Journal ArticleDOI
Sensitivity, Precision, and Linear Aggregation of Signals for Performance Evaluation
Rajiv D. Banker,Srikant M. Datar +1 more
TLDR
This work identifies necessary and sufficient conditions on the joint density function of the signals under which linear aggregation, a simple and commonly employed way to construct a performance evaluation measure, is optimal.Abstract:
Several accounting and other signals are generally available for the construction of a managerial performance evaluation measure on which an optimal compensation contract is based. The demand for aggregation in evaluating managerial performance arises because reporting all the basic transactions and other nonfinancial information about performance is costly and impracticable (see Ashton [1982], Casey [1978], and Holmstrom and Milgrom [1987]). We identify necessary and sufficient conditions on the joint density function of the signals under which linear aggregation, a simple and commonly employed way to construct a performance evaluation measure, is optimal. This characterization suggests that the linear form of aggregation is optimal for a large class of situations. Focusing on performance measures that are linear aggregates enables us to determine the relative weights on the individual signals in the optimal linear aggregate, since these weights are invariant for all realizations of the signals. We interpret these weights in terms of statistical characteristics (sensitivity and precision) of the joint distribution of the signals.read more
Citations
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Journal ArticleDOI
Corporate governance, chief executive officer compensation, and firm performance
TL;DR: This article found that measures of board and ownership structure explain a significant amount of cross-sectional variation in CEO compensation, after controlling for standard economic determinants of pay, and that CEOs earn greater compensation when governance structures are less effective.
Journal ArticleDOI
Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals
TL;DR: The authors investigates circumstances under which accruals are predicted to improve earnings' ability to measure firm performance, as reflected in stock returns, and the results of empirical tests are consistent with these predictions.
Journal ArticleDOI
Financial accounting information and corporate governance
Robert M. Bushman,Abbie J. Smith +1 more
TL;DR: In this paper, the role of publicly reported financial accounting information in the governance processes of corporations is reviewed and proposed additional research concerning the role and effect of financial accounting in corporate governance processes.
Journal ArticleDOI
The Role of Information and Financial Reporting in Corporate Governance and Debt Contracting
TL;DR: In this article, the role of financial reporting transparency in reducing governance-related agency conflicts among managers, directors, and shareholders, as well as in reducing agency conflicts between shareholders and creditors, is reviewed.
Journal ArticleDOI
Integrative strategic performance measurement systems, strategic alignment of manufacturing, learning and strategic outcomes: an exploratory study
TL;DR: In this article, the authors identify a key dimension of SPMS, integrative information, as being instrumental in assisting managers deliver positive strategic outcomes, and develop a model that predicts that integrative SPMS will enhance the strategic competitiveness of organizations.
References
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Journal ArticleDOI
Moral Hazard and Observability
TL;DR: In this article, the role of imperfect information in a principal-agent relationship subject to moral hazard is considered, and a necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived.
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Optimal Statistical Decisions
TL;DR: In this article, the authors present a survey of probability theory in the context of sample spaces and decision problems, including the following: 1.1 Experiments and Sample Spaces, and Probability 2.2.3 Random Variables, Random Vectors and Distributions Functions.
Posted Content
Moral Hazard in Teams
TL;DR: In this paper, the authors study moral hazard with many agents and focus on two features that are novel in a multiagent setting: free riding and competition, and show that competition among agents (due to relative evaluations) has merit solely as a device to extract information optimally.
Journal ArticleDOI
Moral Hazard in Teams
TL;DR: In this article, the authors study moral hazard with many agents and focus on two features that are novel in a multiagent setting: free riding and competition, and show that competition among agents (due to relative evaluations) has merit solely as a device to extract information optimally.
Journal ArticleDOI
Good News and Bad News: Representation Theorems and Applications
TL;DR: In this article, a notion of "favorableness" of news is introduced, characterized, and applied to four simple models: the arrival of good news about a firm's prospects always causes its share price to rise, more favorable evidence about an agent's effort leads the principal to pay a larger bonus, buyers expect that any product information withheld by a salesman is unfavorable to his product, and bidders figure that low bids by their competitors signal a low value for the object being sold.
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