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Journal of Management
Accounting Research
2005, Volume 17
Contents
On the Use of Customized versus Standardized Performance Measures
Anil Arya
Jonathan Glover
Brian Mittendorf
Lixin Ye
Abstract:Despite the influx of measures which can be customized to the
demands of each business unit (e.g., customer satisfaction surveys and
quality indices), many firms have been dogged in their reliance on
standardized measures (e.g., conventional financial metrics) in
performance evaluation. In this paper, we consider one justification:
though customized measures may more accurately target the goals of a
particular unit, standardized measures may offer more meaningful
opportunities for relative performance evaluation. Standardized
measures have a commonality in errors which is naturally absent among
measures targeted to each circumstance. This commonality allows
learning about one measure from another and, thus, the construction of
more efficient proxies for unobservable employee inputs. The use of
comparative evaluation schemes is not without its challenges, since it
may induce unwanted coordination by those being evaluated. Even with
such gaming concerns, standardized measures can still be preferred, but
the requirements are more stringent.
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The Retention of Nonfinancial Performance Measures in Compensation Contracts
Hassan R. HassabElnaby
Amal A. Said
Benson Wier
Abstract:This study empirically investigates firms' decisions to
retain the use of nonfinancial performance measures as part of the
compensation contracts following their initial implementation. Using
three-stage regression and survival analysis, we provide explanations
for the decision to retain the use of nonfinancial performance measures
after controlling for possible endogeneity. Based on a sample of firms
that used nonfinancial measures during the period 1993?998, we find
that the appropriate match of nonfinancial measures and firm
characteristics and subsequent enhanced performance are crucial factors
in deciding whether a firm will retain nonfinancial performance
measures in compensation contracts. The analyses provide evidence that
the effects of significant firm characteristics on the decision to
retain nonfinancial performance measures are time invariant while the
effects of performance are time variant during the study period. The
results suggest that adverse performance is a reflection of a
nonoptimizing initial adoption decision of nonfinancial performance
measures while the decision to discard their use in light of the
unfavorable performance is an indication of an optimizing decision.
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Influence Costs and Implementation of Organizational Changes
Michal Matejka
Anja De Waegenaere
Abstract:We present an economic model of the process that leads to a
decision to implement a change. We argue that the decision gives rise
to influencing efforts as privately informed agents attempt to affect
the decision to their benefit. The decision maker trades off the
information benefits and costs of influencing by imposing a limit on
the agents' efforts. Our analysis of this trade-off yields the
following insights. First, it is rational to approve initiation of a
change, but later to reject its implementation. Second, firms with
potentially high influence costs are more likely to reject initiation
of a change. Third, it is often better to risk implementing an
undesirable change than to allow costly collecting of all relevant
information.
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Optimal Performance Measures with Task Complementarity
Anthony D. Nikias
Steven Schwartzstrong
Richard A. Young
Abstract:This study examines optimal performance measures under moral
hazard where a risk neutral agent with limited liability is assigned
two interdependent tasks. Task interdependency, or complementarity, is
captured by assuming that when the agent provides high effort on one
task, it affects the probability of success on a second task. Two
performance measures are considered, disaggregate and aggregate. The
relative benefit of aggregate performance measures derives from the
agent's uncertainty about compensation when performing the second task.
The relative benefit of disaggregate measures arises because it
produces more information about the agent's actions on each task. The
comparative advantage of aggregate measures is maximized for relatively
independent tasks and diminishes with strong positive or negative
complementarity. Endogenous task assignment is then explored. The
principal can bundle the two tasks together and assign them to a single
agent, maintaining the effects of task complementarity, or unbundle the
tasks and assign each to a different agent, eliminating the effect of
task complementarity. The inclination to avoid negative task
complementarity increases the likelihood, conditional on bundling the
tasks, that the principal prefers aggregate performance measures.
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Cost Considerations in Optimal Capacity Acquisition: An Option Pricing Approach
Dileep G. Dhavale
Abstract:The optimal capacity choice is a tradeoff between the costs
of shortage and excess capacity. This paper models the costs as the
prices of an infinite number of European call and put options maturing
continuously over the planning horizon. This approach allows a firm to
consider the benefits of flexibility arising from delaying the
acquisition of some capacity to a later time when more information
about stochastic demand becomes available. The firm can then adjust the
capacity to meet exact demand by purchasing in the spot market or
reselling in the salvage market. The model determines optimal capacity
by minimizing acquisition and capacity adjustment costs. I compare the
model to extant models and discuss some special situations. Qualitative
sensitivity analysis describes the impact of changes in model
parameters on the optimal capacity. A Monte Carlo simulation compares
this model with other models and results show that the Option Pricing
model results in the lowest operating cost for all scenarios
considered. A substantially simplified version of the model, which does
not require complete understanding of option pricing methods, also
performs well under certain conditions.
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Opportunity Costing Decision Heuristics for Product Acceptance Decisions
Robert A. Leitch
Patrick R. Philipoom
Timothy D. Fry
Abstract: Full-cost heuristics have been proposed as proxies for
opportunity costs in order acceptance decisions. We continue this
investigation by considering the effect of different levels of
stochastic product demand, lead-time allowances, variations in product
cost structure, and the balance of workstation capacity, on the
efficacy of the full-cost heuristic compared to other accounting based
heuristics. We use simulation to consider a common job shop where order
arrivals are stochastic and capacity acquisition takes place prior to
demand realization. We find that the full-cost heuristic performs well
when lead-time allowances are long and the shop is balanced. However,
deviations from these conditions can lead to a reduction in its
usefulness and better performance by other accounting heuristics.
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Cross-Sectional Field Studies in Management Accounting Research - Closing the Gaps between Surveys and Case Studies
Anne M. Lillis
Julia Mundy
Abstract: While empirical researchers in management accounting
frequently address overlapping research issues using a variety of
methods, there is little evidence of productive dialogue addressing the
uncertainties and ambiguities raised within each stream of research.
For example, survey researchers frequently call for deeper field-based
insights into conflicting or ambiguous findings. Case study researchers
convey rich organizational stories of management accounting in context.
However, these fieldbased findings are rarely used to resolve the
ambiguity in construct definition, measurement, and inter-relationships
that plague our empirical research bases. In this paper we seek to
regenerate interest in a method that has been implemented in the past
to promote productive field-based dialogue on issues related to complex
constructs and their interrelationships. The method is best illustrated
by the cross-sectional field study approach adopted by Merchant and
Manzoni (1989) to study budget target achievability. By considering the
Merchant and Manzoni (1989) study as well as two other examples (Bruns
and McKinnon 1993; Abernethy and Lillis 1995) we identify the range of
questions suited to this method and how the method contributes
significant insights to the management accounting literature. We also
articulate the design attributes of cross-sectional field studies by
explicitly linking the rationale for these studies with the complexity
of the phenomenon under study, sampling logic, instrument design, and
data analysis protocols. The insights produced from the relatively few
published studies using a cross-sectional field study method suggest
that opportunities for the application of this method may be
underexploited.
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