Performance Implications of Strategic Performance Measurement in Financial Services Firms

Abstract

This study examines the relation between measurement system satisfaction, economic performance, and two general approaches to strategic performance measurement: greater measurement diversity and improved alignment with firm strategy and value drivers. We find consistent evidence that firms making more extensive use of a broad set of financial and (particularly) non-financial measures than firms with similar strategies or value drivers have higher measurement system satisfaction and stock market returns. However, we find little support for the alignment hypothesis that more or less extensive measurement than predicted by the firm's strategy or value drivers adversely affect performance. Instead, our results indicate that greater measurement emphasis and diversity than predicted by our benchmark model is associated with higher satisfaction and stock market performance. Our results also suggest that greater measurement diversity relative to firms with similar value drivers has a stronger relationship with stock market performance than greater measurement on an absolute scale. Finally, the balanced scorecard process, economic value measurement, and causal business modeling are associated with higher measurement system satisfaction, but exhibit almost no association with economic performance. Disciplines Accounting | Finance and Financial Management | Management Sciences and Quantitative Methods AbstractThis study examines the relation between measurement system satisfaction, economic performance, and two general approaches to strategic performance measurement: greater measurement diversity and improved alignment with firm strategy and value drivers. We find consistent evidence that firms making more extensive use of a broad set offmancial and (particularly) non-financial measures than firms with similar strategies or value drivers hav e higher measurement system satisfaction and stock market returns. However, we find little support for the alignment hypothesis that more or less extensiv e measurement than predicted by the firm's strategy or value drivers adversely affect performance. Instead, our results indicate that greater measurement emphasis and diversity than predicted by our benchmark model is associated with higher satisfaction and stock market performance. Our results also suggest that greater measurement diversity relative to firms with similar value drivers has a stronger relationship with stock market performance than greater measurement on an absolute scale. Finally, the balanced scorecard process, economic value measurement, and causal business modeling are associated with higher measurement system satisfaction, but exhibit almost no association with economic performance.

Value Relevance of Financial and Non-Financial Information to Investor Decision

“…Short-and long-term strategies bringing the company into better condition will be published concurrently with the company's annual report. Non-financial information studied for its relationship to the company performance will result in some authentications, indicating that non-financial measure has significant relationship to the future company performance (Banker, et al,2000;Ittner, et al, 2003;Hussain, et al,2002). Based on the statement above, the following hypotheses can be formulated.…”

Modelling the impact of ISO 14001 on environmental performance: A comparative approach

“…-Diversity of environmental performance indicators (EPIs): appropriate financial and nonfinancial information tends to support the effective management of resources and contributes to overall effectiveness (Baines and Langfield-Smith, 2003) More specifically, by clarifying and translating vision and strategy, diversified EPIs direct managers to critical areas of concerns and communicate the associations between employees' actions and organizational goals. Moreover, they improve the allocation of resources and the establishment of priorities based on such goals (Henri, 2006;Henri and Journeault, 2008;Ittner et al, 2003;Kaplan and Norton, 2001). Although the ISO 14001 standard does not foresee the establishment of precise indicators, it does require that organizations supervise and measure their environmental performance on a regular basis.…”

Strategic Performance Measurement System, Organisational Capabilities and Competitive Advantage

“…For example, learning and growth perspective in Balanced Scorecard (BSC), and innovation in results and determinant framework, emphasise the importance of internal capabilities to improve organisational competitiveness. In short, many organisations are adopting SPMS that provide information that allows the firm to identify the strategies offering the highest potential for achievement of the organisation's objectives and align management processes such as target setting, decision-making and performance evaluation with the achievement of the chosen strategic objectives (Ittner, Larcker & Randall, 2003).…”