Considering the Shareholder Perspective: Value-based Management Systems and Stock Market Performance
Review of Managerial Science, Vol. 5, No. 2, pp. 171-194
CEFS Working Paper No. 09-2010
29 Pages Posted: 18 May 2010 Last revised: 24 May 2012
Date Written: May 18, 2010
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.
Keywords: value-based management, corporate governance, econometric analysis, Germany
JEL Classification: G34, G30, G38
Suggested Citation: Suggested Citation