Accounting & Management

Accounting & Management

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    • 2022
    • Working Paper

    Machine Learning Models for Prediction of Scope 3 Carbon Emissions

    By: George Serafeim and Gladys Velez Caicedo

    For most organizations, the vast amount of carbon emissions occur in their supply chain and in the post-sale processing, usage, and end of life treatment of a product, collectively labelled scope 3 emissions. In this paper, we train machine learning algorithms on 15 reported types of scope 3 emissions. The models utilize as inputs widely available financial statement variables, scope 1 and 2 emissions, and industrial classifications. We find that most reported scope 3 emission types can be predicted with higher accuracy using Adaptive Boosting machine learning algorithms relative to linear regression models and other supervised machine learning algorithms.

    • 2022
    • Working Paper

    Machine Learning Models for Prediction of Scope 3 Carbon Emissions

    By: George Serafeim and Gladys Velez Caicedo

    For most organizations, the vast amount of carbon emissions occur in their supply chain and in the post-sale processing, usage, and end of life treatment of a product, collectively labelled scope 3 emissions. In this paper, we train machine learning algorithms on 15 reported types of scope 3 emissions. The models utilize as inputs widely available...

    • 2022
    • Working Paper

    Conduit Incentives: Eliciting Cooperation from Workers Outside of Managers' Control. Evidence from Hospital Hand Washing

    By: Susanna Gallani

    Can managers use monetary incentives to elicit cooperation from workers they cannot reward for their efforts? I study “conduit incentives,” an innovative incentive design, whereby managers influence bonus-ineligible workers’ effort by offering bonus-eligible employees a monetary reward for performance that critically depends on the cooperation of the bonus-ineligible workers. Motivated by the reward, bonus-eligible employees use social motivators to elicit cooperation from their ineligible colleagues. I examine an intervention in a California hospital in which a one-time bonus program aimed to improve handwashing compliance. State regulation prevented physicians from receiving bonus payments. However, because physicians’ handwashing counted toward the bonus-related goal, bonus-eligible workers used social pressure to incentivize physicians’ performance, absent any tangible benefits for the physicians. The physicians improved performance during the intervention, and their improvements persisted beyond the removal of the incentives. The response to the temporary intervention significantly predicted the persistence of the performance improvements.

    • 2022
    • Working Paper

    Conduit Incentives: Eliciting Cooperation from Workers Outside of Managers' Control. Evidence from Hospital Hand Washing

    By: Susanna Gallani

    Can managers use monetary incentives to elicit cooperation from workers they cannot reward for their efforts? I study “conduit incentives,” an innovative incentive design, whereby managers influence bonus-ineligible workers’ effort by offering bonus-eligible employees a monetary reward for performance that critically depends on the cooperation of...

    • 2022
    • Working Paper

    Passing the Mic: Career and Firm Outcomes of Executive Interactions

    By: Wei Cai, Ethan Rouen and Yuan Zou

    We exploit a unique feature of conference calls to study one type of interaction among executives—directly inviting colleagues to respond to analysts’ questions. We find that the frequency of initiating interaction is positively associated with an executive’s ability, but not associated with firm performance. When new CEOs initiate more interactions than their predecessors, interaction among the rest of the executive team also increases, suggesting a learning effect. Turning to the outcomes of this practice, we find that executives who initiate more interactions than their peers are twice as likely as the average executive to be promoted to CEO. What is more, appointing CEOs who initiate more interactions than their predecessors results in an average three-day abnormal return of 0.9% around the announcement of the appointment. Teams composed of executives who interact with each other more frequently also have greater retention. Lastly, firms in which new CEOs initiate more interactions than their predecessors experience higher growth in Tobin’s Q, a result that is concentrated among growth and R&D-intensive firms.

    • 2022
    • Working Paper

    Passing the Mic: Career and Firm Outcomes of Executive Interactions

    By: Wei Cai, Ethan Rouen and Yuan Zou

    We exploit a unique feature of conference calls to study one type of interaction among executives—directly inviting colleagues to respond to analysts’ questions. We find that the frequency of initiating interaction is positively associated with an executive’s ability, but not associated with firm performance. When new CEOs initiate more...

About the Unit

The Accounting & Management unit at Harvard Business School strives to be the worldwide leader in research, course development, and teaching on top managements' use of performance measurement systems to:

  • Communicate with external investors to ensure that their firms' securities are fairly priced and that they are able to access capital,
  • Measure and evaluate their firms' economic performance,
  • Improve resource allocation and strategy implementation within their firms, and
  • Build accountability for performance through effective external and internal governance.

Unit research, course development, and teaching fall into two broad areas: Financial Reporting and Analysis and Management Accounting. Our research helps scholars and educators understand current best practices for the design and use of performance measurement systems that help managers to build more effective, value-creating organizations. Our teaching materials enable us to bring the results of this research into the classroom, and to practice.

Recent Publications

Machine Learning Models for Prediction of Scope 3 Carbon Emissions

By: George Serafeim and Gladys Velez Caicedo
  • 2022 |
  • Working Paper |
  • Faculty Research
For most organizations, the vast amount of carbon emissions occur in their supply chain and in the post-sale processing, usage, and end of life treatment of a product, collectively labelled scope 3 emissions. In this paper, we train machine learning algorithms on 15 reported types of scope 3 emissions. The models utilize as inputs widely available financial statement variables, scope 1 and 2 emissions, and industrial classifications. We find that most reported scope 3 emission types can be predicted with higher accuracy using Adaptive Boosting machine learning algorithms relative to linear regression models and other supervised machine learning algorithms.
Keywords: Carbon Emissions; Climate Change; Environment; Carbon Accounting; Machine Learning; Artificial Intelligence; Digital; Data Science; Environmental Sustainability; Environmental Management; Environmental Accounting
Related

Conduit Incentives: Eliciting Cooperation from Workers Outside of Managers' Control. Evidence from Hospital Hand Washing

By: Susanna Gallani
  • 2022 |
  • Working Paper |
  • Faculty Research
Can managers use monetary incentives to elicit cooperation from workers they cannot reward for their efforts? I study “conduit incentives,” an innovative incentive design, whereby managers influence bonus-ineligible workers’ effort by offering bonus-eligible employees a monetary reward for performance that critically depends on the cooperation of the bonus-ineligible workers. Motivated by the reward, bonus-eligible employees use social motivators to elicit cooperation from their ineligible colleagues. I examine an intervention in a California hospital in which a one-time bonus program aimed to improve handwashing compliance. State regulation prevented physicians from receiving bonus payments. However, because physicians’ handwashing counted toward the bonus-related goal, bonus-eligible workers used social pressure to incentivize physicians’ performance, absent any tangible benefits for the physicians. The physicians improved performance during the intervention, and their improvements persisted beyond the removal of the incentives. The response to the temporary intervention significantly predicted the persistence of the performance improvements.
Keywords: Organizational Behavior Modification; Peer Monitoring; Persistence Of Performance Improvements; Crowding Out; Implicit Incentives; Compensation; Healthcare; Social Pressure; Image Motivation; Performance; Behavior; Motivation and Incentives; Compensation and Benefits; Governing Rules, Regulations, and Reforms; Organizational Culture; Health Industry
Related

A Conceptualization of Sub-Living Wages: Liabilities, Leverage, and Risk

By: Drew Keller, Katie Panella and George Serafeim
  • 2022 |
  • Working Paper |
  • Faculty Research
Currently the accounting system records employee wages as an expense in the income statement. However, paying below living wages can expose an organization to reputational and operational risks. In this paper, we offer an alternative conceptualization of the issue of low wages and in particular wages that are below the local living wage. We propose a simple double entry bookkeeping approach to account for wages paid below a local living wage level through a firm’s balance sheet, where wages below the living wage threshold create a leverage effect as the organization borrows from society. Firms paying below the living wage therefore exhibit higher leverage reflecting higher stakeholder risk. Investors, policymakers, customers, corporate managers, and other stakeholders can use this alternative conceptualization to assess an organization’s exposure to human capital erosion.
Keywords: Accounting; Impact Accounting; Leverage; Wages; Compensation and Benefits; Business and Stakeholder Relations; Business and Government Relations; Social Issues; Human Capital
Related

Incentive Contract Design and Employee-Initiated Innovation: Evidence from the Field

By: Wei Cai, Susanna Gallani and Jee-Eun Shin
  • 2022 |
  • Working Paper |
  • Faculty Research
This study examines how the design of incentive contracts for tasks defined as workers’ official responsibilities (i.e., standard tasks) influences workers’ propensity to engage in employee-initiated innovation (EII). EII corresponds to innovation activities that are not formally assigned to workers but are nonetheless encouraged and considered important for the company's success. We leverage field data obtained from a manufacturing company that uses a dedicated information system to track workers’ EII idea submissions. We find theory-consistent evidence that, compared to workers receiving fixed pay, employees rewarded for their standard tasks with variable compensation contracts exhibit a lower propensity to engage in EII. This result is particularly evident when we consider innovation ideas narrowly focused on the standard task (i.e., narrow-scope ideas) versus ideas benefiting other constituents and activities beyond the proponents’ standard task (i.e., broad-scope ideas). Our findings suggest that variable pay narrows employees’ conceptual focus around the standard task and hinders employee engagement in broad-scope innovation activities compared to fixed compensation contracts. We contribute to the nascent literature on incentives for employee-initiated innovation and to the growing stream of research examining the determinants of different types of innovation.
Keywords: Employee-initiated Innovation; Contract Design; Rank-and-file; Extra-role Behaviors; Employees; Innovation and Invention; Contracts; Design; Compensation and Benefits; Behavior
Related

Business Implications from Regulating Carbon Emissions in the EU

By: George Serafeim and Benjamin Maletta
  • June 2022 |
  • Technical Note |
  • Faculty Research
In the beginning of the 21st century, the European Union (the EU) had led the global fight against climate change with a wide array of policy measures. The EU’s primary approach to climate policy had been taxation via the European Union Emissions Trading System (EU ETS), the first carbon cap-and-trade regulation. EU ETS was a market-based solution designed to reduce GHG emissions by setting an upper limit on domestic emissions. However, the effectiveness of EU ETS had been debated since its inception in 2005. Years later in July 2021, the EU proposed implementation of a Carbon Border Adjustment Mechanism (CBAM), a carbon border tax intended to address business competition challenges plaguing EU ETS by establishing comparable carbon costs within EU borders for imports and local goods. Nevertheless, the CBAM proposal was also met with considerable skepticism. The potential enforcement of CBAM raised several questions for cement and steel producers around the world. First, what would be the impact on their strategies and financial performance? Second, what actions could they take in response? Stakeholders in other industries that relied on cement and steel to produce their own goods pondered the same questions. In addition, several questions emerged about the potential impact of CBAM on carbon emission reductions both in the EU and in other jurisdictions. Would CBAM be effective at reducing emissions and addressing emissions leakage? How would other countries respond to CBAM and would the response affect those countries’ carbon emissions reduction efforts?
Keywords: Regulation; Carbon Emissions; Trade; Sustainability; Decarbonization; Performance; Climate Change; Analysis; Strategy; Taxation; Policy; European Union
Related

Passing the Mic: Career and Firm Outcomes of Executive Interactions

By: Wei Cai, Ethan Rouen and Yuan Zou
  • 2022 |
  • Working Paper |
  • Faculty Research
We exploit a unique feature of conference calls to study one type of interaction among executives—directly inviting colleagues to respond to analysts’ questions. We find that the frequency of initiating interaction is positively associated with an executive’s ability, but not associated with firm performance. When new CEOs initiate more interactions than their predecessors, interaction among the rest of the executive team also increases, suggesting a learning effect. Turning to the outcomes of this practice, we find that executives who initiate more interactions than their peers are twice as likely as the average executive to be promoted to CEO. What is more, appointing CEOs who initiate more interactions than their predecessors results in an average three-day abnormal return of 0.9% around the announcement of the appointment. Teams composed of executives who interact with each other more frequently also have greater retention. Lastly, firms in which new CEOs initiate more interactions than their predecessors experience higher growth in Tobin’s Q, a result that is concentrated among growth and R&D-intensive firms.
Keywords: Conference Calls; CEO Succession; Executive Interactions; Promotion; Interpersonal Communication; Personal Development and Career; Retention
Related

Variance Analysis: New Insights from Health Care Applications

By: Robert S. Kaplan and Susanna Gallani
  • May 2022 |
  • Article |
  • Issues in Accounting Education
We use a health care application to illustrate how variance analysis can be used to benchmark costs across similar service delivery sites. Variances for personnel costs, typically the largest cost component in service organizations, are calculated for price, quantity, and skill mix components. Skill mix is important since employees with different compensation often work together to produce service outputs. We find that the joint variance, which arises when both prices and quantities differ, has more managerial implications when assigned to the quantity variance, rather than its traditional allocation to the price variance. Using time-driven activity-based costing also leads to a new variance that reflects the impact of personnel capacity differences between sites. Finally, we introduce two new visualization tools to display the variances. Educators can teach students how variance analysis reveals opportunities to reduce personnel costs by identifying and transferring best practices across sites.
Keywords: Variance Analysis; Benchmarking; Time-Driven Activity-Based Costing; Health Care; Activity Based Costing and Management; Health Care and Treatment; Service Delivery; Service Industry
Related

How Much Should We Trust Staggered Difference-In-Differences Estimates?

By: Andrew C. Baker, David F. Larcker and Charles C.Y. Wang
  • Article |
  • Journal of Financial Economics
Difference-in-differences analysis with staggered treatment timing is frequently used to assess the impact of policy changes on corporate outcomes in academic research. However, recent advances in econometric theory show that such designs are likely to be biased in the presence of treatment effect heterogeneity. Given the pronounced use of staggered treatment designs in applied corporate finance and accounting research, this finding potentially impacts a large swath of prior findings in these fields. We survey the nascent literature and document how and when such bias arises from treatment effect heterogeneity. We apply recently proposed methods to a set of prior published results, and find that correcting for the bias induced by the staggered nature of policy adoption frequently impacts the estimated effect from standard difference-in-difference studies. In many cases, the reported effects in prior research become indistinguishable from zero.
Keywords: Difference In Differences; Staggered Difference-in-differences Designs; Generalized Difference-in-differences; Dynamic Treatment Effects; Mathematical Methods
Related
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Accounting & Management Unit
Harvard Business School
Morgan Hall
Soldiers Field
Boston, MA 02163
A&M@hbs.edu