Stakeholder value disclosures: anchoring on primacy and importance of financial and nonfinancial performance measures

In the growing debate about stakeholder values, there has been little discussion about information overload or whether the requested disclosures can be effectively used. Stakeholder advocates call for complicated and massive environmental and related social disclosures while not considering how information overload might affect the discourse about corporate performance. Stakeholders, including shareholders, plead for more transparency in financial statements, management discussion and analysis (MDA), and other corporate disclosures. As we know, shareholders and boards of directors are most concerned with the ‘Holy Trinity’ of earnings per share, dividends and market value changes. We believe that managers and stakeholders involved in performance evaluations have multiple interests that extend beyond traditional shareholder value measures. We note that the Balanced Scorecard (BSC) was developed as one tool to reflect and communicate these multiple measures. We test how managers use (or ignore) multiple performance measures and we posit that stakeholders will face many of the same constraints when using and processing multiple disclosures including Corporate Social Reports (CSR), environmental, or similar disclosures. While we do not directly test a wide variety of stakeholder disclosures, we examine eight (four for a single subject) shareholder values (financial measures) and four stakeholder values (nonfinancial measures). The eight measures included in our research instruments serve as proxies for the multiple concerns that might be of interest to many stakeholders. Note that stakeholders are likely to be extremely interested in nonfinancial performance measures, while many shareholders will likely concentrate on financial performance measures. Field research has reported managers tend to favor financial measures while discounting or ignoring nonfinancial measures when evaluating subordinates, making it difficult to align performance evaluations and incentives with corporate strategies (Ittner et al. Account Rev 78:725–758, 2003). In this study, we find the relative weights managers place on financial and nonfinancial performance measures are influenced by both (1) presentation order and (2) the relative importance of specific measures. When financial measures are presented first, the manager who performs better on financial measures is rated higher than the manager who performs better on nonfinancial measures. However, when nonfinancial measures are presented first, managers who excel on nonfinancial measures are rated higher. Reports that include financial measures that are relatively more (less) important also produce higher (lower) ratings for the manager who excels on financial measures. Thus, the relative weights that superiors place on financial and nonfinancial measures in evaluating corporate managers’ performance are substantially anchored both by the order in which measures are presented as well as by the importance of the specific performance measures employed. Other stakeholder disclosures are likely to be similarly anchored, perhaps biased, by primacy and a priori importance rankings.     

How leader displays of happiness and sadness influence follower performance: Emotional contagion and creative versus analytical performance

Previous studies have found mixed results regarding the influence of positive and negative leader affect on follower performance. We propose that both leader happiness and leader sadness can be beneficial for follower performance contingent on whether the task concerns creative or analytical performance. This proposition was put to the test in two experiments in which leader affective display was manipulated and the performance of (student) participants was assessed. The results supported our hypothesis that a leader's displays of happiness enhance follower creative performance, whereas a leader's displays of sadness enhance follower analytical performance. Contrasting these findings with evidence for a subjective rating of leadership effectiveness, in line with an implicit leadership theory interpretation, leaders were perceived as more effective when displaying happiness rather than sadness irrespective of task type. The second study showed that the effects of leader affective displays on followers' creative performance and perceived leadership effectiveness are mediated by follower positive affect, indicating that emotional contagion partly underlies these effects.     

After-effects of working at visual display units

Two experiments were carried out to examine the acute and chronic after-effects of working with VDUs on subsequent subjective mood and performance efficiency. Both showed that working at a VDU has a negative after-effect on the user's subjective well-being but only if that person has a high level of cognitive failure. There was no evidence of any such effect on measures of performance efficiency.     

Evaluation frequency and evaluator’s experience: the case of venture capital investment firms and monitoring intensity in stage financing

In this paper we analyze the relation between an investor’s experience and the intensity of monitoring activities. Specifically, we consider venture capitalist firms and their choices of time intervals between financing rounds. We hypothesize that more industry investment experience leads to longer time intervals between financing rounds and hence, lower monitoring intensity. Using a unique data set of venture capital firms from Germany during the period from 1995 to 2005 we find evidence for our hypothesis that in a given time frame more experienced investors evaluate and monitor their investments less often than less experienced investors. In addition, VC investors pool their experience and share the risk involved in investing by forming syndicates which reduces the incentives to monitor subsequently. On the basis of our results we argue that the optimal frequency of performance evaluations should take into account the experience of the evaluator.     

Measuring Organizational Performance: A Case for Subjective Measures

We review the organizational performance (OP) measurement literature highlighting the limitations of both objective and subjective measures of performance. We argue that, with careful planning, subjective measures can be successfully employed to assess OP. This is because often consistent, reliable and comparable compatible objective data on OP measures – particularly across countries and sectors – is difficult to come by. Considering that an inflated OP measure can be cross‐checked with the use of secondary data, managers have little incentive to report such figures. As a result, when quizzed over the stand‐alone performance measures of their organizations or vis‐à‐vis their rivals, managers accurately assess and respond to questions on the performance of their organizations. An in‐depth statistical exercise conducted on the subjective measures of OP as reported by managers of four sets of companies in four separate countries, show consistent results, thus lending support to this premise.     

After-effects of working at visual display units

Abstract

Two experiments were carried out to examine the acute and chronic after-effects of working with VDUs on subsequent subjective mood and performance efficiency. Both showed that working at a VDU has a negative after-effect on the user's subjective well-being but only if that person has a high level of cognitive failure. There was no evidence of any such effect on measures of performance efficiency.     

A Multinomial‐Dirichlet Model for Analysis of Competing Hypotheses

Analysis of competing hypothesis, a method for evaluating explanations of observed evidence, is used in numerous fields, including counterterrorism, psychology, and intelligence analysis. We propose a Bayesian extension of the methodology, posing the problem in terms of a multinomial‐Dirichlet hierarchical model. The yet‐to‐be observed true hypothesis is regarded as a multinomial random variable and the evaluation of the evidence is treated as a structured elicitation of a prior distribution on the probabilities of the hypotheses. This model provides the user with measures of uncertainty for the probabilities of the hypotheses. We discuss inference, such as point and interval estimates of hypothesis probabilities, ratios of hypothesis probabilities, and Bayes factors. A simple example involving the stadium relocation of the San Diego Chargers is used to illustrate the method. We also present several extensions of the model that enable it to handle special types of evidence, including evidence that is irrelevant to one or more hypotheses, evidence against hypotheses, and evidence that is subject to deception.     

What guides subjective performance evaluation: Incentive alignment or norm enforcement?

This paper investigates the objectives guiding a superior’s subjective evaluation of subordinate performance. In a laboratory experiment, we implement a team production setting under uncertainty, where subordinates contribute to the organization’s output by choosing effort levels, but individual contributions are subject to random shocks. After observing joint output, the superior can invest into additional (perfect or imperfect) information about effort levels. We test two competing hypotheses about objectives guiding a superior’s subjective performance evaluation. The incentive alignment hypothesis states that the superior is guided by the objective to establish financial incentives that align a subordinate’s preferences with the organization’s goals such that it is in the subordinate’s self-interest to provide effort. In contrast, the norm enforcement hypothesis states that the superior has a focus on subordinate behavior and wants to enforce the norm of cooperation by rewarding high and punishing low effort. Our results reject the incentive alignment hypothesis and provide support for the norm enforcement hypothesis.     

EVALUATION OF MULTIATTRIBUTE ALTERNATIVES: ADDITIVE VERSUS CONFIGURAL UTILITY MEASUREMENT

A model for measuring subjective evaluations of multiple component alternatives is developed and tested in the context of business students' evaluations of professorial candidates for tenured positions. The model is based on a type of ANOVA formulation in which the response variable need only be rank ordered. That is, arbitrary monotonic functions of subjective responses can be made that optimize a well-defined badness of fit measure. Application of the model indicates that metric analysis of the response data can exhibit a large number of configural (interaction) effects that may be a reflection of how subjects use rating scales rather than anything more basic in their combination of multiple component cues. Implications of these findings for the modeling of multiple component choices are discussed.     

The Measurement of Subjective Probability: Evaluating the Sensitivity and Accuracy of Various Scales

The RISK of an event generally relates to its expected severity and the perceived probability of its occurrence. In RISK research, however, there is no standard measure for subjective probability estimates. In this study, we compared five commonly used measurement formats—two rating scales, a visual analog scale, and two numeric measures—in terms of their ability to assess subjective probability judgments when objective probabilities are available. We varied the probabilities (low vs. moderate) and severity (low vs. high) of the events to be judged as well as the presentation mode of objective probabilities (sequential presentation of singular events vs. graphical presentation of aggregated information). We employed two complementary goodness‐of‐fit criteria: the correlation between objective and subjective probabilities (sensitivity), and the root mean square deviations of subjective probabilities from objective values (accuracy). The numeric formats generally outperformed all other measures. The severity of events had no effect on the performance. Generally, a rise in probability led to decreases in performance. This effect, however, depended on how the objective probabilities were encoded: pictographs ensured perfect information, which improved goodness of fit for all formats and diminished this negative effect on the performance. Differences in performance between scales are thus caused only in part by characteristics of the scales themselves—they also depend on the process of encoding. Consequently, researchers should take the source of probability information into account before selecting a measure.     

An Experimental Study of the Effectiveness of Three Debiasing Techniques*

Subjective probability distributions constitute an important part of the input to decision analysis and other decision aids. The long list of persistent biases associated with human judgments under uncertainy [16] suggests, however, that these biases can be translated into the elicited probabilities which, in turn, may be reflected in the output of the decision aids, potentially leading to biased decisions. This experiment studies the effectiveness of three debiasing techniques in elicitation of subjective probability distributions. It is hypothesized that the Socratic procedure [18] and the devil's advocate approach [6] [7] [31] [32] [33] [34] will increase subjective uncertainty and thus help assessors overcome a persistent bias called “overconfidence.” Mental encoding of the frequency of the observed instances into prespecified intervals, however, is expected to decrease subjective uncertainty and to help assessors better capture, mentally, the location and skewness of the observed distribution. The assessors' ratings of uncertainty confirm these hypotheses related to subjective uncertainty but three other measures based on the dispersion of the elicited subjective probability distributions do not. Possible explanations are discussed. An intriguing explanation is that debiasing may affect what some have called “second order” uncertainty. While uncertainty ratings may include this second component, the measures based on the elicited distributions relate only to “first order” uncertainty.     

Beyond Negative Affectivity:

Stress researchers frequently use self-report measures to assess stress, health, psychological adjustment, and subjective dissatisfaction. We present evidence demonstrating that all of these variables are highly intercorrelated and reflect a common underlying factor of Negative Affectivity (NA). NA is a stable and pervasive personality dimension-high NA individuals report more stress, distress and physical complaints, even in the absence of any objective stressor or health problem. Thus, NA may operate as a substantial nuisance factor in many areas of research. To circumvent its influence, investigators can use non-subjective measures of stress and health. Finally, we present a two-factor model of stress and satisfaction that includes, in addition to NA, the independent factor of Positive Affectivity (PA), a trait reflecting positive feelings about oneself and one's life.     

EXPANSIONARY AUSTERITY? INTERNATIONAL EVIDENCE

This paper investigates the short‐term effects of fiscal consolidation on economic activity in OECD economies. We examine contemporaneous policy documents to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Using this new dataset, our estimates suggest that fiscal consolidation has contractionary effects on private demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects.     

Improving Weight of Evidence Approaches to Chemical Evaluations

Federal and other regulatory agencies often use or claim to use a weight of evidence (WoE) approach in chemical evaluation. Their approaches to the use of WoE, however, differ significantly, rely heavily on subjective professional judgment, and merit improvement. We review uses of WoE approaches in key articles in the peer‐reviewed scientific literature, and find significant variations. We find that a hypothesis‐based WoE approach, developed by Lorenz Rhomberg et al., can provide a stronger scientific basis for chemical assessment while improving transparency and preserving the appropriate scope of professional judgment. Their approach, while still evolving, relies on the explicit specification of the hypothesized basis for using the information at hand to infer the ability of an agent to cause human health impacts or, more broadly, affect other endpoints of concern. We describe and endorse such a hypothesis‐based WoE approach to chemical evaluation.     

Measuring the Performance of Acquisitions: An Empirical Investigation Using Multiple Criteria

The performance of corporate acquisitions is a popular research topic. Researchers have employed various criteria in their attempt to evaluate acquisition performance. This paper replicates and extends a previous study by investigating the comparability of the three most widely used measures of acquisition performance, namely accounting‐based measures, cumulative abnormal returns and managers' subjective assessments, in a non‐Anglo Saxon setting. Empirical testing is based on a sample of 50 domestic acquisitions carried out by Greek firms. Overall, results from the three measures indicate failure rates from 50% to 60%. However, the most impressive finding stems from the comparison (correlation analysis) of the alternative measures. Accounting‐based measures are positively correlated to managers' subjective assessments. Contrarily, cumulative abnormal returns are not correlated to either accounting‐based measures or managers' subjective assessments. This lack of statistically significant relationships between the performance criteria may provide a plausible basis for explaining some of the contradictory results often reported in the mergers and acquisitions literature. In light of these findings, we discuss their implications for both theory and practice and suggest ideas for future research.     

Board size and corporate performance: the missing role of board leadership structure

Different arguments have been introduced in the literature both for and against large and small board sizes. In this context, empirical evidence regarding the impact of board size on corporate performance is less conclusive, which means that further study is needed. Contrary to previous work, it is hypothesized in this study that the relationship between board size and corporate performance is more likely to be confounded by board leadership structure. Econometric analysis provided strong evidence for the applicability of this hypothesis and demonstrated that board size positively affects corporate performance in the presence of CEO non-duality (board leadership structure that is split between the roles of the CEO and the roles of the chairman). Furthermore, board size is shown to have a negative influence on corporate performance in the presence of CEO duality (board leadership structure that assigns the roles of both CEO and chairman to the same person). This conclusion is robust to the use of different measures of corporate performance, control variables and econometric models. Thus, these findings cast doubt on most of the existing evidence that posits that either large or small board size is always the best alternative to be followed in all organizations.     

The Career Advancement Prospects of Managers and Professionals: Are MIS Employees Unique?

The present study examined the career advancement prospects of MIS and non-MIS employees, as well as the relationships of career advancement prospects with job performance evaluations, job satisfaction, career satisfaction, and organizational commitment for MIS and non-MIS professionals and managers. Participants included 134 MIS professionals and managers and 397 non-MIS professionals and managers of a large communications company. The results provided no evidence that MIS employees experience more restricted career advancement prospects than non-MIS employees. In addition, job performance evaluations generally had positive effects on career advancement prospects; career advancement prospects had a number of positive effects on job satisfaction, career satisfaction, and organizational commitment; and job satisfaction and career satisfaction had positive effects on organizational commitment. These findings are related to prior research, suggestions for future research are offered, and implications for the management of MIS employees are identified.     

基于证据推理和前景理论的交叉效率排序方法研究

针对由交叉效率评价策略和交叉效率集结方法的多样性而造成评价结果不一致的问题,提出利用证据推理方法和前景理论,综合各个交叉效率评价策略的评价结果,实现对决策单元的统一评价。首先,分别将选用的交叉效率评价策略以及各个评价策略中的他评效率设置成一级指标和二级指标,依据算数平均和前景理论分别确定一、二级指标的权重;其次,依据他评效率确定二级指标置信度,利用证据推理方法将各个交叉效率评价策略的他评效率综合转换成决策单元被评价为有效的置信度。决策者可通过比较决策单元被识别为有效的置信度的大小来判断决策单元交叉效率的大小,进而实现对决策单元的排序;最后,通过案例验证和说明本文提出方法的有效性和实用性。     

Does positivity enhance work performance?: Why,when, and what we don’t know

There is evidence, spanning many decades of research, that the subjective well-being (SWB) of workers, including life satisfaction, job satisfaction, and positive affect, positively correlates with the performance of workers and organizations. However, the size of the relationships is typically small to moderate. In this review we address the question of why the relationships are not stronger. We first review evidence of a relationship moving from well-being to performance through various pathways. Workers who are high in SWB are now understood to have: 1. better health, 2. lower absenteeism, 3. greater self-regulation, 4. stronger motivation, 5. enhanced creativity, 6. positive relationships, and 7. lower turnover. Each of these variables can predict individual and organizational performance. However, the sheer number of known and possible pathways means the relationships are bound to be complex, and there are mitigating conditions at every turn. Thus, second, we review the evidence of moderators of these mediators, hypothesizing when a happier workforce is a more productive one, and when not. Future research is needed to firmly establish the pathways from different types of SWB through the mediators to metrics of performance, to further establish the moderating conditions in which these relations are most likely to occur, and to evaluate how much SWB is needed to maximize effectiveness. We end by urging scholars to conduct this future research using the highest standards of scientific integrity.     

Operator performance and subjective response in control of flexible manufacturing systems

In this study, allocation of functions and system size (number of machines) were manipulated to test their effects on operator performance and subjective response in a flexible manufacturing system (FMS). An experiment was conducted using a cross-over design with three independent variables: number of machines, task allocation, and sequence of task presentation. Operator performance was measured by response time, and subjective response assessed using two questionnaires. Physiological measures were also taken (EKG and respiratory rate). The results revealed that the number of machines in the system did not affect performance or subjective or physiological response while the effect of allocation level was significant for both performance and subjective response.