Identity, Incentives, and the Value of Information

Posted: 19 Jan 2012 Last revised: 19 Jul 2012

See all articles by Mirko Stanislav Heinle

Mirko Stanislav Heinle

University of Pennsylvania - Accounting Department

Christian Hofmann

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)

Alexis H. Kunz

University of Bern - Institute for Accounting

Date Written: July 2012

Abstract

We examine the impact of identity preferences on the interrelation between incentives and performance measurement. In our model, a manager identifies with an organization and loses utility to the extent that his actions conflict with effort-standards issued by the principal. Contrary to prior arguments in the literature, we find conditions under which a manager who identifies strongly with the organization receives stronger incentives and faces more performance evaluation reports than a manager who does not identify with the organization. Our theory predicts that managers who experience events that boost their identification with the firm can decrease their effort in short-term value creation. We also find that firms are more likely to employ less precise but more congruent performance measures, such as stock prices, when contracting with managers who identify little with the organization. In contrast, they use more precise but less congruent measures, such as accounting earnings, when contracting with managers who identify strongly with the firm.

Keywords: Identity, incentives, multi-task agency, performance measure congruity, performance standards

Suggested Citation

Heinle, Mirko Stanislav and Hofmann, Christian and Kunz, Alexis H., Identity, Incentives, and the Value of Information (July 2012). The Accounting Review: July 2012, Vol. 87, No. 4, pp. 1309-1334. . Available at SSRN: https://ssrn.com/abstract=1987761

Mirko Stanislav Heinle (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Christian Hofmann

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

Alexis H. Kunz

University of Bern - Institute for Accounting ( email )

Engehaldenstrasse 4
Bern, CH-3012
Switzerland

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