Relative performance evaluation (RPE) involves using information about the performance of a group of peers when evaluating the performance of specific individuals, teams, or organizational units. RPE within and across organizations has drawn much attention from both academics and practitioners. Despite its theoretical appeal, empirical research on evidence for RPE usage has reported mixed results. This paper describes a sample of managerial accounting research that theoretically and empirically addresses RPE within and across firms, and suggests further managerial accounting research on RPE.

Virtually all firms listed on Japanese stock exchanges report point forecasts of sales and earnings in their annual press releases. The availability of management forecasts in Japan provides a unique research opportunity to investigate managers’ understanding of the cost behavior of their company. Information regarding the forecasted costs is available by subtracting forecasted earnings from forecasted sales. Using recent “sticky cost” research methods, the forecasted rate of change in costs can be compared with the actual rate of change in costs. The major findings of this paper are that managers accurately predict the rate of increase in costs when sales are expected to increase; however, they tend to slightly overestimate the rate of decrease in costs when sales are expected to decrease.

Using 2006 to 2008 data from all firms listed on Japanese stock exchanges, we examine the relationships among the presence of outside directors, their financial expertise, and their companies’ earnings quality. Contrary to expectations, the multivariate regression analyses indicate no significant positive relationship among these components. Firms with lower-quality earnings tend to engage more outside directors than firms with higher-quality earnings. However, the longer the tenure that outside directors have with the firm, the higher earnings quality tends to be. Furthermore, additional tests indicate that the presence of inside directors and inside board auditors is positively associated with earnings quality, but the mere presence of outside directors or outside board auditors is not associated with earnings quality.

This paper studies the economic consequences of choosing two different types of executive compensation contracts. The analysis is based on a two-period agency model in which compensation contracts are subject to renegotiation; compensation is paid based on the agent’s earnings report (e.g., a performance-based contract) or a non-verifiable measure within the firm (e.g., a conventional implicit contract). According to the analysis, conventional implicit contracts can dominate performance-based contracts if the nonverifiable measure is sufficiently informative so that the agent’s earnings report is not significantly considered during renegotiation. However, if the agent has strong bargaining power, the performance-based contract is optimal. The theoretical findings have implications for empirical compensation research. First, the firms’ compensation policy may not serve as a useful test for identifying profitable firms. Second, the combination of the compensation policy and the ownership structure is likely to be associated with the level of executive compensation.

This study aims to explain why firms’ environmental activities can lead to better financial performance. Most prior empirical research has shown that environmentally friendly firms enjoy higher stock returns and/or higher stock prices, relative to less environmentally friendly firms. However, the process for achieving better performance was not clear. We use the Sustainability Balanced Scorecard (SBSC), a tool to enhance financial performance through managing nonfinancial indicators, to show how “it pays to be green.” Specifically, we map a Carbon SBSC strategy map, selecting environmental and financial indicators to include. We then conduct an empirical study to test the hypothesized relationships displayed on the Carbon SBSC. The empirical results support our hypotheses on causality. This study contributes to extant research by articulating logical relationships between firms’ environmental activities and financial performance through a Carbon SBSC strategy map, and by testing the relationships using data for firms in Japan.

Banks play a central role in corporate governance in many economies around the world. We compare the extent of conditional and unconditional conservatism between firms with and without close working relationships with their banks in order to gain insights into how bank-firm relationships affect the conservatism of financial reports. When bank-firm relationships are strong, we posit that investors will be less concerned about the timely recognition of economic losses (i.e., conditional conservatism should be weaker) because these investors can rely on the banks to monitor management. However, Japanese banks have incentives to direct managers to report lower earnings (i.e., to be unconditionally conservative) so that managers can benefit when negotiating payouts to the other takeholders. As predicted, empirical analyses reveal that firms with close bank-firm relationships recognize economic losses in a less timely manner, consistent with less conditional conservatism. and that these firms' accruals are more income-decreasing, consistent with greater unconditional conservatism.

The objective of this study is to investigate strategy goals, financial and nonfinancial measures, and performance measurement systems in Japanese industrial companies. Among the companies listed on the first section of the Tokyo Stock Exchange, the study surveyed 813 manufacturing companies that are considered to be innovators and leaders in their industries. The results provide evidence on measures that have been applied to performance evaluation in determining strategy, promotion, and rewards. Further, I have researched the use of financial and nonfinancial measures. There are important differences in the ways these two types of measures are used for incentives, rewards, and promotion. My findings suggest that firms find it insufficient to focus only on financial measures; nonfinancial measures are also emphasized in evaluating performance in Japanese companies. Further, I find that the use of nonfinancial measures is positively associated with financial performance. This study further discusses improvements in management accounting systems. The results suggest that the following three approaches could motivate personnel better than the current approaches: (1) use performance evaluation measures that are linked to the incentives for a task, (2) use results-oriented performance evaluation, and (3) use process-oriented performance evaluation.

This study analyzes the characteristics of Japan’s industry structure for rural construction and exposes problems with the current bidding and contracting system for public works projects. Analysis of financial data from 266 construction companies and questionnaire responses from 52 companies in Fukushima Prefecture shows that the comprehensive evaluation method of the current bidding and contracting system does not function adequately and opportunities exist for market oligopoly. Moreover, the study finds that Japan’s rural construction industry has a high degree of information sharing, resulting from a complex, layered subcontracting structure. These results indicate the need for a detailed analysis of industry structure when designing systems for rural construction industry regulation.