The Informativeness of Relative Performance Information and Its Effect on Effort Allocation in a Multitask Environment

Prior research documents that providing relative performance information (RPI) motivates employees to increase effort; however, a potential downside of RPI is that it also motivates employees to distort their effort allocations between tasks such that it can be detrimental to overall firm performance. This study investigates via an experiment how the informativeness of RPI affects employees' effort allocations and performance in a multitask environment. We investigate the informativeness of two RPI design choices that are observed in practice: detail level and temporal aggregation. Regarding detail level, firms may provide each employee's performance ranking on tasks, which is less informative than providing the actual performance score of each employee. Regarding temporal aggregation, firms may provide RPI that is reset each period, which is less informative than RPI that is based on cumulative performance. We find RPI detail level and temporal aggregation interact to influence effort distortion. Specifically, we find that, compared to reset RPI, cumulative RPI leads to greater distortion of effort away from firm‐preferred allocations and that this effect is magnified when RPI provides actual performance scores rather than performance rankings. Finally, high levels of effort distortion hurt overall performance, thereby demonstrating the potentially detrimental effect of effort distortion on performance. Results of our study enhance our understanding of how firms can use their control over the design of RPI to enhance its usefulness in directing employees' effort in multitask environments by highlighting the role that informativeness of information can have on employee behavior.     

Honor Among Thieves: Open Internal Reporting and Managerial Collusion

Firms have increasingly adopted open work environments. Although openness is thought to have benefits, it could also expose firms to an unanticipated cost. An open (closed) internal reporting environment makes it more (less) likely that managers will observe a colleague's communications with senior executives. This increase in what one manager knows about another manager's communication to senior executives could facilitate employee collusion to extract resources from the firm. To test whether internal reporting openness results in more collusion, we conduct an experiment in which two managers each make separate reports to the firm about cost information they know in common but that remains unknown by the firm. Because both managers face the same truth‐inducing contract, conventional economic theory predicts that they will not collude to misreport costs regardless of reporting openness. However, using behavioral theory involving trust and reciprocity, we predict and find that managers honor their nonbinding collusive agreements and successfully collude more often in an open versus closed internal reporting environment, leading to lower firm welfare in the open environment. These results suggest that firms should consider how the cost of collusion compares to the benefits of openness.     

Managers' Discretionary Adjustments: The Influence of Uncontrollable Events and Compensation Interdependence

Discretionary bonus adjustments allow managers to restore the alignment of employee effort and compensation when bonus amounts are based on noisy objective performance measures. The implications of discretionary adjustments for employees' future efforts and fairness perceptions present important trade‐offs for managers to consider. Adjustments may be used to motivate different types of effort in future periods, but may also create perceptions of unfairness among employees who are not affected by negative events. This study examines the joint influence of the likelihood of future negative uncontrollable events and compensation interdependence (i.e., the extent to which one employee's compensation influences others' compensation) on managers' willingness to make adjustments for the effect of a negative uncontrollable event on a single employee. In our experiment, we manipulate the likelihood of future uncontrollable events and whether bonuses are determined individually or are drawn from a shared bonus pool. Results show that managers are less willing to adjust when the likelihood of future events is high to avoid setting a precedent, thereby motivating employees to adapt to changing conditions. We also find that managers are less willing to adjust, regardless of event likelihood, when compensation interdependence is high, to avoid demotivating unaffected employees. Finally, we find that participants' general attitudes toward compensation significantly influence their adjustment decisions beyond the effects of our independent variables. Our results highlight the unique nature of discretionary adjustments, help explain findings from previous research, and demonstrate important considerations managers must make when using the flexibility provided to them in pay‐for‐performance contracts.     

Technology licensing and collusion

This paper considers the possibility of technology licensing via fixed-fee, royalty or two-part tariff and tacit collusion between firms that produce homogeneous goods under asymmetric cost structures and compete in quantities. In contrast to Lin (1996), all forms of licensing facilitate (obstruct) collusion, if the initial cost difference between the firms is relatively less (more). Technology will always be licensed, and the optimal form of licensing is either fixed-fee or royalty or two-part tariff, but collusion may or may not be possible post-licensing. Welfare decreases after licensing if the firms collude only after licensing but not collude under no-licensing.     

Evidence of Choice Avoidance in Capital‐Investment Judgements*

Evaluating capital‐investment decisions is an important function of managerial accountants. There is anecdotal evidence, however, that managers avoid making decisions or delay decisions, which is costly in terms of time, effort, and lost opportunities. Prior research has shown that choice avoidance among nonprofessionals making personal decisions is associated with having to choose between alternatives with very different features or that require trade‐offs of very important goals (choice difficulty). It is unclear, however, whether experienced managers, using the analytical decision tools at their disposal, respond in the same way as nonprofessionals when making accounting decisions. Hence, this study examines whether increased choice difficulty increases negative affect in the capital‐investment decision‐making process and, as a result, the tendency of managers to avoid choice even when analytical decision tools are used. In an experiment with 120 executives, participants facing more difficult decisions reported they felt more worried, nervous, uneasy, and anxious and had a greater desire to postpone making the decision than participants in a control group. Participants provided with a decision aid designed to help them focus their cognitive effort reported a lower desire to postpone making the decision than participants in the choice‐difficulty conditions without the decision aid. I conclude by discussing the result's implications for managers and accountants.     

Managerial Discretion and Task Interdependence in Teams

This study investigates whether task interdependence in teams alters the effectiveness of managerial discretion in motivating team performance. Teams are particularly useful when employees' tasks are interdependent—that is, when the degree to which the increase in team performance resulting from a team member's effort depends on the effort and skills of the other team members. The reason is that the more interdependent tasks are, the more employees need to coordinate their actions and help one another to achieve their objectives. Prior research analyzing settings where task interdependence is absent suggests that providing managers with discretion over team bonus allocation can improve team performance relative to equal team bonus allocations because it strengthens the link between contributions to team output and rewards. Economic theory suggests that managerial discretion will also improve team performance when task interdependence is present and information is efficiently used. However, we use behavioral theory to predict that managerial discretion is less effective in the presence of task interdependence, because managers do not fully incorporate all relevant information into bonus decisions and because managerial discretion hurts coordination and helping, which is particularly problematic under task interdependence. We find that while discretion over compensation has a positive effect on team performance relative to equal bonus allocation when task interdependence is absent, it has a negative effect when task interdependence is present. Additional analyses provide support for our underlying theory. Results of our study contribute to both theory and practice by suggesting that, ironically, managerial discretion may be most useful when the potential benefits of employing teams are lowest and least useful when the potential benefits are highest. Our results help explain why firms often grant managers only partial or no discretion over team members' compensation.     

Do community-sanctioned social pressures constrain microenterprise growth? Evidence from a framed field experiment

We conduct a framed lab-in-field experiment to explore the hypothesis that a number of stylized facts about microenterprise behaviour in developing countries – including product market homogeneity and lack of growth and innovation – can be explained by a social institution in which microentrepreneurs share the market to “buy a job.” 280 present or prospective market trader women across four communities in rural Vietnam are anonymously randomized into pairs to play three “market game” treatments. The interactions are framed to simulate real-world retail market competition. The participants compete in an effort task, with performance determining market returns. A highly incentivized individual round allows us to extract a measure of individual “ability” in the effort task. The subjects then compete in successive treatments, where in the final treatment the losing participant in a round can elect to “burn” their competitor’s output, which is framed as the application of social pressure. The behavioural responses are significant and fitting with a theoretical model of the social institution we have in mind: even though subjects are from the same community they are willing to punish (“apply social pressure”), the probability of punishment is increasing in the gap in ability in the pair, and this leads to a decrease in performance from higher-ability individuals. The study provides an example of the use of framed lab experiments to shed light on market behaviour in developing countries, for which full-blown RCTs may face serious feasibility or ethical challenges.     

Why factors facilitating collusion may not predict cartel occurrence — experimental evidence

Factors facilitating collusion may not successfully predict cartel occurrence: When a factor predicts that collusion (explicit and tacit) becomes easier, firms might be less inclined to set up a cartel simply because tacit coordination already tends to go in hand with supra-competitive profits. We illustrate this issue with laboratory data. We run n-firm Cournot experiments with written cheap-talk communication between players and we compare them to treatments without the possibility to talk. We conduct this comparison for two, four, and six firms. We find that two firms indeed find it easier to collude tacitly but that the number of firms does not significantly affect outcomes with communication. As a result, the payoff gain from communication increases with the number of firms, at a decreasing rate.     

创新自我效能感对员工关联绩效的影响：组织支持感的调节作用

当组织中的员工对在工作中能否取得创新的方法和创造性的成果的信念有着清晰的认知时,是否会影响他们的关联绩效?另外,当员工对组织支持有不同程度的感知时,其影响程度会一样吗?通过随机样本调查方式,获取了安徽省境内三个城市中261名企业研发人员的有效问卷。层次回归分析结果表明,创新自我效能对关联绩效存在显著的正向预测作用且组织支持感在两者的关系中起到了正向的调节作用。     

Motivating Employees with Goal-Based Prosocial Rewards*

A recent trend in organizations is to motivate employees with goal-based prosocial rewards, whereby employees must donate their rewards to charities upon goal attainment. We examine the motivational effects of goal-based prosocial rewards versus cash rewards under different levels of goal difficulty. We develop our hypotheses based on affective valuation theory, which posits that when valuing uncertain outcomes by affect rather than calculation, individuals are largely insensitive to changes in probability of the outcomes, including probability of goal attainment. Experiment results support our hypotheses. Specifically, we find that employees who are rewarded with prosocial (vs. cash) goal-based rewards are more likely to adopt an affective valuation approach. Consequently, when employees are assigned either an easy goal or a stretch goal, their effort is higher when incentivized with a goal-based prosocial reward than a cash reward. Furthermore, there is a less curve-linear relationship between goal difficulty and effort with prosocial (vs. cash) goal-based rewards. These findings highlight for incentive system designers the motivational advantage of goal-based prosocial rewards relative to traditional cash rewards. Furthermore, we extend the academic literature by showing how affect-rich rewards such as prosocial rewards can influence employees' assessment of the probability of goal attainment.     

禀赋来源和框架影响人们的分配行为吗——基于Dictator game的实验研究

文章运用Dictator game将禀赋的来源和不同的框架结合起来,研究这两种因素对人们分配行为的共同影响。禀赋的来源是指通过努力或者运气得到初始禀赋,不同的框架是指根据Dictator分配自己挣得的禀赋或者分配接受者挣得的禀赋,分为给予和拿取两个不同的框架。实验结果表明：1）禀赋的来源对人们的分配行为存在显著的影响;2）在通过努力挣得初始禀赋的情况下,强化了人们应得权利的意识,从而激发了框架对人们分配行为的影响;在靠运气得到初始禀赋的情况下,并没有这种强化作用,从而框架的影响并不显著。实验结果论证了微观行为会受社会情境的影响,即微观个体是受社会因素影响的适度社会化的人。另一方面,实验结果揭示了相对运气挣得的财富,人们更加认可通过努力挣得的财富,即在分配问题上人们更倾向于支持机会平等,更加支持勤劳致富。     

Do Auditors Accurately Predict Litigation and Reputation Consequences of Inaccurate Accounting Estimates?

To effectively manage audit risk, auditors must correctly predict the potential litigation and reputation consequences associated with inaccurate accounting estimates. Accurate predictions are critical because underestimation of negative consequences leads to excess legal exposure and overestimation leads to overauditing. Our paper examines whether auditors correctly anticipate these litigation and reputation outcomes. We provide manager‐ and partner‐level auditors with case facts from an auditor negligence lawsuit and ask them to predict the proportion of juries that will return verdicts against their firm. We then compare auditors' predictions to the actual verdicts we observe when we provide the same set of case facts to mock jurors who deliberate as part of juries. We find that auditors overestimate the likelihood of negligence verdicts, especially when audit quality is relatively high. Our supplemental measures help explain the reasons for this overestimation: auditors tend to underestimate jurors' perceptions of audit quality and willingness to attribute inaccurate estimates to situational factors. Finally, we examine auditors' predictions about how a news article about the litigation will affect their reputation with the general public. Similar to our litigation results, we find that auditors tend to overestimate the article's negative impact on auditor reputation. Collectively, our findings suggest that auditors overestimate litigation and reputation consequences resulting from inaccurate accounting estimates. This overestimation is consequential as it leads to inefficient allocation of audit resources.     

Director Monitoring of Expense Misreporting in Nonprofit Organizations: The Effects of Expense Disclosure Transparency,Donor Evaluation Focus and Organization Performance

This study examines whether three factors—the transparency of expense disclosures, donor evaluation focus, and organization performance—influence how directors monitor management expense misreporting in nonprofit organizations. An experiment with 189 nonprofit directors finds that the enhanced transparency of expense disclosures increases director monitoring by reducing the tendency to accept management expense misreporting. Further, an organization's nonfinancial performance and the perceived fairness of donor evaluation focus interact to influence director monitoring practices. Specifically, when directors know an organization's nonfinancial performance is poor and understand that this performance will negatively influence the willingness of donors to contribute, directors monitor less if they think that donors are adopting a more balanced approach to organizational evaluation that focuses on both financial and nonfinancial performance; that is, there is a reverse fair process effect as this donor approach is perceived as being fairer than if donors focus solely on financial performance. However, monitoring is equally strong regardless of donor evaluation focus when directors know that an organization's nonfinancial performance is good and a donation is forthcoming.     

With or without siblings: Sorting into competition in the experimental labor market

We employ a well-controlled laboratory experiment to examine whether only children and those with siblings differ in their willingness to compete. We find that only children are more likely to undervalue the chance of winning and shy away from competition, but they become to embrace competition as their self-assessed winning probability increases. Alternatively, once uncertainty of relative performance is removed, the gap in willingness to compete between the two groups disappears. Utilizing a two-stage model of decision weights under uncertainty, we find that such a gap is predominantly caused by their heterogeneous attitudes toward ambiguity.     

The Benefit of Mean Auditors: The Influence of Social Interaction and the Dark Triad on Unjustified Auditor Trust

Regulators and researchers have expressed concerns that social interaction leads auditors to unjustifiably trust managers, constituting a lack of sufficient professional skepticism. Using both an abstract laboratory experiment and a contextually rich experiment with practicing auditors we predict and find that higher Dark Triad auditors (those with higher levels of the shared core between psychopathy, narcissism, and Machiavellianism) are relatively more resistant to lapses in professional skepticism due to the effects of social interaction. This is likely driven by higher Dark Triad auditors' callousness, lack of empathy, and lack of response to social stimuli. In contrast, while higher social interaction initially increases lower Dark Triad auditors' unjustified trust in managers, this effect reverses in subsequent interactions when lower Dark Triad auditors observe evidence suggesting managers have reported aggressively. These findings add to research on the effect of auditor personality traits, audit-client social interaction, and the interaction of these two variables, and suggest that practitioners and researchers account for the interplay of Dark Triad traits and social interaction and their effect on professional skepticism.     

Institutional authority and collusion

A “collusion puzzle” exists by which, even though increasing the number of firms reduces the ability to tacitly collude, and leads to a collapse in collusion in experimental markets with three or more firms, in natural markets there are such numbers of firms colluding successfully. We present an experiment showing that, if managers are deferential toward an authority, firms can induce more collusion by delegating production decisions to middle managers and providing suitable informal nudges. This holds not only with two but also with four firms. We are also able to distinguish compliance effects from coordination effects.     

Employee trust in management and mutual gains hypothesis in Japanese firms

This study analyzes whether employee trust in management results in mutual gains for employers and employees in the Japanese automobile industry. The results suggest that employees’ productivity-enhancing efforts and sense of job security are both positively related to their trust in management. The findings clearly support the mutual gains hypothesis. The results also indicate that in fostering employee trust, management plays a supportive role in enabling unions to verify its claims by disclosing high-quality information, whereas unions play an important role in mitigating information asymmetry.     

Recognizing the Best: The Productive and Counterproductive Effects of Relative Performance Recognition

I use a laboratory experiment to examine the productive and counterproductive effects of providing employees nonpecuniary recognition based on measures of relative performance. I find that, on average, recognition programs increase both productive efforts (those intended to increase one's own performance) and counterproductive efforts (those intended to decrease peer performance) in a setting where it is salient to employees that they can exert both productive and counterproductive efforts. Interestingly, I also find that these effects are moderated by the Dark Triad of personalities, a group of three personality traits. My study reveals that recognition programs mainly lead individuals who score lower on the Dark Triad to increase counterproductive efforts and those who score higher on the Dark Triad to increase productive efforts. These results contribute to the literature on relative performance information by demonstrating that recognition programs can have both productive and counterproductive effects. However, whether these programs produce mainly a productive or counterproductive effect depends on important personality characteristics of the employees.     

数字经济背景下互联网的使用对民营企业员工性别工资差距的影响——基于员工受教育层次差异化特征的分析

基于2017年中国综合社会调查的民营企业员工数据,使用稳健最小二乘回归与Oaxaca分解法研究发现:互联网的使用将对未接受过教育以及仅接受过私塾扫盲班/小学教育的民营企业员工工资产生显著的负向影响;互联网的使用将对接受过初中及以上教育的民营企业员工工资产生显著的正向影响;随着民营企业员工受教育水平的提升,互联网的使用对民营企业女性员工工资的弹性影响远超男性;互联网的使用将扩大未接受过教育的民营企业女性员工与男性员工的工资差距;互联网的使用将缩小接受过私塾扫盲班/小学及以上教育的民营企业女性员工与男性员工的工资差距.据此提出,应加大公益互联网使用培训力度,以提升女性的互联网理性使用水平、加强清扫虚假网络平台以防止受教育层次较低女性误入歧途、鼓励女性自主接受多元化再教育以提升自身互联网理性使用水平等,以缩小民营企业员工性别工资差距.     

Hedge Fund Intervention and Accounting Conservatism

Hedge fund intervention has been associated with many positive corporate changes and is an important vehicle for informed shareholder monitoring. Effective monitoring has also been positively associated with accounting conservatism. Building upon these prior results, we predict an increase in accounting conservatism after hedge fund intervention. We use a large sample of hedge fund activist events and identify control firms with similar likelihoods of being targeted using the propensity score matching method to apply difference‐in‐difference tests. We find that when hedge fund activists have relatively large ownership and sufficient time to exert their monitoring power, target firms experience significant increases in conditional conservatism. CFO turnovers, upward/lateral auditor switches, and improvements in audit committee independence after intervention are accompanied by greater increases in conditional conservatism. Finally, we find greater increases in conditional conservatism when there is a lack of monitoring by dedicated institutional investors before the intervention. Our study suggests that hedge fund activists improve accounting monitoring tools and thus adds important new evidence on the effectiveness of shareholder monitoring on accounting practices.