Richard A. Lambert, Customer Satisfaction and Future Financial Performance Discussion of are Nonfinancial Measures Leading Indicators of Financial Performance? An Analysis of Customer Satisfaction, Journal of Accounting Research, Vol. 36, Studies on Enhancing the Financial Reporting Model (1998), pp. 37-46

Cost variance, Auditing, Agency Theory

This paper uses an agency theory model in which the agent's actions are multi‐dimensional to analyze the optimal weights to apply to performance measures in a compensation contract. We show how the optimal contract trades off the congruity of the overall performance measure with the desire to minimize the risk imposed upon the agent. In contrast to the single action case, we find that an increase in the sensitivity of a performance measure to an agent's action does not necessarily increase the weight placed on that performance measure, even if that measure is perfectly congruent with the firm's outcome.

Richard A. Lambert, David F. Larcker, An Analysis of the use of Accounting and Market Measures of Performance in Executive Compensation Contracts, Journal of Accounting Research, Vol. 25, Studies on Stewardship Uses of Accounting Information (1987), pp. 85-125

In this paper we examine whether and how accounting information about a firm manifests in its cost of capital, despite the forces of diversification. We build a model that is consistent with the Capital Asset Pricing Model and explicitly allows for multiple securities whose cash flows are correlated. We demonstrate that the quality of accounting information can influence the cost of capital, both directly and indirectly. The direct effect occurs because higher quality disclosures affect the firm's assessed covariances with other firms' cash flows, which is nondiversifiable. The indirect effect occurs because higher quality disclosures affect a firm's real decisions, which likely changes the firm's ratio of the expected future cash flows to the covariance of these cash flows with the sum of all the cash flows in the market. We show that this effect can go in either direction, but also derive conditions under which an increase in information quality leads to an unambiguous decline in the cost of capital.

Management control, Moral Hazard, Just-in-Time management, Motivation

Surya N. Janakiraman, Richard A. Lambert, David F. Larcker, An Empirical Investigation of the Relative Performance Evaluation Hypothesis, Journal of Accounting Research, Vol. 30, No. 1 (Spring, 1992), pp. 53-69