Career concerns and mandated disclosure q Romana L. Autrey a , Shane S. Dikolli b, * , D. Paul Newman c a Harvard Business School, Morgan Hall 381, Soldiers Field, Boston, MA 02163, United States b Duke University, Fuqua School of Business, Box 90120, Durham, NC 27708-0120, United States c University of Texas at Austin, McCombs School of Business, 1 University Station B6400, Austin TX 78712-0211, United States Abstract This paper examines the effects of mandated disclosure on the design of contracts and induced behavior in the presence of career concerns. We analyze the impact of two key properties of a mandated performance measure that is publicly disclosed: its sensitivity to the agent’s effort and its informativeness about the agent’s ability. We show conditions under which the agent’s effort (and the firm’s output) and the pay- for-performance weight critically depend on these two properties. In particular, when the mandated measure is sufficiently noisy, the pay-for-performance weight always decreases relative to a setting with no mandated measure. But when the mandated mea- sure’s noise is close to that of the existing performance measure, the effect of a mandated measure on the pay-for-performance weight depends on the effort-sensitivity and infor- mativeness of the measure. We also characterize settings where a mandated disclosure 0278-4254/$ - see front matter Ó 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.jaccpubpol.2007.08.002 q An earlier version of this paper was entitled, ‘‘The Effect of Career Concerns on the Contracting Use of Public and Private Performance Measures’’. For their comments, we thank Michael Alles, Jon Davis, Ellen Engel, Jerry Feltham, Rachel Hayes, Thomas Hemmer, Ella Mae Matsumura, D.J. Nanda, Jim Noel, Madhav Rajan, Stefan Reichelstein, Florin Sabac, Kristy Towry, and workshop participants at the University of Chicago, University of Texas at Austin, University of Wisconsin, and seminar participants at the American Accounting Association and the European Accounting Association annual meetings and the AAA Management Accounting Section mid-year meeting. * Corresponding author. Tel.: +1 919 660 1949; fax: +1 919 660 7971. E-mail address: dikolli@duke.edu (S.S. Dikolli). Journal of Accounting and Public Policy 26 (2007) 527–554 www.elsevier.com/locate/jaccpubpol