IDEAS home Printed from https://ideas.repec.org/a/spr/jmgtco/v34y2023i1d10.1007_s00187-023-00350-5.html
   My bibliography  Save this article

On interim performance evaluations and interdependent period outcomes

Author

Listed:
  • Christian Lukas

    (Friedrich Schiller University Jena)

Abstract

Performance feedback is an integral element of an accounting system, and firms provide this feedback at varying frequencies to their employees. This paper explicates the impact of an interim performance evaluation on the principal’s surplus using a dynamic two-period agency model. Two settings are discussed: single-purpose use, wherein accounting information is used solely for control purposes, and dual-purpose use, in which accounting information is used for production and control. Results demonstrate that the optimality of interim performance evaluations depends on the use of information and the interdependence of period outcomes. Furthermore, neither setting entails strict dominance with regard to carrying out interim evaluations or not. It implies that an interim evaluation can be optimal even if the optimal course of action does not depend on it. It further suggests that refraining from the interim review can be optimal even if that information is required to determine the optimal effort level.

Suggested Citation

  • Christian Lukas, 2023. "On interim performance evaluations and interdependent period outcomes," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 34(1), pages 67-108, March.
    • Handle: RePEc:spr:jmgtco:v:34:y:2023:i:1:d:10.1007_s00187-023-00350-5
    DOI: 10.1007/s00187-023-00350-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00187-023-00350-5
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00187-023-00350-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
    2. Frederickson, JR & Peffer, SA & Pratt, J, 1999. "Performance evaluation judgments: Effects of prior experience under different performance evaluation schemes and feedback frequencies," Journal of Accounting Research, Wiley Blackwell, vol. 37(1), pages 151-165.
    3. Gigler, F & Hemmer, T, 1998. "On the frequency, quality, and informational role of mandatory financial reports," Journal of Accounting Research, Wiley Blackwell, vol. 36, pages 117-147.
    4. Feltham, Gerald & Indjejikian, Raffi & Nanda, Dhananjay, 2006. "Dynamic incentives and dual-purpose accounting," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 417-437, December.
    5. Sanjay Jain, 2012. "Self-Control and Incentives: An Analysis of Multiperiod Quota Plans," Marketing Science, INFORMS, vol. 31(5), pages 855-869, September.
    6. Dominique Demougin & Claude Fluet, 1998. "Mechanism Sufficient Statistic in the Risk-Neutral Agency Problem," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 154(4), pages 622-622, December.
    7. Patrick W. Schmitz, 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 318-336, Summer.
    8. Bin R. Chen & Y. Stephen Chiu, 2013. "Interim Performance Evaluation in Contract Design," Economic Journal, Royal Economic Society, vol. 123, pages 665-698, June.
    9. Bouwens, Jan & Kroos, Peter, 2011. "Target ratcheting and effort reduction," Journal of Accounting and Economics, Elsevier, vol. 51(1-2), pages 171-185, February.
    10. Murphy, William H., 2004. "In pursuit of short-term goals: anticipating the unintended consequences of using special incentives to motivate the sales force," Journal of Business Research, Elsevier, vol. 57(11), pages 1265-1275, November.
    11. Susanne Ohlendorf & Patrick W. Schmitz, 2012. "Repeated Moral Hazard And Contracts With Memory: The Case Of Risk‐Neutrality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 433-452, May.
    12. Lurie, Nicholas H. & Swaminathan, Jayashankar M., 2009. "Is timely information always better? The effect of feedback frequency on decision making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 108(2), pages 315-329, March.
    13. Nieken, Petra & Schmitz, Patrick W., 2012. "Repeated moral hazard and contracts with memory: A laboratory experiment," Games and Economic Behavior, Elsevier, vol. 75(2), pages 1000-1008.
    14. Christian Hofmann & Naomi R. Rothenberg, 2019. "Forecast Accuracy and Consistent Preferences for the Timing of Information Arrival†," Contemporary Accounting Research, John Wiley & Sons, vol. 36(4), pages 2207-2237, December.
    15. Lam, Chak Fu & DeRue, D. Scott & Karam, Elizabeth P. & Hollenbeck, John R., 2011. "The impact of feedback frequency on learning and task performance: Challenging the “more is better” assumption," Organizational Behavior and Human Decision Processes, Elsevier, vol. 116(2), pages 217-228.
    16. Christian Lukas & Max‐Frederik Neubert & Jens Robert Schöndube, 2019. "Accountability in an agency model: Project selection, effort incentives, and contract design," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 40(2), pages 150-158, March.
    17. Anil Arya & Jonathan Glover & Pierre Jinghong Liang, 2004. "Intertemporal aggregation and incentives," European Accounting Review, Taylor & Francis Journals, vol. 13(4), pages 643-657.
    18. Luckett, Peter F. & Eggleton, Ian R., 1991. "Feedback and management accounting: A review of research into behavioural consequences," Accounting, Organizations and Society, Elsevier, vol. 16(4), pages 371-394.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christian Lukas, 2023. "On costless‐renegotiation proofing in binary agency models," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2481-2494, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kräkel, Matthias & Schöttner, Anja, 2016. "Optimal sales force compensation," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 179-195.
    2. Patrick W Schmitz, 2022. "How (Not) to Purchase Novel Goods and Services: Specific Performance Versus at-will Contracts," The Economic Journal, Royal Economic Society, vol. 132(647), pages 2563-2577.
    3. Matthias Kräkel, 2017. "Authority and Incentives in Organizations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(2), pages 295-311, April.
    4. Pi, Jiancai, 2014. "Job design with sequential tasks and outcome externalities revisited," Economics Letters, Elsevier, vol. 125(2), pages 274-277.
    5. Schmitz, Patrick W., 2013. "Job design with conflicting tasks reconsidered," European Economic Review, Elsevier, vol. 57(C), pages 108-117.
    6. Lorens Imhof & Matthias Kräkel, 2016. "Ex post unbalanced tournaments," RAND Journal of Economics, RAND Corporation, vol. 47(1), pages 73-98, February.
    7. Fabio Römeis & Fabian Herweg & Daniel Müller, 2022. "Salience Bias and Overwork," Games, MDPI, vol. 13(1), pages 1-22, January.
    8. Goldlücke, Susanne & Schmitz, Patrick W., 2018. "Pollution claim settlements reconsidered: Hidden information and bounded payments," European Economic Review, Elsevier, vol. 110(C), pages 211-222.
    9. Eva I. Hoppe & Patrick W. Schmitz, 2021. "How (Not) to Foster Innovations in Public Infrastructure Projects," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(1), pages 238-266, January.
    10. Au, Pak Hung & Chen, Bin R., 2019. "Objective and subjective indicators in long-term contracting," Journal of Economic Behavior & Organization, Elsevier, vol. 166(C), pages 309-331.
    11. Weinschenk, Philipp, 2017. "Working conditions and regulation," Labour Economics, Elsevier, vol. 44(C), pages 177-191.
    12. Jiancai Pi, 2021. "An investigation of seeming favoritism in public procurement," Manchester School, University of Manchester, vol. 89(1), pages 128-137, January.
    13. Anja Schöttner, 2017. "Optimal Sales Force Compensation in Dynamic Settings: Commissions vs. Bonuses," Management Science, INFORMS, vol. 63(5), pages 1529-1544, May.
    14. Müller, Daniel & Schmitz, Patrick W., 2021. "The right to quit work: An efficiency rationale for restricting the freedom of contract," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 653-669.
    15. Kräkel, Matthias, 2017. "Self-organizing teams," Economics Letters, Elsevier, vol. 159(C), pages 195-197.
    16. Bin R. Chen & Sanxi Li, 2018. "Prehire Screening and Subjective Performance Evaluations," Management Science, INFORMS, vol. 64(10), pages 4953-4965, October.
    17. Kräkel, Matthias, 2021. "On the delegation of authority," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 965-981.
    18. Nieken, Petra & Schmitz, Patrick W., 2012. "Repeated moral hazard and contracts with memory: A laboratory experiment," Games and Economic Behavior, Elsevier, vol. 75(2), pages 1000-1008.
    19. Müller, Daniel & Schmitz, Patrick W., 2015. "Overdeterrence of repeat offenders when penalties for first-time offenders are restricted," Economics Letters, Elsevier, vol. 129(C), pages 116-120.
    20. Mahmoud Sami Nabi, 2016. "Revisiting equity and debt: access to finance and economic inefficiency," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 63(4), pages 393-429, December.

    More about this item

    Keywords

    Agency; Aggregation; Frequency; Dual-purpose; Single-purpose; Interim evaluation; Accounting information;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jmgtco:v:34:y:2023:i:1:d:10.1007_s00187-023-00350-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.