Measuring What Matters: Assessing How Executives Reference Firm Performance in Corporate Filings

S. Trevis Certo, Chunhu Jeon, Kristen Raney, Wookyung Lee

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)140-166
Number of pages27
JournalOrganizational Research Methods
Volume27
Issue number1
DOIs
StatePublished - Jan 2024

Keywords

  • content analysis
  • exploratory research design
  • measurement design
  • narrative
  • research design

ASJC Scopus subject areas

  • General Decision Sciences
  • Strategy and Management
  • Management of Technology and Innovation

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