This paper examines whether boards exercise discretion to reduce costly ex post settling up of having to recover CEO cash compensation for unrealized gains that fail to materialize. We predict and support three empirical findings. First, we document greater cash pay-performance sensitivity for...

We investigate whether manufacturing practices and management accounting systems interactively affect performance. Specifically, hypothesized disordinal interactions between TQM or JIT and performance goals, performance measures, or performance-contingent rewards are tested. Support is found for...

This paper considers incentive provisions for a manager who makes investment decisions. The manager's performance measure can be based on current accounting information, cash flow, depreciation, book value, and current investment. We argue that Residual Income is the unique (linear) performance...

This paper provides a formal analysis of how managerial investment incentives are affected by alternative allocation rules when managerial compensation is based on accounting measures of income that include allocations for investment expenditures. The main result is that there exists a unique...

A number of academics, consultants and practitioners have pointed out the need to link management accounting and strategy more tightly, thus implying a more prominent role for accountants in the process of strategy assessment, control and revision. Strategic management accounting, strategic cost...

The study investigates how firms design performance evaluation systems for plant managers. These managers can be evaluated primarily on cost control or profit. Which approach to adopt can be framed as a choice to evaluate these managers primarily on one variable (cost) or two (cost and sales)....

This case study examines the application of Frontier Budget (Production) Models to a particular budgeting problem - a Dean of Arts and Science forced to trim faculty salary budgets in the light of government funding cutbacks. The study examines how the Dean implicitly employed a...

When performance measures are used for evaluation purposes, agents have some incentives to learn how their actions affect these measures. We show that the use of imperfect performance measures can cause an agent to devote too many resources (too much effort) to acquiring information. Doing so...

Using a sample of 140 managers, we investigate the use of various performance metrics in determining the periodic assessment, bonus decisions, and career paths of business unit managers. We show that the weight on accounting return measures is associated with the authority of these managers, and...

In the latest edition of Principles of Corporate Finance (Brealey, Myers and Allen, 2006) the authors use a finite cash flow example to illustrate the valuation procedure for using the Discounted Cash Flow (DCF) method with the free cash flow (FCL) and the Adjusted Present Value (APV). The two...