I investigate factors affecting firms' uses of three types of performance metrics to evaluate division mangers: division accounting metrics, firm accounting metrics and firm stock price. Survey data reveal that division accounting metric use increases with the divisions' industry's price–earnings correlation and decreases with divisional growth opportunities; firm accounting metric use increases with the manager's impact on other divisions and decreases with growth opportunities and other managers' impact on that division; and firm stock price use increases with relative division size and the correlation between firm stock returns and market-wide returns.

Contrary to previous studies, we find managers change depreciation policies in predictable ways. We identify three dimensions of depreciation-policy changes: whether it is a method change or an estimate revision; whether it is income-increasing or decreasing; and whether it applies to new assets only or both new and existing assets. This disaggregation leads to three findings: First, a 1981 tax law altered the frequency of estimate revisions and method changes. Second, firms adopting income-increasing method changes for all assets experience worse performance than those adopting such changes only for new assets. Finally, non-income-increasing policy changes are associated with changes in investment opportunities.