Traditional Financial Performance Measures Research Articles

Pengaruh Ukuran Kinerja Keuangan Tradisional dan Value Based Management terhadap Market Value Added pada Perusahaan Badan Usaha Milik Negara di Bursa Efek Indonesia

This study examines the impact of traditional financial performance measures and Value-Based Management on Market Value Added (MVA) in State-Owned Enterprises (SOEs) listed on the Indonesia Stock Exchange from 2018 to 2022. The sampling technique employed was purposive sampling, resulting in the selection of 19 companies based on predetermined criteria. Secondary data was obtained from the Indonesia Stock Exchange website, and panel data regression analysis was used for data analysis. The results indicate that ROA and EVA positively and significantly influence MVA. In contrast, ROE, DPS, EBITDA, and CFROI do not significantly affect MVA. Notably, EPS demonstrates a negative impact on MVA, suggesting that higher earnings per share may not correlate with increased market value.

The Impact of Selected Financial Ratios on Economic Value Added: Evidence from Croatia

Traditional financial performance measures should be extended to provide additional information to stakeholders. One such extension is the economic value added (EVA). It shows residual profit above the cost of financing, both creditors and equity financing. This paper elaborates on the impact of selected financial ratios on EVA to total assets and EVA to capital employed using the 20-year aggregated data of non-financial business entities operating in Croatia. It answers the research question of which of the selected financial ratios impacts the above-mentioned EVA-based ratios. Applying dynamic panel data modeling using the generalized method of moments technique resulted in the derivation of two models. The human capital efficiency ratio was statistically significant in both models, positively affecting EVA/total assets and EVA/capital employed. In contrast, the debt ratio and net profit margin were significant only in the second model, where EVA/capital employed was a dependent variable. The research results indicate that the debt ratio affects EVA/capital employed negatively while the net profit margin has a positive effect, confirming the existing research. Total liabilities/earnings before interest, taxes, depreciation and amortization, and total asset turnover were not found to be significant in either of the two models.

Non-Financial Capital Value Creation: Assessing Japan's Path to an ESG-Friendly Economy through the Yanagi Model

This paper explores the possibility of Japan adopting the Non-Financial Capital and Equity Spread Synchronization Model, also known as the Yanagi Model, to build an ESG-friendly economy. The Yanagi Model focuses on incorporating non-financial elements, such as environmental, social, and governance factors, into companies' traditional financial performance measures. By doing so, the model aims to enhance firms' long-term sustainability and value creation. The paper assesses the potential benefits and challenges of implementing the Yanagi Model in the Japanese context through a review of relevant literature and case studies. The literature suggests that integrating ESG factors can lead to improved financial performance, reduced risk, and increased reputation for companies. However, there are also concerns about the lack of standardization and transparency in ESG data, as well as the potential for greenwashing or superficial adoption of ESG practices. Despite these challenges, the paper argues that the Yanagi Model could serve as a viable path for Japan to build an ESG-friendly economy, given the country’s recent push for sustainability and the growing demand for socially responsible investments. The paper suggests several recommendations for improving the model, such as increasing transparency and standardization in ESG data, enhancing stakeholder engagement, and promoting a culture of long-term value creation. Overall, the paper concludes that while there are challenges to adopting the Yanagi Model, its potential benefits for building a sustainable and ESG-friendly economy in Japan make it a worthwhile pursuit.

Microfoundations of collaborative networks: The impact of social capital formation and learning on investment risk assessment

Both traditional financial and intangible asset (IA) performance measures aid in the design of micromanagement organizational systems. We shed light on the microfoundational processes of collaborative networks and their impact on investment risk assessment by exploring IA performance measures in response to decomposing macro-level constructs. The IA measures focus on the exploration of individual human capital and their actions and interactions that influence investment risk assessments, which is critical for long-term prosperity. Additionally, human capital herein includes social factors such as social capital, which research has demonstrated can be developed from intellectual capital, and vice versa. Findings from an experiment with 40 professional investors (resulting in 160 independent observations) suggested that belonging to a company's collaborative networks—where they would gain access to IA performance information—led them to adjust their investment risk assessments downward or upward in response to material weakness or strength disclosures pertaining to IA performance. Additionally, a laboratory experiment revealed that 121 novice investors who learned how to interpret and use their social networks to gain access to IA performance information also led them to adjust their investment risk assessments in response to material IA information deficiencies in target companies. The results showed IA knowledge can be learned and transferred to impact social change.

Indigenous investments: Are they different? Lessons from Iwi

Iwi, the tribal entities of the Māori people of Aotearoa New Zealand, now manage billions of dollars, a task requiring increasing sophistication in their investment strategies. Asset classes of Iwi have evolved from the properties, fisheries quotas, and cash they received through Aotearoa New Zealand’s Treaty settlement process to now include major investments in private equity, infrastructure, and other financial assets. The literature has, however, been largely silent on Iwi investments. Performance discussions tend to emphasize a western approach focusing on traditional financial performance measures. Using Waikato-Tainui operated Tainui Group Holdings (TGH) as an example, we analyze a sample of corporate disclosure documents. We find the intent of tribal (Iwi) investment firms may not be adequately captured through traditional investment frameworks and classic performance metrics. Drawing parallels between Iwi investment firms and impact investing widens the scope for financial managers to think differently about how we quantify Indigenous investment performance.

Exploration and comparison of traditional financial performance measures of Indian manufacturing industries

Exploration and comparison of traditional financial performance measures of Indian manufacturing industries

Are CSR activities associated with shareholder voting in director elections and say-on-pay votes?

When making investment decisions, many investors now regularly consider a company’s CSR activities along with traditional financial performance measures (Elliott et al., 2014). Our study considers whether shareholders may also consider CSR activities when voting in director elections and say-on-pay votes. We find that CSR performance is associated with shareholder support in both director elections and say-on-pay votes. In particular, we find higher support for both director elections and executive compensation when there are more CSR strengths. Additionally, we find that the social strength aspect of CSR is the most important component in the relationships between CSR and director elections and that the environmental strengths aspect is the most important component in the relationship between CSR and executive compensation. Our results suggest that shareholders may value certain types of CSR and are more supportive of boards and management when CSR performance is stronger.

NONFINANCIAL PERFORMANCE EVALUATION AS SIGNIFICANT AREA OF STRATEGIC BUSINESS MANAGEMENT

The main aim of this paper is to provide the answer to the questions: Which areas of the company play an important role in the evaluation of the performance? Which areas are considered to be important? Due to the fact that the business environment is constantly changing, changes also occur in the trends relating to performance. Traditional financial performance measures have been highly criticized and the need identified to integrate non-financial perspectives, such as the level of innovation, degree of motivation, intellectual capital, and other criteria. Intellectual capital is often a crucial factor in the creation of value in a company. Based on the research, employees and customers are one of the most important areas in the companies from the selected area. At the same time, dependence among these company’s areas and company’s profit has been identified. Furthermore, it has been found whether the introduction of social responsibility into business strategy affects responsible behaviour just in the working environment (as this is geared specifically to employment area). Thus, as regards business strategy and support to work environment, in this case no relationship has been indicated, therefore it is not possible to say that if companies apply social responsibility strategy, they support mainly the working environment.

The Impact of Environmental, Social and Governance Dimensions of Corporate Social Responsibility on Economic Performance: Australian Evidence

Corporate social responsibility (CSR) is a concept with constantly increasing importance for businesses and their stakeholders. The environmental, social and governance (ESG) dimensions of CSR performance may contribute to organizations' economic performance. Using stakeholder theory as a framework, this research aims to find the impact of CSR performance on the economic performance of organizations. In this research, we used annual ESG data on Australian firms, covering the period from 2010 to 2016. All independent variables were lagged by one year. Regression analysis was used to test the impact of CSR performance on economic performance. The findings show that social performance consistently lead to improved economic performance. To a lesser extent, environmental performance also had a positive effect on economic performance, but the effect size was much smaller than that of social performance. However, there is very weak evidence for a significant relationship between governance and economic performance, with only a single significant effect in 2015. This study contributes to the literature by focusing on economic performance rather than traditional financial performance measures. The study also contributes to the managerial understanding of the importance of each ESG dimension on economic performance.

Evaluating Superiority of Modern Vis-A-Vis Traditional Financial Performance Measures: Evidences from Indian Pharmaceutical Industry

The purpose of this paper is to look into the claim of economic value added (EVA) proponents regarding superiority of EVA over eight popular traditional financial performance measures with reference to the Indian pharmaceutical industry from 2002–03 to 2013–14 for 888 firm-year observations. The present research is primarily based on secondary financial data acquired from the prowess database. Multiple regression model (OLS) is used to select the best predictor out of select independent variables to predict the dependent variable and it is found that PAT is having more explanatory power than other independent variables in relationship with MVA. Further, Discriminant analysis is also applied on the average data of twelve years to advise the potential investors to set up a function to screen value creating companies from value destroying companies of the Indian pharmaceutical industry. Results of Discriminant analysis reveals that 9 (30%) pharmaceutical companies out of the grouped 30 sample pharmaceutical companies are scoring less than the average MVA of the industry that means these companies may be considered as value destroying companies.

Economic Value Added (EVA) Disclosure Practices of Sri Lankan Listed Companies

Transparency, disclosures and information sharing with stakeholders, command a considerable degree of value to the accompanying financial statements of any corporate or business enterprise. Investors and stakeholders are increasingly looking at the performance of companies which they have invested their hard earned funds. To meet such expectations, good governed companies do adopt practices which add to enhance the value of financial statements and value to its readers. The ideas of free cash flow and the evaluation of business on a cash basis developed by Modiglaini and Miller (1961) were extended into the concept of the Economic Value Added (EVA) (Stewart and Stern 1971). The traditional financial performance measures have not presented the real shareholder value of an enterprise. Thus, the EVA is one of main evaluation criteria of companies’ commitment with shareholder value maximization. In this context, this research investigated the EVA disclosures in the annual reports of Sri Lankan listed companies. Analyzing annual reports of Sri Lankan largest 85 listed companies over a period of 5 years from 2009 to 2013, the results indicated that 15 numbers of listed companies, as a percentage of 17.65 of the sample disclosed the EVA statement in their annual reports. The study further explored the industry composition, residential status, medium of disclosure, areas of EVA application and extent of EVA related computation prepared and disclosed by EVA reporting companies. Univariate analysis was used to identify the extent of EVA disclosures of listed companies in Sri Lanka and it was found that, existence of significant inconsistencies and irregularities in measurement of EVA and its major components of EVA reporting listed companies. The second part of the study explored that the corporate attributes such as back ground information and financial performance indicators of companies are influenced to the choice of EVA disclosure. Therefore, research performed a comparison of differences between EVA reporting and EVA non reporting listed companies on the basis of their background indicators and financial performance measures. Research employed the two independent sample t-tests to identify the factors influencing to EVA usage and disclosure choice of Sri Lankan listed companies in terms of company size, profitability, leverage etc. Research finds that the EVA usage and EVA disclosure choice of Sri Lankan companies are influenced by the company size, leverage and earnings potential. Further, the study recommends the importance of implementing EVA disclosures as a mandatory requirement for Sri Lankan listed companies.

Frontier-based vs. traditional mutual fund ratings: A first backtesting analysis

We explore the potential benefits of a series of existing and new non-parametric convex and non-convex frontier-based fund rating models to summarize the information contained in the moments of the mutual fund price series. Limiting ourselves to the traditional mean-variance portfolio setting, we test in a simple backtesting setup whether these efficiency measures fare any better than more traditional financial performance measures in selecting promising investment opportunities. The evidence points to a remarkable superior performance of these frontier models compared to most, but not all traditional financial performance measures.

Development of Concepts and Models of Performance Evaluation from the 19th Century to the Present

Abstract The main aim of this paper is to provide a framework of concepts and models from the area of performance measurement. Due to the fact that the business environment is con-stantly changing, changes also occur in the trends relating to performance. Traditional financial performance measures have been highly criticized and the need identified to integrate non-financial perspectives, such as level of innovation, degree of motivation, intellectual capital and other criteria. Intellectual capital is often a crucial factor in the creation of value in a company. This paper provides a literature review supplemented by the author’s research in the field of performance. The article shows that the performance appraisal system is currently focused on several areas that could affect the performance of the company, which is also part of the overall performance of the economy in the form of GDP growth. Based on the research, it can be said that, for the sample tracked, the selection of performance evaluation system does not depend on the legal form of the business.

Efficiency and productivity of banking sector

PurposeThe purpose of this paper is to discuss a comprehensive literature survey of studies focusing on the efficiency and productivity of the banking sector using parametric and non‐parametric frontier techniques.Design/methodology/approachCritically reviewing 106 studies published across the world from 1994 to 2011, a conceptual framework is developed for the studies assessing the efficiency and productivity of the banking industry using non‐parametric DEA frontier approach.FindingsBoth the frontier approaches, parametric and non‐parametric, are gaining an edge over the traditional financial performance measures. In the non‐parametric approach, data envelopment analysis (DEA) is widely applied to measure a bank's efficiency and productivity. Studies conducted in developed countries such as the USA, the UK and Europe are now emerging with the new concepts of banking efficiency.Research limitations/implicationsThese findings are based only on the critical review of 106 studies. This study suggests the direction for future research and identifies the gap in existing literature with the development of a conceptual model.Originality/valueThis study is original in nature and included literature published in recent issues of 2011.

Green supply chain performance measurement using fuzzy ANP-based balanced scorecard: a collaborative decision-making approach

The purpose of this paper is to delineate a green supply chain (GSC) performance measurement framework using an intra-organisational collaborative decision-making (CDM) approach. A fuzzy analytic network process (ANP)-based green-balanced scorecard (GrBSc) has been used within the CDM approach to assist in arriving at a consistent, accurate and timely data flow across all cross-functional areas of a business. A green causal relationship is established and linked to the fuzzy ANP approach. The causal relationship involves organisational commitment, eco-design, GSC process, social performance and sustainable performance constructs. Sub-constructs and sub-sub-constructs are also identified and linked to the causal relationship to form a network. The fuzzy ANP approach suitably handles the vagueness of the linguistics information of the CDM approach. The CDM approach is implemented in a UK-based carpet-manufacturing firm. The performance measurement approach, in addition to the traditional financial performance and accounting measures, aids in firm’s decision-making with regard to the overall organisational goals. The implemented approach assists the firm in identifying further requirements of the collaborative data across the supply-cain and information about customers and markets. Overall, the CDM-based GrBSc approach assists managers in deciding if the suppliers’ performances meet the industry and environment standards with effective human resource.

The Evolution Of A Balanced Scorecard

Both professionals and academics have long criticized the use of traditional financial performance measures and called for balance in performance measurement systems. In 1992, Kaplan and Norton introduced the Balanced Scorecard and it has been adopted widely around the world and offered as a superior combination of nonfinancial and financial measures of performance. This paper is the result of a 15-year field study of a Fortune 500 companys Balanced Scorecard. Both qualitative and quantitative data were collected to address the following research questions with respect to the Balanced Scorecard: 1) What has changed over time? 2) What has not changed over time? 3) Why has it endured? Changes highlighted are that the Balanced Scorecard was unaffected by a major change in organizational structure, a narrowing of focus and reduction in the scope over time, processes for changing the design were formalized, and that it has become engrained in the compensation system. Factors that have remained constant over time are the purpose of the Balanced Scorecard, its use for relative performance evaluation, and its use as a tool for best practice sharing. Two factors that appear to explain why it has endured are its use as a learning and communication tool and its ability to influence behavior. The paper concludes with a list of key success factors for building and sustaining a successful scorecard. This list might also be helpful to researchers seeking to investigate the design, use or impact of a Balanced Scorecard.

Indian Banking and Information Content of EVA and Traditional Measures

The rationale behind the study lies in the facts that about superiority of EVA over traditional matrices is mixed and were focused on manufacturing sectors. Hence, relationship between the Market Value Added (MVA), EVA, and accounting performance measures such as net earnings (PAT), earning per share (EPS), return on investment (ROI), return on net worth (RONW), and return on capital employed, Economic Value Added (EVA), and Market value Added (MVA) has not been grossly researched to Indian Banking Sector. The data has been collected through most worthy ‘PROWESS’ database of Centre for monitoring Indian Economy (CMIE). The reference period of the study is fourteen financial years i.e. 2000-2013.The multiple regression and Biddle’s et. al. (1997), Bao and Bao (1998) approach is selected for studying relative and incremental informational of EVA vis-a-vis other traditional financial performance measures. The result of cross-section regression reveals that earning (PAT) having highest explanatory power than EVA, ROI and EPS to explain market value added by sample banks. Fourth, the relative and incremental informational test present that The PAT having highest relative explanatory (66.7 percent) power do explain market value added as compared to EVA, ROI, EPS, ROCE alone and the relative informational content of EVA is lower than PAT, which, accounting for only 57.4 present of variation in market value added (MVA). Thus, the usefulness of EVA for decision making can’t be ruled out based on the results and it can be used as an internal as well as external performance measurer. As Solomon (1965) suggested that residual income be used as an internal performance measure and Anthony (1973, 1982, and 1982) suggested that it is suitable to measure external performance.

Evolution of Scientific Management Towards Performance Measurement and Managing Systems for Sustainable Performance in Industrial Assets: Philosophical Point of View

Even though remarkable progress has been made over recent years in the design of performance measurement frameworks and systems, many companies are still primarily relying on traditional financial performance measures. This paper presents an overvi ew of modern descendents and historical antecedents of performance measurement and attempts to give philosophical definition, in fact addressed the evolution of traditional ways of measuring performance. The paper suggests that modern frameworks have indeed addressed the organizations external to them while satisfying the conditions internal to them and providing an analogy of the notion of kuhn’s scientific paradigm. This analogy is consistent with the fundamental proposition of Kuhnian philosophy o f science, that progress only happens thorough successive and abrupt shifts of paradigm.

Performance measurement: from philosophy to practice

Even though remarkable progress has been made over recent years in the design of performance measurement frameworks and systems, many companies are still primarily relying on traditional financial performance measures. This paper presents an overview of the more common, more modern approaches to performance measurement and attempts to identify whether they have in fact addressed the limitations of traditional ways of measuring performance. The paper suggests that the modern frameworks have indeed addressed the underlying conceptual issues, but have rarely addressed the practicalities of measurement in ways that render them meaningful to practitioners. What is needed is further work to explore how these conceptual frameworks can be translated and tailored to fulfil the unique measurement needs of a specific company, especially at the operational level.

Internationalization and Performance: Traditional Measures and Their Decomposition

Previous empirical results on the relationship between internationalization and firm performance have been mixed. Both monotonic and curvilinear relationships have been reported. Most recent studies have focused on different types of curvilinear relationships, such as inverted Ushaped, standard U‐shaped, and multiple waves. This paper utilizes a more current sample of firms than prior studies have used and decomposes traditional financial performance measures, applying two different measures of degree of internationalization, country scope and foreign sales as a percent of total sales (FSTS), to measure the effects on financial performance of different degrees of internationalization. Several financial performance measures, including traditional indexes (ROE and ROA) and a decomposition of traditional ones (Profit Margin, Total Asset Turnover), are examined.