Accounting Metrics for Division Manager Performance Evaluation

Posted: 25 Feb 1998

See all articles by A. Scott Keating

A. Scott Keating

University of Chicago - Booth School of Business

Abstract

This study investigates the factors driving the choice of metrics used to evaluate division managers in divisionalized firms. Accounting and information economic theories suggest that the usefulness of a metric agent performance is a function of the metric s informativeness of the agent s actions and/or efforts. Several different types of performance metrics used to evaluate division managers are identified: firm metrics (stock price earnings ROI etc.) division accounting metrics (division earnings division ROI etc.) and operational metrics (market share product quality and the like). Next firm and operating environment characteristics which affect the relative informativeness of these metrics are described. These include divisional interdependencies centralization division size and environment homogeneity Finally survey data obtained from 78 medium-size US public companies are used to examine whether patterns in the types of metrics used to monitor and control division managers are related to these characteristics and consequently metric informativeness.

JEL Classification: L20, M41

Suggested Citation

Keating, A. Scott, Accounting Metrics for Division Manager Performance Evaluation. Available at SSRN: https://ssrn.com/abstract=55449

A. Scott Keating (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-4078 (Phone)
773-702-0458 (Fax)

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