Social and Financial Performance Management in Mission-Driven Firms

Abstract

Using the data of mission-driven firms in Korea, this study empirically examines how managerial characteristics and performance incentives influence the reporting of social and financial performance. We find that managers’ mission orientation is positively associated with overreporting of social performance, driven by a perception of benevolence, while negatively correlated with financial performance management, primarily guided by honesty. Additionally, the main beneficiary of monetary incentives for social performance affects managers’ performance management behavior, with incentives directed towards the social mission increasing social performance overreporting but decreasing financial performance management. However, such a substitution effect disappears with incentives directed at individual employees―the incentives just reduces the likelihood of social performance. Our findings are robust to using an instrumental variable approach. Finally, we observe that while social performance management may enhance fundraising outcomes, it does not necessarily lead to improved social returns on investment, suggesting potential inefficiencies in resource allocation. Our study contributes to the literature on performance management by highlighting the psychological channels of honesty and benevolence in performance misreporting and offering empirical evidence of the substitution effect in multidimensional performance reporting.