A Note on the Dimensionality of the Firm Financial Performance Construct Using Accounting, Market, and Subjective Measures

Only a matter of chance? How firm performance measurement impacts study results

Enterprise risk management (ERM) research has mostly been limited to factors determining its implementation and its effects on firm performance. Despite a clear need for its establishment in sound risk culture and its integration with strategic planning, organisational leaders continue to implement these management concepts in isolation. Academic research into these conjoint relationships has also received less attention in the literature. This study investigates whether ERM's effect on firm financial performance, measured by return on assets, is mediated by risk culture and strategic planning. The study provides empirical evidence that adopting ERM solely does not enhance a firm's financial performance. The ERM, risk culture, and strategic planning constructs are empirically determined to be correlated. Strategic planning has a direct and positive relationship with firm performance. The study further provides empirical evidence that the positive effects of ERM implementation on firm financial performance are mediated by risk culture and strategic planning. The size of a firm and its financial leverage are remarkable determinants of firm performance, while firm age and growth rate are not. The pieces of evidence have been presented from an under-investigated context in Africa with other contributions to the literature, such as, providing comprehensive measures of ERM and risk culture and responding to calls to synthesise risk and strategic management. This study also advances multiple mediation analysis and the use of PLS-SEM in the ERM literature.

Optimal working capital management can positively effect on the Firm performance, but this relationship can be affected by major characteristics of the firm, making an important subject for research. This research investigates the moderating role of firm characteristics on the relation between working capital management and financial performance of the firms listed in TSE during 2008 – 2017 period. Based on existing researches, three characters are considered as moderating variables in this research include firm size, debt ratio, and Governmental ownership. Financial performance and working capital management are measured using return on assets (ROA) and cash conversion cycle (CCC), respectively. We use from multivariate regression model with panel data for test of research hypotheses. The Results of this study show that, firm size affects the Relation between CCC (as a measure of working capital management) and ROA (as a measure of firm performance). However, debt ratio and Governmental ownership don’t any significant effect on the relationship between working capital management and financial performance of firms

Purpose – The purpose of this paper is to examine the mediating effect of intellectual capital on the relationship between board governance and perceived firm financial performance. Design/methodology/approach – This study was cross-sectional. Analyses were by SPSS and Analysis of Moment Structure on a sample of 128 firms. Findings – The mediated model provides support for the hypothesis that intellectual capital mediates the relationship between board governance and perceived firm performance. while the direct relationship between board governance and firm financial performance without the mediation effect of intellectual capital was found to be significant, this relationship becomes insignificant when mediation of intellectual capital is allowed. Thus, the entire effect does not only go through the main hypothesised predictor variable (board governance) but majorly also, through intellectual capital. Accordingly, the connection between board governance and firm financial performance is very much weakened by the presence of intellectual capital in the model – confirming that the presence of intellectual capital significantly acts as a conduit in the association between board governance and firm financial performance. Overall, 36 per cent of the variance in perceived firm performance is explained. the error variance being 64 per cent of perceived firm performance itself. Research limitations/implications – The authors surveyed directors or managers of firms and although the influence of common methods variance was minimal, the non-existence of common methods bias could not be guaranteed. Although the constructs have been defined as precisely as possible by drawing upon relevant literature and theory, the measurements used may not perfectly represent all the dimensions. For example board governance concept (used here as a behavioural concept) is very much in its infancy just as intellectual capital is. Similarly the authors have employed perceived firm financial performance as proxy for firm financial performance. The implication is that the constructs used/developed can realistically only be proxies for an underlying latent phenomenon that itself is not fully measureable. Practical implications – In considering the behavioural constructs of the board, a new integrative framework for board effectiveness is much needed as a starting point, followed by examining intellectual capital in firms whose mediating effect should formally be accounted for in the board governance – financial performance equation. Originality/value – Results add to the conceptual improvement in board governance studies and lend considerable support for the behavioural perspective in the study of boards and their firm performance improvement potential. Using qualitative factors for intellectual capital to predict the perceived firm financial performance, this study offers a unique dimension in understanding the causes of poor financial performance. It is always a sign of a maturing discipline (like corporate governance) to examine the role of a third variable in the relationship so as to make meaningful conclusions.

This article finds the impact of corporate income tax and asset turnover on financial performance of the corporate sector with panel data in Pakistan. Panel data of sixteen non-financial firms listed in Pakistan Stock Exchange during the time period from 2006 to 2021 are used for analysis. Panel data are collected from the Data Services & Innovations Department, State Bank of Pakistan (SBP). The fixed effect model (FEM) estimates are found more appropriate for estimation on the basis of Hausman test. The study utilizes Tobin q as an indicator of firm financial performance. Findings of study explain that corporate income tax effects firm financial performance positively. However, this impact is not significant. Further, the impact of asset turnover is negative and significant. Negative relation is found between liquidity ratio and firm financial performance. It indicates that a lesser amount of liquid assets evade from expensive borrowing. Tax structure is important for firm financial growth and performance. The improvements in corporate tax structure to boost the investment in the corporate sector of Pakistan are recommended. Further, sales of Pakistani firms do not meet the neck and neck of firm’s assets. Firm is advised to improve product quality for its sale promotion and government can play its role in this regard by devising export policy.

Corporate governance is an important factor in generating firm financial performance especially in the Covid-19 Pandemic. During the pandemic, the government announced to do social distance that effect on firm operation which could not run maximal comparing to normal conditions. Good corporate governance practice may help to prevent deterioration financial ratio due to decreasing firm financial performance. Moreover, external funding becomes important to back up back up firm operations because firm tend to suffering loss during the pandemic. The aims of this study are to analyse the impact of corporate governance practice and capital structure on firm performance, as well as firm value. This study applies Shariah-compliant firms (SCF) that listed on Indonesia stock exchange from 2015 – 2020. This study analyses using structural equation modelling - partial lease square (SEM-PLS). The results show that corporate governance have a significant positively on firm financial performance, but capital structure shows the adverse effect on firm financial performance. In terms of firm value, both corporate governance and firm financial performance have a positively associated to firm value. Moreover, firm financial performance has negatively impact on firm value. Finally, the findings may help stakeholders to create effective corporate governance practice in driving both firm performance and firm performance, as well as maintain the balance between debt and equity to optimize capital structure that may impact on the firm financial performance and firm value.

<abstract> <p>It is becoming increasingly apparent that businesses must consider the impact they have on the environment and society while pursuing profit maximization. As a result, there is a growing need to incorporate sustainable frameworks into business decision-making. By focusing on sustainable performance at the firm level, we addressed a significant gap in understanding how environmental and social Sustainable Development Goals (SDGs) impact bottom-line performance and the crucial role that effective country governance plays in implementing sustainability at the organization level. In 2015, the United Nations established Sustainable Development Goals (SDGs), where firms are encouraged to practice in the strategic operation of their businesses. In addition, country governance can play a significant role in adopting sustainable practices and policies that can impact bottom-line performance. In this study, we examined the relationship between environmental and social Sustainable Development Goals (SDGs) practices, country governance, and firms' financial performance from 2017 to 2021. The sample data set consisted of top-listed firms in the finance, manufacturing, and technology industries of 100 companies from 17 countries in developed and developing and emerging economies. We utilized content analysis to account for the qualitative aspects of how firms implement social and environmental SDGs. Ten environmental SDGs and eight social SDGs were incorporated in this study as a means of measuring sustainable development goals' impact on a firm's financial performance. We adopted return on assets (ROA) to measure the firm's financial performance. We adopted government effectiveness and regulatory quality to moderate the relationship between social and environmental sustainability practices and firm performance. The panel regression method was exercised to find out the relationship between environmental and social SDGs' impact on financial performance. In addition, we measured the interaction effect between environmental and social SDGs and country governance on firms' performance. We also deployed two-stage least squares (2SLS) regression estimation to mitigate endogeneity concerns. We found that environmental SDGs had a positive and significant impact on firms' financial performance. The coefficient of social SDGs on firm performance was negative and statistically significant. We observed that the coefficient of interaction terms between environmental SDGs and country governance was positive and statistically significant. Moreover, the coefficient interaction terms between social SDGs and country governance were positive and statistically significant, lessening the negative impact of social SDGs on firm financial performance. Finally, we also performed a robustness test on our analysis based on the firm's average capital and average assets. The findings almost held the same.</p> </abstract>

It is well recognised that construction firms encounter risk and are sensitive to trends and volatility in the business environment. Measuring the financial performance of a firm serves as the basis of monitoring and evaluating its management competence, resource allocation and corporate strategy in response to environmental change. Forecasting is paramount in responding to potential problems and perpetuating positive developments that result in sustainable competitiveness. Thus, an enriched understanding and prediction of the financial performance of construction firms are desirable for decision makers and other industry stakeholders. Notwithstanding that, little research attention has been paid to this premise conceptually and empirically. Thus, the overall aim of this study was to model and forecast the general financial performance of Hong Kong construction firms under the dynamic influence of the business environment.
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\nThis study involved the application of quantitative modelling using various statistical and econometric techniques. Multidimensional firm financial performance was first approximated using factor analysis based on the financial data of local publicly listed construction firms from 1992 to 2010. The factor model uncovers five common financial factors: liquidity, asset, leverage, profitability and activity. The time trends of these factors display diverse and cyclical patterns with irregular cycle periods.
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\nAutoregressive integrated moving average (ARIMA) models were then constructed based on the Box-Jenkins approach, which provided univariate forecasts of the financial factors. The results reaffirmed that ARIMA models were highly effective in forecasting.
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\nIn conjunction with cross-correlation analysis, multiple linear regression (MLR) models were next used to explore the influence of environmental determinants on firm financial performance. The findings identified different sets of significant leading determinants for different financial factors. They further justified the dominance of sectoral factors in the determination of firm performance. Supported by empirical verification, a theoretical framework depicting the relationships between business environment and firm performance was proposed.
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\nIn conjunction with cross-correlation analysis, multiple linear regression (MLR) models were next used to explore the influence of environmental determinants on firm financial performance. The findings identified different sets of significant leading determinants for different financial factors. They further justified the dominance of sectoral factors in the determination of firm performance. Supported by empirical verification, a theoretical framework depicting the relationships between business environment and firm performance was proposed.
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\nThis study is among the first to apply advanced econometric techniques to develop reliable performance measurement and forecasting models. The results improve the theoretical framework by explaining the dynamic relationships between the financial performance and business environment of construction firms. The empirical findings of the quantitative analysis offer new implications for firms’ financial performance and the significant leading determinants in a local context. The outcomes of this study make seminal contributions to current knowledge and practice.

Purpose The study is aimed at examining the impact of ESG on the financial performance (FP) of firms and determining the difference between the impact of ESG on market-oriented financial performance measure (Tobin’s Q) and internal productivity-based financial measure (ROA). The study has also explored the influence of managerial ability and institutional quality as moderating variables on the relation between ESG and the financial performance of firms (both measures of FP: Tobin’s Q and ROA). Design/methodology/approach The study is quantitative exploratory and uses panel data of 687 publicly listed companies from the year 2013–2023. Data has been acquired from the reputed data providers and OLS regression has been used for panel data analysis with fixed effects. Findings The study reaffirms the positive impact of ESG on the financial performance of firms. Each pillar of ESG (environmental, social, and governance) has been found positively related to both measures of financial performance (Tobin’s Q and ROA). The study reveals that managerial ability and institutional quality, acting as supplementary variables, moderate the relationship between ESG and financial performance of firms. Research limitations/implications A limited sample comprising data from only 687 firms was used for the analysis. The latest data was not available, therefore, data from 2013 to 2023 was used in the study. Practical implications This study indicates that ESG practices, which are mostly discretionary in Emerging Economies, can be induced through institutional pressures and ensuring higher quality managers. Policymakers in government institutions have to determine the inefficiencies, corrupt practices, and inconsistencies in policies that lower the effectiveness of institutions making them business-unfriendly. At the organizational level, policymakers need to ensure that responsible positions in the organization are held by managers with higher managerial ability. It is also to be ensured by shareholders that managers do not over-invest in ESG-related projects, particularly in organizations with weaker financial status. For managers, it is important to understand the positive benefits associated with ESG, even though they are in the long term. Social implications In Emerging Economies, the official monitoring and regulatory mechanisms are weak, and lack a supportive attitude toward ESG initiatives. Voluntary and proactive firm-level environmental and social initiatives need to be encouraged and rewarded by institutions with public acknowledgment. ESG should be given priority by organizations for improving the quality of services and better social impact of businesses on society. Originality/value Most of the past research explored the impact of ESG on financial performance in advanced countries or in emerging markets in a single/limited number of countries or industries. Also, past studies investigated the impact of institutional quality and managerial ability on ESG/financial performance in separate models. Conversely, this study has used a multi-country and multi-industry sample for more generalizable findings. Against the backdrop of the institutional environment of Emerging Economies, the study extends Institutional Theory and Upper Echelon Theory to include the role of managerial ability and institutional quality in the relationship between ESG and firms’ financial performance.

This paper contributes to the knowledge on corporate social responsibility (CSR) initiatives of by businesses and its ability to influence their financial performance. Consequently, the main objective is to examine the relationship between CSR and financial performance in the airline industry in Central and Eastern Europe. The paper does not attempt to establish causality between CŚR and financial performance. The paper attempts to contribute to the existing knowledge in the field by examining the extent to which CSR relates to financial performance of airline firms. A sample of 20 audited financial statements of airline firms were selected randomly. The study analyzed the impact of CSR activities on the financial performance of firms. The Return on Equity (ROE) and Return on Assets (ROA) were used as indicators to measure financial performance of firms whiles the independent variables were Community Performance (CP), Environment Management System (EMS) and Employee Relations (ER). The study found that there is a significant positive relationship between CSR initiatives and financial performance measures. More specifically, there was found to be a positive relationship between the independent variables of CSR thus, CP, EMS and ER and the financial performance of airline firms in terms of the ROE and ROA.

PurposeDespite the intensive research on corporate social responsibility (CSR) and firm financial performance, little is known about how the linkage between CSR and firm financial performance is heterogeneous across industries and how the performance implications are differentiated among specific categories of CSR activities. The purpose of this paper is to explore how the association between a firm’s engagement in CSR and firm financial performance is heterogeneous across industries and CSR categories.Design/methodology/approachUsing a sample of 17,083 firm-year observations representing 1,877 firms from the largest 3,000 US companies during years 1991 and 2011, the authors compare the association between CSR and firm financial performance across ten industry sectors defined by Global Industry Classification Standard and across the four CSR categories classified by Mandl and Dorr (2007).FindingsThe authors find that the association between the overall CSR activities and firm performance is heterogeneous across industries. CSR has significant positive implications for firms from most, but not all, industries. Comparing the performance implication of CSR practices targeting different stakeholder groups, the empirical results indicate that different types of CSR have different influences on financial performance of firms from different industry sectors.Research limitations/implicationsThis study provides new angles for managers in maximizing firm performance through CSR activities and suggests an important and interesting direction for researchers who engage in CSR research. Due to its heterogeneous nature, the CSR-performance relationship needs to be examined more specifically – across industries and different CSR categories. Findings from studies incorporating both company industrial sector and CSR categories would provide more meaningful and practical implications for managers.Practical implicationsThis study provides important managerial implications. First, to maximize firm performance through CSR activities, managers must interpret the linkage between CSR and firm financial performance from the perspective of a specific industrial sector and acknowledge the importance of CSR practices across different CSR categories. Second, the findings suggest that CSR practices aiming at different stakeholder groups generate different financial returns in different industries. Firms engage in CSR to satisfy different stakeholder groups. When budgets are tight, managers may give higher priority to the CSR practices that have stronger effects on firm financial performance.Originality/valueThis study advances our understanding of the CSR-financial performance relationship by exploring its heterogeneous nature across industry sectors and across specific categories. To obtain the biggest gain from CSR spending, managers must have a good understanding how a specific CSR category can contribute to the financial performance of their particular company in their particular industry.

PurposeThe paper aims to investigate empirically the impact of corporate social responsibility (CSR) on financial performance in South African listed firms.Design/methodology/approachThe paper uses panel corrected standard errors to estimate the effect of CSR on firm financial performance and thus addresses contemporaneous cross-correlations across the panel cross sections. The study uses a broad base measure of CSR created by the Public Investment Corporation data set and the combination of accounting and economic means of measuring firm financial performance.FindingsCSR is found to have a strong positive impact on firm financial performance in South Africa. When CSR is decomposed further into its major components, governance performance positively impacts a firm’s financial performance with no evidence of any relationship between social components and firm performance and between environmental components and firm performance. The positive impact of CSR on firm performance is greater in big firms. At the industry level, CSR is noticed to impact positively on financial performance in the extractive industry via good governance and responsible environmental behaviors. It however has no impact on firm performance in the financial sector.Research limitations/implicationsThe results should be interpreted with caution and some limitations. Due to the limiting nature of the Public Investment Corporation data set (the survey was carried out on selected firms on the Johannesburg Stock Exchange for three years spanning from 2011 to 2013). This resulted in a sample of 56 firms. It is therefore very problematic to generalize the findings to a larger population over a long period of time. This is more limiting especially on individual sector studies where the sample has further shrunk to a smaller sample. As a result of the smaller sample size, the authors were unable to explore some other sectors which could have given more revealing findings. The authors recommend that future research should explore other data sets or use primary data approach that can allow for more sample size and elongated time period for a more holistic view and for easy generalization of the findings. The authors also identify an important lacuna necessitating further research effort. It would be interesting to empirically examine the threshold point of firms’ size beyond which CSR damages firms’ performance. Knowledge of this will guide managers of firms in their strategic CSR decision.Practical implicationsThis study does not only serve as a reference work for subsequent investigations into the impact of CSR on firm performance in sub-Saharan Africa but also serves as a guide to policymakers on the financial impact of CSR adoption.Originality/valueThis study is one of the pioneering works that comprehensively examines the effect of CSR on financial performance amongst South African firms via size and sector and also controls for contemporaneous cross-correlation effects from the firms in the panel set.

This study examined the relationship between process innovation, market innovation and firm financial performance of Indonesian pharmaceutical firms. This study also intended to investigate the moderating role of disruptive technology on the relationship of process innovation and market innovation with Indonesian pharmaceutical firms’ financial performance. To investigate the proposed relationship, this study collected the data from managers of pharmaceutical firms in Indonesia by using survey questionnaire. PLS statistical software was employed to analyse the data. The result of this study highlighted that there is a positive relationship between process innovation, market innovation and financial performance of firms. While, results indicated that disruptive technology moderate the relationship of process innovation with financial performance, but it has no moderating role on the relationship of market innovation with financial performance. The results of this study contribute to the body of knowledge by adding to the existing literatures in the domain of innovation capabilities and financial performance. Moreover, the findings of the study have shown that innovation capabilities are capable of influencing the performance of firms. How to Cite this Article Pubmed Style Hari Muharam, Fredi Andria, Eneng Tita Tosida. of Process Innovation and Market Innovation on Financial Performance with Moderating Role of Disruptive SRP. 2020; 11(1): 223-232. doi:10.5530/srp.2020.1.29 Web Style Hari Muharam, Fredi Andria, Eneng Tita Tosida. of Process Innovation and Market Innovation on Financial Performance with Moderating Role of Disruptive http://www.sysrevpharm.org/?mno=83858 [Access: March 29, 2021]. doi:10.5530/srp.2020.1.29 AMA (American Medical Association) Style Hari Muharam, Fredi Andria, Eneng Tita Tosida. of Process Innovation and Market Innovation on Financial Performance with Moderating Role of Disruptive SRP. 2020; 11(1): 223-232. doi:10.5530/srp.2020.1.29 Vancouver/ICMJE Style Hari Muharam, Fredi Andria, Eneng Tita Tosida. of Process Innovation and Market Innovation on Financial Performance with Moderating Role of Disruptive SRP. (2020), [cited March 29, 2021]; 11(1): 223-232. doi:10.5530/srp.2020.1.29 Harvard Style Hari Muharam, Fredi Andria, Eneng Tita Tosida (2020) of Process Innovation and Market Innovation on Financial Performance with Moderating Role of Disruptive SRP, 11 (1), 223-232. doi:10.5530/srp.2020.1.29 Turabian Style Hari Muharam, Fredi Andria, Eneng Tita Tosida. 2020. of Process Innovation and Market Innovation on Financial Performance with Moderating Role of Disruptive Systematic Reviews in Pharmacy, 11 (1), 223-232. doi:10.5530/srp.2020.1.29 Chicago Style Hari Muharam, Fredi Andria, Eneng Tita Tosida. Effect of Process Innovation and Market Innovation on Financial Performance with Moderating Role of Disruptive Technology. Systematic Reviews in Pharmacy 11 (2020), 223-232. doi:10.5530/srp.2020.1.29 MLA (The Modern Language Association) Style Hari Muharam, Fredi Andria, Eneng Tita Tosida. Effect of Process Innovation and Market Innovation on Financial Performance with Moderating Role of Disruptive Technology. Systematic Reviews in Pharmacy 11.1 (2020), 223-232. Print. doi:10.5530/srp.2020.1.29 APA (American Psychological Association) Style Hari Muharam, Fredi Andria, Eneng Tita Tosida (2020) of Process Innovation and Market Innovation on Financial Performance with Moderating Role of Disruptive Systematic Reviews in Pharmacy, 11 (1), 223-232. doi:10.5530/srp.2020.1.29

PurposeAlthough the halal orientation strategy (HOS) plays a key role in protecting the halal status of any product, research on the impacts of HOS on the financial performance of halal firms is lacking in the literature. As the main objective of all companies is to maximize their profit, this study aims to examine the influence of HOS on the financial performance of halal food firms with respect to halal culture as a moderator.Design/methodology/approachData were obtained from a survey of 154 halal food firms in Malaysia and were analyzed using the partial least squares technique.FindingsThe results indicate that halal materials and halal storage and transportation positively affect financial performance, whereas the halal production process negatively affects financial performance. It is also interesting to observe that halal culture moderates the relationship between the production process and the financial performance of the firm.Practical implicationsThe findings can help managers of halal food firms to enhance the financial performance of their respective firms by investing in HOS and giving attention to halal culture. It also helps decision makers to understand the importance of revising requirements for halal certification.Originality/valueThis study also contributes to the advancement of knowledge on the relationship between HOS and the financial performance of halal food firms.

This paper uses the carbon emission trading policy as a quasi-natural experiment to comprehensively investigate its impact on the financial and market performance of firms. The study uses data from A-share listed companies for the period from 2009 to 2022 and adopts the difference-in-differences model for a rigorous analysis. The mediating effect of financing constraints and the moderating role of managerial capabilities are examined with respect to the influencing mechanisms; heterogeneity was also analyzed in terms of carbon allowance allocation methods, carbon prices, environmental enforcement efforts, and type of industry. The results of the study show that the carbon trading policy has a significant effect on improving the financial performance of firms, while also inhibiting their market performance. The feasibility of the findings was further validated after conducting robustness tests such as propensity score matching and placebo tests. The mechanism analysis finds that financing constraints play a masking effect on the impact of carbon trading policies on firms’ financial performance; managerial competence can positively moderate firms’ market performance. Heterogeneity analysis shows that the inhibitory effect of emissions trading policies on market performance is more significant for firms in regions with a smaller share of free allowances. For companies in high carbon price regions, carbon trading policies have a more significant impact on financial performance. For companies located in regions with higher levels of environmental enforcement, the positive effect of carbon trading policies on financial performance is unchanged, but the dampening effect on market performance is more significant. Carbon trading policies have a stronger positive effect on the financial performance of high-polluting firms, but a more significant dampening effect on the market performance of low-polluting firms. The findings of this study enhance China’s research framework on the economic impacts of carbon trading policies on micro-enterprises, promoting sustainable business development and serving as a useful reference for policy sustainability.