The Learning Effects of Monitoring

44 Pages Posted: 7 Apr 2011 Last revised: 21 Jun 2011

Dennis Campbell

Harvard University - Accounting & Control Unit

Marc J Epstein

Rice University - Jesse H. Jones Graduate School of Business

Francisco de Asis Martinez-Jerez

University of Notre Dame - Department of Accountancy

Date Written: June 20, 2011

Abstract

This paper investigates the relationship between monitoring, decision-making, and learning among lower level employees. We exploit a field-research setting in which business units vary in the ”tightness” with which they monitor employee decisions. We find that tighter monitoring gives rise to implicit incentives in the form of sharp increases in employee termination linked to ”excessive” use of decision-rights. Consistent with these implicit incentives, we find that employees in tightly monitored business units are less likely than their loosely monitored counterparts to: (1) use decision-rights; and (2) adjust for local information, including historical performance data, in their decisions. These decision-making patterns are associated with large and systematic differences in learning rates across business units. Learning is concentrated in business units with ”loose monitoring” and entirely absent in those with ”tight monitoring.” The results are consistent with an experimentation hypothesis in which tight monitoring of decisions leads to more control but less learning.

Suggested Citation

Campbell, Dennis and Epstein, Marc J and Martinez-Jerez, Francisco de Asis, The Learning Effects of Monitoring (June 20, 2011). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1714463

Dennis Campbell (Contact Author)

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States

Marc J Epstein

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Francisco de Asis Martinez-Jerez

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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