Accounting-based Performance Measures Research Articles

Labor market peer firms: understanding firms’ labor market linkages through employees’ internet “also viewed” firms

AbstractThis paper studies the grouping of firms based on their labor-market connections, a significant departure from the traditional approach of grouping based on product-market connections. It also proposes a measure of labor market peers by analyzing the “also viewed” companies on two major online labor market platforms, LinkedIn and Glassdoor. Using the labor market peer measure, I examine whether firms that hire employees with similar skills and that are presumably exposed to the same labor-related risks and shocks exhibit a strong comovement of stock returns and accounting-based performance variables. I find that labor market peers overlap but differ from traditional product-market-based industry groupings, have significant incremental power to explain stock return and accounting-based performance measure comovements, and outperform traditional industry groupings in explaining return and wage comovements when a base firm shares more labor skills with its peers. Overall, the study highlights that labor market peers capture fundamental linkages between firms that are challenging to identify using traditional industry measures.

Performance management in the Australian higher education system – A historically informed critique

This article aims to provide a historical perspective of neoliberalism and new public management practices in the Australian higher education system from the early 1980s to contemporary times. Drawing on historical and contemporary data sets and research articles, it evaluates historical changes in control systems and metrics applied to university teaching and research. From an audit culture framework, it examines the emerging rationales driving financially focused university governance. Organisational and individual audits of performance have become standard practice, couched in the conventional language of transparency, performance and accountability. Accounting-based performance measurement, control and audit are found to dominate university operations, fostering mass delivery of education, research outputs and knowledge commercialisation. Neoliberal performance management is shown to have dramatically altered accounting models and changed internal power relations, transforming university identities and roles into a commercialised corporate model pursuing a self-interested financial bottom line aided by a private sector performance control orientation.

Does inflation expectation affect banks' performances? Evidence from Indian banking sector

PurposeThe study intends to evaluate the impact of inflation expectation on the performance of listed commercial banks in India during 2005–2021. Inflation expectation is considered as a direct policy tool by the policymakers for stability of the economy. The study explores how inflation expectation affects the performance indicators of the Indian banking industry while controlling for a wide range of bank-specific factors.Design/methodology/approachThe study applies the generalized method of moments (GMM) on a panel sample of 27 listed bank to analyse the impact of inflation expectation on banking sector performance. The data on inflation expectation are obtained from the household inflation expectation survey introduced in India by the Reserve Bank of India in 2005. Return on assets (ROA), return on equity (ROE) and Tobin's Q have been considered as the banking performance indicators in this study.FindingsEmpirical results exhibit that inflation expectation is instrumental in deciding the banking sector's performance. Inflation expectation has been found to have a significant and positive impact on accounting-based measures of banking performance. At the same time, it shows negative impact on the marketing-based measure.Practical implicationsThe study gives a clear picture about how inflation expectation affects the banking performance and the monetary policy of the country. The study provides crucial insights to develop strategic decisions for the Indian banking sector. The adoption of proper macroeconomic policies, taking into account inflation expectation levels, is instrumental in enhancing bank's performance and in achieving economic growth.Originality/valueThis study contributes to the growing body of literature on the impact of inflationary conditions on banking performance. The originality lies in capturing the role of inflation expectation solely in determining banking sector performance.

Revisiting the corporate governance and corporate performance nexus: evidence from value-based metrics

Purpose This study seeks to empirically examine the influence of corporate governance on corporate performance in Ghana.Design/methodology/approach The study employs data from 30 listed firms spanning from 2008 to 2018 and applies the generalized method of moments technique. The authors use economic value added, shareholder value added (SVA) and economic margin (EM) as measures of corporate performance.Findings The findings reveal that the presence of both inside directors and outside (nonexecutive) directors significantly improves corporate performance, lending credence to both the stewardship theory and the agency theory. The inclusion of women on the corporate boards and frequent meetings of the board reduce the economic profits of firms. The authors find that CEO duality impedes corporate performance, supporting the presumption of the agency theory. The study further reveals that audit committee size and ownership concentration positively drive the performance of quoted firms in Ghana.Originality/value Prior studies on corporate governance and firm performance nexus have chiefly adopted traditional accounting-based performance measures such as return on assets and return on equity to evaluate firm performance. However, these indicators are critiqued for being historic and fail to consider firms' cost of equity. In light of the shortcomings of the accounting-based proxies, this study takes a unique direction by using value-based metrics, which are considered superior measures of performance. Besides, to the best of the authors' knowledge, this study provides a first attempt to investigate the link between corporate governance and firm performance using SVA and EM as performance indicators.

Performance of Slovenian Listed Firms during COVID-19 Out-break

This research aims to estimate the determinants of firm performance during the COVID-19 pandemic. For this purpose, the sample of Slovenian non-financial listed firms operating in the period 2017 – 2021 is used. Firm performance is expressed with market-based as well as accounting-based performance measures, including Tobin's Q, ROA, and ROE, while potential determinants encompass several firm-oriented variables. These are the firm size, liquidity expressed with the current ratio, leverage, tangibility, sales growth, age of the firm as well as COVID-19 dummy variable. The results of dynamic panel analysis disclose that liquidity, leverage, sales growth, and COVID-19 dummy are statistically significant in explaining firm performance. Specifically, liquidity and leverage are found to be significant in explaining Tobin's q, sales growth is a statistically significant determinant of both ROA and ROE while the latter is also negatively impacted by leverage and the COVID-19 dummy.

Financing decision, ownership type and financial performance of listed non-financial companies in Ghana

The study aims to investigate the nexus between financing decision, ownership type and financial performance of listed non-financial companies in Ghana. Data were selected from 22 listed non-financial companies on the Ghana Stock Exchange from the years 2010 to 2021. A non-parametric estimation technique-robust OLS (Driscoll-Kraay) was employed to test the variables of interest. Findings indicate that long-term debt funding directly affects ROA, ROE and TQ negatively. Again, total debt funding posits a positive link with ROE and TQ. Moreover, the direct relationship between ownership type, financing decision and accounting-based performance measure (ROE) was insignificant but significant with market-based performance measure (TQ). Subsequently, the interaction role propelled ownership (foreign and state) to be significant on the relation between financing decision and financial performance. Largely, foreign-owned companies play a strong positive role on the link between financing decision and financial performance. Further, state ownership negatively affects the association between financing decision and financial performance. The study contributes to knowledge by considering the multiplier effect of ownership type on the relationship between financing decision and financial performance in Ghana. For policy implication, regulators specifically of state interest entities should formulate balanced frameworks for welfare seeking in public service delivery and performance for sustainability.

Environmental, social and governance performance: influence on market value in the COVID-19 crisis

PurposeThe aim of this paper is to study whether adoption of sustainability policies by firms makes their stock market performance resilient to the downside risk during the crisis period.Design/methodology/approachThe paper empirically examines the relationship between environmental, social and governance (ESG) and stock market performance for Indian companies that have consistently been a part of Refinitiv Eikon ESG database. Further, the study examines whether there exist significant differences in stock market performance of high ESG and low ESG-compliant firms during crisis period. The sample was made up of 70 Indian firms studied over the period 2016–2019 defined as “normal period” as well as for the declared COVID-19 crisis period, i.e. January–March 2020, and full year 2020. The authors used multivariate panel data regression, robust least square multivariate regression, pooled OLS model and two-stage least square regression method.FindingsThe study extends the existing literature by investigating the impact of ESG performance on market value of firms during the crisis period. Based on the stakeholder and “flight to safety” theory, the authors hypothesized that ESG would have significant positive effect on the stock market performance during crisis period; however, the results provide robust evidence that in a well-specified model capturing the effect of accounting-based measures of performance, Size, Growth, Risk and Dividend yield, ESG had no explanatory power over the stock market performance of ESG-compliant firms during crisis period. Furthermore, no significant difference in stock market performance indicators between high and low ESG-compliant firms was observed during the crisis period of 1Q2020 as well as for full year 2020. On contrary, the study finds dividend yield to be statistically significant in determining stock market performance of Indian firms during crisis period. The study extends the existing literature by coining the term, “ESG irrelevance” during crisis period.Research limitations/implicationsThe main limitation of this study is its limited sample size because there are very few Indian firms that have secured consistent ESG rating. The study focuses on consistently rated firms to avoid the impact of “greenwashing”. Further, the study is focused on India, which limits the generalizability of our findings to other emerging countries.Originality/valueTo the best of our knowledge, this is among the first few studies that examines sustainability and stock market performance of Indian firms during COVID-19-led crisis period. Our findings highlight no significant difference between stock market performance of high ESG firms and low ESG firms indicating that investors who wish to create wealth by investing in ESG-compliant stocks in India can do so without worrying about the companies’ ESG rating scores.

EFFECT OF EVA AND CFROI METHODS ON SHAREHOLDERS VALUE MAXIMIZATION AND FINANCIAL PERFORMANCE ESTIMATION: AN EMPIRICAL STUDY

Shareholder value maximisation has become very important for companies due to increased competition with globalization. The main objective of a company in financial terms is to maximize the value of its shareholders. However, traditional accounting-based performance measures are insufficient in this regard. Therefore, companies should be able to determine an appropriate measure to analyze their financial performance that reflects shareholder value. From this point of view, it is aimed to emphasize the importance of the Cash Flow Return on Investment (CFROI) and Economic Value Added (EVA) performance methods in maximisation the value of the shareholders. For the periods including the years 2015-2021 companies in the healthcare sector traded in Stock Exchange Istanbul (BIST) are analyzed. In the study, it is concluded that CFROI and EVA have a positive effect on stock returns of these companies but CFROI has bigger impact. Thus, the CFROI technique is the best measure of financial performance for shareholder value.

EARNINGS MANAGEMENT AND FIRM’S SUBSEQUENT PERIOD PERFORMANCE: A STUDY ON NON-FINANCIAL INDIAN LISTED FIRMS

While studies internationally have found an association between earnings management and the firm’s future performance, there is limited literature concerning Indian firms. Prior research in the Indian context has revealed the existence of opportunistic accruals management. However, its impact on a firm’s future performance remains unexplored. Thus, this study examines the impact of accrual-based earnings management on future performance among listed non-financial Indian firms. This study estimates accruals management proxies for 2006-2017 using the widely accepted modified-Jones model of discretionary accruals. Firm performance is measured using ROA, ROE, and PE ratio. This study uses a one-step System Generalised Method of Moments (GMM) to address the problem of endogeneity in the dynamic panel model. The result from the estimator indicates that discretionary accruals have a negative impact on accounting-based performance measures (ROA and ROE) and a positive impact on the market-based performance measure (PE ratio). These results are consistent for the three estimators (OLS, FE, and GMM), establishing a robust relationship between accrual management and firm performance. The findings of this study are consistent with the signaling hypothesis and suggest the likelihood of accruals reversal.

IFRS adoption and accounting-based performance measures: evidence from an emerging capital market

PurposeThis study aims to examine the economic consequences of the adoption of International Financial Reporting Standards (IFRS) in Saudi Arabia. More specifically, the study examines the impact of the mandatory adoption of IFRS on the accounting-based performance measures.Design/methodology/approachData on study variables were obtained manually from the published financial statements of 67 of listed companies in the Saudi stock market during the period 2014–2019. The study addressed the research hypotheses by comparing the accounting-based performance measures computed under the Saudi accounting standards for three years (2014–2016) before the mandatory adoption of IFRS and the corresponding three years (2017–2019) after the mandatory adoption of IFRS. The Mann–WhitneyUTest was used to investigate the significance of differences between the values of performance measures in the pre- and post-mandatory adoption periods.FindingsThe findings of the study revealed that there were no significant differences between the values of accounting-based performance measures related to the three performance categories (i.e. profitability, liquidity and leverage) in the post-mandatory adoption period (IFRS) compared to the values of these measures in the pre-mandatory adoption period (Saudi accounting standards).Research limitations/implicationsThe results of the study indicated that there is a good convergence between the Saudi accounting standards that were implemented before 2017 and the IFRS that began to be applied starting from 2017. This convergence resulted in a low significant impact of IFRS on the financial statements of companies and then on the accounting-based performance measures calculated from them. However, this study suffers from some limitations, the most important of which is the small sample size as a result of the small number of listed companies in the Saudi market during the study period.Originality/valueAlthough the impact of the adoption of IFRS have always been a subject of intense research in developed countries, the study of the impact of the adoption of IFRS in developing countries still limited. This study contributes to the literature by examining the economic consequences of adopting IFRS in Saudi Arabia as one of developing countries.

Impact of board characteristics and ownership structure on firm performance: empirical evidence from India

This study attempts to assess the empirical relationship between corporate governance and the financial performance of firms in the Indian context by using a set of board and ownership characteristics as representatives of corporate governance practices. We employ a panel dataset comprising of a large sample of 1,347 Indian non-financial companies for the period 2010 to 2018. For studying firm performance, we use both accounting-based performance measures like return on assets (ROA) as well as market-based performance measures like Tobin's Q (TQ). Starting from the basic static panel estimation approach using the fixed-effects estimator, we gradually move on to dynamic panel estimation using different GMM and system GMM estimators to examine the various board characteristics that influence firm performance in India. Based on our final model estimated using system GMM, we infer that on one hand, board size, board activity, and promoter ownership are found to positively influence firm performance while on the other hand, board meetings are found to be negatively related to firm performance. For policymakers and corporates, our study provides valuable insights into the specific aspects of corporate governance that can be targeted and implemented effectively to improve the financial performance of firms.

Private firm performance: do women directors matter?

Purpose This paper aims to examine the relationship between board gender diversity and private firm performance. Design/methodology/approach The authors test the association between board gender diversity and private firm performance by estimating pooled multivariate regressions using an unbalanced panel data set of 115,253 firm-year observations. Findings The authors find that younger, less busy and local women directors enhance private firm performance. Firms with 40% or more women directors report triple the economic benefits compared to boards with at least 20% women directors. Considering firm size, women directors significantly increase small firm profitability, and the effect is more pronounced for high-risk firms. Greater board gender diversity enhances small firm performance as the monitoring role of women directors benefits the firm even in the presence of busy men directors. Consistent with the agency theory framework, the authors find that women directors improve small firm profitability in the presence of agency costs. Research limitations/implications Due to the lack of availability of data about private firms, many factors are not directly observable. The analysis uses accounting-based performance measures that may be subject to managerial discretion. Nevertheless, the authors report highly significant results using cash-based performance measures that substantiate the overall findings. Practical implications The results of the present study point to the need for private firms to increase board gender diversity and consider women director busyness, age, nationality and firm size when making board director appointments. Originality/value This study adds to the scarce existent literature investigating private firms. The results contribute to the understanding of gender-diverse boards as well as the attributes of women directors that enhance private firm performance.

Financial performance of listed commercial banks in Sri Lanka: does corporate social responsibility matter?

This paper examines the impact of Corporate Social Responsibility (CSR) on the financial performance of the listed commercial banking sector in Sri Lanka. CSR is measured using content analysis based on an index. The financial performance of the banking firms is measured by accounting-based performance indicators (ROA, ROE, and PAT) and market-based performance indicators (P/E, EPS, and MTB). Bank size and Leverage were the control variables for the study. Annual reports have been used to collect secondary data of the listed commercial banks for 10 years from 2010-2020. Fixed effect panel regression was employed for the data analysis and to test the study hypotheses. The study findings reveal that CSR partly has a significant positive influence on the banks’ financial performance. Accordingly, CSR of listed commercial banks in Sri Lanka positively impacted the market-based financial performance. Consequently, investments in CSR lead to increase market-related-performance indicators of listed commercial banks compared to accounting performances measures. Moreover, study results conclude that CSR does not have an impact on the accounting-based performance measures, and therefore, CSR disclosures are not reflected through accounting-based performance in Sri Lankan commercial banks. However, the relationship between control variables and firm performance is uncertain. Consequently, there is no difference between larger banks or smaller banks based on their financial performances. Further, the study concludes that the leverage of the listed commercial banks is not highly critical in achieving financial performance during the last ten-year period. In sum, the operating profitability of commercial banks is not guaranteed through CSR involvement as well as the banks do not engage in CSR only for the reason that they are profitable. However, wellcoordinated investments in CSR and its disclosure could affect banks’ share prices, investors’ funds, and stakeholder loyalty. Moreover, spending on CSR as a non-profit making activity could assist the banks to enhance future intangible profits, to face the competition in the market while addressing the social responsibility requirements of the banking firms.

The complexity in measuring M&A performance: Is a multi-dimensional approach enough?

M&A are complex corporate events involving two or more companies and often requiring relevant efforts in order to be successful. For these reasons, both scholars and practitioners are interested in assessing the success rate of M&A and measuring their influence on the corporate performance. Despite the complexity of the M&A phenomenon, previous studies that empirically examine this issue according to an accounting-based perspective, largely adopt single performance measures. Therefore, our study aims to explore whether the use of a multi-dimensional approach in the development of accounting-based performance measures could provide a comprehensive examination of the change in corporate performance due to complex events, such as M&A. In particular, this study assesses the performance of M&A concluded in the European context through the development of multiple accounting-based performance indicators that examine: (i) profitability, (ii) growth, and (iii) financial situation. In addition, we analyse a crucial performance dimension, the cost of employment, which has received limited attention from previous empirical research. Consistently with the multifaceted nature of M&A, results indicate that they provide a mixed impact on different performance measures. Therefore, main findings suggest that the measurement of M&A performance should take into consideration different contextual features

CEO management style: does educational background play a role?

PurposeThe corporate finance literature has largely treated individual managers as uniform entities, leaving unexplained the large heterogeneity in corporate practices. The authors explore whether educational background attributes, such as a bachelor's degree from an elite institution and the field of study, influence CEO management style manifested in objectively measurable outcomes at the firm level.Design/methodology/approachThe authors construct a unique data set from various sources. The management-style variables encompass investment, financial, organizational strategy policy choices, and performance outcomes. They standardize the style variables by industry sector and express deviations from industry means into three categories (low, medium, high). The ordered logit models suggest that educational background attributes influence management style across several dimensions.FindingsThe authors document numerous statistically and economically significant results. For instance, an elite education translates to superior market performance as measured by Tobin's Q. A background in science/technology manifests in more (less) spending on R&D (advertising) and less exposure to financial risk for the firm. The authors also find that gender plays almost no role, while CEO age has a nonlinear influence role in affecting management style.Research limitations/implicationsThe study posits that educational background plays an important role along several dimensions such as skill and character development, signaling and network building. While these effects are difficult to disentangle, they all arguably influence an individual's ability to perform complex tasks such as running a company.Originality/valueThe paper contributes to the growing literature on the drivers of CEO style and performance. Previous studies have examined the role of a CEO's elite educational background on firm performance outcomes and have reported either no or limited association. In contrast, the authors document that an elite education is strongly linked to superior market performance but not to accounting-based performance measures. They also find that CEOs who major in science/technology exhibit markedly different management styles compared to their counterparts with backgrounds in business/economics or the humanities.

How firms' performance mediates the relationship between corporate governance quality and earnings quality?

PurposeThe purpose of this study is to propose an analytical model that investigates both a direct path between corporate governance quality and earnings quality and an indirect path, in which firms' performance is a mediating variable that is influenced by corporate governance quality and that, in turn, influences earnings quality.Design/methodology/approachThe study employs a structural equation modelling (SEM), to a sample of Egyptian listed firms during 2011–2017, to test the proposed analytical model and to determine the relative importance of both the direct and indirect paths.FindingsThe findings show a statistically significant evidence of both a direct path from corporate governance quality to earnings quality, and an indirect path that is mediated by firms' performance, suggesting that both corporate governance quality and performance have a complementary effect on earnings quality. However, the weight of the evidence favouring the direct path is more important in case of accounting-based performance measures; and the weight of the evidence favouring the indirect path is more important in case of market-based performance measures.Research limitations/implicationsThe current study has some limitations. First, the study focuses specifically on one proxy for measuring earnings quality which is the absolute value of discretionary accruals. Other proxies of earnings quality could be examined in future research, such as income smoothing, earnings persistence and timely loss recognition. Another limitation is that only financial performance measures were examined, namely, return on assets, return on equity, price-to-earnings ratio and market-to-book value. Notwithstanding, non-financial performance measures could be investigated in future studies, such as balanced scorecard (BSC). Furthermore, considering cultural, political and legislative differences among countries, the results may not be generalised outside the scope of the current sample (i.e. Egyptian listed firms).Practical implicationsThe implications of the findings for both theory and practice are discussed.Originality/valueThis study is distinguished by validating an analytical model that has been overlooked by prior studies. Moreover, it provides a new constructed index for measuring corporate governance quality. Furthermore, it uses a new sophisticated statistical technique, which is SEM, for testing the proposed model.

Determinants of Accounting and Market-based Performance Measures – Case of Croatian Non-financial Listed Companies

Research background: Profitability and the factors that determine it have always intrigued the scholars. Despite the large number of studies dealing with this topic at the international level, this paper sheds a new light on the issue since it deals with the listed companies in an emerging economy confronting two performance measures. Purpose of the article: The aim of this paper is to provide evidence on the performance of Croatian non-financial firms listed on the Zagreb Stock Exchange (ZSE). Methods: The analysis encompassed firms that operated in the 2015 – 2019 period. For this purpose, the authors confronted two performance measures, i.e. accounting-based performance measure represented with return on assets (ROA) whereas Tobin’s Q stands for the market-based measure of performance or firm value. Independent variables that served as potential determinants of listed companies’ performance include inventories management, productivity, liquidity measured with both current and quick ratio, and size calculated on the basis of total assets, and sales. Findings & Value added: After employing static panel analysis, the results reveal statistically significant influence of size variable based on assets in both models though it takes negative sign in the model where performance is measured with Tobin’s Q, whereas its positive impact on performance is recorded in ROA model. Furthermore, size based on total sales also positively affects performance when measured with ROA.

The Impact of Lagged R&D Expenses on Firm Performance: Empirical Evidence from the BSE Healthcare Index

The study finds the impact of lagged Research and Development expenditure on financial performance. The investigation analyses 69 pharmaceutical companies included in the BSE healthcare index (India) using secondary data for the period of 2008 to 2017. The two dependent variables which are considered separately are Return on Asset (ROA) and Return on Equity (ROE). The two estimated regression models show that both the lagged value and its quadratic term have a significant influence on the accounting-based measures. With regard to the control variables, size and leverage are found to influence negatively whereas liquidity poses a positive effect on these two accounting-based performance measures. The article contributes by highlighting that the true relationship between R&D and financial performance is represented by a U-shaped curve as evident in few other studies.

Corporate social responsibility reporting: meeting stakeholders expectations or efficient allocation of resources?

PurposeThis study aims to examine whether corporate social responsibility (CSR) reporting adds any value to the firm.Design/methodology/approachThis study uses content analysis to capture the specific CSR-related attributes and to construct a CSR reporting index. The data is manually collected from 115 publicly listed firms on the Dhaka Stock Exchange. The companies audited financial statements were the source of data. This study uses an ordinary least square regression analysis to examine the relationship between CSR reporting and firm performance.FindingsThe results of this study show that firms’ involvement in CSR activities and related reporting has a significant positive influence on firm performance only under an accounting-based performance measure. However, firms’ involvement in CSR activities and related reporting has a significant negative influence on firm performance under a market-based performance measure.Research limitations/implicationsThis study is subject to some limitations, such as the subjectivity or judgement associated in the coding process.Practical implicationsThe findings of this study imply that firms may be involved in CSR reporting to meet the stakeholders’ expectations, CSR reporting does not necessarily increase the intrinsic value of the firm.Originality/valueThis study supports the stakeholder theory and contributes to the literature on the practices of CSR reporting in the context of developing countries.

Corporate performance and sustainability: Evidence from listed firms in Portugal and Spain

We examine the impact of various factors on the quality of environmental disclosure using a sample of listed companies in Portugal and Spain for the period 2010–2017 using the generalized method of moments (GMM) and adding a sustainability index created through principal component analysis (PCA). The econometric model has been used to show the practical implications of gender corporate governance (CG) indicators and the proposed index over the market and accounting-based performance measures. The study focuses on factors related to the strategy and vision of the firm, diversity within boards, and environmental factors. Results highlight that the presence of women on board increases both financial performance and sustainability practices, highly visible through market-based measures. Sustainability initiatives also increase financial performance which works also in the other way around. Still, sustainability practices by companies are highly dependent on their financial situation casting doubts on the effectiveness of the regulations obliging to insert certain types of measures within the company. Results are useful for regulatory parties, companies, and stakeholders. Companies should still be aware of the pressure posed by both shareholders and stakeholders regarding sustainability practices, and the increased gender diversity may have an intermediate role between CG, sustainability, and financial performance.