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Table:
Hypotheses - Effects of performance monitoring systems on
performance and other incentive mechanisms in corporate governance Click here to see an exhibition on these issues and their relation to other hypotheses in corporate governance. |
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1) From performance monitoring system to financial performance |
1A: Cost argument: Monitoring is expensive so ceteris paribus more performance monitoring decreases financial performance (Jensen and Meckling [1976, page 308]). 1B: Decision
making argument: More performance monitoring means better performance
because ceteris paribus it improves
the allocation of corporate resources, i.e., profitable projects are extended
and unprofitable projects are either terminated or changed to become
profitable. |
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11A:
Better performance monitoring systems could improve the control systems. |
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24) From performance monitoring system to market for corporate control |
24A: The market for corporate control may function better with a better performance monitoring system. For instance, it may be easier for potential buyers to assess whether it pays to buy another company or not. |
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28) From performance monitoring system to market for management services |
28A: Better performance monitoring systems may improve the functioning of the market for management services. For instance, it may be discovered sooner rather than later that the management is doing a poor job and need to be replaced. |
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16) From performance monitoring system to incentive based compensation |
16A: Better performance monitoring systems could improve the effect of the remuneration systems. For instance, with accurate performance measurement the implied reward and punishment of the remuneration systems will be less arbitrary. |
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22A: A
better performance monitoring system should also make it easier to reorganize
or liquidate a bankrupt firm. |
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- Copyright 1997-2019, H. Mathiesen. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Legal notice. |