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

Jacob M. Rose (Assistant Professor, Montana State University, College of Business, 444 Reid Hall, Montana State University, Bozeman, MT 59717)

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 June 2004

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.

Keywords

Citation

Rose, J.M. (2004), "Performance evaluations based on financial information: how do managers use situational information?", Managerial Finance, Vol. 30 No. 6, pp. 46-65. https://doi.org/10.1108/03074350410769119

Publisher

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Emerald Group Publishing Limited

Copyright © 2004, Emerald Group Publishing Limited