This paper uses an experiment to investigate the effects of giving subordinates the possibility to return remaining budget to the organization on capital budgeting processes. We predict and find that when subordinates face no uncertainty when they submit their budget request, the possibility to...

Employees’ skill development is key to organizations’ competitiveness in a global, knowledge-based economy. Prior research in accounting, however, has mainly focused on the effects of management control instruments on the provision of transitory effort, thereby treating employee ability as...

This study investigates when and why intra-year bonus target revisions occur. This is important as intra-year target revisions occur regularly in practice but are not well understood. Specifically, we analyze two potential drivers of intra-year bonus target revisions: reduced managerial...

Stock-option programs (SOPs) became the dominant compensation instrument for top management in the nineties. Usually, they are not dividend-protected, i.e., any dividend payout decreases the value of a manager's options. Empirical evidence shows that this results in a significant decrease in the...

This experimental study investigates the use of audits as a control instrument in capital budgeting processes and factors that contribute to audit efficiency (or inefficiency) in a repeated relationship. We disentangle reputational aspects of superiors and subordinates from an increased social...

In an experiment, we model two stylized facts about capital budgeting practice, budgetary slack creation and delegation of decision-making authority. In our setting, under centralization, headquarters announces a budget, the division manager gives a cost report, and headquarters decides on the...