Journal article
The Effects of Biasing Performance Measurement Systems on Incentives and Retention Decisions
Contemporary accounting research, Vol.36(2), pp.1098-1121
07/01/2019
DOI: 10.1111/1911-3846.12461
Abstract
We examine a principal-agent setting in which the principal uses a performance measurement system for multiple purposes-to provide incentives and for retention decisions. The principal chooses the nature and extent of bias in the system, which determines whether the performance report is stringent, neutral, or lenient relative to the unobservable actual outcome. We show that when the report is used only for incentive purposes (an incentive role), stringency alleviates moral hazard. On the other hand, when the principal's objective is to minimize the cost from incorrect retention and firing decisions (a fit evaluation role), there is a demand for leniency. Surprisingly, however, we show that adding a fit evaluation role to a system serving an incentive role can accentuate the demand for stringency because stronger incentives can also indirectly improve retention decisions.
Details
- Title: Subtitle
- The Effects of Biasing Performance Measurement Systems on Incentives and Retention Decisions
- Creators
- Ramji Balakrishnan - University of IowaGeorge Drymiotes - Texas Christian UniversityKonduru Sivaramakrishnan - Rice University
- Resource Type
- Journal article
- Publication Details
- Contemporary accounting research, Vol.36(2), pp.1098-1121
- Publisher
- Wiley
- DOI
- 10.1111/1911-3846.12461
- ISSN
- 0823-9150
- eISSN
- 1911-3846
- Number of pages
- 24
- Language
- English
- Date published
- 07/01/2019
- Academic Unit
- Accounting
- Record Identifier
- 9984380390302771
Metrics
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