An empirical study of the influence of business strategy, uncertainty and market position on financial measures using the SEM approach.

Abstract

The performance measurement system (PMS) has been a salient research topic for many prominent researchers in the accounting and management areas. The performance measures in PMS which have mainly concentrated on the financial dimension, are insufficient for today’s competitive business environment to gauge the firm’s success. As a result a firm incorporates non-financial measures to supplement the financial measures. Research work has been widely focused on variables that influence both the financial and non-financial performance measures and provided valuable information for the firm’s strategic direction. Among the variables, the business strategy, environmental uncertainty and market position have some influence on performance measures. This study empirically explores the influence of these three research variables on the financial dimension using the structural equation modelling (SEM) approach. The SEM analysis has revealed that among the three independent variables, only two variables have influence on the dependent financial performance measure dimension. However, on the whole, the standard regression weight of all three latent variables is not very strong, indicating that other elements are influencing the financial dimension. A future study is recommended using a similar approach on other non-financial performance measures to identify the significance.