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Employment horizon and the choice of performance measures: empirical evidence from annual bonus plans of loss-making entities

Matĕjka, Michal, Merchant, Kenneth A and Van der Stede, Wim (2009) Employment horizon and the choice of performance measures: empirical evidence from annual bonus plans of loss-making entities. Management Science, 55 (6). pp. 890-905. ISSN 0025-1909

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Abstract

We examine the extent to which employment horizon concerns affect the relative emphasis on financial versus nonfinancial performance measures in annual bonus plans. We argue that managers of loss-making firms are likely to voluntarily or forcibly depart in the near future and, consequently, have a shorter employment horizon. Loss-making firms then need to increase the emphasis on forward-looking nonfinancial performance measures to motivate long-term effort of their managers. Thus, we hypothesize that the emphasis on nonfinancial performance measures is greater in loss making than in profitable firms even after controlling for the informativeness of earnings. We find consistent support for our hypothesis using different (archival, survey, and field) data sources and various proxies for short employment horizon and the emphasis on nonfinancial performance measures.

Item Type: Article
Official URL: http://www.informs.org/site/ManSci/
Additional Information: © 2009 Institute for Operations Research and Management Sciences (INFORMS)
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Sets: Departments > Accounting
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 01 Jul 2009 15:26
URL: http://eprints.lse.ac.uk/24365/

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