Private Pre-Decision Information, Performance Measure Congruity and the Value of Delegation

Posted: 12 Sep 2000 Last revised: 8 Sep 2017

See all articles by Robert M. Bushman

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School

Raffi Indjejikian

University of Michigan at Ann Arbor - Accounting

Mark Penno

University of Iowa - Henry B. Tippie College of Business

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Abstract

We use a linear contracting framework to study how the relation between performance measures used in an agent's incentive contract and the agent's private pre-decision information affects the value of delegating decision rights to the agent. The analysis relies on the idea that available performance measures are often imperfect representations of the economic consequences of managerial actions and decisions, and this, along with gaming possibilities provided to the agent by access to private pre-decision information, may overwhelm any benefits associated with delegation. Our analytical framework allows us to derive intuitive conditions under which delegation does and does not have value, and to provide new insights into the linkage between imperfections in performance measurement and agency costs.

Key Words: Private pre-decision information; Performance measure congruity; Delegation

JEL Classification: D82, M12, M40, M46, L22, J33

Suggested Citation

Bushman, Robert M. and Indjejikian, Raffi J. and Penno, Mark C., Private Pre-Decision Information, Performance Measure Congruity and the Value of Delegation. Contemporary Accounting Research , Vol. 17 Winter 2000 pp. 561-587. Available at SSRN: https://ssrn.com/abstract=239896

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-9809 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/bushmanr/

Raffi J. Indjejikian (Contact Author)

University of Michigan at Ann Arbor - Accounting ( email )

701 Tappan Street
Ann Arbor, MI 48109-1234
United States

Mark C. Penno

University of Iowa - Henry B. Tippie College of Business ( email )

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Iowa City, IA 52242-1000
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