Fishing for excuses and performance evaluation


Review of Accounting Studies

June 2014, vol. 19, pp.988-1008

Departments: Accounting & Management Control, GREGHEC (CNRS)

Keywords: Performance measurement, Manipulation, Controllability principle, Excuse culture, Influence activity

We study a principal–agent model in which the agent can provide expost additional relevant information regarding his performance. In particular, he canprovide a legitimate excuse, that is, evidence that a poor result is only due to factorsoutside his control. However, building a convincing case requires time, time that isnot spent on exerting productive effort and thus generating information representsan opportunity cost. We obtain necessary and sufficient conditions for the principalto prefer a policy of adjusting ex post the performance measure for the informationprovided by the agent to a policy of conforming to a result-based system with noadjustments. The risk aversion and a possible limited liability of the agent play animportant role in the analysis. This paper clarifies the issues associated with the socalled‘‘excuse culture’’ prevailing in some organizations