Management Accounting Research 18 (2007) 312342

The impact of reliance on incentive-based compensation

schemes, information asymmetry and organisational
commitment on managerial performance
Vincent K. Chong a, , Ian R.C. Eggleton b
a

The University of Western Australia, Australia

b
The University of Waikato, New Zealand

Abstract
This study examines the effects of information asymmetry and organisational commitment on the relation between
the extent of reliance on incentive-based compensation schemes and managerial performance. The responses of 109
managers, drawn from a cross-section of Australian manufacturing companies, to a questionnaire survey, were
analysed by using a multiple regression technique. The results provide evidence of higher managerial performance
for managers with low organisational commitment and a high reliance on incentive-based compensation schemes in
high information asymmetry situations. On the other hand, the results show that the performance level of managers
with high organisational commitment is unaffected regardless of the degree of information asymmetry and the extent
of reliance on incentive-based compensation schemes.
2007 Elsevier Ltd. All rights reserved.
Keywords: Reliance on incentive-based compensation schemes; Information asymmetry; Organisational commitment and
managerial performance

1. Introduction
Incentive-based compensation schemes are used by organisations to align the interests of employees
with owners (see Baker et al., 1988). The primary reason why organisations use an incentive-based

Corresponding author at: Accounting and Finance (M250), UWA Business School, The University of Western Australia, 35
Stirling Highway, Crawley, WA 6009, Australia. Tel.: +61 8 6488 2914; fax: +6 18 6488 1047.
E-mail address: Vincent.Chong@uwa.edu.au (V.K. Chong).

1044-5005/$ see front matter 2007 Elsevier Ltd. All rights reserved.
doi:10.1016/j.mar.2007.04.002

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313

compensation scheme is to ensure that their employees efforts can be channeled toward activities that
facilitate the achievement of organisational objectives (Flamholtz et al., 1985; Banker et al., 1996a, 1996b,
2001; Gibbs et al., 2004).1 Most of the research examining the control system effects of compensation
schemes is based on an agency theory framework. Agency theory suggests that an agent is capable
of engaging in dysfunctional behaviours known as adverse selection and moral hazard (Arrow, 1985;
Baiman, 1982, 1990).2 The dysfunctional behaviours arise when the agent and the principal have different
risk preferences and conflicting goals.3 This is because agents, who possess more private information
about their task environment than their superior, are assumed to use this private information to make
decisions in their self-interests. The existence of private information is an illustration of information
asymmetry (Baiman and Evans, 1983; Penno, 1984; Coughlan and Schmidt, 1985; Dunk, 1993), which
refers to subordinates who possess more private information than their superior relating to their area of
responsibility (Dunk, 1993). Thus, it is argued that when information asymmetry is high, dysfunctional
behaviours are more likely to occur than when information asymmetry is low (see Eisenhardt, 1985; Pratt
and Zeckhauser, 1985).
Agency theorists posit that the principal can minimise moral hazard problems by developing an
incentive-based compensation scheme (a control subsystem), which aligns the interests of principal and
agent (Eisenhardt, 1988, 1989; Kaplan and Atkinson, 1998, p. 681). A fundamental objective of an
incentive-based compensation scheme is to motivate individuals to exert effort to improve performance.
A recent study by Sprinkle (2000) found that the reliance on an incentive-based compensation scheme
improves individuals performance by motivating them to increase both the duration and intensity of
their effort. He found that incentives not only motivate individuals to work longer on a task, but also
serve to enhance the quality of attention individuals devote to the task. Previous incentive-contracting
studies (Chow, 1983; Waller and Chow, 1985; Chow et al., 1988) have proposed the use of incentivebased compensation schemes for motivating truthful reporting by subordinates. Specifically, these studies
found that the reliance on incentive-based compensation schemes can enhance individual performance.
However, Waller (1994) criticises these studies for investigating economic incentive without explicitly
considering other behavioural factors. Frederickson (1992) also argues that conclusions drawn from
agency theory-based models that ignore behavioural factors should be interpreted cautiously. In addition,
numerous studies (Baker et al., 1988; Kachelmeier, 1994, 1996; Luft, 1997; Evans et al., 2001; Merchant
et al., 2003) argued that better insights may be gained if the results of agency and behavioural studies
are integrated. For example, it has been asserted that a managers level of organisational commitment

From an agency theory perspective, an incentive-based compensation scheme exerts two important functions: selection
and effort effects. The selection effect role of incentive-based compensation schemes can increase an organisations overall
performance by attracting and retaining more productive employees. On the other hand, the effort effect role of an incentivebased compensation scheme can induce employees to exert more effort to improve their performance. The focus of this paper is
to examine the effort effect function.
2
The agency literature refers to the problems of adverse selection as pre-contractual problems, and to the problems of moral
hazard as post-contractual problems (see Arrow, 1985; Baiman, 1982, 1990). Adverse selection occurs before employment when
an agent possesses private pre-contractual information or hidden information about his or her own skill levels. He or she has the
opportunity to misrepresent his or her skill level to obtain a higher paying position (see Chow, 1983). Moral hazard occurs after
employment when an agent possesses private post-contractual information or hidden actions about his or her actions. The focus
of this paper is on moral hazard problems.
3
Risk preference refers to the degree of an agents or principals preference for adventure rather than security (Pratt, 1964;
Arrow, 1974).

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(a behavioural factor at the individual level) is as important as the extent of reliance on an incentivebased compensation scheme for motivating effort (see Simon, 1991). Prior studies (e.g. Mathieu and
Zajac, 1990; Randall, 1990; Nouri and Parker, 1998) argued that organisational commitment may have
the potential for improving work outcomes such as subordinates performance. Furthermore, it has been
found that subordinates with high levels of organisational commitment are more likely to use their private
information to pursue organisational goals, while subordinates with low levels of organisational commitment are more likely to use their private information largely to pursue self-interest (see Nouri and Parker,
1996).
Thus, it seems likely that the effects of the extent of reliance on incentive-based compensation schemes
on performance may depend not only on the degree of information asymmetry present, but also on the
managers level of organisational commitment. While these linkages have been recognised in the literature,
there have been no studies that attempt to evaluate the three-way interactive effects between the degree
of information asymmetry, subordinates levels of organisational commitment and the extent of reliance
on incentive-based compensation schemes affecting managerial performance. This gap in the accounting
literature, which remains unexplored, constitutes the motivation for this paper.
This paper is organised as follows. In the next section, the theoretical framework underlying the study
is developed. This leads to the statement of hypotheses. Subsequent sections address the method, results,
discussions, and limitations of the study.

2. Hypotheses development
2.1. The relation between incentive-based compensation schemes and performance
An incentive-based compensation scheme refers to the extent to which pay incentives (such as bonus
or profit sharing) are used as the compensation strategy in an organisation (see Balkin and Gomez-Mejia,
1990). As noted earlier, prior incentive-contracting studies (e.g. Chow, 1983; Waller and Chow, 1985;
Chow et al., 1988) have provided empirical evidence to support the view that reliance on incentive-based
compensation schemes can affect individual performance by inducing a higher level of effort on the part
of subordinates.
Several non-accounting studies (Gomez-Mejia et al., 1987; Eisenhardt, 1988; Tosi and Gomez-Mejia,
1994) have also found support for reliance on incentive-based compensation schemes in aligning principal
and agent interests, and alleviating moral hazard problems. Furthermore, the sales-force compensation and
human resources management literature also provides evidence to support the argument that reliance on an
incentive-based compensation scheme provides an incentive for the agent to trade off the cost of increased
effort for higher reward. Thus, it is argued that a high reliance on incentive-based compensation schemes
is more likely to enhance an agents performance than a low reliance on incentive-based compensation
schemes. Such a general conclusion should not be drawn however, because a number of empirical studies
have found that reliance on incentive-based compensation schemes does not always enhance individual
performance (see Jenkins, 1986; Gerhart and Milkovich, 1992; Kohn, 1993; Jenkins et al., 1998). Other
studies (e.g. Arkes et al., 1986; Ashton, 1990; Bonner et al., 2000) found reliance on incentive-based
compensation schemes sometimes even caused performance to deteriorate. Such mixed results suggest
the need to examine the link between the extent of reliance on incentive-based compensation schemes
and individual performance.

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2.2. Standard agency theory view: the moderating role of information asymmetry on the relation
between incentive-based compensation schemes and performance
Standard agency theory suggests that the relationship between the extent of reliance on incentivebased compensation schemes and performance is moderated by the degree of information asymmetry
between the superior and subordinate. Information asymmetry refers to a situation whereby the agents
(subordinates) are in possession of more local or private information than their principal (superior) relating
to their area of responsibility (Dunk, 1993). The standard agency theory model assumes that the agent
has private information to which the principal cannot costlessly gain access, and the agent is assumed
to be work-averse and risk-averse (Baiman, 1990). It is the information asymmetry, and agents workaversion and risk-aversion, which prohibit the rst-best (cooperative) solution from being achieved by
self-interested behaviour. Hence, moral hazard problems occur when the principal is not able to observe
the level of effort exerted by the agent. Thus, it is argued that the agent will attempt to avoid work unless
incentives are provided to motivate effort (Baiman, 1982, 1990; Kaplan and Atkinson, 1998).
Relying on standard agency theory, it is argued that a high reliance on incentive-based compensation
schemes is more appropriate when information asymmetry is high rather than low. The rationale for this
proposition is that under such situations, subordinates are in possession of private information unknown to
the superior. Such situations are conducive for subordinates to engage in opportunistic behaviours. Thus,
it follows that moral hazard problems are more likely to be high. The existence of moral hazard problems
creates the information impactedness situations. Information impactedness arises when subordinates,
who possess valuable and unique local information, are reluctant to disclose or convey it truthfully. It
has been suggested that incentive-based compensation schemes can be used to mitigate the problems
concerning the withholding of information by subordinates (Kaplan and Atkinson, 1998). In summary,
a high reliance on incentive-based compensation schemes would be an appropriate motivational control
tool to encourage subordinates to exert greater effort to enhance their performance when information
asymmetry is high rather than when it is low.
Thus far, the agency theorists have concluded that a match between a reliance on incentive-based
compensation schemes and the level of information asymmetry can enhance managerial performance.
However, such a conclusion is subject to one further qualification. This is because standard agency theory
has been criticised for its simplicity and narrowness (e.g. McKean, 1975; Collard, 1978; Noreen, 1988;
Baiman, 1990). Specifically, standard agency theory assumes that subordinates actions are endogenously derived, and based on well-specified preferences and beliefs (Baiman, 1990). In addition, the
standard agency theoretical framework tends to disregard the existence and possible influence of other
behavioural factors such as the subordinates level of organisational commitment. Standard agency theory cannot explain why some agents are willing to sacrifice their self-interest in order to benefit the
interest of the organisation. A possible explanation for such behaviour may be the fact that some of
these agents are highly committed to their organisation. These individuals with high organisational
commitment want the organisation to succeed. If these individuals consider that improving their own
performance helps to enhance overall organisational performance, they may be willing and motivated
to exert effort to serve the organisation by doing just this. Thus, it can be concluded, that standard
agency theory assumes that all individuals, regardless of the level of their organisational commitment,
are motivated solely by self-interest. The next section discusses the effect of information asymmetry and
reliance on incentive-based compensation schemes on performance under different levels of organisational
commitment.

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2.3. The effects of organisational commitment

Organisational commitment is defined as an employees identification with and involvement in the
organisation (Mowday et al., 1979).4 As noted earlier, we argue that standard agency theory assumes that
individuals possess low levels of organisational commitment and are motivated solely by self-interest. This
strict assumption is rather unrealistic as the behavioural literature (e.g. Otley and Pierce, 1996; Nouri and
Parker, 1996, 1998; Lord and DeZoort, 2001; see also Porter et al., 1974; Angel and Perry, 1981) indicates
that while the managers with low levels of organisational commitment are motivated to pursue self-interest,
managers with high levels of organisational commitment are motivated to pursue organisational interest.
Individuals with high organisational commitment are characterised by a strong belief in, and acceptance
of, the organisations goals and values, and a willingness to exert considerable effort on behalf of the
organisation (Porter et al., 1974; Angel and Perry, 1981). This suggests that individuals with strong
organisational affiliations may be motivated to pursue organisational interests without the opportunity for
personal gain. The idea that individuals can be strongly motivated to pursue organisational interests is also
found in the literature (see e.g. Ouchi, 1981; Birnberg and Snodgrass, 1988). For example, Birnberg and
Snodgrass (1988) argue that employees in Japanese firms have cooperative utility functions that value
the pursuit of organisational goals. Conventional utility function, which is commonly assumed in agency
literature, is not applicable to these individuals (i.e. highly committed individuals) as conventional utility
function focuses exclusively on the individuals self-interest rather than organisational interests. Thus, it
follows that when this assumption underpinning standard agency theory is abandoned, the predictions of
agency theory are inappropriate. In other words, standard agency theory cannot adequately explain the
behaviour of those individuals with high levels of organisational commitment. Our study proposes that
whether individuals are predisposed to pursuing self or organisational interests depends on the levels of
their organisational commitment.
Thus, the existing agency and behavioural literature seem to suggest that the relationship between the
extent of reliance on incentive-based compensation schemes and managerial performance is likely to be
influenced by the degree of information asymmetry and the subordinates level of organisational commitment. This suggests that the integration of agency and behavioural theoretical frameworks would provide
further insights into the relationships between the extent of reliance on incentive-based compensation
schemes and subordinates performance.
2.4. The three-way interaction hypothesis
Table 1 shows the expected performance for the eight possible combinations of the three-way interaction
between the extent of reliance on incentive-based compensation schemes, information asymmetry, and
organisational commitment affecting managerial performance.
As discussed earlier, standard agency theory predicted that individuals with low levels of organisational
commitment are interested in pursuing self-interest rather than organisational interests. Under low infor4

Organisational commitment may be conceptualised in the following two ways: affective and continuance commitment (see
Meyer et al., 1990). This paper employs the affective (attitudinal) commitment conceptualization of organisational commitment.
Such commitment is characterised by two factors: (1) a strong belief in and acceptance of organisational goals and values; and (2)
a willingness to exert considerable effort on behalf of the organisation (Porter et al., 1974; Angel and Perry, 1981). Continuance
commitment refers to the perceived costs associated with leaving the organisation (Becker, 1960; see also Meyer et al., 1990).

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Table 1
Expected managerial performance for the eight possible combinations between organisational commitment, information asymmetry and reliance on an incentive-based compensation scheme
Cell

Information asymmetry

Incentive-based compensation scheme

Expected managerial performance

Panel A: Low organisational commitment sub-sample

1
Low
Low
2
Low
High
3
High
Low
4
High
High

Moderate/unclear
Moderate/unclear
Low
High

Cell

Expected managerial performance

Information asymmetry

Incentive-based compensation scheme

Panel B: High organisational commitment sub-sample

5
Low
Low
6
Low
High
7
High
Low
8
High
High

Moderate/high
Moderate/high
High
High

mation asymmetry situations, it is expected that managers with low levels of organisational commitment
(i.e. less committed managers) may not have the private information by which to materially enhance
their performance. Additionally, under such conditions the moral hazard problems are also likely to be
low. Therefore, a low reliance on incentive-based compensation schemes would be a more appropriate
control tool under such situations. However, even when the reliance on incentive-based compensation
schemes is high, subordinates may not possess the private information which would enable them to
materially enhance their performance. This suggests that when reliance on incentive-based compensation
schemes is high, subordinates, while having the extrinsic incentive to improve their performance, will not
be in a position to obtain it since under low information asymmetry situations the subordinate has little
information that is not known to the superior.
The aforementioned discussion suggests that managers with low levels of organisational commitment
are unwillingly to exert additional effort when reliance on incentive-based compensation schemes is low,
as there is no extrinsic incentive to do so under low information asymmetry situations. Thus, we expect
that the performance level of managers with low levels of organisational commitment will be low when
the extent of reliance on incentive-based compensation schemes and the degree of information asymmetry
are both low.
Standard agency theory predicts that when the extent of reliance on incentive-based compensation
schemes is high, individuals are motivated to exert effort to improve their performance. But, it is unclear
if the positive effect on performance will be significant enough when the extent of reliance on an
incentive-based compensation scheme is high, since they may not be in a position to possess the necessary information to enhance their performance materially. Thus, we expect that the performance level
of managers with low organisational commitment will remain unaffected when the extent of reliance on
incentive-based compensation schemes is high and the degree of information asymmetry is low.
Standard agency theory predicts that the performance level of managers with low levels of organisational commitment will improve when a high reliance on incentive-based compensation schemes occurs
under high information asymmetry situations. The rationale for this view is based on the argument that
less committed managers will continue to exert additional effort, with the help of their privately-held

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information, as long as they believe that doing so is worthwhile in order to improve their performance.
These managers are interested in using their private information primarily to pursue self-interest. This
view is consistent with standard agency theory, which predicts that individual performance is an increasing function of performance-contingent incentive. Several previous studies reported that incentive-based
compensation schemes have a positive effect on efforts and individual performance (e.g. Chow, 1983;
Waller and Chow, 1985; Bailey et al., 1998; Sprinkle, 2000). The essence of this theoretical argument is
that individuals are motivated to exert more effort when they believe that the additional effort will increase
their performance, which in turn, will result in them receiving more rewards. In addition, the findings of
numerous prior empirical accounting studies (see Libby and Lipe, 1992; Kennedy, 1993, 1995; Stone and
Ziebart, 1995) also strongly support the suggestion that incentives stimulate increased effort for managers
with low levels of organisational commitment. Kennedy (1993) argues that individuals will not exert any
effort in making judgments unless they perceive it to be worthwhile. Hence, it can be concluded that under
conditions where high information asymmetry exists, managers with low levels of organisational commitment will exert greater effort to perform when the reliance on incentive-based compensation schemes
is high rather than when it is low. In summary, we propose that the performance level of managers with
low levels of organisational commitment will be higher when the extent of reliance on incentive-based
compensation schemes is high rather than low under high information asymmetry situations (i.e. Cell
4 > Cell 3, see Table 1)
It is argued that managers with high levels of organisational commitment (i.e. highly committed
managers) are motivated to pursue organisational interests rather than self-interest (Nouri and Parker,
1996; see also Porter et al., 1974; Angel and Perry, 1981; Eisenhardt, 1989). Lincoln and Kalleberg
(1990), for example, conclude that highly committed individuals will expend effort on behalf of the
organisation even when such effort does not result in the individual receiving any additional compensation
or opportunities for career advancement.
As noted earlier, the predictions of standard agency theory are inappropriate for highly committed
managers as this theory cannot adequately explain their attitudes and behaviours. These highly committed
managers are indifferent to the extent of reliance on incentive-based compensation schemes because the
pursuit of organisational goals and values is important to them. They are willing to exert additional
effort to gather job-relevant information to enhance their decisions regardless of the extent of reliance
on incentive-based compensation schemes and the degree of information asymmetry. It is expected, that
under high information asymmetry situations, these highly committed managers are also willing to share
their privately-held information with their peers and superiors, and use the private information primarily
to pursue organisational goals regardless of the extent of reliance on an incentive-based compensation
scheme. Thus, we expect that the performance level of managers with high organisational commitment
will remain unaffected by the extent of reliance on incentive-based compensation schemes and the degree
of information asymmetry (i.e. Cell 5 = Cell 6 = Cell 7 = Cell 8, see Table 1).
Accordingly, the following hypotheses are tested:
H01 (:). There is no statistically significant three-way interaction between information asymmetry,
reliance on incentive-based compensation schemes and organisational commitment affecting managerial
performance.
HA1 (:). The performance level of managers with low organisational commitment will be higher when
the extent of reliance on incentive-based compensation schemes is high rather than low under high
information asymmetry situations.

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319

HA2 (:). The performance level of managers with high organisational commitment will remain unaffected by the extent of reliance on incentive-based compensation schemes and the degree of information
asymmetry.

3. Research method
3.1. Sample selection
Data for this study were collected from a sample of senior managers selected from business sub-units
of 176 manufacturing firms with more than 100 employees using a mail survey method. These firms
were randomly chosen from the list of manufacturing firms published in Kompass Australia (1996). The
names of 225 senior managers were gathered. The criteria for inclusion in the sample were as follows:
(1) the companies must have at least 100 employees; and (2) the respondents were required to have
responsibility for operations of their business sub-units. Telephone calls were made to each manager to
ensure that the above criteria were met and to ascertain whether the manager was willing to participate
in the research project. This resulted in a sample of 179. Forty-six managers were not included in the
final sample for a number of reasons. Some failed to meet the criteria. Others could not be contacted and
some had retired or left the companies. Furthermore, some of the companies had ceased to operate or
had moved.
Each participant was sent a questionnaire together with a cover letter and a prepaid self-addressed
envelope for the questionnaire to be returned directly to the researcher.5 Questionnaires were pre-coded
to enable non-respondents to be traced and follow-up to be executed. A follow-up letter and another
copy of the questionnaire were sent to those who had not responded after three weeks. Of the 179 questionnaires distributed, 147 were returned, giving a response rate of 82%.6 A total of 16 questionnaires
were excluded from the study for incomplete responses and 10 for unreliable responses.7 In addition,
12 respondents who had a mean score of less than 24 on the scale for the information asymmetry
construct were also excluded from the data analysis.8 This left the study with 109 useable responses.
The mean age of the respondents was 47 years. On average, the respondents had worked for their
present company for 10 years and had been in their current position for 7 years. The average number of
employees in the respondents areas of responsibility was 143 and the companies had an average of 694
employees.
5

The present study utilised the survey method because it provides accessibility to a large sample and enables the collection of
data for many variables. To ensure external validity, this study used a random sample and established instruments developed in
prior studies.
6
The high response rate was the result of the telephone calls made by one of the researchers to each participant. Such an
approach whereby each of the potential participants was spoken to personally was undertaken to ensure that they would be
committed to the research project, and would complete and return the questionnaires.
7
We conducted diagnostic measures for identifying influential observations. Our results reveal that 10 cases have exceeded the
recommended threshold based on the Studentised residuals, Mahalanobis distance and Cooks distance (see Hair et al., 1998).
Consequently, we excluded these 10 outliers from our study. A test of the regression results based on 119 (before the exclusion
of the 10 outliers) and regression results based on 109 (after exclusion of the 10 outliers) show no statistical differences.
8
A total score of less than 24 indicates that information asymmetry did not exist (see Dunk, 1993 for a detailed
discussion).

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3.2. Measurement of variables

3.2.1. Information asymmetry
Information asymmetry was measured based on a six-item, seven-point Likert-type scale developed
by Dunk (1993). A factor analysis confirmed the unidimensional nature of the information asymmetry
construct. The results indicate satisfactory construct validity (Kerlinger, 1964) in which all six items were
loaded above the 0.5 level of the first factor (Eigenvalue = 3.787; total variance explained = 63.12%). The
use of the information asymmetry scale yielded a Cronbach Alpha coefficient (Cronbach, 1951) of 0.88,
which indicates satisfactory internal reliability for the scale (Nunnally, 1967).
3.2.2. Organisational commitment
Organisational commitment was measured by a nine-item short-form version of the organisational
commitment questionnaire (OCQ) developed by Mowday et al. (1979). The short-form seven-point
Likert-type scale instrument was used because acceptable levels of reliability and validity have been
reported in the prior literature (see Angel and Perry, 1981; Price and Mueller, 1981; Blau, 1987; Nouri,
1994; Collins et al., 1995; Nouri and Parker, 1996, 1998; Chong et al., 2006). A factor analysis of the
nine-item OCQ was conducted to examine its dimensionality. A factor analysis with varimax rotation
indicated that except for items 1 and 9, which loaded on the second factor, all other seven items loaded
on the first factor. The first factor (Factor I called value commitment), which accounted for 36.60% of the
total variance explained, contains seven items interpreted here as indicating identication with organisational values. The second factor (Factor II called effort commitment), which accounted for 22.84% of
the total variance explained, contains two items interpreted here as indicating a willingness to exert effort
in order to keep the organisation successful. Consistent with prior accounting studies (e.g. Nouri, 1994;
Nouri and Parker, 1996, 1998; Chong et al., 2006) which have used this instrument the scores of the nineitems were summed to form a composite measure of organisational commitment. The significant positive
correlation between the average scores of the two factors (r = 0.295, p < 0.01) allowed their scores to be
aggregated to provide the overall score for the instrument (Brownell, 1985). The Cronbach alpha coefficient (Cronbach, 1951) was 0.80, which indicates satisfactory internal reliability for the scale (Nunnally,
1967).
3.2.3. Incentive-based compensation scheme
The incentive-based compensation scheme variable was measured by a two-item, five-point Likerttype scale developed by Balkin and Gomez-Mejia (1990). The positive correlation between the two
items (r = 0.863, p < 0.01) allowed their scores to be aggregated to provide the overall score for the
instrument (Brownell, 1985). A factor analysis confirmed the unidimensional nature of the incentivebased compensation scheme construct. The results indicate satisfactory construct validity (Kerlinger,
1964) in which the two items are loaded above the 0.5 level on the first factor and have an Eigenvalue
of 1.863, which explains 93.16% of the total variance. The use of the measure yielded a Cronbach alpha
coefficient (Cronbach, 1951) of 0.93, which indicated high internal reliability for the scale (Nunnally,
1967).
3.2.4. Managerial performance
Managerial performance was measured by an instrument using a self-rating scale developed by
Mahoney et al. (1963, 1965). This scale has been used extensively and found to be reliable in other man-

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321

Table 2
Inter-correlation matrix for each dimension of managerial performance (n = 109)

1
2
3
4
5
6
7
8
9

Planning
Investigation
Coordinating
Evaluating
Supervising
Staffing
Negotiating
Representing
Overall performance

1.000
0.338
0.513
0.351
0.536
0.459
0.308
0.346
0.528

1.000
0.392
0.610*
0.304
0.390
0.373
0.526*
0.421

1.000
0.413
0.450
0.397
0.407
0.517
0.605

1.000
0.343
0.536
0.452
0.540
0.543

1.000
0.540
0.269
0.244
0.590

1.000
0.514
0.431
0.583

1.000
0.347
0.510

1.000
0.528

1.000

All correlation coefficients are significant at p < 0.001 level (two-tailed test).
*
Correlation coefficients that violate the criterion.

agement accounting studies (Lau et al., 1995; Chong, 1996; Chong and Chong, 2002; Chong and Eggleton,
2003).9 This nine-dimensional, seven-point Likert-scale instrument comprises eight items relating to various managerial activities, plus one overall performance dimension. The eight managerial activities are:
planning, investigating, coordinating, evaluating, supervising, staffing, negotiating and representing (see
Mahoney et al., 1963, 1965). To test for the validity and reliability of the managerial performance scale,
analyses were undertaken to ensure that the measure met two criteria: (1) the eight sub-dimensions must
account jointly for at least 55% of the variation in the overall performance rating (see Mahoney et al.,
1963, 1965), and (2) the eight sub-dimensions must be reasonably independent of each other.
To test the first criterion, i.e. to find out how much of the global rating variance was explained by
the eight managerial activities, the overall rating was regressed on the ratings of the eight separate
managerial activities in a single multiple regression. The resulting R2 indicates that the eight separate
dimensions explained 62% (n = 109) of the variance in the overall performance rating. These values compare favourably with the claim of Mahoney et al. (1963, pp. 105107) that the eight separate dimensions
should account for approximately 55% of the variance of the overall rating, with the remaining 45% being
job-specific.
To test the second criterion, i.e. to assess whether the eight separate dimensions were reasonably
independent of each other, Pindyck and Rubinfelds (1976) method was used. According to this method,
the correlation between any two independent variables in a sample should be less than the correlation of
each variable with the dependent variable. Prior studies (see e.g. Brownell and McInnes, 1986) have used
this method to assess the independent dimensions of the managerial performance scale. Table 2 presents
the matrix of the intercorrelations among the eight separate dimensions of managerial performance,
9

This scale has been criticised for higher leniency error and lower variability error in the observed score than superior ratings
(see e.g. Prien and Liske, 1962; Thornton, 1968; Lau et al., 1995). However, Heneman (1974) found that superiors ratings
of performance were more lenient than self-ratings. Some studies (e.g., Prien and Liske, 1962; Thornton, 1968; Heneman,
1974) have found that halo errors (intercorrelations among performance sub-dimensions) are also more common with superiors
ratings. Halo error refers to the tendency of raters to make global assessments of the variable and to be unable to differentiate
their assessments on the various dimensions (Brownell, 1995, p. 45). Brownell (1995) argued that self-rated performance is less
susceptible to halo error, especially if the ratings are sought on a number of dimensions (as with Mahoney et al.s performance
scale). Self-raters are able to discriminate among performance dimensions. Further, self-assessment instruments can produce
more reliable and uninhibited responses from respondents when they are assured of anonymity and/or confidentiality.

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Table 3
Descriptive statistics and Pearson correlation matrix for the independent and dependent variables (n = 109)
Variable

Information asymmetry
(IA)
Organisational
commitment (OC)
Incentive-based
compensation scheme
(ICS)
Managerial performance
(PERF)
*

Mean

Median

S.D.

Actual range

Theoretical range

Pearson correlaton matrix

Min

Max

Min

Max

IA

OC

ICS

5.44

5.50

0.83

4.00

7.00

4.00

7.00

1.00

5.40

5.44

0.72

3.00

7.00

1.00

7.00

0.05

1.00

3.20

3.00

1.51

1.00

5.00

1.00

5.00

0.07

0.20*

1.00

5.86

6.00

0.90

2.00

7.00

1.00

7.00

0.23*

0.10

0.08

PERF

1.00

Significant at p < 0.05 level (two-tailed test).

and with the dependent variable (overall performance). The results in Table 2 reveal that only two of
the possible 28 comparisons violate this criterion. Thus, the eight dimensions appear to be reasonably
independent.10
A further test revealed that when the eight sub-dimensions were summed to construct a composite
managerial performance score, they were significantly correlated (r = 0.763, p < 0.001) with the overall
performance rating. The above tests strengthen the confidence of the validity and reliability of the use
of Mahoney et al.s scale to measure managerial performance. Consistent with prior accounting studies
(e.g. Lau et al., 1995; Chong, 1996; Chong and Chong, 2002; Chong and Eggleton, 2003), the hypotheses
testing was based on the overall performance rating of the Mahoney et al.s scale as the dependent variable.

4. Results
Table 3 presents the descriptive statistics and Pearson correlation matrix for the independent and
dependent variables of this study.
The hypothesis H01 advanced in this paper was tested using the following models11 :
PERF = b0 + b1 IA + b2 ICS + b3 OC + b4 IA ICS + b5 IA OC + b6 ICS OC + e

(1)

10
To further assess whether the eight separate dimensions are reasonably independent of each other, a rotated factor analysis
was conducted by forcing the eight factors since Mahoney et al.s scale is expected to consist of eight independent dimensions.
It is argued that if the eight dimensions are independent of each other, they should load on eight different factors. In other words,
the results of the factor analysis will show only one item to be loaded significantly on each factor, and no two factors share the
same item. The results of the rotated factor analysis are shown in Appendix A and reveal that there are eight factors present.
Each factor consists of only one item, with the highest factor score, as indicated by the shaded box.
11
We used deviation scores, which were based on the overall mean score minus the raw scores, for all independent variables
in our regression models. Thus, a low raw score has a positive deviation score and a high raw score has a negative deviation
score. We conducted tests on the adequacy of the multiple linear regression models and the results of the residual and normality
of probability plots indicate that the normality assumptions underlying the regression models were not violated. These results
provide support for the use of multiple regression analysis and add confidence to the validity of the statistical results obtained.

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323

Table 4
Results of multiple regression analysis of managerial performance on information asymmetry, reliance on an incentive-based
compensation scheme and organisational commitment
Variables

Coeff.

Constant
Information asymmetry (IA)
Incentive-based compensation scheme (ICS)
Organisational commitment (OC)
IA ICS
IA OC
ICS OC
IA ICS OC
R2
F-value
p<

b0
b1
b2
b3
b4
b5
b6
b7

Eq. (1) (Two-way)

Eq. (2) (Three-way)

Est.

p
1-tailed

Est.

p
1-tailed

5.900
0.250
0.057
0.139
0.037
0.017
0.112

0.001
0.009
0.164
0.129
0.289
0.460
0.092

5.896
0.263
0.052
0.096
0.085
0.065
0.095
0.214

0.001
0.007
0.186
0.220
0.118
0.355
0.129
0.049

0.092
1.716
0.063

0.116
1.898
0.039

R2 explained by three-way interaction term = 2.4%.

PERF = b0 + b1 IA + b2 ICS + b3 OC + b4 IA ICS + b5 IA OC + b6 ICS OC + b7 IA ICS

OC + e

(2)

Where PERF: managerial performance; IA: information asymmetry; ICS: incentive-based compensation
scheme; OC: organisational commitment; and e: error term.
Hypothesis H01 . Hypothesis H01 states that there is no statistically significant three-way interaction
between information asymmetry, reliance on incentive-based compensation schemes, and organisational commitment affecting managerial performance. To test this hypothesis, managerial performance
was regressed on information asymmetry, incentive-based compensation scheme and organisational
commitment. The results reported in Table 4 (see Eq. (2)) indicate there is a statistically significant
(p < 0.049) three-way interaction between information asymmetry, reliance on incentive-based compensation schemes and organisational commitment affecting managerial performance. Accordingly, hypothesis
H01 can be rejected.
The introduction of the three-way interaction term in Eq. (2) results in an increase in R2 (from 9.2% to
11.6%), indicating that the three-way interaction between information asymmetry, reliance on incentivebased compensation schemes and organisational commitment improved the predictive ability of the model.
Hypotheses HA1 and HA2 . To test the alternative Hypotheses HA1 and HA2 , and to assist in the interpretation of the interactive effect results presented in Table 4, both information and asymmetry and reliance
on incentive-based compensation scheme were dichotomised at their respective raw score medians.12
The following regression models were used to test the main effect and the two-way interaction effect
between reliance on incentive-based compensation schemes, and information asymmetry under the low
12

The results were similar when the independent variables were dichotomised at the mean.

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V.K. Chong, I.R.C. Eggleton / Management Accounting Research 18 (2007) 312342

Table 5
Results of multiple regression analysis of managerial performance on information asymmetry and reliance on an incentive-based
compensation scheme
Variables

Eq. (3) (main effect)

Coeff.

Panel A: Low organisational commitment sub-sample (n = 52)

Constant
b0
Information asymmetry (IA)
b1
Incentive-based compensation scheme (ICS)
b2
IA ICS
b3

Est.

p
1-tailed

Est.

p
1-tailed

5.805
0.200
0.213

0.001
0.131
0.023

5.827
0.203
0.221
0.250

0.001
0.121
0.017
0.032

R2
F-value
p<
R2 explained by two-way interaction term = 6.3%
Variables

Eq. (4) (two-way)

0.095
2.570
0.044
Coeff.

Panel B: High organisational commitment sub-sample (n = 57)

Constant
b0
Information asymmetry (IA)
b1
Incentive-based compensation scheme (ICS)
b2
IA ICS
b3
R2
F-value
p<
R2 explained by two-way interaction term = 0.6%

0.158
3.012
0.020

Eq. (3) (Main effect)

Eq. (4) (Two-way)

Est.

p 1-tailed

Est.

p 1-tailed

5.984
0.296
0.049

0.001
0.007
0.217

0.007
0.006
0.221
0.274

0.122

5.980
0.313
4.901
0.042
0.128

3.761
0.015

2.600
0.031

and high organisational commitment sub-samples.

PERF = b0 + b1 IA + b2 ICS + e

(3)

PERF = b0 + b1 IA + b2 ICS + b3 IA ICS + e

(4)

where PERF: managerial performance; IA: information asymmetry; ICS: incentive-based compensation
scheme; and e: error term.
Eqs. (3) and (4) were used to test the main effect and the two-way interaction effect, respectively. As
shown in Table 5, Panel A, the interaction between information asymmetry and reliance on incentivebased compensation schemes on managerial performance was found to be statistically significant for the
low organisational commitment sub-sample, but not statistically significant for the high organisational
commitment sub-sample (see Table 5, Eq. (4): p < 0.032, Panel A, and p < 0.274, Panel B, respectively).
These results provide initial support to hypothesis HA1 . It is noteworthy that with the low organisational
commitment sub-sample, the introduction of the two-way interaction term in Eq. (4) results in a substantial
increase in R2 (from 9.5% to 15.8%), indicating that the two-way interaction between the degree of
information asymmetry and the extent of reliance on incentive compensation schemes improved the
predictive ability of the model.

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325

Table 6
Mean performance of low organisational commitment sub-sample

In addition, the results shown in Table 6, Panel A, indicate that the mean managerial performance
score is highest in the high information asymmetry and high reliance on incentive-based compensation scheme cells (Cell 4 = 6.75 > Cell 1 = 5.50; Cell 2 = 5.56, and Cell 3 = 5.50). Statistical support for
our results is further provided by a post hoc test of multiple comparisons (Bonferroni t-test); and are
shown in Table 6, Panel B. Furthermore, the steep slope of the high reliance on incentive-based compensation scheme line in Fig. 1 provides additional evidence of the sensitivity of the managers with
low organisational commitment under high information asymmetry situations. Taken together, these
results are consistent with our theoretical expectation, that the performance level of managers with low
organisational commitment will be high when the extent of reliance on incentive-based compensation
schemes is high and the degree of information asymmetry is high, and therefore provide strong support for
hypothesis HA1 .
Hypothesis HA2 states that the performance level of managers with high organisational commitment
is unlikely to be affected by the extent of reliance on incentive-based compensation schemes and the

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V.K. Chong, I.R.C. Eggleton / Management Accounting Research 18 (2007) 312342

Fig. 1. The impact of the interaction between reliance on an incentive-based compensation scheme and information asymmetry
on managerial performancelow organisational commitment sub-sample.

degree of information asymmetry. This suggests there will be no significant two-way interaction between
information asymmetry and reliance on incentive-based compensation schemes in the high organisational commitment sub-sample. As expected, the results reported in Table 5, Panel B indicate that
the coefficient of the two-way interaction term (b3 ) is not significant (p < 0.274, Eq. (4)). Note that
the introduction of the two-way interaction term in Eq. (4) results in a very marginal increase in R2
(from 12.2% to 12.8%).
In addition, the results shown in Table 7, Panel A, indicate that the mean managerial performance
scores remain relatively unaffected by the degree of information asymmetry and the extent of reliance on
incentive-based compensation schemes. Fig. 2 provides a graphical presentation of the results. Furthermore, the results of a post hoc test of multiple comparisons (Bonferroni t-test) are shown in Table 7, Panel
B. Taken together, these results are consistent with our theoretical expectation that the performance level
of managers with high organisational commitment is unlikely to be affected by the extent of reliance on
incentive-based compensation schemes and the degree of information asymmetry, and therefore provide
support for hypothesis HA2 .

5. Conclusion, limitations and suggestions for future research

The purpose of this study was to investigate the interactive effects of the degree of information asymmetry, managers levels of organisational commitment and the extent of reliance on incentive-based
compensation schemes on managerial performance. The results of this study demonstrated that two
contingent variables, namely information asymmetry and organisational commitment, can be usefully
examined jointly. The results indicate that whether reliance on incentive-based compensation schemes

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327

Table 7
Mean performance of high organisational commitment sub-sample

enhances managerial performance depends on whether subordinates behaviour can be easily and readily motivated. This in turn depends upon their level of organisational commitment, as organisational
commitment affects the level of effort subordinates will exert on the job.13
Specifically, the results of our study reveal that the performance level of managers with low levels
of organisational commitment was high when the extent of reliance on incentive-based compensation
schemes and the degree of information asymmetry were both high (see hypothesis HA1 ). This result lends
support to standard agency theory predictions which assumed that individuals are: (1) effort-averse and
13

Recall that the organisational commitment scale consists of two sub-dimensions (see Section 3.2.2). Further analysis using
each of the two sub-dimensions, in turn, as the independent variables in the model was undertaken. The results of these dimensions
analysis were similar to those of the global analysis, which relied on the composite measure of the organisational commitment
measure. Appendices B and C provide the results of the dimensions analysis. Overall, the results provide evidence of the
robustness of our empirical findings.

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V.K. Chong, I.R.C. Eggleton / Management Accounting Research 18 (2007) 312342

Fig. 2. The impact of the interaction between reliance on an incentive-based compensation scheme and information asymmetry
on managerial performancehigh organisational commitment sub-sample.

risk-averse; (2) possess low levels of organisational commitment; and (3) are motivated solely by selfinterest. It is noteworthy that when the assumptions of standard agency theory are relaxed, the role of an
incentive-based compensation scheme is not important. For example, the results of hypothesis HA2 reveal
that the performance level of managers with high levels of organisational commitment remained relatively
unaffected by the degree of information asymmetry and the extent of reliance on incentive-based compensation schemes. Taken together, the results of this study contribute to the management accounting literature
by responding to calls (e.g. Eisenhardt, 1988; Waller, 1994, 1995; Merchant et al., 2003) to integrate theories, such as agency theory and behavioural theory, to better understand the joint effects of an agency factor
(e.g. information asymmetry) and a behavioural factor (e.g. organisational commitment) on the relation
between the extent of reliance on incentive-based compensation schemes and managerial performance.14
The results of this paper have practical implications for the selection and placement of managers as
well as for the effective design of incentive-based compensation schemes. An organisation is only as
strong as the people it comprises. Thus, decisions made about whom to select and who to reject for
organisational membership are critical to the companys ability to derive competitive advantage through
its human resources. Bowen et al. (1991), for example, argue that firms should look at individuals in
terms of their long-term potential to contribute to the organisation, as opposed to a short-term focus on
meeting the requirements of one specific job. As such, the emphasis should be on matching the potential employees personal attributes and characteristics to those of the organisational culture. In addition,
the results of this paper indicate that not all individuals are positively affected by a high reliance on
incentive-based compensation schemes. The results suggest that a high reliance on an incentive-based
14

Eisenhardt (1988), for example, compared the agency and institutional perspectives on organisational control, and concluded
that relying on multiple theories in research can enhance our understanding of phenomena.

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329

compensation scheme is an appropriate motivational tool for managers with low levels of organisational commitment under high information asymmetry situations, but is dysfunctional for such managers
under low information asymmetry conditions. Further, a company should consider the use of policies
that increase the commitment of its managers to the companys goals and values; as such policies
are also important to the effective implementation of appropriate control tools such as incentive-based
compensation schemes.
A number of limitations of this study should be noted. First, this study did not consider other
variables which might be significant to the design of effective incentive-based compensation systems and their impact on managers performance. For example, at the organisational (macro)-level,
the potential variables that might affect incentive-based compensation scheme design and managerial performance include the organisations strategies (Fisher and Govindarajan, 1993; Chong and
Chong, 1997; Langfield-Smith, 1997), and the external environment (Chong and Chong, 1997; Mia and
Clarke, 1999; Chong and Rundus, 2004). At the individual (micro)-level, the potential variables include
decision-makers cognitive styles (Awasthi and Pratt, 1990) and personality traits (Chong and Eggleton,
2003).
Second, this study focused only on the extent of the use of incentive-based compensation schemes by
organisations to address their agency problem (i.e. moral hazard). It has been suggested that monitoring
systems, which provide information about the agents behaviour, is another alternative approach available
to the principal to address the agency problem (see Eisenhardt, 1989). Conlon and Parks (1990) suggest
investigating whether theoretical matches between incentive-based compensation schemes and monitoring systems produce better performance than mismatches between these variables. Milgrom and Roberts
(1992), on the other hand, propose that both incentive-based compensation schemes and monitoring
systems can be used either as substitutes or complements.15 Thus, it is plausible that incentive-based compensation schemes and monitoring systems could interact to affect an agents performance. In addition,
prior studies (see e.g. Fatseas and Hirst, 1992) have examined the types of compensation schemes (such
as fixed-pay and piece-rate) on individuals performance. Future research to explore the joint and interactive effects of incentive-based compensation schemes, monitoring systems, and types of compensation
schemes on performance would be worthwhile.
Third, the sample comprised only senior-level managers drawn from large manufacturing companies
in the Perth and Sydney metropolitan areas; consequently, the results are potentially generalisable to
the Australian managerial populations, but are restricted to a similar level of management. In particular,
generalising the results to non-manufacturing industries should be viewed with caution. Future research
may extend and replicate this work focusing on other industries, such as the financial services sector, and
retailing industries. Fourth, the use of self-rating scales to measure perceptions are likely to have higher
mean values (higher leniency error) and a restricted range (lower variability error) in the observed score
compared to more objective methods (Prien and Liske, 1962; Thornton, 1968). Future research might
usefully incorporate superiors ratings of their managers to compare with the managers self-ratings as a
means of assessing the validity of the construct.
15

Milgrom and Roberts (1992) suggest that incentive-based compensation schemes and monitoring systems act as substitutes
if either managerial effort or the outcomes of managerial effort can be accurately assessed. When the effort can be accurately
measured, a monitoring system will result in outcomes desired by the principal. When the outcomes are accurately measured,
the incentive-based compensation scheme can be designed in ways that align the agents and the principals interests. Other
researchers (e.g. Holmstrom, 1979; Shavell, 1979) also suggest that both incentive-based compensation schemes and monitoring
systems are likely to result in benefits to the principal.

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V.K. Chong, I.R.C. Eggleton / Management Accounting Research 18 (2007) 312342

Finally, this paper relied on the standard principal-agent theory model which consists of a singleperiod and single-agent phenomena. Such a model has been criticised for its simplicity and narrowness
(see e.g. McKean, 1975; Collard, 1978; Noreen, 1988; Baiman, 1990; Indjejikian, 1999). Thus, future
research can extend this study by relying on experimental design methodology to explore the impact of
the reliance on incentive-based compensation schemes on performance in multi-period and multi-agent
settings.
Despite the above limitations, this study developed and tested an interactive model of incentive-based
compensation system design, an important and complex area of management accounting research. Most
importantly, the results of this paper contribute and extend the existing knowledge of the management
accounting literature in the area of management control systems design, and provide a useful basis for
subsequent theoretical development in the field and related empirical analyses.

Acknowledgements
The authors would like to thank A. Rashad Abdel-Khalik, Michael Bromwich (the Editor), Amy
Lau, Chong Man Lau, Lokman Mia, two anonymous reviewers, and participants of the research seminars at Griffith University and the University of Western Australia for their helpful comments and
suggestions on earlier drafts of this paper. An earlier version of this paper was presented at the 2003
Accounting and Finance Association of Australia and New Zealand (AFAANZ) Annual Conference, Brisbane, Australia and the 2006 American Accounting Association (AAA) Annual Meeting. Washington,
D.C. USA.

Appendix A. Factor analysis of managerial performance scale (n = 109) (Rotated factor matrix)

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331

Appendix B. Additional results with the effort dimension of organisational commitment as one
of the independent variables
See Tables B.1B.4 and Figs. B.1 and B.2.
Table B.1
Results of multiple regression analysis of managerial performance on information asymmetry, reliance on an incentive-based
compensation scheme and effort dimension of organisational commitment
Variables

Constant
Information asymmetry (IA)
Incentive-based compensation scheme (ICS)
Effort dimension of organisational commitment (EFFORT)
IA ICS
IA EFFORT
ICS EFFORT
IA ICS EFFORT
R2
F-value
p<

Coeff.

Eq. (1) (Two-way)

Eq. (2) (Three-way)

Est.

p
1-tailed

Est.

p
1-tailed

b0
b1

5.756
0.337

0.001
0.002

5.726
0.245

0.001
0.013

b2
b3
b4
b5
b6
b7

0.092
0.249
0.126
0.067
1.380

0.068
0.013
0.045
0.319
0.442

0.103
0.241
0.089
0.149
0.015
0.306

0.038
0.012
0.103
0.136
0.412
0.001

0.139
2.750
0.008

0.244
4.657
0.001

R2 explained by three-way interaction term = 8.5%.

Fig. B.1. The impact of the interaction between reliance on an incentive-based compensation scheme and information asymmetry
on managerial performancelow effort dimension of organisational commitment sub-sample.

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V.K. Chong, I.R.C. Eggleton / Management Accounting Research 18 (2007) 312342

Table B.2
Results of multiple regression analysis of managerial performance on information asymmetry and reliance on an incentive-based
compensation scheme
Variables

Coeff.

Eq. (3) (Main effect)

Eq. (4) (Two-way)

Est.

Est.

p
1-tailed

5.796
0.403
0.083
0.229
0.274

0.001
0.014
0.171
0.022

p
1-tailed

Panel A: Low effort dimension of organizational commitment sub-sample (n = 45)

Constant
b0
5.815
0.001
Information asymmetry (IA)
b1
0.537
0.002
Incentive-based compensation scheme (ICS)
b2
0.058
0.258
IA ICS
b3
R2
0.198
F-value
p<
R2 explained by two-way interaction term = 7.6%
Variables

5.183
0.005

Coeff.

5.167
0.002

Eq. (3) (Main effect)

Eq. (4) (Two-way)

Est.

Est.

p
1-tailed

5.600
0.115

0.001
0.209

0.155
0.108

0.031
0.128

p
1-tailed

Panel B: High effort dimension of organizational commitment sub-sample (n = 64)

Constant
b0
5.612
0.001
Information asymmetry (IA)
b1
0.145
0.159
Incentive-based compensation scheme (ICS)
b2
0.139
0.044
IA ICS
b3
R2
F-value
p<
R2 explained by two-way interaction term = 2.0%

0.057
1.844
0.084

0.077
1.674
0.091

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Table B.3
Mean performance of low effort dimension of organisational commitment sub-sample

333

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Table B.4
Mean performance of high effort dimension of organisational commitment sub-sample

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335

Fig. B.2. The impact of the interaction between reliance on an incentive-based compensation scheme and information asymmetry
on managerial performancehigh effort dimension of organisational commitment sub-sample.

Appendix C. Additional results with the value dimension of organisational commitment as one
of the independent variables
See Tables C.1C.4 Figs. C.1 and C.2.
Table C.1
Results of multiple regression analysis of managerial performance on information asymmetry, reliance on an incentive-based
compensation scheme and value dimension of organisational commitment
Variables

Constant
Information asymmetry (IA)
Incentive-based compensation scheme (ICS)
Value dimension of organisational commitment (Value)
IA ICS
IA Value
ICS Value
IA ICS Value
R2
F-value
p<
R2 explained by three-way interaction term = 9.4%.

Coeff.

b0
b1
b2
b3
b4
b5
b6
b7

Eq. (1) (Two-way)

Eq. (2) (Three-way)

Est.

p
1-tailed

Est.

p
1-tailed

5.814
0.253
0.136
0.038
0.054
0.096
0.184

0.001
0.021
0.027
0.382
0.245
0.300
0.019

5.813
0.361
0.099
0.048
0.101
0.074
0.104
0.493

0.001
0.002
0.071
0.349
0.121
0.361
0.114
0.001

0.114
2.155
0.027

0.208
3.795
0.001

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Table C.2
Results of multiple regression analysis of managerial performance on information asymmetry and reliance on an incentive-based
compensation scheme
Variables

Coeff.

Eq. (3) (Main effect)

Eq. (4) (Two-way)

Est.

p
1-tailed

Est.

p
1-tailed

0.001
0.312
0.019

5.869
-0.155
-0.203
0.256

0.001
0.208
0.035
0.045

Panel A: Low value dimension of organizational commitment sub-sample (n = 48)

Constant
b0
5.862
Information asymmetry (IA)
b1
0.094
Incentive-based compensation scheme (ICS)
b2
0.237
IA ICS
b3
R2
F value
p<
R2 explained by two-way interaction term = 5.7%
Variables

0.096
2.377
0.052

Coeff.

Eq. (3) (Main effect)

Eq. (4) (Two-way)

Est.

p
1-tailed

Est.

p
1-tailed

0.001
0.001
0.322

5.832
0.474
0.038

0.001
0.001
0.305

0.134

0.053

Panel B: High value dimension of organisational commitment sub-sample (n = 61)

Constant
b0
5.845
Information asymmetry (IA)
b1
0.449
Incentive-based compensation scheme (ICS)
b2
0.035
IA ICS
2

R
F-value
p<
R2 explained by two-way interaction term = 3.9%

0.153
2.654
0.030

b3
0.154
5.297
0.004

0.193
4.536
0.003

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Table C.3
Mean performance of low value dimension of organisational commitment sub-sample

337

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Table C.4
Mean performance of high value dimension of organisational commitment sub-sample

V.K. Chong, I.R.C. Eggleton / Management Accounting Research 18 (2007) 312342

339

Fig. C.1. The impact of the interaction between reliance on an incentive-based compensation scheme and information asymmetry
on managerial performancelow value dimension of organisational commitment sub-sample.

Fig. C.2. The impact of the interaction between reliance on an incentive-based compensation scheme and information asymmetry
on managerial performancehigh value dimension of organisational commitment sub-sample.

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