Accepted by Stephen Salterio. We thank Jan Bouwens, Jason Brown, Eddy Cardinaels, Joe Fisher, Theresa Libby, Laureen Maines, Bill Messier, Steve Salterio, Chad Simon, Jason Smith, Hun-Tong Tan, Arnie Wright, two anonymous reviewers, participants at the Oklahoma Behavioral Accounting Conference and the Global Management Accounting Research Symposium, and workshop participants at Florida State University, George Mason University, Indiana University, Katholieke Universiteit Leuven, Northeastern University, Nanyang Technological University, Tilburg University, and University of Nevada–Las Vegas for providing helpful comments on an earlier version of this paper. An earlier study, which resulted in the current paper, benefited from comments provided by Jon Davis, Ranjani Krishnan, Brian Mayhew, workshop participants at Georgia State University, University of Wisconsin, and discussions at the 2009 Management Accounting Section Research Conference and the 2009 American Accounting Association Annual Meeting. We gratefully acknowledge research support from the Northeastern University Research and Scholarship Development Fund.
Turning Up the Volume: An Experimental Investigation of the Role of Mutual Monitoring in Tournaments†
Version of Record online: 17 JUN 2013
Contemporary Accounting Research
Volume 30, Issue 4, pages 1401–1426, Winter 2013
How to Cite
Hannan, R. L., Towry, K. L. and Zhang, Y. (2013), Turning Up the Volume: An Experimental Investigation of the Role of Mutual Monitoring in Tournaments. Contemporary Accounting Research, 30: 1401–1426. doi: 10.1111/1911-3846.12006
- Issue online: 19 DEC 2013
- Version of Record online: 17 JUN 2013
- Accepted manuscript online: 27 SEP 2012 10:00PM EST
- Northeastern University Research
- Scholarship Development Fund
This study investigates experimentally how mutual monitoring affects effort when employees are compensated via rank-order tournaments. Theory and anecdotal evidence suggest that mutual monitoring may either decrease effort by facilitating collusion or increase effort by stimulating competition. In our first experiment, we find that mutual monitoring increases effort, because participants do not attempt to collude but rather behave competitively. This result leads us to expand our theory and develop hypotheses to predict that the effect of mutual monitoring depends on whether employees have the inclination to collude or compete. Specifically, we predict that mutual monitoring decreases effort when employees are inclined to collude and increases effort when employees are inclined to compete; that is, mutual monitoring will not change the basic inclination created by the workplace setting, but will “turn up the volume” on the effect that such inclination has on effort. Consistent with our predictions, our second experiment finds that mutual monitoring leads to lower effort when participants have a collusive inclination and (eventually) higher effort when they have a competitive inclination. Overall, the results from these two experiments suggest that allowing employees to observe each other's productive effort in tournament incentive settings may have positive or negative consequences for the firm, depending on whether environmental factors predispose employees to collude or compete.