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Information Asymmetries about Measurement Quality

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  • Jonathan Glover
  • Carolyn B. Levine

Abstract

This article studies contracts between a principal and an agent that are robust to information asymmetries about measurement quality. Our main result is that an information asymmetry about measurement quality not only reduces the usefulness of a given performance measure for stewardship purposes, it also qualitatively changes the way the performance measure is used if the information asymmetry is sufficiently large. We also study the manipulability of performance measures, assuming that poor measurement quality creates room for manipulation via selective (cherry‐picked) corrections by the agent. With known imperfect measurement quality, manipulability lowers the cost of providing incentives. Manipulability introduces overstatements only, while imperfect measurement introduces both overstatements and understatements. However, with an information asymmetry about measurement quality, manipulability can increase the cost of providing incentives, since there is now an induced information asymmetry about manipulability. Asymétrie de l'information relative à la qualité des critères d'évaluation Les auteurs étudient des contrats mandant‐mandataire suffisamment solides pour résister aux asymétries de l'information relative à la qualité des critères d'évaluation. Selon leur principal constat, l'asymétrie de l'information quant à la qualité des critères d'évaluation a pour conséquence non seulement de réduire l'utilité d'un critère donné d'évaluation de la performance à des fins de gérance, mais aussi de modifier l'aspect qualitatif de son utilisation lorsque l'asymétrie de l'information est suffisamment importante. Les auteurs analysent également la mesure dans laquelle les critères d'évaluation de la performance peuvent être manipulés, en s'appuyant sur l'hypothèse selon laquelle la piètre qualité des critères d'évaluation les expose à être manipulés par le mandataire au moyen de corrections sélectives. Dans le cas de critères d'évaluation connus mais imparfaits, la possibilité de manipuler les critères réduit les coûts associés à l'instauration de mesures incitatives. Des critères d'évaluation de la performance exposés à la manipulation entraînent uniquement des surestimations, alors que des critères d'évaluation imparfaits entraînent à la fois des surestimations et des sous‐estimations. Cependant, en situation d'asymétrie de l'information relative à la qualité des critères d'évaluation, des critères d'évaluation de la performance qui se prêtent à la manipulation risquent d'accroître les coûts associés à l'instauration de mesures incitatives, compte tenu de l'asymétrie de l'information alors induite quant à la possibilité de manipulation.

Suggested Citation

  • Jonathan Glover & Carolyn B. Levine, 2019. "Information Asymmetries about Measurement Quality," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 50-71, March.
    • Handle: RePEc:wly:coacre:v:36:y:2019:i:1:p:50-71
    DOI: 10.1111/1911-3846.12434
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