Adding nonfinancial value drivers to a summary financial measure : effects on learning and performance of managers.

Abstract

This study examines the effects on the learning and performance of managers of adding leading nonfinancial value drivers (NVDs) to a lagging summary financial measure. An experiment separates the effects from information on the performance of NVDs (NVD information), information on the relative importance of different NVDs (NVD weights), and rewarding the performance of NVDs (NVD rewards). The study also investigates whether NVDs improve managerial learning and performance to a greater extent in firms where intangible assets are more important than tangible assets for future financial performance as compared to firms where the converse is true. The experimental setting involves a dynamic multi-period decision-making environment where NVDs are leading indicators of financial performance. The results indicate that only NVD rewards improve managerial performance in firms where intangible assets are more important than tangible assets, and not in firms where the converse is true. NVD information and NVD weights do not improve managerial performance. NVD information, NVD weights, or NVD rewards do not improve managerial learning.