Analysis of Behavioral Effects in Promotional Systems Based on Tournament Theory in Auditing Profession

Objective: The tournament theory explains promotion trajectories to top management positions, as well as the behavioral effects of managerial incentive schemes in public firms. Compete for a prize (e.g., the CEO position) is the main idea of the tournament theory. This means prize is awarded based on the contestants' rank in the contest, which captures relative rather than absolute performance. Based on the tournament theory, behavioral incentives play an important role in improving the employees' performance. According to the tournament theory, if there is an incentive, the effort of the participants in a competition (competition) increases, which in turn improves their performance. The incentives considered by the tournament theory come from three commonly recognized design constructs. (1) the pay spread, or the absolute difference between the winner’s compensation and that of the runner-up. (2) tournament size, is a function of the breadth of the tournament (the number of unique competitors) and its depth (the number of possible contest levels). (3) random component, it consists of unpredictable factors such as luck. This research includes the first two dimensions. Therefore, this study attempts to investigate the behavioral effects in promotional systems based on tournament theory in auditing profession.



Methods: In terms of the type of research, the research was applied and based on the path in terms of descriptive type, based on cross-sectional time and based on the implementation of the field type. In terms of the method, this study is descriptive-correlation and structural equation modeling. The population of this study includes the auditors and the sample size is 211 people. These auditors are facing the tournament-like promotion pressures, which is also considered in this research. Due to the fact that the position of partner is the highest organizational level in audit firms and partners do not face the pressures of job promotion, therefore they were excluded from the statistical population. The required data was collected through a questionnaire based on a five-point Likert scale. The time period of this research was the second and third seasons of 2023. In designing research questions, research literature was used, especially Smith et al. (1983); Herrbach (2001); Hurtt (2010); Pruijssers et al. (2020). Research data has been analyzed using structural equation modeling.



Results: This study includes two independent variables (perceived pay spread and perceived tournament breadth) and three dependent variables (self-interested behavior, skeptical judgment, and cooperation). According to the research findings, the perceived pay spread and perceived tournament breadth increases self-interested behaviors. Also, the perceived pay spread and perceived tournament breadth decreases cooperation. Finally, the perceived pay spread reduces the skeptical judgment. But on the other hand, the perceived tournament breadth has no significant effect on the skeptical judgment. Among the other findings is that the size of the audit firm has a positive and significant effect only on the dependent variable of cooperation, and on the other hand, it does not have a significant effect on the other two dependent variables (self-interested behavior, skeptical judgment).

Based on the tournament model, it is possible that in professional institutions such as auditing, due to their exclusive nature, the pay spread may have a locked-in and therefore highly dedicated nature. This means that in professional institutions, ownership is non-negotiable, and also the human, social and communication capital of the partners is released from the institution, and therefore its value may decrease if it is transferred to another institution. Based on the tournament model, in professional institutions, The highly dedicated nature of the reward in promotion can affect the temporal orientation and incentives of the participants. When the pay spreads are highly dedicated, the motivation to work more and strengthen the ethical climate increases.



Conclusion: However, the findings of this study show that contextual factors have a significant impact on the understanding and designing tournament-type promotion setups. Also, according to the research findings, some contextual factors in the auditing profession can improve our understanding of how to be promoted to partner based on the tournament model. Since the position of partner is limited in auditing firms and it is very difficult to achieve it, therefore, the perceived breadth of the tournament can cause quality reducing behaviors, less cooperation and fewer skeptical judgments. Also, the perceived breadth of the tournament can be considered a formidable challenge for the success and profitability of audit firms.

According to the research findings, unusual incentives to partners have adverse effects on auditors' attitude and behavior. This means that it affects auditors' perception of controllable parameters in promotion systems based on the tournament model. Due to the fact that the highest position in audit institutions is the partner position, it is suggested that practitioners and decision-makers pay more attention to the effects of designing promotion systems based on the tournament model in audit institutions. In general, it is better to pay attention to the effects of incentives on auditors' behavior in audit institutions.