Summary Management Accounting
and Control
Bart Dierynck
Table of Contents
PART 1: SETTING THE STAGE ............................................................................................................. 4
EC 1 – The Kick-Off ............................................................................................................................... 4
EC2 – The Three-Legged Stool ........................................................................................................... 8
PART II: THE BASICS............................................................................................................................. 10
EC3 – Designing Your Organization ................................................................................................. 10
Bartling, B., E. Fehr, and H. Herz. 2014. The intrinsic value of decision rights. Econometrica
82(6): 20052039 ............................................................................................................................... 11
Graham, J.R., C.R. Harvey, and M. Puri. 2015. Capital allocation and delegation of
decision-making authority within firms. Journal of Financial Economics 115(3): 449-470 ... 13
EC 4 – Performance Measures .......................................................................................................... 14
Moers, F. 2006. Performance Measure Properties and Delegation. The Accounting Review
81(4): 897924.................................................................................................................................... 19
Campbell, D. 2008. Nonfinancial performance measures and promotion-based incentives.
Journal of Accounting Research 46(2): 297-332......................................................................... 20
Abernethy, M.A., J. Bouwens, and L. van Lent. 2013. The role of performance measures in
the intertemporal decisions of business unit managers. Contemporary Accounting
Research 30(3): 925-961 ................................................................................................................ 22
EC 5 – Subjectivity ............................................................................................................................... 25
Gibbs, M., W. Van Der Stede, K. Merchant, and M. Vargus. 2004. Determinants and effects
of subjectivity in incentives. The Accounting Review 79(2): 409-436. ..................................... 25
Ittner, C.D., D.F. Larcker, and M.W. Meyer. 2003. Subjectivity and the weighting of
performance measures: Evidence from a balanced scorecard. The Accounting Review 78:
725-758. ............................................................................................................................................. 28
Demere, B.W., K.L. Sedatole, and A. Woods. 2019. The role of calibration committees in
subjective performance evaluation systems. Management Science 65(4): 1455-1947. ....... 29
EC 6 – Target Setting .......................................................................................................................... 32
Bouwens, J., and P. Kroos. 2011. Target ratcheting and effort reduction. Journal of
Accounting and Economics 51(1-2): 171-185. ............................................................................ 32
Bol, J., and J. Lill. 2015. Performance target revisions in incentive contracts: do information
and trust reduce ratcheting and the ratchet effect?. The Accounting Review 90(5): 1755-
1778.................................................................................................................................................... 33
1
, Pfister, J.A., and K. Lukka. 2019. Interrelation of controls for autonomous motivation: a field
study of productivity gains through pressure-induced process innovation. The Accounting
Review forthcoming. ........................................................................................................................ 37
EC 7 – Measure Management ........................................................................................................... 39
Choi, J., G. Hecht, and W. Tayler. 2012. Lost in translation: the effects of incentive
compensation on strategy surrogation. The Accounting Review 87(4): 1135-1163. ............. 47
Choi, J.W., G.W. Hecht, W.B. Tayler. 2013. Strategy selection, surrogation, and strategic
performance measurement systems. Journal of Accounting Research 51(1): 105-133. ...... 47
Bentley, J. 2019. Decreasing operational distortion and surrogation through narrative
reporting. The Accounting Review 94(3): 27-55. ......................................................................... 50
EC 8 – Selecting the Right Employee ............................................................................................... 51
Campbell, D. 2012. Employee selection as a control system. Journal of Accounting
Research 50(4): 931-966. ............................................................................................................... 52
Kachelmeier, S.J., and M.G. Williamson. 2010. Attracting creativity: the initial and
aggregate effects of contract selection on creativity-weighted productivity. The Accounting
Review 85(5): 1669-1691................................................................................................................ 55
Dierynck, B., and V. van Pelt. 2019. The sorting effect of discretionary adjustment on
identification with the firm. Working Paper Tilburg University. .................................................. 57
PART III: CAPITA SELECTA.................................................................................................................. 61
EC 9 – Leadership ............................................................................................................................... 61
Dierynck, B, and S. Vandenbogaerde. 2016. Keeping junior auditors motivated and
learning-oriented: the role of behavioral integrity of the team leader. Working Paper Tilburg
University. .......................................................................................................................................... 61
Cardinaels, E., B. Dierynck, H. Yin, and N. Beckers. 2019. Task-specific experience, tacit
knowledge, and compensation contracts. Working paper Tilburg University. ........................ 63
Nelson, M., and C. Proell. 2018. Is silence golden? Audit team leader reactions to
subordinates who speak up ‘in the moment’ and at performance appraisal. The Accounting
Review Forthcoming. ....................................................................................................................... 64
EC 10 – Honesty of Managerial Reporting....................................................................................... 65
Hannan, R.L., F. Rankin, K.L. Towry. 2006. The Effect of Information Systems on Honesty
in Managerial Reporting: A Behavioral Perspective. Contemporary Accounting Research
23(4): 885-918. ................................................................................................................................. 68
Cardinaels, E., B. Dierynck, and X. Zhang. 2019. Managing identities in multi-tier
organizations: the joint effect of social distance and social value orientation on budget
reporting. Working Paper Tilburg University. ............................................................................... 70
Cardinaels, E., and H. Yin. 2015. Think twice before going for incentives: social norms and
the principals decision on compensation contracts. Journal of Accounting Research 53(5):
985-1015............................................................................................................................................ 72
EC 11 – Feedback & Reporting Systems ......................................................................................... 75
2
, Anderson, S.W., and A. Kimball. 2019. Evidence for the feedback role of performance
measurement systems. Management Science Forthcoming. ................................................... 75
Casas-Arce, P., S. Lourenco, and F.A. Martinez-Jerez. 2017. The performance effect of
feedback frequency and detail: evidence from a field experiment in customer satisfaction.
Journal of Accounting Research 55(5): 1051-1088. ................................................................... 76
Dierynck, B., and F. Arshad. 2019. Real-time feedback systems, recordkeeping and the
task selection bias. Working Paper Tilburg University. .............................................................. 77
EC 12 – Updating Management Control Systems .......................................................................... 81
van Pelt, V. 2019. Asymmetric updating of control in organizations. Working Paper Tilburg
University. .......................................................................................................................................... 84
Cardinaels, E., B. Dierynck, and V. van Pelt. 2019. Improving performance measurement
through managerial rotation. Working Paper Tilburg University. .............................................. 86
Labro, E., and L. Stice-Lawrence. 2019. Updating accounting systems: long-run evidence
from the healthcare sector. Management Science Forthcoming. ............................................. 86
EC 13 – Real-Life Case....................................................................................................................... 89
3
, PART 1: SETTING THE STAGE
EC 1 – The Kick-Off
A managerial reporting system in a firm is as our human brain in our body.
Functions Human Brain Functions Managerial Reporting System
in a Firm
Remembering things Decision-facilitating function
Instructing body parts Decision-influencing function
Coordinating between body parts Coordination-facilitating function
As a business grows, employees are hired and paid a fixed wage….
How can we motivate the employee so that (s)he provides an effort level that approximates the
effort level of the entrepreneur?
Agency relationship: a situation in which one individual (the agent) acts on behalf of another
individual (principal) and is supposed to advance the principal’s goals (through providing effort)
▪ The agent executes an action (task) a that has a private, convex cost C(a) for the agent
and generates benefits y for the principal.
▪ Higher values of a lead probabilistically to higher values of y but a in itself is not
observable for the principal.
▪ The principal observes a signal x carrying information about the level of a.
▪ The principal can decide to determine the payment w to the agent based on x(w=w(x))
▪ Payouts
a. Principal: y –w(x)
b. Agent: w(x) –C(a)
4
and Control
Bart Dierynck
Table of Contents
PART 1: SETTING THE STAGE ............................................................................................................. 4
EC 1 – The Kick-Off ............................................................................................................................... 4
EC2 – The Three-Legged Stool ........................................................................................................... 8
PART II: THE BASICS............................................................................................................................. 10
EC3 – Designing Your Organization ................................................................................................. 10
Bartling, B., E. Fehr, and H. Herz. 2014. The intrinsic value of decision rights. Econometrica
82(6): 20052039 ............................................................................................................................... 11
Graham, J.R., C.R. Harvey, and M. Puri. 2015. Capital allocation and delegation of
decision-making authority within firms. Journal of Financial Economics 115(3): 449-470 ... 13
EC 4 – Performance Measures .......................................................................................................... 14
Moers, F. 2006. Performance Measure Properties and Delegation. The Accounting Review
81(4): 897924.................................................................................................................................... 19
Campbell, D. 2008. Nonfinancial performance measures and promotion-based incentives.
Journal of Accounting Research 46(2): 297-332......................................................................... 20
Abernethy, M.A., J. Bouwens, and L. van Lent. 2013. The role of performance measures in
the intertemporal decisions of business unit managers. Contemporary Accounting
Research 30(3): 925-961 ................................................................................................................ 22
EC 5 – Subjectivity ............................................................................................................................... 25
Gibbs, M., W. Van Der Stede, K. Merchant, and M. Vargus. 2004. Determinants and effects
of subjectivity in incentives. The Accounting Review 79(2): 409-436. ..................................... 25
Ittner, C.D., D.F. Larcker, and M.W. Meyer. 2003. Subjectivity and the weighting of
performance measures: Evidence from a balanced scorecard. The Accounting Review 78:
725-758. ............................................................................................................................................. 28
Demere, B.W., K.L. Sedatole, and A. Woods. 2019. The role of calibration committees in
subjective performance evaluation systems. Management Science 65(4): 1455-1947. ....... 29
EC 6 – Target Setting .......................................................................................................................... 32
Bouwens, J., and P. Kroos. 2011. Target ratcheting and effort reduction. Journal of
Accounting and Economics 51(1-2): 171-185. ............................................................................ 32
Bol, J., and J. Lill. 2015. Performance target revisions in incentive contracts: do information
and trust reduce ratcheting and the ratchet effect?. The Accounting Review 90(5): 1755-
1778.................................................................................................................................................... 33
1
, Pfister, J.A., and K. Lukka. 2019. Interrelation of controls for autonomous motivation: a field
study of productivity gains through pressure-induced process innovation. The Accounting
Review forthcoming. ........................................................................................................................ 37
EC 7 – Measure Management ........................................................................................................... 39
Choi, J., G. Hecht, and W. Tayler. 2012. Lost in translation: the effects of incentive
compensation on strategy surrogation. The Accounting Review 87(4): 1135-1163. ............. 47
Choi, J.W., G.W. Hecht, W.B. Tayler. 2013. Strategy selection, surrogation, and strategic
performance measurement systems. Journal of Accounting Research 51(1): 105-133. ...... 47
Bentley, J. 2019. Decreasing operational distortion and surrogation through narrative
reporting. The Accounting Review 94(3): 27-55. ......................................................................... 50
EC 8 – Selecting the Right Employee ............................................................................................... 51
Campbell, D. 2012. Employee selection as a control system. Journal of Accounting
Research 50(4): 931-966. ............................................................................................................... 52
Kachelmeier, S.J., and M.G. Williamson. 2010. Attracting creativity: the initial and
aggregate effects of contract selection on creativity-weighted productivity. The Accounting
Review 85(5): 1669-1691................................................................................................................ 55
Dierynck, B., and V. van Pelt. 2019. The sorting effect of discretionary adjustment on
identification with the firm. Working Paper Tilburg University. .................................................. 57
PART III: CAPITA SELECTA.................................................................................................................. 61
EC 9 – Leadership ............................................................................................................................... 61
Dierynck, B, and S. Vandenbogaerde. 2016. Keeping junior auditors motivated and
learning-oriented: the role of behavioral integrity of the team leader. Working Paper Tilburg
University. .......................................................................................................................................... 61
Cardinaels, E., B. Dierynck, H. Yin, and N. Beckers. 2019. Task-specific experience, tacit
knowledge, and compensation contracts. Working paper Tilburg University. ........................ 63
Nelson, M., and C. Proell. 2018. Is silence golden? Audit team leader reactions to
subordinates who speak up ‘in the moment’ and at performance appraisal. The Accounting
Review Forthcoming. ....................................................................................................................... 64
EC 10 – Honesty of Managerial Reporting....................................................................................... 65
Hannan, R.L., F. Rankin, K.L. Towry. 2006. The Effect of Information Systems on Honesty
in Managerial Reporting: A Behavioral Perspective. Contemporary Accounting Research
23(4): 885-918. ................................................................................................................................. 68
Cardinaels, E., B. Dierynck, and X. Zhang. 2019. Managing identities in multi-tier
organizations: the joint effect of social distance and social value orientation on budget
reporting. Working Paper Tilburg University. ............................................................................... 70
Cardinaels, E., and H. Yin. 2015. Think twice before going for incentives: social norms and
the principals decision on compensation contracts. Journal of Accounting Research 53(5):
985-1015............................................................................................................................................ 72
EC 11 – Feedback & Reporting Systems ......................................................................................... 75
2
, Anderson, S.W., and A. Kimball. 2019. Evidence for the feedback role of performance
measurement systems. Management Science Forthcoming. ................................................... 75
Casas-Arce, P., S. Lourenco, and F.A. Martinez-Jerez. 2017. The performance effect of
feedback frequency and detail: evidence from a field experiment in customer satisfaction.
Journal of Accounting Research 55(5): 1051-1088. ................................................................... 76
Dierynck, B., and F. Arshad. 2019. Real-time feedback systems, recordkeeping and the
task selection bias. Working Paper Tilburg University. .............................................................. 77
EC 12 – Updating Management Control Systems .......................................................................... 81
van Pelt, V. 2019. Asymmetric updating of control in organizations. Working Paper Tilburg
University. .......................................................................................................................................... 84
Cardinaels, E., B. Dierynck, and V. van Pelt. 2019. Improving performance measurement
through managerial rotation. Working Paper Tilburg University. .............................................. 86
Labro, E., and L. Stice-Lawrence. 2019. Updating accounting systems: long-run evidence
from the healthcare sector. Management Science Forthcoming. ............................................. 86
EC 13 – Real-Life Case....................................................................................................................... 89
3
, PART 1: SETTING THE STAGE
EC 1 – The Kick-Off
A managerial reporting system in a firm is as our human brain in our body.
Functions Human Brain Functions Managerial Reporting System
in a Firm
Remembering things Decision-facilitating function
Instructing body parts Decision-influencing function
Coordinating between body parts Coordination-facilitating function
As a business grows, employees are hired and paid a fixed wage….
How can we motivate the employee so that (s)he provides an effort level that approximates the
effort level of the entrepreneur?
Agency relationship: a situation in which one individual (the agent) acts on behalf of another
individual (principal) and is supposed to advance the principal’s goals (through providing effort)
▪ The agent executes an action (task) a that has a private, convex cost C(a) for the agent
and generates benefits y for the principal.
▪ Higher values of a lead probabilistically to higher values of y but a in itself is not
observable for the principal.
▪ The principal observes a signal x carrying information about the level of a.
▪ The principal can decide to determine the payment w to the agent based on x(w=w(x))
▪ Payouts
a. Principal: y –w(x)
b. Agent: w(x) –C(a)
4
