Measures Of Firm Performance Research Articles

Ethnic Diversity and Firm Financial Performance: Evidence From Malaysia

The authors investigate the relationship between board ethnic diversity, ethnicity and market, and book measures of firm financial performance using Malaysian data. This represents a departure from prior studies that focused on White countries whose people remain culturally indistinct. Ethnic diversity is measured by the Herfindahl-Hirschman Index; ethnicity is the largest representation of a single race. Controlling for firm- and board-specific attributes, the authors find a significant positive relationship between ethnic diversity and firm financial performance and that financial performance of companies differ between ethnicities. The results suggest that despite modernization and homogenization, corporate Malaysia is still divided along racial lines.

The impact of management and strategic controls on firm performance: an empirical study on the UK

This study focuses on and gauges the dimensions of both management and strategic control. It also defines the variables that affect the management accounting practices which will consequently affect the firm performance through management and strategic control. This study uses cross-sectional data that is derived from the FAME database in UK. Regression analysis is used to explain the relationship and the effect of management and strategic controls, industry type and firm size on firm performance. The results of this study indicate that management control and industry type have an effect on return on assets and profit margin while strategic control has an effect on competitive position as a measure of firm performance. Furthermore, this study proved that there is a significant difference in using management and strategic controls between large firms and SMEs while there is no difference between product-based and service firms in using management and strategic controls.

Regulatory Environment and Firm Performance in EU Telecommunications Services

AbstractWe empirically estimate the effects of regulated access prices and firms’ multinational status on firm performance by using firm, corporate group, and country level information for the European broadband market between 2002 and 2010. Three measures of firm performance are used, namely: market share, revenue and productivity. Special attention is paid to differences in the impact on the performance measures depending on a firm’s position as either a market incumbent or entrant. We find that while access prices have a negative effect on entrants’ market share and revenue, the effect on incumbents’ market share, revenue and productivity is positive. Further, we find that multinational entrants perform better than national entrants in terms of their market share but worse in terms of their revenue and productivity. The opposite is true of incumbent multinationals which perform better than nationals in terms of their revenue and productivity but worse in terms of their market share. This confirms that a firm’s multinational status has a significant impact on its performance, and that this impact differs for incumbents and entrants. Finally, when evaluating the impact of access prices on firm performance at the mean performance of national and multinational firms, we find that the impact of access prices is lower for multinational than for national firms.

Corporate sustainability performance and firm performance association: a literature review

The purpose of the present study is to conduct a review of the literature on the relation between corporate sustainability performance and firm performance. In this study corporate sustainability performance and firm performance measurement has been divided into different categories. Only empirical studies have been selected for the review. Research articles are classified based on certain measurement categories. Findings of this study suggest a positive relation between corporate sustainability performance and firm performance. Firm size and industry are the control variables used by the maximum number of studies. The results of the study support the fact of doing well pay well. The association between corporate sustainability performance and firm performance is an issue of ongoing debate among scholars and practitioners. This debate is supported by various ethical, religious, and emotional facts. The importance of this issue is major driven power of the empirical studies in this field of research. The positive relation between corporate sustainability performance and firm performance may be an important motivating factor for the practitioners to contribute more towards sustainable development. Results of this study will help both practitioners and academicians those are conducting research in the field of corporate sustainability performance measurement.

Social Networks and Employment: Outcomes (Part 2)

AbstractIn this second article, we continue to survey research that addresses work and employment from a social network perspective. Building on a companion article in this volume, which explores in‐depth the main network mechanisms presented in the literature, this article reviews studies addressing how social networks may shape key employment outcomes for both individuals and organizations. Network access and activation may shape individuals' selection into employment opportunities in addition to a variety of post‐hire outcomes including employee performance, promotion, rewards, job satisfaction, and termination. Organizations too may be influenced by their network position and by the activation of certain ties, ultimately affecting key outcomes such as firm performance, innovation, and learning measures. We conclude by discussing promising areas for future research on how social networks interact with employment.

Research Note—Business Value of Information Technology: Testing the Interaction Effect of IT and R&D on Tobin's Q

The business case for investing in information technology (IT) has received increasing scrutiny in recent years. We propose that IT investments create additional business value through interactions with other business processes. In this paper, we formalize the interaction effect of IT by focusing on one core function, namely, research and development (R&D). We hypothesize that investments in IT can interact with and complement a firm's R&D investments, enhancing the firm's shareholder value creation potential. We test this by hypothesis by estimating the interaction impact of IT and R&D investments on Tobin's q, a forward-looking measure of firm performance using a recent multiyear, firm-level, archival data set. Our results suggest that the interaction effect of R&D and IT on Tobin's q is positive and significant after controlling for other firm- and industry-specific effects. Our findings provide rigorous empirical support for recent anecdotal evidence in the managerial literature with respect to the manner in which IT is enabling R&D-intensive innovation processes. Our analysis underscores the need for coordinated investments in IT and R&D, and permeating IT capabilities throughout other business processes such as R&D.

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

Although strategic management research is well aware of the importance of construct measurement, surprisingly little rigor is applied regarding its core concept, firm performance. Using the example of the resource-based view (RBV), this paper demonstrates how divergence between theory-building and construct measurement regarding firm performance can produce misleading conclusions. The RBV seeks to explain value creation in the marketplace, yet empirical studies often measure various aspects of firm financial performance. Building on appropriation theory, I show that it is not possible to infer to changes in firm value creation from observed changes in firm financial performance measures and vice versa due to an omitted variable bias: the neglect of the relative bargaining power of stakeholders. This paper derives conclusions for research practice and suggests theoretically meaningful ways of bridging the gap between value creation and firm financial performance in the RBV framework.

Organizational culture, innovation, and performance: A test of Schein's model

Innovation is the key to organizational survival and therefore the study of processes that support innovation should be of interest to researchers and practitioners alike. Schein's multi-layered model of organizational culture offers a useful framework for thinking about processes that foster innovation. A defining characteristic of the model is the subtle but important distinctions between the varied “layers” of organizational culture (i.e., values and norms, artifacts and behaviors). The basic assumption of this study is that Schein's model offers a tractable explanation of cultural processes that support organizational innovation, especially in service firms. Despite the intuitive appeal and practical value of Schein's conceptual framework, empirical research in relation to the model is limited. This paper develops a rationale for an empirical model based on Schein's conceptual model; the study reports a test of an empirical model. Data collected from approximately 100 principals of law firms provides a suitable empirical context for a test of the model. The findings generally support the hypothesized relationships. A key result is how layers of organizational culture, particularly norms, artifacts, and innovative behaviors, partially mediate the effects of values that support innovation on measures of firm performance. The findings have implications for theory and practice, especially in relation to building an organizational culture within professional service firms that fosters innovative behavior.

Quality of Net Income vs. Total Comprehensive Income in the Context of IAS/IFRS Regulation

Research in accounting has thus far attempted to provide fair and useful financial performance measures for a wide range of users. Academics and professionals have also established income as the key performance measures in making economic decisions. The purpose of this study is to investigate the quality of total comprehensive income (TCI) relative to net income (NI), prepared in accordance with International Financial Reporting Standards (IAS/IFRS). Using a data set covering 2,273 firms from 22 countries in Europe, Asia and Australia between 2006 and 2010, we provided evidence that net income always dominates comprehensive income as a valuation metric. The findings indicated that NI is more value relevant than TCI in predicting the future operating cash flows and income. In addition, NI is more persistent and timely, and explains the actual operating cash flows more precise than TCI. Accruals linked to NI have also better quality than those related to TCI. However, we found that TCI is less smoothing and more conservative than NI. These results do not support the claim that income measured on a comprehensive basis is a better measure of firm performance than NI. These results raise the questions about the usefulness of mandating TCI in IAS/IFRS regulation. Our findings, therefore, should be of interest to IASB, as they provide evidence of fewer quality of the TCI. Perhaps it is time for the IASB to reconsider other comprehensive income components and focus on items included in other comprehensive income to improve the quality of the TCI metric. These results also provide evidence of net income as a primary decision-relevant metric.

IT Investments, Firm Performance and Tobin's Q: An Analytical Investigation

This paper attempts to analytically examine and address some of the limitations present in models examining the effects on firm performance of IT investment and to clarify the use of Tobin’s q as a potentially attractive measure of firm performance in empirically evaluating the effectiveness of IT investments. Using a set of analytical models it suggests possible improvements to the specification of empirical models examining the effect of firms’ IT investments on Tobin’s q, including the explicit incorporation of time-lag effects and market conditions.

The Effect of Customer Service on Firm Performance: Developing Scales for Performance Measurement of Customs Clearance Firms

This research has three objectives: one is to develop measuring criteria for ascertaining performance of customs clearance firms, another is to test reliability and validity of the factors, and the third is to analyze the relationship between customer service and firm performance. This research gathered the data from customs clearance firms. Reliability and validity concerned with the collected data are tested by exploratory factor analysis and confirmatory factor analysis and the relationship between variables is tested by analyzing structural equation modeling. The results are as follows. There are no problems in reliability and validity. According to the result of the analysis, customer service is divided into customer focus, customer needs, customer response and flexibility and performance is classified into customer performance and financial performance. The result of empirical tests is as follows. Customer focus has a positive effect on customer performance and financial performance. Flexibility has a positive effect on both types of performance. This means that firms which have discriminative services and a high level of flexibility through collaboration with customers can achieve high levels of customer performance and financial performance.

Effects of Directors’ and Officers’ Liability Insurance on Corporate Diversification

This study investigates how directors’ and officers’ liability insurance (hereafter D&O insurance) affects corporate diversification and post-diversification performance. Using a sample of 671 Taiwanese listed firms, we find that excessive D&O liability insurance is positively associated with corporate diversification, particularly unrelated diversification. In addition, we find that when diversification does occur, excessive D&O liability insurance worsens the shareholder value destroyed a firm’s diversification. These results are consistent with our hypothesis that excessive D&O liability insurance induces value-destroying empire building. Our results are robust to different model specifications and alternative measures of firm performance.

The Effect of Customer Service on Firm Performance: Developing Scales for Performance Measurement of Customs Clearance Firms

This research has three objectives: one is to develop measuring criteria for ascertaining performance of customs clearance firms, another is to test reliability and validity of the factors, and the third is to analyze the relationship between customer service and firm performance. This research gathered the data from customs clearance firms. Reliability and validity concerned with the collected data are tested by exploratory factor analysis and confirmatory factor analysis and the relationship between variables is tested by analyzing structural equation modeling. The results are as follows. There are no problems in reliability and validity. According to the result of the analysis, customer service is divided into customer focus, customer needs, customer response and flexibility and performance is classified into customer performance and financial performance. The result of empirical tests is as follows. Customer focus has a positive effect on customer performance and financial performance. Flexibility has a positive effect on both types of performance. This means that firms which have discriminative services and a high level of flexibility through collaboration with customers can achieve high levels of customer performance and financial performance.

Does franchising pay? Evidence from the restaurant industry

Franchising has taken a prominent position in service industries for several decades, but little is known about how franchising affects financial performance. Thus, we addressed the question of whether chains that franchise to some extent outperform those that are wholly owned. Then, among chains that franchise, we also addressed the question of whether more franchising is better – that is, whether the proportion of a chain's units that are franchised is associated with superior financial performance. To answer these questions, our study first compares the risk-adjusted performance of franchising vs. non-franchising restaurant firms. Second, it investigates the relationship between franchising propensity and firm financial performance. We considered five different measures of firm financial performance: the Sharpe ratio, the Treynor ratio, the Jensen index, the Sortino ratio, and the upside potential ratio. On comparison of franchising and wholly owned firms, all five measures indicated that franchising firms outperformed their non-franchising counterparts. When we focussed on just the franchising firms, however, the results were less clear. Among firms that franchise, the franchising–performance relationship was positive and significant only with respect to the Jensen index. Thus, we provide very robust evidence that franchising pays – that is, that some franchising is good – but among firms that franchise, it is unclear whether more franchising is better.

Green shipping practices and firm performance

Global economic development is facilitated by the commercial shipping industry. Shipping operations contribute to the growth of international trade activities, which heavily count on ships to carry cargoes from places of production to places of consumption. Despite its importance, there have been growing concerns about the environmental impacts caused by shipping activities in international trade. To balance environmental protection and productivity, many shipping firms have begun to adopt green shipping practices (GSPs) to improve their operations in a more environmentally friendly manner. GSP consists of six dimensions, namely, company policy and procedure (CPP), shipping documentation (SD), shipping equipment (SE), shipper cooperation (SC), shipping materials (SM), and shipping design and compliance (SDC). GSP is becoming an important aspect of shipping operations. It is timely for the shipping industry to evaluate firm capability in carrying out greening operations, that is, firms’ “greening” capability. Firm capability comprises two key elements: one is embedded in firms’ business routines or activities, and the other concerns firms’ ability in transforming inputs into outputs. GSPs can be considered as inputs while firm performance measures as outputs. This study uses an input/output approach to examine the greening capability (GC) of shipping firms. The results indicate that shipping firms are relatively weak in the practices of SC and SE, while the capability scores of SM, CPP, SDC, and SD are all close to 1, with an average score of 0.927, 0.920, 0.924, and 0.978, respectively. Academic and managerial significance of the findings are highlighted.

Contingency-Based Approach to Firm Performance in Construction: Critical Review of Empirical Research

AbstractIn management literature, a fundamental research question is why some companies succeed while others fail. The contingency-based approach proposes that organizational performance is a consequence of the fit between a set of contingencies, e.g., structure, people, technology, strategy, and culture. This approach has been adopted implicitly and increasingly by construction management (CM) researchers. The purpose of this paper is to examine the development of contingency thinking, theoretical and analytical issues of its application, and the measurement of firm performance in the empirical research in construction. After reviewing the literature of firm performance research approaches in construction, firm performance measurement in the empirical research, and contingency theory, a total of 36 empirical papers addressing firm performance in construction are reviewed in-depth and their content is analyzed. These papers are selected from four leading journals in construction: ASCE Journal of Construct...

Determinants of the Performance of Non-Financial Firms in India

Prior research on firm performance at aggregate level may not be applicable for the firms classified on group affiliation and listing. This is because there is substantial difference in the structure of these firms belonging to each category. We examine the difference in the structure of the Indian firms in each category by using Logit regressions. Further, we analyze firm level data for the period 2007-08 to 2009-10 using accounting based firm performance measure Return on Assets (ROA) since our data includes unlisted firms as well for which market based information is not available. We include the variable square of size along with size (and other variables) to account for non-linear relationship between the size and ROA. The results of cross section regressions show that ROA and size have inverted U-shape relationship for all categories of firms except BG unlisted category. Further we find that the impact of firm level variables on ROA is different in each category of firms.

Owner Utility Heterogeneity and the Firm Objective Function

All firm performance measurement requires knowledge of or assumptions about the firm’s objectives. I provide a framework for the firm’s objective function based on the extent to which owners differ in the utility derived from alternative firm actions and outcomes. I theorize as owner utility heterogeneity increases, the less likely the firm will pursue actions to satisfy owners’ nonpecuniary preferences. This framework provides an important reconciliation between the theory of the entrepreneur and the theory of the firm by showing how firms evolve from maximizing the financial and nonpecuniary benefits of specific owners to focusing primarily on value maximization as the firm objective. Owner utility heterogeneity also provides a framework to evaluate firm performance, providing theoretical guidance on firm performance measurement for researchers and practitioners.

Capital structure, managerial ownership and firm performance: evidence from Egypt

This paper focuses on an important issue, which has generally received less attention in corporate governance literature, being the effect of managerial ownership on the relationship between debt and firm performance. By employing a sample of Egyptian listed firms, the generalized least squares method, as a panel data technique, is used to examine the joint effect of debt and managerial ownership on various measures of firm performance (i.e., Tobin’s q and ROA). The results reveal that managerial ownership moderates the relationship between debt and firm performance, with the relationship being negative (positive) in presence (absence) of managerial ownership concentration. The implication of this finding is that the optimal capital structure is more likely to be contingent on contextual variables as well as the roles, power, and stakes of key internal and external actors. Put simply, the effectiveness of one corporate governance mechanism (i.e., debt) is more likely to be contingent on the effect of other existed corporate governance mechanisms, and hence, there is not one best arrangement of either capital structure or ownership structure, but different arrangements are not equally good.

The Influence of Communication and Information Quality on Trust in the Small Business Supply Chain

IntroductionIt is recognized that organizations use alliances and partnerships to leverage performance vis-a-vis environmental uncertainty. Indeed, an emerging body of research focuses on partnerships undertaken by small businesses (Beekman & Robinson, 2004; Gelinas & Bigras, 2004; Richter, 2004). We know, for instance, that partnering with small firms offers benefits to incumbent firms (Afuah, 2001). However, while we understand the legitimacy benefits that small firms can obtain through such partnerships, we know less about the specific processes by which small-business partnerships improve the quality of their collaborations.We have moved from Gulati's (1998) challenge to unravel the interesting yet vexing problem of alliance performance. We know that partner-specific skills accumulate over time leading to improved performance over the duration of an alliance (Lavie & Rosenkopf, 2006; Soda, Usai, & Zaheer,2004) and that the embeddedness obtained through trusted, deep partnerships enhances performance (Andersson, Forsgren, & Holm, 2002). However, despite this repository of research, a great many alliances fail (Gulati, Sytch, & Mehrota, 2008) while others persist despite failing to produce desired benefits (Inkpen & Ross, 2001). Improving the quality of such alliances is often attributed to improvements in trust, information sharing and communication (Johnston, McCutcheon, Stuart, & Kerwood, 2004).Even so, a great deal of our research on alliances emphasizes outcomes specific to larger, publicly traded firms. This bias in the strategy literature related to performance manifests because performance measures for such firms are more readily available than are such measures for small firms. Small firms are often left unstudied (or perhaps under-studied) in strategic research. While understandable, this lack of focus may generate findings regarding firm-alliance performance relationships that do not, in fact, generalize to small businesses. We know, in general, that small businesses often lack the managerial expertise of larger counterparts (Chaganti & Parasuraman, 1996), and we know that small businesses typically lack resource endowments which might sustain them during periods of uncertainty (Porter, 1 99 1 ). We further recognize the importance of partnerships and alliances for small businesses, both for the resources they bring, and also for the legitimacy they confer (Lerner, 1999). What we know less about is how small business managers and owners utilize communication and information sharing as a conduit to developing more trusting partnerships.Taken together, these findings suggest the importance of examining the characteristics of trust, communication and information quality for small businesses. Lacking the resources of their larger partners, small businesses find themselves highly reliant on the quality and trustworthiness of their larger partners (McDowell, Harris, & Zhang, 2009). This study seeks to examine how small business managers rely on communication and information quality as correlates to trust (see Figure 1).The remaining sections proceed through four areas. First, we discuss the relevance of a small business emphasis in research. Second, we examine extant literature and detail a theorygrounded model specifying an expected relationship between communication, information quality and emergent trust in partnerships. We then proceed to details of the study at hand. Finally, we conclude this with a discussion of our findings and discuss future research directions.Literature ReviewSmall BusinessThe existence and performance of small businesses are critical to the economic health of a nation. Current research provides evidence that small businesses provide flexibility (Gelinas & Bigras, 2004), learning opportunities (Beekman & Robinson, 2004), job creation (Audretsch, 2003), along with innovation and rapid sales growth possibilities (Connell, 2009; Lerner, 1999). …