If an Incentive Contract Specifies Certain Accounting Performance

question 42

Multiple Choice

If an incentive contract specifies certain accounting performance

• A)that accounting number will likely be the focus of managers.
• B)managers will set aside the accounting goal if it conflicts with the goal of maximizing shareholder wealth.
• C)managers will be unable to manipulate the GAAP, so shareholders can be confident of having their wealth maximized.

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Definitions:

Mechanistic Structures

Organizational structures characterized by tallness, specialization, centralization, and formalization.

Process Innovation

The implementation of new or significantly improved production or delivery methods, enhancing efficiency and productivity.

Management Structure

The organized framework of roles, responsibilities, and authority within an organization that guides and directs its operations and decision-making processes.

Creativity-Relevant Skills

Skills that enhance an individual’s capacity to produce work that is both novel and appropriate, such as divergent thinking and openness to experience.