Doing the Right Thing: Rotation and Managers’ Reports about Distortion

Research output: Working paperOther research output

Abstract

While rotation policies are thought to have many benefits and costs, they could also have important consequences for managerial reporting. To this end, we conduct an experiment in which managers periodically observe performance measurement distortions in their business unit which they can exploit at the cost of an owner of their firm. At the start of every period, managers can produce reports that resolve (part of) those performance measurement distortions in their business unit. Owners, in turn, observe managers’ reports and can reward managers for the reports they produce. We manipulate whether or not managers rotate periodically to another business unit. Our results show that managerial rotation increases the performance measurement distortions reported to owners because managers frame their reporting decision less as an economic decision and more as a decision that enables them to exhibit care for the problems, challenges, and welfare of others. Managerial rotation, therefore, enables firms to extract more local information from managers at lower costs to improve their performance measurement at business units.
Original languageEnglish
Place of PublicationTilburg
PublisherSSRN
Number of pages36
Publication statusPublished - Nov 2018

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Managers
Performance measurement
Owners
Costs and benefits
Owner-managers
Economics
Experiment
Reward
Local information
Costs

Keywords

  • rotation
  • reporting
  • performance measurement
  • distortion
  • business units
  • management
  • information asymmetry

Cite this

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abstract = "While rotation policies are thought to have many benefits and costs, they could also have important consequences for managerial reporting. To this end, we conduct an experiment in which managers periodically observe performance measurement distortions in their business unit which they can exploit at the cost of an owner of their firm. At the start of every period, managers can produce reports that resolve (part of) those performance measurement distortions in their business unit. Owners, in turn, observe managers’ reports and can reward managers for the reports they produce. We manipulate whether or not managers rotate periodically to another business unit. Our results show that managerial rotation increases the performance measurement distortions reported to owners because managers frame their reporting decision less as an economic decision and more as a decision that enables them to exhibit care for the problems, challenges, and welfare of others. Managerial rotation, therefore, enables firms to extract more local information from managers at lower costs to improve their performance measurement at business units.",
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Doing the Right Thing: Rotation and Managers’ Reports about Distortion. / Cardinaels, Eddy; Dierynck, Bart; van Pelt, Victor.

Tilburg : SSRN, 2018.

Research output: Working paperOther research output

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AB - While rotation policies are thought to have many benefits and costs, they could also have important consequences for managerial reporting. To this end, we conduct an experiment in which managers periodically observe performance measurement distortions in their business unit which they can exploit at the cost of an owner of their firm. At the start of every period, managers can produce reports that resolve (part of) those performance measurement distortions in their business unit. Owners, in turn, observe managers’ reports and can reward managers for the reports they produce. We manipulate whether or not managers rotate periodically to another business unit. Our results show that managerial rotation increases the performance measurement distortions reported to owners because managers frame their reporting decision less as an economic decision and more as a decision that enables them to exhibit care for the problems, challenges, and welfare of others. Managerial rotation, therefore, enables firms to extract more local information from managers at lower costs to improve their performance measurement at business units.

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