Does politicians' performance information use in evaluating state-owned enterprises' performance depend on the financial standing of a municipality?

In many European countries, state-owned enterprises (SOEs) provide public services. Politicians, as supervisors of the SOEs, are provided with performance reports on SOEs for decision making. We conducted a computerized... [ view full abstract ]

In many European countries, state-owned enterprises (SOEs) provide public services. Politicians, as supervisors of the SOEs, are provided with performance reports on SOEs for decision making. We conducted a computerized laboratory experiment to analyze how politicians evaluate SOEs’ performance based on performance reports. For our experiment, we recruited master students from a German federal university. We asked participants to cast the role of an elected politician and manipulated the SOEs’ performance, attained across the different performance dimensions (financial, customer, process, employee) of the reports. Furthermore, we manipulated the financial standing of the municipality to test, if performance information use is affected due to external pressure. To monitor participants’ information acquisition processes and their judgment strategies selection, we used a process tracing method (MouselabWEB). Our process data show that politicians’ attention is heavily skewed towards financial and customer performance of the SOEs in the information acquisition process. However, participants allocated financial means rather evenly across the SOEs that outperformed on the financial, the customer and the process perspective. The SOEs that outperformed on the employee perspective received the smallest amount of the budget. A manipulation of the financial standing of the municipality shows that politicians put generally more effort into the information evaluation process, when resources are scarce. However, the financial standing has no impact on the outcome of the budget allocation.