Earnings Management and Measurement Error

In this paper I consider the impact of a noisy indicator regarding a manager’s manipulative behavior on optimal effort incentives and the extent of earnings management. The analysis in this paper extends a twotask, single performance measure LEN model by including a binary random variable. I show that contracting on the noisy indicator variable is not always useful. More specifically, the principal uses the indicator variable to prevent earnings management only under conditions where manipulative behavior is not excessive. Thus, under conditions of excessive earnings management, accounting adjustments that yield a more congruent overall performance measure can be more effective than an appraisal of the existence of earnings management to mitigate the earnings management problem.

Knowledge Exchange in Intra-Organizational Innovation Communities: The Role of Cognitive and Affective States

Many aspects in the area of designing platforms for intra-organizational innovation communities are not well understood. In this article, we examine the impact of technologically induced psychological factors on knowledge exchange in such communities. Using two experimental pretest-posttest experiments, we find that the implementation of (i) technologically induced self-efficacy (expressed by a ‘hurray’ message) and (ii) technologically induced positive affect (expressed by playing some 30 seconds of rock-‘n’-roll music) in the design of the platform results in an influential increase of knowledge exchange. Importantly, the studies suggest that the integration of technologically induced self-efficacy leads to a higher extent of knowledge exchange than technologically induced positive affect. The implications of these results for future research and practice as well as for the design of a platform for such communities are discussed.