Short-term Financial Performance Research Articles

Turnaround Actions, Contingency Influences, and Profitability: The Case for Slack and Capital Intensity

AbstractUsing a sample of 172 publicly traded, small manufacturing firms drawn from four industry groups, this study examined the moderating effects of two contingency variables on the relationships between short‐term turnaround actions and financial performance. Results provide evidence of moderating effects of slack and capital intensity. The average improvement in estimation stemming from a high versus low split of sample turnaround firms was also found to be notable in both cases. Implications for researchers and practitioners are suggested.RésuméÀ partir d'un échantillon de 172 petites entreprises manufacturières, provenant de quatre secteurs d'activité différents et dont les actions sont émises dans le public, les auteurs examinent les effets modérateurs de deux variables contingentes sur les relations entre les mesures entraǐnant un revirement de situation à court terme et la performance financière. Les résultats obtenus permettent de tirer des conclusions en ce qui a trait aux effets modérateurs de l'excédent organisationnel et du capital. Les auteurs constatent également une amélioration moyenne notable de l'estimation découlant de la segmentation de l'échantillon d'entreprises ayant opéré un virage en deux groupes distincts, en fonction de la mesure des deux variables. Enfin, diverses pistes de réflexion sont suggérées à l'intention des chercheurs et des praticiens.

Factors influencing the performance of SME food processing companies within the single European market

The creation of the post-1992 European single market represents a significant change in the business environment confronting firms throughout Europe. Although there is extensive literature available on appropriate strategic responses to the single market scenario, very few of these writings contain guidance specifically related to the situation facing smaller firms. The objective of this study was to gain further understanding of which factors are likely to influence the performance of firms in the small and medium-size enterprise sector. This was achieved through a comparative study of approximately 200 UK and German small food processing firms. The major difference between UK and German companies are that the latter (i) identified a much broader range of factors which they believe will influence their performance and (ii) have adopted a strategic orientation towards managing those internal competencies necessary to sustain market performance over the longer term. In contrast UK owner/managers are mainly concerned with factors likely to affect short term financial performance. Viable strategic options for UK food processing companies seeking survival within the single market are discussed. It is concluded that these firms will need to adopt a strategy which places greater emphasis on the development of new, innovative products offering tangible differentiation based upon superior product performance. One possible way of implementing such a strategy is to create strategic alliances with other firms which can enhance internal capability and/or market management competency. A model is presented which might be utilised to determine how a strategic alliance could be used to improve a firm's strategic management capability within the post-1992 European market environment.

The Development and Evaluation of Hospital Performance Measures for Policy Analysis

The purpose of this study was to develop and evaluate hospital performance measures to include aspects of hospital behavior beyond the traditional use of hospital profit margins for policy analysis. A number of measures have been used in the literature that are purported to reflect a variety of hospital behaviors. The reliability and validity of these and new measures were assessed using descriptive statistics and factor analysis on a sample of hospitals for a 3-year period. The sample consisted of all hospitals for which there were Medicare Cost Report and balance sheet data during the federal fiscal years 1987 through 1989. Using a subset of three hospital groups, 33 measures were evaluated, from which five were selected to represent the critical aspects of hospital performance important for policy analysis. The measures are: TEM, a new technical efficiency measure using data envelopment analysis techniques; the current ratio, depicting short-term financial performance; the ratio of longterm debt-to-net fixed assets, representing long-term viability; total margin, portraying profitability; and Medicare margin, characterizing Medicare's contribution to hospital financial position. Each represents different aspects of hospital efficiency and financially viability.

Managerial Incentives and Investment in R&D in Large Multiproduct Firms

Incentives for division managers in large firms affect their risk orientation and thus their decisions to invest in R&D. This paper reviews theory and hypothesizes that division managers' incentive compensation that is based on financial performance is negatively related to risk taking as measured by R&D intensity. Results of a study of 184 major U.S. firms suggest that incentives based on short-term (annual) division financial performance are negatively related to total firm R&D intensity after controlling for industry R&D intensity, firm diversification, size and group structure. Furthermore, the results suggest that an emphasis on long-term financial incentives may mitigate the negative relationship between these incentives and R&D intensity, but does not promote risk taking. The results suggest the importance of emphasizing strategic controls [evaluating division managers based on operational understanding of strategies proposed (strategic criteria)] as opposed to the use of financial controls [evaluating division managers based on financial performance (often annual ROI)]. However, the use of financial controls becomes more common as firms diversify. Diversification increases the span of control of corporate executives and the diversity among divisions. In highly diversified firms, corporate executives are no longer able to fully understand the operations of the multiple and diverse divisions. Thus, they must not only decentralize operating authority to divisions, but they also cannot use strategic criteria to evaluate division managers. As a result, they begin to emphasize financial controls. The shift toward risk aversion caused by the use of incentives based on short-term financial outcomes can have important implications for long-term firm performance. The results of this study have implications for long-term competitiveness, especially for firms in R&D intensive industries where R&D expenditures may affect a firm's competitive position.