Improving Performance Measurement Systems through Managerial Rotation.

• In Event: Performance Measurement System Effects

Abstract

Imperfections in performance measurement systems prevent firms from tracking the pursuit and achievement of strategic objectives. In this study, we examine whether business unit managers, who often possess valuable information about imperfections originating from business units, recommend valuable improvements to performance measurement systems. We develop and experimentally test a research setting in which business unit managers either take advantage of imperfections at the cost of owners or recommend valuable improvements in pursuit of implicit rewards offered by owners. While owners and BU managers are not directly responsible for imperfections in our research setting, owners compensate BU managers for the opportunity costs they incur when they make valuable improvement recommendations, but their implicit rewards do not exceed these costs. We also find a significant increase in the value of BU managers’ improvement recommendations under a managerial rotation policy because it lowers the opportunity costs they incur when they make valuable improvement recommendations. We extend accounting research analyzing policies that help improve the quality of extant performance measurement systems.

Authors

• Eddy Cardinaels, KU Leuven

• Bart Dierynck, Tilburg University

• Victor van Pelt, Tilburg University