When the Boss Comes to Town: The Effects of Headquarters’ Visits on Facility-Level Misconduct
We study the effects of headquarters’ visits on facility-level misconduct. We use the staggered introduction of airline routes to identify exogenous travel-time reductions between headquarters and facilities, and test whether such reductions affect facility-level misconduct. We find that, on average, a travel-time reduction decreases the number of facility-level violations by 2% and associated penalties by 23.4%, indicating that management focuses on reducing costlier violations as opposed to simply reducing the number of violations. The effects are concentrated in firms with weaker control systems, suggesting that strong controls can act as substitutes for visits. Further, the introduction of broadband internet attenuates, but does not eliminate the effect of visits on misconduct. Lastly, we find that visits result in greater facility-level misconduct when firms are subject to strong performance pressure. Overall, our study provides a nuanced understanding of the effects of on-site visits on facility-level misconduct.
Keywords: corporate misconduct; visits by management; flight routes; control systems; compliance programs; Performance Pressure; Governance Controls; Governance Compliance;
Citation:
Heese, Jonas, and Gerardo Pérez Cavazos. "When the Boss Comes to Town: The Effects of Headquarters’ Visits on Facility-Level Misconduct." Harvard Business School Working Paper, No. 19-093, January 2019. (Conditionally accepted to The Accounting Review.) View Details