Temporal and Contextual Change in the Measurement Structure of Financial Performance: Implications for Strategy Research

This study empirically examines the extent to which the measurement structure of accountingand market-based indicators converge on a financial performance construct by time period and by diversification strategy. In a longitudinal, single-factor model offinancial performance, it wasfound that the relationship of these two types offinancial performance measures changed in periods of stability versus instability andfor related diversifiers versus unrelated diversifiers. It is suggested that meta-analytic studies in strategy research may be able to incorporate situational factors in order to obtain more valid findings. In addition, implications for researchers selecting performance measures for current studies are discussed.

[1]  David A. Aaker,et al.  The Role of Risk in Explaining Differences in Profitability , 1987 .

[2]  R. Layton,et al.  Dimensions of Consumer Information Seeking Behavior , 1981 .

[3]  H. Igor Ansoff,et al.  Implanting Strategic Management , 1984 .

[4]  Richard A. Berk,et al.  Applied Time Series Analysis for the Social Sciences , 1980 .

[5]  D. Lecraw,et al.  Diversification Strategy and Performance , 1984 .

[6]  P. Bentler,et al.  Significance Tests and Goodness of Fit in the Analysis of Covariance Structures , 1980 .

[7]  R. Rumelt,et al.  Diversification strategy and profitability , 1982 .

[8]  Raphael Amit,et al.  Diversification and the Risk-Return Trade-off , 1988 .

[9]  Joan C. Woodward.  Industrial Organization: Theory and Practice , 1966 .

[10]  William E. Fruhan.  Financial Strategy: Studies in the Creation, Transfer, and Destruction of Shareholder Value , 1979 .

[11]  D. R. Dalton,et al.  Organization Structure and Performance: A Critical Review , 1980 .

[12]  William R. Darden,et al.  Causal Models in Marketing , 1980 .

[13]  Howard B. Lee,et al.  Foundations of Behavioral Research , 1973 .

[14]  N. Venkatraman,et al.  Measurement of Business Economic Performance: An Examination of Method Convergence , 1987 .

[15]  Fred Phillips,et al.  Linear Panel Analysis: Models of Quantitative Change. , 1982 .

[16]  P. Whittle,et al.  Latent Variables in Socio‐Economic Models , 1978 .

[17]  James D. Wright,et al.  Handbook of Survey Research. , 1985 .

[18]  R. E. Shrieves,et al.  Towards Reconciliation of Market Performance Measures to Strategic Management Research , 1986 .

[19]  T. Copeland,et al.  Financial Theory and Corporate Policy. , 1980 .

[20]  J. S. Long,et al.  Covariance Structure Models: An Introduction to LISREL , 1983 .

[21]  J. P. Peter.  Reliability: A Review of Psychometric Basics and Recent Marketing Practices , 1979 .

[22]  J. Paul Peter,et al.  Construct Validity: A Review of Basic Issues and Marketing Practices , 1981 .

[23]  V. Mahajan,et al.  Risk/Return Performance of Diversified Firms , 1985 .

[24]  P. Rajan Varadarajan,et al.  Diversification and Measures of Performance: Additional Empirical Evidence , 1987 .

[25]  D. Round,et al.  A Comparison of Diversifying and Nondiversifying Australian Industrial Firms , 1984 .

[26]  Cynthia A. Montgomery,et al.  Corporate economic performance: Diversification strategy versus market structure , 1981 .

[27]  P. Lawrence,et al.  Organization and environment , 1967 .

[28]  Richard M. Steers.  Problems in the Measurement of Organizational Effectiveness , 1975 .

[29]  R. Leon Price,et al.  Linking Theory Construction and Theory Testing: Models with Multiple Indicators of Latent Variables , 1986 .

[30]  John H. Grant,et al.  Construct Measurement in Organizational Strategy Research: A Critique and Proposal , 1986 .

[31]  Henry L. Tosi,et al.  Managerial Control, Performance, and Executive Compensation , 1987 .

[32]  R. Rumelt.  Strategy, structure, and economic performance , 1974 .