Abstract
The purpose of the study is to examine whether superiors (i.e. principals), who evaluate the performance of their subordinates (i.e. agents), take information asymmetry into account by assuming that subordinates shirk when the accounting system does not provide information on subordinates’ effort levels. A decision making experiment was conducted to examine the effect of information asymmetry on effort attribution and the effect of effort attribution on performance evaluation. The results show that the presence of an agency problem significantly affected managers’ beliefs regarding the level of effort they attributed to the subordinate, which affected their evaluation of the subordinate.
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