Management Accounting Section Midyear Meeting

Reporting Frequency and Learning by Experience

• In Event: Incentives and Compensation IV

Abstract

This paper investigates how reporting frequency affects employee experiential learning in a discretionary evaluation setting. Employees learn by either exploring new knowledge or exploiting existing knowledge. Depending on the reporting system, supervisors may be unable to distinguish unsuccessful exploration from shirking as the cause of a low result because exploration frequently produces low outcomes. Employees are therefore uncertain whether supervisors will reward effort invested in exploration. As a result, employees explore less than optimal. Increasing reporting frequency increases supervisor ability to distinguish unsuccessful exploration from shirking. Therefore, supervisors are more likely to reward effort invested in exploration and punish shirking. I predict that employees will anticipate this and explore more when reporting frequency is higher. Results from a controlled laboratory experiment support the prediction that supervisors are more likely to observe effort invested in exploration and reward that effort when reporting frequency increases. However, employees do not anticipate the supervisors’ bonus allocation pattern and do not explore more when reporting frequency increases.

Author

• Razvan Stefan Ghita, University of Amsterdam