Management or market variables in the assessment of corporate performance? Evidence on a bank-based system

• DOI: https://doi.org/10.1108/IJAIM-12-2021-0251
• Published date: 29 March 2022
• Date: 29 March 2022
• Pages: 372-390
• Author: Maria Elisabete Neves,Elisabete Vieira,Zélia Serrasqueiro

Management or market variables

in the assessment of corporate

performance? Evidence on a

bank-based system

Maria Elisabete Neves

Polytechnic of Coimbra, Coimbra Business School Research CentrejISCAC,

Coimbra, Portugal and Centre for Transdisciplinary Development Studies,

University of Tr

as-os-Montes and Alto Douro, Vila Real, Portugal

Elisabete Vieira

GOVCOPP Unit Research, ISCA-UA, University of Aveiro, Aveiro, Portugal, and

Zélia Serrasqueiro

Departamento de Gestão e Economia –Docente do Departamento de Gestão e

Economia, Universidade of Beira Interior, Covilhã, Portugal

Abstract

Purpose –This paper aims to study the influence of some company-specific characteristics, corporate

governancefactors and macroeconomic factors on the Portuguese companies’performance.

Design/methodology/approach –To achieve this aim, the authors have used data from 39 Euronext

Lisbon companies for the period between 2014 and 2019. The authors used panel data methodology, specifically the

generalized method of moments estimation method by Arellano and Bover(1995) and Blundell and Bond (1998).

Findings –The results point out that the sign and significance of the determinants of corporate

performance change depending on thevariable used to measure performance. The Tobin’s Q variable, as a

market variable and variable of interest to potential investors, is explained by some corporate governance

variables and company-specificfactors. Specifically, potential investors are confidentin the leadership power

of the chief executive office (CEO)and the members of the Board of Directors, which contributes positivelyto

corporate performance. However, the firms’age has a negative impact on Tobin’s Q. Considering an

accounting variable managed internally by the organizations, the results show that return on assets is

negatively influenced by leverage, and positively affected by CEO duality, which the manager believes is

decisivetomaintainperformance levels.

Originality/value –To the best of the authors’knowledge, this study is the first to analyze specific

characteristics of companies and corporate governance factors, in a specific macroeconomic environment of

high dependenceon banking, considering the nonlinear effectof company age on company performance.

Keywords Corporate performance, Euronext Lisbon, GMM system

Paper type Research paper

1. Introduction

According to the traditional literature, there are several ways to measure corporate

performance without knowingin detail which of them is the best for different stakeholders.

This work is supported by national funds, through the Fundação para a Ciência e Tecnologia –

Portuguese Foundation for Science and Technology under the project UIDB/04011/2020.

IJAIM

30,3

372

Received13 December 2021

Revised1 February 2022

Accepted3 March 2022

InternationalJournal of

Accounting& Information

Management

Vol.30 No. 3, 2022

pp. 372-390

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-12-2021-0251

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

Is an investor interested in the same performance factors as a manager? Which variables

best serve the objectives and the interests of the investor as well as of the manager?

Realizing whetherthese differences actually exist is our primary objective.

According to Hunjra et al. (2020), the variables of social responsibility and corporate

governance can play a preponderantrole in thevariation of stock prices (a measure that can

be used as a measure of business performance). Considering the Portuguese market, Vieira

et al. (2019) also show that specificcorporate governance and macroeconomic characteristics

can influence the performanceof companies, concluding that the sign and significance of the

variables can vary dependingonthe dependent variable used.

Given the growing interestin this topic, primarily due to the need of companies to adjust

to new social and environmental impositions,we propose to analyze the impact that certain

factors, specific characteristicsof companies, corporate governance and macroeconomic

factors have on the performance of Portuguese companies. To achieve this aim, we have

used three distinct performance variables, one based on accounting data and the others

based on market data. Our results suggest that return on assets (ROA) is a management

variable par excellence and that its determinants are those to which the manager gives more

importance. Regardingthe two market variables, the results interestingly suggestthat while

the Tobin’s Q can be understood as a variable ofinterest to potential long-term investors,

concerned with the future company’s growth, the stock return is a variable of interest to

investors who are already in the market. Specifically, the results suggest that a potential

investor is confident in the leadership power of the chief executive office (CEO) and the

members of the Board of Directors. Thenonlinear relationship between company age and

growth opportunities (Tobin’s Q) shows that, until reaching cruising speed, potential

investors considerthat age negatively influences the growth opportunities.

The manager, internal to the organization, is much more concerned with the amount of

interests and capital amortization that debt may imply, as this can compromise the

company’sprofitability. In addition, the manager believes in reinforcing the CEO’s

leadership when he/she is also Chairman, and that this will help him to make thebest

decisions to improve performance. On theother hand, the current investor, interested in

stock return as a performance measure, is convinced that this duality only creates

uneasiness in the company becausethe CEO can decide much more in terms of the long-term

as Chairman than intending to improve the company’s value on the market, year by year.

This nature of investors is still concerned with social well-being and believes that more

benefits to employees bringmore motivation and better performance levels.

The main contributions of this work are the following: first, we emphasize that the

performance measurement variablemust be chosen considering the preferences of different

stakeholders; second, we analyze performance in three distinct perspectives; third, we

consider a bank-basedsystem country, which requires research; fourth, it is noted thatROA,

as an accounting and managementvariable, is of fundamental interest to those who manage

the company internally. The fact that ROA seems a better measure of performance can be

associated with the fact that we are considering a country whose capital market is not a

developed one. Finally, the difference between external, current and potential investors is

clearly perceived when using thestock return versus Tobin’s Q variables. In this way, we

believe that this work can be appreciated not only by managers and investors but also by

academics or civil society.

This paper is structured as follows: Section 2 presents the literature review and

formulates the hypotheses to be tested. Section 3 presents the research design, describing

the sample, models and estimation method.InSection 4, the main results are presented and

Management

or market

variables

373