THE PERFORMANCE MEASUREMENT AND EVALUATION OF A CORPORATE RETIREMENT PLAN: A CASE STUDY

This paper is based on an actual study of a pooled profit-sharing plan sponsored by a Fortune 50 company from September 1978 to June 1983. The purpose of performance measurement is to identify skill at portfolio management and provide evidence indicating whether performance coincides with the investment skills claimed by the portfolio manager. The approach here is to apply the security market line analysis suggested by Fama. Characteristic lines were determined for the plan portfolio allowing the calculation for alpha, the Jensen differential performance index, beta, and R². Tests are made to determine if the investment manager was able to achieve superior performance by shifting portfolio market sensitivity in anticipation of major market moves (market-timing effect) and/or selecting undervalued securities (security-selection effect).     

TAKEOVERS, MANAGEMENT REPLACEMENT, AND POST-ACQUISITION OPERATING PERFORMANCE: SOME EVIDENCE FROM THE 1980s

In their study of 197 U.S. takeovers from the 1980s, the authors find that the most important determinant of superior post-merger operating performance is whether the target company's management is replaced or retained. When the target CEO is replaced, the post-merger firm's annual cash flow returns outpace industry standards by 2 to 3%. In contrast, when target top management remains after the merger, operating returns do not exceed industry averages.
The effect of management replacement is even more pronounced in those cases where the industry is consolidating. But, for those takeovers that are followed by significant investment (and thus presumably in growth industries), management replacement does not make a significant difference in post-acquisition performance.     

BIASES IN PERFORMANCE MEASUREMENT DURING CONTRIBUTIONS: A NOTE

This note demonstrates that a statistical error (e.g., due to pricing error) made in valuing an investment fund at the time of an intra-period contribution leads to an error in calculating the period's total return, even if the fund was valued correctly at the beginning and end of the period. On average, even if the valuation error is distributed randomly with mean zero, the fund's performance will be biased.     

THE MEASUREMENT OF A FIRM'S COST OF CAPITAL

The relevance of a firm's cost of capital in its investment decisions is widely recognised. The concept and associated issues have been and are likely to be increasingly important in the regulatory activities of government and semi-government bodies, e.g. prices regulation, profit regulation for semi-government enterprises, antitrust and takeover regulation. This paper outlines the principles involved in estimating a firm's before-tax and after-tax cost of capital. The paper also suggests practical approaches that may be taken when difficulties arise in estimating parameters to the problem.     

THE PERFORMANCE OF UK CLOSED-END FUNDS: A COMPARISON OF THE VARIOUS RANKING CRITERIA

This study considers the performance of UK Investment Trusts over the ten-year period 1968 to 1977, using the major criteria suggested in the literature. The results indicate that UK closedend funds were generally inferior (ex post) to the market portfolio (FT Actuaries All-Share Index). These findings were invariant to the particular peiformance methodology selected. When the overall test period was broken up into sub-periods it was also found that the ex post performance findings were not particularly stable or consistent over time. These results highlight the problems a fund investor would face in attempting to predict future fund performance on the basis of historical results.     

REGULATION OF FINANCIAL MARKETS: TOWARD A FOCUSED APPROACH

Regulation of financial markets arose in a simpler time when transactions were carried out face to face on an exchange floor or in a banker's office—when trading was localized and the variety of financial instruments was small. Today the task of regulators is much more difficult. Markets are global, trading takes place in cyberspace, and the variety of financial instruments is limitless.
The initial focus, and still the central concern, of our regulatory system is to ensure full corporate disclosure and transparency of trading markets. But regulation today goes far beyond disclosure requirements. The existing tendency to expand regulation to match the expanding financial markets is likely to be inefficient, unwieldy, and too costly, given the increased complexity and global nature of financial markets. A new approach and a new regulatory mindset are needed—one in which regulators aim to identify and provide only necessary regulation rather than simply continuing to expand regulatory oversight. Such a focused approach to regulation would separate what is regulated from what is not. Those aspects of banking that are essential to the integrity of the payments system would be regulated while other aspects would not. Some securities and derivatives markets would be regulated, while others would not. And market participants would be able to choose which markets to participate in. Given an ever-expanding financial system, such a focused approach to regulation is not only the most cost effective one—it is also likely to prove the only workable alternative to a system that is now under great pressure.     

INSTITUTIONAL RESEARCH ON PERFORMANCE MEASUREMENT AND MANAGEMENT IN THE PUBLIC SECTOR ACCOUNTING LITERATURE: A REVIEW AND ASSESSMENT

This paper reviews the evolution of institutional research on performance measurement and management (PMM) in the public sector accounting literature. An assessment of the progress of this research programme is offered in light of some key developments in the broader neo-institutional sociology (NIS) literature, such as the growing recognition of the role of embedded agency, the need to bridge institutional and rational choice explanations of action and the extension of empirical research across different levels of institutional fields. Some progress has been made in this respect and has contributed to shift the emphasis from a one-sided focus on institutional effects  on  PMM, treating institutional pressures as largely exogenous, to recognize its more intricate roles as an outcome of, as well as a medium for, change. However, further research is required into the micro dynamics involved in transforming and reproducing PMM practices at different levels of analysis and how such practices become infused with meanings conditioned by higher-order institutional logics across various levels of institutional fields. Some research strategies for addressing these issues are outlined.     

A QUANTITATIVE DATA BASE TO EVALUATE THE PERFORMANCE OF THE CORPORATE

Currently, there is not an adequate data base which would cover the performance of the corporate sector at the industry level. The Australian Financial Systems Inquiry has initiated the development of such a data base, which includes both financial and market variables to quantify the performance of the different industry groups for the period of 1963–1978. This data base can assist both the academic researcher and the financial practitioner in their work. The objective of this paper is to describe the content of this data base.     

STRATEGIC PERFORMANCE MEASUREMENT SYSTEMS: TRANSLATING STRATEGY INTO RESULTS

A large and growing number of companies worldwide are adopting strategic performance measurement (SPM) systems to help them execute their business strategies. SPM systems use some combination of financial, strategic, and operating measures to evaluate management's success in improving operating efficiency and adding value for shareholders. In many cases, the SPMs also provide the primary basis for rewarding top management, divisional operating managers, and, increasingly, rank‐and‐file employees. Some SPM systems are based entirely on a financial measure like economic value added (or EVA), which encourages managers to consider the opportunity cost of investor capital in making all operating and investment decisions. Other systems are based heavily on nonfinancial considerations, such as the balanced scorecard's emphasis on customer and employee satisfaction, operational excellence, and new product introduction. In this article, the author uses the findings of his recent survey of 113 North American and European companies to shed light on a number of questions: What are the most popular measures in such systems—are they primarily financial, nonfinancial, or amix of the two? To what extent is incentive compensation tied to such measures—and how far down in the organization are such measures (and incentives) extended? What are the most formidable challenges to implementing SPM systems in large corporations, with often diverse collections of businesses and tens if not hundreds of thousands of employees? Among the article's most notable conclusions, a majority of companies expect in the next three years to publish SPM targets and results in their annual reports. The most commonly cited financial SPMs will be cash flow, return on capital employed, and other variations of EVA. The most frequently cited nonfinancial SPMs are customer satisfaction, market share, and new product development. The greatest challenge in implementing SPMs is translating the vision and strategic objectives at the corporate level into performance measures that are relevant to activities at the business unit level, and securing buy‐in from business unit managers and employees.     

NEW PUBLIC MANAGEMENT: PERSPECTIVES ON PERFORMANCE AND THE USE OF PERFORMANCE INFORMATION

Performance information is a key‐element of NPM, but politicians and managers rarely use this information. On the basis of three case studies, this paper seeks to explain the use of the newly developed performance information. The paper argues that there is a distinction between the customer perspective and the citizen perspective on performance. NPM implies a customer and an internal perspective on performance. These perspectives may be relevant to managers, but politicians are primarily interested in a citizen perspective and a financial perspective. Two situations are identified in which governmental organizations more actively use performance information with a customer perspective and an internal perspective (as implied in NPM): (1) a crisis in the organization's internal processes with political and/or financial consequences and (2) loose coupling of the performance reports to politicians and to managers, which stimulates the information use by both politicians and managers.     

ON THE MEASUREMENT OF AUDITING STANDARDS

This study analyzes whether it is appropriate to use the percentage of qualified opinions issued by an auditor as a measure of his auditing standards, as is often done. It points out that incentives exist for auditors to specialize by auditing standards, and for clients to self-select on this dimension. As a result, even if auditing standards affect the propensity to issue qualified opinions, the observed percentages of qualified opinions will not necessarily reflect differences in auditing standards. This proposition is supported empirically with US data. A sample of auditors was split between a "higher standard" and a "lower standard" category based on the percentage of qualified opinions issued. After controlling for client firm size, leverage, systematic risk and "unexpected" earnings, auditing standard category is found to have no significant relation with firm-specific stock returns.