Firm Performance Improvement Through Employees Performance Evaluation

Due to outbreaks of the COVID-19 pandemic, the survival and continuity of Malaysian SME businesses are seriously affected. According to SME Corporation Malaysia (2019), SME establishments from service sector contribute to 63.3% of SMEs gross domestic product in 2019. Hence, it is of utmost importance that effective management practices are engaged by the businesses to strengthen the capabilities of their employees in response to challenges in the external environment. Despite management accounting literature strongly supporting the positive role of formal employee performance evaluation on firm performance, there are still substantially limited SMEs in Malaysia adopting such a practice. A formal employee performance evaluation system improves firm performance, which in turn allows the businesses to survive and get through the hard times. Thus, this study aims to perform an investigation on how employee performance evaluation as a key management accounting practice relates to SME firm performance. The outcome of the proposed study provides valuable information to policymakers and government agencies on what actions could be taken to motivate SMEs to implement formal management accounting practices. This study contributes further to the employee performance evaluation literature as well as allows SME businesses the insights on utilizing employee performance evaluation for improving their firm performance.