August 2021: Prof. Dr. Christian Hofmann

Christian Hofmann, Professor for Accounting and Control at the Ludwig-Maximilians-University of Munich, is principle investigator of the project B03, “Transparency Regulation and Organizational Design.” In the project, he investigates how mandatory financial reporting-induced transparency affects organizational design.

Accounting: on the cutting edge

I have always been fascinated by research. I still remember an experiment I conducted during my studies in industrial engineering. At that time, I was working for a French research institute. In the experiment, we had participants solve tasks on the PC in a climate chamber to examine the effects of temperature on cognitive abilities. That was incredibly exciting and sparked my interest in research. My interest in accounting research developed over time. In fact, the only subject that gave me trouble in the first semester of my studies was bookkeeping. That spurred me to study the subject intensively and to exploit it step by step. This is how accounting slowly but steadily grabbed my attention and ultimately resulted in a deep fascination. Accounting has such a long tradition that even goes back to the Middle Ages, to the threshold of modern times. All the way back to Luca Pacioli, who is also known as the father of accounting. Despite this long history, new and exciting research questions keep coming up. Accounting research is always on the cutting edge. I really appreciate that.

Transparency research affects so many areas of life. It has a great leverage effect to achieve impacts that are important for all of us.

TRR 266: making a difference

I find it inspiring to do research and work with people who are passionate about a topic. And that is exactly what excites me about our Collaborative Research Center. The TRR 266 is staffed by people who are incredibly dedicated and enthusiastic – on all levels. From the professors and junior professors, to the postdocs and PhD students, to the communications and administrative staff.  It is real fun! And it helps to do relevant research – in a field where you can really make a difference. Transparency research affects so many areas of life. It has a great leverage effect to achieve impacts that are important for all of us. Consider, for example, studies on the design of effective disclosure requirements to make firms’ sustainable behavior transparent. Of course, such disclosure requirements are particularly important in a market context. But at the same time, they also affect the behavior of employees and consumers. Their decisions in turn have an impact on the firm – and thus on environment and society.

Coherent patterns are relevant for decision-makers in companies, since they often have to deal with complex decision-making situations.

Transparency and organizational structures

Within our project B03, we are dealing with the question of how transparency influences organizational structures and how these structures in turn affect transparency. To answer this question, we use both empirical and theoretical approaches. And we cover a wide range of topics. In one of our studies, for example, we examine the influence of religiousness on tax avoidance and earnings management. In another study, we identified coherent patterns of control measures. Coherent patterns are relevant for decision-makers in companies, since they often have to deal with complex decision-making situations. They usually have to make many different partial decisions that are subject to interactions. That makes it difficult to choose the right setting for a particular situation in daily work routine. If we can identify coherent patterns, we reduce this complexity to just these few patterns. It is important to note that with coherent patterns, it may well be that changing just one control measure would worsen firm performance, whereas changing all control measures together would increase firm performance substantially. Thus, the presence of coherent patterns requires a more comprehensive “turn around” instead of gradual adjustments of single control measures.

We were able to gain unusually high response rates, which is really great. It shows how relevant this topic is and how high the need is to communicate about it.

Corona crisis: How have workflows and management
control systems changed?

One of our recent studies deals with the Corona pandemic – and with the question: How does the Corona crisis force firms to change their management control system? We conducted surveys in two local companies and were able to gain unusually high response rates, which is really great. It shows how relevant this topic is and how high the need is to communicate about it. A follow-up survey is planned for the end of the year, which will hopefully allow us to observe long-term effects. However, we can already share initial findings. We observed, for example, that the ‘onboarding”, i.e. the integration of employees into the company, is less effective than before Corona and that action control in the form of direct monitoring has decreased. This is not surprising, since many employees worked (more) from home during Corona. Little has changed regarding the companies’ results controls. This was also to be expected since bonuses and compensation systems are difficult to change in such a short period of time. What should be of particular interest to companies are the changes in work processes. While the number of meetings has increased, meetings have become shorter and of better quality. Moreover, the productivity of employees has increased, while sick leave has decreased.

The model suggests that it may be appropriate to discuss managers’ performance only with the supervisor when the group of managers is
smaller than 5.

Public score board vs. assessment interviews

In another paper, we examine how transparency should be designed for lower level and middle management in a firm with multiple levels of hierarchy. We investigate whether the performance of these managers should be private information between the manager and his immediate supervisor. Or whether this information should also be available to their colleagues. For example, in the form of a public score board that ranks employees’ performance like a national league table. Our research is not about psychological effects. We use a principal agent model to investigate which is the most expedient design for firms to use – focusing on a trade-off between incentive costs and moral hazard. The model suggests that it may be appropriate to discuss managers’ performance only with the supervisor when the group of managers is smaller than 5. If the group is larger than 7 however, it makes sense to use a public score board.

We need to show young people how exciting research in business administration can be.

Encouraging young talents

I attach great importance to rigor – during all phases of research. At the same time, I want my research to be relevant, to make a difference. Not only for the scientific community but also for practice and society. That is why I do not just publish my research in scientific top journals, I also edit my findings for a broader public, be it through interviews in newspapers or through data visualizations. I think it is particularly important to get young people interested in accounting research. Many young people seem to study business administration to acquire a toolbox for a business career. That is perfectly fine. But I think it is a pity that business administration does not seem to attract young people interested in research to the same extent. We need to change that. We need to show young people how exciting research in business administration can be. That is why I think researchers should be more concerned with how they can present their findings to students to make their findings more tangible and interesting. For example, by using data visualizations that stimulate the student’s ludic drive and curiosity – giving them a whole different view on business administration.

The article reflects the opinion of the researcher and not necessarily the views of the TRR 266. As a scientific association, the TRR 266 is committed to both freedom of speech and political neutrality.