The effect of causal knowledge on individuals' perceptions of nonfinancial performance measures in profit prediction

Although organizations commonly report nonfinancial performance measures (NFPMs) associated with profitability, prior research does not address the extent to which the provision of causal knowledge affects individuals' perceptions of the predictive content of such measures. This study examines how providing NFPMs together with different types of causal knowledge (i.e., strong, weak, or none) affects the perceived usefulness of the measures in a profit prediction context. Weak causal knowledge is defined as the direction of the relationship between an NFPM and earnings, while strong causal knowledge is a complete explanation underlying the relationship. The results provide evidence that providing weak causal knowledge increases individuals' perceptions of the predictive content of an NFPM compared to providing no causal knowledge; however, providing strong causal knowledge does not incrementally affect perceptions beyond providing only weak causal knowledge. These findings have implications for the type of information organizations report concurrently with NFPMs.