Investment Incentives from Goal-Incongruent Performance Measures: Experimental Evidence

Markus C. Arnold (), Robert M. Gillenkirch () and Susanne A. Welker ()
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Markus C. Arnold: University of Göttingen
Robert M. Gillenkirch: University of Göttingen
Susanne A. Welker: University of Göttingen

A chapter in Operations Research Proceedings 2006, 2007, pp 381-386 from Springer

Abstract: Abstract We analyze investment incentives of goal incongruent performance measures in an experiment in which ‘managers’ make one-period investment decisions and ‘owners’ predict these decisions. Three alternative performance measures are considered: earnings, ROI, and residual income. These measures serve as archetypes for a wide variety of measures used in practice. Standard theoretical predictions with respect to the investment incentives of earnings, ROI, and residual income are well documented, and they have become part of the management accounting education (e.g., [5]). They illustrate one of the basic principles of management accounting: ‘you get what you pay for’. As is well known, neither earnings nor ROI is a goal congruent performance measure, whereas residual income is goal congruent due to its conservation property.

Keywords: Investment Decision; Earning Manager; Rational Decision; Management Accounting; Actual Decision (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:spr:oprchp:978-3-540-69995-8_62

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DOI: 10.1007/978-3-540-69995-8_62

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