The Use Of Financial And Nonfinancial Information For Evaluating Performance: An Attributional Perspective

Abstract

This study utilized attribution theory to understand how executives use financial and nonfinancial information to evaluate departmental and managerial performance. An experiment was conducted in which 54 executives of a large retail department store were asked to evaluate the performance of a hypothetical retail selling department and the performance of its manager. The execu­tives responded to 51 cases, each of which contained a different combination of values for eight performance cues. Four of the cues were financial and four of the cues were nonfinancial. Separate main-effects linear models were used to analyze how the subjects used the cues to arrive at judgments about departmental and managerial performance. The results supported a number of predictions based on attribution theory. First, the evaluations of performance were characterized by bounded rationality, as most subjects used one or more, but not all, of the cues to attribute blame or credit for performance outcomes. Second, the evaluations of performance relied on the cues in a way which indicated the existence of causal links between the performance outcomes reflected in the financial and nonfinancial cues, and managerial control and responsibility for those outcomes. Third, the financial and nonfinancial cues were used in distinctly different ways depending on whether the performance of the department or its manager was being evaluated. Fourth, the cues were used differently to evaluate managerial performance by experts and non-experts in that area. And finally, there was limited self-awareness of the relative importance of different types of information when making causal inferences.