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Performance evaluations based on financial information: how do managers use situational information?

Performance evaluations based on financial information: how do managers use situational information? Organizations regularly use budgets as benchmarks for performance, and budgets represent a key control feature for almost every organization (Brown and Solomon (1993)). Research has demonstrated that outcome effects are pervasive in performance evaluation processes, and that performance evaluators do not interpret situational information consistently. An experiment is conducted to examine the effects of situational information on managers’ performance and ability attributions under conditions of favorable and unfavorable financial outcomes. The findings indicate that when financial outcomes are unfavorable, outcome effects dominate the performance evaluation process, and situational information has little effect on performance evaluations. The results of cognitive load manipulations indicate that situational information is not ignored, but rather discounted when financial outcomes are favorable. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Performance evaluations based on financial information: how do managers use situational information?

Managerial Finance , Volume 30 (6): 20 – Jun 1, 2004

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Publisher
Emerald Publishing
Copyright
Copyright © 2004 Emerald Group Publishing Limited. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074350410769119
Publisher site
See Article on Publisher Site

Abstract

Organizations regularly use budgets as benchmarks for performance, and budgets represent a key control feature for almost every organization (Brown and Solomon (1993)). Research has demonstrated that outcome effects are pervasive in performance evaluation processes, and that performance evaluators do not interpret situational information consistently. An experiment is conducted to examine the effects of situational information on managers’ performance and ability attributions under conditions of favorable and unfavorable financial outcomes. The findings indicate that when financial outcomes are unfavorable, outcome effects dominate the performance evaluation process, and situational information has little effect on performance evaluations. The results of cognitive load manipulations indicate that situational information is not ignored, but rather discounted when financial outcomes are favorable.

Journal

Managerial FinanceEmerald Publishing

Published: Jun 1, 2004

Keywords: Cognitive load; Discounting; Outcome bias; Outcome effect; Performance evaluation; Situational factors

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