Using an experiment, I examine whether involvement in scorecard implementation can mitigate the effects of motivated reasoning that occur when the scorecard is framed as a causal chain rather than merely as a balanced set of measures. Psychological research on motivated reasoning suggests that managers will evaluate and interpret data in ways consistent with preferences, increasing their tendency to arrive at conclusions that are consistent with their desired conclusions (Kunda 1990). Consistent with that research, results of my study show that managers who are involved in selecting strategic initiatives perceive those initiatives as having been more successful than managers who are not involved in the initiative-selection process (holding constant actual scorecard performance). Results suggest further that simply framing the scorecard as a causal chain is not sufficient to mitigate these effects. However, framing the scorecard as a causal chain, in conjunction with involving managers in the selection of scorecard measures, mitigates the effects of motivated reasoning tied to manager involvement in initiative selection.

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Research in behavioral economics suggests that, in addition to their traditional incentive effects, formal control systems can influence psychological motivations. We extend this literature by demonstrating experimentally that formal controls directly influence people's sense of what behaviors are appropriate in the setting (personal norms), and indirectly alter people's tendency to conform to the behavior of those around them (descriptive norms). These effects persist even after the controls are changed, so that the effects of current controls can be strongly influenced by past control strength. Our results support those who are incorporating psychological factors into principal‐agent models (such as Fischer and Huddart [2008]), and suggest that those models should be further modified to incorporate correlations between personal norms and conformity to descriptive norms.

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Prior research provides evidence that information affects financial statement users' judgments less when that information is provided in a less accessible format (e.g., information disclosed in a footnote or less prominent financial statement rather than being recognized on the income statement [Maines and McDaniel 2000]). We provide evidence that, conditional on users performing the analysis necessary to transform the financial statements to appear as if disclosed information had been recognized, that information may affect users' judgments more than it would have if it had been recognized initially. Our experiments are set in the context of constructive capitalization of operating leases. The first experiment manipulates three variables that we hypothesize will contribute to this effect: choice to use transformed financial statements, effort spent on the transformation process, and reconciliation of pre- and post-transformation numbers. We provide evidence that, in the constructive-capitalization setting we operationalize, information has a greater effect on judgments when effort was expended to obtain the information and the information is displayed in a reconciled format. The second experiment focuses on the effort effect and replicates it with additional controls. These results have implications for standard-setters who consider the relative benefits of recognition and disclosure, and for financial statement users who transform financial statements as part of their analyses.