It is a common practice for firms to conduct performance evaluations of their employees and yet to withhold this information from those employees. This paper argues that firms strategically withhold performance information to retain workers. In particular, if the worker enjoys high outside options and is tempted to quit, then the firm chooses not to reveal his performance information in order to keep him on the job. The firm's equilibrium strategy is to fire if performance is sufficiently low, reveal information if performance is sufficiently high, and withhold information otherwise. The pooling equilibrium is robust under a wide variety of settings, such as general cost functions, ability‐contingent outside options, nonlinear contracts, nonverifiable output, and multiple stages of production.
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1 March 2007
Research Article|
March 01 2007
The Retention Effect of Withholding Performance Information
Korok Ray
Korok Ray
University of Chicago
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2007
The Accounting Review (2007) 82 (2): 389–425.
Citation
Korok Ray; The Retention Effect of Withholding Performance Information. The Accounting Review 1 March 2007; 82 (2): 389–425. https://doi.org/10.2308/accr.2007.82.2.389
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