Dynamic incentives and dual-purpose accounting

Ongoing employment relationships often give rise to implicit, dynamic incentives. We describe the implications of implicit incentives when firms use information about both an employee's past performance and his future productivity in a two-period agency model. We show that when an accounting sy...

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Bibliographic Details
Published inJournal of accounting & economics Vol. 42; no. 3; pp. 417 - 437
Main Authors Feltham, Gerald, Indjejikian, Raffi, Nanda, Dhananjay
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.12.2006
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Accounting and Economics
Subjects
Accounting
Accounting measures
Accounting methods
Accounting systems
Economic models
Employment
Financial incentives
Incentives
Multi-period
Performance management
Productivity incentives
Productivity measurement
Studies
Accounting measures
Incentives
J33
M41
Multi-period
L22
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Summary:Ongoing employment relationships often give rise to implicit, dynamic incentives. We describe the implications of implicit incentives when firms use information about both an employee's past performance and his future productivity in a two-period agency model. We show that when an accounting system serves these dual objectives, an employee's implicit incentives may be beneficial or detrimental to the firm. As a consequence, firms may prefer an accounting system that reports a single metric that combines information about past performance and future productivity, over one that reports two distinct metrics, one for each purpose.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0165-4101
1879-1980
DOI:10.1016/j.jacceco.2006.04.007