The effects of management control mechanisms on firm level capital equipment investment

Abstract

Discusses previous research on the disincentive effects of some management performance measures on capital investment and the relationship between agency mechanisms (responsibility centre performance measures, tax incentives, compensation schemes and ownership influence) and investment behaviour. Uses a sample of US manufacturing firms in two industries to examine their investment behaviour from 1973‐1982 and relate it to the agency mechanisms applying to the investment decision makers. Finds the use of profit and net return on investment as management performance measures has a significant negative correlation with the investment; but that ownership influence and long‐term incentive compensation are positively related to it. Recognizes the limitations of the study and considers its implications for the use of performance measures, long‐term incentives and tax incentives.

Citation

Yates, B.M. and Tinius, D.E. (1998), "The effects of management control mechanisms on firm level capital equipment investment", Managerial Finance, Vol. 24 No. 2, pp. 44-58. https://doi.org/10.1108/03074359810765372