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Multidimensional performance evaluation styles: budget rigidity and discretionary adjustments

Keita Masuya (Faculty of Commerce, Takachiho University, Tokyo, Japan)
Eisuke Yoshida (Faculty of Business and Commerce, Keio University, Tokyo, Japan)

Pacific Accounting Review

ISSN: 0114-0582

Article publication date: 1 May 2020

Issue publication date: 4 August 2021

206

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

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