Someone recently bought our

students are currently browsing our notes.

X

Topic 5 Reading An Exploratory Study Of Relative And Incremental Information Content Of Two Non Notes

Accounting Notes > Management Accounting, Budgets and Behaviour Notes

This is an extract of our Topic 5 Reading An Exploratory Study Of Relative And Incremental Information Content Of Two Non document, which we sell as part of our Management Accounting, Budgets and Behaviour Notes collection written by the top tier of LSE students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Management Accounting, Budgets and Behaviour Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

An exploratory study of relative and incremental information content of two nonfinancial performance measures - Wiersma, 2008

AN EXPLORATORY STUDY OF RELATIVE AND INCREMENTAL INFORMATION CONTENT OF TWO NON-FINANCIAL PERFORMANCE MEASURES - WIERSMA, 2008 INTRODUCTION

*

*

*

*

*

*

*

*

*

*

*

Tests the relative and incremental information content of two nonfinancial performance measures compared to financial performance measures for future financial performance The accounting literature is ambiguous about whether non-financial measures have relative or incremental information content, or both, beyond lagged financial measures for future financial performance Absence frequency and on-time delivery do not have more relative information content than lagged financial measures o But both have incremental information content beyond the lagged financial measures for both future costs and future revenues Kaplan and Norton (1992) argue that contemporaneous non-financial measures are better indicators for future financial performance measures than contemporaneous financial measures o Banker, Potter and Srinivasan (2000):
? "...current non-financial measures are better predictors of longterm financial performance than current financial measures" o Nagar and Rajan (2001):
? "non-financial measures provide a better indication of quality related customer goodwill losses" Non-financial measures, pay more attention to causes rather than effects (Singleton-Green, 1993) o They also have a long-term orientation (Kaplan and Norton, 1992) Non-financial measures contain more information than financial measures (Biddle, Seow and Siegel, 1995) To be useful, non-financial performance measures should have incremental information content (Biddle et al., 1995) o i.e. Provide information beyond the lagged financial measures Information content of performance measures is an important aspect that determines the weight of performance measures in the evaluation and reward system Ittner, Larcker and Randall (2003) find that firms that use a BSC are more satisfied about their performance measurement system, but that their economic performance is not higher than non-users Wiersma's study is on the Dutch Royal mail company Evaluating managers on work satisfaction and quality is congruent with the oft-cited critical components for a successful quality-oriented strategy (Ittner and Larcker, 1995)

INFORMATION CONTENT OF NON-FINANCIAL MEASURES Relative Information Content

*
Relative information content assesses whether one measure contains more information than another o Stronger assumption than incremental information

Buy the full version of these notes or essay plans and more in our Management Accounting, Budgets and Behaviour Notes.