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Multidimensional performance evaluation styles: budget rigidity and discretionary adjustments

Multidimensional performance evaluation styles: budget rigidity and discretionary adjustments This study aims to reconceptualize performance evaluation styles and reveal their performance effects.Design/methodology/approachBased on a literature review, this study conceptualizes performance evaluation styles on two dimensions: priority of budgetary targets when setting performance criteria and use of accounting information for ex-post performance evaluation. This study discusses two concepts – budget rigidity and discretionary adjustments – to explain these two dimensions, and their optimal combination is then investigated by considering environmental uncertainty. The empirical analysis uses survey data from Japanese firms.FindingsThe results indicate that suitable combinations of budget rigidity and discretionary adjustments differ depending on environmental uncertainty. As expected, a combination of lower budget rigidity and higher discretionary adjustments is optimal in an uncertain environment. Contrary to expectations, a combination of higher budget rigidity and higher discretionary adjustments is optimal in a stable environment. Moreover, higher discretionary adjustments complement budgetary targets’ motivational effects, regardless of environmental uncertainty.Originality/valueThis study’s theoretical and empirical analysis suggests that it is difficult to understand the performance implications of performance evaluation styles without recognizing their multidimensionality and interdependencies. Moreover, the results demonstrate that discretionary adjustments in budget-based performance evaluations seem to act rationally in practice. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Pacific Accounting Review Emerald Publishing

Multidimensional performance evaluation styles: budget rigidity and discretionary adjustments

Masuya, Keita; Yoshida, Eisuke
Pacific Accounting Review , Volume 33 (1): 17 – Aug 4, 2021
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17 pages

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0114-0582
DOI
10.1108/par-07-2019-0089
Publisher site
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Abstract

This study aims to reconceptualize performance evaluation styles and reveal their performance effects.Design/methodology/approachBased on a literature review, this study conceptualizes performance evaluation styles on two dimensions: priority of budgetary targets when setting performance criteria and use of accounting information for ex-post performance evaluation. This study discusses two concepts – budget rigidity and discretionary adjustments – to explain these two dimensions, and their optimal combination is then investigated by considering environmental uncertainty. The empirical analysis uses survey data from Japanese firms.FindingsThe results indicate that suitable combinations of budget rigidity and discretionary adjustments differ depending on environmental uncertainty. As expected, a combination of lower budget rigidity and higher discretionary adjustments is optimal in an uncertain environment. Contrary to expectations, a combination of higher budget rigidity and higher discretionary adjustments is optimal in a stable environment. Moreover, higher discretionary adjustments complement budgetary targets’ motivational effects, regardless of environmental uncertainty.Originality/valueThis study’s theoretical and empirical analysis suggests that it is difficult to understand the performance implications of performance evaluation styles without recognizing their multidimensionality and interdependencies. Moreover, the results demonstrate that discretionary adjustments in budget-based performance evaluations seem to act rationally in practice.

Journal

Pacific Accounting Review – Emerald Publishing

Published: Aug 4, 2021

Keywords: Performance evaluation styles; Multidimensionality; Budget rigidity; Discretionary adjustments; Environmental uncertainty; Complementarity theory

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