Empirical Analysis: The Impact of Mission Statements on Financial Performance -Based on World’s Largest 50 Banks
This proposal is for analysing the impact of mission statements on financial performance of bank industry. We propose two hypotheses: mission statement components and firm performance have a significant positive correlation and the number of components of mission statement in bank industry has an inverted U curve relationship with firm performances. We use Bart’s 25-components classification to quantitatively analysis each mission statement and mark components from 0-3. As to another variable, we choose 8 ratios to reflect financial performance and then calculate their mean from 2010 to 2012. We will make a regression between mission statements and financial performance. We hope the results can prove our hypotheses.
Part 1: Background and objectives
Background and relevance of the research topic
A mission statement is a statement of the purpose of a company, organization or person. The content of mission statement always includes aims of the organization, how to create value to stakeholders and a declaration of core purpose. Silkunas and Steven (1995) pointed out that mission statement illustrates the target, prospect, behavior, culture and strategy of the company. Robert A. Goldberg (1998) proposed the mission should be thought of as the what of an organization - its strategic objective, its tactical goals, and its subsequent action to achieve its objective. According to Bart (1997), a mission statement answers three questions for an organization: 1. Key market – who is your target customer? 2. Contribution – what product or service do you provide to that customer? 3. Distinction – what makes the client want to choose your product or service? Ireland and Hirc (1992) thought mission statement is basis of strategic formulation. It describes the unique purpose of the company and reflects the value and provides motivation, direction and image for the organization. A mission statement should be the soul of company and inspiration for all employees.
The effective mission statements have two main functions. Mission statements act as control mechanism and source of motivation. Mission statements are one of the most important communication tools between shareholders and managers. According to agency theory, shareholders always have less information than managers have. Shareholders may bind to the action performed by managers. To better control this situation, the board may propose organizational constraints that prevent some delegations decision rights. It is necessary that these constraints are public known as informal contract and they should be clear and easy to understand. The formulation of a mission statement can be the vehicle for this constraint. So throught the mission, the formulation of future is a way for shareholders to control the behavoir of management and keep the company on track. In addition, the publication and execution of a mission statement contribute to increase the external reputation of the company. Mission statements also provide motivation to the whole organisation. Employees could feel a sense of responsibility when they are fully informed by the value, ambitions and objects of the company. Bartkus, Glassman and McAfee (2000) proposed mission statements encourage employees to place purpose ahead of their own self-interests.
The mission statements are widely used among lots of firms as an effective control tool, but the quality of mission statements varies from firm to firm. How mission statements effect the performance of companies? what is the relation between mission statements and financial performance? What is the most components of an efficient mission statement? These questiones are still under consideration. This topic is worth studying because it helps firms to confirm what...