Target Difficulty, Target Revisions, and Firm Performance: Evidence from Business Units’ Targets

Arnold, Markus Christopher; Artz, Martin (May 2012). Target Difficulty, Target Revisions, and Firm Performance: Evidence from Business Units’ Targets (Unpublished). In: GMARS Meeting.

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Despite the importance of target setting for firms, prior research offers mixed evidence regarding performance consequences of target difficulty levels. While experimental research suggests that setting difficult targets can increase performance, empirical evidence in field studies is mixed and ambiguous. To explain this ambiguity, we introduce and analyze firms’ target flexibility with regard to adjusting targets intra-year. We argue that target flexibility is associated with both target difficulty and firm performance in the field and therefore can significantly contribute to an understanding of their relationship. Our examination of survey and archival data from 97 firms supports our predictions. We find that the difficulty of business unit targets exerts a direct positive effect, but an indirect negative effect on firm performance where the latter is partly mediated by firms’ target flexibility. Additionally, we find that the predominant use of targets for planning and coordination (vs. performance evaluation) mitigates both performance effects. Our findings may help explain mixed field study evidence regarding the effects of target difficulty.

Item Type:	Conference or Workshop Item (Paper)
Division/Institute:	03 Faculty of Business, Economics and Social Sciences > Department of Business Management > Institute for Accounting and Controlling > Managerial Accounting
UniBE Contributor:	Arnold, Markus Christopher
Subjects:	300 Social sciences, sociology & anthropology > 330 Economics
Language:	English
Submitter:	Lynn Carole Selhofer
Date Deposited:	15 Apr 2021 12:39
Last Modified:	05 Dec 2022 15:49
URI:	https://boris.unibe.ch/id/eprint/153695