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| Author: | Dutta, S. Reichelstein, S. |
| Title: | Leading indicator variables, performance measurement, and long-term versus short-term contracts |
| Journal: | Journal of Accounting Research
2003 : DEC, VOL. 41:5, p. 837-866 |
| Index terms: | Contracts Incentives Management behaviour Performance measurement |
| Language: | eng |
| Abstract: | A multiperiod agency model is developed to study the role of leading indicator variables in managerial performance measures. In addition to the familiar moral hazard problem, the principal faces the task of motivating a manager to undertake "soft" investments. These investments are not directly contractible, but the principal can instead rely on leading indicator variables that provide a noisy forecast of the investment returns to be received in future periods. The analysis relates to the role of leading indicator variables to the duration of the manager's incentive contract. |
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