Economic Consequences of Implementing and Communicating Value Based Management Systems

Forthcoming in Journal of Business Finance and Accounting

58 Pages Posted: 6 Nov 2017

See all articles by Wolfgang Schultze

Wolfgang Schultze

University of Augsburg

Thomas List

University of Augsburg

Bettina Schabert

University of Augsburg

Tami Dinh

University of St. Gallen, Institute of Accounting, Control, Auditing

Date Written: March 30, 2016

Abstract

We study the consequences of implementing and communicating Value Based Management (VBM) systems on information asymmetries and the cost of capital. We analyse the firms’ reporting on internal control systems as the source of information for market participants. In addition, literature posits that improving communications with shareholders by providing additional information on value generation (Value Based Reporting, VBR) is an integral part of implementing VBM. We find that the implementation of VBM and the extent of VBR are, both individually and jointly, significantly related to lower information asymmetries and lower cost of capital. We find a slight moderation of the effect of VBM by VBR. For increasing VBR, we find that information asymmetries and cost of capital decrease more strongly for firms without implemented VBM systems. This indicates that VBR can to some extent substitute VBM. Overall, however, firms using a combination of VBM and VBR attain lower levels of information asymmetry and cost of capital. We provide evidence for the real effects of disclosure, suggesting that disclosures on internal control systems serve as a governance mechanism, reducing information asymmetries and the cost of capital by aligning shareholders’ and managers’ interests.

Keywords: Cost of Capital, Disclosure, Information Asymmetry, Shareholder Value, Value Based Management

JEL Classification: M40, M41, C26

Suggested Citation

Schultze, Wolfgang and List, Thomas and Schabert, Bettina and Dinh, Tami, Economic Consequences of Implementing and Communicating Value Based Management Systems (March 30, 2016). Forthcoming in Journal of Business Finance and Accounting, Available at SSRN: https://ssrn.com/abstract=3065169

Wolfgang Schultze (Contact Author)

University of Augsburg ( email )

Augsburg, 86135
Germany

Thomas List

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

Bettina Schabert

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

Tami Dinh

University of St. Gallen, Institute of Accounting, Control, Auditing ( email )

St. Gallen, 9000
Switzerland

HOME PAGE: http://www.aca.unisg.ch/en

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