This paper studies two contemporary performance evaluation systems, multi-rater performance evaluation and calibration. Specifically, we use a rich dataset of performance evaluations at an e-commerce company to examine how supervisors use their discretion to weight multi-rater assessments and how calibration committees make decisions to adjust these weighting decisions. We document that supervisors use their discretion to weight multi-rater assessments consistent with the aim of improving the informativeness of employee performance evaluations by emphasizing (deemphasizing) ratings that are relatively more (less) informative. However, we find that these weighting efforts can be constrained by a high information load placed on the supervisor. Furthermore, we document that calibration committees analyze the performance information provided and are less likely to adjust supervisors’ weighting decisions when they are more in line with emphasizing more informative multi-raters assessments as well as when the supervisor provided more substantiated argumentation for their decision. In contrast to the constraining role of a high information load on supervisors’ weighting efforts, we find that calibration committees consider the available information more strongly when the information load is high.

This paper investigates the performance effects of narrative feedback. We build on cognitive self-regulation theory to predict how two important characteristics of narrative feedback (specificity and causal language use) influence self-regulation and thereby affect performance when used in feedback on strengths and weaknesses. We test our predictions using field data from a European e-commerce firm, and we find that higher specificity in feedback on strengths can positively affect performance, consistent with improved self-regulation due to more systematic exploration. In con-trast, higher specificity can adversely affect performance when used in feedback on weaknesses. Furthermore, we find that higher causal language use in feedback on weaknesses can have positive performance effects, consistent with improved self-regulation due to increased understanding and sensemaking. In contrast, causal language use can also have adverse effects when used in feedback on strengths. In additional analyses, we show that narrative feedback effects depend on the gap between the employee’s and the firm’s performance standard and further show that narrative feed-back characteristics can lead to improvement in the performance dimensions that are the focus of the feedback. In sum, our findings advance our understanding of whether and how narrative feed-back can be valuable for employee development.

In autonomous teams, formal decision-making responsibility is shared, paving the way for communication to play a prominent role. We conduct three experimental studies to examine how members of autonomous teams use communication to influence cost reporting decisions. The first and second experimental studies illustrate that communication among team members is critical in driving team misreporting. Both reveal statistical evidence that communication can facilitate a dishonesty shift, where honest team members do not discipline dishonest team members, but the latter infects the former instead. In our third experimental study, in which adverse monetary consequences of misreporting are more salient, we find no statistical evidence of the dishonesty shift. Jointly, the findings of all three experimental studies suggest that communication can adversely affect misreporting in autonomous teams, which hinges on the salience of different situational cues.

This paper studies the relationship between client importance and audit quality for small and medium sized audit practices (SMP). We mobilize the German setting, where SMP client importance can be measured precisely and analyzed for public interest entity (PIE) clients. Our results show that common measures of economic dependence severely overestimate the actual dependence of SMPs. Relying on our precise measurement, we find a positive non-linear relationship between dependence and audit quality. Our results demonstrate that as long as client importance does not exceed critical thresholds, SMPs provide higher audit quality to more important PIE clients. In fact, we find that clients engage in less accrual-based earnings management (AEM) until reaching high client importance thresholds, at which point the relationship reverses. Furthermore, our results suggest that clients might trade off AEM with real earnings management (REM), supporting the notion that providing higher audit quality could also have detrimental effects. In additional analyses, we show how SMPs protect themselves against PIE client independence threats, thus further explaining why SMPs can deliver high-quality audits as dependence increases. Finally, we find that our results are robust and even stronger when relying on de-facto office and partner level analyses and using measures of extreme earnings management.

Prior research on voluntary disclosures has long debated whether managers tend to withhold bad news. However, these studies have been conducted in settings in which, ex-ante, the trade-off between the potential benefits and the potential costs of withholding information is obscure. In this paper, we study voluntary disclosure choices using a context-rich setting of distressed firms in which potential benefits from withholding news (particularly bad news) are seemingly high, whereas the potential costs are seemingly low. Specifically, we focus on the question of how ‘going concern’ uncertainty affects management earnings forecasts in financially distressed firms. Our results suggest that as financial distress intensifies, there is a lower likelihood and frequency of management earnings forecasts, indicating that managers may be withholding news, particularly bad news, in distressed firm-years. For comparative purposes, we also present results for ‘safe’ firm-years and find that managers have a tendency to disclose bad news as the financial health of the firm worsens.

New digital technologies allow companies to provide employees with performance feedback in real-time. We investigate the causal effects of such real-time feedback on individual effort and the quality of initial (pre-feedback) and final (post-feedback) decisions by exploiting a natural quasi-experiment in the setting of professional soccer refereeing. Our results suggest that real-time feedback has differential effects for experienced compared to inexperienced individuals. Specifically, we find that experienced individuals decrease their effort under real-time feedback without harming the quality of their initial decisions. This results in better final decisions because real-time feedback allows individuals to correct wrong initial decisions upon feedback. In contrast, inexperienced individuals increase their effort but make worse initial decisions. Upon feedback, they manage to compensate for their increased number of wrong initial decisions but see no improvement in the quality of final decisions.

The contemporary transparency narrative has recently evolved from a predominantly bright side of positive motivational influence to a more nuanced narrative integrating a potential dark side of transparency of demotivating threats to individual information privacy. Based on this more nuanced narrative, we try to provide a first empirical picture relying on an integrated model of direct and indirect psychological consequences of individual performance transparency. We propose a ‘bright’ path between transparency and psychological empowerment and a parallel ‘dark’ path through information privacy concerns. Using panel survey data of 401 employees of the finance function and structural equation modeling, we find that transparency has both a direct and indirect link to psychological empowerment. Taking a closer look at the dark path, we find that the link between transparency and information privacy concerns is moderated by core self-evaluation and relative performance information advantage. In contrast, we do not find a moderating effect of individual performance. With this study, we contribute a novel conceptual integration and first empirical examination of this duality of psychological consequences of transparency of individual performance. Additionally, we enrich the debate about potential moderating factors. Overall, we offer a more nuanced perspective on the value of transparency of individual performance in organizations.

Accounting research has extensively debated the modelling of Earnings Management (EM) for all industries but the baking industry. We provide a first analysis of the validity, strengths and weaknesses of existing loan loss provisioning (LLP) models and develop an extensive framework for modelling components. We rely on US data from 2000-2018 and apply prevalent test procedures that examine the extent of measurement errors, extreme performance, omitted-variable biases and predictive power of each of the models. The results indicate that established modelling can be optimized with regard to measurement errors, omitted-variable biases and predictive power. In particular, we find that including net charge offs is less important while a non-performing loan component is indispensable. In addition, our results reveal that LLP models are less prone to measurement errors related to one-step vs. two-step modelling, while more advanced estimation approaches are not linked to better prediction power.

This study explores whether introducing transparency about relative performance information (RPI) can effectively increase performance of an important task that is not tied to financial incentives of the organization or employee. Therefore, we analyze proprietary data from a medical center, where a reporting tool with aggregated RPI about discharge letter process times is introduced. The process of creating discharge letters represents an important reporting task in a complex working environment. Controlling for patient- and treatment-related factors as well as ward and time specific fixed effects, we find that establishing RPI significantly improves performance by decreasing the average total process times by 59.7 %. This overall reduction in process times can be divided into the initial treatment effect (-23.9 %) and marginally decreasing reductions over time. We understand these performance improvements as a type of learning process caused by social comparison, which starts after the treatment and stabilizes at a high level. Our paper contributes by demonstrating the effectiveness of RPI in a complex work environment, while showing that performance increases are not only significant but also enduring.

This paper examines whether firms that act socially responsible engage in different amounts of Earnings Management (EM). In particular, this study tries to disentangle the two main incentives incorporated into Corporate Social Responsibility (CSR) investments and analyses whether these entail diverse EM strategies in terms of accrual-based earnings management (AEM), real activities earnings management (REM), total EM and the trade-off relationship between AEM and REM. Furthermore, we consider the effect of corporate governance (CG) on EM strategies, particularly whether the respective CSR incentives moderate this relationship. For our European sample with 2,733 firm-years from the 2005-2014 period, the results show that EM strategies vary between intrinsic and reputational CSR incentives. For both incentives, we find that respective firms engage in lower AEM. However, high reputation firms use more total EM and trade off from AEM to REM at the expense of shareholder value, whereas intrinsic firms use less total EM and trade off vice versa. Additionally, we find that certain independence in the board limits opportunities to pursue AEM, whereas CSR incentives significantly moderate the outcome of effective monitoring. While both CSR incentives entail a lower use of AEM with increasing independence, high reputation firms again switch to higher REM and further trade off from AEM to REM. Altogether, the results indicate that firms with a high CSR orientation engage in different EM strategies, depending on their CSR incentives and thereby preserve or jeopardize shareholder value.