Internal Forecasts: An Experimental Exploration of how News Travels Up Organizational Charts

Abstract

We investigate internal disclosures in an experimental setting, in which subordinates use forecasts to transfer news up the organizational chart. We conduct a (2 x 2) x 2 mixed factorial design experiment with 64 participants in which mid-period news direction (good vs. bad), news attribution (internal vs. external), and incentive scheme (fixed-target vs. relative-target) are the independent variables. Our findings indicate that subordinates withhold their private information even when there is an economic cost to doing so, and only share their private information in the presence of strategic or reputational benefits. We find that subordinates share more good news than bad news. Considering incentive scheme, subordinates with relative-target schemes match this pattern of sharing more good news than bad. Those with fixed-target schemes share similar amounts of good and bad news, but their tendencies are more closely aligned with withholding both types of news. These findings suggest that changing from fixed-target to relative-target incentive schemes does not ensure more accurate forecasts, particularly if organizations are concerned with subordinates withholding bad news.