PhD defense: Performance measurement for managers
On Friday 20 January 2012 Cathrine Kleppestø will hold a trial lecture on a prescribed topic, and defend her thesis for the PhD degree at NHH.
11.01.2012 - Ed.
The topic of the thesis is performance measurement for managers. A manager of a company will typically make many types of decisions; short-term operating decisions and long-term investment decisions, as well as reporting decisions. The thesis focuses on how these decisions influence each other, and in particular how the manager's reporting decision influences his investment incentives.
Kleppestø analyzes this in a theoretical principal-agent model where a manager can choose to withhold information (voluntary disclosure), but cannot manipulate the content of the report if he discloses. The manager will choose to hide bad outcomes and disclose good outcomes. This protects him from downside risk, but the voluntary disclosure decision also changes his investment incentives. The thesis shows in more detail how the manager's voluntary disclosure decision influences the investment incentives.
Kleppestø then relates this model to accounting principles, more specifically the use of cash-based versus accrual accounting. When stock price is used as a performance measure, this resembles a fair value accrual, and the thesis shows how accrual accounting creates better long-term investment incentives for the manager than cash accounting.
The thesis shows that owners, if they can choose, may prefer letting the manager decide whether to disclose his information (voluntary disclosure) compared to full disclosure, where the information is always released. In a numerical example, Kleppestø shows how voluntary disclosure can provide more effective investment incentives than full disclosure.
The thesis contributes to the understanding of performance pay. The thesis shows that a manager's investment incentives and reporting incentives influence each other. This should be taken into account when owners offer the manager an incentive contract.
Prescribed topic for the trial lecture:
The role of accruals in creating goal congruence when the agent exerts effort and invests
Time of the trial lecture:
Friday 20 January, 10:15 in Karl Borch's Auditorium, NHH
Title of the thesis:
Investment, voluntary disclosure, and managerial incentives
Time and place for the defense:
12:15 in Karl Borch's Auditorium, NHH
Professor Frøystein Gjesdal, NHH, principal supervisor
Professor Trond Olsen, NHH
Professor John Christensen, University of Southern Denmark
Members of the evaluation committee:
Assistant Professor Tiago Pinheiro, NHH, chair
Professor Barbara Schöndube-Pirchegger, Otto-von-Guericke-University of Magdeburg
Professor Hans Frimor, Aarhus University