Toward a Subjective Measurement Model for Firm Performance

Abstract

Firm performance is a relevant construct in strategic management research and frequently used as a dependentvariable. Despite this relevance, there is hardly a consensus about its definition, dimensionality andmeasurement, what limits advances in research and understanding of the concept. This article proposes and testsa measurement model for firm performance, based on subjective indicators. The model is grounded instakeholder theory and a review of empirical articles. Confirmatory Factor Analyses, using data from 116Brazilian senior managers, were used to test its fit and psychometric properties. The final model had six firstorderdimensions: profitability, growth, customer satisfaction, employee satisfaction, social performance, andenvironmental performance. A second-order financial performance construct, influencing growth andprofitability, correlated with the first-order intercorrelated, non-financial dimensions. Results suggest dimensionscannot be used interchangeably, since they represent different aspects of firm performance, and corroborate theidea that stakeholders have different demands that need to be managed independently. Researchers andpractitioners may use the model to fully treat performance in empirical studies and to understand the impact ofstrategies on multiple performance facets.

Keywords

• firm performance
• confirmatory factor analysis
• measurement model
• subjective indicators.