Why Management Accountants Are Punished for Reporting Bad News: Understanding the Cognitive Processes

53 Pages Posted: 14 Jan 2019 Last revised: 12 Jun 2019

See all articles by Sascha Matanovic

Sascha Matanovic

University of Giessen

Maximilian Schmidt

University of Giessen

Arnt Wöhrmann

University of Giessen

Date Written: January 10, 2019

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 decision. 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’ subjective performance evaluation of the management accountant. This bias is magnified when managers’ compensation depends on the reported results. Furthermore, we analyze the cognitive processes that cause the distorted evaluation and find that the bias is context dependent; that is, managers’ evaluation of reporting-related skills is biased, but their assessment of reporting-unrelated skills is not. The results and implications for theory and practice are discussed. In particular, we highlight that there are many similar situations in firms—beyond the manager-management accountant relationship—in which a decision-maker evaluates another employee who communicates the results of that decision to the decision-maker. Our study shows that the subjective performance evaluations provided by these decision-makers might be biased.

Keywords: reporting, subjective performance evaluation, management accounting

JEL Classification: 410

Suggested Citation

Matanovic, Sascha and Schmidt, Maximilian and Wöhrmann, Arnt, Why Management Accountants Are Punished for Reporting Bad News: Understanding the Cognitive Processes (January 10, 2019). Available at SSRN: https://ssrn.com/abstract=3313746 or http://dx.doi.org/10.2139/ssrn.3313746

Sascha Matanovic

University of Giessen ( email )

Managerial Accounting
Licher Str. 62
Giessen, 35394
Germany
+496419922263 (Phone)
+496419922269 (Fax)

HOME PAGE: http://www.uni-giessen.de/fbz/fb02/fb/professuren/bwl/BWL-IV

Maximilian Schmidt

University of Giessen ( email )

Managerial Accounting
Licher Str. 62
Gießen, 35394
Germany

Arnt Wöhrmann (Contact Author)

University of Giessen ( email )

Managerial Accounting
Licher Str. 62
35394, 35394
Germany

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