Abstract
Original language | English |
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Place of Publication | Amsterdam |
Publisher | Tinbergen Institute |
Number of pages | 27 |
Publication status | Published - 2014 |
Series | Tinbergen Institute Discussion Papers |
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Number | 14-056/V |
Cite this
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Testing for Distortions in Performance Measures : An Application to Residual Income Based Measures like Economic Value Added. / Sloof, Randolph; Van Praag, Mirjam.
Amsterdam : Tinbergen Institute, 2014.Research output: Working paper › Research
TY - UNPB
T1 - Testing for Distortions in Performance Measures
T2 - An Application to Residual Income Based Measures like Economic Value Added
AU - Sloof, Randolph
AU - Van Praag, Mirjam
PY - 2014
Y1 - 2014
N2 - Distorted performance measures in compensation contracts elicit suboptimal behavioral responses that may even prove to be dysfunctional (gaming). This paper applies the empirical test developed by Courty and Marschke (2008) to detect whether the widely used class of Residual Income based performance measures —such as Economic Value Added (EVA)— is distorted, leading to unintended agent behavior. The paper uses a difference-in-differences approach to account for changes in economic circumstances and the self-selection of firms using EVA. Our findings indicate that EVA is a distorted performance measure that elicits the gaming response.
AB - Distorted performance measures in compensation contracts elicit suboptimal behavioral responses that may even prove to be dysfunctional (gaming). This paper applies the empirical test developed by Courty and Marschke (2008) to detect whether the widely used class of Residual Income based performance measures —such as Economic Value Added (EVA)— is distorted, leading to unintended agent behavior. The paper uses a difference-in-differences approach to account for changes in economic circumstances and the self-selection of firms using EVA. Our findings indicate that EVA is a distorted performance measure that elicits the gaming response.
KW - Residual income
KW - Economic value added
KW - Distortion
KW - Performance measurement
KW - Incentive compensation
M3 - Working paper
T3 - Tinbergen Institute Discussion Papers
BT - Testing for Distortions in Performance Measures
PB - Tinbergen Institute
CY - Amsterdam
ER -