Non-financial Performance Measures Research Articles

LMX, POS, and task environment as antecedents of entrepreneurial orientation in family business

Family business is facing an uphill challenge to survive and grow. Entrepreneurial orientation (EO) is one extensive strategy that may provide the solutions. To be comprehensive, our EO construct model considers important antecedents such as internal organisation aspect represented by perceived organisational support (POS), individual element served by leader-member exchange (LMX) and environmental factor acted by perceived task environment (PTE). Our research focuses on how these concepts would relate to EO by building hypothesis and empirical analysis of their respective relations. This study also proposes motivation as alternative non-financial performance measurement of EO. The research was conducted using quantitative empirical analysis of 150 top management team (TMT) representing 51 business units with family context in emerging nation. This study shows that although they might have different significance, all three concepts are positively related to EO and it is plausible to incorporate motivation as the result of EO research.

The Use of Non-financial Performance Measures: Does the Strength of Corporate Governance Matter?

The Use of Non-financial Performance Measures: Does the Strength of Corporate Governance Matter?

Effect of Risk Management, Intellectual Capital on Performance of State Corporations in Kenya: Moderating Approach

Purpose: The main aim of the study was to determine the moderating effect of intellectual capital on the relationship between ERM risk structure practices and organizational performance of state corporations in Kenya. This study was guided by dynamic capabilities theory which attempts to explain the perspective of how intellectual capital and ERM practices affect organizational performance. Design/methodology/approach: The study used explanatory cross sectional survey design. Primary data on ERM risk structure practices, intellectual capital and organizational performance was collected from structured questionnaires. A survey was carried out on 218 state corporations in Kenya. The research hypothesis was tested using hierarchical regression analysis. Finding: The study found that intellectual capital had an enhancing and significant moderation effect on the relationship between ERM structure practice and organizational performance (β =.314, ρ< .05). Originality/value: This study contributes to theory by centering intellectual capital on the empirical testing of theory as well as the influence of intellectual assets on the relationship between enterprise risk management practices and organizational performance. In addition, the study supports the theory of Enterprise Risk Management (ERM) that emphasizes on holistic and company-wide approach of managing risks. The study further suggests that future research could build on this study by examining enterprise risk management practices in different sectors and industries using both financial and non-financial measures of performance.

Enhancing The Role of A Managerial Accountant Through The Infusion of Islamic Values

Managerial accountant is a vital player in any business organisation, particularly in the manufacturing industry. The know-how on processing costing analyses, budgeting, forecasting, production methods, or business risk management is processed to create value for business sustainability, performance, and organisational stakeholders. The responsibilities of a managerial accountant lie in two factors: firstly, understanding the financial side of the business organisation and secondly, managing nonfinancial measures of business performance. All of these responsibilities must be aligned with the unwavering commitment of ethicality. From an Islamic perspective, the motivation of a managerial accountant should not merely be hinged on self-actualization or materialism, but the vision of Muslim managers in managing cost and profit in any business organisation has to interweave to strive for Falah in Duniya and Akhirah. Hence, the purpose of this paper is to discuss the elements of the management criteria of a managerial accountant from a contemporary point of view and how it is in line with Maqasid Al-Syariah. Based on library research, a few important motivations in line with Maqasid are proposed, such as Tawheed and Falah. Thus, the study helps to enhance the role of managerial accountants from Islamic perspectives.

SPECIFICITY OF PERFORMANCE MEASUREMENT IN THE MINISTRY OF DEFENSE AND THE SERBIAN ARMED FORCES

The purpose of this paper is to investigate the specific characteristics of performance measurement on the example of the Ministry of Defense and the Serbian Armed Forces. The calculation of financial and non-financial performance measures of the Ministry of Defense and the Serbian Armed Forces contributes to constant improvement or maximization of their ability to provide goods and services through the effective and efficient acquisition and use of different types of resources. The research was conducted using the data on selected financial and nonfinancial performances from the 31st Infantry Battalion reports in the period from 2012 to 2018. In order to confirm the hypothesis, the method of analysis, the synthesis method and the correlation analysis method were used. The empirical results of this study show that there is a high degree of interdependence between the financial management and control systems, on the one hand, and increased training of people and more adequate maintenance of motor vehicles, weapons and combat techniques, on the other. The main contribution of this paper is to emphasize the importance of performance measurement in the Ministry of Defense and the Serbian Armed Forces and their contribution to creating a certain level of socialwelfare.

The effect of non-financial performance on financial performance moderated by information disclosure

This research aimed to test the effect of non-financial performance on financial performance moderated by information disclosure. Balance scorecard was used to measure performance values in a comprehensive, coherent, measurable, and balanced. The research result showed that non-financial performance measures consisting of consumer, learning and growth perspectives affected financial performance, but internal business process did not affect financial performance. With cause-effect, learning and growth affect internal bussines process, and the internal business process affects customers Information openess does not has efffect of non-financial performance relationship towards financial performance. This research suggests that companies need to increase customer satisfaction and employee-based and strategic alignment growth to improve the company's financial performance.

Corporate Governance, ESG, and Stock Returns around the World

Nonfinancial performance measures, such as environmental, social, and governance (ESG) measures, are potentially leading indicators of companies’ financial performance. In the study reported here, I drew on prior academic literature and the concept of ESG materiality to develop new corporate governance and ESG metrics. The new metrics predicted stock returns in a global investable universe over the tested period, which suggests potential investment value in the ESG signals.

Interdependence of management control practices for product innovation: The influence of environmental unpredictability

Evidence for the relationship between management control practices and innovation is somewhat mixed, notably because of the insufficient attention devoted to the type of information management control practices provide. This study examines to what extent the interdependence of management control practices providing a mix of information for decision-making supports or impedes product innovation. We investigate whether the diversity of nonfinancial performance indicators and the functionality of cost information specifically and jointly contribute to product innovation. We also investigate whether environmental unpredictability moderates those effects. Survey data collected from a large sample of manufacturing firms show the specific effect of these management control practices on product innovation. More importantly, the functionality of cost information and diversity of nonfinancial performance measures are complements (substitutes) under high (low) levels of environmental unpredictability, and thus contribute to (impede) product innovation.

Corporate Governance, Integrated Reporting and the Use of Credibility-enhancing Mechanisms on Integrated Reports

The International Integrated Reporting Council (IIRC) and the South African King III Report on Governance emphasize the role of corporate governance in preparing a high-quality integrated report and establishing an appropriate credibility-enhancing process. This paper examines the significance of corporate governance mechanisms in explaining variations in the quality of integrated reports and the extent and quality of credibility-enhancing mechanisms (CEMs) for integrated reports. Using a sample of integrated reports published between 2012 and 2015 by listed companies on the Johannesburg Stock Exchange, this study finds that traditional governance mechanisms such as the board and the audit committee are positively related to the reporting quality of <IR> and use of CEMs. In addition, sustainability-oriented corporate governance mechanisms (i.e. sustainability committee and the use of non-financial performance measures in executives’ compensation contracts) have an incremental positive effect on both the quality of <IR> and the extent and quality of CEMs on integrated reports. Additional analyses attribute the positive effect of these corporate governance mechanisms on <IR> quality and the use of CEMs mainly to the diligence and expertise of the board of directors and audit committee and the independence and expertise of a sustainability committee.

Corporate Governance, ESG, and Stock Returns around the World

Non-financial performance measures, such as Environmental, Social, and Governance (“ESG”) measures, are potentially leading indicators of firms’ financial performance. I draw on the prior academic literature and the concept of ESG materiality to develop new corporate governance and ESG metrics. The new governance and ESG metrics predicted stock returns in a global investable universe over the tested period, suggesting potential investment value in curated ESG signals.

Non-financial performance measures disclosure, quality strategy, and organizational financial performance: a mediating model

We investigate the relationship between internal performance evaluation and the ability of external market participants to assess the effectiveness of management’s quality strategy for a sample of 156 Australian manufacturing firms that link executive compensation to non-financial performance measures (NFPM). We find that for firms where management compensation is tied to non-financial performance measures, organisational financial performance, as measured by return on investment, has no significant direct association with the extent of disclosure of non-financial performance measures in the financial statements by Australian manufacturing firms. However, we find that the origination of a firm’s non-financial performance measures indirectly and significantly affects the financial performance of an organisation through the implementation of quality based strategy. Further, we find that manufacturing firms that place greater emphasis on quality strategy disclose more information regarding non-financial performance measures in their annual reports, and that only for firms following a quality strategy, the disclosure of non-financial performance measures positively impacts operating financial performance.

Properties of Performance Measures and the Demand for Discretion in Incentive Contracts

We examine how the congruity and the measurability of performance measures affect the demand for discretion in incentive contracting. We test our hypotheses using survey data from 179 profit center managers in China. Focusing on the use of non-financial performance measures, we predict and find that the demand for discretion increases as measurability decreases. Furthermore, congruity amplifies the rate of increase in the demand for discretion. Our findings add to the literature on the use of discretion in incentive contracting.

The use of nonfinancial performance measures in CEO bonus compensation

AbstractResearch Question/IssueIn this study, we explore the relationship between the use of nonfinancial performance measures in Chief Executive Officer (CEO) bonus plans and CEO power, moderated by compensation committee monitoring. Furthermore, we investigate whether the inclusion of nonfinancial performance measures is associated with higher CEO bonus pay sensitivity to shareholder returns.Research Findings/InsightsUsing a sample of FTSE 350 firms during the period 2007–2013, we find that CEO power is significantly negatively related to the propensity of using nonfinancial performance measures. This negative relationship, however, is moderated by higher levels of compensation committee monitoring. We also find that firms combining nonfinancial and financial performance measures in CEO bonus plans tend to have stronger CEO bonus pay sensitivity to shareholder returns than firms using financial measures alone. Thus, our results suggest that boards of directors adopting nonfinancial performance measures are able to better align CEO incentives with shareholder interests. We find similar results when using the weight of nonfinancial performance measures in the bonus plan in our analyses.Theoretical/Academic ImplicationsThis study empirically supports the managerial power theory whereby powerful CEOs influence the choice of performance measures in their bonus plans. However, effective compensation committees are found to attenuate the influence of powerful CEOs and to better align their interests with those of shareholders. Our result of stronger bonus pay sensitivity to shareholder returns for firms combining nonfinancial with financial performance measures implies that the informativeness of these measures enhances the firm's ability to tie CEO bonus compensation to shareholder wealth.Practitioner/Policy ImplicationsThis study offers insights to members of boards of directors, especially compensation committee members, who are interested in improving the design of executive incentive contracts to better align managerial incentives to shareholder interests. Furthermore, the findings inform regulators about the importance of alternative performance measures in pay‐performance sensitivity and may warrant increased firm disclosure of the details of the pay structure.

Balanced Scorecard Application and its Challenges

Institutions seek to obtain a comprehensive picture of their financial and managerial performance by providing indicators and measures for evaluating internal and external performance in the short and long term based on their strategic needs. Institutions' performance is measured through managerial measurement tools to improve decision-making process and achieve the institutions’ strategic objectives. Among tools used in measuring performance, there are traditional tools rely on financial measures and other tools rely on financial and non-financial performance measures, such as the balanced scorecard. This study focuses on the balanced scorecard as one of the tools used to measure performance, the reasons that led to its emergence, its dimensions, the axes contained in each dimension, its basic characteristics, advantages, the success drivers of applying the balanced scorecard, the challenges facing its application, and the steps of implementing the balanced scorecard.

THE IMPACT OF SHARIAH GOVERNANCE TO FINANCIAL AND NON- FINANCIAL PERFORMANCE IN ISLAMIC FINANCIAL INSTITUTIONS (IFIs): A LITERATURE SURVEY

The main objectives of Islamic Financial Institutions (IFIs) are to achieve Shariah compliance and to fulfil Muslims requirement towards obedience and worship to Allah (SWT). In relation to that, the Shariah governance framework was introduced by Bank Negara Malaysia (BNM), who acts as the regulator, to ensure that proper Shariah governance is practised by IFIs. It is vital to highlight the Shariah governance practice in relation to IFIs’ performance. This is to demonstrate the significance of its adoption for the measurement of financial and non-financial performance so that the performance criteria could be easily monitored within IFIs to ascertain the entire operations and all transactions comply with Shariah. The main aim of the paper is to highlight Shariah governance factors affecting the performance of IFIs as discussed in the literature. The literature survey discovered that Shariah Committee (SC), Shariah risk, Shariah audit as well as disclosure and transparency were identified as governance measures linked to IFIs’ performance. However, little research exists on the role of Shariah review function. Despite that, the regulator has made the function compulsory for adoption within IFIs. This study aims to benefit the industry players to better understand the impact of each Shariah governance functions on their performance as financial industry works within defined financial and non-financial indicators.

Утицај промјена у пословном окружењу и нормативној основи финансијског извјештавања на исказну моћ мјерила финансијских перформанси компанија // The impact of changes in the business environment and normative basis of financial reporting on the presented power of measure of financial performance of the company

Резиме: Више од једног вијека стара рацио анализа, упркос бројним промјенама које су настале, нарочито у посљедње двије деценије у окружењу и пословању компанија, показала се као једноставан и брз начин идентификовања квалитета финансијског положаја и успјешности. Почетак примјене „мјешовите” основе финансијског извјештавања донио је усљед примјене фер вриједности промјену у садржини резултата и сопственог капитала. Околност да резултат садржи нереализоване добитке чија се реализација може очекивати у релативно кратком року, претворила је реализовани добитак из концепта историјског трошка у резултат који би компанија остварила ако до тренутка продаје финансијских средстава која се вреднују по фер вриједности кроз резултат не би било промјена њихове фер вриједности. Како су таква очекивања нереална, корисно је утврдити учешће нереализованих добитака/губитака у резултату. Слична, али јача потреба постоји и када је ријеч о сопственом капиталу, који садржи нереализоване добитке чија реализација ће усљедити у дужем периоду, па је вјероватноћа да ће доћи до промјена фер вриједности средстава и обавеза који се вреднују по фер вриједности кроз Остали укупан резултат виша. Мјерила финансијских перформанси која се утврђују на основу наведених величина због овога могу имати другачију висину и тумачење. Потреба да се мјерила перформанси прилагоде потребама инвеститора и повјерилаца наметнула је захтјеве за стварањем нових и коришћењем нефинансијских мјерила перформанси заједно са одабраним мјерилима финансијских перформанси.Summary: Until today despite the many changes that have occurred, particularly in the last two decades, in the business environment and operations of companies, more than a century old ratio analysis proved to be a simple and quick way of identifying the quality of their financial position and successfulness. The beginning of the application of „mixed” basis of financial reporting brought change in the content of results and in the equity due to the application of the fair value. The circumstances in which the result includes unrealized gains whose realization can be expected in a relatively short time, turned a realized gain out of the concept of historical cost into the result that the company would achieve if, until the sale of financial assets that are measured at fair value per result, there would not be any changes in their fair value. As such expectations are unrealistic it is useful to determine the share of unrealized gains/losses in the result. There is also a similar but stronger need when it comes to the equity, which includes unrealized gains whose realization will occur in a longer period, so there is higher probability that changes in the fair value of assets and liabilities which are measured at fair value per other total result will happen. Because of this measures of financial performance, which are determined on the basis of the stated parameters, can have different values and interpretations. The need to adapt the performance measures to the needs of investors and creditors imposed the requirements for establishing new ones and using non-financial performance measures together with the selected measures of financial performance.

Association between strategic management accounting facets and organizational performance

PurposeThe purpose of this paper is to develop an extensive conceptualization of strategic management accounting (SMA) facets, as well as to explore the impact of these facets on both financial and non-financial measures of organizational performance (OP).Design/methodology/approachData are collected from 435 accounting managers working in Saudi companies listed in the Saudi Stock Exchange. The study applies hierarchical regression analysis to test the association between SMA facets and OP.FindingsThe results show that SMA facets significantly affect OP, assessed in the two major categories of financial and non-financial performance.Research limitations/implicationsThe dominance of companies listed in the Saudi Stock Exchange in the data set limits the generalizability of the findings.Practical implicationsThe present study supports the idea that companies can enhance their OP by adopting some facets of SMA such as the availability of appropriate structural arrangements, supportive resources, adequate information types and usages and good organizational climate.Originality/valueThe current study expands the conceptualization of SMA in light of organizational context as a set of facets to overcome the polarization found in the existing literature and explores their impact on OP, including non-financial performance, for which empirical evidence is still scant.

The role of green management in creating sustainability performance on the small and medium enterprises

PurposeThe purpose of this paper is to analyze the effect of the relationship between stakeholder demand, resources, knowledge and product uniqueness on green marketing and its implication on sustainability performance.Design/methodology/approachThis study used a quantitative research approach that explains the phenomenon by collecting numerical data analyzed using mathematically based methods. The research location was Batik Lawean Center of Surakarta, which is the centers of Batik industry and heritage. These locations were chosen because Laweyan and Kedung Baruk have a vision as the center of Batik industry and environment-friendly heritage through sustainable development.FindingsStakeholder demand, resource, knowledge and the uniqueness of the product have a significant effect on the application of green management, and the green management has a significant effect on the sustainability performance. It means that the stakeholder demand, resources, knowledge and product uniqueness have a significant effect on green management, and green management simultaneously shows a significant effect on sustainability performance. The application of green management will also improve sustainability performance.Originality/valueThe originality of this study is on the testing of simultaneous relationships between the factors making up the application of green marketing, namely stakeholder demand, resources, knowledge and product uniqueness, as well as the impact of green marketing implementation on sustainability performance. This study focuses on the application of green management by involving the measurement of environmental performance and financial performance, as has been investigated by Karagiorgos (2010) and Earnhart and Lizal (2006). On the other hand, this study attempts to review the application of green management in the form of environmental performance as studied by Filbeck and Gorman (2004) and Sarah and Peter (2000), which reveal several determinants of environmental performance, as suggested by Mutamimah and Handoko (2011). However, this study focuses on the qualitative determinants that have been found by researchers (Raharjo, 2016) that the low or high level of green management application is determined by the demand of stakeholders, resources, knowledge, and product uniqueness considering the object of research is the Batik industry, which is certainly different from other industries, such as those that have been investigated by Karagiorgos (2010), Earnhart and Lizal (2006), Mutamimah and Handoko (2011), Filbeck and Gorman (2004), and Sarah and Peter (2000). This study also combines the measurement of financial performance and non-financial performance in the form of sustainability performance variables.

Getting compensation right - The choice of performance measures in CEO bonus contracts and earnings management

This paper examines whether the choice of performance measures in CEO bonus compensation contracts is associated with earnings management. From a sample of FTSE350 Index firms over the period of 2005–2014, we investigate the relationship between earnings management, through discretionary accruals and real activities management, and (1) the use of and extent of reliance on financial and non-financial performance measures in CEO bonus contracts; and (2) the use of long-term and short-term measures in CEO bonus contracts. We find less income-increasing manipulation through discretionary accruals and expenses when non-financial performance measures (NFPMs) are used alongside financial performance measures (FPMs) and when the NFPMs are used to a larger extent than FPMs. Furthermore, we find less discretionary accruals when long-term performance measures are used. This implies that non-financial and long-term measures encourage executives to work towards the long-term success of the company rather than their own short-term reward.

Accounting and passionate interests: The case of a Swedish football club

This paper seeks to (re)theorise the interpenetration of accounting and emotionality. Whilst researchers have devoted increasing attention to the effects of emotions, we argue that extant research is problematic in two ways. First, emotions have been treated as an intrapsychological phenomenon rather than an inter- or relational phenomenon. Second, current work focusses on how accounting produces emotions, failing to consider how emotions inform accounting. To address these two shortcomings, we mobilise the economic anthropology of Tarde (1902), and the subsequent work by Latour and Lépinay (2009) and Latour (2010; 2013), to argue that all interests are inherently 'passionate interests'; they are matters that 'hook' actors emotionally. This theoretical lens is used to narrate a field study considering the (changing) passionate interests and their connections to accounting in an elite Swedish football club. Specifically, we analyse a nexus of four passionate interests that 'hook' many (in different ways and with different degrees of intensity) – violent behaviour, winning the league, preserving the club family, and derbies. More generally, this paper argues that: first, organisations are a nexus of passionate interests; second, such interests recursively inform the doing of accounting; third, passionate interests are quantifiable via a range of financial and non-financial performance measures, enabling the construction and coordination of collectives; and, fourth, some performance measures matter more than others when (a) they are simple and unambiguous, (b) grounded in enduring passionate interests with deep historical roots that tie together members of proximate communities, and (c) travel beyond organisations and penetrate diverse arenas of everyday life, reproducing the emotive intensity of passionate interests.