THE RELATIONSHIP BETWEEN MULTIPLE MEASURES-BASED PERFORMANCE EVALUATION AND MANAGERIAL PERFORMANC

THE RELATIONSHIP - THE RELATIONSHIP BETWEEN MULTIPLE MEASURES-BASED PERFORMANCE EVALUATION AND MANAGERIAL PERFORMANCE ROLE OF PROCEDURAL FAIRNESS

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1 SIMPOSIUM NASIONAL AKUNTANSI VI Surabaya, 16 – 17 Oktober 2003 THE RELATIONSHIP BETWEEN MULTIPLE MEASURES-BASED PERFORMANCE EVALUATION AND MANAGERIAL PERFORMANCE: ROLE OF PROCEDURAL FAIRNESS AND INTERPERSONAL TRUST AINUN NA’IM Gadjah Mada University, Indonesia CHONG M. LAU The University of Western Australia MAHFUD SHOLIHIN Gadjah Mada University, Indonesia ABSTRACT The objective of this study is to investigate whether multiple measures-based performance evaluation affects managers’ performance; and if so, whether the effects are indirect through procedural fairness and trust. This study hypothesizes that multiple measures-based performance evaluation has indirect effects on managers’ performance through procedural fairness and trust. In addition, it also hypothesizes that procedural fairness has indirect effects on managers’ performance through trust. In order to test these hypotheses, this study employs a path analytical model to analyze the data collected from 70 managers of various Indonesian manufacturing companies. The results indicate that the hypotheses are supported . The effects of multiple measures-based performance evaluation on managerial performance are partially mediated by procedural fairness and trust. This means that in addition to indirect effect via procedural fairness and trust, the use of multiple measures for performance evaluation in itself has a direct effect on managerial performance. With respect to the indirect effects of procedural fairness on managers’ performance, this study finds that trust fully mediates the effect of procedural fairness on managers’ performance. Hence it can be concluded that procedural fairness has no direct effects on managerial performance. Key words: Managerial performance; Multiple measures; Performance evaluation; Procedural fairness; Trust I. Introduction Supervisory evaluative style (how superiors evaluate their subordinates) is an important topic in management accounting, which has earned special attention in the literature (Hartmann, 2000). Prior studies on this topic suggest that the basis of managerial performance evaluation used by superiors to evaluate their subordinates’ performance can affect the subordinates’ attitudes and behavior (Otley and Pollanen, 2000). Evidence from early research on supervisory evaluative styles (e.g., Hopwood, 1972 and Otley, 1978), however, suggests that the effects of performance measures on the subordinates’ attitudes and behavior may be indirect through some intervening variables. Their results suggest that the effects of performance measures used in performance evaluation on the subordinates’ attitudes and behavior is likely mediated by the subordinates’ perception of the fairness of the performance measures used and the extent of interpersonal trust, which the use of such performance measures promotes. However, these issues are not investigated nor resolved in prior management accounting studies. Another important area in management accounting that has long been attracting the attention of
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This note was uploaded on 03/01/2011 for the course AKUNTANSI 0806322104 taught by Professor S1 during the Spring '10 term at Universitas Indonesia.

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THE RELATIONSHIP - THE RELATIONSHIP BETWEEN MULTIPLE MEASURES-BASED PERFORMANCE EVALUATION AND MANAGERIAL PERFORMANCE ROLE OF PROCEDURAL FAIRNESS

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