Performance Measures and Intra-Firm Spillovers: Theory and Evidence
| Authors/Editors: |
Bouwens, Jan Hofmann, Christian van Lent, Laurence |
|---|---|
| Published: | 2018 |
| Type: | Articles in Refereed Journals (International) |
| Published by: | Journal of Management Accounting Research |
| Additional information: | 30 (3) 2018, 117-144 |
Abstract
We revisit the question of how performance measures are used to evaluate business unit managers in response to intra-firm spillovers. Specifically, we are interested in variation in the relative incentive weightings of aggregated "above-level" measures (e.g., firm-wide net income), "own-level" business unit measures (e.g., business unit profit), and specific "below-level" measures (e.g., R&D expenses) in response to spillover arising from either the focal unit's effect on other business units or the other units' effect on the focal unit. Our theory highlights complementarity between above- and below-level measures and the existence of an interaction between the two directions of spillovers. Based on a survey of 122 business unit managers, we report evidence consistent with an interaction effect and with complementarity between above- and below-level measures. In particular, we show that firms increase the weighting on both of above- and below-levels measures when they are coping simultaneously with high levels of spillovers on other units and spillovers from other units.