The Study On The Effectiveness Of Nonfinancial Performance Measures In Enterprise Evaluation System

For enterprises, the eternal truth is to pursue performance. It has been wildly discussed that introducing nonfinancial performance measures (NFM) into performance evaluation system both in the fields of theory and practice. However, because of the difficulty to collect information about NFM, most of the studies about NFM can just reach the level of how to overcome the inadequacies of financial performance measures.This thesis begins with introducing literatures of NFM, which can be divided into two aspects:the relationship between NFM and firms'current accounting performance and the relationship between NFM and firms'future performance. Next, this thesis summarizes the Agency theory and the advantages and disadvantages of NFM. Then concerning the basic principles discussed above, the important considerations in the design of NFM are discussed in the 3rd part. In part 4, this thesis empirically investigates the relationships between firms decisions of using NFM included in compensation contracts or not and firms'current/future performance. The results indicate that the adoption of NFM is positively associated contemporaneous accounting-based performance (ROA), at the level of 1%. And the results also indicate that it is positively associated with firms markt-based performance (Tobin-Q), at the level of 10%.Finally, this thesis advocates that in order to improve the research level about NFM, it could begin from specifying the principle of disclosure about NFM to meet stakeholders' needs. In the mean time, a reasonable performance evaluation system containing both financial and nonfinancial performance measures should be established according to the Contingency Theory in order to evaluate firms'performance accurately. In addition, firms can also consider of improving the compensation of senior executives as well as establish long-term incentive mechanism to avoid short-term behavior.