An Experimental Study of Endogenous Discretionary Controls on Employee Effort

European Accounting Review, forthcoming

48 Pages Posted: 13 Apr 2022

See all articles by Jeremy Douthit

Jeremy Douthit

University of Arizona - Dhaliwal-Reidy School of Accountancy

Jing Davis

Chapman University

Steven T. Schwartz

SUNY at Binghamton - School of Management

Richard A. Young

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Date Written: March 17, 2022

Abstract

Discretionary controls are controls that can be applied at the ex post discretion of the superior rather than being supported by pre-committed enforceable contracts. This study examines employees’ effort levels when a discretionary control is endogenously present (chosen by the superior) relative to when it is exogenously present (assigned by the experimenters). Results from our gift-exchange experiment regarding superiors’ choice of a discretionary control run counter to prior research on superiors’ choice to use pre-committed controls in two important ways. First, we find employee effort is unaffected by the superior’s choice of a discretionary control relative to when it is exogenous. That is, the intentional choice of a discretionary control does not seem to be resented by the employee. Second, we find employee effort is lower when superiors choose not to have a discretionary control present relative to when it is exogenously unavailable. That is, we not only find no reward to forgoing a discretionary control, but rather a cost to not choosing a discretionary control. In sum, our results support the prevalence of discretionary controls in practice.

Keywords: Discretionary Controls, Endogenous Controls, Gift-Exchange

Suggested Citation

Douthit, Jeremy and Davis, Jing and Schwartz, Steven T. and Young, Richard A., An Experimental Study of Endogenous Discretionary Controls on Employee Effort (March 17, 2022). European Accounting Review, forthcoming, Available at SSRN: https://ssrn.com/abstract=4073039

Jeremy Douthit

University of Arizona - Dhaliwal-Reidy School of Accountancy ( email )

Tucson, AZ 85721
United States

Jing Davis (Contact Author)

Chapman University ( email )

Orange, CA 92866
United States

Steven T. Schwartz

SUNY at Binghamton - School of Management ( email )

Binghamton, NY 13902-6015
United States
607-777-2102 (Phone)

Richard A. Young

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States
614-292-0889 (Phone)
614-292-2118 (Fax)

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