Enhancing Balance in Balanced Scorecard Evaluations

• In Event: Management Accounting

Abstract

Research finds that evaluators tend to overemphasize outcome, financial measures, and to underweight driver, nonfinancial measures of future financial performance in balanced scorecard (BSC) evaluations. In this study, we investigate the extent to which this imbalance in the use of BSC measures is influenced by the characteristics of an evaluation object and the evaluation purpose. Following research in Construal Level Theory (CLT), we find that managers are more likely to use BSC measures in a balanced manner in a psychologically distant situation than in a psychologically proximal situation. Moreover, managers emphasize outcome measures when evaluating performance for the purpose of bonus allocation whereas they emphasize driver measures when evaluating performance for the purpose of promotion. Finally, we find that requiring evaluators to consider the reasons “why” they use the BSC, prior to the performance evaluation, significantly enhances balance in the weight assigned to BSC measures. The results have implications for enhancing balance in the use of BSC measures for performance evaluation.

Authors

• Bernard Wong-On-Wing, Washington State University

• Xin Liu, University of San Diego

• Dan Yang, Southwestern University of Finance & Economics