An experimental study of incentive pay schemes, communication, and intrafrim resource allocation

Article Abstract:

Central managers can maximize efficiency by delegating authority for decision making and information processing to unit managers, because unit managers possess better knowledge of their units' capacities. Information asymmetries contained in a decentralized structure will not have negative consequences unless there is a convergence of goals between the central managers and the unit managers. Unit managers send information to the central managers before resources are acquired and create profits by investing their allocated resources in productive activities. Two problems arising in intrafirm resource allocation are the misrepresentation of information to the central managers by the unit managers, and unit managers increasing their consumption rather than investing allocated resources. The results of two experiments reveal that alternative incentive pay schemes can be useful in controlling the behavior of unit managers in the area of intrafirm resource allocation.

Analysis, Management research, Incentives (Business)

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Auditors' covariation judgments

Article Abstract:

Auditors often depend on information or knowledge about how task variables covary when making audit judgments and decisions. The auditor typically develops this information without utilizing a formal covariation model. The auditor's ability to judge covariation in a manner similar to a formal model can affect the quality of audit judgments and decisions. Two experiments are described which examine auditors' rules for integrating joint frequency data when making covariation judgements. Whether or not auditors' judgment is affected by context, previous expectations, and amount of auditing experience is also considered. Subjects were generally found to utilize data-integration rules that were sensitive to the objective covariation level, but this level was often overstated or understated. Context, prior expectations, and amount of auditing experience generally had minimal effects.

Management, Auditors

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Auditor versus model: information choice and information processing

Article Abstract:

The effect of information processing and information choice on auditors' judgement performance is examined in different states of environmental predictability. Data was collected from 84 Big Eight firm senior auditors who were asked to predict corporate failure. Results indicate that information choice and the less than optimal selection of ratios were the limiting factor in prediction performance.

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