Honesty presents a challenge in performance reporting

__Abstract__ New research into the honesty of business unit managers when reporting performance shows that they have a tendency to overstate results when financial rewards are at stake

How can auditors avoid the perils of aggressive accounting?

How do you solve a problem like aggressive accounting? With some difficulty, some management teams and their external auditors might argue. Especially if they cannot agree on: (a) just what constitutes aggressive accounting; (b) whether or not aggressive accounting is inherently a bad thing, and (c) whether it manifests itself more in one kind of management/auditor relationship than it does in another

Utilizing Incentives and Accountability: In Control in Control?

Objectivity and transparency are often considered to be desirable attributes of a performance measurement and incentive system. Subjectivity, on the other hand, is typically equated with bias and has a negative connotation. But accounting research shows us that a degree of subjectivity, in other words, allowing leeway for supervisors’ judgments in evaluations, is usually optimal. I argue that we should switch to the term ‘discretion’, to be better able to communicate its benefits. Moreover, I discuss the benefits and costs of discretion and of transparency. I surmise that a balance between objectivity and discretion is required, and that transparency is definitely not always desirable. Furthermore, I discuss how discretion relates to the way in which managers are held accountable. Holding managers accountable for outcomes is not always optimal, yet pervasive. Finally, I outline future research opportunities on discretion and accountability, apply the insights about performance measurement to the academic working environment, and promote the use of new research methods

Performance Measurement and Managerial Time Orientation

De accounting literatuur besteedt aanzienlijke aandacht aan de effecten van accounting prestatiemaatstaven op korte-termijn gedrag. Recentelijk is ook de aandacht voor het gebruik van niet-financiële maatstaven, om korte-termijn gedrag onder managers te voorkomen, toegenomen (Balanced Scorecard). Zowel theorie als empirisch bewijs hierover zijn echter beperkt. De bestaande literatuur heeft korte-termijn gedrag veelal gelijkgesteld aan dysfunctioneel gedrag, terwijl de optimale tijdsoriëntatie afhangt van de omstandigheden. Verder lijdt de bestaande literatuur aan een gebrek aan theorie over welke karakteristieken van prestatiemaatstaven van invloed zijn op de tijdsoriëntatie van managers. Dit uit zich bijvoorbeeld in het gebruik van brede categoriëen prestatiemaatstaven, zoals financieel en niet-financieel, zonder een nadere specificatie van het proces waardoor deze categoriëen het gedrag van het management beïnvloeden. Dit proefschrift bouwt voort op de psychologische, economische en accounting literatuur, en analyseert de effecten van karakteristieken van het prestatiemeetsysteem, alsmede variabelen op individueel niveau, op de tijdsoriëntatie van managers. De ontwikkelde hypothesen zijn eerst empirisch getoetst door middel van een vragenlijst, gedistribueerd onder een representatieve groep financieel managers. Daarnaast is een drietal geselecteerde hypothesen, aangaande de gecombineerde effecten van ‘leading indicators’ en de lengte van de evaluatieperiode, aan een aanvullende test middels een experiment onderworpen. De resultaten tonen aan dat zowel variabelen op individueel niveau als karakteristieken van het prestatiemeetsysteem belangrijke voorspellers van de tijdsoriëntatie van managers zijn.The accounting literature has devoted a considerable amount of attention to the effects of accounting performance measures on short-term behaviour. Recently, the attention for the use of non-financial measures, as an instrument to prevent managers from making short-term oriented decisions, has also increased (Balanced Scorecard). Theory and empirical evidence, however, are limited. Prior literature has often equated a short-term orientation with dysfunctional behaviour, whereas the optimal time orientation depends on the circumstances. Moreover, the literature to date suffers from a lack of theory about which properties of the performance measurement system affect managerial time orientation. This is apparent for example by the use of broad categories of performance measures, such as financial versus non-financial, without further specification of the process through which this categorization influences managerial behaviour. This dissertation builds on the psychological, economic and accounting literatures, and examines how properties of the performance measurement system, as well as individual level variables, influence managerial time orientation. The hypotheses developed are first empirically tested using the data obtained by means of a survey from a representative sample of financial managers. Second, an additional experimental investigation into three selected hypotheses, regarding the effects of leading indicators and evaluation period length, is conducted. Results indicate that both individual level variables and properties of the performance measurement system are important predictors for managerial time orientation

Informed discretion in performance evaluations

A study into managerial behaviour relative to compensation decisions for individual performances reveals that most managers are driven by powerful, non-selfish motives that include a strong preference for fairness

Attracting non-executive directors to the board

Companies that are performing poorly from a commercial perspective and are struggling to tap into the advice and guidance of well-qualified non-executive directors need to consider new board members’ intrinsic motivations and the potential for enhancing their reputation if they are to improve the effectiveness of their board

Discussion of "Managers' Discretionary Adjustments: The Influence of Uncontrollable Events and Compensation Interdependence"

In this discussion of Bol, Hecht and Smith (this issue; BHS), I examine their theory and experimental setting with the purposes of investigating how their study generalizes and identifying further research possibilities. First, I discuss the uncontrollable events the study addresses, which are influenceable and require innovative effort to prevent adverse effects. What follows next is an analysis of experimental design choices and their implications. In particular, results could be specific to the manipulation of event likelihood, as well as to the properties of the objective bonus system and form of subjectivity. This illustrates how evaluation system design properties can create diverse reference points and affect perceived fairness and discretionary adjustments. Together, these points indicate wherein the contribution of BHS lies, and provide an outline for future research opportunities by suggesting alternative research choices