The Role of Performance Measures in the Intertemporal Decisions of Business Unit Managers

49 Pages Posted: 29 Aug 2011 Last revised: 16 Apr 2012

See all articles by Margaret A. Abernethy

Margaret A. Abernethy

University of Melbourne, Department of Accounting

Jan Bouwens

Amsterdam Business School

Laurence van Lent

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department

Date Written: April 16, 2012

Abstract

Accounting performance measures are often argued to lead to short-sighted behavior by managers facing intertemporal decisions. We assess the association between different types of performance measures and the time horizon of business unit managers who have profit responsibility. Our results, based on a sample of 105 managers, indicate that accounting return measures direct business unit managers’ attention toward longer-term activities. Non-financial measures similarly direct managerial attention toward longer-term activities, although not to the same degree as accounting return measures. We conclude that accounting return measures can balance out potential congruity problems associated with the profit measures by directing managerial attention to activities that have longer term consequences on firm performance.

Keywords: time horizon, performance measures, business unit managers, control systems

JEL Classification: D21, D92, M41, M50

Suggested Citation

Abernethy, Margaret A. and Bouwens, Jan and van Lent, Laurence, The Role of Performance Measures in the Intertemporal Decisions of Business Unit Managers (April 16, 2012). Available at SSRN: https://ssrn.com/abstract=1918857 or http://dx.doi.org/10.2139/ssrn.1918857

Margaret A. Abernethy

University of Melbourne, Department of Accounting ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia
+61 3 8344 7655 (Phone)
+61 3 9349 2397 (Fax)

Jan Bouwens

Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 5258740 (Phone)

Laurence Van Lent (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany
+4969154008531 (Phone)

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