The Effect of Relative Performance Information Detail and Time Horizon on Effort Allocation in a Multi-Task Environment

This study investigates how two characteristics of public relative performance information (RPI), detail level and time horizon, affect how employees allocate their effort in a multi-task environment. Based on behavioral theories, we predict that employees will distort their effort away from the firm’s preferred effort allocation proportion to a greater degree when the RPI is more rather than less detailed and when the time horizon provides RPI that is cumulative rather than re-set each period. We also predict that, to the extent more detailed RPI increases effort distortion, this effect will be amplified when RPI is cumulative. Consistent with our predictions, our experimental results find that more detailed RPI leads to greater effort distortion than less detailed RPI and that cumulative RPI leads to more effort distortion than non-cumulative RPI. We also find that the effort distorting effects of more detailed RPI is greatest when the RPI is cumulative. Our results demonstrate that two RPI characteristics which firms can control, detail level and time horizon, may exacerbate or mitigate the effort distortion effects documented in prior accounting research.

This seminar is organised by the Erasmus Accounting Research Group.