An Experimental Study of Endogenous Discretionary Controls on Employee Effort

Jeremy D. Douthit, Jing Liu, Steven T. Schwartz, Richard A. Young

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Discretionary controls are controls that can be applied at the ex post discretion of the superior rather than being supported by pre-committed enforceable contracts. This study examines employees’ effort levels when a discretionary control is endogenously present (chosen by the superior) relative to when it is exogenously present (assigned by the experimenters). Results from our gift-exchange experiment regarding superiors’ choice of a discretionary control run counter to prior research on superiors’ choice to use pre-committed controls in two important ways. First, we find employee effort is unaffected by the superior’s choice of a discretionary control relative to when it is exogenous. That is, the intentional choice of a discretionary control does not seem to be resented by the employee. Second, we find employee effort is lower when superiors choose not to have a discretionary control present relative to when it is exogenously unavailable. That is, we not only find no reward to forgoing a discretionary control, but rather a cost to not choosing a discretionary control. In sum, our results support the prevalence of discretionary controls in practice.

Original languageEnglish (US)
JournalEuropean Accounting Review
DOIs
StateAccepted/In press - 2022

Keywords

  • Discretionary Controls
  • Endogenous Controls
  • Gift-Exchange

ASJC Scopus subject areas

  • Business and International Management
  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Automotive Engineering
  • History
  • Aerospace Engineering
  • Engineering (miscellaneous)
  • Economics, Econometrics and Finance (miscellaneous)

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