Agency Theory Explanations of Self-Serving Sales Forecast Inaccuracies

Abstract

The purpose of this paper is to develop and present a conceptual model that identifies factors contributing to accuracy in sales forecasts using agency theory’s tenets. Drawing upon these tenets, a model is developed that identifies the incentives that encourage sales people to provide accurate versus inaccurate sales forecasts. Six research propositions are developed, practical implications of the model for compensation programs are discussed, and specific recommendations for future empirical work are identified. The model can guide managers on how to develop a more effective compensation system.