Access the full text.
Sign up today, get DeepDyve free for 14 days.
Loading next page...
/lp/wiley/leading-indicator-variables-performance-measurement-and-long-term-fym57JjsjE
References (30)
-
Bushman Bushman, Indjejikian Indjejikian (1993)
Accounting Income, Stock Price and Managerial CompensationJournal of Accounting & Economics, 16
-
Datar Datar, Kulp Kulp, Lambert Lambert (2001)
Balancing Performance MeasuresJournal of Accounting Research, 39
-
Che Che, Hausch Hausch (1999)
Cooperative Investments and the Value of ContractingAmerican Economic Review, 89
-
Ittner Ittner, Larcker Larcker, Rajan Rajan (1997)
The Choice of Performance Measures in Annual Bonus ContractsThe Accounting Review, 72
-
Hauser Hauser, Simester Simester, Wernerfelt Wernerfelt (1994)
Customer Satisfaction IncentivesMarketing Science, 13
-
Chiappori Chiappori, Macho Macho, Rey Rey, Salanie Salanie (1994)
Repeated Moral Hazard: The Role of Memory Commitment, and the Access to Credit MarketsEuropean Economic Review, 38
-
Kim Kim, Suh Suh (1993)
Incentive Efficiency of Compensation Based on Accounting and Market PerformanceJournal of Accounting & Economics, 16
-
Ittner Ittner, Larcker Larcker (1998b)
Are Nonfinancial Measures Leading Indicators of Financial Performance? An Analysis of Customer SatisfactionJournal of Accounting Research, 6
-
Lambert Lambert (2001)
Contracting Theory and AccountingJournal of Accounting & Economics, 32
-
Ittner Ittner, Larcker Larcker (1998a)
Innovations in Performance Measurement: Trends and Research ImplicationsJournal of Management Accounting Research, 6
-
Anctil Anctil, Dutta Dutta (1999)
Negotiated Transfer Pricing and Divisional vs. Firm‐Wide Performance EvaluationThe Accounting Review, 74
-
Bebchuk Bebchuk, Fried Fried, Walker Walker (2001)
Managerial Power and Rent Extraction in the Design of Executive Compensation ContractsUniversity of Chicago Law Review, 69
-
Banker Banker, Datar Datar (1989)
Precision, Sensitivity and Linear Aggregation of Signals for Performance EvaluationJournal of Accounting Research, 75
-
Holmstrom Holmstrom (1979)
Moral Hazard and ObservabilityBell Journal of Economics, 10
-
Nagar Nagar, Rajan Rajan (2001)
The Revenue Implications of Financial and Operational Measures of Product QualityThe Accounting Review, 76
-
Salanie Salanie, Rey Rey (1990)
Long‐Term, Short‐term and Renegotiation: On the Value of Commitment in ContractingEconometrica, 58
-
Dikolli Dikolli (2001)
Agent Employment Horizons and Contracting Demand for Forward‐Looking Performance MeasuresJournal of Accounting Research, 39
-
Jensen Jensen, Murphy Murphy (1990)
Performance Pay and Top Management IncentivesJournal of Political Economy, 98
-
Dutta Dutta, Reichelstein Reichelstein (2002b)
Controlling Investment Decisions: Depreciation and Capital ChargesReview of Accounting Studies, 7
-
Fudenberg Fudenberg, Tirole Tirole (1990)
Moral Hazard and Renegotiation in Agency ContractsEconometrica, 58
-
Wagenhofer Wagenhofer (2003)
Accrual‐Based Compensation, Depreciation and Investment IncentivesEuropean Accounting Review, 12
-
Bushman Bushman, Indjejikian Indjejikian, Smith Smith (1995)
Aggregate Performance Measures in Business Unit Manager Compensation: The Role of Intrafirm InterdependenciesJournal of Accounting Research, 33
-
Smith Smith (2003)
Gaming the Balanced ScorecardJournal of Management Accounting Research
-
Sliwka Sliwka (2002)
On the Use of Nonfinancial Performance Measures in Management CompensationJournal of Economics and Management Strategy
-
Tirole Tirole (1999)
Incomplete Contracts: Where Do We Stand?Econometrica, 4
-
Reichelstein Reichelstein (2000)
Providing Managerial Incentives: Cash Flows versus Accrual AccountingJournal of Accounting Research, 5
-
Banker Banker, Potter Potter, Srinivasan Srinivasan (2000)
An Empirical Investigation of an Incentive Plan that Includes Non‐Financial Performance MeasuresThe Accounting Review, 27
-
Feltham Feltham, Xie Xie (1994)
Performance Measure Congruity and Diversity in Multitask Principal‐Agent RelationsThe Accounting Review, 69
-
Paul Paul (1992)
On the Efficiency of Stock‐Based CompensationReview of Financial Studies, 5
-
Fudenberg Fudenberg, Holmstrom Holmstrom, Milgrom Milgrom (1990)
Short‐Term Contracts in Long‐Term Agency RelationsJournal of Economic Theory, 51
- Publisher
- Wiley
- Copyright
- Copyright © 2003 Wiley Subscription Services, Inc., A Wiley Company
- ISSN
- 0021-8456
- eISSN
- 1475-679X
- DOI
- 10.1046/j.1475-679X.2003.00125.x
- Publisher site
- See Article on Publisher Site
Abstract
ABSTRACT In this article we develop a multiperiod agency model to study the role of leading indicator variables in managerial performance measures. In addition to the familiar moral hazard problem, the principal faces the task of motivating a manager to undertake “soft” investments. These investments are not directly contractible, but the principal can instead rely on leading indicator variables that provide a noisy forecast of the investment returns to be received in future periods. Our analysis relates the role of leading indicator variables to the duration of the manager's incentive contract. With short‐term contracts, leading indicator variables are essential in mitigating a holdup problem resulting from the fact that investments are sunk at the end of the first period. With long‐term contracts, leading indicator variables will be valuable if the manager's compensation schemes are not stationary over time. The leading indicator variables then become an instrument for matching the future investment return with the current investment expenditure. We identify conditions under which the optimal long‐term contract induces larger investments and less reliance on the leading indicator variables as compared with short‐term contracts. Under certain conditions, though, the principal does better with a sequence of one‐period contracts than with a long‐term contract.
Journal
Journal of Accounting Research – Wiley
Published: Dec 1, 2003