for research examining the determinants of investment efficiency and the economic consequences of enhanced fiscal reporting. Current Version February 14, 2006 _____________________________________________ I thank members of my dissertation perpetproportionn John Core, Gary Gorton, Christian Leuz, Scott Richardson, and Catherine Schrand (Chair) for their guidance on this paper.I appreciate comments from Patrick Beatty, Jennifer Blouin, Brian Bushee, Gavin Cassar, Francesca Franco, Wayne Guay, Luzi Hail, Bob Holtha riding habitn, Rick Lambert, Frank Moers, Jeffrey N g, Tjomme Rusticus, Irem Tuna, Ro Verrecchia, Missaka Warusawitharana, Sarah Zechman, Zili Zhuang, and seminar participants at the Wharton School. I besides grate extensivey acknowledge the pecuniary support from the Wharton School and from the Deloitte Foundation. Any errors atomic heel 18 my own. Financial Reporting Quality and Investment Efficiency . Introduction This paper studies the relation back between financial reporting quality and investment efficiency. Recent papers (e. g. , Healy and Palepu, 2001 Bushman and Smith, 2001 Lambert, Leuz, and Verrecchia, 2005) suggest that enhanced financial reporting can seduce important economic implications much(prenominal) as amplification investment efficiency. However, despite solid theoretical support for such a relation, there is little empirical evidence supporting these claims.I hypothesize that financial reporting quality can improve investment efficiency by bring down cultivation unbalance in dickens ways (1) it redu ces the instruction dissymmetry between the business slopped and investors and thus depleteders the firms follow of raising funds and (2) it reduces claimation asymmetry between investors and the manager and thus lowers the sh arholders make up of observe managers and improves project filling. The two key constructs in the analysis be investment efficiency and financial reporting quality.I conceptually define a firm as investing efficiently if it undertakes all and merely projects with positive authorize present set (NPV) under the scenario of no market frictions such as adverse picking or agency costs. Thus inefficient investment includes passing up investment opportunities that would gain positive NPV in the absence of adverse selection (underinvestment). Likewise, inefficient investment includes undertaking projects with prejudicial NPV (overinvestment).I measure investment efficiency as deviations from pass judgment investment apply a parsimonious investment framework which divines expected investment as a function of growth opportunities (Tobin, 1982). Thus, both underinvestment ( forbid deviations from expected investment) and 1 overinvestment (positive deviations from expected investment) argon considered inefficient investment. I conceptually define financial reporting quality as the precision with which financial reporting conveys information about the firms operations, in particular its expected hard exchange full stops, in severalize to inform equity investors.As draw in the FASB Statement of Financial accounting system Concepts No. 1, financial reporting should offer information that is habituateful to present and emf investors in fashioning rational investment decisions (par. 34) and provide information to help present and potential investors in assessing the amounts, timing, and doubtfulness of prospective property in receipts (par. 37). Further, expected bullion carrys is a key input to firm capital budgeti ng, which is particularly important in the context of this paper which studies financial reporting implications for corporate investment.I proxy for financial reporting quality apply measures of accruals quality based on the idea that accruals improve the informativeness of profit by smoothing out transitory fluctuations in cash in campaigns (Dechow and Dichev, 2002 McNichols, 2002). The drop of accruals quality relies upon the fact that accruals argon judges of future cash flows and earnings will be to a greater extent than legate of future cash flows when there is lower regard error embedded in the accruals process.I take on the relation between financial reporting quality and investment efficiency on a sample of 49,543 firm- course observations during the sample period of 1980 to 2003. The analysis yields triple key findings. First, the proxies for financial reporting quality argon negatively associated with both firm underinvestment and overinvestment. This result ext ends research in Wang (2003) who predicts and finds a positive relation between 2 capital parceling efficiency and three earnings attri only ifes (value-relevance, persistence, and precision) without making the distinction between under- and overinvestment.Second, cross-sectional tests indicate that the impact of financial reporting quality on investment efficiency is due to the alleviation of adverse selection and agency costs. For instance, financial reporting quality is more strongly negatively associated with underinvestment for firms facing financial support constraints. This result suggests that, for this type of firm, financial reporting quality improves investment efficiency by lowering its cost of raising funds. Likewise, financial reporting quality is more strongly negatively associated with overinvestment for firms with large cash balances.This result suggests that financial reporting quality improves investment efficiency for these firms by lowering shareholders cost of observe managers and improving project selection. Finally, I predict that the relation between financial reporting quality and investment efficiency is stronger for firms with shortsighted information environments. Financial reports are just one source of information to investors, and investors are more likely to rely on financial be information to infer the economic conditions of the firms operations for companies with new(prenominal)wise weak information environments.I proxy for the information environment using the number of psychoanalysts future(a) a firm as an ex-ante measure for the amount of publicly available information about the firm, and bid-ask spreads as an ex-post measure of the information asymmetry between the firm and investors (e. g. , Amihud and Mendelson, 1986 Roulstone, 2003). Consistent with the prediction, the relation between financial reporting quality and investment efficiency is stronger for firms with low analyst following and for firms with high bid-ask spreads. These results suggest that financial reporting quality can locomote investment efficiency directly in extension to the link through price informativeness documented in Durnev, Morck, and Yeung (2004). In addition, the findings using analyst following are reproducible with Botosan (1997) who finds that greater disclosure is associated with lower cost of capital for firms with low analyst following. Although my results suggest that firms with higher financial reporting quality are associated with more efficient investment, one cannot conclude from this paper that increase financial reporting quality would necessarily translate into higher investor welfare.Enhanced financial reporting may improve investment efficiency by reducing information asymmetry. However, firms must weigh this benefit against the costs (e. g. , proprietary costs) and against alternative ways to reduce information asymmetry such as courting more analysts. Further, it may even be impossible for several(prenominal) firms to increase financial reporting quality given the limitations imposed by GAAP. Nonetheless, this paper contributes to literature on the economic consequences of enhanced financial reporting by exhibit that financial reporting quality can be associated with more fficient investment. The remainder of the paper event as follows. Section 2 develops the hypotheses and Section 3 describes the measurement of investment efficiency and financial reporting quality. Section 4 presents the results. Section 5 offers some sensitiveness analysis and Section 6 concludes. 2. Hypothesis development In this section I commencement exercise review the determinants of investment efficiency. Then I question how financial reporting quality can affect investment efficiency. Finally, I develop predictions on the relation between financial reporting quality and investment efficiency, and the channels through which this relation is expected to take place. Figure 1 describes these links. 2. 1. Determinants of investment efficiency there exist at least(prenominal) two determinants of investment efficiency. First, a firm needs to raise capital in revise to finance its investment opportunities. In a perfect market, all projects with positive net present values should be funded however, a large literature in finance has shown that firms face financing constraints that limit managers ability to finance potential projects (Hubbard, 1998). champion conclusion of this literature is that a firm facing financing constraints will pass up positive NPV projects due to large costs of raising capital, resulting in underinvestment (Arrow 1 in Figure 1). Second, even if the firm decides to raise capital, there is no guarantee that the correct investments are implemented. For instance, managers could favour to invest inefficiently by making bad project selections, con pairinging perquisites, or even by expropriating existing resources.Most of the literature in this area p redicts that poor project selection leads the firm to overinvest (Stein, 2003), but there are in any subject area a few papers which predict the firm could underinvest (e. g. , Bertrand and Mullainathan, 2003). These links are presented respectively by Arrows 2A and 2B in Figure 1. Information asymmetry can affect the cost of raising funds and project selection. For instance, information asymmetry between the firm and investors ( ballparkly referred as an adverse selection problem) is an important driver of a firms cost of raising the capital required to finance its investment opportunities Arrow 3 in Figure 1). Myers and Majluf (1984) develop a deterrent example in which information asymmetry between the firm and investors gives rise to firm underinvestment. They show that when managers act in opt 5 of existing shareholders and the firm needs to raise funds to finance an existing positive NPV project, managers may refuse to raise funds at a discounted price even if that means p assing up good investment opportunities. Also, information asymmetry can prevent efficient investment because of the differential story of information between managers and shareholders (comm only if referred as a principal-agent conflict).Since managers maximize their personal welfare, they can choose investment opportunities that are not in the best interest of shareholders (Berle and Means, 1932 Jensen and Meckling, 1976). The have reason why managers inefficiently invest shareholders capital varies across different bureau molds, but it includes perquisite consumption (Jensen, 1986, 1993), career concerns (Holmstrom, 1999), and preference for a quiet life story (Bertrand and Mullainathan, 2003), among others.More importantly, the predicted relation is that agency problems can affect investment efficiency due to poor project selection (Arrow 4A in Figure 1) and can increase the cost of raising funds if investors anticipate that managers could expropriate funded resources (Arr ow 4B in Figure 1) (Lambert, Leuz, and Verrecchia, 2005). In sum, the discussion in a higher place suggests that information asymmetries between the firm and investors and between the principal and the agent can prevent efficient investment. In the next section, I discuss how financial reporting quality can enhance investment efficiency by mitigating these information asymmetries. . 2. Role of financial reporting Financial reporting quality can be associated with investment efficiency in at least two ways. First, it is commonly argued that financial reporting mitigates adverse selection costs (Arrow 5 in Figure 1) by reducing the information asymmetry between the 6 firm and investors, and among investors (Verrecchia, 2001). For instance, Leuz and Verrecchia (2000) find that a commitment to more disclosure reduces such information asymmetries and increases firm liquidity.On the other hand, the existence of information asymmetry between the firm and investors could lead suppliers of capital to discount the stock price and to increase the cost of raising capital because investors would infer that firms raising money is of a bad type (Myers and Majluf, 1984). Thus, if financial reporting quality reduces adverse selection costs, it can improve investment efficiency by reducing the costs of out-of-door financing and, as discussed in more detail below, the potential for financial reporting quality to improve investment efficiency is greatest in firms facing financing constraints.Second, a large literature in accounting suggests that financial reporting plays a critical role in mitigating agency problems. For instance, financial accounting information is commonly utilise as a direct input into compensation contracts (Lambert, 2001) and is an important source of information utilise by shareholders to monitor managers (Bushman and Smith, 2001). Further, financial accounting information contributes to the monitoring role of stock markets as an important source of fi rmspecific information (e. g. Holmstrom and Tirole, 1993 Bushman and Indjejikian, 1993 Kanodia and Lee, 1998). Thus, if financial reporting quality reduces agency problems (Arrow 6 in Figure 1), it can then improve investment efficiency by increasing shareholder ability to monitor managers and thus improve project selection and reduce financing costs. 1 2. 3. Predictions For example, Bens and Monahan (2004) find a positive association between AIMR disclosure ratings and the excess value of diversification as defined by Berger and Ofek (1995).They conclude that disclosure plays a monitoring role in mitigating managements investment decisions. 1 7 Based on the discussion above that financial reporting affects both adverse selection and agency conflicts, I predict an center negative relation between financial reporting quality and both underinvestment and overinvestment. These links complement research in Bushman, Piotroski, and Smith (2005), which studies the relation between countr y measures of timely loss recognition and the country propensity to shave bad projects (i. e. , itigate overinvestment), and in Wang (2003) which explores the relation between capital allocation efficiency and accounting information quality for a sample of US firms, without making a distinction between under- and overinvestment. 2 H1 Financial reporting quality is negatively associated with underinvestment. H2 Financial reporting quality is negatively associated with overinvestment. In addition to investigating the average relation between financial reporting quality and investment efficiency, I also investigate the mechanisms through which financial reporting quality can affect investment efficiency using cross-sectional analysis.First, I predict that the relation between financial reporting quality and firm underinvestment is stronger for firms facing financing constraints. By definition, throttle firms are those for which the ability to raise funds is the most likely impediment to efficient investment, and for these firms, financial reporting quality is especially important in mitigating adverse selection costs. H3 The relation between financial reporting quality and underinvestment is stronger for financing constrained firms. 2One concern with Hypotheses 1 and 2 is that fountain goes the other way. For instance, poorly performing managers could be investing inefficiently and thus choose to report low quality financial information in order to hide their bad performance (e. g. , Leuz, Nanda, and Wysocki, 2003). I discuss the empirical tests use to address this alternative hypothesis in Section 4. 8 Second, I predict that the relation between financial reporting quality and firm overinvestment is stronger for firms with large cash balances and free cash flows.Managers of firms with large cash balances and free cash flows have more opportunity to engage in value destroying investment activities (e. g. , Jensen, 1986 Blanchard, Lopezde-Silanes, and Shleifer, 1994 Harford, 1999 Opler et al. , 1999 Richardson, 2006). Consequently, financial reporting quality can play a more important monitoring role in mitigating agency problems for these firms. H4 The relation between financial reporting quality and overinvestment is stronger for firms holding large cash balances and free cash flows.Third, I study the complementary and substitute relation between financial reporting quality and a firms information environment, and how it affects investment efficiency. Financial reporting quality is just one source of information about the firms operations used by investors. For instance, investors in firms followed by a large number of analysts or firms with informative stock prices may be less dependent on financial reports when other elements of the firms information environment are of high quality.Thus I hypothesize that financial reporting quality is more important in improving investment efficiency when the amount of information publicly available about the firm is low. 3 H5 The relation between financial reporting quality and investment efficiency is stronger for firms with comparatively poor information environments. 3. Empirical work 3. 1. Proxies for investment efficiency One concern with Hypothesis 5 is that financial reporting quality and the firms information environment are likely to be correlated.Indeed, Verdi (2005) shows that the firm information environment can be aggregated in accounting-based and market-based correlated constructs. Hypothesis 5 implicitly assumes onward this correlation by investigating the onus of financial reporting quality on investment efficiency holding the market-based information environment constant. 3 9 In order to construct measures of investment efficiency, I first visualize a model that predicts firm investment levels and then use sleeps from this model as a proxy for inefficient investment.The data are from the Compustat Annual file during the historic period 1980 to 2003. Tot al new Investment in a given firm- family is the sum of capital expenditures (item 128), R&D expenditures (item 46), and acquisitions (item 129) negatively charged sales of PPE (item 107) and depreciation and amortization (item 125) multiplied by 100 and scaled by average total assets (item 6), following Richardson (2006). This measure uses an accounting-based framework to estimate new investment as the difference between total investment and investment required for maintenance of assets in place.In the sensitivity section I also discuss the boldness of the results to the use of only capital expenditures as an alternative proxy for investment that is frequently used in the literature (e. g. , Hubbard, 1998). I estimate a parsimonious model for investment demand as a function of growth opportunities measured by Tobins Q (Tobin, 1982). This model is based on the personal line of credit that growth opportunities should explain corporate investment when markets are perfect (Hubbard, 1998). Investmenti,t = ? 0 j,t + ? 1 j,t * Qi,t-1 + ? i,t (1) I estimate the model cross-sectionally for all industries with at least 20 observations in a given year based on the Fama and French (1997) 48-industry classification. Q is calculated as the ratio of the market value of total assets (defined as 4 A large finance literature uses investment cash flow sensitivities as a proxy for inefficient investment (or market frictions).I do not use this approach for two reasons First, traditional papers measure cash flow without making the distinction between cash flows and accruals, and Bushman, Smith, and Zhang (2005) illustrate the sensitivity of the results to the appropriate measurement of operating cash flows. Second, positive investment cash flow sensitivities could mean both financing constraints and/or agency problems which specifys it impossible to test the cross-sectional hypotheses of the paper (Hypotheses 3 to 5). 10 otal assets (item 6) plus the product of stock price (i tem 199) and the number of common shares outstanding (item 199) minus the book value of equity (item 60)) to book value of total assets (item 6) at the start of the fiscal year. The sample consists of 98,675 firm-year observations with available data to estimate Investment and Q during the sample period of 1980 to 2003. Consistent with previous literature, financial firms (i. e. , SIC codes in the 6000 and 6999 range) are excluded because of the different nature of investment for these firms.In order to mitigate the influence of outliers I winsorize all proteans at the 1% and 99% levels by year. 5 gameboard 1 presents the results from the investment model in Equation 1. circuit card A offers descriptive statistics for Investment and Q. The mean (median) firm in the sample invests 7. 26% (3. 84%) of total assets per year and has an average (median) Q equal to 1. 90 (1. 32), conformable with related literature (e. g. , Richardson, 2006 Almeida, Campello, and Weisbach, 2004).Panel B presents mean and median values of the estimated industry coefficients on Q, the average R-square, and the number of significant positive coefficients for distributively year. In all eld the mean and median coefficients are positive and relatively stable during the sample period. The mean R-square ranges from 6% in 1997 to 14% in 1991. 6 Finally, in each year, more than half of the industry coefficients on Q are positive and statistically different from zero at a tail fin percentage significance level. 7The model in Equation 1 includes an intercept which imposes that for each industry-year the mean firm will have a zero residual. In untabulated analysis, I re-estimate the model adding the intercept back to the residual so that it allows industry- age to have a non-zero mean (for example, industries that overinvest or periods with large economic growth). The results are robust (in oecumenical even stronger) to this test. 6 Note that the account R-squares measure only the withi n industry-year variation because the model is estimated separately for each industry-year.An equivalent approach in which the model is estimated across all industry-years with separate intercepts and coefficients for each industry-year leads to an R-square of 23. 5%, suggesting that the overall informative power of the model is larger than that reported in get across 1. 7 A current ongoing debate in the finance literature is the implications for measurement error in the estimation of Q (Erickson and Whited, 2000 Gomes, 2001 Alti, 2003). Since the subsequent analysis hinges on the investment model in Equation 1, I perform two sensitivity tests First, I include past returns in 5 1 I measure investment efficiency using the residuals from the model in Equation 1. Overinvestment is the positive residuals of the investment model and Underinvestment is the negative residuals of the investment model multiplied by negative one, such that both measures are decreasing in investment efficie ncy. In untabulated analysis, I repeat all tests after excluding firms with the smallest 10% and 20% investment residuals because these firms are more likely to be affected by measurement error in the investment model (i. e. , misclassified as overinvesting or underinvesting firms).The results for these analyses are quasi(prenominal) to those reported below. hedge 1 Panel C presents descriptive statistics for Investment Residual, Overinvestment and Underinvestment. By construction, Investment Residual has a mean value of zero ranging from -64. 46% to 80. 43%. There are 39,107 (59,568) firms classified as overinvesting (underinvesting) firms. The mean (median) value is 9. 73% (5. 63%) for Overinvestment and 6. 39% (4. 71%) for Underinvestment. These results show that the residuals from the investment model are more frequently negative, although in smaller magnitude.Panel D presents Pearson correlations between the measures of investment efficiency and firm characteristics. Investm ent Residual is uncorrelated with firm size (measured as the logarithm of total assets (item 6) at the start of the fiscal year) and around negatively correlated with return volatility (measured as the standard deviation of daily returns during the prior fiscal year). However, when the residuals are separated into Overinvestment and Underinvestment, I find that these variables are negatively correlated with size and positively correlated with return volatility and Q (the magnitude of the he investment model to capture growth opportunities not reflected in Q (Lamont, 2000 Richardson, 2006) and second, I exclude all industry-year observations in which the estimated coefficient on Q is not positive and significant. The subsequent results are not sensitive to these tests. 12 correlations range from 0. 18 to 0. 32). These results suggest every that (1) small firms, with more growth opportunities and volatile operations, have more inefficient investment or (2) the investment model is a p oor fit for these firms.In any case, it highlights the importance to control for these firm characteristics in the subsequent analysis. In order to soften understand the properties of the residuals from the investment model I perform analyses testing the persistence of investment efficiency over time. First, I find that 40% (48%) of the firms in the expire (bottom) Investment Residual quintile in a given year remain in the top (bottom) quintile in the following year, and 27% (36%) remain three years later (Panel E).In addition, one lag of Investment Residual in an autoregressive model explains 16% of current Investment Residual (untabulated). The inclusion of higher orders of past residuals has a small contribution in explanatory power (R-square of only 18% if five lags are included in the model). These analyses suggest that residuals of the investment model are not random, which seems to support the view that they capture a firm investment characteristic. However, I cannot rule o ut the explanation that the persistence in the residuals is a function of an omitted correlated variable in the investment model. . 2. Proxies for financial reporting quality The conceptual definition of financial reporting quality used in this paper is the accuracy with which financial reporting conveys information about the firms operations, in particular its expected cash flows, in order to inform investors in hurt of equity investment decisions. This definition is consistent with the FASB SFAC No. 1 which states that one objective of financial reporting is to inform present and potential investors 13 in making rational investment decisions and in assessing the expected firm cash flows.I proxy for financial reporting quality using measures of accruals quality derived in prior work (Dechow and Dichev, 2002 McNichols, 2002) based on the idea that accruals are estimates of future cash flows, and earnings will be more representative of future cash flows when there is lower estimati on error embedded in the accruals process (McNichols, 2002). 8 I estimate discretionary accruals using the Dechow and Dichev (2002) model augmented by the fundamental variables in the Jones (1991) model as suggested by McNichols (2002). The model is a regression of work capital ccruals on lagged, current, and future cash flows plus the change in tax income and PPE. All variables are scaled by average total assets. Accrualsi,t = ? + ? 1* immediate paymentFlowi,t-1 + ? 2*CashFlowi,t + ? 3*CashFlowi,t+1 + ? 4*? Revenuei,t + ? 5*PPEi,t + ? i,t. (2) where Accruals = (? CA ? Cash) (? CL ? STD) Dep, ? CA = Change in current assets (item 4), ? Cash = Change in cash/cash equivalents (item 1), ? CL = Change in current liabilities (item 5), ? STD = Change in short-term debt (item 34), Dep = Depreciation and amortization expense (item 14), CashFlow = Net income before extraordinary items (item 18) minus Accruals ?Revenue = Change in revenue (item 12), and PPE = Gross property, plant, and equipment (item 7). All variables are deflated by average total assets (item 6). Following Francis et al. (2005), I estimate the model in Equation 2 crosssectionally for each industry with at least 20 observations in a given year based on the Fama and French (1997) 48-industry classification. AccrualsQuality at year t is the 8 I discuss the sensitivity of the results to the use of alternative measures of accruals quality and other attributes of earnings in Section 5. 4 standard deviation of the firm-level residuals from Equation 2 during the years t-5 to t-1, assuring that all explanatory variables are measured before period t for the counting of AccrualsQuality in that year. I multiply AccrualsQuality by negative one so that this variable becomes increasing in financial reporting quality. As discussed in Dechow and Dichev (2002) and McNichols (2002), the estimation of AccrualsQuality captures the absolute variation in the residuals of Equation 2 rather than the variation relative to a benchmark.One concern with this approach is that AccrualsQuality may be capturing some underlying degree of volatility in the business, and the results in Table 1 show that investment efficiency is negatively correlated with firm uncertainty. Thus, I follow the suggestion in McNichols (2002) and create a relative measure of accruals quality. In particular, I measure AccrualsQualityRel as the ratio of the standard deviation of the residuals from Equation 2 during the years t-5 to t-1 to the standard deviation of total accruals during the years t-5 to t-1 multiplied by negative one.This measure captures the relative variance of the estimation errors in accruals compared to the total variance. I show below that this measure is only slightly correlated with firm size and cash flow volatility, mitigating the concern that the proxies for financial reporting quality are associated with investment efficiency because of the spurious effect of firm uncertainty. 4. Results To investigate hypotheses 1 and 2, I first present introductory analysis on the univariate relation between the measures of investment efficiency and financial reporting quality.Table 2 Panel A presents descriptive statistics for a smaller sample than reported in Table 1 due to data availability for AccrualsQuality and AccrualsQualityRel. 15 The sample consists of 49,543 firm-year observations and all variables are winsorized at the 1% and 99% levels by year. In this sample, there are 19,473 (30,070) firms classified as overinvesting (underinvesting) firms. The mean (median) value for Overinvestment is 7. 81% (4. 45%) and for Underinvestment is 5. 37% (4. 09%).The magnitudes are smaller than reported in Table 1 because the data required to estimate AccrualsQuality and AccrualsQualityRel deflect the sample toward larger firms. Among the financial reporting quality proxies, the mean (median) firm in the sample has an AccrualsQuality of -0. 04 (0. 03) and an AccrualsQualityRel of -0. 74 (-0. 64). Finally, I include descriptive statistics on firm size, cash flow volatility, and Tobin Q because these firm characteristics are shown to be associated with investment efficiency in Table 1. The distribution of Q is slightly changed (as compared to Table 1) to a mean (median) Q of 1. 63 (1. 23) again reflecting the sample bias toward larger firms. Panel B presents Pearson (Spearman) correlations above (below) the main diagonal for the variables in Panel A. By construction, Overinvestment and Underinvestment cannot be correlated because each firm-year observation can only be in one group. Most importantly, Overinvestment is negatively correlated with AccrualsQuality (Pearson correlation equals -0. 19) and with AccrualsQualityRel (Pearson correlation equals -0. 8) the same is true for Underinvestment (Pearson correlations equal -0. 22 and -0. 10 respectively). These results present preliminary evidence for the relation between financial reporting quality and investment efficiency in h ypotheses 1 and 2. Finally, as in Dechow and Dichev (2002), AccrualsQuality is highly correlated In Table 1, I use return volatility instead of cash flow volatility to avoid imposing the five-year data requirement for the estimation of cash flow volatility. However, this data is required to estimate AccrualsQuality and does not impose any sample bias at this stage of the analysis.I use cash flow volatility in the remainder of the paper because AccrualsQuality is highly correlated with cash flow volatility as discussed by Dechow and Dichev (2002). However, the results are not sensitive to this choice. 9 16 with Size (Pearson correlation equals 0. 42) and with CashFlowVol (Pearson correlation equals -0. 66). However, note that AccrualsQualityRel is much less correlated with these variables (correlations of -0. 08 and 0. 04 with size and cash flow volatility respectively), supporting the argument that this variable is uncorrelated with firm uncertainty. 0 Table 3 presents the multiple regressions. The estimated model is a regression of investment efficiency on financial reporting quality, firm characteristics, and industry (based on the Fama and French (1997) 48-industry classification) and year fixed effects. The dependent variable is Underinvestment in the first two columns and Overinvestment in the remaining columns. All standard errors are clustered by firm using the HuberWhite procedure. 11 As predicted in hypothesis 1, Underinvestment is negatively related to AccrualsQuality and AccrualsQualityRel (both coefficients are significant at 1% level).The estimated coefficients are also negative and significant for Overinvestment, supporting the prediction in hypothesis 2. The estimated coefficients suggest that increasing AccrualsQuality (AccrualsQualityRel) by one standard deviation is associated with a drop-off on Underinvestment of 0. 21% (0. 11%) and on Overinvestment of 0. 31% (0. 22%). Given that the mean values for Underinvestment and Overinvestment in Ta ble 2 are 5. 73% and 7. 81%, these changes average between 1% and 5%, suggesting that the economic significance of the effect is moderate.One alternative explanation for the results in Table 3 is that causality goes the other way. For instance, suppose that poorly performing managers are more likely to The signs of the correlations between AccrualsQuality and size and cash flow volatility are the opposite of the ones presented in Dechow and Dichev (2002) because I multiply AccrualsQuality by negative one so that this variable is increasing in reporting quality. 11 Petersen (2005) suggests two methods to correct for both cross-sectional and time-series habituation in the data the Huber-White procedure and adjusted Fama-MacBeth.Since, neither method is perfect, I repeat all subsequent analysis using Fama-MacBeth (1973) estimators adjusting for time-series dependence. The results lead to the same inferences as reported in the text. 10 17 invest inefficiently and also choose to report low quality financial information in order to hide their bad performance (e. g. , Leuz, Nanda, and Wysocki, 2003). Then one could spuriously find a positive association between financial reporting quality and investment efficiency. In order to address this concern, I perform two tests.First, I repeat the analysis using the financial reporting quality proxies lagged by two periods (the variables in the model are already lagged by one period). Second, I explicitly control for past investment efficiency in the model. The intuition piece of tail this test is that if past investment efficiency drives financial reporting quality then there should be no relation between financial reporting quality and future investment efficiency after controlling for past investment efficiency. Table 4 Panel A presents the results of the two sensitivity analyses when Underinvestment is used as the dependent variable.When AccrualsQuality and AccrualsQualityRel (Columns I and II) are lagged by two periods , the inferences are unchanged. The estimated coefficients are statistically negative at conventional levels. In Columns III and IV, I include past Underinvestment in the model. In this case, the estimated coefficient on AccrualsQuality is still negative and significant, while the coefficient on AccrualsQualityRel is negative but only marginally significant (two-sided p-value of 0. 14). Table 4 Panel B repeats the analysis for Overinvestment.Again, all the inferences are unchanged since the estimated coefficients on AccrualsQuality and AccrualsQualityRel are statistically negative in all models. Overall, the results in Tables 3 and 4 support hypotheses 1 and 2 that financial reporting quality is negatively associated with both underinvestment and overinvestment, 18 consistent with the argument that financial reporting mitigates both adverse selection and agency costs. 4. 1. Cross-sectional Partitions In this section, I discuss the empirical approach used to test hypotheses 3, 4, an d 5.These hypotheses involve cross-sectional predictions about the relation between financial reporting quality and investment efficiency across sub-groups of the sample. Thus, I estimate separate coefficients for these sub-groups as described in the model below (Investment Inefficiency) i,t = ? 0 + ? 1* Partition i,t-1 + ? 2* ReportingQuality i,t-1 + ? 3* ReportingQuality* Partition i,t-1 + ? 4* Controls i,t-1 ? ? t * Year t + ? ? j * Industry j + ? it. where Investment Inefficiency is either Underinvestment or (3) Overinvestment, ReportingQuality is either AccrualsQuality or AccrualsQualityRel.Partition is coded as an indicator variable based on measures of financing constraints, excess cash, or information environment described below (results are similar if the Partition is used as a continuous or ranked (deciles) variable). The partitioning variables are defined such that a negative coefficient on the interaction term (? 3) implies that the relation between financial reporting q uality and inefficient investment is stronger for firms in the subgroup of interest (e. g. , financially constrained firms). As additional analysis, I test the null hypothesis that the sum of the coefficients ? and ? 3 is equal to zero in order to test whether the relation between financial reporting quality and investment efficiency is at least present in the sub-group of interest. 12 12 Hypotheses 3 to 5 are also important in mitigating the concern that an omitted correlated variable could be driving the positive association between financial reporting quality and investment efficiency. For instance, if managers choose better (worse) investment projects and report more (less) informative financial accounting information when they know more (less) about growth opportunities and expected cash flows, 9 4. 1. 1. Financing Constraints In this section, I investigate hypothesis 3 which predicts that the relation between financial reporting quality and Underinvestment is stronger for fina ncing constrained firms because these firms are, by definition, curb in their ability to raise funds. I follow the approach in Hubbard (1998) to classify firms into financially constrained and unconstrained categories. In particular, I use five different criteria because of the lack of consensus about which approach provides the best classification (Almeida, Campello, and Weisbach, 2004).First, I classify firms into Payout Constrained if the firm is in the bottom three quartiles in terms of total payout in a given year and unconstrained otherwise. I measure total payout as the sum of dividends and share repurchases deflated by year-end market capitalization using the method described in Boudoukh et al. (2005). Second, I classify firms into Age Constrained if the firm is in the bottom three quartiles of firm age in a given year (and unconstrained otherwise) based on the argument that young firms are more likely to face financing constraints.Age is measured as the difference in years since the first year the firm appears in the CRSP database. Third, I classify firms into Size Constrained if the firm is in the bottom three quartiles of total assets in a given year and unconstrained otherwise. Fourth, I measure Rating Constrained if the firm has semipermanent debt outstanding (item 9) but does not have public debt rated by S&P (item 280) and unconstrained otherwise. Finally, I construct the KZ Index following the approach in Kaplan and Zingales (1997) and classify a firm as KZ Index Constrained hen a positive relation between financial reporting quality and investment efficiency could just be a reflection of the quality of the managers information set and might not be related to financial reporting quality. However, this alternative hypothesis would not predict the relation between financial reporting quality and investment efficiency to be dependent on financing constraints, cash balances, or the existing information environment. Thus, if such interactions exist , then it would strengthen the result that financial reporting quality per se is associated with investment efficiency. 0 if the firm is in the top three quartiles of the KZ Index in a given year and unconstrained otherwise. 13 Untabulated analysis show that the first cardinal classifications are positively correlated (Pearson correlations ranging from 0. 11 to 0. 45) but the KZ Index classification is not correlated with the remaining criteria (Pearson correlations ranging from -0. 01 to 0. 11), consistent with previous research (e. g. , Almeida, Campello, and Weisbach, 2004). 14 Further, all financing constraint proxies are positively correlated with Underinvestment (Pearson correlations range from 0. 1 to 0. 14). Table 5 presents the results related to hypothesis 3. All models include the control variables size, cash flow volatility, Q, and industry and year fixed effects as before but the coefficient estimates on these variables are not tabulated for brevity. The estimated coef ficients on the control variables are similar to those reported in Table 3. The results are separated for AccrualsQuality and for AccrualsQualityRel. For AccrualsQuality, the estimated coefficients on the main effect (third column labeled Reporting Quality) are all egative with only one statistically significant coefficient. These results indicate that, for a sample of unconstrained firms, the relation between AccrualsQuality and Underinvestment is basically not significant. The estimated coefficients on the interaction terms, however, are negative in four-spot out of five cases and significant in two. Further, the F-test rejects the hypothesis of no relation between AccrualsQuality and Underinvestment in almost all cases for the sample of financially constrained firms. The only exception is 3 The KZ Index is calculated using the following formula KZ Index = -1. 002 * CashFlow + 0. 283 * Q + 3. 139 * Leverage 39. 368 * Dividends 1. 315 * Cash. For more details see Almeida, Campel lo, and Weisbach (2004, p. 1790). 14 Principal component analysis on the five financing constraints proxies yields two factors. The first factor explains 40% of the variation and loads on all proxies but the KZ Index. The second factor explains another 20% of the variation in the data and loads on the Payout and the KZ Index measures. 1 when the KZ Index is used as the criteria for financing constraint classification. 15 When AccrualsQualityRel is used as the financial reporting quality proxy, the results are largely the same. In terms of economic significance, increasing AccrualsQuality (AccrualsQualityRel) by one standard deviation is associated with a reduction in Underinvestment of 0. 26% (0. 16%) for firms classified as Rating Constrained and 0. 08% (0. 06%) for unconstrained firms (compared to 0. 21% (0. 11%) for the full sample as discussed above).Overall, the results present marginal support for hypothesis 3 that the relation between financial reporting quality and Underinve stment is stronger for financing constrained firms. 4. 1. 2. Cash Balances In this section, I investigate hypothesis 4 which predicts that the relation between financial reporting quality and Overinvestment is stronger for firms with large cash balances and free cash flows because these firms are more likely to overspend existing resources (Jensen, 1986). I use two criteria to classify firms based on cash holdings and one proxy for free cash flow.First, I create an indicator variable, High Cash, coded as 1 if the firm is above the median in the distribution of cash balances deflated by total assets in a given year and 0 otherwise. Second, I follow the approach in Opler et al. (1999) who predict cash balances as a function of firms characteristics, and use residuals from this model as a proxy for excess cash. Opler et al. show that firms hold more cash in the presence of growth opportunities and firm uncertainty, and less cash when they are forced to payout interest obligations and h ave more access to financing (proxied by leverage and size).Thus, I estimate annual regressions of cash balances (item 1) deflated by total 15 The inconsistent result using the KZ Index is consistent with prior work in the finance literature (e. g. , Almeida, Campello, and Weisbach, 2004 Almeida and Campello, 2005) which finds opposite results when this variable is used as a proxy for financing constraints. 22 assets (item 6) on firm size, leverage, Q, and cash flow volatility. Leverage is measured as the sum of the book value of short term (item 34) and long term debt (item 9) deflated by the book value of equity (item 60) and the remaining variables are the same as described above.The explanatory power of the models ranges from 16% in 1986 to 42% in 2003. I create an indicator variable, Excess Cash, coded as 1 if the firm has a positive residual from the model predicting cash balances, and 0 otherwise. Finally, following Richardson (2006), Free Cash Flow is equal to cash flow from operations plus R&D expenses minus depreciation and the predicted investment for the firm as estimated in Table 1. Free Cash Flow is recoded as an indicator variable coded as 1 if the computation of free cash flow is positive and 0 otherwise.Table 6 presents the results related to hypothesis 4. As before, all models include the control variables size, cash flow volatility, Q, and industry and year fixed effects (estimates not tabulated). The first set of results presents estimated coefficients for AccrualsQuality and the second reports coefficients for AccrualsQualityRel. The results show that the estimated coefficients on the main effect of financial reporting quality are negative but not significant in all six models (three models for AccrualsQuality and three for AccrualsQualityRel).The estimated coefficients on the interaction term, on the other hand, are negative in all cases and significant in three out of six cases, and the F-test rejects the hypothesis of no relation in all cases. In terms of economic significance, increasing AccrualsQuality (AccrualsQualityRel) by one standard deviation is associated with a reduction on Overinvestment of 0. 41% (0. 35%) for firms classified as High Cash and 0. 06% (0. 06%) for firms with low cash (compared to 0. 31% (0. 22%) for the full sample as discussed above).Overall, the results support hypothesis 4 by showing that the 23 relation between financial reporting quality and Overinvestment is stronger for firms with large and excessive cash balances but the results are not statistically significant for firms generating free cash flows. This support the hypothesis that financial reporting quality reduces firm overinvestment by lowering shareholders cost of monitoring managers and thus limiting managers ability to undertake inefficient investment projects. 4. 1. 3.Information Environment In this section, I investigate hypothesis 5 which predicts that the relation between financial reporting quality and investment effi ciency is stronger for firms with poor information environments because investors of these firms are more likely to rely on financial accounting information to infer the economic conditions of the firms operations. I use two proxies for the firm information environment the number of analysts following the firm and the bid-ask spread. I use the number of analysts following a firm as a proxy for the amount of publicly available information about the firm.psychoanalysts are an important source of information for investors they issue forecasts, reports about individual companies, and stock recommendations. Roulstone (2003) examines the role of analysts in improving market liquidity and finds that analysts provide public information that reduces information asymmetries between firms and market participants. I collect data on analyst following from IBES and measure the number of analysts following the firm as the maximum number of analysts forecasting annual earnings for a firm during the fiscal year t.If the firm is not followed by IBES I assume that the number of analysts following the firm is zero. I consider a firm as Low Analyst if the firm is in the bottom three quartiles in a given year (coded as 1 and 0 otherwise). 24 The second proxy for a firms information environment is the bid-ask spread. See Amihud and Mendelson (1986) and Roulstone (2003) among others for discussions of spreads as a proxy for the information asymmetry between the firm and investors.I collect intra daytime craftiness data to compute bid-ask spread from the Trades and Quotes database (TAQ) and from the Institute for the Study of Security Markets database (ISSM). The TAQ database includes trades and quotes starting in 1993, and the ISSM database contains intraday data for NYSE/AMEX firms from 1983 to 1992 and for NASDAQ firms from 1987 to 1992. I measure quoted bid-ask spread as the ask price minus the bid price divided by the average of the bid and ask prices. The bid-ask spread is aver aged across all transactions during the day for each firm, then daily mean bid-ask spreads are averaged during the month t.Finally I compute bid-ask spread as the average of the monthly bid-ask spreads during the fiscal year t. I consider a firm as High public exposure if the firm is in the top three quartiles in a given year (coded as 1 and 0 otherwise). Table 7 presents the results related to hypothesis 5. As before, all models include the control variables (estimates are untabulated). The table is divided into Underinvestment and Overinvestment results. The first set of results presents estimated coefficients for AccrualsQuality and the second reports coefficients forAccrualsQualityRel. When bid-ask spread is used as the partitioning variable, I find that none of the coefficients on the main effect of financial reporting quality are significant, and three out of four coefficients on the interaction term are significant. The only exception is the coefficient on the interaction be tween High Spread and AccrualsQualityRel for Underinvestment. Further, in three out of four cases the F-test rejects the hypothesis of no effect of financial reporting quality on investment efficiency 25 for the sample of firms with High Spread.As for Low Analyst, the results on the estimated coefficients on the interaction terms are weaker only one coefficient is statistically negative. Still, in three out of four models the F-test rejects the hypothesis of no relation for the sample of firms with Low Analyst. Overall, the results provide weak support for the hypothesis that the effect of financial reporting on investment efficiency is more important when the firm information environment is of low quality. 16 5. Sensitivity Analysis In this section I discuss some robustness tests to the analysis presented in the paper.First, I study the sensitivity of the results to inclusion of omitted control variables using firm fixed-effect estimation. The advantage of this approach is that it controls for all time-invariant unobservable firm characteristics. However, since the estimation of AccrualsQuality and AccrualsQualityRel is done using five years of data, the within-firm variation is small, which makes the fixed-effect estimation very conservative. The analysis is done for all firms with at least five, ten, or fifteen years of data in order to increase the within firm variation (sample sizes of 43,739, 33,454, and 24,420 firm-year observations respectively).Untabulated analyses show that the results in Hypotheses 1 and 4 are mostly robust to the firm fixed-effect estimation. Results of Hypotheses 2 and 3 are weaker (coefficients are of the same sign but in most cases not significant at conventional levels) and, in the case of Hypothesis 5, the results are similar (weaker) when Underinvestment (Overinvestment) is used as the dependent variable. I also performed tests using a 22 classification based on the firms financial reporting quality and information environmen t (sorted independently as a low/high).Either high financial reporting quality or high information environment is sufficient to mitigate Underinvestment but only financial reporting quality is sufficient to mitigate Overinvestment, suggesting a substitute relation between financial reporting quality and the firm information environment in improving investment efficiency. 16 26 Second, I investigate the sensitivity of the results to the use of alternative measures of accruals quality such as the non-linear discretionary accruals model in Ball and Shivakumar (2005) and the accrual quality measures developed by Wysocki (2006).The key innovation in Wysockis (2006) measures is to remove the smoothness effect of accruals in the Dechow and Dichev (2002) model. Results using the Ball and Shivakumar (2005) model are very similar to those reported on the paper. The use of Wysockis measure, on the other hand, leads to similar results for hypotheses 1, 2, and 5 but insignificant results for hyp otheses 3 and 4. As discussed in more detail below, these results are not surprising given that Wysockis (2006) measure excludes the smoothness component of accruals, and smoothness is positively associated with investment efficiency.In addition, I investigate the sensitivity of the results to the use of alternative attributes of earnings as proxies for financial reporting quality. Accruals quality represents one dimension of financial reporting quality but other dimensions of earnings have also been used as a proxy for financial reporting quality (Francis et al. , 2004). These attributes of earnings would not necessarily affect investment efficiency in the same way.For instance, one could argue Timeliness and Conservatism are more important in conveying information about bad firms economic states, thus improving Overinvestment but may not be associated with Underinvestment. Nevertheless, it is useful to see how these measures are related and the respective association with investme nt efficiency (Verdi, 2005). Francis et al. (2004) identify six earnings attributes (other than AccrualsQuality) previously used in accounting research to characterize desirable features of earnings. The six attributes are Persistence, Predictability, Smoothness, 27 ValueRelevance, Timeliness, and Conservatism.I also include a measure of price informativeness as used by Durnev, Morck, and Yeung (2004). When Underinvestment is used as the dependent variable (Hypotheses 1 and 3), I find consistent results using Persistence, Predictability, and Smoothness but insignificant results for the remaining variables (with the exception of Informativeness in which the relation is positive and significant, against the prediction). The analysis using Overinvestment (Hypotheses 2 and 4) yield weaker results since only the estimated coefficients on Smoothness and Informativeness are negative and significant in the expected direction.The remaining coefficients are either insignificantly negative or positive in the case of Persistence. Overall the results provide marginal support for the relation between other dimensions of earnings and Underinvestment, and weak support for Overinvestment. The finding that Smoothness is negatively associated with both Underinvestment and Overinvestment explains the weaker results using Wysockis measure of accruals quality given that this measure excludes the smoothness component in the accruals quality measure developed by Dechow and Dichev (2002).In the third sensitivity test, I repeat the analysis using capital expenditures (deflated by average total assets) as a measure of investment in order to make the results more comparable with the extant finance literature. In addition, the investment measure used in the paper includes only cash acquisitions and ignores stock acquisitions which constitute the legal age of M&A transactions. Untabulated analyses using CAPEX show that the results in Hypothesis 1, 3, and 5 are similar to those reported. R esults in Hypothesis 2 are consistent but weaker when AccrualsQuality is used as the proxy for 28 inancial reporting quality. Finally, results are inconsistent with Hypothesis 4 (estimated coefficients on the interaction terms are mostly insignificant). Finally, I include seemliness (item 204) in the discretionary accruals model. As discussed in Jones (1991), PPE is included in the model to capture the normal level of depreciation, and using the same logic, thanksgiving would capture the normal level of amortization in accruals. This inclusion is justified because the measure of investment includes acquisitions. Goodwill is only available from Compustat starting in 1988 which is why it is excluded in the main tests.In untabulated analysis I find little impact on the discretionary accruals model (the Pearson correlation between discretionary accruals including and excluding goodwill is 0. 99), and the results presented in the paper are unchanged if I restrict the sample to post 198 8 and include goodwill in the discretionary accruals model. 6. Summary and conclusion despite recent claims that financial reporting quality can have economic implications for investment efficiency, there is little evidence on this relation empirically. This paper studies the relation between financial reporting quality and investment efficiency.The analysis is done on a sample of 49,543 firm-year observations during the sample period of 1980 to 2003. I find that proxies for financial reporting quality, namely measures of accruals quality, are negatively associated with both firm underinvestment and overinvestment. The relation between financial reporting quality and underinvestment is stronger for firms facing financing constraints, consistent with the argument that financial accounting information can reduce the information asymmetry between the firm and investors, and 29 thus lower the firms cost of raising funds.Likewise, the relation between financial reporting quality and ove rinvestment is stronger for firms with large cash balances, which suggests that financial reporting quality can reduce the information asymmetry between the principal and the agent and thus lower shareholders cost of monitoring managers and improving project selection. Finally, I find that the relation between financial reporting quality and investment efficiency is stronger for firms with low quality information environments. Overall, this paper contributes to the extant accounting literature that investigates the economic implications of enhanced financial reporting.This literature has shown that financial reporting quality has economic consequences such as increased liquidity, lower costs of capital, and higher firm growth (e. g. , Leuz and Verrecchia, 2000 Francis et al. , 2004, 2005 Martin, Khurana, and Pereira, 2005). This paper extends this research by showing that financial reporting information can reduce information asymmetries that impede efficient corporate investment po licies. 30 References Almeida, H. , and M. Campello, 2005. Financial constraints, asset tangibility, and corporate investment, working paper, New York University. Almeida, H. , M. Campello, and M. Weisbach, 2004.The cash flow sensitivity of cash. Journal of Finance 59, 1777-1804. Alti, A. , 2003. How sensitive is investment to cash flow when financing is frictionless? Journal of Finance 58, 707-722. Amihud, Y. and H. 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What do firms do with cash windfalls?Journal of Financial Economics 36, 337-360. Botosan, C. , 1997. Disclosure level and the cost-of-equity-capital. The Accounting Review 72, 323-349. Boudoukh, J. , R. Michaely, M. Roberts, and M. Richardson, 2005. On the measure of payout yield and implication for asset pricing. Journal of Finance, forthcoming. Bushman, R. , and R. Indjejikian, 1993a. Shareholder demand for distorted accounting disclosures. The Accounting Review 68 (4), 765782. 31 Bushman, R. , J. Piotroski, and A. Smith, 2005. Capital allocation and timely accounting re cognition of economic losses international evidence, working paper, University of Chicago.Bushman, R. , and A. Smith, 2001. Financial accounting information and corporate governance. Journal of Accounting Economics 31, 237-333. Bushman, R. , A. Smith, and F. Zhang, 2005. Investment-cash flow sensitivities are really capital investment-working capital investment sensitivities, working paper, University of North Carolina at Chapel Hill. Dechow, P. , and I. Dichev, 2002. The quality of accruals and earnings the role of accrual estimation errors. The Accounting Review 77, supplement, 35-59. Durnev, A. , R. Morck, and B. Yeung, 2004. Value-enhancing capital budgeting and firmspecific stock return variation.Journal of Finance 59 (1), 65-105. Erickson, T. , and T. Whited, 2000. Measurement error and the relationship between investment and Q. Journal of Political Economy 108, 1027-1057. Fama, E. , and K. French, 1997. Industry costs of equity. Journal of Finance 43, 153-193. Fama, E. and J. MacBeth, 1973. Risk, return, and equilibrium empirical tests. Journal of Political Economy 81, 607636. FASB, 1978. Statement of Financial Accounting Concepts No. 1. Objectives of Financial Reporting by Business Enterprises. Francis, J. , R. LaFond, P. Olsson, and K. Schipper, 2004. Cost of equity and earnings attributes.The Accounting Review 79 (4), 967-1010. Francis, J. , R. LaFond, P. Olsson, and K. Schipper, 2005. The market pricing of accruals quality. Journal of Accounting and Economics 39 (2), 295-327. Gomes, J. , 2001. Fi

Impact of superior leadership Essay

Introduction Leadership suffer be defined as a process by which a person influences others to accomplish an objective and directs the governance in a way that makes it more cohesive and coherent. Leaders carry out this process by applying their drawing cardship attributes, such as beliefs, values, ethics, character, knowledge, and skills. (A good leader offers reality check, thank you The Business Journal of the Greater Triad Area) Leadership is concerned with intimacy, intimacy with the substance of the work and with the people you serve, (What is Leadership?)Nowadays in the cosmea of business, unmatchable of the to the highest degree important issues that companies face is that their workforces, including executives, be incapable of wrapping their minds completely about how to think and act as a master copy leader. To become a fantabulous leader, your role in your organization should be lasting success. Besides this, superior leaders must be ambitious, hard working, exten sive minded, striving, caring, competent, intelligent, cooperative, loyal, dependable, supportive, forward looking, mature, self controlled and so on.Superior leaders motivates us to do more, learn more and dream more. In fact, superior leadership is an approach that unleashes your employees brainpower. This is out-of-pocket to the fact that when this brain power is completely utilized, workers and employees atomic number 18 motivated, innovative, creative and committed. How Good Leadership Affects Organization Obviously, we all are aware of the fact that employees are our closely significant asset and the best ones are self-starter and self-motivated. Unfortunately, they are approximately only 5 to 6 percent or so naturally occurring.By apply a superior leadership strategy, the management can acceptedly make huge number of employees highly self-motivated and self-started. And in this regard, this superior leadership strategy can be taught to newly hired and prospective managi ng directors to maintain your product quality and to provide fineness in leadership. According to Richard Hughes, R&D director for groups Specifically, most organizations whether they are in the corporate sector or not have business strategies but have not given sufficient thought to what humankind capabilities are needed to implement that business strategy effectively.(McLean, 2005) Furthermore, as a corporate leader of a firm, delivering satisfactory results to your employees, customers, organization and shareholder/investors is your responsibility. Primarily, result-based superior leadership motivates trust, energizes organizational employees and makes performance measurement easier for an organization. Nobody can deny the statement that your companys overall performance depends upon the fact that how your management plans certain things and applies them in business activities.And with respect of this, a strategic leader should make a caring plan that gives assurance of your com panys goodwill and future day business. And to achieve the aforementioned things, the management and the leaders should treat team members as partners instead of employees. In addition to this, a successful leader builds a starchy communication connection inside and outside the organization, and understands your stake holders and investors mutual expectations.Moreover, in order to understand a companys goals and objectives productively, a workforce should reciprocally understand and practice its strategy because of the fact that overall success of a company depends upon good leadership. A responsible team leader or manager should apply the aforementioned points. In todays globalized world of business, many corporations are facing economic, social, political and climatic changes. Hence, a good leader is one who can cope with day to day changing political and social situations.Certainly, true leadership provides business to organizations in any circumstances whatsoever. However, the business environs can have impacts on the style of leadership Successful leaders of change may not alship canal be successful leaders of stability, consolidation, continuity, or thriving leaders in periods of massive disruption, such as 9/11. These different conditions require a different style of leadership, which may not needs be found in the existing senior management. (emcc Transforming organisations the importance of leadership and culture in managing change)If a strong leadership culture is not present in any type of organization, employees do not contribute a common vision to the organizations future and would disagree on what the most significant priorities are. In this regard, one would believe that such indicators are influenced according to an organizations size or in other ways like in which responsibilities are distributed in an organization. In this regard, Marvin Lieberman, Lawrence Lau and Mark Williams conducted a study which is considered a most classy study i n the automobile industry.These researchers estimated the productiveness equation in order to ascertain the growth in both labor and capital outputs in six companies over a period of 40 years. They found that effects of top management on all of the companies except Toyota (because it had a system that made performance robust and largely independent of who diligent senior leadership positions) and that these effects were significant (Pfeffer and Sutton, 2000) Furthermore, there is evidence that leadership results are modest because of the fact that employees who are allowed to keep and hold leadership positions are similar to each other.Practically speaking, leaders are selected for similarity in outlook and education. Consequently, in most of the organizations, leaders who appear to be successful are highly sought after and are likely to take bit positions. Another theorist described his views about leadership and its impacts on your organization as building your superior confiden ce in you requires giving them your confidence. Once you and they have established in both ways, your organization may have an unbeatable agonistic advantage, whatever the battlefield. (Hinders, 2005).Generally, it has been observed that bad leadership has adverse effects on organizational performance and work output. For instance, organizations without proper project management send packing milestones. Projects in such organizations cost more than the estimated amount and do not deliver the desired results. Certainly, leadership plays a tremendous role in each aspect of the organization. For example, most of the US financial companies systematically hired the best world talent regardless of the market size and shifted these leaders through all critical and non critical aspect of its operation.Because of the leadership fact, human assets pay off handsomely in todays global world of business. And in this regard, the worlds best economists also weigh the fact that in todays busine ss world, it is very difficult to run your business operations economically without having a good leader who has the ability to cope with different problems and solve problems economically and excel among business competitors. Tsun-yan Hsieh and Sara Yik, in an article while emphasizing the leadership importance for an organization stated that, what do we mean by leadership?Whereas good managers deliver predictable results as promised, as wholesome as nonchalant incremental improvements, leaders generate breakthroughs in performance. They create something that wasnt there before by launching a new product, by entering a new market, or by more quickly attaining better operational performance at lower cost, for example. A companys leadership reaches well beyond a few good men and women at the top. It typically includes the 3 to 5 percent of employees throughout the organization who can deliver breakthroughs in performance. (Hsieh and Yik).