Performance Measurement and Managerial Time Orientation

The accounting literature has devoted a considerable amount of attention to the effects of accounting performance measures on short-term behaviour. Recently, the attention for the use of non-financial measures, as an instrument to prevent managers from making short-term oriented decisions, has also increased (Balanced Scorecard). Theory and empirical evidence, however, are limited. Prior literature has often equated a short-term orientation with dysfunctional behaviour, whereas the optimal time orientation depends on the circumstances. Moreover, the literature to date suffers from a lack of theory about which properties of the performance measurement system affect managerial time orientation. This is apparent for example by the use of broad categories of performance measures, such as financial versus non-financial, without further specification of the process through which this categorization influences managerial behaviour. This dissertation builds on the psychological, economic and accounting literatures, and examines how properties of the performance measurement system, as well as individual level variables, influence managerial time orientation. The hypotheses developed are first empirically tested using the data obtained by means of a survey from a representative sample of financial managers. Second, an additional experimental investigation into three selected hypotheses, regarding the effects of leading indicators and evaluation period length, is conducted. Results indicate that both individual level variables and properties of the performance measurement system are important predictors for managerial time orientation.

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