The term financial performance features in the management of every business irrespective of the industry. According to Stanley (2011), a company’s success is traditionally measured by its financial performance regardless of other factors that are associated with its operations. Jackson and Parsa (2009) noted that the financial performance measurements of a firm relate either to its accounting performance or to its market performance and that both measures are beneficial to managers and researcher alike. Some researchers have used accounting measures to evaluate financial performance (Cucculelli & Micucci, 2008; Short, Ketchen, Palmer, & Hult, 2007). Some others have also used market measures to evaluate financial performance (Luca & Atuahene-Gima, 2007; Luo & Bhattacharya, 2006). Yet, in some other studies, the researchers applied a combination of accounting and market measures in evaluating financial performance (Richard, Divenny, Yip, & Johnson, 2009; Fan, Wong, & Zang, 2007).
In calculating the financial performance of a firm, the metrics that are more commonly used could be classified as accounting-based or marketing-based. Some of the most commonly used metrics are return on equity (ROE), return on assets (ROA), and price/earnings ratio (P/E) (Venanzi, 2010). According to Park and Lee (2009), the ROE is an accounting measure of performance that shows the ratio of the firm’s net income to shareholders’ equity. In their study that investigated the relationship between the promotion, and growth of electronic payment products and services, and bank performance, Hasan, Schmiedel, and Song (2009) used ROE to measure bank performance. In several other studies that examined relationships between variables, ROE has been used as dependent variable (Gil-Estallo, Giner-De-La-Fuente, & Griful-Miquela, 2008; Huang & Liu, 2010; Makni et al., 2009). Denizci and Li (2009) stated that the ROA as an accounting measure shows the profitability of a firm relative to its total assets. Hasan et al. (2009) and Gil-Estallo, Giner-De-La-Fuente, and Griful-Miquela (2008) are examples of correlational studies that used ROA as dependent variable.
Accounting measures are theoretically known to evaluate a firm’s performance from a historical perspective and suffer the inherent weakness of being subject to the competence of a firm’s managerial team and the possible manipulation of accounting procedures (Stanley, 2011). Market-based measures as an alternative in evaluation of performance are less prone to accounting variations. They are futuristic and a reflection of the investor perceptions of the ability of a firm to generate future profits (Bjuggren & Palmberg, 2010; Morgan, Slotegraaf, & Vorhies, 2009).
There is yet another important metric used to calculate a firm’s financial performance called EVA (De Klerk, 2012; Sharma & Kumar, 2010). This metric, which was created to address the quantification of value creation, is also a mixture of both the accounting and market information (Rodriguez et al., 2009; Venanzi, 2010). According to Chari (2009) and Mamun and Mansor (2012), because EVA captures the true economic profit of a company more than any other measure of financial performance, it is superior to all others. Misra and Anil (2007) and Yao et al. (2009) described EVA as the most significant measure of financial performance, whereas Shourvarzi and Sadeddin (2011) used EVA as dependent variable to predict the profitability power of companies and stated that EVA is a critical criterion in making financial decisions. In Berete (2011) and Mittal, Sinha, and Singh (2008), EVA was also used as dependent variable. There is a growing awareness of the measurement of financial performance and its importance in adding value to a firm especially in the face of globalization (Carr & Nanni, 2009; Venanzi, 2010). In view of its superiority to all other measures, EVA was used in this study as the dependent variable.