Knowledge that Transforms

We study principals’ use of performance information to allocate human capital development resources to underperforming agents. We use proprietary data from a retail firm that sets uniform, noncalibrated performance targets to ensure consistent quality and customer experience across all stores. Unlike calibrated targets, uniform, noncalibrated targets do not account for heterogeneity in local conditions. Given that human capital development is costly, we predict and find that principals do not support all agents who underperform on noncalibrated targets. Instead, they use relative performance information and concentrate support on underperforming agents who outperform their geographical peers. In contrast, for calibrated targets, we find no evidence that principals rely on relative performance; agents who underperform calibrated targets are generally eligible for human capital support. Consistent with our assumption that relative performance is informative about returns to human capital investment, we find that support for underperforming agents who outperform their peers improves performance.

This paper contributes to a long-standing debate in the audit literature about the place of professional judgement within the constraints of the formal audit process. Responding to recent calls for deeper exploration, we examine how auditors exercise judgement when facing a practical challenge they perceive as novel, for which they are unable to easily deploy prior understandings and judgement scripts. Drawing on semi-structured interviews with practicing auditors and the Routine Dynamics (RD) perspective, emphasising patterns of routine action as having internal dynamics, we provide a nuanced account of how auditors progress from the position of relative epistemic obscurity to being comfortable enough to form a conclusion. Our findings show how auditors performed routines to establish social , temporal, and spatial relationalities within and beyond the present audit context, enabling them to nuance their interpretations and grow confident in their judgements. We reveal how auditor judgement is continuously present but fluctuates in intensity, depending on the auditors’ reflexive intent during individual routine performances, resulting in the augmentation or curtailment of opportunities for inference. We also show how auditors accrue comfort in their judgements in a progressive manner along a continuum, spanning from largely ritualistic performances to the more effortful, inferentially intensive ones that together shape how auditors grapple with novelty.

Companies increasingly disclose human capital initiatives, such as diversity, equity, and inclusion (DEI) and non-DEI initiatives. Yet, DEI initiatives have become a focal point of debate, raising questions about whether investors view them as appropriate uses of company resources. Across two experiments, we examine how nonprofessional investors perceive DEI versus non-DEI initiatives. Drawing on equity theory, we propose that investors' fairness-based perceptions of an initiative's appropriateness depend on their underlying preferences for what companies should prioritize, and that these perceptions influence their investment willingness. Experiment 1 finds that investors perceive DEI (versus non-DEI) initiatives as less appropriate, and this difference is exacerbated when investors are more shareholder-oriented than stakeholder-oriented. Furthermore, the mediating effect of perceived appropriateness on investment willingness is stronger when company financial performance is unfavorable than when it is favorable. Building on these findings, Experiment 2 tests a boundary condition of our theory by examining whether explicitly stating merit-based selection criteria attenuates shareholder-oriented investors' stronger negative perceptions of DEI initiatives. We find that when DEI initiatives are explicitly presented as merit-based, investors' negative perceptions of appropriateness of DEI (versus non-DEI) initiatives are attenuated, and the exacerbating moderating effect of shareholder (versus stakeholder) investor orientation also diminishes. Our findings demonstrate how investors' fairness-based perceptions of appropriateness can explain divergent responses to DEI disclosures, offering timely implications for companies and regulators concerned with human capital reporting.

We examine whether financial performance metrics in CEO compensation contracts provide incentives for environmental performance improvement, and the conditions under which such incentives arise. Using toxic pollution as our primary outcome, we find that relative financial performance evaluation (RPE) is negatively associated with future pollution in firms whose environmental impacts are subject to greater scrutiny, whereas other financial incentives, such as equity portfolio delta and new equity grants, show no such association. This pattern is consistent with theories of corporate social responsibility and, as supported by complementary tests, with the idea that stronger environmental performance can improve a firm’s relative financial position by attracting customers, employees, and shareholders from less responsible peers. We further show that the RPE-pollution relation varies predictably with various RPE plan characteristics and stakeholder switching costs, persists when we instrument for the use of RPE, and operates in part through increased environmental innovation.

In the past decade, climate-related risk disclosures have become a core component of global sustainability reporting. These disclosures mainly adopt the reporting framework developed by the Task Force on Climate-related Financial Disclosures (TCFD). Drawing on in-depth interviews with members of the Task Force, this paper unveils the manner in which the Task Force members convened to craft their disclosure recommendations. The paper employs and extends Stark's (2009) concept of organizing dissonance to illustrate how the Task Force became a site of contestation in which fragile member collaborations fuelled unanticipated yet productive frictions related to the Task Force's remit, the concept of materiality, the calculability of climate-related risks, and the nature and appropriateness of scenario analysis. The distinctive mode of organizing dissonance unveiled in the paper illustrates how problematizing globalized risk metrics, embracing admissible levels of ambiguity, and acknowledging the (temporary) unknowability of climate change impacts organized an oscillation between harmony and discord among the Task Force members. This resulted in a provisional disclosure settlement facilitating the flexible standardization of global climate-related risk reporting aimed at enabling the transition to a sustainable, low carbon economy. By unpacking a unique instance of user and preparer efforts to co-construct a globally influential climate-related risk reporting framework, the paper advances our knowledge of how transnational private governance initiatives unearth market-based solutions to intractable global challenges.

We propose life history (LH) theory as an overarching theoretical explanation of CEO preferences and decision-making. LH theory has the potential to integrate prior research on variation in top executives’ impact on decision outcomes and to demonstrate how observable differences in behavior can be explained by evolutionary drivers. According to LH theory, individuals pursue fast or slow LH strategies. Fast individuals tend to follow accelerated reproduction strategies and engage in impulsive, opportunistic, and risk-seeking behavior. We theorize how CEO LH strategies shape both on-the-job and off-the-job decisions and thus add to a growing body of research on evolutionary drivers of preferences and decision-making in accounting. We measure CEO LH strategies based on biodemographic micro-data related to reproductive behavior. Our findings linked to on-the-job decisions suggest that firms managed by CEOs who pursue fast LH strategies exhibit more financial irregularities, lower accounting conservatism, and higher earnings management. Findings related to CEO off-the-job decisions show that fast CEOs are more likely to engage in criminal behavior and to have a higher conspicuous consumption and a higher personal leverage. By applying an LH theory lens, we reconcile and advance prior fragmented research on CEO preferences by showing a clear theoretical link between on-the-job and off-the-job decisions.

We examine the effect of disclosing the potential financial impact of sustainability activities (FISA) on investor decisions. We posit and find that the effect is moderated by both companies' financial condition and investors' view on sustainability. Our results suggest that investors with a stakeholder value-maximization view are not sensitive to the FISA disclosure regardless of the company's financial condition. However, investors holding a shareholder expense view exhibit significantly higher investment interest in the presence of a FISA disclosure when the company's financial condition is favorable, but not when it is unfavorable. Additional analysis suggests that the presence of FISA leads to differential belief updates for investors with different ex-ante beliefs about the benefits of sustainability. Our study provides practical insights into the effect of disclosing the financial effects of sustainability activities. It has implications for integrated reporting and the disclosure of the connectivity between sustainability and financial performance proposed by standard setters. It also contributes to the literature on the relevance of non-financial information and investor type to investment decisions.

Over the past two decades, policy and regulation in social and healthcare settings, as well as across public service delivery more broadly, have placed increasing emphasis on “user voice” and “user experience” in the commissioning and evaluation of services. Yet the formats and methods through which such accounts of user feedback should be produced often remain indeterminate. This paper examines the organizational processes involved in eliciting, assembling, and representing “user voice” within a large social care organization. Drawing on an ethnographic study, we investigate how the organization responds to diverse user feedback requests from external bodies, such as commissioners and regulators, as well as to internal demands for useable and appropriate accounts. Building on Hacking's concept of dynamic nominalism and his later engagement with Goffman, we analyse how user voice is “made up” through processes of tracing, framing, and connecting in the interstices between locally situated lived experiences of service users and top-down professional and regulatory discourses of care and service quality. Our analysis demonstrates the multiplicity, ambiguity and situational malleability of user voice, revealing how it both expands and escapes classification. Together, these dynamics highlight the lateral, transversal movements that occur in the interplay between top-down abstract classifications and bottom-up practices and situated concerns of the classified. The paper concludes by reflecting on both the organizational appeal and the potential dangers of demands for user voice.

Organisational accounts are often awarded considerable significance in societies, not least because of their proposed beneficial implications. However, we argue that in accounting research the narrative (non-financial) accounts, often given by organisations in more than one language, have been approached in a limited way. Drawing on foundational concepts from the discipline of Translation Studies, we demonstrate that accounts provided in different languages are not just one equivalent account copied across languages but in fact an ‘account multiple’ of several parallel accounts . Organisations (can) use such parallel accounts to address different audiences, simultaneously constructing different worlds where accountability does not remain the same. Alongside our theoretical discussion, we illustrate parallel accounts through an empirical analysis of the Finnish and English language account(s) a Finland-based MNC gave on its social responsibility. We argue that considering different language accounts as parallel accounts has significant implications for research on narrative reporting, including how scholars interpret organisational accounts, their use and potential implications, with consequences extending further into research transparency, ethics and quality.

Prior accounting and economics research suggests that tournaments with highly concentrated prizes attract the most talented individuals. However, this research assumes that tournament entrants have granular, reliable information about their relative skill level. Using a laboratory experiment, we replicate this result: when relative skill information is available, prize concentration leads to skill-based selection. However, when relative skill information is unavailable, and tournament choice is public, we find that highly concentrated prizes instead attract more narcissistic individuals. Together, our results suggest that high-level positions with exceptionally large prizes can attract narcissistic applicants when entry decisions are publicly observable and relative skill information is limited. These findings inform both theory and practice by clarifying when tournament prize concentration selects for skill versus personality.