How Subjective Performance Evaluations of Management Accountants are Biased by the News that They Report

Abstract

Reporting is a key activity of management accountants. Usually, managers make decisions and later receive a report about the favorable or unfavorable results of their decisions. In this context, we investigate how reporting (un)favorable news to managers affects how these managers evaluate the task performance of the management accountant preparing the report. Using a laboratory experiment, we predict and find that the favorability of the reported news biases managers’ private assessments of the management accountant. Furthermore, we find that the bias is context-dependent; that is, managers’ evaluations of task performance are biased, while their assessments of task-unrelated performance dimensions are not affected. Notably, beyond the manager-management accountant relationship, many similar situations exist in firms, in which a decision-maker evaluates another employee who communicates the results of a decision to the decision-maker. Our study shows that subjective performance evaluations provided by these decision-makers may be biased. The results and implications for theory and practice are discussed.

Keywords: management accounting, reporting, subjective performance evaluation

JEL Classification: M12, M41, D91