The Learning Effects of Monitoring

Abstract

This study investigates the relationship between monitoring, decision making, and learning among lower-level employees. We exploit a field-research setting in which business units vary in the “tightness” with which they monitor employee decisions. We find that tighter monitoring gives rise to implicit incentives in the form of sharp increases in employee termination linked to “excessive” use of decision-rights. Consistent with these implicit incentives, we find that employees in tightly monitored business units are less likely than their loosely monitored counterparts to: (1) use decision-rights; and (2) adjust for hard information, in the form of historical performance data, in their decisions. These decision-making patterns are associated with large and systematic differences in learning rates across business units. Learning is concentrated in business units with “loose monitoring” and entirely absent in those with “tight monitoring.” The results are consistent with an experimentation hypothesis in which tight monitoring of decisions leads to more control but less learning. Data Availability: The data used in this study cannot be made publicly available due to confidentiality agreements with the participating organization.

Points to Consider When Self‐Assessing Your Empirical Accounting Research

“…A study by Campbell, Epstein, and Martinez‐Jerez () provides an example of a field study that relies on interviews and observation to provide a compelling basis for how the tightness of the control system influences employee learning and firm profit. To understand the role played by gaming resort employees who act as “hosts” for customers at the resort, the researchers interviewed resort employees from multiple locations and shadowed “hosts” for several days.…”

The impact on stakeholder confidence of increased transparency in the examination assessment process

“…As a result, it was possible to explore whether subjective judgements become calibrated. Learning effects and learning curve analysis have a long and rich history in accounting research (Bailey and McIntyre 1992;Boze 1994;Campbell, Epstein, and Martinez-Jerez 2011;Foster and Sjoblom 1996;Morse 1972). The concept is simple.…”

The Effect of Allocating Decision Rights on the Generation, Application, and Sharing of Soft Information

“…Increased exposure might cause the loan officer to hesitate about being creative in generating soft information. This change in behavior is explained by the finding of Campbell, Epstein, and Martinez-Jerez (2011) that increasing the intensity of monitoring can discourage out-of-the-box thinking and experimentation. The loan officer might experience an increased amount of evaluative pressure, which, combined with uncertainty about the expectations of upper-level management, could cause them to reduce their efforts to generate information.…”

“…From a management control point of view analytical (Frey, 1993), experimental (Falk andKosfeld, 2006) and archival work (Campbell, Epstein and Martinez Jerez, 2011) suggests that agents perform worse if their actions are controlled by central management because they resent the firm decision. We study how an external justification may lead agents to take accept centralization so that they would abstain from actions that impact outcomes negatively.…”