Appropriateness of accounting data in performance evaluation: An empirical examination of environmental uncertainty as an intervening variable

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Abstract

Rooted in contingency theory, this study puts forth propositions stating (1) that superiors of business units which face higher environmental uncertainty will use a more subjective performance appraisal approach whereas superiors of business units which face lower environmental uncertainty will use a more formula-based performance evaluation approach, and (2) that a stronger fit between environmental uncertainty and performance evaluation style would be associated with higher business unit performance. Findings from 58 business units in eight Fortune 500 firms provide strong support to both sets of these propositions.

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    This study is part of a larger research program that the author is conducting with Professor Anil K. Gupta of Boston University. The author would like to thank him for many helpful ideas and collegial support. The author also wishes to acknowledge the useful comments provided by Professors Robert N. Anthony, William W. Cooper, J.F. Dillard, Gordon Shillinglaw and two anonymous reviewers. Funding support for this research was provided by the Graduate School, Boston University and the Division of Research, Graduate School of Business Administration, Harvard University.

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