Determinants and consequences of budget reallocations

We investigate the determinants and consequences of budget reallocations, i.e., corrective actions to the budget made during the year. Using proprietary data of a large consumer goods manufacturer, we analyze the extent to which allocation decisions regarding the initial budget drive subsequent reallocations. Whenever scarce resources need to be allocated among a number of individuals, power struggles and politicking behavior are likely to arise, which potentially affects the outcome of the allocation process. We hypothesize and find that one important driver of reallocation decisions is the firm's aim to correct for systematic deviations from the optimal initial budget allocation that are driven by successful lobbying activities during the initial budgeting process. In a more exploratory analysis, we show that such reallocations do not have the desired effects on market-place performance. In particular, budget cuts are negatively associated with a product's change in market share. More surprisingly, while budget boosts do help product lines internally to achieve their sales targets in the last quarter, they do not have a (positive) effect on the change in market share. Most importantly, our results demonstrate that efficient investment planning ex ante is essential to achieve an improvement in market-place performance, highlighting the value of budgeting.Series: Department of Strategy and Innovation Working Paper Serie

Financial and non-financial performance measures and managerial short-term orientation: the interactive effect of performance targets

In this paper, I examine the incentive effects of both performance measures and performance targets and the linkages between these two components of the incentive system. Furthermore, I examine the theoretical claim that non-financial performance measures provide subordinate managers with incentives to be long-term oriented. Finally, I examine the role of risk aversion in setting performance targets. The empirical results show that the short-term orientation of subordinate managers increases (decreases) with the difficulty of financial (non-financial) performance targets but is not related to the use of either financial or non-financial performance measures for incentive purposes. Further, the difficulty of financial (non-financial) performance targets increases with the use of financial (non-financial) performance measures for incentive purposes, which suggests that performance measures have an indirect effect on managerial behavior. Finally, the relationship between the use of performance measures and performance target difficulty is moderated by the risk aversion of the manager. That is, the relationship is less positive the higher the manager’s risk aversion, which implies that superiors take the risk imposed on the manager into account when setting targets.accounting and auditing ;

The Role of Performance Measure Characteristics in the Design of Incentive Systems: An Empirical Analysis

In this paper, I derive three general performance measure characteristics from the literature that are theoretically related to the use of performance measures, i.e., (1) the impact that a manager has on performance (sensitivity), (2) the impact that uncontrollable factors have on performance (controllability), and (3) the degree to which the performance measure is objective and verifiable (measurement accuracy). I empirically examine the effect of information asymmetry and the performance measure characteristics on the use of three types of performance measures. Furthermore, I examine how two types of uncertainty, i.e., task uncertainty and environmental uncertainty, affect information asymmetry and performance measure characteristics. The major finding of this study is that sensitivity is positively related to the use of all three types of performance measures, while measurement accuracy is positively related to two out of these three types of performance measures. Controllability, on the other hand, does not have the proposed positive effect on any of the performance measures examined. These results suggest that sensitivity and measurement accuracy play an important role in designing incentive systems, while controllability seems to play no role.accounting and auditing ;

Multi-detection and polarisation contrast in scannning near-field optical microscopy in reflection

A new type of NSOM probe has been developed, with a design based o­n the probes used in Atomic Force Microscopy. The probe consists of a cantilever with at its end a conical tip. This tip has been metal-coated to provide an aperture. With the cantilevered probe, the problem of breaking of the tip due to high normal forces is solved. In operation, the tip is scanned in contact with the sample while regulating the force between the tip and the sample with a beam deflection technique, which allows to simultaneously make an optical and a topographical image of the sample. The probes are made using micromechanical techniques, which allows batch fabrication of the probes. Testing of the probes is done in a transmission NSOM set-up in which the sample is scanned while the tip and the optical path are kept fixed. Using an opaque sample with submicron holes, the new probes have been tested, resulting an optical image with a simultaneously measured topographical image

Detection of fluorescence in situ hybridization on human metaphase chromosomes by near-field scanning optical microscopy

Fluorescence in situ hybridization signals o­n human metaphase chromosomes are detected by a near-field scanning optical microscope. This makes it possible to localize and identify several fluorescently labeled genomic DNA fragments o­n a single chromosome with a resolution superior to traditional fluorescence microscopy. Several nucleic acid probes have been used. The hybridization signals are well resolved in the near- field fluorescence images, and the exact location of the probes can be correlated to the topography as it is afforded by the shear-force feedback

How calibration committees can mitigate performance evaluation bias: An analysis of implicit incentives

While prior research on performance evaluation bias has mainly focused on the determinants and consequences of rating errors, we investigate how a firm can provide implicit incentives to supervisors to mitigate these errors via its calibration committee. We empirically examine the extent to which a calibration committee incorporates supervisors' evaluation behavior with respect to their subordinates in the performance evaluation outcomes, i.e., performance ratings and promotion decisions, for these supervisors. In our study, we distinguish between lack of skills and opportunism as two important facets of evaluation behavior, which we expect the calibration committee to address differently. Using panel data of a professional service firm, we show that supervisors' opportunistic behavior to strategically inflate subordinates' performance ratings is disciplined through a decrease in the supervisors' own performance rating, while the supervisors' skills to provide less compressed and thus more informative performance ratings is rewarded through a higher likelihood of promotion.Series: Department of Strategy and Innovation Working Paper Serie

An Empirical Analysis of the Role of Risk Aversion in Executive Compensation Contracts

This paper empirically tests the principal-agent model prediction that the use of performance measures for incentive purposes is affected by the agent’s risk aversion. We find that the use of both accounting and market performance measures in executive compensation contracts decreases as the level of risk aversions increases. We further find that agent-specific characteristics, i.e., risk aversion, become more important in designing executive compensation contracts when performance measures are less useful due to measure-specific characteristics.Economics ;