The Effect of Long-Term Bonus Frame and Perceived Accountability Pressure on Intertemporal Investment Risk Appetite in a Continuous Monitoring Environment

Hunton et al. (2008) observed a functional effect of continuous monitoring (real earnings management was eliminated) and a dysfunctional effect (intertemporal investment risk appetite was unduly diminished). Intertemporal investment risk appetite refers to managers’ willingness to invest or disinvest in and continue or discontinue with an ongoing long-term risky project. The current study examines two interventions aimed at alleviating the dysfunctional effect of continuous monitoring in this decision environment. A total of 99 experienced managers participated in a between-participant experiment that manipulated long-term bonus frame (gain or loss) and perceived accountability pressure (high or low). The findings indicate that managers’ intertemporal investment risk appetite increased (decreased) when the long-term bonus was framed as a loss (gain), and when perceived accountability pressure was relatively low (high). A significant interaction term suggests that the influence of relatively high and low perceived accountability pressure on intertemporal investment risk appetite was greater in the loss frame than the gain frame. The findings contribute to theory and practice in the areas of bonus framing, accountability and continuous monitoring.