Interim Performance Research Articles

Documenting the functional form of dynamic risk‐taking behaviour in a real options context using sporting contests

AbstractChanges in risk‐taking behaviour based on interim performance are examined in high‐stakes competition. A real options framework is used to provide a richer characterisation of risk‐taking behaviour than examined in extant studies. This framework is applied to an examination of ball‐by‐ball data from 1207 cricket matches. Consistent with modelled expectations, risk taking is found to increase (decrease) at a decreasing rate following below par (above par) interim performance. This result is especially strong in situations where the resources remaining are low, a result predicted by the real options model.

Earnings Management, Reporting Frequency and Agency Cost

The paper considers, in a principal-agent framework, whether or not providing interim performance evaluations is more efficient when agents can manipulate the very performance reports by which they are evaluated. Providing interim performance evaluation introduces possible dependence of subsequent strategies on interim reports. Such dependence, while alleviating previous-period incentive compatibility constraints, also increases the (expected) later-period performance manipulation costs. The first effect provides a risk-sharing benefit whereas the second effect increases the expected compensation cost to the agent (in utilities). Correspondingly, providing interim performance evaluation is better when the manager is sufficiently risk-averse so that the risk-reduction effect dominates.

Replacing Sanger with Next Generation Sequencing to improve coverage and quality of reference DNA barcodes for plants

We estimate the global BOLD Systems database holds core DNA barcodes (rbcL + matK) for about 15% of land plant species and that comprehensive species coverage is still many decades away. Interim performance of the resource is compromised by variable sequence overlap and modest information content within each barcode. Our model predicts that the proportion of species-unique barcodes reduces as the database grows and that ‘false’ species-unique barcodes remain >5% until the database is almost complete. We conclude the current rbcL + matK barcode is unfit for purpose. Genome skimming and supplementary barcodes could improve diagnostic power but would slow new barcode acquisition. We therefore present two novel Next Generation Sequencing protocols (with freeware) capable of accurate, massively parallel de novo assembly of high quality DNA barcodes of >1400 bp. We explore how these capabilities could enhance species diagnosis in the coming decades.

The Association of Grade Reporting Method, Student Performance, and Student Motivation on a Veterinary Clinical Rotation

The purpose of this study was to investigate factors influencing student motivation for learning and performance on a small animal internal medicine (SAIM) rotation, with a particular emphasis on the impact of the type of grade reporting system utilized. Veterinary students rotating through 3-week SAIM rotations at the University of Georgia between March 4, 2013 and May 1, 2014 were randomized to receive either conventional pass/fail (CONV) or proxy discriminating letter grades (PROX) as their interim and final individual performance evaluations. Additionally, each student was asked to complete a motivation self-assessment questionnaire on the last day of the rotation to determine which factors contributed to their performance accomplishments and learning strategies during the rotation. A total of 157 students completed the SAIM rotation during the 14-month period, and 107 students completed the questionnaire. There was no difference in scores on interim or final performance evaluations between CONV and PROX groups. Results of questionnaire responses suggested that the type of grade reporting system utilized infrequently impacted student motivation to exceed performance standards and did not influence specific learning techniques employed during their clinical rotation. Ultimately, the value placed on patient care, client relations, and future professional success were the most commonly reported motivating factors by the clinical students.

Interim fund performance and fundraising in private equity

General partners (GPs) in private equity (PE) report the performance of an existing fund while raising capital for a follow-on fund. Interim performance has large effects on fundraising outcomes. The impact is greatest when backed by exits and for low reputation GPs. Faced with these incentives, GPs time their fundraising to coincide with periods of peak performance through two strategies: (1) exit and fundraise and (2) net asset value (NAV) management. Consistent with the former, performance peaks are greatest for funds with high realization rates. Consistent with the latter, low reputation GPs with low realization rates experience performance peaks and erosions in performance after fundraising.

Comparative effect of direct-fed microbial regimen on health and performance of neonatal dairy heifer calves

This study was conducted to compare health and performance in neonatal dairy heifer calves supplemented with direct-fed microbial products in milk: (1) Propionibacterium freudenreichii NP24 and Lactobacillus acidophilus NP51 (BVM) or (2) Kluyveromyces m/f B0399 and Saccharomyces c/f 1026 (PBST). A total of 770 individually housed Holstein (n = 528), Jersey (n = 212), and crossbred (n = 30) heifers at a commercial calf-rearing facility were used for the primary group. Body weight was recorded on d 0 and 60 to determine ADG and percentage of daily BW gain, and health was monitored daily from arrival (d 0) through weaning (d 60). A subset group comprising 50 (n = 25 per treatment) Holstein (n = 32) and Jersey (n = 18) heifer calves were weighed periodically and analyzed separately to evaluate interim and overall performance and health. For both groups, heifers between 1 and 3 d of age were assigned randomly to treatment, and treatments were arranged within a single hutch row consisting of 100 heifers. A tendency (P = 0.09) for an improvement in ADG was observed for PBST heifers in the primary group. For the subset group, PBST had improved ADG from d 0 to 10 (0.29 vs. 0.05; P < 0.001), d 0 to 22 (0.31 vs. 0.23; P = 0.003), and overall (0.51 vs. 0.44 kg/d; P = 0.002). The percentage of daily BW gain was increased for PBST from d 0 to 10 (0.45 vs. 0.09%; P < 0.001) and overall (0.78 vs. 0.64%; P = 0.002). Also, PBST had a greater (P = 0.05) percentage of calves requiring a second respiratory disease treatment, but no other health differences were observed in this experiment. Results indicate PBST improved performance compared with BVM, but health was not clearly affected.

EPA Announces Federal Plan Rulemaking; Encourages States to Incorporate Proposed Trading Rules as Part of Implementation Plans

On August 3, 2015, the Environmental Protection Agency published the Clean Power Plan under authority from §111(d) of the Clean Air Act. This is the first ever national standard designed to regulate emissions of carbon dioxide from existing stationary sources, i.e. fossil fuel-fired power plants either in operation before, or under construction by, January 8, 2014, which, according to the EPA, make up 31% of the total greenhouse gas emissions in the U.S. The CPP aims to reduce CO2 emissions from the power sector by 32% from 2005 levels by 2030. To achieve this goal, the EPA prepared emissions guidelines that set both interim and final CO2 performance rates for two subcategories of existing fossil fuel-fired electric generating units. These existing source performance standards were developed using the EPA’s Best System for Emissions Reductions. States have been given the opportunity to implement the CPP using either a State Measures plan or an Emissions Standard plan. The EPA has actively encouraged states to develop implementation plans, although some claim they will abstain from doing so. The EPA has also made it clear that states will not be penalized for refusing to enforce the CPP. If a state does not submit a plan or the EPA does not approve all or any part of a state implementation plan, then “the EPA will develop, implement, and enforce a federal plan to reduce CO2” from stationary sources in that state using a federal plan. To address this situation, the EPA is preparing a rulemaking made up of four separate actions, which this article discusses.The purpose of this rulemaking is to create a federal plan framework based upon emissions trading for states without an implementation plan. It is also attempting to develop two approaches intended to serve as model trading rules for states to consider when developing implementation plans. This article focuses on each model trading approach.

Subjective performance feedback, ability attribution, and renegotiation-proof contracts

I study a two-stage principal-agent model in which the agent's ability is initially unknown to any party. Before the game starts, the principal decides on a rule of midterm review: whether the subjective interim performance or the agent's ability (or both or neither) will be evaluated at the end of the first stage. Review results can be used to determine the agent's replacement and compensation. I show that conducting an ability appraisal removes the feedback role of interim performance evaluation (IPE) and undermines the principal's honesty in reporting the subjective IPE result. A key result is that no incentive scheme based on a subjective IPE is enforceable in the presence of an ability appraisal.

Interim performance of a non-DRE urine exosome gene signature to predict Gleason ≥7 prostate cancer on initial prostate needle biopsy from patients enrolled in a prospective observational trial.

5064 Background: PSA and DRE are used for biopsy decisions; however, limited sensitivity and specificity have resulted in the over-diagnosis and treatment of low risk prostate cancer (PCa). Non-inv...

Manipulation and Fraud with Staged Financing

It has been argued that short-term financing has a drawback: managers must manipulate interim performance signals in order to keep funds flowing. In contrast, this paper finds that total (expected) manipulation across two rounds of short-term financing may be either greater than or lower than manipulation with long-term financing. Manipulation in the two rounds may either act as complements or substitutes, depending on whether one is looking forward or backward in time. Regulatory fraud prevention remedies have more power when directed at the first round behavior. Manipulation is nonmonotonic in both firm quality and leverage.

Accessibility and Materialization of Firm Innovation

Timely feedback on interim performance provided to firms is important for motivating firm innovation as proposed in Manso (2011). This paper tests the feedback mechanism by exploring how a firm’s physical distance to the United States Patent and Trademark Office, which captures the ease and intensity of timely feedback on interim performance during the patenting process, affects firm innovation output. Using plausible exogenous variation in distance generated by firm relocations and changes in direct flight frequency, we find that a decrease in timely feedback provided to firms results in a more lengthy patent procurement and a reduction in patent quantity. We also show that timely feedback is important for exploratory, but not for exploitative, innovation activity. Our paper sheds new light on public policy that supports a successful implementation of innovation ecosystems.

Private versus verifiable interim performance evaluations under uncertainty

I study the trade-off between private and verifiable interim performance evaluations under uncertainty. More uncertainty leads to higher agency costs if the interim evaluation is public and verifiable but lower agency costs if the interim evaluation is private and unverifiable.

Interim Performance Evaluation in Contract Design

This paper examines the desirability of having an interim performance evaluation (IPE) in the design of an optimal contract. While enabling the principal to plan and control the project process better, the IPE may also adversely affect the agent’s morale in case of unfavorable IPE outcome. Despite this, we show that it is without loss of generality using contracts that tailor effort or payment to the IPE result when it involves objective measures. In the environment in which it involves subjective measures, not using IPE may be in the principal’s interest; the reason is that the contract now features a progressive payment scheme that renders extra costs upon information disclosure.

Interim Performance Measures and Private Information

ABSTRACT: This study investigates whether having an upstream or downstream agent privately observe an interim performance measure and disseminating this measure to the other agent is valuable to the principal. The signal is informative about the upstream agent's action and positively correlated with output. If the upstream agent privately observes the signal, then there can be a higher cost of the downstream agent if the signal is sufficiently forward-looking. If the downstream agent privately observes the signal, then the trade-off involves rents to the downstream agent versus a reduced cost for the upstream agent. Private observation of an interim signal is valuable to the principal if it is not too forward-looking. The choice between upstream and downstream agent depends nontrivially on the signal's backward-looking quality. The results suggest that the value of observation and dissemination of an interim signal depends on the informativeness of output and the signal about upstream and downstream production. JEL Classifications: D82, D83, L20, M40.

Subjective Performance Feedback, Employee Turnover and Renegotiation-Proof Contracts

Feedback provision and salary administration are usually two indispensable purposes of conducting performance evaluations. However, the real role that performance feedback plays is affected by the availability of other appraisals that reveal information about the causes of performance. We develop a two-stage principal-agent model where, at the end of the first stage, the principal can choose to evaluate the interim performance, or the first-stage agent's ability that was previously unknown to any party, or both, and use the results to determine whether the original agent is rehired in the second stage, as well as the compensation. We find that the presence of an ability appraisal undermines the principal's credibility in the subjective evaluation of interim performance, and prohibits a renegotiation-proof contract from being written contingent upon subjective performance feedback.

How Fair are the Valuations of Private Equity Funds?

The ultimate performance of private equity funds is only known once all investments have been sold, and the cash returned to investors. This typically takes over a decade. In the meantime, the reported performance depends on the valuation of the remaining portfolio companies. Private equity houses market their next fund on the basis of these interim valuations of their current fund. In this paper we analyze whether these valuations are fair, whether the extent of conservative or aggressive valuations differ during the life of the fund, and at what stage interim performance measures predict ultimate performance. This paper is the first to use the quarterly valuations and cash flows for the entire history of 761 fund investments made by Calpers – the largest U.S. investor in private equity. Our main findings are as follows. First, over the entire life of the fund we find evidence that fund valuations are conservative, and tend to be smoothed (relative to movements in public markets): valuations understate subsequent distributions by around 35% on average. We find a significant jump in valuations in the fourth-quarter, when funds are normally audited. Second, the exception to this general conservatism is the period when follow-on funds are being raised. We find that valuations, and reported returns, are inflated during fundraising, with a gradual reversal once the follow-on fund has been closed. Third, we find that the performance figures reported by funds during fund-raising have little power to predict ultimate returns. This is especially true when performance is measured by IRR. Using public market equivalent measures increases predictability significantly. Our results show that investors should be extremely wary of basing investment decisions on the returns - especially IRRs – of the current fund.

Delegation and Interim Performance Evaluation

This paper considers the effects of an interim performance evaluation on the decision of a principal to delegate authority to a potentially biased but better informed agent. Assuming the agents’ outside option to be determined by market beliefs about their type, interim evaluations (a) provide a possibility for the principal to potentially separate biased agents from unbiased agents and (b) induce an incentive for biased agents to imitate unbiased ones in order to retain the decision authority and to increase their wages in later periods (in case of public evaluation). We show that the principal always profits from a private evaluation while a public evaluation is only beneficial if the corresponding wage effects are not too costly. Nevertheless, the principal prefers public over private evaluation if the imitation incentive for the biased type is high enough. Finally, regarding implications for economic policy, we show that in view of aggregate welfare any evaluation conducted ought to be disclosed to the public.

Effect of band tail states on the performance of organic solar cells

Organic solar cells (OSCs) without proper encapsulation undergo a continuous degradation when exposed to air. However an interim improvement in the performance of freshly made OSCs is often observed after they are subjected to a short exposure to air. The mechanism of such an interim performance improvement has not been fully understood yet. In this study, it is found that the band tail states in the photo active layer, formed due to the air exposure, correlated closely with the initial enhancement in the performance of OSCs. The results reveal that the longer lifetime and larger charge separation distance, caused by the presence of the band tail states, are beneficial for the charge separation and collection in OSCs. The free carriers generated from charge–exciton interaction also contribute to the increase in photocurrent.

Interim Performance Measures and Private Information

This study investigates whether having an upstream or downstream agent privately observe an interim performance measure and disseminating this measure to the other agent is valuable to the principal. The signal is informative about the upstream agent’s action and positively correlated with output. If the upstream agent privately observes the signal, there can be a higher cost of the downstream agent if the signal is sufficiently forward-looking. If the downstream agent privately observes the signal, the tradeoff involves rents to the downstream agent versus a reduced cost for the upstream agent. Private observation of an interim signal is valuable to the principal if it is not too forward-looking. The choice between upstream and downstream agent depends non-trivially on the signal’s backward-looking quality. The results suggest that the value of observation and dissemination of an interim signal depends on the informativeness of output and the signal about upstream and downstream production.

Performance Feedback with Career Concerns

This article examines the incentive effects of interim performance evaluation when a worker has career concerns and effort is history dependent. Disclosure has two effects: it increases the variance of future effort, and it allows the worker to use current effort to influence his employer's belief about future effort, creating a ratchet effect. The article provides necessary and sufficient conditions for full disclosure to dominate no disclosure; shows that the optimal disclosure policy reveals output realizations in the center of the distribution, but not in the tails; and discusses the potential implications of the results for the analysis of performance appraisal systems. (JEL D82, D86, L20) The Author 2012. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.