Alternative Performance Measures Research Articles

Crude oil price volatility and environmental performance

We study the relationship between crude oil price volatility and corporate environmental performance. Using an extensive dataset from 32 countries consisting of 18,464 firm-year observations, we provide strong evidence that oil price volatility significantly increases firms' environmental performance. Our main inference is robust when using alternative measures of oil price volatility and environmental performance, alternative econometric specifications and samples, and several approaches to control for endogeneity. In a set of additional analyses, we first conduct a difference-in-differences analysis that exploits the Arab Spring as an exogenous oil price volatility increase and document a stronger relationship between oil price volatility and environmental performance in the aftermath of the Arab Spring. We second identify (i) capital expenditures and (ii) alternative energy importation as two mechanisms through which oil price volatility influences environmental performance. We finally show that national culture plays a significant role in moderating the relationship between oil price volatility and environmental performance. Taken together, our empirical findings highlight the role of economic uncertainty in affecting firms’ environmental performance and provide significant contributions to management and policymakers.

Determinants of the profitability of Sheltered Workshops: efficiency and effects of the COVID-19 crisis

The socio-labor inclusion of people with disabilities represents a substantial social challenge in European countries, particularly in Spain. Sheltered Workshops (SWs), a type of Work Integration Social Enterprise, are companies specifically designed to provide employment opportunities for individuals with disabilities, offering ongoing support throughout the integration process. SWs need to be profitable to sustain their social contributions. This study investigates the determinants of profitability for SWs in Spain, analyzing a sample of 1133 entities from 2010 to 2020. Using a static panel data model (random effects) and a dynamic panel data model (Generalized Method of Moments, GMM system), we estimate, among other factors, the impact of efficiency on profitability, with efficiency scores calculated via data envelopment analysis (DEA). Our findings reveal that the positive effect of operational efficiency outweighs the negative effect of social efficiency, resulting in a net positive impact of overall efficiency on profitability. The SWs were able to operate effectively to meet the needs of people with disabilities while achieving financial viability by combining social and economic goals. The study shows no significant differences in these effects when considering the legal status of the SWs (for-profit vs. non-profit). Additional factors influencing SW performance include size, low risk, and leverage, which have a positive impact, while age, liquidity, and tangibility generally have a negative and significant effect. During both the financial and COVID-19 crises, SWs experienced lower profitability; however, a positive and significant relationship between efficiency and profitability was observed during the COVID-19 crisis. The robustness of our results was confirmed through alternative measures of efficiency and performance and by addressing potential endogeneity issues. Understanding how financial and social factors influence profitability helps policymakers develop growth and sustainability policies for SWs and enables practitioners to identify strengths and weaknesses, facilitating better decision-making.

Digitalization as a driver of European SMEs’ financial performance during COVID-19

This paper analyzes the impact of the European economy's digitalization on the financial performance of European small and medium enterprises (SMEs) during COVID-19. Using a panel data from 2017 to 2022 of 12,179 European SMEs and a European transformed digitalization index, we find that the financial performance of SMEs is significantly and negatively associated with the COVID-19 pandemic. Digitalization seems to have played a key role in helping SMEs to combat the effects of the pandemic. We find that digitalization significantly increases SMEs’ financial performance, as measured by various performance measurements and mediates the COVID-19 negative effect. Digitalization is more significant during the COVID-19 era compared to the pre-pandemic period. Our results are robust to alternative performance measures.

Is One Head Better Than Two? Dual Leadership and Firm Performance During the COVID‐19 Crisis

We provide novel evidence on the value of combined CEO and board chair positions (CEO duality) for firms during the COVID‐19 pandemic in 2020. Based on 4,840 firm‐quarter observations from 1,210 unique firms in the US, we show that CEO duality firms outperformed non‐duality firms by a 0.58% margin in quarterly return on assets in 2020, which is equivalent to an incremental annual net profit of US$164 million. A difference‐in‐difference estimation confirms that the benefit of CEO duality is observed only in the COVID‐19 crisis period. Our main finding is robust to potential endogeneity concerns and alternative performance measures. Additional analyses show that the positive impact of CEO duality stems from the mechanisms of operating cost savings and working capital optimization during the crisis. Our finding underscores the benefit of CEO duality when economic uncertainty is high and a speedy decision is important.

Kinerja Keuangan Berbasis Konsep BSC (Balance Scorecard) Berdasarkan Prespektif Financial

The purpose of this research is to understand how the Balanced Scorecard is implemented as an alternative performance measurement for companies using a qualitative descriptive approach. Data analysis based on the Balanced Scorecard concept serves as a guide for researchers to elaborate on information at Bank 9 Jambi, indicating performance measurement based on three perspectives: financial perspective, customer perspective, and internal business perspective. The results of this research provide information on the performance measurement of Bank 9 Jambi using the Balanced Scorecard method for the period 2017-2019. Researchers can draw conclusions regarding the performance measurement of the company using the Balanced Scorecard method at PT. Bank 9 Jambi, considering the financial perspective of PT. Bank 9 Jambi appears to be good. From the customer perspective, the performance of PT. Bank 9 Jambi seems satisfactory. The internal business process perspective suggests that continuous development is needed for PT. Bank 9 Jambi.

Impact of war in Ukraine on annual reports of European listed companies

This survey provides an overview of the impact of the war in Ukraine on companies, as reported in the 2022 annual reports of 100 large listed European companies. Almost half of the population reported to have withdrawn from or being in the process of withdrawing from the Russian market. Again almost half of the population reported significant losses with a total reported loss of EUR 71.3bn, mainly due to impairments, losses on sale and provisions caused by exiting Russian operations. The indirect effects of the war, such as lost revenues, could not be assessed but are likely higher. Sectors most impacted are automobile, food, beverage and tobacco and energy sectors. However, by using alternative performance measures most of the reported losses were excluded from key performance indicators and when assessing management remuneration. We also found the surveyed companies reporting significant donations and other help to Ukrainian citizens.

Islamic banking performance measurement: What do stakeholder think?

Purpose: The objective of this study was to determine the understanding of Islamic banking X stakeholders about performance measurement Theoretical framework: Performance measurement is important in a company or business entity, which is useful for providing manager accountability to all stakeholders. Stakeholders are people or groups who have an impact on company decisions. But in terms of management, conventional companies differ from Islamic financial institutions, especially in managing the interests of their stakeholders Methods: The research paradigm used is an interpretive paradigm with a phenomenological approach. Phenomenology is used as an analytical tool to determine the understanding of informants Results: The results of the study found that some stakeholders understand that Islamic banking performance is measured based on financial aspects alone, without looking at other aspects. Therefore, a balance of all aspects is needed in measuring Islamic banking performance that can accommodate the interests of all parties Research, Practical & Social implications: Stakeholder understanding can be used as a basis for management to develop an alternative performance measurement system that not only focuses on financial aspects but other aspects, including religious aspects Originality/value: An importan finding explains the existence of aspects other than financial aspects needed for measuring Islamic banking performance such as religious aspects

Do financing institutions consider operating performance in estimating cost of debt?

This paper examines the relationship between firm performance and cost of debt. More specifically this paper empirically shows that fund providers charge lower cost on debt for highly performing companies compared to lower performing companies. We argue that the profitable companies are more resilient, and they have more survivable capacity which impacts on the pricing of the cost of debt. In contrast, lower performing companies are more prone to financial distress or may have higher chances of non-repayment of loans thereby fund providers charge higher interest to compensate the risks. Consistently, analyzing 547 firm year observations for the period of 2015–2019 we find that the cost of debt is significantly lower for the highly performing companies compared to the lower performing companies. The negative relation between the cost of debt and firm performance is highly pronounced in smaller companies compared to bigger companies. It suggests that fund providers create opportunities for smaller companies thereby results in balanced growth in the economy. Our results are robust to a set of alternative measures of firm performance. This study has several policy implications and contributions to the literature of the cost of debt in developing economies.

Pengukuran Kinerja pada Departemen Produksi Amonia 1B PT. Petrokimia Gresik Berbasis Metode Balanced Scorecard

This study aims to determine the performance of the Ammonia Plant of PT Petrokimia Gresik using the Balanced Scorecard method to provide an alternative performance measurement system that can provide an understanding to management about the company's performance appropriately and thoroughly. The Balanced Scorecard method is one of the performance measurement methods that reviews company performance not only from the Financial side, but also Non-Financial. The performance index of the PT Petrokimia Gresik Ammonia Plant in 2020 is 1,891 and in 2021 it is 1,892, this means that overall the PT Petrokimia Gresik Ammonia Plant has decreased by 0.001.

Firm Size and Productivity in the Informal Sector: Evidence from India

The study analyses the debate around the ambiguous relationship between firm size and performance. We explore how productivity varies across firm sizes in the informal sector, where firm size is sensitive to formal regulations. Additionally, the study also looks into the informal firms’ quantity and quality of employment by observing wage and performance dispersion across firm sizes, thus indicating capital accumulation and exploitation. Considering the data limitations, a pseudo-panel data design was adopted by combining the three, only available, independent cross-sectional surveys by the National Sample Survey Office, spanning from 1999–2000 to 2015–2016. Potential issues such as time-invariant unobserved firm-level heterogeneity were accounted for by using panel random effects regression. Using total firm employment and total factor productivity as the primary measures of firm size and performance, we find a positive relationship between the two across all major industries. Our results stand robust against alternative firm size and performance measures. However, this positive association between size and performance indicated capital accumulation (increasing productivity with increasing size) at the expense of labour exploitation (stagnant wages across firm sizes). The obtained findings convey important policy implications for adopting a carrot-and-stick approach for the gradual formalisation of the economy. JEL Codes: D22, L25, O25

Pollution control bonds and environmental performance in energy utility firms: is there an incantation effect?

PurposeThis study aims to examine the effects of green financing through pollution control bonds (PCBs) on environmental performance.Design/methodology/approachThis study is based on a panel of 189 US energy utility firms observed over the period, 2011–2021 ; this study applies Generalized Method of Moments regressions.FindingsThis study found that PCBs positively affect environmental performance (aggregate measure, greenhouse emissions, waste landfill, waste incineration and waste recycling). These findings remain robust when this study considers alternative measures of PCBs and environmental performance, the quantile regression method and some firms’ attributes such as financial performance and firm age.Practical implicationsThe results indicate that US energy utility firms have to adopt more PCBs. This study helps researchers, practitioners, shareholders, bondholders, equity analysts and local authorities such as the California Pollution Control Financing Authority, municipalities and investors understand PCBs issuance, usefulness and relevance.Originality/valueTo the best of the authors’ knowledge, this study is the first to explore the effectiveness of PCBs in reducing pollution.

How Do Individual Analyst Characteristics Affect Analyst Performance?

ABSTRACT Motivated by research from the late 1990s and early 2000s, researchers often examine analyst performance as a function of individual analyst characteristics using variables representing analysts’ experience, busyness, and resources. Studies make different choices for variable construction and fixed effects, sometimes with varying results, suggesting there is no standard approach to evaluating the effect of analyst characteristics. We reproduce analyses from two early studies (Clement (1999) and Clement and Tse (2003)) and extend these analyses to a more recent sample period and across different methodological approaches and alternative analyst performance measures. We provide robust evidence that analyst experience is positively associated with earnings forecast accuracy but that associations for analyst resources and busyness are sensitive to variable measurement and fixed effect choices. Our results can inform accounting and finance scholars examining analyst performance as they consider which analyst characteristics to include and how to test the robustness of their findings.

Variable selection in linear regression models: Choosing the best subset is not always the best choice.

We consider the question of variable selection in linear regressions, in the sense of identifying the correct direct predictors (those variables that have nonzero coefficients given all candidate predictors). Best subset selection (BSS) is often considered the "gold standard," with its use being restricted only by its NP-hard nature. Alternatives such as the least absolute shrinkage and selection operator (Lasso) or the Elastic net (Enet) have become methods of choice in high-dimensional settings. A recent proposal represents BSS as a mixed-integer optimization problem so that large problems have become computationally feasible. We present an extensive neutral comparison assessing the ability to select the correct direct predictors of BSS compared to forward stepwise selection (FSS), Lasso, and Enet. The simulation considers a range of settings that are challenging regarding dimensionality (number of observations and variables), signal-to-noise ratios, and correlations between predictors. As fair measure of performance, we primarily used the best possible F1-score for each method, and results were confirmed by alternative performance measures and practical criteria for choosing the tuning parameters and subset sizes. Surprisingly, it was only in settings where the signal-to-noise ratio was high and the variables were uncorrelated that BSS reliably outperformed the other methods, even in low-dimensional settings. Furthermore, FSS performed almost identically to BSS. Our results shed new light on the usual presumption of BSS being, in principle, the best choice for selecting the correct direct predictors. Especially for correlated variables, alternatives like Enet are faster and appear to perform better in practicalsettings.

Auditors’ perceptions of alternative performance measures – alternative truths and professional skepticism

ABSTRACT Alternative performance measures (APMs) may increase uncertainty and perceived risks concerning the audit, and rouse the auditor’s professional skepticism (PS), for example in case the APMs and official reporting diverge (e.g. one shows a profit and the other a loss). In this paper, using a survey of Finnish certified public auditors (N = 220), we study how auditors perceive relationships between audit work, PS, and APMs. When examining PS, we use both personal ‘trait skepticism’ and case-specific ‘state skepticism’. Our results show that state skepticism related to APMs can explain skeptical behavior and that it is a separate component from trait skepticism. Both state skepticism and considerations of the usefulness of APMs are helpful in assessing audit evidence and accounting figures. Further, we find that auditors hold various views of APMs and that ‘search for knowledge’ and ‘questioning mind’ are key dimensions of PS in coping with APMs.

Does ESG performance affect audit pricing? Evidence from China

In this paper, we find that better environmental, social, and governmental (ESG) performance is associated with lower audit pricing in terms of both raw and abnormal audit fees in China. But the environmental, social, and governmental pillars don't play the same role in driving that relationship. Our main findings are robust to a battery of sensitivity tests, including alternative measures of ESG performance and additional control variables, as well as different approaches to address potential endogeneity. Additional analyses indicate that reduced risk and increased information transparency might be channels by which ESG performance affects audit pricing while auditor industry expertise and independence moderate this impact. Overall, this paper reveals the importance of considering the dimensional ESG factors simultaneously instead of on a stand-alone basis to better understand ESG and promote balanced ESG development.

Audit quality, firm performance and risk: evidence from Greece

PurposeThe purpose of this paper is to accentuate whether audit quality or other variables matter for the performance of companies in Greece.Design/methodology/approachThis study examines the effect of audit quality on firm performance using data of 75 companies listed in the Athens Exchange in Greece and covering the period 2018–2021. Panel data analysis is applied. The independent variables are audit quality, the size of firms, their age, leverage, liquidity and efficiency ratios. Seven alternative measures of performance are used, including, among others, return on assets and return on equity. Stock returns and risks are used too.FindingsThe results provide evidence of a positive relationship between financial performance and audit quality. The opposite is the case for stock returns and risk. On the other explanatory variables, age has a clearly negative relationship with financial performance. The opposite is the case for liquidity and efficiency. The size factor also has some sort of a positive correlation with financial performance, whereas the opposite correlation concerns the leverage ratio.Originality/valueTo the best of the authors’ knowledge, this is the first study to examine the relationship between audit quality and firm performance with data from Greece.

Interbank market structure, bank conduct, and performance: Evidence from the UK

We examine whether a concentrated interbank market stimulates bank collusion or monopolistic pricing towards enhancing performance. We explore this nexus by incorporating the role of bank conduct into the structure–performance paradigm. The results show that the interbank market structure provides a channel for banks to collude and engage in monopolistic pricing in the market for bank and business loans to consequently increase bank performance. Further, while the interbank market structure is both profit and cost efficient for non-conglomerate banks, it is cost efficient for foreign banks. Hence, collusion and other anti-competitive behaviours in the interbank market may exacerbate incentives for foreign and non-conglomerate bank entry. We also explored the theoretical and policy implications of these findings. Our results are robust to alternative measures of market structure, bank conduct and performance, and the use of a wide range of specifications and econometric models.

Social distinctions of directors and firm performance

PurposeThis paper aims to examine the effects of the social distinction of company directors on firm performance.Design/methodology/approachThe social distinction of company directors adds to the firm’s reputation, allowing the firm to access resources and privileges. The indicators of social distinction this study uses are the prenominal titles of directors in Malaysian companies. As Malaysian companies are known to have directors with political connections and the prenominal titles can be intertwined with these connections, to ascertain the effects of social distinction on firm performance, this study examines whether social distinctions proxy and complement political connections in improving firm performance. This study uses Tobin’s Q (TQ) for longer-term performance and gross sales for current-year performance.FindingsThis study finds evidence to suggest that the impact of higher-order titles on Tobin’s Q and sales is greater in politically unconnected firms than in connected firms. This study also finds evidence to suggest that higher-order titles amplify the effect on Tobin’s Q in politically connected firms, whereas lower-order titles amplify sales, both moderated by firm-age. The findings shed light on the mediating variables that contribute to the above, and are robust for alternative performance measures, and account for endogeneity concerns.Research limitations/implicationsThe results are generalisable only to countries where social distinctions are of significance.Practical implicationsFuture research on political connections should consider social connections that affect firms. Also, such research should prompt the awarders of titles to prohibit the use of titles for pecuniary motives to minimise market imperfections.Originality/valueAdding to the prior literature on the characteristics of directors and firm performance, this study shows that the social distinctions of directors do matter.

Working capital as a firm performance savior? Evidence from Scandinavian countries

This study examined the relationship between working capital management (WCM) and firm performance in Scandinavian markets from 2007 to 2020. The initial data set comprised 8821 observations; only 5331 yearly observations remained after data filtration. The data are extracted from a reliable Bloomberg database. This empirical study adopts a multiple regression analysis for unbalanced panel data on Scandinavian markets, reporting an inverse relationship between WCM and firm performance measured through return on assets, gross operating income, and market-to-book value ratio. The control variables also showed a significant relationship order. To assess the robustness of our baseline regression results, we considered various indicators, (i) including alternative measures of firm performance, (ii) excluding the 2008 global financial crisis period, and (ii) running all countries in one equation as a group analysis. This study adds to the existing literature and outlines how efficient WCM can help managers to improve firm performance.

Semivariance below the maximum: Assessing the performance of economic and financial prospects

This paper examines the ordering of economic and financial prospects using a rescaled semivariance below the maximum (SVBMax). This indicator is consistent with stochastic dominance (SD) until order three, but is distinct from any expected utility framework, both in terms of construction and in terms of economic implications, despite an apparent formal similarity with the quadratic expected utility framework. SVBMax is able to deal with economic puzzles such as the restaurant puzzle or Rabin’s paradox. SVBMax also provides a consistent alternative performance measure to popular measures such as the Sharpe ratio, the Omega ratio, or lower partial moments with exogenous thresholds. Compared to almost stochastic dominance, SVBMax is devoid of the drawbacks associated with the determination of violation areas. SVBMax can also replace the Aumann-Serrano and Foster-Hart riskiness indicators, which do not conform to third order SD. Further, SVBMax can provide a way of reaching an optimal diversification of stock portfolios. Besides, we also show that SVBMax is consistent with mean-variance-skewness preferences.