The Effects of Biasing Performance Measurement Systems on Incentives and Retention Decisions

• 成果类型: Article
• 署名作者: Balakrishnan, Ramji; Drymiotes, George; Sivaramakrishnan, Konduru
• 署名单位: University of Iowa; Texas Christian University; Rice University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12461
• 发表日期: 2019
• 页码: 1098-1121
• 关键词: implicit contracts; INFORMATION; WEALTH; ceo

摘要

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.