Melbourne Accounting Research Seminar - Professor Jan Bouwens

Professor Jan Bouwens from Cambridge Judge Business School will present a MARS seminar.

Topic: Adding controls: Do junior managers respond the same as senior managers?

Abstract: This study tests whether agents respond differently to controls conditional on their tenure. We study a firm where top management decided to require their project managers to reduce their working capital levels. The introduction of the input control serves as a natural experiment for us to test how managers respond when facing the new condition the firm creates. We predict and document that senior project managers are resistant to the introduction of this additional control as this measure represents an infringement of the implicit contract that resides between project managers and the firm that would allow the agent to make his own decisions to affect project results. Senior project managers have developed skills to affect project results over the whole range of factors that affect project profitability and do therefore not want someone to tell them what to do regarding one factor only. For junior managers this is less of an issue as they still have to develop these skills. Our empirical results suggest that senior project managers reject the new control while junior managers accept the control.