Financial and Non-Financial Practices Driving Sustainable Firm Performance: Evidence from Banking Sector of Developing Countries

Abstract

Since independence, state-owned enterprises in Pakistan have been struggling for performance enhancement. The goal of sustainable performance is still unachievable. Therefore, the paper evaluates sustainable corporate performance based on financial, social, and environmental performance areas. The organizational restructuring framework for sustainable performance enhancement is developed on software PLS-SEM. The financial and economic performance (FEP) was evaluated through financial reports and surveys; however, social and environmental performances (SEP) were quantified through survey questionnaires for seven performance areas with multiple sub factors, based on Weisbord’s six box model. The study time period in focus is 2011 to 2015. Data was collected from 517 employees of 19 public, private, and privatized banks of Pakistan. The results demonstrate that the total effect of FEP and SEP is much stronger (t-value = 7.619) than the individual direct impact of FEP (t-value = 5.189) on sustainable firm performance (SFP). This is a clear indication of the mediating role of SEP for SFP evaluation. Furthermore, FEP depends on significant indicators include net assets, total deposits, profit before tax, and earnings per share of total deposits with outer loadings, which are given as 0.995, 0.992, 0.978, and 0.954, respectively. Moreover, SEP depends on indicators, i.e., reward policies, redefining organizational purpose, coordination mechanism among employees, and supervisor relationships, with correlations of 0.864, 0.849, 0.805, and 0.761, respectively. The framework will assist in the enhancement of the performance of economically unviable public and loss-making privatized entities.