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.
|Place of Publication||Tilburg|
|Number of pages||36|
|Publication status||Published - Nov 2018|
- performance measurement
- business units
- information asymmetry