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Considering the shareholder perspective: value-based management systems and stock market performance

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  • Rapp, Marc Steffen
  • Schellong, Daniel A.
  • Schmidt, Maximilian
  • Wolff, Michael
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    Abstract

    We empirically study the use of value-based management systems in listed German firms and examine implications for firms' stock market performance. Using a novel, hand-collected data set covering 1,083 firm years from 2002 to 2008, we find that value-based management systems become increasingly common. Specifically, in 2008 42% of our sample firms have implemented such a system. In the empirical analysis, we find that firms that implement value-based management systems earn statistically significant and economically substantial abnormal stock market returns measured within a two-year adoption phase. These excess returns are not jeopardized by poor post-adoption returns. In the analysis, we carefully control for risk and account for endogeneity concerns. Overall, our findings support the view that shareholders consider the adoption of a value-based management system as a credible signal that management will focus on shareholder interests and that such systems actually increase shareholder value.

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    Paper provided by Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS) in its series CEFS Working Paper Series with number 2010-09.

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    Date of creation: 2010
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    Handle: RePEc:zbw:cefswp:201009
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    Keywords: value-based management; corporate governance; econometric analysis; Germany;

    Find related papers by JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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    1. Harley E. Ryan & Emery A. Trahan, 2007. "Corporate Financial Control Mechanisms and Firm Performance: The Case of Value-Based Management Systems," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1-2), pages 111-138.
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    12. Robert T. Kleiman, 1999. "Some New Evidence On Eva Companies," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(2), pages 80-91.
    13. Marc Goergen & Miguel Manjon & Luc Renneboog, 2008. "Is the German system of corporate governance converging towards the Anglo-American model?," Journal of Management and Governance, Springer, vol. 12(1), pages 37-71, March.
    14. Ittner, Christopher D. & Larcker, David F., 2001. "Assessing empirical research in managerial accounting: a value-based management perspective," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 349-410, December.
    15. Wallace, James S., 1997. "Adopting residual income-based compensation plans: Do you get what you pay for?," Journal of Accounting and Economics, Elsevier, vol. 24(3), pages 275-300, December.
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