Organisatioal performance measurement as a new corporate ratings approach for publicly traded companies

Abstract

The current system of credit ratings is full of conceptual and administrative flaws with highly rated companies defaulting in the short term. This has led regulators, investors, companies and researchers aiming to improve the system. This thesis details the study of this aim to improve the existing credit ratings system through a conceptual perspective, as well as developing it into a more comprehensive and overarching new corporate ratings methodology. In doing so, organisational performance appeared to be an apparent solution, to be considered as the main basis on which to derive new ratings for a company. However organisational performance has its own conceptual disagreements between managers and researchers concerning the dimensions to be measured for overall organisational performance. Therefore, this study attempted two tasks: to establish a link between ratings and organisational performance, and to identify what should be measured for overall organisational performance. This resulted in the development of new corporate ratings methodology based upon the overall organisational performance measurement in case of publicly traded companies. A mixed methods research strategy combined with a qualitative analyses of 10 selected company cases and 24 interviews; and quantitative analyses of the performance of 128 publicly traded companies from the UK, the USA and the India stock exchanges in 4 manufacturing and 3 service industries was adopted in the development, testing and application of ‘new company ratings’ and ‘overall organisational performance measurement’ propositions. Secondary data was obtained from companies’ annual reports, sustainability reports, social responsibility reports, performance reports available from companies’ official websites; and company profiles generated by trade analyst companies such as Bloomberg and Morningstar. Primary data was collected from company managers, industry experts, trade analysts and investors through telephonic or face-to-face semi-structured interviews. Company reports and interview transcripts were analysed using qualitative content analysis. A metaphor was applied to understand and to derive the concept of overall organisational performance measurement in terms of stability, resilience and sustainability. A secondary data survey of 128 companies was conducted to test three hypotheses of organisational performance (OP) based ratings, stability – resilience – sustainability as main dimensions of OP, and the application of an overall OP score to derive new corporate ratings. Performance data for 54 dimensions for 128 companies was collected and analysed, applying reliability analysis, principal components analysis, multiple discriminant analysis and non-parametric independent sample tests of Mann-Whitney U and Kruksal-Wallis. All hypotheses were accepted proving the concept and model based on statistical and subjective significance. Findings suggest there is a strong link between corporate ratings and organisational performance (OP), and OP measurement could be utilised to provide improved and overarching new corporate ratings as compared to existing credit ratings. A significant difference was found to exist between new corporate ratings and existing credit ratings, with new corporate ratings having a better predictive accuracy of company performance over a three years duration. Sustainability was found to contribute more towards measurement of organisational performance as compared to the traditional dimension of stability, comprising financial and operational performance. Very high reliability and principal component scores for sustainability proved that organisational effectiveness can be measured as one of the contributing dimensions to overall organisational performance. Other findings suggest that there is a clear divide between researchers studying OP as a variable and developing a framework in which to measure it. Overall OP can be measured by applying the conceptual lenses of stability, sustainability and resilience, comprising various sub-dimensions.

Major and novel contributions of this research are: a new approach in providing corporate ratings based upon overall organisational performance, and a new concept of measuring overall organisational performance in terms of stability, resilience and sustainability.