Journal of Business and Behavioral Sciences Volume 23, Number 1 issn 1946-8113 Spring 2011 inthis issue

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In contrast to the enabling bureaucracies, Adler and Borys (1996)

organizational type was typified by highly formalized rules and regulations, high specialization, decisions made through the chain of command, and centralized authority and top-down command intent on extracting, as necessary, forced compliance and efforts of the workers (Adler and Borys, 1996; Robbins, 2003; Mintzberg, 1979, 1983).

Coercive bureaucracies, modeled after the classic bureaucratic model of
Max Weber (1947), were analogous to the callous mechanistic organizational
pattern represented by McGregor‘s (1960) Theory X. The managerial leaders of
this bureaucracy were not genuinely concerned about the growth needs of
employees, they were more task-oriented than relationship-oriented, and they did
not trust their employees. Rigidly following the rules does not leave much room
for being creative. Employees felt alienated as they were being treated

inhumanely like machines, and were being denied individual autonomy. Imbalance of power that existed in coercive bureaucracies led to arbitrary and concealed decisional actions (Clawson, 1980; Jin, 2000; Sjoberg, Vaughan, and Williams, 1984).

Table 2 presents the results of factor analysis of organizational value characteristics of only mechanistic organizations. Factor loadings of 0.50 or greater are bolded. In order to explore the hypothesis of two types of mechanistic organization, the factor analysis included only organizations where mechanistic characteristics were predominant relative to organic characteristics. Further, the factor analysis was restricted to extract only two factors in order to be consistent with the Adler and Borys‘ model. Our preliminary empirical finding is that the enabling cluster seems to be represented by such organic values as collaborative, encouraging, equitable, relationship-oriented, safe, sociable, stimulating, and trusting. The coercive cluster seems to be signified by such organizational value characteristics as challenging, driving, pressurized, power-oriented, risk-taking, and results-oriented. A closer examination of these

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Jin, Drozdenko and Deloughy

The above analysis suggests that, as seen in the Adler and Borys‘ (1996) typology, we view mechanistic organizations as consisting of two types: first, the autocracy, which represents small top-down authoritarian, yet decentralized organic firms; second, the coercive bureaucracy which is of the large centralized mechanistic organization variety. Likewise, it further suggests that we also regard the organic organizations as having both the pure organic type, which Mintzberg (1983) called ―adhocracy,‖ and the enabling bureaucratic type.

The enabling bureaucracies would represent large bureaucratic organizations that combine standardization (mechanistic) with decentralization (organic). This may explain why some mechanistic organizational values in Table 2, such as hierarchical, procedural, regulated, and structured, are either evenly distributed between the enabling and coercive value clusters or do not seem to describe the coercive bureaucratic group only. The results of data analysis in Table 2 based on only mechanistic organizations seem to identify only the enabling bureaucracies in terms of organic values distinctively; by logic, the rest of the organizations not identified by organic values may be either autocracies or coercive bureaucracies.

FURTHER RESEARCH

Beyond the scope of this paper, we are planning to analyze the national sample data we collected on financial professionals, using the theoretical framework for the typology of organizations conceived by Adler and Borys (1996). That is, we will perform the data analysis in terms of not only the degree of formalization but also the type of formalization. The degree of formalization will determine the extent of the bureaucratic standardization, rule and regulations; the type of formalization (top-down command or authoritarian control or forced compliance vs. bottom-up decentralized authority and democratic and humanistic) will discern the enabling and coercive types of organizations. We have already identified the question items in our financial professional survey instrument that can be used as operationalized measures for these two dimensions.

As an extension of our previous ethics and corporate social responsibility research (Jin and Drozdenko, 2003, 2009; Jin, Drozdenko, and Bassett, 2007), we will delve into the empirical investigation of differences between the financial professionals we surveyed recently in 2009 and information technology professionals with respect to the relationships among organizational core values, ethics, social responsibility, and organizational performance. We are very much interested in determining the differences among the different types of organizations, especially between the enabling and coercive bureaucracies and

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While our data seem to support the existence of the typologies discussed in the literature, we can only speculate on the growth dynamics of each type. Future research could examine the hypothesis that organizations evolve from small pure organic organizations or from Mintzberg‘s (1979) adhocracies to enabling bureaucracies. The adhocracies (organic), which are highly democratic, humanistic, enterprising, and dynamic, are exemplified by professional production groups (e.g., TV or Play) and by the initial pioneer groups of Microsoft and Google. Likewise, we might hypothesize that autocracies or small authoritarian firms, characterized by such organizational values as enterprising, power-oriented, and risk-taking, may grow into a variety of coercive bureaucracies. It is also possible that a coercive bureaucracy gradually transforms itself into an enabling bureaucracy, and vice versa. In this sense, there is a rational ground for looking at the typology of organizations as the continuum of these dimensions rather than in discrete categories. To conduct this research it is necessary to have longitudinal data.

Our empirical investigations support the existence of the classic two types of organizations, i.e., organic and mechanistic, and, on a preliminary basis, of enabling and coercive bureaucracies. This will be further verified by our future extended investigation based on the survey data we have just collected in terms of type and degree of formalization. It is expected that our research will build on the previous studies by such researchers as Adler and Borys (1996) and Mintzberg (1976, 1983). It is hoped that our extended empirical investigations will contribute to the enlightenment and enhanced understanding of the real nature of the typology of organizations.

Adler, P. S., & Borys, B. (1996). Two Types of Bureaucracy: Enabling and

Coercive. Administrative Science Quarterly, 41, 61-89. Clawson, D. (1980). Bureaucracy and the Labor Process. New York: Monthly

Review Process. Jin, K. G. (2000). Power-Based Arbitrary Decisional Actions in the Resolution of

MIS Project Issues: A Project Manager‘s Action Research Perspective.

Systemic Practice and Action Research, 13, 345–390. Jin, K. G., & Drozdenko, R. (2003). A Study of the Effect of Mechanistic and

Organic Organizational Values on the Ethical Attitudes of U.S. Direct

Marketing Managers. Business & Professional Ethics Journal, 22, 43-66. Jin, K. G., & Drozdenko, R. (2009). Relationships among Perceived

Organizational Core Values, Corporate Social Responsibility, Ethics, and

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Information Technology Professionals. Journal of Business Ethics,

Springer, DOI 10.1007/s10551-009-0158-1 Jin, K. Gregory, Ronald, D., & Bassett, R. (2007). Information Technology

Professionals‘ Perceived Organizational Values and Managerial Ethics:

An Empirical Study. Journal of Business Ethics, 71, 149–159.
McGregor, D. (1960). The Human Side of Enterprise. New York:

. McGraw-Hill.

Mintzberg, H. (1979). The Structuring of Organizations. Englewood Cliffs, NJ:

Prentice-Hall. Mintzberg, H. (1983). Structure in Fives: Designing Effective Organizations.

Englewood cliffs, NJ: Prentice-Hall. Robbins, S. P. (1993). Organizational Behavior. Englewood Cliffs, NJ:

Prentice-Hall. Sjoberg, G., Vaughan, T. R., & Williams, N. (1984). Bureaucracy as a Moral

Issue. The Journal of Applied Behavioral Science, 20, 441-453. Weber, M. (1947). The Theory of Social and Economic Organization. Glencoe,

IL: Free Press.

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Journal of Business and Behavioral Sciences Vol 23, No 1; Spring 2011

Allama Iqbal Open University, Pakistan

University of Central Punjab

This study examines the choices of financing patterns used in sugar industry and their effect on financial performance. Data used in empirical analysis for listed companies on ―KSE‖ for the period from 1995 to 2004 (10 years). To capture the firm specific effect, fixed effect model has been used. Results show that the industry is 73 percent financed by debt (51 percent Short term and 22 percent long term) Equity financing is only 27 percent. Short term and long term debt have statistically significant negative relationship with profitablility. Theoretically optimal use of debt financing, increase the return on assets due to tax shield advantage but no such evidence found from the analysis. Number of firms are running with negative equity, net profit before taxes is highly volatile and on average industry earned zero return during the sample period. The analysis indicates sub optimal use of debt in capital structure. Constant increase in assets base and sales growth but zero profit before tax distrust the disclosure of accouting information in published accounts.

Financial performance of a corporation is an important consideration for existing and prospective investors. Corporate survival depends on financial performance. A successful corporation is beneficial for all stake holders. Financial performance has close link to financing decisions. This paper focuses the financing behavior of sugar industry of Pakistan and industry‘s performance analysis. Financing may be arranged through equity or debt or a combination of both. Numbers of theories have been developed (Modigliani and Miller 1958, 1963), (Miller 1977) on financing decisions. Theoretically, Firms follow trade off between tax advantage and the costs of financial distress that arises due to borrowing. However Mayer (1984) observed in his study that firms follow pecking order in selection of securities for financing. Debt to equity ratio is a matter of corporate financing policy. Target debt ratios may vary from industry to industry (Baxter 1967 and Altman (1984, 2002). Jose M. C. and E.L have studied the relationship between capital structure and profitability of the Brazilian firms. They have concluded that in short run there was a positive

Shah and Hijazi

relationship between debt and profitability. However, in the long urn there was inverse relationship between debt and profitability. When companies borrow money, they have to observe a fixed schedule of payments. It requires making payment of principle and interest amount on regular intervals. But borrowing is supported by the argument of getting leverage (more benefit than cost) due to tax shield, hence increasing return on equity. If a company borrows more than its cash flows capacity, firm‘s risk of bankruptcy increases. In other words firm‘s ability to service debt is less than debt load. When the risk of bankruptcy starts to increase then the value of the firm starts to decrease. Theorists argues that debt component in the capital structure should be used in such a way that its benefit is more than its cost. Rajan and Zingales (1995) found a negative relationship of leverage and profitability in G-7 countries except in Germany where positive relationship was found. Antoniu, Guney and Paudyal (2002) found an inverse relationship among profitability and leverage only in France and UK. This study evidences that in bank borrowing countries, tangible assets play important role in borrowing. Tangible assets based industries have more borrowing ability as their assets serve as collateral and lender feel relatively safe, however, the trade off theory argues optimal debt level so that it increases value of firm. Frank and Vidhan (2005) found a negative relation between profitability and leverage. Hijazi. S and Y.B Tariq (2006) found negative relationship between profitability and leverage in their study on cement sector of Pakistan. Korajczyk and Levy (2003) argue that ―both macroeconomic conditions and firm specific factors have an effect on firms financing choices.‖ Antoniou et al, (2002) find that financing decisions are influenced by the environment within which the company is operating besides its internal characteristics. The author pointed out number of external environmental factors like, size of banking sector, presence of stock market, and state of economy. Capital Market in Pakistan is less developed and corporate sector more rely on bank loan (shah 2007).

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Journal of Business and Behavioral Sciences

component is 22 percent. This shows more reliance on short term debt

profitability ratio shows on average zero return on investment during sample period with the variation 12 percent. Tangible assets on average are 61 percent with the variation of 20 percent. Theoretically, firms with higher optimal level of debt financing should increase return on equity and strengthen the firm financially. But sugar industry‘s worst financial position (negative equity) indicates suboptimal use of debt. Normally companies go for long term debt financing besides equity financing and less relay on short term debt so that the firm need not to arrange debt after every short term interval. One reason that my be assigned to more short term financing and less long term debt and equity percentage is the industry‘s weak financial position where lender and investors have no confidence on industry‘s long run performance and have a fear of loosing money. For further analysis we look at the trends through graphical presentations (Annexure-A) of the industry‘s investment in assets (expansion), growth in sales, owner‘ equity, short term and long term debt, operating profits and profit before taxes over the sample period. Industry assets show an increasing trend, it almost doubled during the sample period that shows an expansion in industry. This expansionis is mostly financed through short term and long term debt. Sales also show an increasing trend during sample period. When assets base increased, and sales increased, why profit could not increase? It is a question mark, yet to be answered. This situation makes the accounting information in published accounts as doubtful. Operating profit trends are highly volatile, there could be instability in operating expenses and if we look at the profits before taxes, it seems to be managed in spells; one spell of profit is offset by the other spell of loss hence averaged to zero profit for tax purposes. Operating and other expenses need thorough scrutiny to bring industry in tax net and profit sharing with minority shareholders. This will bring efficiency in financial performance and attract investors, hence industry will flourish and society would be able to get benefits.

Table-2 shows regression results of fixed effect model where profitability has statistically significant negative relationship with short term debt as well as long term debt of the industry. This shows when borrowing increases either through short term or long term the industry suffer losses. Although debt financing affects the profitability negatively, but it explains changes in profitability only 28 percent. Other factors also affect the profitability. Graphical analysis indicate increased operating expensis as one of the reasons of low profitability. When operating expenses are unjustifiably increased, the existing owners get private benefits and deprive off the minority shareholder from their due benefit and to government cause losses in term of taxes. The analysis raised the question on disclosure of accounting information.

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