Alternative Performance Measures Research Articles

The Effect of the Mandatory Adoption of Corporate Governance Mechanisms on Executive Compensation

This study investigates empirically the effect of corporate governance principles on executive compensation and firm performance prior to and after the adoption of the first Greek Law on corporate governance. Prior to the adoption of the law, managers were not compensated in line with their performance. Since its introduction, a significant link has been observed between executive compensation and company performance as measured by accounting measures of performance. Following the adoption of corporate governance principles by law, the main mechanism that controls executive compensation is the election of independent non-executive board members. The results are robust to alternative accounting measures of performance.

Ownership concentration beyond good and evil: is there an effect on corporate performance?

In this paper, we analyze the relationship between ownership concentration and firm performance, while accounting for the endogeneity of the ownership structure, a potential curvilinearity of the performance effect, differences in corporate governance systems, and alternative performance measures. Using a sample of 1,079 firms from 8 countries we find evidence for a curvilinear effect of ownership concentration on firm performance, which becomes insignificant after controlling for endogeneity. Hence, our results support the findings by Demsetz and Villalonga (J Corp Fin 7(3):209–233, 2001). More research is needed to disentangle the contradictory findings in prior works.

Governance Thresholds, Managerial Ownership and Corporate Performance: Evidence from the UK

The paper examines the relationship between managerial share ownership and firm performance for British stock-exchange listed firms. We seek to establish a link between the predictions of agency theory and the corporate control environment using key governance and disclosure thresholds as determinants of the nonlinear relationship between managerial share ownership and performance. We also argue that the use of conventional accounting and market-based performance measures can be problematic in estimating managerial efficiency. The Clean Surplus Accounting Rate of Return is introduced as an alternative performance measure to Tobin’s Q and ROE.Our results indicate that relationships between managerial share ownership and corporate governance outcomes might be linked to key regulatory disclosure thresholds and minority shareholders rights of UK Company Law. We find that shareholder wealth is maximised when equity ownership by executive directors is below the 5% equity threshold of the Association of British Insurers’ dilution limit and sections 376 to 378 of Companies Act 1985 or above the 15% equity threshold of section 110 of Companies Act 1989 and section 127 of Companies Act 1985. Share ownership by executives between 5% and 15% is found to lead to declining firm performance.Our findings confirm the importance of testing thresholds based on corporate governance regulation rather than inductively deriving them from the data. We also show that it is desirable to decompose board ownership into executive and non-executive components. Our results further support the use of the Clean Surplus Accounting Rate of Return as an alternative performance variable.

An Examination Of The Consistency Of Risk Differentials Between Historical Measures Of Risk And The Risk Implied By Economic Value Added

The corporate world is continually striving to identify an effective means of evaluating management performance. Corporate concern over this issue stems from both the perspective of managerial compensation and maximizing shareholder value. Some companies have used such measures as returns on assets, equity, or investment. Some have relied on other measures like inventory management, trade credit management, or cash management. The common ground shared by these measures is that they rely on accounting measures of firm activity. The weakness of using such means to measure firm performance is that they are driven by a rule-based system, and anyone with sufficient understanding of the rules can manipulate the information to present the picture of the firm’s performance in a way that may not track with the reality of the firm’s performance. This does not suggest that managers will engage in such numerical fiddle-dee-dee; rather, it suggests that the opportunity to do so exists, and must somehow be incorporated into the shareholder’s interpretation of the reported performance. This situation leaves firms in the position of needing a better performance measure by which to evaluate the work of its management. One alternative performance measure offered to meet this need was introduced in the early 1980's by Stern Stewart and Company and is known as Economic Value Added or EVA®.(Ehrbar, 1998) The basic premise underlying EVA is an effort to encourage managers and other employees to think and act as entrepreneurs rather than employees.

Comparison of Alternative Real-Time Performance Measures for Measuring Signal Phase Utilization and Identifying Oversaturation

Various control algorithms process vehicle detector on and off times with the objective of quantifying split performance. Two such metrics are green occupancy ratio (GOR) and volume-to-capacity (v/c) ratio, both of which can be used to estimate the efficiency of a split as well as estimate oversaturated conditions. The GOR metric is attractive because of its simplicity of implementation; the v/c ratio is based on well-established traffic flow concepts and is independent of detector geometry although additional processing is required to develop the metric. Characterizing the impact of detection zone length and vehicle speed on the GOR as well as comparing its performance with another metric is important in understanding the robustness of GOR as a surrogate performance metric. This paper analyzes the difference between calculated GOR and v/c ratios over different detection zone lengths and differing vehicle speeds, compares these values with a calculated delay metric, and observes the effectiveness of GOR as an indicator of oversaturation. On the basis of the analysis, the paper documents the influence of approach speed and detection zone length on the calculated GOR metric. The paper concludes that the GOR values tend to reach a saturated value of 1.0 more rapidly than v/c, making it challenging for the analyst to identify oversaturated conditions by the metric alone. For practitioners using the GOR metric, it is critical that the system be calibrated properly because of the sensitivity of GOR to the detection zone length and vehicle speed. However, because direct measurement of v/c is difficult to obtain, GOR may still be a reasonable surrogate in real-time performance assessment of traffic signal systems.

An Alternative Performance Measure

In this paper, we present a new alternative performance measure (APM) which evaluates not only for the marginal distribution of a given fund but also its’ dependence (correlation) with a reference portfolio. This performance measure is of particular value in assessing hedge fund return as the latter are selected not only for yield enhancement but also for their diversification benefits. The methodology is adapted from American option theory and based on earlier work of Dybvig (1988), Kat and Palaro (2005) and Papageorgiou et al. (2008). It offers a unique metric for hedge fund performance evaluation.

Value relevance of alternative accounting performance measures: Australian evidence

PurposeThe paper aims to examine the value relevance of alternative accounting performance measures in Australia. It also documents the relative and incremental value relevance of revenue vis‐à‐vis earnings and the longitudinal changes in such value relevance. Finally, the impact of certain firm characteristics including firm life cycle on the value relevance of revenue and earnings information is investigated.Design/methodology/approachThe paper utilises data on Australian listed companies from 1992 to 2005 on the level of and changes in seven alternative accounting performance measures. Standard ordinary least square regression is conducted.FindingsResults reveal that: the coefficient estimates on all the performance measures are much higher for large firms compared to their small firm counterpart; the explanatory power of incremental revenue in explaining stock returns has declined significantly over the sample period; and life cycle analysis shows that the combined coefficients for both revenue and earnings are significant in the growth and maturity stages of the firm life cycle.Practical implicationsWhen making equity valuation decisions investors consider firms' fundamentals as reflected in financial statements. However, which line item is more important for equity valuation is an important consideration. From a regulatory perspective, this stream of research is quite relevant because standard setters will have evidence from an investor viewpoint about whether certain line items, subtotals, and totals should be defined in standards and required to be displayed in financial statements.Originality/valueThe paper adds to the existing capital market research in Australia by documenting differential persistence of alternative performance measures.

The relevance of earnings and cash flows in a heavily regulated industry: Evidence from the Greek banking sector

Abstract This study examines the informational quality of annual accounting earnings within Greek banking institutions taking into consideration the most significant risks facing by such firms and specifically interest rate risk, credit risk, liquidity risk and solvency risk, alongside with the persistence of earnings and bank size as significant determinants of ERCs. Data analysis over a period of ten years (1995–2004) revealed that earnings have higher incremental importance in explaining stock return movements compared to cash flows since earnings change has been found to affect stock returns positively. Additionally, interest rate risk has a positive but not significant impact on the return-earnings relation but on the contrary solvency risk, credit risk and liquidity risk proved to have a negative impact on the valuation process for both small and big-sized banks. Finally, tests on the incremental informativeness of cash flows when earnings are transitory provide significant results suggesting that investors seek for alternative measures of banks' performance when earnings are characterized by increased extremity but inversely cash flows and earnings seem to be equally value relevant when investors evaluate big-sized banking institutions. The results are generally robust to the specification of the empirical models and the research design employed in our study.

Governance–Performance Relationship: A Re‐examination Using Technical Efficiency Measures

The objective of this study is to analyse further the governance–performance relationship while improving on two methodological issues: control for endogeneity and firm performance measurement. To mitigate the endogeneity problem, we first focus on subsamples of firms for which weex anteexpect better corporate governance to cause better performance. Second, we use generalized least squares regressions for panel data. To control for potential measurement bias, we measure firm performance using data envelopment analysis (DEA). The research is conducted in Canada over a five‐year period from 2001 to 2005. Corporate governance is measured based on theReport on Businesscorporate governance index published by the Globe and Mail. Overall, the results show that better governed firms are more efficient. This study is in line with a growing number of recent studies that propose alternative measures of firm performance. By using DEA, this study brings together the corporate finance and productivity literature.

The predictive ability of relative efficiency for future earnings: an application using data envelopment analysis to Spanish SMEs

Research on earnings prediction has documented that the transitory component of current earnings undermines its predictive ability about future earnings. The implication of this finding is that a measure that better captures the underlying persistent component of earnings may prove very useful in predicting future earnings when used along with current earnings. Our study, based on a large sample of 1939 Spanish Small and medium Enterprises (SMEs), investigates whether an alternative measure of performance ignored in previous research on earnings forecasting–i.e. relative efficiency–has predictive ability over and above current earnings and book value of equity. Relative efficiency captures the inherent ability of a firm–as compared to other similar firms–to make the most productive use of available resources and is measured using Data Envelopment Analysis (DEA) nonparametric technique. Our findings highlight that our DEA-based efficiency measure has an incremental predictive ability over and above current earnings and book value of equity for predicting future earnings. Moreover, we have further validated the models in a holdout sample and our results evidence the highest forecast accuracy of the model that includes our efficiency measure as an additional predictor to current earnings and book value of equity.

Ownership Structure, Board Characteristics and Financial Performance: Evidence from the Botswana Stock Market

Despite vast majority corporate governance and firm performance literature in recent years, there is none on Botswana’s corporate sector. This study investigates the relationship between ownership structure, board characteristics and financial performance to determine the role of corporate governance in the performance behavior of companies listed in an emerging market like Botswana. The approach of this study is different from available literature in capturing all types of shareholdings together in addition to other corporate governance and firm-specific control variables. The empirical evidence shows distinct nature of corporate governance behavior among alternative performance measures used, in particular between accounting-based/hybrid and market-based measures. Such diversity in findings provides insights to policy-makers to take appropriate measures on corporate governance and stock market development in order to ensure their efficiency.

Reliability of congestion measures: Stockholm's case

The Stockholm congestion charging trial was implemented with the aim of satisfying a number of transport policy objectives related to reducing car use in the central area of Stockholm. However, the multifaceted nature of congestion that the charges aimed to alleviate was not technically defined. The traffic impact evaluation efforts were based on survey results for chosen links without any scientific review of the dynamic character of congestion or any investigation of the statistical characteristics of the chosen congestion indicator. Neither was there any analysis of area networks nor any calculation of an overall indicator. Based on a literature review, approaches for defining congestion and a number of alternative congestion performance measures were selected. Data from the trial ‘before' and ‘after' surveys were used to estimate congestion levels and the accuracy of the performance measures. Specific issues and lessons regarding the quality of the data collection are discussed. Accuracy rankings are presented for different cases, concluding that some performance measures showed better reliability in all situations whereas others proved to always be less reliable. These findings are used as a basis for recommendations regarding the implementations of the congestion indicators studied.

Model uncertainty, performance persistence and flows

Model uncertainty makes it difficult to draw clear inference about mutual fund performance persistence. I propose a new performance measure, Bayesian model averaged (BMA) alpha, which explicitly accounts for model uncertainty. Using BMA alphas, I find evidence of performance persistence in a large sample of US funds. There is a positive and asymmetric relation between flows and past BMA alphas, suggesting that fund investors respond to the information in BMA alphas. My findings are robust to various sensitivity analyses, including alternative measures of post-ranking performance, flows and total net assets, and alternative econometric model specifications.

The Effects of Focus versus Diversification on Bank Performance: Evidence from Chinese Banks

This paper investigates the effects of focus versus diversification on bank performance using data on Chinese banks during the 1996-2006 period. We construct a new measure, economies of diversification, and compare the results to those of the more conventional focus indices, which are based on the sum of squares of shares in different products or regions. Diversification is captured in four dimensions: loans, deposits, assets, and geography. We find that all four dimensions of diversification are associated with reduced profits and higher costs. These results are robust regardless of alternative measures of diversification and performance. Furthermore, we observe that banks with foreign ownership (both majority and minority ownership) and banks with conglomerate affiliation are associated with fewer diseconomies of diversification, suggesting that foreign ownership and conglomerate affiliation play an important mitigating role. This analysis may provide important implications for bank managers and regulators in China as well as in other emerging economies.

Performance Analysis for Sparse Support Recovery

The performance of estimating the common support for jointly sparse signals based on their projections onto lower-dimensional space is analyzed. Support recovery is formulated as a multiple-hypothesis testing problem. Both upper and lower bounds on the probability of error are derived for general measurement matrices, by using the Chernoff bound and Fano's inequality, respectively. The upper bound shows that the performance is determined by a quantity measuring the measurement matrix incoherence, while the lower bound reveals the importance of the total measurement gain. The lower bound is applied to derive the minimal number of samples needed for accurate direction-of-arrival (DOA) estimation for a sparse representation based algorithm. When applied to Gaussian measurement ensembles, these bounds give necessary and sufficient conditions for a vanishing probability of error for majority realizations of the measurement matrix. Our results offer surprising insights into sparse signal recovery. For example, as far as support recovery is concerned, the well-known bound in Compressive Sensing with the Gaussian measurement matrix is generally not sufficient unless the noise level is low. Our study provides an alternative performance measure, one that is natural and important in practice, for signal recovery in Compressive Sensing and other application areas exploiting signal sparsity.

Exploring organizational culture and performance of christian churches

This study explores how dimensions of organizational culture are related to performance in a sample of Christian churches. Alternative models of the relationships of four dimensions of organizational culture with multiple measures of church performance were explored using data provided by staff and pastors describing 53 Christian churches. We identified a model that fit the data very well in which the relative strength of four organizational cultural dimensions are predictors of the levels of seven alternative measures of church performance covering membership growth, constituent satisfaction, staff and constituent learning and development, and internal business processes. Church leaders desiring to improve performance could consider focusing on strengthening the culture dimensions that may be related to each area of church operations.

The effects of focus versus diversification on bank performance: Evidence from Chinese banks

This paper investigates the effects of focus versus diversification on bank performance using data on Chinese banks during the 1996–2006 period. We construct a new measure, economies of diversification, and compare the results to those of the more conventional focus indices, which are based on the sum of squares of shares in different products or regions. Diversification is captured in four dimensions: loans, deposits, assets, and geography. We find that all four dimensions of diversification are associated with reduced profits and higher costs. These results are robust regardless of alternative measures of diversification and performance. Furthermore, we observe that banks with foreign ownership (both majority and minority ownership) and banks with conglomerate affiliation are associated with fewer diseconomies of diversification, suggesting that foreign ownership and conglomerate affiliation may play important mitigating roles. This analysis may provide important implications for bank managers and regulators in China as well as in other emerging economies.

Comparing How to Compare: An Evaluation of Alternative Performance Measurement Systems in the Field of Social Care

Comparative performance evaluation has taken different forms depending upon the purposes of performance monitoring and the types of measures available. This paper investigates the different performance measurement systems in place in the social care setting, in particular for older people receiving community care services. In England, earlier systems to assist performance management within organizations have been eclipsed by national systems of regulation with top— down implementation of standards and measures. In Northern Ireland, by contrast, organizations have been compared descriptively without the use of national targets. Internationally, in Japan, organizations arranging similar services have had more local information available collected in a bottom—up fashion with greater employment of service user-level data. These differences in performance evaluation are located within an analytical framework permitting comparisons of system design and the use of measures. Conclusions are drawn concerning the breadth of evidence available for successfully monitoring service provision in this setting.

Model Uncertainty, Performance Persistence and Flows

Model uncertainty makes it difficult to draw clear inference about mutual fund performance persistence. I propose a new performance measure, Bayesian Model Averaged (BMA) alpha, which explicitly accounts for model uncertainty. Using BMA alphas, I find evidence of performance persistence in a large sample of US funds. There is a positive and asymmetric relation between flows and past BMA alphas, suggesting that fund investors respond to the information in BMA alphas. My findings are robust to various sensitivity analyses, including alternative measures of post-ranking performance, flows and total net assets, and alternative econometric model specifications.

The Multiple Dimensions of Student Mobility and Implications for Academic Performance: Evidence from New York City Elementary and Middle School Students

The purpose of this report is threefold: First to develop measures of alternative types of student mobility; second to document the magnitudes of each type of mobility in aggregate and by student income, race/ethnicity, and immigrant status; and third to analyze how mobility of different types affects student academic performance. Although mobility is an oft discussed phenomenon, inadequate attention has been paid to the alternative ways that it can be defined, how the alternatives differ and which alternatives appear to be of sufficient size to be of consequence to policy and practice. Previous research on mobility often focuses on the impact of changing schools on an individual’s academic achievement. As an example, Hanushek, Kain and Rivkin (2004) find that switching schools is harmful to student growth in performance in the year following a switch, even when switching is required because students reach the top grade offered at their school. Other researchers find that academic performance is lower among students who have changed schools in previous years, whatever the reason, (Alexander et al, 1996; Rumberger and Larson, 1998; Swanson and Schneider, 1999). Relatively little attention has been paid in the existing quantitative analyses to distinguishing between different types of mobility i.e., midyear vs. between year; annual vs. cumulative. By providing district level statistics on alternative types of student mobility, this report may help policymakers decide which types of student mobility are important for districts to report regularly. Defining alternative measures may help both policymakers and researchers identify the types of mobility that are the most harmful to student performance and effectively design and target interventions. The main findings of this study are that there is considerable mobility into grades 2 through 8 from outside the New York City school district, across schools, across years for students staying in the district, and some mobility even across schools within academic years. Furthermore, over time, between 6% and 7% enter into each grade of a cohort, and students move several times over their schooling history in the city district. In addition, the entrants and frequent movers have characteristics that are generally associated with harder to educate children. Finally, student mobility has a consistently negative effect, ceteris paribus, on 8th grade reading scores, although the statistical significance of the effect is sensitive to the specification used in the analysis. The report is organized as follows. In the second section, we describe the sources of data. In this section, as throughout the report, we present more detailed information in a separate box in the text. The third section introduces alternative measures of student performance, the fourth section presents magnitudes of annual mobility, and the fifth section does a cumulative mobility analysis. The sixth section analyzes moves in terms of the characteristics of new schools and moves coincident with significant moves in student residence, as measured by zip code changes. The seventh section analyzes the effects of alternative measures of mobility on student performance for New York City (NYC) elementary and middle school (hereafter primary schools) students and the last section concludes.