Abstract
This study demonstrates that, in two periods, the total profit of a firm in product market competition decreases with a leading indicator that emphasizes consumers. While previous studies in the management accounting literature have suggested that leading indicators are useful for predicting firms’ future profits, few studies have theoretically investigated this topic. Therefore, we explore the usefulness of leading indicators to improve firms’ long-term profit using a game theoretical approach. Consistent with empirical evidences, our model analysis demonstrates that a leading indicator improves firms’ profits in the second period, while it harms first-period profit and total profit due to excessive supply in a specific economic environment.
