Motivating Underperformers with Input-based Relative Performance Feedback: Evidence from a Field Experiment
Co-authored with Rainer Michael Rilke, Sebastian Lehnen, and Christina Guenther
A common challenge for firms is delivering performance feedback that gets underperforming employees to pick themselves up and get back on track. We use a field experiment to test whether this can be achieved by providing relative performance feedback based on inputs, which is strongly linked to differences in employees’ behavior and decisions and less affected by differences in ability and experienced luck. Consequently, input-based relative performance feedback provides underperformers with more concrete guidance and fewer feelings of not being in control. Our findings support our predictions by showing that input-based relative performance feedback increases input-based performance among underperformers and does so without discouraging overperformers. We also find evidence that it eventually increases underperformers’ contributions to the firm’s outputs. Our results are consistent with input-based relative performance feedback improving the efficacy of upward social comparison processes, and they have implications for firms facing employee turnover restrictions and skilled labor shortages.
What Do You Recommend? The Effects of Communication on Misreporting in Autonomous Teams
Co-authored with Anna Ressi and Daniel Schaupp
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 the influence of communication on team members in the context of cost reporting decisions. The first and second experimental study show that communication among team members fulfills a critical role in driving team misreporting. They reveal statistical evidence for a dishonesty shift, where communication does not discipline relatively dishonest team members but assists them in infecting relatively honest team members instead. In our third experimental study, in which teams report directly to their firm’s owner, we find no statistical evidence of the dishonesty shift. Jointly, the findings of all three experimental studies suggest that the adverse role of communication on misreporting in autonomous teams hinges on relatively honest team members revising their perception of the social norm based on specific situational cues.
In Search of Informed Discretion (Revisited): Are Managers Concerned about Appearing Selfish?
Co-authored with Bart Dierynck and Jesse van der Geest
To improve the quality of performance evaluation and compensation decisions, managers can undertake costly searches for additional information. Prior manage-ment accounting research has found that managers are willing to undertake these costly information searches and has explained this finding through managers’ so-cial preferences (i.e., distributional fairness and reciprocity). Our experimental study finds evidence for a more refined explanation of managers’ willingness to obtain costly additional information. Specifically, our results show that managers are significantly less willing to undertake costly information searches when offered a separate opt-out option for the costly information acquisition process. Our find-ings are consistent with insights from behavioral economics and social psychology, suggesting that even self-interested people exhibit prosocial behavior because the situation in which they find themselves triggers concerns about appearing selfish to themselves and others. We discuss how creating working conditions that increase managers’ concerns about their self-image may prompt them to make informed performance evaluation and compensation decisions.
Public Tax Disclosures and Investor Perceptions
Co-authored with Bart Dierynck, Martin Jacob, Maximilian Müller, and Christian Peters
To reveal whether firms pay their fair share of taxes, regulators are increasingly mandating public tax disclosures. Such disclosures are often assumed to raise public attention and help non-professional stakeholders, such as retail investors, identify aggressive tax avoiders. We conduct two experiments to test this assumption. Our first experiment indicates that retail investors become worse at identifying aggressive tax avoiders when disclosures focus on bottom-line tax numbers because such disclosures invite them to use these exclusively as heuristics. The results of the second experiment demonstrate that policies to counteract the adverse effects of public tax disclosures, such as requiring the provision of a disclaimer, are helpful but that none are fully effective.
Asymmetric Adjustment of Control
Job market paper
This study examines how principals adjust their control over agents based on their prior controlling experience. According to standard economic theory, principals should be equally willing to decrease their control as they are willing to increase their control. However, I use psychological theory to predict that prior experience with exercising high control reinforces a principal’s belief that agents are self-interested and that they should control agents. In contrast, the reinforcement of the belief that agents are socially interested and should not be controlled is weaker for principals who have prior experience with exercising low control. Results of my experiment, which subjects principals to changes in the economic costs of controlling agents, support my predictions by exhibiting an asymmetric adjustment pattern. My findings also showcase theory-consistent conditions under which the asymmetry in principals’ control adjustments disappears. Overall, my study suggests that extensive experience with exercising high levels of control over agents may cause principals to hold on to their control disproportionally.
Are All Readers on the Same Page? Predicting Variation in Information Retrieval from Financial Narratives
Co-authored with Ties de Kok and Christoph Sextroh
Retrieving information from financial narratives is a complex process that depends on how the text characteristics of narratives interact with the financial literacy of users. In this study, we develop a comprehensive measure for variation in information retrieval based on observed user behavior that is also able to incorporate understudied text characteristics such as the semantics and content of a narrative. Using a tool that tracks reading and marking behavior in a controlled environment, we first document how users with varying degrees of financial literacy retrieve information from financial narratives. We find significant variation among financial literacy groups that cannot be solely explained by text characteristics related to processing costs. Next, we use state-of-the-art machine-learning to predict variation in information retrieval for out-of-sample financial narratives, and we show that these predictions are incrementally associated with the post-announcement return volatility. Overall, our results suggest that efforts by regulators and corporations to simplify text characteristics of corporate communications might not resolve all differences in how users retrieve information from financial narratives.
Improving Performance Measurement Systems: The Effect of Rotation Policies on Managers’ Reports about Distortion
Co-authored with Eddy Cardinaels and Bart Dierynck
We examine whether rotation policies facilitate the extraction of information about distortion from business unit managers. Results of our laboratory experiment show that firms with rotation policies compensate business unit managers less for reported information about distortion in their business unit. Next to this compensation effect, we also find that the prospect of being rotated causes business unit managers to report more information about distortion in their business unit. The reporting effect is consistent with our prediction rooted in other-regarding preferences models that the prospect of rotation causes business unit managers to base their reporting decision more on the welfare implications for the firm and less on the implications for their personal welfare. Our findings enrich the trade-off firms make when deciding about the implementation of rotation policies.