This study examines the determinants of performance measure choices in worker incentive plans. The results indicate that informativeness issues such as those addressed in economic theories have a significant effect on measurement choices. However, other reasons for adopting the plans, such as upgrading the workforce and linking bonuses to the firm’s ability to pay, also influence measurement choices, as do union representation and management participation in plan design. Moreover, the factors influencing the use of specific measures vary, suggesting that the aggregate performance measure classifications commonly used in compensation research provide somewhat misleading inferences regarding performance measurement choices.

Christopher D. Ittner, David F. Larcker, 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. 1-35

Total quality management, Information systems, Reward systems, Organizational performance

We examine whether more sophisticated accounting methods (in the form of accrual accounting) interact with other information sources to reduce information asymmetries between small business borrowers and lenders, thereby lowering borrowers׳ probability of loan denial and cost of debt. We find that higher third party credit scores, but not the use of accrual accounting, decrease the likelihood of loan denial. However, firms using accrual accounting exhibit statistically lower interest rates after controlling for many factors associated with the cost of debt. Further, the interest rate benefits from accrual accounting are greatest when the borrower׳s credit score is low and/or the length of its banking relationship with the lender is short. This evidence indicates that accrual accounting can benefit small business borrowers, but that the information contained in third-party credit scores and obtained through ongoing banking relationships can substitute for the incremental information provided by accrual accounting.