Journal
ORGANIZATIONAL RESEARCH METHODS
Volume -, Issue -, Pages -Publisher
SAGE PUBLICATIONS INC
DOI: 10.1177/10944281221125160
Keywords
exploratory research design; narrative; content analysis; measurement design; research design
Categories
Ask authors/readers for more resources
Executives predominantly rely on monetary measures rather than scaled unitless performance measures in their decision-making. Even in observations with the highest levels of ROA and ROE, monetary measures are more likely to be included than ratios.
We know very little about the performance measures executives use to make decisions. To fill this void, we investigate the performance variables that executives reference in corporate filings with the SEC. Our analyses suggest that executives refer to monetary variables (i.e., revenue, profit, and cash flow) in over 98% of filings. In contrast, executives refer to the unitless performance measures scaled by size (i.e., return on assets, return on equity), which are favored by organizational scholars, in less than 15% of filings. We find that this preference for unscaled measures remains across market capitalization and actual firm performance. In other words, even observations with the highest levels of ROA and ROE are more likely to include monetary measures as opposed to ratios. In fact, we find that almost every observation that references ratios also includes monetary measures of firm performance. Stated differently, our findings suggest executives use ratios in addition to-and not instead of-monetary measures. We discuss research opportunities for scholars to further align with the practitioner perspective and to revisit conceptualizations of firm performance.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available