An Empirical Investigation of the Determinants of Firm Financial Performance

Abstract

In this paper, we examine potential determinants of firm financial performance using data from 177 USA listed companies for three distinct periods; prior to GFC, during the GFC, and post GFC. Based on the literature we have selected a number of possible determinants and have categorized them into four different groups to facilitate the analysis. They are; (i) executive director and CEO remuneration and incentivisation factors, (ii) institutional ownership factors, (iii) board practice and diversity factors, (iv) remuneration committees and remuneration consultants’ factors. The market capitalisation (MCAP) is used as the dependent variable because actual profits and profit forecasts through continuous market disclosure have an immediate influence on share price, which in turn alters the MCAP of the respective company.Based on the results, the study concludes that for all three periods covered executive director and CEO remuneration variables are the most important determinants of financial performance of listed companies.