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Assessing the performance of business unit managers

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Author Info
Bouwens, Jan
Lent, Laurens van (Tilburg University, Center for Economic Research)

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Abstract

Using a sample of 140 managers, we investigate the use of various performance metrics in determining the periodic assessment, bonus decisions, and career paths of business unit managers. We show that the weight on accounting return measures is associated with the authority of these managers, and we document that both disaggregated measures (expenses and revenues), and non-financial measures play a greater role as interdependencies between business units increase. The results suggest separate and distinct roles for different types of performance measures. Accounting return measures are used to create the proper incentives for managers with greater authority, while disaggregated and non-financial measures are employed in response to interdependencies.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 92.

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Date of creation: 2006
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Handle: RePEc:dgr:kubcen:200692

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M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Scott, Thomas W. & Tiessen, P., 1999. "Performance measurement and managerial teams," Accounting, Organizations and Society, Elsevier, vol. 24(3), pages 263-285, April. [Downloadable!] (restricted)
  2. Christie, Andrew A. & Joye, Marc P. & Watts, Ross L., 2003. "Decentralization of the firm: theory and evidence," Journal of Corporate Finance, Elsevier, vol. 9(1), pages 3-36, January. [Downloadable!] (restricted)
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  3. Rachel M. Hayes & Scott Schaefer, 2000. "Implicit Contracts and the Explanatory Power of Top Executive Compensation for Future Performance," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 273-293, Summer.
  4. Christie, Andrew A., 1990. "Aggregation of test statistics : An evaluation of the evidence on contracting and size hypotheses," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 15-36, January. [Downloadable!] (restricted)
  5. Jerold L. Zimmerman, 1997. "Eva And Divisional Performance Measurement: Capturing Synergies And Other Issues," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(2), pages 98-109. [Downloadable!] (restricted)
  6. Ittner, Christopher D. & Larcker, David F., 2001. "Assessing empirical research in managerial accounting: a value-based management perspective," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 349-410, December. [Downloadable!] (restricted)
  7. Ittner, Christopher D. & Larcker, David F. & Randall, Taylor, 2003. "Performance implications of strategic performance measurement in financial services firms," Accounting, Organizations and Society, Elsevier, vol. 28(7-8), pages 715-741. [Downloadable!] (restricted)
  8. Scott Keating, A., 1997. "Determinants of divisional performance evaluation practices," Journal of Accounting and Economics, Elsevier, vol. 24(3), pages 243-273, December. [Downloadable!] (restricted)
  9. Wruck, Karen Hopper & Jensen, Michael C., 1994. "Science, specific knowledge, and total quality management," Journal of Accounting and Economics, Elsevier, vol. 18(3), pages 247-287, November. [Downloadable!] (restricted)
  10. Rogerson, William P, 1997. "Intertemporal Cost Allocation and Managerial Investment Incentives: A Theory Explaining the Use of Economic Value Added as a Performance Measure," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 770-95, August.
  11. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
  12. Gordon, Lawrence A. & Narayanan, V. K., 1984. "Management accounting systems, perceived environmental uncertainty and organization structure: An empirical investigation," Accounting, Organizations and Society, Elsevier, vol. 9(1), pages 33-47, January. [Downloadable!] (restricted)
  13. Gul, Ferdinand A. & Chia, Yew Ming, 1994. "The effects of management accounting systems, perceived environmental uncertainty and decentralization on managerial performance: A test of three-way interaction," Accounting, Organizations and Society, Elsevier, vol. 19(4-5), pages 413-426. [Downloadable!] (restricted)
  14. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
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  15. Zimmerman, Jerold L., 2001. "Conjectures regarding empirical managerial accounting research," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 411-427, December. [Downloadable!] (restricted)
  16. Raith, Michael, 2004. "Specific Knowledge and Performance Measurement," CEPR Discussion Papers 4262, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  17. Chenhall, Robert H., 2005. "Integrative strategic performance measurement systems, strategic alignment of manufacturing, learning and strategic outcomes: an exploratory study," Accounting, Organizations and Society, Elsevier, vol. 30(5), pages 395-422, July. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Acemoglu, Daron & Aghion, Philippe & Lelarge, Claire & Van Reenen, John & Zilibotti, Fabrizio, 2006. "Technology, Information and the Decentralization of the Firm," CEPR Discussion Papers 5678, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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