search query: @indexterm RISK BEHAVIOUR / total: 47
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| Author: | Sprinkle, G.B. Williamson, M.G. Upton, D.R. |
| Title: | The effort and risk-taking effects of budget-based contracts |
| Journal: | Accounting, Organizations and Society
2008 : JUL, VOL. 33:4-5 p.436-452 |
| Index terms: | budget risk behaviour contracts management accounting performance management |
| Language: | eng |
| Abstract: | This paper investigates how the budget levels embedded in budget-based contracts affect individual effort and risk-taking. It is shown that, from a wealth maximization perspective, a tradeoff exists between motivating effort and ecouraging risk-taking. Budget levels and effort seem to be positively correlated until budgets become very difficult, at which point individuals 'give up'. An another relation between budget levels and risk-taking is opposing: low budgets provide the flexibility to take greater risks. A laboratory experiment is conducted to empirically test this economic proposition. The results suggest, among others, that the effort-risk tradeoff is mitigated at low budget levels, increasing firm welfare, but it is exacerbated at high budget levels, reducing firm welfare. Thus, the results highlight the importance of understanding how managerial accounting practices affect the various determinants of performance. |
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