Assessing Foreign Subsidiary Performance: The Currency Choice of U.K. MNCs
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Abstract.This paperexaminesthe extentof foreigncurrencyand/ or parentcompanycurrencyfinancialmeasuresusedby 105U.K.based MNCs in the process of evaluating foreign subsidiary operationsand their managers'performance. The results of the empiricalstudy indicate a preferencetowards theuse of localcurrencymeasuresandtheextentof thispreference tends to be greaterthan those found in recent similar studies of U.S.-basedMNCs. inbothdomesticandmultinational Performance evaluation corporations (MNCs) is animportant taskbecausemanyresourceallocationdecisionsandmanagerial evaluationsmaybe influencedby thisprocess.(See, for example,Hopwood [1972]; Scott [1973]; Persenand Lessig [1979]; Shapiro[1982]; Choi and andOtley[1985].)Inadequate Mueller[1984];Emmanuel evaluation performance systems could constrain efficient resource acquisition and utilization. it couldleadto stresseson managersbecauseof poorperformance Furthermore, measurement whichagaincouldleadto suboptimal resourceallocationdecisions. theperformance Mostof theissuessurrounding evaluationin purelydomestic firmsare also applicableto MNCs.However,the measurementproblemof performancein MNCsis complicatedfurtherby changesin exchangerates. headofficemanagersarefacedwiththequestionof whethersterling Corporate or foreigncurrencyaccountingdata shouldbe used in evaluatingforeign andtheirmanagers'performance. In addition,thequestion subsidiary operations of who shouldbe heldresponsiblefortheeffectsof exchangeratefluctuations mustbe addressedbecausetheinclusionorexclusionof foreigncurrencygains orlossesin performance measurescouldsignificantlyinfluencetheevaluation process.(See for exampleDemirag[1987and1987a].) The purposeof thispaperis to documentthe internalperformance measures currentlyused by U.K.-basedMNCs and to examinethe extentto which *IstemiS DemiragBSc, MSc, PhDis a lecturerin the Schoolof Managementand EconomicStudiesat SheffieldUniversity,U.K. He haspreviouslytaughtaccounting and financeat TrentPolytechnic;The UniversityCollege of Wales, Aberytwyth; BrightonPolytechnicandGlasgowUniversity.His currentresearchinterestis in the areaof international financialmanagement andreporting. Theauthorwishesto acknowledge helpfulsuggestions fromProfessor SidneyJ. Grayof GlasgowUniversity, U.K. Thecommentsof threeanonymousreviewersarealsogratefullyacknowledged. Received:July1986;Revised:May1987;Accepted:August1987.
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JOURNALOF INTERNATIONALBUSINESS STUDIES, SUMMER 1988
is significantin theevaluationof foreigncurrencyand/orsterlinginformation foreignsubsidiaryoperationsandtheirmanagers'performance.In addition, thereasonsgivenby thesamplecompaniesforusingforeigncurrencyand/or sterlingfinancialinformationin performancemeasuresare identifiedand discussed. methods translation Thepaperhasfivesections.A discussionof foreigncurrency measuresis in thefirstsection.Thenexttwo andtheirimpacton performance sectionscontainthe r
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