Additional Information in Accounting Reports: Effects on Management Decisions and Subjective Performance Evaluations Under Causal Ambiguity

Posted: 20 Nov 2010 Last revised: 3 Jun 2016

See all articles by Joan L. Luft

Joan L. Luft

Michigan State University - Department of Accounting & Information Systems

Michael D. Shields

Michigan State University - Department of Accounting & Information Systems

Tyler F. Thomas

University of Wisconsin - Madison

Abstract

Organizations have often been criticized for reliance on a single item of accounting information (e.g., profit) in evaluating performance, because of its incompleteness. We provide theory-based experimental evidence that under frequently occurring performance-evaluation conditions (subjective performance evaluation, causal ambiguity, and individual differences in ability, knowledge, and/or motivation that lead to different interpretations of information), reliance on a single item of accounting information (profit), rather than profit plus additional (e.g., nonfinancial or external) information, can provide two potential benefits which offset the costs of information incompleteness. First, subordinates are more likely to make the management decisions that superiors will evaluate and reward highly - that is, there are fewer coordination failures in management decisions. Second, even after controlling for the presence or absence of coordination failures, subordinates experience less negative surprise about their performance evaluations.

Keywords: Accounting reports, management decisions, motivated reasoning, subjective performance evaluation

Suggested Citation

Luft, Joan and Shields, Michael D. and Thomas, Tyler F., Additional Information in Accounting Reports: Effects on Management Decisions and Subjective Performance Evaluations Under Causal Ambiguity. Contemporary Accounting Research, Vol. 33, No. 2, 2016. Available at SSRN: https://ssrn.com/abstract=1711981 or http://dx.doi.org/10.2139/ssrn.1711981

Joan Luft (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-2917 (Phone)
517-432-1101 (Fax)

Michael D. Shields

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States

Tyler F. Thomas

University of Wisconsin - Madison ( email )

Wisconsin School of Business
975 University Avenue
Madison, WI 53706
United States

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