Accounting Decentralization and Performance Evaluation of Business Unit Managers

Abstract

ABSTRACTWe use survey data to examine firms' propensity to rely on financial measures in evaluating local business unit managers. We find that firms rely less on financial measures (and more on nonfinancial measures or subjective evaluations) in determining local managers' bonuses when those managers have greater influence over the design of internal accounting systems. At the same time, we find no significant association between the choice of performance measures and local managers' authority to make operating decisions. Instead, we find that local authority to make operating decisions is positively associated with local managers' influence over accounting systems. Taken together, our findings suggest that the design of internal accounting systems is an important dimension of overall organizational design. Our findings also cast doubt on the maintained assumption in prior work that major organizational design choices are complementary.Data Availability: Data used in this study cannot be made public due to confidentiality agreements with participating firms.