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Performance measurement manipulation: cherry-picking what to correct

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  • Anil Arya

    (The Ohio State University)

  • Jonathan Glover

    (Carnegie Mellon University)

Abstract

A common feature of managerial and financial reporting is an iterative process wherein various parties selectively correct particular measurements by challenging them and subjecting them to increased scrutiny. We model this feature by adding an agent appeal stage to the standard moral hazard model and show that it can be optimal to allow the agent to decide which performance measures to appeal, despite the agent’s incentive to cherry-pick. In the presence of measurement errors, the agent is incentivized by increased opportunities for cherry-picking that arise if he chooses the “right” vs. the “wrong” acts.

Suggested Citation

  • Anil Arya & Jonathan Glover, 2008. "Performance measurement manipulation: cherry-picking what to correct," Review of Accounting Studies, Springer, vol. 13(1), pages 119-139, March.
    • Handle: RePEc:spr:reaccs:v:13:y:2008:i:1:d:10.1007_s11142-007-9042-3
    DOI: 10.1007/s11142-007-9042-3
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