CEO's use of financial and non-financial performance measures: Manufacturing companies in Mauritius and Australia compared

Abstract

It is contended in a body of management accounting literature that financial performance measures are being rendered less relevant than non-financial measures in the management of companies. Such a management trend towards non-financial performance measures is particularly applicable to manufacturing companies due to the prevalence of technological change and customer-focused strategies. This crosscountry empirical study ranks and categorizes financial and non-financial measures used by CEOs of manufacturing companies in a developed country, Australia, and a developing country, Mauritius. It also gives evidence of contingency and agency factors influencing the relative reliance of CEOs on such measurement categories. The analysis is confined to 24 quantitative measures (12 financial and 12 non- financial). Contingency and agency theories are invoked to consider the impact of production technology, perceived environmental uncertainty and information asymmetry on the CEOs' extent of use of financial and non-financial performance measures. Through data from a questionnaire survey of CEOs, drawn from Australian and Mauritian manufacturing companies, results reveal considerable differences between the countries in CEO's reliance on financial versus non- financial measures. Taking the combine countries' sample, factor analysis of CEO's usage patterns results in five categories of measures. Hypotheses about the impact of contingency and agency factors on these measurement categories are tested. These tests indicate that the extent of use of performance measurement categories by CEOs is driven to some extent by environmental uncertainty and technological change, but not by internal information asymmetry.

KEY WORDS:

• performance measures
• non-financial measures
• technological change
• environmental uncertainty
• information asymmetry
• manufacturing industry