Background
Manipulation of performance measures is a central theme in management accounting research. In many organizations, managers have some discretion in reporting the results of their unit. For example, they can select depreciation methods, change assumptions that are used in the valuation of assets, or make provisions and reservations in anticipation of future expenses (e.g., Burgstahler and Dichev [1997], Bowen, Rajgopal, and Venkatachalam [2008]). Managers can use this discretion opportunistically to provide higher level managers with an overly positive impression of their performance and economic reasoning suggests they will do so as long as they anticipate that the benefits of an overstatement will outweigh the costs. One common benefit of misreporting for unit managers is that it increases their monetary payoff.