The Moderating Role of Competition in the Relationship Between Nonfinancial Measures and Future Financial Performance

Research Article Report- The Moderating Role of Competition in the Relationship between Nonfinancial Measures and Future Financial Performance

Precilla Cheung

20304391

May 21, 13

ACC 685- Section 1

1. In the past, most studies that have examined the relationship between nonfinancial measures and financial performance have shown mixed results, which suggest that these relationships may be contextual. Therefore, it is important to understand the factors that moderate these relationships before using them in managerial decision making and incorporating them in management control systems. This particular study aims to better understand the moderating factors by looking specifically at the factor of competition and assess whether, and under what competitive conditions, the reporting of nonfinancial measures likely to be useful to managers of a retail chain.

2. We expect a positive association between customer satisfaction and financial performance because higher customer satisfaction implies lower marketing costs, less price elasticity, and higher customer loyalty, which in turn lead to improvements in financial performance. As well, past studies have found that customer satisfaction generally has a positive impact on sales revenue, market share, and customers’ intention to purchase behaviour. Since measures of customer satisfaction are found to be significant predictors of future profitability, the authors expect a positive association between customer satisfaction and financial performance.

3. We expect a positive association between employee satisfaction and financial performance because organizational effectiveness depends on the social structure of the organization, which can be measured by employee satisfaction and productivity of workers. Satisfied employees work harder and better than frustrated ones, resulting in greater organizational effectiveness, which leads to better financial performance. Employee satisfaction also affects financial...