Considering the Shareholder Perspective: Value–basedManagement Systems and Stock Market Performance

We empirically study the use of value–based management systems in listed German firms and examineimplications for firms’ stock market performance. Using a novel, hand–collected data set covering1,083 firm years from 2002 to 2008, we find that value–based management systems become increasinglycommon. Specifically, in 2008 42% of our sample firms have implemented such a system. Inthe empirical analysis, we find that firms that implement value–based management systems earn statisticallysignificant and economically substantial abnormal stock market returns measured within atwo-year adoption phase. These excess returns are not jeopardized by poor post-adoption returns. Inthe analysis, we carefully control for risk and account for endogeneity concerns. Overall, our findingssupport the view that shareholders consider the adoption of a value–based management system as acredible signal that management will focus on shareholder interests and that such systems actuallyincrease shareholder value.