Performance Measure Properties and Delegation

2006 ◽  
Vol 81 (4) ◽  
pp. 897-924 ◽  
Author(s):  
Frank Moers
Keyword(s):  
Decision Making ◽  
Financial Performance ◽  
Performance Measures ◽  
Organizational Design ◽  
Performance Measure ◽  
Decision Making Process ◽  
Nonfinancial Performance ◽  
Incentive Problem ◽  
Financial Performance Measures

In this paper, I extend the organizational design literature by examining how the delegation choice is affected by the ability to resolve the incentive problem caused by this delegation. Based on the seminal papers by Grossman and Hart (1986) and Holmstrom and Milgrom (1994), I argue that the ability to resolve the incentive problem depends on the contractibility of financial performance measures versus nonfinancial performance measures, where the contractibility depends on the performance measure properties sensitivity, precision, and verifiability. The empirical results show that, if financial performance measures are “good” (“poor”) incentive measures, i.e., high (low) on sensitivity, precision, and verifiability, then using these measures for incentive purposes increases (decreases) delegation. Overall, the results are consistent with the argument that firms design their decision-making process around the quality of contractible performance measures.

Non-financial e-procurement performance measures

2020 ◽  
Vol 70 (1) ◽  
pp. 41-64 ◽  
Author(s):  
Nripendra Kumar ◽  
Kunal K. Ganguly
Keyword(s):  
Financial Performance ◽  
Performance Measures ◽  
Production Cost ◽  
Performance Measure ◽  
Research Model ◽  
Content Type ◽  
Firm Financial Performance ◽  
Efficiency And Effectiveness ◽  
Financial Performance Measures ◽  
The Impact

PurposeThe purpose of this research paper is to identify the non-financial e-procurement performance measures and find out whether these non-financial performance measures are leading indicator of impact on firm financial performance by adoption of e-procurement in terms of reduction in production cost.Design/methodology/approachThe research model has been tested with the data collected from target procurement professionals in India. Structural equation modelling has been used for testing conceptual model hypotheses including mediation. The phantom model approach for testing multiple mediators has deployed.FindingsThe present empirical study found that non-financial performance measure of e-procurement, namely, transparency, coordination, efficiency and effectiveness are leading indicators of the impact of e-procurement adoption on production cost. This paper suggests that managers should try to design the e-procurement platform or opt for third party platform which reduces transaction cost to a minimum for enhanced coordination, work on transparency policy with maximum disclosure of information for enhanced transparency and ask for a fast and responsive system for enhanced efficiency and effectiveness.Originality/valueThis study, first time, attempted to identify non-financial performance measures of e-procurement and tried to understand how these intermediate non-financial performance measures impact the firm financial performance. The interdependence of non-financial performance measures has also been explored, and the research model has been developed to empirically examine the interdependence of these financial measures and its impact on production cost.

Divisional performance measurement in the retail financial service sector

2017 ◽  
Vol 66 (2) ◽  
pp. 180-195
Author(s):  
Ben Kwame Agyei-Mensah
Keyword(s):  
Regression Analysis ◽  
Performance Measurement ◽  
Financial Performance ◽  
Performance Measures ◽  
Economic Performance ◽  
Management Accounting ◽  
Performance Measure ◽  
Financial Service ◽  
Content Type ◽  
Financial Performance Measures

Purpose Focussing on responsibility theory of management accounting, the purpose of this paper is to test how performance measurements are applied in divisionalised financial service companies. Management accounting theory suggests that two different measures of branch performance should be computed: one to evaluate the economic performance of each branch and the other to evaluate the performance of branch managers (managerial performance). It also advocates that the evaluation of a manager’s performance should consist of only those factors under his or her control. That is, divisionalised performance measurement should be based on the application of the controllability principle, the study also identified the contingent factors that impinged on the selection of performance measures and the allocation of common costs (ACCs) to branches. Design/methodology/approach Using a survey questionnaire and analysis of financial statements of the 129 respondent companies the application of financial performance measures: non-financial performance measures and ACCs were tested. For the purpose of this study, dummy variables were assigned to represent whether or not an item is used, if an item is used 1 is assigned to that item and 0 if an item is not used. The values assigned were then summed up to represent the total score for each company. Descriptive statistics and regression analysis was performed to test the six hypotheses of the study. Findings The study found that a substantial majority of respondents used different performance measures to evaluate the performance of their branch managers and the economic performance of branches. Both financial and non-financial performance measures were equally used in measuring the performance of branches and branch managers. The study also found that branch managers do not have full autonomy and control over the allocation of common resources costs which form part of their evaluation, even though accounting theory suggest that. The regression analysis results showed that firm size, liquidity and leverage were the factors that influence the decision to employ financial performance measures, non-financial performance measures and ACC by the respondent companies. Research limitations/implications Despite the popularity of the balanced scorecard it is surprising to note that none of the respondents have ever used this as a performance measure. The implication is that knowledge of this performance measure is very low among the respondents. The excessive use of uncontrollable factors in the measurement process can reduce the morale of the staff involve hence steps should be taken to reduce their use. Originality/value This is one of the few studies conducted on the application of performance measures in the financial services and also in a developing country setting. The findings would help organisations in both developing and developed economies to improve upon the application of performance measurement techniques in their branches/divisions.

The role of senior managers’ use of performance measures in the relationship between decentralization and organizational performance

2016 ◽  
Vol 12 (2) ◽  
pp. 129-151 ◽  
Author(s):  
Sirilak Bangchokdee ◽  
Lokman Mia
Keyword(s):  
Decision Making ◽  
Financial Performance ◽  
Organizational Performance ◽  
Performance Measures ◽  
Senior Managers ◽  
Content Type ◽  
General Managers ◽  
Hotel Performance ◽  
Financial Performance Measures ◽  
The Relationship

Purpose This paper aims to examine the role of senior managers’ use of financial and non-financial performance measures in the relationship between decentralization and organizational performance in the hotel industry. Design/methodology/approach Data were collected using a mailed questionnaire. General Managers in charge of medium-to-large hotels in Thailand completed the questionnaire. In total, 131 general managers, one from each hotel, participated in the study. Path analysis technique was used to test the hypotheses. Findings The results indicate that the general managers’ use of financial and non-financial performance measures fully mediates the relationship between the extent of decentralization of decision-making and hotel performance. The results reveal that the decentralization of decision-making alone is not enough to help a hotel improve its performance. Indeed, the relationship between decentralization of decision-making and hotel performance exists only via the general manager’s use of the performance measures. It is contended that a general manager’s use of the performance measures in a hotel encourages department managers to make appropriate decisions to successfully improve their department’s performance which, in turn, leads to increased performance of the hotel. Originality/value This study provides empirical evidence indicating how senior managers in hotels with decentralized decision-making could use performance measures to better manage their hotels, thereby improving the hotel’s performance. An in-depth analysis of the data reveals that the senior manager’s use of the non-financial, and not the financial, performance measures is a mediator of the relationship between decentralization of decision-making and hotel performance.

U.S.-Listed Foreign Firms' Non-GAAP Financial Performance Disclosure Behavior

2011 ◽  
Vol 10 (2) ◽  
pp. 77-96 ◽  
Author(s):  
Lori L Epping ◽  
W. Mark Wilder
Keyword(s):  
Financial Performance ◽  
Performance Measures ◽  
Foreign Firm ◽  
Foreign Firms ◽  
Matched Sample ◽  
Sample Design ◽  
Reporting Behaviors ◽  
Financial Performance Measures

ABSTRACT The purpose of this study is to observe the extent to which U.S.-listed foreign firms report non-GAAP financial performance measures and to compare the characteristics of these disclosures to those of U.S. firms. Using a matched-sample design, this research compares U.S.-listed foreign firm and U.S. firm non-GAAP disclosure frequency, non-GAAP disclosure adjustment characteristics, and reconciliation quality. Tests of the hypotheses indicate similar disclosure frequencies for U.S. firms and U.S.-listed foreign firms. Analyses of non-GAAP disclosure and adjustment characteristics provide evidence consistent with the interpretation that U.S. firms engage in aggressive non-GAAP reporting behaviors (reporting income-increasing adjustments and adjusting GAAP numbers with a greater magnitude and with a higher number of adjustments) equally or more so than U.S.-listed foreign firms. However, the quality of U.S. firm reconciliations to U.S. GAAP is equal to or greater than that of U.S.-listed foreign firms.

scholarly journals Non-financial performance measures and pay-performance sensitivity

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
MyoJung Cho ◽  
Salma Ibrahim
Keyword(s):  
Financial Performance ◽  
Performance Measures ◽  
Financial Risk ◽  
Shareholder Wealth ◽  
Performance Measure ◽  
Content Type ◽  
Financial Measures ◽  
Performance Sensitivity ◽  
Ceo Pay ◽  
Financial Performance Measures

Purpose This study aims to examine whether chief executive officer (CEO) pay-performance sensitivity to shareholder wealth is related to the use of non-financial performance measures in incentive contracts. Design/methodology/approach Using hand-collected performance measure data in a sample of S&P 500 firms across the period 1994–2010, this study investigates the sensitivity of CEO bonus and cash pay to shareholder wealth of firms that use non-financial performance (NFPM) measures of varying types and contractual weights in their bonus contracts along with financial measures (NFPM firms) in comparison to that of firms using financial measures only (FPM firms). Findings This study finds evidence that the pay-performance sensitivity is stronger in NFPM firms than in FPM firms. These results are driven by the use of CEO individual goals and operational efficiency. Furthermore, when using environmental, social and governance factors, the pay-performance sensitivity is stronger in terms of accounting performance only. This study also finds that using NFPM enhances pay-performance sensitivity more as their contractual weights increase and as financial risk increases. Practical implications These findings are important to stakeholders, and especially regulators in understanding incentive effects of alternative performance measures. This study also sheds light on what types of non-financial measures are better in helping firms align CEOs’ incentives to shareholders’ interests. Originality/value This study contributes to prior research on benefits of non-financial information within the context of executive compensation. This study presents original results about the effects of contractual weights of non-financial measures and financial risk on CEO pay-performance sensitivity. This study also presents new insights regarding how different types of non-financial measures affect CEO pay-performance sensitivity.

scholarly journals Towards integrating environmental performance in divisional performance measurement

2014 ◽  
Vol 3 (3) ◽  
pp. 16-21
Author(s):  
Collins Ngwakwe
Keyword(s):  
Performance Measurement ◽  
Financial Performance ◽  
Performance Measures ◽  
Environmental Performance ◽  
Environmental Governance ◽  
Corporate Sustainability ◽  
Performance Measure ◽  
Suggested Approach ◽  
Environmental Performance Measurement ◽  
Financial Performance Measures

This paper suggests an integration of environmental performance measurement (EPM) into conventional divisional financial performance measures as a catalyst to enhance managers’ drive toward cleaner production and sustainable development. The approach is conceptual and normative; and using a hypothetical firm, it suggests a model to integrate environmental performance measure as an ancillary to conventional divisional financial performance measures. Vroom’s motivation theory and other literature evidence indicate that corporate goals are achievable in an environment where managers’ efforts are recognised and thus rewarded. Consequently the paper suggests that environmentally motivated managers are important to propel corporate sustainability strategy toward desired corporate environmental governance and sustainable economic development. Thus this suggested approach modestly adds to existing environmental management accounting (EMA) theory and literature. It is hoped that this paper may provide an agenda for further research toward a practical application of the suggested method in a firm.

A Production Approach to Performance of Banks with Microfinance Operations

2014 ◽  
Vol 6 (2) ◽  
pp. 18-35 ◽  
Author(s):  
Emilyn Cabanda ◽  
Eleanor C. Domingo
Keyword(s):  
Data Envelopment Analysis ◽  
Financial Performance ◽  
Performance Measures ◽  
Negative Relationship ◽  
The Philippines ◽  
Productive Efficiency ◽  
Data Envelopment ◽  
Production Frontier ◽  
Financial Performance Measures ◽  
Production Approach

Banking institutions, nowadays, serve as intermediaries of funds to a variety of clients, including the micro enterprisers. This study analyzes and measures the performance of rural and thrift banks with microfinance operations in the Philippines, using combined measures of data envelopment analysis and traditional financial performance indicators. Data envelopment analysis (DEA) method is employed to measure the productive efficiency of these banks under the production approach. The variable returns to scale is also used, with the assumption that not all banks are operating at optimal scale over the long-run period. DEA findings reveal that sample banks performed below the production frontier. The average technical efficiency score of these banks is 66.09% and additional 33.91% is needed to reach the production frontier. Overall, thrift banks are found to be more productively efficient than rural banks as depository banks. The authors have also found a strong relationship between financial performance measures and bank's productive efficiency. For thrift banks, sustainability, ROE and ROA measures showed a statistically significant positive correlation to the banks' productive efficiency while a negative relationship was observed in rural banks. Lastly, the authors can suggest that both DEA's productive efficiency and financial performance measures are consistently and strongly correlated when evaluating the overall performance of banks with microfinance operations.

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