Within corporate performance the focus has always

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nature. Within corporate performance, the focus has always been on the financial side; hence it is traditionally defined in financial terms (Dess & Robinson, 1984). In addition, investors, shareholders and other stakeholders are interested in to get information about the firms‟ performance conditions frequently. Financial information that includes return on investments (ROI), return on equity (ROE), growth of sales and return on assets (ROA) are the most extensively explicit and valid information among the other performance dimensions. The financial performance traditional measures based on accounting/financial data that includes effect of actions on one year‟s profits, ROI, ROE, and ROA which reflect a firm‟s past performance are commonly used to measure firm‟s financial performance (Bora, and Bulut, 2008). Profitability differs from firm to another depending on firm‟s specific factors like the amount of investment and managers characteristics as well as the industry factors like level of competition and regulation. Profitability is necessary for firm survival in the long run in a competitive environment, but not a precondition for growth since firm‟s
7 management may choose not to grow. Long-term profitability derives from the relations between cost and revenue; it is a necessary but not sufficient condition for growth. Revenues may be held up by entry barriers and costs pushed down by management ingenuity. A low-profit firm will lack the finance for expansion, but a high-profit business may conclude the risk and rewards of expansion are inadequate (Bora, and Bulut, 2008). Dess and Robinson (1984) performed a study that compared subjective measures to objective measures of profitability. They used a three-step approach to test the correlation between objective and subjective measures of return on assets (ROA), sales growth, and overall financial performance. Both objective and subjective measures of the ROA and sales growth were used in addition to two measures of overall financial performance. The measures of overall financial performance were compared to the objective and subjective ROA and sales growth. Dess and Robinson (1984) found that a firm‟s subjective perceptions of how well it had done over a specific time period were in agreement with the objective measures of change in return on assets and sales. They were also in agreement with the firm‟s subjective evaluation of overall financial performance. Finally, it was stated that subjective performance measures were probably the most appropriate for examining relative performance within an industry (Dess & Robinson, 1984). 1.1.3 Effect of Agency Banking on Financial Performance Agency banking is expected to lead to increased financial performance of SMES. This is as a result of increase in financial access to business and consequently leading to increased SMEs firms‟ financial performance due to reduced transaction cost and liquidity advantage. Lack of financial access limits the size of firms, as well as their

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