A New Look at the Longitudinal Relationship Between Motor Carrier Financial Performance and Safety

• DOI: http://doi.org/10.1111/jbl.12134
• Author: Jason W. Miller,John P. Saldanha
• Published date: 01 September 2016
• Date: 01 September 2016

A New Look at the Longitudinal Relationship Between Motor

Carrier Financial Performance and Safety

Jason W. Miller

1

and John P. Saldanha

2

1

Michigan State University

2

West Virginia University

Motor carrier safety impacts the well-being of the traveling public and the economic well-being of the shippers who entrust motor carriers

with safely transporting freight. Shippers are affected by motor carrier safety due to accidents damaging their cargo and disrupting their

customers’operations. One characteristic frequently theorized to predict motor carrier safety is motor carriers financial performance. However,

the literature offers mixed evidence linking motor carrier financial performance to safety. This does not help practitioners or policy makers and

necessitates research to resolve these inconsistent findings, which we undertake in this research. We extend previous work by developing a

theoretical framework based on strain theory to explain why both absolute (static) financial performance and year-to-year change in financial

performance should uniquely affect carrier safety. We test our hypotheses by fitting mixed-effects models to a repeated-measure, longitudinal

database of publically traded motor carrier financial performance and safety measures. Results indicate that financial performance measures

uniquely affect carrier safety. These findings attempt to resolve the inconsistencies in the past literature and, carry important implications for

researchers studying motor carrier safety, motor carrier managers, shippers, and policy makers.

Keywords: motor carriers; financial performance; safety performance; strain theory; time series; mixed-effects models

INTRODUCTION

In 2011 alone, commercial truck drivers in the United States

were involved in over 60,000 serious crashes that resulted in

over 3,750 fatalities and another 88,000 serious injuries (Federal

Motor Carrier Safety Administration 2013). Beyond the direct

loss of life, estimated at over $15 billion (Zaloshnja and Miller

2006; Corsi et al. 2014), these accidents disrupt operations of

shippers and consignees, resulting in serious economic harm

(Hendricks and Singhal 2003). In the case of the more serious

accidents that close major traffic arteries, firms beyond a given

shipper-carrier-consignee triad can be negatively impacted due to

delays and diversions (Cantor et al. 2006). As such, motor car-

rier safety is a concern for all supply chain members (Cantor

2008).

A key assumption adopted by policy makers overseeing motor

carrier safety is that carrier management practices affect motor

carrier safety (Mejza et al. 2003). This assumption is predicated

on the belief that policies and procedures implemented by man-

agement affect: (1) vehicle maintenance practices (Chow 1989),

(2) the pressures drivers face to comply with hour-of-service

(HOS) rules (Crum and Morrow 2002), and (3) how truck dri-

vers operate their vehicles, in turn influencing their propensity to

have accidents (Cantor et al. 2010). Thus, understanding the fac-

tors that shape carrier management practices is critical to improv-

ing motor carrier safety (Mejza et al. 2003). One such factor is

motor carrier financial performance (Britto et al. 2010). Scholars

have put forth a variety of arguments supported by anecdotal evi-

dence as to why carriers with better financial performance should

have higher levels of safety. These arguments predominantly

focus on the impact poor financial performance has on managers

delaying maintenance (Adams 1989; Chow 1989; Beard 1992)

and pushing drivers to work until they are excessively fatigued

(Bruning 1989; Rodr

ıguez et al. 2004).

Despite the intuitive appeal, results from empirical testing of

the relationship between financial performance and carrier safety

have been inconsistent. Rodr

ıguez et al. (2004) and Corsi (2004)

find no significant association between different financial ratios

and various safety measures tracked by the Federal Motor Carrier

Safety Administration (FMCSA). Contrary to the anecdotal evi-

dence, Hunter and Mangum (1995) find that an increase in rev-

enue per mile between 1985 and 1986 (i.e., revenue per mile

was higher in 1986) positively predicted preventable accident

rates in 1986. Furthermore, in the instances where statistical

analyses have been consistent with the anecdotal evidence, the

amount of variance in carrier safety explained by financial per-

formance is limited. For example, Corsi et al.’s (1988) models

explain less than 8% of the variance in motor carrier accidents,

whereas Britto et al.’s (2010) regression models explain less than

15% of the variance in the FMCSA’s carrier safety rankings.

Beyond the broader issue of the inconsistent findings, the low

explanatory power raises an important practical concern for prac-

titioners and policy makers: the use of financial metrics as

reliable diagnostic tools of future carrier safety (Corsi 2004).

In this research, we contribute to the literature in three key

ways. First, we develop a theoretical framework, based on the

core principles of strain theory (Agnew 1992; Agnew et al.

2009), to provide the rationale for the effect of financial perfor-

mance on carrier safety. This framework not only provides a sin-

gle unifying explanation for previous anecdotal evidence but also

suggests that the inconsistent and weak findings may have

resulted from scholars only considering absolute (static) financial

performance (e.g., return on assets), and neglecting change in

financial performance (e.g., the year-to-year change in return on

assets) as a predictor of carrier safety. As we will explain, strain

theory suggests that change in financial performance will have

Corresponding author:

John P. Saldanha, College of Business & Economics, West Virginia

University, 1601 University Avenue, Room # 309, Morgantown,

WV 26505, USA; E-mail: jpsaldanha@mail.wvu.edu

Journal of Business Logistics, 2016, 37(3): 284–306 doi: 10.1111/jbl.12134

© Council of Supply Chain Management Professionals

unique effects on safety, holding constant a carrier’s current

absolute level of financial performance. Second, we test the

unique effects of both absolute financial performance and change

in financial performance on carrier safety. Results from these

tests indicate that these measures of financial performance dis-

play unique effects on different measures of carrier safety. Third,

we depart from previous research by utilizing a repeated-mea-

sure, longitudinal design. This allows us to partition the variance

in carrier safety into firm-level and firm-occasion-level compo-

nents, which allows us to uncover the greatest source of safety

variance and target inference at this source. By leveraging this

advantage of repeated-measures data, we are able to find a stron-

ger relationship between motor carrier financial and safety perfor-

mance than seen in extant literature.

The remainder of this article is structured in five sections. The

first section summarizes the extant literature. The next section

describes strain theory and formulates our hypotheses. The third

section details the research methodology and statistical analysis.

The fourth section summarizes theoretical and managerial contri-

butions, highlights limitations, and suggests directions for future

research, which is followed by a brief conclusion.

LITERATURE REVIEW

Given the multiple stakeholders with a vested interest in safe

motor carrier operations, it is not surprising that substantial inter-

est has been directed toward understanding the relationship

between motor carrier financial performance and safety

(Rodr

ıguez et al. 2004). In the interest of parsimony, we have

summarized these studies in Table 1.

Three points from Table 1 are relevant to our investigation.

First, except for Hunter and Mangum (1995), scholars have only

examined the impact of absolute (static) financial performance on

carrier safety, neglecting the study of how changes in financial

performance affect motor carrier safety. It is critical to study the

latter effect as it provides a more complete picture of a carrier’s

current financial position. For example, consider two motor carri-

ers that have identical financial performance, which is above the

industry average. However, these carriers might have completely

different financial trajectories (i.e., one carrier’sfinancial perfor-

mance could be increasing whereas the other’sfinancial perfor-

mance could be decreasing). If scholars only test how absolute

financial performance affects safety, their model would treat

these carriers as identical when, in fact, they arguably are in dif-

ferent financial positions. We contend that the near exclusive

focus on absolute financial performance, to the exclusion of

changes in financial performance, might explain the inconclusive

results. Therefore, simultaneously examining both absolute finan-

cial performance and change in financial performance is critical

to developing a more holistic understanding of the effects of car-

rier financial performance on carrier safety.

The second point from Table 1 is that the preponderance of

this research was conducted immediately following the deregula-

tion of interstate motor carrier operations by the Motor Carrier

Act of 1980. As cautioned by Davis (2010), it is dangerous to

assume that past relationships will continue to hold given that

the institutional environment is continually evolving. Given that

we can reasonably assume that motor carriers have had time to

adjust to the shock of deregulation, the past relationship between

financial performance and safety may not hold, necessitating fur-

ther examination (Goldsby and Autry 2011). The literature com-

piled in Table 1 supports this contention that results from

statistically testing the relationship between financial performance

and safety have become more inconsistent over time—the major-

ity of the studies report significant findings in the decade follow-

ing deregulation while only half of recent studies return some

significant results.

The third point from Table 1 is that scholars have relied

exclusively on testing the relationship between financial perfor-

mance and safety using cross-sectional data. While such tests are

certainly informative, using a repeated-measures longitudinal

design gives scholars greater flexibility to study this relationship.

In particular, a repeated-measures design allows scholars to uti-

lize the mixed-effects modeling framework to partition the aggre-

gate variance in motor carrier safety into different orthogonal

sources (Singer and Willett 2003). In particular, we focus our

attention on partitioning aggregate safety variance into between-

carrier variation (i.e., stable average differences in safety across

carriers) and within-carrier variation (i.e., variation of an individ-

ual carrier’s safety around its average). This partitioning allows

us to tailor the modeling process by structuring measures of

financial performance such that they explain the largest source of

variance in motor carrier safety (Hoffman 2015). Apart from its

statistical advantages, a longitudinal approach is theoretically

appealing because it provides greater understanding of the finan-

cial performance-safety relationship vis-

a-vis cross-sectional

designs that cannot distinguish between these sources of variance

(Fitzmaurice et al. 2011).

THEORETICAL FRAMEWORK & HYPOTHESIS

DEVELOPMENT

As alluded to in the introduction, one of the gaps in this liter-

ature is that a theoretical framework has yet to be articulated

to explain why motor carrier financial performance should

affect motor carrier safety. While scholars have noted that

poor financial performance may cause managers to reduce

maintenance expenditures (Adams 1989; Beard 1992), push

drivers to work faster or longer (Bruning 1989; Rodr

ıguez

et al. 2004), and/or accept shipments that cannot be delivered

within time windows without violating speed or HOS rules

(Ouellet 1994), this anecdotal evidence has yet to be united

under a single framework. More importantly, such a frame-

work should specify fundamental assumptions about human

behavior necessary to articulate the mechanisms explaining the

relationship between motor carrier financial performance and

motor carrier safety (Steel 2004; Morgan and Winship 2007).

This is consistent with arguments from organizational theory

that researchers investigating organizational-level phenomena

should explicate the underlying mechanisms (i.e., processes)

that are assumed to induce the observed phenomena (Whetten

1989; Staw 1991; Stinchcombe 1991; Sutton and Staw 1995;

Haig 2005; Greve et al. 2010). We present such a theoretical

framework building on strain theory, one of the dominant the-

ories in criminology and sociology to explain illegal behavior

(Merton 1938; Agnew 1992).

Motor Carrier Fin. & Safety Performance 285