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We analyze effects of performance measure properties (controllable and uncontrollable risk, distortion, and manipulation) on incentive plan design, using data from auto dealership manager incentive systems. Dealerships put the most weight on measures that are “better” with respect to these properties. Additional measures are more likely to be used for a(More)
Regulators are charged with closing troubled banks, but can instead practice forbearance by allowing these troubled banks to continue operating. This paper examines whether bank opacity affects regulators’ ability to practice forbearance. Opacity inhibits non-regulator outsiders from accurately assessing bank risk, potentially allowing regulators to forgo(More)
We develop a theoretical model of the …rm that links properties (stewardship vs. valuation focus) of …nancial reporting regimes with the informational properties of optimal managerial accounting systems. We show that, contrary to the standard textbook proposition, properties of management and …nancial accounting systems are not independent. Signi…cantly, we(More)
We explore the theoretical relation between earnings and market returns as well as the properties of accounting earnings frequency distributions under the maintained hypothesis that managers use unbiased accounting information benevolently to prudently manage the firms of which they are appointed stewards. We offer this surprisingly uncommon (in the(More)
Beginning with Anderson, Banker and Janakiraman (2003), the accounting literature attributes the asymmetric cost response to activity changes or sticky costs as resulting from managerial choices. Using a simulated dataset that excludes any role for managerial actions, we investigate whether cost structure alone could yield regression estimates similar to(More)