Description
This paper argues that research progress in accounting has been significantly hindered by the fact that most
researchers focus their theories and perspectives on a single research discipline. The point is illustrated by discussing
research in the area of organizational incentive systems. The relevant base disciplines in this area are economics and
several behavioral sciences (primarily psychology and sociology). The paper uses a citation and content analysis to
show that the economics- and behavioral-based empirical papers published in accounting journals differ significantly
and that there is little cross-fertilization between them.
Disciplinary constraints on the advancement of knowledge:
the case of organizational incentive systems
Kenneth A. Merchant*, Wim A. Van der Stede, Liu Zheng
University of Southern California, Leventhal School of Accounting, Los Angeles, CA 90089-0441, USA
Abstract
This paper argues that research progress in accounting has been signi?cantly hindered by the fact that most
researchers focus their theories and perspectives on a single research discipline. The point is illustrated by discussing
research in the area of organizational incentive systems. The relevant base disciplines in this area are economics and
several behavioral sciences (primarily psychology and sociology). The paper uses a citation and content analysis to
show that the economics- and behavioral-based empirical papers published in accounting journals di?er signi?cantly
and that there is little cross-fertilization between them. It then discusses the reasons contributing to the single discipline
foci and describes how research would be improved if the disciplinary parochialism were reduced. # 2002 Elsevier
Science Ltd. All rights reserved.
Much of the research focused on the study of
the design and use of various accounting practices
in organizations is done, seemingly, with no (or
little) researcher awareness of research ?ndings
from disciplines other than the authors’ primary
discipline. Many researchers seem to lock quickly
into a single research discipline, paradigm or the-
ory and ignore developments and insights from
other ?elds that could shed light on the research
issue on which they are focusing. These narrow,
single discipline- or paradigm-bound foci have
hindered research progress by fragmenting the lit-
erature, by hindering communication (because of
the concurrent use of highly specialized jargon
with quite similar meanings), and by suggesting
incomplete and, in some cases, incorrect conclu-
sions.
In this paper we call for researchers to throw o?
their single-paradigm-induced blinders, to adopt a
management problem-based (rather than a dis-
cipline-based) orientation, and to work toward
integration of ?ndings by incorporating in their
research designs variables, perspectives, terminol-
ogies, and ?ndings from other related research
areas. Ours is not the ?rst such call; for example,
Atkinson et al. (1997) dealt with the problem
broadly.
1
But our paper makes a contribution
both by documenting the extent of the problem
and by describing some examples where improve-
ments can be made in one important area of the
research literature: the study of the design and
e?ects of organizational incentive systems. This
0361-3682/02/$ - see front matter # 2002 Elsevier Science Ltd. All rights reserved.
PI I : S0361- 3682( 01) 00051- 4
Accounting, Organizations and Society 28 (2003) 251–286
www.elsevier.com/locate/aos
1
There are also many calls for use of multiple research
methods. We concur with this advice but the discussion of this
issue is outside the scope of this paper.
* Corresponding author. Tel.: +1-213-740-4842; fax: +1-
213-747-2815.
E-mail address: [email protected]
(K.A. Merchant).
particular topic area is discussed as merely an
example of the problem,
2
but it is one in which
paradigm-induced parochialism seems particularly
acute. It is also a good area for illustration
because organizational incentive systems are a
particularly important area of study for account-
ing researchers. Measurements, often in account-
ing terms, are a major element of most incentive
systems.
The remainder of the paper is structured as fol-
lows. In Section 1, we de?ne the scope of research
bearing on organizational incentive systems and
categorize the disciplinary orientations to incen-
tives-research in accounting. In Section 2, we
describe the ?ndings of an analysis of the citations
in four major accounting journals that shows that
the vast majority of the incentives-related research
published in these journals draws on only one of
the disciplinary orientations (economic vs. beha-
vioral) described in Section 1. In Section 3, we
discuss how di?erent disciplinary orientations lead
to quite di?erent incentives-research choices. In
Section 4 we explain how better integrating
approaches and ?ndings across discipline bound-
aries can improve the development of knowledge.
In Section 5, we describe the forces that lead
researchers away from cross-disciplinary research.
In Section 6 we summarize and conclude.
1. Disciplinary approaches to the study of orga-
nizational incentive systems
Organizational incentive systems encompass
multiple elements—performance standards or tar-
gets and the processes used to set them, perfor-
mance measures, performance evaluations, and
reward structures that link the performance eva-
luations to the provision of various forms of
organizational rewards. By de?nition, the primary
goal of an incentive system is motivation. How-
ever, organizations commonly incorporate in
incentive systems some features that are not
designed to induce employees to perform at their
maximum. Some system features are aimed, for
example, at attracting and retaining high quality
employees, and others are aimed at producing
smoother income and cash ?ow streams. These
non-motivational purposes can a?ect the design or
use of some incentive system elements (Merchant,
1989).
The body of research in organizational incentive
systems has grown substantially over the last 20
years. For example, the literature on top executive
compensation alone, which focuses on only one
organizational level of analysis, has grown from
just a few papers per year prior to 1985 to 60
papers in 1995 alone (Murphy, 1999). Similar,
although less dramatic, growth increases have also
occurred in other organizational incentive system
areas. Research aimed at the study of various
aspects of organizational incentive systems ema-
nates from many sources including, from just
within business school (or commerce) faculties,
those interested in economics, strategy (general
management), ?nance, accounting, and organiza-
tion behavior.
Various organizational incentive systems litera-
tures have recently been reviewed and critically
evaluated. For example, Prendergast (1999)
reviewed the economics-oriented incentives
research; Murphy (1999) and Pavlik, Scott, and
Tiessen (1993) reviewed the executive compensa-
tion studies in the ?nance/accounting literatures;
and Indjejikian (1999) reviewed agency-based
compensation research in accounting, just to
mention a few.
3
Our aim is not to ‘‘re-review’’
these now vast areas of research. Instead, our aim
is to compare, and particularly to contrast, the
incentives-oriented empirical accounting litera-
tures that have di?erent disciplinary orientations.
Later we describe how the literatures, which are
growing up nearly independent of each other, can
be enriched with cross-fertilization.
2
One could easily make the same points about many other
areas of research, such as organization design, activity-based
costing/activity-based management, transfer pricing, leader-
ship, and corporate and business strategy.
3
Most of these reviews, however, focus on incentive-con-
tracting issues (i.e. reward structures). Our scope is broader and
also includes the literature on: (1) performance targets and tar-
get-setting processes; (2) performance measurement; and (3)
performance evaluation. These aspects of an organizational
incentive system, broadly de?ned, generally are part of the
budgeting process in most organizations.
252 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
The research bearing on one or more aspects of
organizational incentive systems can be classi?ed
broadly into two categories. One category uses
economics as the base discipline. Most of the
incentives-oriented economics research published
in the past 20 years has relied on the terminology
and structure of what has been labeled agency
theory, but economists have also developed or
applied other models for use in the incentives area
(e.g. tournament models).
4
A second category can
be called behavioral research. Most of this research
builds on established theories or paradigms devel-
oped in the ?elds of psychology or sociology.
Among the behavioral theories that are commonly
cited in the organizational incentives literature are
expectancy theory (e.g. Vroom, 1964), goal-setting
theory (e.g. Locke & Latham, 1990), equity theory
(e.g. Adams, 1965), and attribution theory (e.g.
Mowday, 1983).
2. The extent of cross-fertilization in the organi-
zational incentives literature
To explore the extent to which there is cross-
fertilization between the economics and the beha-
vioral literatures in empirical incentives-related
research published in the accounting literature in
the last decade, we analyzed the citations made in
publications in four major journals in accounting:
Accounting, Organizations and Society (AOS),
Journal of Accounting and Economics (JAE), Jour-
nal of Accounting Research (JAR), and The
Accounting Review (TAR). We conducted a search
using the Social Science Citation Index (SSCI)
database of the Institute for Scienti?c Information
from 1989 to 1999 (1989 is the ?rst year reported
in the SSCI database). We searched for article
titles, keywords, and abstracts
5
that included the
following search-words: incentive, reward, com-
pensation, pay, bonus, budget, target, standard,
goal, performance measure, and performance eva-
luation (using wildcards to catch plurals and
hyphenated terms). These search-words were cho-
sen to capture the main elements of organizational
incentive systems, broadly de?ned, i.e. (1) stan-
dard setting (budget, target, standard, goal);
6
(2)
performance measurement; (3) performance evalua-
tion; and (4) the actual reward itself (incentive,
reward, bonus, compensation, pay). From the com-
puterized search, we excluded all articles that did
not fall within this (rather broad) framework of
organizational incentives. We also excluded all
non-empirical publications, such as analytical
papers, theoretical papers, review papers, com-
mentaries, and discussion papers.
This keyword search revealed a total of 396
papers published in the four target journals. For
AOS, the search revealed 83 articles, 21 of which
were dealing directly with the topic of this paper
as described above.
7
For JAE, the search revealed
107 articles, 24 of which were directly relevant for
the purpose of this paper.
8
For TAR, 14 out of
4
Tournaments take place within organizations with ?xed
salary structures. The incentive e?ect stems from the appeal of
the possibility of earning successively higher salaries for win-
ning the ‘‘tournaments,’’ i.e., from being promoted to the next
level or from achieving the next rank (Lazear & Rosen, 1981;
Rosen, 1986). To date, tournament models have been over-
whelmingly theoretical, with few empirical tests in organiza-
tional settings other than athletic contexts, such as golf
tournaments and auto racing (Becker & Huselid, 1992).
5
The Institute for Scienti?c Information, however, started
indexing author-written abstracts in its Social Science Citation
Index database only as of 1992. This explains, for example, why
our search missed the article by Merchant (1990) that uses the
phrase ‘‘?nancial targets’’ in the abstract, but has none of the
search-words in its title or keywords.
6
We include the search-word ‘‘budget,’’ because standard-
setting is an integral part of the budgeting process in most
organizations.
7
For AOS, we excluded review articles (e.g. Harrison &
McKinnon, 1999; Lang?eld-Smith, 1997), methodological
papers (e.g. Hartmann & Moers, 1999), and theoretical papers
(e.g. Fisher, 1994; Oakes & Covaleski, 1994). Moreover, our
computerized search resulted in hits to papers outside the scope
of this paper. For example, the paper by Jonsson and Macin-
tosh (1997), which is about ethnographic accounting research,
was captured in our search because it used ‘‘. . . will pay more
attention . . .’’ in the abstract, and pay was one of our search
words.
8
For JAE, we excluded 15 analytical papers, four discussion
papers, and one editorial. Other papers were excluded because
they are outside the scope of this paper, such as articles on
‘‘Bank Capital Standards’’ (Kim & Kross, 1998) and ‘‘Incen-
tives for Unconsolidated Financial Reporting’’ (Mian & Smith,
1990).
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 253
161 articles were retained,
9
and for JAR eight of
45.
10
The retained articles, 67 in total, are listed by
journal source in Table 1.
Table 1 reports the economic and behavioral
citations included in the 67 incentive systems
papers. We counted citations to publications in
journals with the word ‘‘economic’’ in the journal
title as ‘‘pure’’ economic citations. We counted
citations to publications in journals from psychol-
ogy, sociology, and (organizational and human)
behavior as ‘‘pure’’ behavioral citations. (Refer to
the footnotes in Table 1 for a complete listing of
the journal names in both categories.)
We also identi?ed some citations as ‘‘hybrid’’
citations. References to publications in the Acad-
emy of Management Journal (AMJ), Academy of
Management Review (AMR), and Administrative
Science Quarterly (ASQ) were considered as
‘‘hybrid’’ behavioral citations. These journals tend
to publish articles with an organizational or beha-
vioral slant, although they do not do so exclu-
sively (e.g. some empirical tests of agency models
have been published in AMJ and ASQ). We
included these hybrid citations to avoid the criti-
cism that we had predetermined one conclusion—
that incentives research in accounting is pre-
dominantly economics-based—by de?ning the
behavioral literature too narrowly. To be con-
sistent, we considered references to the Journal of
Economic Behavior and Organization as ‘‘hybrid’’
economic citations. (Hybrid citations are shown in
brackets [ ] in Table 1.)
Table 1 does not include citations to papers
published in most accounting journals because
accounting journals generally do not have an
explicit economic or behavioral focus. The two
exceptions are JAE and Behavioral Research in
Accounting (BRIA). References to JAE and BRIA
were included as ‘‘pure’’ economic citations
11
and
‘‘pure’’ behavioral citations, respectively.
We considered citations to articles in AOS as
‘‘hybrid’’-behavioral. AOS is often an outlet for
behavioral accounting research, but there are
exceptions. Again, including a relatively broad
count of behavioral citations should avoid the cri-
ticism that our conclusion that incentives-research
in accounting tends to be economics-based is due
to an overly narrow count of behavioral citations.
For purposes of assembling Table 1, we exclu-
ded all other references. These included citations
to management journals with ‘‘undeclared’’ para-
digms (e.g. Strategic Management Journal), meth-
odological/statistical references, citations to
books, dissertations, working papers, practitioner-
oriented publications (e.g. Harvard Business
Review), and the popular business press (e.g.
Business Week, The Wall Street Journal).
The results of this citation analysis are shown in
Table 1. The majority of articles (45 out of 67, or
67%) have references either only to the econom-
ics-based literature or only to the behavioral lit-
erature. Excluding ‘‘hybrid’’ citations, which are
bracketed in Table 1, 53 of the 67 articles (79%)
have citations only in one discipline’s literature.
Sixteen articles (all of which are published in
AOS) cite only behavioral-based publications;
29 papers cite only economics-based publications.
Excluding the ‘‘hybrid’’ citations shows 37 papers
that cite the economics-based literature only.
9
For TAR, we excluded 26 analytical papers and 15 book
reviews. Other papers were excluded because they are outside
the scope of this article, such as, papers about ‘‘Incentives for
Voluntary Disclosure’’ (Scott, 1994) and ‘‘Auditors’ Incentives
for Applying Financial Accounting Standards’’ (Hackenbrack
& Nelson, 1996).
10
For JAR, our search included 14 analytical papers and
seven discussion papers, which were eliminated. Topic-wise,
our search captured articles about ‘‘Segment Reporting Stan-
dards’’ (Maines, McDaniel, & Harris, 1997); ‘‘Financial-
Accounting-Standards-Board Regulation’’ (Melumad & Shi-
bano, 1994); ‘‘Tax Incentives and Capital Structures’’ (Chang &
Nichols, 1992); ‘‘Auditor Compensation in IPO Markets’’
(Beatty, 1993); and ‘‘Product Standardization and Manu-
facturing Process Automation’’ (Brownell & Merchant, 1990).
Our search also returned articles that are dealing with
accounting for, valuation of, and tax issues related to stock
options (e.g. Dechow, Hutton, & Sloan, 1996; Matsunaga,
Shevlin, & Shores 1992); ?nancial accounting disclosure papers
(e.g. Bamber & Cheon, 1998), and auditing-oriented papers
(e.g. Phillips, 1999). These articles are all outside the scope of
our paper.
11
This JAE treatment as a ‘‘pure’’ economic journal a?ects
our citation-based conclusions only for two papers: Ittner and
Larcker (1997) and Gaver and Gaver (1998). These papers
would become more di?cult to classify in an objective way as
economics-oriented papers based on non-JAE citations
(Table 1).
254 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
Table 1
Citations by papers related to organizational incentives published in 1989–1999
a
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
(A) AOS papers
Tuttle and Burton (1999) 38 J. Appl. Psy. (1); Psy. Bul. (1);
Psy. Rev. (1); J. Ex. Psy. Learn. (1);
Org. Beh. Hum. Dec. (2);
Org. Beh. Hum. Perf. (1);
[Acc. Org. Soc. (8); Cites to ?nancial
analysts and management journals,
e.g., Fin. Anal. J. (2); Man. Sci. (1)].
0
Chow et al. (1999) 81 J. Ec. Persp. (1); J. Public Ec. (1). J. Cross Cult. Psy. (4);
Adv. Ex. Soc. Psy. (1);
[Acc. Org. Soc. (13); Ac. Man. Rev. (1);
Adm. Sci. Q. (3)].
0
Scott and Tiessen (1999) 51 Bell J. Ec. (2); Am. Ec. Rev. (1). Psy. Rev. (1); Eur. J. Soc. Psy. (1);
J. Appl. Psy. (1); Org. Beh. Hum. Perf. (2);
Small Group Beh. (1); [Acc. Org. Soc. (2);
Ac. Man. J. (1); Adm. Sci. Q. (3)].
0
Burrows and Black (1998) 45 J. Pol. Ec. (1); Am. Ec. Rev. (1);
Bell J. Ec. (1); Legal Ec. (1);
Ec. Inquiry (1); J. Acc. Ec. (1);
J. Law Ec. (1).
[Acc. Org. Soc. (4); Ac. Man. J. (1)]. 0
Collins et al. (1997) 69 J. Appl. Psy. (1); Psy. Bul. (1);
[Acc. Org. Soc. (12); Ac. Man. J. (2);
Ac. Man. Rev. (1); Adm. Sci. Q. (2);
Cites to the management, marketing,
and strategy literatures, e.g., Man. Sci. (2)].
0
Perera, Harrison, and Poole (1997) 45 Psy.metrika (1); Am. J. Soc. (1);
[Acc. Org. Soc. (5); Ac. Man. Rev. (1);
Ac. Man. J. (1); Adm. Sci. Q. (2)].
0
Ittner and Larcker (1997) 62 J. Acc. Ec. (1). [Acc. Org. Soc. (5); Ac. Man. Rev. (1)
+Cites to the management and strategy
literatures, e.g., Man. Sci. (2)].
0
Magner et al. (1995) 36 J. Appl. Psy. (4); J. Pers. Soc. Psy. (4);
Org. Beh. Hum. Perf. (1); J. Voc. Beh. (1);
Hum. Relat. (2); Beh. Res. Acc. (1);
[Acc. Org. Soc. (4); Ac. Man. J. (3)].
2
(continued on next page)
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Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Merchant et al. (1995) 64 J. Cross Cult. Psy. (3); J. Pers. Soc. Psy. (3);
Ann. Rev. Soc. (1); Int. J. Psy. (1);
Ann. Rev. Psy. (1); Pers. Psy. (1); Psy. Bul. (1);
Am. Psychologist (1); Res. Org. Beh. (1);
[Acc. Org. Soc. (8); Ac. Man. J. (1);
Adm. Sci. Q. (1)].
4
Lau, Low, and Eggleton (1995) 62 J. Appl. Psy. (2); Psy.metrika (1);
Pers. Psy. (2); Psy. Bul. (1);
Am. J. Soc. (2);Am. Soc. Rev. (1);
[Acc. Org. Soc. (11); Ac. Man. Rev. (2);
Ac. Man. J. (1);Adm. Sci. Q. (7);
Dec. Sci. (1)].
4
O’Connor (1995) 43 J. Appl. Psy. (1); Psy.metrika (1);
Org. Beh. Hum. Dec. (1); J. Hum. Relat. (1);
[Acc. Org. Soc. (8); Ac. Man. J. (1); Adm. Sci. Q. (6)].
8
Ross (1994) 27 Psy.metrika (1); J. Abn. Soc. Psy. (2);
Am. J. Soc. (1); Hum. Relat. (1)
[Acc. Org. Soc. (3)].
0
Harrison (1993) 71 J. Cross Cult. Psy. (7); J. Appl. Psy. (6);
J. Soc. Psy. (1); J. Pers. Soc. Psy. (2);
Ann. Rev. Psy. (1); Soc. Psy. Q. (2);
Pers. Psy. (1); Psy.metrika (1); Pol. Psy. (1);
Indian Psy. Rev. (1); S.-Afric. J. Psy. (1);
J. Res. Pers. (1); Am. J. Soc. (1);
Am. Soc. Rev. (1); Beh. Res. Acc. (1);
[Acc. Org. Soc. (7); Ac. Man. Rev. (2);
Ac. Man. J. (1); Adm. Sci. Q. (2)].
7
Dunk (1992) 50 J. Appl. Psy. (1); J. Ind. Psy. (1);
Pers. Psy. (1); Org. Beh. Hum. Dec. (1);
Am. J. Soc. (1); Res. Org. Beh. (1);
[Acc Org. Soc. (4); Ac. Man. J. (1);
Adm. Sci. Q. (2)].
2
Harrison (1992) 52 Psy.metrika (1); J. Appl. Psy. (5);
J. Cross Cult. Psy. (3); Pers. Psy. (1);
Org. Beh. Hum. Perf. (1); Am. J. Soc. (1);
Am. Soc. Rev. (1); Ann. Rev. Soc. (1);
Res. Org. Beh. (1); Hum. Relat. (3);
[Acc. Org. Soc. (6); Ac. Man. J. (1);
Ac. Man. Rev. (1); Adm. Sci. Q. (2)].
5
(continued on next page)
2
5
6
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S
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2
8
(
2
0
0
3
)
2
5
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–
2
8
6
Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Chow et al. (1991) 37 Bell J. Ec. (5); J. Comp. Ec. (5);
J. Ec. Th. (1); Ec.metrica (1);
Eur. Ec. Rev. (1); So. Ec. J. (1).
Psy. Bul. (1); [Acc. Org. Soc. (1);
Adm. Sci. Q. (1)].
0
Dunk (1990) 37 Psy.metrika (1); J. Appl. Psy. (5)
Am. J. Soc. (1); [Acc. Org. Soc. (3);
Dec. Sci. (1)].
1
Williams et al. (1990) 64 J. Appl. Psy. (1) Am. Soc. Rev. (2);
Org. Beh. Hum. Perf. (1); [Acc. Org. Soc. (11);
Ac. Man. Rev. (3); Adm. Sci. Q. (4)].
0
Dunk (1989) 14 Psy.metrika (1). 4
Imoisili (1989) 22 Psy.metrika (1); [Acc. Org. Soc. (5);
Adm. Sci. Q. (2)]
3
Luckett and Hirst (1989) 23 Psy. Rev. (1); Psy. Bul. (1); Psy. Sci. (1);
Org. Beh. Hum. Perf. (4); J. Nerv. Ment. Dis. (1);
[Acc. Org. Soc. (3)].
1
(B) JAE papers
Ke et al. (1999) 45 Ec.metrica (1); J. Pol. Ec. (1);
Bell J. Ec. (4); Q. J. Ec. (1);
J. Ec. Th. (1); J. Labor Ec. (2);
J. Law Ec. (2);J. Law Ec. Org. (1);
J. Hum. Res. (1); J. Fin. Ec. (7);
J. Acc. Ec. (7).
0
Core and Guay (1999) 39 Ec.metrica (1); J. Pol. Ec. (6);
Bell J. Ec. (2); Q. J. Ec. (1);
Am. Ec. Rev. (1); J. Fin. Ec. (9);
J. Acc. Ec. (7).
0
Begley and Feltham (1999) 50 Ec.metrica (2); J. Pol. Ec. (2);
Rev. Ec. Stud. (1); Int. Ec. Rev. (1);
Man. Dec. Ec. (1); J. Fin. Ec. (6);
J. Acc. Ec. (7).
0
DeFond and Park (1999) 23 Bell J. Ec. (2); J. Fin. Ec. (2);
J. Acc. Ec. (4).
[Adm. Sci. Q. (1)]. 0
Guidry, Leone, and Rock (1999) 34 J. Pol. Ec. (1); J. Acc. Ec. (13). 0
Baber, Kang, and Kumar (1998) 59 Bell J. Ec. (2); J. Pol. Ec. (5);
J. Fin. Ec. (4); J. Acc. Ec. (18).
0
Wallace (1997) 19 J. Fin. Ec. (2); J. Acc. Ec. (4). 0
(continued on next page)
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2
8
(
2
0
0
3
)
2
5
1
–
2
8
6
2
5
7
Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Keating (1997) 24 Bell J. Ec. (1); J. Fin. Ec. (2);
J. Acc. Ec. (4).
0
Baber, Janakiraman, and Kang (1996) 23 Bell J. Ec. (1); J. Pol. Ec. (3);
Am. Ec. Rev. (1); J. Fin. Ec. (2);
J. Acc. Ec. (7).
4
Bushman, Indjejikian, and Smith (1996) 31 Q. J. Ec. (2); Bell J. Ec. (2);
J. Pol. Ec. (2); J. Law Ec. Org. (1);
J. Fin. Ec. (2); J. Acc. Ec. (6).
[Ac. Man. J. (1); Adm. Sci. Q. (1)]. 5
Banker et al. (1996) 76 Ec.metrica (1); Q. J. Ec. (2);
Bell J. Ec. (2); Rand J. Ec. (1);
J. Pol. Ec. (2); J. Law Ec. Org. (1);
J. Acc. Ec. (8).
J. Appl. Psy. (2); Am. Psy. (1);
Pers. Psy. (2); J. Pers. Soc. Psy. (2);
Org. Beh. Hum. Dec. (2); J. Ex. Psy. Learn. (1);
[Ac. Man. J. (1)].
2
Gibbs (1995) 19 Ec.metrica (1); Q. J. Ec. (2);
Bell J. Ec. (1); J. Pol. Ec. (3);
J. Lab. Ec. (1); J. Hum. Res. (1);
Am. Ec. Rev. (1); Eur. Ec. Rev. (1).
Am. J. Soc. (1). 3
Holthausen, Larcker, and Sloan (1995b) 41 J. Pol. Ec. (1); Rand J. Ec. (1);
J. Ec. Lit. (1); J. Ec. Th. (1);
Appl. Ec. (1); J. Fin. Ec. (1);
J. Acc. Ec. (5); [J. Ec. Beh. Org. (1)].
3
Gaver, Gaver, and Austin (1995) 27 J. Fin. Ec. (1); J. Acc. Ec. (3). 9
Holthausen et al. (1995a) 32 Bell J. Ec. (1); J. Acc. Ec. (9). [Adm. Sci. Q. (2)]. 11
Wruck and Jensen (1994) 51 Am. Ec. Rev. (2); J. Law Ec. (1);
J. Fin. Ec. (1).
Am. J. Soc. (1); Org. Beh. Hum. Dec. (1). 9
Luft (1994) 46 Ec.metrica (1); J. Pol. Ec. (1);
Am. Ec. Rev. (5); Q. J. Ec. (2);
J. Ec. Perspect. (3); Can. J. Ec. (1);
J. Fin. Ec. (2); J. Acc. Ec. (2).
Psy. Rev. (1); Cog. Psy. (1); Am. Psy. (1);
J. Ex. Soc. (1); J. Ex. Psy. (1);
J. Pers. Soc. Psy. (2); [Ac. Man. J. (1)].
1
Blackwell et al. (1994) 59 Q. J. Ec. (1); Bell J. Ec. (1);
J. Pol. Ec. (4); Rand J. Ec. (1);
J. Ec. Lit. (1); J. Lab. Ec. (2);
J. Law Ec. (1); J. Fin. Ec. (5);
J. Acc. Ec. (10).
[Ac. Man. J. (5)]. 8
Golec (1994) 37 Bell J. Ec. (2); J. Pol. Ec. (1);
Am. Ec. Rev. (1); J. Law Ec. (2);
Q. Rev. Ec. Bus. (1); J. Fin. Ec. (3);
J. Acc. Ec. (6).
2
Skinner (1993) 43 J. Fin. Ec. (3); J. Acc. Ec. (13). 10
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Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Sloan (1993) 46 Am. Ec. Rev. (1); Bell J. Ec. (3);
J. Pol. Ec. (1); J. Acc. Ec. (7).
36
Gaver and Gaver (1993) 26 Am. Ec. Rev. (1); J. Fin. Ec. (5);
J. Acc. Ec. (4).
44
Clinch and Magliolo (1993) 28 J. Pol. Ec. (1); J. Lab. Ec. (1);
Rand J. Ec. (1); J. Acc. Ec. (10).
9
Bizjak, Brickley, and Coles (1993) 36 Ec.metrica (2); Bell J. Ec. (2);
J. Pol. Ec. (4); Am. Ec. Rev. (1);
Q. J. Ec. (2); J. Fin. Ec. (2);
J. Acc. Ec. (4).
22
(C) TAR papers
Baber, Kang, and Kumar (1999) 33 Ec.metrica (1); J. Pol. Ec. (2);
Bell J. Ec. (1); J. Fin. Ec. (1);
J. Acc. Ec. (10).
0
Drake et al. (1999) 37 J. Pol. Ec. (1); Bell J. Ec. (1);
Am. Ec. Rev. (2); Ec. Inq. (1);
J. Ec. Man. Strategy (1);
J. Acc. Ec. (3).
J. Org. Beh. (1); Soc. Beh. (1);
Beh. Res. Acc. (1); [Ac. Man. J. (1);
+Cites to operations, human resources,
and management journals].
0
Gaver and Gaver (1998) 27 J. Acc. Ec. (8). 1
Ittner et al. (1997) 61 J. Pol. Ec. (1); Bell J. Ec. (2);
J. Fin. Ec. (1); J. Acc. Ec. (5).
Psy. Bul. (1); [Acc. Org. Soc. (3);
Ac. Man. J. (3); Adm. Sci. Q. (3)
+Cites to marketing, human resources,
and management journals].
2
Natarajan (1996) 32 Bell J. Ec. (1); J. Law Ec. Org. (1);
J. Fin. Ec. (1); J. Acc. Ec. (10).
2
Chen and Lee (1995) 30 Bell J. Ec. (2); J. Pol. Ec. (5);
J. Fin. Ec. (4); J. Acc. Ec. (18).
0
Dechow, Huson, and Sloan (1994) 31 Ec.metrica (2); J. Acc. Ec. (5). 8
Enis (1993) 29 Bell J. Ec. (1); J. Fin. Ec. (2);
J. Acc. Ec. (6).
0
Gaver, Garver, and Battistel (1992) 14 J. Pol. Ec. (2); Bell J. Ec. (1);
J. Acc. Ec. (3).
2
Waller and Bishop (1990) 18 Ec.metrica (1); Bell J. Ec. (1);
Q. J. Ec. (1); Am. Ec. Rev. (1);
J. Com. Ec. (1); J. Fin. Ec. (1).
[Acc. Org. Soc. (2)
+Cites to Man. Sci. (4)].
2
Newman (1989) 7 J. Acc. Ec. (3). 1
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Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Merchant and Manzoni (1989) 54 Bell J. Ec. (1); J. Fin. Ec. (1). Psy. Bul. (1); J. Appl. Psy. (7); J. Soc. Psy. (1);
J. Pers. Soc. Psy. (2); Am. Soc. Rev. (1);
Beh. Sci. (1); [Acc. Org. Soc. (4);
Ac. Man. Rev. (1); Adm. Sci. Q. (1)].
7
Defeo, Lambert, Larcker (1989) 41 Bell J. Ec. (1); Rand J. Ec. (1);
J. Acc. Ec. (6).
17
Ronen and Aharoni (1989) 18 J. Pol. Ec. (1); Bell J. Ec. (1);
J. Law Ec. Org. (1); J. Acc. Ec. (5).
1
(D) JAR papers
Ittner and Larcker (1995) 57 Am. Ec. Rev. (1); J. Acc. Ec. (1). J. Appl. Psy. (1); J. Educ. Psy. (1);
Psy. Bul. (1); Org. Beh. Hum. Perf. (1);
[Acc. Org. Soc. (1); Ac. Man. J. (2);
Adm. Sci. Q. (2)+Cites to marketing and
operations management journals].
1
Bushman et al. (1995) 37 Ec.metrica (3); Bell J. Ec. (4);
Rand J. Ec. (2); J. Ec. Th. (1);
J. Ind. Ec. (1); J. Ec. Bus. (1);
J. Law Ec. Org. (1); J. Acc. Ec. (1).
[Acc. Org. Soc. (1); Ac. Man. J. (1);
Adm. Sci. Q. (1)].
4
Libby and Lipe (1992) 64 Q. J. Ec. (1); J. Pol. Ec. (2);
Am. Ec. Rev. (4); J. Ec. Perspect. (1).
J. Appl. Psy. (1); Psy. Res. (1);
Psy. Rev. (3); Psy. Bul. (1);
J. Pers. Soc. Psy. (1);
Org. Beh. Hum. Dec. (2);
J. Ex. Psy. (5); J. Beh. Dec.-Making (1);
[Acc. Org. Soc. (1)+Cite to marketing journal
(J. Cons. Res.)].
6
Janakiraman et al. (1992) 23 Bell J. Ec. (3); Am. Ec. Rev. (1);
Ec. Inq. (1); J. Lab. Ec. (1).
14
Lanen and Larcker (1992) 47 Ec.metrica (1); J. Pol. Ec. (2);
Am. Ec. Rev. (3); Bell J. Ec. (2);
Appl. Ec. (1).
Psy. Bul. (3). 6
Ely (1991) 31 J. Pol. Ec. (1); Bell J. Ec. (3);
J. Acc. Ec. (3).
10
Clinch (1991) 25 J. Pol. Ec. (1); Am. Ec. Rev. (1);
Bell J. Ec. (1); Rand J. Ec. (1);
J. Acc. Ec. (1); [J. Ec. Beh. Org. (1)].
[Cites to law journals: Harvard Law Rev. (1);
J. Legal Studies (1)]
14
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Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Ashton (1990) 102 J. Pol. Ec. (3); Rand J. Ec. (1);
J. Lab. Ec. (1); Am. Ec. Rev. (1);
Ec. Inq. (1); J. Bus. Ec. St. (1);
J. Acc. Ec. (1); [J. Ec. Beh. Org. (1)].
Org. Beh. Hum. Dec. (10);
Org. Beh. Hum. Perf. (3); J. Pers. Soc. Psy. (7);
J. Gen. Psy. (1); J. Appl. Psy. (9);
J. Ex. Psy. Learn. (1); Psy. Rev. (3);
Psy. Bul. (5); Am. Psy. (1); Eur. J. Soc. Psy. (1);
Pers. Soc. Psy. Bul. (2); Pers. Psy. (1);
J. Pers. Ass. (1); J. Comp. Neur. (1);
Acta Psy. (2); Soc. Psy. Q. (1); Res. Org. Beh. (1);
J. Personality (1); [Ac. Man. Rev. (1)].
28
a
Source: Social Science Citation Index-database of the Institute for Scienti?c Information.
b
Total number of cited references in paper.
c
Journals without brackets are considered as ‘‘pure’’ economics or behavioral journals. References in brackets [ ] are considered as ‘‘hybrid’’ journals because, while
they tend to publish either economics or behavioral journals, they do not do so exclusively.
d
The full journal names for the economics-based journals are (in alphabetical order): American Economic Review; Applied Economics; Bell Journal of Economics;
Canadian Journal of Economics; Econometrica; Economic Inquiry; European Economic Review; International Economic Review; Journal of Accounting and Economics;
Journal of Business and Economic Statistics; Journal of Comparative Economics; Journal of Economic Literature; Journal of Economic Perspectives; Journal of Economic
Theory; Journal of Economics and Business; Journal of Economics and Management Strategy; Journal of Financial Economics; Journal of Human Resources; Journal of
Industrial Economics; Journal of Institutional and Theoretical Economics; Journal of Labor Economics; Journal of Law and Economics; Journal of Law, Economics, and
Organization; Journal of Monetary Economics; Journal of Political Economy; Managerial and Decision Economics; Quarterly Journal of Economics; Quarterly Review of
Economics and Business; Rand Journal of Economics; Review of Economic Studies.
e
The full journal names for the behavioral-based journals are (in alphabetical order): Acta Psychologica; Advances in Experimental Social Psychology; American Journal
of Psychology; American Journal of Sociology; American Psychologist; American Sociological Review; American Sociologist; Annual Review of Psychology; Annual Review
of Sociology; Behavioral Research in Accounting; Behavioral Science; Cognitive Psychology; European Journal of Social Psychology; Human Relations; International Journal
of Psychology; Journal of Applied Psychology; Journal of Behavioral Assessment; Journal of Behavioral Decision Making; Journal of Comparative Neurology; Journal of
Cross-Cultural Psychology; Journal of Educational Psychology; Journal of Experimental Psychology; Journal of Experimental Social Psychology; Journal of General Psy-
chology; Journal of Human Relations; Journal of Nervous and Mental Disease; Journal of Organizational Behavior; Journal of Personality and Social Psychology; Journal of
Personality Assessment; Journal of Verbal Learning and Verbal Behavior; Journal of Vocational Behavior; Organizational Behavior and Human Decision Processes; Orga-
nizational Behavior and Human Performance; Personality and Social Psychology Bulletin; Personnel Psychology; Political Psychology; Psychological Bulletin; Psychological
Research; Psychological Review; Psychological Science; Psychometrika; Small Group Behavior; Social Behavior; Social Psychology Quarterly; South African Journal of
Psychology; Research in Organizational Behavior.
f
Total number of citing articles.
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Of these 37 papers, 20 are in JAE, 11 in TAR, four
in JAR, and two in AOS.
12
Of the 22 articles that cite both literatures
(including hybrid citations), 12 are predominantly
economics-oriented. These include the eight arti-
cles with citations only to hybrid behavioral
papers as well as Ittner, Larcker, and Rajan
(1997), Gibbs (1995), Lanen and Larcker (1992),
and Chow, Cooper, and Haddad (1991). Three are
predominantly behavioral-oriented (Chow, Shields,
& Wu, 1999; Merchant & Manzoni, 1989; Scott &
Tiessen, 1999). Based on the number of citations,
the remaining seven papers seem relatively
‘‘balanced’’ or cross-disciplinary (Ashton, 1990;
Banker, Lee, & Potter, 1996; Drake, Haka, &
Ravenscroft, 1999; Ittner & Larcker, 1995; Libby
& Lipe, 1992; Luft, 1994; Wruck & Jensen, 1994).
In sum, out of the 67 publications listed in
Table 1, 41 (61%) are economics-based, 19 (28%)
are behavioral-based, and only seven (11%) seem
to build on both literatures. Overall, the citation
analysis suggests both that the majority of
empirical incentives-related research papers in
accounting is economics-based and that relatively
little cross-fertilization has taken place between
the economics and behavioral literatures.
13
We also checked the number of times each of
the papers listed in Table 1 had been cited in the
research literature. These numbers are shown in
the last column of Table 1.
14
This analysis shows
that the 41 economics-based papers have been
cited 250 times, or about six citations per paper.
The 19 behavioral-based papers have been cited
only 48 times, which is less than three citations per
paper. This analysis, showing that the economics-
based papers are cited more frequently than are
the behavioral-based papers, adds support to our
?rst conclusion above, that incentives research in
accounting is predominantly economics-oriented.
Finally, our citation analysis also revealed that
the incentives literature in accounting has largely
ignored related research outside accounting and
management (i.e. AMJ, ASQ, and Management
Science) journals, such as operations, ?nance, or
marketing journals (e.g. for production worker or
sales force incentives). Although there is consider-
able incentives research in other business ?elds—
with the papers coming both from the behavioral
and economics-based disciplines—very few papers
cite anything outside of accounting, economics,
psychology, or sociology journals. Even if
researchers chose to stay within their own dis-
cipline base, it would be fruitful for accounting
researchers to begin integrating related research
with that from other (business) ?elds.
3. Comparing and contrasting the incentives-
oriented literatures
To understand how the two categories of
accounting literatures described above—economic
and behavioral—are both similar and di?erent, we
content-analyzed the 67 empirical incentives-rela-
ted papers listed in Table 1. Based on the citation
analysis shown in Table 1, we categorized papers
as ‘‘economics-oriented’’ (Table 2A), ‘‘behavioral’’
(Table 2B), or ‘‘mixed’’ (Table 2C).
As discussed in the previous section, the major-
ity of papers were easy to classify based on the
citations listed in Table 1. Thirty-seven papers
have no citations to the ‘‘pure’’ behavioral litera-
tures, so they are classi?ed as economics-oriented.
Sixteen papers have no citations to the economics-
literature, so they are classi?ed as behavioral-
oriented. Of the remaining 14 papers with refer-
ences to both literatures, three are predominantly
behavioral-oriented (Chow et al., 1999; Merchant
& Manzoni, 1989; Scott & Tiessen, 1999) and four
are predominantly economics-oriented (Chow et
al., 1991; Gibbs, 1995; Ittner et al., 1997; Lanen &
12
By journal, incentives-oriented articles appear to be
mainly behavioral-oriented in AOS (16 out of 21 papers in
Table 1A) and economics-oriented in JAE (19 out of 24 papers
in Table 1B) and TAR (11 out of 14 papers in Table 1C). In
JAR, the coverage of economics-based and behavioral work
seems more balanced (i.e. only four out of eight papers are
purely economics-oriented in Table 1D).
13
Our citation-based conclusion perhaps only applies to
North America, since three out of four journals are North
American (JAR, TAR, JAE). Other authors have argued that
Australian and European researchers and journals have tended
more toward behavioral, particu-larly sociological, or contin-
gency approaches to the study of uses of management
accounting in organizations (Atkinson et al., 1997; Lukka &
Kasanen, 1996).
14
The number of citing articles for each paper may change
over time as the SCCI-database is updated.
262 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
Larcker, 1992). Because they have roughly equal
numbers of citations to papers in each discipline,
we classi?ed the remaining seven papers (Ashton,
1990; Banker et al., 1996; Drake et al., 1999; Ittner
& Larcker, 1995; Libby & Lipe, 1992; Luft, 1994;
Wruck & Jensen, 1994) as ‘‘mixed’’ or cross-dis-
ciplinary.
In Table 2, we compare and contrast these 41
economics-oriented papers, 19 behavioral-oriented
papers, and seven ‘‘mixed’’ papers using the fol-
lowing descriptors:
1. organization level;
2. sample;
3. research method;
4. organizational incentive system variables
included in the study;
5. outcome variables included in the study; and
6. contextual variables included in the study.
Here is a description of the classi?cation cate-
gories that might not be self-explanatory (the last
four):
Research method. We distinguish four cate-
gories of research method: (1) experiments; (2)
?eld research; (3) survey research; and (4)
archival. Survey research stems from surveys
designed by the researchers themselves. Archival
research presents analyses of data obtained
from pre-existing sources. These data sources
can be either publicly available (e.g. from
COMPUSTAT or CRSP) or private. Private
archival data sources can stem from internal
?rm archives (e.g. Banker et al., 1996) or from
surveys conducted by consulting ?rms (e.g.
Holthausen, Larcker, & Sloan, 1995a; Ittner &
Larcker, 1995, 1997).
Organizational incentive system variables inclu-
ded in the study. As described in Section 2,
organizational incentive system variables relate
to one or more of the four elements of an
organizational incentive system (i.e. standard
setting, performance measurement, perfor-
mance evaluation, and the actual reward itself).
Outcome variables included in the study. Out-
come variables describe anything that is a?ected
by the design and use of the incentive system.
This category includes ‘‘ultimate’’ dependent
variables (i.e. overall performance). It also
includes ‘‘mediating’’ variables, such as speci?c
types of decisions (e.g. capital investment),
gameplaying activities, innovation, job-related
tension, and any of a variety of attitudes (e.g.
job satisfaction).
Contextual variables included in the study. Con-
textual variables encompass characteristics of
the setting that might a?ect an element of the
incentive system or, in combination with spe-
ci?c incentive system choices, one or more out-
comes. Examples of contextual variables are:
national culture; industry; speci?c task char-
acteristics; degree of competition; environ-
mental uncertainty; size; organizational strategy
(at the corporate or business unit level); the
investment (innovation or growth) opportunity
set; characteristics of the product development
or product life cycle; organizational inter-
dependencies; or the organization’s tax or capi-
tal position.
Most of the incentives studies have tested theory
that relates contextual variables, singly or in com-
bination, directly with one or more incentive sys-
tem variables. A few of these studies, however,
include the contextual variables as ‘‘moderating’’
variables. That is, the researchers theorize that the
contextual variables a?ect the relationship
between organizational incentives and outcomes
in an interactive sense. For example, Drake et al.
(1999) studied the e?ect of group-based vs. tour-
nament-based incentive schemes (an incentive sys-
tem variable) on performance (an outcome
variable) moderated by type of costing system (a
contextual variable). (Moderating variables are
indicated in Table 2 with an asterisk.)
Table 2 suggests the following ?ndings. First,
the predominant research methods di?er between
the economics and behavioral literatures. These
di?erences are summarized in Table 3. The eco-
nomics-based accounting literature uses archival
studies almost exclusively. Thirty-?ve of the 41
papers (85%) listed in Table 2A use this research
methodology. Only two (5%) of the economics-
oriented papers used experiments; three (7%) used
a self-conducted mail survey; and one (3%) used a
telephone survey. The predominant research
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 263
Table 2A
‘‘Economics-Oriented’’ Accounting Papers Related to Organizational Incentives Published in 1989–1999
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Burrows & Black (1998-AOS) Accounting
?rm partners
Six partners from
Australian Big-6
accounting ?rms
survey
(telephone)
Pro?t sharing by accounting partners
(equal sharing vs. Perf.-based pro?t
sharing vs. hybrid scheme)
- ?rm speci?c capital
- diversi?cation -income volatility
- economies of scope
Ittner & Larcker (1997-AOS) Sr., middle,
non-mgt.
employees
249 ?rms (auto
and computer
industry in Canada,
Germany, Japan,
and U.S.)
archival
(consulting
?rm survey)
Importance of quality performance
in compensation determination
Performance (ROA,
ROS, growth, perceived
performance)
quality-oriented strategy
Chow et al. (1991-AOS) n.a. 55 business
students
experiment - pay scheme (truth-telling
vs. ?xed-pay-plus-bonus)
- ratchet (present vs. Absent)
- budget slack
- performance
Ke et al. (1999-JAE) CEO 45 private and
18 public insurers
archival
(proxy
statements,
insurance
compensation
exhibits)
- compensation level
- compensation change
- return on assets
- ownership
- ?rm size
Core & Guay (1999-JAE) CEO 6214 CEO-years
(1992–1997)
archival - level of CEOs’ portfolio equity
incentive
- new incentive grants
- ?rm size
- monitoring costs
- growth opportunities
- free cash ?ow
- CEO tenure
- industry
- incentive residual
- cash ?ow shortfall
- marginal tax rate
- ?rm stock performance
Begley & Feltham (1999, JAE) CEO 91 debt issuing
industrial ?rms
(1975–1979)
archival
(proxy
statements,
Forbes
survey)
- CEO cash compensation
- CEO ownership fraction
- CEO stock wealth
use of debt covenants
restricting dividends and
borrowings
Defond & Park (1999-JAE) CEO 301 CEO turnovers;
621 control ?rms
(1988–1992)
archival use of absolute ?rm performance
vs. RPE in CEO turnover decisions
competition
Guidry et al. (1999-JAE) SBU
managers
117 SBUs in one
multinational, U.S.
manufacturing ?rm
(1994–1995)
archival earning-based bonus plan bounds earnings management
(discretionary accruals)
Baber et al. (1998-JAE) CEO 713 ?rms archival pay-for-performance sensitivity - earnings persistence
- CEO retirement window
b
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o
c
i
e
t
y
2
8
(
2
0
0
3
)
2
5
1
–
2
8
6
Table 2 (continued)
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Wallace (1997-JAE) CEO 40 ?rms with
residual income-based
comp. Plans + 40
control ?rms
archival adoption of residual income-based
bonus plan
- investment decisions
- ?nancing decisions
- operating decisions
- residual income
- shareholder wealth
Keating (1997-JAE) division
managers
78 divisions from
78
di?erent ?rms
survey use of division accounting metrics,
?rm accounting metrics, and ?rm
stock price in the evaluation of
divisional managers
- divisional interdependencies
- growth opportunities
- relative divisional size
- correlation ?rm/market- returns
- correlation divisional
earnings/value
Baber et al. (1996-JAE) CEO 1249 ?rms
(1992–1993)
archival - sensitivity of CEO compensation
- use of market-based vs. accounting-
based performance indicators
investment opportunity
Bushman et al. (1996-JAE) CEO 396 ?rms
(1990–1995)
archival
(Hewitt
survey)
use of individual performance
evaluation in determining CEO
bonuses
- importance of growth opportunities
- length of product development and
product life cycles
- noise in accounting returns
- noise in stock returns
Gibbs (1995-JAE) across org.
levels (entry
mgt. to CEO)
one large
hierarchical ?rm
(1969–1988)
analytical
/ archival
-ST and LT rewards from promotion
-interaction between within-job and
promotion-based pay-for-perf.
Holthausen et al. (1995b-JAE) division
managers
299 observations
in 116 ?rms
(1987–1991)
archival compensation structure
(ratio of LT-comp. to total comp.)
innovation activity innovation opportunity set
Gaver et al. (1995-JAE) CEO 102 ?rms
(1980–1990)
archival bonus plan bounds earnings management
(discretionary accruals)
Holthausen et al. (1995a-JAE) CEO 443 ?rm-year
observations
over 6 years
archival
(consulting
?rm survey)
bonus plan bounds earnings management
(discretionary accruals,
investment decisions,
unexpected components
of gains/losses)
Blackwell et al. (1994-JAE) subsidiary
bank
managers
700
+
subsidiaries
of 100
+
Texas
bank holdings
(1984–1987)
archival e?ect of subunit absolute/relative
performance on subunit manager
turnover
Golec (1994-JAE) REIT-
‘‘advisors’’
(managers)
66 REITs
(1962–1987)
archival formula-based compensation
vs. discretionary compensation
- mgt. decisions
- dividend yields
- stock return
Skinner (1993-JAE) CEO 504 COMPUSTAT
industrial ?rms
archival earnings-based bonus plan vs.
discretionary bonus plan vs. no
bonus plan
use of income-increasing
accounting procedures
?rm investment opportunities
(continued on next page)
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(
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0
3
)
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2
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Table 2 (continued)
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Sloan (1993-JAE) CEO 538 ?rms (CRSP
/ COMPUSTAT)
archival
(Forbes survey)
use of earnings-based
performance measures in CEO
cash compensation
- market-wide noise in stock returns
relative to noise in earnings
- correlation between noise in stock
returns and noise in earnings
Gaver & Gaver (1993-JAE) top ?ve
executives
237 growth vs. 237
non-growth ?rms
(COMPUSTAT)
archival - levels of cash compensation
- incidence of bonus plans
- incidence of stock option plans
- incidence restricted stock plans
investment opportunities
Clinch & Magliolo (1993-JAE) CEO 63 banks archival
(Forbes
survey)
impact of discretionary earnings
on CEO compensation functions
- ?rm’s future capital position
- tax status
- CEO tenure
Bizjak et al.(1993-JAE) CEO 430 large
U.S.-corporations
analytical
/ archival
sensitivity of CEO pay
to stock price performance
information asymmetry between
shareholders and managers about
management investment decisions
Baber et al.(1999-TAR) CEO 712 ?rms archival
(proxy-
statements)
compensation change - earnings level
- earnings change
- earnings persistence*
Gaver & Gaver (1998-TAR) CEO 376 ?rms archival
(Forbes
survey)
nonrecurring accounting transactions
and CEO cash compensation
Ittner et al. (1997-TAR) CEO 317 ?rms
(48 industries)
archival weight on non-?nancial performance
measures
- competitive/quality strategy
- regulatory environment
- ?nancial performance
- noise in ?nancial perf. measures
- CEO in?uence
Natarajan (1996-TAR) CEO 331 ?rms archival
(Forbes
survey)
use and relative weight of components
of earnings in CEO compensation
Chen & Lee (1995-TAR) CEO 12 ‘switch’ ?rms
vs. 22 ‘write-down’
?rms (1985–1986)
archival - bonus plan (lower) bound
- bonus plan slope
accounting choice
(switch to full cost)
Dechow et al. (1994-TAR) CEO 91 Fortune 500
(1982–1989)
archival adjustments of earnings-based incentive
compensation for restructuring charges by
compensation committees
Enis (1993-TAR) CEO 307 motor carriers
(small, closely-held)
survey
/ archival
- adoption of earnings-based bonus plan
- adoption of performance plan
- performance
- capital investment
Gaver et al. (1992-TAR) CEO 209 ?rms
(1971–1980)
archival adoption of LT compensation agreement
for corporate top management
stock market reaction
Waller & Bishop (1990-TAR) n.a. 72 undergraduate
students
experiment incentive scheme (Groves scheme
vs. unit pro?t-plus-penalty scheme)
subordinate’s
misrepresentation in
resource allocation
decisions
(continued on next page)
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3
)
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Table 2 (continued)
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Newman (1989-TAR) CEO 165 ?rms
(Fortune 1000)
archival use of before-tax vs. after-tax pro?ts
in bonus plan
- degree of multinationality
- degree of capital intensity
Defeo et al. (1989-TAR) CEO 179 swap
transactions
(1981–1984)
archival e?ect of accounting gains from equity-
for-debt swaps on executive
compensation and wealth
Ronen & Aharoni (1989-TAR) CEO 1022 ?rms
(Fortune 1000)
analytical
/ survey
existence of bonus or option plan* accounting choices ?rms’ e?ective tax rate
Bushman et al. (1995-JAR) business
unit mgr.
246 ?rms
(Hewitt 1993 survey)
analytical
/ archival
percentage of division CEO annual bonus
based on performance above division level
intra?rm interdependencies
Janakiraman et al. (1992-JAR) CEO 609 ?rms
(Forbes
survey)
(1970–1988)
archival
(forbes survey)
use of RPE in CEO cash compensation
(salary plus annual bonus)
Lanen & Larcker (1992-JAR) CEO 114 utility ?rms
(1973–1986)
archival adoption of performance-based
compensation contract
- environmental change
(utility regulation)
- technical production e?ciency
- diversi?cation
Ely (1991-JAR) CEO 173 ?rms in electrical,
oil and gas, retailing,
banking (1978–1982)
archival relationship between compensation and
four ?rm perf. Variables (ROE, RET, sales
revenue and net interest income)
industry
Clinch (1991-JAR) ‘‘key’’
employees
200 public ?rms
(1981–1985)
archival relationship between compensation and
accounting performance measures as well
as stock market performance measures
- R&D expenditures
- tax status
a
Some studies focus exclusively on the CEO, whereas other studies comprehend in their study all corporate executive o?cers for whom compensation contract data are available in proxy statements. Both situations are indicated
here as ‘‘CEO’’ as the level of hierarchy.
*Moderating variable.
Table 2B
‘‘Behaviorial’’ Accounting Papers Related to Organizational Incentives Published in 1989–1999
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Tuttle & Burton (1999-AOS) n.a. 102 under-
graduate students
experiment monetary incentives - cue usage
- decision consistency
- decision time
Chow et al. (1999-AOS) top-two
levels of
managers
159 mgrs. in six each
of Japan, Taiwan, and
U.S.-owned electronics
and computer ?rms
survey - participative budgeting
- standard tightness
- participative performance evaluation
- performance-contingent ?nancial rewards
national culture
(continued on next page)
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2
0
0
3
)
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1
–
2
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6
2
6
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Table 2 (continued)
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Scott & Tiessen (1999-AOS) across mgt.
hierarchy
Managers (pro?t and
non-pro?t ?rms)
survey - weight on team-performance in comp.
- diversity of performance measures
- perform. standard-setting participation*
self-rated team
performance
- task complexity
- involvement in teams
Perera et al. (1997-AOS) corporate
and division
managers
105 managers
randomly selected from
manufacturing ?rms
survey use of non-?nancial performance
measures
self-rated performance customer-focused
manufacturing strategy
Collins et al. (1997-AOS) accountants
and managers
(no indication
of the level)
28 Latin American
accountants and
managers
survey
/ interview
budgetary usage for performance
evaluation
strategy (i.e., defender,
analyzer, prospector
and reactor)
Magner et al. (1995-AOS) variety of
line/sta?
managers
53 managers from exec.
education program
survey - budget participation
- budget favorability
- trust in supervisor
- organizational
commitment
Merchant et al. (1995-AOS) pro?t center
managers
2 US + 2 Taiwan ?rms
(chemicals, electronics)
?eld
study
use of individual perf.-dependent rewards
- use of group-rewards
- use of long-term incentives
- use of subjective performance evaluation
national culture
Lau et al. (1995-AOS) functional
heads
112 functional heads
(singapore mftg. ?rms)
survey - evaluative style (budget emphasis)
- budget participation
- job-related tension
- self-rated performance
task di?culty*
O’connor (1995-AOS) middle
managers
125 managers
(44 ?rms in Singapore)
survey participation in performance evaluation - role ambiguity
- superior/subordinate
relationship
national culture
(power distance)*
Ross(1994-AOS) responsibility
center mgrs.
215 mgrs. (18
Australian organ.:
private/public,
mftg./service)
survey performance evaluation style (budget-
constrained, pro?t-conscious, non-
accounting)
job-related tension trust between superior
and subordinate*
Harrison (1993-AOS) middle
managers
115 mgrs. in 14
Singaporean ?rms
and 96 mgrs. in 14
Australian ?rms
survey performance evaluation style (RAPM) - job related tension;
- job satisfaction
- national culture*
- personality*
Harrison (1992-AOS) Middle managers 115 mgrs. in 14
Singaporean ?rms
and 96 mgrs. in 14
Australian ?rms
survey - budget emphasis in superior
- evaluative style
- budget-participation*
- job related tension
- job satisfaction
national culture*
(power distance, individualism)
Dunk (1992-AOS) cost center
managers
24 managers
(24 consumer
product ?rms)
survey reliance on budgetary control in
performance evaluation
self-rated performance manufacturing process automation*
Dunk (1990-AOS) cost center
managers
26 managers
(26 consumer
product ?rms)
survey - budgetary participation;
- agreement on evaluation criteria
self-rated performance
(continued on next page)
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3
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Table 2 (continued)
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Williams et al. (1990-AOS) department
managers
201 managers
(22 public sector
organ. in Canada)
survey budget-based performance evaluation self-rated performance reciprocal vs. pooled task
interdependence*
Dunk (1989-AOS) cost center
managers
26 managers
(26 consumer
product ?rms)
survey - budget participation;
- budget emphasis
self-rated performance
Imoisili (1989-AOS) cost center
managers
188 mgrs.
in 3 ?rms
survey
/ interview
performance evaluation style
(budget-constrained, pro?t-conscious)
self-rated performance - task interdependence*
- task uncertainty*
Luckett & Hirst (1989-AOS) n.a. 48 employees
(Big-8 ?rms in
Sydney)
experiment quality of performance evaluation:
- level of inter-rater agreement;
- conformity with o?cial policies;
- level of self-insight
di?erent types of feedback
Merchant & Manzoni (1989-TAR) pro?t center 54 pro?t center
mgrs. (12 ?rms)
?eld
study
- number of budget targets;
- budget target achievability
- performance/reward function (bounds)
- motivation
- morale
- earnings management
- upper mgt.’s incentives
- manager/pro?t center e?ectiveness
- corporate need for short-term pro?t
*Moderating variable.
Table 2C
‘‘Mixed Behaviorial/Economics-Oriented’’ Accounting Papers Related to Organizational Incentives Published in 1989–1999
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Drake et al.1999-TAR) n.a. 132 MBA students experiment group-based incentive vs. tournament-based
incentive
pro?t adoption of an activity-
based vs. volume-based
costing system
Banker et al.(1996-JAE) front-line
workers
15 retail outlets archival
(internal
?rm data)
performance-based compensation plan performance
Wruck & Jensen(1994-JAE) employees Sterling Chemicals ?eld study - allocation of decision rights
- performance measurement and reward systems
total quality
management
Luft(1994-JAE) n.a. 36 MBA students experiment preference for bonus vs. penalty incentives
Ittner & Larcker(1995-JAR) sr., middle,
non-mgt.
employees
249 ?rms (auto and
computer industry in
Canada, Germany,
Japan, and U.S.)
archival
(consulting
?rm survey)
- use of non-?nancial performance measures
- importance of team performance
performance total quality
management
Libby & Lipe (1992-JAR) n.a. 134 auditing students experiment performance-based incentives cognitive performance
improvements
task characteristics*
(e?ort sensitivity)
Ashton(1990-JAR) n.a. 182 auditors experiment ?nancial incentives judgment performance decision aid
availability*
b
Moderating variable.
a
Some studies focus exclusively on the CEO, whereas other studies comprehend in their study all corporate executive o?cers for whom compensation contract data are available in proxy statements. Both situations are
indicated here as ‘‘CEO’’ as the level of hierarchy.
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method in the behavioral literature is self-admi-
nistered surveys (15 out of 19 papers, or 78%).
Two (11%) behavioral papers used an experiment
and two (11%) used ?eld studies. A majority of
the mixed papers (four out of seven, or 57%) used
an experimental methodology.
Second, the economics-oriented papers tend to
focus on the corporate level of organization.
Thirty-two of 39 (82%) economics-oriented
papers (excluding the two experimental papers)
analyzed corporate-level data (either focused on
the CEO or the top management team);
15
?ve
(13%) analyzed data from business unit-, division-
or subunit-levels; and two (5%) spanned multiple
organizational levels. The behavioral studies, on
the other hand, tend to focus on the use of incen-
tives at middle management levels (e.g. divisional
or functional managers). Twelve of the 17 (70%)
non-experimental behavioral papers focused on
middle management, and three (18%) spanned
multiple management levels. Two papers (12%)
were not speci?c about the organizational level
(Collins, Holzman, & Mendoza, 1997; Magner,
Welker, & Campbell, 1995). Overall, only ?ve of
the 59 non-experimental papers (8%) focus on
incentives for non-management employees,
16
and
three of those papers are listed in Table 2C
because they cite both the economics-based and
behavioral literatures.
Third, almost all of the incentives-oriented lit-
erature in accounting focuses on incentive systems
in large, public, for-pro?t ?rms. Only two of the
17 non-experimental behavioral papers focus on
not-for-pro?t organizations (Scott & Tiessen, 1999;
Williams, Macintosh, & Moore, 1990). All 39 eco-
nomics-based non-experimental papers focus on
for-pro?t ?rms. One economics-based paper deals
with incentives in Big-six accounting ?rms, which
are large and for-pro?t but not public (Burrows &
Black, 1998). Only two economics-based papers
include private (Ke, Petroni, & Sa?eddine, 1999)
or closely held ?rms (Enis, 1993) in their sample.
Three economics-based studies are not clear about
whether their sample ?rms are private or public
(Blackwell, Brickley & Weisbach, 1994; Golec,
1994; Ittner & Larcker, 1997), most likely because
their samples include both. Most behavioral
papers, however, are unclear about whether their
sample ?rms are private or public. And, because
none of the behavioral papers use publicly avail-
able data (see earlier), the focus of the data cannot
be inferred either.
Fourth, the sets of organizational incentive sys-
tem variables on which the literatures focus are
quite di?erent and seem to stem directly from the
choice of research method. The economics-based
papers tend to focus on the characteristics of cash-
based incentive systems, some details of which can
be gleaned from public documents (e.g. proxy
statements). Many of these studies include simple
indicators, such as the mere existence of a bonus
plan (0/1), the size of the bonus awards, the extent
to which rewards are based on earnings-based
performance measures, and the shape of the
reward function (e.g. slope, bounds). The beha-
vioral literature has focused considerable attention
on the use of accounting performance measures
for performance evaluation and reward purposes,
which many of these papers term as reliance on
accounting performance measures (RAPM). Unlike
the economics literature, the behavioral literature
has also focused considerable attention on perfor-
mance targets and target-setting processes.
Table 3
Number of published papers using each research method
Research method Base discipline
Economics Behavioral Mixed
Archival
a
35 0 2
Survey
b
4 15 0
Experiment 2 2 4
Field study 0 2 1
Total (67 papers) 41 19 7
a
Archival research presents analysis of data from pre-exist-
ing sources.
b
Survey research uses surveys designed by the researchers
themselves.
15
Some studies focus exclusively on the CEO, whereas other
studies comprehend in their study all corporate executive o?-
cers for whom compensation contract data are available in
proxy statements. (Both situations are indicated as ‘‘CEO’’ as
the organizational level in Table 2.)
16
Three of these ?ve studies include non-management
employees as part of spanning multiple organizational levels
(Gibbs, 1995; Ittner & Larcker, 1995, 1997).
270 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
However, most incentive studies in accounting
focus only on a small set of organizational incen-
tive system variables. Neither behavioral nor
economics-based papers do a good job looking at
the entire incentive plan (e.g. salary increases,
various bonus components, promotions, non-
monetary incentives such as prizes or awards) and
how the di?erent components might complement
or substitute for each other.
Fifth, only a minority (14 of 41, or 34%) of the
papers in the economics literatures include an
outcome variable in the study. In contrast, a
majority (15 of 19, or 79%) of the behavioral
papers include at least one such variable. The most
popular outcome variables in the economics lit-
erature are shareholder wealth and earnings man-
agement activities (as re?ected in discretionary
accruals). In the behavioral literature, subjective
assessments of performance and job-related ten-
sion are the outcome variables used most often.
Sixth, the inclusion of contextual variables dif-
fers considerably. More than half (24 of 41, or
59%) of the economics-based papers incorporate
one or more contextual variables. The most com-
mon contextual variables considered in the eco-
nomics-oriented papers are competition, investment
(or growth or innovation) opportunities, and noise
in the ?nancial performance measures. In many of
the economics papers, industry is used as a crude
surrogate for any of the many cross-organiza-
tional di?erences that might a?ect one or more
incentive compensation system di?erences. Fifteen
of the 19 behavioral papers (79%) include at least
one contextual variable, and the sets of contextual
variables considered are quite di?erent from those
included in the economics papers. Prominent in
the behavioral literature, but rare in the economics
literature, are variables descriptive of national
culture, speci?c job tasks, personalities, and rela-
tions between superiors and subordinates.
4. The bene?ts of problem-focused, cross-dis-
ciplinary research
Does it matter that the economics and beha-
vioral incentives-focused literatures are expanding
relatively independently on many di?erent dimen-
sions? We think that it does matter. If more
researchers were familiar with the theories, vari-
ables, terminology, and evidence from multiple
disciplines and paradigms and used them to guide
their research, three important bene?ts would be
forthcoming:
1. a sorting out of the applicability of compet-
ing theories;
2. a more complete consideration of the totality
of the systems and the settings in which they
operate; and
3. better communication of ?ndings amongst
researchers with di?erent orientations and
with consumers of the research in general.
4.1. A sorting out of the applicability of competing
theories
The ideas in competing theories can be discussed
at two di?erent levels of abstraction. At the high-
est level of abstraction, competing theories stem
from di?erent ‘‘views of the world.’’ Below we dis-
cuss some of the signi?cant di?erences in the eco-
nomics and behavioral views of the world, in terms
of both the di?erent models-of-man underlying
(economic) agency and (behavioral) stewardship
theories and the di?erent views on the e?ects of
intrinsic vs. extrinsic motivation. At a lower, more
pragmatic level of abstraction, we discuss examples
where theories stemming from di?erent paradigms
lead either to di?erent speci?c predictions or to
di?erent explanations of the same phenomena.
4.1.1. Di?erent views of the world
The economics literature and some of the beha-
vioral literature on incentive compensation are
rooted in di?erent assumptions about people’s
behaviors, which are sometimes referred to as
‘‘models-of-man’’ (Davis, Schoorman, & Donald-
son, 1997). The model-of-man in economists’
agency theory assumes the presence of rational
individuals who seek to maximize their own uti-
lity, taking all bene?ts and costs into considera-
tion. In a principal-agent situation, this model-of-
man implies that, if interests diverge, agents will
act to serve their own self-interests. In short, the
agency model addresses principal-agent divergence
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 271
and how it can be brought more into alignment
through proper monitoring and incentive systems.
Even though agency researchers may believe that
trust and organizational commitment exist, they
typically assume that trust and commitment levels
are commonly too low to be of much help in solving
organizational problems. Thus, they believe it is
worthwhile to examine other (e.g. monetary incen-
tive) solutions to align principal-agent interests.
Stewardship theory, a behavioral theory with
roots in psychology and sociology, makes quite
di?erent assumptions about people’s behaviors
(Davis et al., 1997). It assumes that at least some
employees are motivated to act in the best interest
of their superiors and their organizations. In other
words, the model-of-man in stewardship theory is
one of a ‘‘steward’’ who attaches higher utility to
collectivistic, organization-centered behaviors
than to individual, self-centered behaviors. When
the interests of the steward and the organization
diverge, the steward will place higher value on
cooperation than on defection. Stewardship the-
ory provides a useful way of explaining relation-
ships where the parties’ interests converge and can
be reinforced through structures that ‘‘reinforce’’
and ‘‘empower,’’ rather than those that ‘‘monitor’’
and ‘‘control.’’
Evidence exists to support both models in cer-
tain settings (e.g. Deckop, Mangel & Cirka, 1999).
Although self-interest should not be assumed
away, some situations appear to be characterized
by an atmosphere of higher trust and altruism,
where employees are more involved even without
the presence of explicit incentive systems, such as
in organizations with a strong ‘‘clan’’ culture
(Ouchi, 1980). Some research could usefully be
focused on tying these two competing models of
motivation together. Where and when does an
agency model assumption about behavior make
sense in designing organizational incentive sys-
tems? Where and when does a stewardship theory
assumption make sense? One implication for
accounting research on incentive systems, for
example, is to incorporate measures of organiza-
tional culture, or a more speci?c indicator of
shared values, as a contextual variable. This vari-
able/concept has been considered by only a few of
the studies listed in Table 2.
Related to the di?erent models-of-man is the
divergent view by economists and behaviorists
regarding the function and e?ects of intrinsic vs.
extrinsic motivation in organizational incentive
systems. In agency theory, and particularly in
empirical tests of agency theory, the emphasis is
on extrinsic motivation, i.e., tangible rewards that
have a measurable, quanti?able market value.
Behavioral models, with roots in psychology and
sociology, are more likely to recognize the
potential power of intrinsic rewards that ‘‘natu-
rally’’ motivate an individual to perform well.
Intrinsic rewards are not easily quanti?ed, as
they include such intangible factors as achieve-
ment, self-actualization, autonomy, and opportu-
nities for growth, but they can have powerful
motivational e?ects.
In most organizational situations, the optimum
incentive system is likely to take advantage of a
combination of intrinsic and extrinsic rewards.
Combining the insights about extrinsic rewards,
which stem from both economics and behavioral
research, with those on intrinsic motivation, which
stem mostly from the behavioral literature, would
contribute to a better overall understanding of the
roles and e?ectiveness of all forms of rewards
provided in organizations. Empirical (accounting)
research could usefully integrate these views to
explore relationships between the provision of
incentives and performance (or other outcomes).
Theories of motivation could provide a better
understanding of when and why (too) high levels
of monetary incentives may actually reduce, rather
than enhance, manager/employee motivation, and
hence, performance (e.g. Deci, 1975; Jordan, 1986;
Pfe?er, 1998; Tosi & Gomez-Mejia, 1994). The
ultimate research challenge should be to generate
knowledge about how to design and use incentive
systems that are responsive to the economical,
political, psychological, sociological, and perhaps
anthropological traits of the individuals being
motivated.
Similarly, individual attributes of the managers
or employees themselves have received little atten-
tion in the economics-based (accounting) litera-
ture, even though they may hold the real key
to understand the e?ectiveness of incentives in
organizations (Finkelstein & Boyd, 1998). These
272 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
attributes include risk-taking pro?les, self-serving
tendencies, personal goals, personality traits (e.g.
tolerance for ambiguity, locus of control), aspira-
tion levels, and power bases. After all, di?erent
forms of compensation vary in their attractiveness
to individuals, and therefore, in their e?cacy as
incentives or motivational tools (Lawler, 1981).
Hence, research on incentive compensation would
likely bene?t from combining the economics
approach with a greater consideration of beha-
vioral characteristics of the individuals being
motivated.
4.1.2. Di?erent explanations of the same
phenomena
At a more pragmatic level, di?erent theories
sometimes just provide di?erent explanations for
the same phenomena. For example, higher ?xed
pay levels and a lower reliance on variable (per-
formance-dependent) pay are often interpreted as
a sign of political power by agents (which may be
middle managers or lower-level employees). Thus
they are seen as being consistent with predictions
of managerial capitalism theory (e.g. Gomez-
Mejia, Tosi, & Hinken, 1987; Tosi & Gomez-
Mejia, 1989, 1994; Tosi & Werner, 1995; Werner
& Tosi, 1995)
17
or social capital theory (e.g. Belli-
veau, O’Reilly, & Wade, 1996).
18
One common proxy for the political power
variable in managerial capitalism theory is tenure
(Hill & Phan, 1991). Tenure, which gives man-
agers/employees time to build power, is expected
to be negatively associated with variable pay and,
hence, compensation risk. However, Stroh, Brett,
Baumann, and Reilly (1996), who found that
tenure was negatively associated with the use of
variable pay, did not interpret their ?nding as a
sign of greater managerial power by middle man-
agers [in contrast with Fisher and Govindarajan
(1992), for example]. Rather, they interpreted the
lower reliance on performance-based incentives as
resulting from an increased ability by the organi-
zation to use behavior-based controls because
more information is available on managers with
longer tenure.
Both explanations—political power and relative
expertise by superiors about subordinates’ actions
and behaviors—are plausible. Both might or might
not be occurring simultaneously, and social net-
works might or might not play a role in any given
setting. Incomplete consideration of the possibilities
can easily lead to incorrect interpretations, for
example, in situations in which little or no political
power exists but where researchers ascribe a poli-
tical power explanation to a negative relation
between tenure and variable pay nonetheless.
This multiple-plausible-explanation example is
just one illustration of the common and troubling
research problem of omitted variables. Omitting
variables that are correlated with the variables
included in a study causes a problem because the
e?ect of the omitted variable is attributed to the
included variables, thus leading to a possibly
incorrect interpretation of the results. A poten-
tially even worse problem is the omission of vari-
ables that are interactive with the included
variables in a?ecting one or more important
dependent variables. Interaction means that a
?nding in one setting will not hold in another set-
ting because presence (or absence) of one of the
contextual variables changes the causal e?ects. If
the interactive variables are omitted from a study,
meaning that they are not measured or even
recognized in the descriptions of the research sites,
the ?ndings from studies conducted in settings
that are not exactly the same may con?ict. And,
importantly, there will be no way to reconcile the
con?icting ?ndings.
Omitted-variables problems are more likely, and
more likely to be serious, in research that lacks a
broad, cross-disciplinary problem focus. Research-
ers who are bound by the strictures of a single
research discipline or paradigm are more likely to
be unaware of prior ?ndings that show which
variables should be measured or otherwise con-
trolled for.
17
Managerial capitalism theory maintains that when man-
agers/employees have greater ability to in?uence their boards/
superiors, incentives are likely to be ‘‘diluted,’’ i.e. designed
such that they reduce compensation risk.
18
Social capital theory takes into consideration the social
context in which decisions are made. The contention is that
executives can use social networks (e.g. elite club a?liations) to
enhance their in?uence over a wide range of decisions, includ-
ing professional advancement and compensation.
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 273
Di?erent research foci can also lead to con?ict-
ing conclusions about the same issues. For
example, consider economic and behavioral con-
clusions about whether relatively large disparities
in compensation across hierarchical levels in an
organization are good or bad. From an econom-
ics-based tournament theory perspective, high pay
disparity across hierarchical levels is said to be
good because it strengthens motivation for
employees who are competing in tournaments for
promotion (Lazear & Rosen, 1981). However,
behaviorally oriented social comparison theory has
shown that organizations are not just economic
exchange systems, but are also hotbeds of con-
tinual social comparison. These comparisons, in
turn, a?ect e?ort, motivation, trust, loyalty, orga-
nizational commitment, and cooperation (e.g.
Cowherd & Levine, 1992; Ezzamel & Watson,
1998). Social comparison theory thus argues that
pay inequities are bad because they decrease
motivation (and have other negative con-
sequences, such as lower productivity, decreased
employee morale, and increased turnover;
Cowherd & Levine, 1992).
Di?erent predictions from di?erent paradigms
are not very useful for the ultimate consumers for
whom the research is intended. In this example,
the ?ndings provide no guidance to practitioners
as to whether they should increase or decrease pay
equity. More research is needed to determine
which predictions dominate in a given type of set-
ting. However, only researchers who are familiar
with both sets of literature can do that type of
integrative research.
4.2. Consideration of the totality of the systems
and the settings in which they operate
Each basic discipline seems to focus on a rela-
tively narrow set of variables, research settings,
and explanations. In many cases, the narrow foci
could be made to complement each other. The
complementarities occur both among incentive
system decision (endogenous) variables and
among contextual (exogenous) variables that
a?ect one or more incentive system variables. A
few of these complementarities have been dis-
covered, but many others have not.
4.2.1. Incentive system decision (endogenous)
variables
Much of organizational incentives research in
accounting tends to focus on only a small set of
the many incentive system decision variables. As
was shown in Table 2, neither literature has
focused broadly on the array of rewards that can
be, and sometimes is, o?ered to employees. These
rewards can include salary increases, short-term
bonuses of various types, long-term bonuses of
various types, promotions, and a variety of di?-
cult-to-value rewards, such as recognition, auton-
omy, and perquisites (e.g. favored parking spots).
For data-accessibility reasons, most economics-
based papers have focused on short-term bonus
plans, although some recent work has explored the
incentive e?ects of stock option plans and promo-
tion structures. Various behavioral papers have
studied many of the individual reward compo-
nents, but rarely in combination. It would be pro-
ductive to have some researchers look at the entire
incentive structure to provide a better under-
standing of how the di?erent reward components
can complement or substitute for each other. It
could also be productive to understand how and
why measures, standards, and evaluation pro-
cesses di?er depending on the type of reward to
which they are linked.
Moreover, within the limited set of incentive
variables studied, the chosen foci are also not
independent of the researchers’ base disciplines.
With respect to performance targets, for example,
behavioral research has developed some insights
about what targets should be set, how they should
be set, and the e?ect of variables such as goal dif-
?culty on goal commitment and performance. The
e?ects of incentives, in both a positive (i.e. moti-
vational) and negative (e.g. gameplaying) sense,
probably depend on the perceived performance
target di?culty (e.g. Merchant & Manzoni, 1989).
Generally, targets have been shown to be maxi-
mally motivating when targets are set to be chal-
lenging but achievable, although some research is
still aimed at understanding why the level of chal-
lenge sometimes varies signi?cantly across organi-
zations and organizational sub-units. The
empirically oriented economics-based literature,
on the other hand, has focused more attention on
274 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
the so-called ‘‘ratchet e?ect,’’ the tendency for
standards to be increased over time (e.g. Chow et
al., 1991), and others have shown that relative
performance evaluations are not in widespread use
(e.g. DeFond & Park, 1999; Janakiraman, Lam-
bert, & Larcker, 1992). But most empirical eco-
nomics research has not focused much attention
on characteristics of performance targets or the
processes used to set them (with the exception of a
recent study by Murphy, 2000).
In the area of performance measurements, on
the other hand, the economics-based literature
seems to be leading the way. The behavioral
incentives literature could be enriched through
explicit consideration of some of the variables that
have received considerable focus in the economics
literature, such as the informativeness of the per-
formance measure and the performance-reward
sensitivity (e.g. Holmstrom, 1979).
In sum, studies that consider a broad(er) set of
incentives variables and/or integrate multiple foci
are rare. One example of a study that integrated
multiple foci is Chow (1983). By integrating
agency concepts (e.g. moral hazard and adverse
selection) with goal setting and expectancy theory,
Chow (1983) was able to enrich the study of the
traditionally behavioral-based e?ects of goal di?-
culty on performance. This was done by consider-
ing the e?ect of goal di?culty not only on
employee e?ort (the motivational e?ect), but also
on self-selection by employees among employment
contracts (a hypothesized e?ect derived from eco-
nomic theory). Studies such as this one are
insightful as they help explain more variance in
performance attributable to various e?ects (moti-
vation, self-selection) of incentives schemes.
4.2.2. Contextual (exogenous) variables
Researchers invariably focus on a limited set of
contextual variables, and the choices vary sig-
ni?cantly depending on the researchers’ dis-
ciplinary orientations. Our total understanding of
the causes and e?ects of organizational incentive
system features would be enhanced if we could
combine the knowledge contained in the narrowly
focused studies. To illustrate this point, we
describe two issue examples: the e?ects of national
culture and the use of group rewards.
4.2.2.1. Effects of national culture. One potentially
important consideration that has received con-
siderable attention in the behavioral literature, but
not the economics literature, is national culture.
Most incentive studies that consider culture (e.g.
Chow et al., 1999; Harrison 1993; Merchant,
Chow, & Wu, 1995) rely on the Hofstede (1980)
taxonomy to predict empirical regularities
between incentive system design and various
aspects of national culture. Typical predictions are
as follows. First, individual performance-based
incentives ?t individualistic cultures, but run
counter to the values of collectivistic cultures
because they accentuate interpersonal di?erences
and introduce interpersonal rivalry. Second,
employees in cultures characterized by high
uncertainty avoidance may not react favorably to
performance-dependent compensation because it
causes them to bear more risk, especially when
incentive rewards are highly discretionary, as
opposed to being formula-based. Third, when
power distance is high, lower-level managers are
more likely to accept greater discretionary power
being exercised by their superiors in performance
evaluation and incentive determination. Finally,
employees’ desire for achievement and competi-
tion in masculine cultures may permit the use of
relative performance evaluations. However, pub-
lished studies have reported many ‘‘surprises’’ where
either support for the impact of national culture on
incentive compensation was weak or inexistent, or
empirical evidence was opposite to theoretical
expectations. The need for stronger theory devel-
opment clearly exists (Chow et al., 1999).
To our knowledge, no economics-based incen-
tives studies in accounting have considered cul-
tural di?erences. National culture seems to be
considered irrelevant in the set of assumptions
imposed on principals and agents. This omission,
however, is seriously limiting. The use of sig-
ni?cant performance-based incentives is spreading
far beyond the US border (e.g. in Europe, see
Richter, 1999). We need theories and evidence
about the spread of incentives, and their e?ects.
Testing agency predictions across signi?cantly
di?erent cultures could provide useful tests
and potential enhancements both of the cultural
theory and agency theory.
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 275
4.2.2.2. Use of group rewards. Managers must
decide whether to base rewards on the measured
performance of individuals or groups of indivi-
duals (e.g. team, department, division, or cor-
poration). Several economists (e.g. Baker, Jensen,
& Murphy 1988; Holmstrom, 1982) have been
puzzled about the extensive and growing use of
group rewards because of the high potential for
the ‘‘free rider e?ect.’’ Indeed, when large groups
of people are included in a group reward system,
the link between any individual’s e?ort and the
reward s/he will be due is virtually zero, so any
individual can slack o? without su?ering a mate-
rial loss of rewards.
So why are many companies implementing new
group reward systems and emphasizing the group
reward systems they have? Economists have
incorporated into their models a few variables that
might provide insights into this academic puzzle:
e.g. task repetition, which might lead to mutual
monitoring of actions over time (Arya, Fell-
ingham, & Glover, 1997), and organizational
interdependencies (Bushman, Indjejikian, & Smith,
1995; Keating, 1997). Behavioral researchers have
suggested some di?erent variables: e.g. ability to
share information (Ravenscroft & Haka, 1996).
But, there are many other plausible variables that
might explain why group incentives work. Some
have already been discussed in other contexts; for
example, contracting properties of aggregate group-
based performance measures (such as their sensi-
tivity to team members’ actions and their preci-
sion) in the economics-based literature (e.g.
Banker & Datar, 1989) and cultural collectivism in
the behavioral literature (e.g. Earley, 1989;
Wagner, 1995).
Any or all of these explanatory variables may be
important in any given situation. There is a need
for broader-scope studies designed to integrate
and build on these developing and as yet frag-
mented and isolated literatures in order to create
knowledge that managers can use. For example,
what advice about individual vs. group reward
systems can we provide to managers who operate
in situations with repetitive tasks, low organiza-
tional interdependency, relative ease in sharing
information, and an individualistic culture?
Integrating the variables included in and the
?ndings supporting each of these theories would
provide a richer understanding of the phenomena
and would produce more reliable, and more
usable, knowledge.
In summary of Sections 4.1 and 4.2, we argue
that economics-oriented research on incentive
compensation, and agency-based research in par-
ticular, would bene?t from bringing characteristics
of the individuals being motivated back into the
picture. This will require cross-fertilization with
the psychology literature. Another fruitful exten-
sion to agency-based incentives research would be
to take a less restricted view of principal-agent (or
superior-subordinate) relationships that are likely
to be more cooperative than typically assumed,
and hence, subject to mutual in?uencing and joint
problem solving. This implies that the compensa-
tion arrangements found in ?rms are the result, at
least in part, of the relative political and social
power of the parties involved (Belliveau et al.,
1996; Parks & Conlon, 1995). Extending the lit-
erature at this level will require cross-fertilization
with the sociology literature. Finally, observed
compensation plans may be adopted for many
other reasons than to provide motivation or over-
come agency problems, such as signaling (Beatty
& Zajac, 1994). Even symbolism—how compen-
sation decisions are explained or legitimized to
shareholders and other constituents (e.g. Tosi &
Gomez-Mejia, 1989; Zajac & Westphal, 1995)—
may play a role in compensation decisions. Prob-
ably no single study can incorporate all these fac-
tors at once, but casting a wider net across
paradigms, theories, and areas of research is a
fruitful way to pursue future incentives research.
4.3. Better communication amongst researchers
with di?erent orientations and consumers of the
research in general
Communication amongst researchers with dif-
ferent orientations, and consumers of the research
in general, is often complicated by the use of
technical jargon with quite similar meanings. This
problem does not exist just in comparing the eco-
nomics and behavioral literatures; it also exists
across paradigms within many disciplines. This
problem creates barriers to understanding and
276 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
Table 4
Examples of technical terms with similar meanings in common use in economic and behavioral disciplines
Terms in common use in: Comments
Economic literature Behavioral literature
Allocation of decision rights Delegation of authority A comparison is described in Section 4.3 of the paper.
Task allocation Granting of autonomy
(De)centralization
Principal/agent Employer/employee A comparison is described in Section 4.3 of the paper.
Superior/subordinate
Implicit contract Psychological contract A comparison is described in Section 4.3 of the paper.
Relational contract Employee voice
Self-enforcing contract Culture
Relative expertise Corporate diversi?cation A comparison is described in Section 4.3 of the paper.
Marginal product of management Managerial discretion A comparison is described in Section 4.3 of the paper.
Multitasking Job/task complexity A comparison is described in Section 4.3 of the paper.
Breadth of responsibility
Incentives Motivation Behavioral researchers typically describe theories of motivation
(e.g. Lawler, 1987) while economists tend to describe theories of
incentives (Gibbons, 1998; Holmstrom, 1979). The terms are
equivalent, or at least nearly so, in meaning.
Incentive alignment Goal congruence Goal congruence is broadly de?ned in the behavioral literature as
the degree of alignment between individual goals and organizational
goals (e.g. Abernethy & Stoelwinder, 1991). Economists tend to refer
to the extent to which an agent’s incentives are aligned with those of
the owner (e.g. Fama & Jensen, 1983).
Monitoring Supervision Monitoring in the economics literature refers to an activity which aim
is to determine whether the contractual obligations of another party
have been met (Milgrom & Roberts, 1992).
Monitoring has a seemingly slightly broader de?nition than
supervision, but there is obvious overlap. For example, shareholders
monitor managers without being their supervisor. In a typical
superior-subordinate relationship, however, monitoring and
supervision are essentially equivalent.
Complementarity Internal or external ?t In economics, complementarity is de?ned as a positive interaction
between one factor and another (Milgrom & Roberts, 1995) and
is used to refer to situations where doing more of one activity
increases the returns to doing more of another activity (e.g.,
Miller & O’Leary, 1997).
The concept of ?t has been used broadly in the behavioral
literature, generally referring to any ?t among organizational
practices, e.g., the ?t between organizational design and strategy
(Chandler, 1962).
Although the concepts of ?t and complementarity seem
near-equivalent, Milgrom and Roberts (1995) argue that the
ideas of complementarities give substance to previously
elusive notions such as ?t (p. 180).
Sensitivity Controllability
In?uenceability
Sensitivity refers to the change in the expected value of the
performance measure with changes in the level of e?ort of the
agent (Banker & Datar, 1989). Controllability and in?uenceability
refer to the extent to which a manager’s actions can a?ect the
measured outcome (Merchant, 1989). The meanings of the terms
seem essentially equivalent.
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 277
integrating the organizational incentive ?ndings
across (and also within) the economics and beha-
vioral literatures.
One prominent example comes from the agency
theory literature in economics, which is less than
30 years old. Its inventors (e.g. Jensen & Meck-
ling, 1976) chose to create a new technical lan-
guage. For instance, they wrote about allocation of
decision rights, rather than using already existing
terms with equivalent, or near-equivalent, mean-
ings, such as delegation, the granting of autonomy,
or decentralization. These older terms were in
common use, and to this day they are more widely
understood, particularly in practitioner commu-
nities. Similarly, agency researchers refer to agents
rather than employees (or subordinates), and prin-
cipals rather than shareholders or employers (or
upper-management or superiors).
There are also numerous illustrations of crea-
tion of new jargon in the behavioral literature. For
example, Finkelstein and Boyd (1998) used the
notion of managerial discretion as a key determi-
nant of executive (CEO) compensation. They
de?ned managerial discretion as the extent of lati-
tude executives have in making decisions which,
they believe, depends on factors such as industry
concentration and regulation, market growth,
demand stability, and R&D-, advertising-, and
capital-intensity. Their proposition is that situa-
tions that o?er executives more discretion also
tend to make their jobs more complex, demand-
ing, and risky, so executives with more discretion
should be paid more. Their theory was supported
by their empirical results. However, although Fin-
kelstein and Boyd (1998) did a broad review of the
literature, it is less than clear from their paper how
the notion of managerial discretion is similar to,
di?erent from, or a combination of, related con-
cepts in the behavioral literature, such as job/task
complexity and uncertainty (e.g. Hirst, 1983),
environmental uncertainty (e.g. Gordon & Nar-
ayanan, 1984), or even outcome controllability
(Merchant, 1989). Similarly, although they state
that the concept of managerial discretion is
‘‘somewhat akin’’ to the concept of the investment
opportunity set in the accounting and ?nance lit-
eratures (e.g. Gaver & Gaver, 1993), it is not easy
to determine from their paper where these terms
have, or lack, signi?cant overlap. Moreover, the
notion of managerial discretion also meshes with
economists’ concepts such as the executives’ mar-
ginal product (e.g. Fama, 1980), or even the extent
of multitasking (e.g. Holmstrom & Milgrom,
1991). As such, the greater the level of managerial
discretion, the greater the impact of managers on
the ?rm, or in economists’ terminology, the
greater their marginal product (e.g. Fama, 1980;
Finkelstein & Boyd, 1998, p. 181). Although Fin-
kelstein and Boyd (1998) use the terms managerial
discretion and marginal product of management
almost interchangeably, it is not clear whether
both terms are always equivalent. In sum, the
similarities and di?erences, overlaps and non-
overlaps, are di?cult to disentangle.
Another example: in the economics literature,
implicit contracts are generally de?ned as informal
agreements sustained by reputational concerns
(Baker, Gibbons, & Murphy, 2001). Economists,
however, tend to use the terms implicit contract,
relational contract, and self-enforcing contract
interchangeably (e.g. Baker, Gibbons, & Murphy
1994; Hayes & Schaefer, 2000). Behavioral
researchers refer to a similar notion using the term
psychological contracts (Rousseau, 1995), which
are de?ned as the belief system of individual
workers and employers regarding their mutual
obligations that emanate from the promises made
at the time of hiring as well as through sustained
day-to-day interactions (Rousseau & Schalk,
2000). Behavioral researchers also sometimes use
the terms employee voice and culture to refer to a
similar notion (Gibbs & Levenson, 2001). These
examples illustrate the use of di?erent terms with
similar meanings both within and across dis-
ciplines. Again, it is di?cult for the reader of these
literatures to assess how a psychological contract
is similar to, or di?erent from, an implicit con-
tract, and/or whether a relational contract (or a
psychological contract) is exactly the same as an
implicit contract or a self-enforcing contract (or
employee voice or culture).
Some terminology issues are subtler. For exam-
ple, one area of study that has received some
attention by behavioral researchers is the impact
of corporate diversi?cation on the reward systems
of business-unit managers (e.g. Kerr, 1985; Lorsch
278 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
& Allen, 1973; Pitts, 1976; Salter, 1973). A few
papers published in the accounting literature have
provided an agency-based conceptual framework
of business unit manager compensation in diversi-
?ed ?rms (e.g. Baiman, Larcker, & Rajan, 1995;
Bushman et al., 1995). Although the latter works
clearly bear on the organizational literature on
corporate diversi?cation and decentralization —
which is the terminology typically used in the
organizational literature—they hardly refer to this
literature and/or terminology. Baiman et al.
(1995), for example, quickly introduce their own
terminology of relative expertise and task alloca-
tion, respectively. The reader interested in extract-
ing knowledge from this set of studies is left with
some important, unanswered questions: Do the
?ndings of these two sets of studies con?rm each
other? Or do they complement each other, and if
so, how?
Table 4 provides some examples of incentive
system-related terms used in either the economics
or behavioral literatures (but typically not both),
with similar (if not identical) meanings. Further
research is needed to determine if exact equiv-
alency exists between these terms, and if not, to
both clarify the speci?c areas of similarities and
di?erences in meanings and integrate the ?ndings.
Certainly powerful academic incentives are in
place to motivate researchers to coin new terms.
Some researchers hope that they will be known as
the inventors of a ‘‘new’’ line of thinking and thus
have their research oft cited. However, the inven-
tion of new terms, many of which are unnecessary,
surely complicates interpretation and reconcilia-
tion of results across studies, academic ?elds, and/
or paradigms.
5. Constraints limiting cross-disciplinary research
We have described the many bene?ts of pro-
blem-focused cross-disciplinary research, and it
should be easy for all but the most narrowly
focused individuals to see those bene?ts. So why is
there so little problem-focused cross-disciplinary
research? We see three primary constraints. One is
that cross-disciplinary research is more di?cult to
do than is single discipline research. Cross-dis-
ciplinary research requires knowledge of multiple
sets of literature with their own paradigms and
jargon. Few doctoral programs provide much
breadth of education, as most academics see doc-
toral programs as vehicles for specialization,
usually de?ned as specialization in a discipline.
Few young professors take the time even to become
acquainted with multiple disciplines, much less to
become expert in them. Senior professors have
more time to develop multiple specialties. How-
ever, early modes of behavior usually set the pat-
tern for entire careers, and few senior academics
make the e?ort to develop cross-disciplinary skills.
A second constraint limiting cross-disciplinary
research is that even after it is completed, this kind
of research is more di?cult to publish. While
journals’ calls for papers often speci?cally mention
cross-disciplinary work, few journal editors are
really receptive to the work. They set di?cult
hurdles for the publication of cross-disciplinary
papers. For example, they often require the
authors of cross-disciplinary papers to please
expert reviewers in widely disparate ?elds of study
(e.g. principal-agent modeling, organizational
budgeting, and social psychology). The early
career pressure to publish quickly forces many
young researchers to take the path of least resis-
tance, and they become single discipline-focused.
Even those perhaps predisposed toward cross-dis-
ciplinary work are loath to take the risk required
to strike out in new, di?cult directions.
A third constraint is researcher narrow-mind-
edness. Some researchers seem to believe that their
discipline is su?ciently powerful to answer all the
important questions in their particular area of
interest, and thus, they need not be concerned
about the methods and ?ndings of other dis-
ciplines. Many critics have recognized and written
about this ‘‘imperialism of ideas’’ problem (e.g.
Davern & Eitzen, 1995; Reiter, 1998; Shiozawa,
1999). Economists are the typical target of these
critics because many economists, particularly
those espousing rational choice theory, are fervent
in their belief that their discipline is the ?rst
among the social sciences to rise to the level of an
exact science. For example, Lazear (2000) proudly
titled a paper ‘‘Economic Imperialism.’’ In that
paper he argued that unlike other social sciences,
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 279
‘‘economics is a genuine science.’’ He also claimed
that ‘‘economics is the premier social science,’’ so
it is desirable to try ‘‘to explain all social behavior
by using the tools of economics.’’ Similarly, in a
paper more focused on management accounting,
Zimmerman (2000) concluded that ‘‘managerial
accounting researchers likely are best served by
relying on economics-based hypotheses.’’ But
while economists are probably undeniably the
most chauvinistic to their discipline, some
researchers in non-economics disciplines are simi-
larly very partial to their own disciplines (for
examples in sociology, see Swedberg, 1990). Such
narrow-minded thinking provides obvious impe-
diments to cross-disciplinary advances.
6. Conclusions
In this paper we have argued that while the lit-
erature bearing on organizational incentive systems
is exploding, research progress is being hindered
because so much of this research is parochial, single
discipline or paradigm-focused. It is not designed
to provide maximum understanding of important
phenomena. Researchers should use any and all
paradigms, evidence, and research methods that
might shed light on the issues at hand. For
example, Gibbons (1998) described how it took
economics-based agency theorists 15 years to
incorporate in their models the key ideas
expressed in an oft-cited behavioral journal article
by Steven Kerr (1975) titled, ‘‘On the Folly
of Rewarding A, While Hoping for B.’’ This
lost-time problem occurred, apparently, because
the agency researchers did not read the behavioral
literature.
There are many other examples of opportunities
lost. For example, why don’t economics-oriented
researchers cite authors who have published
extensively on intrinsic motivation (e.g. Deci,
1975; Jordan, 1986) and high involvement organi-
zations (e.g. Walton, 1985)? Why don’t those
writing about balanced scorecards and non-?nan-
cial performance measures cite the management-
by-objectives literature (e.g. Carroll & Tosi, 1973)?
Why don’t more behavioral researchers incorpo-
rate in their research useful concepts from the
economics literature, such as informativeness of
performance measures, pay-performance sensitiv-
ity, risk aversion, contract completeness, and rela-
tive performance evaluation? Aren’t some of the
?ndings about the design and e?ectiveness of CEO
incentives, which has been the economists’ pre-
dominant focus, applicable lower in the organiza-
tion? Similarly, aren’t some of the ?ndings about
the design and e?ectiveness of middle managers’
and lower-level employees’ incentives, which has
been the behaviorists’ predominant focus, applic-
able at corporate levels of analysis?
The chasm exists not only between the econom-
ics and behavioral literatures; there is also a chasm
between many of the business ?elds. Too few
incentives-interested accounting researchers keep
up with incentives-related writing and develop-
ments in other business ?elds, such as marketing,
?nance, and operations.
We think a phenomenon or problem focus will
help achieve greater integration across disciplines
and ?elds of business. However, it is a necessary-
but-not-su?cient condition. Also needed is more
open-mindedness (by both researchers and journal
editors), more contact with practitioners, and
broader doctoral training that trains accounting
researchers in multiple base disciplines and multi-
ple research methods.
Our call for more cross-disciplinary research
does not apply uniquely to incentive systems
research; it applies to many areas of accounting-
related research and, indeed, many other areas of
life. For example, a recent Forbes article described
how some economists are puzzled as to why peo-
ple leave tips (Seligman, 1998). Tips are di?cult to
understand in the standard economic paradigms
because tippers do not di?erentiate signi?cantly
depending on the quality of the service they
receive. Most tippers and their service providers
are anonymous and will not meet again; and there
are little or no tax bene?ts to earning compensa-
tion through tips rather than higher wages. To
solve this puzzle, the author of the article sug-
gested calling in behaviorists who could provide
some insights about personality and individual
di?erences, neuroticism, and cultural norms.
We suggest that the types of studies most needed
are those that employ or develop richer cross-dis-
280 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
ciplinary frameworks, and within a single dis-
cipline inter-paradigm frameworks.
19
To be of
maximum help to practitioners, we should strive
to explain a high proportion of variance in every
setting in which the phenomena of interest occurs.
We will never be able to explain empirically 100%
of the variance in any speci?c situation because of
the great situational variety and complexity and
unavoidable measurement errors. But we should
not be content with explaining only 10%, or even
less, of the variance.
Organizational incentive systems provide just
one good example of an organizational system
that contains many elements that are related to
each other. In such cases, there are bene?ts to
studying concurrently as many of the elements as
is possible so as to sort out their inter-
dependencies. Similarly, there are many contextual
variables that, alone or in combination, will a?ect
one or more of the system elements. Di?erent base
disciplines focus on di?erent sets of potentially
relevant design (endogenous) and exogenous vari-
ables. Economic, psychological, and sociological
perspectives have been well introduced into the
literature, but the perspectives have not been well
integrated. Other concepts, perhaps stemming lar-
gely from political science, anthropology, or phi-
losophy, may also be relevant. As the literature
matures, it would be very desirable to try to
aggregate these perspectives, rather than allowing
them to develop independently.
Some accounting researchers have already
attempted to integrate ?ndings across disciplines.
In the incentives area, for example, Lambert,
Larcker, and Weigelt (1993) found that a combi-
nation of tournament and managerial power
models provided relatively more insight into the
structure of organizational incentives than the
agency model. In the contracting area, Evans,
Hannan, Krishman, and Moser (2001) o?ered
interesting results by considering honesty in
conventional agency models. By applying cross-
disciplinary insights to the study of managerial
reporting, Evans et al. (2001) found little support
for the agency argument that ?rms are better o?
assuming dishonesty when designing control sys-
tems (even though some people may be honest).
Instead, what the study shows is that (1) the terms
of the contract determine how willing people are
to be dishonest, independently of how much dis-
honesty pays, and (2) in certain circumstances,
assuming honesty when designing control systems
may actually result in higher ?rm pro?ts. By
building on multiple disciplines, the Evans et al.
(2001) study provides more insight into the role of
managerial reporting than the single discipline
focused agency model. Such attempts to span dis-
ciplinary boundaries, however, are rare.
The study of the design and use of accounting-
related systems in organizations is relatively young,
really younger than half a century. Certainly great
progress has been made. But progress will be much
faster if researchers work together to try to inte-
grate and build on each other’s work, rather than
trying to create something new in isolation. It will
take e?ort, but that e?ort should provide rewards.
Acknowledgements
The authors wish to acknowledge the many
helpful suggestions of Paul Adler, David Cooper,
Tony Davila, Mike Gibbs, Alec Levenson, Bob
Libby, Frank Selto, Mike Shields, two anonymous
reviewers, and participants at the AOS 25th
Anniversary Research Symposium (Oxford, July
2000) and at research workshops at the University
of Waterloo and the University of Maastricht.
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doc_719044845.pdf
This paper argues that research progress in accounting has been significantly hindered by the fact that most
researchers focus their theories and perspectives on a single research discipline. The point is illustrated by discussing
research in the area of organizational incentive systems. The relevant base disciplines in this area are economics and
several behavioral sciences (primarily psychology and sociology). The paper uses a citation and content analysis to
show that the economics- and behavioral-based empirical papers published in accounting journals differ significantly
and that there is little cross-fertilization between them.
Disciplinary constraints on the advancement of knowledge:
the case of organizational incentive systems
Kenneth A. Merchant*, Wim A. Van der Stede, Liu Zheng
University of Southern California, Leventhal School of Accounting, Los Angeles, CA 90089-0441, USA
Abstract
This paper argues that research progress in accounting has been signi?cantly hindered by the fact that most
researchers focus their theories and perspectives on a single research discipline. The point is illustrated by discussing
research in the area of organizational incentive systems. The relevant base disciplines in this area are economics and
several behavioral sciences (primarily psychology and sociology). The paper uses a citation and content analysis to
show that the economics- and behavioral-based empirical papers published in accounting journals di?er signi?cantly
and that there is little cross-fertilization between them. It then discusses the reasons contributing to the single discipline
foci and describes how research would be improved if the disciplinary parochialism were reduced. # 2002 Elsevier
Science Ltd. All rights reserved.
Much of the research focused on the study of
the design and use of various accounting practices
in organizations is done, seemingly, with no (or
little) researcher awareness of research ?ndings
from disciplines other than the authors’ primary
discipline. Many researchers seem to lock quickly
into a single research discipline, paradigm or the-
ory and ignore developments and insights from
other ?elds that could shed light on the research
issue on which they are focusing. These narrow,
single discipline- or paradigm-bound foci have
hindered research progress by fragmenting the lit-
erature, by hindering communication (because of
the concurrent use of highly specialized jargon
with quite similar meanings), and by suggesting
incomplete and, in some cases, incorrect conclu-
sions.
In this paper we call for researchers to throw o?
their single-paradigm-induced blinders, to adopt a
management problem-based (rather than a dis-
cipline-based) orientation, and to work toward
integration of ?ndings by incorporating in their
research designs variables, perspectives, terminol-
ogies, and ?ndings from other related research
areas. Ours is not the ?rst such call; for example,
Atkinson et al. (1997) dealt with the problem
broadly.
1
But our paper makes a contribution
both by documenting the extent of the problem
and by describing some examples where improve-
ments can be made in one important area of the
research literature: the study of the design and
e?ects of organizational incentive systems. This
0361-3682/02/$ - see front matter # 2002 Elsevier Science Ltd. All rights reserved.
PI I : S0361- 3682( 01) 00051- 4
Accounting, Organizations and Society 28 (2003) 251–286
www.elsevier.com/locate/aos
1
There are also many calls for use of multiple research
methods. We concur with this advice but the discussion of this
issue is outside the scope of this paper.
* Corresponding author. Tel.: +1-213-740-4842; fax: +1-
213-747-2815.
E-mail address: [email protected]
(K.A. Merchant).
particular topic area is discussed as merely an
example of the problem,
2
but it is one in which
paradigm-induced parochialism seems particularly
acute. It is also a good area for illustration
because organizational incentive systems are a
particularly important area of study for account-
ing researchers. Measurements, often in account-
ing terms, are a major element of most incentive
systems.
The remainder of the paper is structured as fol-
lows. In Section 1, we de?ne the scope of research
bearing on organizational incentive systems and
categorize the disciplinary orientations to incen-
tives-research in accounting. In Section 2, we
describe the ?ndings of an analysis of the citations
in four major accounting journals that shows that
the vast majority of the incentives-related research
published in these journals draws on only one of
the disciplinary orientations (economic vs. beha-
vioral) described in Section 1. In Section 3, we
discuss how di?erent disciplinary orientations lead
to quite di?erent incentives-research choices. In
Section 4 we explain how better integrating
approaches and ?ndings across discipline bound-
aries can improve the development of knowledge.
In Section 5, we describe the forces that lead
researchers away from cross-disciplinary research.
In Section 6 we summarize and conclude.
1. Disciplinary approaches to the study of orga-
nizational incentive systems
Organizational incentive systems encompass
multiple elements—performance standards or tar-
gets and the processes used to set them, perfor-
mance measures, performance evaluations, and
reward structures that link the performance eva-
luations to the provision of various forms of
organizational rewards. By de?nition, the primary
goal of an incentive system is motivation. How-
ever, organizations commonly incorporate in
incentive systems some features that are not
designed to induce employees to perform at their
maximum. Some system features are aimed, for
example, at attracting and retaining high quality
employees, and others are aimed at producing
smoother income and cash ?ow streams. These
non-motivational purposes can a?ect the design or
use of some incentive system elements (Merchant,
1989).
The body of research in organizational incentive
systems has grown substantially over the last 20
years. For example, the literature on top executive
compensation alone, which focuses on only one
organizational level of analysis, has grown from
just a few papers per year prior to 1985 to 60
papers in 1995 alone (Murphy, 1999). Similar,
although less dramatic, growth increases have also
occurred in other organizational incentive system
areas. Research aimed at the study of various
aspects of organizational incentive systems ema-
nates from many sources including, from just
within business school (or commerce) faculties,
those interested in economics, strategy (general
management), ?nance, accounting, and organiza-
tion behavior.
Various organizational incentive systems litera-
tures have recently been reviewed and critically
evaluated. For example, Prendergast (1999)
reviewed the economics-oriented incentives
research; Murphy (1999) and Pavlik, Scott, and
Tiessen (1993) reviewed the executive compensa-
tion studies in the ?nance/accounting literatures;
and Indjejikian (1999) reviewed agency-based
compensation research in accounting, just to
mention a few.
3
Our aim is not to ‘‘re-review’’
these now vast areas of research. Instead, our aim
is to compare, and particularly to contrast, the
incentives-oriented empirical accounting litera-
tures that have di?erent disciplinary orientations.
Later we describe how the literatures, which are
growing up nearly independent of each other, can
be enriched with cross-fertilization.
2
One could easily make the same points about many other
areas of research, such as organization design, activity-based
costing/activity-based management, transfer pricing, leader-
ship, and corporate and business strategy.
3
Most of these reviews, however, focus on incentive-con-
tracting issues (i.e. reward structures). Our scope is broader and
also includes the literature on: (1) performance targets and tar-
get-setting processes; (2) performance measurement; and (3)
performance evaluation. These aspects of an organizational
incentive system, broadly de?ned, generally are part of the
budgeting process in most organizations.
252 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
The research bearing on one or more aspects of
organizational incentive systems can be classi?ed
broadly into two categories. One category uses
economics as the base discipline. Most of the
incentives-oriented economics research published
in the past 20 years has relied on the terminology
and structure of what has been labeled agency
theory, but economists have also developed or
applied other models for use in the incentives area
(e.g. tournament models).
4
A second category can
be called behavioral research. Most of this research
builds on established theories or paradigms devel-
oped in the ?elds of psychology or sociology.
Among the behavioral theories that are commonly
cited in the organizational incentives literature are
expectancy theory (e.g. Vroom, 1964), goal-setting
theory (e.g. Locke & Latham, 1990), equity theory
(e.g. Adams, 1965), and attribution theory (e.g.
Mowday, 1983).
2. The extent of cross-fertilization in the organi-
zational incentives literature
To explore the extent to which there is cross-
fertilization between the economics and the beha-
vioral literatures in empirical incentives-related
research published in the accounting literature in
the last decade, we analyzed the citations made in
publications in four major journals in accounting:
Accounting, Organizations and Society (AOS),
Journal of Accounting and Economics (JAE), Jour-
nal of Accounting Research (JAR), and The
Accounting Review (TAR). We conducted a search
using the Social Science Citation Index (SSCI)
database of the Institute for Scienti?c Information
from 1989 to 1999 (1989 is the ?rst year reported
in the SSCI database). We searched for article
titles, keywords, and abstracts
5
that included the
following search-words: incentive, reward, com-
pensation, pay, bonus, budget, target, standard,
goal, performance measure, and performance eva-
luation (using wildcards to catch plurals and
hyphenated terms). These search-words were cho-
sen to capture the main elements of organizational
incentive systems, broadly de?ned, i.e. (1) stan-
dard setting (budget, target, standard, goal);
6
(2)
performance measurement; (3) performance evalua-
tion; and (4) the actual reward itself (incentive,
reward, bonus, compensation, pay). From the com-
puterized search, we excluded all articles that did
not fall within this (rather broad) framework of
organizational incentives. We also excluded all
non-empirical publications, such as analytical
papers, theoretical papers, review papers, com-
mentaries, and discussion papers.
This keyword search revealed a total of 396
papers published in the four target journals. For
AOS, the search revealed 83 articles, 21 of which
were dealing directly with the topic of this paper
as described above.
7
For JAE, the search revealed
107 articles, 24 of which were directly relevant for
the purpose of this paper.
8
For TAR, 14 out of
4
Tournaments take place within organizations with ?xed
salary structures. The incentive e?ect stems from the appeal of
the possibility of earning successively higher salaries for win-
ning the ‘‘tournaments,’’ i.e., from being promoted to the next
level or from achieving the next rank (Lazear & Rosen, 1981;
Rosen, 1986). To date, tournament models have been over-
whelmingly theoretical, with few empirical tests in organiza-
tional settings other than athletic contexts, such as golf
tournaments and auto racing (Becker & Huselid, 1992).
5
The Institute for Scienti?c Information, however, started
indexing author-written abstracts in its Social Science Citation
Index database only as of 1992. This explains, for example, why
our search missed the article by Merchant (1990) that uses the
phrase ‘‘?nancial targets’’ in the abstract, but has none of the
search-words in its title or keywords.
6
We include the search-word ‘‘budget,’’ because standard-
setting is an integral part of the budgeting process in most
organizations.
7
For AOS, we excluded review articles (e.g. Harrison &
McKinnon, 1999; Lang?eld-Smith, 1997), methodological
papers (e.g. Hartmann & Moers, 1999), and theoretical papers
(e.g. Fisher, 1994; Oakes & Covaleski, 1994). Moreover, our
computerized search resulted in hits to papers outside the scope
of this paper. For example, the paper by Jonsson and Macin-
tosh (1997), which is about ethnographic accounting research,
was captured in our search because it used ‘‘. . . will pay more
attention . . .’’ in the abstract, and pay was one of our search
words.
8
For JAE, we excluded 15 analytical papers, four discussion
papers, and one editorial. Other papers were excluded because
they are outside the scope of this paper, such as articles on
‘‘Bank Capital Standards’’ (Kim & Kross, 1998) and ‘‘Incen-
tives for Unconsolidated Financial Reporting’’ (Mian & Smith,
1990).
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 253
161 articles were retained,
9
and for JAR eight of
45.
10
The retained articles, 67 in total, are listed by
journal source in Table 1.
Table 1 reports the economic and behavioral
citations included in the 67 incentive systems
papers. We counted citations to publications in
journals with the word ‘‘economic’’ in the journal
title as ‘‘pure’’ economic citations. We counted
citations to publications in journals from psychol-
ogy, sociology, and (organizational and human)
behavior as ‘‘pure’’ behavioral citations. (Refer to
the footnotes in Table 1 for a complete listing of
the journal names in both categories.)
We also identi?ed some citations as ‘‘hybrid’’
citations. References to publications in the Acad-
emy of Management Journal (AMJ), Academy of
Management Review (AMR), and Administrative
Science Quarterly (ASQ) were considered as
‘‘hybrid’’ behavioral citations. These journals tend
to publish articles with an organizational or beha-
vioral slant, although they do not do so exclu-
sively (e.g. some empirical tests of agency models
have been published in AMJ and ASQ). We
included these hybrid citations to avoid the criti-
cism that we had predetermined one conclusion—
that incentives research in accounting is pre-
dominantly economics-based—by de?ning the
behavioral literature too narrowly. To be con-
sistent, we considered references to the Journal of
Economic Behavior and Organization as ‘‘hybrid’’
economic citations. (Hybrid citations are shown in
brackets [ ] in Table 1.)
Table 1 does not include citations to papers
published in most accounting journals because
accounting journals generally do not have an
explicit economic or behavioral focus. The two
exceptions are JAE and Behavioral Research in
Accounting (BRIA). References to JAE and BRIA
were included as ‘‘pure’’ economic citations
11
and
‘‘pure’’ behavioral citations, respectively.
We considered citations to articles in AOS as
‘‘hybrid’’-behavioral. AOS is often an outlet for
behavioral accounting research, but there are
exceptions. Again, including a relatively broad
count of behavioral citations should avoid the cri-
ticism that our conclusion that incentives-research
in accounting tends to be economics-based is due
to an overly narrow count of behavioral citations.
For purposes of assembling Table 1, we exclu-
ded all other references. These included citations
to management journals with ‘‘undeclared’’ para-
digms (e.g. Strategic Management Journal), meth-
odological/statistical references, citations to
books, dissertations, working papers, practitioner-
oriented publications (e.g. Harvard Business
Review), and the popular business press (e.g.
Business Week, The Wall Street Journal).
The results of this citation analysis are shown in
Table 1. The majority of articles (45 out of 67, or
67%) have references either only to the econom-
ics-based literature or only to the behavioral lit-
erature. Excluding ‘‘hybrid’’ citations, which are
bracketed in Table 1, 53 of the 67 articles (79%)
have citations only in one discipline’s literature.
Sixteen articles (all of which are published in
AOS) cite only behavioral-based publications;
29 papers cite only economics-based publications.
Excluding the ‘‘hybrid’’ citations shows 37 papers
that cite the economics-based literature only.
9
For TAR, we excluded 26 analytical papers and 15 book
reviews. Other papers were excluded because they are outside
the scope of this article, such as, papers about ‘‘Incentives for
Voluntary Disclosure’’ (Scott, 1994) and ‘‘Auditors’ Incentives
for Applying Financial Accounting Standards’’ (Hackenbrack
& Nelson, 1996).
10
For JAR, our search included 14 analytical papers and
seven discussion papers, which were eliminated. Topic-wise,
our search captured articles about ‘‘Segment Reporting Stan-
dards’’ (Maines, McDaniel, & Harris, 1997); ‘‘Financial-
Accounting-Standards-Board Regulation’’ (Melumad & Shi-
bano, 1994); ‘‘Tax Incentives and Capital Structures’’ (Chang &
Nichols, 1992); ‘‘Auditor Compensation in IPO Markets’’
(Beatty, 1993); and ‘‘Product Standardization and Manu-
facturing Process Automation’’ (Brownell & Merchant, 1990).
Our search also returned articles that are dealing with
accounting for, valuation of, and tax issues related to stock
options (e.g. Dechow, Hutton, & Sloan, 1996; Matsunaga,
Shevlin, & Shores 1992); ?nancial accounting disclosure papers
(e.g. Bamber & Cheon, 1998), and auditing-oriented papers
(e.g. Phillips, 1999). These articles are all outside the scope of
our paper.
11
This JAE treatment as a ‘‘pure’’ economic journal a?ects
our citation-based conclusions only for two papers: Ittner and
Larcker (1997) and Gaver and Gaver (1998). These papers
would become more di?cult to classify in an objective way as
economics-oriented papers based on non-JAE citations
(Table 1).
254 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
Table 1
Citations by papers related to organizational incentives published in 1989–1999
a
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
(A) AOS papers
Tuttle and Burton (1999) 38 J. Appl. Psy. (1); Psy. Bul. (1);
Psy. Rev. (1); J. Ex. Psy. Learn. (1);
Org. Beh. Hum. Dec. (2);
Org. Beh. Hum. Perf. (1);
[Acc. Org. Soc. (8); Cites to ?nancial
analysts and management journals,
e.g., Fin. Anal. J. (2); Man. Sci. (1)].
0
Chow et al. (1999) 81 J. Ec. Persp. (1); J. Public Ec. (1). J. Cross Cult. Psy. (4);
Adv. Ex. Soc. Psy. (1);
[Acc. Org. Soc. (13); Ac. Man. Rev. (1);
Adm. Sci. Q. (3)].
0
Scott and Tiessen (1999) 51 Bell J. Ec. (2); Am. Ec. Rev. (1). Psy. Rev. (1); Eur. J. Soc. Psy. (1);
J. Appl. Psy. (1); Org. Beh. Hum. Perf. (2);
Small Group Beh. (1); [Acc. Org. Soc. (2);
Ac. Man. J. (1); Adm. Sci. Q. (3)].
0
Burrows and Black (1998) 45 J. Pol. Ec. (1); Am. Ec. Rev. (1);
Bell J. Ec. (1); Legal Ec. (1);
Ec. Inquiry (1); J. Acc. Ec. (1);
J. Law Ec. (1).
[Acc. Org. Soc. (4); Ac. Man. J. (1)]. 0
Collins et al. (1997) 69 J. Appl. Psy. (1); Psy. Bul. (1);
[Acc. Org. Soc. (12); Ac. Man. J. (2);
Ac. Man. Rev. (1); Adm. Sci. Q. (2);
Cites to the management, marketing,
and strategy literatures, e.g., Man. Sci. (2)].
0
Perera, Harrison, and Poole (1997) 45 Psy.metrika (1); Am. J. Soc. (1);
[Acc. Org. Soc. (5); Ac. Man. Rev. (1);
Ac. Man. J. (1); Adm. Sci. Q. (2)].
0
Ittner and Larcker (1997) 62 J. Acc. Ec. (1). [Acc. Org. Soc. (5); Ac. Man. Rev. (1)
+Cites to the management and strategy
literatures, e.g., Man. Sci. (2)].
0
Magner et al. (1995) 36 J. Appl. Psy. (4); J. Pers. Soc. Psy. (4);
Org. Beh. Hum. Perf. (1); J. Voc. Beh. (1);
Hum. Relat. (2); Beh. Res. Acc. (1);
[Acc. Org. Soc. (4); Ac. Man. J. (3)].
2
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Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Merchant et al. (1995) 64 J. Cross Cult. Psy. (3); J. Pers. Soc. Psy. (3);
Ann. Rev. Soc. (1); Int. J. Psy. (1);
Ann. Rev. Psy. (1); Pers. Psy. (1); Psy. Bul. (1);
Am. Psychologist (1); Res. Org. Beh. (1);
[Acc. Org. Soc. (8); Ac. Man. J. (1);
Adm. Sci. Q. (1)].
4
Lau, Low, and Eggleton (1995) 62 J. Appl. Psy. (2); Psy.metrika (1);
Pers. Psy. (2); Psy. Bul. (1);
Am. J. Soc. (2);Am. Soc. Rev. (1);
[Acc. Org. Soc. (11); Ac. Man. Rev. (2);
Ac. Man. J. (1);Adm. Sci. Q. (7);
Dec. Sci. (1)].
4
O’Connor (1995) 43 J. Appl. Psy. (1); Psy.metrika (1);
Org. Beh. Hum. Dec. (1); J. Hum. Relat. (1);
[Acc. Org. Soc. (8); Ac. Man. J. (1); Adm. Sci. Q. (6)].
8
Ross (1994) 27 Psy.metrika (1); J. Abn. Soc. Psy. (2);
Am. J. Soc. (1); Hum. Relat. (1)
[Acc. Org. Soc. (3)].
0
Harrison (1993) 71 J. Cross Cult. Psy. (7); J. Appl. Psy. (6);
J. Soc. Psy. (1); J. Pers. Soc. Psy. (2);
Ann. Rev. Psy. (1); Soc. Psy. Q. (2);
Pers. Psy. (1); Psy.metrika (1); Pol. Psy. (1);
Indian Psy. Rev. (1); S.-Afric. J. Psy. (1);
J. Res. Pers. (1); Am. J. Soc. (1);
Am. Soc. Rev. (1); Beh. Res. Acc. (1);
[Acc. Org. Soc. (7); Ac. Man. Rev. (2);
Ac. Man. J. (1); Adm. Sci. Q. (2)].
7
Dunk (1992) 50 J. Appl. Psy. (1); J. Ind. Psy. (1);
Pers. Psy. (1); Org. Beh. Hum. Dec. (1);
Am. J. Soc. (1); Res. Org. Beh. (1);
[Acc Org. Soc. (4); Ac. Man. J. (1);
Adm. Sci. Q. (2)].
2
Harrison (1992) 52 Psy.metrika (1); J. Appl. Psy. (5);
J. Cross Cult. Psy. (3); Pers. Psy. (1);
Org. Beh. Hum. Perf. (1); Am. J. Soc. (1);
Am. Soc. Rev. (1); Ann. Rev. Soc. (1);
Res. Org. Beh. (1); Hum. Relat. (3);
[Acc. Org. Soc. (6); Ac. Man. J. (1);
Ac. Man. Rev. (1); Adm. Sci. Q. (2)].
5
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Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Chow et al. (1991) 37 Bell J. Ec. (5); J. Comp. Ec. (5);
J. Ec. Th. (1); Ec.metrica (1);
Eur. Ec. Rev. (1); So. Ec. J. (1).
Psy. Bul. (1); [Acc. Org. Soc. (1);
Adm. Sci. Q. (1)].
0
Dunk (1990) 37 Psy.metrika (1); J. Appl. Psy. (5)
Am. J. Soc. (1); [Acc. Org. Soc. (3);
Dec. Sci. (1)].
1
Williams et al. (1990) 64 J. Appl. Psy. (1) Am. Soc. Rev. (2);
Org. Beh. Hum. Perf. (1); [Acc. Org. Soc. (11);
Ac. Man. Rev. (3); Adm. Sci. Q. (4)].
0
Dunk (1989) 14 Psy.metrika (1). 4
Imoisili (1989) 22 Psy.metrika (1); [Acc. Org. Soc. (5);
Adm. Sci. Q. (2)]
3
Luckett and Hirst (1989) 23 Psy. Rev. (1); Psy. Bul. (1); Psy. Sci. (1);
Org. Beh. Hum. Perf. (4); J. Nerv. Ment. Dis. (1);
[Acc. Org. Soc. (3)].
1
(B) JAE papers
Ke et al. (1999) 45 Ec.metrica (1); J. Pol. Ec. (1);
Bell J. Ec. (4); Q. J. Ec. (1);
J. Ec. Th. (1); J. Labor Ec. (2);
J. Law Ec. (2);J. Law Ec. Org. (1);
J. Hum. Res. (1); J. Fin. Ec. (7);
J. Acc. Ec. (7).
0
Core and Guay (1999) 39 Ec.metrica (1); J. Pol. Ec. (6);
Bell J. Ec. (2); Q. J. Ec. (1);
Am. Ec. Rev. (1); J. Fin. Ec. (9);
J. Acc. Ec. (7).
0
Begley and Feltham (1999) 50 Ec.metrica (2); J. Pol. Ec. (2);
Rev. Ec. Stud. (1); Int. Ec. Rev. (1);
Man. Dec. Ec. (1); J. Fin. Ec. (6);
J. Acc. Ec. (7).
0
DeFond and Park (1999) 23 Bell J. Ec. (2); J. Fin. Ec. (2);
J. Acc. Ec. (4).
[Adm. Sci. Q. (1)]. 0
Guidry, Leone, and Rock (1999) 34 J. Pol. Ec. (1); J. Acc. Ec. (13). 0
Baber, Kang, and Kumar (1998) 59 Bell J. Ec. (2); J. Pol. Ec. (5);
J. Fin. Ec. (4); J. Acc. Ec. (18).
0
Wallace (1997) 19 J. Fin. Ec. (2); J. Acc. Ec. (4). 0
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Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Keating (1997) 24 Bell J. Ec. (1); J. Fin. Ec. (2);
J. Acc. Ec. (4).
0
Baber, Janakiraman, and Kang (1996) 23 Bell J. Ec. (1); J. Pol. Ec. (3);
Am. Ec. Rev. (1); J. Fin. Ec. (2);
J. Acc. Ec. (7).
4
Bushman, Indjejikian, and Smith (1996) 31 Q. J. Ec. (2); Bell J. Ec. (2);
J. Pol. Ec. (2); J. Law Ec. Org. (1);
J. Fin. Ec. (2); J. Acc. Ec. (6).
[Ac. Man. J. (1); Adm. Sci. Q. (1)]. 5
Banker et al. (1996) 76 Ec.metrica (1); Q. J. Ec. (2);
Bell J. Ec. (2); Rand J. Ec. (1);
J. Pol. Ec. (2); J. Law Ec. Org. (1);
J. Acc. Ec. (8).
J. Appl. Psy. (2); Am. Psy. (1);
Pers. Psy. (2); J. Pers. Soc. Psy. (2);
Org. Beh. Hum. Dec. (2); J. Ex. Psy. Learn. (1);
[Ac. Man. J. (1)].
2
Gibbs (1995) 19 Ec.metrica (1); Q. J. Ec. (2);
Bell J. Ec. (1); J. Pol. Ec. (3);
J. Lab. Ec. (1); J. Hum. Res. (1);
Am. Ec. Rev. (1); Eur. Ec. Rev. (1).
Am. J. Soc. (1). 3
Holthausen, Larcker, and Sloan (1995b) 41 J. Pol. Ec. (1); Rand J. Ec. (1);
J. Ec. Lit. (1); J. Ec. Th. (1);
Appl. Ec. (1); J. Fin. Ec. (1);
J. Acc. Ec. (5); [J. Ec. Beh. Org. (1)].
3
Gaver, Gaver, and Austin (1995) 27 J. Fin. Ec. (1); J. Acc. Ec. (3). 9
Holthausen et al. (1995a) 32 Bell J. Ec. (1); J. Acc. Ec. (9). [Adm. Sci. Q. (2)]. 11
Wruck and Jensen (1994) 51 Am. Ec. Rev. (2); J. Law Ec. (1);
J. Fin. Ec. (1).
Am. J. Soc. (1); Org. Beh. Hum. Dec. (1). 9
Luft (1994) 46 Ec.metrica (1); J. Pol. Ec. (1);
Am. Ec. Rev. (5); Q. J. Ec. (2);
J. Ec. Perspect. (3); Can. J. Ec. (1);
J. Fin. Ec. (2); J. Acc. Ec. (2).
Psy. Rev. (1); Cog. Psy. (1); Am. Psy. (1);
J. Ex. Soc. (1); J. Ex. Psy. (1);
J. Pers. Soc. Psy. (2); [Ac. Man. J. (1)].
1
Blackwell et al. (1994) 59 Q. J. Ec. (1); Bell J. Ec. (1);
J. Pol. Ec. (4); Rand J. Ec. (1);
J. Ec. Lit. (1); J. Lab. Ec. (2);
J. Law Ec. (1); J. Fin. Ec. (5);
J. Acc. Ec. (10).
[Ac. Man. J. (5)]. 8
Golec (1994) 37 Bell J. Ec. (2); J. Pol. Ec. (1);
Am. Ec. Rev. (1); J. Law Ec. (2);
Q. Rev. Ec. Bus. (1); J. Fin. Ec. (3);
J. Acc. Ec. (6).
2
Skinner (1993) 43 J. Fin. Ec. (3); J. Acc. Ec. (13). 10
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Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Sloan (1993) 46 Am. Ec. Rev. (1); Bell J. Ec. (3);
J. Pol. Ec. (1); J. Acc. Ec. (7).
36
Gaver and Gaver (1993) 26 Am. Ec. Rev. (1); J. Fin. Ec. (5);
J. Acc. Ec. (4).
44
Clinch and Magliolo (1993) 28 J. Pol. Ec. (1); J. Lab. Ec. (1);
Rand J. Ec. (1); J. Acc. Ec. (10).
9
Bizjak, Brickley, and Coles (1993) 36 Ec.metrica (2); Bell J. Ec. (2);
J. Pol. Ec. (4); Am. Ec. Rev. (1);
Q. J. Ec. (2); J. Fin. Ec. (2);
J. Acc. Ec. (4).
22
(C) TAR papers
Baber, Kang, and Kumar (1999) 33 Ec.metrica (1); J. Pol. Ec. (2);
Bell J. Ec. (1); J. Fin. Ec. (1);
J. Acc. Ec. (10).
0
Drake et al. (1999) 37 J. Pol. Ec. (1); Bell J. Ec. (1);
Am. Ec. Rev. (2); Ec. Inq. (1);
J. Ec. Man. Strategy (1);
J. Acc. Ec. (3).
J. Org. Beh. (1); Soc. Beh. (1);
Beh. Res. Acc. (1); [Ac. Man. J. (1);
+Cites to operations, human resources,
and management journals].
0
Gaver and Gaver (1998) 27 J. Acc. Ec. (8). 1
Ittner et al. (1997) 61 J. Pol. Ec. (1); Bell J. Ec. (2);
J. Fin. Ec. (1); J. Acc. Ec. (5).
Psy. Bul. (1); [Acc. Org. Soc. (3);
Ac. Man. J. (3); Adm. Sci. Q. (3)
+Cites to marketing, human resources,
and management journals].
2
Natarajan (1996) 32 Bell J. Ec. (1); J. Law Ec. Org. (1);
J. Fin. Ec. (1); J. Acc. Ec. (10).
2
Chen and Lee (1995) 30 Bell J. Ec. (2); J. Pol. Ec. (5);
J. Fin. Ec. (4); J. Acc. Ec. (18).
0
Dechow, Huson, and Sloan (1994) 31 Ec.metrica (2); J. Acc. Ec. (5). 8
Enis (1993) 29 Bell J. Ec. (1); J. Fin. Ec. (2);
J. Acc. Ec. (6).
0
Gaver, Garver, and Battistel (1992) 14 J. Pol. Ec. (2); Bell J. Ec. (1);
J. Acc. Ec. (3).
2
Waller and Bishop (1990) 18 Ec.metrica (1); Bell J. Ec. (1);
Q. J. Ec. (1); Am. Ec. Rev. (1);
J. Com. Ec. (1); J. Fin. Ec. (1).
[Acc. Org. Soc. (2)
+Cites to Man. Sci. (4)].
2
Newman (1989) 7 J. Acc. Ec. (3). 1
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Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Merchant and Manzoni (1989) 54 Bell J. Ec. (1); J. Fin. Ec. (1). Psy. Bul. (1); J. Appl. Psy. (7); J. Soc. Psy. (1);
J. Pers. Soc. Psy. (2); Am. Soc. Rev. (1);
Beh. Sci. (1); [Acc. Org. Soc. (4);
Ac. Man. Rev. (1); Adm. Sci. Q. (1)].
7
Defeo, Lambert, Larcker (1989) 41 Bell J. Ec. (1); Rand J. Ec. (1);
J. Acc. Ec. (6).
17
Ronen and Aharoni (1989) 18 J. Pol. Ec. (1); Bell J. Ec. (1);
J. Law Ec. Org. (1); J. Acc. Ec. (5).
1
(D) JAR papers
Ittner and Larcker (1995) 57 Am. Ec. Rev. (1); J. Acc. Ec. (1). J. Appl. Psy. (1); J. Educ. Psy. (1);
Psy. Bul. (1); Org. Beh. Hum. Perf. (1);
[Acc. Org. Soc. (1); Ac. Man. J. (2);
Adm. Sci. Q. (2)+Cites to marketing and
operations management journals].
1
Bushman et al. (1995) 37 Ec.metrica (3); Bell J. Ec. (4);
Rand J. Ec. (2); J. Ec. Th. (1);
J. Ind. Ec. (1); J. Ec. Bus. (1);
J. Law Ec. Org. (1); J. Acc. Ec. (1).
[Acc. Org. Soc. (1); Ac. Man. J. (1);
Adm. Sci. Q. (1)].
4
Libby and Lipe (1992) 64 Q. J. Ec. (1); J. Pol. Ec. (2);
Am. Ec. Rev. (4); J. Ec. Perspect. (1).
J. Appl. Psy. (1); Psy. Res. (1);
Psy. Rev. (3); Psy. Bul. (1);
J. Pers. Soc. Psy. (1);
Org. Beh. Hum. Dec. (2);
J. Ex. Psy. (5); J. Beh. Dec.-Making (1);
[Acc. Org. Soc. (1)+Cite to marketing journal
(J. Cons. Res.)].
6
Janakiraman et al. (1992) 23 Bell J. Ec. (3); Am. Ec. Rev. (1);
Ec. Inq. (1); J. Lab. Ec. (1).
14
Lanen and Larcker (1992) 47 Ec.metrica (1); J. Pol. Ec. (2);
Am. Ec. Rev. (3); Bell J. Ec. (2);
Appl. Ec. (1).
Psy. Bul. (3). 6
Ely (1991) 31 J. Pol. Ec. (1); Bell J. Ec. (3);
J. Acc. Ec. (3).
10
Clinch (1991) 25 J. Pol. Ec. (1); Am. Ec. Rev. (1);
Bell J. Ec. (1); Rand J. Ec. (1);
J. Acc. Ec. (1); [J. Ec. Beh. Org. (1)].
[Cites to law journals: Harvard Law Rev. (1);
J. Legal Studies (1)]
14
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Table 1 (continued)
Paper Cited
references
b
Citations to
Economics Literature
c,d
Citations to
Behavioral Literature
c,e
Citing
articles
f
Ashton (1990) 102 J. Pol. Ec. (3); Rand J. Ec. (1);
J. Lab. Ec. (1); Am. Ec. Rev. (1);
Ec. Inq. (1); J. Bus. Ec. St. (1);
J. Acc. Ec. (1); [J. Ec. Beh. Org. (1)].
Org. Beh. Hum. Dec. (10);
Org. Beh. Hum. Perf. (3); J. Pers. Soc. Psy. (7);
J. Gen. Psy. (1); J. Appl. Psy. (9);
J. Ex. Psy. Learn. (1); Psy. Rev. (3);
Psy. Bul. (5); Am. Psy. (1); Eur. J. Soc. Psy. (1);
Pers. Soc. Psy. Bul. (2); Pers. Psy. (1);
J. Pers. Ass. (1); J. Comp. Neur. (1);
Acta Psy. (2); Soc. Psy. Q. (1); Res. Org. Beh. (1);
J. Personality (1); [Ac. Man. Rev. (1)].
28
a
Source: Social Science Citation Index-database of the Institute for Scienti?c Information.
b
Total number of cited references in paper.
c
Journals without brackets are considered as ‘‘pure’’ economics or behavioral journals. References in brackets [ ] are considered as ‘‘hybrid’’ journals because, while
they tend to publish either economics or behavioral journals, they do not do so exclusively.
d
The full journal names for the economics-based journals are (in alphabetical order): American Economic Review; Applied Economics; Bell Journal of Economics;
Canadian Journal of Economics; Econometrica; Economic Inquiry; European Economic Review; International Economic Review; Journal of Accounting and Economics;
Journal of Business and Economic Statistics; Journal of Comparative Economics; Journal of Economic Literature; Journal of Economic Perspectives; Journal of Economic
Theory; Journal of Economics and Business; Journal of Economics and Management Strategy; Journal of Financial Economics; Journal of Human Resources; Journal of
Industrial Economics; Journal of Institutional and Theoretical Economics; Journal of Labor Economics; Journal of Law and Economics; Journal of Law, Economics, and
Organization; Journal of Monetary Economics; Journal of Political Economy; Managerial and Decision Economics; Quarterly Journal of Economics; Quarterly Review of
Economics and Business; Rand Journal of Economics; Review of Economic Studies.
e
The full journal names for the behavioral-based journals are (in alphabetical order): Acta Psychologica; Advances in Experimental Social Psychology; American Journal
of Psychology; American Journal of Sociology; American Psychologist; American Sociological Review; American Sociologist; Annual Review of Psychology; Annual Review
of Sociology; Behavioral Research in Accounting; Behavioral Science; Cognitive Psychology; European Journal of Social Psychology; Human Relations; International Journal
of Psychology; Journal of Applied Psychology; Journal of Behavioral Assessment; Journal of Behavioral Decision Making; Journal of Comparative Neurology; Journal of
Cross-Cultural Psychology; Journal of Educational Psychology; Journal of Experimental Psychology; Journal of Experimental Social Psychology; Journal of General Psy-
chology; Journal of Human Relations; Journal of Nervous and Mental Disease; Journal of Organizational Behavior; Journal of Personality and Social Psychology; Journal of
Personality Assessment; Journal of Verbal Learning and Verbal Behavior; Journal of Vocational Behavior; Organizational Behavior and Human Decision Processes; Orga-
nizational Behavior and Human Performance; Personality and Social Psychology Bulletin; Personnel Psychology; Political Psychology; Psychological Bulletin; Psychological
Research; Psychological Review; Psychological Science; Psychometrika; Small Group Behavior; Social Behavior; Social Psychology Quarterly; South African Journal of
Psychology; Research in Organizational Behavior.
f
Total number of citing articles.
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1
Of these 37 papers, 20 are in JAE, 11 in TAR, four
in JAR, and two in AOS.
12
Of the 22 articles that cite both literatures
(including hybrid citations), 12 are predominantly
economics-oriented. These include the eight arti-
cles with citations only to hybrid behavioral
papers as well as Ittner, Larcker, and Rajan
(1997), Gibbs (1995), Lanen and Larcker (1992),
and Chow, Cooper, and Haddad (1991). Three are
predominantly behavioral-oriented (Chow, Shields,
& Wu, 1999; Merchant & Manzoni, 1989; Scott &
Tiessen, 1999). Based on the number of citations,
the remaining seven papers seem relatively
‘‘balanced’’ or cross-disciplinary (Ashton, 1990;
Banker, Lee, & Potter, 1996; Drake, Haka, &
Ravenscroft, 1999; Ittner & Larcker, 1995; Libby
& Lipe, 1992; Luft, 1994; Wruck & Jensen, 1994).
In sum, out of the 67 publications listed in
Table 1, 41 (61%) are economics-based, 19 (28%)
are behavioral-based, and only seven (11%) seem
to build on both literatures. Overall, the citation
analysis suggests both that the majority of
empirical incentives-related research papers in
accounting is economics-based and that relatively
little cross-fertilization has taken place between
the economics and behavioral literatures.
13
We also checked the number of times each of
the papers listed in Table 1 had been cited in the
research literature. These numbers are shown in
the last column of Table 1.
14
This analysis shows
that the 41 economics-based papers have been
cited 250 times, or about six citations per paper.
The 19 behavioral-based papers have been cited
only 48 times, which is less than three citations per
paper. This analysis, showing that the economics-
based papers are cited more frequently than are
the behavioral-based papers, adds support to our
?rst conclusion above, that incentives research in
accounting is predominantly economics-oriented.
Finally, our citation analysis also revealed that
the incentives literature in accounting has largely
ignored related research outside accounting and
management (i.e. AMJ, ASQ, and Management
Science) journals, such as operations, ?nance, or
marketing journals (e.g. for production worker or
sales force incentives). Although there is consider-
able incentives research in other business ?elds—
with the papers coming both from the behavioral
and economics-based disciplines—very few papers
cite anything outside of accounting, economics,
psychology, or sociology journals. Even if
researchers chose to stay within their own dis-
cipline base, it would be fruitful for accounting
researchers to begin integrating related research
with that from other (business) ?elds.
3. Comparing and contrasting the incentives-
oriented literatures
To understand how the two categories of
accounting literatures described above—economic
and behavioral—are both similar and di?erent, we
content-analyzed the 67 empirical incentives-rela-
ted papers listed in Table 1. Based on the citation
analysis shown in Table 1, we categorized papers
as ‘‘economics-oriented’’ (Table 2A), ‘‘behavioral’’
(Table 2B), or ‘‘mixed’’ (Table 2C).
As discussed in the previous section, the major-
ity of papers were easy to classify based on the
citations listed in Table 1. Thirty-seven papers
have no citations to the ‘‘pure’’ behavioral litera-
tures, so they are classi?ed as economics-oriented.
Sixteen papers have no citations to the economics-
literature, so they are classi?ed as behavioral-
oriented. Of the remaining 14 papers with refer-
ences to both literatures, three are predominantly
behavioral-oriented (Chow et al., 1999; Merchant
& Manzoni, 1989; Scott & Tiessen, 1999) and four
are predominantly economics-oriented (Chow et
al., 1991; Gibbs, 1995; Ittner et al., 1997; Lanen &
12
By journal, incentives-oriented articles appear to be
mainly behavioral-oriented in AOS (16 out of 21 papers in
Table 1A) and economics-oriented in JAE (19 out of 24 papers
in Table 1B) and TAR (11 out of 14 papers in Table 1C). In
JAR, the coverage of economics-based and behavioral work
seems more balanced (i.e. only four out of eight papers are
purely economics-oriented in Table 1D).
13
Our citation-based conclusion perhaps only applies to
North America, since three out of four journals are North
American (JAR, TAR, JAE). Other authors have argued that
Australian and European researchers and journals have tended
more toward behavioral, particu-larly sociological, or contin-
gency approaches to the study of uses of management
accounting in organizations (Atkinson et al., 1997; Lukka &
Kasanen, 1996).
14
The number of citing articles for each paper may change
over time as the SCCI-database is updated.
262 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
Larcker, 1992). Because they have roughly equal
numbers of citations to papers in each discipline,
we classi?ed the remaining seven papers (Ashton,
1990; Banker et al., 1996; Drake et al., 1999; Ittner
& Larcker, 1995; Libby & Lipe, 1992; Luft, 1994;
Wruck & Jensen, 1994) as ‘‘mixed’’ or cross-dis-
ciplinary.
In Table 2, we compare and contrast these 41
economics-oriented papers, 19 behavioral-oriented
papers, and seven ‘‘mixed’’ papers using the fol-
lowing descriptors:
1. organization level;
2. sample;
3. research method;
4. organizational incentive system variables
included in the study;
5. outcome variables included in the study; and
6. contextual variables included in the study.
Here is a description of the classi?cation cate-
gories that might not be self-explanatory (the last
four):
Research method. We distinguish four cate-
gories of research method: (1) experiments; (2)
?eld research; (3) survey research; and (4)
archival. Survey research stems from surveys
designed by the researchers themselves. Archival
research presents analyses of data obtained
from pre-existing sources. These data sources
can be either publicly available (e.g. from
COMPUSTAT or CRSP) or private. Private
archival data sources can stem from internal
?rm archives (e.g. Banker et al., 1996) or from
surveys conducted by consulting ?rms (e.g.
Holthausen, Larcker, & Sloan, 1995a; Ittner &
Larcker, 1995, 1997).
Organizational incentive system variables inclu-
ded in the study. As described in Section 2,
organizational incentive system variables relate
to one or more of the four elements of an
organizational incentive system (i.e. standard
setting, performance measurement, perfor-
mance evaluation, and the actual reward itself).
Outcome variables included in the study. Out-
come variables describe anything that is a?ected
by the design and use of the incentive system.
This category includes ‘‘ultimate’’ dependent
variables (i.e. overall performance). It also
includes ‘‘mediating’’ variables, such as speci?c
types of decisions (e.g. capital investment),
gameplaying activities, innovation, job-related
tension, and any of a variety of attitudes (e.g.
job satisfaction).
Contextual variables included in the study. Con-
textual variables encompass characteristics of
the setting that might a?ect an element of the
incentive system or, in combination with spe-
ci?c incentive system choices, one or more out-
comes. Examples of contextual variables are:
national culture; industry; speci?c task char-
acteristics; degree of competition; environ-
mental uncertainty; size; organizational strategy
(at the corporate or business unit level); the
investment (innovation or growth) opportunity
set; characteristics of the product development
or product life cycle; organizational inter-
dependencies; or the organization’s tax or capi-
tal position.
Most of the incentives studies have tested theory
that relates contextual variables, singly or in com-
bination, directly with one or more incentive sys-
tem variables. A few of these studies, however,
include the contextual variables as ‘‘moderating’’
variables. That is, the researchers theorize that the
contextual variables a?ect the relationship
between organizational incentives and outcomes
in an interactive sense. For example, Drake et al.
(1999) studied the e?ect of group-based vs. tour-
nament-based incentive schemes (an incentive sys-
tem variable) on performance (an outcome
variable) moderated by type of costing system (a
contextual variable). (Moderating variables are
indicated in Table 2 with an asterisk.)
Table 2 suggests the following ?ndings. First,
the predominant research methods di?er between
the economics and behavioral literatures. These
di?erences are summarized in Table 3. The eco-
nomics-based accounting literature uses archival
studies almost exclusively. Thirty-?ve of the 41
papers (85%) listed in Table 2A use this research
methodology. Only two (5%) of the economics-
oriented papers used experiments; three (7%) used
a self-conducted mail survey; and one (3%) used a
telephone survey. The predominant research
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 263
Table 2A
‘‘Economics-Oriented’’ Accounting Papers Related to Organizational Incentives Published in 1989–1999
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Burrows & Black (1998-AOS) Accounting
?rm partners
Six partners from
Australian Big-6
accounting ?rms
survey
(telephone)
Pro?t sharing by accounting partners
(equal sharing vs. Perf.-based pro?t
sharing vs. hybrid scheme)
- ?rm speci?c capital
- diversi?cation -income volatility
- economies of scope
Ittner & Larcker (1997-AOS) Sr., middle,
non-mgt.
employees
249 ?rms (auto
and computer
industry in Canada,
Germany, Japan,
and U.S.)
archival
(consulting
?rm survey)
Importance of quality performance
in compensation determination
Performance (ROA,
ROS, growth, perceived
performance)
quality-oriented strategy
Chow et al. (1991-AOS) n.a. 55 business
students
experiment - pay scheme (truth-telling
vs. ?xed-pay-plus-bonus)
- ratchet (present vs. Absent)
- budget slack
- performance
Ke et al. (1999-JAE) CEO 45 private and
18 public insurers
archival
(proxy
statements,
insurance
compensation
exhibits)
- compensation level
- compensation change
- return on assets
- ownership
- ?rm size
Core & Guay (1999-JAE) CEO 6214 CEO-years
(1992–1997)
archival - level of CEOs’ portfolio equity
incentive
- new incentive grants
- ?rm size
- monitoring costs
- growth opportunities
- free cash ?ow
- CEO tenure
- industry
- incentive residual
- cash ?ow shortfall
- marginal tax rate
- ?rm stock performance
Begley & Feltham (1999, JAE) CEO 91 debt issuing
industrial ?rms
(1975–1979)
archival
(proxy
statements,
Forbes
survey)
- CEO cash compensation
- CEO ownership fraction
- CEO stock wealth
use of debt covenants
restricting dividends and
borrowings
Defond & Park (1999-JAE) CEO 301 CEO turnovers;
621 control ?rms
(1988–1992)
archival use of absolute ?rm performance
vs. RPE in CEO turnover decisions
competition
Guidry et al. (1999-JAE) SBU
managers
117 SBUs in one
multinational, U.S.
manufacturing ?rm
(1994–1995)
archival earning-based bonus plan bounds earnings management
(discretionary accruals)
Baber et al. (1998-JAE) CEO 713 ?rms archival pay-for-performance sensitivity - earnings persistence
- CEO retirement window
b
(continued on next page)
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Table 2 (continued)
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Wallace (1997-JAE) CEO 40 ?rms with
residual income-based
comp. Plans + 40
control ?rms
archival adoption of residual income-based
bonus plan
- investment decisions
- ?nancing decisions
- operating decisions
- residual income
- shareholder wealth
Keating (1997-JAE) division
managers
78 divisions from
78
di?erent ?rms
survey use of division accounting metrics,
?rm accounting metrics, and ?rm
stock price in the evaluation of
divisional managers
- divisional interdependencies
- growth opportunities
- relative divisional size
- correlation ?rm/market- returns
- correlation divisional
earnings/value
Baber et al. (1996-JAE) CEO 1249 ?rms
(1992–1993)
archival - sensitivity of CEO compensation
- use of market-based vs. accounting-
based performance indicators
investment opportunity
Bushman et al. (1996-JAE) CEO 396 ?rms
(1990–1995)
archival
(Hewitt
survey)
use of individual performance
evaluation in determining CEO
bonuses
- importance of growth opportunities
- length of product development and
product life cycles
- noise in accounting returns
- noise in stock returns
Gibbs (1995-JAE) across org.
levels (entry
mgt. to CEO)
one large
hierarchical ?rm
(1969–1988)
analytical
/ archival
-ST and LT rewards from promotion
-interaction between within-job and
promotion-based pay-for-perf.
Holthausen et al. (1995b-JAE) division
managers
299 observations
in 116 ?rms
(1987–1991)
archival compensation structure
(ratio of LT-comp. to total comp.)
innovation activity innovation opportunity set
Gaver et al. (1995-JAE) CEO 102 ?rms
(1980–1990)
archival bonus plan bounds earnings management
(discretionary accruals)
Holthausen et al. (1995a-JAE) CEO 443 ?rm-year
observations
over 6 years
archival
(consulting
?rm survey)
bonus plan bounds earnings management
(discretionary accruals,
investment decisions,
unexpected components
of gains/losses)
Blackwell et al. (1994-JAE) subsidiary
bank
managers
700
+
subsidiaries
of 100
+
Texas
bank holdings
(1984–1987)
archival e?ect of subunit absolute/relative
performance on subunit manager
turnover
Golec (1994-JAE) REIT-
‘‘advisors’’
(managers)
66 REITs
(1962–1987)
archival formula-based compensation
vs. discretionary compensation
- mgt. decisions
- dividend yields
- stock return
Skinner (1993-JAE) CEO 504 COMPUSTAT
industrial ?rms
archival earnings-based bonus plan vs.
discretionary bonus plan vs. no
bonus plan
use of income-increasing
accounting procedures
?rm investment opportunities
(continued on next page)
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Table 2 (continued)
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Sloan (1993-JAE) CEO 538 ?rms (CRSP
/ COMPUSTAT)
archival
(Forbes survey)
use of earnings-based
performance measures in CEO
cash compensation
- market-wide noise in stock returns
relative to noise in earnings
- correlation between noise in stock
returns and noise in earnings
Gaver & Gaver (1993-JAE) top ?ve
executives
237 growth vs. 237
non-growth ?rms
(COMPUSTAT)
archival - levels of cash compensation
- incidence of bonus plans
- incidence of stock option plans
- incidence restricted stock plans
investment opportunities
Clinch & Magliolo (1993-JAE) CEO 63 banks archival
(Forbes
survey)
impact of discretionary earnings
on CEO compensation functions
- ?rm’s future capital position
- tax status
- CEO tenure
Bizjak et al.(1993-JAE) CEO 430 large
U.S.-corporations
analytical
/ archival
sensitivity of CEO pay
to stock price performance
information asymmetry between
shareholders and managers about
management investment decisions
Baber et al.(1999-TAR) CEO 712 ?rms archival
(proxy-
statements)
compensation change - earnings level
- earnings change
- earnings persistence*
Gaver & Gaver (1998-TAR) CEO 376 ?rms archival
(Forbes
survey)
nonrecurring accounting transactions
and CEO cash compensation
Ittner et al. (1997-TAR) CEO 317 ?rms
(48 industries)
archival weight on non-?nancial performance
measures
- competitive/quality strategy
- regulatory environment
- ?nancial performance
- noise in ?nancial perf. measures
- CEO in?uence
Natarajan (1996-TAR) CEO 331 ?rms archival
(Forbes
survey)
use and relative weight of components
of earnings in CEO compensation
Chen & Lee (1995-TAR) CEO 12 ‘switch’ ?rms
vs. 22 ‘write-down’
?rms (1985–1986)
archival - bonus plan (lower) bound
- bonus plan slope
accounting choice
(switch to full cost)
Dechow et al. (1994-TAR) CEO 91 Fortune 500
(1982–1989)
archival adjustments of earnings-based incentive
compensation for restructuring charges by
compensation committees
Enis (1993-TAR) CEO 307 motor carriers
(small, closely-held)
survey
/ archival
- adoption of earnings-based bonus plan
- adoption of performance plan
- performance
- capital investment
Gaver et al. (1992-TAR) CEO 209 ?rms
(1971–1980)
archival adoption of LT compensation agreement
for corporate top management
stock market reaction
Waller & Bishop (1990-TAR) n.a. 72 undergraduate
students
experiment incentive scheme (Groves scheme
vs. unit pro?t-plus-penalty scheme)
subordinate’s
misrepresentation in
resource allocation
decisions
(continued on next page)
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8
6
Table 2 (continued)
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Newman (1989-TAR) CEO 165 ?rms
(Fortune 1000)
archival use of before-tax vs. after-tax pro?ts
in bonus plan
- degree of multinationality
- degree of capital intensity
Defeo et al. (1989-TAR) CEO 179 swap
transactions
(1981–1984)
archival e?ect of accounting gains from equity-
for-debt swaps on executive
compensation and wealth
Ronen & Aharoni (1989-TAR) CEO 1022 ?rms
(Fortune 1000)
analytical
/ survey
existence of bonus or option plan* accounting choices ?rms’ e?ective tax rate
Bushman et al. (1995-JAR) business
unit mgr.
246 ?rms
(Hewitt 1993 survey)
analytical
/ archival
percentage of division CEO annual bonus
based on performance above division level
intra?rm interdependencies
Janakiraman et al. (1992-JAR) CEO 609 ?rms
(Forbes
survey)
(1970–1988)
archival
(forbes survey)
use of RPE in CEO cash compensation
(salary plus annual bonus)
Lanen & Larcker (1992-JAR) CEO 114 utility ?rms
(1973–1986)
archival adoption of performance-based
compensation contract
- environmental change
(utility regulation)
- technical production e?ciency
- diversi?cation
Ely (1991-JAR) CEO 173 ?rms in electrical,
oil and gas, retailing,
banking (1978–1982)
archival relationship between compensation and
four ?rm perf. Variables (ROE, RET, sales
revenue and net interest income)
industry
Clinch (1991-JAR) ‘‘key’’
employees
200 public ?rms
(1981–1985)
archival relationship between compensation and
accounting performance measures as well
as stock market performance measures
- R&D expenditures
- tax status
a
Some studies focus exclusively on the CEO, whereas other studies comprehend in their study all corporate executive o?cers for whom compensation contract data are available in proxy statements. Both situations are indicated
here as ‘‘CEO’’ as the level of hierarchy.
*Moderating variable.
Table 2B
‘‘Behaviorial’’ Accounting Papers Related to Organizational Incentives Published in 1989–1999
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Tuttle & Burton (1999-AOS) n.a. 102 under-
graduate students
experiment monetary incentives - cue usage
- decision consistency
- decision time
Chow et al. (1999-AOS) top-two
levels of
managers
159 mgrs. in six each
of Japan, Taiwan, and
U.S.-owned electronics
and computer ?rms
survey - participative budgeting
- standard tightness
- participative performance evaluation
- performance-contingent ?nancial rewards
national culture
(continued on next page)
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3
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2
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Table 2 (continued)
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Scott & Tiessen (1999-AOS) across mgt.
hierarchy
Managers (pro?t and
non-pro?t ?rms)
survey - weight on team-performance in comp.
- diversity of performance measures
- perform. standard-setting participation*
self-rated team
performance
- task complexity
- involvement in teams
Perera et al. (1997-AOS) corporate
and division
managers
105 managers
randomly selected from
manufacturing ?rms
survey use of non-?nancial performance
measures
self-rated performance customer-focused
manufacturing strategy
Collins et al. (1997-AOS) accountants
and managers
(no indication
of the level)
28 Latin American
accountants and
managers
survey
/ interview
budgetary usage for performance
evaluation
strategy (i.e., defender,
analyzer, prospector
and reactor)
Magner et al. (1995-AOS) variety of
line/sta?
managers
53 managers from exec.
education program
survey - budget participation
- budget favorability
- trust in supervisor
- organizational
commitment
Merchant et al. (1995-AOS) pro?t center
managers
2 US + 2 Taiwan ?rms
(chemicals, electronics)
?eld
study
use of individual perf.-dependent rewards
- use of group-rewards
- use of long-term incentives
- use of subjective performance evaluation
national culture
Lau et al. (1995-AOS) functional
heads
112 functional heads
(singapore mftg. ?rms)
survey - evaluative style (budget emphasis)
- budget participation
- job-related tension
- self-rated performance
task di?culty*
O’connor (1995-AOS) middle
managers
125 managers
(44 ?rms in Singapore)
survey participation in performance evaluation - role ambiguity
- superior/subordinate
relationship
national culture
(power distance)*
Ross(1994-AOS) responsibility
center mgrs.
215 mgrs. (18
Australian organ.:
private/public,
mftg./service)
survey performance evaluation style (budget-
constrained, pro?t-conscious, non-
accounting)
job-related tension trust between superior
and subordinate*
Harrison (1993-AOS) middle
managers
115 mgrs. in 14
Singaporean ?rms
and 96 mgrs. in 14
Australian ?rms
survey performance evaluation style (RAPM) - job related tension;
- job satisfaction
- national culture*
- personality*
Harrison (1992-AOS) Middle managers 115 mgrs. in 14
Singaporean ?rms
and 96 mgrs. in 14
Australian ?rms
survey - budget emphasis in superior
- evaluative style
- budget-participation*
- job related tension
- job satisfaction
national culture*
(power distance, individualism)
Dunk (1992-AOS) cost center
managers
24 managers
(24 consumer
product ?rms)
survey reliance on budgetary control in
performance evaluation
self-rated performance manufacturing process automation*
Dunk (1990-AOS) cost center
managers
26 managers
(26 consumer
product ?rms)
survey - budgetary participation;
- agreement on evaluation criteria
self-rated performance
(continued on next page)
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g
a
n
i
z
a
t
i
o
n
s
a
n
d
S
o
c
i
e
t
y
2
8
(
2
0
0
3
)
2
5
1
–
2
8
6
Table 2 (continued)
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Williams et al. (1990-AOS) department
managers
201 managers
(22 public sector
organ. in Canada)
survey budget-based performance evaluation self-rated performance reciprocal vs. pooled task
interdependence*
Dunk (1989-AOS) cost center
managers
26 managers
(26 consumer
product ?rms)
survey - budget participation;
- budget emphasis
self-rated performance
Imoisili (1989-AOS) cost center
managers
188 mgrs.
in 3 ?rms
survey
/ interview
performance evaluation style
(budget-constrained, pro?t-conscious)
self-rated performance - task interdependence*
- task uncertainty*
Luckett & Hirst (1989-AOS) n.a. 48 employees
(Big-8 ?rms in
Sydney)
experiment quality of performance evaluation:
- level of inter-rater agreement;
- conformity with o?cial policies;
- level of self-insight
di?erent types of feedback
Merchant & Manzoni (1989-TAR) pro?t center 54 pro?t center
mgrs. (12 ?rms)
?eld
study
- number of budget targets;
- budget target achievability
- performance/reward function (bounds)
- motivation
- morale
- earnings management
- upper mgt.’s incentives
- manager/pro?t center e?ectiveness
- corporate need for short-term pro?t
*Moderating variable.
Table 2C
‘‘Mixed Behaviorial/Economics-Oriented’’ Accounting Papers Related to Organizational Incentives Published in 1989–1999
Article Level of hierarchy
a
Sample Research
method
Organizational incentive
system variables
Outcome variables Contextual variables
Drake et al.1999-TAR) n.a. 132 MBA students experiment group-based incentive vs. tournament-based
incentive
pro?t adoption of an activity-
based vs. volume-based
costing system
Banker et al.(1996-JAE) front-line
workers
15 retail outlets archival
(internal
?rm data)
performance-based compensation plan performance
Wruck & Jensen(1994-JAE) employees Sterling Chemicals ?eld study - allocation of decision rights
- performance measurement and reward systems
total quality
management
Luft(1994-JAE) n.a. 36 MBA students experiment preference for bonus vs. penalty incentives
Ittner & Larcker(1995-JAR) sr., middle,
non-mgt.
employees
249 ?rms (auto and
computer industry in
Canada, Germany,
Japan, and U.S.)
archival
(consulting
?rm survey)
- use of non-?nancial performance measures
- importance of team performance
performance total quality
management
Libby & Lipe (1992-JAR) n.a. 134 auditing students experiment performance-based incentives cognitive performance
improvements
task characteristics*
(e?ort sensitivity)
Ashton(1990-JAR) n.a. 182 auditors experiment ?nancial incentives judgment performance decision aid
availability*
b
Moderating variable.
a
Some studies focus exclusively on the CEO, whereas other studies comprehend in their study all corporate executive o?cers for whom compensation contract data are available in proxy statements. Both situations are
indicated here as ‘‘CEO’’ as the level of hierarchy.
K
.
A
.
M
e
r
c
h
a
n
t
e
t
a
l
.
/
A
c
c
o
u
n
t
i
n
g
,
O
r
g
a
n
i
z
a
t
i
o
n
s
a
n
d
S
o
c
i
e
t
y
2
8
(
2
0
0
3
)
2
5
1
–
2
8
6
2
6
9
method in the behavioral literature is self-admi-
nistered surveys (15 out of 19 papers, or 78%).
Two (11%) behavioral papers used an experiment
and two (11%) used ?eld studies. A majority of
the mixed papers (four out of seven, or 57%) used
an experimental methodology.
Second, the economics-oriented papers tend to
focus on the corporate level of organization.
Thirty-two of 39 (82%) economics-oriented
papers (excluding the two experimental papers)
analyzed corporate-level data (either focused on
the CEO or the top management team);
15
?ve
(13%) analyzed data from business unit-, division-
or subunit-levels; and two (5%) spanned multiple
organizational levels. The behavioral studies, on
the other hand, tend to focus on the use of incen-
tives at middle management levels (e.g. divisional
or functional managers). Twelve of the 17 (70%)
non-experimental behavioral papers focused on
middle management, and three (18%) spanned
multiple management levels. Two papers (12%)
were not speci?c about the organizational level
(Collins, Holzman, & Mendoza, 1997; Magner,
Welker, & Campbell, 1995). Overall, only ?ve of
the 59 non-experimental papers (8%) focus on
incentives for non-management employees,
16
and
three of those papers are listed in Table 2C
because they cite both the economics-based and
behavioral literatures.
Third, almost all of the incentives-oriented lit-
erature in accounting focuses on incentive systems
in large, public, for-pro?t ?rms. Only two of the
17 non-experimental behavioral papers focus on
not-for-pro?t organizations (Scott & Tiessen, 1999;
Williams, Macintosh, & Moore, 1990). All 39 eco-
nomics-based non-experimental papers focus on
for-pro?t ?rms. One economics-based paper deals
with incentives in Big-six accounting ?rms, which
are large and for-pro?t but not public (Burrows &
Black, 1998). Only two economics-based papers
include private (Ke, Petroni, & Sa?eddine, 1999)
or closely held ?rms (Enis, 1993) in their sample.
Three economics-based studies are not clear about
whether their sample ?rms are private or public
(Blackwell, Brickley & Weisbach, 1994; Golec,
1994; Ittner & Larcker, 1997), most likely because
their samples include both. Most behavioral
papers, however, are unclear about whether their
sample ?rms are private or public. And, because
none of the behavioral papers use publicly avail-
able data (see earlier), the focus of the data cannot
be inferred either.
Fourth, the sets of organizational incentive sys-
tem variables on which the literatures focus are
quite di?erent and seem to stem directly from the
choice of research method. The economics-based
papers tend to focus on the characteristics of cash-
based incentive systems, some details of which can
be gleaned from public documents (e.g. proxy
statements). Many of these studies include simple
indicators, such as the mere existence of a bonus
plan (0/1), the size of the bonus awards, the extent
to which rewards are based on earnings-based
performance measures, and the shape of the
reward function (e.g. slope, bounds). The beha-
vioral literature has focused considerable attention
on the use of accounting performance measures
for performance evaluation and reward purposes,
which many of these papers term as reliance on
accounting performance measures (RAPM). Unlike
the economics literature, the behavioral literature
has also focused considerable attention on perfor-
mance targets and target-setting processes.
Table 3
Number of published papers using each research method
Research method Base discipline
Economics Behavioral Mixed
Archival
a
35 0 2
Survey
b
4 15 0
Experiment 2 2 4
Field study 0 2 1
Total (67 papers) 41 19 7
a
Archival research presents analysis of data from pre-exist-
ing sources.
b
Survey research uses surveys designed by the researchers
themselves.
15
Some studies focus exclusively on the CEO, whereas other
studies comprehend in their study all corporate executive o?-
cers for whom compensation contract data are available in
proxy statements. (Both situations are indicated as ‘‘CEO’’ as
the organizational level in Table 2.)
16
Three of these ?ve studies include non-management
employees as part of spanning multiple organizational levels
(Gibbs, 1995; Ittner & Larcker, 1995, 1997).
270 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
However, most incentive studies in accounting
focus only on a small set of organizational incen-
tive system variables. Neither behavioral nor
economics-based papers do a good job looking at
the entire incentive plan (e.g. salary increases,
various bonus components, promotions, non-
monetary incentives such as prizes or awards) and
how the di?erent components might complement
or substitute for each other.
Fifth, only a minority (14 of 41, or 34%) of the
papers in the economics literatures include an
outcome variable in the study. In contrast, a
majority (15 of 19, or 79%) of the behavioral
papers include at least one such variable. The most
popular outcome variables in the economics lit-
erature are shareholder wealth and earnings man-
agement activities (as re?ected in discretionary
accruals). In the behavioral literature, subjective
assessments of performance and job-related ten-
sion are the outcome variables used most often.
Sixth, the inclusion of contextual variables dif-
fers considerably. More than half (24 of 41, or
59%) of the economics-based papers incorporate
one or more contextual variables. The most com-
mon contextual variables considered in the eco-
nomics-oriented papers are competition, investment
(or growth or innovation) opportunities, and noise
in the ?nancial performance measures. In many of
the economics papers, industry is used as a crude
surrogate for any of the many cross-organiza-
tional di?erences that might a?ect one or more
incentive compensation system di?erences. Fifteen
of the 19 behavioral papers (79%) include at least
one contextual variable, and the sets of contextual
variables considered are quite di?erent from those
included in the economics papers. Prominent in
the behavioral literature, but rare in the economics
literature, are variables descriptive of national
culture, speci?c job tasks, personalities, and rela-
tions between superiors and subordinates.
4. The bene?ts of problem-focused, cross-dis-
ciplinary research
Does it matter that the economics and beha-
vioral incentives-focused literatures are expanding
relatively independently on many di?erent dimen-
sions? We think that it does matter. If more
researchers were familiar with the theories, vari-
ables, terminology, and evidence from multiple
disciplines and paradigms and used them to guide
their research, three important bene?ts would be
forthcoming:
1. a sorting out of the applicability of compet-
ing theories;
2. a more complete consideration of the totality
of the systems and the settings in which they
operate; and
3. better communication of ?ndings amongst
researchers with di?erent orientations and
with consumers of the research in general.
4.1. A sorting out of the applicability of competing
theories
The ideas in competing theories can be discussed
at two di?erent levels of abstraction. At the high-
est level of abstraction, competing theories stem
from di?erent ‘‘views of the world.’’ Below we dis-
cuss some of the signi?cant di?erences in the eco-
nomics and behavioral views of the world, in terms
of both the di?erent models-of-man underlying
(economic) agency and (behavioral) stewardship
theories and the di?erent views on the e?ects of
intrinsic vs. extrinsic motivation. At a lower, more
pragmatic level of abstraction, we discuss examples
where theories stemming from di?erent paradigms
lead either to di?erent speci?c predictions or to
di?erent explanations of the same phenomena.
4.1.1. Di?erent views of the world
The economics literature and some of the beha-
vioral literature on incentive compensation are
rooted in di?erent assumptions about people’s
behaviors, which are sometimes referred to as
‘‘models-of-man’’ (Davis, Schoorman, & Donald-
son, 1997). The model-of-man in economists’
agency theory assumes the presence of rational
individuals who seek to maximize their own uti-
lity, taking all bene?ts and costs into considera-
tion. In a principal-agent situation, this model-of-
man implies that, if interests diverge, agents will
act to serve their own self-interests. In short, the
agency model addresses principal-agent divergence
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 271
and how it can be brought more into alignment
through proper monitoring and incentive systems.
Even though agency researchers may believe that
trust and organizational commitment exist, they
typically assume that trust and commitment levels
are commonly too low to be of much help in solving
organizational problems. Thus, they believe it is
worthwhile to examine other (e.g. monetary incen-
tive) solutions to align principal-agent interests.
Stewardship theory, a behavioral theory with
roots in psychology and sociology, makes quite
di?erent assumptions about people’s behaviors
(Davis et al., 1997). It assumes that at least some
employees are motivated to act in the best interest
of their superiors and their organizations. In other
words, the model-of-man in stewardship theory is
one of a ‘‘steward’’ who attaches higher utility to
collectivistic, organization-centered behaviors
than to individual, self-centered behaviors. When
the interests of the steward and the organization
diverge, the steward will place higher value on
cooperation than on defection. Stewardship the-
ory provides a useful way of explaining relation-
ships where the parties’ interests converge and can
be reinforced through structures that ‘‘reinforce’’
and ‘‘empower,’’ rather than those that ‘‘monitor’’
and ‘‘control.’’
Evidence exists to support both models in cer-
tain settings (e.g. Deckop, Mangel & Cirka, 1999).
Although self-interest should not be assumed
away, some situations appear to be characterized
by an atmosphere of higher trust and altruism,
where employees are more involved even without
the presence of explicit incentive systems, such as
in organizations with a strong ‘‘clan’’ culture
(Ouchi, 1980). Some research could usefully be
focused on tying these two competing models of
motivation together. Where and when does an
agency model assumption about behavior make
sense in designing organizational incentive sys-
tems? Where and when does a stewardship theory
assumption make sense? One implication for
accounting research on incentive systems, for
example, is to incorporate measures of organiza-
tional culture, or a more speci?c indicator of
shared values, as a contextual variable. This vari-
able/concept has been considered by only a few of
the studies listed in Table 2.
Related to the di?erent models-of-man is the
divergent view by economists and behaviorists
regarding the function and e?ects of intrinsic vs.
extrinsic motivation in organizational incentive
systems. In agency theory, and particularly in
empirical tests of agency theory, the emphasis is
on extrinsic motivation, i.e., tangible rewards that
have a measurable, quanti?able market value.
Behavioral models, with roots in psychology and
sociology, are more likely to recognize the
potential power of intrinsic rewards that ‘‘natu-
rally’’ motivate an individual to perform well.
Intrinsic rewards are not easily quanti?ed, as
they include such intangible factors as achieve-
ment, self-actualization, autonomy, and opportu-
nities for growth, but they can have powerful
motivational e?ects.
In most organizational situations, the optimum
incentive system is likely to take advantage of a
combination of intrinsic and extrinsic rewards.
Combining the insights about extrinsic rewards,
which stem from both economics and behavioral
research, with those on intrinsic motivation, which
stem mostly from the behavioral literature, would
contribute to a better overall understanding of the
roles and e?ectiveness of all forms of rewards
provided in organizations. Empirical (accounting)
research could usefully integrate these views to
explore relationships between the provision of
incentives and performance (or other outcomes).
Theories of motivation could provide a better
understanding of when and why (too) high levels
of monetary incentives may actually reduce, rather
than enhance, manager/employee motivation, and
hence, performance (e.g. Deci, 1975; Jordan, 1986;
Pfe?er, 1998; Tosi & Gomez-Mejia, 1994). The
ultimate research challenge should be to generate
knowledge about how to design and use incentive
systems that are responsive to the economical,
political, psychological, sociological, and perhaps
anthropological traits of the individuals being
motivated.
Similarly, individual attributes of the managers
or employees themselves have received little atten-
tion in the economics-based (accounting) litera-
ture, even though they may hold the real key
to understand the e?ectiveness of incentives in
organizations (Finkelstein & Boyd, 1998). These
272 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
attributes include risk-taking pro?les, self-serving
tendencies, personal goals, personality traits (e.g.
tolerance for ambiguity, locus of control), aspira-
tion levels, and power bases. After all, di?erent
forms of compensation vary in their attractiveness
to individuals, and therefore, in their e?cacy as
incentives or motivational tools (Lawler, 1981).
Hence, research on incentive compensation would
likely bene?t from combining the economics
approach with a greater consideration of beha-
vioral characteristics of the individuals being
motivated.
4.1.2. Di?erent explanations of the same
phenomena
At a more pragmatic level, di?erent theories
sometimes just provide di?erent explanations for
the same phenomena. For example, higher ?xed
pay levels and a lower reliance on variable (per-
formance-dependent) pay are often interpreted as
a sign of political power by agents (which may be
middle managers or lower-level employees). Thus
they are seen as being consistent with predictions
of managerial capitalism theory (e.g. Gomez-
Mejia, Tosi, & Hinken, 1987; Tosi & Gomez-
Mejia, 1989, 1994; Tosi & Werner, 1995; Werner
& Tosi, 1995)
17
or social capital theory (e.g. Belli-
veau, O’Reilly, & Wade, 1996).
18
One common proxy for the political power
variable in managerial capitalism theory is tenure
(Hill & Phan, 1991). Tenure, which gives man-
agers/employees time to build power, is expected
to be negatively associated with variable pay and,
hence, compensation risk. However, Stroh, Brett,
Baumann, and Reilly (1996), who found that
tenure was negatively associated with the use of
variable pay, did not interpret their ?nding as a
sign of greater managerial power by middle man-
agers [in contrast with Fisher and Govindarajan
(1992), for example]. Rather, they interpreted the
lower reliance on performance-based incentives as
resulting from an increased ability by the organi-
zation to use behavior-based controls because
more information is available on managers with
longer tenure.
Both explanations—political power and relative
expertise by superiors about subordinates’ actions
and behaviors—are plausible. Both might or might
not be occurring simultaneously, and social net-
works might or might not play a role in any given
setting. Incomplete consideration of the possibilities
can easily lead to incorrect interpretations, for
example, in situations in which little or no political
power exists but where researchers ascribe a poli-
tical power explanation to a negative relation
between tenure and variable pay nonetheless.
This multiple-plausible-explanation example is
just one illustration of the common and troubling
research problem of omitted variables. Omitting
variables that are correlated with the variables
included in a study causes a problem because the
e?ect of the omitted variable is attributed to the
included variables, thus leading to a possibly
incorrect interpretation of the results. A poten-
tially even worse problem is the omission of vari-
ables that are interactive with the included
variables in a?ecting one or more important
dependent variables. Interaction means that a
?nding in one setting will not hold in another set-
ting because presence (or absence) of one of the
contextual variables changes the causal e?ects. If
the interactive variables are omitted from a study,
meaning that they are not measured or even
recognized in the descriptions of the research sites,
the ?ndings from studies conducted in settings
that are not exactly the same may con?ict. And,
importantly, there will be no way to reconcile the
con?icting ?ndings.
Omitted-variables problems are more likely, and
more likely to be serious, in research that lacks a
broad, cross-disciplinary problem focus. Research-
ers who are bound by the strictures of a single
research discipline or paradigm are more likely to
be unaware of prior ?ndings that show which
variables should be measured or otherwise con-
trolled for.
17
Managerial capitalism theory maintains that when man-
agers/employees have greater ability to in?uence their boards/
superiors, incentives are likely to be ‘‘diluted,’’ i.e. designed
such that they reduce compensation risk.
18
Social capital theory takes into consideration the social
context in which decisions are made. The contention is that
executives can use social networks (e.g. elite club a?liations) to
enhance their in?uence over a wide range of decisions, includ-
ing professional advancement and compensation.
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 273
Di?erent research foci can also lead to con?ict-
ing conclusions about the same issues. For
example, consider economic and behavioral con-
clusions about whether relatively large disparities
in compensation across hierarchical levels in an
organization are good or bad. From an econom-
ics-based tournament theory perspective, high pay
disparity across hierarchical levels is said to be
good because it strengthens motivation for
employees who are competing in tournaments for
promotion (Lazear & Rosen, 1981). However,
behaviorally oriented social comparison theory has
shown that organizations are not just economic
exchange systems, but are also hotbeds of con-
tinual social comparison. These comparisons, in
turn, a?ect e?ort, motivation, trust, loyalty, orga-
nizational commitment, and cooperation (e.g.
Cowherd & Levine, 1992; Ezzamel & Watson,
1998). Social comparison theory thus argues that
pay inequities are bad because they decrease
motivation (and have other negative con-
sequences, such as lower productivity, decreased
employee morale, and increased turnover;
Cowherd & Levine, 1992).
Di?erent predictions from di?erent paradigms
are not very useful for the ultimate consumers for
whom the research is intended. In this example,
the ?ndings provide no guidance to practitioners
as to whether they should increase or decrease pay
equity. More research is needed to determine
which predictions dominate in a given type of set-
ting. However, only researchers who are familiar
with both sets of literature can do that type of
integrative research.
4.2. Consideration of the totality of the systems
and the settings in which they operate
Each basic discipline seems to focus on a rela-
tively narrow set of variables, research settings,
and explanations. In many cases, the narrow foci
could be made to complement each other. The
complementarities occur both among incentive
system decision (endogenous) variables and
among contextual (exogenous) variables that
a?ect one or more incentive system variables. A
few of these complementarities have been dis-
covered, but many others have not.
4.2.1. Incentive system decision (endogenous)
variables
Much of organizational incentives research in
accounting tends to focus on only a small set of
the many incentive system decision variables. As
was shown in Table 2, neither literature has
focused broadly on the array of rewards that can
be, and sometimes is, o?ered to employees. These
rewards can include salary increases, short-term
bonuses of various types, long-term bonuses of
various types, promotions, and a variety of di?-
cult-to-value rewards, such as recognition, auton-
omy, and perquisites (e.g. favored parking spots).
For data-accessibility reasons, most economics-
based papers have focused on short-term bonus
plans, although some recent work has explored the
incentive e?ects of stock option plans and promo-
tion structures. Various behavioral papers have
studied many of the individual reward compo-
nents, but rarely in combination. It would be pro-
ductive to have some researchers look at the entire
incentive structure to provide a better under-
standing of how the di?erent reward components
can complement or substitute for each other. It
could also be productive to understand how and
why measures, standards, and evaluation pro-
cesses di?er depending on the type of reward to
which they are linked.
Moreover, within the limited set of incentive
variables studied, the chosen foci are also not
independent of the researchers’ base disciplines.
With respect to performance targets, for example,
behavioral research has developed some insights
about what targets should be set, how they should
be set, and the e?ect of variables such as goal dif-
?culty on goal commitment and performance. The
e?ects of incentives, in both a positive (i.e. moti-
vational) and negative (e.g. gameplaying) sense,
probably depend on the perceived performance
target di?culty (e.g. Merchant & Manzoni, 1989).
Generally, targets have been shown to be maxi-
mally motivating when targets are set to be chal-
lenging but achievable, although some research is
still aimed at understanding why the level of chal-
lenge sometimes varies signi?cantly across organi-
zations and organizational sub-units. The
empirically oriented economics-based literature,
on the other hand, has focused more attention on
274 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
the so-called ‘‘ratchet e?ect,’’ the tendency for
standards to be increased over time (e.g. Chow et
al., 1991), and others have shown that relative
performance evaluations are not in widespread use
(e.g. DeFond & Park, 1999; Janakiraman, Lam-
bert, & Larcker, 1992). But most empirical eco-
nomics research has not focused much attention
on characteristics of performance targets or the
processes used to set them (with the exception of a
recent study by Murphy, 2000).
In the area of performance measurements, on
the other hand, the economics-based literature
seems to be leading the way. The behavioral
incentives literature could be enriched through
explicit consideration of some of the variables that
have received considerable focus in the economics
literature, such as the informativeness of the per-
formance measure and the performance-reward
sensitivity (e.g. Holmstrom, 1979).
In sum, studies that consider a broad(er) set of
incentives variables and/or integrate multiple foci
are rare. One example of a study that integrated
multiple foci is Chow (1983). By integrating
agency concepts (e.g. moral hazard and adverse
selection) with goal setting and expectancy theory,
Chow (1983) was able to enrich the study of the
traditionally behavioral-based e?ects of goal di?-
culty on performance. This was done by consider-
ing the e?ect of goal di?culty not only on
employee e?ort (the motivational e?ect), but also
on self-selection by employees among employment
contracts (a hypothesized e?ect derived from eco-
nomic theory). Studies such as this one are
insightful as they help explain more variance in
performance attributable to various e?ects (moti-
vation, self-selection) of incentives schemes.
4.2.2. Contextual (exogenous) variables
Researchers invariably focus on a limited set of
contextual variables, and the choices vary sig-
ni?cantly depending on the researchers’ dis-
ciplinary orientations. Our total understanding of
the causes and e?ects of organizational incentive
system features would be enhanced if we could
combine the knowledge contained in the narrowly
focused studies. To illustrate this point, we
describe two issue examples: the e?ects of national
culture and the use of group rewards.
4.2.2.1. Effects of national culture. One potentially
important consideration that has received con-
siderable attention in the behavioral literature, but
not the economics literature, is national culture.
Most incentive studies that consider culture (e.g.
Chow et al., 1999; Harrison 1993; Merchant,
Chow, & Wu, 1995) rely on the Hofstede (1980)
taxonomy to predict empirical regularities
between incentive system design and various
aspects of national culture. Typical predictions are
as follows. First, individual performance-based
incentives ?t individualistic cultures, but run
counter to the values of collectivistic cultures
because they accentuate interpersonal di?erences
and introduce interpersonal rivalry. Second,
employees in cultures characterized by high
uncertainty avoidance may not react favorably to
performance-dependent compensation because it
causes them to bear more risk, especially when
incentive rewards are highly discretionary, as
opposed to being formula-based. Third, when
power distance is high, lower-level managers are
more likely to accept greater discretionary power
being exercised by their superiors in performance
evaluation and incentive determination. Finally,
employees’ desire for achievement and competi-
tion in masculine cultures may permit the use of
relative performance evaluations. However, pub-
lished studies have reported many ‘‘surprises’’ where
either support for the impact of national culture on
incentive compensation was weak or inexistent, or
empirical evidence was opposite to theoretical
expectations. The need for stronger theory devel-
opment clearly exists (Chow et al., 1999).
To our knowledge, no economics-based incen-
tives studies in accounting have considered cul-
tural di?erences. National culture seems to be
considered irrelevant in the set of assumptions
imposed on principals and agents. This omission,
however, is seriously limiting. The use of sig-
ni?cant performance-based incentives is spreading
far beyond the US border (e.g. in Europe, see
Richter, 1999). We need theories and evidence
about the spread of incentives, and their e?ects.
Testing agency predictions across signi?cantly
di?erent cultures could provide useful tests
and potential enhancements both of the cultural
theory and agency theory.
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 275
4.2.2.2. Use of group rewards. Managers must
decide whether to base rewards on the measured
performance of individuals or groups of indivi-
duals (e.g. team, department, division, or cor-
poration). Several economists (e.g. Baker, Jensen,
& Murphy 1988; Holmstrom, 1982) have been
puzzled about the extensive and growing use of
group rewards because of the high potential for
the ‘‘free rider e?ect.’’ Indeed, when large groups
of people are included in a group reward system,
the link between any individual’s e?ort and the
reward s/he will be due is virtually zero, so any
individual can slack o? without su?ering a mate-
rial loss of rewards.
So why are many companies implementing new
group reward systems and emphasizing the group
reward systems they have? Economists have
incorporated into their models a few variables that
might provide insights into this academic puzzle:
e.g. task repetition, which might lead to mutual
monitoring of actions over time (Arya, Fell-
ingham, & Glover, 1997), and organizational
interdependencies (Bushman, Indjejikian, & Smith,
1995; Keating, 1997). Behavioral researchers have
suggested some di?erent variables: e.g. ability to
share information (Ravenscroft & Haka, 1996).
But, there are many other plausible variables that
might explain why group incentives work. Some
have already been discussed in other contexts; for
example, contracting properties of aggregate group-
based performance measures (such as their sensi-
tivity to team members’ actions and their preci-
sion) in the economics-based literature (e.g.
Banker & Datar, 1989) and cultural collectivism in
the behavioral literature (e.g. Earley, 1989;
Wagner, 1995).
Any or all of these explanatory variables may be
important in any given situation. There is a need
for broader-scope studies designed to integrate
and build on these developing and as yet frag-
mented and isolated literatures in order to create
knowledge that managers can use. For example,
what advice about individual vs. group reward
systems can we provide to managers who operate
in situations with repetitive tasks, low organiza-
tional interdependency, relative ease in sharing
information, and an individualistic culture?
Integrating the variables included in and the
?ndings supporting each of these theories would
provide a richer understanding of the phenomena
and would produce more reliable, and more
usable, knowledge.
In summary of Sections 4.1 and 4.2, we argue
that economics-oriented research on incentive
compensation, and agency-based research in par-
ticular, would bene?t from bringing characteristics
of the individuals being motivated back into the
picture. This will require cross-fertilization with
the psychology literature. Another fruitful exten-
sion to agency-based incentives research would be
to take a less restricted view of principal-agent (or
superior-subordinate) relationships that are likely
to be more cooperative than typically assumed,
and hence, subject to mutual in?uencing and joint
problem solving. This implies that the compensa-
tion arrangements found in ?rms are the result, at
least in part, of the relative political and social
power of the parties involved (Belliveau et al.,
1996; Parks & Conlon, 1995). Extending the lit-
erature at this level will require cross-fertilization
with the sociology literature. Finally, observed
compensation plans may be adopted for many
other reasons than to provide motivation or over-
come agency problems, such as signaling (Beatty
& Zajac, 1994). Even symbolism—how compen-
sation decisions are explained or legitimized to
shareholders and other constituents (e.g. Tosi &
Gomez-Mejia, 1989; Zajac & Westphal, 1995)—
may play a role in compensation decisions. Prob-
ably no single study can incorporate all these fac-
tors at once, but casting a wider net across
paradigms, theories, and areas of research is a
fruitful way to pursue future incentives research.
4.3. Better communication amongst researchers
with di?erent orientations and consumers of the
research in general
Communication amongst researchers with dif-
ferent orientations, and consumers of the research
in general, is often complicated by the use of
technical jargon with quite similar meanings. This
problem does not exist just in comparing the eco-
nomics and behavioral literatures; it also exists
across paradigms within many disciplines. This
problem creates barriers to understanding and
276 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
Table 4
Examples of technical terms with similar meanings in common use in economic and behavioral disciplines
Terms in common use in: Comments
Economic literature Behavioral literature
Allocation of decision rights Delegation of authority A comparison is described in Section 4.3 of the paper.
Task allocation Granting of autonomy
(De)centralization
Principal/agent Employer/employee A comparison is described in Section 4.3 of the paper.
Superior/subordinate
Implicit contract Psychological contract A comparison is described in Section 4.3 of the paper.
Relational contract Employee voice
Self-enforcing contract Culture
Relative expertise Corporate diversi?cation A comparison is described in Section 4.3 of the paper.
Marginal product of management Managerial discretion A comparison is described in Section 4.3 of the paper.
Multitasking Job/task complexity A comparison is described in Section 4.3 of the paper.
Breadth of responsibility
Incentives Motivation Behavioral researchers typically describe theories of motivation
(e.g. Lawler, 1987) while economists tend to describe theories of
incentives (Gibbons, 1998; Holmstrom, 1979). The terms are
equivalent, or at least nearly so, in meaning.
Incentive alignment Goal congruence Goal congruence is broadly de?ned in the behavioral literature as
the degree of alignment between individual goals and organizational
goals (e.g. Abernethy & Stoelwinder, 1991). Economists tend to refer
to the extent to which an agent’s incentives are aligned with those of
the owner (e.g. Fama & Jensen, 1983).
Monitoring Supervision Monitoring in the economics literature refers to an activity which aim
is to determine whether the contractual obligations of another party
have been met (Milgrom & Roberts, 1992).
Monitoring has a seemingly slightly broader de?nition than
supervision, but there is obvious overlap. For example, shareholders
monitor managers without being their supervisor. In a typical
superior-subordinate relationship, however, monitoring and
supervision are essentially equivalent.
Complementarity Internal or external ?t In economics, complementarity is de?ned as a positive interaction
between one factor and another (Milgrom & Roberts, 1995) and
is used to refer to situations where doing more of one activity
increases the returns to doing more of another activity (e.g.,
Miller & O’Leary, 1997).
The concept of ?t has been used broadly in the behavioral
literature, generally referring to any ?t among organizational
practices, e.g., the ?t between organizational design and strategy
(Chandler, 1962).
Although the concepts of ?t and complementarity seem
near-equivalent, Milgrom and Roberts (1995) argue that the
ideas of complementarities give substance to previously
elusive notions such as ?t (p. 180).
Sensitivity Controllability
In?uenceability
Sensitivity refers to the change in the expected value of the
performance measure with changes in the level of e?ort of the
agent (Banker & Datar, 1989). Controllability and in?uenceability
refer to the extent to which a manager’s actions can a?ect the
measured outcome (Merchant, 1989). The meanings of the terms
seem essentially equivalent.
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 277
integrating the organizational incentive ?ndings
across (and also within) the economics and beha-
vioral literatures.
One prominent example comes from the agency
theory literature in economics, which is less than
30 years old. Its inventors (e.g. Jensen & Meck-
ling, 1976) chose to create a new technical lan-
guage. For instance, they wrote about allocation of
decision rights, rather than using already existing
terms with equivalent, or near-equivalent, mean-
ings, such as delegation, the granting of autonomy,
or decentralization. These older terms were in
common use, and to this day they are more widely
understood, particularly in practitioner commu-
nities. Similarly, agency researchers refer to agents
rather than employees (or subordinates), and prin-
cipals rather than shareholders or employers (or
upper-management or superiors).
There are also numerous illustrations of crea-
tion of new jargon in the behavioral literature. For
example, Finkelstein and Boyd (1998) used the
notion of managerial discretion as a key determi-
nant of executive (CEO) compensation. They
de?ned managerial discretion as the extent of lati-
tude executives have in making decisions which,
they believe, depends on factors such as industry
concentration and regulation, market growth,
demand stability, and R&D-, advertising-, and
capital-intensity. Their proposition is that situa-
tions that o?er executives more discretion also
tend to make their jobs more complex, demand-
ing, and risky, so executives with more discretion
should be paid more. Their theory was supported
by their empirical results. However, although Fin-
kelstein and Boyd (1998) did a broad review of the
literature, it is less than clear from their paper how
the notion of managerial discretion is similar to,
di?erent from, or a combination of, related con-
cepts in the behavioral literature, such as job/task
complexity and uncertainty (e.g. Hirst, 1983),
environmental uncertainty (e.g. Gordon & Nar-
ayanan, 1984), or even outcome controllability
(Merchant, 1989). Similarly, although they state
that the concept of managerial discretion is
‘‘somewhat akin’’ to the concept of the investment
opportunity set in the accounting and ?nance lit-
eratures (e.g. Gaver & Gaver, 1993), it is not easy
to determine from their paper where these terms
have, or lack, signi?cant overlap. Moreover, the
notion of managerial discretion also meshes with
economists’ concepts such as the executives’ mar-
ginal product (e.g. Fama, 1980), or even the extent
of multitasking (e.g. Holmstrom & Milgrom,
1991). As such, the greater the level of managerial
discretion, the greater the impact of managers on
the ?rm, or in economists’ terminology, the
greater their marginal product (e.g. Fama, 1980;
Finkelstein & Boyd, 1998, p. 181). Although Fin-
kelstein and Boyd (1998) use the terms managerial
discretion and marginal product of management
almost interchangeably, it is not clear whether
both terms are always equivalent. In sum, the
similarities and di?erences, overlaps and non-
overlaps, are di?cult to disentangle.
Another example: in the economics literature,
implicit contracts are generally de?ned as informal
agreements sustained by reputational concerns
(Baker, Gibbons, & Murphy, 2001). Economists,
however, tend to use the terms implicit contract,
relational contract, and self-enforcing contract
interchangeably (e.g. Baker, Gibbons, & Murphy
1994; Hayes & Schaefer, 2000). Behavioral
researchers refer to a similar notion using the term
psychological contracts (Rousseau, 1995), which
are de?ned as the belief system of individual
workers and employers regarding their mutual
obligations that emanate from the promises made
at the time of hiring as well as through sustained
day-to-day interactions (Rousseau & Schalk,
2000). Behavioral researchers also sometimes use
the terms employee voice and culture to refer to a
similar notion (Gibbs & Levenson, 2001). These
examples illustrate the use of di?erent terms with
similar meanings both within and across dis-
ciplines. Again, it is di?cult for the reader of these
literatures to assess how a psychological contract
is similar to, or di?erent from, an implicit con-
tract, and/or whether a relational contract (or a
psychological contract) is exactly the same as an
implicit contract or a self-enforcing contract (or
employee voice or culture).
Some terminology issues are subtler. For exam-
ple, one area of study that has received some
attention by behavioral researchers is the impact
of corporate diversi?cation on the reward systems
of business-unit managers (e.g. Kerr, 1985; Lorsch
278 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
& Allen, 1973; Pitts, 1976; Salter, 1973). A few
papers published in the accounting literature have
provided an agency-based conceptual framework
of business unit manager compensation in diversi-
?ed ?rms (e.g. Baiman, Larcker, & Rajan, 1995;
Bushman et al., 1995). Although the latter works
clearly bear on the organizational literature on
corporate diversi?cation and decentralization —
which is the terminology typically used in the
organizational literature—they hardly refer to this
literature and/or terminology. Baiman et al.
(1995), for example, quickly introduce their own
terminology of relative expertise and task alloca-
tion, respectively. The reader interested in extract-
ing knowledge from this set of studies is left with
some important, unanswered questions: Do the
?ndings of these two sets of studies con?rm each
other? Or do they complement each other, and if
so, how?
Table 4 provides some examples of incentive
system-related terms used in either the economics
or behavioral literatures (but typically not both),
with similar (if not identical) meanings. Further
research is needed to determine if exact equiv-
alency exists between these terms, and if not, to
both clarify the speci?c areas of similarities and
di?erences in meanings and integrate the ?ndings.
Certainly powerful academic incentives are in
place to motivate researchers to coin new terms.
Some researchers hope that they will be known as
the inventors of a ‘‘new’’ line of thinking and thus
have their research oft cited. However, the inven-
tion of new terms, many of which are unnecessary,
surely complicates interpretation and reconcilia-
tion of results across studies, academic ?elds, and/
or paradigms.
5. Constraints limiting cross-disciplinary research
We have described the many bene?ts of pro-
blem-focused cross-disciplinary research, and it
should be easy for all but the most narrowly
focused individuals to see those bene?ts. So why is
there so little problem-focused cross-disciplinary
research? We see three primary constraints. One is
that cross-disciplinary research is more di?cult to
do than is single discipline research. Cross-dis-
ciplinary research requires knowledge of multiple
sets of literature with their own paradigms and
jargon. Few doctoral programs provide much
breadth of education, as most academics see doc-
toral programs as vehicles for specialization,
usually de?ned as specialization in a discipline.
Few young professors take the time even to become
acquainted with multiple disciplines, much less to
become expert in them. Senior professors have
more time to develop multiple specialties. How-
ever, early modes of behavior usually set the pat-
tern for entire careers, and few senior academics
make the e?ort to develop cross-disciplinary skills.
A second constraint limiting cross-disciplinary
research is that even after it is completed, this kind
of research is more di?cult to publish. While
journals’ calls for papers often speci?cally mention
cross-disciplinary work, few journal editors are
really receptive to the work. They set di?cult
hurdles for the publication of cross-disciplinary
papers. For example, they often require the
authors of cross-disciplinary papers to please
expert reviewers in widely disparate ?elds of study
(e.g. principal-agent modeling, organizational
budgeting, and social psychology). The early
career pressure to publish quickly forces many
young researchers to take the path of least resis-
tance, and they become single discipline-focused.
Even those perhaps predisposed toward cross-dis-
ciplinary work are loath to take the risk required
to strike out in new, di?cult directions.
A third constraint is researcher narrow-mind-
edness. Some researchers seem to believe that their
discipline is su?ciently powerful to answer all the
important questions in their particular area of
interest, and thus, they need not be concerned
about the methods and ?ndings of other dis-
ciplines. Many critics have recognized and written
about this ‘‘imperialism of ideas’’ problem (e.g.
Davern & Eitzen, 1995; Reiter, 1998; Shiozawa,
1999). Economists are the typical target of these
critics because many economists, particularly
those espousing rational choice theory, are fervent
in their belief that their discipline is the ?rst
among the social sciences to rise to the level of an
exact science. For example, Lazear (2000) proudly
titled a paper ‘‘Economic Imperialism.’’ In that
paper he argued that unlike other social sciences,
K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286 279
‘‘economics is a genuine science.’’ He also claimed
that ‘‘economics is the premier social science,’’ so
it is desirable to try ‘‘to explain all social behavior
by using the tools of economics.’’ Similarly, in a
paper more focused on management accounting,
Zimmerman (2000) concluded that ‘‘managerial
accounting researchers likely are best served by
relying on economics-based hypotheses.’’ But
while economists are probably undeniably the
most chauvinistic to their discipline, some
researchers in non-economics disciplines are simi-
larly very partial to their own disciplines (for
examples in sociology, see Swedberg, 1990). Such
narrow-minded thinking provides obvious impe-
diments to cross-disciplinary advances.
6. Conclusions
In this paper we have argued that while the lit-
erature bearing on organizational incentive systems
is exploding, research progress is being hindered
because so much of this research is parochial, single
discipline or paradigm-focused. It is not designed
to provide maximum understanding of important
phenomena. Researchers should use any and all
paradigms, evidence, and research methods that
might shed light on the issues at hand. For
example, Gibbons (1998) described how it took
economics-based agency theorists 15 years to
incorporate in their models the key ideas
expressed in an oft-cited behavioral journal article
by Steven Kerr (1975) titled, ‘‘On the Folly
of Rewarding A, While Hoping for B.’’ This
lost-time problem occurred, apparently, because
the agency researchers did not read the behavioral
literature.
There are many other examples of opportunities
lost. For example, why don’t economics-oriented
researchers cite authors who have published
extensively on intrinsic motivation (e.g. Deci,
1975; Jordan, 1986) and high involvement organi-
zations (e.g. Walton, 1985)? Why don’t those
writing about balanced scorecards and non-?nan-
cial performance measures cite the management-
by-objectives literature (e.g. Carroll & Tosi, 1973)?
Why don’t more behavioral researchers incorpo-
rate in their research useful concepts from the
economics literature, such as informativeness of
performance measures, pay-performance sensitiv-
ity, risk aversion, contract completeness, and rela-
tive performance evaluation? Aren’t some of the
?ndings about the design and e?ectiveness of CEO
incentives, which has been the economists’ pre-
dominant focus, applicable lower in the organiza-
tion? Similarly, aren’t some of the ?ndings about
the design and e?ectiveness of middle managers’
and lower-level employees’ incentives, which has
been the behaviorists’ predominant focus, applic-
able at corporate levels of analysis?
The chasm exists not only between the econom-
ics and behavioral literatures; there is also a chasm
between many of the business ?elds. Too few
incentives-interested accounting researchers keep
up with incentives-related writing and develop-
ments in other business ?elds, such as marketing,
?nance, and operations.
We think a phenomenon or problem focus will
help achieve greater integration across disciplines
and ?elds of business. However, it is a necessary-
but-not-su?cient condition. Also needed is more
open-mindedness (by both researchers and journal
editors), more contact with practitioners, and
broader doctoral training that trains accounting
researchers in multiple base disciplines and multi-
ple research methods.
Our call for more cross-disciplinary research
does not apply uniquely to incentive systems
research; it applies to many areas of accounting-
related research and, indeed, many other areas of
life. For example, a recent Forbes article described
how some economists are puzzled as to why peo-
ple leave tips (Seligman, 1998). Tips are di?cult to
understand in the standard economic paradigms
because tippers do not di?erentiate signi?cantly
depending on the quality of the service they
receive. Most tippers and their service providers
are anonymous and will not meet again; and there
are little or no tax bene?ts to earning compensa-
tion through tips rather than higher wages. To
solve this puzzle, the author of the article sug-
gested calling in behaviorists who could provide
some insights about personality and individual
di?erences, neuroticism, and cultural norms.
We suggest that the types of studies most needed
are those that employ or develop richer cross-dis-
280 K.A. Merchant et al. / Accounting, Organizations and Society 28 (2003) 251–286
ciplinary frameworks, and within a single dis-
cipline inter-paradigm frameworks.
19
To be of
maximum help to practitioners, we should strive
to explain a high proportion of variance in every
setting in which the phenomena of interest occurs.
We will never be able to explain empirically 100%
of the variance in any speci?c situation because of
the great situational variety and complexity and
unavoidable measurement errors. But we should
not be content with explaining only 10%, or even
less, of the variance.
Organizational incentive systems provide just
one good example of an organizational system
that contains many elements that are related to
each other. In such cases, there are bene?ts to
studying concurrently as many of the elements as
is possible so as to sort out their inter-
dependencies. Similarly, there are many contextual
variables that, alone or in combination, will a?ect
one or more of the system elements. Di?erent base
disciplines focus on di?erent sets of potentially
relevant design (endogenous) and exogenous vari-
ables. Economic, psychological, and sociological
perspectives have been well introduced into the
literature, but the perspectives have not been well
integrated. Other concepts, perhaps stemming lar-
gely from political science, anthropology, or phi-
losophy, may also be relevant. As the literature
matures, it would be very desirable to try to
aggregate these perspectives, rather than allowing
them to develop independently.
Some accounting researchers have already
attempted to integrate ?ndings across disciplines.
In the incentives area, for example, Lambert,
Larcker, and Weigelt (1993) found that a combi-
nation of tournament and managerial power
models provided relatively more insight into the
structure of organizational incentives than the
agency model. In the contracting area, Evans,
Hannan, Krishman, and Moser (2001) o?ered
interesting results by considering honesty in
conventional agency models. By applying cross-
disciplinary insights to the study of managerial
reporting, Evans et al. (2001) found little support
for the agency argument that ?rms are better o?
assuming dishonesty when designing control sys-
tems (even though some people may be honest).
Instead, what the study shows is that (1) the terms
of the contract determine how willing people are
to be dishonest, independently of how much dis-
honesty pays, and (2) in certain circumstances,
assuming honesty when designing control systems
may actually result in higher ?rm pro?ts. By
building on multiple disciplines, the Evans et al.
(2001) study provides more insight into the role of
managerial reporting than the single discipline
focused agency model. Such attempts to span dis-
ciplinary boundaries, however, are rare.
The study of the design and use of accounting-
related systems in organizations is relatively young,
really younger than half a century. Certainly great
progress has been made. But progress will be much
faster if researchers work together to try to inte-
grate and build on each other’s work, rather than
trying to create something new in isolation. It will
take e?ort, but that e?ort should provide rewards.
Acknowledgements
The authors wish to acknowledge the many
helpful suggestions of Paul Adler, David Cooper,
Tony Davila, Mike Gibbs, Alec Levenson, Bob
Libby, Frank Selto, Mike Shields, two anonymous
reviewers, and participants at the AOS 25th
Anniversary Research Symposium (Oxford, July
2000) and at research workshops at the University
of Waterloo and the University of Maastricht.
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