Review of Accounting Studies

, Volume 19, Issue 2, pp 988–1008 | Cite as

Fishing for excuses and performance evaluation

Article
  • 563 Downloads

Abstract

We study a principal–agent model in which the agent can provide ex post additional relevant information regarding his performance. In particular, he can provide a legitimate excuse, that is, evidence that a poor result is only due to factors outside his control. However, building a convincing case requires time, time that is not spent on exerting productive effort and thus generating information represents an opportunity cost. We obtain necessary and sufficient conditions for the principal to prefer a policy of adjusting ex post the performance measure for the information provided by the agent to a policy of conforming to a result-based system with no adjustments. The risk aversion and a possible limited liability of the agent play an important role in the analysis. This paper clarifies the issues associated with the so-called “excuse culture” prevailing in some organizations.

Keywords

Performance measurement Manipulation Controllability principle Excuse culture Influence activity 

JEL Classification

D82 M41 M52 

References

  1. Arya, A., & Glover, J. (2008). Performance measurement manipulation: Cherry-picking what to correct. Review of Accounting Studies, 13, 119–139.CrossRefGoogle Scholar
  2. Demski, J. (1998). Performance measure manipulation. Contemporary Accounting Research, 15, 261–285.CrossRefGoogle Scholar
  3. Demski, J., Frimor, H., & Sappington, D. (2004). Efficient manipulation in a repeated setting. Journal of Accounting Research, 42, 31–50.CrossRefGoogle Scholar
  4. Dutta, S., & Gigler, F. (2002). The effect of earnings forecasts on earnings management. Journal of Accounting Research,, 40, 631–655.CrossRefGoogle Scholar
  5. Feltham, G., & Xie, J. (1994). Performance measure congruity and diversity in multi-task principal/agent relations. The Accounting Review, 429–453.Google Scholar
  6. Fudenberg, D., & Tirole, J. (1990). Moral hazard and renegotiation in agency contracts. Econometrica, 58, 1279–1320.CrossRefGoogle Scholar
  7. Kim, S.K. (1995). Efficiency of an information system in an agency model. Econometrica, 63, 89–102.CrossRefGoogle Scholar
  8. Larmande, F. (2013). Limited liability, the first-order approach, and the ranking of information systems in agencies. Economics Letters, 118, 314–317.CrossRefGoogle Scholar
  9. Larmande, F., & Ponssard, J.P. (2008). Implementation of an EVA compensation scheme, 69–98, In Reward management-facts and trends in Europe. Lengerich: Pabst.Google Scholar
  10. MacLeod, B. (2003). Optimal contracting with subjective evaluation. The American Economic Review, 93, 216–240.CrossRefGoogle Scholar
  11. Merchant, K., & Van der Stede, W. (2003). Management control systems. Harlow: Prentice Hall.Google Scholar
  12. Milgrom, P., & Roberts, J. (1988). An economic approach to influence activities in organizations. American Journal of Sociology, 94, 154–179.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.EMLYON Business SchoolEcullyFrance
  2. 2.CNRS and Ecole polytechniquePalaiseauFrance

Personalised recommendations