Management Accounting Section

Abstract: This study examines empirically the association between joint strategies and the design of manufacturing performance measurement systems. Drawing on data collected from production managers in 84 industrial firms, the study seeks evidence of links between the implementation of differentiation, low-cost and joint strategies in production, and reliance on efficiency, financial, and customer-focused performance measures. The results indicate the paradoxical situation where virtually all units in the sample pursue competitive advantage in differentiation yet many rely intensely on efficiency and financial measures to measure manufacturing performance. Reliance on efficiency measures is observed to be associated with the pursuit of low-cost and differentiation strategies jointly. Reliance on financial measures, on the other hand, appears to be related to differentiation and not related to the strategic importance of low cost. The findings suggest that financial measures may have a role in monitoring the financial impact of differentiation and curbing excessive differentiation. However, efficiency measures are primarily related to the extent of strategic focus on low cost and may be observed in differentiating units when differentiation is pursued jointly with low cost.
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Public and Private Forms of Opportunism within the Organization: A Joint Examination of Budget and Effort Behavior

Jeffrey W. Schatzberg and Douglas E. Stevens

Abstract: We assert that some forms of opportunistic behavior within the organization are relatively transparent and, therefore, public in nature. Further, while organizations can tightly control such public opportunism, it may not be optimal for them to do so in the presence of private opportunism. To study how public and private forms of opportunism differ and interact, we jointly examine budget and effort behavior in a participative budgeting experiment. We group participants into producer/manager pairs and set the parameters such that the producer extracts the largest share of surplus from the manager by publicly setting the budget at zero and privately providing low effort. When the producer unilaterally sets the budget, the public opportunism of budgetary slack is higher and more affected by learning than the private opportunism of low effort. Giving the manager the power to reject the budget not only reduces budgetary slack by about 50 percent, but also generates reciprocity expectations and behavior. In particular, managers who allow more budgetary slack expect and receive higher effort from their producers on average. This reciprocity increases organizational performance by increasing the expected pay of the manager without decreasing the expected pay of the producer.
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The Assignment of Decision Rights in Formal Information Systems

Mehmet Ozbilgin and Mark Penno

Abstract: Contracting theory presumes an uncontestable report on which to base required payments. We demonstrate the importance of decision rights for this central feature of the theory by examining the optimal assignment of the right to choose from a menu of ex ante identical, but noisy, performance measures. We identify conditions where a principal would strictly prefer to assign these rights to an agent even though the choice is made after the report is realized. What is surprising about the result is that neither individual has a natural advantage in making the choice, and the assignment of rights alleviates problems jointly caused by the agent's risk aversion, the principal's inability to commit to a reporting system, and a measurement system that detects shirking better than working. We also identify conditions for which the principal welcomes a larger menu of performance measures from which the principal or the agent can choose.
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Characteristics of Firms Responding to Underwater Employee Stock Options: Evidence from Traditional Repricings,
6&1 Exchanges, and Makeup Grants

Valentina L. Zamora

Abstract: I examine the characteristics of firms choosing to respond to underwater employee stock options using one of three stock-option-based responses. A traditional repricing offers a new and lower exercise price to restore the incentive alignment and retention power lost in underwater options, but is subject to potential expense recognition. A 6&1 exchange likewise restores what was lost in underwater options, but avoids potential expense recognition by delaying the issuance of replacement options until six months and one day later. A makeup grant potentially increases the total option value lost and avoids potential expense recognition, but is more dilutive since old underwater options are not cancelled. Results indicate that makeup grant firms have relatively deeper underwater options with shorter expected remaining lives. Makeup grant firms also issue these options to more non-executives compared to traditional repricing firms. I also find that while both makeup grant and 6&1 exchange firms have less insider ownership and historically report positive income more so than traditional repricing firms 6&1 exchange firms have greater overhang than makeup grant firms. Taken together, a possible explanation for these results is that firms that have more incentive alignment and/or retention power lost in underwater options prefer makeup grants that potentially increase total option value for its non-executive optionholders. However, when dilution from options is also a concern, it appears these firms may opt for a 6&1 exchange. In addition, it is possible that the choice of response is associated more with the desire to avoid recognizing option expense, rather than with potential rent extraction opportunities, as critics claim.
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The Agency Cost Effects of Unionization on Firm Value

Vic Naiker, Farshid Navissi, and VG Sridharan

Abstract: Using a sample of 99 New Zealand stock-exchange-listed firms we employ agency framework and strategy typology to examine whether introduction of unionization legislation affects value of prospector firms more negatively than defender firms. The results from this examination indicate that firms characterized by strategy of higher Growth-Diversity and Innovation-Risk (prospector firms) experience greater loss in value. We attribute the results to the higher agency costs associated with the strategies adopted by prospector firms. The results hold after controlling for variables such as size, industry membership, labor intensity, and proportion of unionized workers.
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Contracting Frame and Individual Behavior: Experimental Evidence

Bryan K. Church, Theresa Libby, and Ping Zhang

Abstract: This paper reports the results of an experiment examining the effect of the framing of incentive contracts on individual behavior. We examine two budget-based incentive contracts that, though economically equivalent, are framed differently. Previous research documents that individuals prefer bonus-framed to penalty-framed contracts (Luft 1994; Hannan et al. 2005). We explore whether these preferences affect effort expended on a task where increased effort results in increased performance. In addition, we test whether these preferences motivate effort differentially in the presence and absence of an effective financial incentive for performance. Consistent with prospect theory predictions, results indicate the penalty-framed contract motivates higher task performance than the bonus-framed contract for individuals whose performance falls within the bonus or penalty range (i.e., where financial incentives are effective in motivating performance). Performance did not differ according to contract frame for individuals whose performance enabled them to receive the maximum payment or for individuals whose performance resulted in them receiving the minimum payment (i.e., where financial incentives were not effective in motivating performance). Although prior research indicates contract framing affects contract preferences, our results indicate these preferences may not result in differences in individual performance unless effective financial incentives are also utilized.
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Interaction between Productivity and Measurement

Joel S. Demski, John C. Fellingham, Haijin H. Lin, and Douglas A. Schroeder

Abstract: Not Available
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