An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Chee W. Chow
San Diego State University

James M. Kohlmeyer III
East Carolina University

Anne Wu
National Chengchi University

Abstract: Innovation often requires taking on increased levels of risk. Yet, while firms usually have large enough portfolios of projects to diversify away project-specific risk, employees have far less ability to do so. As a result, a major challenge to firms is increasing employees’ willingness to adopt risky yet more profitable alternatives. This study uses an experiment to test how the existence and level of performance standard, per se, affect employees’ propensity to take on (more) risky projects. Using subjects from the U.S. and Taiwan to represent higher vs. lower individualism national cultures, it also examines the effects of national culture on employee actions. The findings are consistent with expectations from combining goal and prospect theories that a specific high standard motivates greater risk taking than a low standard, or no standard at all.

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