The relationship between alternative performance measures and financial performance and the role of information environment quality

This study investigates the impact of alternative performance measures (APMs) on financial performance and examines the moderating role of information environment quality in this relationship. In recent years, APMs—particularly Adjusted EBITDA—have gained increasing prominence in corporate financial reporting and have significantly influenced investor decision-making. Despite their growing use, the literature contains relatively few empirical studies assessing the impact of APMs on financial performance, especially in conjunction with the moderating influence of the information environment. Two dominant theoretical perspectives shape the discourse on APMs: the informative perspective and the opportunistic perspective. The informative view posits that APMs help meet investors' informational needs and reduce information asymmetry. In contrast, the opportunistic view argues that managers may exploit these measures to present a distorted or overly favorable picture of performance. This study engages with both perspectives, offering a nuanced and theory-integrated contribution to the existing literature. The sample comprises firms listed on the BIST100 index between 2015 and 2024 that report under IFRS standards. The dataset is constructed using financial reports and disclosures obtained from the Public Disclosure Platform. Adjusted EBITDA is employed as the alternative performance measure, while return on assets (ROA), market-based firm value (Tobin's Q), and quarterly stock returns (Q1–Q4) serve as the financial performance indicators. To measure information environment quality, a composite index is developed using four commonly cited variables in the literature: trading volume, market capitalization, bid–ask spread, and the number of analysts. This index is derived through principal component analysis (PCA) to capture the multidimensional nature of the information environment. Firms characterized by a high-quality information environment exhibit lower levels of information asymmetry, both in internal governance and external financial communications. Their stocks typically demonstrate higher liquidity and market value, attracting a broader investor base and facing greater transparency expectations. Moreover, narrow bid–ask spreads indicate well-functioning markets with adequate information flow, further supporting the notion of reduced asymmetry. Together, these attributes define an information environment that supports stakeholders in making informed, data-driven decisions. The study tests three main sets of hypotheses: (1) the direct effect of APMs on financial performance; (2) the moderating role of the information environment via interaction terms; and (3) potential nonlinearities captured through quadratic specifications. Panel regression models using fixed effects estimators are employed, and robustness checks are performed using industry-fixed effects and time-segmented models. Empirical findings reveal that Adjusted EBITDA has a statistically significant and positive effect on all performance indicators (ROA, Tobin's Q, and quarterly stock returns), underscoring the informational value of APMs. These results align with the informative perspective, suggesting that APMs serve not only as reporting tools but also as strategic means of conveying underlying performance more transparently. With regard to moderation, the interaction terms between Adjusted EBITDA and the information environment index are statistically significant and positive in the ROA and Tobin's Q models. This indicates that in firms with high information environment quality, the signaling power of Adjusted EBITDA is amplified. In contrast, the moderating effects on stock returns vary by quarter, highlighting the dynamic and context-dependent nature of investor responsiveness to APMs. Findings on nonlinear effects show that the relationship between Adjusted EBITDA and both ROA and stock returns exhibits diminishing marginal returns beyond a certain threshold. This suggests that while APMs initially provide valuable signals—consistent with the informative view—excessive reliance may prompt skepticism among investors, thereby lending partial support to the opportunistic perspective. These outcomes reinforce the importance of modeling nonlinearity to better capture the complexities of market behavior. Overall, the results offer a mixed but insightful picture. The positive linear effects support the informative perspective, while the diminishing marginal effects provide evidence for potential opportunistic use. The moderating role of the information environment indicates that greater transparency and information richness can mitigate the risks associated with APM misuse. This study makes several contributions to the literature. Theoretically, it extends existing research by introducing the interaction between APMs and the information environment, and by accounting for nonlinear dynamics. Practically, it offers relevant implications for corporate managers, investors, analysts, and regulators by underscoring the context-sensitive nature of APM effectiveness. Limitations of the study include its focus on BIST100 firms, the exclusive use of Adjusted EBITDA as the APM, and the limited time frame. Future research could explore cross-country samples, longitudinal effects, or alternative APMs under different reporting regimes. In conclusion, this study demonstrates that the impact of alternative performance measures on financial performance is complex and context-specific. It emphasizes the critical role of the information environment in shaping both the credibility and utility of APMs, contributing to a more nuanced understanding of their function in financial reporting.