EC 4

Question 1

Performance measures

Answer 1

Aggregate —— Specific
Aggregate;
Stockprice

Specific;
Employee satisfaction

Question 2

Verifiability

Answer 2

The extent to which it is ex ante clear how the performance measure is calculated.

Question 3

congruence

Answer 3

The extent to which the performance measure reflects contributions to overall firm value

Question 4

Precision

Answer 4

The extent to which (the expected value) of the PM is influenced by factors outside of the control of the manager

Question 5

Sensitivity

Answer 5

The extent to which (the expected value) of the PM changes with changes in the agent’s effort

Question 6

Moers (2006)
Conclusion

Answer 6

• The association between the relative incentive use of financial performance measures and delegation of decision rights is positively affected by the relative quality of the financial performance measure.
• The extent to which firms delegate decision rights to business unit managers is determined by the quality of the financial performance measure

Question 7

Campbell (2008)
Conclusions

Answer 7

• Promotions have an incentive effect leading to improvements on non financial performance measures and those improvement are caused by both effort and learning.
• Performance on nonfinancial performance measures is incorporated in promotion decisions, implying that nonfinancial performance measures play a role in improving the matching effect of promotions.

Question 8

Abernethy (2013)
Conclusions

Answer 8

• Congruity is the most important characteristic in the context of intertemporal choice problems.
  Use of accounting return measures and nonfinancial measures induces
  managers to also put effort in actions with long(er) term impact
• The effect of ARM on reducing managerial myopia is stronger
• ARM: more attention for both medium and long-run
• NFPM: more attention for medium run