This study investigates how relative performance information (RPI) affects employee performance and allocation of effort across tasks in a multi-task environment. Based on behavioral theories, we predict that the social comparison process inherent in RPI induces both a motivation effect that results in increased effort as well as an effort distortion effect that results in the distortion of effort allocations across tasks away from the firm-preferred allocations. We also predict that both effects are magnified when the RPI is public compared to private. We argue that although the motivation effect will generally benefit performance, the effort distortion effect may be detrimental to performance. We design an experiment that isolates these two effects. Consistent with our predictions, we find that RPI induces both motivation and effort distortion effects and that both effects are magnified when the RPI is public rather than private. Although the motivation effect increases performance, we demonstrate that the effort distortion effect can decrease performance. By isolating the motivation and effort distortion effects, our study provides insights into the costs and benefits of RPI in a multi-task environment. As such, it informs accountants regarding the design of information systems and when tasks should be aggregated or disaggregated across employees. Data Availability: Data are available from the authors upon request.

No abstract

Prior research documents that providing relative performance information (RPI) motivates employees to increase effort; however, a potential downside of RPI is that it also motivates employees to distort their effort allocations between tasks such that it can be detrimental to overall firm performance. This study investigates via an experiment how the informativeness of RPI affects employees' effort allocations and performance in a multitask environment. We investigate the informativeness of two RPI design choices that are observed in practice: detail level and temporal aggregation. Regarding detail level, firms may provide each employee's performance ranking on tasks, which is less informative than providing the actual performance score of each employee. Regarding temporal aggregation, firms may provide RPI that is reset each period, which is less informative than RPI that is based on cumulative performance. We find RPI detail level and temporal aggregation interact to influence effort distortion. Specifically, we find that, compared to reset RPI, cumulative RPI leads to greater distortion of effort away from firm‐preferred allocations and that this effect is magnified when RPI provides actual performance scores rather than performance rankings. Finally, high levels of effort distortion hurt overall performance, thereby demonstrating the potentially detrimental effect of effort distortion on performance. Results of our study enhance our understanding of how firms can use their control over the design of RPI to enhance its usefulness in directing employees' effort in multitask environments by highlighting the role that informativeness of information can have on employee behavior.

This study investigates the effects of stock liquidity on earnings management. While prior research finds that liquidity has mixed effects on corporate governance, our baseline regression results show that an increase in stock liquidity is associated with an increase in discretionary accruals and revenues. To establish causality, we use two quasi‐natural experiments that exploit exogenous increases in stock liquidity resulting from regulatory changes to the minimum tick size. The results of our difference‐in‐differences approach indicate that stock liquidity increases accrual‐based earnings management. Additional analysis suggests that liquidity affects earnings management by magnifying the effects of takeover pressure and equity compensation.

This study investigates how the quality of information available within a firm affects patent-related innovative activities. Relying on recent theoretical and empirical research, we use externally observable information attributes to proxy for the quality of internal information. Our empirical results indicate that firms with higher internal information quality generate more patents and patent citations.Cross-sectional analyses show that this positive effect is greater when firms are susceptible to greater internal information frictions due to firm decentralization, short management team tenure, and long product development cycles. We also document that firms experience an increase in patents and patent citations following an improvement of internal information quality proxied by internal control weakness remediation. Overall, our results suggest that the positive relation between internal information quality and task performance extends to patent-related innovation, a non-routine type of task that may rely on information originating from sources other than firms' formal internal information systems. K E Y W O R D S coordination, internal information quality, patent-related innovation, uncertainty J E L C O D E S M41, D8, O32