Doctor of Philosophy, Case Western Reserve University, 1991, Accounting

This research focused on the effects of an incongruence between two elements of a firm's financial planning and control (PC) system on managers' project selection decisions. Specifically, the effects of an incongruence between the firm's goals and the firm's management compensation system were studied. Two different goals were examined here: earnings maximization and shareholder value creation. Compensation systems may be congruent with (that is, support the achievement of) either of these goals. An experiment was conducted using currently enrolled executive master of business administration (EMBA) students and alumni of the EMBA program as respondents. Half of the respondents made project selection decisions for an hypothetical firm with a compensation system which was congruent with the firm's goals. The other respondents made project selection decisions for an hypothetical firm with a compensation system which was incongruent with the firm's goals. The dependent variables were (1) respondents' project selection decisions and (2) the perceived importance of various financial information items in making the decisions. Analysis of variance (ANOVA) results provided evidence that the firm's compensation system strongly affected project selection decisions, while the firm's goals had a minimal effect on project selection decisions. No interaction effect was apparent. This suggests that different parts of the PC system have unequal effects on managers' project selection decisions. Further, interactions among the parts of the PC system may not be assumed in all cases. Multivariate analysis of variance (MANOVA) results provided evidence that the firm's compensation system and the firm's goals affect the perceived importance of traditional accrual accounting information items, but not the perceived importance of information about the amounts and timing of cash flows and the cost of capital. This may be explained by managers' familiarity with accrual accounting concepts, bu (open full item for complete abstract)

Committee: David Campbell (Advisor) Subjects: Business Administration, Accounting