Trading off financial and non-financial performance information to evaluate state-owned enterprise performance – a process tracing-experiment

Abstract

New public management initiatives have pushed municipal authorities to evaluate state-owned enterprises (SOEs) based on multidimensional performance reports. Little is known, however, about policymakers’ pre-decisional information search and tradeoff processes between different performance dimensions when evaluating SOE performance. We apply a mouse-cursor-tracking experiment with a master students sample and show that participants consider multiple performance dimensions but focus their attention on financial and customer performance information when evaluating SOEs for allocating a budget. We also observe a tradeoff between financial and non-financial performance information in participants’ budget allocations. Finally, we show that participants devote more effort to the performance evaluation process when municipalities’ financial resources are scarce. However, the municipalities’ financial status affects neither the attention paid to financial and non-financial performance nor the budget allocation decisions.

Notes

1 There exists, however, also a body of literature providing evidence that under competitive conditions publicly owned and privately owned firms perform equally. These studies take the position that competition in markets is a more influential determinant of a firm’s performance than ownership (see, for example, Kole and Mulherin 1997; Martin and Parker 1995).

2 In different judgment scenarios, we manipulate the level of overachievement on the performance indicators in such a way that one SOE excels in one dimension and another SOE excels in another dimension. The overall excess performance is identical for both SOEs. Therefore, decision makers who allocate their budgets evenly between the two SOEs compensate for low performance on one dimension with high performance on another and make tradeoffs between the manipulated performance dimensions (for a similar approach, see Lipe and Salterio 2000).

3 Blom-Hansen, Morton, and Serritzlew (2015), who discuss the strengths and weaknesses of experimental methods, state that external validity should not prevent public management researchers from conducting experiments.

Additional information

Notes on contributors

David Lindermüller

David Lindermüller ([email protected]) is a postdoctoral researcher at Bundeswehr University Munich, Germany. His current research interests are public-sector performance management, performance information use, and experimental methods.

Matthias Sohn

Matthias Sohn ([email protected]) is professor of management accounting at European University Viadrina Frankfurt (Oder), Germany. His research interests include management control systems, business ethics, nonprofit management, and experimental research methods.

Bernhard Hirsch

Bernhard Hirsch ([email protected]) is professor of management accounting at Bundeswehr University Munich, Germany. His research interests focus on behavioral aspects of management accounting and on accounting for public institutions.