Budgeting, Budgetary slack, Participative budgeting, Risk aversion

Firms are redesigning operations to reduce slack and waste and improve performance (Hoerr 1989; Safizadeh 1991; Walton 1987) and this often involves reorganizing production workers into workgroups to foster cooperation and group participation in setting standards (Hayes et al. 1988; Schonberger 1986). In addition to employing incentive schemes linked to meeting standards, many firms are using bonuses tied to relative performance among groups to develop a spirit of intergroup competition. Over the past two years, we made several visits to three Fortune 500 manufacturing firms involved in such changes. The site visits suggested several hypotheses that merited further investigation. Thus, we designed a laboratory experiment to study more systematically what we had observed in the field. This study extends previous research on determinants of slack and performance (e.g.. Chow 1983; Chow et al. 1988; Waller and Chow 1985; Young 1985) by: (1) incorporating our observations and the literature on intragroup cooperation and competitive feedback to develop hypotheses, (2) studying workgroups rather than individuals, and (3) using a multiperiod rather than single-period setting. Results of the experiment show that the type of competitive feedback received by groups affected both their output and slack. Interestingly, when individuals were allowed to cooperate rather than work In isolation, performance actually declined. This latter result was unexpected and was likely the consequence of the particular experimental task.

[Firms are redesigning operations to reduce slack and waste and improve performance (Hoerr 1989; Safizadeh 1991; Walton 1987) and this often involves reorganizing production workers into workgroups to foster cooperation and group participation in setting standards (Hayes et al. 1988; Schonberger 1986). In addition to employing incentive schemes linked to meeting standards, many firms are using bonuses tied to relative performance among groups to develop a spirit of intergroup competition. Over the past two years, we made several visits to three Fortune 500 manufacturing firms involved in such changes.1 The site visits suggested several hypotheses that merited further investigation. Thus, we designed a laboratory experiment to study more systematically what we had observed in the field. This study extends previous research on determinants of slack and performance (e.g., Chow 1983; Chow et al. 1988; Waller and Chow 1985; Young 1985) by: (1) incorporating our observations and the literature on intragroup cooperation and competitive feedback to develop hypotheses, (2) studying workgroups rather than individuals, and (3) using a multi-period rather than single-period setting. Results of the experiment show that the type of competitive feedback received by groups affected both their output and slack. Interestingly, when individuals were allowed to cooperate rather than work in isolation, performance actually declined. This latter result was unexpected and was likely the consequence of the particular experimental task.]

This study examines the influence of accounting and capital market measures of firm performance on the reputations of corporate chief executives (CEOs). The empirical tests rely on pooled time‐series cross‐sectional data for approximately 900 top executives in about 500 firms drawn from 36 industries over the 1975–1987 period. CEO reputation measures are derived from securities analysts' annual evaluations of executive performance as reported by Financial World magazine. The study's results document a positive incremental association between profit performance and reputation, a finding consistent with the notion that accounting earnings convey information about CEO productivity beyond that present in stock returns. However, the sensitivity of CEO reputation to stock returns and earnings performance is modest, and the earnings‐reputation relation varies considerably across industry groups. Résumé. Les auteurs s'intéressent ici à l'influence qu'exercent sur la réputation des directeurs généraux de sociétés les mesures de la performance de l'entreprise relevant de la comptabilité et du marché des capitaux. Leurs tests empiriques s'appuient sur les données transversales de séries chronologiques groupées relatives à environ 900 cadres supérieurs de quelque 500 entreprises provenant de 36 secteurs d'activité, relevées entre 1975 et 1987. Les « mesures » de la réputation des directeurs généraux de sociétés sont dérivées de l'évaluation annuelle de la performance des cadres, produite par les analystes en valeurs mobilières, dont fait état le magazine Financial World. Les résultats obtenus révèlent une association prenant la forme d'un écart marginal positif entre la performance, en termes de profits, et la réputation, constatation qui corrobore la notion selon laquelle les bénéfices comptables livrent, au sujet de la productivité des directeurs généraux de sociétés, de l'information que ne livre pas le rendement des actions. La sensibilité de la réputation des directeurs généraux de sociétés au rendement de l'action et aux bénéfices est cependant modérée, et la relation bénéfices‐réputation varie largement selon les groupes sectoriels.

Decision making, Human judgment, Decision aids, Opportunity costs