Key performance indicators as supplements to earnings: Incremental informativeness, demand factors, measurement issues, and properties of their forecasts

Givoly, Dan; Li, Yifan; Lourie, Ben; Nekrasov, Alexander

doi:10.1007/s11142-019-09514-y

Cited by 26 publications

(32 citation statements)

References 43 publications

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“…Consequently, they are willing to prefer less credible voluntary disclosure on KPI in an attempt to retain their prevailing position in the company and preserve the advantage to access to the private information about the firm performance. We can also explain our result relying on the recent evidence provided by Givoly et al (2019). These authors demonstrated that the quality of KPI voluntary disclosure has the incremental information beyond earnings and revenues, and this informativeness of a KPI diminishes in the absence of its computational details.…”

Section: Return On Assetssupporting

confidence: 57%

“…Several recent practitioner-based studies such as those of Ernst andYoung (2016) andKPMG International (2015) emphasize the importance of KPI as essential information to support business communication with stakeholders because it allows a better understanding of financial statements and the progress of companies toward achieving their goals. Givoly et al (2019) hypothesized that as the decline in the information content of earnings is the main concern for standard setters, encouraging or mandating the disclosure of supplemental KPI could be a more promising path for improving the reporting of financial performance. They provide interesting evidence on the incremental information content of KPI, beyond earnings and revenues.…”

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confidence: 99%

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Socio-emotional wealth preservation and KPI voluntary disclosure quality

Boujelben

2020

JFRA

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Purpose The purpose of this paper is to examine the effect of the emotional attachment strength of family members to their business on the quality of the voluntary disclosure of their key performance indicator (KPI). More specifically, the authors focused on the effect of two dimensions of the socio-emotional theory, i.e. “family influence and control” and “firm dynasty succession.” Design/methodology/approach The authors performed a content analysis of annual reports for a sample of 87 French families listed in CAC All-Tradable to calculate a disclosure quality index of KPI. The authors proxied the “family influence and control” by the proportion of family members appointed in the board. To identify the “firm dynasty succession” concern, the authors classified firms according to the generation they belonged to. The authors estimated a cross-sectional linear regression model to meet the research objective. Findings This study confirms the role of the family affective attachment in decreasing the quality of KPI disclosure in such a way to preserve its socio-emotional wealth. The family firms’ principals who desire to sustain their control on the firm, to perpetuate the business for future generations and to protect their emotional wealth tend to avoid the disclosure of credible and reliable KPI information. Practical implications The findings have meaningful practical implications. First, they provide relevant insights into the regulatory bodies of the financial reporting regarding the increasing appeal for making KPI disclosure mandatory. Second, as the family businesses are the most widespread proprietorship in the French context, the effect of the family agenda on the quality of the KPI should be of interest to various policymakers and financial statements’ users of such firms. Third, the results inform nonfamily shareholders regarding the importance of selecting representatives on the board that should share similar interest with regard to KPI disclosure. Social implications From a societal perspective, this study is relevant in taking into account the critical role the family businesses have in the French economy. This study should help the minority shareholders to protect their interests and maximize their wealth within the family firm because it sheds light on the influence that family members have on hiding key information on the firm’s real performance. Originality/value To the best of the authors’ knowledge, no prior study in the family firms literature has examined the quality of voluntary disclosure of KPI. Although most previous studies merely compared family and nonfamily firms in terms of voluntary disclosure, the authors acknowledge and address the heterogeneity between family firms. The authors contribute to the few prior empirical validations of SEW implication on voluntary disclosure decisions by testing the effect of an additional dimension, which is family dynasty.

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Section: Return On Assetssupporting

confidence: 57%

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confidence: 99%

Socio-emotional wealth preservation and KPI voluntary disclosure quality

Boujelben

2020

JFRA

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“…KPIs and their use by companies are the topics of accounting research which is undertaken mostly in the context of economic motivations and impact on the corporate performance (Lisi, 2018; Chang et al , 2014), top management’s environmental and social commitment and use of KPI for internal purposes (Lisi, 2018; Arvidsson, 2011; Nielsen et al , 2017), differences in corporate approaches to KPI disclosure (Bradley and Botchway, 2018) and the need for more regulation in this regard (Arvidsson, 2011). Companies disclose industry-specific KPIs to inform the stakeholders about the critical aspects of their performance (Givoly et al , 2019). As regard the influence of stakeholder pressure on the use of KPIs by companies, the literature does not provide much evidence for this and the findings of the studies conducted to date seem to deliver mixed results.…”

Section: Theoretical Underpinning Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…According to the Big 4 publications (PriceWaterhouseCoopers, 2007; Deloitte, 2012; Ernst and Young, 2015; KPMG, 2016) investors find voluntary disclosures of industry-specific KPIs significant for decision-making. Not only investors but also financial analysts increasingly follow and forecast the KPIs used by managers to make informed investment decisions (Givoly et al , 2019; Coram et al , 2011). KPIs which refer to business operations and a concern such issues as products, sales or customer satisfaction, seem to be especially useful as they have an understandable impact on the general corporate performance.…”

Section: Theoretical Underpinning Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Key performance indicators disclosure in the context of the EU directive: when does stakeholder pressure matter?

Krasodomska

Zarzycka

2020

MEDAR

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Purpose The paper aims to explore the effect of stakeholder pressure on the disclosure of key performance indicators (KPIs) and the patterns of this disclosure in large public interest entities (PIEs). Design/methodology/approach The study is based on the content analysis of the disclosures provided by 169 large (PIEs) operating in Poland in 2019. The data was hand-collected from the companies’ non-financial statements. The research hypotheses were empirically tested with the use of linear regression. Findings The explanation for the disclosure of KPIs can be found in stakeholder theory, operationalized by stakeholder pressure linked to industry. In line with the expectations, business-related KPIs are disclosed by companies operating in industries with high pressure from investors, environment-related KPIs are presented by companies operating in environmentally sensitive industries and companies operating in industries with high pressure from employees disclose society-related KPIs. According to the results of the study, reporting on employee-related KPIs is accompanied by environmental and social KPI disclosures. Originality/value The study contributes to the literature on corporate non-financial disclosures as it provides new insights into non-financial KPI disclosures in a new and relatively unexplored institutional setting established by the Directive 2014/95/EU. While researchers recognize the stakeholders’ environmental and social concerns, there is nevertheless a lack of understanding of their implications for KPIs in measuring social practice. The research fills that gap by addressing the specific impact of different stakeholder groups on the disclosure of KPIs.

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“…This will inevitably lead to a decrease in its value and utility. It follows that choosing key performance indicators (KPI) and focusing on them when making management decisions will allow managers to focus on significant indicators that characterize the observed changes in the internal and external environment (Givoly et al, 2019). Non-financial KPI show how effectively the company conducts financial and economic activities, achieves its goals and adheres to the chosen strategy.…”

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confidence: 99%