Dual Purpose Measures
35 Pages Posted: 23 Jul 2003
Date Written: May 2003
We examine a firm's choice of a measurement system designed to serve two distinct objectives; provide forward-looking information about future firm productivity and ex post information about past managerial performance. A firm can have two separate measurements, one for each purpose, or a single measure that simultaneously serves both objectives. In a two-period principal-agent model, we illustrate how implicit incentives can lead firms to prefer a single dual-purpose measure.
Keywords: accounting measures, incentives, multi-period
JEL Classification: J33, L22, M41, M46
Suggested Citation: Suggested Citation