Measuring Firm Performance: Testing a Proposed Model

Herciu, Mihaela; Șerban, Radu Alexandru

doi:10.2478/sbe-2018-0023

Abstract

Firm performance is a very complex and exhaustive concept. It can be related to many factors: starting with variables from balance sheet, income statement or cash-flow statement, continuing with research and development expenses or IT competences, and last but not least with intangible assets like human capital, goodwill, or brand value. The purpose of the present paper is to develop and test a model in order to measure firm performance by considering US companies that are ranked into the Global Fortune 500. In this study we used control variables (assets growth rate, net income growth rate and revenue growth rate) and depended variables – return on assets (ROA), debt to equity, research and development expenses to total operating expenses, environment, social and governance rating, Tobin‘s q – to measure firm performance. The article‘s findings suggest that when analyzing the firm performance much more factors must be considered.

References

Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and firm performance: evidence from the S&P 500. The journal of finance, 58(3), 1301-1328.10.1111/1540-6261.00567
Search in Google Scholar Back to article
Artz, K. W., Norman, P. M., Hatfield, D. E., & Cardinal, L. B. (2010). A longitudinal study of the impact of R&D, patents, and product innovation on firm performance. Journal of product innovation management, 27(5), 725-740.10.1111/j.1540-5885.2010.00747.x
Search in Google Scholar Back to article
Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of corporate finance, 14(3), 257-273.10.1016/j.jcorpfin.2008.03.006
Search in Google Scholar Back to article
Bharadwaj, A. S. (2000). A resource-based perspective on information technology capability and firm performance: an empirical investigation. MIS quarterly, 169-196.10.2307/3250983
Open DOI Search in Google Scholar Back to article
Bharadwaj, A. S., Bharadwaj, S. G., & Konsynski, B. R. (1999). Information technology effects on firm performance as measured by Tobin’s q. Management science, 45(7), 1008-1024.10.1287/mnsc.45.7.1008
Search in Google Scholar Back to article
Crook, T. R., Todd, S. Y., Combs, J. G., Woehr, D. J., & Ketchen Jr, D. J. (2011). Does human capital matter? A meta-analysis of the relationship between human capital and firm performance. Journal of applied psychology, 96(3), 443.10.1037/a0022147
Open DOI Search in Google Scholar Back to article
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), 3970-3983.10.1016/j.eswa.2013.01.012
Search in Google Scholar Back to article
Dess, G. G., & Robinson Jr, R. B. (1984). Measuring organizational performance in the absence of objective measures: the case of the privately-held firm and conglomerate business unit. Strategic management journal, 5(3), 265-273.10.1002/smj.4250050306
Open DOI Search in Google Scholar Back to article
Gu, F., & Lev, B. (2011). Intangible assets: Measurement, drivers, and usefulness. In Managing knowledge assets and business value creation in organizations: Measures and dynamics (pp. 110-124). IGI Global.10.4018/978-1-60960-071-6.ch007
Search in Google Scholar Back to article
Guo, B., Wang, J., & Wei, S. X. (2018). R&D spending, strategic position and firm performance. Frontiers of Business Research in China, 12(1), 14.10.1186/s11782-018-0037-7
Search in Google Scholar Back to article
Hansen, G. S., & Wernerfelt, B. (1989). Determinants of firm performance: The relative importance of economic and organizational factors. Strategic management journal, 10(5), 399-411.10.1002/smj.4250100502
Open DOI Search in Google Scholar Back to article
Klassen, R. D., & McLaughlin, C. P. (1996). The impact of environmental management on firm performance. Management science, 42(8), 1199-1214.10.1287/mnsc.42.8.1199
Search in Google Scholar Back to article
Lang, L. H., & Stulz, R. M. (1994). Tobin’s q, corporate diversification, and firm performance. Journal of political economy, 102(6), 1248-1280.10.1086/261970
Search in Google Scholar Back to article
Richard, P. J., Devinney, T. M., Yip, G. S., & Johnson, G. (2009). Measuring organizational performance: Towards methodological best practice. Journal of management, 35(3), 718-804.10.1177/0149206308330560
Search in Google Scholar Back to article
St-Pierre, J., & Audet, J. (2011). Intangible assets and performance: Analysis on manufacturing SMEs. Journal of Intellectual Capital, 12(2), 202-223.10.1108/14691931111123395
Search in Google Scholar Back to article
Tippins, M. J., & Sohi, R. S. (2003). IT competency and firm performance: is organizational learning a missing link?. Strategic management journal, 24(8), 745-761.10.1002/smj.337
Search in Google Scholar Back to article
Wernerfelt, B., & Montgomery, C. A. (1988). Tobin’s q and the importance of focus in firm performance. The American Economic Review, 246-250.
Search in Google Scholar Back to article
Wu, W., Wu, C., Zhou, C., & Wu, J. (2012). Political connections, tax benefits and firm performance: Evidence from China. Journal of Accounting and Public policy, 31(3), 277-300.10.1016/j.jaccpubpol.2011.10.005
Open DOI Search in Google Scholar Back to article

Measuring Firm Performance: Testing a Proposed Model

Abstract

Paradigm

My account