Eunhee Kim The Mechanism of Control in Organizations : Essays on Imperfect Measures of Managerial Talent

Managerial talent is neither observable nor divisible. Thus, performance measures that evaluate a manager’s human capital are significant not only for compensating a manager through accurate appraisal, but also for inferring managerial talent. In practice, however, talent measures are often imperfect, thereby hindering firms from control of a manager’s behaviors. As such, exploring the nature of imperfect measures and addressing how firms deal with it are important considerations in managerial accounting research. In this study, I investigate these issues through the lenses of both the market for managers and internal control. In particular, I examine how the market for managerial talent is influenced by imperfect talent measures and how such influence leads to a different matching of firms and managers. Then, taking the matching of firms and managers as given, I explore how firms make use of alternative contracting instruments to control managers’ behaviors resulting from imperfect measures. The results provide novel explanations that increase our understanding of 1) imperfect measures of managerial talent and 2) documented empirical evidence associated with managerial accounting research.