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      Is Mandatory Nonfinancial Performance Measurement Beneficial?
      02 Oct 2015Working Paper Summaries

      Is Mandatory Nonfinancial Performance Measurement Beneficial?

      by Susanna Gallani, Takehisha Kajiwara and Ranjani Krishnan
      Susanna Gallani, Takehisa Kajiwara, and Ranjani Krishnan examine the effect of regulation requiring mandatory measurement and peer disclosure of nonfinancial performance information such as customer satisfaction in the hospital industry.
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      Author Abstract

      We use value of information theory and examine the effect of regulation requiring mandatory measurement and peer disclosure of nonfinancial performance information in the hospital industry. We posit that mandatory nonfinancial performance measurement has an information effect and a referent performance effect. The information (referent performance) effect arises because the new performance signals induce more precise posterior beliefs about individual (relative) performance. Using panel data from the Japanese National Hospital Organization, we analyze performance improvements following regulation requiring standardized measurement and peer disclosure of absolute and relative patient satisfaction performance. After controlling for ceiling effects, bounded dependent variables, and regression to the mean, results show that mandatory nonfinancial performance information measurement and peer disclosure improves overall performance (information effect) with larger improvements for poorly performing hospitals (referent performance effect). These effects are found even in the absence of any compensation-based incentives to improve performance.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: August 2015
      • HBS Working Paper Number: 16-018
      • Faculty Unit(s): Accounting and Management
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      Susanna Gallani
      Susanna Gallani
      Assistant Professor of Business Administration
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