Knowledge Creation: Going Beyond Published Financial Information

Waymond Rodgers
Chair Professor in Accounting, University of Texas, El Paso, TX, USA; Hull University Business School, Hull, UK

Series: Business, Technology and Finance
BISAC: TEC027000

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Special issue: Resilience in breaking the cycle of children’s environmental health disparities
Edited by I Leslie Rubin, Robert J Geller, Abby Mutic, Benjamin A Gitterman, Nathan Mutic, Wayne Garfinkel, Claire D Coles, Kurt Martinuzzi, and Joav Merrick

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Financial statement analysis involves an understanding of an entity by applying analytical techniques to its accounting numbers. However, financial statement analyses are going through a transformation similar to the manufacturing age changing to information centered orientation. That is, it is no longer sufficient to understand the tools for analyzing financial accounting information. Other types of relevant information that are not directly captured by financial statement information have a profound effect on creditors, investors, reporting bureaus, governmental agencies and regulators.

This text differs from other financial statement textbooks in that it not only takes the traditional analysis of financial information, but also management and economic information that is not directly measurable or easily derived from financial accounting reports. Further, this textbook emphasizes the measurement and valuation of brand, sustainability, ethical systems and trusts systems. Moreover, this text also differs in that it provides a modeling viewpoint of information analysis linked with decision makers’ perception and judgments before arriving at a decision. The modeling perspective enhances financial statement analysis by:

1. Including not only financial information, but also management and economic information
2. Combining the passive tools used in investment and financial analysis (e.g., ratio analysis) with individual’s framing of the problem (perception) and analysis (judgment) before arriving at a decision
3. Viewing information analysis through a camera lens reinforced by a basic two stage modeling approach in order to support decisions regarding a particular course of action to implement.

Further, this text transforms what other financial statement analysis textbooks emphasize as an “input-output and static analysis” approach to a more “dynamic and process” approach. In addition, this textbook divulges from a “financial analysis” viewpoint to a “knowledge creation” perspective. This new “knowledge creation” perspective is intended for upper level undergraduates and graduate students, such as accounting, economic, finance, information systems, marketing, organizational behavior students, and psychology and sociology students. In addition, this book can be beneficial to government, non-profit and business oriented individuals. (Imprint: Nova)

Preface

Acknowledgements

Chapter 1. Changing face of Financial Analysis

Chapter 2. Financial Statement Analysis

Chapter 3. Throughput Modeling

Chapter 4. Knowledge-Based Assets Analysis

Chapter 5. Accounting and Non-accounting Information and their Impact on Financial Markets: Towards Social Innovation

Chapter 6. Ethical Modeling and Corporate Governance: Enhancing Financial Analysis

Chapter 7. Financial Statements and Fraud Issues

Chapter 8. Relational Risk: Trust Models impacting on Brand Recognition

Chapter 9. Sustainability Measures improving Corporate Governance

Chapter 10. Conclusion

Index

Chapter 1

[1] Rodgers, W. “Measurement and Reporting of Knowledge-Based Assets,” Journal of Intellectual Capital, 4, (2003), 181–90.
[2] Rodgers, W. E-Commerce and Biometric Issues Addressed in a Throughput Model (Hauppauge, NY: Nova Publication, 2010).

Chapter 3

[1] Hogarth, RM. Judgement and Choice, 2nd ed. (New York: Wiley, 1987).
[2] Kahneman, D; Tversky, A. On the study of statistical intuitions. Judgment Under Uncertainty: Heuristics and Biases, eds. D. Kahneman, P. Slovic, and A. Tversky (New York: Cambridge, 1982), 493‑508.
[3] Rodgers, W. Throughput Modeling: Financial Information Used by Decision Makers (Greenwich, CT: JAI Press, 1997).
[4] Tversky, A; Kahneman, D. “The Framing of Decisions and the Psychology of Choice,” Science, (1981), 211, 453-458.
[5] Rodgers, W. Process Thinking: Six Pathways to Successful Decision Making (New York: iUniverse, Inc., 2006).

Chapter 4

[1] Rodgers, W. “Measurement and Reporting of Knowledge-Based Assets,” Journal of Intellectual Capital, 4 (2003), 181-190.
[2] Rodgers, W. “Problems and Resolutions to Future Knowledge-based Assets Reporting,” Journal of Intellectual Capital, 8 (2007), 205-215.


[3] Upton, WS. “Business and Financial Reporting: Challenges from the New Economy. Financial Accounting Series No. 219-A, Financial Accounting Standards Board (April, 2001).
[4] OECD, Final Report: Measuring and Reporting Intellectual Capital: Experience, Issues, and Prospects (Paris: Organization for Economic Co-operation and Development, 2000).
[5] Pentland, BT. “Will Auditors Take Over the World? Program, Technique and the Verification of Everything,” Accounting, Organizations and Society, 25 (2000), 307-312.
[6] Leadbeater, C. New Measures for the New Economy (London: The Institute of Chartered Accountants, 2000).
[7] Wernerfelt, B. “A Resource-Based View of the Firm,” Strategic Management Journal, 5 (1984), 171-180.
[8] Coase, RH. “The Nature of the Firm,” Economica, 4 (1937), 386-405.
[9] Williamson, OE. The Economic Institutions of Capitalism (NY: Free Press, 1985).
[10] Foss, NJ. “Knowledge-Based Approaches to the Theory of the Firm: Some Critical Comments,” Organization Science, 7 (1996), 470-476.
[11] Kogut, B; Zander, U. “Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology,” Organization Science, 3 (1992), 383-397.
[12] Polanyi, M. The Tacit Dimension (London: Routledge and Kegan Paul, 1966).
[13] Nonaka, I; Takeuchi, H. The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation (NY: Oxford University Press, 1995).
[14] Krone, KJ; Jablin, FM; Putnam, LL. “Communication Theory and Organizational Communication,” in Handbook of Organizational Communication: An Interdisciplinary Perspective, eds. K.J. Krone et al., (Newbury Park CA: Sage, 1987), 18-40.
[15] Rodgers, W. Throughput Modeling: Financial Information Used by Decision Makers (Greenwich, CT: JAI Press, 1997).
[16] Rodgers, W. “The Effects of Accounting Information on Individuals' Perceptual Processes,” Journal of Accounting, Auditing and Finance, (Winter 1992), 67-96.
[17] Rodgers, W; Housel, T. “The Role of Componential Learning in Accounting Education,” Accounting and Finance, 32 (1992), 73-86.
[18] Elliot, R. “Confronting the Future: Choices for the Attest Function,” Accounting Horizons, (September 1995), 106-124.
[19] Housel, T; Bell, A. Managing and Measuring Knowledge (Boston: McGraw-Hill, 2001).
[20] Kaplan, RS; Norton, DP. “The Balanced Scorecard,” Harvard Business Review, (September/October 1996), 134-147.
[21] Rodgers, W; Gago, S. “Stakeholder Influence on Corporate Strategies Over Time,” Journal of Business Ethics, 52 (2004), 349-363.


[22] Breton, JR. “Social Audit,” archived 2001, http://www.world-affairs.com/audit.htm.
[23] Rodgers, W. “Three Primary Trust Pathways Underlying Ethical Considerations,” Journal of Business Ethics, 91 (2010), 83-93.
[24] Day, JD; Wendler, JC. “Best Practice and Beyond: Knowledge Strategies,” The McKinsey Quarterly, 1 (1998), 19-25.
[25] Leadbeater, C. New Measures for the New Economy. (London: The Institute of Chartered Accountants, 2000).
[26] Edvinnsson, L; Malone, MS. Intellectual Capital: Realising Your Company’sTrue Value by Fining its Hidden Brainpower (London: Harper Business, 1997).

Chapter 5

[1] Rodgers, W; Choy, H; Guiral, A. “Do Investors Value a Firm’s Commitment to Social Activities?” Journal of Business Ethics, (2013), 114, (4), 607-623.
[2] Rodgers, W; Soderbom, A. “Knowledge Creation and Transfer Effects on Decision Making,” in Social Innovation, eds. T. Osburg and R. Schmidpeter (London: Springer Publications, 2013), 57-64.
[3] Ibid., 63.

Chapter 6

[1] Hwang, BH; Kim, S. “It Pays to Have Friends,” Journal of Financial Economics, 93 (2009), 138-158.
[2] Rodgers, W; Gago, S. “Cultural and Ethical Effects on Managerial Decisions: Examined in a Throughput Model,” Journal of Business Ethics, 31 (2001), 355-367.
[3] Rodgers, W. “How Do Loan Officers Make their Decisions about Credit Risks? A Study of Parallel Distributed Processing PDP

,” Journal of Economic Psychology, 12 (1991), 243-265.
[4] Jones, TM; Wicks, AC. “Convergent Stakeholder Theory,” Academy of Management Review, 24 (1999), 206-221.
[5] Donaldson, T. “Making Stakeholder Theory Whole,” Academy Management Review, 24 (1999), 237-241.
[6] Singer, M. Ethics and Justice in Organizations, (Sydney: Ashgate, 1997).
[7] Rawls, J. Political Liberalism, (NY: Colombia University Press, 1993).
[8] Bentham, J. An Introduction to the Principles of Morals and Legislation, ed. J.H. Burns (Oxford: Clarendon Press, 1996).
[9] Mill, JS. Utilitarianism, ed. (Indianapolis: Bobbs-Merrill, 1957).
[10] Smith, A. The Wealth of Nations, ed. (Amherst, New York: Prometheus Books, 1991).
[11] Friedman, M. “Autonomy, Social Disruption, and Women,” in Relational Autonomy: Feminist Perspectives on Autonomy, Agency, and the Social Self, ed. Catriona Mackenzie and Natalie Stoljar (New York: Oxford University Press, 2000), 40-41.
[12] Rodgers, W; Gago, S. “Stakeholder Influence on Corporate Strategies Over Time,” Journal of Business Ethics, 52 (2004), 349-363.
[13] Newman, K. ‘Organizational Transformation during Institutional Upheaval,” Academy of Management Review, 25 (2000), 602–619.
[14] Gioia, DA; Schultz, M; Corley, KG. “Organizational Identity, Image, and Adaptive Instability,” Academy Management Review, 25 (2000), 63–81.
[15] Bhappu, A. “The Japanese Family: An Institutional Logic for Japanese Corporate Networks and Japanese Management,” Academy of Management Review, 25 (2000), 409–415.
[16] Brunnermeier, M; Pedersen, L. “Market Liquidity and Funding Liquidity,” Review of Financial Studies, 22 (2009), 2201-2238.
[17] Pfeffer, J; Leong, A. “Resource Allocations in United Funds: Examination of Power and Dependence,” Social Forces, 55 (1977), 775–790.
[18] Spence, AM. Market Signaling: Informational Transfer in Hiring and Related Screening Processes, (Cambridge: Harvard University Press, 1974).
[19] Spence, AM. “Job Market Signaling,” Quarterly Journal of Economics, 87 (3) (1973), 355–374.

Chapter 7

[1] Rodgers, W. Biometric and Auditing Issues Addressed in a Throughput Model (Charlotte, NC: Information Age Publishing, Inc., 2012).
[2] Harris, G. ―Deal is Set for Inspecting Foreign Drugs, New York Times Digest, August 13, 2011, 1.
[3] Rodgers, W. Ethical Beginnings: Preferences, Rules, and Principles Influencing Decision Making, (NY: iUniverse, Inc., 2009).
[4] Beneish, MD; Yohn, TL.―Information Friction and Investor Home Bias: A Perspective on the Effect of Global IFRS Adoption on the Extent of Equity Home Bias,‖ Journal of Accounting and Public Policy, November/December (2008), 433-443.
[5] von Neumann, J; Morgenstern, O. Theory of Games and Economic Behaviour, (Princeton, NJ: Princeton Press, 1947).
[6] Cressey, D. Other People's Money, (Belmont, CA: Wadsworth, 1953).
[7] American Institute of Certified Public Accountants, Consideration of Fraud in a Financial Statement Audit. Statement on Auditing Standards No. 99. (New York: AICPA, 2002).
[8] Singleton, TW. ―Top Five Fraud Axioms IT Auditors Should Know, ISACA Journal 4 (2010), 1-3.

Chapter 8

[1] Clifton, R. Brands and Branding, (NY: Bloomberg Press, 2009).
[2] Rodgers, W. E-commerce and Biometric Issues Addressed in a Throughput Model, (Hauppauge, NY: Nova Publication, 2010).
[3] Ettenson, R; Knowles, J. ―Don‘t Confuse Reputation with Brand, Sloan Management Review, 49 (2008), 18-21.
[4] Blackston, M. ―Observations: Building Brand Equity by Managing the Brand‘s Relationships, Journal of Advertising Research, 40 (2000), 101-105.
[5] Teas, R; Grapentine, TH. ―Demystifying Brand Equity, Marketing Research: A Magazine of Management & Applications, 8 (1996), 25-29.
[6] Rodgers, W. Throughput Modeling: Financial Information Used by Decision Makers, (Greenwich, CT: JAI Press, 1997).
[7] Kozinets, RV. ―Utopian Enterprise: Articulating the Meanings of Star Trek‘s Culture of Consumption, Journal of Consumer Research, 28(1) (2001), 67-88.
[8] Shugan, SM. ―Brand Loyalty Programs: Are They Shams? Marketing Science, 24(2) (2005), 185-193.
[9] Scott, SV; Walsham, G. ―Reconceptualizing and Managing Reputation Risk in the Knowledge Economy: Toward Reputable Action, Organization Science, 16(3) (2005), 308-22.
[10] Kramer, RM. ―Trust and Distrust in Organizations: Emerging Perspectives, Enduring Questions, Annual Review of Psychology, 50 (1999), 569-98.
[11] Sparrowe, RT; Liden, RC; Wayne, SJ; Kraimer, ML. ―Social Networks and the Performance of Individuals and Groups, Academy of Management Journal, 44

(2001), 316-25.
[12] Hosmer, LT. ―Trust: The Connecting Link between Organizational Theory and Philosophical Ethics, Academy Management Review, 20(2) (1995), 379-403.
[13] Kahn, MA. ―On Trust as a Commodity and on the Grammar of Trust, Journal of Banking and Finance, 26(9) (2002), 1719-66.
[14] Rousseau, DM; Sitkin, SB; Burt, RS; Camerer, C.―Not So Different After All: A Cross-discipline View of Trust, Academy Management Review, 23 (1998), 393-404, 40 40.
[15] Doney, PM; Cannon, JP; Mullen, MR. ―Understanding the Influence of National Culture on the Development of Trust, Academy Management Review, 23(3) (1998), 601-20.
[16] Keller, KL; Lehmann, DR. ―Brands and Branding: Research Findings and Future Priorities, Marketing Science, 25(6) (2006), 740–759.
[17] Mayer, RC; Davis, JH; Schoorman, FD. ―An Integrative Model of Organizational Trust, Academy Management Review, 20(3) (1995), 709-34.
[18] Sitkin, SB; Roth, NL. ―Explaining the Limited Effectiveness of Legalistic Remedies for Trust/Distrust, Organization Science, 4(3) (1993), 367-92.
[19] Rodgers, W; Housel, T. ―The Effects of Information and Cognitive Processes on Decision-making, Accounting and Business Research, 69 (1987), 67-74.
[20] Rodgers, W; Gago, S. ―Stakeholder Influence on Corporate Strategies Over Time, Journal of Business Ethics, 52 (2004), 349-363.
[21] Rodgers, W; Housel, T. ―The Effects of Environmental Risk Information on Auditors’ Decisions about Prospective Financial Statements, European Accounting Review, 13 (2004), 523-540.
[22] Culbertson, A; Rodgers, W. ―Improving Managerial Effectiveness in the Workplace: The Case of Sexual Harassment of Navy Women, Journal of Applied Social Psychology, 27 (1997), 1953-1971.
[23] Rodgers, W. ―Three Primary Trust Pathways Underlying Ethical Considerations, Journal of Business Ethics, 91 (2010), 83-93.
[24] Kant, I. Groundwork for the Metaphysics of Morals, (New York: Harper and Row, 1964).
[25] Mao, H; Krishnan, HS. ―The Effects of Prototype and Exemplar Fit on Brand Extension Evaluations: A Two-Process Contingency Model, Journal of Consumer Research, 33(2) (2005), 41-49.
[26] Leclerc, F; Hsee, C; Nunes, JC. ―Narrow Focusing: Why the Relative Position of a Good in its Category Matters More than it Should, Marketing Science, 24(2) (2005), 194-205.
[27] Beauchamp, TL; Bowie, NE. Ethical Theory and Business, (Upper Saddle River, NJ: Prentice Hall, 1997).
[28] Luo, X; Bhattacharya, CB. ―Corporate Social Responsibility, Customer Satisfaction, and Market Value, Journal of Marketing, 70(4) (2006), 1-18.

Chapter 9

[1] Rodgers, W. E-commerce and Biometric Issues Addressed in a Throughput Model, (Hauppauge, NY: Nova Publication, 2010).
DiPiazza, SA. & others, ―Global Capital Markets and the Global Economy: A Vision from the CEOs of the International Audit Networks, Available at: (2006) http://www. globalpublicpolicysymposium.com/CEO_Vision.pdf.

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