Determinants of divisional performance evaluation practices

Determinants of divisional performance evaluation practices I investigate factors affecting firms' uses of three types of performance metrics to evaluate division mangers: division accounting metrics, firm accounting metrics and firm stock price. Survey data reveal that division accounting metric use increases with the divisions' industry's price–earnings correlation and decreases with divisional growth opportunities; firm accounting metric use increases with the manager's impact on other divisions and decreases with growth opportunities and other managers' impact on that division; and firm stock price use increases with relative division size and the correlation between firm stock returns and market-wide returns. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Determinants of divisional performance evaluation practices

Journal of Accounting and Economics, Volume 24 (3) – Dec 31, 1997

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Publisher
Elsevier
Copyright
Copyright © 1997 Elsevier Science B.V.
ISSN
0165-4101
DOI
10.1016/S0165-4101(98)00008-1
Publisher site
See Article on Publisher Site

Abstract

I investigate factors affecting firms' uses of three types of performance metrics to evaluate division mangers: division accounting metrics, firm accounting metrics and firm stock price. Survey data reveal that division accounting metric use increases with the divisions' industry's price–earnings correlation and decreases with divisional growth opportunities; firm accounting metric use increases with the manager's impact on other divisions and decreases with growth opportunities and other managers' impact on that division; and firm stock price use increases with relative division size and the correlation between firm stock returns and market-wide returns.

Journal

Journal of Accounting and EconomicsElsevier

Published: Dec 31, 1997

References

  • Business unit innovation and the structure of executive compensation
    Holthausen, R.W.; Larcker, D.F.; Sloan, R.D.

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