Target Ratcheting and Effort Reduction

Posted: 21 Jul 2010 Last revised: 1 Aug 2017

See all articles by Jan Bouwens

Jan Bouwens

University of Cambridge - Judge Business School

Peter Kroos

University of Amsterdam - Amsterdam Business School

Date Written: May 20, 2010

Abstract

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, M40

Suggested Citation

Bouwens, Jan and Kroos, Peter, Target Ratcheting and Effort Reduction (May 20, 2010). Journal of Accounting & Economics (JAE), 51 (2011), 171-185. Available at SSRN: https://ssrn.com/abstract=1646403

Jan Bouwens (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Peter Kroos

University of Amsterdam - Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

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