Risk-taking in new project selection: Additive effects of bonus incentives and past performance history

An Experimental Investigation of Insulating and Non-Insulating Cost Allocations.

“…Individuals' risk-taking in stage one and cooperation in stage two could be affected by the performance of the capital projects they and their group member select in stage one (which affects compensation for the task for all participants, as well as cost allocations in the non-insulating cost allocation condition). As an example, if an individual's project selections in early periods perform poorly, then the individual may be inclined to take less future risk to feel better about their compensation prospects or may "go for broke" and take more risk going forward to try to register a large payoff with one of their remaining selections (e.g., Gächter, Johnson, and Hermann 2007;Drake and Kohlmeyer 2010;Delfino, Marengo, and Ploner 2016). Similarly, the project results attained by an individual's partner could affect future risky choices and cooperation due to individuals' concerns about equity or relative performance (e.g., Levinger and Schneider 1969;Fehr and Schmidt 1999;Delfino et al 2016;Heinrich and Mayrhofer 2018).…”

The Effect of Performance Measures on Risk in Capital Investment Decisions.

“…Prior research in accounting has examined whether controls such as performance benchmarks (Chow, Kohlmeyer, and Wu 2007), bonus incentives (Drake and Kohlmeyer 2010), and compensation caps (Kreilkamp, Matanovic, Schmidt, and Wöhrmann 2018) affect managers' risk-taking. Recent studies have also begun to investigate whether, and to what extent, the reporting of accounting information affects capital investment (e.g., Roychowdhury, Shroff, and Verdi 2019).…”