Empirical Evidence on Process Design and Determinants - Preparation Process of Nonfinancial KPIs for Management Reports

Nienaber M

Abstract
Numerous developments in corporate reporting have contributed to a growing relevance of nonfinancial KPIs (nfKPIs) in recent years. In spite of this growing relevance, preparers of management reports are often challenged with identifying, measuring and adequately reporting the most important nfKPIs. Moreover, various researchers have called for research on the specific challenges of nfKPI reporting. This study sheds light on this "black box" by empirically analyzing the design of the preparation process of nfKPIs for management reports as well as potential influencing factors on this design. Overall, the analysis revealsthat the preparation processes of different companies comprise similar process steps and participant roles. However, the design of these phases and roles show substantial differences between firms, which can be explained by an integrated theoretical model and various influencing factors such as firm size or capital market listing. The empirical analysis is based on interviews with process participants from various departments and hierarchical levels of three publicly-traded and four privately-held companies. In a first step, the preparation processes of these firms are described to identify particularities of the individual processes. In a second step, these analyses are compared to each other to determine the process design and influencing factors. Regarding the process design, the study finds, for example, that firms integrate internal and external stakeholders in their materiality analyses to varying degrees. Preparation processes tend to take place before the preparation of financial statements to relieve the latter. Depending on the firm, a large number of participants and sources of information can be included in the composition and review of nfKPI reporting. The roles of the process participants largely resembles the suggestions of the promotor model, which supports the efficient implementation of the preparation processes. However, individual promotor roles are rarely taken on by a single participant. Rather, individual roles are either carried out by multiple persons, or individual persons are responsible for more than one role. Finally, the factors influencing the process design are analyzed on the basis of multiple organizational theories. The results indicate that particularly the size of the firm and its listing status - as well as other factors such as regulatory requirements - can influence the preparation processes. An integrated theoretical framework supports the analysis and interpretation of how companies adjust their preparation processes to internal and external factors. The study discussesnumerous implications forpreparers, auditors, stakeholders and researchers.