Junior Management Science (E-Journal - LMÜ München)
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The Effect of Changes in Internal Control Systems on Audit Risk
Full text linkInternal control weaknesses influence audit fees and audit risk, making their remediation a crucial aspect of corporate governance. While prior research focuses on auditors, this study examines the corporate perspective, analyzing how the remediation of internal control weaknesses affects audit fees and audit risk. Using a dataset of 450 observations, the audit fee model shows a significant negative association between audit fees and the remediation of internal control weaknesses, indicating that audit fees decrease as the company remediates its internal control weaknesses. The restatement model shows no significant relationship between abnormal audit fees and the probability of restatements, suggesting that changes in audit fees due to changes in internal control systems have no impact on audit risk. However, the remediation of internal control weaknesses is significantly negatively associated with the probability of restatements, meaning that firms that remediate their internal control weaknesses experience a lower audit risk and higher audit quality. These findings highlight the economic significance of internal control quality and its implications for firms, regulators, and auditors in mitigating audit risk.
Keywords: audit fee model; audit quality; audit risk model; internal control weaknesses; restatement modelInternal control weaknesses influence audit fees and audit risk, making their remediation a crucial aspect of corporate governance. While prior research focuses on auditors, this study examines the corporate perspective, analyzing how the remediation of internal control weaknesses affects audit fees and audit risk. Using a dataset of 450 observations, the audit fee model shows a significant negative association between audit fees and the remediation of internal control weaknesses, indicating that audit fees decrease as the company remediates its internal control weaknesses. The restatement model shows no significant relationship between abnormal audit fees and the probability of restatements, suggesting that changes in audit fees due to changes in internal control systems have no impact on audit risk. However, the remediation of internal control weaknesses is significantly negatively associated with the probability of restatements, meaning that firms that remediate their internal control weaknesses experience a lower audit risk and higher audit quality. These findings highlight the economic significance of internal control quality and its implications for firms, regulators, and auditors in mitigating audit risk.
Keywords: audit fee model; audit quality; audit risk model; internal control weaknesses; restatement mode
Copreneurial Couples in Startups: A Comprehensive Analysis of Copreneurial Couples in Startups Compared to Classical Businesses
Full text linkDue to a lack of attention in research to draw a connection between couple businesses and their existence as a form of startup teams, this paper aims to provide deeper insights into the structure and behavior of copreneurial couples in startups. This lack needs to be addressed due to the increase of these phenomena and possible outcomes for the startup world, as copreneurial couples in startups tend to be viewed as red flags without proof of this being valid. For this purpose, a qualitative, theory building research approach was chosen, in which copreneurial couples of startups and classical businesses were interviewed. As a result, a comprehensive model of the development dynamics of copreneurial couples and a hands-on framework were created. The main finding is limited differences between copreneurial couples in startups and classical businesses regarding motivations, processes, challenges, and opportunities when combining work and private life. The primary differentiation lies in the amount of workload, the variation in the procurement of external financial resources, and the environment they are navigating in. The work confirms parts of the previous literature but also provides new insights into communication, work-life balance, decision-making processes, and external influences. Finally, the framework can be used by copreneurial couples to structure, prioritize, and navigate the challenge of wholly combining their work and private domain.
Keywords: copreneurial couples; copreneurship; couple business; startups; team dynamicsDue to a lack of attention in research to draw a connection between couple businesses and their existence as a form of startup teams, this paper aims to provide deeper insights into the structure and behavior of copreneurial couples in startups. This lack needs to be addressed due to the increase of these phenomena and possible outcomes for the startup world, as copreneurial couples in startups tend to be viewed as red flags without proof of this being valid. For this purpose, a qualitative, theory building research approach was chosen, in which copreneurial couples of startups and classical businesses were interviewed. As a result, a comprehensive model of the development dynamics of copreneurial couples and a hands-on framework were created. The main finding is limited differences between copreneurial couples in startups and classical businesses regarding motivations, processes, challenges, and opportunities when combining work and private life. The primary differentiation lies in the amount of workload, the variation in the procurement of external financial resources, and the environment they are navigating in. The work confirms parts of the previous literature but also provides new insights into communication, work-life balance, decision-making processes, and external influences. Finally, the framework can be used by copreneurial couples to structure, prioritize, and navigate the challenge of wholly combining their work and private domain.
Keywords: copreneurial couples; copreneurship; couple business; startups; team dynamic
The Impact of Profitability on Scope 1, 2 and 3 GHG Emissions in Europe
Full text linkThis thesis examines the effect of corporate profitability on the levels of greenhouse gas (GHG) emissions, specifically analyzing Scope 1, 2, and 3 emissions for European companies listed on the STOXX Europe 600 index from 2017 to 2023. Given increasing regulatory pressures, inconclusive evidence on whether profitability drives sustainability, and potential bidirectional causality, researching this relationship is highly relevant. Using a systematic literature review (SLR) and fixed-effects regressions, this thesis investigates this relationship. Results show profitability, measured by return on assets (ROA), negatively correlates with Scope 3 emissions, suggesting higher profits may promote sustainability. However, no significant correlation exists for Scope 1 and 2 emissions, except for a positive link with Scope 2 emissions in low-emission sectors. High-emission industries show stronger model explanatory power, indicating a closer profitability-emissions link. Findings are robust against outliers but vary with changing profitability metrics. This research contributes to the profitability-sustainability debate, offering insights for policymakers, scholars, and managers, while emphasizing the need to consider industry and Scope-specific dynamics to combat climate change.
Keywords: GHG emissions; profitability; sustainability reportingThis thesis examines the effect of corporate profitability on the levels of greenhouse gas (GHG) emissions, specifically analyzing Scope 1, 2, and 3 emissions for European companies listed on the STOXX Europe 600 index from 2017 to 2023. Given increasing regulatory pressures, inconclusive evidence on whether profitability drives sustainability, and potential bidirectional causality, researching this relationship is highly relevant. Using a systematic literature review (SLR) and fixed-effects regressions, this thesis investigates this relationship. Results show profitability, measured by return on assets (ROA), negatively correlates with Scope 3 emissions, suggesting higher profits may promote sustainability. However, no significant correlation exists for Scope 1 and 2 emissions, except for a positive link with Scope 2 emissions in low-emission sectors. High-emission industries show stronger model explanatory power, indicating a closer profitability-emissions link. Findings are robust against outliers but vary with changing profitability metrics. This research contributes to the profitability-sustainability debate, offering insights for policymakers, scholars, and managers, while emphasizing the need to consider industry and Scope-specific dynamics to combat climate change.
Keywords: GHG emissions; profitability; sustainability reportin
Exploring Discrepancies in Energy Performance Certificates: Analyzing Energy Efficiency Premiums for Buildings Based on Theoretical Energy Requirements Versus Actual Energy Consumption
Full text linkThe building sector is lagging its needed decarbonization pathway. This paper examines EPC policy impacts on building economics in the Rhein-Main Region in Germany. Energy efficiency premiums for rents and sales prices and the effects of the EPC type are investigated using data from 01/2015 - 06/2023 (N = 212 167 rent sample; N = 159 573 sales sample) and hedonic price models. Energy efficiency premiums are present and range up to 7.0%, 4.6% and 6.9% for cold and warm rents and sales prices, respectively, when comparing an A+ to a D rated building. Consumption certificates reflect warm rents better but have a limited sales price impact. Results are rent efficiency premiums of up to 7.1% (A+), no rent discounts for energy inefficiency and a general sales price discount of about 3%. Requirement certificates are viewed as objective, yet less consumption-indicative, especially in the sales market. Rent efficiency premiums of up to 8.8% (A+) and no rent discounts for energy inefficiency are estimated for a building with a requirement certificate. Sales price efficiency premiums of up to 7.4% (A+) and sales price inefficiency discounts of up to -10.2% (H) exist. Overall, current German EPC policy does not address imperfect information, and it is recommended to revise its implementation.
Keywords: energy efficiency; energy performance certificate; EPC; hedonic price model; real estate investments; real estate valuationThe building sector is lagging its needed decarbonization pathway. This paper examines EPC policy impacts on building economics in the Rhein-Main Region in Germany. Energy efficiency premiums for rents and sales prices and the effects of the EPC type are investigated using data from 01/2015 - 06/2023 (N = 212 167 rent sample; N = 159 573 sales sample) and hedonic price models. Energy efficiency premiums are present and range up to 7.0%, 4.6% and 6.9% for cold and warm rents and sales prices, respectively, when comparing an A+ to a D rated building. Consumption certificates reflect warm rents better but have a limited sales price impact. Results are rent efficiency premiums of up to 7.1% (A+), no rent discounts for energy inefficiency and a general sales price discount of about 3%. Requirement certificates are viewed as objective, yet less consumption-indicative, especially in the sales market. Rent efficiency premiums of up to 8.8% (A+) and no rent discounts for energy inefficiency are estimated for a building with a requirement certificate. Sales price efficiency premiums of up to 7.4% (A+) and sales price inefficiency discounts of up to -10.2% (H) exist. Overall, current German EPC policy does not address imperfect information, and it is recommended to revise its implementation.
Keywords: energy efficiency; energy performance certificate; EPC; hedonic price model; real estate investments; real estate valuatio
The Influence of Leadership Style on the Acceptance of Generative AI in the Workplace - The Role of Organizational Commitment, Job Insecurity and Interaction Frequency
Full text linkThis thesis investigates the influence transformational and transactional leadership styles have on the acceptance of generative AI in the workplace. To account for other factors, I also examine the mediating effect of organizational commitment and the fear of job loss as well as the moderating effect of interaction frequency with the supervisor. Using a sample of 220 full time working participants, I find that technology acceptance does not significantly differ between transformational and transactional leadership. However, the results show that the fear of job loss significantly mediates the relationship between leadership and technology acceptance. While organizational commitment does not mediate the relationship, it does significantly influence technology acceptance. My research extends research incorporating threat rigidity theory by showing that transformational leadership reduces AI-related fear of job loss. Therefore, it highlights the importance of considering additional factors such as prior experience and openness to innovations in AI acceptance. The findings suggest that managers should adopt transformational leadership to decrease the fear of job loss and enhance organizational commitment to effectively increase AI acceptance in the workplace.
Keywords: AI acceptance; fear of job loss; Gen AI; leadership style; technology acceptanceThis thesis investigates the influence transformational and transactional leadership styles have on the acceptance of generative AI in the workplace. To account for other factors, I also examine the mediating effect of organizational commitment and the fear of job loss as well as the moderating effect of interaction frequency with the supervisor. Using a sample of 220 full time working participants, I find that technology acceptance does not significantly differ between transformational and transactional leadership. However, the results show that the fear of job loss significantly mediates the relationship between leadership and technology acceptance. While organizational commitment does not mediate the relationship, it does significantly influence technology acceptance. My research extends research incorporating threat rigidity theory by showing that transformational leadership reduces AI-related fear of job loss. Therefore, it highlights the importance of considering additional factors such as prior experience and openness to innovations in AI acceptance. The findings suggest that managers should adopt transformational leadership to decrease the fear of job loss and enhance organizational commitment to effectively increase AI acceptance in the workplace.
Keywords: AI acceptance; fear of job loss; Gen AI; leadership style; technology acceptanc
Beware of Bullshit – A Qualitative Study on Young Adults’ Sustainability Awareness of Online Services
Full text linkSince the surge of working in the ‘home office’ during the COVID-19 pandemic, information and communication technology has been seen as a problem solver for the global climate disruption, because it promises savings in emissions through digitalization. However, this is criticized for being a ‘double-edged sword’, as more use of ICT also means an increase in electricity consumption. This thesis poses the question if consumers using services fostering said digitalization are aware of this implication and can contribute to sustainable development by choosing wisely. Thus, this paper leads exploratory research on sustainability awareness of online services, from the perspective of both sustainably aware and technologically skilled individuals. This will be achieved by collecting qualitative data from interviews with two groups of university students from biology and computer science or information systems. The data will be evaluated using the approach of qualitative content analysis and will be investigated further with the help of the concept of bullshitting, to understand how consumers assess ambiguous and misleading sustainability claims about online services. One implication from the interviews is that both companies and consumers should strive to promote reliable knowledge on this topic, as there is a deficit in sustainability awareness of online services.
Keywords: bullshit; green IT; greenwashing; online services; sustainabilitySince the surge of working in the ‘home office’ during the COVID-19 pandemic, information and communication technology has been seen as a problem solver for the global climate disruption, because it promises savings in emissions through digitalization. However, this is criticized for being a ‘double-edged sword’, as more use of ICT also means an increase in electricity consumption. This thesis poses the question if consumers using services fostering said digitalization are aware of this implication and can contribute to sustainable development by choosing wisely. Thus, this paper leads exploratory research on sustainability awareness of online services, from the perspective of both sustainably aware and technologically skilled individuals. This will be achieved by collecting qualitative data from interviews with two groups of university students from biology and computer science or information systems. The data will be evaluated using the approach of qualitative content analysis and will be investigated further with the help of the concept of bullshitting, to understand how consumers assess ambiguous and misleading sustainability claims about online services. One implication from the interviews is that both companies and consumers should strive to promote reliable knowledge on this topic, as there is a deficit in sustainability awareness of online services.
Keywords: bullshit; green IT; greenwashing; online services; sustainabilit
Government Interventions During the COVID-19 Pandemic, Culture, and Corporate Cost Behaviour
Full text linkThe COVID-19 pandemic triggered unprecedented government interventions, creating a unique setting to examine implications on corporate cost behaviour. This study explores the relationship between the stringency of government interventions during the pandemic and labour cost stickiness, as well as the moderating role of national culture, using 15,446 firm-year observations from 3,383 listed firms across 25 European countries from 2017 to 2022. A difference-in-differences regression analysis reveals that stringent interventions are related to increased labor cost stickiness, suggesting that managers view such measures as a signal of pandemic control which reduces their pessimism about future demand. Additionally, a median-based sample split shows that several dimensions of national culture moderate the relation between governmental stringency and labour cost stickiness, highlighting that culture influences how managers form future expectations based on stringent government interventions. The study connects formal institutions, i.e. governmental interventions, and informal institutions, i.e. national culture, with cost asymmetry as well as expands firm-level cost behaviour research in the context of the COVID-19 crisis.
Keywords: cost stickiness; COVID-19; culture; interventionsThe COVID-19 pandemic triggered unprecedented government interventions, creating a unique setting to examine implications on corporate cost behaviour. This study explores the relationship between the stringency of government interventions during the pandemic and labour cost stickiness, as well as the moderating role of national culture, using 15,446 firm-year observations from 3,383 listed firms across 25 European countries from 2017 to 2022. A difference-in-differences regression analysis reveals that stringent interventions are related to increased labor cost stickiness, suggesting that managers view such measures as a signal of pandemic control which reduces their pessimism about future demand. Additionally, a median-based sample split shows that several dimensions of national culture moderate the relation between governmental stringency and labour cost stickiness, highlighting that culture influences how managers form future expectations based on stringent government interventions. The study connects formal institutions, i.e. governmental interventions, and informal institutions, i.e. national culture, with cost asymmetry as well as expands firm-level cost behaviour research in the context of the COVID-19 crisis.
Keywords: cost stickiness; COVID-19; culture; intervention
Diversity Within Top Management Teams: The Effects of Diversity Within Boards Towards Managerial Attention on Digital Transformation
Full text linkDigital transformation (DT) is crucial for firms to stay competitive, yet few fully embrace it. DT goes beyond moving from analogue to digital; it necessitates a complete restructuring of business models, including customer experiences and internal structures. Leadership significantly impacts strategic decision-making, as Hambrick (2007) notes. A board’s diversity and composition affect a firm’s decisions. Diversity in TMT can enhance innovation and creativity or increase friction and conflicts. While much research exists on these topics, examining managerial focus on DT and TMT diversity using Harrison and Klein’s (2007) framework is new. As DT becomes more important, firms must understand TMT diversity’s role. I argue that top management’s demographic characteristics are positively influenced by diverse education, tenure, and network, with a negative moderating effect of age and gender heterogeneity. This study found that in cumulative DT efforts, there are effects between age and tenure, and gender and network. Age separation decreases tenure’s positive effect, and gender separation diminishes the positive effect of diverse networks, suggesting inconsistencies with Hambrick’s (2007) theory.
Keywords: Blue’s Index; digital transformation; diversity; top management teams; Upper Echelon TheoryDigital transformation (DT) is crucial for firms to stay competitive, yet few fully embrace it. DT goes beyond moving from analogue to digital; it necessitates a complete restructuring of business models, including customer experiences and internal structures. Leadership significantly impacts strategic decision-making, as Hambrick (2007) notes. A board’s diversity and composition affect a firm’s decisions. Diversity in TMT can enhance innovation and creativity or increase friction and conflicts. While much research exists on these topics, examining managerial focus on DT and TMT diversity using Harrison and Klein’s (2007) framework is new. As DT becomes more important, firms must understand TMT diversity’s role. I argue that top management’s demographic characteristics are positively influenced by diverse education, tenure, and network, with a negative moderating effect of age and gender heterogeneity. This study found that in cumulative DT efforts, there are effects between age and tenure, and gender and network. Age separation decreases tenure’s positive effect, and gender separation diminishes the positive effect of diverse networks, suggesting inconsistencies with Hambrick’s (2007) theory.
Keywords: Blue’s Index; digital transformation; diversity; top management teams; Upper Echelon Theor
Success Factors and Development Areas for the Implementation of Generative AI in Companies
Full text linkWith the significant increase in public interest in ChatGPT since its breakthrough following the public release in November 2022, an expanding array of application possibilities is being discovered. This heightened interest is also reflected in economic contexts and for businesses. These Generative AI (GenAI) models are believed to have the potential to contribute trillions of dollars in value to the global economy. Now, pioneering companies face the challenge of successfully leveraging this Generative AI technology to their advantage, positioning themselves successfully at the forefront of AI. The adoption of Generative AI proves to be neither straightforward nor simple for companies and is associated with various challenges. Within this thesis, these challenges will be identified by conducting a multiple-case study involving expert interviews. Practical insights will be obtained to identify the decisive factors for the successful adoption of Generative AI, and these insights will be translated into a hands-on implementation framework for companies.
Keywords: ChatGPT Enterprise; Generative AI; GenAI; GenAI adoption; GenAI frameworkWith the significant increase in public interest in ChatGPT since its breakthrough following the public release in November 2022, an expanding array of application possibilities is being discovered. This heightened interest is also reflected in economic contexts and for businesses. These Generative AI (GenAI) models are believed to have the potential to contribute trillions of dollars in value to the global economy. Now, pioneering companies face the challenge of successfully leveraging this Generative AI technology to their advantage, positioning themselves successfully at the forefront of AI. The adoption of Generative AI proves to be neither straightforward nor simple for companies and is associated with various challenges. Within this thesis, these challenges will be identified by conducting a multiple-case study involving expert interviews. Practical insights will be obtained to identify the decisive factors for the successful adoption of Generative AI, and these insights will be translated into a hands-on implementation framework for companies.
Keywords: ChatGPT Enterprise; Generative AI; GenAI; GenAI adoption; GenAI framewor
Predicting Stock Returns With Machine Learning: Global Versus Sector Models
Full text linkRecent studies highlight the superior performance of non-linear machine learning models, such as neural networks, over traditional linear models in predicting cross-sectional stock returns. These models are capable of capturing complex non-linear interactions between predictive signals and future returns. This thesis researches whether sector-specific neural networks can detect sector-related relationships to outperform a global neural network. It evaluates the predictive power of these models at the stock level and in portfolios based on return forecasts, constructing long-short portfolios from the networks’ sorted predictions. A global neural network model trained on the full sample of stocks dominates neural networks trained on individual GICS sectors in predicting the cross-section of US stock returns. Sector-specific neural networks fail to gain an advantage by capturing complex sector-specific interactions. They underperform the global neural network especially in the early out-of-sample period. The smaller sample size for each GICS sector requires a trade-off between model complexity and robust model estimation. Pooling the data for the global model solves this problem and supports the predictive power of neural networks for stock returns.
Keywords: cross-section of stock returns; machine learning; neural networks; return prediction; sector modelsRecent studies highlight the superior performance of non-linear machine learning models, such as neural networks, over traditional linear models in predicting cross-sectional stock returns. These models are capable of capturing complex non-linear interactions between predictive signals and future returns. This thesis researches whether sector-specific neural networks can detect sector-related relationships to outperform a global neural network. It evaluates the predictive power of these models at the stock level and in portfolios based on return forecasts, constructing long-short portfolios from the networks’ sorted predictions. A global neural network model trained on the full sample of stocks dominates neural networks trained on individual GICS sectors in predicting the cross-section of US stock returns. Sector-specific neural networks fail to gain an advantage by capturing complex sector-specific interactions. They underperform the global neural network especially in the early out-of-sample period. The smaller sample size for each GICS sector requires a trade-off between model complexity and robust model estimation. Pooling the data for the global model solves this problem and supports the predictive power of neural networks for stock returns.
Keywords: cross-section of stock returns; machine learning; neural networks; return prediction; sector model