Performance measurement and NPOs' effectiveness: does internal stakeholders' trust matter? Evidence from Palestine

Abstract

Purpose: This study proposes a model of the effect of financial and non-financial performance measures on nonprofit organizations’ (NPOs’) effectiveness where internal stakeholders' trust play an intervening role in the aforementioned relationships. Design/methodology/approach: Data were collected from 218 employees working at the largest Palestinian NPOs. The perceptions of these employees were used to measure the variables, and structural equation modeling was used to examine the hypotheses. Findings: Results suggest that the use of financial and non-financial performance measures was positively related to NPOs' effectiveness. Internal stakeholders' trust showed a significant mediating effect between the use of performance measures and NPOs' effectiveness. Practical implications: This study may be of value for NPOs' managers due to the positive effects performance measurement (PM) can have on NPO effectiveness. Managers and boards should seek to enhance their internal stakeholders' trust to achieve higher levels of effectiveness. Originality/value: This study has three main contributions. First, it is one of the very few papers which empirically examines the links between PM and NPOs' effectiveness, rather than providing conceptual lens. Second, the paper investigates the role of stakeholders' trust as a mediating mechanism in the proposed model, a topic that has been neglected by NPOs governance researchers. Finally, the study uses data from the Palestinian context, contributing to the PM literature by providing evidence on the relationship between performance measures and NPOs' effectiveness from a non-Western context.