speaker time

Accounting Seminar2020-02

Topic:Accounting Conservatism and Relational Contracting & Optimal Team Composition: Diversity to Foster Mutual Monitoring

Speaker:Jonathan Glover, Columbia University, Graduate School of Business

Time:Monday, Jan 6th, 10:00-11:30 a.m

Place:Room 217, Guanghua Building 2


“Accounting Conservatism and Relational Contracting"

Conservatism is a pervasive feature of accounting but has also been the subject of much criticism - by regulators, standard setters, and academics. In this paper, we develop a positive role for accounting conservatism in fostering relational contracts between two agents in a two-period model of moral hazard. Building on Kreps (1996), the principal in our model designs a conservative measurement system and optimal contracts to create multiple equilibria that foster a team culture. Conservatism increases each agent's stake in the future of the relationship when it matters most - when it is going badly. This makes staying in the relationship worthwhile for the agents, even if they plan to play a low payoff equilibrium in the second period to punish first-period free-riding. In turn, this allows the principal to use lower-powered (and less costly) team incentives rather than higher-powered individual incentives in the first period of the relationship. In contrast, deferred compensation increases each agent's stake in the future of the relationship when it is going well, making it a less natural tool to use in fostering relationships in our model.

“Optimal Team Composition: Diversity to Foster Mutual Monitoring”

We study optimal team design. In our model, a principal assigns either heterogeneous agents to a team (a diverse team) or homogenous agents to a team (a specialized team) to perform repeated team production. We assume that specialized teams exhibit a productive substitutability (e.g., interchangeable efforts with decreasing returns to total effort), whereas diverse teams exhibit a productive complementarity (e.g., cross-functional teams). Diverse teams have an inherent advantage in fostering implicit/relational incentives for working that team members can provide to each other through mutual monitoring. In contrast, specialization both complicates the provision of incentives for mutual monitoring by limiting the punishment agents can impose on each other (for short expected career horizons) and creates an opportunity for tacit collusion (for long expected horizons). We use our results to develop empirical implications about the association between team tenure and team composition, pay-for-performance sensitivity, and team culture.


Jonathan Glover is a Professor of Accounting in the Graduate School of Business at Columbia University. Prior to joining Columbia in 2015, Professor Glover was the Richard M. Cyert Professor of Management and Economics and Professor of Accounting at the Tepper School of Business at Carnegie Mellon University. Jonathan’s research is on accounting theory and information economics. The topics he has worked on include earnings management, financial accounting standard setting and regulation, corporate governance, individual vs. team incentives, various aspects of capital budgeting such as the interaction between real options and incentives, performance measurement, and managerial compensation.

Jonathan received his Ph.D. in accounting from The Ohio State University. He joined the faculty of Carnegie Mellon in 1992 and served the University in numerous capacities, including as Head of the Ph.D. Program at the Tepper School from 2008-2011. He also held visiting positions at U.C. Berkeley in the spring of 2000 and at Columbia during 2014-2015. Professor Glover was an academic fellow in the Office of the Chief Accountant at the U.S. Securities and Exchange Commission from 2004-2005.

Professor Glover is an editor ofThe Accounting Reviewand serves or has served on other editorial boards, including those of theReview of Accounting Studies,Contemporary Accounting Research(as an ad-hoc editor), andManagement Science(as an associate editor).He has served on a wide variety of committees of the American Accounting Association, including as the 2007 Doctoral Consortium Committee Chair and as a member of the Financial Accounting Standards Committee from 2009-2012.

Your participation is warmly welcomed!

© 2019 Guanghua School of Management Peking University