When the Boss Comes to Town: The Effects of Headquarters’ Visits on Facility-Level Misconduct

The Accounting Review, Forthcoming

50 Pages Posted: 7 Nov 2019 Last revised: 24 Nov 2019

See all articles by Jonas Heese

Jonas Heese

Harvard University - Business School (HBS)

Gerardo Perez Cavazos

Harvard University - Business School (HBS)

Date Written: November 21, 2019

Abstract

We study the effects of visits by headquarters’ managers on facility-level misconduct. These visits are central to monitoring facilities, but are difficult to observe for a large sample of firms. We use the staggered introduction of airline routes to identify exogenous reductions in travel time between headquarters and facilities as our measure of visits and test whether the reductions affect misconduct. We find that, on average, travel-time reductions decrease the number of violations by 2% and associated penalties by 23.4%, suggesting that management focuses on reducing costlier violations as opposed to simply reducing the number of violations. These effects are concentrated in firms with weaker control systems, suggesting that strong controls can act as substitutes for visits. Furthermore, the introduction of broadband internet attenuates, but does not eliminate the effect of reductions on misconduct. Finally, we find that reductions result in greater misconduct when firms are subject to performance pressure.

Keywords: Corporate Misconduct, Visits by Management, Flight Routes, Control Systems, Compliance Programs, Performance Pressure

JEL Classification: M40, M41, M46

Suggested Citation

Heese, Jonas and Perez Cavazos, Gerardo, When the Boss Comes to Town: The Effects of Headquarters’ Visits on Facility-Level Misconduct (November 21, 2019). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3476833

Jonas Heese (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan Hall 397
Boston, MA 02163
United States

Gerardo Perez Cavazos

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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