Business Strategy

Relationship Between Mission Statement Components and ROA: A Study of Small-Cap Financial Firms

Article Details

Pub. Date	: Dec' 2023
Product Name	: The IUP Journal of Business Strategy
Product Type	: Article
Product Code	: IJBS011223
Author Name	: Brad Ward
Availability	: YES
Subject/Domain	: Strategic Journals
Download Format	: PDF Format
No. of Pages	: 15

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Abstract

The purpose of this study was to investigate if mission statement comprehensiveness related to mean ROA and ROA growth. Websites from the 108 finance companies listed on the S&P SmallCap 600 were analyzed to determine if they had explicit mission statements, and if so, which of David and David's (2019) nine components were present: customer, products/services, markets, technology, survival, growth, and profitability, philosophy, self-concept, and concern for public image and employees. Few studies have investigated the relationship between mission statement components and economic performance within an industry. Finance company mean ROAs and ROA growth from 2018-2021 were examined based on if each component was present. The results are as follows: firms posting explicit mission statements on their websites had higher ROA means, firms including concern for public image had higher ROA growth, and firms including concern for employees had higher ROA means. However, mission statement comprehensiveness did not relate to firm performance.

Introduction

Mission statements are considered the foundation of business strategy. Textbooks like Strategic Management (David et al., 2019), which is in its 17th edition, begin by stating that mission statements are the basis for crafting goals and formulating strategies. Peter Drucker, one of the most well-known business philosophers of the 20th century, is invoked by both text and journal authors to make a case for the importance of mission statements. For instance, both David and David, and Duygulu et al. (2016) cite Drucker, with the latter quoting: "That business purpose and mission are so rarely given adequate thought is perhaps the most important cause of business frustration and failure." Mission statements are also recommended as a key, foundational step to guide organization-wide practices like Total Quality Management (Yadav, 2015).

There is no clear-cut definition of what a mission statement is or if they predict organizational performance. A simple mission statement definition would be that it defines the purpose of an enterprise, clearly "identifying what it is in business to do" (Robbins et al., 2015). Regarding performance, it is unclear which financial measures should be used, if financial performance is the best way to measure organizational performance, or if a mix of measures, such as internal efficiencies and productivity, employee turnover, etc.