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Performance measures and intra-firm spillovers: theory and evidence

Accepted version
Peer-reviewed

Type

Article

Change log

Authors

Bouwens, JF 
Hofmann, C 
van Lent, L 

Abstract

We revisit the question of how performance measures are used to evaluate business unit managers in response to intra-firm spillovers. Specifically, we are interested in variation in the relative incentive weightings of aggregated “above-level” measures (e.g., firm-wide net income), “own-level” business unit measures (e.g., business unit profit), and specific “below-level” measures (e.g., R&D expenses) in response to spillover arising from either the focal unit’s effect on other business units or the other units’ effect on the focal unit. Our theory highlights complementarity between above- and below-level measures and the existence of an interaction between the two directions of spillovers. Based on a survey of 122 business unit managers, we report evidence consistent with an interaction effect and with complementarity between above- and below-level measures. In particular, we show that firms increase the weighting on both of above- and below-levels measures when they are coping simultaneously with high levels of spillovers on other units and spillovers from other units.

Description

Keywords

contracting, business unit performance measurement,, organizational design, spillovers

Journal Title

Journal of Management Accounting Research

Conference Name

Journal ISSN

1049-2127
1558-8033

Volume Title

30

Publisher

American Accounting Association