Academy of Business Research Journal
Volume IV 2017
The Mission
The Academy of Business Research Journal is an interdisciplinary journal dealing with issues in business and education. Any Best Paper award at an Academy of Business Research conference will automatically be placed into the review process for possible acceptance into the Academy of Business Research Journal. Direct submissions to the Academy of Business Research Journal are reviewed on a continuing basis. Submissions may be made by submitting a copy of your article either in Microsoft Word or PDF format to
[email protected]. The Academy of Business Research Journal is intended for parties that are interested in the practical applications of business and industrial research. The intended readership consists of both researchers and practitioners. The emphasis of the journal is on applications, not the statistical methodology used to derive the applications. Thus, any empirical work should be clearly outlined so that a wide spectrum audience can follow the practical applications of the manuscript. The mission of the Academy of Business Research Journal is to support researchers and practitioners in the application of business and industrial development.
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Editor: James P. Estes, California State University San Bernardino Assistant Editor: Meredith R. Wilson
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Journal Statistics for 2014-2016
Articles Submitted
201
Revise and Re-submit
62
Acceptances without Revision
60
Overall Acceptance
30%
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Future Conference Dates Academy of Business Research Spring 2018
New Orleans, LA March 21-23, 2018 Renaissance Hotel, New Orleans www.aobronline.com
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Table of Contents CHASING THE FAME: INVESTING ON BRAND EQUITY
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WEI FENG, Lynn University ROBERT W. REICH, Lynn University YE SHENG, Barry University FACTORS AFFECTING THE QUALITY OF INDEPENDENT AUDIT SERVICE IN VIETNAM
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LIEN THI HUONG NGUYEN, Vietnam National University, Hanoi TRANG THI HUYEN NGUYEN, Vietnam National University, Hanoi WILLIAM L. HAMBY, JR., Troy University
WHEN DO STUDENTS LEARN? A COMPARISON OF FACE TO FACE, ONLINE WITH INTERVENTION, AND ONLINE STUDENT OUTCOMES
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DRAKE MULLENS, Tarleton State University
SUSTAINABILITY REPORTING BY THE FORTUNE 100: WHO, HOW AND WHAT
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MICHAEL J. FISCHER, St. Bonaventure University CAROL M. FISCHER, St. Bonaventure University MATTHEW R. BIZZARO, St. Bonaventure University
THE EFFECT OF INDIVIDUAL INDUCTIVE REASONING ON THE “REASONABLE PERSON” STANDARD USED IN LABELING OF SEXUAL HARASSMENT BEHAVIORS JEFF L. SEATON, Murray State University
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Chasing the Fame: Investing in Brand Equity Wei Feng Lynn University Robert Reich Lynn University Ye Sheng Barry University ABSTRACT This paper examines the relationship between a firm’s brand equity and its investment value. “Brand equity is defined as the incremental cash flows which accrue to branded products over unbranded products. The estimation technique extracts the value of brand equity from the value of the firm's other assets” (Simon & Sullivan, 1993). This study illustrates how stocks with higher growth of brand equity provide stronger investment value. Conversely, stocks with deteriorating brand equity generally feature lower return potential. An empirical portfoliostrategy is used to demonstrate the assumptions and predicts how to capitalize upon return potential from such a relationship. Keywords: Brand Equity, Investment, Portfolio, Equity Markets
Introduction Brand Equity is a concept used in the marketing industry to describe the value of a well-known brand name. Brand Equity is held as an intangible asset according to generally accepted accounting rules. “Accountants seem content to live with such quantum weirdness. Brand values can "swing wildly" (Teixeira, 2014). “Standards-setters worry that auditors would be quick to recognize rises but slow to acknowledge declines. Brands are unique, so it is hard to figure out what their market value is” (Anonymous, 2014). Cognitive psychology shows that brand equity lies in the consumer’s awareness of brand features and associations, which drive attribute perceptions (Erdem & Swait, 1998; Erdem et al., 1999; Keller, 1993). Additionally, information economics argues that a strong brand name could serve as a credible signal of product quality for imperfect informed buyers and generate price premium as a form of return to branding investment (Ailawadi, Lehmann, & Neslin, 2003; Leuthesser, Kohli, & Harich, 1995). Neumeier (2006) has argued that brands are one of the most valuable assets of a company because brand equity is one of the key factors that can increase the financial value of a brand to the brand owner. Sources that can contribute to the financial valuation of a brand include changing market share, profit margins, consumer recognition of logos and other visual elements, brand language associates made by consumers, consumers’ perceptions of quality and other related values (Byrne & Brooks, 2008). Despite the conceptual and strategic importance, brand equity remains difficult 7
to quantify. Experts have developed tools to analyze the assets. However, there is no agreed way to measure (Reich, 2017). There are many different methods of assessing a brand’s value. Brand valuation is calculated for different reasons, and therefore different methods are applied. Brand value encompasses both quantitative and qualitative measures, hence the quandary that the accounting profession encounters when allocating value (Keller & Lehmann, 2006). Brand valuation often involves tangible assets such as intellectual properties, but more often the intangible values such as brand promise, brand recognition, and transferability have the greatest weight (Berger & Tadzijeva, 2008). Brand valuation methodology is typically based on consumer predication to favor one set of unique brand identifiers or cues of one brand over another (Lin & Sung, 2014; Timmerman, 2001). Such practices reflects the intrinsic value of the brand as determined by the price one is willing to pay for a firm or product with an established brand and considered a Marketing Based approach (Rao, Agarwal, & Dahlhoff, 2004). Marketing-based valuations are commonly used during merger and acquisition transactions when the transaction cost exceeds book-value (Angulo, 2002; Madden, Fehle, & Fournier, 2006). Specific needs often require specific measurement tools (Aaker, 1996; Feldwick, 1996). “From the perspective of financial markets, brand equity is the capitalized value of the profits that result from associating that brand's name with particular products or services” (Simon & Sullivan, 1993). From the trader’s perspective, a direct question is how the effort and resources invested in the brand building could be translated to improved investment value for the stockholders. More importantly is the ability to estimate value in smaller increments without the time consuming, indepth computations required to scrutinize financial reporting and market analytics (Fernandez, 2016). Furthermore, intangible asset investments are not often reported on a firm’s balance sheet and are typically expensed in the period in which they are incurred albeit those benefits are anticipated to occur in future periods. Because there is a lack of certainty, the brand equity value is implied, but not accounted for. These future values do not necessarily have an immediate or direct effect on firm value (Fernandez, 2016). Stock price, however, does reflect the expected future cash flows of the business and the impact of brand equity on those anticipated cash flows (Rao, et al., 2004; Simon & Sullivan, 1993). A literature search demonstrated an absence of detailed studies on the link between the brand equity and realization of the value from the investment approach in spite of the abundance of studies on the value and extra profit associated with brand equity (Fine, Gleason, & Budeva, 2016; Knowles, 2003; Madden, et al., 2006). “By investigating a firm's stock price around the time when new information is received about an event that affects the firm's cash flows, one is explicitly testing the underlying change in the unbiased market forecast of the firm's future income and, in turn, whether the event produces abnormal movement in the price of the stock” (Madden, et al., 2006). Based on the lack of literature on such a relationship, our study seeks to investigate several related questions;1. Will share-growth of firms accredited with strong brand equity outperform those brands with lower valued brand equity in US markets? 2. If the brand equity is priced adjusted as an intangible asset, how accurate would the market price be a reflection of the equity? 3. More
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interesting for short-term investors and swing traders, is there an opportunity to maximize prospects through prediction of valuation changes of highly recognized brands? Answers to these questions may also be put in the context of financial investment since various style-based investment approaches, such as value and growth investing, small/large-cap stock investing are applied in the field (Chan, Chen, & Lakonishok, 2002). However, few studies have addressed the investment value of well-known brands. To addresses such a gap in the literature, this investigation utilized a unique brand ranking/estimation database, Interbrand™ (Chu & Keh, 2006) and constructed a simple portfolio strategy to explore the market valuation ebbs and flows of established brands through observation of brand equity changes. The study demonstrated that a simple brand-equity-based investment strategy could generate consistent and better returns than the benchmark equity index supporting the investment value of brand equity. A style-based approach to brand equity investment provides insight into areas of both brand equity and financial investment. The findings validate the concept of the brand equity value and reveal how the brand equity might be inherently priced through the equity movement. The tests also illustrate a simple, yet intuitive approach for the investors to realize the value inherent in the brand equity in a timelier method. The study is organized as follows: The next section provides a brief literature review. The succeeding section describes data and investment strategies for brand equity. The following section shows the results of the investment strategies applied. The final section discusses finding, opportunities and limitations of the study.
Literature Review A search of published literature produced a plethora of consumer-based antecedents to brand value and global brand equity. Of the 156 plus global brand equity studies sourced by the authors, the majority of the research was focused on behavioral aspects of brand recognition, trust, commitment, and satisfaction. A sample of the most common types of article returns for searchwords such as Brand Equity, Brand Value, and Brand Equity Valuation are as follows: (Albert, Merunka, & Valette-Florence, 2008) (Batra, Ramaswamy, Alden, & Steenkamp, 2000) (Bengtsson, Bardhi, & Venkatraman, 2010)
When consumers love their Brands: Exploring the concept and its dimensions Effects of Brand Local and Nonlocal Origin on Consumer Attitudes in Developing Countries How Global Brands Travel with Consumers: An Examination of The Relationship Between Brand Consistency and Meaning Across National Boundaries.
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Journal of Business Research, 61(10), 1062-1075 Journal of Consumer Psychology, 9(2), 83-95 International Marketing Review, 27(5), 519-540
(Brouthers & Xu, 2002) (Jevons & Gabbott, 2000)
(Roth, 1995)
(Jordá-Albiñana, Ampuero-Canellas, Vila, & Rojas-Sola, 2009) (Pitta & Franzak, 2008) (Smith, Gradojevic, & Irwin, 2011)
(Yoo & Donthu, 2001) (Zeugner Roth, Diamantopoulos, & Montesinos, 2008) (Seetharaman, Azlan Bin Mohd Nadzir, & Gunalan, 2001)
Product Stereotypes, Strategy and Performance Satisfaction: The Case of Chinese Exporters Trust, Brand Equity and Brand Reality in Internet Business Relationships: An Interdisciplinary Approach The Effects Of Culture And Socioeconomics on The Performance of Global Brand Image Strategies Brand Identity Documentation: A Cross-National Examination of Identity Standards Manual
Journal of International Business Studies, 33(4), 657-677
Foundations for Building Share of Heart in Global Brands An Analysis of Brand Equity Determinants: Gross Profit, Advertising, Research, And Development Developing and Validating A Multidimensional ConsumerBased Brand Equity Scale Home Country Image, Country Brand Equity And Consumers’ Product Preferences: An Empirical Study. A Conceptual Study on Brand Valuation
Journal of Product & Brand Management, 17(2), 64-72 Journal of Business & Economics Research (JBER), 5(11)
Journal of Marketing Management, 16(6), 619-634
Journal of marketing research, 32(2), 163-175
International Marketing Review, 26(2), 172-197.
Journal of Business Research, 52(1), 1-14 Management International Review, 48(5), 577-602
Journal of Product & Brand Management, 10(4), 243-256
We found a dearth of articles that measured short-term valuation or stock fluctuation based on factors of brand equity. The literature search did identify three noteworthy studies which did provide empirical methods to link firm resources to global brand equity value. They are: 1) The Effect of Marketing Efficiency, Brand Equity and Customer Satisfaction on Firm Performance by Luis Angulo (2002); 2)The Relationship Between Organizational Competitive Advantage and Performance Moderated by the Age and Size of Firms, by Ismail, Rose, Abdulah and Uli (2010); 3) The Relationship Between International Diversification and Global Brand Value: Is It Linear? One Way? Country-of-Origin Dependent? by Jin-Woo Kim (2010). Only one of the studies, however, (Angelo, 2002), addressed the direct impact brand equity had on equity value. Many investment portfolios are constructed upon traditional, stylized elements. An example would be the value of investing that actively seeks stocks believed to be undervalued by the market based on brand equity (Fama & French, 2008). Even though a firm’s brand equity is conceptually correlated with the stock investment, it remains an insufficiently exploited component from an
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investing perspective. This study seeks to fill the gap and provide a portfolio strategy to capitalize the relationship between brand equity and stock value.
Methodology The investment method applied engaged in brand equity investments from two approaches. First, the study investigates an investment portfolio focused on t stocks with the top brands and investigated whether such stocks outperform the stock index benchmarks. The second test focused on the stocks with rapid growth in brand equity to measure against the same benchmarks. The results showed that brand equity is, indeed reflected through the pricing by the financial markets and stocks with rapid brand equity growth and indicated higher and more consistent return profiles than the stock index benchmark.
Data Sources Data used to determine brand value and growth was derived by selecting a unique catalog of individual firm brands from Interbrand (http://interbrand.com/). Interbrand™ is the world’s leading brand consultancy, with a network of 31 offices in 27 countries. Interbrand™ publishes the Best Global Brands report on an annual basis. The report identifies the world’s 100 most valuable brands. To develop the report, Interbrand™ examines three key aspects that contribute to a brand’s value. The key aspects include: (1) the financial performance of the branded products and service; (2) the role the brand plays in influencing consumer choice; (3) the strength the brand has to command a premium price or secure earnings for the company. Interbrand™ methodology applies a historical three-year weighted average of after-tax profits directly related to the brand measured and associates those results with seven multiplier factors related to brand strength and identity. The seven factors and their weighted multipliers according to (Berger, 2008; Kiley, 2007) are: •
Market or industry the brand participates in can earn up to a 10% multiplier. Industry values are proprietary calculations for Interbrand™.
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Stability factors can earn up to a 15 % multiplier and refers to the age and entrenchment of the brand.
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Leadership relies primarily on market share, but other elements of strength are also applied.
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Profit Trend evaluates the long-term profitability of the branded product. Interbrand™ suggests this is reflective of ability to remain current and relevant to customers.
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Support refers to the consistency of investment and funding the brand receives. A 10% premium may be applied advertising intensity, for example, is an overt indication of brand backing. 11
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Geographic Spread can earn up to a 25% multiplier premium based on the global reach of the brand. Broader-based brands are less vulnerable to competitive or economic shifts than localized or regional positions.
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Protection can earn up to a 5% multiplier. The protection of a brand reflects the international level of copyright and brand defense received in the multinational markets in which it is represented. Figure 1: Example of InterBrand™ Ranking
The data points were gathered from the top 100 brands ranked by Interbrand ™ every year (since 2000) as the universe for the investment. the examination addressed the question of whether the top-ranked brand as of 2000 year-end will lead to higher return for the next year. To answer the question, we collected the stock price history of the selected brand firms as historically identified from Bloomberg™ databases. The return from holding the company stock for the next year served as a proxy for investing in the individual brands. Based on a basket of selected brands, the return from each stock was calculated t and compared.
Method Methodology calculated brand-investment from two approaches: First, we test the returns from holding the top 10% brands. For example, our sample was selected from the top 10 ranked stocks at the end of 2013 and “invested” in ten stocks with a portfolio equally weighted among all the component top 10 stocks. A record of the portfolio returns from 2014 was determined. Since Interbrand™ rankings are annually adjusted, the portfolio was re-adjusted on an annual basis. The 12
model then collected the history of all such portfolios for each year, then compared the portfolio return with the benchmark equity index. Benchmarks utilized S&P500 and MSCI EAFE index for comparison as they are commonly used indexes the investment industry. Next, the returns from the top 10% stock that experience the highest percentage growth in the brand equity were tested. Then a portfolio with the top growth in brand equity from the last year was held through the following year. The return from that portfolio was recorded and compared with the equity index benchmark calculated return. The underlying rationale is as follows; if the portfolio returns significantly outperform the benchmark indices, then it can argue that brand equity would be reflected in the financial market and the top-ranking brands possess greater opportunities for investors.
Results and Discussion There are two sets of portfolio tests. The first portfolio tests the case of holding previous topranked brand for the following year. Included in the findings are cases of holding the top and bottom 5, 10, and 20 branded firm stocks. By studying cases of holding a different number of stocks in the portfolio, the researchers should also be able to gauge the additional value implied in brand equity ranking. The second portfolio tests the case of holding the brand with the maximum or minimum percentage of the brand equity. Also included in the results are the cases of holding the top and bottom 5, 10, and 20 stocks. The approach mixes the brand equity ranking with the momentum portfolio strategies. The comparisons reveal the additional value of investment in stocks with fast growing brand and evidences the investment value growth momentum. Portfolio charts demonstrate results with the benchmark portfolio of S&P 500 Index and Global stock index (MSCI global). The assumptive portfolio test shows that consistent returns which outperform the equity index benchmark can be achieved a style-based investment approach for the stock with top brand equity growth. Table 1: Portfolio constructed from top-ranked brand equity, Return by Year
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Figure 1: Cumulative equity from portfolio from ranking by value of brand equity
Table 2: Portfolio constructed from top rank in brand equity growth
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Figure 2: Cumulative equity from portfolio from ranking by growth of brand equity
Comparing portfolio return history with the benchmarks for both Case 1 and Case 2provides some noteworthy observations: 1) The portfolio with top-ranked brand equity growth significantly outperform benchmark index, SP500, and MSCI EAFE index, demonstrating potential merits of such a style-based approach of investing in the brand equity. 2) The portfolio from bottom-ranked brands (still in top 100 ranking by Interbrand) slightly outperforms the benchmark portfolio, while the portfolio with top-ranked brand equity have similar performance as the benchmark portfolios. 3) The growth or the change in brand equity instead of the ranking is a good indicator of future investment return. Such a finding serves as evidence that the brand equity growth is indeed, timely priced in by the market. The inference endorses the theory that the building the brand equity would provide additional value to the firm’s investment returns. 4) During the financial recession period of 2008, the portfolio constructed from the brand equity ranking also experience significant loss, which stemmed from the systematic risk
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inherent in the portfolio. However, the stocks with high brand-equity-growth fared much better than the stocks with low-brand-equity growth. The analysis shows that there is a close relationship between brand equity and return potential for the branded equity markets. The growth of brand equity can be used an additional indicator for immediate, higher return potential. Such return potential can be realized with a portfolio strategy based on Brand equity investment and growth.
Conclusions, Limitations and Further Research Opportunities This study bridges the marketing study on brand growth with the common investors. Starting from the assumption that brand equity growth would bring extra profit to the business, we utilized the unique Interbrand™ database and proposed a style-based brand equity investment approach to show a method to capitalize the value from brand equity changes. The portfolio tests utilized substantiates the relationship between the brand equity and the market value it generates. There are other areas that could be further explored. For example, due to the limitation of Interbrand™ database output, the study was constrained by the release of updates and the brand ranking and was limited to the few top-ranked stocks. It might be interesting to explore: (1) how timely the brand equity building could be reflected in the market price; (2) is there more return potential from stocks with lower brand equity (not included in top 100), but experiencing significant high growth-brand equity and its relationship to greater investment returns that benchmark portfolios.
References Aaker, D. A. (1996). Measuring brand equity across products and markets. California Management Review, 38(3), 102-120. Ailawadi, K. L., Lehmann, D. R., & Neslin, S. A. (2003). Revenue premium as an outcome measure of brand equity. Journal of Marketing, 67(4), 1-17. Albert, N., Merunka, D., & Valette-Florence, P. (2008). When consumers love their brands: Exploring the concept and its dimensions. Journal of Business Research, 61(10), 1062-1075. Angulo, L. F. (2002). The effect of marketing efficiency, brand equity and customer satisfaction on firm performance. Autonomous University of Barcelona,. Anonymous. (2014). Untouchable intangibles. [Article]. Economist, 412(8902), 58-58. Batra, R., Ramaswamy, V., Alden, D. L., & Steenkamp, J. B. E. M. (2000). Effects of Brand Local and Nonlocal Origin on Consumer Attitudes in Developing Countries. Journal of Consumer Psychology, 9(2), 83-95. Bengtsson, A., Bardhi, F., & Venkatraman, M. (2010). How global brands travel with consumers: An examination of the relationship between brand consistency and meaning across national boundaries. International Marketing Review, 27(5), 519-540. 16
Berger, J. T., & Tadzijeva, D. (2008). Marketing Perspectives on Brand Valuation. Intellectual Property Today(July/August). Berger, J. T. T., D. (2008). Marketing Perspectives on Brand Valuation. Intellectual Property Today(July/August). Brouthers, L. E., & Xu, K. (2002). Product stereotypes, strategy and performance satisfaction: The case of Chinese exporters. Journal of International Business Studies, 33(4), 657-677. Byrne, A., & Brooks, M. (2008). Behavioral finance: Theories and evidence. Chan, L. K., Chen, H.-L., & Lakonishok, J. (2002). On mutual fund investment styles. Review of Financial Studies, 15(5), 1407-1437. Chu, S., & Keh, H. T. (2006). Brand value creation: Analysis of the Interbrand-Business Week brand value rankings. Marketing Letters, 17(4), 323-331. Erdem, T. l., & Swait, J. (1998). Brand Equity as a Signaling Phenomenon. Journal of Consumer Psychology, 7(2), 131-157. Erdem, T. l., Swait, J., Broniarczyk, S., Chakravarti, D., Kapferer, J.-N. l., Keane, M., . . . Zettelmeyer, F. (1999). Brand Equity, Consumer Learning and Choice. Marketing Letters: A Journal of Research in Marketing, 10(3), 301-318. Fama, E. F., & French, K. (2008). Mutual Fund Performance. Journal of Finance, 63(1), 389-416. Feldwick, P. (1996). What is brand equity anyway, and how do you measure it? Journal of the Market Research Society, 38(2), 85-105. Fernandez, P. (2016). Company Valuation Methods. SSRN eLibrary. Fine, M. B., Gleason, K., & Budeva, D. (2016). Getting what you’re worth: Implications that affect firm value in a brand acquisition. Journal of Brand Management, 23(5), 70-96. Ismail, A. I., Rose, R. C., Abdullah, H., & Uli, J. (2010). The Relationship Between Organizational Competitive Advantage And Performance Moderated By The Age And Size Of Firms. Asian Academy of Management Journal, 15(No. 2), 157-173. Jevons, C., & Gabbott, M. (2000). Trust, brand equity and brand reality in internet business relationships: an interdisciplinary approach. Journal of Marketing Management, 16(6), 619-634. Jin-Woo, K. (2010). The Relationship between International Diversification and Global Brand Value: Is It Linear? One Way? Country-of-Origin Dependent? [Article]. Journal of Global Business Issues, 4(1), 17-25. Jordá-Albiñana, B., Ampuero-Canellas, O., Vila, N., & Rojas-Sola, J. I. (2009). Brand identity documentation: a cross-national examination of identity standards manuals. International Marketing Review, 26(2), 172-197. Keller, K. L. (1993). Conceptualizing, measuring, and managing customer-based brand equity. The Journal of Marketing, 1-22. 17
Keller, K. L., & Lehmann, D. R. (2006). Brands and Branding: Research Findings and Future Priorities. Marketing Science, 25(6), 740-759. doi: 10.1287/mksc.1050.0153 Kiley, D. (2007). Best Global Brands. BusinessWeek. Knowles, J. (2003). Value-based brand measurement and management. Interactive Marketing, 5(1), 4050. Leuthesser, L., Kohli, C. S., & Harich, K. R. (1995). Brand Equity: The Halo Effect Measure. European Journal of Marketing, 29(4), 57-66. Lin, J.-S., & Sung, Y. (2014). Nothing Can Tear Us Apart: The Effect of Brand Identity Fusion in Consumer-Brand Relationships. Psychology & Marketing, 31(1), 54-69. Madden, T. J., Fehle, F., & Fournier, S. (2006). Brands matter: An empirical demonstration of the creation of shareholder value through branding. Journal of the Academy of Marketing Science: Official Publication of the Academy of Marketing Science, 34(2), 224-235. Neumeier, M. (2006). The Brand Gap–How to Bridge the Distance Between Business Strategy and Design. New Riders: Pearson Education. Berkeley, California, USA. Pitta, D. A., & Franzak, F. J. (2008). Foundations for building share of heart in global brands. Journal of Product & Brand Management, 17(2), 64-72. Rao, V. R., Agarwal, M. K., & Dahlhoff, D. (2004). How is manifest branding strategy related to the intangible value of a corporation? The Journal of Marketing, 68(4), 126-141. Reich, R. W., Reich, K.J. (2017). Chasing Cars or Chasing Tails. Academy of Business Research Journal 2(1), 27-52. Roth, M. S. (1995). The effects of culture and socioeconomics on the performance of global brand image strategies. Journal of marketing research, 32(2), 163-175. Seetharaman, A., Azlan Bin Mohd Nadzir, Z., & Gunalan, S. (2001). A conceptual study on brand valuation. Journal of Product & Brand Management, 10(4), 243-256. Simon, C. J., & Sullivan, M. W. (1993). The Measurement and Determinants of Brand Equity: A Financial Approach. Marketing Science, 12(1), 28-52. doi: 10.1287/mksc.12.1.28 Smith, D. J., Gradojevic, N., & Irwin, W. S. (2011). An Analysis of Brand Equity Determinants: Gross Profit, Advertising, Research, and Development. Journal of Business & Economics Research (JBER), 5(11). Teixeira, A. (2014). The International Accounting Standards Board and Evidence-Informed StandardSetting. Paper presented at the Accounting in Europe. Timmerman, E. (2001). Starting from scratch: Rethinking brand image research and identifying cues and context as influential factors. Paper presented at the AP-Asia Pacific Advances in Consumer Research Volume 4. 18
Yoo, B., & Donthu, N. (2001). Developing and validating a multidimensional consumer-based brand equity scale. Journal of Business Research, 52(1), 1-14. Zeugner Roth, K. P., Diamantopoulos, A., & Montesinos, M. Á. (2008). Home country image, country brand equity and consumers’ product preferences: an empirical study. Management International Review, 48(5), 577-602.
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Factors Affecting the Quality of Independent Audit Service in Vietnam Lien Thi Huong Nguyen Vietnam National University, Hanoi Trang Thi Huyen Nguyen Vietnam National University, Hanoi William L. Hamby, Jr. Troy University ABSTRACT The quality of independent audit service has become a burning issue after a series of financial scandals during recent years. Based on literature review, in-depth interviews of audit experts, and multiple regression analysis, this research identifies factors affecting the quality of independent audit service and measures the impact of those factors on audit quality in Vietnam. The results reveal that three main factors have an impact on audit quality, including qualification of auditors, audit fee and audit firm reputation. These factors have positive relationships with the quality of independent audit services. Several recommendations are proposed to enhance the quality of independent audit service in Vietnam. Keywords: independent audit quality, audit fee, influential factors, degree of influence
Introduction Independent audit service in Viet Nam has experienced more than 20 years of establishment and development. Compared with the long history of independent audit service in the world, independent audit service in Vietnam is an emerging service sector. However, it plays an extremely important role in the market economy, particularly in the context of the stock market boom. The world has witnessed a series of financial scandals in which several audit firms have contributed to the bankruptcy of some very large corporations. Enron Corporation, one of the leading energy corporations in the US filed for bankruptcy in 2001. Arthur Andersen was bribed to hide billions of dollars of losses and debts from acquisition and failed projects. Subsequently, the leader in the telecommunications industry, WorldCom filed for bankruptcy in 2002. The bankruptcy was caused by accounting and financial statements fraud and insider trading. Arthur Andersen audited WorldCom’s financial statements, however they made mistakes in the audit process and failed to exercise due diligence. Olympus is considered one of the longest and largest loss-hiding schemes in Japan’s business history. In order to protect their shady business dealings, Olympus replaced Ernst & Young with KPMG in May 2009.
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In Vietnam, the financial scandal of Bach Tuyet Cotton Corporation in 2008 occurred because the A&C Auditing & Consulting Co., Ltd. did not fully comply with audit procedures, did not exercise due professional care and did express misleading audit opinions, which seriously impacted investor benefits. Another scandal related to Vien Dong Pharmaceutical JSC in 2011, in which Ernst & Young Vietnam did not give a true and fair view of its financial position resulted in misunderstanding for investors using the financial statements, negative impacts on businesses, audit firms and especially undermining the trust for the reliability of the audited financial statements. In general, the quality of independent audit service is not easily evaluated and measured accurately due to being affected by many impacting factors. In order to protect the benefits of investors and other stakeholders, it is necessary to identify the impacting factors on the quality of independent audit service in order to enhance the quality of independent audit service in Vietnam. However, there is little quantitative research on the factors affecting the quality of independent audit service in Vietnam. Therefore, based on the results of in-depth interviews with experts working at auditing firms, at Vietnam Association of Certified Public Accountants (VACPA) and Ministry of Finance, by using the regression model, this research has identified the influential factors and measured its impact on the quality of audit service in Vietnam.
Literature Review In general, audit quality is related to the auditor’s ability to detect material misstatements in the financial statements. DeAngelo (1981) and Watts and Zimmerman (1983) suggested that audit quality could be evaluated based on the probability that auditors detected violations of the client’s accounting system and reported these violations. Wallace (1980) suggested that audit quality would be measured by the auditor’s ability to reduce errors and enhance the truthfulness of accounting information. Palmrose (1988) and Bradshaw, Richardson, and Sloan (2001) also found that audit quality could be measured by the auditor’s ability to detect and report material misstatements in the financial statements. A second approach to research on audit quality is to evaluate the factors that impact audit quality. There have been many studies on the factors that affect the quality of independent audit service. For example, DeAngelo (1981) also concluded that there was a relationship between audit quality and audit firm size, i.e., larger audit firms provided better audit service. Lennox (1999) concluded that the audit service of large audit firms was better than the one of small audit firms. Douglas (2010) found that some audit firms reduced the audit fee in an effort to retain clients, maintain revenue growth or expand market share. This may undermine the independence of auditors and cause problems with audit quality. This research also mentioned the fact that Australian Securities and Investments Commission (ASIC) required audit firms to disclose audit fees in financial reports, and the ASIC would review significant fee reductions in relationship to significant changes in the underlying business of an audited company. Lin and Yen (2016) also found that large audit firms in China like the Big 4, which have more expertise, often charge higher audit fees for better audit service. However, State-owned enterprises in China just pay lower audit 21
fees after the adoption of International Financial Reporting Standards because they are not motivated to provide good quality financial statements. Deis and Giroux (1992) found that factors such as auditor’s tenure, management systems, scale, elements of audit clients and audit inspection can influence audit quality. In the same way, pressure, workload, and busy audit season can reduce the quality of independent audit service (López & Peters, 2012). Economic risks, operations of audit committee, legal risk, audit firm ethics, economic independence of auditor, risk of client loss, audit firm size, international standards on auditing, audit inspection and auditor rotation may help to enhance audit quality (Beattie, Fearnley, & Hines, 2013). In Vietnam, Thủy (2014) identified three factor groups affecting audit quality: external factors (including legal environment, listed companies and other factors), audit team related factors (including professional qualifications and ethics) and audit firm related factors (including audit fee, audit firm size, audit methodology, quality control system and other factors). She found that professional qualification (auditor related factors), audit firm’s quality control system (audit firm related factors) and listed company related factors (external factor) are the most influential factors that affect the quality of audited financial statements of listed companies in the Vietnamese stock market. In addition, Hoa, Pesi, Thanh, and Sang (2014) found that audit firm size and industry expertise of the auditor have positive correlations with audit quality; whereas, employee turnover and past employment with audit client have negative effects on audit quality in Vietnam. Based on domestic and foreign literature review, there are three main factor groups affecting the quality of independent audit service. The Auditor-related factor group includes the following variables: professional qualifications, industry experience, professional ethics, auditor tenure, work pressure, auditor independence, and auditor rotation. The Audit Firm-related factor group includes the following variables: audit firm size, audit firm reputation, audit fee, busy audit season, audit methodology, and audit quality control system. The Other factor group includes the following variables: economic risks, legal risk, risk of client loss, operations of audit committee, and international standards on auditing.
Research Methodology Data Sources Primary data is the results of in-depth expert interviews. The twelve experts involved in the indepth interviews are audit firms’ directors, senior auditors, audit researchers and practical experts working at Vietnam Association of Certified Public Accountants (VACPA) and the Department of Accounting Policy in the Ministry of Finance. The purpose of in-depth expert interviews is to determine the factors affecting and evaluate the degree of influence of factors that affect the quality of independent audit service in Vietnam based on five levels: (1) absolutely no effect, (2) small effect, (3) moderate effect, (4) high effect, (5) extremely strong effect. Secondary data about the number of audit firms, practicing auditors, audit firms’ employees, audit 22
clients, auditors having CPA certificate, the revenue of audit firms in the period of 2008-2013 was collected from annual operational reports of the VACPA published on their website. The sample size is 123 companies which were investigated by the VACPA during the period of 2008-2013. This data forms the basis for the independent variables for this analysis. The dependent variable, audit quality is measured based on the evaluation results of VACPA ranging from 0-100 points including the evaluation of audit planning, audit procedures and audit report of audit firms. Research Hypotheses Based on the literature review and the in-depth expert interview results, five hypotheses are established as follows: H1: Work pressure has a negative effect on the quality of independent audit service in Vietnam. H2: Auditors’ qualification has a positive effect on the quality of independent audit service in Vietnam. H3: Higher audit fees have a positive effect on the quality of independent audit service in Vietnam. H4: Audit firm reputation has a positive effect on the quality of independent audit service in Vietnam. H5: Audit firm size has a positive effect on the quality of independent audit service in Vietnam. Research Model The regression model to measure the impact of the above factors on the quality of independent auditing service in Vietnam could be described as follows: XL = ß0 + ß1AL + ß2CPA + ß3GP + ß4B4 + ß5QM Table 1 below explains how to measure the dependent variable (XL - Audit quality), and the five independent variables including work pressure (AL), auditor qualification (CPA), audit fee (GP), audit firm reputation (B4), and size of audit firm (QM). Table 1 - Description of Regression Variables Variables
Explanation (Measurement)
XL - Quality of independent audit service in Vietnam
Quality of independent audit service can be measured based on the evaluation results of VACPA ranging from 0-100 points including the evaluation of audit planning, audit procedures and audit report of audit firms. 23
Literature review
Expected relationship
AL - Work pressure
Number of clients/ Number of professional staffs
CPA - Auditor qualification
Number of professional staffs having CPA Vietnam
GP - Audit fee
Audit revenue/number of audited clients
B4 - Audit firm reputation (Big4)
Big audit firms ranked of top 10, top 20 by revenue.
QM - Audit firm The total number of employees of the size audit firm
López & Peters (2012) Thủy (2014)
Negative Positive
Douglas (2010), Thủy Positive (2014), Lin & Yen (2016) Thủy (2014) Positive De Angelo (1981), Lennox (1999), Beattie et al., (2013), Thủy (2014)
Positive
Research Results Based on the results of in-depth expert interview, the five factors determined to have the most significant impact on the quality of independent audit service in Vietnam are work pressure, qualification of auditors, audit fee, audit firm reputation (Big 4) and audit firm size. Table 2 provides the results from these in-depth interviews. Table 2 - Influence of Factors on Audit Quality in Vietnam No.
Factors
Degree of influence (scale 1-5)
1
Work pressure (AL)
3.92
2
Qualification of auditors (CPA)
3.75
3
Audit fee (GP)
3.75
4
Audit firm reputation (B4)
3.25
5
Audit firm size (QM)
3.25
The regression model using the five factors which have the most significant impact on the audit quality in Vietnam, based on the viewpoint of the experts, shows the following results: 24
XL = 0.685 - 0.05AL + 0.26CPA + 0.217GP + 0.32B4+ 0.08QM (1.39) (-0.54) (2.54) (2.02) (2.17) (0.63) 2 Adjusted R = 0.5; Durbin Watson = 1.8 The above model indicates that work pressure (AL), qualification of auditors (CPA), audit fee (GP), audit firm reputation (B4) and audit firm size (QM) can explain 50% variation in the quality of independent audit service in Vietnam. The coefficient for work pressure (AL) is negative, but it is not significant. Therefore, Hypothesis 1 cannot be accepted, even though it confirms the negative relationship in López & Peters (2012). The coefficient for the qualification of auditors (CPA) is positive and is statistically significant. Therefore, Hypothesis 2 is accepted and confirms the positive result in Thủy (2014). The coefficient for audit fee (GP) is positive and is statistically significant. Therefore, Hypothesis 3 is accepted and confirms the positive results in Douglas (2010), Thủy (2014), and Lin and Yen (2016). The coefficient for audit firm reputation (B4) is positive and is statistically significant. Therefore, Hypothesis 4 is accepted and confirms the results in Thủy (2014). The coefficient for audit firm size (QM) is positive, but it is not statistically significant. Therefore, Hypothesis 5 cannot be accepted, even though it confirms the positive relationship in DeAngelo (1981), Lennox (1999), Beattie et al., (2013), and Thủy (2014). In summary, the above regression results clearly indicate that the quality of independent audit service in Vietnam is affected by several factors including qualification of auditors, audit fee and audit firm reputation. Audit fee is considered an important and sensitive factor affecting audit quality in Vietnam because during the period 2004 - 2013, the number of audit firms in Vietnam increased rapidly. The penetration of foreign audit companies resulted in audit fee competition among audit firms. The lowering of audit fees to maintain clients may lead to omitting some audit procedures in comparison with the standard process or solving problems perfunctorily without due care of audit quality. This may result in low quality of independent audit service in Vietnam, with negative impacts on the decision making of investors and related parties.
Conclusions and Recommendations The results indicate that the qualification of auditors, audit fee, and audit firm reputation significantly impact the quality of audit services in Vietnam, as determined by the VACPA. These results provide the basis for recommendations to improve the quality of independent audit services in Vietnam. These recommendations impact auditors, audit firms, audit clients, and auditing management agencies. Auditors with the role of conducting audit are required to accumulate experience and understanding of multi-industry through practical intervention and self-study of the clients’ business industry. In addition, auditors should develop professional competence continuously, join full training course of updating professional knowledge annually, intensify integrity, independence, objectivity, high responsibility and always maintain professional skepticism attitude. 25
In order to achieve sustainable development, audit firms should change the viewpoint from competing on audit fee to competing on audit quality. On the other hand, audit firms are required to complete quality control system through the design and maintenance of effective quality control procedures, to complete training and recruitment regulations, professional ethics and closely monitor the application of these regulations. Audit clients should broaden the perspective that places an importance on the benefits of financial statements audit service, therefore, no heavy weight is put on the criterion of audit fee to select audit firm. Furthermore, audit clients should be fully aware of its responsibility and its role in coordinating with audit firms to enhance the quality of audit service, especially be responsible for the design and maintenance of effective internal control system, comply with laws, auditing standards and accounting regulations. Auditing management agencies, such as the Ministry of Finance, Vietnam Association of Certified Public Accountants (VACPA) and other relevant agencies, should strengthen quality control at the audit firms, assign more quality control personnel and shorten inspection frequency for some audit firms subject to “special controlled” so as to be able to detect errors on a timely manner, assist audit firms to learn lessons from experience and complete audit documentation. On an annual basis, VACPA should organize seminars on common mistakes detected through audit quality inspections in order to help audit firms learn from experience, avoid relapse into similar mistakes that can affect audit quality. On the other hand, management agencies should implement stricter regulations to punish violations and raise deterrence of wrongdoers through inspections. Particularly, in order to minimize unfair competition among audit firms with low-balling audit fees, VACPA should inspect compliance with the regulations of calculating audit fees as specified in independent audit law, review strictly audit quality for audit contracts having low-balling audit fee, disclose the violations and take strict measures to punish violators.
References Beattie, V., Fearnley, S., & Hines, T. (2013). Perception of factors affecting audit quality in the post-SOX UK regulatory environment. Accounting and Business Research, 43(1), 56-81. Bradshaw, M. T., Richardson, S. A., & Sloan, R. G. (2001). Do analysts and uditors use information in accruals?. Journal of Accounting Research, 39(1), 45-74. Thủy, Bùi Thị. (2014). Nghiên cứu các nhân tố ảnh hưởng tới chất lượng kiểm toán báo cáo tài chính các doanh nghiệp niêm yết trên thị trường chứng khoán Việt Nam. Luận án Tiến sĩ, Trường Đại học Kinh tế Quốc dân, . DeAngelo, L. E. (1981). Audit size and audit quality. Journal of Accounting and Economics, 3(3), 183199. Deis, D. R. Jr., & Giroux, G. A. (1992). Determinants of audit quality in the public sector. The Accounting Review, 67(3), 462-479. Douglas, N. (2010). Audit fees and maintaining audit quality. Charter, 81(7), 67. 26
Hoa, P., Pesi, A., Thanh, B., & Sang, T. (2014). A study of audit quality in Vietnam. International Journal of Business, Accounting, & Finance, 8(2), 73-110. Lennox, C. S. (1999). Audit quality and auditor size: An evaluation of reputation and deep pockets hypotheses. Journal of Business Finance & Accounting, 26(7/8), 779-805. Lin, H. L., & Yen, A. R. (2016). The effects of IFRS adoption on audit fees for listed companies in China. Asian Accounting Review, 24(1), 43-68. López, D. M., & Peters, G. F. (2012). The effect of workload compression on audit quality. Auditing: A Journal of Practice & Theory, 31(4), 139-165. Palmrose, Z. (1988). An analysis of auditor litgation and audit service quality. The Accounting Review, 63(1), 55-73. Wallace, W.A. (1980). The Economic Role of the Audit in Free and Regulated Markets. New York: University of Rochester. Watts, R., & Zimmerman, J. (1983). Agency problems, auditing and the theory of the firm, some evidence. Journal of Law and Economics, 26(3), 613-633.
Acknowledgements The research is financed by Vietnam National University, Hanoi under the project number QG.16.57.
About the Authors Dr. Lien Nguyen is a lecturer of accounting and auditing in Vietnam National University, University of Economics and Business. She received her Ph.D. in International Development Studies from Yokohama National University in 2010. She is an affiliate of Association of Chartered Certified Accountants (ACCA) and has more than 10 years of working experience in auditing and banking industry. She has participated in many short-term training courses for Vietnamese corporations on accounting system, internal audit and internal control. Her major research areas are risk-based internal audit, cost accounting, financial manipulations, and service quality of external audit. She has published in Yokohama Journal of Social Sciences (Japan), South East Asia Journal of Contemporary Business, Economics and Law (Malaysia), VNU Journal of Economics and Business, Journal of Finance and Accounting Research, and Banking Review (Vietnam). Ms. Trang Nguyen is a former student of Dr. Lien Nguyen. She received her B.A. in Accounting from University of Economics and Business at Vietnam National University, Hanoi. This project was a portion of her undergraduate thesis, which was completed in 2016. She is currently preparing for graduate studies in Japanese.
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Dr. Bill Hamby is an Associate Professor of Accounting in the Sorrell College of Business at Troy University. He earned his Ph.D. in Accounting with a minor in Statistics from the University of Alabama in 1992. He has a BS in Accounting and MIS from the University of North Alabama. He has 28 years of full-time teaching experience and has taught at the following institutions: Indiana Wesleyan University, Lincoln Memorial University, Thomas University, Saint Mary’s University (Nova Scotia), University of West Georgia, and University of South Alabama. He has served 11 years in administration as a Dean, Division Chair, Department Chair, and Director of Accreditation. His primary teaching responsibilities and research interests relate to accounting information systems, managerial accounting, business ethics, and business strategy. He has published in Academy of Business Research Journal, The Journal of American Academy of Business (Cambridge), Advances in Accounting Information Systems, Employee Benefits Journal, and CPA Journal.
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When do Students Learn? A Comparison of Face to Face, Online with Intervention, and Online Student Outcomes Drake Mullens Tarleton State University
ABSTRACT Extant literature which examines student outcomes across delivery modalities provides inconsistent findings and is criticized for methodological limitations. To overcome those limitations, I develop a model to control for initial student attributes and evaluate performance on a standardized assessment. Using a sample of 251 students in multiple sections of a capstone business course, results of regression analyses reveal that online students perform 8.94 percent higher than face to face students on standardized assessments. Online students score 15.28 percent higher than face to face students when they are provided with additional resources. This research contributes to better understanding students across delivery modality and conditions under which student outcomes can be improved.
Keywords: Distance Education, Online Learning, Student Outcomes
Introduction Historically, education was primarily delivered in a classroom setting where an instructor delivered content in a face to face format (Ponzurick et al, 2000; Summers et al., 2005). However, distance education has a long history, and with the advancement of technology, distance education is increasing in prominence. As early as the 1800s, correspondence courses were utilized in distance education (Wang, Shannon, and Ross, 2013). In the 1900s, education was delivered by radio, then by television, and finally by the internet (Bourne, 1998). In the 1990s, online courses grew rapidly (Arbaugh & Duray, 2002; Armstrong, 2011; Lim, Yoon, & Morris, 2006). As universities seeks to remain viable in a changing educational landscape, they are compelled to offer more courses online to remain accessible and reach diverse populations (Keengwe and Kidd, 2010) To that end, online courses make higher education attainable to learners who cannot or choose not to pursue an education through a traditional face to face course (Castle and McGuire, 2010). As an increasing number of students enroll in online courses, research on student outcomes in online courses has similarly increased in importance. The quality of online courses and student outcomes remains a critical issue today. Early research purported online learning enhanced learning experiences and outcomes by providing a platform for complex and varied learners to come together and benefit from the collective genius of the diverse group (Bransford, Brown, & Cocking 1999; Riel & Polin 2004; Schwen & Hara 2004; Vrasidas & Glass 2004). Additional distance education research identified the benefits of asynchronous learning environments and the associated self-reflection 29
which results in deep learning (Harlen & Doubler 2004; Hiltz & Goldman 2005; Jaffee, Moir, Swanson, Wheeler 2006). The subsequent section reviews student outcomes in online and face to face courses.
Literature Review Empirical analyses that examine student performance in online courses versus traditional face to face courses provide mixed results. Findings on student outcomes in varied delivery modes and explanations for the mixed results will be reviewed. The research will be partitioned and discussed by those that that find favorable student outcomes for online students, those that find no significant differences in student outcomes, those that find favorable student outcomes for face to face students. Enhanced Online Student Performance Navarro and Shoemaker (2000) found that online students performed as well as or better than students in traditional face to face classes and online students were satisfied with their online education. After controlling for initial student attributes, Harmon and Lambrinos (2006) noted online students’ tests scores were four points higher in a macroeconomics course. When online students are provided additional resources, like Peerwise which is an interactive tool that allows learners to collaborate without faculty intervention, online students out performed their face to face peers in a political science course (Feeley and Parris, 2012). No significant Differences in Student Performance The majority of research that assesses the relationship between delivery modality and student outcomes fails to find any significant differences in student outcomes between online and face to face students. The seminal work of Russel (1999) examined findings across 350 studies and concludes there is no significant differences in student outcomes across delivery modality. To that end, a website, nosignificantdifference.com, was established by Russel which serves as a repository for 355 research articles that examine differences in student outcomes. Of the articles contained there, 70 percent find no significant differences. Further, Means, Toyama, Murphy, and Baki (2013) compared the outcomes for 27 online courses and 23 face to face courses in a metaanalysis which included K-12, Bachelor, and Master learners. The results yield no significant effects for online versus face to face. Interestingly, Bernard (2004), in a meta-analysis, found that synchronous work resulted in better outcomes for face to face courses while asynchronous work resulted in better outcomes for distance learners. However, overall, there was not a significant in student outcomes. Enhanced Face to Face Student Outcomes In an examination of 58 online and 38 face to face students in a psychology course, Helms (2014) found online students missed significantly more grading opportunities and earned significantly lower course grades in online courses. Despite better GPAs and ACT scores of online students, Brown and Liedholm (2002) noted students performed significantly worse in online sections of a microeconomics course when compared to students in face to face sections. Xu and Jaggars (2014) 30
completed a large-scale study which examined 51,017 students in online and face to face classes. The authors controlled for initial student attributes and found that online learners completed courses at a significantly lower rate, and online students who did complete courses earned significantly lower grades than their face to face counterparts. Prior to t-tests to determine if significant differences existed between missed grading opportunities and course grades, Helms (2010) observed a significantly lower GPA for online students when compared to face to face students (2.40 vs 3.05) and significantly lower course grades for online students Integration of Disparate Findings After consideration of all empirical evidence, Larson and Sung (2009) noted that we can adequately conclude, based on the existing research, there is no significant differences in student outcomes between online and face to face delivery. However, educational research is not without criticism. Hargreaves (2007) and Phipps and Merisotis (1999) noted that research quality is insufficient which yields inconclusive findings. Others have noted the difficulty in making comparisons between online and face to face course due to the notion that assessments and the resultant grades are tailored to the mode of delivery (Zieffler et al., 2008). Observation and professional experience indicates that the exams and available resources are incongruous in face to face and online sections of the same. In the absence of proctored exams for distant learners, students have access to Google and resultant test banks for many of the popular, available texts. Further, the majority of existing research fails to randomize or control for baseline attributes (Nguyen, 2015). These limitations bring into question of existing findings. However, here is limited experimental evidence which overcomes these limitations. Figilo, Rush, and Yin (2010) sought to establish the first, as noted by the authors, experimental evidence on student outcomes of live versus online delivery with randomized assignment. When students were randomly assigned to online versus face to face delivery with all other factors held constant, student outcomes were higher for face to face delivery (Figlio, Rush, and Yin, 2010). Inconsistent findings across student outcomes could be partially consequential of the absence of the inclusion of important moderators (Carte and Russell, 2003). Herein, I seek to overcome some of the limitations with which extant research is riddled. The research endeavors to compare outcomes for face to face and online students on a standardized assessment while controlling for initial student attributes and examining moderating effects of online interventions.
Hypotheses Delivery Modality and Student Outcomes The majority of existing findings indicate that no significant differences exist between delivery modality and student outcomes. However, those with the most rigorous of controls (Xu and Jaggars, 2014; Figlio, Rush, and Yin, 2010) indicate performance differentials do exist and students in face to face courses achieve higher outcomes. Indeed, Xu and Jaggars (2014) controlled for initial student attributes with a sample of 51,017 students and observed better outcomes in face to face students. In a rare experimental setting, (Figlio, Rush, and Yin, 2010) also found significant, positive outcomes for face to face students.
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Hypothesis 1: Face to face students will score higher on the Capsim Comp-XM simulation than online students. Online Interventions as a Moderator Vastly different outcomes across a large number of studies indicates there are likely conditions under which face to face students achieve better outcomes and conditions under which online students achieve higher outcomes (Carte and Russell, 2003). As noted in her meta-analysis (Lack, 2013), some studies found online students perform better, some studies found face to face student perform better, and some studies find no differences exist which indicates identification and inclusion of moderators is important in furthering delivery modality research. I contend that online interventions (video tutorials) can reduce performance differentials between online and face to face student outcomes. Though the online intervention is comprised of video lectures which are roughly equivalent to lectures provided in class, online students can access the tutorials at their convenience and watch the tutorials multiple times to increase understanding. The available repetition is particularly important due to the complexity of the simulation and the resultant steep learning curve. Hypothesis 2: Providing online students with video tutorials on the Comp-XM Simulation will will moderate the relationship between delivery modality and student outcomes.
Figure 1: Conceptual Model
Online Interventions
+
-
Delivery Modality Student Outcomes Controls: GPA GENDER
As indicated in the conceptual model, a significant, positive relationship is expected between delivery modality (online=0, F2F=1) and student outcomes. However, online interventions moderate that positive relationship and will attenuate the performance effect between online and face to face student outcomes. 32
Methods At a regional southwestern university, data were collected on student outcomes in 13 sections of a capstone business courses, business strategy (7 face to face and 6 online) from summer 2016 to spring 2017. The sample included a total of 251 students. Within the capstone course, students completed a standardized assessment, the Capsim Comp-XM. The face to face courses are structured such that approximately half of class meetings are dedicated to the Capsim Capstone Simulation. The Capstone Simulation is completed within groups during class. Professors for the course provide direction in the Capstone Simulation. As a substitute for a final exam, students complete the Capsim Comp-XM Simulation. The Capstone Comp-XM differs from the Capstone simulation in that it is an individual assessment and completed outside of class. By using a standardized assessment, the results ensure that assessment is not tailored to the delivery mode, and evaluation of performance is not subjective to a faculty teaching in a specific delivery mode. Variables The dependent variable, Comp-XM Simulation Score, is calculated by Capsim on a standardized assessment. For all sections, the simulation is completed outside the classroom and scored by Capsim which removes any faculty subjectivity. The scores can range from 0 to 1,000 on the Comp-XM. The delivery mode was recorded by matching the Comp-XM course to course schedules for the respective terms. GPA and Gender were recorded from student records. Online interventions included five tutorials that were created on the decision-making process for select online courses that were created and presented by the faculty member teaching the course. The video tutorials ranged in length from 5 to 15 minutes and include the roughly the same content provided in a face to face lecture. Procedures Three regression models were analyzed to test the hypothesized relationships. In Model 1, the Comp-XM scores are regressed on the two control variables, GPA and gender. In Model 2, the main effect for delivery mode is assessed for delivery mode after controlling for gender and GPA. In Model 3, the moderating effect of online interventions is assessed. To parcel out the effect of the online interventions and test for moderation, the method advocated by Aiken and West (1991) was utilized which examines the individual groups. Groups were created for face to face sections, online sections, and online with intervention sections.
Results Descriptive Statistics The average GPA for all students was 3.049 (s.d. .4116). The average GPA for face to face students is 3.104 and 3.010 (difference p
