Changing Course Leads Duanping Hong to Accounting

Duanping Hong, Accounting Katz PhD
Tuesday, May 16, 2017

For Duanping Hong, a PhD student at the University of Pittsburgh Joseph M. Katz Graduate School of Business, accounting is a match. “I was at the University of Utah studying for a PhD in life sciences, and decided to shift my studies to accounting,” he says. “There were not that many good career options in the life sciences and I wanted to pursue an area that better aligned with my interests.”

Hong had already earned a master’s in accounting from Utah, and decided to pursue a PhD in Accounting at Katz. “Accounting fits my personality,” Hong says. “And I wanted to study how companies make optimal decisions.”

At Katz, Hong’s area of research is managerial accounting, specifically how companies use control mechanisms like executive compensation and oversight by the board of directors. “The types of questions I examine in my research are focused on how various control mechanisms may affect decisions made by employees, especially by executives of public companies. What impact does it have on the firm’s overall performance?” Hong says.

In his dissertation, Hong analyzed the impact that a CEO’s decision to hold unconstrained company stock has on the firm’s performance. His advisors include Mei Feng, Associate Professor of Business Administration and John Harry Evans III, Katz Alumni Professor of Accounting and Area Director for Accounting.

“Unconstrained stock is stock owned by a CEO that is vested and can be sold. CEOs who hold unconstrained stock are exposing themselves to increased risk because their portfolio lacks diversification,” Hong says.

Based on a theoretical model, Hong generated two hypotheses in his dissertation:

  1. If a CEO holds more unconstrained stock, then he is less likely to sell it in the future.
  2. If a CEO holds more unconstrained stock, then his firm will perform better in the future.

Analyzing compensation data of CEOs from S&P 1500 firms, Hong’s results showed patterns consistent with both of his hypotheses. He found that if a CEO holds more unconstrained stock, the CEO will sell less stock in the future, and that if a CEO holds more unconstrained stock, then the firm’s future performance will be better.

Hong is also working on a second study with Evans and Eric Chan (Katz PhD '15), an assistant professor of accounting at McCombs School of Business, University of Texas at Austin. The paper examines promotion tournaments and how the actions of a non-promoted executive may impact firm performance. “Very few prior studies have examined the dark side of promotion tournaments,” Hong says. “We focus on negative consequences that may arise after the tournament process.”

Specifically, the team has investigated tournaments for the promotion of managers to chief operating officer (COO). They find that companies typically do not increase non-promoted executives’ pay after the promotion, that turnover among non-promoted executives subsequently increases, and that firm performance subsequently decreases because of the loss of key executive talent. The paper is currently being revised for resubmission to a top accounting journal.

Hong has accepted a position at Kennesaw State University in Atlanta, where he will be teaching in fall 2017.