Multidimensional performance evaluation styles: budget rigidity and discretionary adjustments
ISSN: 0114-0582
Article publication date: 1 May 2020
Issue publication date: 4 August 2021
Abstract
Purpose
This study aims to reconceptualize performance evaluation styles and reveal their performance effects.
Design/methodology/approach
Based on a literature review, this study conceptualizes performance evaluation styles on two dimensions: priority of budgetary targets when setting performance criteria and use of accounting information for ex-post performance evaluation. This study discusses two concepts – budget rigidity and discretionary adjustments – to explain these two dimensions, and their optimal combination is then investigated by considering environmental uncertainty. The empirical analysis uses survey data from Japanese firms.
Findings
The results indicate that suitable combinations of budget rigidity and discretionary adjustments differ depending on environmental uncertainty. As expected, a combination of lower budget rigidity and higher discretionary adjustments is optimal in an uncertain environment. Contrary to expectations, a combination of higher budget rigidity and higher discretionary adjustments is optimal in a stable environment. Moreover, higher discretionary adjustments complement budgetary targets’ motivational effects, regardless of environmental uncertainty.
Originality/value
This study’s theoretical and empirical analysis suggests that it is difficult to understand the performance implications of performance evaluation styles without recognizing their multidimensionality and interdependencies. Moreover, the results demonstrate that discretionary adjustments in budget-based performance evaluations seem to act rationally in practice.
Keywords
Acknowledgements
This paper forms part of a special section “Performance measurement and management”, guest edited by Ralph Adler and Rakesh Pandey.
Citation
Masuya, K. and Yoshida, E. (2021), "Multidimensional performance evaluation styles: budget rigidity and discretionary adjustments", Pacific Accounting Review, Vol. 33 No. 1, pp. 64-80. https://doi.org/10.1108/PAR-07-2019-0089
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited