Since the introduction of the balanced scorecard (Kaplan and Norton, 1992), accounting researchers have conducted numerous studies that examine the relationship of non-financial measures with firm performance (see, for example, Ittner and Larcker, 1998; Hoque and James, 2000; Banker et al., 2000; Ittner et al., 2003; Davis and Albright, 2004). Kaplan and Norton (1996) argue these non-financial measures may be better predictors of performance than traditional financial accounting measures.
The assumed relationship between non-financial measures and performance is that non-financial measures drive performance. Employee attitudes often are used as non-financial measures of performance. However, Schneider et al. (2003b) have developed a model that suggests performance (i.e., financial outcomes) drives employee attitude, rather than the reverse. Our research empirically explores this relationship.
BACKGROUND AND MODEL DEVELOPMENT
There are important reasons for studying the links between financial performance and employee attitudes. Research suggests that when customers are more satisfied with a firm, they increase their loyalty which results in reducing price elasticities, lowering market costs, and decreasing transaction costs, thereby improving overall financial performance (Anderson et al., 1994; Fornell, 1992; Reichheld and Sasser, 1990). However, firms must depend upon their employees to improve customer satisfaction. Specifically addressing this issue, the management literature finds a direct link between employee attitudes and customer satisfaction (Schneider and Bowen, 1985; Schneider et al., 1980 1992). When employees are more satisfied with their firms, they provide customers with better interactions, thereby increasing customer satisfaction.
In addition, numerous studies show that employee attitudes also contribute to organizational citizenship behaviors (OCBs) (Bateman and Organ, 1983; George, 1991; Konovsky and Organ, 1996; Moorman, 1991; Smith et al., 1983; Williams and Anderson, 1991). Organizational citizenship behaviors are voluntary employee behaviors that go beyond minimum job requirements, and, in turn, contribute to firm outcomes (Organ, 1988). Thus, evidence exists from a variety of perspectives that understanding employee attitudes and the relationship to a firm's financial performance is an important issue.
Acceptance of organizational goals and a willingness to exert effort on the organization's behalf is a characteristic of strong organizational commitment (Angle and Perry, 1981; Porter et al., 1974; Bridges and Harrison, 2003; Colbert and Kwon, 2000). According to Mathieu and Zajac (1990) and Randall (1990), work outcomes, such as job performance, are linked to organizational commitment. Further, Westerman and Simmons (2007) find that work environment may play a predominant role in employee performance and commitment. Nouri and Parker (1996) argue that while self-interest is a powerfully motivating force in the workplace, individuals with strong organizational affiliations can be motivated by organizational interest (organizational commitment). Difficult goals are more likely to lead to significant performance gains if individuals are committed to achieving them (Webb, 2004). Mathieu and Zajac (1990) found organizational commitment to positively correlate with employee motivation and to correlate negatively with turnover and absenteeism. In addition, they found affective (attitudinal) commitment to have a stronger relationship with work outcomes than continuance or "calculative" commitment. (1)
Despite advances that have been made in understanding the relationship between employee attitudes and financial performance, there are still several shortcomings. Typically, most research, regardless of the field, analyzes secondary data sets where the survey questions were tailored for a particular study. Rarely have any of these studies used existing, validated measures of the attitudinal variables of interest or designed the study to specifically test a model. Moreover, employee job satisfaction is often the only attitudinal variable investigated. There are many other potentially important attitudinal predictors such as pay satisfaction, commitment, or organizational justice perceptions that should have an impact on a firm's performance. By addressing some of these shortcomings, our research further explores the relationship between attitudes and a firm's financial performance.
First, we begin by presenting a theoretical framework for understanding how employee attitudes should be related to financial performance. Second, drawing from the social psychology literature, we present evidence and test our hypothesis that firm performance predicts attitudes. Since our study is longitudinal, we have several data points containing both financial and non-financial measures. We assess several employee attitudes, using existing, validated measures, and offer both research and practical implications for our findings.
While early research suggested that work-related behaviors were reflected in successful organizational outcomes (Argris, 1957; McGregor, 1960), most of this work focused more on individual outcomes rather than organization performance. More recent works (Harter et al., 2002; Ostroff, 1992; Ryan et al., 1996; Schneider et al., 2003b) have demonstrated specific relationships between financial performance and employee attitudes. Thus, research on the relationship between employee attitudes and a firm's financial performance has been investigated on two sides: the strength of that relationship, but more importantly, a search for causality.
The Quest for Causality
Schneider et al. (2003b) originally proposed a model to support attitudes predicting performance; however, they found the opposite with many of their variables. These authors argued that results from the research of Porter and …