Target Ratcheting and Effort Reduction
Tilburg University - Center and Faculty of Economics and Business Administration
Amsterdam School of Business, University of Amsterdam
May 20, 2010
Journal of Accounting & Economics (JAE), Forthcoming
In this paper, we examine how retail store managers reduce their sales activity in response to target ratcheting. We find that managers with favorable sales performance in the first three quarters reduce their sales activity in the final quarter. We also find that managers who engage in sales reducing activities enhance their likelihood of meeting their next-year sales target, which is based on their current sales. That is, managers who reduce their sales activity in the final quarter are more likely to beat their next-year sales targets than managers who refrain from reducing their final-quarter sales.
Keywords: Target Setting, Ratchet Effect
JEL Classification: J33, M40Accepted Paper Series
Date posted: July 21, 2010 ; Last revised: August 17, 2010
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