Exploring the strategic determinants of financial performance: the case of the greek banking sector

Abstract

It is a well acknowledged fact that different firms operating in similar micro and macro-economic environments experience widely different degrees of success. As such, the main drivers of financial performance and their interrelations have for decades puzzled the minds of academics and practitioners alike. Yet, despite considerable research in the field, there is still a lack of empirical generalizability with regards to the main non-financial determinants of financial performance, and the collective impact that they have on the bottom line, presenting fertile grounds for further empirical investigation. This study utilizes and advances previous research from diverse fields in an attempt to shed some light onto the critical determinants of financial performance, and their multifaceted and non-linear interrelations. In this context, a model has been developed that encompasses several of the most critical customer and internal process antecedents of financial performance and depicts their hypothesized interrelations. This model has been tested by utilizing both survey and objective data, through the use of structural equation modeling and longitudinal analysis techniques, on a sample of 972 customers from 170 branches in two leading Greek banks. The results of the study suggest that: (a) financial performance is significantly affected by critical customer outcome measures such as cross-selling, customer retention and market share, and the impact of these variables on the bottom line can present a lagged effect of one to four quarters; (b) behavioral intentions are composed of two dimensions (patronage and recommended) both of which have a positive relation on the customer outcome measures; (c) the relation between behavioral intentions and actual customer behavior is concave upward shaped for the case of up-selling and cross-selling, thus signifying increasing returns to scale from developing customers’ positive repurchase intentions; (d) service quality can be viewed as a second order construct and has a direct positive impact on both customer satisfaction and perceived value; and (e) customer satisfaction and perceived service value are interrelated and significantly affect behavioral intentions, in addition to fully mediating the impact of service quality on behavioral intentions. Consequently, the present study provides empirical evidence on the significant and lagged relationship of various aspects of financial and non-financial performance.