Accounting Metrics for Division Manager Performance Evaluation
Posted: 25 Feb 1998
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
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