The Role of Performance Measures in the Intertemporal Decisions of Business Unit Managers

The Role of Performance Measures in the Intertemporal Decisions of Business Unit Managers*

MARGARET A. ABERNETHY The University of Melbourne Department of Accounting Victoria, Australia 3010 [T] +613 8344 5311, [F] +613 8344 3647 m.abernethy@unimelb.edu.au

JAN BOUWENS Tilburg University CentER and Department of Accountancy PO Box 90153, 5000 LE Tilburg, The Netherlands [T] +31 13 466 8288, [F] +31 13 466 8001 j.bouwens@uvt.nl

LAURENCE VAN LENT Tilburg University CentER and Department of Accountancy PO Box 90153, 5000 LE Tilburg, The Netherlands [T] +31 13 466 8288, [F] +31 13 466 8001 vanlent@uvt.nl

* Accepted by Steve Salterio. An earlier version of this paper was presented at the 2011 Contemporary Accounting Research Conference, generously supported by the Canadian Institute of Chartered Accountants. We received helpful comments from workshop participants at LSE, Ferrara, and the AAA Management Accounting Section Midyear Meeting in Long Beach, the GMARS conference in Sydney, and Tilburg University’s Fall Camp 2008 as well as from Shannon Anderson, Dennis Campbell, Gavin Cassar (discussant), Mandy Cheng (discussant), Peter Easton, Christian Hofmann, Yuping Jia, Eva Labro, Anne Lillis, David Larcker, Ken Merchant, Valeri Nikolaev, Mina Pizzini, Marcel van Rinsum, John Roberts, Naomi Soderstrom, Jeroen Suijs, Wim Van der Stede (discussant), Anne Wyatt, and Jerold Zimmerman. We are grateful for the constructive feedback from Steve Salterio and two anonymous reviewers.

The Role of Performance Measures in the Intertemporal Decisions of Business Unit Managers

Abstract Accounting performance measures are often argued to lead to short-sighted behavior by managers facing intertemporal decisions. We assess the association between different types of performance measures and the time horizon of business unit managers who have profit responsibility. Our results, based on a sample of 105 managers, indicate that accounting return measures direct business unit...