Judging a noisy signal: How evaluators weight firm performance in CEO award conferral
By Anand Vijayasankaran, Geoffrey Love
Citation
Vijayasankaran, Anand., Love, Geoffrey. (2024). Judging a noisy signal: How evaluators weight firm performance in CEO award conferral .
Copyright
2024
Share:
Abstract
CEO awards are a notable manifestation of academic and practitioner interest in CEO evaluations. A crucial question concerns the importance of organizational performance, a noisy signal, as an antecedent of CEO awards. Prior research indicates that evaluators often overlook contextual factors when assessing the CEO’s influence on firm performance, and can tend to conflate organizational performance with CEO capabilities. In some contrast to this work, we draw on signalling theory to propose that evaluators use a more sophisticated evaluation process wherein they resolve uncertainty about the CEO’s influence on organizational performance by considering performance together with other contextual signals (i.e, they “bundle” the signals to reduce “noise” in the primary one). Our findings support this view and specifically show that evaluators weight performance more in the presence of three key contextual signals: consistent expectation fulfilment, clear expectation setting, and accurate achievement of earnings expectations. We highlight the role of interfaces between the CEO and evaluators / information intermediaries, which not only produce key contextual information but also underline its salience to participants and industry observers. Our study provides a new perspective on key processes in CEO evaluations and also adds to work on the role of expectations themselves in evaluations.
Anand Ramaswamy Vijayasankaran is an Assistant Professor of Organisational Behaviour at the Indian School of Business (ISB). Professor Vijayasankaran received his PhD in Business Administration from the University of Illinois at Urbana Champaign in 2019, a Postgraduate Diploma in Human Resource Management from the Management Development Institute (Gurgaon, India) in 2006, and a Bachelor of Engineering in Mechanical Engineering from the University of Madras (Madras, India) in 2003, graduating with First Class with Distinction.
Anand Vijayasankaran