GalleryEvery time I see corporate accounting irregularities in the news I recall how a key finding in my doctoral research some time ago has remained relevant. The research showed support for a spillover effect between slack resources and managerial time horizon. Kind of like a ‘whack-a-mole’ effect. Slack refers to securing more resources (such as during an organization’s annual […]
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GalleryEvidence suggests that firms set targets to avoid small losses
The first picture shows the distribution of actual earnings in our study on target setting (see the study in brief box below) and replicates a well-established finding that reported earnings exhibit a ‘discontinuity at zero’ (meaning that there are disproportionally fewer firms with small losses compared to small profits), which one might surmise perhaps suggests that firms ‘manage’ earnings […]
GalleryWith manager performance metrics, the tricky question is how to reward long-term thinking
Some time ago I was asked to comment on a study that found that the use of accounting return measures and non-financial measures in bonus plans was associated with managers’ long-term focus. This suggests that proper performance measurement systems can affect managers’ horizon and alleviate myopia.
Myopia is indeed a pervasive issue in business, as the Kay Review suggests (amongst countless others). The blame is often squarely […]
GalleryManagers with a history of good results get more flexible performance targets
Here is one diehard maxim of business: don’t overshoot your performance target this year, because before you know it the one for next year will be tougher yet. This is target ratcheting at work: when you do better than the established goal, your next objective will be even higher; but the converse is not true. If you do worse, the company will […]
GalleryHollywood studios appear to plan sequels before they produce the original movie
The recent box office success of Jurassic World, the latest Jurassic Park sequel, reminded me of my study about the use of real options in the motion picture industry*, which examined the application of this accounting tool to movie sequels.
A real option is the right, but not the obligation, to undertake a business decision. More importantly, a real-options approach to […]
