The Impact of Organizational Factors on Financial Performance: Building a Theoretical Model

Abstract

The paper is purposively designed to study the linkages between organizational factors, including liquidity, leverage, asset utilization, market share position and firm size on financial performance in service firms. In assessing the linkages, the study recruits return on assets (ROA) and return on equity (ROE) as dependent variables to assess financial performance derived from the existence of the stated organizational factors. The aspect of financial performance in service firms is an important one as it reflects the effectiveness of the management. Additionally, the growth of productivity in service firms is traditionally low compared to the manufacturing firms; hence, the organization of factors in manufacturing firms has been quite documented in the literature to be linked with financial performance. This provokes the question of whether management practices and organizational factors that have enhanced financial performance in manufacturing firms can also be accounted for the service firms. The financial performance of the company is essential to measure management as the individuals and groups within the organization that contributes towards the financial objectives of the company. The proposed research framework can be of practical value for the firms. Managers can benefit from the outcomes of the paper by having a clear picture of organizational factors and conducting necessary research in order to find out the true nature of these factors.

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