Analysis of Impact Performance Measurement Tools/Methods in Impacting Investing to Address Agency Theory

Daniel Balla Halalla

Student thesis: Master thesis

Abstract

This study focuses on analyzing the various impact measurement tools/methods used by impact investing companies. As measuring impact investing is a new phenomenon, there is no agreed impact measurement tool used as a standard one. Various bodies such as Global Impact Investing Network (GIIN) and the Social Return on Investment (SROI) network invest their resources in identifying the best measurement tool that can be applied for measuring impact creating values. Most of these bodies are at the enfant stage and do not have a well-established system in place. Because of this, there is a lot of confusion in choosing the right measurement.
The intention of performance measurement tools is to facilitate coordination and motivation. In another words, imperfections should be minimized to increase coordination and motivation so that there is minimum Agency Problem. Thus this paper tries to analyze various performance measurement tools/methods in impacting investing to address the agency problem, i.e. the problem arising between the principal (impact investor) and the agent (the investee) due to coordination and motivation problems.
Various literatures published on impact investing are used to provide a preliminary overview of characteristics of performance measurements. This paper points out that, performance measurement tools are meant to solve any possible dispute between the principal and the agent. But Marshal Meyer (2002) points out that performance measurement proved to be so challenging because of the gap between what we want to measure and what we could measure. The paper also discusses the general attributes of performance measurement from various literatures and what qualities should be met to make a performance measurement tool an effective tool to solve the agency problem.
Based on the description of the problem the questionnaire-sheet is developed and sent out to impact investing companies. After collecting data on various performance measurement tools in impact investing, the thesis focuses on whether those measurement tools fulfil the criteria of an effective measurement tool to address the concern of impact investors (principals) and the investee (the agent).
But in practice, performance measurement tools are found to be imperfect because of Distortion, Risk, Manipulation and Measurement Cost found in them. The more the measurement in impact investing is subject to those measurement imperfections the less likely it solves the Agency Problem. The result of the study shows that the existing impact investment measurement tools need more development and involvement of stakeholders to minimize the measurement imperfections.

EducationsMSc in Economics and Business Administration, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2017
Number of pages97
SupervisorsKai Hockerts